1 General Information 1. 2 Manager s Report 2. 3 Policy On Stockbroking Rebates And Soft Commissions 8. 4 Statement By The Manager 9

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2 CONTENTS PAGE 1 General Information 1 2 Manager s Report 2 3 Policy On Stockbroking Rebates And Soft Commissions 8 4 Statement By The Manager 9 5 Trustee s Report 10 6 Independent Auditors Report 11 7 Statement Of Comprehensive Income 14 8 Statement Of Financial Position 15 9 Statement Of Changes In Equity Statement Of Cash Flows Summary Of Significant Accounting Policies Notes To The Financial Statements Corporate Information 34 i

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4 MANULIFE 1 GENERAL INFORMATION 1.1 THE TRUST The Fund commenced operations on 7 January 2010 and will continue its operations until terminated as provided under Clause 12 of the Deed. 1.2 FUND TYPE / CATEGORY Growth / Feeder Fund 1.3 OBJECTIVE OF THE FUND Manulife China Equity Fund invests in the MGF-CVF which aims to achieve long-term capital growth through investment, primarily* in under-valued companies with long-term potential and substantial business interest in the Greater China Region (which includes China, Hong Kong and Taiwan) which are listed or traded on stock exchanges of Shanghai, Shenzhen, Hong Kong, Taipei or other exchanges. *primarily means mainly 70% invested 1.4 DISTRIBUTION POLICY The Fund intends to distribute income, if any, on an annual basis. 1.5 PERFORMANCE BENCHMARK The benchmark for the Fund is the FTSE All World Greater China Index. Investors may refer to Bloomberg and/or the Manager for the performance of this benchmark. 1.6 INVESTMENT STYLE AND STRATEGY The Fund will invest principally in MGF-CVF Share Class A managed by Value Partners Limited (VP). MGF-CVF is a collective investment scheme constituted in Luxembourg. MGF- CVF was established on 1 April This Fund is a feeder fund that invests at least 95% of its NAV in MGF-CVF. The risk management strategies and techniques employed will be at the MGF-CVF level by VP with its investment strategy that involves diversification among its asset allocation to invest in undervalued stocks or companies in China market. Although the Fund is passively managed, the investments of the Fund will be rebalanced from time to time to meet redemptions and to enable the proper and efficient management of the Fund. Notwithstanding the above, the Manager may, in consultation with the Trustee and with the unit holders approval, replace MGF-CVF with another fund of a similar objective if, in the Manager s opinion, MGF-CVF no longer meets this Fund s investment objective, or when acting in the interest of the Unit Holders. In all circumstances the MICVF will continue investing at least 95% of its NAV in MGF-CVF; as such the performance of MGF-CVF will reflect on the MICVF s performance. During the financial year under review, there was significant change in the state of the affairs of the fund and there were no circumstances that materially affect any interest of the unit holders. 1

5 2 MANAGER S REPORT 2.1 FUND PERFORMANCE For the financial year ended 31 October 2017, the Target Fund returned 26.76%. For reference, the FTSE All World Greater China Index was up 25.35% over the same period, both in USD terms. During the financial year, the Target Fund s holdings in the consumer sector were among the top contributors to the portfolio s performance, driven by rising demand particularly in the food and beverage segment. In addition, its weighting in the financial sector also contributed to the performance due to better margin outlook and improving non-performing loans (NPL). However, its holdings in the oil and gas and the basic materials sectors dragged the portfolio s relative performance. For the financial year ended 31 October 2017, the Fund s return increased by 25.92%, which marginally underperformed its benchmark return of 26.50%. The graph below compares the 12-month performance of the Fund against its benchmark return: 30% 25% 20% 15% 10% 5% 0% Oct 16 Nov 16 Fund Performance vs. Benchmark Index Return Dec 16 Jan 17 Feb 17 Mar 17 Apr 17 Manulife China Equity Fund Return May 17 Jun 17 Jul 17 Aug 17 Sep 17 Benchmark Index Return Oct 17 Source: Lipper & Bloomberg L.P. Fund Size The Fund s total NAV increased to RM60.82mil from RM25.48mil during the financial year under review. Fund s Returns (a) The graph below compares the 5-year performance of the Fund against its benchmark return: 120% 100% 80% 60% 40% 20% 0% Oct 12 Feb 13 Fund Performance vs. Benchmark Index Return Jun 13 Oct 13 Feb 14 Source: Lipper & Bloomberg L.P. Jun 14 Oct 14 Feb 15 Jun 15 Manulife China Equity Fund Return Oct 15 Feb 16 Jun 16 Oct Feb Jun Benchmark Index Return Oct 17 2

