NOMURA FUNDS an Investment Company (Société D'investissement À Capital Variable)

NOMURA FUNDS An Investment Company (Société d'Investissement à Capital Variable)

with two sub-funds

JAPAN EQUITY

CHINA OPPORTUNITIES

organised under the Laws of the Grand Duchy of Luxembourg

UNAUDITED SEMI-ANNUAL REPORT

as of June 30, 2006

This report shall not constitute an offer or a solicitation of an offer to buy shares of the Fund. Subscriptions are to be made only on the basis of the current Prospectus, accompanied by the latest available annual report and accounts of the Fund and the latest semi-annual report if published thereafter. NOMURA FUNDS Index

Page

Organisation of the Fund 3

Shareholders' Information 4

Report of the Board of Directors - JAPAN EQUITY 5

Report of the Board of Directors - CHINA OPPORTUNITIES 6

Combined Statement of Net Assets 7

Statement of Changes in the Number of Shares Outstanding 8

Statistical Information 8

Statement of Investments - JAPAN EQUITY 9

Economic and Geographical Division of Investments - JAPAN EQUITY 12

Statement of Investments - CHINA OPPORTUNITIES 13

Economic and Geographical Division of Investments - CHINA OPPORTUNITIES 15

Notes to the Financial Statements 16

2 NOMURA FUNDS Organisation of the Fund

Registered office : 6, avenue Emile Reuter, L-2420 Luxembourg

BOARD OF DIRECTORS

Chairman Custodian Toshihiko MATSUNAGA Nomura Bank (Luxembourg) S.A., Chief Executive & Managing Director 6, avenue Emile Reuter, Nomura Asset Management U.K. Limited L-2420 Luxembourg

Directors Administrator, Domiciliary, Registrar and Transfer Agent Yoshikazu CHONO Nomura Bank (Luxembourg) S.A., President and Managing Director 6, avenue Emile Reuter, Nomura Bank (Luxembourg) S.A. L-2420 Luxembourg

Koichi SUDO Auditor General Manager Deloitte S.A. Nomura Bank (Luxembourg) S.A. 560, rue de Neudorf, L-2220 Luxembourg Management Company RBS (Luxembourg) S.A. Legal Advisors 46a, avenue John F. Kennedy, in Luxembourg L-1855 Luxembourg Elvinger, Hoss & Prussen, 2, Place Winston Churchill, Investment Manager and Distributor L-1340 Luxembourg Nomura Asset Management U.K. Limited, Nomura House 1, St Martin's-le-Grand, London EC1A 4NT United Kingdom

Investment Adviser to Japan Equity Sub-Fund Nomura Asset Management Co.,Ltd., 12-1 Nihonbashi 1-chome, Chuo-ku, Tokyo 103-8260, Japan

Investment Adviser to China Opportunities Sub-Fund Nomura Asset Management Hong Kong Ltd, 30/F, Two International Finance Centre, 8 Finance Street, Central Hong Kong

3 NOMURA FUNDS Shareholders' Information

Nomura Funds (the "Fund") is an open-ended investment company and an umbrella company. As of June 30, 2006, the Fund comprised the following sub-funds: Japan Equity and China Opportunities.

Unaudited semi-annual reports and audited annual reports are available at the registered office of the Company, 6, avenue Emile Reuter, L-2420 Luxembourg.

The annual general meeting of shareholders of the Fund will be held at the registered office of the Fund in Luxembourg normally on the last Monday in June at 11:00 a.m. in each year or, if any such day is not a bank business day in Luxembourg, on the next following bank business day. The first annual general meeting has been held in 2006 Notices of all general meetings will be given to the extent required by Luxembourg law by publication in the legal gazette Mémorial and in such other newspapers as the Directors shall determine.

The Net Asset Value per Share of each Class, as well as the Subscription Price and Redemption Price, may be obtained from the registered office of the Fund. The combined financial statements are presented in Euro.

4 NOMURA FUNDS Report of the Board of Directors - Japan Equity

To our Shareholders

We hereby present the annual report of the Nomura Funds Japan Equity (the "Sub-Fund") for the period ended June 30, 2006.

The Net Asset Value per Share (NAV) of the Fund as of June 30, 2006 was JPY 139,288 which is an increase of 39.29% from the initial subscription price of JPY 100,000. Total net assets of the Fund on the same date were JPY 8,170,953,331 and total number of shares outstanding was 58,662.

Below are some considerations from Investment Manager of the sub-fund on past performance and market outlooks:

Performance since the beginning of CY 2006

The equity portfolio outperformed the MSCI Japan Index by 19bp on a JPY basis since the beginning of calendar year 2006. Sector allocation and stock selection both partly worked in favour of the relative performance during the review period. Regarding the sector allocation effect, overweight exposures to the Machinery and Electronics sectors made a positive contribution to the portfolio. In addition, our core holding within the Information/System sector, Nintendo, posted remarkable gains due to robust sales of its portable game equipment and the unveiling of a new game console along with updated popular software titles, resulting in a positive stock selection effect in the Information/System sector. Meanwhile, stock selection within the Electronics sector detracted from the relative performance. Core semiconductor and component holdings such as Sanken Electric, Tokyo Seimitsu, and Rohm experienced double-digit falls in their share prices. In addition, our favoured electrical appliance maker, Funai Electric weakened as the company announced a downward revision to its earnings estimate for this fiscal year.

Market Outlook and Strategy

After a steep correction during the second quarter 2006, the Japanese equity market is now trading at the lower end of our forecast range for this year. While a short-term rebound is possible, we do not expect the market to establish any clear direction for the time being. The conditions that led to the surge in global stock market volatility and the accompanying sell-off are still present, since tighter monetary policy and a drain on liquidity will prevent a decisive recovery. However, as the US interest rate tightening phase approaches its peak, a more stable market environment could ensue. Consequently, we have chosen to maintain our existing strategy with overweight positions in the Machinery, Automobiles, Electronics, and Commodities sectors.

