nikko am shenton asia paci c fund · inception date: 31 august 1992 note: (1) with effect from 17...

Nikko AM Shenton

ANNUAL REPORT

MANAGERSNikko Asset Management Asia Limited

12 Marina View, #18-02 Asia Square Tower 2 Singapore 018961

Company Registration No. 198202562H

DIRECTORSHou Wey Fook

Lim Soon ChongKiyotaka Ryu

Seet Oon Hui EleanorYu-Ming Wang (resigned with effect from 24 January 2020)

TRUSTEE & REGISTRARBNP Paribas Trust Services Singapore Limited

20 Collyer Quay, #01-01Singapore 049319

AUDITORSPricewaterhouseCoopers LLP7 Straits View, Marina One,

East Tower, Level 12,Singapore 018936

CUSTODIANBNP Paribas Securities Services, operating through its Singapore Branch

20 Collyer Quay, #01-01Singapore 049319

This report is also available on our website (www.nikkoam.com.sg)

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PERFORMANCE SUMMARY

Returns (%) 3 Mth 6 Mth 1 Yr 3 Yr 5 Yr 10 Yr Since

Inception

Nikko AM Shenton Asia Pacific Fund - SGD Class1 9.51 10.55 21.30 9.13 5.18 3.14 4.98

Benchmark2 7.47 5.51 17.55 9.35 6.64 5.39 4.44

Source: Nikko Asset Management Asia Limited and MSCI. Returns as at 31 December 2019. Returns are calculated on a NAV-NAV basis, SGD, and based on the assumption that all dividends and distributions are reinvested, if any. Returns for period in excess of 1 year are annualised. Past performance is not indicative of future performance.

Returns (%) 3 Mth 6 Mth 1 Yr 3 Yr 5 Yr 10 Yr Since

Inception

Nikko AM Shenton Asia Pacific Fund - SGD Class1 4.03 5.02 15.24 7.28 4.11 2.61 4.79

Benchmark2 7.47 5.51 17.55 9.35 6.64 5.39 4.44

Source: Nikko Asset Management Asia Limited and MSCI. Returns as at 31 December 2019. Returns are calculated on a NAV-NAV basis, SGD, and based on the assumption that all dividends and distributions are reinvested, if any, and take into account of maximum initial sales charge and a realisation charge, currently nil, as and where applicable. Returns for period in excess of 1 year are annualised. Past performance is not indicative of future performance.

Inception date: 31 August 1992

Note: (1) With effect from 17 October 2011, the Fund (formerly known as “Shenton Asia Pacific Fund”) has

been renamed Nikko AM Shenton Asia Pacific Fund.

(2) With effect from 30 September 2011, the benchmark is changed to MSCI AC Asia Pacific ex-Japan Index (Net Total Return) from MSCI AC Daily TR Net Asia ex-Japan Index. Prior to 1 February 2009, the benchmark was MSCI AC FE Free ex Japan Index.

Neither MSCI nor any other party involved in or related to compiling, computing or creating the MSCI data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all merchantability or fitness for a particular purpose with respect to any of such data. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in or related to compiling, computing or creating the data have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI data is permitted without MSCI’s express written consent.

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Portfolio Review

Fund returned 21.3% in 2019Over the review period, the Nikko AM Shenton Asia Pacific Fund (the “Fund”) posted a return of 21.3% (SGD terms on a NAV-NAV basis), outperforming the benchmark which returned 17.55%. On a sector basis, the overweight in information technology and healthcare, and the underweight in financials contributed positively to relative performance, while stock selection in consumer discretionary, consumer staples and energy detracted from performance. At the country level, the overweight in China and India, and stock selection in Taiwan and Australia added to relative returns, whereas selection in South Korea and Hong Kong detracted.

Market Review

Asian equities surged in 2019The MSCI AC Asia Pacific ex-Japan (Net Total Return) Index jumped 19.16% in US dollar (USD) terms in 2019. Asia Pacific stocks started 2019 positively, owing to optimism that the US and China could reach a much-needed compromise in their protracted trade negotiations. Regional stock markets were also lifted by the about-turn stance of the US Federal Reserve (Fed) from hawkish to dovish and interest rate cuts by regional central banks. The Fed abandoned projections for any rate hikes in 1Q19, signalled its intention to cut rates towards the end of 2Q19 and subsequently cut rate three times in 2H19. The upturn in Asia Pacific stocks in 2019, however, wasn’t all smooth sailing. Regional equities had to withstand flare-ups in US-China trade tensions in May as well as in 3Q19, when trade talks abruptly broke down between the two nations, which subsequently hurled fresh tariffs at each other. Market sentiment, however, improved significantly in the final quarter of the year, buoyed by a US-China trade truce that halted fresh US tariffs on Chinese goods. Risk appetite for regional equities was also boosted by the anticipated signing of a “Phase One” US-China trade deal, which helped sustained the year-end rally.

