The following is an English translation of the original Japanese version.
If there is any inconsistency between the two versions, the Japanese version shall prevail.

December 1, 2014

In managing investment trusts, SPARX Asset Management Co., Ltd. ("SPARX") may use derivative transactions to reduce the risk to trust assets ("hedging") or to pursue efficient returns using approaches that are not limited to hedging. (Derivative transactions are defined in Article 2, Paragraph 20 of the Financial Instruments and Exchange Act. They include transactions in securities or certificates with subscription warrants, investment equity subscription warrants, or options attached to them, as well as trading in bonds with option rights. In this document, they are referred to as "Derivative Transactions.")
SPARX uses the methods below to manage the risk of Derivative Transactions for publicly offered investment trusts so as to limit the potential losses to trust assets from such transactions within a certain range:

• Investment trusts for which Derivative Transactions are used with a sole purpose of hedging For investment trusts that have stipulated the use of Derivative Transactions as the sole purpose of hedging (*1) in their Basic Terms and Conditions, the notional principal for these transactions is monitored no not exceed the total net assets of the investment trusts.
• Investment trusts for which Derivative Transactions are used for purposes other than hedging For investment trusts that have stipulated the use of Derivative Transactions for purposes other than hedging in their Basic Terms and Conditions, the market risk equivalent (i.e., the total amount of risk equivalent of an investment trust, not just the risk equivalent of in the Derivative Transactions) is monitored to remain under 80% of the total net assets of the investment trust. The market risk equivalent is based on a standard formula provided in the Public Notice of the Financial Services Agency (FSA Notice)(*2).

Standard formula:
The FSA Notice stipulates the Market Risk Equivalent in its standard formula as the total amount of equities, interest, foreign exchange, and commodity risk equivalents.
The risk equivalent of each asset type is calculated by multiplying each position in a portfolio (weight) by a fixed multiplier for each investment (for instance, equities are generally 8%, but a higher multiplier may apply for stocks that occupy a significant portion of a portfolio).

• (*1) "Hedging" includes long hedges, for which derivative transactions are used to keep the total exposure of actual stock transactions and derivative transactions at roughly the same level as the total net assets of an investment trust.
• (*2) This provision from FSA Notice No. 59 stipulates "the establishment of standards for calculating market, transactional, and fundamental risks equivalents of Financial Instruments Business Operators," which is a method for calculating specific risk equivalents under capital adequacy regulations for such operators.