United Asia Pacific Infrastructure Fund

Transcription

1 United Asia Pacific Infrastructure Fund Semi Annual Report for the period 1 st January to 30 th June 2012

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3 MANAGER UOB Asset Management Ltd Registered Address: 80 Raffles Place UOB Plaza Singapore Company Registration No. : Z OPERATIONS ADDRESS 80 Raffles Place #06-00, UOB Plaza 2 Singapore Tel: DIRECTORS OF UOB ASSET MANAGEMENT Terence Ong Sea Eng Yeo Eng Cheong Thio Boon Kiat TRUSTEE HSBC Institutional Trust Services (Singapore) Limited 21 Collyer Quay #14-01, HSBC Building Singapore AUDITORS PricewaterhouseCoopers LLP 8 Cross Street #17-00, PWC Building Singapore SOLICITORS TO THE MANAGER Tan Peng Chin LLC 30 Raffles Place #11-00, Chevron House Singapore SOLICITORS TO THE TRUSTEE Drew & Napier LLC 10 Collyer Quay #10-01 Ocean Financial Centre Singapore

4 A) Fund Performance Fund Performance/ Benchmark Returns 3 mth % Growth 6 mth % Growth 1 yr % Growth 3 yr Ann Comp Ret 5 yr Ann Comp Ret 10 yr Ann Comp Ret Since Inception 17 October 2006 Ann Comp Ret United Asia Pacific Infrastructure Fund NA Benchmark NA 6.00 Source: Lipper, a Thomson Reuters Company Note: The performance returns of the Fund are in Singapore dollars based on a NAV-to-NAV basis with net dividends reinvested. The benchmark of the Fund: The performance of the Fund will be measured against an absolute return benchmark of 6% per annum. For the six months ended 30 June 2012, the net asset value of the Fund rose 3.0%, compared with a 2.9% increase in the absolute return benchmark in Singapore dollar terms. The Fund was able to outperform the benchmark by remaining defensive in having increased its weight in high dividend yielding stocks. Examples include a Chinese toll road company as well as Indian and Hong Kong utility companies, which offer stable regulated returns. However, the Fund s performance did get impacted by its exposure to resource companies, where concerns of a slowdown in the global economy led to a fall in global commodity prices. Key stocks that contributed positively to the fund s performance include Sembcorp Industries, STX OSV, CST Mining and China Everbright International. Sembcorp Industries is a Singapore-based power generation company with operations in five countries including the Middle East. It also has exposure to the offshore marine industry through its 63%-held subsidiary Sembcorp Marine. The company performed well with order wins from Petrobras. STX OSV is a Norwegian company (Singapore listed) that builds and designs highly customized offshore supply vessels (OSVs). The company was trading at low single-digit price-earnings (PE) multiples, with a net cash balance sheet, 30% return on equity (ROE), 4% dividend yield and the stock subsequently performed strongly. CST Mining operates copper mines. The company was trading below the sale value of one of its key mines put up for sale and therefore offered huge value. That mine has finally been sold and the cash received by the company. We are now awaiting special dividends from the divestiture. China Everbright operates waste-to-energy plants and waste water treatment plants in China. The company is a key beneficiary of increasing urbanization in China. Stocks that detracted from performance were Aquarius Platinum, GS Engineering & Construction, Indika Energy and China Shenhua Energy. 2

5 Aquarius Platinum operates platinum mines in South Africa. The company, along with the largest producer of platinum globally, has recently started shutting their mines as they became unviable at the currently prevailing low platinum prices. We believe this is good for the industry as the excess supply will get taken out from the market. Aquarius gearing is very low and has no debt repayment obligation till GS Engineering & Construction is a Korean E&C company that is a beneficiary of ongoing investments in the Middle East, backed by years of high oil prices. The stock did not perform well as some of the orders got delayed. However, we believe that the second half will be better. The company is currently trading at trough valuations of the crisis, with a very strong balance sheet. Indika Energy is an Indonesian coal mining company. The company performed poorly due to a drop in global coal prices. However, most of Indika s volumes for 2012 were contracted at fixed prices. Further, the stock is trading very close to its trough valuations with a 4% dividend yield. China Shenhua Energy is the most efficient Chinese coal miner, with 20% profits now coming from the power generation business. Similar to Indika, Shenhua s performance got impacted by the fall in global coal prices. However, the stock is trading at single digit PE multiples, with a net cash balance sheet and 4% dividend yield. As at end June 2012, the Fund had the following regional asset allocation: China (19.1%), India (12.4%), Singapore (11.0%), South Korea (9.8%), Hong Kong (8.6%), Australia (8.6%), Japan (4.4%), Indonesia (3.1%), and the remainder in cash (23.0%). In terms of sector allocation, the Fund as at end June 2012 was invested in Industrials (24.8%), Utilities (13.3%), Energy (11.7%), Materials (9.5%), Financials (9.2%), Consumer Discretionary (4.4%), Telecommunication Services (4.1%), with the remainder in cash (23.0%). Market Review Asian equity markets started the year strongly, chalking up double-digit percentage gains in the first two months of the year as economic data improved and following policy easing. Gains were largely eroded in May as Eurozone woes once again took centre stage on fear of Greece leaving the Euro common currency. Concurrently, economic data and leading indicators broadly started to weaken. The sharp rally in January and February was from distressed valuation levels. With the US economy continuing to recover, concern of a Euro break-up abating and China s central bank moving to ease monetary conditions, markets moved sharply higher. US economic growth in the 4Q11 rose to 2.8%, above expectation, and the fastest pace since 2Q10. The Fed s announcement that it would keep the Fed Funds Target Rate unchanged at % through 2014 and the chairman s comment that he is leaving the option open for a third round of quantitative easing (QE3) contributed significantly to the change in market sentiment. As has been the case for the past year, Eurozone issues remain the most dominant factor influencing equity market direction. Greece again returned to the spotlight after the country failed to form a government following parliamentary elections in May. The increased popularity of anti-austerity parties raised fears of a Greek exit from the Euro, and roiled financial markets. In June, a second round election produced a coalition government that appears committed to staying in the Euro. 3

