HALF YEAR REPORT · SKAGEN FUNDS HALF YEARREPORT | 2015 5 Portfolio managers´ report Introduction > SKAGEN equity funds returned 3-10% in the first of half 2015, measured in euro

NEW OPPORTUNITIES ON THE HORIZONJULY 2015 | www.skagenfunds.com

THE ARTOF COMMON

SENSE

HALF YEAR REPORT

2 SKAGEN FUNDS HALF YEAR REPORT | 2015

LEADER

In an increasingly globalised world, there is more pressure than ever on fund managers to react to events and quickly turn around their investment portfolios.

The alternatives seem to be either to chase the current events or simply to give up and buy an index fund. In our view, however, chasing the best markets, such as China, or giving up will not allow you create the best returns over time.

The well-known value investor, Warren Buf-fett, once observed that: “The stock market is a device for transferring wealth from the impatient to the patient”. His words seem to hold true more than ever now that the markets have entered a period in which value and company focus is in such short supply.

In a recent report on active and passive inves-ting, the fund research company Morningstar concluded that value management has a greater chance of long-term success than other types of active management. We are in no doubt that common sense; coupled with an applied value focus and stock picking form the best premise for creating excess returns over time, as it has in the past.

At times, it may seem as though the opposite

is true, however, and this can give rise to a period of reflection and soul searching, also in SKAGEN.

Our recently appointed Investment Director, Ole Søeberg, has spent some time this spring looking at the investment process and has made a few refinements that will strengthen the internal processes. In the long run, however, it is still the operations in a company and how much one pays for these that create the value and cause the share price of the company to increase. That is an important point to remember now as we enter the second half of 2015.

The rest of the year may well be an exciting period with a potential interest rate hike in the US and new economic developments in many emerging markets and Europe, amongst other things. In the short term, the return of all our equity funds may be influenced more by fluctu-ations than what the companies actually deliver.

The valuation of many emerging market com-panies is now attractive compared with those in developed markets and an improvement in global economic growth should improve earnings pro-spects for companies in many of these countries.

We wish you a pleasant summer.

Patience and lessons learned NEW EQUITY

FUND

I would like to highlight the successful launch of our new global equity fund in the quarter. SKAGEN Focus is a high concentration fund with around 35 core holdings. The portfolio managers apply the same investment policy as our other funds, investing in undervalued, under-resear-ched and unpopular compa-nies. They have a bottom-up perspective and concentrate on specific companies and their intrinsic value. Being benchmark-agnostic, their investment decisions will be made independently of the benchmark index, with the aim of generating superior returns over time.

The portfolio may have a relative bias towards mid-sized companies, given the portfo-lio managers´ experience of finding attractive investment opportunities among such companies. You can find out more at www.skagenfunds.com/focus and read the port-folio managers´ first report on the fund on page 27 of this report.

– Leif Ola RødCEO

3SKAGEN FUNDS HALF YEAR REPORT | 2015

CONTENT

LEADERPatience and lessons learned > 2Leif Ola Rød

PORTFOLIO MANAGERS´ REPORT

INTRODUCTIONHow to spend it? > 5Corporate cash piles have increased significantly in the past five years, but what should management do with the money?

EQUITY FUNDSSKAGEN Vekst > 10Slight improvement

SKAGEN Global > 14Uphill struggle

SKAGEN Kon-Tiki > 18Staying the course

SKAGEN m² > 23Rainy quarter

SKAGEN Focus > 27Hunting for exceptional investments

FIXED INCOME FUNDSFixed income comment > 31Long-term interest rates: up, sideways or down?

SKAGEN Tellus > 32Headwinds

SKAGEN Credit > 34Unrest creates opportunities

FINANCIAL STATEMENTHalf year accounts > 36

Return and risk measurements > 39

SKAGEN seeks to the best of its ability to ensure thatall information given in this report is correct, however, makes reservations regarding possible errorsand omissions. Statements in the report re-flect theportfolio managers’ viewpoint at a given time, andthis viewpoint may be changed without notice. The report should not be perceived as an offer orrecommendation to buy or sell financial in-struments. SKAGEN does not assume respon-sibility for direct or indirect loss or expenses incurredthrough use or understanding of the re-port. SKAGEN recommends that anyone wishing to invest in our funds contacts a qualified custo-mer adviser by telephone on +47 51 80 37 09 or by email at [email protected].

Bonheur/Ganger Rolf must now be seen more as a company within renewable energy that also has an option on a future improvement in the rig market.

Portfolio managers Filip Weintraub and Jonas Edholm of the newly launched SKAGEN Focus that makes its debut in the Market Report

10

27

Phot

os:

Blo

omb

erg

Corporate bond fund SKAGEN Credit has bought bonds in INEOS, one of the world’s largest petrochemical companies. Pictured here are granules manufactured at their facility in Cologne.

34


SKAGEN FUNDS

Equity Fund Fixed Income Fund

The following tables show the returns for SKAGEN’s funds versus their respective benchmarks in euro. The figures are updated as of 30.06.2015

Returns

SKAGEN GLOBAL

SKAGEN FOCUS

SKAGEN Global

-5

0

5

10

15

20

15.2%

4.3%

MSCI All Country World Index (Daily Traded Net Total Return)*-5

0

5

10

15

20

25 24.0%

10.2%

SKAGEN Focus

-5

-10

0

5

10

-4.7%

-7.6%

MSCI All Country World Index

Lead manager: Knut Gezelius Start: 7 August 1997

Lead manager: Filip Weintraub Start: 26 May 2015

* The benchmark index prior to 1/1/2010 was the MSCI World Index

* Since inception on 26 May 2015

Return past 12 months Average annual return since start

SKAGEN CREDIT EUR

SKAGEN Credit EUR 3 Month EURIBOR

-5

0

5

10

15

-5

0

5

10

15

-0.1% 0.1%

-0.2%

0.1%

Lead manager: Ola Sjöstrand Start: 30 May 2014

SKAGEN KON-TIKI

SKAGEN Kon-Tiki MSCI Emerging Markets Index

2.0%

16.5%

-5

0

5

10

15

20

-5

0

5

10

15

20

14.8%

8.6%

Lead managers: Kristoffer Stensrud and Knut Harald Nilsson Start: 5 April 2002


SKAGEN m²

SKAGEN m² MSCI All Country World Index Real Estate IMI

16.2%

-5

0

5

10

15

20

-5

0

5

10

15

20

25

7.6%

13.7%

24.7%

Lead managers: Michael Gobitscheck and Harald Haukås Start: 31 October


SKAGEN TELLUS

SKAGEN Tellus J.P.Morgan Broad Index Unhedged (EUR)*

-5

0

5

10

15

20

-5

0

5

10

15

20

5.9%5.0%

7.0%

13.4%

Lead manager: Torgeir Høien Start: 29 September 2006

* The benchmark index prior to 1/1/2013 was Barclay’s Capital Global Treasury Index 3-5 years.

Return past 12 monthsReturn past 12 months Average annual return since startAverage annual return since start

SKAGEN VEKST

SKAGEN Vekst MSCI Nordic/MSCI AC ex Nordic

0

5

10

15

20

0

5

10

15

20

14.4%

10.3%

18.8%

4.4%

Lead managers: Ole Søeberg and Geir Tjetland Start: 1 December 1993


* Effective 1/1/2014, the fund’s investment mandate changed. Read more on page 13.The benchmark index prior to 1/1/2010 was the Oslo Stock Exchange Benchmark Index (OSEBX).

Unless otherwise stated, all performance data in this report is in euro, relates to class A units and is net of fees.

Return since start*


Portfolio managers´ report

Introduction> SKAGEN equity funds returned 3-10% in the

first of half 2015, measured in euro. Our bond funds delivered 1.5-2.5%.

> 10-year government bond yields spiked up-wards in 2Q 2015 from abnormally low levels.

> M&A activity has been heady in 2015 and could beat the previous annual record set in 2007.

> Global equities are up 3% year to date in USD. The Chinese stock market rose sharply hitting a total market cap of over USD 10 trillion (10,000bn), despite lower economic growth, before falling back again. The US market is USD 25 trillion and the total global market is USD 73 trillion.

Greek tragedy. Greece has failed to adapt to the new reality of prudent financial management needed in the post financial crisis era. Pictured: queues outside Bank of Greece, Athens.

USA. After 9 consecutive positive quarters, the S&P index fell by 0.2% in the quarter. SKAGEN Global continues to be strongly underweight US equities which currently consti-tutes 36% of the fund.

Volatility. Chinese local shares stood out as a positive in the second quarter, with a 28% increase. The frothy valuations reversed somewhat at the end of the quarter. Pictured: a display showing the Hang Seng Index figure in Hong Kong. On 8 July 2015, the benchmark plunged the most since the global financial crisis rippled across Asia.

Phot

o: B

loom

berg

Phot

o: B

loom

berg

Phot

o: B

loom

berg

Phot

o: B

loom

berg


How to spend it?Corporate cash piles have increased significantly in the past five years, but what should management do with the money?

PORTFOLIO MANAGERS´ REPORT

Seven years ago, the financial crisis chang-ed market behaviour overnight. The hou-sing bubble burst, M&A activity dried up and financial assets plummeted in value. Companies were suddenly compelled to rethink their liquidity and balance sheet strategy amid a squeeze on lending. Banks too had to rebuild capital and their own balance sheets. Fortunately, lower global interest rates made it possible for many companies to re-finance their debt on better terms, often stabilising and even improving cash flows.

Since then, the global economy has chugged along at a decent, if not impres-sive, pace and companies have changed the way they use their cash. Some firms and regions, such as Greece, have failed to adapt to the new reality, but broadly speaking prudent financial management has been the order of the day.

Since 2012, we have seen cash flows that were previously used to reduce net debt or held in reserve being redirected towards three main areas (or a mix of the-se): dividends and stock buybacks; acqui-sitions (M&A) and investments into impro-

ving competitiveness and market share.Taking a global view and using the

MSCI AC World Index as a proxy, the 2,500 most widely followed global companies are on track to generate USD 32 trillion of revenues in FY 2015, equivalent to app-roximately 40% of global GDP, and USD 3 trillion of net income.

Dividends and share buybacksThe proportion of this net income distri-buted to shareholders via dividends takes USD 1.2 trillion out of the total cash pile, excluding the impact of cross holdings. Company share buybacks account for a further USD 700bn, based on estimates

using the 2014 figure for US companies (USD 550bn) among which buybacks are most common.

Once the shares have been bought, we would prefer that they were cancel-led to avoid diluting long-term share-holders. Unfortunately some companies keep them to sell later on or give them to employees who then sell them back into the market.

Mergers and acquisitions (M&A)Company cash can also be spent on growing a business, typically by investing in new plants, upgrading facilities or deve-loping a new product or service. However, it takes time for the benefits of this invest-ment to materialise. So it can be quicker to buy another company that seems to offer the sort of transformation that is required. However, any type of M&A and investment should only be undertaken if it adds value, i.e. generates a higher return than the cost of the capital invested plus the “risk-free” rate (often the rate of interest from govern-ment bonds).

Since 2012, cash has increasingly been

MSCI WORLD AC INDEX

2009, trl $ 2015, trl $

Revenues 27 32

Net Income 1.4 2.9

Dividend 0.8 1.2

Market Cap 32 47

– Ole SøebergChief Investment Of f icer


used to finance M&A. The previous high was 2007 when total deal value reached USD 4.2 trillion (see Bloomberg data below). In the first half of 2015, the total value was USD 2.5 trillion, meaning this year is likely to reach or exceed the previous record – good news for investment bankers and lawyers.In addition to corporate bidders, we have also seen activity from a large pool of

private equity players. The graph below shows global M&A activity since 2003. It is interesting to note that the more bullish periods in the stock market coincide with periods of high M&A activity.

It is also worth noting that as private equity firms exit from companies via stock market listings (known as initial public offe-rings or IPOs) they tend to recycle it back into other M&A. This in turn creates more

competition for assets and pushes prices up. In the past 10 years, IPO and secondary deal activity has been running at between USD 0.6 and 0.9 trillion a year. Here too it appears that 2015 is on track for a record breaking year.

Investing in the businessShare prices have increased a lot in recent years, so it is harder to buy a company that can add value. Hence, you might expect investment in business and research and development (R&D) would be the prefer-red option for enhancing a company’s value. This has been a lower priority for many companies since the financial cri-sis, however, initially due to a need to strengthen their finances and later to an increasingly short-term attitude by the market towards results. In our view, a good management team making the right invest-ment in organic growth typically creates the most long-term value.

Given the recent increases in IPOs and M&A, we sense a lowering of the caveat emptor principle (i.e. taking pro-per account of the risks involved) and the

0

1

2

3

4

5

6

0

5

10

15

20

25

30

Trillion $ Thousands

Source: Bloomberg Finance L.P.Volume Deal count

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

*Year to date

GLOBAL M&A ACTIVITY SINCE 2003


use of more aggressive tactics – factors that have historically led to an increase in overall risk. A McKinsey survey showed that corporate M&A is most successful when executed during tough economic conditions, which often coincide with bear markets and inexpensive asset pri-ces, as you might expect. Why then do those engaged in corporate activity not learn from past experience and tread with caution in years such as 2007 and 2015?

Animal spiritsSo-called ‘animal spirits’ may be one rea-son. Human behaviour is driven by recent experience. After five or six years of a bull market, many investors feel they are finan-cial geniuses, as do listed companies that have seen their stock multiply.

In this sort of environment, we prefer to stand back from the noise and take a long-term view. The pace of global economic growth and inflation levels suggest that interest rates will remain relatively modest,

so the returns available from deposits and government bonds compared to equities would continue to favour equities. That is unchanged over the last five years, but the equity advantage has reduced as stock pri-ces have increased.

Nonetheless, we continue to find pock-ets of value among businesses that have been overlooked. These sorts of companies tend to stick to their knitting and let others do M&A at frothy valuations. They also tend to apply common sense when considering how best to invest their cash. Given the cost of financing is likely to remain lower for long-er, we could start to see more spending on R&D and infrastructure. This in turn would broaden economic expansion and increase global growth, rather than simply adding to share valuations, and create favourable conditions for many of our holdings.

85

80

90

95

100

105

110

%

85

80

90

95

100

105

110

%

Source: OECD Economic Outlook 97 databaseTotal real investment Real GDP

2000 2002 2004 2006 2008 2010 2012 2014

INVESTMENT HARDER-HIT BY THE CRISIS THAN GDP IN OECD


Germany has stood out as a negative with a 9% decline in euro terms as a stronger cur-rency has led to a decrease in competitiveness and a market correction, following a 20% rally in the first quarter.

Chinese local shares have stood out as a positive, with a 14% increase in the second quarter. The valuations of many Chinese companies now appear frothy and we have already seen some reversal.

In the West, stock valuations continue to offer 6.0% earnings yield, but we note that 10-year bond rates have moved upwards. In order for bonds to compete with equities in yield terms we need to see 10-year bond rates move closer to 3.0%. The current level is 0.9% in Germany, 2.3% in US and 0.4% in Japan.

Emerging markets are valued 2 percentage points higher with an earnings yield of 8.2% and therefore offer a fairly rich risk premium to developed markets.

second quarter pit stop– more or less as planned

Global equities were flat in the period in USD and the year-to-date performance is 3%. We began 2015 with an 8%-10% expectation for annual equity returns, so things are going more or less as planned.

SKAGEN portfolio managers always strive to achieve the best possible absolute and risk-adjusted returns. However, since summer 2014, when the US dollar started to strengthen and a few weeks later the oil price began to fall, our equity funds have lagged their benchmark indices. This has been mostly due to their lower exposure to US dollar assets and higher exposure to emerging markets that tend to be more driven by commodity prices. Although we are disappointed by this relative underper-formance, as long term investors, we feel it is crucial not to fall into the trap of chasing shorter term macro movements in financial markets.

Instead, we prefer to adhere to our proven investment philosophy and common sense approach, which has generated substantial returns over time, while also taking steps to review everything we do and making sure we improve where we can. The result of this review has been a honing of our investment process in order to optimise each step. We believe this greater focus on methodology and the lessons learned from past investment decisions (positive and negative) will lead to superior performance in future.

Long term bond yields have incre-ased by 40 to 70 basis points, but nevertheless remain at levels that should continue to support econo-mic activity

Energy prices have rebounded by 15%-20%, but other commodities have fallen slightly

Global economic growth is on track to reach 3.5% and the direc-tion of travel is similar to that in first quarter: America and Asia have been slightly weaker and Europe slightly stronger


SKAGEN Vekst lost 2.4% while the benchmark index fell 3.8%, measured in euro. Year to date SKAGEN Vekst has gained 6.6% versus the index which is up 13.2%. In general the European markets performed fairly poorly in the quarter while Japan, Hong Kong and the US performed somewhat better. In Scandinavia, Sweden and Finland were weak while Denmark and Norway were more or less flat.

During the quarter the fund exited Nokian Tyres, Toto, Novo Nordisk, Stolt Nielsen and Sparebanken Øst. We reached our price target in all of these companies and see better return potential in other companies going forward. We also exited Toshiba after the Japanese company announced accounting irregularities (see separate section below). The remainder of Bank Norwegian was also sold out of the portfolio in the second quarter. In total we earned 7.5 times our initial investment bought just before the global financial crisis. In hindsight, we started to reduce the position slightly pre-maturely, but are satisfied with the final result. We sold a large part of our position in Royal Unibrew as we prefer the pricing of our other Danish brewer, Carlsberg.

