MESSAGE

We hereby would like to once again summarize the previous fiscal year and inform you of our outlook going forward.

*This fiscal year in this report refers to the year ending March 2017, the previous fiscal year refers to the year ending March 2016 and the year before the previous fiscal year refers to the year ending March 2015.

1. Operating profit doubled in the previous fiscal year and the "formula for recovery" is now within sight

The previous fiscal year was a year in which the SPARX Group entered into full-scale, rapid growth from the "stage to future growth," and the "formula for recovery" came within sight. Firstly, the Asset Under Management (AUM) of the group reached 1 trillion yen, which was our most recent target, for the first time in approximately 7 years. Although the upward trend of the overall Japanese equity market as a whole - the so-called "Abenomics Market" - has taken a pause, this has highlighted the superiority of SPARX's active investment based on a "completely bottom-up approach." A number of our Group's mutual funds have received awards from evaluation organizations. This includes winning the Best Group (Equity) award of the Lipper Fund Awards Japan 2016 Group Awards for the third consecutive year, a first in the five countries with the highest gross domestic product (GDP).(*)

The AUM as of the end of the previous fiscal year totaled 959.9 billion yen, basically flat compared to the 961.3 billion yen as of the end of the year before the previous fiscal year. This was due to factors including a major account being cancelled in South Korea. However, funds investing in real assets such as renewable energy generating facilities and real estate, as well as the "Mirai Creation Investment Limited Partnership" jointly established with Toyota Motor Corp. and Sumitomo Mitsui Banking Corp. in November last year, as well as Japanese stock investment funds - our highly profitable core business - all experienced growth in AUM as we built up a strong business portfolio.

As a result of such measures, operating profit grew to 2.9 billion yen or 2.1 times that of the year before the previous fiscal year, and at the same time, the operating profit ratio rose to 34% from the 21%. The earnings results clearly showed the strength of SPARX's business model enabling its profit to skyrocket once the performance exceeds the breakeven point.

The main sources of income for the SPARX Group are the management fees generated by the AUM and performance fees subject to the investment performances. As we expanded our field of investment to real assets and Mirai Creation, the timing of the recording of performance fees, which used to be concentrated in the October-December period, is becoming more distributed, increasing our financial stability.

2. Targets for this fiscal year

Also in this fiscal year, we will continue our growth to increase our profit and dividends without loosening the reins. I would like to explain to you the four pillars for realizing this growth.

The first pillar is our Japanese Equity investment strategy. SPARX has a wide variety of Japanese equity investment fund products with distinctive features such as long/short, long-term highly selective, mid and small cap, and environment/clean tech, as well as engagement funds such as stewardship funds. With the introduction of negative interest rates, the number of individuals considering putting their assets into products other than savings accounts is definitely growing. We will strive to enhance the exposure of SPARX's investment funds that cater to the needs of "the Kojin (individuals)," namely individual investors opening their eyes to asset management other than savings accounts, by promoting active public relations and advertising activities more than ever.

The second pillar is our ONE ASIA strategy.
 It has been more than 10 years since SPARX has opened offices in South Korea and Hong Kong and we have accumulated expertise on business and investment management in the respective offices. Starting this fiscal year, we will accelerate active exchanges of human resources among offices to further strengthen our organization so that all target companies in Asia including Japanese companies can be evaluated under common measures for making investment decisions. Furthermore, we will begin to prepare the establishment of a new publicly offered mutual fund for domestic investors.

The third pillar is our Real Asset investment strategy.
 In the renewable energy domain, we have already concluded contracts to invest in projects accounting for 272MW, expanding our business which is one of the biggest in Japan. In order to win in this era of liberalized energy retail sales, we believe it is most important to hold upstream power generating facilities and are steadily solidifying our position.
 Our announcement in April to reconsider our entry into the listed infrastructure fund market is not a negative choice, but one that was made based on the assessment that it would be more advantageous for our investors to expand the size of our existing privately offered fund. Starting this fiscal year, we will aim for further expansion of the size with our eyes set on the possibility of acquiring so-called brown field investments that invest in up and running power generation projects.