Taiwanese and technology stocks the biggest winners of 2019All in all, despite bouts of volatility throughout the year, Asia Pacific stocks saw strong gains for the whole of 2019. The best performing stock markets in the Asia Pacific region in 2019 were Taiwan, China and Australia, while those of Malaysia, India and Indonesia lagged their regional peers. All Asia Pacific markets turned in positive USD returns in 2019, with the exception of Malaysia, whose stock market fell 2% in USD terms over the 12-month period.

Taiwanese stocks were boosted by improving outlook of the market’s dominant semiconductor industry, strong gains from index heavyweight Taiwan Semiconductor Manufacturing Company and better-than-expected export growth towards the end of the year. China stocks also did well for the year, buoyed by the continued easing of monetary policies by the Chinese central bank and the completion of MSCI’s partial inclusion of A-shares in its indices.

In Malaysia, its stock market underperformed over the year as investors grew wary about new government’s policies. In India, despite an election victory for incumbent Prime Minister Narendra Modi, interest rate cuts and a surprise corporate tax reduction, stocks failed to shine in 2019, owing to concerns about the country’s slowing economy.

At the sector level, information technology, consumer discretionary and healthcare were the Asia Pacific’s best-performing equity segments in 2019, while utilities and industrials lagged over the course of last year.

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Market Outlook and Strategy

Monetary easing and fiscal stimulus will boost regional growth Generating investment returns in a world with already low but still declining rates, weak inflation, and sluggish growth will require balancing risk aversion with risk taking, especially after a year where, despite the unpredictability of US President Donald Trump, global markets (as measured by the MSCI World index) gained over 27% in USD terms. Markets are increasingly dominated by ephemeral attention spans, investment silos and the rise of passive funds. The proliferation of quant strategies, each deploying some variant of an “AI model” backed by “big data analytics”, has impaired the information that can be gleaned from asset prices. In addition, the willingly profligate provision of private capital to perennially loss-making businesses has distorted the perceived price of money and of value.

That said, prospects for Asia Pacific ex-Japan markets are looking up. Abundant and cheap capital is a boon. A weaker USD has been positive for risk markets. Further, China and India have only recently embarked on the path of monetary easing, even as most developed markets are much further ahead. Coupled with fiscal stimulus, notably in India and increasingly in China, economic growth in the region will receive a fillip. At a more fundamental level, a number of countries, including India, China and Indonesia, have advanced the reform agenda in a bid to address long-standing structural issues.

Positioned in areas of structural growth, innovative technology China continues to embrace change by choosing to focus on quality, rather than quantity; it is not resorting to wasteful fixed asset investment to reflate the slowing economy. China is also allowing state-owned enterprises to go bankrupt on a selective and sporadic basis, In addition, the country is steadily moving up the value-chain, not just in low value-added manufacturing, but also in high technology. Hence, we continue to be positioned in areas of domestic structural growth, such as insurance, healthcare, software and industrial automation.

The ubiquity and increasing sophistication of technology in our daily lives have positive long-term implications for the supply chain, the bulk of which is based in Taiwan and South Korea. Nonetheless, the absence of a clear resolution of the technology cold war between the US and China behoves a watchful stance; the Fund continues to focus on long-term beneficiaries of 5G, Internet of things and cloud development within the technology universe.

India’s economy appears to be emerging from a cyclical nadir brought on by the less than fortuitous timing of a number of structural reforms, in tandem with the global growth slowdown. The Modi government is cognisant of the opportunity to play a much larger role in global supply chains. Against a macro backdrop that is slowly starting to turn positive, the Fund remains invested in areas that should benefit from formalisation, under-penetration and long-term growth, namely private banks, real estate and logistics.

ASEAN, and notably Indonesia, is the other region that ought to benefit from the redesign of supply chains currently reliant heavily on China.

Selective in AustraliaIn Australia, an improving external environment, accommodative monetary environment and a recovering housing market should be supportive of its economy in 2020. In spite of the political situation, the government could also provide an additional fiscal boost. We expect consumers to recover with a lag, albeit only modestly. However, with a lot of the positives priced by the Australian equity market, we continue to be selective in our holdings with a preference for well-managed companies with long-term structural growth in technology, electric vehicle and the consumer sectors.

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This document is purely for informational purposes only with no consideration given to the specific investment objective, financial situation and particular needs of any specific person. It should not be relied upon as financial advice. Any securities mentioned herein are for illustration purposes only and should not be construed as a recommendation for investment. You should seek advice from a financial adviser before making any investment. In the event that you choose not to do so, you should consider whether the investment selected is suitable for you. Investments in funds are not deposits in, obligations of, or guaranteed or insured by Nikko Asset Management Asia Limited (“Nikko AM Asia”).

Past performance or any prediction, projection or forecast is not indicative of future performance. The Fund or any underlying fund may use or invest in financial derivative instruments. The value of units and income from them may fall or rise. Investments in the Fund are subject to investment risks, including the possible loss of principal amount invested. You should read the relevant prospectus (including the risk warnings) and product highlights sheet of the Fund, which are available and may be obtained from appointed distributors of Nikko AM Asia or our website (www.nikkoam.com.sg) before deciding whether to invest in the Fund.