The information stated in this report is historical and not necessarily indicative of future performance.

5 NOMURA FUNDS Report of the Board of Directors - China Opportunities

To our Shareholders

We hereby present the annual report of the Nomura Funds China Opportunities (the "Sub-Fund") for the period ended June 30, 2006.

The Net Asset Value per Share (NAV) of the Fund as of June 30, 2006 was USD 72,873, which is an increase of 45.75% from the initial subscription price of USD 50,000. Total net assets of the Fund on the same date were USD 254,167,274 and the total number of shares outstanding was 3,488.

Below are some considerations from Investment Manager of the sub-fund on past performance and market outlooks:

Performance Review

The objective of the Sub-Fund is to achieve long-term capital growth. During the period 28 December 2005 to 30 June 2006, the Sub-Fund's unit NAV rose 28.98% relative to the 23.05% return of the MSCI China Total Return Index. Sector allocation made a positive contribution to the fund's performance during this half year, as the portfolio was overweight in the outperforming financial and energy sectors. Moreover, the stock selection contribution from the energy, financial, information technology and utility sectors was positive. This resulted in a positive relative performance for the portfolio overall for the half year. In terms of sector weighting, the portfolio increased its exposure to the financial and material sectors for the half year, largely at the expense of the other sectors.

Investment Outlook

It is our view that the macro-tightening measures introduced by the Chinese government are a way of managing the pace of economic growth rather than suppressing economic growth itself and that selective tightening will continue to focus on structural imbalances in the system. We assume that prudent fiscal and monetary policies will remain, with agricultural reforms scheduled to improve incomes in rural areas. While concerns about inflation are increasing overseas, China's government remains in control of inflation within China: it stood at only 1.4% in May. Further, M2 supply grew 18.6% (year on year) in May, which is a remarkable rebound from the low of 13.5% (year on year) recorded in October 2004. Expectations of further Renminbi appreciation over the next 12 months should also help boost market sentiment. Overall, we anticipate that the Chinese market will stay relatively firm in the medium term: its valuation of 13 times Price Earning Ratio remains reasonable and its growth potential has not yet been fully factored into this. As for stock selection, we prefer quality GDP proxy stocks and stocks with high entry barriers.

Investment Themes

Our choice of sectors will be dictated by bottom-up decisions and will focus on the leading plays in each industry. We still prefer companies which, due to their competitive positions and management quality, have clear strategies to take advantage of the economic growth in China. We have picked three sectors to overweight: firstly, financials (particularly insurers), secondly, energy plays and, lastly, the utilities.

The accompanying notes form an integral part of these financial statements.

6 NOMURA FUNDS Combined Statement of Net Assets at June 30, 2006

Japan Equity China Opportunities Combined (in JPY) (in USD) (in Euro)

ASSETS

Investment in securities at market value 8,125,215,400 254,540,014 255,837,085 Cash at banks 77,281,806 668,986 1,055,268 Accrued income 1,554,588 918,235 732,894 Receivable from brokers 2,545,387 542,281 443,965 Formation expenses (Note 2) 3,700,540 77,140 86,009 Lending fees 1,033,987 -- 7,079

Total Assets 8,211,331,708 256,746,656 258,162,300

LIABILITIES

Payable for redemptions -- 1,691,951 1,330,829 Accrued expenses (Note 8) 25,682,745 887,431 873,844 Payable to brokers 14,695,632 -- 100,606

Total Liabilities 40,378,377 2,579,382 2,305,279

TOTAL NET ASSETS 8,170,953,331 254,167,274 255,857,021

NUMBER OF SHARES OUTSTANDING 58,662.44161 3,487.83511

NET ASSET VALUE PER SHARE 139,288 72,873

The accompanying notes form an integral part of these financial statements.

7 NOMURA FUNDS Statement of Changes in the Number of Shares Outstanding for the period ended June 30, 2006

Japan Equity China Opportunities Class I Shares Class I Shares

Number of shares at the beginning of the period 36,975.29152 3,593.26483

Number of shares issued 21,687.15009 541.72592 Number of shares redeemed -- (647.15564)

Number of shares outstanding at the end of the period 58,662.44161 3,487.83511

Statistical Information

June 30, 2006 June 30, 2006

Japan Equity China Opportunities Class I Shares Class I Shares (in JPY) (in USD)

Net Assets at the end of the period 8,170,953,331 254,167,274

Net Asset Value per share at the end of the period 139,288 72,873

December 31, 2005 December 31, 2005

Japan Equity China Opportunities Class I Shares Class I Shares (in JPY) (in USD)

Net Assets at the end of the period 5,218,340,343 202,766,472

Net Asset Value per share at the end of the period 141,130 56,430

The accompanying notes form an integral part of these financial statements.

8 NOMURA FUNDS NOMURA FUNDS-JAPAN EQUITY

Statement of Investments at June 30, 2006 (expressed in Japanese Yen)

