Fiscal Year 2016 Review of Operations
Employees' Pension Insurance 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

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Table of Contents
・Fiscal Year 2016 Investment Results (Overview)・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・

P3

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
・Diversification of Eligible Investment Instruments (Investment in Alternative Assets)・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 24
・Review of Manager Structure・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 26
・Administration and Evaluation of Entrusted Investment Management Institutions, etc.・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 27
・Governance・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 28
・Other Systems・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 33

Section 3 Reference Data
・Changes in the investment return, etc. (since the integration of employee pension plans)・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 35
・Changes in the value of investment assets and the asset mix (since the integration of employee pension plans)・・・・・・・・・・・・・・・・ P 36
・Change in number of passive/active funds by assets (entrusted) (since the integration of employee pension plans)・・・・・・・・・・・・・ P 37
・Change in fees (since the integration of employee pension plans)・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 38
・Issues held (as of the end of Fiscal Year 2016)・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 39
2

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fiscal Year 2016 Investment Results (Overview)

Investment return(FY2016)+4.16% *Modified total return (market value basis)+2.24% *Realized return (book value basis)

Investment income+JPY215.0 billion *Investment income(market value basis)(FY2016)+JPY106.6 billion *Realized income(book value basis)

Value of investment assets: JPY5,432.4 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

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Section 1 Administration and Investment of Funds in FY2016

4

Employees' Pension Insurance 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

Returns
Asset class

Domestic bonds
115

110

Q1

Domestic
NOMURA-BPI Overall
2.47%
bonds
Domestic
TOPIX (with dividends)-7.39%
equities
Citi World Government Bond Index
Foreign(excluding Japan; without hedging, yen-8.14%
bonds
based)
Foreign MSCI ACWI ex. JAPAN (yen-based, with
-7.63%
equities dividends)
Total-4.09%

Domestic equities
Foreign bonds
Foreign equities

105
100
95

Q2

Q3

Q4

Full fiscal
year-1.75%-1.47%-0.35%-1.15%

7.13% 14.95%

0.57%

14.69%-0.62%

7.55%-3.66%-5.41%

3.79% 16.82%

2.46%

14.77%

2.01%

0.08%

6.14%

8.40%

* The total figures are the benchmark returns when all of the asset mixes are
center values of benchmark portfolios.

90
85
March 31, 2016

BenchmarkJune 30, 2016

September 30, 2016

December 31, 2016

March 31, 2017

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

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 over economic policy. Although domestic equity prices steeply rose due to the sharp rise in the equity prices in the U.S. because of
expectations over 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 the appreciation 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 expectations on 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

Employees' Pension Insurance 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

10-year JGB

10-year U.S. Treasury Bond

(%)
0.2
0.1

0.0

(%)
2.7

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

10-year German Government Bond (%)
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, 2016December 31, 2016 March 31, 2017

Employees' Pension Insurance 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
End of Mar. 2016 1,347 → End of Mar. 2017 1,513

TOPIX

Changes in Market Indices of Foreign Equities
End of Mar. 2016 17,685 → End of Mar. 2017 20,663

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

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

6,300(Point)
7,800

6,100

19,000

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

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
14,000March 31, 2016

June 30, 2016

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

Employees' Pension Insurance 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: %)FY2016FY2015End of FY

End of Q1

End of Q2

End of Q3

End of FY

Domestic bonds

47.7

50.9

46.6

42.4

39.5

Domestic equities

15.8

16.6

17.5

19.7

19.5

Foreign bonds

10.9

11.2

10.8

12.4

12.1

Foreign equities

16.2

16.8

17.2

19.9

20.3

Short-term assets

9.5

4.5

7.9

5.6

8.6

Total

100.0

100.0

100.0

100.0

100.0

Composition by Asset Class(as of end of FY2016)
Short-term
assets8.6%

Foreignequities
20.3%

Domestic
bonds
39.5%

Foreignbonds
12.1% Domestic
equities
19.5%(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

Employees' Pension Insurance 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 +4.16% for the overall assets.
(Unit: %)Modified total
returnDomestic bonds
Domestic equities
Foreign bonds
Foreign equities
Short-term assets