The information contained herein may not be copied, reproduced or redistributed without the express consent of Nikko AM Asia. While reasonable care has been taken to ensure the accuracy of the information as at the date of publication, Nikko AM Asia does not give any warranty or representation, either express or implied, and expressly disclaims liability for any errors or omissions. Information may be subject to change without notice. Nikko AM Asia accepts no liability for any loss, indirect or consequential damages, arising from any use of or reliance on this document.

The Central Provident Board (“CPF”) interest rate for the Ordinary Account (“OA”) is based on the 12-month fixed deposit and month-end savings rates of major local banks, subject to a minimum 2.5% interest per annum. The interest rate for Special, Medisave and Retirement Accounts (“SMRA”) is pegged to the 12-month average yield of 10-year Singapore Government Securities plus 1% per annum. A 4% per annum floor rate will be maintained for interest earned on SMRA until 31 December 2020, after which a 2.5% per annum minimum rate will apply. An extra 1% per annum interest is paid on the first S$60,000 of a member’s combined balances, including up to S$20,000 in the OA. The first S$20,000 in the OA and the first S$40,000 in the Special Account (“SA”) cannot be invested under the CPF Investment Scheme (“CPFIS”). Investors should note that the applicable interest rates for each of the CPF accounts may be varied by the CPF Board from time to time.

For Hong Kong Investors

The Fund may be offered to professional investors in Hong Kong or to Hong Kong investors via the private placement exemption. Hong Kong investors should note that the contents of this document have not been reviewed by any regulatory authority in Hong Kong and are advised to exercise caution in relation to the offer. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice.

Nikko Asset Management Asia Limited. Registration Number 198202562H

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SOFT DOLLAR COMMISSIONS/ARRANGEMENTS

In their management of the Nikko AM Shenton Asia Pacific Fund, the Managers currently do not receive or enter into any soft dollar commissions or arrangements.

The management company of the underlying fund, NAM Luxembourg currently does not receive any soft-dollar commission from, or enter into any soft dollar arrangements with, stockbrokers who execute trades on behalf of the NGUF – Nikko AM Asia-Pacific ex-Japan Fund, the underlying fund of the Nikko AM Shenton Asia Pacific Fund.

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NIKKO AM SHENTON ASIA PACIFIC FUND

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REPORT OF THE TRUSTEE

The Trustee is under a duty to take into custody and hold the assets of Nikko AM Shenton Asia Pacific Fund (the “Fund”) in trust for the unitholders. In accordance with the Securities and Futures Act (Cap. 289), its subsidiary legislation and the Code on Collective Investment Schemes, the Trustee shall monitor the activities of the Manager for compliance with the limitations imposed on the investment and borrowing powers as set out in the Trust Deed in each annual accounting year and report thereon to unitholders in an annual report. To the best knowledge of the Trustee, the Manager has, in all material respects, managed the Fund during the financial year covered by these financial statements, set out on pages 12 to 26, in accordance with the limitations imposed on the investment and borrowing powers set out in the Trust Deed. For and on behalf of the Trustee BNP Paribas Trust Services Singapore Limited Authorised signatory 27 March 2020

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8

STATEMENT BY THE MANAGER

In the opinion of Nikko Asset Management Asia Limited, the accompanying financial statements set out on pages 12 to 26, comprising the Statement of Total Return, Statement of Financial Position, Statement of Movements of Unitholders’ Funds, Statement of Portfolio and Notes to the Financial Statements are drawn up so as to present fairly, in all material respects, the financial position and the portfolio holdings of Nikko AM Shenton Asia Pacific Fund (the “Fund”) as at 31 December 2019, and the financial performance and movements in unitholders’ funds for the year then ended in accordance with the recommendations of Statement of Recommended Accounting Practice 7 “Reporting Framework for Unit Trusts” issued by the Institute of Singapore Chartered Accountants. At the date of this statement, there are reasonable grounds to believe that the Fund will be able to meet its financial obligations as and when they materialise. For and on behalf of the Manager Nikko Asset Management Asia Limited Authorised signatory 27 March 2020

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INDEPENDENT AUDITOR’S REPORT TO THE UNITHOLDERS OF NIKKO AM SHENTON ASIA PACIFIC FUND

In our opinion, the accompanying financial statements of Nikko AM Shenton Asia Pacific Fund (the “Fund”) are properly drawn up in accordance with the recommendations of Statement of Recommended Accounting Practice 7 “Reporting Framework for Unit Trusts” issued by the Institute of Singapore Chartered Accountants, so as to present fairly, in all material respects, the financial position and portfolio holdings of the Fund as at 31 December 2019, and of the financial performance and movements of unitholders’ funds for the financial year ended on that date.

The financial statements of the Fund comprise: the Statement of Total Return for the financial year ended 31 December 2019; the Statement of Financial Position as at 31 December 2019; the Statement of Movements of Unitholders’ Funds for the financial year ended 31 December

2019; the Statement of Portfolio as at 31 December 2019; and the notes to the financial statements, including a summary of significant accounting policies.

We conducted our audit in accordance with Singapore Standards on Auditing (“SSAs”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

We are independent of the Fund in accordance with the Accounting and Corporate Regulatory Authority Code of Professional Conduct and Ethics for Public Accountants and Accounting Entities(“ACRA Code”) together with the ethical requirements that are relevant to our audit of the financial statements in Singapore, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the ACRA Code.

