United Financials Multi-Strategy Funds- United Asia Financials Fund. Annual Report

Transcription

1 United Financials Multi-Strategy Funds- United Asia Financials Fund Annual Report for the financial year ended 31 st December 2016

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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 Lee Wai Fai Cheo Chai Hong Goh Yu Min Thio Boon Kiat TRUSTEE / REGISTRAR HSBC Institutional Trust Services (Singapore) Limited 21 Collyer Quay #13-02, HSBC Building Singapore CUSTODIAN The Hongkong and Shanghai Banking Corporation Limited 1 Queen s Road Central Hong Kong 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 Allen & Gledhill LLP One Marina Boulevard #28-00 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 7 June 2010 Ann Comp Ret United Asia Financials Fund N/A 1.46 Benchmark N/A 5.17 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 dividends and distributions reinvested, if any. The benchmark of the Fund: MSCI Asia ex Japan Financials ex Real Estate. For the year ended 31 December 2016, the net asset value of the Fund increased 1.3% compared with an increase of 5.6% in the benchmark MSCI AC Asia ex Japan Financials ex Real Estate Index in Singapore dollar terms. The Fund s performance was dragged down by an underweight position in Taiwan which outperformed and our overweight in the Philippines which underperformed. Negative stock selection in Hong Kong, the Philippines and South Korea also weighed on performance. This was partially offset by positive country allocation in Thailand, Singapore and Indonesia as well as stock selection in India, Indonesia, Singapore and China. Key contributors to performance included China Construction Bank (China), PT Bank Mandiri (Indonesia), Kasikornbank (Thailand) and Axis Bank (India). Key detractors from performance during the period included China Life (China), Value Partners (Hong Kong), Ping An Insurance (China), Samsung Fire & Marine (South Korea) and Metropolitan Bank (the Philippines). During the period under review, the Fund trimmed exposure to China, in particular insurers. The Fund raised its position in banks in Indonesia and Singapore. As at 31 December 2016, the Fund had the following regional asset allocation: China (35.8%), Hong Kong (15.3%), South Korea (6.1%), Singapore (8.1%), Taiwan (9.1%), India (8.8%), others (13.5%) and the remainder (3.3%) in cash. Economic and Market Review Equity markets in Asia ended 2016 with slight gains in a volatile year driven by global macro events. Asia ex-japan underperformed global markets even as emerging markets as a whole outperformed developed markets. Financial stocks underperformed the broad Asia equity market, with banks outperforming insurance and diversified financials. 2

5 Asia markets declined in the first half of the year, caught in the cross-currents of global events with the United Kingdom s vote in June to leave the European Union (Brexit) raising global risk aversion and adding to market volatility. Markets rose in the second half on improving economic data and consumer confidence. Some of these gains reversed in 4Q16 when Donald Trump won the US Presidential election in a surprise victory that jolted financial markets. US dollar strengthened against Asian currencies as US bond yields spiked on expectations of global reflation. As anticipated, the US Federal Reserve (Fed) resumed rate hikes in December, raising interest rates by 25 basis points (bps) to 0.75% as employment conditions in the US improved. Economic indicators generally picked up globally with Asia following suit. The Purchasing Managers Index (PMI) for China crossed above 50 in the second half of the year after a contractionary period in the first half, and the private sector Caixin manufacturing index ended at 51.9, the highest reading since January In India, second half activity slowed as the PMI ended at 49.6 for December. After hovering around the 50-level in the first half, the PMI in South Korea contracted to a low in September while Taiwan picked up in the second half. Other activity indicators such as industrial production and exports mostly recovered across the major Asian economies while inflation remained subdued or declined. Performance across the various markets in Asia was mixed with financials in most markets gaining in SGD terms. Financials in Thailand, Indonesia and Taiwan were the best performing. Singapore and South Korea financials also outperformed. The worst performing financials were in the Philippines and India. Those in Hong Kong, Malaysia and China also underperformed. ASEAN as a region outperformed Asia but gave up some gains towards the end of the year as emerging markets witnessed capital outflows in the aftermath of the US Presidential election. Thailand was the best-performing market, as sentiment and corporate earnings were lifted on the back of a rebound in oil prices. Even as the country mourned the passing of its longest reigning monarch, confidence returned following a smooth royal succession. In Indonesia, the successful implementation of a Tax Amnesty sustained market optimism. Repatriation of funds kept the currency relatively stable amid volatility in emerging market currencies. In Singapore, markets were rattled by distress in the oil and gas sector while policy makers adjusted annual GDP growth numbers downward amid a gloomy economic outlook. Malaysia s continuing saga of its state-linked investment vehicle continued to weigh on investor sentiment. The country s deteriorating current account position made the Malaysia currency the most vulnerable in the face of rising US interest rates. The Philippines market swung into losses as foreign investors turned cautious in an expensive market, as uncertainty surrounded President Rodrigo Duterte s economic and foreign policies. China market underperformed for the year after a shaky start with the newly-introduced circuit breaker mechanism at the beginning of the year contributing to confusion. The weakening RMB against the US dollar drove capital outflows as the country s foreign exchange reserves at the People s Bank of China (PBOC) fell. Property market curbs and liquidity tightening also weighed on sentiment, even as economic activity showed recovery and private sector Caixin PMI ended the year on a high. The Hong Kong market opened an exchange trading link with Shanghai, and witnessed inflows as its currency attracted investors looking for havens unaffected by the political uncertainty in Europe. In Taiwan, geo-political concerns arose on relations with China after a diplomatic break in protocol over a direct phone conversation between Taiwan President Tsai and US President Trump. Technology companies also saw a pickup in activity benefitting higher export numbers. 3

