Approach to the “Rules on Complex Investment Trusts Similar to Over-the-counter
Derivatives Transactions” and “Regulations for Direct Offering, etc. of Beneficiary
Certificates, etc.”
Established on February 17, 2011
Revised on December 13, 2012

Interpretation of the provisions of Article 3, Paragraph 1 of the “Rules on Complex Investment Trusts
Similar to Over-the-counter Derivatives Transactions” and Article 4, Paragraph 2 of the “Regulations for
Direct Offering, etc. of Beneficiary Certificates, etc.”
Q1 It is stipulated that “when soliciting acquisition of beneficiary certificates of new investment trusts
among those established by the Management Company and managed under instructions from thesettlor, the Management Company shall fully understand the characteristics and risks of theinvestment trust and shall not solicit acquisition of those for which a suitable customer to acquire
the investment trust cannot be supposed.” Why such provision was established?

This provision is one of the requirements by the Financial Services Agency in order to strengthen its sales
and solicitation rules by voluntary regulation in the “Ideas for Restrictions on Uninvited Solicitation of
Derivatives Transactions” published by the Agency on September 13, 2010.
In the provision, as part of “practicing the principles of suitability,” it is stipulated that “for complex
structured bonds and investment trusts similar to over-the-counter derivative transactions, which are
difficult for individual customers to understand, the development of voluntary regulations to exercise suchprinciples of suitability is required.” Specifically, they demand “the establishment of standards todetermine whether or not solicitation could be commenced in accordance with the risk characteristics ofproduct and the nature of the customers (Criteria for the Commencement of Solicitation) as well as
conducting prior verification of the product as to its suitability for sale to investors (Suitability on
Reasonable Grounds).”
Behind these requirements are a large number of complaints received by consumer groups, which claimthat certain complex products with risk characteristics similar to derivative transactions have been sold tothe elderly who do not have substantial assets nor seem to have a high level of understanding for suchinvestment, resulting in their unexpected large losses incurred.
This provision is prescribed to put into practice the abovementioned “Suitability on Reasonable
Grounds.” It provides that whenever a Full Member (Management Company) solicits its customers toacquire a beneficiary certificate of a new investment trust, the Full Member shall verify in advance therelevant investment trust to be reasonable as an investment target at least for a certain type of customers andthat any investment trust for which the Full Member cannot think of suitable customers to market based onreasonable grounds shall not be solicited for acquisition.

－1－

Q2 What does the “Suitability on Reasonable Grounds” mean?

Regarding the principle of Suitability, in Article 40 of the Financial Instruments and Exchange Act
provides, it is provided that “investment management company shall not or cause to, fail to protect theirinvestors by conducting solicitation deemed inappropriate in light of such investors’ knowledge,
experiences, financial conditions and objectives of entering into such financial transaction.” In other words,
suitability means the appropriateness of solicitation for each customer.
In contrast, “Suitability on Reasonable Grounds” is a concept to seek confirmation that an investment
trust to be solicited is reasonable at least for a certain type of customers as an investment target. It should be
noted that the term “certain type of customers,” as used herein, means the scope of target customers for the
relevant investment for whom such investment is deemed reasonable in consideration of the attributes,
financial status, investment experiences, risk tolerance, etc. thereof.
To confirm that an investment trust is reasonable for a certain type of customers as an investment target
means, in other words, that the person soliciting such acquisition (Full Member (Management Company))must have a sufficient understanding of the said investment trust. For example, with regard to an investment
trust that is expected to be solicited for acquisition only to a certain type of customers as a result of priorverification, it is necessary to ascertain that appropriate solicitation activities be conducted by sharing theverification results among the departments concerned in accordance with certain internal rules, making thescope of the target customers widely known among the concerned parties, establishing the Criteria for theCommencement of Solicitation, if necessary, providing sufficient employee training, and so on.

Q3 What kind of investment trust does the “beneficiary certificate of new investment trust” mean?
“Beneficiary certificate of new investment trust” shall apply to investment trusts that are to be newly
solicited by the Full Member (Management Company) to their customers for investment after the effective
date of these Regulations.
However, no new verification process shall be required for any investment trust that has been once
verified at each solicitation for acquisition. In addition, with regard to any investment trust that has thesame product nature and risk characteristics as an investment trust that has already been verified,verification can be considered to have been made with the confirmation that such investment trusts are of
the same type. Naturally, in soliciting investment in any of these investment trusts, the Management
Company is expected to conduct their solicitation activities in conformity with the intentions andcircumstances of the investors in light of such investors’ knowledge, experiences, financial conditions, andobjectives of entering into such financial transaction contract.
In addition, among investment trusts that have been solicited to their customers prior to the effective dateof the Regulations, for example, a complex investment trust similar to the over-the-counter derivatives
transactions discussed herein may be examined again if it has not been properly established that the said－2－

investment trust is reasonable for a certain type of customers as an investment target under the existing
internal rules (e.g., the case where target party of the solicitation for acquisition has not been properly
examined).
The Regulations provide for the beneficiary certificates of new investment trusts. However, where it isconsidered that there has been a material change in the risks, etc. (price fluctuation risk, credit risk, liquidity
risk, etc.) of existing investment trusts that have been verified previously (including those that had beensolicited prior to the effective date of the Regulations) as result of sudden change in the investment
environment (e.g., fluctuations of market conditions, system change, increased consultation and complaints,etc.), such investment trusts may be re-examined as appropriate, and consideration may be possibly given
to changes in the target customers for solicitation or suspension of the solicitation for acquisition.
Contents and depth, responsible division, and procedures concerned with the verification must bepractically and appropriately determined in conformity with the actual conditions of each Management
Company and implemented according to the type and risk characteristics of each investment trust.

