Corporate Governance

Chapter 2: Structure of Company-wide Internal Control

Section 1: Basic principles of business execution

The Company has set forth basic matters related to the content and method of the financial instruments business that the Company operates under the Financial Instruments and Exchange Act (matters related to the basic business policy and the principles of business operation, matters related to the basic asset management policy, types of assets for investment, matters related to the entrustment of the authority to invest, and matters related to the financial soundness of the Company, etc.) in the Business Rules for the purpose of the protection and the appropriate business operation of the Investment Corporation.

The type of act of the financial instruments business that the Company performs in the course of trade is the investment management stipulated in Article 28, Paragraph 4 of the Financial Instruments and Exchange Act. The type of investment management that the Company operates is an act stipulated in Article 2, Item (8) (xii) of the Financial Instruments and Exchange Act related to contracts set forth in Article 2, Item (8) (xii) (a) of the said Act (including the performance of the specified investment management activities in the course of trade stipulated in Article 223-3, Paragraph 1 of the Act on Investment Trusts and Investment Corporations).

When performing the investment management business, the Company will perform it with the due care of a loyal and prudent manager for the sake of the Investment Corporation, which is the customer, to serve its purpose in accordance with the provisions of the Certificate of Incorporation of the Investment Corporation and the entrustment contract for asset investment that the Company concludes with the Investment Corporation. The Company will also perform the business as prescribed by the Financial Instruments and Exchange Act, the Act on Investment Trusts and Investment Corporations and other related laws and regulations in compliance with these laws and regulations in order to protect the Investment Corporation, which is the customer, and maintain the appropriateness of the business of the Company.

The Company will secure the long-term stability of its management foundation by promoting management efficiency and the soundness of its financial standing and enhancing shareholders' equity.

When performing the investment management business, the Company will do so with the aim of securing the steady growth of the assets and stable investment revenues of the Investment Corporation. In addition, the Company will avoid excessively speculative transactions and take care not to become a factor for invoking a short-term sharp rise or fall in the asset market in which the Company invests.

When entering into a financial instruments transaction contract, the Company will appropriately confirm the identity of a customer according to laws and regulations. If the Company encounters a case that is deemed to fall under a suspicious transaction under the Act on Prevention of Transfer of Criminal Proceeds, the Company will accurately and appropriately decide whether or not it falls under the suspicious transaction and immediately give notice to the authority.

If an act that contravenes laws, regulations or rules to be complied with or an accident of a financial instrument, etc. arises or is discovered, the Company will promptly make a report to internal audit and the Board of Directors, etc. and give notice to the competent authorities, as well as appropriately investigate the accident and find out the cause.

Section 2: Management System

The Company has established the organizational structure of business operation as described in the chart below and set forth the duties, the division of duties, the structure, the requirements for a quorum, the requirements for a resolution, and the matters to be resolved, etc. in the Board of Directors Rules, the Division of Duties Regulations, the Investment Committee Regulations, and the Compliance Committee Regulations.

[Organizational Structure of Business Operation]

The overview of the structure, matters for deliberation and authority of the committees, etc. is as follows.

Investment Committee

The Investment Committee consists of the representative director, who chairs the Committee, the directors(limited to the directors who supervise the Investment Management Department, the Asset Management Department, the Finance and Planning Department, the Business Administration Department or the Accounting Department, excluding the representative director), the general managers of the Investment Management Department, the Asset Management Department, the Finance and Planning Department, the Business Administration Department and the Accounting System Department and an external member (a licensed real estate appraiser with no interest in the AEON Group), and the Compliance Officer always sits in.

The Investment Committee will deliberate matters, etc. related to the selection of transactions and the decision of terms and conditions related to the acquisition and disposition, etc. of portfolio properties of the Investment Corporation, decisions on the conclusion of contracts related to the portfolio properties of the Investment Corporation, such as a lease contract, a property management contract, or a contract for large-scale repair, and the financing of the Investment Corporation.

In the Investment Committee, resolutions will be passed by a majority vote of the members present in the Committee where the members holding a majority of the voting rights on an agenda item to be resolved are present (however, the attendance of the chairman and the external member is compulsory). (The affirmative vote of the external member is necessary, however: the external member has the power to vote down agenda items unilaterally.) If the content of a resolution is a related party transaction (except for minor transactions), it will be passed by a majority of two thirds or more of the affirmative votes of the members present. A member who has special interests in an agenda item to be resolved may not participate in the resolution.

