NIKKO REAL ASSET FUND. Audited Financial Statements and Annual Report for the year ended September 30, 2009

Transcription

1 Audited Financial Statements and Annual Report for the year ended September 30, 2009

2 Table of contents Nikko Real Asset Fund Page(s) Administration of the Trust 3 General information 6 Report of the Board of Directors of the Manager 9 Independent Auditor s Report 12 Statement of net assets Combined statement 13 USD Portfolio 14 EUR Portfolio 15 JPY Portfolio 16 AUD Portfolio 17 Statement of operations and changes in net assets Combined statement 18 USD Portfolio 19 EUR Portfolio 20 JPY Portfolio 21 AUD Portfolio 22 Statistical information 23 Notes to the financial statements 24 Nikko Real Asset Fund - USD Portfolio Statement of investments 29 Classification of investments by country and by economical sector 30 Nikko Real Asset Fund - EUR Portfolio Statement of investments 31 Classification of investments by country and by economical sector 32 Nikko Real Asset Fund - JPY Portfolio Statement of investments 33 Classification of investments by country and by economical sector 34 Nikko Real Asset Fund - AUD Portfolio Statement of investments 35 Classification of investments by country and by economical sector 36

3 Administration of the Trust Manager Total Alpha Investment Fund Management Company S.A. 9A, rue Robert Stümper, L-2557 Luxembourg, Grand Duchy of Luxembourg Board of Directors of the Manager Trustee Chairman : Mr. Masashi KAMO, Deputy Managing Director Nikko Bank (Luxembourg) S.A., Luxembourg Directors : Mr. John Pierre HETTINGER, Managing Director Nikko Bank (Luxembourg) S.A., Luxembourg Mr. Jacques ELVINGER, Partner Elvinger, Hoss & Prussen, Luxembourg Mr. Paul FALTZ, Director Citibank International plc. (Luxembourg branch), Luxembourg (until September 30, 2009) Maples Finance Limited P.O. Box 1093, Boundary Hall, Cricket Square, George Town, Grand Cayman, KY1-1102, Cayman Islands Investment Manager Wellington Management Company, LLP 75, State Street, Boston, Massachusetts 02109, United States of America Administrator Nikko Bank (Luxembourg) S.A. 9A, rue Robert Stümper, L-2557 Luxembourg, Grand Duchy of Luxembourg Page 3

4 Administration of the Trust (continued) Custodian Nikko Bank (Luxembourg) S.A. 9A, rue Robert Stümper, L-2557 Luxembourg, Grand Duchy of Luxembourg Service Adviser Nikko Asset Management Americas, Inc. 535, Madison Avenue, Suite 2500, New York, New York 10022, United States of America Agent Company in Japan Nikko Cordial Securities Inc. 3-1, Marunouchi 3-chome, Chiyoda-ku, Tokyo, , Japan Distributor in Japan Auditor Nikko Cordial Securities Inc. 3-1, Marunouchi 3-chome, Chiyoda-ku Tokyo, , Japan PricewaterhouseCoopers P.O. Box 258, Strathvale House, George Town, Grand Cayman, KY1-1104, Cayman Islands Page 4

5 Administration of the Trust (continued) Legal advisers Cayman Islands Law : Maples and Calder P.O. Box 309 Ugland House, South Church Street George Town, Grand Cayman Cayman Islands Japanese Law : Mori Hamada & Matsumoto Marunouchi Park Building 6-1 Marunouchi 2 Chome, Chiyoda-Ku, Tokyo , Japan Page 5