Q4 What are specifically expected by the text “to verify in advance that the relevant investment trust to
be solicited is reasonable at least for a certain type of customers as an investment target”?

Verification of the same detail is not necessary for all investment trusts, and flexible response is possible forplain products such as a listed share fund. Since the purpose of examining the Suitability on Reasonable
Grounds is to ascertain that the relevant investment fund is reasonable at least for a certain type ofcustomers as an investment target, vanilla funds without complex structure and widely recognized funds insociety require only simplified examination to identify and set the scope of certain type of customers.
On the other hand, for complex investment trusts, etc. similar to over-the-counter derivative transactions,
it will be imperative to perform more detailed examination. The following recommendations indicate theviewpoint from which verification should be performed, and do not require that verification process be
performed in the order of (1), (2), and (3). These verifications may be performed as a single process, or may
be conducted individually by different divisions. In addition, in the event that the solicitation for acquisitionis limited to qualified institutional investors (equivalent to the verification in (2)), the verification in (1)may be simplified or omitted, depending on the subject investment trust and/or the target investors.
(1) Decision on investment trust to be solicited(i) Nature and degree of risk
What kind of risk the customers would suffer and when such risk occurs. Then, it is reasonable toexamine if the size of such risk is acceptable to the customers. First, it is recommended to check
whether or not any investment trust with similar product and risk characteristics has already beenverified. If there does not exist any similar investment trust already verified, then the relevant
investment trust needs to be verified.
Verification shall be made in accordance with the characteristics of a product. Especially for
products with complicated structure, verification may be made carefully by conducting various－3－

simulations, comparisons, and analyses on items including the following. It should be noted that thetypes of risk are not limited to the following examples.
- Price fluctuation risk: Possible impact and its magnitude caused by fluctuations in interest rates,
stock prices, exchange rates, commodity prices, etc.
- Credit risk: Possibility of default of the concerned investment trust and effects on such trust caused bycredit deterioration of the issuer, guarantor, counterparty, underlying assets, etc.
- Liquidity risk: Liquidity of the concerned investment trust and effects on such trust caused by thelack of liquidity of the underlying assets.
(ii) Cost and performance
Verification is required for cost to be paid by the customers. Such cost may include fees, trust fees,
interest rates, etc., but actual amount or rate itself does not represent an issue. It is more important toexamine whether such amount or rate is reasonable and acceptable to the customers in light of the
product characteristics, trade practices, etc. For example, when introducing an investment trust withhigher sales commission and trust fee rates than those of investment trusts currently being offered, it isrecommended to verify the reasonableness of such high rates.
In addition, verification is required to review whether the performance expectation for thecustomers is reasonable according to the product attributes, etc. For example, it is appropriate to verify
whether the performance expectation of an investment trust with complicated structure is reasonable
in comparison with existing products with similar schemes or securities to be invested in. Furthermore,
it is appropriate to investigate whether or not the same level of performance can be obtained with asimpler structure or a lower risk while investing in the same type of asset. In this process, it is also
important to investigate that the expected interest yield, return, etc. are reasonable.
(2) Identification of target investors for solicitation for acquisition(i) Target customers
Based on the results of the verification in (1) above, the existence or non-existence and the scope oftarget customers for solicitation for acquisition will be identified.
As a result, the Full Member shall not engage in solicitation for acquisition of the concerned
investment trust when they are unable to identify suitable target customers thereof.
In addition to the verification performed in compliance with the Regulations, if the Full Member
determines that it is necessary to impose certain restrictions on solicitation activities with respect to an
investment trust, which they market (including setting conditions for the target customers andselection of uninvited customers for the investment), they may clearly state substance of such
restrictions.
(ii) Method of imposing possible restrictions
In addition to the verification performed in compliance with the Regulations, if the Full Member
determines that it is necessary to impose certain restrictions on solicitation activities with respect to an
investment trust, which they market, they need to decide which to apply the “Guidelines for theCommencement of Solicitation” or the “Criteria for the Commencement of Transactions” as a methodof restriction, as well as whether or not to obtain the letter of understanding from the relevant－4－customers.
(3) Method of solicitation for acquisition
Based on the results of the verification described in (1) and (2) above and decision on the format ofsolicitation for acquisition (through public offering or private placement), it is required to examine theappropriateness of the necessary marketing materials such as the prospectus, pre-contract documents,
advertising, etc.
Since it is important for the person who conducts solicitation for acquisition to have a sufficientunderstanding of the relevant investment trust with respect to its suitability on reasonable grounds, notonly appropriateness of the marketing materials but also awareness and understanding of Sales Officers
and Representatives to the effect shall be checked. In particular, regarding investment trusts withcomplex structure, it may be advisable to provide staff education such as in-house training.