6 (b) Average Total Return of the Fund: For the financial year ended 31 October 2017 Fund (% p.a.) Benchmark (% p.a.) 1 year years years Commencement Date: 7 January 2010 Source: Lipper & Bloomberg L.P. (c) Annual Total Return of the Fund: For the financial year ended: Fund (% p.a.) Benchmark (% p.a.) 31 October October 2016 (6.10) October October October Commencement Date: 7 January 2010 Source: Lipper & Bloomberg L.P. The Fund has achieved its target of providing investors with capital appreciation over the longer term as stated in the Fund s objective. BASES OF CALCULATION 1. Net Asset Value (NAV) Net Asset Value of the Fund is determined by deducting the value of all the Fund s liabilities from the value of all the Fund s assets, at the valuation point. 2. Net Asset Value per unit Net Asset Value per unit is the net asset value of the Fund divided by the total number of units in circulation, at the valuation point. 3. Fund s Return Fund s return can be calculated based on the computation methods as follows: Daily Total Fund s Return = {[End NAV (Ex-distribution) - Beginning NAV + Dividend Distribution] / Beginning NAV} x 100% Total Fund s Return Average Total Return = Total Fund s return for the period is derived from geometrically linking together the daily total fund s returns. The linking formula is = [(1+ R 1 ) x (1+ R 2 ) x (1+ R n )] -1 where: R 1 is the first daily return for the period, R 2 is the second daily return for the period, and R n is the last daily return for the period. = Annualised Total Return (Actual number of days in a year/ [(1+ Total fund s return for the period) number of days during the period) -1] x 100% 3

7 The following table shows other financial and performance data of the Fund for the past three financial years: Fund Data 31 October October October 2015 NAV (RM) 60,815,943 25,480,775 21,052,871 Units in Circulation ( 000) 69,091 36,451 28,281 NAV (RM per unit) Highest / Lowest NAV (RM per unit) Total Fund Return (%) NAV Return (%) Income Return (%) / / (6.10) (6.10) / Management Expense Ratio (%) Portfolio Turnover Ratio (times) NOTES (i) Management Expenses Ratio (MER) MER can be calculated based on the ratio of the sum of fees and the recovered expenses of the unit trust fund to the average value of the unit trust fund calculated on a daily basis. Fees of the unit trust fund + Recovered expenses of the unit trust fund Average value of the unit trust fund calculated on a daily basis x 100 Where: Fees Recovered expenses Average value of the unit trust fund = All ongoing fees deducted / deductible directly from the unit trust fund in respect of the period covered by the management expense ratio, expressed as a fixed amount, calculated on a daily basis. This would include the annual management fee, the annual trustee fee and any other fees deducted / deductible directly from the unit trust fund; = All expenses recovered from/ charged to the unit trust fund, as a result of the expenses incurred by the operation of the unit trust fund, expressed as a fixed amount. This should not include expenses that would otherwise be incurred by an individual investor (e.g. brokerage, taxes and levies); and = The NAV of the unit trust fund, including unit trust net income value of the fund, less expenses on an accrued basis, in respect of the period covered by the management expense ratio, calculated on a daily basis. The MER for the financial year is lower than the previous financial year mainly due to increase in average NAV. 4

8 (ii) Portfolio Turnover Ratio (PTR) PTR can be calculated based on the ratio of the average sum of acquisitions and disposals of the Shariah-compliant unit trust fund for the year to the average value of the unit trust fund for the year calculated on a daily basis [Total acquisitions of the fund for the year + Total disposals of the fund for the year]/2 Average value of the unit trust fund calculated on a daily basis The PTR for the financial year is higher than the previous financial year mainly due to the increase in trading activities. The Manager wishes to highlight that past performance of the Fund is not an indication of its future performance. The price of units and the investment returns may go down, as well as up. 2.2 ASSET ALLOCATION Asset allocation of the Fund for the past three financial years: 31 October 2017 % of Net Asset Value 31 October October 2015 Collective Investment Scheme Deposits with Licensed Financial Institutions Other Assets & Liabilities (0.52) 0.81 (0.15) As at 31 October 2017, the Fund was 95.31% invested in Collective Investment Scheme and 4.69% in cash and cash equivalents. Asset allocation of the Target Fund for the past three financial years: Sector Allocation 31 October 2017 % of Net Asset Value 31 October October 2015 Information Technology Consumer Discretionary Banks Consumer Services Insurance Industrials Real Estate Cash Telecommunication Services Oil & Gas Others Health Care Financials Utilities

