SHARIAH ASIA-PACIFIC FUND

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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 Shariah Adviser s Report 11 7 Independent Auditors Report 12 8 Statement Of Comprehensive Income 15 9 Statement Of Financial Position Statement Of Changes In Equity Statement Of Cash Flows Summary Of Significant Accounting Policies Notes To The Financial Statements Corporate Information 50 i

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4 MANULIFE INVESTMENT SHARIAH ASIA- PACIFIC FUND 1 GENERAL INFORMATION 1.1 THE TRUST The Fund commenced operations on 16 January 2008 and will continue its operations until terminated as provided under Clause 48.2 of the Deed. 1.2 FUND TYPE / CATEGORY Growth / Equity (Islamic) 1.3 OBJECTIVE OF THE FUND To provide long-term capital appreciation through investment in Shariah-compliant equities and equity-related instruments listed on approved stock exchanges within the Asia-Pacific region. 1.4 DISTRIBUTION POLICY Incidental 1.5 PERFORMANCE BENCHMARK The performance of the Fund is measured against the FTSE Shariah Asia Pacific Ex-Japan, India and Pakistan Index (SPXJIPU). 1.6 INVESTMENT STYLE AND STRATEGY The Fund invests in a diversified portfolio of foreign Shariah-compliant equities and equityrelated instruments, and Islamic money market instruments with emphasis on high growth potential and/or undervalued Shariah-compliant stocks relative to their assessed true value. The Fund Manager adopts an active strategy in meeting the investment objective of the Fund. However, any active and frequent trading strategy will depend on investment opportunities or valuations. The Fund Manager focuses primarily on China, Hong Kong, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Taiwan, Thailand, Australia and New Zealand. During the financial year under review, the Fund remained guided by its investment objective as it kept a close tab on Shariah-compliant investment opportunities in Australia, China, Hong Kong, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Taiwan and Thailand. This was based on its assessment of the individual market, sector and Shariahcompliant stock fundamentals as well as prospects vis-à-vis valuation, while also taking into account the outlook of respective currencies. 1

5 2 MANAGER S REPORT 2.1 FUND PERFORMANCE For the financial year ended 30 September 2017, the Fund s return increased by 16.57%. The Fund underperformed its benchmark return, SPXJIPU, which increased by 23.15%. The underperformance was due to Shariah-compliant stock selection and asset allocation decisions at the country and sector levels. Shariah-compliant stock selection in China, South Korea, and Industrials negatively impacted performance. In China, the Fund s smaller exposure to Islamic real estate, albeit less so in the past, mostly detracted as the sector rallied. The momentum in the sector is expected to diminish slowly amid the renewed tightening measures announced. Some of the Fund s holdings in South Korean companies that have businesses in China, which include a cosmetics and skincare producer and auto-related companies, were weighed by geopolitical tensions on the Korean peninsula. We continue to like these companies as their good fundamentals remain intact, and as we expect South Korea-China relations to improve. Shariah-compliant stock selection in Singapore, Hong Kong, Materials, and Information Technology contributed positively to performance. The key contributors during the period were several information technology companies across the region. The top contributor was a Singaporean electronics contract manufacturing services provider that reported better-thanexpected second quarter earnings on the back of its strong execution and diversified customer base; the Chief Executive Officer s (CEO s) recent announcement on his higher stake of the company also extended optimism. South Korean information technology companies that we own rallied on the back of a better pricing outlook for semiconductors and on strong pre-orders for the latest releases of a South Korean smartphone maker that we own. The graph below compares the 12-month performance of the Fund against its benchmark return: Fund Performance vs. Benchmark Index Return 30% 25% 20% 15% 10% 5% 0% -5% Sep 16 Oct 16 Nov 16 Dec 16 Jan 17 Feb 17 Mar 17 Apr 17 May 17 Jun 17 Jul 17 Aug 17 Sep 17 Manulife Investment Shariah Asia-Pacific Fund Return Benchmark Index Return Source: Lipper & Morningstar Fund Size The Fund s total NAV increased to RM24.30mil from RM10.93mil during the financial year under review. 2