6 General information NIKKO REAL ASSET FUND (the Trust ), which has been established as an umbrella unit trust, is a group of Cayman Islands series unit trusts. Each series unit trust in the Trust (each a Series Trust ) has been established pursuant to the Master Trust Deed dated July 28, 2005 as amended and supplemented from time to time (the Master Trust Deed ) and the respective Supplemental Trust Deed thereto (each a Supplemental Trust Deed ), each entered into between Maples Finance Limited (the "Trustee") and Total Alpha Investment Fund Management Company S.A. (the Manager ). The Trust falls within the definition of a regulated mutual fund pursuant to the Mutual Funds Law (2009 Revision) of the Cayman Islands (the Law ). The Trust has been granted for a mutual fund license pursuant to section 5 of the Law. The Trust is also a retail mutual fund for the purposes of The Retail Mutual Funds (Japan) Regulations (2007 Revision) of the Cayman Islands (the Regulations ). The operation of the Trust and its investment business is subject to the Law and the Regulations. The USD Portfolio is established pursuant to the Master Trust Deed and the Supplemental Trust Deed dated July 28, 2005 made between the Trustee and the Manager (together, the USD Series Trust Deed ). The EUR Portfolio is established pursuant to the Master Trust Deed and the Supplemental Trust Deed dated July 28, 2005 made between the Trustee and the Manager (together, the EUR Series Trust Deed ). The JPY Portfolio is established pursuant to the Master Trust Deed and the Supplemental Trust Deed dated July 28, 2005 made between the Trustee and the Manager (together, the JPY Series Trust Deed ). The AUD Portfolio is established pursuant to the Master Trust Deed and the Supplemental Trust Deed dated July 28, 2005 made between the Trustee and the Manager (together, the AUD Series Trust Deed, and together with the USD Series Trust Deed, the EUR Series Trust Deed and the JPY Series Trust Deed, the Series Trust Deeds ). The Series Trusts, units of which are offered, are : 1. Nikko Real Asset Fund - USD Portfolio (the USD Portfolio ); 2. Nikko Real Asset Fund - EUR Portfolio (the EUR Portfolio ); 3. Nikko Real Asset Fund - JPY Portfolio (the JPY Portfolio ); 4. Nikko Real Asset Fund - AUD Portfolio (the AUD Portfolio ). The Series Trust Deeds are governed by the laws of the Cayman Islands. All Unitholders are entitled to the benefit of, are bound by, and are deemed to have notice of, the provisions of the relevant Series Trust Deed and any trust deed supplemental thereto. Trustee The Trustee is a company duly incorporated and validly existing in the Cayman Islands and licensed to undertake trust business pursuant to the provisions of the Banks and Trust Companies Law (2007 Revision) of the Cayman Islands. The Trustee is also a licensed mutual fund administrator pursuant to the Mutual Funds Law (2009 Revision) of the Cayman Islands. Page 6

7 General information (continued) Manager The Manager is a company duly incorporated, validly existing and licensed to undertake management of investment funds pursuant to the provisions of Luxembourg laws. The Manager has appointed, in relation to all of the funds that it manages, specialised investment managers to which it has delegated its management functions. The Manager is solely responsible for the management of the Trust of each Series Trust as described in the Offering Memorandum. Administrator The Trustee and the Manager have appointed Nikko Bank (Luxembourg) S.A. as the Administrator (the Administrator ) in relation to each Series Trust to act as administrator, registrar and transfer agent of the Trust pursuant to an administration agreement entered into by and among the Trustee, the Manager and the Administrator. Custodian The Trustee and the Manager have appointed Nikko Bank (Luxembourg) S.A. to act as custodian (the Custodian ) in relation to the Trust of each Series Trust pursuant to a custodian agreement entered into by and among the Trustee, the Manager and the Custodian. Investment Manager The Manager has appointed Wellington Management Company, LLP to act as investment manager (the Investment Manager ) pursuant to an investment management agreement entered into by and among the Manager and the Investment Manager. Service Adviser The Manager has appointed Nikko Asset Management Americas, Inc. to act as service adviser (the Service Adviser ), pursuant to a service advisory agreement entered into by and among the Manager and the Service Adviser. Page 7

8 General information (continued) Distributor and Agent Company The Manager has appointed Nikko Cordial Securities Inc. to act as distributor (the Distributor ) to distribute the units. The Distributor is responsible for promoting the sale of the units in accordance with the provisions of the Offering Memorandum. Nikko Cordial Securities Inc. has also been appointed as Agent Company (the Agent Company ) by the Manager. Unitholders information The Series Trusts accounting year ends on 30 September in each year. Copies of the annual report, prepared in accordance with Luxembourg generally accepted accounting principles, are sent to Unitholders within 4 months after the year end. Further copies of the annual reports and accounts will be available at the offices of the Trustee, the Manager and the Administrator. The issue price and repurchase price for units as of the most recent issue day and repurchase day shall be available on request without charge at the office of the Administrator. Page 8

9 Report of the Board of Directors of the Manager Nikko Real Asset Fund Market Review The period from October 2008 to September 2009 was one marked by extremes. From October to March global equity markets fell precipitously, commodity prices retreated from mid-2008 highs, and fixed income sectors outside of nominal Treasury bonds experienced unprecedented spread widening. During this period, deleveraging across the Financial sector accelerated, limiting the availability of credit to even the most secure corporate borrowers and exacerbating a slowdown across the broader economy. Many investors responded to the financial crisis by shedding risk broadly, increasing exposure to cash, and selling equities with little regard for the quality or valuation of their holdings. This environment weighed heavily on commodities and natural resource-related equities. Beginning in March, global equities began a rally that continued nearly uninterrupted through the end of September. Precipitated by massive government stimulus spending and the purchase of up to US$300 billion of longer-term US Treasury securities by the US Federal Reserve, stock, commodity, and non-treasury bond markets rose sharply. While many indicators such as employment, consumer confidence, and housing remained weak, investors were buoyed by hopes that a Depression-like scenario was no longer a likely outcome as the worst economic crisis in post-world War II history was met by the largest global policy response on record. Government implemented stimulus measures in China were particularly effective in jumpstarting the economy. In the US, second quarter GDP at -1.0% was better than expected and a significant improvement from the first quarter s 6.4% drop. The unemployment rate dipped to 9.4% in July, the first drop since April 2008, while even the beleaguered housing market showed glimmers of improvement. Page 9