Quantity/ Description Cost Market in % of Nominal Value Value Net Assets

TRANSFERABLE SECURITIES ADMITTED TO OFFICIAL STOCK EXCHANGE LISTING

JAPAN Ordinary Shares 326 MITSUBISHI UFJ FINANCIAL GROUP 431,065,387 521,600,000 6.39 380 SUMITOMO MITSUI FINANCIAL GROUP INC 369,157,357 459,800,000 5.64 296,900 NISSAN MOTOR CO LTD 370,051,207 371,125,000 4.55 31,800 ROHM CO LTD 351,571,255 325,314,000 3.98 65,500 JFE HOLDINGS INC 230,002,615 317,675,000 3.89 206,000 ITOCHU CORP 152,215,000 207,030,000 2.53 156,000 SUMITOMO TRUST & BANKING CO LTD 143,101,000 195,000,000 2.39 207,000 FUJITSU LTD 154,321,930 183,609,000 2.25 177,000 DOWA MINING CO LTD 172,530,426 179,124,000 2.19 130 CENTRAL JAPAN RAILWAY CO 128,472,541 148,200,000 1.81 7,600 NINTENDO CO LTD 105,857,144 145,920,000 1.79 190,000 TOSHIBA CORP 124,397,118 141,930,000 1.74 36,900 SEVEN & I HOLDINGS CO LTD 138,582,044 139,113,000 1.70 60,900 YAMAHA CORP 107,870,095 130,935,000 1.60 53,500 JS GROUPCORP 111,212,900 128,667,500 1.57 171,000 ASAHI KASEI CORPORATION 111,954,577 127,737,000 1.56 4,540 ORIX CORP 83,350,481 126,893,000 1.55 31,500 DAIKIN INDUSTRIES LTD 99,520,700 125,055,000 1.53 14,100 KYOCERA CORP 128,079,007 124,926,000 1.53 222 NIPPON TELG & TEL CORP NTT 107,416,673 124,542,000 1.52 57,000 SHIONOGI & CO LTD 92,600,346 116,280,000 1.42 34,200 AISIN SEIKI CO LTD 95,372,397 116,280,000 1.42 10,300 FUNAI ELECTRIC 116,875,641 114,330,000 1.40 49,400 BRIDGESTONE CORP 113,057,627 108,927,000 1.33 29,000 HONDA MOTOR CO LTD 79,277,621 105,270,000 1.29 219,000 DENKI KAGAKU KOGYO 94,585,651 104,244,000 1.28 128,000 SHIMADZU CORP 94,012,457 103,808,000 1.27 17,800 CREDIT SAISON CO LTD 82,811,400 96,476,000 1.18 27,400 THK CO LTD 73,435,500 93,434,000 1.14 15,000 SHIN-ETSU CHEMICALCO LTD 99,570,041 93,300,000 1.14 10,600 TDK CORP 84,912,969 92,220,000 1.13 8,500 FANUC LTD 61,104,343 87,380,000 1.07 72,000 AMADA CO LTD 65,154,647 86,400,000 1.06 34,300 STANLEY ELECTRIC CO LTD 66,769,826 80,948,000 0.99 151,000 SHOWA DENKO KK 41,997,000 76,859,000 0.94 52,000 MITSUBISCHI UFJ SECURITIES CO LTD 90,004,067 76,752,000 0.94 102,000 NIPPON YUSEN KK 70,185,416 75,888,000 0.93 39,300 NIHON UNISYS LTD 51,238,525 74,591,400 0.91 64,000 HITACHI METALS LTD 60,625,038 72,000,000 0.88 54,000 FUJIKURA LTD 25,404,125 68,202,000 0.83 11,300 TOKYO SEIMITSU CO LTD 44,847,830 67,122,000 0.82 77,000 KAMIGUMI CO LTD 68,869,460 66,913,000 0.82 15,300 ASTELLAS PHARMAINC 74,591,959 64,260,000 0.79

The accompanying notes form an integral part of these financial statements.

9 NOMURA FUNDS NOMURA FUNDS-JAPAN EQUITY

Statement of Investments at June 30, 2006 (expressed in Japanese Yen)

Quantity/ Description Cost Market in % of Nominal Value Value Net Assets

TRANSFERABLE SECURITIES ADMITTED TO OFFICIAL STOCK EXCHANGE LISTING (CONTINUED)

JAPAN (CONTINUED) Ordinary Shares (continued) 14,100 ELPIDA MEMORY INC 49,369,554 60,630,000 0.74 55,000 SUMITOMO HEAVY IND 56,665,443 58,190,000 0.71 81 KDDI CORP NO CORRECTION FACTOR 48,007,785 56,943,000 0.70 45,100 SUMITOMO RUBBER INDUSTRIES LTD 68,964,221 56,780,900 0.69 67,000 NIPPON OILCORP 51,547,246 56,012,000 0.69 31,900 NAMCO BANDAI HOLDING INC 47,067,600 55,474,100 0.68 81,000 CENTRAL GLASS CO LTD 56,044,000 55,161,000 0.68 14,500 MAKITA CORPORATION 49,148,051 52,490,000 0.64 72,000 MAZDA MOTOR CORP 48,993,248 51,624,000 0.63 14,200 HITACHI HIGH-TECH LTD 35,336,854 49,416,000 0.60 53,000 DAIDO STEELCO LTD 21,161,454 47,594,000 0.58 15,800 HITACHI CHEMICALCO LTD 41,292,467 47,400,000 0.58 103,000 TOSOH CORP 61,354,473 46,968,000 0.57 22,900 HITACHI CAPITAL 48,582,411 45,800,000 0.56 15,000 SHIMACHU CO., LTD 43,302,000 44,850,000 0.55 17,200 KEIHIN CORP 39,327,582 42,226,000 0.52 79,000 KAJIMA CORP 45,765,589 41,475,000 0.51 17,100 USHIO INC 42,538,500 41,296,500 0.51 10,400 BENESSE CORP 41,747,205 41,080,000 0.50 57,000 MITSUI MINING & SMELTING CO LTD 39,254,952 38,475,000 0.47 64,200 NIPPON SUISAN KAISHA LTD 26,942,737 37,107,600 0.45 6,600 ONO PHARMACEUTICALCO LTD 37,049,400 36,762,000 0.45 68,000 TOKYO GAS CO LTD 34,717,593 36,652,000 0.45 16,200 MISUMI GROUPINC 33,206,110 34,668,000 0.42 38,000 NTN CORP 28,836,132 34,390,000 0.42 14,100 PARIS MIKI INC 34,534,830 33,628,500 0.41 31,000 SEIKO CORP 21,458,000 33,542,000 0.41 156 NET ONE SYSTEMS CO LTD 37,626,969 33,228,000 0.41 13,100 TOKYO STEELMANUFACT CO LTD 25,392,638 32,815,500 0.40 31,000 DAINIPPON SCREEN MFG CO LTD 32,308,752 32,488,000 0.40 3,500 T&D HOLDINGS INC 20,272,280 32,375,000 0.40 5,500 IBIDEN CO LTD 30,353,110 30,250,000 0.37 35,000 KAKEN PHARMACEUTICALCO LTD 27,786,760 30,065,000 0.37 7,700 PLENUS CO LTD 29,066,847 30,030,000 0.37 9,000 TIS INC 30,516,007 28,800,000 0.35 7,300 ULVAC INC 29,013,809 28,543,000 0.35 49,000 VICTOR COMPANY OF JAPAN CO LTD 42,525,242 28,420,000 0.35 10,200 HITACHI INFORMATION SYSTEMS 28,426,261 27,846,000 0.34 44,000 JUKI CORP 27,750,788 26,620,000 0.33 11,200 TOYODA GOSEI CO LTD 26,267,774 25,704,000 0.31 12,900 OSG CORPORATION 22,899,680 24,858,300 0.30 244,800 NISSIN CO LTD 14,094,360 19,584,000 0.24 8,000 CANON MARKETING JAPAN INC 15,315,400 18,880,000 0.23