6 Fund s Returns (a) The graph below compares the 5-year performance of the Fund against its benchmark return: 70% 60% 50% 40% 30% 20% 10% -10% 0% -20% Sep 12 Jan 13 Fund Performance vs. Benchmark Index Return May 13 Sep Jan Source: Lipper & Morningstar May 14 Sep Jan May 15 Sep Jan May 16 Sep Jan Apr Manulife Investment Shariah Asia-Pacific Fund Return Benchmark Index Return Sep 17 (b) Average Total Return of the Fund: For the financial year ended 30 September 2017 Fund (% p.a.) Bechmark (% p.a.) 1 year years years Commencement date: 16 January 2008 Source: Lipper & Morningstar (c) Annual Total Return of the Fund: For the financial year ended: Fund (% p.a.) Bechmark (% p.a.) 30 September September September September 2014 (0.61) September 2013 (2.91) 7.81 Commencement date: 16 January 2008 Source: Lipper & Morningstar The Fund has achieved its target of providing investors with capital appreciation over the longer-term based on the stated Fund s objective. 3

7 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% The following table shows other financial and performance data of the Fund for the past three financial years: Fund Data 30 September September September 2015 NAV (RM) 24,301,871 10,928,280 9,376,434 Units in Circulation ( 000) 69,075 36,215 33,195 NAV (RM per unit) Highest / Lowest NAV (RM per unit) Total Fund Return (%) NAV Return (%) Income Return (%) / / / Management Expenses Ratio (%) Portfolio Turnover Ratio (times)

8 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 as compared to the previous financial year mainly due to the decrease in expenses incurred.. (ii) Portfolio Turnover Ratio (PTR) PTR can be calculated based on the ratio of the average sum of acquisitions and disposals of the 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 as compared to 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 future performance. The price of units and the investment returns may go down, as well as up. 5

9 2.2 ASSET ALLOCATION Asset allocation for the past three financial years: Sector Allocation 30 September September September 2015 Trading/Services Construction Consumer Products Industrial Products Plantation Quoted Shariah-compliant Investments - Local Quoted Shariah-compliant Investments - Foreign Total Shariah-compliant Investments Other Assets & Liabilities Country Allocation 30 September 2017 % of Net Asset Value 30 September September 2015 Hong Kong/China South Korea Taiwan Australia Indonesia Malaysia Singapore Thailand Philippines Total Shariah-compliant Investments As at 30 September 2017, the Fund was 96.41% invested in Shariah-compliant equities and 3.59% cash instruments. The Fund increased its exposure in Taiwan and Hong Kong/China, and reduced its exposure in Malaysia and Thailand compared to last year. 2.3 MARKET REVIEW During the financial year under review (1st October 2016 to 30st September 2017), the Asia Pacific ex-japan equity markets recorded gains due to strong economic momentum and robust earnings results during the first nine months of the year despite bouts of geopolitical concerns towards the end of the period. Oil prices moved higher as 11 non-organisation Pertroleum Exporting countries (OPEC) members agreed and were committed to production cuts. For the first three months, the market declined due to a strengthening U.S. dollar and higher bond yields post Donald Trump s Presidential Election victory as it raised concerns on the impact of his campaign platforms to inflation and the future path of the Federal Reserve ( Fed ) hiking cycle, as well on the future trade relations between the U.S. and the Asian economies. Despite the Fed hiking policy rates twice by 25bps each in December and March to 1.0%, the central bank maintained a dovish outlook on the tightening cycle. 6