10 Report of the Board of Directors of the Manager (continued) Nikko Real Asset Fund (continued) Portfolio Review The WMP (Cayman) Diversified Inflation Hedges Portfolio returned -9.2%* for the twelve months period ended September 30, 2009 compared to -4.8% for the DIH strategic benchmark. (*WMP Cayman USD A return, based on NAV return from Wellington s proprietary performance system) Although the performance of the portfolio improved dramatically since March 2009, negative absolute and relative returns in the fourth quarter of 2008 were sufficient to result in overall underperformance for the period. This negative result was due predominantly to asset allocation decisions; selection within the subportfolios was positive for the period. With respect to the asset allocation decision, a TIPS breakeven position detracted from results considerably. During the early part of 2008, the team's investment thesis was that the multi-year run-up in commodity prices was poised to seep through the broad economy in the form of higher prices. Despite persistently rising commodity prices, inflation rates had remained fairly muted, as expected inflation over the next 5 years was a modest 2.2% in April 2008 (as measured by the 5yr breakeven rate). The team opted to increase the portfolio's sensitivity to inflation by entering a TIPS Breakeven position, a position that would add value if expected inflation rates increased. Market events in the latter half of 2008 served to dampen inflation expectations, however, resulting in a loss for the breakeven position. Ultimately, the portfolio moved out of the TIPS breakeven position toward the end of Additionally, throughout the year the portfolio maintained an overweight position to the natural resource equity components, funded by an underweight to Fixed Income. Although a benefit to the portfolio during the global equity rally in the latter half of the reporting period, the Fixed Income underweight over the twelve months hurt performance on a benchmark relative basis. Global Real Estate was the one equity component to which the portfolio had an underweight during the year, on average. Underlying stock selection within the subportfolios served to offset much of the above weakness. In particular, selection within the Agriculture, Energy, and Metals & Mining sleeves was additive during the period. The portfolio also benefited from overweights to each of these outperforming sectors. Selection with the Commodities and Real Estate subportfolios detracted modestly from relative returns. Page 10

11 Report of the Board of Directors of the Manager (continued) Nikko Real Asset Fund (continued) Positioning and Outlook Global economies continue to show signs of stabilizing as unprecedented fiscal and monetary stimulus work their way through the system. Despite this stabilization, and a sharp rise in asset prices, inflation remains well-contained. On a year over year basis, headline CPI has declined every month in 2009, while core CPI, which excludes more-volatile food and energy prices, has remained below 2.0%. We believe that the odds of a high inflation environment a few years down the road, however, have gone up considerably as a result of the size and scope of government stimulus and the continued robust outlook for many emerging economies. The fact that core inflation has remained positive, despite significant deflationary forces such as negative real wage growth and high unemployment, increases our confidence in this scenario. In addition, the US dollar faces significant structural headwinds over a prolonged period driven by low interest rates a period during which interest rates may rise in other economies. In the near term, we think economic growth is likely to surprise on the high side due to the unprecedented amount of monetary and fiscal stimulus that has begun flowing through the global economy. Consequently, we are inclined to be biased toward risk and reflation-related assets for a three- to six-month horizon. The risk is that structural challenges at the consumer level or preemptive fiscal and monetary tightening will cause a renewed downturn in economic activity. On a near term basis we retain our pro-cyclical posture. We believe we are still early in a cyclical recovery and, despite appreciation since March, valuations in many areas are relatively unchallenging. In the intermediate term, we are focusing our overweights on those areas with a combination of the best structural supply/demand fundamentals, attractive valuations, and support from the perceived macroeconomic environment. Our favored areas are precious metals, energy equities, metals equities, and agriculture equities. We are currently overweight commodities, favoring precious metals, and are neutral to climate change. We are underweight both real estate and TIPS. We expect the real estate sector to struggle over the next several years as overcapacity, high debt costs, and a sluggish structural growth environment from most major developed market cities keep valuations in the sector depressed. Luxembourg, January 19, 2010 Note : The figures stated in this report are historical and not necessarily indicative of future performance. Page 11