Q5 Who should perform the prior verification? Should the Legal department or Compliancedepartments always perform them?

With regard to the decision on the suitability of an investment trust for solicitation for acquisition, theproduct department, which develops and creates such investment trusts, and/or the trading department,
which purchases such products, should be involved in determining the level of risks, etc. Based on suchdecision, it is considered desirable that the Sales management department, the Legal department, and theCompliance department should jointly identify target customers who are suitable for such investment trust.
The legal and compliance check does not always have to be conducted by an independent specialized
unit. For example, when attributes of the investment trust concerned are simple or degree of risk thereof issmall, or when only qualified institutional investors are solicited for acquisition, the manager of the productdepartment may conduct the legal and compliance check.
It is also possible to conduct the verification in committee or another organization in which eachdepartment concerned participates. Including such circumstances, it is indispensable to establish an internal
system for prior verification in advance.

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

Interpretation of the provisions of Article 3, Paragraph 2 of the “Rules on Complex Investment Trusts
Similar to Over-the-counter Derivative Transactions” and explanation of “Significant Matters” as set
forth in Article 4, Paragraph 3 of the “Regulations for Direct Offering, etc. of Beneficiary Certificates,
etc.”
Q6-1

What are the “Significant Matters” in connection with the offering or private placement andother business (hereinafter collectively referred to as “Direct Offering, etc.” ) of complex
investment trusts similar to over-the-counter derivative transactions?
In the case of engaging in offering or private placement and other business (“Direct Offering, etc.”) ofcomplex investment trusts similar to over-the-counter derivative transactions for the customers (excluding
professional investors ), the following items are regarded as Significant Matters among others, in addition
to risk, fees, etc. stated in a prospectus.
(i) Estimated losses (provisional estimate) assuming the worst-case scenario regarding the level offinancial indices, etc. relevant to the complex investment trust similar to over-the-counter derivativetransactions.
(ii)

Fact to the effect that in the event that the situation different from the premise assumed in (i) above

occurs, the amount of loss may further increase (including an explanation of such situation ).
(iii) Details of the estimate amount to be received by an investor in case of premature sale (cancellation),including the estimate amount to be received in case of premature sale or cancellation assuming aworst-case scenario in relation to the level of relevant index, etc. and the fact to the effect that theactual amount to be received for such premature sale or cancellation may be less than the estimate
amount provided.
Please refer to “Q6-2” and “Q6-4” for the method of explaining the estimate amount of loss on theassumption of the worst-case scenario mentioned in (i) and amount to be received as result of prematuresales (cancellation) under the assumption of the worst-case scenario mentioned in (iii).

Q6-2

What kind of explanation is necessary for the “estimate loss amount assuming the worst-casescenario (at time of maturity/redemption of contract),” which is a Significant Matter for a complex
investment trust similar to over-the-counter derivative transactions?

It is necessary to explain to the customers in plain language the extent to which losses are possible to be
incurred by such transaction in regard to the “estimate amount of losses based on the worst-case scenario.”
There are two ways to that effect:(Note) This “Q6-2“ explains the estimated loss amount at the time of redemption for an investment trust
similar to over-the-counter derivatives. Please refer to “Q6-4” for the estimated amount of loss
caused by early cancellation or premature sale.

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(i) The extent to which losses are possible to be incurred in light of historical price movements (e.g.,
track records) of the referenced financial indices.
(ii)

The extent to which losses are possibly incurred when the referenced financial indicator falls (orrises) to a certain degree. (Conduct sensitivity analysis by assuming multiple degrees of declines (orrises) of the relevant financial indicator.)
The method described in (i) is referred to as “explanation based on historical data,” while the method
described in (ii) is referred to as “explanation based on loss simulation.” In order to inform the customersof the amount of possible loss under the assumption of the worst-case scenario in an easy-to-understandmanner, it is considered essential to include, in principle, the estimate amount derived from the method
described in (i) in the explanatory materials of the transaction.
However, regarding the method in (i), there may be instances where there are no historical records
available for reference or measurement using historical data is not appropriate in view of the productattributes. See below for the examples of such products. In such circumstance, it may be recommended toinclude the estimate amount derived from the method described in (ii), an explanation as to why theestimate based on method of (i) is not given (or cannot be given) as well as circumstances where themaximum loss may occur.
Even if the estimate derived based on the method (i) is stated, it does not prohibit from including theestimate derived based on the method (ii) in accordance with the attributes of the relevant product.
Moreover, bearing in mind that the estimate based on the method (i) is calculated as per pastexperiences, it is necessary to additionally state that the loss incurred may further increase in an event ofsituation different from the premise, including an explanation as to what such situation may be. The
statement “there is a possibility of further increase in loss in an event of a situation different from thepremise” is required for any investment trust similar to over-the-counter derivative transactions. In
particular, regarding the product for which although there has been no major change in the index in thepast, the potential loss could substantially exceed the figures calculated based on the method (i) in viewof its product attributes, it is advisable to devise an explanation to prevent the customers frommisunderstanding that maximum loss will be only in the scope of the estimates calculated based on themethod (i).
On the other hand, if there is no clear reason not to state the estimate based on the method (i), it isconsidered necessary to include such estimate as well as the estimate based on the method (ii).
In any case, please keep in mind that the contents must be explained to the customers in such a manneras to be easy for them to understand and not to be misleading as to the extent of loss that such transaction
could incur.