The Fund’s Manager (the “Manager”) is responsible for the other information. The other information comprises all sections of the annual report but does not include the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

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The Manager is responsible for the preparation and fair presentation of these financial statements in accordance with the recommendations of Statement of Recommended Accounting Practice 7 “Reporting Framework for Unit Trusts” issued by the Institute of Singapore Chartered Accountants and for such internal control as the Manager determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Manager is responsible for assessing the Fund’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Manager either intends to terminate the Fund or to cease the Fund’s operations, or has no realistic alternative but to do so. The Manager's responsibilities include overseeing the Fund's financial reporting process. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with SSAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial statements, whether due

to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

Obtain an understanding of internal control relevant to the audit 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 Fund’s internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness of

accounting estimates and related disclosures made by the Manager. Conclude on the appropriateness of the Manager’s use of the going concern basis of

accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Fund’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Fund to cease to continue as a going concern.

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Evaluate the overall presentation, structure and content of the financial statements, including

the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with the Manager regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. PricewaterhouseCoopers LLP Public Accountants and Chartered Accountants Singapore, 27 March 2020

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STATEMENT OF TOTAL RETURN

Note 2019 2018 S$ S$ Income Interest on cash and bank balances 3,391 141 3,391 141 Less: Expenses Management fee 1,096,058 1,186,714 Management fee rebate (543,162) (587,860) Registrar fee 18,366 19,084 Audit fee 9,914 9,861 Valuation fee 14,614 15,823 Transaction costs 7,800 11,150 Other expenses 15,499 37,244 619,089 692,016 Net losses (615,698) (691,875) Net gains or losses on value of investments Net gains/(losses) on investments 14,322,022 (12,450,225) Net foreign exchange gains 288 845 14,322,310 (12,449,380) Total return/(deficit) for the financial year before

income tax 13,706,612 (13,141,255) Less: Income tax 3 - - Total return/(deficit) for the financial year after

income tax 13,706,612 (13,141,255)

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NIKKO AM SHENTON ASIA PACIFIC FUND (Constituted under a Trust Deed registered in the Republic of Singapore)

The accompanying notes form an integral part of these financial statements

STATEMENT OF FINANCIAL POSITION As at 31 December 2019

2019 S$

ASSETS

77,254,993 1,016,074

Total assets 78,271,067

LIABILITIES 292,818

Total liabilities 292,818

EQUITY 77,978,249

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STATEMENT OF MOVEMENTS OF UNITHOLDERS' FUNDS

2019 S$

Net assets attributable to unitholders at the beginning of the financial year 68,068,658

Operations

13,706,612

Unitholders' contributions/(withdrawals) 3,235,412 (7,032,433)

(3,797,021)

9,909,591

Net assets attributable to unitholders at the end of the financial year 77,978,249

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NIKKO AM SHENTON ASIA PACIFIC FUND (Constituted under a Trust Deed registered in the Republic of Singapore) STATEMENT OF PORTFOLIO As at 31 December 2019

The accompanying notes form an integral part of these financial statements

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By Geography (Primary)

Holdings at

Fair value at

Percentage of total net assets attributable to unitholders at

31 December 2019

31 December 2019 S$

31 December 2019

% Quoted Investment Fund

LUXEMBOURG

Nikko AM Global Umbrella Fund - Nikko AM Asia Pacific ex-Japan Fund 1,131,213 77,254,993 99.07 Total LUXEMBOURG 77,254,993 99.07

Total Quoted Investment Fund 77,254,993 99.07

Portfolio of investments 77,254,993 99.07 Other net assets 723,256 0.93 Net assets attributable to unitholders 77,978,249 100.00

By Geography (Summary) Percentage of

total net assets attributable to unitholders at

Percentage of total net assets attributable to unitholders at

31 December 2019

%

31 December 2018

%

Quoted Investment Fund Luxembourg 99.07 98.96 Total Quoted Investment Fund 99.07 98.96

Portfolio of investments 99.07 98.96 Other net assets 0.93 1.04 Net assets attributable to unitholders 100.00 100.00

As the Fund is invested wholly into Nikko AM Asia-Pacific ex-Japan Fund, which is registered in Luxembourg, information on investment portfolio by industry segments is not presented.

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NOTES TO THE FINANCIAL STATEMENTS

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These notes form an integral part of and should be read in conjunction with the accompanying financial statements.

1. General Nikko AM Shenton Asia Pacific Fund (the “Fund”) is a Singapore domiciled fund, constituted under a Trust Deed dated 15 March 1990, as amended by Supplemental Deeds and Amended and Restated Deeds (collectively referred to as the “Deeds”). The Deeds are governed by the laws of the Republic of Singapore. The Trustee of the Fund is BNP Paribas Trust Services Singapore Limited (the “Trustee”). The Manager of the Fund is Nikko Asset Management Asia Limited (the “Manager”). There are three classes of units established within the Fund, namely the SGD Class, USD Class and RMB Class. The classes may differ in terms of their class currency, the minimum subscription amounts applicable. As of 31 December 2019, only units in the SGD Class have been issued.