9 2.3 MARKET REVIEW Signs of confidence had returned to China in the financial year under review. The first-quarter macro data of 2017 continued to show that the world s second-largest economy was gaining momentum with benign inflation pressure. Activity in China s manufacturing sector picked up further in March 2017 with the official Purchasing Managers Index (PMI) rising for the second consecutive month to 51.8, the highest since April 2012, supported by fiscal stimulus and improving domestic and export demand. A series of encouraging macro data signalled further stabilisation in China s economy in the second quarter of The official manufacturing PMI stayed in expansionary territory in June for the 11th consecutive month while exports surprised on the upside on the back of global trade recovery, rising 8.7% in May in USD terms. Meanwhile, China s retail sales grew 10.7% from a year earlier in May 2017, reflecting the continuous progress in China s shift towards a consumption-driven economy. Entering the third quarter, the China market continued to rally on favourable capital flows and upbeat first-half corporate earnings. The earnings per share (EPS) of the MSCI China Index increased 22% year-on-year, one of the highest among the global emerging markets. Southbound capital flows remained sanguine, partly due to robust offshore investment demand and the A-H premium, which stood at 41% as at 23 September As a result, in the first half of 2017, an average of RMB1.3 billion in southbound capital flowed into Hong Kong daily. The southbound flow is expected to continue and support offshore China equities since mainland investors are more familiar with the companies there, and offshore China markets are trading at a discount to the onshore A-share market. On the policy front, China s reform efforts continued to make significant progress in some areas, including the loosening of the one-child policy and the enacting of environmental initiatives and anti-corruption campaigns. Other pro-growth items in the reform agenda, such as the reform of state-owned enterprises, Hukou reforms and tax reforms, are still in progress. The 19th Party Congress which took place in October was the most watched event in China this year. The Congress not only saw a reshuffling of China s senior leadership but also marked the start of China s new political and economic cycle. President Xi Jin Ping was made the paramount leader of China, while Xi Jinping s Thought on Socialism with Chinese Characteristics for a New Era was formally enshrined in the Party s Constitution, cementing Xi s status as one of China s most powerful leaders since Mao Zedong. Although there was no mention of quantitative targets, Xi s new ideology made it clear that China is transitioning from rapid growth to high-quality development. The positive momentum in the China stock market is likely to continue as China is expected to speed up reforms after the 19th Party Congress. 2.4 MARKET OUTLOOK AND INVESTMENT STRATEGY The portfolio managers of the Target Fund have maintained a positive view on China s insurance sector since 2015 in view of its long-term growth potential. Although the sector went through a tough time in the past two years due to irrational competition and declining investment returns, the portfolio managers patience paid off in the past year with the sector fundamentals beginning to show signs of improvement. Against a backdrop of rising bond yields in China and regulatory changes on high-guaranteed-rate products, the combined effects of easing concerns on declining investment returns, a healthier competitive environment and strong premium growth have bolstered the share prices of Chinese insurers. 6

