CIMB-PRINCIPAL PREFERRED SECURITIES FUND FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD FROM 11 JANUARY 2017 (DATE OF LAUNCH) TO 31 OCTOBER 2017

Transcription

1 FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD FROM 11 JANUARY 2017 (DATE OF LAUNCH) TO 31 OCTOBER 2017

2 CONTENTS PAGE(S) INVESTORS' LETTER 1 MANAGER'S REPORT 2-9 Fund Objective and Policy Performance Data Market Review Fund Performance Portfolio Structure Market Outlook Investment Strategy Unit Holdings Statistics Soft Commissions and Rebates STATEMENT BY MANAGER 10 TRUSTEE'S REPORT 11 INDEPENDENT AUDITORS REPORT STATEMENT OF COMPREHENSIVE INCOME 16 STATEMENT OF FINANCIAL POSITION STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 19 STATEMENT OF CASH FLOWS 20 NOTES TO THE FINANCIAL STATEMENTS DIRECTORY 40 LIST OF CWA (an Agency force of CIMB-Principal) OFFICES 41-45

3 INVESTORS' LETTER Dear Valued Investors, Thank you for your continued support and for the confidence that you have placed in us. We are pleased to share that CIMB-Principal Asset Management Berhad ( CIMB-Principal ) Malaysia concluded the first half of 2017 with RM48 billion in Asset Under Management ( AUM ) and CIMB- Principal s Group AUM has increased by 14% to RM63 billion, for 1-year period ending 30 June Our AUM for Private Retirement Schemes ( PRS ) business has increased by 25% year-on-year ( y-o-y ) to RM388 million as at 30 June We continue to achieve prestigious recognitions from The Edge Thomson Reuters Lipper Fund Awards: The Edge Thomson Reuters Lipper Malaysia Fund Awards 2017 Best Equity Global, 3 years & 5 years : CIMB-Principal Global Titans Fund Best Equity Asia Pacific Ex-Japan, 5 years : CIMB-Principal Asian Equity Fund Best Equity Asia Pacific Ex-Japan - Malaysia Islamic, 5 years : CIMB Islamic Asia Pacific Equity Fund Thomson Reuters Lipper Fund Award Global Islamic 2017 Best Equity Asia Pacific Ex-Japan (Islamic), Best Fund over 5 years : CIMB Islamic Asia Pacific Equity Fund These awards reflect our consistent fund performance, in tandem with our commitment to provide the best customer experience to you. CIMB-Principal was also awarded Fund House of the Year in Malaysia by AsianInvestor for the Asset Management Awards 2017, its second consecutive win and The Employees' Provident Fund ( EPF ) External Portfolio Managers Awards 2017 for the Best Global Bond Portfolio Manager. These industry recognitions reflect our success in scaling up our investment capabilities while building a solid track record and earning the trust of our clients over time. Thank you. Yours faithfully, for CIMB-Principal Asset Management Berhad Munirah Khairuddin Chief Executive Officer/Executive Director 1

4 MANAGER S REPORT FUND OBJECTIVE AND POLICY What is the investment objective of the Fund? The Fund aims to achieve income and capital appreciation primarily through investment in preferred securities. Has the Fund achieved its objective? For the financial period under review, the Fund has performed in line with its objective as stated under the Fund Performance section. What are the Fund investment policy and principal investment strategy? The Fund is a feeder fund and it invests in a single collective investment scheme, i.e. the Target Fund. The Manager will monitor the investment objective of the Target Fund to ensure that it is in line with the investment objective of the Fund. In order to achieve its investment objective, the Fund will invest at least 95% of its Net Asset Value ( NAV ) in the Target Fund; a Undertakings for Collective Investment in Transferable Securities ( UCITS ) domiciled in Ireland and established on 22 April The Fund will invest in Class I Income United States Dollar ( USD ) of the Target Fund, which is a share class denominated in USD with income distribution established on 15 January The Fund will also maintain up to 5% of its NAV in Liquid Assets. Information on the Target Fund: Target Fund Manager: Principal Global Investors (Ireland) Limited Investment Adviser: Principal Global Investors, LLC Sub Investment Adviser: Spectrum Asset Management, Inc Regulatory authority: Central Bank of Ireland Principal Global Investors Fund - Preferred Securities Fund is a Dublin based UCITS that invest primarily in a portfolio of USD denominated preferred securities and debt securities. Asset allocation At least 95% of the Fund s NAV will be invested in the Target Fund; and Up to 5% of the Fund s NAV will be invested in Liquid Assets for liquidity purposes. The Fund is a feeder fund that invests at least 95% of its NAV into the Target Fund. Hence, the Target Fund manager will employ a risk management process which combines financial techniques and instruments to manage at any time the risk of various positions and their contribution to the overall risk of the Target Fund s portfolio. Note: Anti-dilution levy is an allowance for fiscal and other charges that is added to the NAV per unit of the relevant class to reflect the costs of investing application monies in underlying assets of the Target Fund. The levy is intended to be used to ensure that all investors in the Target Fund are treated equitably by allocating transaction costs to the investors whose transactions give rise to those costs. Base Currency US Dollar ( USD ) Fund category/type Feeder Fund/Income How long should you invest for? Recommended three (3) years or more Indication of short-term risk (low, moderate, high) High 2