6 In South Korea, a political scandal which resulted in the impeachment of President Park dragged down consumer sentiment. The India market underperformed, as economic activity was hurt by a bold demonetization policy which involved banning over 80% of currency notes to crack down on the shadow economy. The government also passed the much awaited Goods & Sales Tax bill. Outlook and Fund Strategy Against expectations for global reflation and strength in US dollar, inflation in Asia is also expected to rise. Economic growth forecasts have been trimmed to more sustainable levels with stronger growth in Indonesia and Thailand. Most Asian economies have reached the tail end of the monetary easing cycle. Current expectations of the impact of US President Trump s trade policies on Asian exports appear to be overly negative. US growth recovery is usually positive for global cyclicals, US dollar earners, selected banks and financials in Asia. However, uncertainty is likely to cap short term market performance. In China, the focus on reform and economic restructuring has led to a manageable slowdown in GDP growth. We are underweight in Chinese banks due to asset quality issues, but life insurance should see margin improvement as interest rates recover. We turn cautious on Hong Kong due to our negative outlook for the property sector as interest rates rise. We turn more positive on financials in Taiwan due to the positive impact of higher US interest rates. South Korea is trimmed to neutral due to political uncertainty although South Korea financials generally benefit from rising rates. India is also trimmed to underweight as the cash liquidity crunch from demonetisation has negative impact on GDP in coming quarters. In ASEAN, we turn positive on Singapore as valuations are attractive and corporate earnings should post mild recovery in We remain optimistic on Indonesia and Thailand as lower interest rates and improvement in confidence should flow through to spending and investment. The Philippines banks should also enjoy better earnings growth going forward. Asian markets and currencies have pulled back since Trump was elected as US President. Valuations of Asia financials are attractive below the mean level on a price-to-book basis. Asian economies are also on better footing today compared to the taper tantrum in In the near term, an appreciating US dollar presents headwinds to Asia markets. However this should be beneficial for exporters and allows Asia to regain cost competitiveness. Current account positions have improved, except in China, Malaysia and the Philippines. Even as overall growth remains modest, Asian banks are in general well capitalised, have strong deposit bases, and are well positioned to weather the slower economic growth. Rising interest rates are generally positive to net interest margins for developed market banks and insurers. Going into 2017, banks will benefit from the proactive measures taken by central banks to support the economy and stabilisation in asset quality. Their growth fundamentals also remain intact due to the region s demographics, rising incomes and low credit penetration. Further, many Asian financial institutions have strengthened their domestic and regional presence in recent years. The key risks are a disorderly capital outflow, currency volatility and worse-than-expected slowdown in China. 4

7 B) Investments at fair value and as a percentage of NAV as at 31 December 2016 under review classified by i) Country Fair Value (S$) % of NAV China 1,077, Hong Kong 459, India 265, Indonesia 172, Malaysia 42, Philippines 94, Singapore 244, South Korea 182, Taiwan 274, Thailand 93, Portfolio of investments 2,907, Other net assets 99, Total 3,006, ii) Industry Bank 2,003, Diversified Financial Services 216, Insurance 687, Portfolio of investments 2,907, Other net assets 99, Total 3,006, iii) Asset Class Equities 2,907, Other net assets 99, Total 3,006, iv) Credit rating of debt securities N/A 5