10 In terms of portfolio changes, the portfolio managers have further trimmed the Target Fund s positions in the China B-share market due to the continued liquidity issue and a lack of catalyst. So far this year, the B-share market has underperformed significantly compared with the other markets, with the Shanghai Stock Exchange B-Share Index increasing merely by 2.6% year-to-date as at 31 October In the A-share universe, the portfolio managers continue to adhere to a bottom-up stock selection strategy. Among the portfolio s A-share stock picks, white liquor, home appliances, dairy products and auto parts have been the top performers that had generated good alpha for the portfolio. Sector-wise, given the stretched valuations in the technology sector, they have started to take profit from technology stocks in the second quarter of this year as they turn more selective in the sector. Striking a balance between value and growth opportunities, the relative high cash level has affected the fund s relative performance in the short term. The portfolio managers remain positive on China equities even after the 40%-plus rally in the MSCI China Index so far this year. The market is expected to remain supported by solid earnings while current valuations are not stretched with 12-month forward price-to-earnings (P/E) standing at 13.4 times. Moreover, country allocations to China equities by global investors remain subdued. The portfolio managers continue to like the food and beverage sector, in particular the dairy and white liquor segments, which is set to benefit from rising demand in the lower-tier cities and growing middle-class in China. The portfolio managers also favour Chinese banks on attractive valuation and improving NPL. 2.5 BREAKDOWN OF UNIT HOLDINGS BY SIZE AS AT 31 OCTOBER 2017 The following table presents the distribution of the Fund s unit holders according to size of unit holdings: Size of Holdings No. of Unit Holders % No. of Units Held ( 000) % 5,000 and below , ,001 to 10, , ,001 to 50,000 1, , ,001 to 500, , Above 500, , Manager s stock Total 2, ,

11 3 POLICY ON STOCKBROKING REBATES AND SOFT COMMISSIONS The Management Company did not retain any rebates. For the financial year ended 31 October 2017, the Manager and its delegates did not receive any soft commissions. 8

12 4 STATEMENT BY THE MANAGER MANULIFE We, Chong Soon Min and Wong Boon Choy, being two of the Directors of Manulife Asset Management Services Berhad ( the Manager ), do hereby state that, in the opinion of the Manager, the accompanying financial statements comprising the statement of comprehensive income, statement of financial position, statement of changes in equity, statement of cash flows, summary of significant accounting policies and notes to the financial statements, are drawn up in accordance with the provisions of the Deeds and give a true and fair view of the financial position of the Fund as at 31 October 2017 and of its financial performance, changes in equity and cash flows of the Fund for the financial year ended 31 October 2017 in accordance with the Malaysian Financial Reporting Standards ( MFRS ) and the International Financial Reporting Standards ( IFRS ). For and on behalf of the Manager MANULIFE ASSET MANAGEMENT SERVICES BERHAD CHONG SOON MIN Director WONG BOON CHOY Director Kuala Lumpur 18 December

13 5 TRUSTEE S REPORT TO THE UNIT HOLDERS OF MANULIFE We have acted as Trustee of Manulife China Equity Fund ( the Fund ) for the financial year ended 31 October To the best of our knowledge, Manulife Asset Management Services Berhad ( the Management Company ) has operated and managed the Fund in accordance with the following:- a) limitations imposed on the investment powers of the Management Company and the Trustee under the Deeds, the Securities Commission s Guidelines on Unit Trust Funds, the Capital Markets and Services Act 2007 and other applicable laws; b) valuation/pricing is carried out in accordance with the Deeds and any regulatory requirements; and c) creation and cancellation of units are carried out in accordance with the Deeds and any regulatory requirements. For HSBC (Malaysia) Trustee Berhad Tan Bee Nie Head, Trustee Operations Kuala Lumpur 18 December

14 6 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF MANULIFE REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS Our opinion In our opinion, the financial statements of Manulife China Equity Fund ( the Fund ) give a true and fair view of the financial position of the Fund as at 31 October 2017, and of its financial performance and its cash flows for the year then ended in accordance with the Malaysian Financial Reporting Standards and International Financial Reporting Standards. What we have audited We have audited the financial statements of the Fund which comprise the statement of financial position as at 31 October 2017, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, as set out on pages 14 to 33. Basis for opinion We conducted our audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditors 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 opinion. Independence and other ethical responsibilities We are independent of the Fund in accordance with the By-Laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants ( By-Laws ) and the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants ( IESBA Code ), and we have fulfilled our other ethical responsibilities in accordance with the By-Laws and the IESBA Code. Information other than the financial statements and auditors report thereon The Manager of the Fund is responsible for the other information. The other information comprises Manager s report but does not include the financial statements of the Fund and our auditors report thereon. Our opinion on the financial statements of the Fund 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 of the Fund, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements of the Fund 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. 11

