NOMURA FUNDS IRELAND PLC. Interim Report and Unaudited Financial Statements for the half year ended 30th June, Company Registration No.

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1 Interim Report and Unaudited Financial Statements for the half year ended 30th June, 2014 Company Registration No

2 TABLE OF CONTENTS MANAGEMENT AND ADMINISTRATION 2 GENERAL INFORMATION 3 INVESTMENT MANAGER'S REPORT 10 NOMURA FUNDS IRELAND - GLOBAL EMERGING MARKET EQUITY FUND 10 NOMURA FUNDS IRELAND - INDIA EQUITY FUND 11 NOMURA FUNDS IRELAND - ASIA EX JAPAN FUND 13 NOMURA FUNDS IRELAND - FUNDAMENTAL INDEX GLOBAL EQUITY FUND 15 NOMURA FUNDS IRELAND - JAPAN STRATEGIC VALUE FUND 17 NOMURA FUNDS IRELAND - US HIGH YIELD BOND FUND 19 NOMURA FUNDS IRELAND - ASIAN SMALLER COMPANIES FUND 21 NOMURA FUNDS IRELAND - JAPAN HIGH CONVICTION FUND 23 NOMURA FUNDS IRELAND - ASIA EX JAPAN HIGH CONVICTION FUND 25 NOMURA FUNDS IRELAND - GLOBAL HIGH YIELD BOND FUND 27 STATEMENT OF FINANCIAL POSITION 28 STATEMENT OF COMPREHENSIVE INCOME 33 STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE PARTICIPATING SHARES 37 STATEMENT OF CASH FLOWS 41 NOTES TO THE FINANCIAL STATEMENTS 47 STATEMENT OF INVESTMENTS NOMURA FUNDS IRELAND - GLOBAL EMERGING MARKET EQUITY FUND 73 NOMURA FUNDS IRELAND - INDIA EQUITY FUND 78 NOMURA FUNDS IRELAND - ASIA EX JAPAN FUND 80 NOMURA FUNDS IRELAND - FUNDAMENTAL INDEX GLOBAL EQUITY FUND 84 NOMURA FUNDS IRELAND - JAPAN STRATEGIC VALUE FUND 132 NOMURA FUNDS IRELAND - US HIGH YIELD BOND FUND 137 NOMURA FUNDS IRELAND - NEWS EMERGING MARKETS SMALL CAP EQUITY FUND 164 NOMURA FUNDS IRELAND - ASIAN SMALLER COMPANIES FUND 165 NOMURA FUNDS IRELAND - JAPAN HIGH CONVICTION FUND 167 NOMURA FUNDS IRELAND - ASIA EX JAPAN HIGH CONVICTION FUND 169 NOMURA FUNDS IRELAND - GLOBAL HIGH YIELD BOND FUND 171 STATEMENT OF CHANGES IN THE PORTFOLIO NOMURA FUNDS IRELAND - GLOBAL EMERGING MARKET EQUITY FUND 184 NOMURA FUNDS IRELAND - INDIA EQUITY FUND 186 NOMURA FUNDS IRELAND - ASIA EX JAPAN FUND 188 NOMURA FUNDS IRELAND - FUNDAMENTAL INDEX GLOBAL EQUITY FUND 190 NOMURA FUNDS IRELAND - JAPAN STRATEGIC VALUE FUND 192 NOMURA FUNDS IRELAND - US HIGH YIELD BOND FUND 194 NOMURA FUNDS IRELAND - NEWS EMERGING MARKETS SMALL CAP EQUITY FUND 196 NOMURA FUNDS IRELAND - ASIAN SMALLER COMPANIES FUND 198 NOMURA FUNDS IRELAND - JAPAN HIGH CONVICTION FUND 200 NOMURA FUNDS IRELAND - ASIA EX JAPAN HIGH CONVICTION FUND 202 NOMURA FUNDS IRELAND - GLOBAL HIGH YIELD BOND FUND 204 APPENDIX Page 1

3 MANAGEMENT AND ADMINISTRATION DIRECTORS David Dillon Irish* Mark Roxburgh British (Chairman) John Walley Irish** REGISTERED OFFICE OF THE COMPANY 33 Sir John Rogerson s Quay Dublin 2 Ireland * Non-Executive Director ** Independent Non-Executive Director ADMINISTRATOR Brown Brothers Harriman Fund Administration Services (Ireland) Limited Styne House Upper Hatch Street Dublin 2 Ireland CUSTODIAN Brown Brothers Harriman Trustee Services (Ireland) Limited Styne House Upper Hatch Street Dublin 2 Ireland AUDITORS Ernst & Young Block 1 Harcourt Centre Harcourt Street Dublin 2 Ireland INVESTMENT MANAGER Nomura Asset Management U.K. Limited Nomura House 1 Angel Lane London EC4R 3AB England SUB-INVESTMENT MANAGER Nomura Asset Management Co. Ltd , Nihonbashi Chuo-Ku Tokyo Japan COMPANY SECRETARY Tudor Trust Limited 33 Sir John Rogerson s Quay Dublin 2 Ireland DISTRIBUTOR Nomura Asset Management U.K. Limited Nomura House 1 Angel Lane London EC4R 3AB England LEGAL ADVISERS Dillon Eustace 33 Sir John Rogerson s Quay Dublin 2 Ireland SUB-INVESTMENT MANAGER Nomura Asset Management Singapore Limited 10 Marina Boulevard Marina Bay Financial Centre Tower Singapore Singapore SUB-INVESTMENT MANAGER Nomura Corporate Research and Asset Management Inc. 2 World Financial Centre Building B New York, NY United States of America 2