12 PricewaterhouseCoopers P.O. Box 258 Strathvale House, George Town KY1-1104, Cayman Islands Telephone Facsimile Independent Auditor s report To the Trustee of Nikko Real Asset Fund and to the Unitholders of USD Portfolio, EUR Portfolio, JPY Portfolio and AUD Portfolio We have audited the accompanying combined statement of net assets of Nikko Real Asset Fund (the Trust ) and the statements of net assets, including the statements of investments, of USD Portfolio, EUR Portfolio, JPY Portfolio and AUD Portfolio (the Series Trusts ), as of September 30, 2009, and the related combined statement of operations and changes in net assets of the Trust and the related statement of operations and changes in net assets of the Series Trusts, for the year then ended, and a summary of significant accounting policies and other explanatory notes to the financial statements. Responsibility of the Trustee for the financial statements The Trustee is responsible for the preparation and fair presentation of these financial statements in accordance with generally accepted accounting principles in Luxembourg, applicable to investment funds. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Trustee, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, these financial statements give a true and fair view of the combined financial position of the Trust and the financial position of each of the Series Trusts as of September 30, 2009, and of the combined results of the Trust s operations and its changes in net assets and of the results of each of the Series Trusts operations and each of their changes in net assets for the year then ended in accordance with generally accepted accounting principles in Luxembourg, applicable to investment funds. PricewaterhouseCoopers January 19, 2010 Cayman Islands Page 12

13 Statement of net assets as at September 30, 2009 Combined statement (Expressed in US dollar) Notes Combined statement USD Assets Investments At cost 180,947, At market value ,262, Cash at bank 867, Receivable on subscriptions 124, Formation expenses , Total assets 196,305, Liabilities Payable on redemptions 855, Distributor fees payable 9 306, Service Adviser fees payable 7 82, Agent Company fees payable 8 48, Administrator fees payable 5 48, Printing and publishing expenses payable 37, Custodian fees payable 6 19, Professional fees payable 18, Trustee fees payable 3 17, Manager fees payable 4 4, Total liabilities 1,441, Total net assets 194,864, The accompanying notes are an integral part of these financial statements. Page 13

14 Statement of net assets as at September 30, 2009 USD Portfolio (Expressed in US dollar) Notes USD Portfolio USD Assets Investments At cost 41,946, At market value ,978, Cash at bank 52, Receivable on subscriptions 48, Formation expenses , Total assets 49,091, Liabilities Payable on redemptions 85, Distributor fees payable 9 74, Service Adviser fees payable 7 20, Agent Company fees payable 8 11, Administrator fees payable 5 11, Printing and publishing expenses payable 7, Custodian fees payable 6 4, Professional fees payable 4, Trustee fees payable 3 2, Manager fees payable 4 1, Total liabilities 223, Total net assets 48,868, Number of units outstanding 425,206 Net assets per unit The accompanying notes are an integral part of these financial statements. Page 14

15 Statement of net assets as at September 30, 2009 EUR Portfolio (Expressed in euro) Notes EUR Portfolio EUR Assets Investments At cost 3,174, At market value 2.2 3,242, Cash at bank 80, Receivable on subscriptions 42, Formation expenses 2.3 9, Total assets 3,374, Liabilities Payable on redemptions 105, Distributor fees payable 9 6, Service Adviser fees payable 7 1, Agent Company fees payable 8 1, Administrator fees payable 5 1, Printing and publishing expenses payable Custodian fees payable Professional fees payable Trustee fees payable Manager fees payable Total liabilities 116, Total net assets 3,257, Number of units outstanding 30,699 Net assets per unit The accompanying notes are an integral part of these financial statements. Page 15

16 Statement of net assets as at September 30, 2009 JPY Portfolio (Expressed in Japanese yen) Notes JPY Portfolio JPY Assets Investments At cost 10,163,299,413 At market value ,605,715,378 Cash at bank 45,430,286 Formation expenses 2.3 1,250,656 Total assets 10,652,396,320 Liabilities Payable on redemptions 39,301,500 Distributor fees payable 9 16,799,085 Service Adviser fees payable 7 4,535,177 Agent Company fees payable 8 2,666,831 Administrator fees payable 5 2,664,353 Printing and publishing expenses payable 2,332,006 Custodian fees payable 6 1,066,783 Professional fees payable 1,067,280 Trustee fees payable 3 1,205,535 Manager fees payable 4 266,655 Total liabilities 71,905,205 Total net assets 10,580,491,115 Number of units outstanding 1,064,134 Net assets per unit 9,943 The accompanying notes are an integral part of these financial statements. Page 16

