Fiscal Year 2017 Review of Operations
Annuity Retirement 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

Annuity Retirement Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Table of Contents
・Fiscal Year 2017 Investment Results (Overview)・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 3
Section 1 Administration and Investment of Funds in FY2017
・Fiscal Year 2017 Asset Mix ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 5
・Fiscal Year 2017 Investment Return・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 6
・Fiscal Year 2017 Investment Income ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 7
・Fiscal Year 2017 Value of Assets・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 8
・Fiscal Year 2017 Status of Risk Management・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 9
・Fiscal Year 2017 Fees・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 10
Section 2 Systems and activities concerning administration and investment of funds
・Basic Approach to Investment・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 12
・Benchmark Portfolio ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 13
・Governance ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 14
Section 3 Reference Data
・Changes in the investment return, etc. (since the integration of employee pension plans)・・・・・・・・・・・・・・・・・・・・・・・・・・ P 20
・Changes in the value of investment assets and the asset mix (since the integration of employee pension plans)・・・・・・ P 21
・Issues Held (as of the end of Fiscal Year 2017)・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ P 22

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Annuity Retirement Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fiscal Year 2017 Investment Results (Overview)

Investment return+0.42% *Realized return (book value basis)(FY2017)

Investment income +JPY826 million *Realized income(FY2017)(book value basis)

Value of investment assets: JPY253.4 billion *Book value(End of FY2017)* As pension investment funds are intended for long-term investment, the investment status must be judged from the long-term
perspective.
(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Annuity Retirement Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Section 1 Administration and Investment of Funds in FY2017

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Annuity Retirement Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fiscal Year 2017 Asset Mix
The composition by asset (book value basis) is as follows:
Composition by Asset Class(as of end of FY2017)(Unit: %)FY2016FY2017

End of FY

End of Q1

End of Q2

End of Q3

End of FY

Domestic bonds

95.4

99.9

98.3

100.0

97.2

Short-term assets

4.6

0.1

1.7

0.0

2.8

Total

100.0

100.0

100.0

100.0

Short-term
assets2.8%

100.0(Note 1) Concerning the benchmark portfolio, the share in the mix is 100% for domestic bonds.
(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.

5

Domestic
bonds
97.2%

Annuity Retirement Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fiscal Year 2017 Investment Return
The realized return for FY2017 was 0.42% for the overall assets.
Domestic bonds held by the Annuity Retirement Benefit Association Reserve Fund were evaluated based on book value on
the premise of continued holding until maturity.
Changes in realized return(Unit: %)0.45%

FY2017
Q1

Q2

Q3

Q4

FY total

0.40%

Each quarter

0.35%

Aggregate

0.42%

0.30%

Realized return

0.10

0.10

0.10

0.12

0.42

Domestic bonds

0.10

0.10

0.10

0.12

0.43

0.30%

0.25%
0.20%

Short-term assets

0.00

0.00

0.00

0.00

0.19%

0.15%

0.10%

0.00

0.10%

0.10%

0.10%

Q1

Q2

Q3

0.12%

0.05%
0.00%

(Unit: %)(Reference)
FY2017
Q1
Modified total return

0.42

Q2

0.38

Q3

0.33

Q4

Modified total return by asset (aggregate for the fiscal year)
0.50%

Q4

FY total

0.55

1.73

0.45%

0.43%

0.42%

0.40%
0.35%
0.30%
0.25%
0.20%
0.15%

(Note 1) The return in each quarter is the period rate.
(Note 2) The realized return and modified total return represent figures after the deduction of fees, etc.
settled within the relevant period.
(Note 3) The modified total return represents the realized return adjusted for the effects of changes invaluation profits/losses that would arise if the assets are evaluated based on market value.