8 C) Top Ten Holdings The top 10 holdings as at 31 December 2016 and 31 December largest holdings at 31 December 2016 Percentage of total net assets attributable to Fair Value unitholders (S$) % CHINA CONSTRUCTION BANK - H SHARES 300, AIA GROUP LTD 208, INDUSTRIAL & COMMERCIAL BANK OF CHINA - H SHARES 173, HOUSING DEVELOPMENT FINANCE CORPORATION 156, PING AN INSURANCE COMPANY 155, UNITED OVERSEAS BANK LTD 149, CHINA MERCHANT BANK CO LTD - H SHARES 143, HONG KONG EXCHANGES & CLEARING LTD 136, BANK OF CHINA 117, BOC HONG KONG LTD 113, largest holdings at 31 December 2015 Percentage of total net assets attributable to Fair Value unitholders (S$) % AIA GROUP LTD 359, CHINA CONSTRUCTION BANK - H SHARES 281, UNITED OVERSEAS BANK LTD 254, HONG KONG EXCHANGES & CLEARING LTD 247, CHINA LIFE INSURANCE CO LTD 238, DBS GROUP HOLDINGS LIMITED 216, SHINHAN FINANCIAL GROUP 191, INDUSTRIAL & COMMERCIAL BANK OF CHINA - H SHARES 171, KASIKORNBANK PCL - NVDR 157, PING AN INSURANCE COMPANY 149,

9 D) Exposure to derivatives i) fair value of derivative contracts and as a percentage of NAV as at 31 December 2016 N/A ii) net gains/(losses) on derivative contracts realised during the financial year ended 31 December 2016 N/A iii) net gains/(losses) on outstanding derivative contracts marked to market as at 31 December 2016 N/A E) Amount and percentage of net asset value (NAV) invested in other schemes as at 31 December 2016 N/A F) Amount and percentage of borrowings to net asset value (NAV) as at 31 December 2016 N/A G) Amount of redemptions and subscriptions for the financial year ended 31 December 2016 Total amount of redemptions SGD 1,110,861 Total amount of subscriptions SGD 127,480 H) The amount and terms of related-party transactions for the financial year ended 31 December 2016 Refer to Note 8 of the Notes to the Financial Statements. I) Expense ratios 31 December % 31 December % Note: The expense ratio has been computed based on the guidelines laid down by the Investment Management Association of Singapore ( IMAS ). The calculation of the expense ratio at 31 December 2016 was based on total operating expenses of $139,646 (2015: $161,207) divided by the average net asset value of $3,339,942 (2015: $5,608,711) for the year. The total operating expenses do not include (where applicable) brokerage and other transactions costs, performance fee, interest expense, distribution paid out to unitholders, foreign exchange gains/losses, front or back end loads arising from the purchase or sale of other funds and tax deducted at source or arising out of income received. The Sub-Fund does not pay any performance fee. The average net asset value is based on the daily balances. 7

10 J) Turnover ratios 31 December % 31 December % Note: The portfolio turnover ratio is calculated in accordance with the formula stated in the Code on Collective Investment Schemes. The calculation of the portfolio turnover ratio was based on the lower of the total value of purchases or sales of the underlying investments, being purchases of $1,749,373 (2015: being purchases of $3,168,438) divided by the average daily net asset value of $3,339,942 (2015: $5,608,711). 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 31 December 2016 and 31 December 2015 N/A ii) expense ratios for the financial year ended 31 December 2016 and 31 December 2015 N/A iii) turnover ratios for the financial year ended 31 December 2016 and 31 December 2015 N/A 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. 8

11 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. N) Where the scheme offers pre-determined payouts, an explanation on the calculation of the actual payouts received by participants and any significant deviation from the predetermined payouts N/A 9