17 Statement of net assets as at September 30, 2009 AUD Portfolio (Expressed in Australian dollars) Notes AUD Portfolio AUD Assets Investments At cost 24,031, At market value ,593, Cash at bank 216, Receivable on subscriptions 16, Formation expenses , Total assets 26,840, Liabilities Payable on redemptions 203, Distributor fees payable 9 40, Service Adviser fees payable 7 11, Agent Company fees payable 8 6, Administrator fees payable 5 6, Printing and publishing expenses payable 4, Custodian fees payable 6 2, Professional fees payable 2, Trustee fees payable 3 1, Manager fees payable Total liabilities 279, Total net assets 26,561, Number of units outstanding 241,705 Net assets per unit The accompanying notes are an integral part of these financial statements. Page 17

18 Statement of operations and changes in net assets for the year ended September 30, 2009 Combined statement (Expressed in US dollar) Notes Combined statement USD Income Bank interest Total income Expenses Distributor fees 9 1,133, Service Adviser fees 7 305, Agent Company fees 8 179, Administrator fees 5 179, Printing and publishing expenses 92, Custodian fees 6 71, Formation expenses , Trustee fees 3 38, Legal expenses 34, Professional fees 32, Manager fees 4 17, Total expenses 2,126, Net investment loss (2,125,888.04) Net realised on Loss on investments (3,640,255.75) Loss on foreign exchange (423.59) Net realised loss for the year (5,766,567.38) Net change in unrealised on : Depreciation on investments (26,307,878.56) Net decrease in net assets as result of operations (32,074,445.94) Movement in capital Subscription of units 13,209, Redemption of units (60,620,348.38) Net movement in capital (47,411,195.27) Net assets at the beginning of the year 250,448, Exchange difference 23,901, Net assets at the end of the year 194,864, The accompanying notes are an integral part of these financial statements. Page 18

19 Statement of operations and changes in net assets for the year ended September 30, 2009 USD Portfolio (Expressed in US dollar) Notes USD Portfolio USD Income Bank interest 6.55 Total income 6.55 Expenses Distributor fees 9 267, Service Adviser fees 7 72, Agent Company fees 8 42, Administrator fees 5 42, Printing and publishing expenses 20, Custodian fees 6 16, Formation expenses 2.3 9, Trustee fees 3 7, Legal expenses 8, Professional fees 8, Manager fees 4 4, Total expenses 500, Net investment loss (500,442.69) Net realised on Loss on investments (91,857.35) Loss on foreign exchange (125.94) Net realised loss for the year (592,425.98) Net change in unrealised on Depreciation on investments (6,061,896.63) Net decrease in net assets as result of operations (6,654,322.61) Movement in capital Subscription of units 5,154, Redemption of units (8,928,601.88) Net movement in capital (3,773,880.64) Net assets at the beginning of the year 59,296, Net assets at the end of the year 48,868, The accompanying notes are an integral part of these financial statements. Page 19

20 Statement of operations and changes in net assets for the year ended September 30, 2009 EUR Portfolio (Expressed in euro) Notes EUR Portfolio EUR Income Bank interest Total income Expenses Distributor fees 9 20, Service Adviser fees 7 5, Agent Company fees 8 3, Administrator fees 5 3, Printing and publishing expenses 1, Custodian fees 6 1, Formation expenses 2.3 7, Trustee fees Legal expenses Professional fees Manager fees Total expenses 45, Net investment loss (45,117.38) Net realised on Loss on investments (47,416.72) Loss on foreign exchange (9.36) Net realised loss for the year (92,543.46) Net change in unrealised on Depreciation on investments (386,867.07) Net decrease in net assets as result of operations (479,410.53) Movement in capital Subscription of units 1,315, Redemption of units (1,893,823.56) Net movement in capital (578,787.91) Net assets at the beginning of the year 4,315, Net assets at the end of the year 3,257, The accompanying notes are an integral part of these financial statements. Page 20