There are several newcomers in the portfolio, the largest being Credit Suisse (see details below). We also bought smaller positions in Danish companies Solar and H Lundbeck AS as well as Swedish Elekta. The bulk shipping company, Golden Ocean Group, is also new following a spin-off from Frontline 2012. In general we have con-tinued to concentrate the portfolio and the proceeds from this have largely gone into increasing the size of the fund’s largest holdings. The 10 and 35 largest holdings now account for 52% and 91% of the portfolio, respectively.

At the end of the first half year, the 35 largest positions in the SKAGEN Vekst port-folio are priced at 11 times this year’s underlying earnings versus 15 times for the benchmark. Measured in book value, the portfolio also trades at a substantial discount to the benchmark index. We should therefore be well positioned for the rest of 2015 despite the potential disruption to markets from macroeconomic factors.

Slight improvementSKAGEN Vekst beat its benchmark index in the second quarter.

Phot

o: B

loom

berg

SKAGEN VekstExploring the narrow path to

prosperity

> Better developments in the US and Japan than Europe

> Continuing to concentrate the portfolio

> Several investments reached price target and were sold

Fund start date 1 December 1993

Return since start 1 713,51%

AUM EUR 938 million

Number of unitholders 72 165

PERFORMANCE IN EUR 2Q 15* 12 M*

SKAGEN Vekst -2,4 % 4,4%

MSCI Nordic/MSCI AC ex. Nordic

-3,8 % 18,8%

* As of 30 June 2015

PORTFOLIO MANAGERS

Geir Tjetland, Ole Søeberg, Erik Bergöö and Alexander Stensrud*

* Junior manager

1 2 3 4 RISK 6 7

Beach cyclists. 1894. Detail. By Einar Hein, one of the Skagen painters. This image belongs to the Skagens Museum (cropped).

Bonheur/Ganger Rolf must now be seen more as a company within renewable energy that also has an option on a future improvement in the rig market.


SKAGEN VEKST 2Q 2015 (MILL NOK)

5 largest contributorsNorwegian Air Shuttle ASA 133Lundin Petroleum AB 44Danske Bank A/S 30Carlsberg AS-B 22Golar LNG Ltd 20

5 largest detractorsNorsk Hydro ASA -118Samsung Electronics Co Ltd Pref -86Toshiba Corp -62AirAsia Bhd -52Casino Guichard Perrachon SA -30

5 largest purchasesCredit Suisse Group AG 134 Kinnevik Investment AB-B 66 Carlsberg AS-B 50 Kia Motors Corporation 45 Elekta AB - B shs 43

5 largest salesToshiba Corp -159 Nokian Renkaat OYJ -80 Toto Ltd -72 Novo Nordisk A/S-B -65 Norwegian Finans Holding ASA -46

HISTORICAL PRICE DEVELOPMENT SKAGEN VEKST

Continued upsideLundin Petroleum has so far been an extremely good investment for the fund, particularly given the fall in oil price that has taken place while we have held the position. The company recently announced that their long-standing CEO, Ashley Hep-penstall, will step down but will continue to sit on the company’s board. The new man at the helm, Alex Schneiter, has been in the Lundin system since 1993. Schneiter was the favourite to take the reins from Heppenstall and we do not anticipate any change in direction for the company. We are primarily invested in Lundin Petroleum due to its 22% stake in the Johan Sverdrup field. We calculate a price per Sverdrup barrel of USD 9 and therefore see signifi-cant upside for the share.

Increased profitabilityCredit Suisse is a newcomer in the portfo-lio. The bank, which is the second largest in Switzerland, has long struggled with poor profitability and is among the worst in Europe measured by cost/income ratio. The bank has hired a new CEO, Tidjane Thi-am, who started in June. We believe that Thiam will launch a cost cutting initiative that will substantially improve the bank’s profitability. A reduction in the cost/inco-me ratio from the current 85% to a more moderate 65% should be attainable and in turn increase the return on net capital from 7-8% to 15-20%. When this happens – some time over the coming years – the bank should be priced at 1.5-2 times book value which would double the current sha-re price to CHF 45-50.

Best despite strikeNorwegian was by far the best contributor to the fund in Q2. At the start of the quarter there was a great deal of commotion due to the strike in late winter. The company pro-ved yet again that they are capable of dealing with any fallout and passengers quickly returned after the turbulence. Our earlier doubts about Norwegian’s long-haul initiatives are being laid to rest. It now appears as though the long-haul part of the company will account for much of the future growth. Norwegian has its operations in order, but some political obstacles continue to impede developments. The company recently announced that it is starting up routes from three US cities to the Caribbean. This will bring the number of Norwegian’s direct routes from the US up to 31 (of which seven depart from New York), making it the largest foreign airline company operating out of New York measured by the number of destinations. We like the company’s operational ambitions and await the value creation that will arise from the leasing company’s activities.

ON THE ONE HAND ...

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

SKAGEN Vekst

MSCI Nordic/MSCI AC ex. Nordic*

09 10 11 12 13 1410

20

40

80

1 60

2 40

1510

20

40

80

1 60

2 40


ON THE OTHER HAND ...

New assessmentOur investments in Bonheur/Ganger Rolf have disappointed in the last couple of years. We underestimated the collapse in the rig market, which had a significant impact on Fred Olsen Energy, which used to be the companies’ main asset. The discount to NAV in this holding company has been huge though, and is the main reason why we kept it in the portfolio. An announcement made in late June, however, is a game changer when it comes to the valuation of the companies: TRIG (The Renewables Infrastructure Group Limited) acquired 49% of Fred Olsen Wind Limi-ted (50/50 owned by BON/GRO). TRIG is buying into a company with 433 MW of installed windmill capacity. In this trans-action FOWL is priced at NOK 9.3bn, and Bonheur alone will receive NOK 2.2bn in cash, corresponding to NOK 50 per share versus today’s share price of approximate-ly NOK 60. In addition, they get substantial value in the form of renewable energy, offshore, cruise and property, amongst other things. This is perhaps proof that the stock market is not efficient, since all the focus has been on a lamentable rig market while all the other values in the company have been overlooked. Bonheur/Ganger Rolf must now be seen more as a company within renewable energy which also has an option on the future improvement in the rig market. It may also be time for the stock market to revise its view that the Olsen family does not create long-term value.

Accounting woesAir Asia s share price was sent into a tailspin after an extremely negative ana-lyst report from GMT Research. The report accuses Air Asia of milking transactions with its money-losing associates in the Philippines and Indonesia, such as plane leasing and maintenance deals, to boost the parent company’s operating cash flow. As the associates are currently unable to pay their bills to the parent company, Air Asia is extending significant capital to them – essentially gearing up – and funding its own profit and operating cash flow, the report said.

Air Asia states that both associates will be able to pay their bills during the course of the year. The company is also working to raise new capital of USD 100 million for

each associate, both of which are planned to be listed in 2017.

We do not see any difference between the current situation and a similar situation when they established Air Asia Thailand a few years ago. At that time net gearing was more than 4 versus the current 2.5. Air Asia is confident it can bring net gearing down to 2 by year end.

If it turns out that the above-mentioned associates are not in a position to pay their bills, however, and Air Asia has to do a full impairment of total receivables, the company will still have value in the form of 128 owned planes which will exceed the net debt by a considerable margin. We choose to maintain our position in the company and see a consi-derable upside when the associates in Indo-nesia and the Philippines turn profitable.

Irregularities foundAt the start of April, Toshiba announced that they had discovered improper accounting on infrastructure projects from 2013. In May the company announced that, as a result of this, they would withdraw the financial statement for the previous year and not pay a year-end dividend. A committee was assigned to further investigate the case. It appears as though these accounting irregularities may also apply to divisions other than infrastructure and operations accounting for more than 10% of Toshiba’s turnover are impacted. We chose to exit the position on these announcements and realised a total negative return of NOK 16 million. The outcome remains to be seen, but our fear is that the problem is more widespread than it first appears.

Toshiba’s CEO Hisao Tanaka at a press conference where he announced that the company has set up a committee to investi-gate allegations of improper accounting.

Phot

o: B

loom

berg

SKAGEN VEKST KEY NUMBERS FOR THE LARGEST HOLDINGS (AS OF 30-06-2015)

Company Holding size Price P/E 2015E P/E 2016E P/BV last Price target

Samsung Electronics 7,0% 993 000 5,8 5,9 0,9 1 500 000

Norwegian Air Shuttle 6,2% 325 10,5 8,6 5,4 340

Continental AG 6,1% 213 13,7 11,9 4,0 275

Norsk Hydro 5,8% 33,1 9,4 8,3 0,9 57,5

Citigroup 5,2% 55 9,2 8,0 0,8 75

Teliasonera AB 5,0% 49 12,4 12,2 1,9 70

Danske Bank A/S 4,8% 197 11,7 11,5 1,3 205

Carlsberg 4,5% 608 16,0 13,5 1,8 750

ABB 4,2% 174 14,4 12,4 3,1 250

Kia Motors 3,6% 45300 6,3 6,1 0,8 75000

Weighted top 10 52 % 9,7 8,9 1,4 37 %Weighted top 35 91 % 10,8 9,3 1,3 47 %Benchmark index 15,2 13,8 2,3

P/E may deviate from other sources when based on SKAGEN estimates.

SKAGEN VEKST


SECURITIES PORTFOLIO SKAGEN VEKST AS OF 30 JUNE 2015

Security NumberAcquistion

value NOK * Market-

value NOK*Unrealisedgain/loss *

Share of fund

Stock exchange

Lundin Petroleum AB 1 800 000 177 336 243 572 66 236 2,96% Stockholm

Ganger Rolf ASA 1 213 817 124 262 78 898 -45 364 0,96% Oslo Børs

Bonheur ASA 1 192 594 88 117 76 326 -11 791 0,93% Oslo Børs

Solstad Offshore ASA 2 052 746 102 753 71 230 -31 523 0,87% Oslo Børs

GCL-Poly Energy Holdings Ltd 30 000 000 59 320 54 307 -5 013 0,66% Hong Kong

Rec Silicon ASA 32 000 000 47 398 53 888 6 490 0,65% Oslo Børs

DOF ASA 5 762 213 110 022 34 573 -75 448 0,42% Oslo Børs

Minor items 256 220 41 807 -214 413 0,51%Total Energy 965 429 654 602 -310 827 7,96%

Norsk Hydro ASA 14 542 679 373 563 480 636 107 072 5,84% Oslo Børs

Kemira OYJ 850 000 81 883 76 473 -5 411 0,93% Helsinki

OCI Co Ltd 39 000 33 003 24 618 -8 384 0,30% Seoul

Minor items 20 776 18 601 -2 175 0,23%Total Raw materials 509 225 600 327 91 102 7,30%

Norwegian Air Shuttle ASA 1 561 410 124 109 507 302 383 193 6,17% Oslo Børs

ABB Ltd 2 070 000 289 197 343 206 54 010 4,17% Stockholm

Koninklijke Philips NV 1 379 643 279 529 277 282 -2 248 3,37% Amsterdam

Wilh. Wilhelmsen Holding ASA 874 858 62 479 149 163 86 685 1,81% Oslo Børs

FLSmidth & Co A/S 311 000 104 468 117 743 13 275 1,43% Copenhagen

AirAsia Bhd 27 960 000 142 496 89 467 -53 030 1,09% Kuala Lumpur

Golar LNG Ltd 190 000 58 722 70 327 11 605 0,85% NASDAQ

Solar AS - B Shs 104 000 40 099 44 557 4 458 0,54% Copenhagen

Frontline 2012 Ltd 1 000 000 41 502 41 000 -502 0,50% Unlisted

Danieli & Officine Meccaniche SpA 312 962 41 406 37 515 -3 891 0,46% Italy

YIT Oyj 550 125 32 137 31 114 -1 023 0,38% Helsinki

Goodtech ASA 2 055 949 46 750 25 288 -21 462 0,31% Oslo Børs

Minor items 61 826 28 590 -33 237 0,35%Total Industrials 1 324 721 1 762 554 437 833 21,42%

Continental AG 269 250 149 278 502 657 353 379 6,11% Frankfurt

Kia Motors Corporation 932 000 285 845 296 120 10 275 3,60% Seoul

Volvo AB 2 590 000 219 106 253 325 34 219 3,08% Stockholm

Nippon Seiki Co Ltd 273 000 28 148 42 617 14 470 0,52% Tokyo

Minor items 33 138 9 057 -24 080 0,11%Total Consumer discretionary 715 513 1 103 776 388 263 13,42%

Carlsberg AS-B 518 000 323 926 369 576 45 650 4,49% Copenhagen

Casino Guichard Perrachon SA 352 100 240 762 211 246 -29 516 2,57% Paris

Oriflame Cosmetics AG 828 912 107 386 103 902 -3 484 1,26% Stockholm

Sodastream International Ltd 365 000 82 946 61 472 -21 474 0,75% NASDAQ

Yazicilar Holding AS 689 169 23 544 41 583 18 039 0,51% Istanbul

Minor items 15 631 17 590 1 959 0,21%

Total Consumer staples 794 196 805 370 11 174 9,79%

Roche Holding AG-Genusschein 80 198 173 752 177 914 4 162 2,16% Zürich

Medi-Stim ASA 1 465 625 18 313 56 133 37 820 0,68% Oslo Børs

Elekta AB - B shs 800 000 42 984 39 731 -3 253 0,48% Stockholm

Photocure ASA 626 466 25 235 22 803 -2 432 0,28% Oslo Børs

Minor items 22 672 20 501 -2 170 0,25%

Total Health 282 956 317 083 34 127 3,85%

Citigroup Inc 983 800 352 249 425 054 72 805 5,17% New York

Danske Bank A/S 1 710 000 198 532 395 756 197 224 4,81% Copenhagen

Credit Suisse Group AG 638 556 131 314 138 754 7 440 1,69% Zürich

SBI Holdings Inc 1 139 000 96 634 123 164 26 530 1,50% Tokyo

Tribona AB 2 851 004 94 342 103 419 9 078 1,26% Stockholm

Sberbank of Russia Pref 9 620 000 139 234 64 980 -74 254 0,79% Moscow

Hitecvision AS 793 668 7 193 53 176 45 982 0,65% Unlisted

Korean Reinsurance Co 600 000 20 468 51 762 31 293 0,63% Seoul

Raiffeisen Bank International AG 305 054 68 721 35 042 -33 679 0,43% Vienna

Total Finance 1 108 688 1 391 107 282 418 16,91%

Samsung Electronics Co Ltd Pref 82 850 494 978 577 026 82 047 7,01% Seoul

SAP SE 497 100 212 798 274 048 61 251 3,33% Frankfurt

PSI Group ASA 3 796 612 43 431 32 081 -11 349 0,39% Oslo Børs

Minor items 22 682 20 099 -2 583 0,24%

Total IT 773 889 903 255 129 366 10,98%

Teliasonera AB 8 900 000 408 471 413 952 5 481 5,03% Stockholm

Kinnevik Investment AB-B 736 009 169 794 184 164 14 370 2,24% Stockholm

Total Telecom 578 265 598 115 19 851 7,27%

Total equity portfolio* 7 052 882 8 136 190 1 083 308 98,89%Disposable liquidity 91 298 1,11%

Total share capital 8 227 489 100,00%

Base price as of 30-06-2015 1 948,6041

* Figures in 1 000 NOK.

SECTOR DISTRIBUTION

GEOGRAPHICAL DISTRIBUTION

Telecom 7,3%

Industrials21,4%

Energy 8,0%

Consumerdiscretionary13,4%

Raw materials 7,3%

Consumerstaples

9,8%

IT 11,0%

Cash 1,1%

Finance 16,9%

Health 3,9%

Japan 2,0%

Nordic 55,4%

Peripeheral EU 3,9%

North America 6,8%

Asia exJapan

13,3%

Eurozone16,3%

Cash 1,1%

EMEA 1,3%

See the portolio in its entirety at www.skagenfunds.com/vekst-portfolio

Effective 1/1/2014, the fund’s investment manda-te changed from investing a minimum of 50% of its assets in Norway to investing a minimum of 50% of its assets in the Nordic countries. This means that returns prior to the change were achieved under dif-ferent circumstances than they are today. The fund’s benchmark index prior to 1/1/2014 was an evenly composed benchmark index consisting of the Oslo Stock Exchange Benchmark Index (OSEBX) and the MSCI All Country World. The benchmark index prior to 1/1/2010 was the Oslo Stock Exchange Bench-mark Index (OSEBX).


This bodes well for the future as the fund has a relatively high, but well-diversified exposure to global companies within the banking, insurance and real estate sector.

On a macro level, the stock exchange climate in the US was dominated by speculation around the next interest rate hike by the Federal Reserve. After nine consecutive quarters of positive returns, the broad-based S&P 500 market index fell by 0.2% in the quarter. Weak economic data for the first quarter was attributed to an unusually hard winter. Despite better employment figures from the US in the second quarter, the strength of the economic recovery remains unclear. Our view remains that the US stock market appears relatively fully valued, and the fund has maintained its underweight in the US, which currently amounts to 19% of the fund.

Following the stock exchange jubilation in the first quarter, the red return figures spread to the European SXXP index, which declined 4.0% in the second quarter. An unexpec-ted rise in interest rates from record lows in Germany in addition to renewed concerns around the possibility of a Greek default at the end of June dampened the enthusiasm.

The best and the worstThe fund’s holdings in the US financial giants, Citigroup and AIG, were among the top positive contributors in the quarter. The market is finally starting to open its eyes to the operational improvements that we have long since predicted. In addition, the huge potential for capital repayment via buybacks and dividends – another of our price-driving arguments – is becoming increasingly clear to other market participants.