<Examples of Products Unsuitable for Measurement by Historical Data>- Products for which the reference financial index has no historical data (If any index shows similar
price movements to the reference index and can be substituted for it, such substitute index shall beapplied for the explanation based on historical data.) [Examples: Products that refer to individual
stocks that have not been listed long enough or newly designed financial index, those with a knock-in－7－

clause but have not reached the knock-in level in the past, etc.]- Products with a variety of reference financial indices for which it is difficult to assume a worst-casescenario based on historical data [Example: Products with reference to a large number of individual
shares, each of which has a knock-in price with varying redemption price subject to the number ofknocked-in shares, etc.]- Product whose price or cash flow will be 100 (par value) but become 0 (nil) if the reference index
reaches a certain prescribed condition where the maximum expected loss is 100%, meaning noresidual value to the product. [Example: Product the redemption price of which is nil if the price of thereference stock at the time of redemption is below a certain level with par value to be reimbursed inany other instance, interest rate swap product with the maximum loss expected when variable interest
rate is 0%, etc.]- Products for which the credit risk of an individual enterprise such as an issuer is used as a reference
financial index or those products for which the credit risk is a sole factor for damaging the redemption
value [Example: Products whose prices fluctuate when a credit event occurs to the reference enterprise,products for which redemption will be made at a par value except when a credit event occurs to theissuer, etc.]- Products referring to financial indices that have been stable over a long period of time [Example:
Products referring to yen interest rates, etc.]* If a Full Member reasonably judges that the estimate based on historical data is possible for any of
those products listed above as examples (including those for which measurement is judged impossibleat the time of redemption but possible in case of premature sale), such measurement shall not be
prevented from being mentioned in the explanatory materials.

Q6-3

What period of time should be referred to when using historical data to estimate the possible

loss? Also, how should I calculate the amount of loss?

No reference period is specified. However, since the purpose of using historical data is to clearly indicate
losses expected under the worst-case scenario, it is desirable that the period of reference should be deemed
reasonable by our Full Member in light of the product attributes and should include a period of time during
which the reference data is judged to have fluctuated significantly. It is not essential to apply all available
historical data of the financial indicator to which the concerned product refers, or to use the same reference
periods of historical data for all when referencing multiple financial indices. However, it should be notedthat these points have to be sufficiently understood by the customers.
The estimate of possible loss may be calculated by the Full Member in a manner that they believe is easy
for their customers to understand and reasonably assume the worst-case scenario. For example, there is acalculation method based on the rate of change between the maximum and minimum values during thereference period, or calculation based on the maximum rate of decline during the relevant number of years－8－

in the reference period according to the term to maturity of the financial product to be sold. However, thelatter method may not be suitable for financial instruments for which the term to maturity (or contract
period) is super long or conversely very short.
Although the same calculation method may not always be applicable to all transactions and products
handled by a Full Member, it should be noted to apply the same calculation method at least to similartransactions or products as far as possible so as not to cause misunderstanding among customers.
The historical data used for calculation must be reviewed on a regular basis.
In the event that the current value of the referenced financial benchmark is significantly different fromthe one presented as the worst-case scenario in the explanatory material, a prompt change of the description
shall be regarded appropriate. Especially when such a situation arises with respect to the products currently
being sold, it is necessary to fully explain the situation to the customers.

Q6-4

What kind of explanation is necessary for “liquidation value to be received for premature sale(cancellation settlement) estimated under the worst-case scenario,” which is a Significant Matterfor complex investment trusts similar to over-the-counter derivatives transactions?
1. With regard to the “Liquidation amount to be received by an investor for premature sale (cancellation
settlement) estimated under the worst-case scenario,” it is also considered necessary, in principle, toprovide an explanation based on the historical data as is the case with the estimate amount of possible
loss assumed on the worst-case scenario.
2. The Japan Securities Dealers Association has the following views on over-the-counter derivativetransactions:
Unlike redemption amount at the time of expiration of contract, the amount to be received by an investor
for premature sale (cancellation settlement) is affected by the presence or absence of a penalty imposed
for such cancellation in relation to over-the-counter derivative transactions and by the liquidity status at
the time of sale and the level of yield over the remaining term in relation to structured bonds. Therefore,
in preparing the relevant explanatory materials, it is essential to clarify the conditions applicable forpremature sales or cancellation including the presence or absence of such penalty, assumed timing of thecancellation, etc. as consideration items. Then, if it is truly difficult to calculate the liquidation value tobe received at the time of early cancellation in relation to over-the-counter derivative transactions andsuch an estimate based on historical data is not or cannot be provided as the supplementary explanation,
the explanation based on loss simulation calculated in the method (ii) may be provided. However, theexplanation based on loss simulation calculated on the method (ii) alone may not be able to adequately
and sufficiently address the estimate of possible loss.
Under such a circumstance, it is also advisable to provide the following explanation instead of the
explanation concerned with method (i) on top of showing the theoretical price level assumed in themethod (ii).
(a) There may be expenses or losses arising as a result of concluding an alternative transaction or a－9－