4 GENERAL INFORMATION Nomura Funds Ireland Plc (the Fund ) is structured as an open-ended umbrella investment company with variable capital, incorporated under the laws of Ireland on 13th April, 2006 as a public limited company pursuant to the Companies Act, 1963 to The Fund has been authorised by the Central Bank of Ireland as an Undertaking for Collective Investment in Transferable Securities pursuant to the provisions of the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 2011 (as amended) (the UCITS Regulations ). The Fund commenced operations on 18th December, At the half year end, there were redeemable participating shares of ten sub-funds in issue, the Nomura Funds Ireland - Global Emerging Market Equity Fund (the Global Emerging Markets Fund was fully redeemed on 22nd November, 2013; it relaunched under a new name Global Emerging Market Equity Fund on 17th December, 2013), the Nomura Funds Ireland - India Equity Fund, the Nomura Funds Ireland - Asia Ex Japan Fund (formerly the Nomura Funds Ireland - Asia Pacific Ex Japan Fund), the Nomura Funds Ireland - Fundamental Index Global Equity Fund, the Nomura Funds Ireland - Japan Strategic Value Fund, the Nomura Funds Ireland - US High Yield Bond Fund, the Nomura Funds Ireland - Asian Smaller Companies Fund, the Nomura Funds Ireland - Japan High Conviction Fund, the Nomura Funds Ireland - Asia Ex Japan High Conviction Fund and the Nomura Funds Ireland - Global High Yield Bond Fund (the Sub-Funds ). The Fund has segregated liability between its Sub-Funds and accordingly any liability incurred on behalf of or attributable to any Sub-Fund shall be discharged solely out of the assets of that Sub-Fund. The Fund had in issue the following share classes in each of the Sub-Funds at the half year end: Sub-Fund Share Class Currency Launch Date Launch Price Nomura Funds Ireland - Global Emerging Market Equity Fund Class I US$ 17th December, Nomura Funds Ireland - India Equity Fund Class A Euro EUR 16th November, 2011 EUR 100 Class S JPY JPY 12th March, 2010 JPY 10,000 Class Z US$ 12th January, 2007 INR 10,000 Nomura Funds Ireland - Asia Ex Japan Fund Class A US$ 26th July, Class J JPY JPY 30th October, 2012 JPY 10,000 Nomura Funds Ireland - Fundamental Index Global Equity Fund Class A Euro EUR 16th November, 2011 EUR 100 Class A US$ 30th December, Class I Euro EUR 4th January, 2011 EUR 100 Class I US$ 19th December, Nomura Funds Ireland - Japan Strategic Value Fund Class A Euro EUR 16th November, 2011 EUR 100 Class A Euro Hedged EUR 15th May, 2013 EUR 100 Class A JPY JPY 4th January, 2010 JPY 10,000 Class A US$ 10th November, Class A US$ Hedged 30th December, Class AD Sterling GBP 7th March, 2014 GBP 100 Class AD Sterling Hedged GBP 7th March, 2014 GBP 100 Class I Euro EUR 14th February, 2011 EUR 100 Class I Euro Hedged EUR 13th April, 2012 EUR 100 Class I JPY JPY 26th August, 2009 JPY 10,000 Class I Sterling GBP 25th March, 2010 GBP 100 3

5 GENERAL INFORMATION (CONTINUED) Sub-Fund Share Class Currency Launch Date Launch Price Nomura Funds Ireland - Japan Strategic Value Fund (continued) Class I US$ 30th December, Class I US$ Hedged 10th April, Class ID Sterling GBP 7th March, 2014 GBP 100 Class ID Sterling Hedged GBP 7th March, 2014 GBP 100 Class ID US$ 7th May, Class ID US$ Hedged 7th May, Nomura Funds Ireland - US High Yield Bond Fund Class A Euro EUR 16th November, 2011 EUR 100 Class A Euro Hedged EUR 11th April, 2012 EUR 100 Class A US$ 14th November, Class D US$ 18th April, Class I CHF Hedged CHF 25th April, 2014 CHF 100 Class I Euro Hedged EUR 6th December, 2012 EUR 100 Class I Sterling Hedged GBP 20th June, 2013 GBP 100 Class I US$ 31st March, Class Z Sterling Hedged GBP 5th June, 2014 GBP 100 Nomura Funds Ireland - Asian Smaller Companies Fund Class A Euro EUR 22nd August, 2013 EUR 100 Class Z US$ 12th March, Nomura Funds Ireland - Japan High Conviction Fund Class I JPY JPY 7th August, 2013 JPY 10,000 Nomura Funds Ireland - Asia Ex Japan High Conviction Fund Class I US$ 4th September, Nomura Funds Ireland - Global High Yield Bond Fund Class A Euro EUR 15th April, 2014 EUR 100 Class I US$ 15th April, Nomura Funds Ireland - Global Emerging Market Equity Fund The investment objective of the Nomura Funds Ireland - Global Emerging Market Equity Fund (the Sub-Fund ) is to achieve long-term capital growth through investment in an actively managed portfolio of global emerging market securities. The Sub-Fund shall invest, under normal market conditions, primarily in equity and equity-related securities listed or traded on a recognised exchange in the countries covered by the MSCI Emerging Markets (Total Return Net) Index (the Index Countries ). The Sub-Fund may invest in equity and equity-related securities listed or traded on any recognised exchange in non-index Countries provided that the business activities of the issuers of such securities are in the Index Countries or in other emerging countries. The Sub-Fund may invest up to 20 its net assets in equity and equity-related securities listed or traded on any recognised exchange in non-index Countries. 4

6 GENERAL INFORMATION (CONTINUED) Nomura Funds Ireland - Global Emerging Market Equity Fund (continued) The Sub-Fund may also hold exposure to the Index Countries through investment in such instruments as American Depositary Receipts ( ADRs ), Global Depositary Receipts ( GDRs ) or Non-Voting Depositary Receipts ( NVDRs ) and which may be listed on any recognised exchange in a non-index Country. It is anticipated that the Sub-Fund will invest across the entire range of capitalisations (from small cap to large cap). Investment in equity and equity-related securities in Russia is not expected to exceed twice the percentage weighting of Russian securities held by the MSCI Emerging Markets (Total Return Net) Index (the Index ). The performance of the Sub-Fund s portfolio of investments will be measured against the Index which is a free float-adjusted market capitalisation index that is designed to measure equity market performance in the global emerging markets. The Investment Manager is, however, entitled at any time to change the Index where, for reasons outside the Investment Manager's control, the Index has been replaced by another index or where another index may reasonably be considered by the Investment Manager to have become the industry standard for the relevant exposure. A change in Index proposed by the Directors will be subject to shareholder approval and disclosure in a revised supplement for the Sub-Fund. Nomura Funds Ireland - India Equity Fund The investment objective of the Nomura Funds Ireland - India Equity Fund (the Sub-Fund ) is to achieve long-term capital growth through investment in an actively managed portfolio of Indian securities. The Sub-Fund invests, under normal market conditions, primarily in equity and equity-related securities listed or traded on a recognised exchange in India. The Sub-Fund may invest in equity and equity-related securities listed or traded on any recognised exchange outside India provided that the business activities of the issuers of such securities are in India. The Sub-Fund may also hold exposure to India through investment in such instruments as American Depositary Receipts ( ADRs ) and Global Depositary Receipts ( GDRs ) and which may be listed on any recognised exchange outside India. It is anticipated that the Sub-Fund will invest across the entire range of capitalisations (from small cap to large cap). The performance of the Sub-Fund s portfolio of investments will be measured against the MSCI India Index (the Index ). The Investment Manager is, however, entitled at any time to change the Index where, for reasons outside the Investment Manager's control, the Index has been replaced by another index or where another index may reasonably be considered by the Investment Manager to have become the industry standard for the relevant exposure. A change in Index proposed by the Directors will be subject to shareholder approval and disclosure in a revised supplement for the Sub-Fund. Nomura Funds Ireland - Asia Ex Japan Fund The investment objective of the Nomura Funds Ireland - Asia Ex Japan Fund (the Sub-Fund ) is to achieve long-term capital growth through investment in an actively managed portfolio of Asia (excluding Japan) securities. The Sub-Fund invests, under normal market conditions, primarily in equity and equity-related securities listed or traded on a recognised exchange in the countries covered by the MSCI All Countries Asia Ex Japan Index (the Index Countries ). The Sub- Fund may invest up to 20 its net assets in equity and equity-related securities listed or traded on any recognised exchange in non-index Countries provided that the business activities of the issuers of such securities are in the Index Countries. The Sub- Fund may hold exposure to the Index Countries through investment in such instruments as American Depositary Receipts ( ADRs ) and Global Depositary Receipts ( GDRs ) and which may be listed on any recognised exchange in a non-index Country. It is anticipated that the Sub-Fund will invest across the entire range of capitalisations (from small cap to large cap). The performance of the Sub-Fund s portfolio of investments is measured against the MSCI All Countries Asia Ex Japan Index (the Index ). The Investment Manager is, however, entitled at any time to change the Index where, for reasons outside the Investment Manager's control, the Index has been replaced by another index or where another index may reasonably be considered by the Investment Manager to have become the industry standard for the relevant exposure. A change in Index proposed by the Directors will be subject to shareholder approval and disclosure in a revised supplement for the Sub-Fund. 5