5 FUND OBJECTIVE AND POLICY (CONTINUED) When was the Fund launched? Class MYR & USD 11 January 2017 Class MYR-Hedged 30 March 2017 What was the size of the Fund as at 31 October 2017? USD12.25 million (20.85 million units) CIMB-PRINCIPAL PREFERRED SECURITIES FUND What is the Fund s benchmark? 50% Bank of America Merrill Lynch Fixed Rate Preferred Securities Index and 50% Bank of America Merrill Lynch US Capital Securities Index What is the Fund distribution policy? Quarterly, depending on the availability of realised income and/or realised gains and at our discretion. The Manager have the right to make provisions for reserves in respect of distribution of the Class. If the income available is too small or insignificant, any distribution may not be of benefit to unit holders as the total cost to be incurred in any such distribution may be higher than the amount for distribution. The Manager have the discretion to decide on the amount to be distributed to unit holders. The Manager also have the discretion to make income distribution on an ad-hoc basis, taking into consideration the level of its realised income and/or realised gains, as well as the performance of the Fund. What was the net income distribution for the financial period from 11 January 2017 (date of launch) to 31 October 2017? There was no distribution made for the financial period from 11 January 2017 (date of launch) to 31 October PERFORMANCE DATA Details of portfolio composition of the Fund for the financial period are as follows: % Collective investment scheme Cash and other net assets Performance details of the Fund for the financial period are as follows: NAV (USD Million) - Class MYR Class MYR-Hedged Class USD 9.31 Units in circulation (Million) - Class MYR Class MYR-Hedged Class USD

6 PERFORMANCE DATA (CONTINUED) Performance details of the Fund for the financial period are as follows (continued): (date of launch) to NAV per unit (USD) - Class MYR Class MYR-Hedged Class USD Highest NAV per unit (USD) - Class MYR Class MYR-Hedged Class USD Lowest NAV per unit (USD) - Class MYR Class MYR-Hedged Class USD Total return (%) - Class MYR Class MYR-Hedged Class USD 6.45 Capital growth (%) - Class MYR Class MYR-Hedged Class USD 6.45 Income distribution (%) - Class MYR - - Class MYR-Hedged - - Class USD - Management Expense Ratio ("MER") (%) ^ 1.04 Portfolio Turnover Ratio ("PTR") (times) # 1.17 # The Fund s PTR was 1.17 times which was due to trading activities during the financial period under review. Since inception to % Annual total return - Class MYR Class USD 6.45 (Launch date: 11 January 2017) - Class MYR-Hedged 7.56 (Launch date: 30 March 2017) Past performance is not necessarily indicative of future performance and that unit prices and investment returns may go down, as well as up. All performance figures for the financial period have been extracted from Lipper. 4