12 REPORT OF THE TRUSTEE The Trustee is under a duty to take into custody and hold the assets of the Sub-Fund of United Financials Multi-Strategy Funds, namely (the Sub-Fund ) in trust for the unitholders. In accordance with the Securities and Futures Act (Cap. 289), its subsidiary legislation and the Code on Collective Investment Schemes, the Trustee shall monitor the activities of the Manager for compliance with the limitations imposed on the investment and borrowing powers as set out in the Trust Deed in each annual accounting year and report thereon to unitholders in an annual report. To the best knowledge of the Trustee, the Manager has, in all material respects, managed the Sub-Fund during the year covered by these financial statements, set out on pages 15 to 36, in accordance with the limitations imposed on the investment and borrowing powers set out in the Trust Deed. For and on behalf of the Trustee HSBC INSTITUTIONAL TRUST SERVICES (SINGAPORE) LIMITED Authorised signatory 20 March

13 STATEMENT BY THE MANAGER In the opinion of UOB Asset Management Limited, the accompanying financial statements set out on pages 15 to 36, comprising the Statement of Total Return, Statement of Financial Position, Statement of Movements of Unitholders Funds, Statement of Portfolio and Notes to the Financial Statements are drawn up so as to present fairly, in all material respects, the financial position and the portfolio holdings of the sub-fund of United Financials Multi-Strategy Funds, namely United Asia Financials Fund (the Sub-Fund ) as at 31 December 2016, and the financial perfomance and movements in unitholders funds for the year then ended in accordance with the recommendations of Statement of Recommended Accounting Practice 7 Reporting Framework for Unit Trusts issued by the Institute of Singapore Chartered Accountants. At the date of this statement, there are reasonable grounds to believe that the Sub-Fund will be able to meet its financial obligations as and when they materialise. For and on behalf of the Manager UOB ASSET MANAGEMENT LTD THIO BOON KIAT Authorised signatory 20 March

14 INDEPENDENT AUDITOR S REPORT TO THE UNITHOLDERS OF UNITED FINANCIALS MULTI-STRATEGY FUNDS - UNITED ASIA FINANCIALS FUND Our Opinion In our opinion, the accompanying financial statements of the United Financials Multi-Strategy Funds - (the Fund ) are properly drawn up in accordance with the recommendations of Statement of Recommended Accounting Practice 7 Reporting Framework for Unit Trusts issued by the Institute of Singapore Chartered Accountants, so as to present fairly, in all material respects, the financial position and portfolio holdings of the Fund as at 31 December 2016, and of the financial performance and movements of unitholders funds for the financial year ended on that date. What we have audited The financial statements of the Fund comprise: the Statement of Financial Position as at 31 December 2016; the Statement of Portfolio as at 31 December 2016; the Statement of Total Return for the financial year then ended; the Statement of Movements of Unitholders Funds for the financial year then ended; and the notes to the financial statements, including a summary of significant accounting policies. Basis for Opinion We conducted our audit in accordance with Singapore Standards on Auditing ( SSAs ). Our responsibilities under those standards are further described in the Auditor s Responsibilities for the Audit of the Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence We are independent of the Fund in accordance with the Accounting and Corporate Regulatory Authority Code of Professional Conduct and Ethics for Public Accountants and Accounting Entities ( ACRA Code ) together with the ethical requirements that are relevant to our audit of the financial statements in Singapore, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the ACRA Code. Other Information The Fund s Manager (the Manager ) is responsible for the other information. The other information comprises the relevant sections of the annual report included in pages 1 to 11, which we obtained prior to the date of this auditor s report, and excludes the financial statements and our auditor s report thereon. Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. 12

15 INDEPENDENT AUDITOR S REPORT TO THE UNITHOLDERS OF UNITED FINANCIALS MULTI-STRATEGY FUNDS - UNITED ASIA FINANCIALS FUND Other Information (continued) In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor s report, 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 is responsible for the preparation and fair presentation of these financial statements in accordance with the recommendations of Statement of Recommended Accounting Practice 7 Reporting Framework for Unit Trusts issued by the Institute of Singapore Chartered Accountants and for such internal control as the Manager determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Manager is responsible for assessing the Fund s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Manager either intends to terminate the Fund or to cease the Fund s operations, or has no realistic alternative but to do so. Auditor s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with SSAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 13

16 INDEPENDENT AUDITOR S REPORT TO THE UNITHOLDERS OF UNITED FINANCIALS MULTI-STRATEGY FUNDS - UNITED ASIA FINANCIALS FUND Auditor s Responsibilities for the Audit of the Financial Statements (continued) Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Manager. Conclude on the appropriateness of the Manager s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Fund s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report. However, future events or conditions may cause the Fund to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with the Manager regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. PricewaterhouseCoopers LLP Public Accountants and Chartered Accountants Singapore, 20 March