7 GENERAL INFORMATION (CONTINUED) Nomura Funds Ireland - Fundamental Index Global Equity Fund The investment objective of the Nomura Funds Ireland - Fundamental Index Global Equity Fund (the Sub-Fund ) is to achieve long-term capital growth through investment in a portfolio of global equity securities. The Sub-Fund invests, under normal market conditions, primarily in equity and equity-related securities listed or traded on a recognised exchange in the countries covered by the MSCI All Countries World Index (the Index Countries ). The Sub-Fund may invest up to 20 its net assets in equity and equity-related securities listed or traded on any recognised exchange in non- Index Countries, provided that the business activities of the issuers of such securities are in the Index Countries. The Sub-Fund may also hold exposure to the Index Countries through investment in such instruments as American Depositary Receipts ( ADRs ), Global Depositary Receipts ( GDRs ) or Non-Voting Depositary Receipts ( NVDRs ) and which may be listed on any recognised exchange in a non-index Country. It is anticipated that the Sub-Fund will invest across the entire range of capitalisations (from small cap to large cap). The Sub-Fund seeks to outperform the MSCI All Countries World Index (the Index ) by 2% (gross of investment management fees) per annum. In seeking to outperform the Index, the Sub-Fund uses the Research Affiliates Fundamental Index ( RAFI ) methodology. The weights of individual securities in the Index are based on the market capitalisation of the securities. The RAFI methodology believes that such indices are flawed in their construction since they overweight over-valued securities and underweight under-valued securities. The Sub-Fund intends to achieve its investment objective by creating a portfolio with individual security weights based on a composite of four fundamental factors, being book value (current year), cash flow (5-year average), dividends (5-year average), and net sales (5-year average), rather than their market capitalisation weights within the Index. The RAFI methodology does not explicitly target specific industry, capitalisation or style allocations within the Sub-Fund. Such allocations are all results of the security selection and weighting methodology. The Sub-Fund normally invests in approximately 1,500 equity and equity-related securities in developed and emerging countries currently classified as the Index Countries, but is not constrained to invest in only constituent securities of the Index. Under the terms of the prospectus, investment in equity and equity-related securities in emerging markets, including Russia will not exceed 30 the net asset value of the Sub-Fund. The Sub-Fund may also invest up to 10% in other collective investment schemes including equity exchange-traded funds. Nomura Funds Ireland - Japan Strategic Value Fund The investment objective of the Nomura Funds Ireland - Japan Strategic Value Fund (the Sub-Fund ) is to achieve long-term capital growth through investment in a portfolio of Japanese equity securities. The Sub-Fund invests, under normal market conditions, primarily in equity and equity-related securities listed or traded on a recognised exchange in Japan. The Sub-Fund may invest up to 30 its net assets in equity and equity-related securities listed or traded on any recognised exchange outside Japan, provided that the business activities of the issuers of such securities are in Japan. It is anticipated that the Sub-Fund will invest across the entire range of capitalisations (from small cap to large cap). The Sub-Fund seeks to identify equity and equity-related securities, whose valuations are, in the opinion of the Sub-Investment Manager, low in comparison to assets and profitability, and which may be expected to rise in the future. In addition to these valuation opportunities, the Sub-Fund seeks investments based on other strategic features as detailed below: a) equity and equity-related securities where changes to financial conditions, such as changes in operations, strategy and dividend and share buy-back policies, are expected; b) equity and equity-related securities where potential for growth has been identified, including improved results and increasing market share, as new business operations are developed and the underlying economy improves; and c) equity and equity-related securities relating to companies that have been identified as candidates for business restructuring, corporate governance reform or attractive merger and acquisition opportunities. While it is intended to monitor the performance of the Sub-Fund as against the Topix Index (the Index ), the Sub-Fund may, by the nature of the bottom-up stock picking investment approach adopted by the Sub-Investment Manager, take positions in equity and equity-related securities which differ significantly from the weight of such equity and equity-related securities in the Index. 6

8 GENERAL INFORMATION (CONTINUED) Nomura Funds Ireland - Japan Strategic Value Fund (continued) The Sub-Fund is managed so as to maintain a near fully invested position, other than during periods where the Investment Manager believes that a larger cash position is warranted. Nomura Funds Ireland - US High Yield Bond Fund The investment objective of the Nomura Funds Ireland - US High Yield Bond Fund (the Sub-Fund ) is to achieve current yield and capital gains, through investment in a diversified portfolio of primarily high yielding US Dollar denominated debt and debtrelated securities issued principally by companies in the United States and Canada. The Sub-Fund may invest in debt and debt related securities issued by United States or non-united States corporations, limited liability companies or limited partnerships and other forms of enterprise. The Sub-Fund may hold equity and equity-related securities that it receives in connection with its ownership of certain debt and debt-related securities, such as defaulted high yield securities in the course of reorganisation which are subsequently converted into equity and equity-related securities. Under normal circumstances, the Sub-Fund invests at least 80 its net assets in debt and debt-related securities that are rated below investment grade by at least one rating agency or are unrated. No more than 30 the Sub-Fund s net assets may be invested in debt and debt-related securities with a rating of lower than B3/B- by both Moody s and S&P, respectively or which are deemed to be of equivalent quality by the Investment Manager. The Sub-Fund may invest up to 25 its net assets in debt and debt-related securities issued by companies, governments or governmental agencies in countries other than the United States or Canada. No more than 5 the Sub-Fund s net assets may be invested in the debt and debt-related securities of any one issuer and no more than 25 the Sub-Fund s net assets may be invested in debt and debt-related securities in any one industry. The Sub- Fund may invest up to 20 its net assets in debt and debt-related securities not denominated in US Dollar. The performance of the Sub-Fund s portfolio of investments is measured against the Bank of America Merrill Lynch US High Yield Master II Constrained Index (the Index ). The Investment Manager is, however, entitled at any time to change the Index where, for reasons outside the Investment Manager's control, the Index has been replaced by another index or where another index may reasonably be considered by the Investment Manager to have become the industry standard for the relevant exposure. A change in Index proposed by the Directors will be subject to shareholder approval and disclosure in a revised supplement for the Sub-Fund. Nomura Funds Ireland - Asian Smaller Companies Fund The investment objective of the Nomura Funds Ireland - Asian Smaller Companies Fund (the Sub-Fund ) is to achieve longterm capital growth through investment in a portfolio of small capitalisation equity and equity-related securities listed in Asian countries excluding Japan. The Sub-Fund invests, under normal market conditions, primarily in small capitalisation equity and equity-related securities listed or traded on a recognised exchange in the countries covered by the MSCI All Countries Far East ex Japan Small Cap Index (the Index Countries ). The Sub-Fund may invest up to 20 net assets in small capitalisation equity and equity-related securities listed or traded on any recognised exchange in non-index Countries, provided that the business activities of the issuers of such securities are in the Index Countries. The Sub-Fund may also hold exposure to the Index Countries through investment in such instruments as American Depositary Receipts ( ADRs ), Global Depositary Receipts ( GDRs ) or Non-Voting Depositary Receipts ( NVDRs ) and which may be listed on any recognised exchange in a non-index Country. The Sub-Fund may also seek to invest up to 20 net assets in equity and equity-related securities of mid sized companies in Asian countries excluding Japan. 7