6 Attention then shifted to Spain and Italy where borrowing costs surged as investors became increasingly worried about contagion risk. Moody s downgraded Spain s sovereign debt rating to Baa3 in June, further adding to market volatility. Spain requested for financial support from European institutions to bolster its struggling banks. Meanwhile in the US, economic data generally pointed to an economy on the mend. Signs that the recovery was broadening out as employment and wage gains fed through to consumption growth reinforced this view. However, the US purchasing managers index (PMI) which had trended higher through April has pulled back slightly in May. Similarly, growth in consumer expenditure started to moderate, as did both manufacturing and export growth rates. Signs arose that problems in the Eurozone, coupled with the longer term fiscal challenges in the US were starting to influence business and consumer sentiment, raising concern over US growth. This prompted the US Fed to extend its Operation Twist programme in June. Europe remains a weak link in terms of the global outlook as Eurozone PMI fell below the 50 level, with peripheral Europe posting recessionary readings and even core Europe facing a possibility of economic declines. In line with the change in outlook impacting the developed world, Asia too experienced a significant change in outlook. The strong economic outlook in the first quarter moderated sharply into the second quarter. Uncertainty arising from the Eurozone debt crisis, weaker external demand (trade) and a moderation in domestic demand caused key leading indicators to dip. Growth indicators in China, India, Taiwan and Singapore have negatively surprised. Industrial production in the big four economies of China, India, South Korea and Taiwan softened, while those in the Asean economies of Indonesia, the Philippines, Malaysia and Thailand have in general held up better. The weaker industrial data has to a large extent been influenced by weaker external demand. Exports have been growing at negative or single-digit growth rates across most of the region. And while still a bright spot, domestic consumption too has been decelerating. With energy prices having declined and with consumer prices starting to soften, policy makers have more flexibility to relax monetary conditions to counter the dip in demand. China for instance has lowered its reserve requirements as well as interest rates. Indonesia has lowered interest rates. However, as we write, food prices again are facing potential risks of price rises due to feedstock disruptions arising from a drought in the US. Fund Strategy and Outlook Growth expectations for emerging economies, and Asia in particular have moderated significantly from the very buoyant levels registered in The shift in growth rates appears to be in part structural. Many economies, most notably China, are transitioning from investment/export driven growth strategies to income/consumption driven growth models. This transition implies lower potential growth rates over the medium to long term. Also impacting this shift in growth outlook is an underlying erosion of the terms of trade from much of the emerging world due to a decade of rapid wage gains and currency appreciation. The moderation in growth rates and increasing pressure on corporate profit margins in the BRIC economies illustrate this challenge. 4

7 The main mechanism of transmission of the Eurozone s problems has been through trade linkages. Exports to the developed world have been tracking below trend. The slowdown in Eurozone growth is being multiplied by a drop in the Euro, which is putting downward pressure on Europe s import demand. Asia s high export dependency suggests that growth rates will correlate with this weaker external backdrop. Exports have been growing at negative or single-digit growth rates across most of the region. And while still a bright spot, domestic consumption too has been decelerating. Relatively stronger domestic demand thanks largely to higher income levels is still creating end market opportunities. For example, China retail sales have grown steadily at 15% year-on-year. Fortunately a drop in inflation rates is providing more policy flexibility for central banks in the region. However, several of the regions currencies have weakened (Indian Rupee and Indonesian Rupiah), causing price pressures to remain stickier than otherwise expected. China, Thailand and Malaysia are better positioned to relax monetary policy. On the fiscal front, most Asian governments have room to stimulate the economies. As we write, moderate fiscal stimulus from China is in the works. The impact of prior wage and input price increases, coupled with a slowdown in final demand, is creating renewed margin challenges for the corporate sector. Profit margins across all major sectors started to narrow in the first quarter, and earnings continue to be adjusted downwards. The first quarter reporting season can best be characterized as one of more misses than beats in terms of expectations. Although the pace of revisions has slowed, this pressure is expected to persist given the weaker growth backdrop. Valuations are now very attractive. Stocks are trading at or near one standard deviation below mean, both on a forward P/E and P/BV basis. However, valuations alone are not a catalyst when earnings are being cut. The Fund s strategy during the second half will remain similar to that of the first half. The Fund will continue to remain completely bottom-up with investments in: a) companies with higher dividend yields and those earning ROEs that are higher than their Cost of Equity; b) companies with strong balance sheets, as they will be less impacted by the current slowdown in bank lending; c) companies that have a longer operating history and have therefore experienced and navigated these business cycles before; and d) companies that are market leaders within their industry. The Fund will continue to focus on paying reasonable valuations, in accordance with the expected returns. Given the absolute return nature of the Fund s benchmark, the Fund is currently holding cash in excess of 20%. We believe this will enable the Fund to take advantage of the ongoing volatility in the markets. In summary, the current slowdown is in no way a threat to the structural build-out of infrastructure assets required in Asia over the long run. We believe with our focus on the right companies, we should be able to deliver stable returns to our investors in the years ahead. 5