Q1

Q2

FY2016
Q3

-2.49

1.02

5.81

0.04

4.16

2.04

-1.44

-1.22

-0.36

-0.79

-7.21

7.21

14.54

0.72

14.76

-8.16
-7.87
0.00

-0.59
3.71
0.00

7.68
16.69
0.00

Q4

FY total

-3.53
2.46
0.00

-5.23

Realized return

Q1

Q2

0.60

0.37

0.69

Changes in modified total return
5.81%

4.16%
4.13%
1.02%
0.04%
Q1

Q2

Q3
-1.50%

Q4
Each quarter-2.49%

Aggregate

14.43
0.00

(Unit: %)FY2016
Q3

7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
-1.00%-2.00%-3.00%Q4

FY total

0.58

2.24

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%

Modified total return (by asset class)14.43%

14.76%

4.16%
0.00%
Domestic Domestic
bonds
equities-0.79%

Foreignbonds-5.23%

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

Employees' Pension Insurance 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 +4.16%, while the excess return was -1.98%.
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 -0.79%, which exceeds the benchmark return (-1.15%) by 0.36%.
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 +14.76%, which exceeds the benchmark return (+14.69%) by 0.07%.
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 -5.23%, which exceeds the benchmark return (-5.41%) by 0.19%.
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 +14.43%, which was below the benchmark return (+14.77%) by 0.34%.
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)
OverallassetsModified total return
Benchmark return*(Unit: %)Domestic Domestic
bonds
equities

Excess Returns

Foreignbonds

Foreignequities

0.50%

0.36%

4.16

-0.79

14.76

-5.23

14.43

-0.50%

6.14

-1.15

14.69

-5.41

14.77

-1.00%

-1.98

0.36

0.07

0.19

-0.34

* 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.

10

0.19%

Domestic
equities

Foreign
bonds

0.00%
Overallassets-1.50%

Excess return

0.07%-2.00%-2.50%-1.98%

Domesticbonds

Foreignequities-0.34%

Employees' Pension Insurance 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 return, 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

Asset allocation
factor①-0.78%-0.65%
0.36%-0.61%-0.42%

Individual asset
factor
②
0.15%
0.02%
0.03%
-0.07%
0.00%

Total

-2.10%

0.12%

BenchmarkComposite
return by asset benchmark return①＋②-0.63%-0.63%
0.39%-0.68%-0.42%

Domestic bonds-1.15%

Domestic equities

14.69%

Foreign bonds-5.41%

Foreign equities

14.77%

Short-term assets-0.04%

6.14%-1.98%The return for overall investment assets was +4.16%, while the composite benchmark return was +6.14% and the excess return was-1.98%.
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 than thecomposite 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

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fiscal Year 2016 Investment Income
The investment income for FY2016 was +JPY215 billion (for overall assets).
(Unit: JPY100M)
FY2016

Investment income
Domestic bonds

Q1

Q2

Q3

-1,285

509

2,903

523

-353

2,903

3,000
2,500

Q4

-280

Changes in investment income(Unit: JPY100M)

FY total

23
-79

2,150
-188

2,150

2,000

2,127

1,500
1,000

509

500

23

0

Domestic equities

-628

587

1,297

74

1,331

-500

Q1

Q2

-1,000Foreign bonds

-481

-32

426

-233

-320

Foreign equities

-699

307

1,460

260

1,327

Short-term assets

0

0

0

0

0

(Unit: JPY100M)

Q4
Each quarter-1,285Aggregate

Investment income (by asset class)
2,500(Unit: JPY100M)
2,150

2,000
1,500

FY2016

Realized income-1,500

Q3
-776

Q1

Q2

Q3

Q4

FY total

1,000

287

174

325

279

1,066

500

1,331

1,327

0
0
-500

Domestic Domestic
bonds
equities-188

Foreignbonds-320

Foreign Short-term
equities
asset

Overallassets*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

Employees' Pension Insurance 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

22,73024,6901,960

22,02323,497

1,474

20,776

21,891

1,115

20,486

21,454968

Domestic equities

7,842

8,053

211

8,073

8,820

747

8,308

10,186

1,878

8,745

10,601

1,856

Foreign bonds

5,713

5,409

-305

5,743

5,456

-286

6,256

6,382

127

6,737

6,590

-148

Foreign equities

7,411

8,155

745

7,641

8,652

1,010

7,849

10,251

2,402

8,441

11,031

2,590

Short-term assets

2,163

2,163

0

3,974

3,974

0

2,890

2,890

0

4,649

4,649

0

Total

45,85948,4692,610

47,45350,3982,945

46,07951,602

5,523

49,05854,324

5,266(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-5,262

Domestic equities
590

Foreign bonds

Foreign equities

1,020

850

(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 from the Transitional Long-term Benefit Association Reserve Fund in December 2016.