9 GENERAL INFORMATION (CONTINUED) Nomura Funds Ireland - Asian Smaller Companies Fund (continued) The Sub-Fund seeks to identify equity and equity-related securities, whose valuations are, in the opinion of the Sub-Investment Manager, low in comparison to assets and profitability, and which may be expected to rise in the future. In addition to these valuation opportunities, the Sub-Fund will seek investments based on other strategic features as detailed below: (a) equity and equity-related securities where changes to financial conditions, operations, strategy, dividend and share buy-back policies, are expected; (b) equity and equity-related securities where potential for growth has been identified, including improved results and increasing market share, as new business operations are developed and the underlying economy improves; and (c) equity and equity-related securities relating to companies that have been identified as candidates for business restructuring, corporate governance reform or attractive merger and acquisition opportunities. While it is intended to monitor the performance of the Sub-Fund as against the MSCI All Countries Far East ex Japan Small Cap Index (the Index ), the Sub-Fund will not replicate the Index and may, by the nature of the bottom-up stock picking investment approach adopted by the Sub-Investment Manager, take positions in equity and equity-related securities which differ significantly from the weight of such equity and equity-related securities in the Index. Investors should note that due to the general nature of emerging markets, the Sub-Fund is likely to have a moderate annualised volatility. Nomura Funds Ireland - Japan High Conviction Fund The investment objective of the Nomura Funds Ireland Japan High Conviction Fund (the Sub-Fund ) is to achieve long-term capital growth through investment in a concentrated, actively managed portfolio of Japanese equity securities. The Sub-Fund shall invest, under normal market conditions, primarily in equity and equity-related securities listed or traded on a recognised exchange in Japan. The Sub-Fund may invest up to 20 its net assets in equity and equity-related securities listed or traded on any recognised exchange outside Japan, provided that the business activities of the issuers of such securities are in Japan. It is anticipated that the Sub-Fund will invest across the entire range of capitalisations (from small cap to large cap). While it is intended to monitor the performance of the Sub-Fund as against the Topix Index (the Index ), the Sub-Fund will not replicate the Index and may, by the nature of the bottom-up stock picking investment approach adopted by the Sub-Investment Manager, take positions in equity and equity-related securities which differ significantly from the weight of such equity and equity-related securities in the Index. Investors should note that due to the highly concentrated nature of the portfolio, the Sub-Fund is likely to have a high annualised volatility. Nomura Funds Ireland -Asia Ex Japan High Conviction Fund The investment objective of the Nomura Funds Ireland Asia Ex Japan High Conviction Fund (the Sub-Fund ) is to achieve long-term capital growth through investment in a concentrated, actively managed portfolio of Asian (excluding Japan) equity securities. The Sub-Fund shall invest, under normal market conditions, primarily in equity and equity-related securities listed or traded on a recognised exchange in the countries covered by the MSCI All Countries Asia Ex Japan Index (the Index Countries ). The Sub-Fund may invest up to 20 its net assets in equity and equity-related securities listed or traded on any recognised exchange in non-index Countries, provided that the business activities of the issuers of such securities are in the Index Countries. The Sub-Fund may also hold exposure to the Index Countries through investment in such instruments as American Depositary Receipts ( ADRs ), Global Depositary Receipts ( GDRs ) or Non-Voting Depositary Receipts ( NVDRs ) and which may be listed on any recognised exchange in a non-index Country. It is anticipated that the Sub-Fund will invest across the entire range of capitalisations (from small cap to large cap). 8

10 GENERAL INFORMATION (CONTINUED) Nomura Funds Ireland - Asia Ex Japan High Conviction Fund (continued) The Sub-Fund will seek to outperform the MSCI All Countries Asia Ex Japan Index (or any other index which replaces it or is considered by the Sub-Investment Manager to be the market standard in place of it and any such change in that index will be notified to shareholders in the semi-annual and annual accounts). Investors should note that due to the general nature of Asian markets, and the highly concentrated nature of the portfolio, the Sub- Fund is likely to have a high annualised volatility. Nomura Funds Ireland - Global High Yield Bond Fund The investment objective of the Nomura Funds Ireland Global High Yield Bond Fund (the Sub-Fund ) is to achieve current yield and capital gains through investment in a diversified portfolio of primarily high yielding globally issued debt and debtrelated securities. The Sub-Fund shall invest in a diversified portfolio of primarily high yielding debt and debt-related securities issued globally principally by companies, which are listed of traded on a recognised exchange. Investors should note that high yielding securities generally have a high volatility. The Sub-Fund may invest in debt and debt-related securities issued by corporations, limited liability companies or limited partnerships, other forms of enterprise and in sovereign and quasi-sovereign debt and debt-related securities. The Sub-Fund may hold equity and equity-related securities, which are listed or traded on a recognised exchange, that it receives or purchases in connection with its ownership of certain debt and debt-related securities, such as defaulted high yield securities in the course of reorganisation which are subsequently converted into equity and equity-related securities. Under normal circumstances, the Sub-Fund will invest at least 80 its net assets in debt and debt-related securities that are rated below investment grade by at least one rating agency or are unrated. No more than 30 the Sub-Fund s net assets may be invested in debt and debt-related securities with a rating lower than B3/B by both Moody s and S&P, respectively or which are deemed to be of equivalent quality by the Investment Manager. Subject to Section 2.1 of Appendix 1 to the Prospectus, the Sub-Fund may invest up to 10 its net assets in loans, loan participations and/or loan assignments, which constitute transferable securities. No more than 5 the Sub-Fund s net assets may be invested in the debt and debt-related securities of any one issuer and no more than 25 the Sub-Fund s net assets may be invested in debt and debt-related securities in any one industry (as defined by reference to Merrill Lynch Level 4 Industry Classification which comprises a detailed sector classification for every constituent of the Merrill Lynch global fixed income universe covering close to 50,000 securities). The performance of the Sub-Fund s portfolio of investments will be measured against the BofA Merrill Lynch Global High Yield Constrained Index. The Investment Manager is, however, entitled at any time to change the Index where, for reasons outside the Investment Manager's control, the Index has been replaced by another index or where another index may reasonably be considered by the Investment Manager to have become the industry standard for the relevant exposure. A change in Index proposed by the Directors will be subject to Shareholder approval and disclosure in a revised Supplement for the Sub-Fund. The Sub-Fund may also employ spot foreign exchange transactions, forward foreign exchange contracts and currency futures to seek to hedge the foreign exchange exposure of the assets of the Sub-Fund from the impact of fluctuations in the relevant exchange rates. 9