7 MARKET REVIEW (11 JANUARY 2017 (DATE OF LAUNCH) TO 31 OCTOBER 2017) The markets started the year in a jubilant mood over the expected economic changes to come out of the Trump administration. However, markets were challenged by gridlock and in-fighting within the United States ( US ) government s legislative branch as healthcare framed the theatre in March Volatility spiked modestly after the Republican healthcare plan was pulled, but continued sideways around its lows. The big news for the bond markets came from the US Federal Reserve (the Fed ) in the form of a 25 basis points ( bps ) rate increase. In the second quarter of 2017, the flattening yield curve was positive for performance in preferred securities markets. Rising rates in the front end has benefitted the Insurance and Utility issues. The markets were modestly unsettled in April 2017 as anticipation over the contentious French elections passed without incidence. Volatility spiked in advance of the French elections, but quickly plummeted to the lows of Throughout the period, markets were patiently awaiting the respective leads of the Fed and the European Central bank ( ECB ) on their rates decisions and policy adjustments. However, the news came with little excitement in July The decisions were to leave rates unchanged and to have a plan on balance sheet adjustments relatively soon. Volatility dropped deeper into new 30-year lows helping the Standard & Poor s ( S&P ) 500 climb to a record high. In October 2017, volatility ticked up, yet it remained channeled around 30-year lows in both equity and bond markets. The US Treasury ( UST ) 30-year bond finished October 2017 yielding 2.88% and the UST 10-year note finished yielding 2.37% as chatter rose over who would succeed Janet Yellen as Fed Chairman next year. FUND PERFORMANCE Since inception to Class MYR Class MYR-Hedged Class USD % % % Income Capital Total Return Benchmark Average Total Return Since inception, Class MYR gained 7.24%, while the benchmark appreciated 8.18%. Class MYR- Hedged gained 7.56%, while the benchmark appreciated 5.56%. For Class USD, the Fund gained 6.45%, while the benchmark gained 8.18%. 5

8 FUND PERFORMANCE (CONTINUED) Class MYR Class MYR-Hedged 6

9 FUND PERFORMANCE (CONTINUED) Class USD Changes in NAV CLASS MYR NAV (USD Million) 0.57 NAV/Unit (USD) CLASS MYR-HEDGED NAV (USD Million) 2.36 NAV/Unit (USD) CLASS USD NAV (USD Million) 9.31 NAV/Unit (USD) The Fund recorded positive net inflow from unit creations over the reporting period for all the three classes: Class MYR, Class MYR-Hedged and Class USD. The total NAV of Class USD rose to USD9.31 million. Meanwhile, total NAV of Class MYR and MYR- Hedged grew to USD0.57 million and USD2.36 million respectively. Performance data represents the combined income and capital return as a result of holding units in the Fund for the specified length of time, based on NAV to NAV price. The performance data assumes that all earnings from the Fund are reinvested and are net of management and trustee fees. Past performance is not reflective of future performance and income distributions are not guaranteed. Unit prices and income distributions, if any, may fall and rise. All performance figures for the financial period have been extracted from Lipper. 7

10 PORTFOLIO STRUCTURE Asset allocation (% of NAV) Collective investment scheme Cash and other net assets 2.74 TOTAL The Fund was fully invested during the financial period under review. A minimal level of liquid assets was maintained primarily for redemption purposes. MARKET OUTLOOK* We continue to expect longer term rates to edge higher and for the Fed to make another 25 bps move up with its target funds rate by the end of the year. Our view for long-term treasury rates to move up seems to be contrary to the historical trend in rates during the three time-out periods for quantitative easing ( QE ) (i.e., during the three QE periods when the Fed bought bonds, long-term UST rates actually went up as the Fed s balance sheet expanded; then rates went down when the Fed stopped buying to pause the expansion). The rate action implies that the bond market believes that currency creation will filter into the real economy to engineer growth sufficient to foster desired inflation - it seems odd that inflation would be desired because we have grown up believing that inflation is bad because it reduces consumer purchasing power if wages do not keep up. But, when central bankers are given the choice of inflation risks vs. deflation risks, the pick is to seek inflation and to do whatever it takes to avoid deflation because deflation decelerates incentives to purchase today given expectations things should be cheaper tomorrow. The process of currency creation simply cannot stop because a growing exchange medium is needed to buy the debt our global financial system relies on as lifeblood, so any reduction in the Fed s balance sheet will be a very slow process. * This market outlook does not constitute an offer, invitation, commitment, advice or recommendation to make a purchase of any investment. The information given in this article represents the views of CIMB-Principal or based on data obtained from sources believed to be reliable by CIMB-Principal. Whilst every care has been taken in preparing this, CIMB-Principal makes no guarantee, representation or warranty and is under no circumstances liable for any loss or damage caused by reliance on, any opinion, advice or statement made in this market outlook. INVESTMENT STRATEGY The Fund will continue to remain fully invested in the Target Fund with minimal cash kept for liquidity purposes. UNIT HOLDINGS STATISTICS Breakdown of unit holdings by size as at 31 October 2017 are as follows: CLASS MYR Size of unit holdings (units) No. of unit holders No. of units held % of units held (million) 5,000 and below ,001-10, ,001-50, , , ,001 and above Total