The accompanying notes form an integral part of these financial statements.

10 NOMURA FUNDS NOMURA FUNDS-JAPAN EQUITY

Statement of Investments at June 30, 2006 (expressed in Japanese Yen)

Quantity/ Description Cost Market in % of Nominal Value Value Net Assets

TRANSFERABLE SECURITIES ADMITTED TO OFFICIAL STOCK EXCHANGE LISTING (CONTINUED)

JAPAN (CONTINUED) Ordinary Shares (continued) 4,500 LEOPALACE21 CORPORATION 15,285,230 17,775,000 0.22 7,800 UTD ARROWS LIMITED 13,521,738 17,628,000 0.22 67,000 SANKYO-TATEYAMA HOLDINGS INC 20,408,919 16,884,000 0.21 52,000 KURIMOTO LTD 20,443,347 16,692,000 0.20 7,300 NISHIMATSUYA CHAIN CO LTD 12,669,882 16,169,500 0.20 3,200 KOBAYASHI PHARMACEUTICALCO LTD 11,674,265 14,976,000 0.18 5,200 MODEC 16,510,869 13,312,000 0.16 4,400 CHIYODA CO LTD 13,107,314 11,088,000 0.14 6,300 TOKAI RUBBER INDUSTRIES LTD 9,490,685 11,025,000 0.13 13,000 SANYO SHOKAI LTD 9,247,928 10,790,000 0.13 287 FAITH INC 13,075,499 8,897,000 0.11 3,000 TOYO SUISAN KAISHA LTD 5,162,455 5,376,000 0.07 6,000 NIPPON CHEMI-CON CORP 4,331,521 4,368,000 0.05 2,900 NICHICON CORP 4,184,943 4,100,600 0.05 2,000 SANKEN ELECTRIC CO LTD 4,191,468 2,912,000 0.04 Country Total 7,133,171,520 8,125,215,400 99.44

TOTAL INVESTMENTS 7,133,171,520 8,125,215,400 99.44

The accompanying notes form an integral part of these financial statements.

11 NOMURA FUNDS NOMURA FUNDS-JAPAN EQUITY

Economic and Geographical Division of Investments at June 30, 2006

Economic and Geographical Breakdown in % of Net Assets

JAPAN BANKS & OTHER CREDIT INSTITUTIONS 13.25 ELECTRONICS & SEMICONDUCTORS 12.69 FINANCIAL,INVEST & OTHER DIV CO 12.50 VEHICLES 9.71 CHEMICALS 6.08 MECHANICAL ENGINEERING & IND. EQUIP 6.01 ELECTRICAL APPLIANCES & COMPONENTS 4.50 COMPUTER HARDWARE & NETWORKING 3.98 MISCELLANEOUS TRADE COMPANIES 3.56 TRANSPORTATION 3.56 PHARMACEUTICALS,COSMETICS & MEDICAL 3.21 BUILDING MATERIALS & TRADE 2.76 NON-FERROUS METALS 2.66 COMMUNICATIONS 2.22 RUBBER & TIRES 2.16 MINING, COAL & STEEL 2.07 INTERNET & SOFTWARE SERVICES 2.01 MISCELLANEOUS CONSUMERS GOODS 1.60 RETAIL TRADE, DEPARTMENT STORES 1.47 PETROLEUM 0.69 MISCELLANEOUS SERVICES 0.61 AGRICULTURE AND FISHERY 0.45 UTILITIES 0.45 PHOTOGRAPHIC & OPTICS 0.41 WATCH-AND-CLOCK INDUSTRY, JEWELLERY 0.41 REAL ESTATE 0.22 TEXTILE,CLOTHING & LEATHER GOODS 0.13 FOOD & SOFT DRINKS 0.07 99.44

TOTAL INVESTMENTS 99.44

The accompanying notes form an integral part of these financial statements.