The Compliance Officer is able to order the cessation of deliberations if he has decided that there is a compliance problem in the process of the deliberations in the Investment Committee.

Compliance Committee

The Compliance Committee consists of the Compliance Officer, who chairs the Committee, the directors(limited to the directors who supervise the Investment Management Department, the Asset Management Department, the Finance and Planning Department, the Business Administration Department or the Accounting Department, excluding the representative director), the representative director, the director (in charge of finance and planning), the directors (in charge of business administration and the accounting system), the general manager of the Compliance Department and an external member (a lawyer with no interest in the AEON Group).

The Compliance Committee deliberates matters, etc. related to the existence of a compliance problem in the matters that have been resolved in the Investment Committee (limited to cases that fall under a related party transaction (except minor transactions) and that have been determined to be necessary by the Compliance Officer), remedial measures of acts that are inappropriate or suspected to be inappropriate from a compliance standpoint, and the existence of compliance problems in the matters in which the Compliance Officer has decided that there are compliance problems.

In the Compliance Committee, resolutions will be passed by a majority vote of the members present in the Committee where the members holding a majority of the voting rights on an agenda item to be resolved are present (however, the attendance of the chairman and the external member is compulsory). (The affirmative votes of the chairman and the external member are necessary, however: both the chairman and the external member have the power to vote down agenda items unilaterally.) If the content of a resolution is a related party transaction (except minor transactions), it will be passed by a majority of two thirds or more of the affirmative votes of the members present. A member who has special interests in an agenda item to be resolved may not participate in the resolution.

Section 3: Compliance System

The Company has established the Compliance Regulations and other internal rules for the purpose of strictly complying with all laws and regulations, etc., performing sincere and fair corporate activities, and securing management soundness based on self-discipline when operating business by establishing the basic compliance policy as the corporate ethics of the Company and the compliance standards as the principles of conduct for the officers and employees.

The legal compliance departments of the Company are the Compliance Officer and the Compliance Department, and the Company maintains their independence from the sales departments.

The Compliance Officer and the Compliance Department will provide advice and guidance to the other departments regarding the interpretation of laws and regulations, etc. and manage the matters related to legal compliance in an integrated manner.

The Compliance Department will formulate the Compliance Program, which is a specific execution plan to ensure compliance, every fiscal year, and will regularly provide all the officers and employees with compliance education and training based on the Compliance Program.

Section 4: System for preventing insider trading

To prevent insider trading, etc., the Company has established the Internal Trading Management Regulations for the purpose of contributing to the appropriate business operation of the Company by stipulating the basic necessary matters concerning the management of unpublished corporation-related information that the officers and employees, etc. (meaning the officers and employees of the Company and all persons who engage in the business of the Company; the same shall apply hereinafter) have acquired in the course of business and their duties, etc.

When executing the investment management business, the Company will not undertake the sale and purchase, etc. of shares, etc. using corporation-related information and other acts based on corporation-related information (excluding a case in which Article 166, Paragraph 6 of the Financial Instruments and Exchange Act or each item of Article 167, Paragraph 5 of the said Act applies).

Section 5: Crisis management

The Company has established the emergency headquarters installation criteria, roles and staff arrangements, outside contacts, an emergency contact network and safety confirmation method in case of emergencies, procedures for identifying and restoring important operations based on a business impact analysis, information disclosure, and the formulation and execution of training programs, as well as PDCA procedures for the above, in the Risk Management Regulations and other internal rules for the purpose of developing a crisis management system and responding to business continuity plans and business continuity management at the time when a large-scale disaster, etc. occurs.

Section 6: Risk management

The Company has established the Risk Management Regulations and other internal rules for the purpose of appropriately managing risks by establishing the basic risk management policy for the business conducted by the Company.

The Company will categorize the major risks to manage as described below by their risk factor and manage them according to their risk characteristics.