8 B) Investments at fair value and as a percentage of NAV as at 30 June 2012 under review classified by i) Country Fair Value (S$) % of NAV Australia 3,888, China 8,614, Hong Kong 3,910, India 5,606, Indonesia 1,405, Japan 1,970, Singapore 4,962, South Korea 4,430, Portfolio of investments 34,788, Other net assets 10,401, Total 45,190, ii) Industry Consumer Discretionary 2,007, Energy 5,268, Financials 4,177, Industrials 11,207, Materials 4,281, Telecommunication Services 1,841, Utilities 6,002, Portfolio of investments 34,788, Other net assets 10,401, Total 45,190, iii) Asset Class Equities 34,788, Other net assets 10,401, Total 45,190, iv) Credit rating of debt securities N/A 6

9 C) Top Ten Holdings The top 10 holdings as at 30 June 2012 and 30 June 2011 Percentage of total net assets attributable to 10 largest holdings at 30 June 2012 Fair Value unitholders (S$) % KOMATSU LIMITED 1,970, POWER ASSETS HOLDINGS LTD 1,649, GS ENGINEERING & CONSTRUCTION CORPORATION 1,602, HYUNDAI ENGINEERING AND CONSTRUCTION CO LTD 1,506, SHENZHEN EXPRESSWAY COMPANY 1,501, NTPC LIMITED 1,479, CST MINING GROUP LTD 1,241, SHANGHAI ELECTRIC GROUP COMPANY LIMITED 1,232, BHP BILLITON LIMITED 1,224, NATIONAL HYDROELECTRIC POWER CORP LTD 1,167, largest holdings at 30 June 2011 Percentage of total net assets attributable to Fair Value unitholders (S$) % ZHUZHOU CSR TIMES ELECTRIC COMPANY LIMITED 5,282, KOMATSU LIMITED 3,413, KEPPEL CORPORATION LIMITED 3,041, FIRST TRACTOR COMPANY LIMITED 2,672, SEMBCORP INDUSTRIES LTD 2,495, CDL HOSPITALITY TRUST 2,429, ALLIANCE GLOBAL GROUP INC 1,856, CHINA STATE CONSTRUCTION INTL HLDGS LTD 1,785, BHP BILLITON LIMITED 1,726, MIDAS HOLDINGS 1,625, D) Exposure to derivatives i) fair value of derivative contracts and as a percentage of NAV as at 30 June 2012 N/A ii) net gains/(losses) on derivative contracts realised during the financial period ended 30 June 2012 N/A iii) net gains/(losses) on outstanding derivative contracts marked to market as at 30 June 2012 N/A 7

10 E) Amount and percentage of net asset value (NAV) invested in other schemes as at 30 June 2012 Fair Value (S$) % of NAV CAPITACOMMERCIAL TRUST 632, CDL HOSPITALITY TRUST 754, MAPLETREE COMMERCIAL TRUST 877, SUNTEC REIT 672, F) Amount and percentage of borrowings to net asset value (NAV) as at 30 June 2012 N/A G) Amount of redemptions and subscriptions for the period 01 January 2012 to 30 June 2012 Total amount of redemptions SGD 6,540,632 Total amount of subscriptions SGD 331,425 H) The amount and terms of related-party transactions for the period 01 January 2012 to 30 June 2012 i) As at 30 June 2012 the Fund maintained current accounts with the United Overseas Bank Limited as follows : Bank balances SGD 115,122 ii) Purchase/holdings of UOBAM unit trusts by UOB or its affiliated companies as at 30 June 2012 N/A iii) Investment in Initial Public Offerings managed by UOB Group. N/A iv) As at 30 June 2012 the brokerage income earned by UOB Kay Hian Pte Ltd was SGD 601. I) Expense ratios 30 June % 30 June % Note : The expense ratio is computed in accordance with the IMAS guidelines on disclosure of expense ratios dated 25 May Brokerage and other transaction costs, interest expense, foreign exchange gains/losses, tax deducted at source or arising on income received and dividends paid to unitholders are not included in the expense ratio. The Fund has not paid any performance fees. 8

