NAF Report March 2015 – August 201 http://www.naf-r.jp/english/ 19 th Period
Profile
Nippon Accommodations Fund Inc. (“NAF”) was incorporated as an investment corporation on October 12, 2005 with an initial investment by Mitsui Fudosan Co., Ltd. ("Mitsui Fudosan"), and was listed on the Tokyo Stock Exchange on August 4, 2006 with assets of more than ¥100 billion. NAF invests in accommodation assets* located mainly in the 23 wards of Tokyo. The Investment Trust and Investment Corporation Act of Japan requires an investment corporation to be managed by an external entity. NAF’s assets are managed by Mitsui Fudosan Accommodations Fund Management Co., Ltd., a 100 percent subsidiary of Mitsui Fudosan. Accommodation assets in this report are defined as rental apartments, corporate housing, dormitories/student apartments, serviced apartments and senior residences. They do not include hotel properties. Asset Growth (Acquisition Price Basis)/Average Monthly Occupancy Rate/Distribution per Unit and earlier is adjusted for this split (actual distribution divided in half, rounded down to the nearest yen). NAF Snapshot Profitability (19th Period)
Distribution per unit of ¥7,688 for the 19th Period Outstanding Portfolio (As of August 31, 2015) Portfolio of 116 superior properties with a total acquisition price of ¥294,918 million
87.5 percent of portfolio located in the 23 wards of Tokyo Financial Stability (As of August 31, 2015)
*Weighted average of annual NOI yield on the acquisition value of each property Contents
Note: In this report, amounts less than 1 million yen have been omitted. As a result, the totals in Japanese yen shown in the financial statements do not necessarily agree w individual amounts. 1
Investment in accommodation assets to meet diversified needs for residential properties Social Background Changes in lifestyles Changes in family structures Diversified needs for residential properties 2
Actualize quality portfolio and leveraged operational system by utilizing the Mitsui Fudosan Group’s value chain Provide various housing and lifestyle services for continued strong customer relationships Residential Co., Ltd. by way of a company split on October 1, 2015. Accordingly, the residential leasing business and residential property sales business were integrated within Mitsui Fudosan Residential Co., Ltd.
Nippon Accommodations Fund Inc. Management Team From left: Tsunehisa Ota, Nobumi Tobari, Tateyuki Ikura, Hiroyuki Sodeyama, Hiroaki Saito

We are enhancing value for our unitholders by
generating steady growth from an expanding
portfolio of quality properties.
During the six months ended August 31, 2015 (the "19th Period"), the Japanese economy continued to recover gradually due to a recovery in capital investment and improvement in the employment and income environment, although the pace of recovery varied. Looking ahead, the gradual economic recovery is expected to continue, with ongoing improvement in the employment and income environment, as well as the effect of various government policies. At the same time, the risk of an economic decline in Japan and the effect of prolonged volatility in financial and capital markets due to factors such as downturns in China and other emerging economies in Asia and the move in U.S. financial policy toward normalization require careful attention. In the residential rental market, occupancy rates remained high at rental apartments held by J-REITs, with a strengthening recovery in rents. Moreover, stable demand is expected in the 23 wards of Tokyo, where nearly 90 percent of NAF’s portfolio is located, and in the centers of other major cities. Contributing factors include the continuing influx of people into these areas from other regions and growth in the number of households due to an increase in single- and two- person households. At the same time, the balance of supply and demand is expected to remain favorable for the time being due to factors such as the limited supply of the quality rental apartments in which NAF typically invests. In the real estate trading market, competition for property acquisitions is overheating. Therefore, the acquisition environment remains challenging due to factors such as ongoing increases in acquisition and disposition prices for quality rental real estate. In this environment, NAF issued new investment units by public offering and third-party allocation, and acquired four new properties. Mitsui Fudosan Housing Lease Co., Ltd., our master property management company, and Mitsui Fudosan Accommodations Fund Management Co., Ltd., our asset management company, conducted collaborative management and other activities, which successfully maintained NAF's average monthly occupancy rate at a high level of 95.9 percent during the 19th Period. As a result, distribution per unit was ¥7,688. This report presents our results and operational status for the 19th Period. On October 1, 2015, the residential leasing business of Mitsui Fudosan Co., Ltd. was transferred to Mitsui Fudosan Residential Co., Ltd. by way of a company split, and the residential leasing business and residential property sales business were integrated within Mitsui Fudosan Residential Co., Ltd. NAF will continue working to earn the trust of our unitholders and requests your continued support and cooperation. December 2015 Executive Director of Nippon Accommodations Fund Inc. President and CEO of Mitsui Fudosan Accommodations Fund Management Co., Ltd.

19th Period Topics
NAF issued 23,100 new investment units in March 2015 and raised a total of ¥9.9 billion.
(Land with leasehold interest)