Samsung Electronics fell by 10% and was clearly the largest detractor from the fund’s performance in the quarter. The market disregarded the improvement in profits from mobile phones and semiconductors since the previous quarter, as expectations had dislocated from reality. We believe that the long-term outlook is still good and the valuation is particularly attractive at present. Another company that is once again on the losing side is Norsk Hydro which has declined around 30% since the peak in winter due to a downturn in the aluminium market. We believe that the market has overreacted in this case and, thanks to a strong balance sheet, we think there is a good possibility for

Uphill struggle for emerging markets and commoditiesThe negative return in the second quarter was mainly due to the weak performance of several of the fund’s emerging markets companies as well as headwinds for the commodities segment. On the other hand, several of the holdings within the financial sector contributed positively.

SKAGEN GLOBAL 2Q 2015 (MILL NOK)

5 largest contributorsAmerican International Group Inc 198Cheung Kong Property Holdings Ltd 152Citigroup Inc 134General Electric Co 94Lundin Petroleum AB 71

5 largest detractorsSamsung Electronics Co Ltd Pref -317General Motors Co -138Norsk Hydro ASA -132Tyco International Plc -97Tata Motors Ltd-A- DVR -94

5 largest purchasesGoogle Inc CLASS C 474 Tyson Foods Inc 393 Carlsberg AS-B 314 Haci Omer Sabanci Holding AS 203 CK Hutchison Holdings Ltd 180

5 largest salesCitigroup Inc -626 American International Group Inc -280 Lenovo Group Ltd -276 Technip SA -259 Volvo AB -239

SKAGEN GlobalA world of opportunities

> Performance hurt by weak emerging markets and headwinds for Samsung Electronics and commodities

> Citigroup and AIG among the best contributors

> The portfolio trades at an attractive discount to the world index

Fund start date 7 August 1997

Return since start 1154,25%

AUM EUR 4 018 million



SKAGEN Global -3,7% 10,2%

MSCI ACWI -3,5% 24,0%

* As of 30 June 2015.

PORTFOLIO MANAGERS

Knut Gezelius, Søren Milo Christensen and Chris-Tommy Simonsen

From the moor north of Skagen, 1885. Detail. By P.S. Krøyer, one of the Skagen painters (cropped).

1 2 3 4 RISK 6 7


higher dividends to shareholders. The fund bought three new companies

and exited four in the quarter, bringing the number of holdings in the portfolio to 59. The new companies are Tyson Foods, Sabanci Holding and Cheung Kong Property Holding.

From protein to pre-packaged foodUS Tyson Foods, established in 1935 and with a market capitalisation of USD 17 bil-lion, is one of the world’s largest producers of chicken and beef. Under the leadership of CEO Donnie Smith, Tyson Foods acqui-red food producer Hillshire Brands for USD eight billion last year. The purpose of the acquisition was to strategically reposition Tyson Foods, from being a cyclical protein manufacturer to a stable food producer, whereby pre-packaged food represents a larger share of sales. We estimate that pre-packaged food will constitute nearly 40% of the profits by as early as 2017, a marked increase from 15% in 2014. Meat production is a cyclical market with relati-vely small margins, which means that pure meat producers trade at a P/E of around 10. Pre-packaged food has higher margins

and less volatile cash flows. Food manu-facturers specialised in pre-packaged food therefore enjoy twice as high P/E multiples as protein manufacturers.

We think that the P/E of the stock will be revised upwards as Tyson Foods makes the transition from protein manufacturer to food producer. The market has not yet priced in a multiple expansion. We cannot predict precisely when this will happen, but we consider it likely that it will happen in the next couple of years. As long-term inve-stors we have the opportunity to buy at an attractive price and get paid dividends whi-le we wait for the appreciation. In addition, the impending structural shift in American eating habits will be favourable for Tyson Foods. The obesity epidemic in the US has reached alarming levels and has prompted the government to publish new consumer directives explicitly recommending more protein and less sugar in food.

With this in mind, it is possible that the market also underestimates the company’s long-term earnings potential. Time will tell whether Tyson Foods will be a feather in SKAGEN Global’s cap.

Sabanci HoldingWe have followed the adage “buy low, sell high” and brought the Turkish cong-lomerate Sabanci Holding back into the SKAGEN Global portfolio. Regular readers may recollect that SKAGEN Global divested Sabanci Holding in the fourth quarter of 2014. Since then the share price has fallen by 15% and the total return has lagged the index by around 25%, mainly due to market turbulence related to the Turkish elections. The fall in share price has given us an opportunity to buy into the company again at an attractive valuation.

The family-controlled conglomerate has historically been good at allocating capi-tal, as illustrated by an average return on equity of 16% for the underlying assets (with the exception of the energy segment). The assets include banking and insuran-ce, in addition to energy and engineering in 12 Turkish companies. Our price target indicates a 40% upside based on organic growth in the underlying assets, a possible IPO of the energy segment and increased dividends from today’s relatively low 1.3% dividend yield.

The average American drinks over 160 litres of soda a year, but chicken consumption per capita has actually increased by 10% over the past three years and is estimated to be 41kg in 2015. Against this background, it is possible that the market undervalues the long-term earnings potential of Tyson Foods.

Phot

o: B

loom

berg

Phot

o: i

Sto

ckph

oto


HISTORICAL PRICE DEVELOPMENT SKAGEN GLOBAL

SKAGEN GLOBAL

GoogleDuring the quarter we increased our expo-sure to the US search engine giant, Google, to around 2.5% of the portfolio. In absolute terms, Google’s share price has remained relatively stable over the past 12 months. We believe that in Google’s case, the mar-

ket is far too short-sighted and that the shares do not price in the earnings growth that lower capital costs will generate from 2017-18 onwards. With net cash of USD 60 billion and strong growth in free cash flow, Google has limited downside and at least 30% upside from current levels.

No longer undervaluedIn May, portfolio company Cheung Kong Hutchison Holding spun off its property division to shareholders under the name Cheung Kong Property Holding. The market valuation of Cheung Kong Property Holding proved to be high and in our opinion the share is not undervalued at the listed price so we sold the position.

In the second quarter we sold our posi-tions in Technip, Talanx and Raiffeisen Bank. Despite the sharp fall in oil prices, the French oil services company Technip has surprised the market positively so far this year. We sold our last shares after the price rose by around 30% and thus reached our target price.

The German insurer Talanx has gene-rated an annual return of 25% since SKA-GEN participated in the IPO in November 2012. After the share price increased by 60%, we believe that the company is no longer undervalued relative to its current strategy. We also sold our position in Raif-feisen Bank in favour of more attractive investment opportunities elsewhere in the portfolio.

Well positionedThe portfolio reflects SKAGEN’s value-ba-sed investment philosophy and trades at an attractive discount to the world index. Our 35 largest holdings have an average 2016 P/E ratio of 10.6 compared with 14.6 for the index, in other words a discount of 27%. Overall, SKAGEN Global has genera-ted 10.2% return in the first six months of the year and the fund is well positioned to achieve its goal of a return of at least 15% annually in absolute terms.

During the quarter we raised our stake in Google to about 2.5% of the portfolio. With USD 60bn in cash and strong cash flow, we see a limited downside and an upside of 30% from today’s levels. Pictured: An attendee at Google’s Annual Developers Conference on 28 May 2015 shows off his mobile device with an Android Pay icon, Google’s newly unveiled payment services.

SKAGEN GLOBAL KEY NUMBERS FOR THE LARGEST HOLDINGS (AS OF 30-06-2015)

Company Holding size Price P/E 2015E P/E 2016E P/BV last Price target

CitiGroup 6,5% 55 10,0 9,3 0,8 75

Samsung Electronics 6,1% 993 000,0 6,5 6,0 0,9 1 500 000

AIG 5,3% 62 12,6 11,0 0,8 90

General Electric 4,9% 26,6 19,7 16,7 2,5 34

Nordea 3,5% 103,4 12,1 11,9 1,6 150

Roche 3,1% 262,0 18,4 16,9 11,4 380

LG Corp 2,8% 61 800 10,7 9,5 0,9 72 000

State Bank of india 2,6% 263 9,8 8,0 1,2 400

DSM 2,5% 52,0 20,1 17,4 1,5 65

Microsoft 2,5% 44,2 17,2 16,0 4,0 58



1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

10

20

40

80

100

10

20

40

80

100

2015

SKAGEN Global

MSCI World AC Index


SECTOR DISTRIBUTION


Telecom 4,3%

Consumerstaples 3,7%

Finance 26,3%

Health 7,8%

IT 12,0%

Industrials 16,0%

Consumerdiscretionary

12,8%

Cash 1,1%

Raw materials 12,9%

Energy 3,2%

Eurozone 14,2%

EMEA 2,1%

Peripheral EU 5,8%

Frontier Markets 2,0%

NorthAmerica35,7%

Cash 1,1%

Japan 1,0%

South America 2,0%

Nordic13,9%

Asia ex Japan 22,3%

Security Number Acquistion

value NOK * Market-


Share of fund

Stock exchange

Lundin Petroleum AB 3 293 160 367 913 445 497 77 585 1,26% Stockholm

Kazmunaigas Exploration GDR 3 529 139 415 879 274 890 -140 990 0,78% London Int

BP Plc 4 269 875 213 135 223 364 10 229 0,63% London

BP Plc ADR 598 207 174 952 188 193 13 241 0,53% New YorkTotal Energy 1 171 879 1 131 944 -39 935 3,21%

Koninklijke DSM NV 1 955 246 810 782 895 526 84 744 2,54% Amsterdam

Heidelbergcement AG 1 176 994 389 487 739 813 350 326 2,10% Frankfurt

Norsk Hydro ASA 16 945 242 474 549 560 040 85 491 1,59% Oslo Børs

Akzo Nobel NV 892 610 292 845 515 296 222 451 1,46% Amsterdam

UPM-Kymmene Oyj 3 099 638 291 644 433 019 141 375 1,23% Helsinki

Lundin Mining Corp 12 338 063 366 915 396 892 29 978 1,13% Toronto

OCI Co Ltd 434 153 385 027 275 138 -109 889 0,78% Seoul

Mayr-Melnhof Karton AG 303 520 140 593 274 254 133 661 0,78% Vienna

Ternium SA ADR 1 994 417 298 074 272 565 -25 509 0,77% New York

Lundin Mining Corp SDR 5 327 379 147 971 171 207 23 236 0,49% StockholmTotal Raw materials 3 597 887 4 533 750 935 863 12,87%

General Electric Co 8 170 740 1 616 001 1 719 970 103 969 4,88% New York

LG Corp 2 304 821 645 552 1 002 977 357 424 2,85% Seoul

CK Hutchison Holdings Ltd 6 515 098 539 504 753 052 213 549 2,14% Hong Kong

Koninklijke Philips NV 2 825 548 526 915 568 444 41 528 1,61% Amsterdam

Tyco International Plc 1 751 162 198 083 531 204 333 121 1,51% New York

Valmet Corp 3 106 627 212 961 273 629 60 668 0,78% Helsinki

Prosegur Cia de Seguridad Sa 6 238 240 202 461 270 082 67 621 0,77% Madrid

Autoliv Inc 258 314 88 438 237 990 149 553 0,68% New York

China Communications Services Corp Ltd 41 861 881 150 954 166 527 15 573 0,47% Hong Kong

Autoliv Inc SDR 130 595 45 327 120 338 75 010 0,34% StockholmTotal Industrials 4 226 197 5 644 213 1 418 016 16,02%

General Motors Co 3 315 380 473 410 867 059 393 650 2,46% New York

Gap Inc/The 1 775 497 435 590 533 906 98 317 1,52% New York

Kingfisher Plc 12 302 903 410 292 531 032 120 739 1,51% London

Volvo AB 5 250 655 407 180 512 695 105 515 1,46% Stockholm

Comcast Corp 1 077 693 147 207 506 456 359 249 1,44% NASDAQ

Hyundai Motor Co Pref (2pb) 670 632 257 703 495 837 238 134 1,41% Seoul

Tata Motors Ltd-A- DVR 11 563 913 231 336 372 642 141 306 1,06% Bombay

Toyota Industries Corp 785 972 140 281 352 552 212 271 1,00% Tokyo

Minor items 191 412 347 489 323 684 -23 804 0,90%Total Consumer discretionary 2 850 487 4 495 864 1 645 377 12,76%

Tyson Foods Inc 1 314 961 393 017 448 546 55 529 1,27% New York

Carlsberg AS-B 460 833 314 302 328 892 14 590 0,93% Copenhagen

Unilever NV-Cva 911 620 191 767 300 127 108 359 0,85% Amsterdam

Yazicilar Holding AS 3 577 860 86 656 218 002 131 346 0,62% Istanbul

Total Consumer staples 985 742 1 295 567 309 824 3,68%

Roche Holding AG-Genusschein 495 108 597 625 1 101 354 503 728 3,13% Zürich

Sanofi 964 732 601 027 754 694 153 667 2,14% Paris

Teva Pharmaceutical-Sp ADR 1 074 283 331 351 499 446 168 095 1,42% NASDAQ

Varian Medical Systems Inc 613 370 313 599 406 533 92 933 1,15% New York

Total Health 1 843 603 2 762 026 918 423 7,84%

Citigroup Inc 5 233 467 1 198 400 2 272 502 1 074 102 6,45% New York

American International Group Inc 3 816 021 1 013 636 1 855 769 842 133 5,27% New York

Nordea Bank AB 12 398 133 870 977 1 222 357 351 380 3,47% Stockholm

State Bank of India 22 526 330 573 039 731 609 158 570 2,08% India

Goldman Sachs Group Inc 439 836 391 585 724 709 333 123 2,06% New York

NN Group NV 3 052 161 549 926 677 162 127 237 1,92% Amsterdam

Storebrand ASA 13 625 168 468 375 440 638 -27 737 1,25% Oslo Børs

EFG-Hermes Holding SAE 18 826 600 238 806 268 365 29 559 0,76% Cairo

Columbia Property Trust Inc 1 297 237 254 227 251 180 -3 046 0,71% New York

Irsa Sa ADR 1 763 696 146 619 248 250 101 630 0,70% New York

Minor items 7 416 393 489 179 585 226 96 048 1,66%

Total Finance 6 194 769 9 277 768 3 082 999 26,33%

Samsung Electronics Co Ltd Pref 251 657 609 537 1 759 638 1 150 101 4,99% Seoul

Microsoft Corp 2 505 570 437 371 870 543 433 172 2,47% NASDAQ

Google Inc CLASS C 162 112 563 208 668 231 105 023 1,90% NASDAQ

Lenovo Group Ltd 29 495 300 221 697 321 468 99 771 0,91% Hong Kong

Samsung Electronics Co Ltd 35 003 316 100 312 529 -3 572 0,89% Seoul

Google Inc CLASS A 45 315 79 242 193 197 113 955 0,55% NASDAQ

Minor items 24 968 86 209 61 241 0,24%

Total IT 2 252 123 4 211 813 1 959 690 11,95%

China Unicom Hong Kong Ltd 39 506 972 374 491 489 118 114 627 1,39% Hong Kong

Vimpelcom Ltd-Spon ADR 7 361 234 539 474 285 820 -253 654 0,81% New York

First Pacific Co Ltd 42 834 923 270 660 284 286 13 626 0,81% Hong Kong

Indosat Tbk PT 65 422 055 226 138 154 134 -72 003 0,44% Indonesia

China Unicom Hong Kong Ltd ADR 1 144 875 105 570 141 601 36 030 0,40% New York

Minor items 149 379 147 306 -2 073 0,41%

Total Telecom 1 665 712 1 502 266 -163 446 4,26%



Base price as of 30-06-2015 1 374,8063

* Figues in 1 000 NOK.

SECURITIES PORTFOLIO SKAGEN GLOBAL AS OF 30 JUNE 2015 See the portolio in its entirety at www.skagenfunds.com/global-portfolio


SKAGEN Kon-TikiLeading the way in new waters

> Our contrarian bet in unpopular Petrobras paid off.

> Three of our largest holdings were a drag on performance.

> Working to refine the sell discipline in the fund.

Fund start date 5 April 2002


Assets under management EUR 4 985 million



SKAGEN Kon-Tiki -4,9 % 2,0%

MSCI Emerging Markets -3,2 % 16,5%


PORTFOLIO MANAGERS

Kristoffer Stensrud, Knut Harald Nilsson, Cathrine Gether, Erik Landgraff and Hilde Jenssen

Skagen reef’s lightship, 1892. Detail. By Carl Locher, one of the Skagen painters. The picture is owned by the Skagens Museum. (Cropped)

1 2 3 4 5 RISK 7

Three of our largest holdings, Great Wall Motor, Hyundai Motor and Samsung Electronics—accounting for a combined 21% of the portfolio at the beginning of the quarter—were a drag on performance in the second quarter. On the positive side, our contrarian bet in Brazilian oil major Petrobras paid off handsomely. Hong Kong based asset manager Value Partners, and Brazilian meat producer Marfrig also per-formed well.

We are certainly not satisfied with recent performance, but continue to believe that our time tested approach of identifying unpopular, under-researched

and undervalued stocks will lead to satis-factory returns in the long run. The portfo-lio consists of good companies trading at a solid discount to the market, and to our estimate of intrinsic value. While we cannot predict the investing crowd’s short-term preferences, we are confident that in the long run company fundamentals will be more important than fleeting popularity.

That being said, we are constantly look-ing for ways to improve our investment process.

Staying the courseSKAGEN Kon-Tiki fell 4.9% during Q2, compared with a decline of 3.2% for the emerging markets (EM) index, measured in EUR. Year-to-date the fund is up 5.8%, lagging the index by 5.9%.

Ph

oto:

Blo

omb

erg

A new position in the fund, Sberbank, is best in class among Russian banks. Pictured here, a customer sits in the reception of a Sberbank branch in Almaty, Kazakhstan.