13

Employees' Pension Insurance 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 in the asset mix declined, staying within the deviation
tolerance except for the end of April and the end of June. The share of other assets increased, staying within the deviation tolerance
throughout the fiscal year.
In addition, the estimated tracking error (*) for the entire fund 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
9月末
11月末
1月末
Sep.
Nov.
Jan.

End of
3月末
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.

End of
9月末
Sep.

End of
11月末
Nov.

End of
1月末
Jan.

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

End of
3月末
Mar.

(%)
5.0

Deviation tolerance (upper limit: 39%)

Estimated tracking error concerning overall funds

4.0
Domestic Equities Benchmark portfolio (25%)

3.0
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.

0.0

End of 11月末
End of
End of
9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
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.

14

End of
3月末
Mar.

End of Mar.

3月末

End of May

5月末

End of Jul.

7月末

End of Sep. End of Nov. End of Jan.

9月末

11月末

1月末

End of Mar.

3月末

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fiscal Year 2016 Fees
The amount of fees totaled about JPY2.5 billion in fiscal year 2016.
The fee rate relative to the value of investment assets came to 0.05%.
(Unit: JPY100M, %)FY2016Fees

Fee rate

Domestic bonds

6

0.02

Domestic equities

7

0.07

Foreign bonds

3

0.05

Foreign equities

9

0.10

Overall assets

25

0.05

(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

15

Employees' Pension Insurance 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

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Basic Approach to Investment○ As a basic policy, the Federation shall make investments for the purpose of contributing to the stable management of the Employees
Pension Insurance scheme operations in the future, from a long-term perspective and in a stable and efficient manner for the benefit of theinsured of the Employee Pension Insurance.
○ 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.
○ In addition, in order to ensure investment returns which is set as the investment targets of managed funds provided in Article 79-6,
Paragraph (1) of the Employees' Pension Insurance Act, a benchmark portfolio shall be set and appropriately managed, and efforts shall bemade to earn the benchmark return for each asset class, as well as generating benchmark returns for each asset class over the long term.

Basic Policy for Management and Investment of Employees' Pension Insurance Benefit Association Reserve Fund (Extract)
1. Basic Policy
Especially keeping in mind that the Employees' Pension Insurance Benefit Association Reserve Fund is part of insurance premiums
collected from insured persons of the EPI and valuable resources for funding future pension benefits, the funds shall be managed with theobjective of contributing to the stable operation of EPI schemes in the future by investing it safely and efficiently "solely for" ("for" in thecase of investing in line with the objectives of the Act under Article 79-3, Paragraph (3), of the EPI Act) the interests of insured persons of the
EPI from the long-term perspective.
Accordingly, the Employees' Pension Insurance Benefit Association Reserve Fund shall be managed and invested with an asset mix
established from the long-term perspective (the "benchmark portfolio") based on appropriately diversifying investments in multiple assets thatdiffer in risk/return and other characteristics ("diversified investment").
2. Investment target
Investment of the Employees' Pension Insurance Benefit Association Reserve Fund shall be managed appropriately by establishing a
Benchmark Portfolio, so as to secure investment returns targeted for managed funds provided in Article 79-6, Paragraph (1) of the EPI Act(the "managed funds").
In doing so, attention shall be paid not to distort price formation in the market and private sector investment activities.
In addition, efforts shall be made to secure benchmark returns for each asset class in each fiscal year by appropriately selecting, managing
and assessing entrusted investment management institutions, as well as securing benchmark returns for each asset class over the long term.
17

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Benchmark Portfolio and its Verification○ Benchmark portfolio (asset mix)
Domestic bonds Domestic equities

Foreign bonds

Foreign equities

Asset mix

35%

25%

15%

25%

Deviation tolerance

±15%

±14%

±6%

±12%

18

Employees' Pension Insurance 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 plan, and newly established Documents (1) and (2).