6

0.10%
0.05%

0.00%
0.00%

Domestic bonds

Short-term assets

Overall assets

Annuity Retirement Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fiscal Year 2017 Investment Income
The realized income for FY2017 was JPY826 million (for overall assets).
Domestic bonds held by the Annuity Retirement Benefit Association Reserve Fund were evaluated based on book value on
the premise of continued holding until maturity.
Changes in realized income(Unit: JPY100M)(Unit: JPY100M)

FY2017

Realized income

9.00
8.00

Each quarter
Aggregate

Q1

Q2

Q3

Q4

FY total

7.00

1.53

1.84

2.09

2.80

8.26

6.00

8.26

5.46

5.00

Domestic bonds

1.53

1.84

2.09

2.80

8.26

Short-term assets

0.00

0.00

0.00

0.00

0.00

4.00
3.37

3.00
2.00

1.53

2.80
2.09

1.84

1.00

(Unit: JPY100M)(Reference)

Q1

FY2017
Q1

Q2

Q3

0.00

Q4

FY total

6.60

7.12

6.91

Q3

Q4

(Unit: JPY100M)

9.00

Investment income

Q2

Investment income by asset (aggregate for the fiscal year)

13.12

33.75

8.26

8.26

8.00
7.00
6.00

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

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5.00
4.00
3.00
2.00
1.00
0.00
0.00
Domestic bonds

Short-term assets

Overall assets

Annuity Retirement Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fiscal Year 2017 Value of Assets
The book value, total market value and valuation gains/losses by asset is as follows.
(Unit: JPY100M)

FY2017FY2016End of FY
Book
value

End of Q1

Total market Valuations
profits/losses
value

Book
value

End of Q2

Total market Valuations
profits/losses
value

Book
value

End of Q3

Total market Valuations
profits/losses
value

Book
value

End of FY

Total market Valuations
profits/losses
value

Book
value

Total market Valuations
profits/losses
value

Domestic
bonds

1,447

1,428

-19

1,650

1,637

-13

1,932

1,923

-9

2,146

2,143

-2

2,464

2,470

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Short-term
assets

70

70

0

1

1

0

33

33

0

1

1

0

70

70

0

1,517

1,498

-19

1,651

1,638

-13

1,964

1,955

-9

2,146

2,144

-2

2,534

2,540

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Total

(Note 1) Due to rounding, the total sum of individual figures may not necessarily add up to Total.
(Note 2) The total market value and valuation profits/losses are indicated here for reference. The valuation profits/losses were tentatively calculated based on themarket value.
(Note 3) Starting in fiscal year 2016, short-term assets held by each fund were classified into relevant asset classes in principle.

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Annuity Retirement Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fiscal Year 2017 Status of Risk Management○ Domestic bonds
1. Change in duration
A modified duration is the one of the indicators of a market risk for bond investment, which shows sensitivity of bondprices in the case of a fluctuation in interest rate to a certain degree (hereinafter “duration.”)The modified duration of domestic bonds was from 13.22 to 13.62.
Changes in duration of domestic bonds
15.00
14.50
14.00
13.50
13.00
12.50
12.00

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

9

Dec

Jan

Feb

Mar

Annuity Retirement Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Fiscal Year 2017 Fees
There are no fees related to investment because the full amount of funds of the Annuity Retirement Benefit Association
Reserve Fund is invested in domestic bonds, etc. through in-house investment.

10Annuity Retirement Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Section 2 Systems and Activities Concerning Administration and Investment of Funds

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Annuity Retirement Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Basic Approach to Investment○ As a basic policy, funds shall be invested for the purpose of contributing to the stable management of annuity retirement benefit plan operations inlight of the characteristics of a cash balance-type pension program, whose benefit level is linked to the government bond yield or other benchmarks.
○ In addition, funds shall be managed appropriately by establishing a benchmark portfolio so that investment returns needed for the fund (i.e. assumed
return (meaning the assumed return stipulated in Article 28, Paragraph (5) of the Order for Enforcement of the Local Public Service Mutual Aid
Association Act (Cabinet Order No. 352 of 1962))) will be generated with the minimum risk.

