Fiscal Year 2016 Review of Operations
Transitional Long-term Benefit Association Reserve Fund

全国市町村職員共済組合連合会
National Federation of Mutual Aid Associations for Municipal Personnel

Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Table of Contents
・Fiscal Year 2016 Investment Results (Overview)・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 3
Section 1 Administration and Investment of Funds in FY2016
・Fiscal Year 2016 Market Environment・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 5
・Fiscal Year 2016 Asset Mix ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 8
・Fiscal Year 2016 Investment Return・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 9
・Fiscal Year 2016 Excess Return ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 10
・Fiscal Year 2016 Contribution Analysis of Excess Return・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 11
・Fiscal Year 2016 Investment Income ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 12
・Fiscal Year 2016 Value of Assets ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 13
・Fiscal Year 2016 Status of Risk Management (Overall Assets)・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 14
・Fiscal Year 2016 Fees・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 15
Section 2 Systems and Activities Concerning Administration and Investment of Funds
・Basic Approach to Investment ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 17
・Benchmark Portfolio・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 18
・Stewardship Activities ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 19
・Review of Manager Structure・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 24
・Administration and Evaluation of Entrusted Investment Management Institutions, etc.・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 25
・Governance・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 26
・Other systems ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 31
Section 3 Reference Data
・Changes in the investment return, etc. (since the integration of employee pension plans)・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 33
・Changes in the value of investment assets and the asset mix (since the integration of employee pension plans)・・・・・・・・・・・・・・・・ P 34
・Change in number of passive/active funds by assets (entrusted) (since the integration of employee pension plans)・・・・・・・・・・・・・ P 35
・Change in fees (since the integration of employee pension plans)・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 36
・Issues held (as of the end of Fiscal Year 2016)・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 37

2

Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fiscal Year 2016 Investment Results (Overview)

Investment return(FY2016)+4.90% *Modified total return (market value basis)+2.59% *Realized return (book value basis)

Investment income+JPY279.5 billion *Investment income(market value basis)(FY2016)+JPY130.5 billion *Realized income(book value basis)

Value of investment assets: JPY5,794.1 billion(End of FY2016)* As pension funds are intended for long-term investment, the investment status must be judged from the long-term perspective.
As investment income is based on the market value as of the end of each term, it should be kept in mind that it includes valuation
gains/losses, which means it may change depending on market movements.
(Note 1) The return and income represent figures after the deduction of fees, etc. settled within the relevant period.
(Note 2) Realized income represents the sum of trading profits/losses and interest and dividend income, etc.

3Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Section 1 Administration and Investment of Funds in FY2016

4

Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fiscal Year 2016 Market Environment ①
1. Change in benchmark return

March 31, 2016＝100

120
115
110

Returns

Domestic bonds (BPI Overall)Domestic bonds (BPI Ladder (20-year))Domestic equities
Foreign bonds
Foreign equities

Asset class

Domestic
NOMURA-BPI Overallbonds
Domestic
TOPIX (with dividends)
equities
Citi World Government Bond Index
Foreign(excluding Japan; without hedging,bonds
yen-based)
Foreign MSCI ACWI ex. JAPAN (yen-based,
equities with dividends)
Total

105
100
95
90
85
March 31, 2016

June 30, 2016

September 30, 2016

BenchmarkDecember 31, 2016

March 31, 2017

2. Major developments in market (April 2016 - March 2017)【Domestic bond market】

Full fiscal
year

Q1

Q2

Q3

Q4

2.47%

-1.75%-1.47%-0.35%-1.15%-7.39%

7.13%

14.95%

0.57%

14.69%-8.14%-0.62%

7.55%-3.66%-5.41%-7.63%

3.79%

16.82%

2.46%

14.77%-4.09%

2.01%

8.40%

0.08%

6.14%

* The total returns are the benchmark returns when all of the asset mixes are
center values of benchmark portfolios.
(Reference)
Domestic
NOMURA BPI Ladder (20-year)
bonds

2.38%

-1.65%-1.45%-0.26%-1.03%The yield on the 10-year government bond stayed negative because of the effects of the Quantitative and Qualitative Monetary Easing with a Negative Interest
Rate which was adopted by the Bank of Japan (BOJ) in January 2016. It further declined due to the growing risk aversion among investors on concerns over the
Brexit decision in June and growing expectations for additional monetary easing by the BOJ (the bond price increased). However, following the BOJ's additionalmonetary easing decided in late July which fell below market expectations, it turned upward (the bond price declined), and further rose from the negative range tothe positive range (the bond price declined) associated with the rise in the long-term interest rate of the U.S. after the U.S. presidential election in November.
【Domestic equity market】 Domestic equity prices declined sharply due to such factors as the appreciation of the yen following the Brexit decision in June; however, it then turned upward
due to expectations on economic policy. Although domestic equity prices steeply rose due to the sharp rise in the equity prices in the U.S. because of expectations
on policies of the new administration after the U.S. presidential election in November and depreciation of the yen, the higher quotation was curbed due to theappreciation of the yen from the beginning of the year.
【Foreign bond market】
The yield on the 10-year government bond declined (the bond price increased) due to the growing risk aversion among investors on the concerns over the Brexit
decision in June; however, it then rose (the bond price declined) following the declined risk aversion due to strong economic indicators and a rise in equity prices
in the U.S. Following the U.S. presidential election in November, it rose due to the expectation over the new administration and the increase in the policy interest
rate (the bond price declined), but it continued going up and down due to such factors as anxiety over the French presidential election from the beginning of theyear.
【Foreign equity market】
Equity prices steeply declined following the Brexit decision in June. Thereafter, it mostly stayed upward because of a prospect of limited effect of Brexit andstrong economic indicators in the U.S. The equity prices saw rises in all parts of the world due to the sharp rise in the U.S. equity prices from the expectations on
policies of the new administration after the U.S. presidential election in November, and stayed strong thereafter.
【Foreign exchange market】 The yen appreciated steeply following the Brexit decision in June. Thereafter, amid the upward trend in equity prices in all parts of the world, risk aversion
declined and the yen turned to depreciation. After the U.S. presidential election in November, the yen depreciated due to the expectations on policies of the newadministration and an increase in the policy interest rate; however, from the beginning of the year, the yen appreciated due to the growing risk aversion from theBrexit notice of the U.K. and anxiety over the prospects of the U.S. government administration.