11 UNIT HOLDINGS STATISTICS (CONTINUED) CLASS MYR-HEDGED CIMB-PRINCIPAL PREFERRED SECURITIES FUND Size of unit holdings (units) No. of unit holders No. of units held % of units held (million) 5,000 and below ,001-10, ,001-50, , , ,001 and above Total CLASS USD Size of unit holdings (units) No. of unit holders No. of units held % of units held (million) 5,000 and below ,001-10, ,001-50, , , ,001 and above Total SOFT COMMISSIONS AND REBATES CIMB-Principal Asset Management Berhad (the Manager ) and the Trustee (including their officers) will not retain any form of rebate or soft commission from, or otherwise share in any commission with, any broker in consideration for directing dealings in the investments of the Funds unless the soft commission received is retained in the form of goods and services such as financial wire services and stock quotations system incidental to investment management of the Funds. All dealings with brokers are executed on best available terms. During the financial period under review, the Manager and Trustee did not receive any rebates from the brokers or dealers but have retained soft commission in the form of goods and services such as financial wire services and stock quotations system incidental to investment management of the Funds. 9

12 STATEMENT BY MANAGER TO THE UNIT HOLDERS OF CIMB-PRINCIPAL PREFERRED SECURITIES FUND CIMB-PRINCIPAL PREFERRED SECURITIES FUND We, being the Directors of CIMB-Principal Asset Management Berhad (the Manager ), do hereby state that, in the opinion of the Manager, the accompanying audited financial statements set out on pages 16 to 39 are drawn up in accordance with the provisions of the Deeds and give a true and fair view of the financial position of the Fund as at 31 October 2017 and of its financial performance, changes in equity and cash flows for the financial year then ended in accordance with the provisions of the Malaysian Financial Reporting Standards ( MFRS ) and International Financial Reporting Standards ( IFRS ). For and on behalf of the Manager CIMB-PRINCIPAL ASSET MANAGEMENT BERHAD (Company No.: K) MUNIRAH KHAIRUDDIN Chief Executive Officer/Executive Director ALEJANDRO ECHEGORRI Executive Director Kuala Lumpur 20 December

13 TRUSTEE S REPORT TO THE UNIT HOLDERS OF CIMB-PRINCIPAL PREFERRED SECURITIES FUND CIMB-PRINCIPAL PREFERRED SECURITIES FUND We have acted as Trustee of CIMB-Principal Preferred Securities Fund (the Fund ) for the financial period from 11 January 2017 (date of launch) to 31 October To the best of our knowledge, CIMB-Principal Asset Management Berhad, (the Manager ), has operated and managed the Fund in accordance with the following:- a) limitations imposed on the investment powers of the Manager and the Trustee under the Deed, the Securities Commission s Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework, the Capital Markets and Services Act 2007 and other applicable laws; b) valuation/pricing is carried out in accordance with the Deed and any regulatory requirements; and c) creation and cancellation of units are carried out in accordance with the Deed and any regulatory requirements. For HSBC (Malaysia) Trustee Berhad Tan Bee Nie Head, Trustee Operations Kuala Lumpur 20 December

14 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF CIMB-PRINCIPAL PREFERRED SECURITIES FUND REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS Our opinion CIMB-PRINCIPAL PREFERRED SECURITIES FUND In our opinion, the financial statements of CIMB-Principal Preferred Securities Fund (the Fund ) give a true and fair view of the financial position of the Fund as at 31 October 2017, and of its financial performance and its cash flows for the year then ended in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards. What we have audited We have audited the financial statements of the Fund, which comprise the statement of financial position as at 31 October 2017, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the financial period 11 January 2017 (date of launch) to 31 October 2017 and notes to the financial statements, including a summary of significant accounting policies, as set out on pages 16 to 39. 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. 12

15 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF CIMB-PRINCIPAL PREFERRED SECURITIES FUND (CONTINUED) REPORT ON THE FINANCIAL STATEMENTS (CONTINUED) CIMB-PRINCIPAL PREFERRED SECURITIES FUND 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. 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 determine 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 intend to liquidate the Fund or have no realistic alternative but to do so. 13