21 Statement of operations and changes in net assets for the year ended September 30, 2009 JPY Portfolio (Expressed in Japanese yen) Notes JPY Portfolio JPY Expenses Distributor fees 9 68,989,471 Service Adviser fees 7 18,624,912 Agent Company fees 8 10,952,029 Administrator fees 5 10,941,649 Printing and publishing expenses 5,771,728 Custodian fees 6 4,381,021 Formation expenses 2.3 1,031,924 Trustee fees 3 2,391,809 Legal expenses 2,094,942 Professional fees 1,899,863 Manager fees 4 1,095,107 Total expenses 128,174,455 Net investment loss (128,174,455) Net realised on Loss on investments (340,557,030) Loss on foreign exchange (20,194) Net realised loss for the year (468,751,679) Net change in unrealised on Depreciation on investments (1,615,234,399) Net decrease in net assets as result of operations (2,083,986,078) Movement in capital Subscription of units 55,996,105 Redemption of units (3,850,702,422) Net movement in capital (3,794,706,317) Net assets at the beginning of the year 16,459,183,510 Net assets at the end of the year 10,580,491,115 The accompanying notes are an integral part of these financial statements. Page 21

22 Statement of operations and changes in net assets for the year ended September 30, 2009 AUD Portfolio (Expressed in Australian dollars) Notes AUD Portfolio AUD Expenses Distributor fees 9 156, Service Adviser fees 7 42, Agent Company fees 8 24, Administrator fees 5 24, Printing and publishing expenses 12, Custodian fees 6 9, Formation expenses , Trustee fees 3 5, Legal expenses 4, Professional fees 4, Manager fees 4 2, Total expenses 299, Net investment loss (299,355.88) Net realised on Gain on investments 132, Loss on foreign exchange (100.31) Net realised loss for the year (166,984.03) Net change in unrealised on Depreciation on investments (3,783,531.52) Net decrease in net assets as result of operations (3,950,515.55) Movement in capital Subscription of units 7,848, Redemption of units (11,934,158.35) Net movement in capital (4,085,692.16) Net assets at the beginning of the year 34,597, Net assets at the end of the year 26,561, The accompanying notes are an integral part of these financial statements. Page 22

23 Statistical information UNAUDITED USD Portfolio EUR Portfolio JPY Portfolio AUD Portfolio Number of units outstanding at the end of the year : September 30, ,200 61,920 2,720, ,239 September 30, ,424 36,402 1,495, ,551 Units issued 53,094 12,975 6,095 81,054 Units redeemed (91,312) (18,678) (437,047) (116,900) September 30, ,206 30,699 1,064, ,705 Total net assets at the end of the year : USD EUR JPY AUD September 30, ,785, ,577, ,915,546,531 48,014, September 30, ,296, ,315, ,459,183,510 34,597, September 30, ,868, ,257, ,580,491,115 26,561, Net assets per unit at the end of the year : USD EUR JPY AUD September 30, , September 30, , September 30, , Page 23

24 Notes to the financial statements (As of September 30, 2009) Note 1- Activity NIKKO REAL ASSET FUND (the Trust ), which has been established as an umbrella unit trust, is a group of Cayman Islands series unit trusts. Each series unit trust in the Trust (each a Series Trust ) has been established pursuant to the Master Trust Deed dated July 28, 2005 as amended and supplemented from time to time (the Master Trust Deed ) and the respective Supplemental Trust Deed thereto (each a Supplemental Trust Deed ), each entered into between Maples Finance Limited (the "Trustee") and Total Alpha Investment Fund Management Company S.A. (the Manager ). The Trust falls within the definition of a regulated mutual fund pursuant to the Mutual Funds Law (2009 Revision) of the Cayman Islands (the Law ). The Trust has been granted for a mutual fund license pursuant to section 5 of the Law. The Trust is also a retail mutual fund for the purposes of The Retail Mutual Funds (Japan) Regulations (2007 revision) of the Cayman Islands (the Regulations ). The operation of the Trust and its investment business is subject to the Law and the Regulations. The Series Trusts, units of which are offered, are : 1. Nikko Real Asset Fund - USD Portfolio (the USD Portfolio ); 2. Nikko Real Asset Fund - EUR Portfolio (the EUR Portfolio ); 3. Nikko Real Asset Fund - JPY Portfolio (the JPY Portfolio ); 4. Nikko Real Asset Fund - AUD Portfolio (the AUD Portfolio ). Investment objectives The Manager attempts to achieve real returns in excess of OECD G7 GDP weighted inflation rate over the long-term for each Series Trust. The Manager seeks to achieve this objective of each Series Trust primarily through the purchase, holding and sale of one or more USD denominated classes of units of Wellington Management Portfolio (Cayman) Diversified Inflation Hedges Portfolio (the DIH Fund ) for the USD Portfolio, the EUR denominated class of units of the DIH Fund (the currency risk of which is being hedged to EUR) for the EUR Portfolio, the JPY denominated class of units of the DIH Fund (the currency risk of which is being hedged to JPY) for the JPY Portfolio and the AUD denominated class of units of the DIH Fund (the currency risk of which is being hedged to AUD) for the AUD Portfolio, since the investment objective of each Series Trust, the Manager believes, is similar to that of the DIH Fund and majority of currency risk of the corresponding class of units of the DIH Fund is hedged to such currency. DIH Fund is a unit trust established under the laws of Cayman Islands pursuant to a trust deed between State Street Cayman Trust Company, Ltd. as trustee and Wellington Management Company LLP as manager. The investment objective of the DIH Fund is to provide real returns in excess of OECD G7 GDP weighted inflation plus 5% over the long-term. The DIH Fund invests in global equity and related securities, commodities derivatives, inflation-linked bonds and other fixed income instruments. In addition, currency and cash equivalents may be used. Audited financial statements of the DIH Fund are available on request without charge at the office of the Administrator. Page 24