SKAGEN KON-TIKI KEY NUMBERS FOR THE LARGEST HOLDINGS (AS OF 30-06-2015)

Company Holding size Price P/E 2014 P/E 2015E P/BV last Price target

Samsung Electronics 8,0% 993 000 6,4 6,0 0,9 1 500 000

Hyundai Motor 7,7% 102 000 3,6 3,9 0,4 200000

State Bank of India 4,1% 262,8 11,5 8,0 1,2 450

Mahindra & Mahindra 4,1% 1 282 24,1 12,8 2,9 2000

Sabanci Holding 3,8% 10 9,9 8,4 1,1 14

Bharti Airtel 3,5% 420 32,4 21,0 2,7 450

ABB 3,2% 175,1 21,1 14,6 2,9 250

Naspers 2,7% 1 895 68,1 37,9 10,0 2250

Great Wall Motor 2,6% 38 11,5 7,8 3,0 60

Richter Gedeon 2,4% 4 200,0 31,7 15,3 1,4 7500

SBI Holdings 1,9% 1 686 8,0 13,0 1,0 3 000

Hitachi 1,9% 806,8 16,1 9,5 1,3 1200




HISTORICAL PRICE DEVELOPMENT SKAGEN KON-TIKI

NEW POSITIONS:

While we exited a large number of posi-tions in the quarter, we are always on the lookout for the next great investment opportunity. We entered three new posi-tions, namely Sberbank, China Shipping Development and Eros International Media.

Sberbank is best in class among Russi-an banks and could benefit as inflation decelerates and the Russian economy sta-bilises. We bought the preference shares when index funds were forced to sell as a result of MSCI index exclusion and the preference shares traded at a historical discount to the ordinary shares.

China Shipping Development is a Shanghai-based shipping company focu-sed on Dry Bulk and Tank. Its shares are both A- and H-share listed, with the latter selling at a big discount (P/B 0.75x vs. 1.8x). We believe current valuation only factors in tanker improvement, despite signs that Dry Cargo is close to the bot-tom. With no fleet growth this year or next, and Chinese coal and iron ore inventories at record lows, earnings could surprise on the upside. In the medium-to-long-term we think that state-owned enterprise (SOE) reform and thus improved gover-nance will be important drivers of higher returns.

Eros International Media is a leading co-producer, acquirer and distributor of Indian language films. The company has a strong position in a growing industry, and is led by an experienced team. Trading at 14x next year’s earnings at the time of our purchase, we did not pay much for our favourable expectations.

SPRING CLEANING One area of improvement that we are addressing is selling discipline. When to sell is a notoriously difficult question, pitching your adherence to a set target price against the dangers of selling your winners and keeping the losers. For SKAGEN Kon-Tiki, there are three major reasons for selling a stock.

First, in those cases where expectations collide with reality in unexpected ways. Experience has taught us that when our investment thesis does not play out, the stock should be sold even if it has a lower valuation than when we first bought it.

A good example is Aveng, the South Afri-can construction company. Despite realising that our investment thesis was not playing out as expected, we have been dragging our feet due to low valuation and hopes of a reversal in the company’s fortunes. Not a recipe for investment success.

Second, if we find better investment opportunities elsewhere, capital should be redeployed to companies with a higher risk-adjusted upside.

Third—and this is the most difficult one—we should sell when the stock app-roaches our target price. Sounds easy, but the difficulty arises when you sell great companies because of a run-up in price. Factor in transaction costs, and selling within a few points of our tar-get price is not always the right answer. On the other hand, the market is there to

serve us, and if we are consistent in updating our target prices they should be adhered to. Challenges such as these are part of what makes investing such a fascinating disci-pline, and why it is arguably more art than science.

To further complicate the picture, deci-sion-making can be impacted by flows. In particular, we have found that maintaining selling discipline during periods of large inflows is crucial to avoid delays in dispo-sing of lower conviction ideas.

Putting your money where our mouth is, we have focused on exiting smaller positions where conviction—rather than size or liquidi-ty constraints—explains the sizing. We sold out of Siem Offshore, Exxaro, Yingli and MRV because of adverse developments relative to our investment case.

On a more positive note, Value Partners, Skyworth, Harbin Electric and Kiwoom reached their price targets, resulting in our exit. As a result, we have reduced the num-ber of positions in the portfolio from 93 to 88 during the quarter.

SKAGEN KON-TIKI

SKAGEN Kon-Tiki

MSCI EM Index

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

1

20

40

80

60

10

20

40

60

80

2015


WHAT WORKED…

Our top contributor in the quarter was Bra-zilian oil company Petrobras. A leading contender for the crown in any unpopu-larity contest, the company has faced a long list of issues including elevated cost levels, corruption charges, and high debt levels. The list goes on.

Yet we could still identify a number of positives. First, Petrobras incurs a sub-stantial loss from importing petroleum that it is required to sell at a lower (government fixed) price at home. The decline in oil price significantly reduced these losses. Second, there were signs that poor governance was likely to be addressed.

Since purchase we have seen an impro-vement in results, key personnel changes and a new strategic plan. While the com-pany is still no beauty queen, the recent share price development illustrates how a slight improvement in expectations goes a long way when the starting point is close to zero.

Hong Kong based asset manager Value Partners was our second best performer

during the quarter. Value Partners is a very good company in an industry with significant long-term potential, and we expect it to be a beneficiary of increasing penetration of asset management services in China and the surrounding region. Yet valuation remains a critical factor in any SKAGEN investment, and after the stock more than doubled in a few weeks we decided to exit the position at high prices.

…AND WHAT DIDN’T

“Many shall be restored that are now fallen and many shall fall that are now in honour.”

So begins Security Analysis, Benjamin Graham’s seminal work on value inves-ting. SKAGEN Kon-Tiki’s second quarter performance demonstrates the timeless appeal of Horace’s old saying. Having been our top two contributors in the first quarter, Great Wall Motor and Samsung Electro-nics moved straight to the bottom of the list during the second. While we pay little attention to short term performance, such large swings serve as a good reminder of

how stock market prices fluctuate signi-ficantly more than companies’ intrinsic value.

The main concerns around Great Wall revolve around margin sustainability. With operating margins of 16%, the company has enjoyed significantly higher profita-bility than the typical level of 5-10% seen among global car manufacturers. With looming overcapacity in the Chinese auto market, low R&D spending, and recently announced promotional pricing, margin risk is certainly present. Combined with a fairly rich valuation, this led us to reduce our position in Great Wall by one third at high prices.

Few wins with Korean wonOur large Korean holdings, Hyundai Motor and Samsung Electronics, had a weak quarter. Disappointing sales figures led to a rough start of the year for Hyundai, resulting in a negative return of 20% on our preference shares year-to-date. The relative strength of the Korean won has been a headwind when competing with the Japanese, but we had still expected new model launches to have a stronger impact on sales over the past few quarters.

At P/E 4x and P/B 0.5x, Hyundai has a valuation rarely seen among global compa-nies. The question, then, is whether it has become a value trap. We believe that seve-ral catalysts remain, including better sales performance from model revamps, and an improvement in corporate governan-ce. We recognise that better operational performance is likely to be the key driver of returns, and are—as always—carefully monitoring the company’s performance.

SKAGEN KON-TIKI 2Q 2015 (MILL NOK)

5 largest contributorsPetroleo Brasileiro Pref ADR 156Value Partners Group Ltd 146Marfrig Global Foods SA 145Golar LNG Ltd 136UPL Ltd 95

5 largest detractorsGreat Wall Motor Co Ltd -558Samsung Electronics Co Ltd Pref -512Hyundai Motor Co Pref -415AirAsia Bhd -206Tech Mahindra Ltd -195

5 largest purchasesChina Shipping Development 251 Haci Omer Sabanci Holding AS 205 Sberbank of Russia Pref 151 Golden Ocean Group Ltd 129 Eros International Media Ltd 82

5 largest salesAP Moeller - Maersk A/S -905 Great Wall Motor Co Ltd -781 Lenovo Group Ltd -777 Shiseido Co Ltd -519 Harbin Electric Company Ltd -389

Ph

oto:

Blo

omb

erg

Our contrarian bet in Brazilian oil major Petrobras paid off handsomely in the quarter. Oil drilling platform in Guanabara Bay in Brazil pictured here.


THE LONG RUN

In a world often dominated by macroeconomic and poli-tical events, and where an abundance of investors chase short-term gratification, SKAGEN Kon-Tiki offers a distinct approach. With our focus on value over momentum, long-term (measured in years) over short-term, and company fundamentals over headline-grabbing news, our methods are not always in vogue. Which is exactly why they work. In the long run.

SECURITIES PORTFOLIO SKAGEN KON-TIKI AS OF 30 JUNE 2015 See the portfolio in its entirety at www.skagenfunds.com/kontiki-portfolio

SECTOR DISTRIBUTION


Health 4,3%

Consumer discretionary 19,9%

Raw materials 6,1%

Finance18,2%

Telecom 6,8%

IT 10,2%

Consumerstaples 12,8%

Cash 2,1%

Industrials 15,9%

Energy 3,8%

South America

8,2%

North America 2,9%Eurozone 2,4%

Asia exJapan 47,3%

Frontier Markets 4,2%

Japan 5,4%

Nordic8,4%

EMEA 18,9%

Cash 2,1%

Peripheral EU 0,2%


value NOK * Market-


Share of fund

Stock exchange

Petroleo Brasileiro Pref ADR 9 864 888 506 969 636 444 129 476 1,46% New York

GCL-Poly Energy Holdings Ltd 224 088 000 368 096 407 054 38 958 0,93% Hong Kong

Tullow Oil Plc 8 461 624 793 317 358 112 -435 205 0,82% London

Rec Silicon ASA 83 201 594 133 426 140 111 6 685 0,32% Oslo Børs

Minor items 541 097 111 577 -429 519 0,26%

Total Energy 2 342 905 1 653 299 -689 606 3,78%

UPL Ltd 10 294 488 191 091 681 540 490 449 1,56% India

Vale Sa Spons pref ADR 14 322 805 1 356 658 573 025 -783 633 1,31% New York

Hindalco Industries Ltd 30 031 830 504 565 415 392 -89 173 0,95% India

OCI Co Ltd 600 000 455 623 380 241 -75 382 0,87% Seoul

LG Chem Ltd Pref 259 179 178 915 343 102 164 187 0,79% Seoul

Asia Cement China Holdings 48 522 500 178 365 188 592 10 227 0,43% Hong Kong

Minor items 417 257 103 173 -314 084 0,24%

Total Raw materials 3 282 474 2 685 065 -597 409 6,14%

ABB Ltd 8 530 512 769 826 1 416 021 646 195 3,24% Stockholm

Hitachi Ltd 16 195 000 791 993 839 668 47 676 1,92% Tokyo

CNH Industrial NV 9 138 348 555 673 659 313 103 640 1,51% New York

Bidvest Group Ltd 2 800 000 326 110 556 404 230 294 1,27% Johannesburg

Frontline 2012 Ltd 12 706 335 327 355 520 960 193 604 1,19% Unlisted

Golar LNG Ltd 1 298 301 471 325 479 278 7 954 1,10% NASDAQ


Enka Insaat Ve Sanayi AS 23 092 016 217 528 345 821 128 293 0,79% Istanbul

Norwegian Air Shuttle ASA 900 000 84 407 292 410 208 003 0,67% Oslo Børs

China Shipping Development 43 210 000 251 340 257 397 6 056 0,59% Hong Kong

AP Moeller - Maersk A/S 18 000 144 957 256 294 111 338 0,59% Copenhagen

LG Corp Pref 808 430 118 266 213 186 94 920 0,49% Seoul

Empresas ICA S.A.B 32 729 853 448 729 200 008 -248 720 0,46% Mexico

Golden Ocean Group Ltd 4 665 202 182 757 140 947 -41 809 0,32% NASDAQ

Euronav SA 1 090 286 98 518 126 274 27 757 0,29% Brussels

Golden Ocean Group Ltd 4 065 322 119 743 123 992 4 249 0,28% Oslo Børs

Minor items 680 291 157 967 -522 324 0,36%

Total Industrials 6 003 735 6 934 333 930 598 15,87%

Phot

o: i

Sto

ckph

oto



value NOK * Market-


Share of fund

Stock exchange

Hyundai Motor Co Pref (2pb) 2 384 671 402 745 1 763 124 1 360 380 4,03% Seoul

Hyundai Motor Co Pref (1p) 2 234 715 358 958 1 605 046 1 246 088 3,67% Seoul

Mahindra & Mahindra Ltd GDR 8 005 385 186 510 1 278 594 1 092 084 2,93% London Int

Naspers Ltd 950 050 278 067 1 166 623 888 556 2,67% Johannesburg

Great Wall Motor Co Ltd 29 399 500 53 329 1 133 715 1 080 386 2,59% Hong Kong

LG Electronics Inc Pref 3 050 000 823 954 492 887 -331 067 1,13% Seoul

Mahindra & Mahindra Ltd 3 103 503 250 706 491 932 241 226 1,13% India

DRB-Hicom Bhd 88 408 800 365 449 293 102 -72 347 0,67% Kuala Lumpur

Apollo Tyres Ltd 13 028 865 109 290 274 183 164 893 0,63% India

Minor items 175 311 180 403 5 092 0,41%

Total Consumer discretionary 3 004 319 8 679 611 5 675 291 19,86%

X 5 Retail Group NV GDR 4 990 306 506 266 653 726 147 461 1,50% London Int

Cosan Ltd 13 091 033 791 870 630 347 -161 523 1,44% New York

Yazicilar Holding AS 8 837 139 222 040 538 454 316 415 1,23% Istanbul

Distribuidora Internacional de Alimentacion SA 8 706 469 324 648 525 661 201 013 1,20% Madrid

Familymart Co Ltd 1 407 900 389 252 509 379 120 128 1,17% Tokyo

Marfrig Global Foods SA 33 457 200 525 979 482 868 -43 111 1,10% Sao Paulo

Massmart Holdings Ltd 3 739 366 285 120 362 982 77 862 0,83% Johannesburg

PZ Cussons Plc 7 625 746 127 931 342 736 214 805 0,78% London

Kulim Malaysia BHD 50 827 600 160 451 264 952 104 501 0,61% Kuala Lumpur

Cia Cervecerias Unidas SA ADR 1 538 270 280 090 256 822 -23 268 0,59% New York

Cia Brasileira de Distribuicao - Pref 1 326 200 324 877 253 054 -71 823 0,58% Sao Paulo

Casino Guichard Perrachon SA 316 924 250 764 190 151 -60 612 0,44% Paris

Shiseido Co Ltd 951 600 102 371 169 882 67 511 0,39% Tokyo

Podravka Prehrambena Ind DD 406 584 111 935 145 510 33 575 0,33% Zagreb

East African Breweries Ltd 5 774 866 88 566 139 674 51 107 0,32% Nairobi

Minor items 139 800 115 763 -24 037 0,26%

Total Consumer staples 4 631 958 5 581 961 950 003 12,77%

Richter Gedeon Nyrt 8 936 510 970 296 1 043 540 73 243 2,39% Budapest

China Shineway Pharmaceutical 36 934 000 280 298 434 026 153 728 0,99% Hong Kong

Eis Eczacibasi Ilac Ve Sanayi 19 410 554 133 038 161 303 28 265 0,37% Istanbul

Supermax Corp BHD 30 573 600 117 548 131 960 14 413 0,30% Kuala Lumpur

Minor items 39 931 98 053 58 122 0,22%

Total Health 1 541 111 1 868 882 327 771 4,28%

State Bank of India 55 690 910 1 265 479 1 808 728 543 248 4,14% India

Haci Omer Sabanci Holding AS 56 050 322 1 216 783 1 662 335 445 552 3,80% Istanbul

SBI Holdings Inc 7 759 600 603 587 840 733 237 145 1,92% Tokyo

Moscow Exchange MICEX-RTS OAO 57 263 060 612 265 558 719 -53 545 1,28% Moscow

Banco Do Estado Rio Grande Do Sul SA Pref 22 815 700 565 560 522 235 -43 325 1,19% Sao Paulo

JSE Ltd 5 864 519 226 705 484 527 257 821 1,11% Johannesburg

Korean Reinsurance Co 4 860 366 182 225 420 958 238 734 0,96% Seoul

Kiatnakin Bank Pcl 37 429 463 334 353 307 022 -27 331 0,70% Bangkok

EFG-Hermes Holding SAE 17 939 257 353 507 255 717 -97 790 0,59% Cairo

Dragon Capital - Vietnam Enterprise Investments Ltd 9 000 000 111 229 203 934 92 705 0,47% Dublin

Ghana Commercial Bank Ltd 18 001 604 88 821 158 427 69 606 0,36% Ghana

Raiffeisen Bank International AG 1 376 967 270 180 158 391 -111 789 0,36% Vienna

Sberbank of Russia Pref 21 400 000 151 067 145 663 -5 404 0,33% Moscow

Nordnet AB 4 118 184 57 184 129 224 72 040 0,30% Stockholm

Diamond Bank Plc 718 971 941 153 449 124 673 -28 775 0,29% Lagos

Minor items 183 931 176 571 -7 359 0,40%

Total Finance 6 376 324 7 957 856 1 581 532 18,21%

Samsung Electronics Co Ltd Pref 310 282 766 576 2 169 557 1 402 981 4,96% Seoul

Samsung Electronics Co Ltd Pref GDR 382 663 376 532 1 335 256 958 724 3,06% London Int

Tech Mahindra Ltd 8 784 608 354 450 518 818 164 368 1,19% India

Lenovo Group Ltd 37 938 000 217 652 413 484 195 832 0,95% Hong Kong

Total IT 1 715 211 4 437 115 2 721 904 10,15%

Bharti Airtel Ltd 29 648 206 1 130 346 1 539 379 409 033 3,52% India

Kinnevik Investment AB-B 2 717 167 481 930 677 455 195 525 1,55% Stockholm

Indosat Tbk PT 206 683 750 557 401 486 947 -70 454 1,11% Indonesia

Sistema Jsfc 71 610 460 487 565 201 580 -285 986 0,46% Moscow

Minor items 79 436 69 284 -10 151 0,16%

Total Telecom 2 736 677 2 974 644 237 967 6,81%



Base price as of 30-06-2015 719,7447



Rainy quarter

There are several reasons for the weaker market for real estate stocks, including the uncertainty around interest rate deve-lopments in the US, the ongoing negotia-tions in Greece and the focus on sky-high valuations in China. In addition, there are general concerns around the valuation of equities in a world in which central bank money is gradually beginning to disappear.