5

Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fiscal Year 2016 Market Environment ②(Source: bloomberg)

Changes in Yields of 10-year Government Bonds (Japan, US, Germany)
End of Mar. 2016 -0.05 → End of Mar. 2017 0.07

End of Mar. 2016 1.77 → End of Mar. 2017 2.39

End of Mar. 2016 0.15 → End of Mar. 2017 0.33

10-year JGB

10-year U.S. Treasury Bond(%)

10-year German Government Bond (%)

(%)
0.2
0.1

0.0

2.7

0.5

2.5

0.4

2.3

0.3
0.2

2.1

0.1

-0.1
1.9
-0.2

March 31, 2016

June 30, 2016

September 30, 2016 December 31, 2016

-0.3

1.5

-0.4

1.3

March 31, 2017

March 31, 2016

June 30, 2016

September 30, 2016 December 31, 2016

March 31, 2017

Changes in Exchange Rates (Dollar and Euro)End of Mar. 2016 112.4 → End of Mar. 2017 111.4

March 31, 2016

June 30, 2016

September 30, 2016

End of Mar. 2016 128.1 → End of Mar. 2017 119.2

Euro/Yen(in Yen)
120
118
116
114
112
110
108
106
104
102
100
98

Dollar/Yen

December 31, 2016

March 31, 2017

0.0

1.7

(in Yen)
130
128
126
124
122
120
118
116
114
112
110

March 31, 2016

June 30, 2016

September 30, 2016 December 31, 2016

6

March 31, 2017

-0.1
-0.2
-0.3
March 31, 2016

June 30, 2016

September 30, 2016 December 31, 2016

March 31, 2017

Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fiscal Year 2016 Market Environment ③
Changes in Market Indices of Domestic Equities

Changes in Market Indices of Foreign Equities

End of Mar. 2016 1,347 → End of Mar. 2017 1,513

End of Mar. 2016 17,685 → End of Mar. 2017 20,663

TOPIX

NY Dow-Jones(Point)End of Mar. 2016 9,966 → End of Mar. 2017 12,313(in Dollar)

1,600

German DAX

21,50012,50021,0001,500(Point)12,00020,50011,50020,000

1,400

1,300

19,50011,00019,00010,50018,50010,00018,000

1,200

9,500
17,50017,0001,100March 31, 2016

June 30, 2016

September 30, 2016 December 31, 2016

March 31, 2017

End of Mar. 2016 16,759 → End of Mar. 2017 18,909

Nikkei Stock Average

March 31, 2016

June 30, 2016

September 30, 2016 December 31, 2016

March 31, 2017

End of Mar. 2016 4,870 → End of Mar. 2017 5,912(in Yen)

NASDAQ Composite Index

20,0009,000
March 31, 2016

June 30, 2016

September 30, 2016 December 31, 2016 March 31, 2017

End of Mar. 2016 6,175 → End of Mar. 2017 7,323(Point)FTSE100

6,300

7,800

6,100

19,000(Point)

7,500

5,900
7,200

18,0005,700
17,00016,000

5,500

6,900

5,300

6,600

5,100

6,300

4,900

15,000

6,000

4,700
March 31, 2016

June 30, 2016

14,000
September 30, 2016 December 31, 2016 March 31, 2017

4,500
March 31, 2016

June 30, 2016

September 30, 2016 December 31, 2016

7

March 31, 2017

5,700
March 31, 2016

June 30, 2016

September 30, 2016 December 31, 2016

March 31, 2017

Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fiscal Year 2016 Asset Mix
The composition by asset is as follows:(Unit: %)FY2015FY2016End of FY

End of Q1

End of Q2

End of Q3

End of FY

Domestic bonds

48.3

50.1

48.4

45.3

44.6

Domestic equities

19.7

19.4

21.4

23.6

23.8

Foreign bonds

10.3

9.9

9.8

10.3

10.6

Foreign equities

16.9

16.4

17.2

19.3

19.8

Short-term assets

4.7

4.2

3.3

1.5

1.1

Total

100.0

100.0

100.0

100.0

100.0

Composition by Asset Class(as of end of FY2016)
Short-term
assets1.1%Foreignequities
19.8%
Foreign
bonds
10.6%

Domestic
bonds
44.6%

Domestic
equities
23.8%(Note 1) Concerning the benchmark portfolio, the share in the mix is 35% for domestic bonds (±15%), 25% for domestic equities (±14%),15% for foreign bonds (±6%) and 25% for foreign equities (±12%) (the figures in the parentheses represent deviation tolerances).
(Note 2) Due to rounding, the total sum of individual figures may not necessarily add up to 100%.
(Note 3) Starting in fiscal year 2016, short-term assets held by each fund were classified into relevant asset classes in principle.

8

Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fiscal Year 2016 Investment Return
The modified total return for FY2016 was +4.90% for the overall assets.
Changes in modified total return(Unit: %)Q1

Q2

FY2016Q3Q4FY total

Modified total
return

-2.72

1.34

6.29

0.21

4.90

Domestic bonds

1.91

-1.23

-1.07

-0.17

-0.52

Domestic equities

-7.13

7.05

14.57

0.75

14.94

Foreign bonds

-8.15

-0.57

7.68

-3.54

-5.19

Foreign equities

-7.87

3.71

16.68

2.47

14.34

Short-term assets

0.00

0.00

0.00

0.00

0.01
(Unit: %)Realized return

Q1

Q2

FY2016
Q3

0.59

0.45

0.80

Q4

FY total

0.76

2.59

7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
-1.00%-2.00%-3.00%-4.00%

6.29%
4.90%
4.67%
1.34%
0.21%
Q1

Q2

Q3

Q4

-1.43%

Each quarter
Aggregate-2.72%

Modified total return (by asset class)16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
-2.00%-4.00%-6.00%-8.00%

14.94%

14.34%

4.90%
0.01%
Domestic Domestic
bonds
equities-0.52%

Foreignbonds-5.19%

Foreignequities

Short-term
asset

Overallassets*The return in the FY total (the period rate)(Note 1) The return in each quarter is the period rate.
(Note 2) The modified total return and realized return represent figures after the deduction of fees, etc. settled within the relevant period.
9Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fiscal Year 2016 Excess Return【Overall assets】

The modified total return was +4.90%, while the excess return was -1.24%.
For the asset allocation of reserves, share of investment of domestic bonds whose benchmark return was relatively low exceeded the benchmark
portfolio, whereas the share of investment of domestic and foreign equities whose benchmark returns were relatively high was lower than thebenchmark portfolio. As a result, the excess return turned out to be negative.

【Domestic bonds】

The modified total return of domestic bonds was -0.52%, which exceeds the benchmark return (-1.15%) by 0.64%.
The portfolio was overweight in local government bonds and corporate bonds whose returns were relatively higher than the benchmark. Owning tosuch investment, the excess return turned out to be positive.

【Domestic equities】 The modified total return of domestic equities was +14.94%, which exceeds the benchmark return (+14.69%) by 0.25%.
Owning to good selection of the issues of active fund and the entire active fund exceeding the benchmark, the excess return turned out to be positive.
【Foreign bonds】

The modified total return of foreign bonds was -5.19%, which exceeds the benchmark return (-5.41%) by 0.22%.
Owning to good selection of the issues of active fund and the entire active fund exceeding the benchmark, the excess return turned out to be positive.