2. Significant accounting policies The principal accounting policies applied in the preparation of these financial statements are set out below:

(a) Basis of preparation The financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets held at fair value through profit or loss, and in accordance with the recommendations of Statement of Recommended Accounting Practice 7 “Reporting Framework for Unit Trusts” (“RAP 7”) issued by the Institute of Singapore Chartered Accountants.

(b) Recognition of income Dividend income from investments is recognised when the right to receive payment is established. Interest income is recognised on a time-proportion basis using the effective interest rate method.

(c) Investments Investments are classified as financial assets at fair value through profit or loss.

Purchases of investments are recognised on the trade date. Investments are recorded at fair value on initial recognition.

Investments are subsequently carried at fair value. The fair value of investments held in underlying funds is the quoted net asset value of the underlying funds as determined by the underlying fund’s administrator. Net change in fair value on investments is included in the Statement of Total Return in the year in which they arise.

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2. Significant accounting policies (continued)

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(c) Investments (continued)

Investments are derecognised on the trade date of disposal. The resultant realised gains and losses on the sales of investments are computed on the basis of the difference between the weighted average cost and selling price gross of transaction costs, and are taken up in the Statement of Total Return.

(d) Basis of valuation of investments The fair value of investments held in underlying funds is the quoted net asset value of the underlying fund as determined by the underlying fund's administrator.

(e) Receivables Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Receivables are initially recognised at their fair value and subsequently carried at amortised cost using the effective interest method, less accumulated impairment losses.

(f) Sales and purchases awaiting settlement Sales and purchases awaiting settlement represent receivables for securities sold and payables for securities purchased that have been contracted for but not yet settled or delivered on the Statement of Financial Position date respectively. These amounts are recognised initially at fair value and subsequently measured at amortised cost.

(g) Payables Accrued expenses are recognised initially at fair value and subsequently stated at amortised cost using the effective interest method.

(h) Cash and bank balances Cash and bank balances comprise cash at banks and on hand which are subject to an insignificant risk of changes in value.

(i) Foreign currency translation

The Fund qualifies as an authorised scheme under the Securities and Futures Act (“SFA”) of Singapore and is offered to retail investors in Singapore. The Fund’s activities are substantially based in Singapore, with subscriptions and redemptions of the units of the Fund denominated in Singapore Dollar (“SGD”).

The performance of the Fund is measured and reported to the investors in Singapore Dollar. The Manager considers the Singapore Dollar as the currency which most faithfully represents the economic effects of the underlying transactions, events and conditions. The financial statements are expressed in Singapore Dollar, which is the Fund’s functional and presentation currency.

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2. Significant accounting policies (continued)

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(i) Foreign currency translation (continued)

Foreign currency monetary assets and liabilities are translated into Singapore Dollar at the rates of exchange prevailing at the date of the Statement of Financial Position. The net unrealised gain or loss is taken to the Statement of Total Return. Transactions during the year are recorded in Singapore Dollar at the rates of exchange ruling on transaction dates. All realised gains or losses are recognised in the Statement of Total Return.

(j) Structured entities A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. A structured entity often has some or all of the following features or attributes: (a) restricted activities, (b) a narrow and well-defined objective, such as to provide investment opportunities for investors by passing on risks and rewards associated with the assets of the structured entity to investors, (c) insufficient equity to permit the structured entity to finance its activities without subordinated financial support and (d) financing in the form of multiple contractually linked instruments to investors that create concentrations of credit or other risks (tranches). The Fund considers all of their investments in other fund (“Underlying Fund”) to be investments in unconsolidated structured entities. The Fund invests in Underlying Fund whose objectives range from achieving short to long term capital growth and whose investment strategy does not include the use of leverage. The Underlying Fund applies various investment strategies to accomplish their respective investment objectives. The Underlying Fund finances their operations by issuing redeemable units which are puttable at the unitholder's option and entitles the unitholder to a proportional stake in the respective fund's net assets. The Fund holds redeemable units in the Underlying Fund. The change in fair value of the Underlying Fund are included in the Statement of Total Return in “Net gains/(losses) on investments”.

3. Income Tax

The Fund was granted the status of a Designated Unit Trust (DUT) in Singapore. The Manager and Trustee of the Fund will ensure that the Fund fulfills its reporting obligations under the DUT Scheme. Under the DUT Scheme, subject to certain conditions and reporting obligations being met, certain income of the DUT fund is not taxable in accordance to Sections 35(12) and 35(12A) of the Income Tax Act. Such income includes: (a) gains or profits derived from Singapore or elsewhere from the disposal of securities; (b) interest (other than interest for which tax has been deducted under section 45 of the

Income Tax Act);

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3. Income Tax (continued)

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(c) dividends derived from outside Singapore and received in Singapore; (d) gains or profits derived from foreign exchange transactions, transactions in futures

contracts, transactions in interest rate or currency forwards, swaps or option contracts and transactions in forwards, swaps or option contracts relating to any securities or financial index;

(e) discount prepayment fees, redemption premium and break cost from qualifying debt

securities issued during the prescribed period; and (f) distributions from foreign unit trusts derived from outside Singapore and received in

Singapore. There is no income tax for the financial year ended 31 December 2019 and 2018.