counter transaction made by a member of the Japan Securities Dealers Association with a third party inconnection with the cancellation of contract; (b) Such expenses or losses shall be borne by the customer
at the time of early cancellation as a part of cancellation settlement (penalty); (c) With respect to suchcancellation settlement (penalty), it is impossible to calculate an estimate; (d) Accordingly, it is difficult
to calculate an estimate of possible loss; (e) The cancellation settlement (penalty) payable by thecustomer may exceed the estimated amount of loss based on the worst-case scenario at the time ofcontract maturity.
3. With regard to complex investment trusts similar to over-the-counter derivative transactions, if it isconsidered truly difficult to adequately and sufficiently explain the liquidation amount to be received byan investor for premature sale (settlement for cancellation) for reasons such as insufficient liquidity ofthe products concerned, as in the case of 2 above, it is also possible to explain that losses exceeding those
calculated on the theoretical price level may be incurred after clearly describing the reason for thedifficulty of calculation together with the theoretical price level assumed in method (ii).

Q7 What are the “Significant Matters” in connection with the Direct Offering, etc. of the leveraged
investment trusts (excluding those listed on the Financial Instruments Exchange Market and thosefalling under 6; the same shall apply in 7. )?

When engaging in Direct Offering, etc. of the leveraged investment trusts to customers (excluding
professional investors ), as is the case with other investment trusts, the objectives, characteristics, risks, fees,
etc. of the fund stipulated in the prospectus shall be explained. Furthermore, it is advisable to explain thefollowing matters specifically.
In giving an explanation, since it is important for the customers to gain sufficient understanding, itshould be contemplated to obtain a confirmation letter of understanding from such customers in order toascertain their understanding.
(i) Since the concerned fund is managed with the aim of achieving a higher return than the referenced
index by a certain margin, in case such index falls, there is a possibility of incurring a larger loss
compared with the index referenced.
(ii) In case when investment trust concerned is a bull or bear fund, the bear fund is managed with the aimof having an opposite investment effect against the referenced index by a certain factor. Accordingly,
if such index rises, the fund has a possibility of incurring a larger loss compared with the index
referenced.
Interpretation of “Criteria for the Commencement of Solicitation” as set forth in Article 4 of the “Rules
on Complex Investment Trusts Similar to Over-the-counter Derivatives Transactions” and Article 6-2 ofthe “Regulations for Direct Offering, etc. of Beneficiary Certificates, etc.”
Q8 Why did the “Criteria for the Commencement of Solicitation” become established?

－10－

“Criteria for the Commencement of Solicitation” are one of the standards required by the Financial Services
Agency to strengthen its sales and solicitation rules by voluntary regulation in the “Ideas for Restrictions on
Uninvited Solicitation of Derivatives Transactions” published by the Agency on September 13, 2010.
In the provision, as part of “practicing the principles of suitability,” it is stipulated that “for complex
structured bonds and investment trusts similar to over-the-counter derivative transactions, which are
difficult for individual customers to understand, the development of voluntary regulations to exercise suchprinciples of suitability is required.” Specifically, they demand “the establishment of standards todetermine whether or not solicitation could be commenced in accordance with the risk characteristics ofproduct and the nature of the customers (Criteria for the Commencement of Solicitation) as well as
conducting prior verification of the product as to its suitability for sale to investors (Suitability on
Reasonable Grounds).”
The reason why the “Criteria for the Commencement of Solicitation” are required is a large number ofcomplaints received by consumer groups, which claim that certain complex products with risk
characteristics similar to derivative transactions have been sold to the elderly who do not have substantial
assets nor seem to have a high level of understanding for such investment, resulting in unexpected large
losses incurred.
It can be said that the substance of such complaints varies from one to another, but the fact that suchcomplaints have arisen in large numbers is not a desirable situation in terms of fostering, maintaining, andimproving the relationship of trust between investors and Full Members (Management Companies).
The purpose of the “Criteria for the Commencement of Solicitation” set forth in the rules of thisAssociation is not only to put into practice the requirements by the Financial Services Agency that thestandards for conducting solicitation in accordance with the risk characteristics of products and nature ofcustomers (Criteria for the Commencement of Solicitation) should be established, but also to prevent Full
Members (Management Companies) from engaging in solicitation activities for investments that are highly
likely to create such complaints through self-regulating the scope of target customers.