11 NOMURA FUNDS IRELAND - GLOBAL EMERGING MARKET EQUITY FUND INVESTMENT MANAGER S REPORT For the half year ended 30th June, 2014 Investment Performance 1 Month 3 Month Year To Date Since Inception* Fund Benchmark Out/(Under) Performance Source BBH; % Returns in. Benchmark is the MSCI Emerging Markets Index. *Since Inception date is 17th December Performance Commentary For the half year ended June 2014, the Fund recorded a return of 5.45%, compared with the benchmark return of 6.14%, and therefore underperformed the benchmark by 69 basis points. On a gross basis, the Fund outperformed the index, it was well positioned to take advantage of 20%+ moves from Q1 lows in a few major markets: India, Brazil, Turkey and Russia. Strong relative gains in Brazil (insurer BB Seguridade and utility Cemig) and India (construction company Larsen and Toubro and ICICI bank) helped relative performance. In addition, we were particularly attracted to deep intrinsic value opportunities in the industrial and consumer sectors, where we benefitted from positions in Chinese industrial automation provider Hollysys, Tata Motors and China Rail Group. The major negative impact on the portfolio came from our OW position in Russia. Despite the political risks and deteriorating economy, we are invested in companies, including Yandex, Magnit and Qiwi, that are continuing to deliver high returns that are above market expectations. Investment Outlook Emerging market equities are currently outperforming the MSCI World for the first time since Because emerging market equities have largely not participated in strong appreciation over most global asset classes over the past 2 years, they still appear relatively attractive. On a PB and PE basis, emerging markets trade at a 30% discount to global markets. Valuations also appear attractive relative to fixed income as EMBI spreads have continued to contract. Markets have been further bolstered by the prospects of political change and policy reform in China, India, Brazil and Indonesia. Macro-economic risks seem to be subsiding as China growth mildly accelerated in 2Q to 7.5% and Chinese authorities have made efforts to stabilize the economy through mini-stimuli and relaxing property restrictions. Some central banks in Turkey and Mexico are also easing to accommodate growth. Nevertheless, geo-political risks are still present. A host of geo-political risk is simmering across the world--the Ukraine crisis, Gaza unrest, ISIS rampage through Iraq, South China Sea provocation to name a few. Major markets, such as India, Indonesia, Russia, and Brazil have all rallied more than 20% from Q1 lows. However, fund flow data for EM equities is still negative YTD, global investors are underweight and dedicated EM investors are holding excess cash, based on recent survey data. Volatility is likely to increase from recent historic lows this summer and we are likely to use it to further concentrate our portfolio into our high conviction investments. 10

12 NOMURA FUNDS IRELAND - INDIA EQUITY FUND INVESTMENT MANAGER S REPORT (CONTINUED) For the half year ended 30th June, 2014 Investment Performance Year To Since 1 Month 3 Month 1 Year 3 Year Date Inception* Fund Benchmark Out/(Under) Performance Source BBH; % Returns in. Benchmark is the MSCI India Index. *Since Inception date is 13th January Performance Commentary For the half year ended June 2014, the Fund recorded a return of 23.80%, compared with the benchmark return of 21.86%, and therefore outperformed the benchmark by 194 basis points. The markets have gained appreciably this YTD. The first important contributor has been a stabilization in the Current Account and currency outlook post the US taper driven mini-crisis in Q The RBI under the leadership of a new and well respected governor initially instituted emergency stabilization measures to support and normalize the currency. The pickup in exports and import curbs on non-essential items such as Gold this meant a sharp lowering of the Current Account deficit for FY 2014 to 1.7% of GDP from 4.8% in FY This helped restore confidence and attract both equity and debt inflows which was a positive driver of markets over the period. Markets were also driven by rising expectations of a Mr Modi led government coming to power in the May central elections. Mr Modi has an impressive governance track record as Chief Minister of Gujarat state while the Congress led coalition has performed abysmally over the last few years, contributing to the economic and market weakness over this period. Meanwhile, macro economic data continues to be weak with FY 2014 GDP growth recorded at 4.7%, the second consecutive year of sub-5% GDP growth. Investments continue to be the weak leg, although analysts also expect GDP growth to pick up to the low 5% range next year before accelerating to around 6.5% in FY2016. The new government has identified investments in industry and infrastructure as one of the key pillars for reviving the growth momentum. The Budget presented in July and a subsequent RBI notification have aimed to ease longer term fund flows to the infrastructure and housing sectors. Further policies to address issues such as land acquisition and environmental clearances are awaited. Another important issue to be urgently addressed is that of inflation. Loose fiscal policies and a weak currency have contributed to inflation running at high levels over the last few years. The first month under the new government saw some hard measures aimed at curbing the fiscal profligacy seen over the last few years. Railway fares were hiked for passenger and freight segments and the hike in Minimum Support Prices was lower than in previous years. Besides, diesel fuel hikes at the retail level continue to rise every month. In the near term, these price hikes across the economy may keep inflation higher than otherwise, especially if the monsoon trends remain weak as they have been so far. However a structural improvement in the fiscal deficit will support lower inflationary expectations over the medium term and pave the way for interest rate easing cycle to formally commence sooner. The portfolio performance benefited from a switch away from defensive sectors such as IT Services, Healthcare and Consumer Staples and towards domestic cyclicals, in particular the Financials. The former have been trading at high valuations, however, we expect the valuation gap to narrow as the currency stabilizes and domestic growth trajectory improves. Financials are the best placed as they offer a broad based exposure to the economic cycle and benefit from normalization of the asset quality and interest rate cycles ahead. We have also added to sectors such as Materials where policy decisions have always played an important role and many projects are stuck for an appropriate government response, an issue we believe is high on this government s priorities. 11