1. Investment management risks (credit risk, market risk, liquidity risk, real estate risk, outsourcing risk)
2. Operational risks (administrative risk, system risk, legal compliance risk)
3. Reputational risk

Section 7: Information disclosure

The Company has established the Regulations on Disclosure of Information, Etc. for the purpose of promoting the systematic and efficient operation of the information disclosure operations of the Company and establishing a system for examining and monitoring the information disclosure procedures of the Company by clarifying the information disclosure system and information disclosure procedures of the Investment Corporation in accordance with the Financial Instruments and Exchange Act, the Act on Investment Trusts and Investment Corporations, the Securities Listing Regulations of the Tokyo Stock Exchange, the rules of the Investment Management Association of Japan and other laws, regulations and rules.

Information subject to timely disclosure in the Regulations on Disclosure of Information, Etc. means all information that is deemed to have an impact on the investment decisions of investors.

We will disclose information in an appropriate manner, such as registering and posting on the Timely Disclosure network (TDnet), registering and posting on the Electronic Disclosure for Investors' NETwork (EDINET) and disclosing information on the website of the Investment Corporation (or a combination thereof).

Section 8: Information management

The Company will make efforts to construct a strict information management system, fully recognizing that if a violation of the law such as the occurrence of information leakage and the unauthorized use of information assets arises, the Company will ruin its social credibility substantially, which will not only cause the stakeholders a lot of trouble but will also have a significant impact on the management and business operation of the AEON Group.

As it is our social responsibility to appropriately manage and protect the information assets we hold, strict information management is necessary, and we believe that the appropriate use of information assets will also contribute to the improvement of our competitiveness.

The Company has established the Information Security Management Regulations and other internal rules for the purpose of appropriately protecting all the information assets handled by the Company and maintaining and improving the systematic management of information and the level of information security.

The Company has established the Personal Information Protection Regulations for the purpose of protecting and appropriately handling personal information, with the officers and employees, etc. of the Company complying with laws and regulations, etc. (including the Act on the Protection of Personal Information and related laws and regulations, the Guidelines for Personal Information Protection in the Financial Field, the Practical Guidance on Safety Management Measures for the Guidelines on Personal Information Protection in the Financial Field and other guidelines, etc. of the competent authorities).

The Company has also established the Customer Information Management Regulations for the purpose of establishing the code of conduct to handle the customer information sincerely and appropriately in relation to the business conducted by the Company.

The customer information means information that the Company holds on the Investment Corporation, with whose asset management the Company is entrusted, the unitholders of the Investment Corporation, the customers of assets of the Investment Corporation (including lessees and sub-lessees) and all the persons concerned who have business relationships with the Company and the Investment Corporation, and includes the management situation of the assets of the Investment Corporation.

Section 9: Handling of complaints and disputes

The Company has established the Complaint Handling Regulations for the purpose of sincerely and appropriately handling complaints, settling disputes, and preventing the recurrence of complaints and disputes by establishing basic matters related to the handling and settlement of complaints and disputes made by customers (meaning the Investment Corporation, the unitholders of the Investment Corporation, the customers of assets of the Investment Corporation (including lessees and sub-lessees), and all the persons concerned who have business relationships with the Company and the Investment Corporation) in relation to the business conducted by the Company.

The Company shall take the measures stipulated in Article 115-2, Paragraph 1, Item 2 of the Cabinet Office Ordinance on Financial Instruments Business, etc. as a measure for handling complaints related to the specified investment management business, and will handle complaints related to the financial instruments transaction services by the resolution of complaints that the Investment Management Association of Japan, of which the Company is a member, conducts based on the provisions of Article 77, Paragraph 1 of the Financial Instruments and Exchange Act that the Investment Management Association of Japan applies mutatis mutandis in Article 78-6 of the said Act.

When resolving complaints, the Company will comply with the rules of the Investment Management Association of Japan and work to resolve complaints in accordance with the complaint resolution procedures taken by the Investment Management Association of Japan.

The Company shall take the measures stipulated in Article 115-2, Paragraph 2, Item 1 of the Cabinet Office Ordinance on Financial Instruments Business, etc. as a measure to settle disputes related to the specified investment management business, and will settle disputes through the mediation that the Investment Management Association of Japan, of which the Company is a member, conducts based on the provisions of Article 77-2, Paragraph 1 of the Financial Instruments and Exchange Act that the Investment Management Association of Japan applies mutatis mutandis in Article 78-7 of the said Act.

When settling disputes, the Company will comply with the rules of the Investment Management Association of Japan and work to settle disputes in accordance with the mediation procedures taken by the Investment Management Association of Japan.