Steady Portfolio Expansion
NAF has steadily expanded its portfolio, primarily by acquiring properties in the Park Axis series. NAF’s portfolio as of August 31, 2015, the end of the 19th Period, consisted of 116 properties valued at ¥294,918 million on an acquisition price basis. Rental Apartments Characteristics (As of August 31, 2015) 1. Location 87.5% in the 23 wards of Tokyo 2. Property Age 4 3. Monthly Rent 5 Average ¥150 thousand per unit Notes: 1. The data above are calculations for rental apartments owned as of August 31, 2015 and do not include other accommodation assets. 2. Tokyo CBD (Central Business District) includes Minato, Chuo and Chiyoda wards. 3. The calculations for graphs 1 and 2 above are based on acquisition price. The calculations for graph 3 above are based on units, excluding retail units. 4. The calculations are based on individual property age as of August 31, 2015. 5. The calculations are based on total monthly rent (rent and common area fees) per unit as of August 31, 2015.
Portfolio Composition
Rental apartments have a lower earnings fluctuation risk than real estate leased for other uses. By concentrating the majority of its portfolio in the 23 wards of Tokyo where demand for rental apartments is strong, NAF achieves even greater earnings stability. NAF aims for steady portfolio expansion centered on properties in the high-quality Park Axis series planned and developed by the Mitsui Fudosan Group, complemented with acquisitions of properties that meet NAF's proprietary standards in the Park Cube series constructed by other developers. In addition, NAF focuses investment on single and compact apartments for which it expects high occupancy rates, as well as on large-scale and relatively new properties. Geographically, NAF invests mainly within the 23 wards of Tokyo while also acquiring carefully selected properties in major regional cities. NAF also invests in accommodation assets* other than rental apartments. *NAF defines accommodation assets as rental apartments, corporate housing, dormitories/student apartments, serviced apartments and senior residences.
4. Category 3
Single and compact units: 82.5% 5. Unit Area Average 43.0m² per unit Notes: 1. The data above are calculations for rental apartments owned as of August 31, 2015 and do not include other accommodation assets. 2. The calculations for graphs 4 and 5 above are based on units, excluding retail units. 3. The calculations are based on unit categories as of August 31, 2015. Portfolio  Summary  (As of August 31, 2015)
3. Rentable units and rentable area for Shibaura Island Air Tower are calculated by multiplying NAF's equity share (31%) by the property's total rentable units (871 resident 7 retail, etc.) and total rentable area (56,923.63m²) and rounded to the nearest unit and one-hundredth of a square meter, respectively. 4. Numbers in blue and red indicate properties acquired during the 19th Period.
2. "Total revenues" do not include consumption tax. 3. Funds from operations: Net income + Depreciation and amortization – Gain on sale of investment properties Net operating income from property leasing activities: (Revenues from property leasing – Rental expenses) + Depreciation and amortization Funds from operations per unit: (Net income + Depreciation and amortization – Gain on sale of investment properties) ÷ Total number of units issued and outstanding at the en LTV ratio: Interest-bearing debt ÷ Total assets 4. ROA: Income before income taxes ÷ ((Initial total assets + Total assets at the end of the period) ÷ 2} ROE: Net income ÷ [(Initial net assets ÷ Net assets at the end of the period) ÷ 2} The figures in parentheses are annualized based on the number of actual days in each period. Annual equivalent amounts for the period ended August 31, 2015: Amount for the period ÷ Actual days in the period (184) x 365 days Annual equivalent amounts for the period ended February 28, 2015: Amount for the period ÷ Actual days in the period (181) x 365 days Annual equivalent amounts for the period ended August 31, 2014: Amount for the period ÷ Actual days in the period (184) x 365 days Net assets and total assets used in calculating ROA and ROE are beginning-of-period and period-end averages, respectively. 5. "Payout ratio" is calculated to one decimal place only. 6. "Number of investment properties" means properties generally perceived to be one residential building.
Overview
Investment Environment and Operating Performance
During the six months ended August 31, 2015 (the "19th Period"), the Japanese economy continued to recover gradually due to a recovery in capital investment and improvement in the employment and income environment, although the pace of recovery varied. With the economy in recovery mode, the Nikkei Stock Average Index rose from ¥18,826.88 at the start of the 19th Period (March 2, 2015) to its highest point since the start of the year, ¥20,868.03 (June 24, 2015). It then receded to ¥18,890.48 at the end of the period (August 31, 2015) due to factors including the financial problems in Greece and concerns about the Chinese economy. Looking ahead, the gradual economic recovery is expected to continue, with ongoing improvement in the employment and income environment, as well as the effect of various government policies. At the same time, the risk of an economic decline in Japan and the effect of prolonged volatility in financial and capital markets due to factors such as downturns in China and other emerging economies in Asia and the move in U.S. financial policy toward normalization require careful attention. In the J-REIT market, three new J-REITS listed their shares while capital increases through public offerings by existing listed J-REITs were brisk. The Tokyo Stock Exchange REIT Index went from 1,909.26 points at the start of the 19th Period (March 2, 2015) to 1,634.37 points at the end of the period (August 31, 2015). In the residential rental market, occupancy rates remained high at rental apartments held by J-REITs, with a strengthening recovery in rents. Moreover, stable demand is expected in the 23 wards of Tokyo, where nearly 90 percent of NAF's portfolio is located, and in the centers of other major cities. Contributing factors include the continuing influx of people into these areas from other regions and growth in the number of households due to an increase in single- and two-person households. At the same time, the balance of supply and demand is expected to remain favorable for the time being due to factors such as the limited supply of the quality rental apartments in which NAF typically invests. In the real estate trading market, competition for property acquisitions is overheating. Therefore, the acquisition environment remains challenging due to factors such as ongoing increases in acquisition and disposition prices for quality rental real estate. NAF acquired a total of 4 new properties with a total acquisition price of ¥7,185 million: 1 property in March 2015 and 3 properties in April 2015. As a result, NAF's portfolio as of August 31, 2015 consisted of 116 properties valued at ¥294,918 million on an acquisition price basis. NAF has chosen Mitsui Fudosan Housing Lease Co., Ltd. as master property management company (below "Master PM") on manage- ment of NAF's rental apartments portfolio. The company and the asset management company collaborate in the management of proper- ties NAF owns with the aim of implementing effective management and operational activities based on regional characteristics and the individual features of each property. These include efforts such as speedy management and operations by the Master PM by applying the portfolio management system, the tenant recruiting activities suited to the circumstances of individual properties, the streamlining efforts such as reduction of management cost, etc., and providing tenants the "accommodation" services by corresponding to various needs based on the results of resident questionnaires. In order to maintain and improve the competitiveness of NAF's portfolio, operations are adequately planned and carried out at the asset management company. These include appropriate renewal work according to the property age, and work to enhance the property value at Okawabata Apartment Communities, which is one of the core properties of NAF. In addition, NAF is not only making continuous efforts to reduce costs, but also introducing such features as environmentally friendly, energy-saving facilities in a timely manner. In the period under review, NAF carried out renovations in common areas and private areas at Okawabata Apartment Communities. Changes implemented at other properties include reviews of contract capacity for electricity through the introduction of controllable cir- cuit breakers, and work to change the lighting in common areas to LED lighting. As a result of these activities, the occupancy rate for NAF's overall portfolio as of August 31, 2015 remained at a high level of 96.2 percent. Consequently, for the 19th Period, total revenues were ¥10,435 million, operating income was ¥4,372 million, income before income taxes was ¥3,725 million and net income was ¥3,725 million.
Changes in Assets, Liabilities and Net Assets
Total assets as of August 31, 2015 increased from February 28, 2015 by ¥5,181 million to ¥295,644 million. Total current assets decreased by ¥529 million to ¥9,074 million and total investment properties net of accumulated depreciation compared with February 28, 2015 increased by ¥5,082 million to ¥284,849 million as a result of NAF's acquisitions during the 19th Period, in addition to normal depreciation. One of NAF's basic policies is to carry out financing in a conservative manner while giving consideration to such matters as maintain- ing stable distributions in the medium and long term, and paying attention to various risk factors and market trends. Based on this poli- cy, during the period under review, NAF issued investment units with a total amount of ¥9,916 million as funds for the acquisition of new properties, etc. Also, while taking into account market trends and interest rate levels, NAF refinanced its existing loans and repaid ¥5,000 million of its loans. As a result, at the end of the period, total interest-bearing debt amounted to ¥149,500 million, the long-term debt ratio was 96.7 percent , the fixed-rate debt ratio was 96.7 percent, the LTV (loan-to-value) ratio was 50.6 percent. The average annual current maturity of long-term interest-bearing debt was 4.8 years and the number of financial institutions was 20. Furthermore, the weighted average interest rate at the end of the period was 0.85 percent. NAF has also established a commitment line with a total maximum borrowing amount of ¥10,000 million, for the purpose of securing flexible and stable fund procurement methods. In the period under review, the expiration date of the commitment line agreement was extended for another year. Net assets totaled ¥139,398 million as of August 31, 2015. Unitholders' capital increased to ¥135,603 million from ¥125,686 million as of February 28, 2015, and retained earnings increased to ¥3,795 million from ¥3,754 million as of February 28, 2015.
Distributions to Unitholders
NAF determines the amount of cash distributions such that they exceed 90 percent of NAF's retained earnings available for dividends as set forth in Article 67-15 of the Act on Special Measures Concerning Taxation. For the 19th Period, cash distributions totaled ¥3,725,005,136, or ¥7,688 per unit.