11 J) Turnover ratios 30 June % 30 June % Note : The turnover ratio is calculated in accordance with the formula stated in the Code on Collective Investment Schemes. K) Any material information that will adversely impact the valuation of the scheme such as contingent liabilities of open contracts N/A L) For schemes which invest more than 30% of their deposited property in another scheme, the following key information on the second-mentioned scheme ( the underlying scheme ) 1 should be disclosed as well i) top 10 holdings at fair value and as percentage of NAV as at 30 June 2012 and 30 June 2011 N/A ii) expense ratio for the period ended 30 June 2012 and 30 June A footnote should state (where applicable) that the expense ratio does not include brokerage and other transaction costs, performance fee, foreign exchange gains/losses, front or back end loads arising from or arising out of income received. N/A iii) turnover ratios for the period ended 30 June 2012 and 30 June 2011 N/A M) Soft dollar commissions/arrangements UOB Asset Management has entered into soft dollars arrangements with selected brokers from whom products and services are received from third parties. The products and services relate essentially to computer hardware and software to the extent that they are used to support the investment decision making process, research and advisory services, economic and political analyses, portfolio analyses including performance measurements, market analyses, data and quotation services, all of which are believed to be helpful in the overall discharge of UOB Asset Management s duties to clients. As such services generally benefit all of UOB Asset Management s clients in terms of input into the investment decision making process, the soft credits utilised are not allocated on a specific client basis. The Manager confirms that trades were executed on a best execution basis and there was no churning of trades. 1 where the underlying scheme is managed by a foreign manager which belongs to the same group of companies as, or has a formal arrangement or investment agreement with, the Singapore manager, the above information should be disclosed on the underlying scheme. In other cases, such information on the underlying scheme should be disclosed only if it is readily available to the Singapore manager. 9

12 STATEMENT OF TOTAL RETURN For the half year ended 30 June 2012 (Un-audited) 30 June 30 June Note $ $ Income Dividends 769, ,298 Interest 2, , ,349 Less: Expenses Management fee , ,791 Trustee fee 10 10,097 16,501 Audit fee 7,280 7,593 Registrar fee 10 12,465 12,397 Valuation fee 10 31,552 51,566 Custody fee 13,096 30,699 Interest expenses Other expenses 4,751 52, , ,790 Net income 313,766 26,559 Net gains or losses on value of investments Net realised gain on investments 2,178,075 1,525,015 Net change in fair value on investments (631,328) (9,119,226) Net foreign exchange loss (56,653) (86,764) Net gain/(loss) on value of investments 1,490,094 (7,680,975) Total return/(deficit) for the period before tax 1,803,860 (7,654,416) Less : Income tax 3 (41,305) (53,155) Total return/(deficit) for the period 1,762,555 (7,707,571) The accompanying notes form an integral part of these financial statements. 10

13 BALANCE SHEET As at 30 June 2012 (Un-audited) ASSETS 30 June 31 December Note $ $ Portfolio of investments 34,788,755 42,203,817 Receivables 4 205,919 41,159 Sales awaiting settlement 710,107 - Fixed deposits 6 7,501,749 - Cash and bank balances 6 2,773,983 8,586,824 Total Assets 45,980,513 50,831,800 LIABILITIES Payables 5 259, ,118 Purchase awaiting settlement 531, ,650 Net assets attributable to unitholders 7 45,190,380 49,637,032 Total Liabilities 45,980,513 50,831,800 The accompanying notes form an integral part of these financial statements. 11

14 PORTFOLIO STATEMENT As at 30 June 2012 (Un-audited) By Geography - Primary Quoted Equities Percentage of total net assets attributable to Holdings at Fair value at unitholders at 30 June 30 June 30 June $ % AUSTRALIA AQUARIUS PLATINUM LIMITED 335, , BHP BILLITON LIMITED 30,000 1,224, ILUKA RESOURCES LIMITED 31, , MEDUSA MINING LIMITED 159, , OIL SEARCH LTD 106, , TOTAL AUSTRALIA 3,888, CHINA CHAOWEI POWER HOLDINGS LTD 1,086, , CHINA OILFIELD SERVICES LTD - H 300, , CHINA SHENHUA ENERGY COMPANY LIMITED 244,500 1,078, CHINA STATE CONSTRUCTION INTL HOLDINGS LTD 702, , CHU KONG PETROLEUM & NATURAL GAS STEEL PIPE HOLDINGS LTD 2,007, , COSCO PACIFIC LIMITED 580, , ENN ENERGY HOLDINGS LTD 234,000 1,031, SHANGHAI ELECTRIC GROUP COMPANY LIMITED 2,418,000 1,232, SHENZHEN EXPRESSWAY COMPANY 3,284,000 1,501, TOTAL CHINA 8,614, The accompanying notes form an integral part of these financial statements. 12