4. Payables 2019 2018 S$ S$ Payable to unitholders for cancellation of units 112,411 102,021 Amount due to the Manager 163,328 158,176 Valuation fee payable 4,055 3,766 Registrar fee payable 2,967 2,967 Provision for audit fee 10,057 10,056 292,818 276,986 Amount due to Manager comprises of management fee and is payable to Nikko Asset Management Asia Limited. Trustee fee is payable out of management fees by Nikko Asset Management Asia Limited to BNP Paribas Trust Services Singapore Limited. Registrar fee is payable to BNP Paribas Trust Services Singapore Limited. Valuation fee are payable to BNP Paribas Securities Services Singapore Branch.

5. Units in issue During the year ended 31 December 2019 and 2018, the number of units issued, redeemed and outstanding were as follows: 2019 2018 Units at beginning of the financial year 54,738,874 59,626,257 Units created 2,378,610 2,452,713 Units cancelled (5,138,853) (7,340,096) Units at end of the financial year 51,978,631 54,738,874 Net assets attributable to unitholders - S$ 77,978,249 68,068,658 Net asset value per unit - S$ 1.500 1.244

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5. Units in issue (continued) A reconciliation of the net asset value as reported in the Statement of Financial Position to net asset value as determined for the purpose of processing unit subscription and redemption is provided below:

Net assets attributable to unitholders per financial statements per unit

1.500

1.244

Effect of movement in net asset value between the last dealing date and end of reporting period

0.009

-

Net assets attributable to unitholders for issuing/redeeming per unit - S$ 1.509 1.244

6. Financial risk management The Fund’s activities expose it to a variety of risk, including but not limited to market risk (including currency risk, interest rate risk and price risk), liquidity risk and credit risk. The Manager is responsible for the implementation of the overall risk management programme, which seeks to minimise potential adverse effects on the Fund’s financial performance. Specific guidelines on exposures to individual securities and certain industries and/or countries are in place as part of the overall financial risk management to reduce the Fund’s exposures to these risks. The Fund’s primary objective is to achieve medium to long term capital appreciation by investing primarily in equities listed on the stock exchanges of the Asia Pacific region. The Fund will seek to achieve its investment objective by investing its assets into Nikko AM Asia-Pacific ex-Japan Fund (the “Underlying Fund”), a sub-fund of the Nikko AM Global Umbrella Fund, which is registered under the Luxembourg law relating to UCITS. These financial instruments are held in accordance with the published investment policies of the Fund and managed accordingly to achieve the investment objectives.

(a) Market risk - Price risk Price risk is the risk that arises from uncertainties about future prices of financial instruments. The Fund’s investment is substantially dependent on the changes of market prices. The Fund’s overall market positions are monitored regularly so as to assess any deviation from the Fund's investment objective. However, events beyond reasonable control of the Manager could affect the prices of the underlying investments and hence the net asset value of the Fund. As the Fund invests in the Underlying Fund which invests primarily in equities listed in the Asia-Pacific basin (ex-Japan), the Manager is of the view that the price risk of the Fund is best reflected by movements in its benchmark of MSCI AC Asia Pacific ex Japan Index (the “Benchmark”). As at 31 December 2019, an increase/decrease of the index components within the Benchmark by 13% (2018: 14%), with all other variables remaining constant, the net assets attributable to unitholders for the year would increase/decrease by approximately 12% (2018: 13%). The analysis was based on the assumptions that the index components within the Benchmark increased/decreased by a reasonable possible shift, with all other variables held constant and that the fair value of Fund’s investments moved according to the beta. Reasonable possible changes in market index percentage are revised annually depending on management’s current view on market volatility and other relevant factors.

20



6. Financial risk management

Market risk - Interest rate risk

industries and securities and then seeks to adjust the Fund’s portfolio investments

However, the effects of changes in interest rates on the Fund’s portfolio may not be quantified

Market risk - Currency risk

As at 31 December 2019 SGD USD Total S$ S$ S$

Assets

- 77,254,993 77,254,993 1,004,278 11,796 1,016,074

Total assets 1,004,278 77,266,789 78,271,067

Liabilities 292,818 - 292,818

Total liabilities 292,818 - 292,818

Net currency exposure 711,460 77,266,789 As at 31 December 2018 SGD USD Total

S$ S$ S$

Assets

Total assets

Liabilities

Total liabilities

Net currency exposure

21



6. Financial risk management (continued) (c) Market risk - Currency risk (continued)

22

Portfolio of investments, which is a significant item in the Statement of Financial Position is exposed to currency risk and other price risk. The Manager has considered the impact of currency risk sensitivity on non-monetary assets as part of the price risk sensitivity analysis. As of 31 December 2019 and 2018, the Fund does not hold substantial monetary assets/liabilities denominated in foreign currencies. Changes in foreign exchange rates on monetary assets/liabilities will not result in a significant change in the net asset value of the Fund. Hence, no separate sensitivity analysis on foreign currency risk has been presented.