Q9 Is the “Criteria for the Commencement of Solicitation” different from the “Criteria for theCommencement of Transactions”? If so, what is the difference?
As set forth in Article 4 of the “Rules on Complex Investment Trusts Similar to Over-the-counter
Derivatives Transactions” and Article 6-2 of the “Regulations for Direct Offering, etc. of Beneficiary
Certificates, etc.,” the “Criteria for the Commencement of Solicitation” shall establish the scope ofcustomers for whom investment solicitation by visit, telephone call, or at the branch counter is allowed
among those customers who have not asked for solicitation for the concerned investment. Accordingly, nosolicitation shall be made to customers who do not meet the Criteria, whether or not such solicitation will
result in the conclusion of a contract.
The term “solicitation,” as used herein, means, as provided for in Article 4 of the “Rules on Complex
Investment Trusts Similar to Over-the-counter Derivatives Transactions” and Article 6-2 of the－11－

“Regulations for Direct Offering, etc. of Beneficiary Certificates, etc.,” any solicitation for acquisition
made to a customer who has not requested such solicitation for acquisition for the concerned investment byvisit or telephone or at the head office or any business office of a Full Member (Management Company).
Herein, the scope of customers is limited to individual investors excluding professional investors.
Restrictions on uninvited solicitation provided for in Article 38, Paragraph 4 of the Financial Instruments
and Exchange Act are only concerned for visits or telephone calls. However, it should be noted that theCriteria apply to a customer who visits a branch of the Full Member for the purpose of consultation orpurchase of a different product because it is necessary to pay sufficient attention to the suitability, etc. of thecustomer when making solicitation for another product not contemplated by such customer.

Q10 What kind of standards do the “Criteria for the Commencement of Solicitation” are supposed toestablish? Should specific numerical criteria be established?
“Criteria for the Commencement of Solicitation” must be determined in accordance with the risk
characteristics of the product and the nature of the customer. In consideration of the principles of suitability
and recent examples of trouble, it is advisable to prepare solicitation standards based on the following
prerequisites:

1. Age and trading experience of investor
Since investment trusts subject to the establishment of the “Criteria for the Commencement of
Solicitation” are complex products with risk characteristics similar to those of derivative transactions, it
is natural that such investment trusts are intended for customers with a certain level of understanding
and judgment. Therefore, it is reasonable to set standards based on the age and investment experience ofan investor.
It is generally considered that as one ages, one’s ability to understand and make decisions declines,
and in view of the fact that recent news reports have indicated that elderly people living alone or theelderly with dementia are suffering from property damage one after another, it is considered to beeffective to develop standards with due consideration to one’s age, such as obliging more careful
application of such standards to the elderly.
Of course, it does not mean everyone over a certain age has a lack of, or a low level of, understanding,and it depends on an individual. Therefore, when developing standards based on the customers’ age, it
is conceivable to establish such standards taking into account not only their specific age but also theirtrading experience, financial status, etc., in addition to requiring an interview with the customers
themselves or their family members to ascertain their level of understanding prior to any solicitation
concerned with customers older than the specific age.
With regard to trading experience, for example, it is conceivable to require as criteria that the relevant
customer has conducted similar transactions in the past. However, it does not necessarily indicate thatsolicitation must be prohibited for any customer without similar experience in the past. Because trading－12－

experience is regarded as a part of basis for measuring their level of comprehension and judgment, it isalso reasonable to require as condition having an interview with the relevant customer so as to ascertain
their level of understanding.
Furthermore, as trading experience will change with time, it is necessary for each Full Member tomake a judgment based on information obtained during the period of time considered reasonable rather
than making a mechanical judgment based on information on the customer card created at the time ofaccount opening many years ago.
2. Financial status of investor (Major form of income and holding status of financial assets)
Investment solicitation subject to the establishment of the “Criteria for the Commencement of
Solicitation” would be suitable only for investors with a certain amount of income or financial assets.
For example, products with a high level of minimum investment amount or with low liquidity should besold only to customers with a certain degree of financial resources such as financial assets, etc.
Financial status of a customer may be measured by the total financial assets and revenues of thecustomer rather than by the assets held in custody of the Full Member. However, since these are
difficult to measure accurately, it is necessary to take care not to overestimate them.
3. Investment objectives and policy of investor
In most cases, solicitation for acquisition subject to the establishment of the “Criteria for theCommencement of Solicitation” is not considered to be suitable for a customer whose investment
objective is to secure the safety of principal or a customer who is investing from the fund for futureliving.
Moreover, even for speculative purposes, each investor is likely to have a difference tolerance level
for risk. Consequently, it is appropriate to develop the criteria in consideration of the tolerance level forrisk.
As investment objectives and policy are also likely to change with time, it is imperative to pay
sufficient attention to the changing objectives and policy of existing customers as well. It should also be
noted that investment objectives and policy of an investor may vary subject to the nature of theinvestment fund.
4. Others
In addition to the listed above, it is reasonable to include into the criteria matters which a Full Member(Management Company) considers appropriate in consideration of risk characteristics of the product,such as prior interview with the relevant customer.

Any standard that is not sufficiently specific, or which can be met by every customer, will be contrary to theintent of the establishment of the “Criteria for the Commencement of Solicitation.” Consequently, it isessential to make them effective.

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Q11 Should the “Criteria for the Commencement of Solicitation” be established for each transaction oreach product? Can it be established comprehensively?