16 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF CIMB-PRINCIPAL PREFERRED SECURITIES FUND (CONTINUED) REPORT ON THE FINANCIAL STATEMENTS (CONTINUED) Auditors responsibilities for the audit of the financial statements CIMB-PRINCIPAL PREFERRED SECURITIES FUND 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) (b) (c) (d) (e) 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. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Manager. Conclude on the appropriateness of the Manager s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Fund s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the financial statements of the Fund or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Fund to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements of the Fund, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 14

17 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF CIMB-PRINCIPAL PREFERRED SECURITIES FUND (CONTINUED) REPORT ON THE FINANCIAL STATEMENTS (CONTINUED) CIMB-PRINCIPAL PREFERRED SECURITIES FUND Auditors responsibilities for the audit of the financial statements (continued) 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. 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 20 December

18 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL PERIOD FROM 11 JANUARY 2017 (DATE OF LAUNCH) TO 31 OCTOBER 2017 Note (date of launch) to USD INVESTMENT INCOME Dividend income 215,839 Net gain on financial assets at fair value through profit or loss 8 106,280 Net gain on derivative assets at fair value through profit or loss 9 31,522 Net foreign exchange loss (1,809) Other income 4 17, ,908 EXPENSES Management fee 5 61,205 Trustee s fees 6 1,632 Audit fee 1,700 Tax agent s fee 900 Other expenses 4,344 69,781 PROFIT BEFORE TAXATION 299,127 Taxation 7 - INCREASE IN NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 299,127 Increase in net assets attributable to unit holders are made up as follows: Realised amount 194,412 Unrealised amount 104, ,127 The accompanying notes to the financial statements form an integral part of the audited financial statements. 16

19 STATEMENT OF FINANCIAL POSITION AS AT 31 OCTOBER 2017 Note 2017 USD ASSETS Cash and cash equivalents ,380 Financial assets at fair value through profit or loss 8 11,914,641 Derivative assets 142 Amount due from Manager 254,933 Amount due from Manager of collective investment scheme - Management fee rebate 4,866 TOTAL ASSETS 12,488,962 LIABILITIES Amount due to Manager of collective investment scheme - Purchase of collective investment scheme 220,000 Accrued management fee 14,917 Amount due to Trustee 398 Other payables and accruals 3,739 TOTAL LIABILITIES (EXCLUDING NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS) 239,054 NET ASSET VALUE OF THE FUND 12,249,908 NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 12,249,908 The accompanying notes to the financial statements form an integral part of the audited financial statements. 17

20 STATEMENT OF FINANCIAL POSITION (CONTINUED) AS AT 31 OCTOBER 2017 (CONTINUED) CIMB-PRINCIPAL PREFERRED SECURITIES FUND Note 2017 USD REPRESENTED BY: FAIR VALUE OF OUTSTANDING UNITS (USD) - Class MYR 573,076 - Class MYR-Hedged 2,362,621 - Class USD 9,314,211 12,249,908 NUMBER OF UNITS IN CIRCULATION (UNITS) - Class MYR 2,388,685 - Class MYR-Hedged 9,706,804 - Class USD 8,749, ,845,029 NET ASSET VALUE PER UNIT (USD) - Class MYR Class MYR-Hedged Class USD NET ASSET VALUE PER UNIT IN RESPECTIVE CURRENCIES - Class MYR RM Class MYR-Hedged RM Class USD USD The accompanying notes to the financial statements form an integral part of the audited financial statements. 18

21 STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS FOR THE FINANCIAL PERIOD FROM 11 JANUARY 2017 (DATE OF LAUNCH) TO 31 OCTOBER (date of launch) to USD NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS AT THE BEGINNING OF THE FINANCIAL PERIOD Movement due to units created and cancelled during the financial period: - - Creation of units from applications - Class MYR 591,831 - Class MYR-Hedged 2,294,500 - Class USD 9,091,663 - Cancellation of units - Class MYR (27,213) 11,950,781 Increase in net assets attributable to unit holders during the financial period: Profit after taxation 299,127 NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS AT THE END OF THE FINANCIAL PERIOD 12,249,908 The accompanying notes to the financial statements form an integral part of the audited financial statements. 19