These factors, combined with nume-rous stock exchange listings whose aim is to realise profits after a good year, as well as a general market that has not declined since 2012, create a climate in which real estate stocks languish.

On the other hand, the recent develop-ments can be likened to rain after a long dry spell; they have freshened things up. It is now easier for us as portfolio managers to find companies with lower valuations.

US weighed downThe US real estate market was one of the weakest in the period, and it under-performed the general global property index. The six largest detractors from the fund’s performance in the quarter were all US companies with a portfolio weight of between three and four percent each. This was in spite of acceptable earnings and no specific company news.

US property stocks got a substantial lift in 2014 after expectations of an inte-

rest rate hike were unfounded and inte-rest rates in fact fell. This continued until the second quarter of 2015 when the US 10-year yield started to move up again.

Volatility in interest rate developments has been more challenging than the inte-rest rate hikes in themselves. An actual interest rate hike in the US would likely be better for the real estate market than continued uncertainty. Negative news usually results in a lift when the market is prepared for it.

There has also been a shift from the US to Europe as a result of monetary policy easing. This gave rise to record-low Euro-pean interest rates which in turn meant extremely cheap financing for our property companies. British Land and Unibail issu-ed convertible bonds with a close to zero percent yield and a conversion rate 30 percent above the prevailing market price.

China South City was the largest posi-tive contributor in the quarter. This was primarily due to the fact that the company was sold out of the portfolio before Chi-nese equities started their decline in the quarter. The next two largest contributors were the Spanish companies, Melia Hotels and Axia.

SKAGEN m2 had a weak second quarter and by the end of June had lost everything that the fund had gained in the first quarter.

SKAGEN m2

A share in the global property

market

> Weak property market due to interest rate uncertainty in US and developments in Greece

> Have used the opportunity to adapt the portfolio

> Easier now to find companies with lower valuations

Fund start date 31 October 2012


AUM EUR 132 million



SKAGEN m2 -11,8 % 16,2%

MSCI ACWI Real Estate IMI -9,1 % 24,7%

* As of 30 June 2015.

PORTFOLIO MANAGERS

Michael Gobitschek and Harald Haukås

Architect Ulrik Plesner`s first extension to Brøndum`s hotel. 1892. Detail. By Johan Peter von Wildenradt, one of the Skagen painters. The picture belongs to the Skagens Museum

1 2 3 4 RISK 6 7


Focus on value creationThe values in the property market are crea-ted through daily operations as well as how a company operates in the capital market.

For the rest of 2015 the fund will focus even more on weeding out companies that are not capable of creating long-term value. We have used the opportunity of this down-turn to sell out of a number of companies and ensure that the portfolio consists of value-creating companies.

We have, for example, exited Citycon and used the money to increase our posi-tion in Olav Thon. Both companies own and operate shopping malls in Scandinavia. Citycon was priced above the value of its assets while Olav Thon was priced at a dis-count. It seemed like a simple choice, but valuation was not the only reason for our decision. Equally important was the long-term performance of the companies in the capital market.

Since listing, Olav Thon has never raised equity in the stock market, but has built up its company by generating good earnings and paying less in dividends. This mentality of building the company stone by stone has been extremely lucrative for long-term (and recently) short-term shareholders. The opposite has been the case for Citycon, which has distributed all its cash flow in dividends and growth has been financed by issuing expensive equity. This means that the company has become food for brokers and it has accrued expensive costs.

Independent of geographyOther examples are General Shopping and IRSA. We recently exited General Shopping, and have passively increased our exposure to IRSA. General Shopping took up a loan in US dollars to invest in Brazil. The company continuously refers to its currency loss as a non cash loss, which means that as long as the loan is not paid off, the loss is not realised. This behaviour gives cause for concern and is reminiscent of others who live under an illusion when they have a lar-ge unrealised loss. It is not difficult to see that the company will be backed into a cor-ner in meetings with creditors. This means that it will have to sell property to repay the interest rate and principal on the loan.

IRSA, on the other hand, owns some of the best properties in Argentina and has managed to manoeuvre wisely in a country in political turmoil. The company had large investments in Manhattan, but some of the-

se have been sold to refinance the heavily indebted company IBD in Israel. Although investments in Israel involve more risks than the purely financial, the country has a relatively stable economy. IRSA’s primary owner has over time shown an impressive ability to make opportunistic and extremely value accretive investments.

A similarity between Olav Thon and IRSA is that both companies have large majori-ty owners that create value and that have worked with their special competence their whole life. Another similar company is Spa-nish hotel company, Melia, whose domi-nating owner holds 60%. Although Melia has only delivered an annual return of 5% over the past 19 years, it is one of the few companies with property exposure in Spain that has given any return at all.

In Hong Kong we sold out of CSI Proper-ties and bought Keck Seng. CSI was sold after the company bought back its own

SKAGEN m2 2Q 2015 (MILL. NOK)

5 largest contributorsChina South City Holdings Ltd 3,3 Melia Hotels International 1,3 Axia Real Estate SOCIMI SA 0,8 Phoenix Mills Ltd 0,4 CSI Properties Ltd 0,3

5 largest detractorsHCP Inc -10,2Brandywine Realty Trust -9,8General Growth Properties Inc -8,3Ashford Hospitality Trust -8,2CBL & Associates Properties Inc -7,8

5 largest purchasesAxia Real Estate SOCIMI SA 11 Keck Seng Investments 9 Grivalia Properties Reic AE 8 Olav Thon Eiendomsselskap ASA 6 Emlak Konut Gayrimenkul Yatirim Ortakligi AS 4

5 largest salesMelia Hotels International -15 Shimao Property Holdings Ltd -15 China South City Holdings Ltd -13 Ticon Industrial Connection Pcl-Nvdr -12 Citycon Oyj -11

Ph

oto:

Blo

omb

erg

A similarity between Olav Thon and IRSA is that both companies have large majority owners that create value and that have worked with their special competence their whole life. Pictured here (l. to r.) Olav Thon and IRSAs majority owner Eduardo Elsztain.

Ph

oto:

Blo

omb

erg

SKAGEN M2


SKAGEN M2

shares at a large discount, which triggered an increase in share price, at which point the company carried out an equity issue at a large discount. Instead we invested in Keck Seng, which owns several hotels in Vietnam and the US amongst other countries. The value of each of the two hotels in the US equals the market value of the entire company. Although the shares are not traded in large volumes, as was the case with Olav Thon, a continuous value

creation is taking place that will benefit shareholders in the long term.

We have in this report tried to share some of our thoughts with our unit holders who have followed the developments we have witnessed so far this year. The com-panies referred to above are examples of the increased focus we are bringing to the fund which will hopefully have a positive impact on our results.

The second largest positive contribution to the fund’s performance came from Spanish Melia Hotels. Similar to our holdings in Olav Thon and IRSA, Melia has a majority owner.

HISTORICAL PRICE DEVELOPMENT SKAGEN m2

Phot

o: M

eliá

Alic

ante

, Mel

iá H

otel

s In

tern

atio

nal

SKAGEN M2 KEY NUMBERS FOR THE LARGEST HOLDINGS (AS OF 30-06-2015)

Company Holding size Price P/NAV lastDiv. Yield

2015eEBITDA

2015e/EV

Global Logistic Properties Ltd 4,3% 2,53 102 % 2,0% 5,6%

Columbia Property Trust Inc 4,1% 24,61 80 % 4,9% 6,0%

HCP Inc 4,0% 36,63 112 % 6,6% 6,3%

Olav Thon Eiendomsselskap 4,0% 142,50 80 % 1,2% 6,2%

Mitsui Fudosan Co Ltd 3,9% 3 427,00 107 % 0,8% 5,3%

General Growth Properties Inc 3,9% 25,76 90 % 2,6% 5,4%

Ashford Hospitality Trust 3,5% 8,22 80 % 5,8% 9,6%

Brandywine Realty Trust 3,4% 13,39 85 % 4,5% 7,6%

PS Business Parks Inc 3,3% 72,35 95 % 2,8% 6,0%

SL Green Realty Corp 3,2% 110,15 90 % 2,1% 4,6%

Weighted top 10 38 % 92 % 3,3% 6,2%

Weighted top 35 85 % 3,4% 6,5%

Benchmark index 3,3%

MSCI All Country World Index Real Estate IMI

11

11.2012 03.2013 07.2013 11.2013 03.2014 07.2014 11.2014 03.2015

14

17

20

14

17

11

20

SKAGEN m2

07.2015



value NOK * Market-


Share of fund* Stock exchange

FINANCIALSGlobal Logistic Properties Ltd 3 347 000 45 748 49 466 3 718 4,27% Singapore

Columbia Property Trust Inc 245 000 43 101 47 439 4 338 4,10% New York

HCP Inc 162 100 47 508 46 717 -791 4,03% New York

Olav Thon Eiendomsselskap ASA 324 000 40 727 46 170 5 443 3,99% Oslo Børs

Mitsui Fudosan Co Ltd 204 000 40 500 44 927 4 427 3,88% Tokyo

General Growth Properties Inc 220 000 37 207 44 589 7 382 3,85% New York

Ashford Hospitality Trust 629 000 40 850 40 655 -195 3,51% New York

Brandywine Realty Trust 375 000 38 970 39 521 551 3,41% New York

PS Business Parks Inc 66 500 36 232 37 854 1 623 3,27% New York

SL Green Realty Corp 43 100 32 707 37 354 4 647 3,23% New York

Apartment Investmest & Management Co 127 000 30 637 37 101 6 463 3,20% New York

Soho China Ltd 7 208 500 37 437 36 942 -496 3,19% Hong Kong

CBL & Associates Properties Inc 257 000 34 796 32 454 -2 343 2,80% New York

Deutsche Wohnen AG 171 067 23 368 31 079 7 711 2,68% Frankfurt

British Land Co Plc 310 000 23 094 30 604 7 510 2,64% London

Mercialys SA 148 471 20 839 26 109 5 270 2,25% Paris

CA Immobilien Anlagen AG 188 000 24 997 25 794 797 2,23% Vienna

SM Prime Holdings Inc 7 100 000 19 620 24 740 5 120 2,14% Philippines

Nomura Real Estate Office Fund Inc 685 22 800 24 431 1 631 2,11% Tokyo

Shangri-La Asia Ltd 2 156 000 22 601 23 673 1 073 2,04% Hong Kong

Melia Hotels International 220 000 18 379 23 079 4 700 1,99% Madrid

Dic Asset AG 319 000 21 669 22 422 752 1,94% Xetra

Phoenix Mills Ltd 478 945 16 935 22 396 5 461 1,93% India

Emlak Konut Gayrimenkul Yatirim Ortakligi AS 2 560 000 21 120 20 748 -373 1,79% Istanbul

BR Properties SA 700 000 26 335 18 646 -7 689 1,61% Sao Paulo

First Real Estate Investment Trust 2 229 406 15 326 18 102 2 776 1,56% Singapore

Westgrund AG 442 106 14 548 17 715 3 167 1,53% Xetra

Irsa Sa ADR 125 519 11 463 17 667 6 205 1,53% New York

Gecina SA 16 000 14 445 15 628 1 183 1,35% Paris

Mapletree Logistics Trust 2 345 242 15 559 15 481 -78 1,34% Singapore

Bekasi Fajar Industrial Estate Tbk PT 63 806 900 21 426 15 033 -6 393 1,30% Indonesia

Affine SA 94 000 11 844 13 667 1 823 1,18% Paris

Ananda Development PCL-Nvdr 15 915 800 9 760 13 629 3 869 1,18% Bangkok

BR Malls Participacoes SA 355 700 15 938 12 996 -2 942 1,12% Sao Paulo

Atrium Ljungberg AB 120 621 12 052 12 441 389 1,07% Stockholm

Ascendas India Trust 2 324 000 9 588 12 150 2 562 1,05% Singapore

Unibail-Rodamco SE 5 975 9 910 11 979 2 069 1,03% Amsterdam

Axia Real Estate SOCIMI SA 114 000 11 105 11 919 814 1,03% Madrid

Vista Land & Lifescapes Inc 10 686 100 10 098 11 834 1 737 1,02% Philippines

Oberoi Realty Ltd 348 152 9 752 11 710 1 958 1,01% India

Ashford Inc 16 800 11 732 11 650 -82 1,01% New York

Entra ASA 149 523 10 835 10 915 80 0,94% Oslo Børs

CapitaLand Ltd 500 000 8 515 10 223 1 708 0,88% Singapore

Bumi Serpong Damai PT 9 186 500 8 925 9 036 111 0,78% Indonesia

Keck Seng Investments 1 200 000 9 240 8 999 -241 0,78% Hong Kong

Ticon Industrial Connection Pcl-Nvdr 2 701 720 11 150 8 802 -2 349 0,76% Bangkok

Summarecon Agung Tbk PT 9 019 400 6 494 8 686 2 192 0,75% Indonesia

Etalon Group Ltd GDR 433 718 9 416 6 313 -3 103 0,55% London

Grivalia Properties Reic AE 119 790 7 813 6 280 -1 533 0,54% Athens

Rockwell Land Corp 20 000 000 8 187 5 930 -2 257 0,51% Philippines

Parque Arauco SA 349 321 3 977 5 249 1 272 0,45% Santiago

Total Financials 1 057 278 1 138 944 81 665 98,37%

INTEREST INSTRUMENTSGeneral Shopping Finance 1 000 000 5 429 6 298 868 0,54% Euroclear

Total Interest Instruments 5 429 6 298 868 0,54%

Total equity portfolio 1 062 708 1 145 241 82 533 98,91%Disposable liquidity 12 670 1,09%


Base price as of 30-06-2015 146,5403



South America 5,3%

Peripheral EU 2,7%

North America 32,4%

Asia exJapan26,5%

Nordic 6,1%

Japan 6,0%

Euro-zone

17,8%

EMEA 2,3%

Cash 1,1%

SECURITIES PORTFOLIO SKAGEN m2 AS OF 30 JUNE 2015 See the portfolio in its entirety at www.skagenfunds.com/m2-portfolio


A short introduction is in order as this is the first update from SKAGEN Focus. The fund is a highly concentrated equity fund with a global mandate. The overall objective is to select only a few investments with an excep-tional risk/reward profile from an absolute return perspective – you will not see us deploy capital into our 345th best idea.

The contrarian opportunities we seek are, for example, companies ignored by their local investor base for various reasons. As global generalists we can more objectively analyse a company’s merits. Sometimes the sector might be out of favour, other times the geography. At times, and only at times, the actual company is having short-term fundamental issues.

We met many of you, our investors, during a recent road show for the fund. A couple of the questions that came up repeatedly were; “Why do you like less-than-perfect com-panies?” or “Why not just buy that stable growing company that has provided a steady return year after year the last 5 years?” Our answer: we do not like controversy, crisis or less-than-perfect companies; we like the pricing they generate. We require a minimum of 50% upside in a company’s share price to be interested. Why? Simply put, we demand a margin of safety. A great company does not equal a great investment.

We are responsible for 770 MNOK of capi-tal that clients have entrusted to us as of June 30. About 40% of this capital comes from associated people, including the mana-gers of the fund. So in true SKAGEN tradition, we are very closely aligned with our clients.

The fund has currently deployed capital into 28 investments, in a broad range of

industries and geographies. These invest-ments offer a combination of unique compa-ny-specific factors, which over time should result in substantial deviations versus the underlying market in terms of performance and composition.

By the end of June the fund had returned -7.6% in EUR. During the same period the index had generated a return of -4.7%. With its highly concentrated portfolio structu-re, large deviations versus the underlying market are to be expected. As much as we all wished for the opposite absolute result, this has been a good development as we are able to accumulate identified positions at lower prices. At the end of the month, 27% was invested in small caps (below USD 2bn market cap), 25% in mid-caps (USD 2-10bn market cap) and 40% in large caps (over USD 10bn market cap). The fund had an 8% cash position in a diversified basket of currenci-es at the end of the month, which is being slowly deployed.

Where the money isThe fund has a 7.6% position in the US-ba-sed insurance company American Internatio-nal Group (AIG). This, our largest position, brings to mind a 1951 quote accredited to the criminal W Sutton on why he robs banks; “Because that’s where the money is.” Con-trary to many sectors today, the insurance sector stands out in the out-of favour cate-gory. We are literally buying a dollar of cash for 80 cents for a respectable operation with decent earnings due to today’s low interest rates. Any upward change in interest rates would increase the value generation of our company as well as its valuation multiple.

Hunting for exceptional investments After its first month in existence, the fund has deployed capital into 28 investments and has identified a variety of strong risk-reward cases in a broad range of industries and geographies.

SKAGEN FocusHunting for exceptional investments

> The highly concentrated, global equity fund SKAGEN Focus was launched on 26 May 2015.