Funding
Balance of Paid-in Capital
NAF was established on October 12, 2005 with initial paid-in capital of ¥100 million. NAF began investing activities on November 29, 2005 after ¥21,140 million was raised through private placement. As of August 31, 2015, NAF had issued 484,522 investment units out of 4,000,000 total authorized units. NAF's investment units were listed on the J-REIT section of the Tokyo Stock Exchange in August 2006 upon the completion of a public offering. As the Investment Trust and Investment Corporation Act of Japan does not contain any provision for the issuance of more than one class of units, NAF's investment units comprise the sole class of units authorized and issued by NAF.
2. Follow-on private offering at ¥500,000 per unit to raise funds for acquisition of investment properties. 3. Public offering of new units for ¥580,000 per unit (excluding underwriting fee: ¥559,700) to fund property acquisition. 4. Additional issue of new units (third-party allocation) for ¥559,700 per unit undertaken pursuant to the public offering in Note 3. S. Public offering of new units for ¥487,910 per unit (excluding underwriting fee: ¥471,311) to fund property acquisition. 6. Additional issue of new units (third-party allocation) for ¥471,311 per unit undertaken pursuant to the public offering in Note 5. 7. Public offering of new units for ¥593,872 per unit (excluding underwriting fee: ¥574,380) to fund property acquisition. 8. Additional issue of new units (third-party allocation) for ¥574,380 per unit undertaken pursuant to the public offering in Note 7. 9. Public offering of new units for ¥644,816 per unit (excluding underwriting fee: ¥623,652) to fund property acquisition. 10. Additional issue of new units (third-party allocation) for ¥623,652 per unit undertaken pursuant to the public offering in Note 9. 11. NAF implemented a two-for-one split of investment units with the effective date of March 1, 2014. 12. Public offering of new units for ¥443,868 per unit (excluding underwriting fee: ¥429,300) to fund property acquisition. 13. Additional issue of new units (third-party allocation) for ¥429,300 per unit undertaken pursuant to the public offering in Note 12.
Market Price of Units

Note: Unit prices are for the term following the ex-rights date (February 26-28, 2014) for the investment unit split.
Borrowings
Borrowings from financial institution as of August 31, 2015 are shown below. Short-term loans
outstanding balance of short-term loans if the institution has provided more than one short-term loan. 2. The earliest maturity of short-term loans is presented if the institution has provided more than one short-term loan. 3. Use of the proceeds of debt financing included purchase of property or real estate trust beneficiary interests, refinancing of other loans, and operating expenses. 4. The loan agreements between NAF and each financial institution stipulate that the above loans from all financial institutions rank pari passu to each other. 5. The expected annual maturities of long-term loans within five years (excluding maturities within one year) of the balance sheet date are as follows.
Notes:  1. Use of proceeds includes repayment of borrowings. 2. This bond is only issued to rank pari passu with other bonds issued.
Capital Expenditures
1. Planned
NAF is planning the following capital expenditures for the renovation of its properties. The amounts below include repairs and maintenance costs that will be expensed as incurred.  Moreover, in addition to a steady planning of expenditures for construction, repair and renovation of facilities, a plan of renewal construction is being implemented in order to increase competitive power in the market as well as to increase the level of tenant satisfaction.

2. Capital Expenditures for the Current Period
The following table sets forth the capital expenditures for the current period. NAF posted ¥163 million in capital expenditures together with ¥462 million for repairs and maintenance expenses.

3. Cash Reserve for Capital Improvements
NAF accumulates a cash reserve from cash flows to prepare for large-scale mid-term to long-term capital improvements and repairs and maintenance that will be conducted based on NAF's business plan for each property.

Expenses regarding Entrustment, etc.
The following table sets forth the breakdown of entrustment fees, etc. paid by NAF.

Related Party Transactions
1. Transactions

2. Fees Paid for the Period from March 1, 2015 to August 31, 2015
3. Other Payments to Related Parties (Note 1)
Notes: 1. "Related parties" means parties defined in the government ordinance regarding the Investment Trust and Investment Corporation Act of Japan, principally, parties related to an asset management company. 2. Figures indicate percentages of total price.

Balance Sheets

Statements of Income
Nippon Accommodations Fund Inc.

Statements of Changes in Net Assets
Nippon Accommodations Fund Inc.

Statements of Cash Flows

Nippon Accommodations Fund Inc. March 1, 2015 to Auqust 31, 2015, September 1, 2014 to February 28, 2015 and March 1, 2014 to Auqust 31, 2014
Organization and Basis of Presentation
Note 1
Organization
Nippon Accommodations Fund Inc. (hereinafter "NAF") was established on October 12, 2005 as an investment corporation under the Investment Trust and Investment Corporation Act of Japan with Mitsui Fudosan Accommodations Fund Management Co., Ltd. (hereinafter "MFAFM") acting as a sponsor. Registration with the Kanto Local Finance Bureau of the Ministry of Finance was completed on November 11, 2005 and NAF started acquisition of properties on November 30, 2005. NAF is an externally managed real estate fund, formed as an investment corporation. MFAFM, as NAF's asset management company, is engaged in the acquisition, management, and renovation of accommodation assets. MFAFM is a 100% subsidiary of Mitsui Fudosan Co., Ltd. On August 3, 2006, NAF had raised approximately ¥40,000 million through an initial public offering of investment units. Those invest- ment units are listed on the J-REIT section of the Tokyo Stock Exchange. As of August 31, 2015, NAF had ownership and beneficiary interests in 116 properties containing approximately 476,444 square meters of rentable space. As of August 31, 2015, NAF had leased approximately 458,547 square meters to tenants. The occupancy rate for the properties was approximately 96.2%.
Basis of Presentation
The accompanying financial statements have been prepared in accordance with the provisions set forth in the Investment Trust and Investment Corporation Act of Japan and the Financial Instruments and Exchange Law of Japan and its related accounting regulations, and in conformity with accounting principles generally accepted in Japan (hereinafter "Japanese GAAP"), which are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards. The accompanying financial statements have been restructured and translated into English from the financial statements of NAF prepared in accordance with Japanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance as required by the Financial Instruments and Exchange Law. Some supplementary information included in the statutory Japanese language financial statements, but not required for fair presentation, is not presented in the accompanying financial statements. NAF does not prepare consolidated financial state- ments, as NAF has no subsidiaries. Amounts less than 1 million yen have been omitted. As a result, the totals in Japanese yen shown in the financial statements do not neces- sarily agree with the sum of the individual amounts. The translation of the Japanese yen amounts into U.S. dollars is included solely for the convenience of readers outside Japan, using the approximate exchange rate on August 31, 2015, which was ¥121.18 to U.S.$1.00. The convenience translation should not be construed as representation that the Japanese yen amounts have been, or could in future be, converted into U.S. dollars at this or any other rate of exchange.
Note 2
Summary of Significant Accounting Policies
Cash and Cash Equivalents NAF considers all highly liquid investments with original maturity of three months or less to be cash and cash equivalents.
Investment Properties
Investment properties are recorded at cost, which includes the purchase price and related costs and expenses for acquisition of the properties and the beneficiary interests of properties in trust. Property and equipment balances are depreciated using the straightline method over the estimated useful lives. The estimated useful lives of the principal investment properties (including assets held in trust) are
Costs related to the renovation, construction and improvement of properties are capitalized. Expenditures for repairs and maintenance which do not add to the value or prolong the useful life of a property, are expensed as incurred.
Deferred Assets
Investment unit issuance expenses are amortized over the period of three years under the straight-line method. Bond issue costs are amortized over the period of the bonds under the straight-line method.
Income Taxes
Income taxes are accounted for on the basis of income for financial statement purposes. The tax effect of temporary differences between the amounts of assets and liabilities for financial statements and for income tax purposes is recognized as deferred taxes.
Real Estate Taxes
Properties are subject to taxes including property tax, city planning tax and depreciable asset tax. Taxes for each fiscal period are charged to income on an accrual basis. The owner of properties is registered in a record maintained by the local government in each jurisdiction, and the taxes are imposed on the owner registered in the record, as of January 1, based on the assessment made by the local government. Even when a property is purchased on a date other than January 1 of any given calendar year, these taxes for that year are imposed on the seller. The buyer pays the seller the corresponding tax amounts for the period from the property's transfer date to December 31 of that year as part of the purchase prices of each property, and capitalizes these amounts as the cost of the property. Capitalized property tax for the period ended August 31, 2015 amounted to ¥13 million. No property tax was capitalized for the period ended February 28, 2015.
Accounting Treatment of Beneficiary Interests in Trust Assets including Real Estate
For trust beneficiary interests in real estate, all assets and liabilities associated with assets in trust as well as all income generated and expenses incurred from assets in trust are recorded in the relevant balance sheet and income statement accounts.