25 Notes to the financial statements (As of September 30, 2009) Note 2 - Significant accounting policies Presentation of financial statements The financial statements are prepared in accordance with Luxembourg generally accepted accounting principles applicable to investment funds Securities valuation A unit of the DIH Fund (and collective investment schemes, investment funds and mutual funds, if applicable) is valued at its net asset value per unit as of the relevant valuation day (or if a net asset value as of such valuation day is not available on the calculation day, a net asset value as of the immediately preceding day shall be used). The net asset value of the DIH Fund is provided by State Street Cayman Trust Company, Ltd. as trustee of the DIH Fund or its agent Formation expenses Formation expenses are amortised on a straight line basis over a period of five years Interest income Interest income is accrued on a daily basis Foreign currency translation Assets and liabilities expressed in other currencies than the reference currency of the concerned Series Trust are translated at exchange rates ruling at year-end. Transactions in foreign currencies are translated into the reference currency of the Series Trust, at exchange rates ruling at the transaction dates. Unrealised and realised gains and losses on foreign currencies are recorded in the statement of operations and changes in net assets for the year ended September 30, Page 25

26 Notes to the financial statements (As of September 30, 2009) Note 2 - Significant accounting policies (continued) Combined statements The accounts of the Trust are expressed in USD and the accounts of the Series Trust are kept in the currency of the Series Trust. The combined statement of net assets is the sum of the Series Trust net assets converted in USD at exchange rates prevailing at year-end. The combined statement of operations and changes in net assets is converted in USD at the average exchange rates applicable for the year ended September 30, The exchange rates used for the translation of the Series Trust s assets and liabilities not denominated in USD as of September 30, 2009 are as follows : Currency Exchange rate EUR JPY AUD The average exchange rates used for the translation of the Series Trust s statement of operations not denominated in USD as of September 30, 2009 are as follows : Currency Exchange rate EUR JPY AUD Note 3 - Trustee fee Pursuant to each Series Trust Deed, the Trustee is entitled to be paid, out of the assets of the USD Portfolio, the EUR Portfolio, the JPY Portfolio and the AUD Portfolio, a fee of 0.015% per annum on the sum of the average daily net asset value of the USD Portfolio, the EUR Portfolio, the JPY Portfolio and the AUD Portfolio, provided that for the USD Portfolio, the EUR Portfolio, the JPY Portfolio and the AUD Portfolio such aggregate fee shall be a minimum of US$30,000 per annum and a maximum of US$60,000 per annum. Such aggregate annual fee is accrued daily, paid quarterly in arrears and pro-rated among the USD Portfolio, the EUR Portfolio, the JPY Portfolio and the AUD Portfolio. Note 4 - Manager fee The Manager is entitled to a fee, out of the assets of each Series Trust, at a rate of 0.01% per annum on the average daily net asset value of such Series Trust, accrued daily and payable quarterly, in arrears, actual/actual day count fraction basis. Page 26

27 Notes to the financial statements (As of September 30, 2009) Note 5 - Administrator fee The Administrator is entitled to a fee, out of the assets of each Series Trust, at a rate of 0.10% per annum on the average daily net asset value of such Series Trust, accrued daily and payable quarterly in arrears, actual/actual day count fraction basis. The Manager shall discharge reasonable out-ofpocket expenses payable to the Administrator out of the relevant Series Trust s assets. Note 6 - Custodian fee The Custodian is entitled to a fee, out of the assets of each Series Trust, at a rate of 0.04% per annum on the average daily net asset value of such Series Trust, accrued daily and payable quarterly in arrears, actual/actual day count fraction basis. Note 7 - Service Adviser fee The Service Adviser is entitled to a fee, out of the assets of each Series Trust, at a rate of 0.17% per annum on the average daily net asset value of such Series Trust, accrued daily and payable quarterly in arrears, actual/actual day count fraction basis. Note 8 - Agent company fee The Agent Company is entitled to a fee, out of the assets of each Series Trust, at a rate of 0.10% per annum on the average daily net asset value of such Series Trust, accrued daily and payable quarterly in arrears, actual/actual day count fraction basis. Note 9 - Distributor fee The Distributor is entitled to a fee, out of the assets of each Series Trust, at a rate of 0.63% per annum on the average daily net asset value of such Series Trust, accrued daily and payable quarterly in arrears, actual/actual day count fraction basis. Note 10 - Investment Management fees The remuneration for the services rendered by the Investment Manager is covered by the fee from the DIH Fund as its manager, so that no additional fee is charged to any of the Series Trusts in relation to the Investment Manager. Page 27