(d) Liquidity risk Liquidity risk is the risk of loss arising from the inability of the Fund to meet its obligations as and when they fall due without incurring unacceptable cost or losses. The Fund is exposed to daily cash redemptions from unitholders. However, in accordance with the Fund’s prospectus, minimum holdings and redemption size are set. To manage the liquidity risk, a cash buffer is maintained in the Fund and monitored for minimum cash balances to prevent any extensive disposition of assets which may occur at lower prices and overdraft situations to meet trade settlements and obligations. The Fund’s financial liabilities are analysed using contractual undiscounted cash flows for maturity groupings based on the remaining year at the Statement of Financial Position date to the contractual maturity date. As at 31 December 2019 and 2018 all liabilities are either payable upon demand or due in less than 3 months. The impact of discounting is not significant. Less than 3 months

As at 31 December

2019

As at 31 December

2018 S$ S$ Payables 292,818 276,986

(e) Credit risk Credit risk is the risk that a counterparty will be unable to fulfil its obligations to the Fund in part or in full as and when they fall due. Concentrations of credit risk are minimised primarily by: – ensuring counterparties as well as the respective credit limits are approved; – ensuring there are controls in place to identify and assess the creditworthiness of

counterparties and review such controls on a semi-annual basis; and – ensuring that transactions are undertaken with a large number of counterparties.

22



6. Financial risk management (continued) (e) Credit risk (continued)

23

All trade settlement with approved counterparties are on Delivery versus Payment and/or Receipt versus Payment basis, with the exception of initial public offerings, new issues and placement transactions. Credit risk arises from cash and bank balances and outstanding and committed transactions from brokers. The table below summarises the credit rating of bank and custodians in which the Fund’s assets are held as at 31 December 2019 and 2018.

Credit rating as at 31 December 2019

Credit rating as at 31 December 2018

Source of credit rating

Bank balance - BNP Paribas Securities

Services, operating through its Singapore Branch A+ A Standard & Poor's

Custodian - BNP Paribas Securities

Services, operating through its Singapore Branch A+ A Standard & Poor's

The credit ratings are based on Long-Term Local Issuer Ratings published by the rating agency. The custodian of the Underlying fund is Brown Brothers Harriman & Co.. As at 31 December 2019, Brown Brothers Harriman & Co. is rated A+ (2018: A+) based on the Long Term Issuer Default rating by Fitch. The maximum exposure to credit risk at the reporting date is the carrying amount of the financial assets.

(f) Capital management The Fund’s capital is represented by the net assets attributable to unitholders. The Fund strives to invest the subscriptions of redeemable participating units in investments that meet the Fund’s investment objectives while maintaining sufficient liquidity to meet unitholder redemptions.

(g) Fair value estimation The Fund classifies fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels: • Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1). • Inputs other than quoted prices included within level 1 that are observable for the asset or

liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2).

• Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).

23



6. Financial risk management

Fair value estimation

The following table analyses within the fair value hierarchy the Fund’s financial assets and

As at 31 December 2019 Level 1 Level 2 Level 3 Total S$ S$ S$ S$

Assets

77,254,993 - - 77,254,993 77,254,993 - - 77,254,993

As at 31 December 2018 Level 1 Level 2 Level 3 Total

S$ S$ S$ S$

Assets

Except for cash and bank balances which are classified as level 1, the Fund’s assets and

Interests in unconsolidated structured entities

24



6. Financial risk management (continued) (h) Interests in unconsolidated structured entities (continued)

25

The Fund has right to request redemption of its investments in Underlying Fund on a daily basis. The exposure to investments in Underlying Fund at fair value is disclosed under the Statement of Portfolio. These investments are included in “Portfolio of investments” in the Statement of Financial Position. The Fund's holding in an Underlying Fund, as a percentage of the Underlying Fund's total net asset value, will vary from time to time dependent on the volume of subscriptions and redemptions at the Underlying Fund level. It is possible that the Fund may, at any point in time, hold a majority of an Underlying Fund's total units in issue. The Fund's maximum exposure to loss from its interests in Underlying Fund is equal to the total fair value of its investments in Underlying Fund. Once the Fund has disposed of its units in an Underlying Fund, the Fund ceases to be exposed to any risk from that Underlying Fund.