12 NOMURA FUNDS NOMURA FUNDS-CHINA OPPORTUNITIES

Statement of Investments at June 30, 2006 (expressed in U.S. Dollar)

Quantity/ Description Cost Market in % of Nominal Value Value Net Assets

TRANSFERABLE SECURITIES ADMITTED TO OFFICIAL STOCK EXCHANGE LISTING

CHINA Ordinary Shares 22,430,000 PETROCHINA CO LTD H 16,198,197 23,969,438 9.43 13,100,000 CHINA LIFE INSURANCE CO LTD H 9,408,052 20,661,311 8.13 26,700,000 CHINA PETROLEUM & CHEMICAL CORP H 10,735,175 15,297,545 6.02 4,090,000 PING AN INSURANCE GROUP CO-H 7,759,795 12,401,228 4.88 26,800,000 CHINA CONSRUCTION BANK H 9,212,022 12,249,366 4.82 13,100,000 CHINA COSCO HOLDINGS CO LTD 6,867,185 6,746,550 2.65 6,000,000 JIANGXI COPPER CO LTD H 3,340,784 5,562,042 2.19 7,550,000 CHINA SHIPPING DEVELOPMENTCO LTD H 6,111,901 5,443,591 2.14 6,250,000 ALUMINIUM CORPOF CHINAH (CHALCO) 5,128,516 4,626,988 1.82 3,800,000 ANGANG NEWSTEEL COMPANY LIMITED H 2,323,348 3,596,014 1.41 6,500,000 CHINA OILFIELD SERVICES LTD H 2,368,351 3,305,681 1.30 1,749,320 CHINA INTL MARINE CONTAINERS LTD-B 1,602,618 2,558,575 1.01 1,690,000 WEIQIAO TEXTILE CO LTD H 2,496,710 2,165,012 0.85 1,000,000 SHANGAI ZHENHUAPORT MACH CORPB 993,273 2,099,000 0.83 400,000 GUANGZHOU R&F PROPERTIES CO LTD H 2,164,608 1,854,014 0.73 2,940,000 ZIJIN MINING GROUP CO LTD H 567,639 1,466,795 0.58 4,400,000 SINOTRANS LTD H 1,551,384 1,387,935 0.55 2,646,000 SHENZHEN EXPRESSWAY CO LTD H 976,963 1,269,015 0.50 3,400,000 CHINA TELECOM CORPLTD H 1,205,240 1,094,383 0.43 260,000 ZTE CORP-H 788,478 823,491 0.32 200,000 DALIAN PORT PDA H 67,084 93,344 0.04 Country Total 91,867,323 128,671,318 50.63

HONG KONG Ordinary Shares 4,342,000 CHINA MOBILE LTD 17,256,903 24,821,228 9.76 22,680,000 CNOOC LTD 13,515,730 18,104,445 7.12 11,740,000 CN RESOURCES POWER HOLDING 6,962,141 9,824,986 3.87 18,181,000 BANK OF CHINA LTD H 6,984,718 8,251,395 3.25 4,251,000 CHINA NETCOM GROUPCORP 6,321,099 7,443,557 2.93 12,212,000 CHINA OVERSEAS LAND&INVESTLTD 4,527,930 7,429,149 2.92 3,230,000 CHINA RESOURCES ENT.WINLAND IN 4,830,049 6,591,470 2.59 5,970,000 TPV TECHNOLOGY LTD 4,713,709 5,649,528 2.22 10,000,000 CNPC LTD 3,852,378 5,632,855 2.22 7,700,000 BANK OF COMMUNICATIONS CO LTD H 4,788,742 5,006,481 1.97 1,400,000 CHINA SHENHUA ENERGY CO H 1,371,582 2,586,607 1.02 750,000 CITIC PACIFIC LTD 2,190,043 2,211,298 0.87 1,692,000 HARBIN POWER EQUIPMENT CO LTD H 1,461,748 2,015,081 0.79 1,100,000 HANG LUNG PROPERTIES LTD 1,697,968 1,968,602 0.77 5,000,000 CHINA POWER INTERNATIONAL 1,728,650 1,834,701 0.72 598,000 CHINA MERCHANTS HOLDINGS INT CO LTD 1,121,991 1,820,886 0.72 5,252,000 DENWAY MOTORS LTD 1,887,334 1,758,120 0.69 1,020,000 WHEELOCK & CO LTD 1,602,469 1,713,804 0.67

The accompanying notes form an integral part of these financial statements.

13 NOMURA FUNDS NOMURA FUNDS-CHINA OPPORTUNITIES

Statement of Investments at June 30, 2006 (expressed in U.S. Dollar)

Quantity/ Description Cost Market in % of Nominal Value Value Net Assets

TRANSFERABLE SECURITIES ADMITTED TO OFFICIAL STOCK EXCHANGE LISTING (CONTINUED)

HONG KONG (CONTINUED) Ordinary Shares (continued) 195,400 WING LUNG BANK LTD 1,465,524 1,685,582 0.66 168,000 WING HANG BANK LTD 1,303,924 1,470,851 0.58 2,300,000 CITIC INTLFINANCIAL HDGS LTS 980,731 1,295,557 0.51 2,900,000 VICTORY CITY INTL HDGS LTD 1,066,753 942,779 0.37 2,930,000 HONG KONG ECONOMIC TIMES HDGS LTD 830,296 801,636 0.32 600,000 SHUN TAK HOLDINGS 805,858 784,093 0.31 1,100,000 TIANJIN DEVELOPMENT HLDGS LTD 547,764 676,264 0.27 760,000 HOPEWELL HIGHWAY INFRASTRUCTURE LTD 536,478 572,427 0.23 1,200,000 DONGFENG MOTOR GP CO H 549,140 560,067 0.22 270,000 LEE & MAN PAPER MANUFACTURING LTD 366,381 394,557 0.16 70,000 ASM PACIFIC TECHNOLOGYLTD 381,604 341,126 0.13 228,000 CAFE DE CORAL HOLDING LTD 279,380 324,375 0.13 8,400 MANULIFE FINANCIALCORP (HKD) 269,751 271,675 0.11 50,000 VTECH HOLDINGS 228,679 260,721 0.10 140,000 HENGAN INTLGROUP CO LTD 194,433 228,018 0.09 318,000 CHINA RESOURCES BEIJING LAND 123,433 174,007 0.07 47,500 KERRY PROPERTIES LTD 103,136 161,759 0.06 200,000 TINGYI HOLDING CORP 131,043 122,313 0.05 400 TRANSPORT INTL HOLDING LTD 2,229 2,091 0.00 Country Total 96,981,721 125,734,091 49.47

SUB-TOTAL 188,849,044 254,405,409 100.10

TRANSFERABLE SECURITIES DEALT IN ON ANOTHER REGULATED MARKET

HONG KONG Ordinary Shares 234,000 CHINA STATE CONSTRUCTION INTL HLDG 0 90,383 0.03 0 90,383 0.03

Warrant 1,526,500 CHINA OVERSEAS LAND & INVEST WT 0 44,221 0.02 0 44,221 0.02 Country Total 0 134,604 0.05

SUB-TOTAL 0 134,604 0.05

TOTAL INVESTMENTS 188,849,044 254,540,013 100.15

The accompanying notes form an integral part of these financial statements.