15 PORTFOLIO STATEMENT As at 30 June 2012 (Un-audited) By Geography - Primary (continued) Quoted Equities Percentage of total net assets attributable to Holdings at Fair value at unitholders at 30 June 30 June 30 June $ % HONG KONG CST MINING GROUP LTD 62,824,000 1,241, POWER ASSETS HOLDINGS LTD 174,000 1,649, SMARTONE TELECOMMUNICATIONS 420,000 1,019, TOTAL HONG KONG 3,910, INDIA GAIL INDIA LTD 84, , LARSEN N TOUBRO (INR) 26, , NATIONAL HYDROELECTRIC POWER CORP LTD 2,819,361 1,167, NTPC LIMITED 408,995 1,479, OIL & NATURAL GAS CORP LTD 132, , RALLIS INDIA LIMITED 185, , TOTAL INDIA 5,606, INDONESIA PT INDIKA ENERGY 4,235,500 1,056, PT INDO TAMBANGRAYA MEGAH 72, , TOTAL INDONESIA 1,405, JAPAN KOMATSU LIMITED 66,100 1,970, The accompanying notes form an integral part of these financial statements. 13

16 PORTFOLIO STATEMENT As at 30 June 2012 (Un-audited) By Geography - Primary (continued) Quoted Equities Percentage of total net assets attributable to Holdings at Fair value at unitholders at 30 June 30 June 30 June $ % SINGAPORE CAPITACOMMERCIAL TRUST 500, , CDL HOSPITALITY TRUST 400, , KEPPEL CORPORATION LIMITED 70, , MAPLETREE COMMERCIAL TRUST 900, , SAKARI RESOURCES LTD 355, , SINGAPORE TELECOMMUNICATIONS LTD 250, , SUNTEC REIT 500, , TOTAL SINGAPORE 4,962, SOUTH KOREA GS ENGINEERING & CONSTRUCTION 18,985 1,602, CORPORATION HYUNDAI ENGINEERING AND CONSTRUCTION 20,956 1,506, CO LTD HYUNDAI MOTOR COMPANY 2, , KIA MOTORS CORPORATION 6, , TOTAL SOUTH KOREA 4,430, Portfolio of investments 34,788, Other net assets 10,401, Net assets attributable to unitholders 45,190, The accompanying notes form an integral part of these financial statements. 14

17 PORTFOLIO STATEMENT As at 30 June 2012 (Un-audited) By Geography - Primary (Summary) Quoted Equities Percentage of Percentage of total net assets total net assets attributable to attributable to unitholders at unitholders at 30 June 31 December % % Australia China Hong Kong India Indonesia Japan Philippines Singapore South Korea Thailand Portfolio of investments Other net assets Net assets attributable to unitholders The accompanying notes form an integral part of these financial statements. 15

18 PORTFOLIO STATEMENT As at 30 June 2012 (Un-audited) By Industry - Secondary Quoted Equities Percentage of Percentage of total net assets total net assets attributable to attributable to Fair value at unitholders at unitholders at 30 June 30 June 31 December $ % % Consumer Discretionary 2,007, Energy 5,268, Financials 4,177, Industrials 11,207, Materials 4,281, Telecommunication Services 1,841, Utilities 6,002, Portfolio of investments 34,788, Other net assets 10,401, Net assets attributable to unitholders 45,190, The accompanying notes form an integral part of these financial statements. 16

19 NOTES TO THE FINANCIAL STATEMENTS For the half year ended 30 June 2012 (Un-audited) These notes form an integral part of and should be read in conjunction with the accompanying financial statements. 1. General United Asia Pacific Infrastructure Fund (the Fund ) is a Singapore-registered trust fund constituted by a Trust Deed dated 31 August 2006 between UOB Asset Management Ltd (the Manager ) and RBC Dexia Trust Services Singapore Limited (the Trustee ). The Deed and all supplemental deeds are governed by the laws of the Republic of Singapore. With effect from 1 March 2011, the Trustee of the Fund has changed from RBC Dexia Trust Services Singapore Limited (the Retired Trustee ) to HSBC Institutional Trust Services (Singapore) Limited (the Trustee ). The primary activity of the Fund is that of investment trading. The Fund s investment objective is to achieve medium to long term capital growth by investing in securities (equities or equityrelated securities) issued by companies which carry on infrastructure-related businesses in the Asia-Pacific region. 2. Significant accounting policies (a) Basis of accounting The financial statements have been prepared under the historical cost convention, modified by the revaluation of financial assets at fair value through profit or loss, and in accordance with the Statement of Recommended Accounting Practice 7 Reporting Framework for Unit Trusts ( RAP 7 ) issued by the Institute of Certified Public Accountants of Singapore. The financial statements are expressed in Singapore dollars. (b) Recognition of income Dividend income is recognised when the right to receive payment is established. Interest income is recognised on a time proportion basis using the effective interest method. (c) Investments Investments are classified as financial assets at fair value through profit or loss. (i) Initial recognition Purchase of investments are recognised on the trade date. Investments are recorded at fair value on initial recognition. 17