22 STATEMENT OF CASH FLOWS FOR THE FINANCIAL PERIOD FROM 11 JANUARY 2017 (DATE OF LAUNCH) TO 31 OCTOBER 2017 Note (date of launch) to USD CASH FLOWS FROM OPERATING ACTIVITIES Proceeds from disposal of collective investment scheme 15,600 Purchase of collective investment scheme (11,603,961) Dividend income received 215,839 Management fee paid (46,288) Trustee s fees paid (1,234) Payments for other fees and expenses (3,205) Net realised foreign exchange loss (1,809) Net realised gain on forward foreign currency contracts 31,380 Management fee rebate received 12,210 Net cash used in operating activities (11,381,468) CASH FLOWS FROM FINANCING ACTIVITIES Cash proceeds from units created 11,723,061 Payments for cancellation of units (27,213) Net cash generated from financing activities 11,695,848 Net increase in cash and cash equivalents 314,380 Cash and cash equivalents at the end of the financial period ,380 Cash and cash equivalents comprised of: Bank balances 314,380 Cash and cash equivalents at the end of the financial period ,380 The accompanying notes to the financial statements form an integral part of the audited financial statements. 20

23 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD FROM 11 JANUARY 2017 (DATE OF LAUNCH) TO 31 OCTOBER THE FUND, THE MANAGER AND ITS PRINCIPAL ACTIVITY CIMB-Principal Preferred Securities Fund (the Fund ) is governed by Principal Deed dated 21 November 2016 (the Deed ), made between CIMB-Principal Asset Management Berhad (the Manager ) and HSBC (Malaysia) Trustee Berhad (the Trustee ). The Fund is a feeder fund and it invests in a single collective investment scheme, i.e. the Target Fund. The Manager will monitor the investment objective of the Target Fund to ensure that it is in line with the investment objective of the Fund. In order to achieve its investment objective, the Fund will invest at least 95% of its NAV in the Target Fund; a UCITS domiciled in Ireland and established on 22 April The Fund will invest in Class I Income USD of the Target Fund, which is a share class denominated in USD with income distribution established on 15 January The Fund will also maintain up to 5% of its NAV in Liquid Assets. Information on the Target Fund Target Fund Manager : Principal Global Investors (Ireland) Limited Investment Adviser : Principal Global Investors, LLC Sub Investment Adviser : Spectrum Asset Management, Inc Regulatory authority : Central Bank of Ireland Principal Global Investors Fund - Preferred Securities Fund is a Dublin based UCITS that invest primarily in a portfolio of USD denominated preferred securities and debt securities. Asset allocation At least 95% of the Fund s NAV will be invested in the Target Fund; and Up to 5% of the Fund s NAV will be invested in Liquid Assets for liquidity purposes. The Fund is a feeder fund that invests at least 95% of its NAV into the Target Fund. Hence, the Target Fund manager will employ a risk management process which combines financial techniques and instruments to manage at any time the risk of various positions and their contribution to the overall risk of the Target Fund s portfolio. All investments are subjected to the Securities Commission Malaysia ( SC ) Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework, SC requirements, the Deed, except where exemptions or variations have been approved by the SC, internal policies and procedures and the Fund s objective. The Manager, a company incorporated in Malaysia, is a subsidiary of CIMB Group Sdn Bhd and regards CIMB Group Holdings Berhad as its ultimate holding company. The Manager is also an associate of Principal International (Asia) Limited, which is a subsidiary of Principal Financial Group Inc. The principal activities of the Manager are the establishment and management of unit trust funds and fund management activities. 21

24 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CIMB-PRINCIPAL PREFERRED SECURITIES FUND The following accounting policies have been used consistently in dealing with items which are considered material in relation to the financial statements: (a) Basis of preparation The financial statements have been prepared in accordance with the provisions of the MFRS and 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 their judgment in the process of applying the Fund s accounting policies. Although these estimates and judgment are based on the Manager s best knowledge of current events and actions, actual results may differ. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 2(l). Standards, amendments to published standards and interpretations to existing standards that are effective: The Fund has applied the following amendments for the first time for the financial period beginning 11 January 2017 (date of launch): Amendments to MFRS 101 Presentation of Financial Statements Disclosure Initiative provide clarifications on a number of issues, including: Materiality - an entity should not aggregate or disaggregate information in a manner that obscures useful information. Where items are material, sufficient information must be provided to explain the impact on the financial position or performance. Disaggregation and subtotals - line items specified in MFRS 101 may need to be disaggregated where this is relevant to an understanding of the entity s financial position or performance. There is also new guidance on the use of subtotals. Notes - confirmation that the notes do not need to be presented in a particular order. Other comprehensive income ( OCI ) arising from investments accounted for under the equity method - the share of OCI arising from equity-accounted investments is grouped based on whether the items will or will not subsequently be reclassified to profit or loss. Each group should then be presented as a single line item in the statement of other comprehensive income. 22