Schedule of Investment Properties
Note 3
Note 4
Short-Term Loans and Long-Term Debt
The annual interest rate on short-term loans as of August 31, 2015 was 0.2% and the rate as of February 28, 2015 was 0.2%. Long-term debt consists of the following:
The annual maturities of long-term debt as of August 31, 2015 were as follows:
NAF currently has commitment line contracts of ¥10,000 million with two financial institutions. The unused amount of such commit- ment line was ¥10,000 million as of August 31, 2015.
NAF shall maintain minimum net assets of at least ¥50 million as required by the Investment Trust and Investment Corporation Act of Japan.
Rental Revenues and Expenses
Note 6

Note 7
Leases
NAF leases some of its investment properties to outside parties under non-cancelable operating leases. As of August 31, 2015 and February 28, 2015, future minimum rental revenues under the non-cancelable operating leases were as follows:

Note 8
Income Taxes
NAF is subject to income taxes in Japan. The effective tax rates on NAF's income based on applicable Japanese tax law were 0.02%, 0.03% and 0.03% for the periods ended August 31, 2015, February 28, 2015 and August 31, 2014, respectively. The following table summarizes the significant differences between the statutory tax rates and NAF's effective tax rates for financial statement purposes.
The tax effects of significant temporary differences that resulted in net deferred tax assets or liabilities as of August 31, 2015, February 28, 2015 and August 31, 2014 were as follows:
NAF was established as an investment corporation under the Investment Trust and Investment Corporation Act of Japan, and as Iong as an investment corporation distributes to its unitholders at least 90% of earnings available for dividends for a period and other requirements prescribed in Japanese tax regulations are met, the investment corporation is allowed to deduct the total amount of distri- butions paid in calculating its taxable income under Japanese tax regulations.
Note 9
Per Unit Information
Information about earnings per unit for the periods ended August 31, 2015, February 28, 2015 and August 31, 2014 and net assets per unit as of August 31, 2015, February 28, 2015 and August 31, 2014 were as follows. The computation of earnings per unit is based on the weighted average number of common units outstanding during the period. The computation of net assets per unit is based on the number of common units outstanding at each period end.

Transactions with Related Parties
Note 10
(March 1, 2015 – August 31, 2015) (1) Parent Company and Major Corporate Unitholders: None applicable (2) Affiliates: None applicable (3) Sister Companies: None applicable
these positions on May 21, 2015 and April 1, 2015, respectively. 2. Kosei Murakami and Tateyuki Ikura entered into these transactions as representatives of MFAFM, and these amounts are subject to the conditions set forth in the by-laws of NAF. 3. The amount of asset management fees includes management fees related to the acquisition of Medical Home Granda Sangen Jaya (Land with leasehold interest; acquired March 31, 2015) included in its book value. 4. The amount of asset management fees does not include management fees related to the acquisition of properties included in the book value of each investment property, etc. S. Tateyuki Ikura entered into this transaction as a representative of MFAFM, and this amount is set forth in the "General Administration Agreement relating to Organizational Management" concluded between NAF and MFAFM. 6. The "Amount of transaction" included in the above amounts are for transactions before Kosei Murakami retired from his positions as Executive Director of NAF and after Tateyuki Ikura became Executive Director of NAF. "Amount of transaction" does not include consumption taxes. "Balance at the end of the period" includes consumption taxes.
(September 1, 2014 – February 28, 2015)
(1) Parent Company and Major Corporate Unitholders: None applicable (2) Affiliates: None applicable (3) Sister Companies: None applicable (4) Directors and Major Individual Unitholders
Notes:  1. Kosei Murakami entered into this transaction as a representative of MFAFM, and this amount is subject to the conditions set forth in the by-laws of NAF. 2. No fees for management related to acquisition of properties included in the book value of each investment property, etc. were required to be disclosed as asset management 3. Kosei Murakami entered into this transaction as a representative of MFAFM, and this amount is set forth in the "General Administration Agreement relating to Organizationa Management" concluded between NAF and MFAFM. 4. "Amount of transaction" does not include consumption taxes. "Balance at the end of the period" includes consumption taxes. (March 1, 2014 – August 31, 2014) (1) Parent Company and Major Corporate Unitholders: None applicable (2) Affiliates: None applicable (3) Sister Companies: None applicable (4) Directors and Major Individual Unitholders
2. The amount of asset management fees includes ¥143 million for management fees related to acquisition of properties included in the book value of each investment property, 3. Kosei Murakami entered into this transaction as a representative of MFAFM, and this amount is set forth in the "General Administration Agreement relating to Organizationa Management" concluded between NAF and MFAFM. 4. "Amount of transaction" does not include consumption taxes. "Balance at the end of the period" includes consumption taxes.
Note 11
Financial Instruments
(March 1, 2015 – August 31, 2015)
1. Status of Financial Instruments
(1) Policy for Financial Instruments NAF procures funds for acquisition of assets and other uses through bank loans, issuance of bonds and investment units. NAF may enter into derivative transactions solely for the purpose of hedging interest rate risk. Currently, NAF is not engaged in any derivative transactions. NAF strives for efficiency in its funding plans and has an operating policy of minimizing surplus funds. (2) Financial Instruments, Their Risks and Risk Management System Funds from loans and bonds are primarily used for acquiring assets and to repay interest-bearing debt. NAF manages associated liquidity and interest rate fluctuation risk in ways such as diversifying its credit sources and maturities, and by mainly using fixed- rate loans. (3) Supplemental Explanation regarding Fair Values of Financial Instruments The fair value of financial instruments is based on their observable market value, if available. When there is no observable mar- ket value available, fair value is based on a price that is reasonably estimated. Since various factors are reflected in estimating the fair value, different assumptions and factors could result in a different value.
2. Estimated Fair Value of Financial Instruments
Book value, fair value and the difference between the two as of August 31, 2015 were as follows. The financial instruments for which it is very difficult to estimate the fair value are excluded from the following table (See Note 2, below).
Notes:  1. Methods to estimate fair value of financial instruments Assets: (1) Cash and cash equivalents Book values of these instruments are used to determine their fair values, as the book values are considered to approximate fair values because these instruments are set- tled within a short-term period. Liabilities: (1) Short-term loans Book values of these instruments are used to determine their fair values, as the book values are considered to approximate fair values because these instruments are set- tled within a short-term period. (2) Bonds due within one year Fair values of these bonds are based on observable market value. (3) Long-term loans due within one year and (4) Long-term loans Fair values of these instruments are based on the present value of principal and interest cash flows discounted at the current interest rate estimated to be applied if simi new loans were entered into. 2. Financial instruments for which it is very difficult to estimate the fair value
Security deposits from tenants are not subject to fair value disclosure because they are not marketable, and the actual deposit period is not estimable as leases may be cancelled, renewed or re-signed even if a lease term is set in the lease contract, making a reasonable estimate of future cash flows difficult.
4. Repayment schedule for loans and bonds due after August 31, 2015