19

Employees' Pension Insurance 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 managing structures and an increase ininvestees 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

Employees' Pension Insurance 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 meetings 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

Employees' Pension Insurance 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

Abstension

Rate

Rate

Total
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 andEmployees
OthersAmendment to Articles of Incorporation

29,110(855)

23,504(23)

80.7%(2.7%)

8,253
5,913
4,026
5,396
820
467
31
15
27
131

5,719 69.3%
4,880 82.5%
3,582 89.0%
5,146 95.4%
570 69.5%
235 50.3%
29 93.5%
11 73.3%
16 59.3%
131 100.0%

Vote-against ratein the previous
year

5,606 19.3%(832) (97.3%)

0
(0)

0.0%
(0.0%)

18.8%(98.5%)

2,534
1,033
444
250
250
232
2
4
11
0

30.7%
17.5%
11.0%
4.6%
30.5%
49.7%
6.5%
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%

30.6%

776

501

64.6%

275

35.4%

0

0.0%

3,795
3,511

2,975
2,720

78.4%
77.5%

820
791

21.6%
22.5%

0
0

0.0%
0.0%

0.0%

(Note 1) The figures include the results of theexercise of voting rights before
October 2015, when the pension plans
16.9%
were integrated into the EPI.
17.0%

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 49.7%). The major reason for this is thatseveral 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

Employees' Pension Insurance 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)
Vote forItems on agenda

Vote against

Abstension

Rate

Rate

Total
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 andEmployees
OthersAmendment to Articles of Incorporation

14,368(1458)

12,458 86.7%(574) (39.4%)

4,338
865
2,444
284
1,176
217
419
154
269
563

3,834 88.4%
848 98.0%
2,214 90.6%
284 100.0%
1,056 89.8%
203 93.5%
360 85.9%
153 99.4%
259 96.3%
489 86.9%

1,853 12.9%(835) (57.3%)

Vote-against ratein the previous
year

57
0.4%
(49) (3.36%)

7.8%(47.4%)

493
15
229
0
120
14
59
1
10
74

11.4%
1.7%
9.4%
0.0%
10.2%
6.5%
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% (Note) The figures include the results of theexercise of voting rights before October
12.0%
2015, when the pension plans were
7.4%
integrated into the EPI.

7.5%

748

625

83.6%

122

16.3%

1

0.1%

16.5%

3,950
435

3,108
363

78.7%
83.4%

800
72

20.3%
16.6%

42
0

1.1%
0.0%

15.8%
14.3%

For investee companies in somecountries, voting rights are not exercised
considering costs for exercise and share
blocking.*(*) A scheme whereby shareholders exercising voting
rights are restricted from selling shares for acertain 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 ashareholder’s right 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

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Diversification of eligible investment instruments (investment in alternative assets) ①○ To pursue diversified investment of investment instruments, the Federation discussed alternative investment, etc.
○ For new investment instruments, the Federation discussed fund investment based on generally accepted expert knowledge, under the appropriatemonitoring by the Fund Management Committee. Namely, the Federation established the investment policies in advance based on the discussion at its
Fund Management Committee, on the conditions that (i) diversified investment would be effective, (ii) there is sufficient evidence to support the
expectation that excess returns can be obtained, and (iii) investment and risk management structures necessary for the investment are in place, andreported to the Fund Management Committee the status of implementation and matters requested by the Committee in a timely manner.
○ In this connection, because non-traditional assets are different from traditional assets in many points, such as marketability, profitability, individuality,transaction cost and information disclosure, the improvement of investing entities would not be sufficient to address this problem. Therefore, theFederation conducted a study with due consideration of the development of the market environment, including steady improvement of the earning
capacity of each asset and development of the secondary market.

Investment policy pertaining to diversification of eligible investment
instruments (investment in alternative assets) (Excerpt)
1. Definition of diversification of eligible investment instruments(i) Definition of diversification of eligible investment instruments"Diversification of eligible investment instruments" means making investments in assets whose characteristics, such as the risk/return
profiles, are different from those of traditional assets such as equities and bonds ("alternative assets").
(ii) Scope of alternative assets
Alternative assets are assets such as real estate, infrastructure and private equities, and negotiable securities, trust beneficiary rights andother assets backed by those assets.
2. Purpose of diversification of eligible investment instruments
Diversification is used to promote diversified investment of the Employees' Pension Insurance Benefit Association Reserve Fund for the
purpose of investing the funds safely and efficiently from a long-term perspective.