10 In 2017, the markets rallied for the first 8 months of the year supported by healthy economic data, expectations of faster global growth, and positive market sentiment across the region on better earnings results. There has been a notable improvement in manufacturing Purchasing Managerss Indices (PMIs) and inflation, and a recovery in exports. Steady inflows to the region also provided support amid the Fed delivering its second rate hike of 25bps (to 1.25%) for the year in June. China s strong performance by the latter part of the period helped the overall market due to continuously resilient economic data amid deleveraging operations, and good second quarter earnings. However, escalating geopolitical tensions from North Korea in the third quarter of the year weighed on investor sentiment. By the latter part of September, the market recorded its first monthly loss in 2017 due to a strong U.S. dollar driven by: 1) U.S. President Trump s updates on the long-awaited tax reform, which improved prospects for the U.S. economy; 2) Fed Chair Yellen s hawkish remarks on policy rates for the year; and 3) the confirmation of the Fed s balance sheet reduction plan. 2.4 MARKET OUTLOOK AND INVESTMENT STRATEGY Despite the equity market s strong performance year-to-date, Asian equity valuations remain attractive relative to global markets trading below mean multiples as earnings have been upgraded this year. Earnings revisions have persisted in the positive territory, although we expect the pace of upward revisions to normalise for the remainder of the year. A more stable currency, and a benign interest rate and inflation environment provide further appeal to the region. As evidenced from recent the policy environment in China, monetary policy is still highly accommodative in Asia at a time when interest rate normalisation in the U.S. and Europe is now firmly underway albeit at a moderate pace. We are positive on the outlook for South East Asia, particularly for Indonesia. The Indonesian government has made notable progress on reforms, and the resilience of the economy to external shocks is stronger than in the past. Most recent data on retail sales and loan growth support a view that we are approaching an inflection point where the market can outperform after lagging the region year-to-date. Our least preferred market remains Australia. Economic fundamentals and earnings growth are muted relative to the rest of the region. Household leverage is uncomfortably high and low wage growth should see spending growth decelerate despite a recent uptick in employment and spending data for May and June. However, we do like some select names. The recent correction in commodity prices has resulted in better valuations for some of the quality lowcost mining companies which are now pricing in lower commodity prices than spot. From a fund positioning standpoint, our preferred sectors are within the information technology and consumer space. The ongoing recovery in global demand should underpin the growth of the technology sector, while we find many attractive consumer companies in the region with strong growth prospects. 2.5 BREAKDOWN OF UNIT HOLDINGS BY SIZE AS AT 30 SEPTEMBER 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, , ,001 to 500, , Above 500, , Manager s stock Total ,

11 3 POLICY ON STOCKBROKING REBATES AND SOFT COMMISSIONS The Management Company did not retain any rebates. For the financial year ended 30 September 2017, the Management Company or its Fund Manager did not receive any rebates or soft commissions. 8

12 4 STATEMENT BY THE MANAGER 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 30 September 2017 and of its financial performance, changes in equity and cash flows of the Fund for the financial year ended 30 September 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 22 November

13 5 TRUSTEE S REPORT TO THE UNIT HOLDERS OF MANULIFE INVESTMENT We have acted as Trustee of Manulife Investment Shariah Asia-Pacific Fund ( the Fund ) for the financial year ended 30 September 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 22 November

14 6 SHARIAH ADVISER S REPORT TO THE UNIT HOLDERS OF MANULIFE INVESTMENT We have acted as the Shariah Adviser of Manulife Investment Shariah Asia-Pacific Fund. Our responsibility is to ensure that the procedures and processes employed by Manulife Asset Management Services Berhad are in accordance with Shariah principles. In our opinion, Manulife Asset Management Services Berhad has managed and administered Manulife Investment Shariah Asia-Pacific Fund in accordance with Shariah principles and complied with applicable guidelines, rulings and decisions issued by the Securities Commission pertaining to Shariah matters for the financial year ended 30 September In addition, we also confirm that the investment portfolio of Manulife Investment Shariah Asia-Pacific Fund comprises securities which have been classified as Shariah-compliant by the Shariah Advisory Council of the Securities Commission ( SACSC ) and/or Shariah Supervisory Board of FTSE Shariah Asia Pacific Index. As for the securities which are not certified by the SACSC, and/or Shariah Supervisory Board of FTSE Shariah Asia Pacific Index, we have reviewed the said securities and opined that these securities are designated as Shariah-compliant. For and on behalf of the Shariah Adviser IBFIM DR. AHMAD ZAKIRULLAH BIN MOHAMED SHAARANI Managing Advisor (Shariah)/ Designated Person Responsible for Shariah Advisory Kuala Lumpur 22 November

15 7 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF MANULIFE INVESTMENT SHARIAH ASIA- PACIFIC FUND REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS Our opinion In our opinion, the financial statements of Manulife Investment Shariah Asia-Pacific Fund ( the Fund ) give a true and fair view of the financial position of the Fund as at 30 September 2017, and of its financial performance and its cash flows for the year then ended in accordance with 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 30 September 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 15 to 49. 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. 12

16 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) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Manager. d) 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. e) 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. 13