15 Responsibilities of the Manager for the financial statements The Manager of the Fund is responsible for the preparation of the financial statements of the Fund that give a true and fair view in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards. The Manager is also responsible for such internal control as the Manager determines is necessary to enable the preparation of financial statements of the Fund that are free from material misstatement, whether due to fraud or error. In preparing the financial statements of the Fund, 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 liquidate the Fund or has no realistic alternative but to do so. Auditors responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements of the Fund as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors 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 approved standards on auditing in Malaysia and International Standards on Auditing 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 approved standards on auditing in Malaysia and International Standards on Auditing, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: (a) Identify and assess the risks of material misstatement of the financial statements of the Fund, 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. (b) 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. (c) (d) (e) 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 auditors report to the related disclosures in the financial statements of the Fund 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 auditors report. However, future events or conditions may cause the Fund to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements of the Fund, 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. 12

16 OTHER MATTERS This report is made solely to the unit holders of the Fund and for no other purpose. We do not assume responsibility to any other person for the content of this report. PRICEWATERHOUSECOOPERS (No. AF: 1146) Chartered Accountants Kuala Lumpur 18 December

17 7 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 OCTOBER 2017 INVESTMENT INCOME/(LOSS) Note Interest income 55,586 30,092 Gross dividend income 172, ,296 Net gain/(loss) on financial assets at fair value through profit or loss 6 7,892,501 (1,567,256) Net loss on foreign currency exchange (177,177) (27,989) RM RM 7,943,619 (1,254,857) EXPENSES Manager s fee 3 122,755 75,325 Trustee s fee 4 28,005 18,428 Auditors remuneration 5,800 6,100 Tax agent s fee 2,700 1,900 Other expenses 21,546 16, , ,038 PROFIT/(LOSS) BEFORE TAXATION 7,762,813 (1,372,895) TAXATION PROFIT/(LOSS) AFTER TAXATION AND TOTAL COMPREHENSIVE INCOME/(LOSS) 7,762,813 (1,372,895) Profit/(loss) after taxation is made up as follows: Realised 2,857, ,112 Unrealised 4,905,771 (1,653,007) 7,762,813 (1,372,895) The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 14

18 8 STATEMENT OF FINANCIAL POSITION AS AT 31 OCTOBER 2017 ASSETS Note RM RM Financial assets at fair value through profit or loss 6 57,966,475 24,594,445 Amount due from Manager 889,437 - Amount due from stockbrokers 1,337, ,500 Dividends receivable 172, ,981 Cash and cash equivalents 7 3,181, ,433 TOTAL ASSETS 63,547,081 26,000,359 LIABILITIES Amount due to Manager - Manager s fee 17,013 7,906 - Cancellation of units - 485,490 Amount due to Trustee 3,844 1,820 Amount due to stockbrokers 2,680,209 - Other payables 8 30,072 24,368 TOTAL LIABILITIES 2,731, ,584 NET ASSET VALUE ( NAV ) OF THE FUND 60,815,943 25,480,775 EQUITY Unit holders capital 48,614,568 21,042,213 Retained earnings 12,201,375 4,438,562 60,815,943 25,480,775 NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 2 60,815,943 25,480,775 NUMBER OF UNITS IN CIRCULATION 9 69,091,061 36,451,061 NAV PER UNIT The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 15

19 9 STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 OCTOBER 2017 Unit holders Retained capital earnings Total RM RM RM BALANCE AS AT 1 NOVEMBER ,042,213 4,438,562 25,480,775 Movement in unit holders contribution: Creation of units 73,677,536-73,677,536 Cancellation of units (46,105,181) - (46,105,181) Total comprehensive income - 7,762,813 7,762,813 BALANCE AS AT 31 OCTOBER ,614,568 12,201,375 60,815,943 Unit holders Retained capital earnings Total RM RM RM BALANCE AS AT 1 NOVEMBER ,241,414 5,811,457 21,052,871 Movement in unit holders contribution: Creation of units 24,417,224-24,417,224 Cancellation of units (18,616,425) - (18,616,425) Total comprehensive loss - (1,372,895) (1,372,895) BALANCE AS AT 31 OCTOBER ,042,213 4,438,562 25,480,775 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 16