(September 1, 2014 – February 28, 2015)
1. Status of Financial Instruments
Same as above.
2. Estimated Fair Value of Financial Instruments
Book value, fair value and the difference between the two as of February 28, 2015 were as follows. The financial instruments for which it is very difficult to estimate the fair value are excluded from the following table (See Note 2, below).
Assets: (1) Cash and cash equivalents Book values of these instruments are used to determine their fair values, as the book values are considered to approximate fair values because these instruments are set- tled within a short-term period. Liabilities: (1) Short-term loans Book values of these instruments are used to determine their fair values, as the book values are considered to approximate fair values because these instruments are set- tled within a short-term period. (2) Long-term loans due within one year and (4) Long-term loans Fair values of these instruments are based on the present value of principal and interest cash flows discounted at the current interest rate estimated to be applied if simi new loans were entered into. (3) Bonds Fair values of these bonds are based on observable market value.
Security deposits from tenants are not subject to fair value disclosure because they are not marketable, and the actual deposit period is not estimable as leases may be cancelled, renewed or re-signed even if a lease term is set in the lease contract, making a reasonable estimate of future cash flows difficult. 3. Redemption schedule for monetary claims with maturity dates after February 28, 2015

Investment and Rental Properties
Note 12
(March 1, 2015 – August 31, 2015) NAF owns rental properties including land located in Tokyo and other areas. The book value, net changes in the book value and the fair value of the investment and rental properties were as follows.
Notes: 1. "Book value" is the acquisition cost inclusive of acquisition expenses less accumulated depreciation and excluding expenses for construction in process. 2. In "Change during the 19th Period," the main factor for the increase in book value was the acquisition of properties for ¥7,438 million. The main factor for the decrease in book value was depreciation. 3. "Fair value as of August 31, 2015" is based on appraisals provided by independent real estate appraisers. Information about profit and loss from investment and rental properties for the period ended August 31, 2015 is disclosed in Note 6, Rental Revenues and Expenses.
(September 1, 2014 – February 28, 2015)
NAF owns rental properties including land located in Tokyo and other areas. The book value, net changes in the book value and the fair value of the investment and rental properties were as follows.
Notes: 1. "Book value" is the acquisition cost inclusive of acquisition expenses less accumulated depreciation and excluding expenses for construction in process. 2. In "Change during the 18th Period," the main factor for the decrease in book value was depreciation. 3. "Fair value as of  February 28, 2015" is based on appraisals provided by independent real estate appraisers. Information about profit and loss from investment and rental properties for the period ended February 28, 2015 is disclosed in Note 6, Rental Revenues and Expenses.
Note 13
Segment Information
(March 1, 2015 – August 31, 2015)
1.  Segment Information
Segment information has been omitted as NAF has only one segment, which is real estate leasing business.
2. Related Information
(1) Information by Products and Services Disclosure of this information has been omitted as NAF has a single product/service line that accounts for more than 90% of total revenues. (2) Information by Geographic Areas 1) Operating revenues Disclosure of this information has been omitted as total domestic revenues account for more than 90% of total revenues. 2) Investment properties Disclosure of this information has been omitted as total domestic investment properties account for more than 90% of the book value of total investment properties. (3) Information on Major Tenants

(September 1, 2014 – February 28, 2015)
1. Segment Information
Segment information has been omitted as NAF has only one segment, which is real estate leasing business.
2.  Related Information
(1) Information by Products and Services Disclosure of this information has been omitted as NAF has a single product/service line that accounts for more than 90% of total revenues. (2) Information by Geographic Areas 1) Operating revenues Disclosure of this information has been omitted as total domestic revenues account for more than 90% of total revenues. 2) Investment properties Disclosure of this information has been omitted as total domestic investment properties account for more than 90% of the book value of total investment properties (3) Information on Major Tenants

(March 1, 2014 – August 31, 2014)
1. Segment Information Segment information has been omitted as NAF has only one segment, which is real estate leasing business.
2.  Related Information
(1) Information by Products and Services Disclosure of this information has been omitted as NAF has a single product/service line that accounts for more than 90% of total revenues. (2) Information by Geographic Areas 1) Operating revenues Disclosure of this information has been omitted as total domestic revenues account for more than 90% of total revenues. 2) Investment properties Disclosure of this information has been omitted as total domestic investment properties account for more than 90% of the book value of total investment properties. (3) Information on Major Tenants

Note 14
Significant Subsequent Events
None applicable
To the Board of Directors of Nippon Accommodations Fund Inc.: We have audited the accompanying financial statements of Nippon Accommodations Fund Inc. (a Japanese Real Estate Investment Trust), which comprise the balance sheets as at August 31, 2015 and February 28, 2015, and the statements of income, statements of changes in net assets and statements of cash flows for each of the six months ended August 31, 2015, February 28, 2015 and August 31, 2014, and a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in Japan, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, while the objective of the financial statement audit is not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Nippon Accommodations Fund Inc. as at August 31, 2015 and February 28, 2015, and its financial performance and cash flows for each of the six months ended August 31, 2015, February 28, 2015 and August 31, 2014, in accordance with accounting principles generally accepted in Japan. Convenience Translation The U.S. dollar amounts in the accompanying financial statements with respect to the period ended August 31, 2015 are presented solely for convenience. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in Note 1 to the financial statements. k PMG December 2, 2015 Tokyo, Japan LLC
Contents