13 NOMURA FUNDS IRELAND - INDIA EQUITY FUND INVESTMENT MANAGER S REPORT (CONTINUED) For the half year ended 30th June, 2014 Investment Outlook (continued) We expect the global economic recovery to continue at a moderate pace through the remainder of The US is expected to rebound from a phase of weather induced weakness in the first four months of the year, whilst Europe is showing surprising vigour given the depth of problems that overshadowed the peripheral economies. Japan s private consumption slump in the wake of the tax hike is being offset by stronger capital expenditure. China is also rebounding somewhat amid conflicting signals from the Government. On one hand they have hinted at a comprehensive reform program that will inevitably lead to a slower growth rate, yet they are still inclined to offer further economic stimulus at any sign of a slowdown. This environment of slow economic growth and commensurate stimulus settings in Central Bank monetary policy should continue to drive stock prices high In India, we see favourable bottom up drivers for the economy and markets. The economic growth appears to have bottomed late last year and recent high frequency data such as auto sales and IIP have indicated an uptick. The currency has normalized and Current Account Deficit has recovered to below 2 GDP, which makes it well placed at the beginning of a growth cycle. The new government has a strong electoral mandate and is not bound by the coalition politics of the last few years. This is a conducive environment to pursue far reaching reforms and given Mr Modi s credentials, we are optimistic of some success on this front. In the limited time the new government has been in power, they have focused on measures to boost investments and infrastructure and improve the fiscal deficit, we believe this is much required longer term thinking to bring the economy back to a sustainable growth path. Inflation remains a burning issue. On the one hand, base effects will see the CPI trajectory falling off from over 8% in 1H to lower than 5% over the next few months. But there are upside risks to this from the weak monsoon, any rise in oil prices and the fuel and other price hikes happening in the economy as the fiscal deficit is curbed. Nevertheless we expect inflation expectations over the medium term to come off and believe this will be an important consideration for the RBI to resume monetary easing over the next few quarters. We expect a growth uptick and easing cost pressures to be favourable for corporate earnings for the next few years. Historically the Indian corporate sector has delivered earnings CAGR of 15-20% over the longer term and we expect growth to return to those levels. One of the key changes has been the opening up of the equity capital markets, with liquidity provided by foreign investors helping balance sheets to correct their excesses and provide growth capital. Domestic flows have been notably absent from the markets in the last few years, and a potential resumption in these large flows is an important factor to watch out for in the years ahead. Markets have done well YTD and valuations have come back to historical average levels. We are also mindful that the earnings base today is suppressed and if this is a start of sustained recovery phase, there is lots of room for earnings to surprise. Overall, we are optimistic that is the likely case. Nevertheless we are remaining consistent to our long held stock selection philosophy, a focus on quality managements with good track records and sound balance sheets will compound returns much better over time. From a sector allocation perspective, we will remain biased in favour of domestic cyclicals. 12

14 NOMURA FUNDS IRELAND - ASIA EX JAPAN FUND INVESTMENT MANAGER S REPORT (CONTINUED) For the half year ended 30th June, 2014 Investment Performance 1 Month 3 Month Year To Date 1 Year Since Inception* Fund Benchmark Out/(Under) Performance % Returns in. *Since Inception date is 27th June Benchmark changed to MSCI All Countries Asia Ex Japan Index (total return net), effective from 14th December Performance Commentary For the half year ended June 2014, the Fund recorded a return of 2.62%, compared with the benchmark return of 2.59%, and therefore outperformed the benchmark by 3 basis points. In terms of asset allocation, the overweight position in the Philippines contributed positively on the back of steady economic growth. The overweight position in Thailand also contributed positively. The Thai stock market rebounded after the military government took control following a political standoff lasting several weeks, and raised hopes that positive economic momentum would be restored. Meanwhile the underweight positions in India and Indonesia, especially during the early part of this year, worked against the portfolio, as the macroeconomic conditions showed signs of improvement (e.g. a narrowing current account deficit), as well an improvement in the political situation after the Indian general election in May. Meanwhile, stock selection results varied across countries, adding value in Korea and China, but unsuccessful in Hong Kong and Taiwan. In Korea, overweight positions in SK Hynix and Coway contributed positively, as these share prices strengthened on the back of favourable supply demand conditions for memory chips produced by SK Hynix, and strength in earnings momentum for Coway. In China, the overweight position in Nexteer Automotive contributed positively as the share price strengthened on the back of attractive valuations as well as its ample orderbook. Meanwhile, in Hong Kong, the overweight position in Galaxy worked against the portfolio, as the share price weakened due to concerns about a slowdown in the Chinese economy as well as regulatory tightening of the Macau casino industry. In Taiwan, the overweight position in St. Shine had a negative impact as the share price weakened along with a near-term slowdown in earnings momentum. Investment Outlook We expect the global economic recovery to continue at a moderate pace through the remainder of The US is expected to rebound from a phase of weather induced weakness in the first four months of the year, whilst Europe is showing surprising vigour given the depth of the problems that have overshadowed the peripheral economies. Japan s private consumption slump in the wake of the tax hike is being offset by stronger capital expenditure. China is also rebounding somewhat amid conflicting signals from the Government. On one hand they have hinted at a comprehensive reform program that will inevitably lead to a slower growth rate, yet they are still inclined to offer further economic stimulus at any sign of a slowdown. This environment of slow economic growth and commensurate stimulus settings in Central Bank monetary policy should continue to drive stock prices higher. In terms of country allocation, we decided to reduce the already underweight Korea position. Analysis of recent global stock market returns suggests that capital management, in the form of dividends, share buybacks and mergers and acquisitions made significant contributions to overall returns. Unfortunately, Korean companies tend to pay only lip service to such policies. Dividends are derisory, share buybacks virtually non-existent, and inefficient shareholding structures only serve to entrench family interests. The other major concern is the strength of the Korean won and its impact on margins. This is especially damaging given that few Korean companies have shown much enthusiasm or aptitude for cutting costs. There are still some excellent companies in Korea and the economy is geared to the global rebound, which has precluded us from cutting the exposure further. Proceeds from these sales will be used to raise the Singapore position. Whilst the index heavyweights, property and banking stocks, are constrained somewhat by the Government s attempts to cool the property market, there are some interesting individual stock ideas. Moreover, Singapore companies are well versed in capital management with high dividend pay-outs and ample M&A activity. 13

15 NOMURA FUNDS IRELAND - ASIA EX JAPAN FUND INVESTMENT MANAGER S REPORT (CONTINUED) For the half year ended 30th June, 2014 Investment Outlook (continued) We increased the India exposure following the election and this will be maintained. We remain confident that Mr Modi s reform credentials could transform the country s economy. To some extent this has been priced in already, but there is still sufficient skepticism to suggest further gains are likely. Positions in Taiwan, Thailand and the Philippines will also remain overweight. In Taiwan, we can find many excellent technology companies, either niche producers or those large enough to be indispensable to the major global players. Dividend yields are also attractive. Thailand is still overweight despite the return to military rule. We acknowledge that the political landscape is not ideal, but it is providing some breathing space and allowing a number of reforms to be introduced. Again corporate governance and the focus on capital management have improved markedly in Thailand. Finally, the Philippine market has been a structural overweight position for many years and this remains in place. On the negative side, exposures to China and Hong Kong will remain below the benchmark. Our previously stated rationale for this stance bears repeating. It is not an indictment of the Chinese economy, which remains robust, or of that country s economic management. In fact we are encouraged by signals from the current Government about their commitment to economic reform. We also continue to find well-managed, fundamentally sound and inefficiently priced stocks in the Chinese market that we are excited about owning. However, the numerous structural issues that have plagued Chinese equities are still present. These include poor corporate governance, companies managed for reasons other than maximizing minority shareholder value, and the surge in share issuance every time the market moves higher. 14