> As of the end of June, the fund had 28 holdings

> A variety of strong risk/reward cases have been identified in a number of sectors/geographies and cap-sizes.

Fund start date 26 May 2015

Return since start -7,62%

AUM EUR 88 million



SKAGEN Focus n/a** n/a**

MSCI ACWI n/a** n/a**

* As of 30 June 2015.** Fund was launched on 26 May 2015

PORTFOLIO MANAGERS

Filip Weintraub and Jonas Edholm

Krøyer´s dog, Rap, 1898. By P S Krøyer, one of the Skagen painters. The picture belongs to the Skagens Museum )cropped).

1 2 3 4 5 RISK 7


The storyline we always look for: Rock bottom and upward. US insurer AIG is the largest holding in the fund. Many years, lawsuits and testimonials have passed since AIG was at the epicentre of the financial crisis. Today we see several triggers that show substantial upside in the next two years. As an indicator, in early July, there was a merger announced in the industry between ACE and Chubb, at substantially higher multiples than AIG is currently trading at.

Ph

oto:

Blo

omb

erg

Ph

oto:

Blo

omb

erg

The fund utilises a self-developed exposure risk management sys-tem, based on fundamental risk factors attached to each investment case. In practice, this is a monitoring system aimed at assessing “how our investment theses can go wrong”. At the end of the month, the largest balance sheet factor was Acquisition Risk highlighting the overall conservative nature of the balance sheets of the fund’s positions as acquisition risk partly stems from excess cash on the balance sheet.

The top Income Statement risk was Price Competition, which

indicates that the fund has investment risk in some perceived com-modity nature businesses (for instance semiconductors through Hynix). In Eco System/Catalyst the largest risk factor is Corporate Governance – which we believe we are being paid to carry. Also a rather substantial risk factor is Yield Curve which highlights sensitivity to movement in interest rates for some positions within financials – like AIG described above. The fund currently has rela-tively low geopolitical risk according to the exposure system at the month’s end.

AIG is in the midst of a restructuring phase after the bailout by the US government. The sale of non-core assets and use of deferred tax assets will release significant capital in the mid-term which could be used to return capital to shareholders. The market seems to assume that the current low profitability will be everlasting and gives little credit for the improvements to come. The valuation of the stock is low compared to its tangible book value and we see substantial upside in the shares over the next two years.

One of the non-core assets in AIG is a substantial stake in AerCap Holdings – the world’s largest air leasing company with a fleet of 1200 aircrafts and another 340 on order. At the end of June we had

a 3.2% weight in AerCap. We believe that the company generates sustainable returns of 11-12% with substantial opportunities to grow over the next few years which, if true, makes the current valuation a bargain. Serving as one of the catalysts for the investment case, AIG would sell down its holding, and as such induce a liquidity event in the shares of AerCap, which could mean an index inclusion for the company. In early June AIG announced a transaction which would partly be bought by AerCap through a USD 750m share buyback (7% of the market cap). In this transaction, the fund also increased its holding in the company.


SKAGEN FOCUS

Citizen Financial is the 13th largest regi-onal bank in the US. As a result of a long period of mismanagement and under-in-vestment by previous owner, RBS, Citi-zens’ profitability metrics significantly lag its peers and capital far exceeds its peers. Current mediocre profitability has the potential to double in the mid-term. The stock trades at low levels to book value and has potential to generate a substantial return over time.

Australia-based South32 is a mining com-pany that was demerged from BHP Billiton in May 2015. As a stand-alone entity we see major potential for cost reduction and increased efficiencies across its opera-tions. The company has a strong balance sheet and will generate a substantial free cash flow in the mid-term – yet it is one of cheapest mining companies of its size, probably due to being new to investors.

Jenoptik is a German company active in the field of optoelectronics. Jenoptik has refocused its strategy on increasing its international presence, while reducing its reliance on the lower margin optical defence segment. The company has a high free cash flow yield and might engage in value-enhancing acquisitions and potenti-al sale of its defence business in the mid-term. The company trades at a substantial discount that we believe is unjustified.

Final comments Despite relatively elevated valuations in specific segments of the market, for instance in so called high yielders, we have managed to identify attractive risk/reward situations in a variety of sectors/geographies and cap-sizes. We again want to highlight that these are very stock specific situations with a diversified set of value drivers which over time will result in large deviations versus the underlying market.

As a final comment it is perhaps worthwhile reviving Keynes’ comments on how to invest from a long-term perspective written in the 1930s:

“For it is in the essence of his (the long-term investor’s) behaviour that he should be eccentric, unconventional and rash in the eyes of average opinion. If he is successful, that will only confirm the general belief in his rashness; and if in the short run he is unsuc-cessful, which is very likely, he will not receive much mercy”. It then continues: “Worldly wisdom teaches us that it is better for reputation to fail conventionally, than to succeed unconventionally”.

We completely subscribe to the first part of the quote, and have no respect for the latter.

SK Hynix is a Korea-based maker of semiconductors, well positioned to reap rewards in case of a DRAM structural reco-very. The market assigns a discounted valuation to the shares due to the cyclical nature of the business and exaggerated concerns on the supply side of the market. Industry consolidation has led to better investment discipline. Also, the capacity dynamic has become more predictable. SK Hynix trades at single digit multiples, despite current superior returns on inve-sted capital.

China Telecom is the world’s largest wire-line and broadband provider. Ongoing 4G investments will pay off when this moves to the mass market. The sell-off of Tower Co would impact mid-term earnings positive-ly. The stock trades at a steep discount to other telecom operators globally. Notwith-standing the “China regulator and govern-ment” risk, however, at these low multiples it is an interesting investment proposi-tion. In addition, we get one of the largest “last-mile” optic broadband networks in the world, for basically nothing.

Omega Protein is the largest US producer of Omega-3 fish oil and fish meal products. The shares are greatly undervalued on current earnings, probably due to a mis-perception of product volume cyclicality. Efforts to grow the human nutrition busi-ness as well as an aim to swim up the value chain with the branding of its products, and expanding its protein-based offerings could stabilise the company’s earnings going forward. If the company is successful in its strategy execution, the shares trade at 70% discount to similar companies.


SECTOR DISTRIBUTION


Consumerdiscretionary

6,4%

Energy 5,7%

Finance 25,3%

Telecom 7,3%Raw

materials 7,3%

Industrials 13,4%

IT 10,1%

Cash 8,3%

Consumer staples13,5%

Health 2,8%

Eurozone 11,9%

Nordic 5,3%NorthAmerica34,6%

Cash 8,3%

Oceania 4,4%

Japan11,5%

Asia exJapan 21,0%

Peripheral EU 3,0%


value NOK * Market-


Share of fund* Stock exchange

Whiting Petroleum Corp 85 000 21 857 22 491 634 2,93% New York

GCL-Poly Energy Holdings Ltd 11 650 000 24 748 21 162 -3 586 2,75% Hong KongTotal Energy 46 605 43 653 -2 952 5,68%

South32 Ltd 3 110 000 41 462 33 650 -7 812 4,38% Sydney

Pan American Silver Corp 335 000 24 053 22 562 -1 491 2,94% NASDAQTotal Raw materials 65 515 56 212 -9 303 7,31%

Jenoptik AG 337 000 33 363 32 119 -1 244 4,18% Xetra

Komatsu Ltd 160 000 26 071 25 263 -808 3,29% Tokyo

Rentech Inc 2 395 000 20 683 19 409 -1 274 2,53% New York


Solazyme Inc 332 000 8 298 8 385 87 1,09% NASDAQTotal Industrials 111 597 103 062 -8 535 13,41%

Hyundai Motor Co Pref (2pb) 37 000 26 796 27 356 560 3,56% Seoul

Fila Korea Ltd 20 000 15 153 15 632 479 2,03% Seoul

Hyundai Motor Co GDR 10 173 4 178 3 662 -516 0,48% London

Fourlis Holdings SA 131 533 3 366 2 812 -555 0,37% AthensTotal Consumer discretionary 49 494 49 462 -32 6,43%

Carlsberg AS-B 57 000 41 411 40 680 -731 5,29% Copenhagen

Omega Protein Corp 295 800 30 762 31 884 1 122 4,15% New York

Stock Spirits Group Plc 977 000 22 990 23 176 186 3,02% London

China Child Care Corp Ltd 5 405 000 8 974 7 350 -1 624 0,96% Hong Kong

Total Consumer staples 104 136 103 090 -1 046 13,41%

Magforce AG 365 000 19 097 21 433 2 335 2,79% Xetra

Total Health 19 097 21 433 2 335 2,79%

American International Group Inc 120 000 55 344 58 357 3 013 7,59% New York

Citizens Financial Group Inc 183 000 38 168 39 033 865 5,08% New York

SBI Holdings Inc 359 000 40 229 38 897 -1 332 5,06% Tokyo

Aercap Holdings NV 68 500 25 407 24 832 -575 3,23% New York

CIT Group Inc 64 000 22 901 23 445 544 3,05% New York

Uniqa Insurance Group AG 140 000 10 052 9 913 -139 1,29% Vienna

Total Finance 192 102 194 477 2 375 25,30%

SK Hynix Inc 125 000 42 385 37 232 -5 153 4,84% Seoul

Ubiquiti Networks Inc 84 000 20 109 20 884 775 2,72% NASDAQ

Sandisk Corp 42 000 22 407 19 454 -2 953 2,53% NASDAQ

Total IT 84 901 77 571 -7 330 10,09%

China Telecom Corp Ltd 6 780 000 36 268 31 306 -4 962 4,07% Hong Kong

Softbank Group Corp 53 000 24 635 24 553 -81 3,19% Tokyo

Total Telecom 60 903 55 859 -5 044 7,27%

Total equity portfolio* 734 349 704 817 -29 532 91,70%Disposable liquidity 63 831 8,30%

Total share capital 768 648 100,00%

Base price as of 30-06-2015 96,0048


SECURITIES PORTFOLIO SKAGEN FOCUS AS OF 30 JUNE 2015 See portfolio in its entirety at www.skagenfunds.com/focus-portfolio


FIXED INCOME COMMENT

– Torgeir HøienPortfolio Manager SKAGEN Tellus

Long-term interest rates: Up, sideways or down?

The US ten-year bond yield increased from 1.9% to 2.4% while the German equiva-lent rose from 0.2% to 0.8%. The interest rate in these countries thereby returned to levels last seen in October and Novem-ber of last year. We had positioned our bond fund SKAGEN Tellus in line with our expectation that the long-term interest rates would either remain stable or fall.

So how do we see things developing further? Will the interest rates continue to rise, will they remain at around the same level we see today or will they decline again?

Active bond fund management – i.e. trying to generate excess returns for unit holders over time by having a view on whether interest rates will rise or fall, both generally and in various markets – implies that one has an opinion on what is most likely to happen in future. Often this entails having a view that deviates from the consensus. This appears to be the case now when most analysts are of the opinion that the policy rates will rise further. We still believe they will fall.

Interest rates and inflation will fallThe reason that we believe interest rates will fall further is due to a combination of our view on growth prospects and our view on inflation developments. The long-term interest rates can be broken down into a real rate and compensation for expected inflation. The upturn in the long-term inte-rest rates last quarter was due to the fact that the real rates increased and expected inflation picked up both in the US and in Germany. The US 10-year policy rate incre-ased by about 50 basis points, i.e. 0.5 percentage points. Of this, the real rate contributed 30 basis points and higher expected inflation 20 basis points. The developments were more or less the same in Germany, but starting from a lower level.

The increase in the real rates probably

reflected the better growth prospects in the advanced economies. The market saw through the weak first quarter figures and priced in expectations of higher growth both in the US and the Eurozone. This may be correct. So far the current indica-tors generally give an indication of better growth in the advanced economies beyond 2015 than was the case in the first quarter. An important factor here is likely lower energy prices due to a greater supply of oil.

On the other hand, we believe that the heightened inflation expectations are transitory; it is most likely that the-re will be another downward correction. Inflation will wane, and gradually this will have an impact on expected inflation. We are therefore of the opinion that so-called expansive monetary policy has the oppo-site effect in the long run. Without going into the theory, we refer to experience. In Japan, many years of a zero interest rate policy have not resulted in a sustained increase in inflation.

Japan has for years been brushed asi-de a peculiarity, but the same economic mechanisms apply there as in other deve-loped economies. And now we are also beginning to see the same developme-nts in other advanced economies. In the Eurozone, core inflation has so far this year had an annualised rate of 0.4%. One may well claim that this is because eco-nomic growth has been sluggish, but we do not share this view. Switzerland is an example where inflation is negative. One may object that although the economy has seen fairly good growth, inflation is currently effected by a strengthening cur-rency earlier this year. This is not a view we subscribe to either.

Building on observationsOne reason why we are sceptical to the typical explanations around inflation deve-lopments in the Eurozone and Switzerland

is experience from other economies that have practised zero interest rate policy. If we look at the developments in the UK and Switzerland, we see that inflation has declined at the same time as monetary policy has been extremely expansive and economic growth healthy.

If any one country stands out, it must be the US. Inflation here has also admit-tedly been low – so far this year core infla-tion has grown at an annualised rate of 1.3% – but it has been low a good while without yet showing signs of stabilising around zero. Compared to what has hap-pened in Japan and the other economies mentioned above, we believe it is merely a matter of time before inflation falls further towards zero in the US also. A trigger may be if the Fed increases the interest rate towards the end of the year.

The short-term policy of a slightly tigh-ter monetary policy in the US is slightly lower inflation. If the Fed then stops after an increase of 25 basis points, or retreats, then they’ll be back to a zero interest rate policy. Overall, both the long-term effect of the Fed policy since 2009, and the short-term effect of a slightly tighter monetary policy, point to lower inflation.

The conclusion when it comes to the long-term nominal interest rates is there-fore that lasting low inflation will in time rub off on inflation expectations. This will in turn cause the long-term interest rates to fall as we do not believe there is further acceleration in economic growth to be pri-ced into the long-term real interest rates.

It came as a surprise to us that the long-term policy rates rose in the second quarter, and the increase was substantial. The yield increases on the most secure government bonds pulled up the long-term interest rates generally.

When interest rates rise, bond prices fall, and vice versa, and the effect is all the greater the longer the bond’s term to maturity. At the start of the second quarter, the bonds in the SKAGEN Tellus portfolio generally had a long term to maturity. When the interest rates increased, this resulted in lower bond prices, which in turn pulled down the value of each fund unit. The aphorism “a rising tide lifts all boats” certainly holds true in the globalised fixed income market. When interest rates increase on the most secure government bonds, such as the German and US treasury bonds, the general level also rises. That was what we witnessed in the second quarter.

SKAGEN Tellus did not and does not have German bonds in its portfolio. We did have a position in a ten-year US treasury bond, however, and the US ten-year interest rate rose from 1.93% at the start of the second quarter to 2.39% at the time of writing. This interest rate rise resulted in an unrealised loss for SKAGEN Tellus. We have not sold our US bond because we believe that interest rates will fall again. We also realised a loss on the fund’s investments in long duration bonds issued by other countries’ governments. We have not reduced our positions in these either, barring in the Eurozone – see below. Please read our fixed income commentary for a view on the long-term interest rates. The long-term interest rates rose yet further on bonds issued in the so-called Eurozone periphery where the fund held positions in Portugal, Italy, Spain and Slovenia. The interest rates increased both as a result of the general interest rate increase and the sustained unrest surrounding the situation in Greece. We had expected that the uncer-tainty in Greece would only to a small extent affect the other countries in the Eurozone but this turned out not to be the case.

By the end of the second quarter it was clear that Greece had defaulted on a loan from the IMF and faced a referendum regarding to what extent Greece should accept the creditors’ demands on a new rescue package. The outcome of the poll was unclear at the time of writing, and the fall-out effects of Greece on the rest of the Eurozone are equally ambiguous. We therefore chose in the last few weeks of the quarter to sell our bonds issued in the Eurozone periphery. We are prepared to buy in again, but we await clarity around future developments. We are not prepared to gamble on what the Greek government may decide from day to day.

HeadwindsSKAGEN Tellus did not have a good second quarter. The fund was not optimally positioned for the increase in interest rates that we saw in the period. This resulted in a loss, both in absolute terms and relative to the fund’s benchmark index.

SKAGEN TellusA doorway to global interest rates

> Interest rates increased in the quarter, resulting in lower bond prices

> The fund was not optimally positioned for the interest rate hike

> We have sold our bonds in the Euro-zone periphery awaiting clarity around Greece

Fund start date 29 September 2006


AUM EUR 153 million



SKAGEN Tellus -8,08% 7,03%

JP Morgan GBI Broad Index Unhedged -5,23% 13,42%

* As of 30 June 2015.

PORTFOLIO MANAGERS

Torgeir Høien and Jane Tvedt

Interior. Brøndum’s annex, ca 1920. Detail. By Anna Ancher, one of the Skagen painters. The picture is owned by the Skagens Museum (cropped).