Basic Policy for Management and Investment of Annuity Retirement Benefit Association Reserve Fund (Extract)
1. Basic Policy
The Federation shall manage the Annuity Retirement Benefit Association Reserve Fund with the objective of contributing to thestability of the annuity retirement benefit plan operations based on the characteristics of a cash-balance pension plan whose benefit
level is linked to government bond yields or other benchmarks, from the long-term perspective in a safe and efficient manner.
Accordingly, the Federation shall administer and invest the Annuity Retirement Benefit Association Reserve Fund by establishing
an asset mix from the long-term perspective (the “benchmark portfolio”).
2. Investment target
The investment of the Annuity Retirement Benefit Association Reserve Fund, which has the characteristics of a cash-balance
pension plan, shall be managed appropriately by establishing the benchmark portfolio so that investment returns needed for the fund(i.e., assumed return (meaning the assumed return stipulated in Article 28, Paragraph (5) of the Order for Enforcement of the Local
Public Service Mutual Aid Association Act (Cabinet Order No. 352 of 1962))) will be generated with the minimum risk.
In doing so, attention shall be paid not to distort, among other things, price formation in the market and private sector investment
activities.
<Change of basic policy>
By the system revision in October 2017, it was decided that Annuity Retirement Benefit Association Reserve Fund is to be used as a
new fund resource for loan business of member associations (associations constituting the Federation). Due to this revision, effectivefrom fiscal year 2018, the basic policy was amended so as to enable a part of the Annuity Retirement Benefit Association Reserve Fundto be deposited with member associations. Specifically, new provisions on the investment of deposits by member associations wereadded as a part of investment methods.

12Annuity Retirement Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Benchmark Portfolio
1. Benchmark portfolio (asset mix)
Domestic bonds
Asset mix

100%

The Federation manages the Annuity Retirement Benefit Association Reserve Fund with the objective of contributing to
the stability of the annuity retirement benefit plan operations based on the characteristics of a cash-balance pension plan
whose benefit level is linked to government bond yields or other benchmarks. To this end, the Federation determined an
asset mix from the long-term perspective.
In relation to the asset mix of the Annuity Retirement Benefit Association Reserve Fund, the full amount of funds isinvested in domestic bonds.

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Annuity Retirement Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Governance ①
1. Organization
As of April 1 of 2018, the Federation has executives consisting of one president, 13 managing directors and three auditors, including one full-time managing
director and one full-time auditor with academic knowledge. The maximum number of employees is 120.
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 and Fund Management Division), the Pension Department (Pension
Planning Division, Pension Information System Division, Pension Inspection Division, Pension Benefit Division and Retirement Pension Benefit Division), as wellas the Investment Risk Management Office and Audit Office.
The Investment Risk Management Office was newly established on April 1, 2018, as a section separate from the Finance Department from the standpoint of
improving and reinforcing risk management and the mutual checks and balances function.

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 operations, annual business plans, budgets and account settlement, disposalof 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, financeand fund management, which studies expert matters pertaining to the establishment and revision of basic policies and the administration 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 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 business administration andfund 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 a full-time managing director (hereinafter a “Senior 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, the Manager
of Fund Management Division, the Manager of Investment Risk Management Office, 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.

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Annuity Retirement Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Governance ②
7. Organizational structure of Federation
Report of status ofinvestment, risk
management, etc.

Fund Management
Committee

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

As of April 1, 2018

GeneralAssembly
Audits of businesses

President

Fund Investment Review
CouncilManaging Director

AuditorRecommendation

Cooperation

Long-term Benefit Fund
Committee(Discussion by representatives of Member
Associations, etc.)

Operational Management
Committee(Check and discussion by officers andemployees [monthly])
Status of investment, risk management, etc.

Secretary-General(Monitoring by certified public accountants, etc.)

Audit Office
Investment Risk
Management OfficeFinance Department
Chief Investment Specialist
Senior Investment Specialist

Investment Planning Division

In-house Investment Division

Fund Management Division

Basic policy, funding plan, benchmark portfolio

In-house investment

Entrusted investment management

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Risk management

Annuity Retirement 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 isrequired.

List of Committee Members (As of April 2018)
Yoshitaka Kai

Professor, The Kyoto College of Graduate Studies for Informatics

Yasuyuki Kato

Professor, Graduate School of Management, Kyoto University

Katsuyuki Tokushima

Chief Fixed Income Analyst, Financial Research Department, NLI
Research Institute

Masashi Toshino

Professor, Faculty of Economics, Seikei University

Hiroshi Miyai

President and Representative Director, Asset Management Life

Kenji Wada

Professor, Faculty of Business and Commerce, Keio University

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Annuity Retirement 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 canmean the magnitude of 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 andmultifaceted impacts of risks from a long-term perspective.
○ The Federation appropriately implements risk management for investment in consideration of the following points: thatinvestment of funds should be made safely and efficiently from a long-term perspective; and the characteristics of a cashbalance pension plan whose benefit level is linked to government bond yields or other benchmarks.