25 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (a) Basis of preparation (continued) According to the transitional provisions, the disclosures in MFRS 108 regarding the adoption of new standards/accounting policies are not required for these amendments. Annual Improvements to MFRSs Cycle The adoption of these amendments did not have any impact on the current financial period or any prior financial period and is not likely to affect future periods. The standards, amendments to published standards and interpretations to existing standards that are applicable to the Fund but not yet effective and have not been early adopted are as follows: (i) Financial year beginning on/after 1 November 2017 Amendments to MFRS 107 Statement of Cash Flows - Disclosure Initiative (effective from 1 January 2017) introduce an additional disclosure on 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. (ii) Financial year beginning on/after 1 November 2018 MFRS 9 Financial Instruments (effective from 1 January 2018) will replace MFRS 139 Financial Instruments: Recognition and Measurement. 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. Investments in equity instruments are always measured at fair value through profit or loss with an irrevocable option at inception to present changes in fair value in OCI (provided the instrument is not held for trading). A debt instrument is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest For liabilities, the standard retains most of the MFRS 139 requirements. These include amortised cost accounting for most financial liabilities, with bifurcation of embedded derivatives. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in OCI rather than the income statement, unless this creates an accounting mismatch. 23

26 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (a) Basis of preparation (continued) ii) Financial year beginning on/after 1 November 2018 (continued) MFRS 9 introduces an expected credit loss model on impairment that replaces the incurred loss impairment model used in MFRS 139. The expected credit loss model is forward-looking and eliminates the need for a trigger event to have occurred before credit losses are recognised. The Fund will apply these standards when effective. These standards are not expected to have a significant impact on the Fund s financial statements. (b) Financial assets and financial liabilities Classification The Fund designates its investments in collective investment scheme as financial assets at fair value through profit or loss at inception. Financial assets are designated at fair value through profit or loss when they are managed and their performance evaluated on a fair value basis. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and have been included in current assets. The Fund s loans and receivables comprise cash and cash equivalents, derivative contracts, amount due from Manager and amount due from Manager of collective investment scheme. Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. The Fund classifies amount due to Manager, amount due to Manager of collective investment scheme, accrued management fee, amount due to Trustee, and other payables and accruals as other financial liabilities. Recognition and 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. Investments are initially recognised at fair value. 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. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Fund has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognised when it is extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or expired. 24

27 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) Financial assets and financial liabilities (continued) Recognition and measurement (continued) Unrealised gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss are presented in the statement of comprehensive income within net gain or loss on financial assets at fair value through profit or loss in the financial period which they arise. Collective investment scheme is valued based on the most recent published NAV per unit or share of such collective investment scheme or, if unavailable, the last published price of such unit or share (excluding any sales charge included in such selling price). Dividend income from financial assets at fair value through profit or loss is recognised in the statement of comprehensive income as part of gross dividend income when the Fund s right to receive payments is established. Loans and receivables and other financial liabilities are subsequently carried at amortised cost using the effective interest method. Impairment for assets carried at amortised costs For assets carried at amortised cost, 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 amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest rate. The asset s carrying amount is reduced and the amount of the loss is recognised in statement of comprehensive income. If loans and receivables has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Fund may measure impairment on the basis of an instrument s fair value using an observable market price. If, in a subsequent financial period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor s credit rating), the reversal of the previously recognised impairment loss is recognised in statement of comprehensive income. 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. 25