There are many types of complex investment trusts similar to over-the-counter derivative transactions thatare subject to the establishment of the “Criteria for the Commencement of Solicitation” in their productattributes and risk profile. However, given the possibility that the establishment of detailed standards foreach investment trust may lead to operational difficulty and loss of effectiveness, this does not preclude thepossibility of grading investment trusts into different groups dependent on their risk characteristics and thendeveloping separate standards per risk grade group for the management of target customers per investment
solicitation in accordance with the internal procedures. Under such circumstance, it is possible to establish
in advance multiple types of the Criteria for the Commencement of Solicitation subject to the degree of risk
characteristics, etc. of product and identify an appropriate type of the Criteria whenever handling a new
product.
It is considered desirable for Full Members (Management Companies) to establish effective standards
from the viewpoint of investor protection in accordance with the product attributes and risk profile of aninvestment trust to be solicited for acquisition.

Q12 What sort of system is required to confirm that the Criteria for the Commencement of Solicitation issatisfied?
The probable items to be provided for in the “Criteria for the Commencement of Solicitation” are expected
to include those which cannot be measured by numerical values only as discussed in Q10 and those which
may change constantly. In consideration of these points, it is appropriate that, with regard to items related toa customer’s capability to understand complex structure that cannot be measured by numerical values alone,a relevant manager (who is practically in charge of managing Sales Officers and Representatives and may
belong to either the sales department or the internal control department) shall confirm or approve whether
or not the concerned customer satisfies the Criteria for the Commencement of Solicitation by conducting ahearing from the responsible Sales Officers and Representatives regarding such customer’s latest
conditions or conducting a direct interview with such customer, if appropriate.
In addition, where the relevant managers are obligated to check themselves any item established, which
is difficult to confirm due to a lack of numerical criterion, it is considered appropriate to establish a control
system in accordance with the business method and system environment of a Full Member (Management
Company) so that such confirmation process can be verified later.

Q13 How often should the Criteria for the Commencement of Solicitation be applied?

It will be desirable to apply the Criteria for the Commencement of Solicitation to check whether or not the－14－

customer satisfies such Criteria at each solicitation for acquisition based on the information available at thetime of such solicitation. Meanwhile, in the event that the Full Member has already confirmed that thecustomer meets the Criteria for the Commencement of Solicitation for a certain range of transactions andhas been recognized as such customer who can be solicited after having obtained confirmation and approval
from the relevant managers, while continuously being engaged in transactions with the company thereafter,
the company may not have to go through the same procedures for each solicitation to satisfy the Criteria.
However, in case of the elderly people, their understanding and judgment may deteriorate as they age,and their investment objectives and policy may also change in some cases. Therefore, it is considered
important to periodically review customers’ suitability for solicitation.
In the event that there is a substantial change in the situation of a customer who is classified to be suitable
for solicitation after having started solicitation for a product, it is necessary to examine whether or not suchcustomer should continue to be treated as a suitable customer in accordance with the internal procedures
established before continuing the soliciting activities for the said investment. If, as a result of such review,
it is determined based on new facts that the customer concerned doesn’t satisfy the Criteria for theCommencement of Solicitation anymore, it is appropriate to recognize such customer not suitable forsolicitation and record the result as such.
Interpretation of the provisions of Article 5 of the “Rules on Complex Investment Trusts Similar toOver-the-counter Derivatives Transactions”
Q14 What is an “Alert Document”?

The purpose of the Alert Document is to enable customers to clearly and concisely understand whether or
not the transaction to be solicited is subject to the restrictions on uninvited solicitation with higher risk
compared with general transactions. Specifically, the Management Company will deliver and explain the
document that includes (i) warning regarding risk and (ii) the availability of financial ADR institutions forfiling complaint and dispute resolution together with their contact information.

Q15 Is the format of the “Alert Document” fixed?

Although the format to be used has not been fixed, please use the example format of Alert Document that is
prepared as reference.

Q16 Is it possible to change the example format of the “Alert Document”?

Although it is not always necessary to follow the example format with regard to the expression, font size,
character type, use of underlines, etc., in consideration of the purpose of such document as warning, it isrecommended any Alert Document is prepared with reference to the example provided.
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Please clearly and accurately describe those items to be included in the Alert Document as listed in (i)and (ii) in the answer to Q14.

Q17 At what timing should the “Alert Document” be delivered?

Basically, such document must be delivered to the customer before the conclusion of a contract.
Therefore, it may be delivered at latest at the same time of delivering the pre-contract documents andprospectus. Please refer to Q18 and Q19 for the method of delivery.

Q18 Is it possible to deliver the Alert Document at the same time or being combined with the
pre-contract documents and prospectus?

Since the purpose of the Alert Document is for the customers to understand its content in an easy andconcise manner, it is basically assumed that to be delivered as a single independent document.
However, it is not to prohibit delivering such warning together with the pre-contract documents andprospectus (including delivery by mail, etc. ). In such case, it is desirable that such an Alert Document beplaced on top of the pre-contract documents and prospectus.
Although it is possible to deliver the Alert Document simultaneously with the pre-contract documents
and/or prospectus in order to prevent any omission in delivering such Warnings, in such a case, it isindispensable to devise ways to ensure that the Warnings is read, by placing it on top of the pre-contract
documents or inserting such an Alert Document between the first pages of the prospectus.
Thus, when delivering the Alert Document at the same time as other documents, it is recommended to
pay attention to the delivery method so as to avoid the situation where such document is not recognized orread by the customer, being lost among other documents.