20 NOTES TO THE FINANCIAL STATEMENTS For the half year ended 30 June 2012 (Un-audited) 2. Significant accounting policies (continued) (c) Investments (continued) (ii) Subsequent measurement Investments are subsequently carried at fair value. Net change in fair value on investments are included in the Statement of Total Return in the period in which they arise. (iii) Derecognition Investments are derecognised on the trade date of disposal. The resultant realised gains and losses on the sale of investments are computed on the basis of the difference between the weighted average cost and selling price net of transaction costs, and are taken up in the Statement of Total Return. (d) Basis of valuation of investments The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. The quoted market price for these investments held by the Fund is the current market quoted bid price. (e) Foreign currency translation (i) Functional and presentation currency The Fund s investors are mainly from Singapore with the subscriptions and redemptions of the units denominated in Singapore dollars and United States dollars. The performance of the Fund is measured and reported to the investors in Singapore dollars. The Manager considers the Singapore dollars as the currency of the primary economic environment in which the Fund operates. The financial statements are presented in Singapore dollars, which is the Fund s functional and presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period/year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Statement of Total Return. Translation differences on non-monetary financial assets and liabilities are also recognised in the Statement of Total Return within the fair value net gain or loss. 18

21 NOTES TO THE FINANCIAL STATEMENTS For the half year ended 30 June 2012 (Un-audited) 2. Significant accounting policies (continued) (f) Financial derivatives Financial derivatives including forwards and swaps are entered into for the purpose of efficient portfolio management, tactical asset allocation or specific hedging of financial assets held as determined by the Manager and in accordance with the provisions of the Trust Deed. Financial derivatives outstanding at the balance sheet date are valued at forward rates or at current market prices using the mark-to-market method, as applicable, and the resultant gains and losses are taken up in the Statement of Total Return. (g) Expenses charged to the Fund All direct expenses relating to the Fund are charged directly to the Statement of Total Return. In addition, certain expenses shared by all unit trusts managed by the Manager are allocated to each Fund based on the respective Fund s net asset value. 3. Income tax 30 June 30 June $ $ Overseas income tax 26,718 37,103 Singapore income tax 14,587 16,052 Total income tax 41,305 53,155 The Fund was granted the status of a Designated Unit Trust and, therefore, the following income is exempt from tax in accordance with Section 35(12) of the Income Tax Act (Cap 134): (i) gains or profits derived from Singapore or elsewhere from the disposal of securities; (ii) interest (other than interest for which tax has been deducted under Section 45 of the Singapore Income Tax Act); and (iii) dividends derived from outside Singapore and received in Singapore. The Singapore income tax represents tax deducted at source for Singapore sourced dividends. The overseas income tax represents tax withheld on foreign sourced income. 19

22 NOTES TO THE FINANCIAL STATEMENTS For the half year ended 30 June 2012 (Un-audited) 4. Receivables 30 June 31 December $ $ Amounts receivable for creation of units 973 4,125 Dividend receivable 202,717 37,034 Interest receivable Other receivable 1, ,919 41, Payables 30 June 31 December $ $ Amounts payable for cancellation of units 46, ,895 Amount due to Manager 194, ,057 Amount due to Trustee 4,779 5,264 Other creditors and accrued expenses 13,512 20, , , Cash and bank balance Included in fixed deposits is an amount of $3,000,500 placed with a bank which is the ultimate holding company of the Managers. 30 June 31 December $ $ Current account 2,773,983 8,586,824 Fixed deposit with a financial institution 7,501,749-10,275,732 8,586,824 Fixed deposits have an average maturity of 28 days from the end of the period with a weighted average effective interest rate of 0.21%. 20

23 NOTES TO THE FINANCIAL STATEMENTS For the half year ended 30 June 2012 (Un-audited) 7. Net assets attributable to unitholders 30 June 31 December $ $ At the beginning of the financial period/year 49,637,032 92,089,678 Operations Change in net assets attributable to unitholders resulting from operations 1,762,555 (25,099,721) Unitholders contributions/(withdrawals) Creation of units 331,425 4,471,585 Cancellation of units (6,540,632) (21,824,510) Change in net assets attributable to unitholders resulting from net creation and cancellation of units (6,209,207) (17,352,925) Total decrease in net assets attributable to unitholders (4,446,652) (42,452,646) At the end of the financial period/year 45,190,380 49,637,032 Units in issue (Note 8) 63,435,937 71,692,425 $ $ Net assets attributable to unitholders per unit