14 NOMURA FUNDS NOMURA FUNDS-CHINA OPPORTUNITIES

Economic and Geographical Division of Investments at June 30, 2006

Economic and Geographical Breakdown in % of Net Assets

CHINA PETROLEUM 16.75 INSURANCES 13.01 TRANSPORTATION 6.35 BANKS & OTHER CREDIT INSTITUTIONS 4.82 NON-FERROUS METALS 4.01 MINING, COAL & STEEL 1.99 MECHANICAL ENGINEERING & IND. EQUIP 1.33 TEXTILE,CLOTHING & LEATHER GOODS 0.85 COMMUNICATIONS 0.75 REAL ESTATE 0.73 LODGING,CATERING & LEISURE INDUSTRY 0.04 50.63

HONG KONG COMMUNICATIONS 12.79 PETROLEUM 9.33 BANKS & OTHER CREDIT INSTITUTIONS 6.96 REAL ESTATE 4.48 UTILITIES 3.87 ELECTRICAL APPLIANCES & COMPONENTS 3.02 MISCELLANEOUS SERVICES 2.66 FINANCIAL,INVEST & OTHER DIV CO 1.59 MINING, COAL & STEEL 1.02 ELECTRONICS & SEMICONDUCTORS 0.86 VEHICLES 0.69 TRANSPORTATION 0.69 TEXTILE,CLOTHING & LEATHER GOODS 0.37 PUBLISHING & PRINTING MEDIA 0.32 NON-CLASSIFIABLE/ED INSTITUTION 0.27 MECHANICAL ENGINEERING & IND. EQUIP 0.22 LODGING,CATERING & LEISURE INDUSTRY 0.13 INSURANCES 0.11 PHARMACEUTICALS,COSMETICS & MEDICAL 0.09 FOOD & SOFT DRINKS 0.05 49.52

TOTAL INVESTMENTS 100.15

The accompanying notes form an integral part of these financial statements.

15 NOMURA FUNDS Notes to the Financial Statements at June 30, 2006

Note 1 - Organisation

NOMURA FUNDS (the "Fund") was incorporated as an open-ended investment company (société d'investissement à capital variable - SICAV) with multiple compartments on 6 April 2005. The duration of the Fund is indefinite. The duration of the Sub-Funds may be limited. The initial capital on incorporation was Yen 5,000,000. On incorporation all the shares representing the initial capital were subscribed for and were fully paid. The Fund has designated a management company subject to chapter 13 of the Luxembourg law of 20 December 2002 regarding undertakings for collective investment as amended.

The Articles of Incorporation were published in the Mémorial C, Recueil des Sociétés et Associations on 18 April 2005. The Articles of Incorporation are on file with the Registre de Commerce et des Sociétés of Luxembourg. The notice required by Luxembourg law relating to the issue of Shares in the Fund has been deposited with the Registre de Commerce et des Sociétés of Luxembourg.

The Fund is designed to offer investors, within the same investment vehicle, a choice between several Sub-Funds, which are managed separately and are distinguished principally by their specific investment policy and/or by the currency in which they are denominated.

The Fund is registered under Part I of the Luxembourg law of 20 December 2002 relating to undertakings for collective investment as amended.

At June 30, 2006, the Fund comprised two Sub-Funds:

(i) Japan Equity which has been established for an undetermined period.

The Sub-Fund's investment objective is to achieve long term capital growth through investment in an actively managed portfolio of Japanese securities, listed/dealt on Regulated Markets in Japan and to outperform the Benchmark (being the Morgan Stanley Capital International Japan Index).

(ii) China Opportunities which has been established for a ten year period ending 31 May 2015.

The Sub-Fund's investment objective is to achieve long term capital growth through investment in an actively managed portfolio of Chinese securities, including primarily equities issued by companies based in or listed/dealt on Regulated Markets in the People's Republic of China (PRC), comprising Hong Kong SAR ("Special Administrative Region"). The Sub-Fund may also invest in companies carrying out a preponderant part of their business activities in the PRC.

Note 2 - Significant Accounting Policies

The Fund maintains the books and records of each individual Sub-Fund in its respective currency, Japanese Yen for Japan Equity Sub-Fund and U.S. Dollar for China Opportunities Sub-Fund, and prepares combined financial statements in Euro.