Section 10: System to prevent conflict-of-interest transactions

The Company has established the Related Party Transaction Regulations and other internal rules for the purpose of preventing the interests of the Investment Corporation from being harmed by setting forth basic matters concerning cases in which the Company conducts transactions with a related party when operating business as an asset manager for the Investment Corporation.

When conducting a transaction with a related party, the Company will examine whether or not there is a legal compliance problem in light of laws, regulations, the Certificate of Incorporation of the Investment Corporation and the internal rules, etc., secure the arm's length nature, and conduct a comparative verification with the market prices, in principle.

Section 11: Efforts to eliminate anti-social forces

The Company has established the Regulations on Response to Anti-Social Forces and other internal rules for the purpose of securing the appropriateness of the management of the Company by banning any relationship of the Company and the Investment Corporation with anti-social forces.

The Company will establish the basic principles of responding to anti-social forces as follows:

• The Company and its officers and employees will not have any relationships with anti-social forces.
• If it is revealed or suspected ex-post facto that a business partner, etc. is an anti-social force in such cases where an officer or an employee comes to have a relationship with a business partner, etc. without knowing that the business partner, etc. is an anti-social force or that a business partner, etc. has turned into an anti-social force before the officer or the employee is aware of this, the officer and the employee will make efforts to dissolve the relationship with the anti-social force as soon as possible at the time when it is revealed or suspected that the business partner, etc. is an anti-social force.

To prevent a transaction with an anti-social force (including a case in which a transaction is undertaken for the sake of the Company's customer) from occurring, the Company will implement an appropriate preliminary review when it first enters into contracts of various kinds.

The Company will also make efforts to construct a close collaboration system with the AEON Group and external expert organizations such as the police, the National Center for Removal of Criminal Organizations and lawyers.

Section 12: Whistle-blowing system

The Company will develop an appropriate whistle-blowing system for the officers and employees to be able to communicate information on and sincere doubts about any illegal or inappropriate act or information disclosure without worrying about the risk of suffering a disadvantage and for the communicated information and doubt to be objectively verified and appropriately used. The Board of Directors will assume the responsibility for developing such a system and supervise the operation status of the system.

Section 13: Response at the time when a computer system failure arises

If the probability that the content of a computer system failure will cause a disadvantage to the unitholders of the Investment Corporation is deemed to be high or if the content of a computer system failure involves the leakage, loss or damage of personal information, the Company will immediately make a report to the supervisory authorities based on the Financial Instruments and Exchange Act and the Comprehensive Guidelines for Supervision of Financial Instruments Business Operators, etc. set forth by the Financial Services Agency.

Section 14: Cybersecurity management

In order to stably and appropriately provide the stakeholders including the unitholders with services according to the basic principles of the Basic Act on Cybersecurity as a critical information infrastructure (CII) operator stipulated by the said Act, the Company will deepen its awareness and understanding of the importance of cybersecurity, work to secure cybersecurity voluntarily and actively, and cooperate with policies and measures for cybersecurity as formulated and promoted by the government, local governments, the supervisory authorities and industry groups.

The Company will set the protection of customers as the main purpose of cybersecurity measures and define it as the scope of their purposes to disable the falsification and inspection of the websites of the Company and the Investment Corporation, prevent the leakage, loss and falsification of information of the unitholders, and continue business.

Recognizing the prevention of cybersecurity cases and the prompt restoration and response at the time when a cyber incident occurs as a significant management issue, the Company will make efforts to achieve the necessary preparedness.

If the Company recognizes a cyber incident such as a system failure and information leakage due to a cyber attack or receives notice of a cyber attack, the Company will immediately make a report to the supervisory authorities.

The Company will closely coordinate and cooperate with external institutions for cybersecurity as required and review its management system and measures continuously.

Section 15: Document management

The Company has established the Document Management Regulations and other internal rules for the purpose of determining methods of organizing, storing, preserving and disposing of documents, etc. (meaning documents, telegraphs, regulations, requests for approval, contracts, reports, diagrams, slips and account ledgers that move into and out of the Company in the course of business and any and all other records necessary for the business of the Company and including those in electronic data) and contributing to the appropriate business operation.

The Company will dispose of documents, etc. in an appropriate manner such as incineration or shredding, taking into account the content of the documents, etc.