28 Notes to the financial statements (As of September 30, 2009) Note 11 - Taxation Cayman Islands Under current tax laws in the Cayman Islands, there are no other taxes payable by the Trust. As a result, no provision for income taxes has been made in the accounts Other Countries The Trust may be subject to withholding or other taxes on certain income sourced in other countries. Prospective purchasers should consult legal and tax advisors in the countries of their citizenship, residence and domicile to determine the possible tax or other consequences of purchasing, holding and repurchasing units under the laws of their respective jurisdiction. Note 12 - Statement of changes in portfolio The list of changes in the portfolio of investments is available on request without charge at the office of the Administrator. Page 28

29 Statement of investments as at September 30, 2009 USD Portfolio (Expressed in US dollars) Quantity Description Currency Cost Market value Ratio* Open-ended investment funds USD USD % 4,081, Wellington Management Portfolios (Cayman) - Diversified Inflation Hedges Portfolio (for Qualified Investors) - USD Unhedged Class A units USD 41,946, ,978, Total open-ended investment funds 41,946, ,978, Total investments 41,946, ,978, (*) Weight of the market value against the total net assets expressed in %. The accompanying notes are an integral part of these financial statements. Page 29

30 Classification of investments USD Portfolio UNAUDITED Classification of investments by country and by economical sector Country Economical sector Ratio (%) * Cayman Islands Investment funds Total investments (*) Weight of the market value against the total net assets expressed in %. Page 30

31 Statement of investments as at September 30, 2009 EUR Portfolio (Expressed in euro) Quantity Description Currency Cost Market value Ratio* Open-ended investment funds EUR EUR % 291, Wellington Management Portfolios (Cayman) - Diversified Inflation Hedges Portfolio (for Qualified Investors) - Euro Hedged Class units EUR 3,174, ,242, Total open-ended investment funds 3,174, ,242, Total investments 3,174, ,242, (*) Weight of the market value against the total net assets expressed in %. The accompanying notes are an integral part of these financial statements. Page 31

32 Classification of investments EUR Portfolio UNAUDITED Classification of investments by country and by economical sector Country Economical sector Ratio (%) * Cayman Islands Investment funds Total investments (*) Weight of the market value against the total net assets expressed in %. Page 32

33 Statement of investments as at September 30, 2009 JPY Portfolio (Expressed in Japanese yen) Quantity Description Currency Cost Market value Ratio* Open-ended investment funds JPY JPY % 1,018, Wellington Management Portfolios (Cayman) - Diversified Inflation Hedges Portfolio (for Qualified Investors) - Yen Hedged Class D units JPY 10,163,299,413 10,605,715, Total open-ended investment funds 10,163,299,413 10,605,715, Total investments 10,163,299,413 10,605,715, (*) Weight of the market value against the total net assets expressed in %. The accompanying notes are an integral part of these financial statements. Page 33

34 Classification of investments JPY Portfolio UNAUDITED Classification of investments by country and by economical sector Country Economical sector Ratio (%) * Cayman Islands Investment funds Total investments (*) Weight of the market value against the total net assets expressed in %. Page 34

35 Statement of investments as at September 30, 2009 AUD Portfolio (Expressed in Australian dollars) Quantity Description Currency Cost Market value Ratio* Open-ended investment funds AUD AUD % 2,324, Wellington Management Portfolios (Cayman) - Diversified Inflation Hedges Portfolio (for Qualified Investors) - Australian Dollar Hedged Class units AUD 24,031, ,593, Total open-ended investment funds 24,031, ,593, Total investments 24,031, ,593, (*) Weight of the market value against the total net assets expressed in %. The accompanying notes are an integral part of these financial statements. Page 35

36 Classification of investments AUD Portfolio UNAUDITED Classification of investments by country and by economical sector Country Economical sector Ratio (%) * Cayman Islands Investment funds Total investments (*) Weight of the market value against the total net assets expressed in %. Page 36