The financial statements are prepared in accordance with Luxembourg regulations relating to investment funds, including the following significant accounting policies:

INVESTMENTS IN SECURITIES

(a) Securities listed on Regulated Markets, which operate regularly and are recognised and open to the public, are valued at the last available closing price; in the event that there should be several such markets, on the basis of the last available closing price of the main market for the relevant security. Should the last available closing price for a given security not truly reflect its fair market value, then that security is valued on the basis of the probable sales prices which the Directors deems is prudent to assume;

16 NOMURA FUNDS Notes to the Financial Statements at June 30, 2006 (continued)

Note 2 - Significant Accounting Policies (continued)

INVESTMENTS IN SECURITIES (CONTINUED)

(b) Securities not listed on Regulated Markets, which operate regularly and are recognised and open to the public, are valued on the basis of their last available closing price. Should the last available closing price for a given security not truly reflect its fair market value, then that security is valued by the Directors on the basis of the probable sales price which the Directors deems is prudent to assume;

(d) Liquid assets and money market instruments may be valued at nominal value plus any accrued interest or on an amortised cost basis. All other assets, where practice allows, may be valued in the same manner. Short-term investments that have a remaining maturity of one year or less may be valued (i) at market value, or (ii) where market value is not available or not representative, at amortised cost;

(e) The value of any cash on hand or on deposit, bills and demand notes and accounts receivable, prepaid expenses, cash dividends and interest declared or accrued as aforesaid, and not yet received is deemed to be the full amount thereof, unless, however, the same is unlikely to be paid or received in full, in which case the value thereof is determined after making such discount as the Directors may consider appropriate in such case to reflect the true value thereof.

In the event that extraordinary circumstances render such a valuation impracticable or inadequate, the Directors may, at their discretion, prudently and in good faith follow other methods of valuation to be used if they consider that such method of valuation better reflects value and is in accordance with good accounting practice in order to achieve a fair valuation of the assets of the Fund.

SECURITY TRANSACTIONS AND INVESTMENT INCOME

Security transactions are recorded on the trade date. Realised profits and losses on sales of portfolio securities are calculated on a weighted-average cost basis. Dividend income is recorded on the ex-dividend date and interest income is recorded on the basis of interest accrued, premiums amortised and discounts earned. Dividend income is recorded net of withholding tax.

FOREIGN CURRENCY TRANSLATION

The market value of securities as well as other assets and liabilities stated in currencies other than the reporting currency of the respective Funds have been translated at the exchange rates prevailing at the date of the annual accounts. Income and expenses not denominated in the reporting currency of the respective Sub-Funds have been translated at the rate prevailing at the date of transaction.

For the preparation of combined financial statements in Euro, the statements of each sub-fund denominated in currencies other than Euro have been translated at the exchange rates prevailing at the period-end.

The following exchange rates were used:

1 EUR = 1.271350747 USD 1 EUR = 146.071765 JPY

FORMATION EXPENSES

The cost incurred in the setting-up of the Fund and the Sub-Funds are amortised on a straight-line basis over 5 years from the date on which the Fund and the Sub-Funds commenced business.

17 NOMURA FUNDS Notes to the Financial Statements at June 30, 2006 (continued)

Note 2 - Significant Accounting Policies (continued)

COMBINED FINANCIAL STATEMENTS

The Fund's total net assets are expressed in EUR and correspond to the difference between the total assets and the total liabilities of the Fund. In order to calculate this value, the net assets of each Sub-Fund are, unless they are already expressed in EUR, converted into EUR and added together.

Note 3 - Management and Advisory Fees

The Management Company is entitled to a maximum management fee at an annual rate of 0.15% of the average net assets of the Fund for the provision of its services.

The different Sub-Funds and Classes will incur an annual investment management fee payable to the Investment Manager, which reflects all expenses related to the investment management of the Sub-Funds and Classes. The investment management fee which is expressed as a percentage of the Net Asset Value is specified in the relevant Annex of the Prospectus as follows:

JAPAN EQUITY

The Investment Manager is entitled to receive out of the monies of this Sub-Fund, an investment management fee accrued weekly and payable quarterly, not exceeding 0.65% per annum of the average total net assets of the Sub-Fund attributable to Class I.

CHINA OPPORTUNITIES

The Investment Manager is entitled to receive out of the monies of this Sub-Fund, an investment management fee accrued weekly and payable quarterly, not exceeding 1% per annum of the average total net assets of the Sub- Fund attributable to Class I.

The investment advisers are paid by the investment manager.

Note 4 - Custodian, Administrator, Domiciliary, Registrar and Transfer Agent Fees

The Custodian, Administrator, Registrar and Transfer Agent are entitled to receive out of the monies of each Sub-Funds a combined fee in accordance with usual practice in Luxembourg for custody, administration, domiciliary and registrar and transfer agent services. Such fee is based on the total net assets of each Sub-fund and is payable quarterly, in arrears.

In addition, the Custodian will be reimbursed for the reasonable out-of-pocket expenses relating to the services thereto.

Note 5 - Subscription and Redemption of Shares

JAPAN EQUITY

Classes of Shares

Class I Shares are available for subscription and are reserved to institutional investors as defined from time to time by the Luxembourg Supervisory Authority. The minimum subscription and minimum holding amounts are of JPY 1 billion and the subsequent minimum investment amounts are JPY 100 million unless the Directors resolve otherwise.

Class A Shares are currently not available. The minimum subscription and minimum holding amounts are of JPY 10,000,000.

18 NOMURA FUNDS Notes to the Financial Statements at June 30, 2006 (continued)

Note 5 - Subscription and Redemption of Shares (continued)

JAPAN EQUITY (CONTINUED)

Subscriptions

Investors should be aware that subscription to the Shares may be made directly through the Registrar and Transfer Agent as described in the Chapter on Subscriptions of the Prospectus.

The Initial Offering Period commenced on April 6, 2005 and has closed on April 11, 2005. During the Initial Offering Period, Class I Shares were subscribed at a price of JPY 100,000 plus the applicable subscription charge.

Following the close of the Initial Offering Period, Shares are available for subscription on each Valuation Day. By derogation to the provisions under the section "Subscription" in the main part of the Prospectus, applications for Shares must be received by the Registrar and Transfer Agent by no later than 5 p.m. (Luxembourg time) one Luxembourg business day prior to the Valuation Day to be dealt with on the basis of the Net Asset Value per Share calculated on that Valuation Day. Subscription proceeds must be received by the Custodian on an account of the Sub-Fund no later than the fifth Business Day following the relevant Valuation Day. Applications for Shares received by the Registrar and Transfer Agent after 5 p.m. (Luxembourg time) one Luxembourg business day prior to the Valuation Day will be dealt with on the basis of the Net Asset Value per Share of the next Valuation Day.