16 NOMURA FUNDS IRELAND - FUNDAMENTAL INDEX GLOBAL EQUITY FUND INVESTMENT MANAGER S REPORT (CONTINUED) For the half year ended 30th June, 2014 Investment Performance Year To Since 1 Month 3 Month 1 Year 3 Year Date Inception* Fund Benchmark Out/(Under) Performance Source BBH; % Returns in. Benchmark is the MSCI AC World Total Return Net Index. *Since Inception date is 19th December Performance Commentary For the half year ended June 2014, the Fund recorded a return of 6.39%, compared with the benchmark return of 6.47%, and therefore underperformed the benchmark by 8 basis points. Global equity markets advanced during the first quarter of To the beginning of February, the equity markets fell back in reaction to the depreciation of some Emerging markets currencies against the dollar, the deterioration of the Chinese manufacturing business confidence index, concerns on tapering FRB s monetary policy, and announcement of a surprisingly weak ISM Manufacturing Business Activity index reported in the US. The markets rebounded after ECB President Mario Draghi implied that further monetary easing measures many considered. In March, the market dropped, reflecting the growing tensions in Ukraine following Russia s intervention in Crimea region and disappointing Chinese economic indicators. To the end of March, the market again recovered due to expectations of additional economic stimulus measures by Chinese authorities and a rally in European equity markets. Our overweight position in the Utilities sector worked positively to the fund performance as European Utilities companies, such as Enel S.p.A., GDF SUEZ and Endesa S.A. gained substantially. Also our overweight position in the Automobiles & Components Industry added values as European automaker surged during this quarter. However, our overweight position in the Materials and Energy sector worked negatively to the fund performance. Moreover, allocation in China detracted from the performance on the back of concerns over economic slowdown in China. As for regional allocation, the underweight allocation to Developed Markets contributed positively, while the overweight position in Emerging Markets both worked negatively. Global equity markets rallied during the second quarter of In April, the equity markets gained on the back of favourable Chinese manufacturing purchasing managers index (PMI). Federal Reserve Chair, Janet Yellen s statement that monetary easing measures would be maintained to support the US economy also attracted the markets. The equity markets fell at the beginning of May due to the continued political tensions in Ukraine, however the markets rebounded when ECB President suggested the possibility of additional monetary easing measures. Expectations for an economic recovery in the US and China also supported the markets. The markets advanced from the beginning of June following the interest-rate cuts announced by the European Central Bank (ECB) and favourable employment data reported in the US. However to the end of the month, European markets declined after a weak business confidence index reported in Germany. Even though the markets set back at one time due to the geopolitical risk in Ukraine and a weak economic indicator announced in Germany, the markets showed a strong performance during this quarter, supported by anticipation on economic recovery in China and US. Our overweight position in the Energy sector worked positively to the fund performance as Energy companies surged during this quarter reflecting a rise in crude oil prices. Our overweight position in the Telecommunication Services sector added value as major Telecommunication companies in the country, such as Nippon Telegraph and Telephone, Orange and Deutsche Telekom recorded double digit gain during this quarter. However, stock selections in the Consumer Staples and Materials sectors worked negatively to the fund performance. Moreover, allocation in France and Italy, which had been positive contributors in the previous quarter detracted from the performance in this quarter. As for regional allocation, the overweight allocation to Emerging Markets contributed positively, while the underweight position in Developed Markets both worked negatively. Investment Outlook As the Fundamental Index Strategy calculates its portfolio weights by using company reported fundamental data, it is not designed to make any top-down decisions and give any specific economic outlooks. 15

17 NOMURA FUNDS IRELAND - FUNDAMENTAL INDEX GLOBAL EQUITY FUND INVESTMENT MANAGER S REPORT (CONTINUED) For the half year ended 30th June, 2014 Investment Outlook (continued) We review our target weights once a year based on the fundamental measures of size, by using historical fundamental factors such as Sales, Cash flow, Dividends and Book Value. We monitor deviations between our target weights and the actual portfolio weights. When the portfolio weights deviate from target weights significantly, we rewind the portfolio weights back to target weights. Based on fundamental value measures, our fund has overweight positions in the Energy, Telecommunication Services and Utilities sectors. and underweight positions in Information Technology, Health Care, and Consumer Staples sectors. With regard to country allocation, our fund is currently overweighting China, France, Japan and Italy, while holding underweight exposures to the United States, United Kingdom, Switzerland and Canada. Overall, we have an overweight position in emerging markets and underweight positions in developed countries. 16

18 NOMURA FUNDS IRELAND - JAPAN STRATEGIC VALUE FUND INVESTMENT MANAGER S REPORT (CONTINUED) For the half year ended 30th June, 2014 Investment Performance Year To Since 1 Month 3 Month 1 Year 3 Year Date Inception* Fund Benchmark Out/(Under) Performance Source BBH; % Returns in. Benchmark is Topix Index. *Since Inception date is 26th August Performance Commentary For the half year ended June 2014, the Fund recorded a return of -2.59%, compared with the benchmark return of -1.94%, and therefore underperformed the benchmark by 65 basis points. There were several distinct phases to the Japanese equity market in the first six months of January began on a positive note but soon turn down in the face of perceived growing geopolitical risks centring on the standoff between Russia and the Ukraine over Crimea, a succession of weak economic releases from around the world and a firming in the yen. In addition there was disappointment that the Bank of Japan held back from announcing additional monetary easing measures ahead of the increase in the consumption tax at the beginning of April. However, from mid-april the market began to recover its composure and ended the period on a strong note. Investor sentiment was helped by the perception of relative stability in the global economy and monetary conditions. In a sign of more robust sentiment, markets did not take fright at the deteriorating situation in Iraq, the oil price rising only modestly in reaction. Similarly investors seemed to want to take a relatively relax view of the on-going standoff in the Ukraine and the rising risk of an Argentine sovereign default. Japanese economic data over the period was decidedly mixed. Widely watch indicators such as the Industrial Production index failed to paint a picture of a robust expansion, the May increase of in was below the consensus figure of 0.9% and analysis of production forecasts only suggested a slow recovery in activity over the next couple of months as the economy continues to adjust to the consumption tax increase at the beginning of April. On a positive note, Japan s unemployment rate declining to 3.5% in May, its lowest level since February 1997, and the active job opening ratio also improved to its highest level in 20 years. Turning to the Japanese corporate scene, earnings reports for the fiscal year ended March were slightly ahead of expectations but the company forecasts for the current year seemed excessively conservative, likely reflecting the uncertainties over domestic demand in the wake of the consumption tax increase. In any event the disappointing forecasts did little to shake the market with investors seemingly content focus on the valuation gap with other global markets. As might have been expected in a market that experienced marked changes of direction, sector performances over the period were very mixed. Most cyclical sectors underperformed over the period largely as a result of a poor first quarter. The financial sectors also underperformed as the banks were subject to profit taking and the asset price driven sectors, such as the Securities & Commodity Futures and Insurance sectors, were hit hard in any market declines. The performance of the export-related sectors was very mixed with the Electric Appliance, Machinery and Precision Instrument sectors all outperforming whilst the Transportation Equipment sector underperformed the benchmark by some margin. Although, with the exception of the Foods, the traditional defensives underperformed in upmarket of the second quarter, strong outperformance in the first quarter enabled them to close above the benchmark for the period as a whole. Over the first half of 2014 the fund underperformed outperformed the benchmark by a modest margin. On an attribution basis the positive stock selection was outweighed by negative asset allocation results. Stock selection was most effective in the Information & Communication, Banking and Retail sectors. It was least effective in the Machinery, Transportation Equipment and Other Financing sectors. As far as individual stocks were concerned, the positions contributing the most to performance over the period included overweights in telecommunications giant NTT, bank Resona Holdings, and construction company Taisei along with underweights in mobile phone company Softbank and property company Mitsubishi Estate. Stock positions detracting the most from overall performance included overweight positions in wire and cable maker Sumitomo Electric Industries, engineering company Hitachi Zosen and consumer credit company Credit Saison together with underweights in Japan Tobacco and Central Japan Railway. 17