35
Rental apartments have a lower earnings fluctuation risk than real estate leased for other uses. By concentrating investment in the 23 wards of Tokyo where demand for rental housing is high and developing a portfolio with high market competitiveness and asset value, NAF will stably increase earnings.
Residential Rental Market Trends in
the 23 Wards of Tokyo
Population and Number of Households
In the 23 wards of Tokyo, where most of NAF's assets under management are located, the population influx is continuing, reflecting an increasing desire to live closer to work and the progressive concentration of economic activities in Tokyo. Graph 1 shows migration trends in the 23 wards of Tokyo as well as net in-migration. In-migration has continued to exceed out-migration indicating stable demand for residential rental housing in highly convenient areas. NAF projects solid demand from the growing number of single and two-person households for single and compact (rentable area under 60m² with two or fewer bedrooms) apartments, which comprise the majority of NAF's portfolio.
Rental Housing Stock
Graph 2 shows the number of rental apartment construction starts in the 23 wards of Tokyo. Construction starts increased more or less steadily until 2006, but decreased significantly following changes in the building authorization procedure resulting from revisions in 2007 to the Building Standards Law (Law No. 201 of 1950 as amended). The number of construction starts has been at a low level since 2007.
Stability of Residential Rent
Graph 3 shows relative rents for residential units in the 23 wards of Tokyo and offices in Greater Tokyo, with 1989 levels set as 100. Residential rent has remained relatively stable in comparison to office rent. Rental housing is a necessary expense in the same way as clothing and food. Therefore, residential rent is considered stable because it is generally unaffected by fluctuations in economic conditions and asset value, with relatively low risk of change. In addition, rental housing enables a more diversified portfolio in terms of number of properties and tenants due to its relatively small scale in comparison to office buildings and other properties. Investment in rental housing of this nature is perfectly matched with NAF's core strategy of securing stable revenues. Furthermore, new properties are scarce, comprising a limited share of rental housing stock. Such properties, which make up the majority of NAF’s investment portfolio, ensure market competitiveness and asset value. Source: Ministry of Internal Affairs and Communications, Bank of Japan Common Practices in Japan's Rental Apartment Market
Contract Validity Period
Leases in Japan are generally two-year contracts, which can be renewed by paying an extension fee (usually one month's rent).
Security Deposit
The tenant must pay a security deposit in advance to the landlord to insure against future unpaid rent and/or damages. Generally, it is equal to two months' rent and is typically refunded when moving out (a cleaning and/or repair fee may be deducted prior to refund).
Key Money
The tenant pays key money to the landlord prior to signing a lease contract. Generally, it is equivalent to two months' rent and is not refunded.
Commission Fee
A commission fee is paid to the leasing agent; by regulation, it cannot exceed one month's rent.
Guarantor/Joint Surety
A guarantor is required when signing a lease contract. The guarantor must have an income sufficient to cover the rent if the tenant cannot pay and/or the cost of repairs to the apartment if the tenant causes any damage.
Nippon Accommodations Fund Inc. has structured systems for compliance and risk management and operates fairly and transparently with the aim of increasing investor value.
Real Estate Investment Trust (“REIT”) Structure
Nippon Accommodations Fund Inc. (“NAF”) is an investment corporation established with the objective of investing in assets, primarily Designated Assets as defined under the Investment Trust and Investment Corporation Act of Japan. NAF was established on October 12, 2005, with Mitsui Fudosan Accommodations Fund Management Co., Ltd. (the "REIT Management Company" or "MFAFM") as its asset management company. NAF has entrusted management of all of its assets to the REIT Management Company, which is the asset management company required under the Investment Trust and Investment Corporation Act of Japan. Operating in accordance with the REIT Management Agreement concluded on October 13, 2005 (as amended), the REIT Management Company manages NAF’s assets according to NAF's asset management and administration policies and the asset management guidelines embodied in the internal regulations of the REIT Management Company. The asset management guidelines take current investment conditions into account and follow NAF's basic operating principle of taking a medium-to- long-term perspective in managing assets to secure stable earnings and steadily increase assets under management. These guidelines may change in the future in response to changes in the external investment environment and the status of NAF's assets under management. In addition, the REIT Management Company is a 100 percent subsidiary of Mitsui Fudosan Co., Ltd., and has concluded contracts with other companies in the Mitsui Fudosan Group to promote smooth, effective management of NAF's assets. An Agreement on Provision of Real Estate Information/Advisory Service and an Agreement on Provision of Real Estate Information with Mitsui Fudosan Residential Co., Ltd. provide information regarding real estate owned or developed by Mitsui Fudosan Residential's Rental Apartment Development Department, and other management advisory information. A Memorandum on Provision of Real Estate Brokerage Information with Mitsui Fudosan Realty Co., Ltd. provides access to certain real estate property information. A Basic Agreement on Property Management with Mitsui Fudosan Housing Lease Co., Ltd., the master property management company to which NAF has entrusted property management services of all its rental apartments, is fundamental to NAF's policy of outsourcing such property management services required in managing real estate.
Corporate Structure
General Meeting of Unitholders
In accordance with the Investment Trust and Investment Corporation Act of Japan and NAF's Articles of Incorporation, NAF convenes a General Meeting of Unitholders within the 23 wards of Tokyo, generally once every two years. The General Meeting of Unitholders adopts or vetoes ordinary resolutions on the basis of a simple majority of the voting rights of unitholders in attendance. Decisions on substantive resolutions such as changes in the Articles of Incorporation require the attendance of unitholders holding at least a simple majority of total units issued and outstanding, and a vote of two-thirds majority of the voting rights of such unitholders. The asset management policies and standards are stipulated by NAF's Articles of Incorporation.
Executive Directors, Supervisory Directors,
Independent Auditor and the Board of Directors
NAF's Articles of Incorporation stipulate that NAF must have one or more executive directors, and two or more supervisory directors (but always equal to the number of executive directors plus at least one additional supervisory director). NAF's independent auditor is KPMG AZSA LLC. NAF’s executive directors are responsible for business execution. In addition, they have authority for all judicial and extrajudicial proceedings related to the operations of NAF. Supervisory directors are responsible for supervising business execution by the executive directors. The Board of Directors acts in accordance with the Investment Trust and Investment Corporation Act of Japan and NAF's Articles of Incorporation and other internal rules in exercising their responsibility to supervise the performance of the executive directors. In accordance with the current Articles of Incorporation, the Board of Directors passes or vetoes resolutions on the basis of a simple majority of executive and supervisory directors on the Board who are in attendance and are able to vote. Executive and supervisory directors having special interest in a resolution are prohibited from participating in related decisions. Independent auditors are elected at the General Meeting of Unitholders. They audit financial and accounting documents including NAF's financial statements. In addition, they are charged with reporting to supervisory directors any unlawful acts or material violations of laws, regulations or NAF's Articles of Incorporation that executive directors may commit in the course of their duties. Independent auditors also perform other duties as required by laws and regulations.
Compliance Initiatives
The REIT Management Company, MFAFM, assumes full responsibility for compliance in order to structure an appropriate asset management system for NAF. A Chief Compliance Officer (CCO) of MFAFM has been appointed to supervise compliance with laws, regulations and internal rules on the part of the REIT Management Company. The CCO is responsible for internal audits at the REIT Management Company. The Chief Executive Officer (CEO) may also appoint other employees of MFAFM to participate as needed in internal audits, based on the recommendations of the CCO. MFAFM's entire organization and all personnel within it are subject to internal audits. As a rule, internal audits are conducted on a regular basis in accordance with the compliance program, but the CEO may initiate extraordinary audits.
Investment Risk Management System
NAF itself is responsible for complying with the Investment Trust and Investment Corporation Act of Japan and related laws and regulations in managing risks. In addition, the REIT Management Company has established appropriate internal rules. In conjunction with appropriate organizational systems, NAF is providing education and implementing other measures to enhance the culture of compliance among officers and employees of MFAFM. NAF's Board of Directors convenes as needed at least once every three months, and resolves important matters and reports on the status of business execution in accordance with laws, regulations and internal rules for such Board of Directors. Independent supervisory directors supervise business execution. Moreover, supervisory directors can obtain as needed reports on operations and financial condition from the REIT Management Company and from NAF's asset custodian, Sumitomo Mitsui Trust Bank, Limited. Independent supervisory directors can also conduct required investigations. The REIT Management Company formulates and revises an annual management plan that is the blueprint for management and administration policies that comply with the asset management guidelines. This annual plan and compliance with the asset management guidelines serve to eliminate or minimize risk. In addition, the REIT Management Company has established internal risk management regulations and a department that focuses on managing each type of risk appropriately. Functions as a Check on the Investment Committee CCO can suspend discussion when he sees any problem in the discussion process Related-party transactions require approval by independent external professionals Note: When NAF acquires or disposes of assets in transactions with related parties as defined by the Investment Trust and Investment Corporation Act of Japan, the REIT Manag must obtain consent from NAF based on the approval of NAF's Board of Directors prior to the deliberations of the Investment Committee. However, such consent is not required or other real estate acquisitions stipulated by Article 245-2-1 of the Investment Trust and Investment Corporation Act as having immaterial impact on NAF's assets because th cost represents less than 10 percent of the book value of NAF's investment properties.
Restrictions on Related-Party Transactions
Laws and regulations prohibit the REIT Management Company from conducting specified transactions with related parties. In the case of a transaction with a potential conflict of interest between an entity specified under the Investment Trust and Investment Corporation Act of Japan and its ordinances and its asset management company, in principle the REIT Management Company must prepare a brief describing the transaction and deliver it to NAF and other entities specified by the Investment Trust and Investment Corporation Act of Japan and its ordinances. With the objective of enhancing returns for NAF's unitholders, the REIT Management Company's internal regulations specify rules for handling related-party transactions. The REIT Management Company has established standards and procedures for related-party transactions and executes appropriate asset management for NAF by eliminating conflicts of interest.