20 10 STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 OCTOBER 2017 MANULIFE Note RM RM CASH FLOWS FROM OPERATING ACTIVITIES Purchase of investments (60,852,617) (19,629,773) Sale of investments 37,266,688 14,477,484 Net realised foreign exchange (loss)/gain (259,520) 6,929 Dividends received 155, ,315 Interest income received 55,586 30,092 Manager s fee paid (113,648) (73,909) Trustee s fee paid (25,981) (18,140) Audit fee paid (5,800) (5,800) Tax agent s fee paid (735) (2,700) Payment for other fees and expenses (17,807) (12,011) Net cash used in operating activities (23,798,609) (5,072,513) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from creation of units 72,788,099 24,417,224 Payments for cancellation of units (46,590,671) (18,719,011) Net cash generated from financing activities 26,197,428 5,698,213 Net increase in cash and cash equivalents 2,398, ,700 Currency translation differences 82,343 (34,918) Cash and cash equivalents at beginning of the financial year 700, ,651 Cash and cash equivalents at end of the financial year 7 3,181, ,433 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 17

21 11 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 OCTOBER 2017 The following accounting policies have been used consistently in dealing with items which are considered material in relation to the financial statements. The policies have been consistently applied to all the financial years presented, unless otherwise stated. A BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS The financial statements of the Fund have been prepared in accordance with the Malaysian Financial Reporting Standards ( MFRS ) and the International Financial Reporting Standards ( IFRS ). The financial statements have been prepared under the historical cost convention, as modified by financial assets at fair value through profit or loss. The preparation of financial statements in conformity with MFRS and IFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. It also requires the Manager to exercise judgement in the process of applying the Fund s accounting policies. Although these estimates and judgement are based on the Manager s best knowledge of current events and actions, actual results may differ. There are no significant areas of judgement or complexity that have significant effect on the amounts recognised in the financial statements. There are no critical accounting estimates and assumptions used in the preparation of the financial statements of the Fund for the financial year ended 31 October The Fund has applied the following amendments for the first time for the financial year beginning 1 November 2016: Amendments to MFRS 101 Presentation of financial statements - Disclosure initiative Amendments to MFRS 10, 12 & 128 Investment entities - Applying the consolidation exception Annual improvements to MFRSs Cycle There were no significant impact to other accounting policies of the Fund as a result of the above mentioned. The following are standards, amendments to published standards and interpretations to the existing standards that are applicable to the Fund but not yet effective and have not been early adopted by the Fund. Financial year beginning on/after 1 November 2017 Amendments to MFRS 107 Statement of Cash Flows - Disclosure Initiatives (effective from 1 January 2017) introduce an additional disclosure in changes in liabilities arising from financing activities. The Fund will apply this standard when effective. This standard is not expected to have a significant impact on the Fund's financial statements. Financial year beginning on/after 1 November 2018 MFRS 9 Financial Instruments (effective from 1 January 2018) will replace MFRS 139 Financial Instruments: Recognition and Measurement. 18

22 MFRS 9 retains but simplifies the mixed measurement model in MFRS 139 and establishes three primary measurement categories for financial assets: amortised cost, fair value through profit or loss and fair value through other comprehensive income ( OCI ). The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset. Investment in equity instruments is always measured at fair value through profit or loss with a irrevocable option at inception to present changes in fair value in OCI (provided the instrument is not held for trading). A debt instrument is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest. For liabilities, the standard retains most of the MFRS 139 requirements. These include amortised cost accounting for most financial liabilities, with bifurcation of embedded derivatives. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in OCI rather than the income statement, unless this creates an accounting mismatch. MFRS 9 introduces an expected credit losses model on impairment that replaces the incurred loss impairment model used in MFRS 139. The expected credit losses model is forward-looking and eliminates the need for a trigger event to have occurred before credit losses are recognised. The Fund will apply the standard when effective. This standard is not expected to have a significant impact on the Fund s financial statements. B (i) FINANCIAL ASSETS AND FINANCIAL LIABILITIES Classification The Fund classifies its financial assets in the following categories: at fair value through profit or loss and loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification at initial recognition. Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. Financial assets at fair value through profit or loss Financial assets are designated at fair value through profit or loss when they are managed principally for the purposes of selling or repurchasing in the near term and their performance are evaluated on a fair value basis. The Fund designates its investment in collective investment scheme as financial assets at fair value through profit or loss at inception. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. The Fund s loans and receivables comprise amount due from Manager, amount due from stockbrokers, dividends receivable and cash and cash equivalents in the statement of financial position. Other financial liabilities The Fund classifies amount due to Manager, amount due to Trustee, amount due to stockbrokers and other payables as other financial liabilities. 19