17 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, Malaysia 22 November

18 8 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017 INVESTMENT INCOME Note Profit income - 4,305 Gross dividend income 612, ,349 Net gain on financial assets at fair value through profit or loss 6 2,927, ,299 Net foreign currency exchange loss (57,913) (50,518) RM RM 3,482,684 1,043,435 EXPENSES Manager s fee 3 309, ,626 Trustee s fee 4 10,611 5,542 Auditors remuneration 5,500 5,610 Tax agent s fee 34,700 18,700 Other expenses 188, ,962 Payment to charitable bodies 9 (b) 80,524 - Transaction costs 69,882 37, , ,451 PROFIT BEFORE TAXATION 2,783, ,984 TAXATION 5 90,394 35,898 PROFIT AFTER TAXATION AND TOTAL COMPREHENSIVE INCOME 2,692, ,086 Profit after taxation is made up as follows: Realised 1,836,865 (145,563) Unrealised 855, ,649 2,692, ,806 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 FINANCIAL POSITION AS AT 30 SEPTEMBER 2017 ASSETS Note RM RM Financial assets at fair value through profit or loss 6 23,431,824 10,361,550 Amount due from Manager 428,432 60,824 Amount due from stockbrokers - 32,582 Dividends receivable 17,515 18,545 Tax recoverable 3,796 3,796 Cash and cash equivalents 7 649, ,472 TOTAL ASSETS 24,531,055 11,131,769 LIABILITIES Amount due to Manager - Manager s fee 33,870 15,155 - Cancellation of units - 12,140 Amount due to stockbrokers - 87,772 Amount due to Trustee 1, Other payables 8 113,593 87,902 Payment to charitable bodies 9(b) 80,524 - TOTAL LIABILITIES 229, ,489 NET ASSET VALUE ( NAV ) OF THE FUND 24,301,871 10,928,280 EQUITY Unit holders capital 21,212,181 10,531,366 Retained earnings 3,089, ,914 24,301,871 10,928,280 NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 2 24,301,871 10,928,280 NUMBER OF UNITS IN CIRCULATION 10 69,075,000 36,215,000 NAV PER UNIT 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 CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017 Unit holders Retained capital earnings Total RM RM RM BALANCE AS AT 1 OCTOBER ,531, ,914 10,928,280 Movement in unit holders contribution: Creation of units 21,787,561-21,787,561 Cancellation of units (11,106,746) - (11,106,746) Total comprehensive income - 2,692,776 2,692,776 BALANCE AS AT 30 SEPTEMBER ,212,181 3,089,690 24,301,871 Unit holders capital (Accumulated losses) / Retained earnings Total RM RM RM BALANCE AS AT 1 OCTOBER ,657,606 (281,172) 9,376,434 Movement in unit holders contribution: Creation of units 7,135,875-7,135,875 Cancellation of units (6,262,115) - (6,262,115) Total comprehensive income - 678, ,086 BALANCE AS AT 30 SEPTEMBER ,531, ,914 10,928,280 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 17

21 11 STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017 Note RM RM CASH FLOWS FROM OPERATING ACTIVITIES Purchase of Shariah-compliant investments (23,304,426) (7,058,169) Sale of Shariah-compliant investments 13,036,862 6,056,931 Net realised foreign exchange gain/(loss) (65,478) (49,958) Dividends received 523, ,885 Profit income received - 4,305 Tax refund Manager s fee paid (290,770) (159,750) Trustee s fee paid (9,935) (5,478) Audit fee paid (5,500) (5,610) Tax agent s fee paid (67,467) (13,206) Payment for other fees and expenses (130,346) (96,457) Net cash used in from operating activities (10,313,616) (1,114,185) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from creation of units 21,419,953 7,111,347 Payments for cancellation of units (11,118,886) (6,249,975) Net cash generated from financing activities 10,301, ,372 Net decrease in cash and cash equivalents (12,549) (252,813) Currency transalation differences 7,656 (20,562) Cash and cash equivalents at beginning of the financial year 654, ,847 Cash and cash equivalents at end of the financial year 7 649, ,472 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 18

22 12 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 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 30 September The Fund has applied the following amendments for the first time for the financial year beginning 1 October 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 October 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. 19

23 Financial year beginning on/after 1 October 2018 MFRS 9 Financial Instruments (effective from 1 January 2018) will replace MFRS 139 Financial Instruments: Recognition and Measurement. 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 equity¹ 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 instrument² is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest³. For liabilities, the standard retains most of the MFRS 139 requirements. These include amortised cost accounting for most financial liabilities, with bifurcation of embedded Shariah-compliant 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 standards are 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 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 purpose of selling or repurchasing in the near term and their peformance evaluated on a fair value basis. The Fund designates its investment in quoted Shariah-compliant investments as financial assets at fair value through profit or loss at inception. 1 For the purposes of the investments made by the Fund, equity instruments and derivatives refers to Shariah-compliant equity instruments and Shariah-compliant derivatives. 2 For the purposes of the investments made by the Fund, debt instruments refers to sukuk. 3 For the purposes of this Fund, interest refers to profits earned from Shariah-compliant investments. 20