Overview of the Roles of Primary Related Corporations

The following outlines the contractual relationship between NAF and its REIT management company, and the contractual relationship between NAF's REIT assumed the rights and responsibilities under this agreement on October 1, 201S when Mitsui Fudosan's rights and responsibilities in the residential leasing business transfe Mitsui Fudosan Residential.
Mitsui Fudosan Accommodations Fund Management Co., Ltd.
REIT Management Company and General Administrative Agent
MFAFM, as a REIT management company provided for in the Investment Trust and Investment Corporation Act of Japan, performs management of NAF's assets and undertakes management of the general affairs of NAF. MFAFM has no capital relationship with NAF.
Operation
■ Undertakes asset management of NAF pursuant to a REIT Management Agreement based on an entrustment from NAF in accordance with the Articles of Incorporation of NAF and the Investment  Objectives and Policies set forth therein. ■ Undertakes management of the general affairs of the general meeting of unitholders and the Board of Directors of NAF as General Administrative Agent based on an entrustment from NAF and a General Administrative Service Agreement.
Fees for the Asset Management Operation
NAF pays asset management fees to MFAFM, in accordance with the REIT Management Agreement concluded with MFAFM. These fees comprise items 1 to 4 below, with the method of calculation and payment dates as follows.
Management Fees 1
The amount equivalent to 5 percent of the amount of the revenue arising from Real Estate, etc., as calculated on each closing date (excluding revenues from the sale of Real Estate, etc., and other Managed Assets) will be payable. Management Fees 1 are paid without delay after definite settlement of accounts.
Management Fees 2
The amount equivalent to 5 percent of income before income tax prior to deduction of Management Fees 1 and 2 as calculated on each closing date will be payable. Management Fees 2 are paid without delay after definite settlement of accounts.
Management Fees 3
In the event that Real Estate, etc., is newly acquired, compensation equivalent to 1 percent (0.5 percent if it is acquired from Related Parties) of the total amount of the acquisition price of said Real Estate, etc., (excluding consumption tax, local consumption tax, and acquisition costs) will be payable. Management Fees 3 are paid at or before the end of the next month after the month of the acquisition date.
Management Fees 4
In the event that Real Estate, etc., is sold, compensation equivalent to 1 percent (0.5 percent if it is sold to Related Parties) of the total amount of the sales price of said Real Estate, etc., (excluding consumption tax, local consumption tax) will be payable. Management Fees 4 are paid at or before the end of the next month after the month of the sales date.
Mitsui Fudosan Residential Co., Ltd.
Real Estate Information and Advisory Service Provider
Pursuant to an Agreement on Provision of Real Estate Information/ Advisory Service, Mitsui Fudosan Residential provides to MFAFM a diverse array of support services that employ the information and expertise of Mitsui Fudosan Residential in the area of real estate management and administration. In order to receive such services, MFAFM provides Mitsui Fudosan Residential with acquisition guidelines included in asset management guidelines.
Provision of Information on Real Estate and Other Assets
Owned or Developed by Mitsui Fudosan Residential
In the case Mitsui Fudosan Residential decides to provide any third party with information on real estate or real estate-related assets that it owns or is planning to develop and sell under its Rental Apartment Development Department or otherwise solicits the third party to purchase such real estate or assets, and such real estate or assets are consistent with MFAFM's asset management guidelines, Mitsui Fudosan Residential provides such information to MFAFM before or at the same time as it provides information to and/or solicits the third party, unless prevented from doing so due to lack of consent of third parties or for any other unavoidable reason. When MFAFM receives such information and provides written notification that it will consider the purchase of such real estate or assets, Mitsui Fudosan Residential deals with NAF as a prospective purchaser on a pari passu basis with any third party interested in purchasing such real estate or other assets.
Provision of Third-Party Real Estate Sales Information
Regardless of whether Mitsui Fudosan Residential has originated or is brokering the sale, Mitsui Fudosan Residential's Rental Apartment Development Department in principle provides MFAFM with information concerning available real estate or real estate-related assets owned by third parties, when such real estate or assets are consistent with MFAFM's asset management guidelines, unless prevented from doing so due to lack of consent of third parties or for any other unavoidable reason, or because Mitsui Fudosan Residential itself intends to acquire such real estate or assets with the objective of development or ownership.
Provision of Real Estate Management Information
At least once per calendar year, Mitsui Fudosan Residential will provide in writing, upon request by MFAFM, real estate management information (see note below) that its Rental Apartment Development Department supervises if MFAFM deems such information necessary for its business and Mitsui Fudosan Residential agrees to such provision. Note: “Real estate management information” means the following information. (a) Mitsui Fudosan Residential's qualitative view of medium-to-long-term trends relevant to the operating environment of the real estate leasing market (including but not limited to economic trends in Japan, population dynamics and trends in housing stock) (b) Mitsui Fudosan Residential's qualitative view of short-term trends relevant to the operating environment of the real estate leasing market, including but not limited to trends in new supply of residential properties for lease (including property summaries, level of rent and initial leasing conditions), lease contracts entered into for specific residential properties, area marketing surveys, financial data for other real estate investment corporations, income and expense data for specific real estate or real estate-related assets, and real estate leasing market trends (including vacancy rate and rent trends) (c) Mitsui Fudosan Residential's quantitative data regarding real estate leasing market conditions up to the present (including but not limited to rent rolls of residential properties for lease owned by Mitsui Fudosan Residential or NAF and supplementary data such as records of lease contracts entered into and cancelled, and related expenses) (d) Other information related to items (a), (b) or (c) above that MFAFM requests, as needed
Provision of Advisory Services
Mitsui Fudosan Residential provides technical advice to MFAFM regarding the buildings and facilities of the real estate and real estate-related assets that NAF has purchased or is considering purchasing (but in no case does it provide MFAFM with investment advice). This technical advice includes the following. (a) Advice and investigational support for the preparation and implementation of daily and long-term maintenance plans for said buildings and facilities (b) Advice and investigational support for the preparation and implementation of plans for small repairs, renovations, periodic inspections and response to facility and equipment recalls (c) Advice, investigational support and other assistance for the preparation and implementation of large-scale renovations
Operation Fees
MFAFM will provide compensation as separately discussed and agreed with Mitsui Fudosan Residential under this agreement.
Portfolio Structure Policies
Set forth below are the portfolio structure policies and investment standards for individual properties for the REIT Management Company and its internal regulations that serve as asset management guidelines.
1. Proportion of Investment Assets by Category
NAF invests mainly in rental apartments, and currently limits investment in other accommodation assets to a maximum of 10 percent of total portfolio value on an acquisition price basis.
2. Investment Areas
NAF emphasizes Greater Tokyo and other major cities in Japan in investing in accommodation assets. By region, at least 80 percent of NAF's assets are located in the 23 wards of Tokyo. When considering individual investments, NAF studies regional characteristics and tenant needs. NAF then deploys this information to invest in properties with suitable residential plans and characteristics.
3. Investment Standards
The REIT Management Company identifies potential investments and decides whether or not to invest in assets on the basis of the asset management guidelines summarized in the table below.

4. Due Diligence Standards
NAF selects assets to invest in only after due diligence covering economic feasibility, physical condition and legal status in accordance with the asset management guidelines. Due diligence includes various written assessments and reports from third-party specialists. Based on the results of such due diligence, the REIT Management Company in principle undertakes investigation of the items listed below in order to make investment decisions as a result of comprehensive review.