1 2 RISK4 5 6 7


Security Mat

urit

y

Coup

on

Face

val

ue

***

Cost

pri

ce

***

Mar

ket

Pric

e

Acc

rued

in

tere

st

***

Mar

ket

valu

e **

*

Mar

ket

valu

e in

cl.

accr

ued

inte

rest

**

*

Unr

eali

sed

gai

n/lo

ss

***

Sha

re o

f fu

nd

GOVERNMENT BONDSBrazilian Government 10.01.2028 10,25 20 400 58 683 267,13 2 500 54 494 56 994 -4 190 4,25 %

Chilean Government 05.08.2020 5,50 4 410 000 54 659 1,31 1 199 57 635 58 834 2 976 4,39 %

Colombian Government 14.04.2021 7,75 13 400 000 48 232 0,33 664 44 788 45 451 -3 444 3,39 %

Croatia Government International Bond 30.05.2022 3,87 8 300 74 798 878,74 239 72 936 73 175 -1 862 5,46 %

European Bank Recon & Dev 19.03.2018 5,75 800 000 103 386 12,09 1 594 96 714 98 308 -6 672 7,33 %

French Government 25.05.2020 0,00 15 000 129 408 863,17 0 129 476 129 476 68 9,66 %

German Government 11.10.2019 0,25 7 000 61 789 887,38 125 62 117 62 242 328 4,64 %

Lithuanian Government 01.02.2022 6,62 5 500 42 570 934,68 1 182 51 407 52 589 8 837 3,92 %

Mexican Government 20.11.2036 10,00 60 000 38 345 68,73 83 41 240 41 324 2 895 3,08 %

Netherlands Government 15.01.2020 0,25 13 600 119 697 881,07 0 119 825 119 825 129 8,94 %

New Zealand Government 17.04.2023 5,50 8 000 54 358 612,57 485 49 006 49 491 -5 352 3,69 %

Peruvian Government 12.08.2037 6,90 18 000 41 063 238,34 1 168 42 902 44 070 1 839 3,29 %

Turkish Government 08.03.2023 7,10 26 250 71 311 260,14 1 542 68 286 69 829 -3 025 5,21 %

US Government 31.08.2016 0,50 20 800 137 570 784,74 277 163 226 163 503 25 656 12,20 %

US Government 30.06.2017 0,62 8 000 63 152 783,48 0 62 679 62 679 -473 4,68 %

US Government 15.02.2025 2,00 20 900 170 152 760,98 1 222 159 046 160 267 -11 106 11,95 %

Total Bond Portfolio 1 269 173 12 282 1 275 776 1 288 058 6 603 96,08 %Disposable liquidity 49 051 3 371 49 265 52 636 215 3,92 %

TOTAL 1 318 224 15 653 1 325 041 1 340 694 6 817 100,00 %

Effective underlying return 3,12 %

Effective yield to clients* 2,32 %

Duration** 4,84

* Effective underlying return adjusted for managment fee.** Duration is a simplified expression of how much the price of the security will change if the interest rate changes by one percentage point.*** Figures in 1000 NOK

Effective interest is the average annual return of an interest bearing security until maturity. Securities are valued at market price as of 31.06.2015Bonds and notes for which there are no market maker prices are at all times valued against the applicable yield curve.

Unit price as of 30.06.2015 128,7959

SECURITIES PORTFOLIO FOR SKAGEN TELLUS AS OF 30 JUNE 2015

SKAGEN Credit EURPicking the best bonds from the global orchard

> A good quarter

> The Greek unrest led to wider credit spreads in June

> No direct exposure to Greece

Fund start date 30 May 2014

Return since start -0,08%

AUM (feeder fund) EUR 5 million

AUM (master) EUR 23 million

Number of unitholders 30

PORTFOLIO MANAGERS

Ola Sjöstrand and Tomas Nordbø Middlethon

Apple trees, 1907. By Michael Ancher, one of the Skagen painters. The picture is owned by the Skagens Museum (cropped).

1 2 RISK 4 5 6 7


SKAGEN Credit 0,95% -0,23%

EURIBOR-3M 0,00% 0,07%


SKAGEN Credit had a good start to the quarter with the credit spreads narrowing and all being generally well. Last month, however, concerns around Greece grew and the credit spreads on several of the fund’s investments widened. The unrest particularly made bonds issued by companies in emerging markets less attractive. There has also been a tendency that the more risky the bonds have been, the more they have fallen in value – irrespective of whether the commotion surrounding Greece actually affects them. The fund has no direct exposure to Greece and generally has a small proportion of the portfolio invested in companies from so-called peripheral Eurozone countries.

Switzerland-based INEOS is one of the world’s largest petrochemical companies with operations and sales around the world. The company has a strong market position with an integrated production system and the customer base is diversified so they are not exposed to just one sector. 60% of sales are in Europe and 20% in North America. In the spring, INEOS issued new bonds and extended their loans so they do not need to refinance these for a long time. The fund has invested in one of their BB- rated euro bonds which matures in 2023. The bond provides an attractive yield relative to its competitors and also relative to other European companies with a similar credit rating.

Another new investment is the world’s leading meat processor, JBS, with operations primarily in Brazil and the US. JBS exports its products worldwide and the majority of its earnings come from North America and Australia. What makes JBS particularly interesting is that their bonds trade at a higher credit premium because the company is Brazilian. Compared to its US-based competitors with a similar credit quality, for example, JBS bonds provide a significantly higher yield. JBS is a clear example that the domicile of a company’s head office is significant and that it is possible to find undervalued bonds in line with SKAGEN’s investment philosophy. The bond in question has a BB-rating, is denominated in USD and matures in 2020.

An old friend of the fund that has now returned to the portfolio is Indian-British Jaguar Land Rover. The company has financial ratios that are considerably better than its credit rating (BB-) implies. The reason for the rating is the fact that they are owned by Indian Tata Motors which has a BB- rating. The beauty of this is that Tata Motors gets the bulk of its earnings from Jaguar Land Rover. SKAGEN Credit has invested in a USD-denominated bond that matures in 2018.

Unrest creates opportunities During the second quarter we found a number of interesting companies to invest in. The recent unrest in the market has made valuations more attractive.

Indian-British Jaguar Land Rover, owned by Tata Motors, has now returned to the Credit portfolio. The company has financial ratios that are considerably better than its credit rating (BB-) implies.

Ph

oto:

Blo

omb

erg


SKAGEN CREDIT MASTER FUND Security Currency Maturity Face value Coupon Market value EUR

Share of fund

Talisman Energy Inc GBP 05.12.2017 500 000 6,63 7 048 689 3,46

Gazprom OAO Via Gaz Capital SA USD 11.04.2018 800 000 8,15 6 827 623 3,35

Noble Group Ltd USD 29.01.2020 750 000 6,75 6 229 452 3,06

Petrobras Global Finance BV USD 01.03.2018 700 000 5,88 5 712 105 2,80

Seadrill Ltd USD 15.09.2017 700 000 6,13 5 001 761 2,45

Petrobras Global Finance BV USD 20.01.2020 100 000 5,75 795 612 0,39 Total Energy 31 615 243 15,52

SSAB AB EUR 10.04.2019 800 000 3,88 7 163 590 3,52

Braskem Finance Ltd USD 15.04.2021 775 000 5,75 5 846 690 2,87

Glencore Funding LLC USD 29.04.2019 475 000 3,13 3 779 377 1,85

Glencore Canada Financial Corp GBP 27.05.2020 250 000 7,38 3 680 669 1,81

INEOS EUR 01.05.2023 400 000 4,00 3 368 867 1,65

Lafarge SA EUR 13.04.2018 200 000 6,25 1 972 461 0,97 Total Raw materials 25 811 655 12,67

Color Group AS NOK 18.09.2019 6 000 000 6,61 6 118 220 3,00

Stena AB EUR 01.02.2019 620 000 5,88 5 968 107 2,93

Norwegian Air Shuttle AS NOK 03.07.2017 6 000 000 5,22 5 953 080 2,92

PostNL NV GBP 14.08.2018 350 000 7,50 5 307 216 2,60

Heathrow Funding Ltd GBP 10.09.2018 300 000 6,25 4 329 830 2,13

Tallink Group AS NOK 18.10.2018 3 000 000 6,51 3 133 197 1,54

Bombardier Inc USD 16.03.2020 300 000 7,75 2 450 359 1,20

Empresas ICA SAB de CV USD 04.02.2021 350 000 8,90 2 408 539 1,18 Total Industrials 35 668 547 17,51

Fiat Finance & Trade SA EUR 15.03.2018 500 000 6,63 4 893 484 2,40

Samvardhana Motherson Automotive systems Group BV EUR 15.07.2021 400 000 4,13 3 591 927 1,76

Jaguar Land Rover Automotive Plc USD 14.12.2018 400 000 4,13 3 212 488 1,58

Best Buy Co Inc USD 15.03.2021 300 000 5,50 2 490 545 1,22 Total Consumer discretionary 14 188 444 6,96

Safeway Ltd GBP 10.01.2017 500 000 6,00 6 701 938 3,29

Avon Products Inc USD 01.03.2019 400 000 6,50 3 130 239 1,54

JBS Investments GmbH USD 28.10.2020 300 000 7,75 2 591 690 1,27

Cosan Luxembourg SA USD 14.03.2023 300 000 5,00 2 213 034 1,09

Total Consumer staples 14 636 901 7,18

Danske Bank AS GBP 29.09.2021 500 000 5,38 6 795 472 3,34

Amlin Plc GBP 18.12.2026 500 000 6,50 6 555 006 3,22

Bank of Baroda - London USD 23.07.2019 750 000 4,88 6 385 259 3,13

Standard Chartered Bank GBP 03.04.2018 350 000 7,75 5 002 681 2,46

Tyrkiye Halk Bankasi AS USD 19.07.2017 550 000 4,88 4 533 996 2,23

Akbank TAS USD 24.10.2017 550 000 3,88 4 401 440 2,16

Insurance Australia Group Ltd GBP 21.12.2026 300 000 5,63 3 915 131 1,92

Diamond Bank Plc USD 21.05.2019 400 000 8,75 3 037 646 1,49

Akbank TAS USD 09.03.2018 300 000 6,50 2 569 976 1,26

Banco Est Rio Grande Sul USD 02.02.2022 250 000 7,38 1 994 219 0,98

American Tower Corp USD 15.02.2019 200 000 3,40 1 626 826 0,80

Total Financials 46 817 654 22,98

Rolta Americas LLC USD 24.07.2019 400 000 8,88 2 765 935 1,36

Total IT 2 765 935 1,36

Bharti Airtel International Netherlands BV EUR 10.12.2018 600 000 4,00 5 756 601 2,83

VimpelCom Holdings BV USD 01.03.2022 550 000 7,50 4 338 237 2,13

VimpelCom Holdings BV USD 01.03.2017 200 000 6,26 1 644 177 0,81

Total Telecom 11 739 015 5,76

EP Energy AS EUR 01.11.2019 675 000 5,88 6 735 260 3,31

EDP Finance BV USD 01.10.2019 750 000 4,90 6 198 338 3,04

EDP Finance BV EUR 21.09.2017 175 000 5,75 1 750 339 0,86

Total Utilities 14 683 937 7,21

Security Currency Maturity Face value Coupon Market value EUR Share

SKAGEN Credit EUR 387 858 5 095 528 98,77

Liquidity 63 475 1,23

Total share capital 5 159 003 100,00

TOTAL SECURITIES PORTFOLIO 197 927 331 97,15

Derivatives*IRS EUR 20210511 EUR 11.05.2021 600 000 7 813 -

IRS USD 20210622 USD 22.06.2021 1 000 000 7 768 0,01

IRS USD 20190820 USD 20.08.2019 2 000 000 -207 624 -0,10

IRS USD 20180620 USD 20.06.2018 3 500 000 -208 739 -0,11

IRS EUR 20180620 EUR 20.06.2018 3 000 000 -246 369 -0,12

IRS GBP 20180129 GBP 29.01.2018 1 200 000 -313 732 -0,16

Total Derivatives -960 884 -0,47

Liquidity 6 776 326 0,03

TOTAL SHARE CAPITAL 203 742 773 100,00 Unit price as of 30-06-2015 9,9923

Degree of currency hedging 94,86%, Share of SKAGEN Credit 21,93%

SKAGEN Credit SEK/ NOK/EUR/GBP are feeder funds or collection funds that feed into the master fund, which oversees all portfolio investments. Thefollowing is an overview of the portfolio of the SKAGEN Credit master fund.

SECURITIES PORTFOLIO FOR SKAGEN CREDIT AS OF 30 JUNE 2015


FINANCIAL STATEMENT AS OF 30.06.2015

Income statement(all figures in NOK 1000)

SKAGEN Vekst1H 2015

SKAGEN Global1H 2015

SKAGEN Kon-Tiki1H 2015

SKAGEN m2

1H 2015

SKAGEN Balanse 60/40

1H 2015SKAGEN Tellus

1H 2015SKAGEN Avkastning

1H 2015PORTFOLIO REVENUE AND COSTSInterest income and costs -811 -5 502 -17 567 488 2 325 24 083 25 981

Dividends 151 288 486 107 746 382 18 547 - - -

Realised capital gain/loss 573 939 3 581 060 4 124 890 37 676 2 655 97 178 34 834

Change unrealised capital gain/loss -430 635 -1 348 194 -3 053 013 -68 558 4 117 -149 093 -56 559

Guarantee commission - - - - - - -

Broker's fee -3 804 -24 687 -24 246 -1 109 - -18 -16

Currency gain/loss 17 290 -26 845 -38 375 1 119 - -3 901 9 003

PORTFOLIO RESULT 307 266 2 661 938 1 738 071 -11 836 9 098 -31 752 13 243

MANAGEMENT REVENUE AND COSTS1

Management fee – fixed -41 756 -187 408 -434 641 -9 556 - -4 957 -4 709 Management fee – variable * -1 517 - 277 763 4 457 - - -

ASSET MANAGEMENT RESULT -43 273 -187 408 -156 878 -5 099 - -4 957 -4 709 RESULT BEFORE TAX 263 993 2 474 530 1 581 193 -16 935 9 098 -36 709 8 534

Tax cost -4 265 -55 456 -64 178 -4 335 -279 - -

NET INCOME FOR THE PERIOD 259 728 2 419 074 1 517 015 -21 270 8 819 -36 709 8 534

Balance sheet 30.06.2015 30.06.2015 30.06.2015 30.06.2015 30.06.2015 30.06.2015 30.06.2015ASSETSNorwegian securities at cost price 1 597 530 638 570 1 263 869 51 563 333 685 - 1 123 402

Foreign securities at cost price 5 455 352 24 149 829 30 370 846 1 011 145 26 500 1 269 173 356 100

Unrealised capital gains/loss 1 083 308 10 066 812 11 138 052 82 422 32 213 6 603 10 098

Accrued interest securities - - - 111 2 575 12 393 3 661

TOTAL SECURITIES PORTFOLIO 8 136 190 34 855 211 42 772 766 1 145 241 394 973 1 288 169 1 493 261 Dividend receivable 2 641 47 381 13 239 2 260 - - -

Accrued interest bank - - - - - - -

TOTAL ACCRUED INCOME 2 641 47 381 13 239 2 260 - - - Deferred tax advantage - - - - 146 - -

Accounts receivable – brokers - 209 388 88 361 9 214 - 326 822 203 959

Accounts receivable – management company 3 11 24 4 - 4 3

Tax receivable on dividends 6 630 46 476 26 705 729 - - -

Other receivables - - - 604 - - 2 282

TOTAL OTHER RECEIVABLES 6 633 255 875 115 089 10 552 146 326 826 206 244 Bank deposits 105 419 329 685 876 791 14 057 2 254 40 711 395 972

TOTAL ASSETS 8 250 884 35 488 152 43 777 886 1 172 110 397 374 1 655 706 2 095 477

EQUITY CAPITAL1 Unit capital at par value 432 037 2 606 575 6 156 564 802 264 295 307 1 037 771 1 323 577

Premium -3 512 231 75 915 8 801 585 211 933 47 952 186 908 490 994

TOTAL PAID-IN EQUITY CAPITAL -3 080 194 2 682 490 14 958 149 1 014 197 343 259 1 224 679 1 814 571 Retained earnings 11 303 961 32 532 244 28 717 433 145 976 53 094 114 103 74 603

TOTAL EQUITY CAPITAL 8 223 767 35 214 734 43 675 582 1 160 173 396 353 1 338 782 1 889 174

DEBTDeferred tax - - - 1 655 - - -

Accounts payable – brokers - 145 253 37 315 2 254 - 312 061 203 852

Accounts payable – management company 22 532 93 165 38 342 2 784 - 2 526 2 451

Other debt 4 585 35 000 26 648 5 244 1 021 2 336 -

TOTAL OTHER DEBT 27 117 273 418 102 304 11 937 1 021 316 923 206 303 TOTAL DEBT AND EQUITY CAPITAL 8 250 884 35 488 152 43 777 886 1 172 110 397 374 1 655 706 2 095 477

Note: Divergence in price relative to the portfolios is due to accruals divergence as of 30.06.2015.* Calculated variable management fee as of 30.06.15: pursuant to the regulations, the definitive statement shall take place as of 31.12.2015 based on value developments during the rest of the year. In SKAGEN Global C and SKAGEN Global D, the statement shall take place on a quarterly basis. In SKAGEN Vekst, the variable management fee shall only be charged if the unit value as of 31.12 is higher than the unit value at the previous charge/statement (high watermark).

Financial statement


Income statement(all figures in NOK 1000)

SKAGEN Høyrente1H 2015

SKAGEN Høyrente Inst.