Implementation policy for risk management concerning investment of the fund (extract)
Basic approach concerning risk management
The National Federation of Mutual Aid Associations for Municipal Personnel appropriately conducts risk management
related to the investment of funds in light of the following matters.
(i) Investment of funds should be made safely and efficiently from a long-term perspective.
(ii) 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 othercharacteristics (hereinafter referred to as "diversified investment") in principle.
(iii) Each fund should be invested in consideration of the relationship between all Local Public Service Personnel Mutual
Aid Associations’ liabilities and the funds of all Local Public Service Personnel Mutual Aid Associations in the future.
(iv) Risk management shall be appropriately implemented in consideration of the characteristics of a cash-balance pension
plan whose benefit level is linked to government bond yields or other benchmarks.

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Annuity Retirement 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 tosecure returns 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 ratio of the fund from that of the benchmark portfolio.
• Specifically, for its asset as a whole, the Federation keeps track of and manages the status of the deviation of the fundfrom the benchmark in terms of the asset mix.
○ Management of asset administration institutions
The Federation requires asset administration institutions to fulfill the fiduciary responsibilities and develop systems toensure compliance with laws, and appropriately manages them by keeping track of their status of asset administration.
○ Verification of the benchmark portfolio
It is necessary to periodically verify the benchmark portfolio, which is formulated in consideration of long-term economic
forecasts. The Federation considers it necessary to check whether the existing benchmark portfolio is appropriate from theviewpoint of ensuring safe and efficient investment over the long term.
○ 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 theFund Management Committee.

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Annuity Retirement Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Section 3 Reference Data

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Annuity Retirement 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 return

2. Value of investment income(Unit: JPY100M)(Unit: %)FY 2015(second half)

FY2016FY2017

0.13

0.39

0.42

Domestic bonds

0.16

0.41

0.43

Short-term assets

0.02

0.00

0.00

Realized return(Reference)

8.06

FY2016FY2017

-3.30

1.73

FY2016FY2017

0.27

3.74

8.26

Domestic bonds

0.26

3.74

8.26

Short-term assets

0.01

0.00

0.00

Realized income(Reference)(Unit: %)FY 2015(second half)

Modified total return

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

Investment income

16.96

FY2016FY2017-32.3933.75(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.

20

Annuity Retirement 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

End of FY2017

Book value
Book value
Book value
Composition
Composition
Composition
balancebalancebalance

Domestic bonds

434

85.33

1,447

95.41

2,464

97.24

Short-term assets

75

14.67

70

4.59

70

2.76

Total

509

100.001,517

100.002,534

100.0021

Annuity Retirement Benefit Association Reserve Fund(National Federation of Mutual Aid Associations for Municipal Personnel)

Issues held (as of the end of Fiscal Year 2017)
The tables below show the top 10 bond issues held through in-house investment as of the end of March 2018, classified byissuer name. For information concerning bond issues ranked 11th or lower, see the website of the Federation.
The status of holding related to issuers does not represent the assessment of issuers, etc. by the Federation.
○ Domestic bond (in order of book value balance)
No.
1
2
3
4
5
6
7
8
9
10
Total

Names of issuer
Japan Finance Organization for Municipalities
Fukuoka Prefecture
Aichi Prefecture
Nagoya City
Hiroshima Prefecture
Hyogo Prefecture
Yokohama City
Osaka City
Government of Japan
Kyoto Prefecture
54 IssuersBook valuebalance(in 100M yen)
1523
41
41
36
35
35
34
33
33
33
2,464

(Note 1) The names of issuers are provided by the Federation based on data registered in the T-STAR/GX system of Nomura Research Institute and BarraOne system
of MSCI as of the end of March 2018.
(Note 2) The book value balance of bonds is an aggregated figure calculated for each issuer by the Federation based on data registered in T-STAR/GX system of
Nomura Research Institute.

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