17 STATEMENT OF TOTAL RETURN For the financial year ended 31 December Note $ $ Income Dividends 109, ,769 Interest , ,770 Less: Expenses Management fee 8 50,256 84,247 Administration fee 8 8,376 14,041 Trustee fee 8 5,000 5,000 Audit fee 14,900 14,900 Registrar fee 8 15,000 15,000 Valuation fee 8 4,188 7,020 Custody fee 8 2,965 3,221 Interest expenses 2 2 Transaction cost 22,336 47,676 Other expenses 38,962 17, , ,883 Net loss (52,141) (27,113) Net gains or losses on value of investments Net gain/(loss) on investments 52,706 (148,320) Net foreign exchange gain 1,642 2,254 54,348 (146,066) Total return/(deficit) for the year before tax 2,207 (173,179) Less: Income tax 3 (12,069) (19,939) Less: Capital gains tax 3 (926) - Total deficit for the year (10,788) (193,118) The accompanying notes form an integral part of these financial statements. 15

18 STATEMENT OF FINANCIAL POSITION As at 31 December Note $ $ ASSETS Portfolio of investments 2,907,287 3,904,939 Receivables 4 9,166 9,068 Cash and bank balances 125, ,162 Total Assets 3,042,160 4,039,169 LIABILITIES Payables 5 35,573 38,413 Total Liabilities 35,573 38,413 EQUITY Net assets attributable to unitholders 6 3,006,587 4,000,756 The accompanying notes form an integral part of these financial statements. 16

19 STATEMENT OF MOVEMENTS OF UNITHOLDERS FUNDS For the financial year ended 31 December Note $ $ Net assets attributable to unitholders at the beginning of the financial year 4,000,756 7,005,898 Operations Change in net assets attributable to unitholders resulting from operations (10,788) (193,118) Unitholders contributions/(withdrawals) Creation of units 127,480 1,075,974 Cancellation of units (1,110,861) (3,887,998) Change in net assets attributable to unitholders resulting from net creation and cancellation of units (983,381) (2,812,024) Total decrease in net assets attributable to unitholders (994,169) (3,005,142) Net assets attributable to unitholders at the end of the financial year 6 3,006,587 4,000,756 The accompanying notes form an integral part of these financial statements. 17

20 STATEMENT OF PORTFOLIO As at 31 December 2016 By Geography - Primary Quoted Equities Holdings at 31 December 2016 Fair value at 31 December 2016 Percentage of total net assets attributable to unitholders at 31 December 2016 $ % CHINA BANK OF CHINA 184, , CHINA CONSTRUCTION BANK - H SHARES 270, , CHINA LIFE INSURANCE CO LTD 26,000 97, CHINA MERCHANT BANK CO LTD - H SHARES 42, , CHINA PACIFIC INSURANCE (GRP) CO LTD - H SHARES 17,600 88, INDUSTRIAL & COMMERCIAL BANK OF CHINA - H SHARES 200, , PING AN INSURANCE COMPANY 21, , TOTAL CHINA 1,077, HONG KONG AIA GROUP LTD 25, , BOC HONG KONG LTD 22, , HONG KONG EXCHANGES & CLEARING LTD 4, , TOTAL HONG KONG 459, INDIA AXIS BANK LIMITED 5,000 47, HOUSING DEVELOPMENT FINANCE CORPORATION 5, , INDUSIND BANK LIMITED 2,600 61, TOTAL INDIA 265, The accompanying notes form an integral part of these financial statements. 18

21 STATEMENT OF PORTFOLIO As at 31 December 2016 By Geography - Primary (continued) Quoted Equities Holdings at 31 December 2016 Fair value at 31 December 2016 Percentage of total net assets attributable to unitholders at 31 December 2016 $ % INDONESIA PT BANK MANDIRI 35,000 43, PT BANK NEGARA INDONESIA 116,000 68, PT BANK RAKYAT INDONESIA 48,000 60, TOTAL INDONESIA 172, MALAYSIA CIMB GROUP HOLDINGS BERHAD 29,000 42, PHILIPPINES METROPOLITAN BANK & TRUST COMPANY 45,000 94, SINGAPORE DBS GROUP HOLDINGS LIMITED 5,500 95, UNITED OVERSEAS BANK LTD 7, , TOTAL SINGAPORE 244, SOUTH KOREA SAMSUNG FIRE & MARINE INSURANCE CO LTD , SHINHAN FINANCIAL GROUP 1, , TOTAL SOUTH KOREA 182, The accompanying notes form an integral part of these financial statements. 19