19 NOMURA FUNDS IRELAND - JAPAN STRATEGIC VALUE FUND INVESTMENT MANAGER S REPORT (CONTINUED) For the half year ended 30th June, 2014 Investment Outlook Our view on global growth has not changed and we remain broadly positive on the recovery which will continue to be led by the US. That having been said we have trimmed our forecast for US GDP growth to 2% for the current year to reflect the adverse impact of the extreme winter weather across North America earlier this year. Nonetheless the underlying trend in the US remains positive particularly in the light of the progress the household sector has made in repairing its balance sheet which should enable rising consumer spending to lend more support to the economy. Although some of the Japanese economic data for May was rather mixed, we feel that the Japanese economy seems to be weathering the impact of the recent consumption tax increase reasonably well. As might have been expected overall spending on services in May was weak but there were also some encouraging signs in regard to consumption, notably a recovery in department store and home appliance sales. Moreover, looking forward we are cautiously optimistic that rising business investment will at least partly offset any the near-term weakness in consumption. There have been numerous announcements by corporates of intentions to increase capital expenditure, and this anecdotal evidence combined with very positive investment numbers in the latest Tankan (nosiness outlook) survey, strongly suggests that business confidence is increasing. With the government closely monitoring the strength of domestic demand in the wake of the tax increase and higher inflation, the extent to which companies can pass on higher costs and raise wages is likely to determine whether the Bank of Japan considers further monetary easing. An additional consideration in this regard will be the level of the yen, which has been little changed against other major currencies for some months now. Yen weakness over much of 2013 was a major factor in boosting corporate profits in the last fiscal year but the effect is rapidly diminishing and investors will be anxiously watching the earnings announcements in the September-October period to determine the underlying strength of earnings momentum. As for the Abe administration s announcement at the end of June of its Growth Strategy (the third arrow of Abenomics ), there were few surprises in that virtually all of the measures had already been mooted. As a result investors attention will turn to the detail of the policy initiatives and the speed of implementation. It is also worth noting that not all previously discussed policy initiatives were included in the latest announcement and more may well be forthcoming by the end of the year. In terms of valuations, despite the recent increase in the market Japanese equities still appear relatively attractive compared to their US and European counterparts, with a current year price earnings ratio (PER) of 14.4 times falling to 13.0 times on FY2016 earnings. As of 30th June the price to book ratio was a little under 1.3 times and the prospective dividend yield 1.9%. Looking ahead we would expect equity valuations in Japan to catch up with their global peers assuming that there are no nasty surprises in the macro economic data and corporate earnings for the July-September period does not disappoint; currently the risks to profits look skewed to the upside. Weighing up these factors we believe that the long-term case for Japanese equities remains strong. Global growth trends are positive, Japanese monetary policy remains supportive as do the policy initiatives of Abenomics both at macro and micro levels. This should translate into rising corporate earnings which will further enhance the strong valuation argument for the market. 18

20 NOMURA FUNDS IRELAND - US HIGH YIELD BOND FUND INVESTMENT MANAGER S REPORT (CONTINUED) For the half year ended 30th June, 2014 Investment Performance Year To Since 1 Month 3 Month 1 Year 3 Year Date Inception* Fund Benchmark Out/(Under) Performance Source BBH; % Returns in. Benchmark shown is the B of A Merrill Lynch US High Yield Master II Constrained Index. *Since Inception date is 31st March Performance Commentary For the half year ended June 2014, the Fund recorded a return of 6.40%, compared with the benchmark return of 5.64%, and therefore outperformed the benchmark by 76 basis points. FirstData (FDC) was the largest contributor to our relative performance in 1H2014. FirstData released its May SpendTrend data, which tracks same-store sales volumes at merchants serviced by FirstData. This was an important indicator for 2 reasons: 1) It provided volume insight into FirstData s core processing business and 2) Gave an indication of where consumers were spending their money. FDC s processing revenues are a combination of volumes, which have been increasing, and pricing, which has been offsetting growth. Transaction volume was up 3.0% year-over-year in May versus up 3.5% year-over-year in April. This increase reflected higher gas prices and also indicated that consumers purchased more big ticket items in May. On June 19th, FirstData announced that it is raising $3.5bn of private equity ($2.0bn from new investors; $1.5bn from KKR). We feel that this transaction will free up $200mm or so in cash interest expense, improving free cash flow to roughly $500mm per year (2.5 total debt). We also believe this will allow FDC to invest more in their business through R&D, acquisitions, and/or pay down debt with free cash flow. The bonds traded up on the announcement. Sprint also contributed to relative performance YTD. The Wall Street Journal reported that Sprint and T-Mobile seem to be in agreement over merger deal terms, and that an announcement could come in July. The Sprint bonds traded up on this news. Reynolds Group also contributed to relative performance for the month of June. On June 10th, Bloomberg News reported that Reynolds is contemplating divesting its SIG business, which makes aseptic cartons for soup and beverages mostly consumed in Europe and Asia. Bloomberg suggested that it is being shopped to private equity firms for approximately $5.0bn, which would represent a 9.5x LTM EBITDA multiple. The bonds traded up on the report. From a sector perspective, an overweight and positive issuer selection in the Media-Cable and and Software/Services sectors contributed the most to relative performance. Negative issuer selection in the Banking and Food & Drug Retailer sectors detracted from performance YTD. Investment Outlook Early in 2014, an escalation of tensions between Russia and the Ukraine, underlying angst around China growth/credit, and the Federal Reserve (Fed) each played roles in the HY market s oscillating action, which was also driven by shifts in momentum and sentiment. The ability of credit products to weather a rise in Treasury yields and maintain firm prices was a notable development. Seemingly, high yield investors were more comfortable with higher Treasury yields when accompanied by a slowly improving economy and diminishing tail risks. The main themes in high yield during the month of April were the outperformance of long-duration bonds, and the longanticipated TXU default. The first estimate of Q1 GDP came in weaker than expectations at 0.1%. Inclement weather and drag from an inventory correction had a significant impact on growth. The unemployment rate dropped in April by 0.4pp, in part, due to a decline in gross inflows in to the labor market which lowered the participation rate. We now suspect that labor force participation will start firming going forward. Despite the recovery in economic data, Treasury yields remain relatively low. Tenyear Treasury yields finished April at 2.65%, down 7bp from March and 38bp lower since the beginning of the year. This low state of Treasury yields has supported high-yield prices and retail flows, and has driven the outperformance of longer-duration issuers. 19