Listed Index Fund US Bond (No Currency Hedge)

Investors are not guaranteed the investment principal that they commit. Investors may incur a loss and the value of their investment principal may fall below par as the result of a decline in NAV. All profits and losses arising from investments in the Funds belong to the investors (beneficiaries). The Funds are different from saving deposits.

The funds invest primarily in bonds. The NAV of the Funds may fall and you may suffer a loss for reasons such as a drop in the price of bonds or deterioration in financial conditions and business performance of an issuer of stocks. Investors may also incur losses due to exchange rate fluctuations when investing in assets denominated in foreign currencies.

Major risks are as follows:

1. Price Fluctuation RiskCorporate and government bonds generally have a price fluctuation risk arising from changes in interest rates. Generally, their prices go down when interest rates rise, causing the NAV of the Funds to fall. The degree of price fluctuation varies depending on the remaining time to maturity and the terms of issue in question.

2. Liquidity RiskWhere the market size or trading volume is small, buying and selling prices for securities may be greatly affected. This results in the risk that securities cannot be traded at the expected prices, sold at the appraised prices, or that trading volume is limited regardless of prices. This creates the risk of unexpected losses.

3. Credit RiskIf a default has occurred or is expected to occur, for issuers of public and corporate bonds or short-term financial assets, the prices of such public and corporate bonds or short-term financial assets decline (the value could even fall to zero). This results in a decline of the Funds’ NAVs. In addition, if default in fact occurs, there is a high possibility of being unable to collect invested cash.

4. Currency Fluctuation RiskFor foreign-currency-denominated assets, in general, if the yen is stronger than the currencies of such assets, the fund’s NAV will decline.

5. Security-Lending RiskLending securities is accompanied by counterparty risks, which are the risks of default or cancellation of lending agreements as a result of bankruptcy, etc. by the counterparties. As a result, there is a risk that the Funds will suffer unanticipated losses. Following the default or cancellation of a lending agreement, when liquidation procedures are implemented by using the collateral that is set aside in the lending agreement, the procurement cost of buying back the securities can surpass the collateral value, due to price fluctuations in the market. In such a case, the Funds would need to make up for the price difference, and therefore incur losses.

Main Factors Contributing to the Discrepancies between S&P US Treasury Bond 7-10 Year Index (TTM JPY) and NAV

This fund seeks to ensure that its NAV has the same volatility as S&P US Treasury Bond 7-10 Year Index (TTM JPY); however, we cannot always guarantee that the fund will have the same volatility as the Index due to the following factors attributable to this Fund and to the investment trust securities invested in by this fund:

• Lag between the timing of fund inflows and the purchase of investment trust securities.
• Where the portfolio is adjusted through investment in issues other than the constituent issues of S&P US Treasury Bond 7-10 Year Index (TTM JPY) or through changes in the constituent issues or weighting of S&P US Treasury Bond 7-10 Year Index (TTM JPY), the trading of individual issues may be affected by market impact or the fund may bear costs such as management fees, brokerage fees and auditing fees.
• Securities lending fees from lending securities; and
• Where derivative transactions such as futures are conducted, discrepancies in price movements between such transactions and part or all of the constituent issues of S&P US Treasury Bond 7-10 Year Index (TTM JPY).

Discrepancies Between the Market Prices at Which Stocks are Traded on the Exchange and the NAV The Funds are listed on and will be publicly traded on the Tokyo Stock Exchange; however, the market price of the units will depend mainly on the demand for the Funds, their investment performances, and how attractive they are to investors in comparison to alternative investments, etc. We cannot predict whether the Funds will be traded as a market value below or above their NAVs.
*The prices of securities targeted for investment of the Funds will fluctuate under the influence of the aforementioned risks. Therefore, please note that the Funds themselves have these risks as well.
* Factors that contribute to NAV fluctuations are not limited to those listed above.

Additional Considerations

• The provisions stipulated in Article 37-6 of the Financial Instruments and Exchange Act (the ''cooling-off period'') is not applicable to transactions in the Funds.
• The Funds differ from deposits or insurance policies in that the Deposit Insurance Corporation of Japan or the Policyholders Protection Corporation of Japan does not protect them. Furthermore, units purchased from registered financial institutions, such as banks, are exempted from compensation by the Japan Investor Protection Fund.
• When the Fund faces big redemption causing short term cash requirement or sudden change in the main trading market condition, there can be temporal decline in the liquidity of holding assets, resulting in the risks that Fund unable to trade securities at the expected market prices or appraised prices, or encounters limitation in trading volume. This may result in the negative influence on NAV, suspension of redemption applications, or delay in making payment of redemption.

Risk Management System

• The departments in charge of risk management and compliance will be independent from fund management departments, and will evaluate and analyze risks and performance, risk management, and monitor the status of compliance with laws and regulations.
• To maintain an appropriate management system, the departments in charge of risk management and compliance will report and propose to the committee associated with risk management and compliance, and instruct fund management departments to take corrective actions as necessary.
  * The system described above is as of the end of May 2016, and may be subject to change in the future.