24

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Diversification of eligible investment instruments (investment in alternative assets) ②
Investment policy pertaining to diversification of eligible investment
instruments (investment in alternative assets) (Extract)
3. Classification of alternative assets in the benchmark portfolio(1) Classification of alternative assets in the benchmark portfolio
Alternative assets are classified into domestic bonds, domestic equities, foreign bonds or foreign equities according to their risk/return profiles and othercharacteristics.
(2) Share of alternative assets in the asset mix of the portfolio
The share of alternative assets in the asset mix is limited to a maximum of 5% of the overall assets of the Employees' Pension Insurance Benefit
Association Reserve Fund.
4. Matters to note when diversifying eligible investment instruments
The National Federation of Mutual Aid Associations for Municipal Personnel (hereinafter referred to as the "Federation") takes note of the following
matters when diversifying eligible investment instruments.
(i) In principle, investment shall be diversified between traditional assets, such as equities and bonds, and alternative assets and across different types ofalternative assets.
(ii) Diversification shall made after the effects of diversified investment have been recognized and sufficient evidence to support the expectation that an
excess returns can be obtained has been obtained.
(iii) Because alternative assets are different from traditional assets in many points, such as marketability, profitability, individuality, transaction cost, andinformation disclosure status, the Federation shall conduct a study with due consideration of the development of the market environment, including thesteady improvement of the earning capacity of each asset and the development of the secondary market.
(iv) The Federation shall make alternative investment after developing the investment and risk management systems necessary for the investment (including
hiring personnel with advanced expert skills).
(v) The Federation shall use the expert knowledge of the Fund Management Committee.

< Specific measures >○ Discussion at the Fund Management Committee
The Fund Management Committee discussed diversifying eligible investment instruments (investment in alternative assets), and issued arecommendation dated September 30, 2016, determining the diversification of eligible investment instruments (investment in alternative
assets) to be appropriate. Based on this, the Federation is to develop investment and risk management structures necessary for making
investment in alternative assets, and will start inviting public applications for alternative asset investment products in fiscal year 2017.
25

Employees' Pension Insurance 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 passive investments in domestic bonds and active investments in foreign bonds, and started the investments fromfiscal 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.
(i) Domestic bonds (passive investment)
Under the basic policy for the administration and investment of funds established in relation to the integration of the Employee Pension
Plans, investment in domestic bonds which was formerly based on a ladder-type portfolio was changed to be based on NOMURA-BPI Overall
as a benchmark. So, the Federation invited public applications of entrusted investment management institutions for passive investment ofdomestic bonds, and selected two products.

(ii) 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.

26

Employees' Pension Insurance 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 on regular meetings on theoverview of investment results and future investment policies.
For the assessment 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).
(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.

27

Employees' Pension Insurance 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
the Federation (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 operation, annual business plans, budgets and accountsettlement, 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 theadministration and investment of the Employees' Pension Insurance Benefit Association Reserve Fund, Annuity Retirement Benefit Association
Reserve Fund and Transitional 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 for investment 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, the Senior Investment Specialist, the Manager of Investment Planning Division, the Manager of In-house Investment Division, theManager of Fund Management Division and other members as may be deemed necessary. In principle, the council regularly meets once a month,and from time to time depending on the necessity.

28

Employees' Pension Insurance 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

President

AuditorRecommendation
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 management

29

Employees' Pension Insurance 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.

30

Employees' Pension Insurance 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 appropriately implements risk management concerning investment in accordance with the implementation policy for risk
management concerning investment of the fund in consideration of the following points: that investment of funds should be made safely
and efficiently from a long-term perspective; that diversified investments should be maintained in principle; and that the relationshipbetween liabilities and the funds of all local public service personnel mutual aid associations in the future should be taken into
consideration.

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 the investment offunds 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 the benchmark portfolio through appropriate
diversification across multiple asset classes with different risk/return profiles and other characteristics (hereinafter referred to as "diversified
investment") in principle.
(3) Employees’ Pension Insurance 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 employees' pension insurance operations in the future.

31

Employees' Pension Insurance 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 thebenchmark 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 the benchmark 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 ofthe deviation tolerance.
○ In addition, flexible investment can be made within the deviation tolerance in line with an investment policy formulated through deliberation at the FundManagement Committee. In this regard, the Federation confirms that the existing deviation is in line with the investment policy.
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 undercertain 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 and investment 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 toeach 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 theviewpoint of revising asset allocations (rebalancing) and smooth conversion of assets into cash. In addition, as the Federation entrusts the operation ofsome investment-related 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 returnand the return that 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.