【Foreign equities】

The modified total return of foreign equities was +14.34%, which was below the benchmark return (+14.77%) by 0.42%.
In addition to the negative impact of dividend taxation factors on passive funds and active funds falling below the benchmark due to the poor selectionof the issues, the excess return turned out to be negative.

FY2016 (April 2016 through March 2017)
OverallassetsDomesticbonds

Domestic
equities

Foreignbonds

Foreignequities

4.90

-0.52

14.94

-5.19

14.34

1.00%
0.64%
0.50%

Modified total
returnBenchmark return

Excess Returns (by Asset Class)(Unit: %)0.22%

Domestic
equities

Foreign
bonds

0.00%

*

6.14

-1.15

14.69

-5.41

14.77
-0.50%

Excess return

0.25%

-1.24

0.64

0.25

0.22

-0.42

* The benchmark return for overall assets (hereinafter the "composite benchmark return")
is calculated by weight-averaging the benchmark returns for individual asset classes
based on the shares in the asset mix of the benchmark portfolio.

10Overall assets Domestic
bonds-1.00%-1.50%-1.24%

Foreignequities-0.42%

Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fiscal Year 2016 Contribution Analysis of Excess Return○ Contribution analysis of deviation from composite benchmark return
The National Federation of Mutual Aid Associations for Municipal Personnel (hereinafter the "Federation") uses the following two
factors so as to understand the factors giving rise to the difference between the return of funds and the composite benchmark return.
(a) Asset allocation factor: A factor that is attributable to the difference in terms of the asset mix between the benchmark portfolio,
which is the standard for the calculation of the composite benchmark, and the actual portfolio.
(b) Individual asset factor: A factor that is attributable to the difference between the actual and benchmark returns concerning each
asset class.

Domestic bonds
Domestic equities
Foreign bonds
Foreign equities
Short-term assets

Total

Asset allocation
factor①-0.89%-0.33%
0.50%-0.61%-0.17%-1.50%

Individual asset
factor
②
0.26%
0.06%
0.03%
-0.09%
0.00%
0.26%

Benchmark return by
Composite
asset
benchmark return①＋②-0.63%-0.27%
0.53%-0.70%-0.17%-1.24%

Domestic bonds-1.15%

Domestic equities

14.69%

Foreign bonds-5.41%

Foreign equities

14.77%

Short-term assets-0.04%

6.14%

The return for overall investment assets was +4.90%, while the composite benchmark return was +6.14% and the excess return was-1.24%.
For the asset allocation factors, domestic bonds whose benchmark return was lower than the composite benchmark return were
overweight against the benchmark portfolio on average, and domestic and foreign equities whose benchmark returns were higher thanthe composite benchmark return were underweight against the benchmark portfolio on average. These factors contributed to the negative
excess return.
The individual asset factor contributed positively due to the excess return of domestic bonds exceeding the benchmark return.

11

Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fiscal Year 2016 Investment Income
The investment income for FY2016 was +JPY279.5 billion (for overall
assets).

(Unit: JPY100M)

Changes in investment income

4,000

Q1

Q2

FY2016
Q3

Investment income-1,564

742

3,494

123

2,795

Domestic bonds

531

-340

-288

-44

-141

0

Domestic equities

-827

772

1,752

103

1,800

-1,000(Unit: JPY100M)

3,494

3,000

Q4

FY total

2,795
2,672

2,000
742

1,000

123
Q1

Q2

Q3

Q4

-822

Each quarter
Aggregate-2,000Foreign bonds

-488

-31

420

-215

-314

Foreign equities

-780

342

1,609

279

1,449

3,000

Short-term assets

0

0

0

0

0

2,500

-1,564

Investment income (by asset class)(Unit: JPY100M)

Realized income

Q1

Q2

FY2016
Q3

299

225

400

2,000

(Unit: JPY100M)

1,800
1,449

1,500

Q4

FY total

1,000

380

1,305

500

2,795

0
0
-500

Domestic Domestic
bonds
equities-141

Foreign
Foreign Short-term Overall
bonds
equities
asset
assets-314 *The above figures represent income for the FY total.

(Note 1) The investment income and realized income represent figures after the deduction of fees, etc. settled within the relevant period.
(Note 2) The investment income represents the realized income adjusted for the effects of changes in valuation gains/losses based on market value.
(Note 3) Realized income represents the sum of trading profits/losses and interest and dividend income, etc.
(Note 4) Due to rounding, the total sum of individual figures may not necessarily add up to Total.

12

Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fiscal Year 2016 Value of Assets
The book value, market value and valuation gains/losses by asset is as follows.

(Unit: JPY100M)

FY2016End of Q1
Book value Market value

End of Q2

End of Q3

End of FY

Valuations
Valuations
Valuations
Valuations
Book value Market value
Book value Market value
Book value Market value
profits/losses
profits/losses
profits/losses
profits/losses

Domestic bonds

24,077

27,783

3,706

23,792

27,026

3,234

23,462

26,321

2,859

23,15425,842

2,689

Domestic equities

10,42010,744324

10,91911,946

1,027

11,134

13,6982,564

11,25913,801

2,542

Foreign bonds

5,604

5,486

-118

5,583

5,455

-128

5,726

6,000

274

6,152

6,160

8

Foreign equities

8,190

9,101

911

8,406

9,613

1,206

8,486

11,222

2,736

8,566

11,501

2,934

Short-term assets

2,342

2,342

0

1,849

1,849

0

889

889

0

636

636

0

Total

50,63455,457

4,823

50,54955,888

5,339

49,69858,131

8,434

49,76757,941

8,174(Note 1) Due to rounding, the total sum of individual figures may not necessarily add up to Total.
(Note 2) Starting in fiscal year 2016, short-term assets held by each fund were classified into relevant asset classes in principle.

The amount of funds allocated and withdrawn by asset class (for FY2016)(Unit: JPY100M)
Domestic bonds
Amount of funds
allocated and withdrawn-2,656

Domestic equities
430

Foreign bonds

Foreign equities

500

170

(Note 1) The above figures represent the total amount of fund flows related to the allocation and withdrawal of funds (rebalancing)conducted for the purpose of changing the asset mix and pension benefit payment (cashing-out).
(Note 2) As a result of the final classification of funds related to the integration of employee pension plans, funds totaling about JPY72.4
billion were transferred to the Employees’ Pension Insurance Benefit Association Reserve Fund in December 2016.

13

Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fiscal Year 2016 Status of Risk Management (Overall Assets)○ Asset mix and estimated tracking error
For fiscal year 2016, the necessary adjustment of asset mix was made while considering time dispersion so as to stay close to thebenchmark portfolio. As a result of such adjustment, the share of domestic bonds (excluding private placement local government
bonds) in asset mix declined, and the shares of other asset classes in the asset mix increased. The shares of all asset classes stayed
within the deviation tolerance throughout the fiscal year.
In addition, the estimated tracking error (*) for the entire fund gradually declined because the shares of each asset in the asset mix
came close to the benchmark portfolio.
(*) Measured the estimated tracking error against the benchmark portfolio.