Q19 Is it possible to deliver the “Alert Document” by electromagnetic means?
Alert Document may be delivered electronically as provided in Article 7 of the “Rules on Complex
Investment Trusts Similar to Over-the-counter Derivatives Transactions.” However, in such a case, it isimperative to devise ways to ensure that the Alert Document is read. For example, when registering a PDF
file or displaying a link to such document, it is necessary to combine the files into one file or to set a button
to confirm that the user has inspected the concerned document. When delivering the document byelectromagnetic means and concluding the transaction by telephone or visit, it is reasonable to obtain oral
confirmation from the customer at such occasion of verbal communication.
As for the contact information of ADR agencies, it should be presented in a manner that is easy for thecustomers to immediately find them when needed. For example, in addition to posting the contact
information of the ADR agencies in an easy-to-find place on the home page of a Full Member (such as a site－16－

where various policies obligated to be published under laws and various contact information for complaints
are posted), the text that “contact information of the ADR agencies is also posted in xx (site address)” canbe included in the Alert Document to be displayed on the trading site of company’s website so as to serve
customers’ convenience.
OthersQ20 With regard to “complex investment trusts similar to over-the-counter derivatives” and “leveraged
investment trusts,” should the investment trust management company inform the distribution
companies selling such investment trusts of such facts?

In order not to create problems with handling of the relevant investment trust when distributed by multiple
companies, it is desirable for the investment trust management company, developer of the relevant
investment trust, to inform all the sales companies involved that the investment trust concerned is a“complex investment trust similar to over-the-counter derivatives transaction” or a “leveraged investment
trust.”

Q21 In the definition of “complex investment trusts similar to over-the-counter derivatives transactions,”
what is the significance of the text, “an investment trust which has the same product attributes as, orsimilar effects to, the structured bonds in which the concerned investment trust invests”?
The “Rules on Investment Solicitation and Customer Management by Association Members” of the Japan
Securities Dealers Association impose restrictions on complex structured bonds similar to over-the-counter
derivative transactions. Therefore, if a customer who purchases an investment trust that holds structured
bond subject to such restrictions falls into the similar situation to investing directly in such restrictedstructured bond, this will create an act of regulatory arbitrage.
In order to prevent such regulatory arbitrage from occurring when investment trusts are developed tohave the same effect as the structured bonds subject to the regulations by investing directly in such
structured bonds or have similar effects as if such investment trust was itself structured bonds, the term has
defined those investment trusts with the same as, or similar effects to, the structured bonds so that similar
restrictions are applicable to such trusts as those imposed on the concerned structured bonds.

Q22 Item “b” in the definition of “complex investment trusts similar to over-the-counter derivativetransactions” lists “trusts where redemption price could be below the par value.” Because unlike
bonds, any investment trust has an inherent risk of falling below par value, isn’t this definition
misleading as if it were referring to all investment trusts?
In the definition of Article 2, the items “a” through “e” describe certain prerequisites concerned with the－17－definition of “bonds” and not to describe investment trusts.
This definition is not concerned with the risk of falling below par value inherent in all investment trusts
but with those bonds where their values could fall under par value.

Q23 If an investment trust is developed as to have the same effects as a leveraged investment trust byinvesting in leveraged structured bonds, is the product a “complex investment trust similar to an
over-the-counter derivatives transaction” or a “leveraged investment trust”?
When an investment trust is developed so as to have the same effects as a “leveraged structured bond” byinvesting in leveraged “structured bonds,” all such products will be classified as complex investment trust
similar to an over-the-counter derivative transaction.
Investment trusts developed to have correlation or inverse correlation to a variety of indices or assets
through the direct investment in futures transactions in shares, over-the-counter forex option, etc. are notcategorized as complex investment trusts similar to over-the-counter derivatives transactions. Suchproducts are subject to the restrictions as leveraged investment trusts only if the definition of leveraged
investment trust applies to them.

Q24 In the definition of the “complex investment trusts similar to over-the-counter derivatives
transactions,” is it not possible to assume that the scope of application of such definition may varydepending on an investment trust management company that develops such investment trusts?

To prevent such situation from happening, in addition to the definitions set forth herein, details of the natureof complex structured bonds similar to derivative transactions are separately listed in the table, which isprepared by the Japan Securities Dealers Association and separately presented.
In the event that an investment trust is developed to which such table is not applicable or which isdifficult to classify, the relevant committee, etc. within the Investment Trusts Association, Japan shall share
information on the suitability of classification and take measures to serve the convenience of Full Members.
* This is a compilation of the interpretations and ideas regarding the “Regulations for Complex Investment
Trusts Similar to Over-the-Counter Derivative Transactions” enforced on April 1, 2011.

Supplementary Provision
The amendments come into effect on December 13, 2012.

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