1H 2015SKAGEN Krona**

1H 2015SKAGEN Credit

1H 2015

SKAGEN Credit NOK

1H 2015

SKAGEN Credit SEK**

1H 2015

SKAGEN Credit EUR***

1H 2015PORTFOLIO REVENUE AND COSTSInterest income and costs 36 232 8 762 1 994 4 638 4 632 928 148,68

Dividends - - - - - - -

Realised capital gain/loss 44 -441 - 1 127 6 165 752 42,62

Change unrealised capital gain/loss -7 098 -768 -170 2 883 -4 284 -316 75,00

Guarantee commission - - - - - - -

Broker's fee -2 -3 -9 -20 -15 -13 -1,03

Currency gain/loss - - - 998 -3 565 -771 -166,73

PORTFOLIO RESULT 29 175 7 549 1 815 9 627 2 932 581 98,54

MANAGEMENT REVENUE AND COSTS1

Management fee – fixed -3 792 -579 -558 - -422 -106 -14,57 Management fee – variable * - - - - - - -

ASSET MANAGEMENT RESULT -3 792 -579 -558 - -422 -106 -14,57 RESULT BEFORE TAX 25 384 6 971 1 257 9 627 2 510 474 83,97

Tax cost - - - - - - -

NET INCOME FOR THE PERIOD 25 384 6 971 1 257 9 627 2 510 474 83,97

Balance sheet 30.06.2015 30.06.2015 30.06.2015 30.06.2015 30.06.2015 30.06.2015 30.06.2015ASSETSNorwegian securities at cost price 1 891 636 479 641 - 14 980 129 163 22 997 4 884,42

Foreign securities at cost price - - 515 492 161 409 - - -

Unrealised capital gains/loss -4 418 -1 040 -441 16 635 1 781 99 39,57

Accrued interest securities 6 210 1 354 805 3 965 5 200 918 195,55

TOTAL SECURITIES PORTFOLIO 1 893 427 479 955 515 856 196 989 136 144 24 015 5 119,53 Dividend receivable - - - - - - -

Accrued interest bank - - - - - - -

TOTAL ACCRUED INCOME - - - - - - - Deferred tax advantage - - - - - - - Accounts receivable – brokers - - - - - 555 -

Accounts receivable – management company - - - - - 9 0,03

Tax receivable on dividends - - - - - - -

Other receivables - - - 5 935 - - -

TOTAL OTHER RECEIVABLES - - - 5 935 - 563 0,03 Bank deposits 997 869 382 296 60 555 2 652 2 012 473 75,88

TOTAL ASSETS 2 891 296 862 251 576 411 205 576 138 156 25 051 5 195,44

EQUITY CAPITAL1 Unit capital at par value 2 837 454 857 166 531 929 176 951 129 872 24 588 5 162,15

Premium 23 475 -1 645 4 405 3 275 809 123 -10,15

TOTAL PAID-IN EQUITY CAPITAL 2 860 929 855 520 536 334 180 225 130 682 24 712 5 152,00 Retained earnings 27 476 6 441 -3 082 23 598 508 -275 10,95

TOTAL EQUITY CAPITAL 2 888 404 861 962 533 252 203 823 131 189 24 436 5 162,95

DEBTDeferred tax - - - - - - -

Accounts payable – brokers - - 41 990 1 753 6 729 - 24,10

Accounts payable – management company 1 838 289 266 - 230 55 8,39

Other debt 1 054 - 902 - 8 560 -

TOTAL OTHER DEBT 2 892 289 43 158 1 753 6 967 615 32,49 TOTAL DEBT AND EQUITY CAPITAL 2 891 296 862 251 576 411 205 576 138 156 25 051 5 195,44

Note: Divergence in price relative to the portfolios is due to accruals divergence as of 30.06.2015.* Calculated variable management fee as of 30.06.15: pursuant to the regulations, the definitive statement shall take place as of 31.12.2015 based on value developments during the rest of the year. In SKAGEN Global C and SKAGEN Global D, the statement shall take place on a quarterly basis. In SKAGEN Vekst, the variable management fee shall only be charged if the unit value as of 31.12 is higher than the unit value at the previous charge/statement (high watermark). ** Figures in SEK 1000 *** Figures in EUR 1000




1) Allocated between the respective unit classesSKAGEN Høyrente

30.06.2015

SKAGEN Høyrente Inst.

30.06.2015SKAGEN Krona**

30.06.2015SKAGEN Credit

30.06.2015

SKAGEN Credit NOK

30.06.2015

SKAGEN Credit SEK** 30.06.2015

SKAGEN Credit EUR***

30.06.2015Class

Number of units issued A 28 374 539 8 571 659 5 319 289 1 769 507 1 298 723 245 881 391 675

Base price per unit as of 30.06.2015 in NOK**** A 101,8008 100,5670 100,2491 115,1893 101,0116 99,3913 9,9923

Number of units issued B 124 540

Base price per unit as of 30.06.2015 in NOK**** B 10,0302

Number of units issued C

Base price per unit as of 30.06.2015 in NOK C

Number of units issued D

Base price per unit as of 30.06.2015 in NOK D

Number of units issued E

Base price per unit as of 30.06.2015 in NOK E

Note: Divergence in price relative to the portfolios is due to accruals divergence as of 30.06.2015.* Calculated variable management fee as of 30.06.15: pursuant to the regulations, the definitive statement shall take place as of 31.12.2015 based on value developments during the rest of the year. In SKAGEN Global C and SKAGEN Global D, the statement shall take place on a quarterly basis. In SKAGEN Vekst, the variable management fee shall only be charged if the unit value as of 31.12 is higher than the unit value at the previous charge/statement (high watermark). ** Figures in SEK 1000 *** Figures in EUR 1000 **** Figures in Swedish kroner and euros, respectively, for SKAGEN Krona, SKAGEN Credit SEK and SKAGEN Credit EUR

1) Allocated between the respective unit classesSKAGEN Vekst

30.06.2015SKAGEN Global

30.06.2015SKAGEN Kon-Tiki

30.06.2015SKAGEN m2

30.06.2015

SKAGEN Balanse 60/40

30.06.2015SKAGEN Tellus

30.06.2015SKAGEN Avkastning

30.06.2015Class

Number of units issued A 4 105 839 24 271 917 38 122 695 8 005 166 2 953 070 7 760 559 13 235 767

Base price per unit as of 30.06.2015 in NOK A 1 903,7022 1 350,9664 709,0170 144,0833 134,2268 128,7959 142,7358

Number of units issued B 5 822 1 627 801 6 823 656 10 634 600 224

Base price per unit as of 30.06.2015 in NOK B 1 907,0721 1 350,3793 712,3182 144,1104 131,0777

Number of units issued C 208 705 165 245 1 095 055 6 837 2 016 927 Base price per unit as of 30.06.2015 in NOK C 1 905,9232 1 354,3851 709,8862 144,1984 129,0531

Number of units issued D 787 2 461 896

Base price per unit as of 30.06.2015 in NOK D 1 355,0459 710,1284

Number of units issued E 13 062 337

Base price per unit as of 30.06.2015 in NOK E 709,6699

1) Allocated between the respecitve unit classes Class SKAGEN Vekst1H 2015

SKAGEN Global1H 2015

SKAGEN Kon–Tiki1H 2015

SKAGEN m2

1H 2015SKAGEN Tellus

1H 2015SKAGEN Credit EUR***

1H 2015

Management fee – fixed A 40 494 178 314 303 051 9 541 4 502 12,89

Management fee – variable A 1 513 - -196 243 -4 449

Total management fee A 42 007 178 314 106 809 5 092 4 502 12,89

Management fee – fixed B 41 8 431 48 725 10 141 1,69

Management fee – variable B 4 - -41 698 -5

Total management fee B 45 8 431 7 027 4 141 1,69

Management fee – fixed C 1 221 661 6 592 5 314

Management fee – variable C - - -4 150 -3

Total management fee C 1 221 661 2 442 3 314

Management fee – fixed D 3 16 197

Management fee – variable D - -11 050

Total management fee D - 3 5 147 - -

Management fee – fixed E 60 075

Management fee – variable E -24 622

Total management fee E - - 35 453 - -

Total fixed and variable management fee All 43 273 187 408 156 878 5 099 4 957 14,57

1) Allocated between the respective unit classes Class SKAGEN Vekst30.06.2015

SKAGEN Global30.06.2015

SKAGEN Kon–Tiki30.06.2015

SKAGEN m2

30.06.2015SKAGEN Tellus

30.06.2015SKAGEN Credit EUR***

30.06.2015

Unit capital at par value A 410 584 2 427 192 3 812 270 800 517 776 056 3 916,75

Premium A -3 887 255 -1 746 015 -4 271 439 211 444 105 830 -17,88

Total paid-in equity capital A -3 476 671 681 177 -459 169 1 011 960 881 886 3 898,87

Unit capital at par value B 582 162 780 682 366 1 063 60 022 1 245,40

Premium B 9 519 1 628 014 3 253 708 173 17 666 7,73

Total paid-in equity capital B 10 101 1 790 794 3 936 073 1 237 77 688 1 253,13

Unit capital at par value C 20 870 16 525 109 505 684 201 693

Premium C 365 506 192 995 645 925 316 63 412

Total paid-in equity capital C 386 376 209 519 755 431 1 000 265 105

Unit capital at par value D 79 246 190

Premium D 921 1 398 131

Total paid-in equity capital D - 1 000 1 644 320 - -

Unit capital at par value E 1 306 234

Premium E 7 775 260

Total paid-in equity capital E - - 9 081 494 - -

Total paid-in equity capital All -3 080 194 2 682 490 14 958 149 1 014 197 1 224 679 5 152,00


NOTICE

Historical returns are no guarantee for future returns. Future returns will depend, inter alia, on market developments, the fund manager’s skill, the fund’s risk profile and subscription and management fees. The return may become negative as a result of negative price develop-ments. There are no subscription costs for our funds.

SKAGEN Vekst A has a fixed management fee of 1% per annum. Returns exceeding 6 % p.a. are shared 90/10 between the unitholders and the management company. A charge of the variable management fee may solely be made if the unit value as at December 31st exceeds the unit value at the previous charge/settlement of the variable management fee (the high watermark).

SKAGEN Global A has a fixed management fee of 1% per annum. Better value development measured in percent in the fund’s net asset value compared with the MSCI AC World Index (in NOK) is shared 90/10 between the unithol-ders and the management company.

SKAGEN Kon-Tiki A has a fixed management fee of 2% per annum. Better value develop-ment measured in percent in the fund’s net asset value compared with the MSCI Emerging Markets Index (in NOK) is shared 90/10 bet-ween the unit holders and the management company. However, the total annual manage-ment fee charged may not exceed 4% of the fund’s average annual asset value.

SKAGEN m2 A has a fixed management fee of 1.5% per annum. Better/worse value develop-ment measured in percent in the fund’s asset value compared with the MSCI ACWI Real Estate IMI (in NOK) is shared 90/10 bet-ween the unit holders and the management company. The total management fee charged constitutes a maximum of 3 % and a minimum of 0.75% per year.

SKAGEN Focus A has a fixed management fee of 1.6% per annum. Better/worse value develop-ment measured in percent in the fund’s asset value compared with the MSCI World AC TR Index (in NOK) is shared 90/10 between the unit holders and the management company. The total management fee charged constitutes a maximum of 3.2% and a minimum of 0.80 % per year.

SKAGEN Global A, SKAGEN Kon-Tiki A, SKAGEN Focus A and SKAGEN m2 A may be charged a variable management fee even if the fund’s return has been negative, as long as the fund has outperformed the benchmark. Conversely, the fund may have a positive return without being charged a variable management fee, as long as there is no outperformance of the benchmark. The fixed management fees are calculated daily and charged quarterly. The variable management fees are calculated daily and charged annually.

The annual management fee is 0.8% for SKA-GEN Tellus A. The management fee is calculated daily and charged quarterly.

Please refer to the product sheets and prospec-tuses for a detailed description of the cost, etc. They are available upon request from SKAGEN Funds or at www.skagenfunds.com

RIGHT OF CANCELLATION

When you buy fund units, according to the Right of Cancellation Act (Act no. 105 of 2001-12-12, ref. §22b, litra a), clients have no right of cancellation. However, when subscriptions are sent to us by mail/fax or are carried out via the Investor client at VPS (My Account), you are entitled to information about the fund and the management company immediately after the purchase. The information is avail-able in the fund’s product sheet (simplified prospectus) and the general commercial terms. Statutory information is sent to unit holders in the welcome letter immediately after the first subscription. Subsequently, unit holders can find all information on our website www.skagenfunds.com as well as in the annual report.

Return and risk measurements

RETURN AND RISK MEASUREMENTS

Risk and performance measurements

As of 30.06.2015SKAGEN Kon-Tiki A SKAGEN Global A SKAGEN Vekst A SKAGEN Tellus A

MEAN VARIANCE ANALYSIS LAST 5 YEARSStandard Deviation NAV 13,8% 11,7% 13,5% 6,6%

Standard Deviation Benchmark 13,5% 9,3% 12,5% 8,4%

Tracking Error 4,8% 4,8% 5,8% 5,6%

Information Ratio Arithmetic -0,01 -0,43 -1,07 0,27

Beta 0,96 1,15 0,97 0,58

Correlation 0,94 0,92 0,90 0,74

Alpha 0,18% -4,06% -5,88% 2,68%

Jensen's Alpha 0,16% -3,98% -5,90% 2,46%

R2 87,86% 84,18% 81,08% 54,27%

Sharpe Arithmetic 0,36 0,91 0,50 0,57

Sharpe Ratio Benchmark 0,37 1,37 1,04 0,27

GAIN LOSS ANALYSIS LAST 5 YEARSConsistence 48,33% 43,33% 38,33% 56,67%

Consistence Market is Up 36,36% 46,34% 34,21% 36,67%

Consistence Market is Down 62,96% 36,84% 45,45% 76,67%

Relative Gain 98,74% 103,95% 91,57% 92,37%

Relative Loss 99,32% 126,93% 130,84% 75,61%

Positive Index Divergence 6,48% 5,81% 5,43% 8,21%

Negative Index Divergence 6,65% 7,87% 11,62% 6,77%

Percentage Positive Index Divergence 49,37% 42,47% 31,86% 54,79%

Percentage Positive Index Divergence Market Up 38,16% 49,28% 32,03% 28,18%

Percentage Positive Index Divergence Market Down 59,99% 30,57% 31,48% 82,21%

Relative Gain Loss Ratio 0,99 0,82 0,70 1,22

VALUE AT RISK LAST 5 YEAR

Value at risk ex post NAV 5 years -7,7% -5,8% -5,5% -2,9%

Value at risk ex post Benchmark 5 years -6,9% -3,6% -6,1% -3,3%

Relative value at risk 5 years -2,5% -3,3% -2,9% -3,3%

As of 30.06.2015 YTD % Last Year

Last 2 Years

Last 3 Years

Last 5 Years

Last 7 Years

Last 10 Years

Since Start

SKAGEN Vekst A 6,6% 4,4% 11,8% 9,8% 7,5% 3,3% 7,5% 14,4%

MSCI Nordic/MSCI AC ex. Nordic* 13,2% 18,8% 18,8% 16,4% 14,4% 6,0% 9,2% 10,3%

SKAGEN Global A 10,2% 10,2% 13,5% 14,9% 11,8% 8,2% 9,5% 15,2%

MSCI World AC** 11,7% 24,0% 20,2% 18,2% 14,2% 10,0% 6,8% 4,3%

SKAGEN Kon-Tiki A 5,8% 2,0% 8,7% 7,1% 5,7% 6,8% 11,3% 14,8%

MSCI Emerging Markets 11,7% 16,5% 12,7% 8,3% 5,7% 6,0% 9,0% 8,6%

SKAGEN m2 A 3,3% 16,2% 7,9% 7,6%

MSCI All Country World Index Real Estate IMI 7,1% 24,7% 14,8% 13,7%

SKAGEN Focus A -7,6% -7,6%

MSCI World AC -4,7% -4,7%

SKAGEN Tellus A 1,5% 7,0% 5,2% 5,4% 4,4% 7,4% 5,9%

J.P. Morgan GBI Broad Index Unhedged in EUR*** 4,8% 13,4% 7,3% 2,2% 2,8% 6,9% 5,0%

SKAGEN Credit EUR A 2,4% -0,2% -0,1%

3 Month EURIBOR 0,0% 0,1% 0,1%

Returns in euro (all return figures beyond 12 months are annualised)

* Effective 1/1/2014, the fund’s investment mandate changed. Read more on page 13. The benchmark index prior to 1/1/2010 was OSEBX and prior to 1/1/2014 it was OSEBX / MSCI AC (50/50). ** The benchmark index prior to 1/1/2010 was the MSCI World Index. *** The benchmark index prior to 1/1/2013 was Barclay’s Capital Global Treasury Index 3-5 years.

Head Office: SKAGEN AS Post Box 160, 4001 Stavanger Norway Tel: +47 51 80 37 09 Fax: +47 51 86 37 00 Company reg number: 867 462 732 [email protected] www.skagenfunds.com

UK Office: SKAGEN AS 6th FloorHigh Holborn House52-54 High HolbornLondon WC1V 6RLUnited Kingdomwww.skagenfunds.co.ukFSA Firm No.: SKAGEN AS 469697Company No: FC029835UK establishment No: BR014818

Dutch Office: Museumplein 5 D1071 DJ AmsterdamThe Netherlandswww.skagenfunds.nlRegistration number: 52328686

Customer Services is open from Monday to Friday from 8 am to 9 pm (CET). Please visit us at our office, send an e-mail or call us and we will do our best to help you.

Home market, or under home market supervisionInternational marketMarketing permission

Editorial team Parisa Kate Lemaire, editor Ole-Christian Tronstad Trygve Meyer Michael Metzler Anna S Marcus Vevika Søberg

Front page: Artists on Skagen South Beach, 1882. By Peder Severin Krøyer, one of the Skagen painters. The picture is owned by the Skagens museum. Cropped.

Stavanger Head Office

London Branch

Amsterdam Branch

Documents

HALF YEAR REPORT · SKAGEN FUNDS HALF YEARREPORT | 2015 5 Portfolio managers´ report Introduction > SKAGEN equity funds returned 3-10% in the first of half 2015, measured in euro