【Changes in the asset mix】
55%
50%
45%
40%
35%
30%
25%
20%
15%

Deviation tolerance (upper limit: 50%)

Domestic bonds Benchmark portfolio (35%)

Deviation tolerance (lower limit: 20%)

End of
3月末
Mar.

End of
5月末
May

End of
7月末
Jul.

End of
End of
End of
End of
9月末
11月末
1月末
3月末
Sep.
Nov.
Jan.
Mar.

25%
Deviation tolerance (upper limit: 21%)20%
Foreign bonds Benchmark portfolio (15%)

15%10%Deviation tolerance (lower limit: 9%)5%

End of
3月末
Mar.

End of
5月末
May

End of
7月末
Jul.

45%
40%
35%
30%
25%
20%
15%
10%
5%

End of
9月末
Sep.

End of
11月末
Nov.

End of
1月末
Jan.

End of
3月末
Mar.

(%)
Deviation tolerance (upper limit: 39%)

Estimated tracking error concerning overall funds

4.0
3.0

Domestic equities Benchmark portfolio (25%)

2.0
1.0
Deviation tolerance (lower limit: 11%)End of
3月末
Mar.

45%
40%
35%
30%
25%
20%
15%
10%
5%

【Changes in the estimated tracking error】

End of
5月末
May

End of
7月末
Jul.

End of
End of
End of
9月末
11月末
1月末
Sep.
Nov.
Jan.

End of
3月末
Mar.

Deviation tolerance (upper limit: 37%)

Foreign equities Benchmark portfolio (25%)

Deviation tolerance (lower limit: 13%)
End of
3月末
Mar.

End of
End of
End of
End of
End of
End of
5月末
7月末
9月末
11月末
1月末
3月末
May
Jul.
Sep.
Nov.
Jan.
Mar.

14

0.0
End
of Mar.
3月末

Endof May End
of Jul.
5月末
7月末

End
of Sep. End
of Nov.
9月末
11月末

End
of Jan.
1月末

Endof Mar.
3月末

Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fiscal Year 2016 Fees
The amount of fees totaled about JPY2.2 billion in fiscal year 2016.
The fee rate relative to the value of investment assets came to 0.04%.
(Unit: JPY100M, %)FY2016Fees

Fee rate

Domestic bonds

0

0.00

Domestic equities

9

0.08

Foreign bonds

3

0.06

Foreign equities

10

0.10

Overall assets

22

0.04

(Note 1) Fees include management fees and custodian fees related to investment.
(Note 2) The amount of fee is rounded off to the nearest hundred million yen.
(Note 3) Fee rate = fee amount/month-end market value average balance15

Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Section 2 Systems and Activities Concerning Administration and Investment of Funds

16Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Basic Approach to Investment○ As a basic policy, the Federation shall manage the fund with the objective of contributing to the stability of the TLTB plan operations basedon the characteristics of a closed-end pension fund that will have no new contribution income, especially paying attention to downside risks,with constant awareness of the relationship between future liabilities and the fund and from a long-term perspective and in a stable andefficient manner.
○ In the management of funds, investments shall be made in a way that ensures appropriate diversification across multiple assets withdifferent risk/return profiles and other characteristics.
○ The investment of the Transitional Long-term Benefit Association Reserve Fund, which has the characteristics of a closed pension plan,
shall be managed appropriately by establishing the benchmark portfolio in order to generate investment returns needed for the fund with theminimum risk, while fully paying attention to the relationship between future liabilities and the fund. In addition, efforts shall be made toearn the benchmark return for each asset class over the long term, as well as generating benchmark returns for each asset class.

Basic Policy for Management and Investment of Transitional Long-term Benefit Association Reserve Fund (Extract)
1. Basic Policy
The Federation shall manage the Transitional Long-term Benefit Association Reserve Fund with the objective of contributing to the stability of the TLTB plan
operations based on the characteristics of a closed-end pension fund that will have no new contribution income, especially paying attention to downside risks, withconstant awareness of the relationship between future liabilities and the fund and from a long-term perspective and in a stable and efficient manner.
Accordingly, on the basis of appropriately diversifying investments in multiple assets that differ in risk/return and other characteristics ("diversified investment"),
the Federation shall manage and invest the Transitional Long-term Benefit Association Reserve Fund by establishing an asset mix from the long-term perspective(the "benchmark portfolio").
2. Investment target
The investment of the Transitional Long-term Benefit Association Reserve Fund, which has the characteristics of a closed pension plan, shall be managed
appropriately by establishing the benchmark portfolio in order to generate investment returns needed for the fund with the minimum risk, while fully paying
attention to the relationship between future liabilities and the fund.
In doing so, attention shall be paid not to distort, among other things, price formation in the market and private sector investment activities.
In addition, efforts shall be made to earn the benchmark return for each asset class for each fiscal year over the long term, as well as generating benchmark
returns for each asset class.

17

Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Benchmark Portfolio and its Verification○ Benchmark portfolio (asset mix)

Asset mix
Deviation tolerance

Domestic
bonds
35%
±15%

Domestic
equities
25%±14%

Foreign
bonds
15%
±6%

Foreignequities
25%
±12%

18

Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Stewardship Activities ①(1) Stewardship activities
 The Federation has the responsibilities of an institutional investor to increase medium to long-term investment returns for its members andbeneficiaries by encouraging improvements in enterprise value and sustainable growth of investee companies. Efforts for the fulfillment of these
responsibilities, including constructive dialogues with the investee companies (engagement) and exercise of voting rights, are collectively called"stewardship activities."<Stewardship Activities>
Entrusted investment

Equity investment(1) Guidelines for Exercising Shareholders' Voting Rights(2) Corporate Governance Principles

Federation

Research and hearing on activities

Entrusted
investment
management
institutions

Report of activities

Constructive dialogues

Companies
Exercise of Voting Rights

Enhancement of enterprise values

Medium- to Long-term return The Federation has established the "Corporate Governance Principles of National Federation of Mutual Aid Associations for Municipal Personnel" and"Guidelines for Exercising Shareholders' Voting Rights" setting forth basic approaches to stewardship activities. In addition, the Federation agreed
with the purpose of Japan's Stewardship Code, and it announced its acceptance of the Code in May 2014. As the Federation currently makes equity
investments through entrusted investment management institutions, it checks whether these institutions are implementing engagements and exercising
voting rights in an appropriate way according to the policies of the Federation through investigations and hearings.
Past efforts
 May 2010
 May 2014

 October 2015

Established the "Guidelines for Exercising Shareholders' Voting Rights" (Document (1)), announcing the Federation's approaches to equity investment and exercise
of voting rights as a beneficial shareholder.
Announced its acceptance of the Japan's Stewardship Code.
Established the "Corporate Governance Principles" (Document (2)), announcing the Federation's approach for corporate governance necessary for the long-term enhancement of stock
values.
Established the Basic Policy for Management and Investment of Funds associated with the integration of the employee pension plans, and newly established Documents (1) and (2).

19Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Stewardship Activities ②(2) Engagement(i) Engagement initiatives
 As the Federation currently makes equity investments through entrusted investment management institutions, the Federation requires
these institutions to implement engagements in an effective way and conducts hearing on the status of implementation.
(ii) Example of efforts by entrusted investment management institutions
 At a hearing of entrusted investment management institutions of domestic equities held in fiscal year 2016, the Federation confirmed
the improvement of the engagement efforts by many institutions, including the development of management structures and anincrease in investees for engagement.
<Example of engagement efforts by entrusted investment management institutions>Improved points

Specific measures

Management structures• Allocating the roles for engagement depending on the subject of engagement, by appointing a dedicated staff
member in charge of investigation of non-financial information.
• Established an independent committee which takes charge of checking the compliance with fiduciary duties ingeneral, including conflicts of interest.

Selection of investees• Selecting only investees with high potential of effective engagement (active management).
• Selecting issues from those held in all funds, according to the general standards including corporate governanceand ROEs (passive investment).

Implementing process• Create a phased action plan for solving a problem, and manage the status of progress of the plan.
• Regularly report activities at a supervising committee, and utilize advice of outside members for future
engagements.

Subjects of engagement• Repeated engagements led to deeper discussion toward solving problems.
• Subjects of engagement extended to non-financial issues, such as the assessment of governance and management.

20

Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Stewardship Activities ③(3) Exercise of Voting Rights(i) Exercise of Voting Rights
 In order to fully achieve returns on equity investments, it is necessary to ensure that investee companies secure profits for a long timeand manage their businesses paying attention to the interests of shareholders to the maximum degree. Exercising of voting rights is an
important means to enhance shareholder value, and the Federation encourages business management which would contribute to thelong-term enhancement of shareholder value through appropriately exercising voting rights, in relation to all issues held in principle.
 More concretely, in principle, entrusted investment management institutions exercise voting rights according to the policy on theexercise of shareholders' voting rights established by the institutions in line with the intent of the Guidelines for Exercising
Shareholders' Voting Rights of the Federation and reviewed by the Federation. In addition, the Federation seeks reports from theentrusted investment management institutions on the status of exercising voting rights and considers them as part of the assessment of
the institutions.
(ii) Exercise of Voting Rights in Fiscal Year 2015
 For the exercise of voting rights at general meeting of shareholders of companies which settled accounts in fiscal year 2015 (between
April 2015 and March 2016), the Federation received reports from its entrusted investment management institutions on the results ofexercising voting rights, reason for voting against the proposal, and organizational structure for exercise of voting rights. In addition,
the Federation confirmed that voting rights were exercised in an appropriate way according to the Guidelines for Exercising
Shareholders' Voting Rights of the Federation through hearings.
 Further, several entrusted investment management institutions have amended their guidelines on exercise of voting rights in light ofJapan's Stewardship Code which requires exercise of voting rights that would promote the growth of investee companies. Suchamendment includes tightening of the requirements of independence for appointing outside directors.

21

Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Stewardship Activities ④(iii) Results of the exercise of voting rights concerning domestic equities (companies with accounting settlement between April 2015 and March 2016)
Vote forItems on agenda

Vote against

Rate
Total
(Shareholder proposal)
By subject
Board of directors/directors
Board of auditors/auditors
Director remuneration, etc.
Appropriation of Surplus
Agenda concerning capital structure
Takeover Defense Measures
Capital increase or reduction
Third Party Allotment of Shares
Stock buyback
Business Restructure
Incentives Improvement for Executives
and Employees
OthersAmendment to Articles ofIncorporation

Vote-against ratein the previous
Rate
year
0.0%
18.8%
(0.0%)(98.5%)

Abstension

Total
Rate

30,115(862)

24,398(23)

81.0%(2.7%)

5,717
(839)

19.0%
(97.3%)

0
(0)

8,528
6,100
4,192
5,574
842
476
33
15
27
139

5,945
5,045
3,730
5,320
588
240
31
11
16
139

69.7%
82.7%
89.0%
95.4%
69.8%
50.4%
93.9%
73.3%
59.3%
100.0%

2,583
1,055
462
254
254
236
2
4
11
0

30.3%
17.3%
11.0%
4.6%
30.2%
49.6%
6.1%
26.7%
40.7%
0.0%

0
0
0
0
0
0
0
0
0
0

0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%

28.4%
16.6%
18.4%
4.9%
32.4%
44.0%

797

511

64.1%

286

35.9%

0

0.0%

30.6%

3,943

3,120

79.1%

823

20.9%

0

0.0%

16.9%

3,652

2,858

78.3%

794

21.7%

0

0.0%

17.0%

0.0%
(Note )

The figures include the results of theexercise of voting rights before
October 2015, when the pension plans
were integrated into the EPI.

Main features relating to exercise of voting rights• The proposal for which the vote-against rate was the highest was "takeover defense measures," followed by "stock buyback."• The vote-against rate of “takeover defense measures” increased from the previous fiscal year (from 44.0% to 49.6%). The major reason for this is that several
entrusted investment management institutions tightened the requirements for the adoption and implementation of takeover defense measures in their guidelines on
exercise of voting rights considering trends in corporate governance.
• There was no significant change in the vote-against rate for the proposals relating to "board of directors/directors" and "board of auditors/auditors" from theprevious fiscal year. As a major reason for this, although some companies have adopted an outside director system, these systems do not satisfy the strict
independence requirements provided in the guidelines on exercise of voting rights of the entrusted investment management institutions.
• Against the backdrop of the adoption of the Corporate Governance Code, proposals on revision of director remuneration plans are on the rise, such as adoption of
performance-linked stock compensation plans.

22Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Stewardship Activities ⑤(iii) Results of the exercise of voting rights concerning foreign equities (Companies with accounting settlement between April 2015 and March 2016)
Items on agenda

Total

Total

14,393

12,482

86.7%

1,854

12.9%

57

Vote-against ratein the previous
Rate
year
0.4%
7.8%

(Shareholder proposal)(1,458)(574)(39.4%)(835)(57.3%)(49)(3.36%)(47.4%)

4,344
865
2,450
284
1,177
218
419
154
269
563

3,840
848
2,219
284
1,057
204
360
153
259
489

88.4%
98.0%
90.6%
100.0%
89.8%
93.6%
85.9%
99.4%
96.3%
86.9%

493
15
230
0
120
14
59
1
10
74

11.3%
1.7%
9.4%
0.0%
10.2%
6.4%
14.1%
0.6%
3.7%
13.1%

11
2
1
0
0
0
0
0
0
0

0.3%
0.2%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%

5.0%
0.5%
10.2%
0.0%
12.0%
7.4%

750

627

83.6%

122

16.3%

1

0.1%

16.5%

3,960

3,118

78.7%

800

20.2%

42

1.1%

15.8%

439

367

83.6%

72

16.4%

0

0.0%

14.3%

Vote forBy subject
Board of directors/directors
Board of auditors/auditors
Director remuneration, etc.
Appropriation of Surplus
Agenda concerning capital structure
Takeover Defense Measures
Capital increase or reduction
Third Party Allotment of Shares
Stock buyback
Business Restructure
Incentives Improvement for Executives
and Employees
OthersAmendment to Articles ofIncorporation

Vote against

Rate

Abstension

Rate

7.5%

(Note) The above figures include the resultsof the exercise of voting rights before
October 2015, when the pension plans
were integrated into the EPI.
For investee companies in somecountries, voting rights are notexercised considering costs forexercise and share blocking.*(*) A scheme whereby shareholders exercising
voting rights are restricted from selling sharesfor a certain period until the end of a generalshareholders meeting.

Main features relating to exercise of voting rights• The proposal for which the vote-against rate was the highest was "amendment to articles of incorporation," followed by "incentives improvement for executives
and employees."• Shareholders have growing interest in rights of shareholders. In particular, in the U.S. market, more shareholders support "Say on Pay" (grant of a shareholder’sright to vote on the remuneration of executives) and more companies adopt proxy access (grant of a shareholder's right to propose appointment of directors subject
to fulfilling certain requirements).
• Shareholder's proposals on ESG is increasing, which are approved by the majority votes in some cases.

23

Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Review of Manager Structure(1) Selection of entrusted investment management institutions
As part of the review of investment institutions (manager structure), the Federation invited public applications of entrusted investment
management institutions for active investments in foreign bonds, and started the investments from fiscal year 2016. In the process of
selection, the Federation took the following measures as a result of overall assessment of past performances, investment philosophy,
investment structure and investment process through documentary examinations and hearings.
○ Foreign bonds (active investment)
The Federation invited public applications for various investment products, and selected seven products.
(2) Selection of asset administration institutions
The Federation invited public applications of asset administration institutions for active investment of foreign bonds and active investmentof foreign equities. The Federation selected the asset administration institutions based on overall assessment of business operation structures
and asset administration systems.

24

Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Administration and Evaluation of Entrusted Investment Management Institutions, etc.
(1) Administration and evaluation of entrusted investment management institutions
For the administration of entrusted investment management institutions, the Federation seeks monthly reports from them on investment
performance and the status of risk, verifies compliance with investment guidelines, and receives a briefing at regular meetings on theoverview of investment results and future investment policies.
For the evaluation of entrusted investment management institutions, the Federation performs a qualitative assessment (investment structure,investment process, structures for risk management and compliance) and quantitative assessment (excess return and tracking error in the caseof passive investments, and excess return and information ratio in the case of active investments) as of the end of each fiscal year.

(2) Administration and evaluation of asset administration institutions

For the administration of entrusted investment management institutions, the Federation seeks monthly reports from them on the status ofadministration of assets, verifies compliance with asset administration guidelines, and receives a briefing at regular meetings.
For the evaluation of asset administration institutions, the Federation performs qualitative assessment based on organizations for business
operation, asset administration system, etc.

25

Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Governance ①(1) Organization
As of April 1, 2017, the Federation had two executives (managing director and auditor) and 119 full-time employees.
The organization consists of the General Affairs Department (General Affairs Division, Planning Division, Insurance Division and Welfare Division),
the Finance Department (Accounting Division, Investment Planning Division, In-house Investment Division, Fund Management Division), the Pension
Department (Pension Planning Division, Pension Information System Division, Pension Inspection Division, Pension Benefit Division and Retirement
Pension Benefit Division), and the Audit Office.

(2) General Assembly
The General Assembly consists of 61 members, 47 of which are elected by mutual vote the Presidents of associations which are the members of theFederation (hereinafter the "Member Associations"). Among the members of the General Assembly, 14 are elected by mutual vote of the Executive
Directors of the Member Associations.
Revision of the articles of incorporation, the formulation and revision of the rules of operations, annual business plans, budgets and account settlement,
disposal of important assets and assumption of significant debt are subject to resolution of the General Assembly.

(3) Fund Management Committee
This is a committee consisting of members who possess academic knowledge or practical experience in areas such as the pension system, economics,
finance and fund management, which studies expert matters pertaining to the establishment and revision of basic policies and the administration andinvestment of the Employees' Pension Insurance Benefit Association Reserve Fund, Annuity Retirement Benefit Association Reserve Fund andTransitional Long-term Benefit Association Reserve Fund (hereinafter the "Funds").

(4) Long-term Benefit Fund Committee
This is a committee also participated in by the representatives of Member Associations, which conducts research and study relating to basic policies forinvestment of Funds and other important matters.

(5) Operational Management Committee
This is a committee also participated in by the representatives of Member Associations, which conducts research and monitoring of businessadministration and fund management implemented by the Federation and the Member Associations, as well as assessment of business.

(6) Fund Investment Review Council
This is a council for ensuring the safe and effective investment of surplus from business operation of each of the accountings of the Federation,
discussing decision-makings as to the investment of funds, analyzing the investment status and checking the status of risk management indicators. This
council is constituted by the Managing Director, the Secretary-General, the General Manager of Finance Department, the Chief Investment Specialist, theSenior Investment Specialist, the Manager of Investment Planning Division, the Manager of In-house Investment Division, the Manager of FundManagement Division and other members as may be deemed necessary. In principle, the council regularly meets once a month, and from time to timedepending on the necessity.

26

Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Governance ②
As of April 1, 2017(7) Organizational structure of Federation
Report of status ofinvestment, risk
management, etc.

Fund Management Committee

GeneralAssembly

Use of expert
knowledge(Discussion by financial experts)
Basic policy, benchmark portfolio, risk
management, investment methods, etc.

Fund Investment Review Council(Check and discussion by officers and employees [monthly])
Status of investment, risk management, etc.

Audits of businesses

AuditorPresident

Recommendation
Long-term Benefit Fund
Committee

Managing Director

Cooperation(Discussion by representatives of member
associations, etc.)

Operational Management
Committee(Monitoring by certified public accountants, etc.)