32Employees' Pension Insurance 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 declines in yields 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.
(1) Invitation of public applications of active fund of foreign bonds with exchange hedging
Amid the protracted excessively low interest rates, as the yields of bonds of various terms contained in NOMURA-BPI Overall which is apolicy benchmark, are negative, the Federation invited public applications for active fund of foreign bonds with exchange hedging to expand
its investment strategies, and selected entrusted investment management institutions.
For the selection, the Federation reviewed the investment policy and investment process of products, and selected entrusted investment
management institutions based on a comprehensive evaluation from both quantitative and qualitative aspects including fees.
The fund is scheduled to be established in fiscal year 2017.
(2) Others- For in-house investment fund for buy-and-hold investment strategy, the Federation withdraws 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.
- The Federation discussed real property investment as alternative investment (an invitation for public applications is to be started in fiscal
year 2017).
- For passive investment of domestic bonds, the Federation instructed the institutions to refrain from purchasing bonds with negative yields.

33

Employees' Pension Insurance Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Section 3 Reference Data

34

Employees' Pension Insurance 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: %)FY 2015(second half)

FY20162.29

2.24(Unit: JPY100M)
FY 2015(second half)

Realized income

1,111

1,066

(Income gain)

(349)

(820)
(Unit: JPY100M)(Unit: %)Modified total return

FY 2015(second half)

FY20160.89

4.16

FY2016

FY 2015(second half)

FY2016

Investment income

473

2,150

Domestic bonds

984

-188

Domestic equities

-330

1,331

Domestic bonds

3.32

-0.79

Domestic equities

-3.98

14.76

Foreign bonds

-2.32

-5.23

Foreign bonds

-105

-320

Foreign equities

-1.04

14.43

Foreign equities

-75

1,327

Short-term assets

-0.03

0.00

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.
35

Employees' Pension Insurance 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, %)Total
Domestic bonds Passive
ActiveTotal
Domestic equities Passive
ActiveTotal
Foreign bonds Passive
ActiveTotal
Foreign equities Passive
ActiveShort-term assets
Total

End of FY2015
End of FY2016
Total market
Total market
Composition
Composition
value
value
25,81047.67
21,45439.49
19,99936.94
15,659
28.82
5,811
10.73
5,795
10.67
8,566
15.82
10,601
19.51
6,735
12.44
6,630
12.20
1,831
3.38
3,971
7.31
5,875
10.85
6,590
12.13
5,694
10.52
4,968
9.15
181
0.34
1,622
2.99
8,744
16.15
11,031
20.31
7,020
12.97
9,028
16.62
1,724
3.18
2,003
3.69
5,145
9.50
4,649
8.56
54,140100.0054,32436

100.00Employees' Pension Insurance 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)
CancellationNew
adoption

FY2016End of FY

CancellationNew
adoption

End of FY

Passive

0

0

2

2

2

2

Active

0

8

8

0

0

8

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

24

44

2

9

51

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.

37

Employees' Pension Insurance 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

2

0.01

6

0.02

Domestic equities

2

0.02

7

0.07

Foreign bonds

1

0.01

3

0.05

Foreign equities

3

0.04

9

0.10

Overall assets

8

0.01

25

0.05

(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.

38

Employees' Pension Insurance 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 indirectly held through entrusted investment and through in-house investment as ofthe 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 and equity 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
2

Government of Japan
Japan Finance Organization for Municipalities
Japan Expressway Holding and Debt
3
Repayment Agency
4 Joint LGB
5 Tokyo Metropolitan Government
6 East Japan Railway Company
7 Osaka Prefecture
8 Saitama Prefecture
9 Aichi Prefecture
10 Chiba Prefecture
Total
363 Issuers

Total market
value(in 100M yen)
6,457
984

No.

Names of issuer

1 UNITED STATES OF AMERICA
2 FRENCH (REPUBLIC OF)
3 ITALY (REPUBLIC OF)
4 UNITED KINGDOM (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
394 Issues

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 KDDI Corporation
7 Mizuho Financial Group
8 Honda Motor Co., Ltd.
9 Sony Corporation
10 Keyence Corporation
Total
2,044 Issues

596
518
467
389
386
352
351
341
21,3605,046,200
34,267,900

Total market
value(in 100M yen)
310
243

3,538,100

170

4,049,500
1,890,100
4,606,100
65,568,300
4,035,300
2,818,400
222,500

167
149
137
136
136
106
99
10,535

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)
2,619
591
580
441
397
366
141
133
130
120
6,542

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 EXXON MOBIL CORP
9 WELLS FARGO & CO
10 NESTLE SA (REGISTERED)
Total
2,564 Issues

No. of shares
1,226,323
1,748,201
97,359602,649
631,253881,684
91,064920,988
1,347,683
909,757

Total market
value(in 100M yen)
196
128
96
95
88
86
86
84
84
78
10,945(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, Inc.

39