24 Receivables 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 noncurrent assets. The Fund s receivables comprise amount due from Manager, dividends receivable, cash and cash equivalents in the statement of financial position. Other financial liabilities The Fund classifies amount due to Manager, amount due to Trustee, other payables and payment to charitable bodies as other financial liabilities. (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 asset. 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. 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 period which they arise. Receivables are subsequently carried at amortised cost using the effective profit 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 profit rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. If receivables has a variable profit rate, the discount rate for measuring any impairment loss is the current effective profit rate determined under the contract. As a practical expedient, the Fund may measure impairment on the basis of an instrument s fair value using an observable market price. 21

25 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 Shariahcompliant 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. 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 Profit income from Islamic deposits placed with financial institutions is recognised on an accrual basis using the effective profit rate method. Dividend income on quoted Shariah-compliant investments is recognised on the ex-dividend date. Realised gains or losses on sale of quoted Shariah-compliant investments are accounted for as the difference between the net disposal proceeds and the carrying amount of Shariahcompliant 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. Expenses arising from net disposal of Shariah-compliant investments are recognised as transaction costs (Note L to the financial statements). F AMOUNT DUE FROM/TO STOCKBROKERS Amounts due from and to stockbrokers represent receivables for Shariah-compliant securities sold and payables for Shariah-compliant securities purchased that have been contracted for but not yet settled or delivered on the statement of financial position date respectively. 22

26 These amounts are recognised initially at fair value and subsequently measured at amortised cost using the effective profit rate method, less provision for impairment for amounts 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, profit income is recognised using the rate of profit to discount the future cash flows for the purpose of measuring the impairment loss. The effective profit rate method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating the profit income or profit expense over the relevant period. The effective profit 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 profit 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 profit rate, transaction costs and all other premiums or discounts. G CASH AND CASH EQUIVALENTS For the purpose of statement cash flows, cash and cash equivalents comprise cash at banks and Islamic 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 values as at the date of 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. 23

27 The fair values are based on the following methodologies and assumptions: (a) Short-term Islamic deposits with financial institutions For Islamic deposits and placements with licensed financial institutions with maturities of less than three months, the carrying value is a reasonable estimate of fair value. For Islamic deposits and placements with maturities of three months and above, the estimated fair value is based on discounted cash flows by using prevailing Islamic interbank money market rates at which similar Islamic deposits and placements would be made with financial institutions of similar credit risk and remaining period to maturity. (b) Quoted Shariah-compliant investments 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 from/to Manager, dividend receivables, amount due to Trustee, other payables and payment to charitable bodies. 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. 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. L TRANSACTION COSTS Transaction costs are costs incurred to acquire or dispose of financial assets or liabilities at fair value through profit or loss. They include fees and commissions paid to agents, advisors, brokers and dealers. Transaction costs, when incurred, are immediately recognised in the statement of comprehensive income as expenses. 24

28 13 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER INFORMATION ON THE FUND Manulife Investment Shariah Asia - Pacific Fund ( the Fund ) was established pursuant to a Master Deed dated 31 January 2002, 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, which includes Shariah-compliant stocks and securities of companies listed on Bursa Malaysia Berhad and Shariah-compliant foreign securities listed on any recognised Stock Exchange(s) subject to approval by Bank Negara Malaysia and the Securities Commission, unlisted Shariah-compliant securities of a Malaysian issuer, Islamic deposits with financial institutions, quoted and unquoted sukuk. The Fund commenced operations on 16 January 2008 and will continue its operations until terminated as provided under Clause 48.2 of the Deed. The main objective of the Fund is to provide unit holders with long-term capital appreciation through investment in Shariah-compliant equitites and equity-related instruments listed on approved stock exchanges within the Asia-Pacific region. 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 22 November 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 1.75% 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. There will be no further liability to the Manager in respect of Manager s fee other than the amount recognised above. 4 TRUSTEE S FEE In accordance with the Deed, the Trustee is entitled to a fee of 0.06% 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. There will be no further liability to the Trustee in respect of Trustee s fee other than the amount recognised above. 25