A Subscription Charge, not exceeding 5 per cent of the fixed price at which Shares are offered during the Initial Offering Period and thereafter of the Subscription Price, may be added for the purpose of compensating financial intermediaries and other agents who assist in placing the Shares. This charge is to be considered a maximum rate and the intermediaries and other agents may decide at their discretion to waive this charge in whole or in part.

Redemptions

Shares are redeemable at the option of the Shareholders.

By derogation to the provisions provided under the section "Redemption" in the main part of the Prospectus, completed redemption requests should be sent to the Registrar and Transfer Agent to be received no later than 5 p.m. (Luxembourg time) one Luxembourg business day prior to the Valuation Day in order to be dealt with on the basis of the Net Asset Value per Share calculated on that Valuation Day.

Redemption requests received by the Registrar and Transfer Agent after 5 p.m. (Luxembourg time) one Luxembourg business day prior to the Valuation Day will be dealt with on the basis of the Net Asset Value per Share of the next Valuation Day.

No Redemption Charge will be levied for the Sub-Fund.

Payment of redemption proceeds will normally be made within five Business Days after the relevant Valuation Day. A request for a partial redemption of Shares may be treated as a request for the redemption of the entire holding if, as a result of such partial redemption, the total Net Asset Value of the Shares retained by the Shareholder in the Sub-Fund would be less than the minimum holding.

19 NOMURA FUNDS Notes to the Financial Statements at June 30, 2006 (continued)

Note 5 - Subscription and Redemption of Shares (continued)

CHINA OPPORTUNITIES

Classes of Shares

Class I Shares are available for subscription and are reserved to institutional investors as defined from time to time by the Luxembourg Supervisory Authority. The minimum subscription and minimum holding amounts are of USD 5 million and the subsequent minimum investment amounts are USD 1 million unless the Directors resolve otherwise.

Class A Shares will be available to all investors and may be launched by a decision of the Directors. In such case this Prospectus will be updated. The minimum subscription and minimum holding amounts are of USD 50,000.

Subscriptions

Investors should be aware that subscription to the Shares may be made directly through the Registrar and Transfer Agent as described in the Chapter on Subscriptions.

The Initial Offering Period commenced on May 10, 2005 and has closed on June 6, 2005. During the Initial Offering Period, Class I Shares were subscribed at a price of USD 50,000 plus the applicable subscription charge. Following the close of the Initial Offering Period, Shares are available for subscription on each Valuation Day. Applications for Shares must be received by the Registrar and Transfer Agent by no later than 8 a.m. (Luxembourg time) on the relevant Valuation Day to be dealt with on the basis of the Net Asset Value per Share calculated on that Valuation Day. Subscription proceeds must be received by the Custodian on an account of the Fund no later than the fifth Business Day following the relevant Valuation Day. Applications for Shares received by the Registrar and Transfer Agent after 8.00 a.m. (Luxembourg time) will be dealt with on the basis of the Net Asset Value per Share of the next Valuation Day.

Redemptions

Shares are redeemable at the option of the Shareholders.

Completed redemption requests should be sent to the Registrar and Transfer Agent to be received no later than 8 a.m. (Luxembourg time) on the relevant Valuation Day in order to be dealt with on the basis of the Net Asset Value per Share calculated on that Valuation Day. Redemption requests received by the Registrar and Transfer Agent after 8.00 a.m. (Luxembourg time) will be dealt with on the basis of the Net Asset Value per Share of the next Valuation Day.

No Redemption Charge will be levied for the Sub-Fund.

Payment of redemption proceeds will normally be made within six Business Days after the relevant Valuation Day.

20 NOMURA FUNDS Notes to the Financial Statements at June 30, 2006 (continued)

Note 6 - Distribution policies

JAPAN EQUITY

The Sub-Fund offers the Shares in the form of accumulation shares. The Sub-Fund shall not distribute any dividend and all net investment income and all net realised and unrealised capital gains will be accumulated and will increase the Net Asset Value of the Shares of the Sub-Fund.

CHINA OPPORTUNITIES

Note 7 - Taxation

Under current law and practice the Fund is not liable to any Luxembourg income tax, nor are dividends (if any) paid by the Fund liable to any Luxembourg withholding tax. However, the Fund is liable in Luxembourg to a taxe d'abonnement of 0.05 per cent per annum of its net assets, such tax being payable quarterly and calculated on the Net Asset Value of the Fund at the end of the relevant quarter. The reduced taxe d'abonnement rate of 0.01 per cent per annum will be applicable to the Classes of Shares which are exclusively held by Institutional Investors. To the extent that the assets of the Fund are invested in investment funds which are established in Luxembourg, no such tax is payable.

No stamp duty or other tax is payable in Luxembourg on the issue of Shares in the Fund except an once and for all tax of 1,250 Euro which was paid upon incorporation.

Under current law and practice, it is anticipated that no Luxembourg capital gains tax will be payable on the realised or unrealised capital appreciation of the assets of the Fund.

Note 8 - Accrued expenses

Japan Equity China Opportunities Combined (in JPY) (in USD) (in Euro)

Management and advisory fees 17,290,296 659,398 637,028 Custodian, Administrator, Domiciliary, Registrar and Transfer Agent fees 4,060,991 179,592 169,062 Formation expenses 2,825,952 22,327 36,908 Out-of-pocket expenses 406,994 12,847 12,891 Professional fees 893,795 6,763 11,438 Subscription tax 204,717 6,504 6,517

Total Accrued Expenses 25,682,745 887,431 873,844

Note 9 - Statement of changes in the investment portfolio

The statement of changes in the investment portfolio for the period ended June 30, 2006 for each Sub-Fund is available free of charge at the Registered Office of the Company.