Secretary-General

Audit OfficeFinance
Department

Chief Investment Specialist
Senior Investment Specialist
Investment Planning Division

In-house Investment Division

Fund Management Division

Basic policy, funding plan, benchmark
portfolio and risk management

In-house investment

Entrusted investment management27

Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Governance ③ (Fund Management Committee)○ Fund Management Committee
The Federation has established the Fund Management Committee, which is comprised of members who possess academic
knowledge or practical experience in areas such as the pension system, economics, finance and fund management. Members areappointed by the President.
As an advisory body for the President, the Fund Management Committee has a duty to conduct research on basic issues relating tofund management, discuss matters necessary for the achievement of the purpose to contribute to the safe and efficient fundmanagement, and to report the findings to the President. The Committee is also to give advice to the President for any other importantmatters relating to the fund management.
For expert matters relating to the management and investment of funds, including the adoption and amendment of basic policies forthe management and investment of funds including benchmark portfolio, deliberation at the Fund Management Committee is required.
List of Committee Members (As of April 2017)
Yoshitaka Kai

Professor, Institute of Business and Accounting, Professional
Graduate School, Kwansei Gakuin University

Yasuyuki Kato

Professor, Graduate School of Management, Kyoto University

Katsuyuki Tokushima NLI Research Institute Pension Research Center, Financial
Research Department, Chief Fixed Income Analyst
Masashi Toshino

Professor, Faculty of Economics, Seikei University◎ Hiroshi Miyai

Visiting Professor, Graduate School of International Accounting,
Chuo University

Kenji Wada

Professor, Faculty of Business and Commerce, Keio University

・A person with a "◎" mark is the Chairperson.

28

Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Governance ④ (Approach to Risk Management)○ Generally speaking, "risk" refers to a danger or possibility of negative impact. In the field of asset investment, risk can mean the magnitudeof price fluctuation occurring under a certain condition or uncertainty towards the future.
Risks in the field of asset investment include interest rate fluctuation risk, price fluctuation risk, credit risk and liquidity risk. For asset
investment, for various risks commensurate with investment, it is important to understand the magnitude and multifaceted impacts of risks
from a long-term perspective.
○ The Federation, in accordance with the implementation policy for risk management concerning investment of funds as an implementing
organization, appropriately implements risk management concerning investment in consideration of the following points: that investmentof funds should be made safely and efficiently from a long-term perspective; that diversified investments should be maintained in principle;
that particular attention shall be paid to downside risks in light of the characteristics of a closed pension plan which receives no newcontribution income; and that constant consideration shall be given to the relationship between future liabilities and the funds of all local
public service personnel mutual aid associations

Implementation policy for risk management concerning investment of the fund (extract)
1. Basic approach concerning risk management
The National Federation of Mutual Aid Associations for Municipal Personnel appropriately conducts risk management related to theinvestment of adjustment funds in light of the following matters.
(1) Investment of funds should be made safely and efficiently from a long-term perspective.
(2) A benchmark portfolio should be developed and investment of funds should be made based on it.
(3) Transitional Long-term Benefit Association Reserve Fund should be invested in consideration of the relationship between all local public
service personnel mutual aid associations’ liabilities and the funds related to transitional long-term benefit operations in the future.
(4) The Federation shall manage the Transitional Long-term Benefit Association Reserve Fund by conducting appropriate risk management,
especially paying attention to downside risks in light of the characteristics of a closed pension plan which receives no new contribution
income, with constant awareness of the relationship between future liabilities and the fund.
29

Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Governance ⑤ (Risk Management Efforts)
Management of the deviation of the asset mix○ Investment based on the benchmark portfolio requires the management of various risk factors. Therefore, in order to secure profits in line with the benchmark
portfolio from the long-term perspective, it is important, in particular, to manage the degree of deviation of the asset mix of the actual portfolio from that of thebenchmark portfolio.
○ Specifically, as the asset mix constantly changes due to asset price fluctuations, the Federation keeps track of the status of the deviation of the asset mix of its
actual portfolio from that of the benchmark portfolio and manages the actual portfolio so as to keep the degree of deviation within a certain range (deviation
tolerance). In this way, the Federation checks whether or not there are problems such as a deviation from the benchmark portfolio in excess of the deviation
tolerance.

Monitoring of market risk, etc.
○ The Federation identifies downside risks by using the value at risk approach, which measures the maximum foreseeable amount of losses expected under certain
conditions, and the simulation of impact on funds in the case of fluctuation of share price and interest rate within a certain range (a stress test). As it also uses
active investment in its investment of funds, the Federation seeks to earn an excess rate of return over the benchmark by diversifying investment strategies andinvestment issues within each asset class.
○ Therefore, the Federation monitors the status of market risk (price volatility risk, etc. in each asset market), credit risk (default risk), etc. with respect to each
asset class, mainly from the viewpoint of difference from the benchmark for each asset class.
Management of entrusted investment management institutions, etc.
○ The Federation manages liquidity risk (risk that purchasing and selling assets will become difficult due to a decline in trading volume) from the viewpoint ofrevising asset allocations (rebalancing) and smooth conversion of assets into cash. In addition, as the Federation entrusts the operation of some investmentrelated activities to external institutions under its asset investment system, it manages the status of management (status of risk management and asset
administration) of the institutions to which it entrusts asset management or asset administration (entrusted investment management institutions and asset
administration institutions), from the viewpoint of ensuring the smooth operation.
Verification of the benchmark portfolio○ It is necessary to periodically verify the benchmark portfolio, which is formulated in consideration of long-term economic forecasts, by checking its
assumptions, for example. In the verification, the Federation also checks whether the existing benchmark portfolio is appropriate from the viewpoint of ensuring
safe and efficient investment over the long term, and it gives consideration to the viewpoint of comparison between the target investment return and the returnthat would be achieved if all funds were invested in domestic bonds.
Reporting on the status of risk management and improvement measures implemented○ The status of risk management and improvement measures implemented are reported to the General Assembly and the Fund Management Committee.

30

Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Other Efforts○ Measures taken in response to low interest rate
The Bank of Japan (BOJ) has introduced the Quantitative and Qualitative Monetary Easing with a Negative Interest Rate (announced on
January 29, 2016), which has resulted in decline in yield of many domestic bonds.
In addition, as a part of the monetary easing policy, the BOJ has introduced a negative interest rate policy for a part of the balance in BOJ
current accounts of financial institutions. Due to this policy, a principal bears the burden of a portion of the amount equivalent to the negativeinterest rate applied to its asset management institutions, according to the balance of short-term assets within funds.
In these situations, the Federation took the following measure in fiscal year 2016.
- For in-house investment fund for buy-and-hold investment strategy, the Federation withdrew surplus funds on a regular basis from funds
comprising interest and redemption payment, so as to reduce holdings of short-term assets within the funds.