23 (ii) Recognition and initial measurement Regular purchases and sales of financial assets are recognised on the trade-date, the date on which the Fund commits to purchase or sell the assets. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in profit or loss. Financing and receivables are initially recognised at fair value plus transaction costs. Financial liabilities, within the scope of MFRS 139, are recognised in the statement of financial position when, and only when, the Fund becomes a party to the contractual provisions of the financial instrument. (iii) Subsequent measurement - gains and losses Financial assets at fair value through profit or loss are subsequently carried at fair value. Gains and losses arising from changes in the fair value of the financial assets at fair value through profit or loss are included in the profit or loss in the financial period which they arise. Loan and receivables are subsequently carried at amortised cost using the effective interest rate method. (iv) Subsequent measurement - impairment of financial assets The Fund assesses at the end of the reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The criteria that the Fund uses to determine that there is objective evidence of an impairment loss include indications that the obligor is experiencing significant financial difficulty, high probability that the obligor will enter bankruptcy or other distressed financial reorganisation and events that would adversely affect the financial capability of the obligor. The amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. If loans and receivables has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Fund may measure impairment on the basis of an instrument s fair value by using an observable market price. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment is recognised (such as an improvement in the debtor s/issuer s credit rating), the reversal of the previously recognised impairment loss is recognised in profit or loss. When an asset is uncollectible, it is written off against the related allowance account. Such assets are written off after all the necessary procedures have been completed and the amount of the loss has been determined. (v) De-recognition Financial assets are de-recognised when the rights to receive cash flows from the investments have expired or have been transferred and the Fund has transferred substantially all risks and rewards of ownership. Financial liabilities are de-recognised when they are extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or has expired. 20

24 C CREATION AND CANCELLATION OF UNITS The Fund issues cancellable units, which are cancelled at the unit holder s option and are classified as equity. Cancellable units can be put back to the Fund at any time for cash equal to a proportionate share of the Fund s net asset value. The outstanding unit is carried at the redemption amount that is payable at the date of the statement of financial position if the unit holder exercises the right to put the unit back to the Fund. Units are created and cancelled at the unit holder s option at prices based on the Fund s net asset value per unit at the time of creation and cancellation. The Fund s net asset value is calculated by dividing the net assets attributable to unit holders with the total number of outstanding units. The net asset value per unit is computed each dealing day. The price at which units are created or cancelled is calculated by reference to the net asset value per unit as at the close of business on the relevant dealing day. Units in the Fund are classified as equity in the statement of financial position and are stated at fair value representing the price at which unit holders can redeem the units from the Fund. D INCOME RECOGNITION Interest income from deposits is recognised on an accrual basis using the effective interest rate method. Dividend income on collective investment scheme is recognised on the ex-dividend date. Realised gains or losses on sale of collective investment schemes are accounted for as the difference between the net disposal proceeds and the carrying amount of the investments, determined on a weighted average cost basis. E EXPENSES Expenses are accounted for on an accrual basis and charged to the statement of comprehensive income. F AMOUNT DUE FROM/TO STOCKBROKERS Amounts due from and to stockbrokers 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 using the effective interest rate method, less provision for impairment for amount due from stockbrokers. A provision for impairment of amount due from a stockbroker is established when there is objective evidence that the Fund will not be able to collect the amount due from the relevant stockbroker. Significant financial difficulties of the stockbroker, probability that the stockbroker will enter bankruptcy or financial reorganisation, and default in payments are considered indicators that the amount due from the stockbroker is impaired. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest to discount the future cash flows for the purpose of measuring the impairment loss. The effective interest rate method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts throughout the expected life of the financial instrument, or, when appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Fund estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. 21