28 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (c) Income recognition Dividend income is recognised on the ex-dividend date when the right to receive payment is established. Realised gain or loss on disposal of collective investment scheme is accounted for as the difference between the net disposal proceeds and the carrying amount of collective investment scheme, determined on a weighted average cost basis. (d) Foreign currency Functional and presentation currency Items included in the financial statements of the Fund are measured using the currency of the primary economic environment in which the Fund operates (the functional currency ). The financial statements are presented in USD, which is the Fund s functional and presentation currency. Due to mixed factors in determining the functional currency of the Fund, the Manager has used its judgement to determine the functional currency that most faithfully represents the economic effects of the underlying transactions, events and conditions and have determined the functional currency to be in USD primarily due to the following factors: i) Significant portion of the NAV is invested in the form of cash denominated in USD for the purpose of making settlement of the foreign trades; and ii) Significant portion of the Fund s expenses are denominated in USD. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in statement of comprehensive income. (e) Creation and cancellation of units The unit holders contributions to the Fund meet the definition of puttable instruments classified as financial liability under MFRS 132 Financial Instruments: Presentation. The Fund issues cancellable units, in three classes of units, known respectively as the Class MYR, Class USD and Class MYR-Hedged, which are cancelled at the unit holder s option. The units are classified as financial liabilities. Cancellable units can be put back to the Fund at any time for cash equal to a proportionate share of the Fund s NAV of respective classes. The outstanding units are carried at the redemption amount that is payable at the date of the statement of financial position if the member exercises the right to put back the unit to the Fund. Units are created and cancelled at the unit holders option at prices based on the Fund s NAV per unit of respective classes at the close of business on the relevant dealing day. The Fund s NAV per unit of respective classes is calculated by dividing the net assets attributable to members of respective classes with the total number of outstanding units of respective classes. 26

29 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (f) Management fee rebate Management fee rebate is deemed from the collective investment scheme held by the Fund on an accrual basis to ensure no double charging of management fee. It is accrued daily based on the fair value of collective investment scheme held. (g) Cash and cash equivalents For the purpose of statement of cash flow, cash and cash equivalent comprise bank balances and deposits held in highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. (h) Taxation Current tax expense is determined according to Malaysian tax laws at the current rate based upon the taxable profit earned during the financial period. Tax on income from foreign collective investment scheme is based on the tax regime of the respective countries that the Fund invests in. (i) Increase/Decrease in net assets attributable to unit holders Income not distributed is included in net assets attributable to unit holders. (j) Amount due to Manager of collective investment scheme (purchase of investment) Amounts due to Manager of collective investment scheme represent payables for collective investment scheme purchased that have been contracted for but not yet delivered on the statement of financial position date respectively. These amounts are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of amounts due from Manager of collective investment scheme is established when there is objective evidence that the Fund will not be able to collect all amounts due from the Manager of collective investment scheme. Significant financial difficulties of the Manager of collective investment scheme, probability that the Manager of collective investment scheme will enter bankruptcy or financial reorganisation, and default in payments are considered indicators that the amount due from Manager of collective investment scheme is impaired. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the interest rate used to discount the future cash flows for the purpose of measuring the impairment loss. (k) Segment information Operating segments are reported in a manner consistent with the internal reporting used by the chief operating decision-maker. The chief operating decision-maker is responsible for allocating resources and assessing performance of the operating segments. 27

30 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (l) Critical accounting estimates and judgments in applying accounting policies The Fund makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. To enhance the information content of the estimates, certain key variables that are anticipated to have material impact to the Funds results and financial position are tested for sensitivity to changes in the underlying parameters. Estimates and judgment are continually evaluated by the Manager and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In undertaking any of the Fund s investment, the Manager will ensure that all assets of the Fund under management will be valued appropriately, that is at fair value and in compliance with the SC Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework. However, the Manager is of the opinion that in applying these accounting policies, no significant judgment was required. 3. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT OBJECTIVES AND POLICIES Financial assets at fair value through profit or loss Loans and receivables Total 2017 USD USD USD Cash and cash equivalents (Note 10) - 314, ,380 Collective investment scheme (Note 8) 11,914,641-11,914,641 Derivative asset (Note 9) Amount due from Manager - 254, ,933 Amount due from Manager of collective investment scheme - 4,866 4,866 11,914, ,179 12,488,962 All current liabilities are financial liabilities which are carried at amortised cost. The Fund aims to achieve income and capital appreciation primarily through investment in preferred securities. The Fund is exposed to a variety of risks which include market risk (inclusive of price risk and currency risk), credit risk and liquidity risk. Financial risk management is carried out through internal control process adopted by the Manager and adherence to the investment restrictions as stipulated in the Deed and SC Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework. 28