31

Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Section 3 Reference Data

32

Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Changes in the investment return, etc. (since the integration of employee pension plans)(1) Investment
returnRealized return(2) Value of investment income(Unit: JPY100M)(Unit: %)FY 2015(second half)

FY2016

2.15

2.59

Realized income(Income gain)(Unit: %)FY 2015(second half)

FY2016

Modified total
return0.97

4.90

Domestic bonds

3.80

Domestic equities

FY 2015(second half)

FY2016

1,085
(522)

1,305
(1,078)(Unit: JPY100M)

FY 2015(second half)

FY2016

Investment
income

560

2,795

-0.52

Domestic bonds

1,198

-141

-4.50

14.94

Domestic equities

-444

1,800

Foreign bonds

-2.21

-5.19

Foreign bonds

-119

-314

Foreign equities

-0.93

14.34

Foreign equities

-75

1,449

Short-term assets

0.02

0.01

Short-term assets

10(Note 1) The investment return for fiscal year 2015 is the period rate for the second half of fiscal year 2015.
(Note 2) The investment income for fiscal year 2015 is the aggregate amount of investment income for the second half of fiscal year 2015.
(Note 3) Income gains comprise interest and dividend income.
33

Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Changes in the value of investment assets and the asset mix (since the integration of employee pension plans)(Unit: JPY100M, %)End of FY2015

End of FY2016

Total market
Total market
Composition
value
value
27,834
24,7720
3,063
11,374
8,725
2,649
5,965
5,727
238
9,759
7,878
1,881

48.28
42.97
0.00
5.31
19.73
15.13
4.60
10.35
9.93
0.41
16.93
13.67
3.26

25,842
23,3340
2,509
13,801
8,527
5,273
6,160
4,485
1,676
11,501
9,314
2,186

44.60
40.27
0.00
4.33
23.82
14.72
9.10
10.63
7.74
2.89
19.85
16.08
3.77

Short-term assets

2,716

4.71

636

1.10

Total

57,649100.0057,941100.00

Domestic bonds

Domestic equities

Foreign bonds

Foreign equities

Total
Passive
ActiveOthers
Total
Passive
Active
Total
Passive
Active
Total
Passive
ActiveComposition(Note) "Others" related to domestic bonds include deposits (municipal bonds, loan and invested real property) of the member associations.
34

Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Change in number of passive/active funds by assets (entrusted) (since the integration of employee pension plans)

FY 2015 (second half)
Cancellation New adoption

FY2016End of FY

Cancellation New adoption

End of FY

Passive

0

0

0

0

0

0

Active

0

0

0

0

0

0

Passive

0

0

2

0

0

2

Active

1

11

19

0

0

19

Passive

0

0

2

0

0

2

Active

0

0

1

0

7

8

Passive

0

0

2

0

0

2

Active

1

5

8

0

0

8

Total

2

16

34

0

7

41

Asset administration
institutions

0

0

4

0

0

4

Domestic bonds

Domestic equities
Foreign bonds
Foreign equities(Note 1) Cancellation and new adoption in fiscal years 2015 and 2016 are due to the review of the manager structure.
(Note 2) Newly adopted funds are classified by fiscal year to which the date of effective start of investment belongs.

35

Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Change in fees (since the integration of employee pension plans)(Unit: JPY100M, %)FY 2015 (second half)

Fees

FY 2016

Fee rateFees

Fee rate

Domestic bonds

0

0.00

0

0.00

Domestic equities

2

0.02

9

0.08

Foreign bonds

1

0.01

3

0.06

Foreign equities

3

0.04

10

0.10

Overall assets

6

0.01

22

0.04

(Note 1) Fees include management fees and custodian fees related to investment.
(Note 2) The amount of fee is rounded off to the nearest hundred million yen.
(Note 3) Fee rate = fee amount/month-end market value average balance(Note 4) The amount of fee and fee rate for the second half of FY2015 is the half of the fee rate for the entire FY2015.

36

Transitional Long-term Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Issues held (as of the end of Fiscal Year 2016)
The tables below show the top 10 bond and equity issues held indirectly through entrusted investment, through in-house investment, andindirectly through depositing with member associations as of the end of March 2017, with bond issues classified by issuer name and equity
issues by issue name.
The status of holding of issues does not represent the assessment of investees by the Federation.
For information concerning bond issues ranked 11th or lower, see the website of the Federation.
○Domestic bond issues held (by issuer, in order of total market value)No.

Names of issuer

1

Government of Japan
Japan Finance Organization for2
Municipalities
3 Kanagawa Prefecture
4 Hyogo Prefecture
5 Yokohama City
6 Chiba Prefecture
7 Fukuoka Prefecture
8 Joint LGB
9 Tokyo Metropolitan Government
10 Aichi Prefecture
Total
478 Issuers

Total market
value(in 100M yen)
7,605

No.

Names of issuer

1 UNITED STATES TREASURY
2 ITALY (REPUBLIC OF)
3 FRENCH (REPUBLIC OF)
4 UNITED KINGDON (GOVERNMENT OF)
5 GERMANY (FEDERAL REPUBLIC OF)
6 SPAIN (KINGDOM OF)
7 BELGIUM (KINGDOM OF)
8 CANADA (GOVERNMENT OF)
9 AUSTRALIA (COMMONWEALTH OF)
10 NETHERLANDS (KINGDOM OF)
Total
391 Issuers

Issue names

1
2

Toyota Motor Corporation
Mitsubishi UFJ Financial Group
Nippon Telegraph and Telephone3
Corporation
4 Sumitomo Mitsui Financial Group
5 SoftBank Group
6 Mizuho Financial Group
7 KDDI Corporation
8 Honda Motor Co., Ltd.
9 Sony Corporation
10 Keyence Corporation
Total
2,044 Issues

5,567
722
621
551
535
474
455
452
438
24,332

6,627,600
44,808,000

Total market
value(in 100M yen)
407
318

4,567,600

220

5,280,800
2,473,300
85,641,000
5,993,900
5,251,800
3,666,700
287,700

218
195
178
178
177
138
128
13,716

No. of shares○Foreign equity issues held (in order of total market value)○Foreign bond issues held (by issuer, in order of total market value)
No.

○Domestic equity issues held (in order of total market value)

Total market
value(in 100M yen)
2,415
544
544
410
363
343
129
124
121
109
6,100

No.

Issue names

1 APPLE INC
2 MICROSOFT CORP
3 AMAZON.COM INC
4 FACEBOOK INC-CLASS A
5 JOHNSON & JOHNSON
6 JPMORGAN CHASE & CO
7 ALPHABET INC-CLASS A
8 WELLS FARGO & CO
9 EXXON MOBIL CORP
10 NESTLE SA (REGISTERED)
Total
2,567 Issues

No. of shares
1,273,481
1,809,399
100,584
624,072
656,463
913,478
94,391
1,410,871
949,282
949,094

Total market
value(in 100M yen)
204
133
99
99
91
89
89
88
87
81
11,406(Note 1) The names of issuers and issues are provided by the Federation based on data registered with the T-STAR/GX system of the Nomura Research Institute, Ltd. as of March 2017.
(Note 2) The total market value is an aggregated figure calculated for each issuer by the Federation based on data registered in the T-STAR/GX system of the Nomura Research Institute, Ltd.

37