7. Related party transactions In addition to related party information shown elsewhere in the financial statements, the following significant transactions took place during the financial year between the Fund and related party at terms agreed between the parties and within the provisions of the Deeds: 2019 2018 S$ S$ Bank balances held with related party of the Trustee 1,016,074 986,580

8. Financial ratios Expense ratio 2019 2018 SGD Class Total operating expenses S$ 611,289 680,866 Average daily net asset value S$ 73,097,584 79,119,508 Total expense ratio1

(including Underlying Fund's expense ratio) % 1.83 1.85 Weighted average of the Underlying fund's unaudited

expense ratio % 0.99 0.99

25



8. Financial ratios (continued)

26

Turnover ratio 2019 2018 Lower of total value of purchases or sales3 S$ 4,426,093 7,524,471 Average daily net asset value S$ 73,097,584 79,119,508 Total turnover ratio2 % 6.06 9.51 1 The expense ratio has been computed based on the guidelines laid down by the Investment Management

Association of Singapore ("IMAS"). This is the sum of the Fund's expense ratio and the weighted average of the Underlying Fund's unaudited expense ratio. The calculation of the expense ratio at financial year end was based on total operating expenses divided by the average net asset value for the year. The total operating expenses do not include (where applicable) brokerage and other transactions costs, performance fee, interest expense, distribution paid out to unitholders, foreign exchange gains/losses, front or back end loads arising from the purchase or sale of other funds and tax deducted at source or arising out of income received. The Fund does not pay any performance fee. The average net asset value is based on the daily balances.

2 The portfolio turnover ratio is calculated in accordance with the formula stated in the Code on Collective

Investment Schemes. The calculation of the portfolio turnover ratio was based on the lower of the total value of purchases or sales of the underlying investments, divided by the average daily net asset value.

3 There were no purchases during the financial year ended 31 December 2019 and 31 December 2018. Therefore

the total value of sales are used in the calculation of portfolio turnover ratio.

9. Subsequent event

With effect from 31 March 2020, the investment focus and approach of the Fund will be amended such that the Fund will seek to achieve its investment objective by investing its assets substantially into the Nikko AM Asia ex-Japan Fund. The Fund may also invest directly in equities in Australia, New Zealand and Japan.

26


REPORT TO UNITHOLDERS

27

The following contains additional information relating to the Fund.

1. Distribution of investments Please refer to the Statement of Portfolio on page 15.

2. Credit rating of debt securities Nil.

3. Top 10 holdings

Largest holdings at 31 December 2019

Fair valueS$

Percentage of total net assets

attributable to unitholders

% Nikko AM Global Umbrella Fund - Nikko AM Asia

Pacific ex-Japan Fund 77,254,993 99.07 Largest holdings at 31 December 2018

Fair valueS$



%

Nikko AM Global Umbrella Fund - Nikko AM Asia Pacific

ex-Japan Fund 67,359,064 98.96 4. Exposure to financial derivatives

Nil.

5. Global exposure to financial derivatives

Nil.

6. Collateral

Nil.

7. Securities lending or repurchase transactions

Nil.

27



8. Investment in unit trusts, mutual funds and collective investment schemes

9. Borrowings

10. Amount of units created and cancelled for the financial year ended 31 December 2019

S$

11. Turnover ratio

12. Expense ratio

13. Related party transactions

14. Any other material information that will adversely impact the valuation of the fund

28



29

The details which follow make reference to the investments within the Nikko AM Global Umbrella Fund - Nikko AM Asia Pacific ex-Japan Fund, unless stated otherwise.

1. Top 10 holdings

10 Largest holdings at 31 December 2019

Fair valueUS$



% Samsung Electronics Company Limited 3,799,534 6.59 Tencent Holdings Limited 3,123,653 5.42 Alibaba Group Holding Limited 2,943,100 5.11 Megaport Limited 2,432,795 4.22 AIA Group Limited 2,286,511 3.97 Ping An Insurance Group 2,127,621 3.69 ICICI Bank Limited 2,037,777 3.53 Taiwan Semiconductor Manufacturing Company Limited 1,976,482 3.43 Alibaba Group Holdings Limited 1,441,290 2.50 Mediatek Incorporation 1,405,494 2.44 10 Largest holdings at 31 December 2018

Fair valueUS$



% Tencent Holdings Limited 3,007,913 6.07 Petrochina Company Limited 1,907,285 3.85 AIA Group Limited 1,786,611 3.60 Taiwan Semiconductor Manufacturing Company Limited 1,474,623 2.97 Ping An Insurance Group 1,466,137 2.96 Shangri-La Asia Limited 1,457,899 2.94 China Mengniu Dairy Company 1,433,580 2.89 Sobha Limited 1,283,898 2.59 Woodside Petroleum Limited 1,178,269 2.38 Samsung Electronics Company Limited 1,098,847 2.22

29



30

2. Financial Ratios

2019 %

2018 %

Expense ratio1 1.00 1.00 Turnover ratio 71.89 95.90 1 The expense ratio has been computed based on the guidelines laid down by the Investment Management

Association of Singapore ("IMAS"). The calculation of the expense ratio at financial year end was based on total operating expenses divided by the average net asset value for the year. The total operating expenses do not include (where applicable) brokerage and other transactions costs, performance fee, interest expense, distribution paid out to unitholders, foreign exchange gains/losses, front or back end loads arising from the purchase or sale of other funds and tax deducted at source or arising out of income received. The Fund does not pay any performance fee. The average net asset value is based on the daily balances.

30

Intentionally left blank.

12 Marina View, #18-02 Asia Square Tower 2, Singapore 018961Intermediaries Hotline: 1800 535 8025 / 65 6535 8025Website: www.nikkoam.com.sg

Company registration number 198202562H

nikko am shenton asia paci c fund · inception date: 31 august 1992 note: (1) with effect from 17...

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