As for real estate, we are carefully selecting our projects in light of the surge in prices. In February, we declined the acceptance of the selection as investment manager for the Tokyo Metropolitan Government's infrastructure fund for facilities contributing to welfare. Going forward, we plan to develop distinctive funds with our originality including those in the medical field. This summer, the tenant of a building constructed for medical purposes in Setagaya, Tokyo developed in the form of our real estate fund, will invite doctors to move in. The plan is to open a detailed examiner's office and an orthopedist's office specializing in hip surgeries. Until now, many doctors with excellent medical skills and aspirations had given up on opening their own practice and worked for organizations such as hospitals, because the development of medical facilities with beds and expensive medical equipment requires a substantial amount of investment. In this project, the real estate fund shouldered the development risk and fixed investment risks, enabling the medical institutions to open their practice with limited financial strain. SPARX will utilize the business model development expertise gained through equity investment to create success stories in real asset investments.

Our fourth pillar is the Mirai Creation investment strategy. The fund will invest in companies and projects with innovative technology in the fields designated as core technologies, namely "intellectualizing technologies" such as artificial intelligence (AI), robotics and technologies to help make a hydrogen-based society a reality. By the end of March, we have decided to invest in four start-ups in Japan and the United States. This project is attracting strong interest from investors, as well as potential investment targets, and this business that has just been launched in the latter half of the previous fiscal year is growing into a new pillar.

As described above, SPARX continues to steadily advance. We aim to achieve an AUM of 2 trillion yen at the earliest possible time within three years for our "complete revival." By then, we believe that our goal of achieving an AUM of 10 trillion yen, which was raised in our mid-term target VISION2020, would be coming into sight.

We will continue to be very aware of shareholder return including dividend payouts and share buybacks as we had been in the previous fiscal year. We hope our shareholders will look forward to further advancements in this fiscal year and we ask for your continued guidance and support in the future.

Shuhei Abe
President, CEO
SPARX Group Co. Ltd.
June 2016

【1】Lipper Fund Awards Japan 2016

Received the "Best Group in Group Award (Equity)"
(First ever to win the award three consecutive years in the five countries with the highest GDP)

Although Lipper makes reasonable efforts to ensure the accuracy and reliability of the data contained herein, the accuracy is not guaranteed by Lipper. Users acknowledge that they have not relied upon any warranty, condition, guarantee, or representation made by Lipper. Any use of the data for analyzing, managing, or trading financial instruments is at the user's own risk. This is not an offer to buy or sell securities.

【2】Morningstar Award "Fund of the Year 2015"

Received the "Best Fund of the Year (Domestic Large-cap Stock Fund Division)"
Name of the fund: SPARX Shin Kokusai Yuryo Japanese Equity Fund (nicknamed "Gensentoshi" (Highly Selective Investment))
(First ever for a fund investing in domestic large-cap stocks to receive the "Best Fund" award two years in a row)

References to any specific securities do not constitute an offer to buy or sell securities. Those awarded funds based upon the past performance cannot guarantee their future performance. Data or statements are obtained from sources Morningstar Japan K.K believed to be reliable but are not guaranteed as to accuracy or completeness. All information is the property of Morningstar Japan K.K. or Morningstar, Inc. and protected by copyright and intellectual property laws. All rights reserved. Taking every factor into consideration, Morningstar Japan K.K. has selected funds for Morningstar Award "Fund of the Year 2015" in each divisions from open-end mutual fund based upon its unique quantitative and qualitative analysis. Awarded funds in the Domestic Stock Fund Division have been selected from 604 funds at the end of December 2015.

【3】Rakuten Securities Fund Award

Received the "Best Fund Award (Domestic Stock Fund Division)"
Name of the fund: SPARX Kokusai Yuryo Japanese Equity Fund ("Gensentoshi")

24 funds were selected for the first "Rakuten Securities Fund Award" from 8 divisions as excellent funds. Among those, customers of Rakuten Securities, FP belonging to the financial instruments brokers of Rakuten Securities, and Rakuten Securities Investment Trust Advisory Committee voted and selected 8 best funds. SPARX Shin Kokusai Yuryo Japanese Equity Fund ("Gensentoshi" ("Highly Selective Investment")) has received "Best Fund Award (Domestic Stock Fund Division)".

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