24 NOTES TO THE FINANCIAL STATEMENTS For the half year ended 30 June 2012 (Un-audited) 8. Units in issue 30 June 31 December Units at beginning of the period/year 71,692,425 91,727,676 Units created 442,787 4,670,721 Units cancelled (8,699,275) (24,705,972) Units at end of the period/year 63,435,937 71,692, Financial risk management The Fund s activities expose it to a variety of financial risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. The Fund s overall risk management programme seeks to minimise potential adverse effects on the Fund s financial performance. The Fund may use financial futures contracts, financial options contracts and/or currency forward contracts subject to the terms of the Prospectus to moderate certain risk exposures. Specific guidelines on exposures to individual securities and certain industries are in place for the Fund at any time as part of the overall financial risk management to reduce the Fund s risk exposures. The Fund s assets principally consist of financial instruments such as equity investments and cash. They are held in accordance with the published investment policies of the Fund. The allocation of assets between the various types of investments is determined by the Manager to achieve their investment objectives. (a) Market risk Market risk is the risk of loss arising from uncertainty concerning movements in market prices and rates, including observable variables such as interest rates, credit spreads, exchange rates, and others that may be only indirectly observable such as volatilities and correlations. Market risk includes such factors as changes in economic environment, consumption pattern and investor s expectation etc. which may have significant impact on the value of the investments. The Fund s investments are substantially dependent on changes in market prices. The Fund s investments are monitored by the Manager on a regular basis so as to assess changes in fundamentals and valuation. Although the Manager makes reasonable efforts in the choice of investments, events beyond reasonable control of the Manager could affect the prices of the underlying investments and hence the asset value of the Fund. Guidelines are set to reduce the Fund s risk exposures to market volatility such as diversifying the portfolio by investing across various geographies, alternatively, the Fund may be hedged using derivative strategies. 22

25 NOTES TO THE FINANCIAL STATEMENTS For the half year ended 30 June 2012 (Un-audited) 9. Financial risk management (continued) (a) Market risk (continued) (i) Foreign exchange risk The Fund has securities denominated in currencies other than Singapore dollars and it may be affected favourably or unfavourably by exchange rate regulations or changes in the exchange rates between the Singapore dollars and such other currencies. The Manager may at his discretion, implement a currency management strategy either to reduce currency volatility or to hedge the currency exposures of the Fund. The table below summarises the on-balance sheet exposure to currency risks for the Fund. As at 30 June 2012 SGD KOW HKD AUD INR Others Total $ $ $ $ $ $ $ Assets Portfolio of investments 4,962,475 4,430,294 12,524,475 3,888,231 5,606,970 3,376,310 34,788,755 Receivables 2, , ,919 Sales awaiting settlement , ,107 Fixed deposits 7,501, ,501,749 Cash and bank balances 908, ,052 1,860,159 2,773,983 Total Assets 13,375,119 4,430,478 13,437,349 3,888,231 5,612,022 5,237,314 45,980,513 Liabilities Payables 259, ,048 Purchase awaiting settlement - 45,288 28, , ,085 Net assets attributable to unitholders 45,190, ,190,380 Total Liabilities 45,449,428 45,288 28, , ,980,513 Net currency exposure (32,074,309) 4,385,190 13,409,123 3,430,660 5,612,022 5,237,314 23

26 NOTES TO THE FINANCIAL STATEMENTS For the half year ended 30 June 2012 (Un-audited) 9. Financial risk management (continued) (a) Market risk (continued) (i) Foreign exchange risk (continued) As at 31 December 2011 SGD KOW HKD AUD INR Others Total $ $ $ $ $ $ $ Assets Portfolio of investments 7,487,800 3,043,863 19,203,896 3,189,185 4,096,444 5,182,629 42,203,817 Receivables 20,185-20, ,159 Cash and bank balances 5,517, ,882 2,661,595 8,586,824 Total Assets 13,025,147 3,044,048 19,223,930 3,189,185 4,504,326 7,845,164 50,831,800 Liabilities Payables 318, , ,118 Purchase awaiting settlement , , ,650 Net assets attributable to unitholders 49,637, ,637,032 Total Liabilities 49,955, , ,090 50,831,800 Net currency exposure (36,930,681) 3,044,048 19,223,930 3,189,185 4,096,444 7,377,074 Investments, which is the significant item in the balance sheet is exposed to currency risk and other price risk. The other price risk sensitivity analysis includes the impact of currency risk on non-monetary investments. The Fund s net financial assets comprise significantly non-monetary investments, hence currency risk sensitivity analysis has not been performed on the remaining financial assets. 24

27 NOTES TO THE FINANCIAL STATEMENTS For the half year ended 30 June 2012 (Un-audited) 9. Financial risk management (continued) (a) Market risk (continued) (ii) Price risk Price risk is the risk of potential adverse changes to the value of financial investments because of changes in market conditions and volatility in security prices. The table below summarises the impact of increases/decreases from the Fund s underlying investments in equities on the Fund s net assets attributable to unitholders at 30 June 2012 and 31 December The analysis is based on the assumption that the index components within the benchmark increased/decreased by a reasonable possible shift, with all other variables held constant and that the fair value of the Fund s investments moved according to the historical correlation with the index. 30 June December 2011 Benchmark component Net impact to Net impact to net assets net assets attributable to attributable to unitholders unitholders $ % $ % 80% MSCI Asia Pacific ex Japan, 20% MSCI Japan 7,514, ,187, (iii) Interest rate risk (b) Liquidity risk Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. Other than cash balances, the Fund s financial assets and liabilities are largely noninterest bearing. Hence, the Fund is not subjected to significant risk due to fluctuations in the prevailing levels of market interest rates. The Fund is exposed to daily cash redemptions and disbursements for the settlements of purchases. The Manager therefore ensures that the Fund maintains sufficient cash and cash equivalents and that it is able to obtain cash from the sale of investments held to meet its liquidity requirements. Reasonable efforts will be taken to invest in securities which are traded in a relatively active market and which can be readily disposed of. 25