25 G CASH AND CASH EQUIVALENTS For the purpose of the statement of cash flows, cash and cash equivalents comprise cash at banks and deposits held in highly liquid investments that are readily convertible to known amounts of cash, and which are subject to an insignificant risk of changes in value. H CURRENCY TRANSLATION The financial statements are presented in Ringgit Malaysia, which is the Fund s functional and presentation currency. Transactions in foreign currencies during the financial year are converted to Ringgit Malaysia at rate of exchange ruling at transaction dates. Assets and liabilities denominated in foreign currencies at the date of the statement of financial position are translated into Ringgit Malaysia at the rate of exchange approximating those ruling on that date. Exchange differences arising from the settlement of foreign currency transactions and from the translation of foreign currency monetary assets and liabilities are included in the statement of comprehensive income. I FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value is price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants and the measurement date. The information presented herein represents the estimates of fair value as at the date of the statement of financial position. Where available, quoted and observable market prices are used as the measure of fair values. Where such quoted and observable market prices are not available, fair values are estimated based on a range of methodologies and assumptions regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows and other factors. Changes in the uncertainties and assumptions could materially affect these estimates and the resulting fair value estimates. A range of methodologies and assumptions has been used in deriving the fair values of the Fund s financial instruments as at the date of statement of financial position. The total fair value of each financial instrument is not materially different from the total carrying value. The fair values are based on the following methodologies and assumptions: (a) Short-term deposits with financial institutions For deposits and placements with financial institutions with maturities of less than three months, the carrying value is a reasonable estimate of fair value. For deposits and placements with maturities of three months and above, the estimated fair value is based on discounted cash flows by using prevailing interbank money market rates at which similar deposits and placements would be made with financial institutions of similar credit risk and remaining period to maturity. (b) Collective investments schemes The estimated fair value is based on quoted and observable market prices. (c) Other short-term financial instruments Other short-term financial instruments comprise amount due to Manager, amount due from/ to stockbrokers, amount due to Trustee and other payables. The carrying values of the assets and liabilities are assumed to approximate their fair values due to the short tenure of less than one year. 22

26 J TAXATION Current tax expense is determined according to the tax laws in the jurisdictions of the taxable profit earned during the financial year from the financial assets in which the Fund invests and includes all taxes based upon the taxable profit. K SEGMENT REPORTING Operating segments are reported in a manner consistent with the internal reporting used by the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the strategic asset allocation committee of the Manager that makes the strategic decisions. 23

27 12 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 OCTOBER INFORMATION ON THE FUND Manulife China Equity Fund ( the Fund ) was established pursuant to a Master Deed dated 27 October 2009, as amended and supplemented by subsequent Supplemental Deeds (hereinafter referred to as the Deed ) between Manulife Asset Management Services Berhad ( the Manager ) and HSBC (Malaysia) Trustee Berhad ( the Trustee ). The principal activity of the Fund is to invest in Investments as defined under Clause 1 of the Deed. The Fund may invest in collective investment schemes, liquid assets consisting money market instruments (including fixed income securities of not more than 365 days) and deposits with any financial institutions and any other forms of investments as may be permitted by the Securities Commission (SC) from time to time. The Fund commenced operations on 7 January 2010 and will continue its operations until terminated as provided under Clause 12 of the Deed. The Fund invests in Manulife Global Fund- China Value Fund ( MGF-CVF ), which aims to achieve long-term capital growth through investment, primarily in under-valued companies with long-term potential and substantial business interest in the Greater China Region (which includes China, Hong Kong and Taiwan) which are listed or traded on stock exchanges of Shanghai, Shenzhen, Hong Kong,Taipei or other exchanges. The Manager of the Fund, a company incorporated in Malaysia, is a wholly-owned subsidiary of Manulife Holdings Berhad, a public limited liability company, incorporated and domiciled in Malaysia, and listed on the main market of Bursa Malaysia. Its principal activities are the management of unit trusts, private retirement schemes, fund management activities and financial planning. The financial statements were authorised for issue by the Board of Directors of the Manager in accordance with a resolution of the Directors on 18 December NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS The net assets attributable to unit holders meet the definition of puttable instruments classified as equity instruments under MFRS 132 Financial Instruments: Presentation. The units in the Fund are puttable instruments which entitle the unit holders to a pro-rata share of the net assets of the Fund. The units are subordinated and have identical features. There is no contractual obligation to deliver cash or another financial asset other than the obligation on the Fund to repurchase the units. The total expected cash flows from the units in the Fund over the life of the units are based on the change in the net assets of the Fund. 3 MANAGER S FEE In accordance with the Deed, the Manager is entitled to Manager s fee at a rate of 1.80% per annum of the net asset value of the Fund before deducting Trustee s fee and Manager s fee for the day, calculated on a daily basis. The management fee paid to the manager is net of rebate. Rebate is recognised at a rate of 1.50% per annum on the collective investment scheme's fair value over the number of dealing days, calculated and accrued daily. There will be no further liability to the Manager in respect of Manager s fee other than the amount recognised above. 24