Policies for Portfolio Management and Operation
1. Basic Management Policies
The REIT Management Company prepares a yearly management plan for NAF's assets under its management for each fiscal period. This management plan covers issues such as handling of the assets and projected capital expenditures for properties, including plans for large-scale renovation, and is subject to Investment Committee approval. The REIT Management Company acts in accordance with this yearly management plan in undertaking management and operation of the assets in cooperation with the property management company. The REIT Management Company is also responsible for implementing appropriate changes and revisions to the yearly management plan if necessitated by significant changes in the operating environment.
2. Selection and Monitoring of the Property
Management Company
The property management company is responsible for proposal and implementation of various measures for day-to-day, on-site management of tenants and properties. Such functions of the property management company are particularly important to the management of accommodation assets in general and rental housing in particular. Naturally, the property management company should have specialized expertise in the business of property management, and its operations must be organized and efficient so that it can provide consistent, high-quality services across a wide array of properties and tenants. For “Rental Apartments” in NAF’s portfolio, NAF has selected Mitsui Fudosan Housing Lease Co., Ltd. to provide these services as its master property management company. In principle, NAF intends to entrust property management for assets to be owned by NAF in the future to Mitsui Fudosan Housing Lease, on the condition that it meets the following requirements. 1. An organizational structure that can execute property management operations according to the management and operation specifications of the REIT Management Company 2. The capability to accomplish smooth new tenant recruitment 3. A reasonable compensation level for property management operations compared to the market level In addition, the REIT Management Company will periodically monitor whether the selected property management company is maintaining its capabilities at the level dictated by the standards for selection. As a result of monitoring, the REIT Management Company may require improvements or may change the property management company.
3. Policies for Property and Casualty
Insurance Coverage
NAF maintains property and casualty insurance coverage, to the extent that is deemed appropriate, to address damage to property due to disasters such as fires and accidents or claims for compensatory damages from third parties. Asset characteristics determine such coverage. NAF comprehensively determines earthquake insurance coverage according to cost effectiveness and the projected impact of an earthquake on each building and on the portfolio as a whole. When earthquake PML for specific buildings is projected above 20 percent or when the acquisition of such property causes portfolio PML to rise above 15 percent, NAF comprehensively considers the impact from an earthquake, insurance premiums and any other relevant issues to determine whether or not to purchase earthquake insurance.
4. Basic Policies for Renovation Plans and
Capital Expenditures
The renovation plans are strategic and require renovation and capital expenditures in addition to routine expenses incurred by small repairs in order to maintain and improve the market competitiveness of properties and tenant satisfaction over the medium-to-long term. NAF determines and revises, for each property, an annual renovation plan in yearly management plans that are based on the established 12- year medium-term renovation plans. NAF funds a reserve for renovation according to considerations of depreciation expenses and renovation plans based on medium-to-long- term portfolio management. In principle, NAF keeps capital expenditures within the scope of the overall portfolio renovation plan.
Divestiture Policy
In principle, NAF aims to secure stable operating revenue from assets under management through ownership over the medium-to-long term, and does not engage in short-term divestiture. However, NAF decides to sell specific assets after consideration of the overall portfolio impact based on evaluation of trends affecting the future rental market in a given area, actual or projected increases or decreases in asset values, risk of asset impairment, obsolescence and associated costs, and other relevant factors.
Financial Policies
1. Issuance of New Units
NAF may flexibly issue additional units through an offering with the objective of financing acquisition of assets, renovation and other capital requirements for operation, or to repay debt, including lease deposits, security deposits, loans and bonds that NAF may have issued.
2. Debt Financing
NAF may issue bonds or take on loans, including call market funding, with the objective of financing acquisition of assets; renovation expenses; dividend payments; working capital; or debt repayment, including lease deposits, security deposits, loans and bonds that NAF may have issued. NAF only borrows capital from qualified institutional investors as defined under the relevant laws and regulations in Japan. In addition, NAF may not take on loans or issue bonds that exceed ¥1 trillion, respectively, nor may the total of loans and bonds exceed ¥1 trillion. According to NAF's current Articles of Incorporation, NAF may use its assets under management as collateral for loans and bonds.
3. Loan-to-Value Ratio
The ratio of interest-bearing debt to NAF's total assets is known as the loan-to-value (LTV) ratio. The REIT Management Company determines the upper limit of NAF's LTV ratio as part of its medium-to- long-term asset management plans and its yearly management plans. NAF's policy is to keep the LTV ratio below 60 percent, although issues including the acquisition of assets may cause the LTV ratio to temporarily exceed 60 percent.
4. Derivatives
According to NAF's current Articles of Incorporation, NAF limits transactions involving financial derivatives to those with the objective of hedging risks including the risk of change in the interest rates associated with debts.
Information Disclosure Policy
NAF defines itself as an open, transparent investment corporation, and has a disclosure policy for public awareness. Moreover, NAF works to maintain an environment that encourages timely and accurate disclosure of unbiased information to all investors. In keeping with its name, NAF’s fundamental policy is to accommodate investors in disclosing information. NAF discloses information in accordance with the Investment Trust and Investment Corporation Act of Japan, the Financial Instruments and Exchange Law of Japan, and the rules of the Tokyo Stock Exchange and the Investment Trusts Association, Japan. Moreover, NAF energetically discloses of its own accord information that it believes is relevant to investment decisions.

Disclaimer
This document was prepared solely for the convenience of and reference by overseas investors and does not correspond to the original Japanese documents. The information provided in this document does not constitute the disclosure or asset management reports required under the Financial Instruments and Exchange Act or laws relevant to investment trusts or investment corporations. This English document contains selected information including a partial translation of the Securities Report ( Yuka shoken hokokusho ) filed on November 27, 2015 pursuant to the Financial Instruments and Exchange Law of Japan, and the Financial Statements and Performance Information Report for the period from March 1, 2015 to August 31, 2015, of Nippon Accommodations Fund Inc. prepared pursuant to the Investment Trust and Investment Corporation Act of Japan. This document should not be deemed a summary of the above mentioned Securities Report and the Financial Statements and Performance Information Report. Nippon Accommodations Fund Inc. has exercised due care in providing the information in this document, but does not guarantee its accuracy or completeness. The contents of this document do not constitute an offer to sell or solicitation of an offer to buy or sell any securities of Nippon Accommodations Fund Inc. or otherwise, nor is it advice or the recommendation of Nippon Accommodations Fund Inc. to enter into any transaction. Investment decisions should be based on your own judgment and responsibility. Please consult with a securities company regarding the purchase of units or investment corporation bonds of Nippon Accommodations Fund Inc. English terms for Japanese legal, accounting, tax and business concepts used herein may not be precisely identical to the concept of the equivalent Japanese terms. If there exist any discrepancies in the meaning or interpretation with respect to any and all terms herein including, without limitation, financial statements, between the original Japanese documents and English statements contained herein, the original Japanese documents will always govern the meaning and interpretation. None of Nippon Accommodations Fund Inc., Mitsui Fudosan Accommodations Fund Management Co., Ltd. or any of their respective directors, officers, employees, partners, unitholders, agents, parent company or affiliates will be responsible or liable for the completeness, appropriateness or accuracy of English translations contained in this document. No person has been authorized to give any information or make any representations other than as contained in this document in relation to the matters set out in this document, and if given or made, such information or representation must not be relied upon as having been authorized by Nippon Accommodations Fund Inc., Mitsui Fudosan Accommodations Fund Management Co., Ltd. or any of their respective directors, officers, employees, partners, unitholders, agents, parent company or affiliates. The financial statements of Nippon Accommodations Fund Inc. have been prepared in accordance with generally accepted accounting principles in Japan (Japanese GAAP), which may materially differ in certain respects from generally accepted accounting principles in other jurisdictions. This document contains forward-looking statements and information. We base these statements on our beliefs as well as our assumptions based solely on certain limited information currently available to us. Because these statements reflect our current views concerning future events, these statements involve known and unknown risks, uncertainties and assumptions. Our future performance could materially differ from those set out in these forward-looking statements. We do not undertake and will not undertake to release revisions of forward-looking statements to reflect future events or circumstances or of any other statements or information contained herein. The information in this document may be changed without prior notice. Duplication or use of information in this document for other purposes without the prior consent of Nippon Accommodations Fund Inc. is prohibited. Nippon Accommodations Fund Inc. 4-1, Nihonbashi 1-chome, Chuo-ku, Tokyo 103-0027, Japan http://www.naf-r.jp/english/