28 NOTES TO THE FINANCIAL STATEMENTS For the half year ended 30 June 2012 (Un-audited) 9. Financial risk management (continued) (b) Liquidity risk (continued) The Fund s investments in listed securities are considered to be readily realisable as they are listed on established regional stock exchanges. The table below analyses the Fund s financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances, as the impact of discounting is not significant. As at 30 June 2012 Less than 3 months Above 3 months to 1 year 1-5 years 5 years $ $ $ $ Payables 259, Purchase awaiting settlement 531, Net assets attributable to unitholders 45,190, As at 31 December 2011 Less than 3 months Above 3 months to 1 year 1-5 years 5 years $ $ $ $ Payables 546, Purchase awaiting settlement 648, Net assets attributable to unitholders 49,637, (c) Credit risk The Fund takes on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. The Fund s credit risk is concentrated on amounts or securities receivable on the sale and purchase of investments respectively. In order to mitigate exposure to credit risk, all transactions in listed securities are settled/paid for upon delivery and transacted with approved counterparties using an approved list of brokers that are regularly assessed and updated by the Manager. 26

29 NOTES TO THE FINANCIAL STATEMENTS For the half year ended 30 June 2012 (Un-audited) 9. Financial risk management (continued) (c) Credit risk (continued) The table below summarises the credit rating of banks and custodians in which the Fund s assets are held as at 30 June 2012 and 31 December The credit ratings are based on the Bank Financial Strength ratings published by the rating agency. As at 30 June 2011 Credit rating Source of credit rating Bank State Street Bank & Trust Co. B Moody s United Overseas Bank Limited B Moody s Overseas-Chinese Banking Corporation B Moody s Standard Chartered Bank B- Moody s Custodian State Street Bank & Trust Co. B Moody s As at 31 December 2011 Credit rating Source of credit rating Bank State Street Bank & Trust Co. B Moody s United Overseas Bank Limited B Moody s Custodian State Street Bank & Trust Co. B Moody s The maximum exposure to credit risk at the reporting date is the carrying amount of the financial assets. (d) Capital management The Fund s capital is represented by the net assets attributable to unitholders. The Fund strives to invest the subscriptions of redeemable participating units in investments that meet the Fund s investment objectives while maintaining sufficient liquidity to meet unitholder redemptions. 27

30 NOTES TO THE FINANCIAL STATEMENTS For the half year ended 30 June 2012 (Un-audited) 10. Related party transactions (a) The Manager and the Trustee of the Fund are UOB Asset Management Ltd and HSBC Institutional Trust Services (Singapore) Limited respectively. UOB Asset Management Ltd is a subsidiary of United Overseas Bank Limited. HSBC Institutional Trust Services (Singapore) Limited is a subsidiary of HSBC Holdings Plc. Management and valuation fees are paid to the Manager, while trustee and registrar fees are paid to HSBC Institutional Trust Services (Singapore) Limited, a subsidiary of HSBC Holdings Plc. These fees paid or payable by the Fund shown in the Statement of Total Return and in the respective Notes to the Financial Statements are on terms set out in the Trust Deed. All other related party transactions are shown elsewhere in the financial statements. (b) As at the end of the financial period/year, the Fund maintained the following account with a related party: 30 June 31 December $ $ United Overseas Bank Limited Bank balances 115,122 82,183 (c) The following transactions took place during the financial period between the Fund and United Overseas Bank Limited at terms agreed between the parties: 30 June 30 June $ $ Bank charges Interest income

31 NOTES TO THE FINANCIAL STATEMENTS For the half year ended 30 June 2012 (Un-audited) 10. Related party transactions (continued) (d) UOB Kay Hian Pte Ltd is an affiliate company of United Overseas Bank Limited. As at the end of the financial period, the Fund has brokerage fee paid or payable to UOB Kay Hian Pte Ltd as follows: 30 June 30 June $ $ Brokerage charges 601 7, Financial ratios 30 June 30 June Expense ratio % 1.93% Turnover ratio % 23.93% 1 The expense ratio is computed in accordance with the IMAS guidelines on disclosure of expense ratios dated 25 May Brokerage and other transaction costs, interest expense, foreign exchange gains/losses, tax deducted at source or arising on income received and dividends paid to unitholders are not included in the expense ratio. The Fund has not paid any performance fees during the year. 2 The turnover ratio is calculated in accordance with the formula stated in the Code on Collective Investment Schemes. 29

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