22 STATEMENT OF PORTFOLIO As at 31 December 2016 By Geography - Primary (continued) Quoted Equities Holdings at 31 December 2016 Fair value at 31 December 2016 Percentage of total net assets attributable to unitholders at 31 December 2016 $ % TAIWAN CATHAY FINANCIAL HOLDING 27,700 59, CHINATRUST FINANCIAL HOLDINGS 98,894 78, E.SUN FINANCIAL HOLDINGS COMPANY 68,887 56, FUBON FINANCIAL HOLDING COMPANY LTD 35,000 80, TOTAL TAIWAN 274, THAILAND KASIKORNBANK PCL - NVDR 5,000 35, SIAM COMMERCIAL BANK PCL - NVDR 9,400 57, TOTAL THAILAND 93, Unquoted Equities TAIWAN CATHAY FINANCIAL HOLDINGS-PFD RTS 09/01/2017 1, Portfolio of investments 2,907, Other net assets 99, Net assets attributable to unitholders 3,006, The accompanying notes form an integral part of these financial statements. 20

23 STATEMENT OF PORTFOLIO As at 31 December 2016 By Geography - Primary (Summary) Quoted Equities Percentage of total net assets attributable to unitholders at 31 December 2016 Percentage of total net assets attributable to unitholders at 31 December 2015 % % China Hong Kong India Indonesia Malaysia Philippines Singapore South Korea Taiwan Thailand Portfolio of investments Other net assets Net assets attributable to unitholders The accompanying notes form an integral part of these financial statements. 21

24 STATEMENT OF PORTFOLIO As at 31 December 2016 By Industry - Secondary Quoted Equities Fair value at 31 December 2016 Percentage of total net assets attributable to unitholders at 31 December 2016 Percentage of total net assets attributable to unitholders at 31 December 2015 $ % % Bank 2,003, Diversified Financial Services 216, Financials Insurance 687, Portfolio of investments 2,907, Other net assets 99, Net assets attributable to unitholders 3,006, The accompanying notes form an integral part of these financial statements. 22

25 NOTES TO THE FINANCIAL STATEMENTS For the financial year ended 31 December 2016 These notes form an integral part of and should be read in conjunction with the accompanying financial statements. 1. General United Financials Multi-Strategy Funds (the Fund ) is a Singapore registered umbrella fund constituted under a Trust Deed dated 2 June 2008 between UOB Asset Management Ltd (the Manager ) and HSBC Institutional Trust Services (Singapore) Limited (the Trustee ). The Deed is governed by the laws of the Republic of Singapore. The Fund currently comprises only one sub-fund, namely (the Sub-Fund ) which is denominated in Singapore Dollar. The primary activity of the Sub-Fund is to achieve long-term capital growth by investing primarily in equities or equity-related securities of corporations in, or corporations listed or to be listed on stock exchanges in, or corporations (wherever located) which, in the opinion of the Manager, derives significant revenue or profits from or have significant assets or business interests in, the financial sector in the Asian Region (excluding Japan). Subscriptions and redemptions of the units are denominated in Singapore Dollar and United States Dollar. Investors may subscribe in United States Dollar at the applicable rate of exchange from Singapore Dollar. 2. Significant accounting policies (a) Basis of preparation 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 recommendations of Statement of Recommended Accounting Practice 7 Reporting Framework for Unit Trusts issued by the Institute of Singapore Chartered Accountants. (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. 23

26 NOTES TO THE FINANCIAL STATEMENTS For the financial year ended 31 December 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 year in which they arise. (iii) Derecognition Investments are derecognised on the trade date of disposal. The resultant realised gains and losses on the sales of investments are computed on the basis of the difference between the weighted average cost and selling price gross of transaction costs, and are taken up in the Statement of Total Return. (d) Basis of valuation of investments The fair value of financial assets and liabilities traded in active markets is based on quoted market prices at the close of trading on the reporting date. The quoted market price used for investments held by the Sub-Fund is the last traded market price for both financial assets and financial liabilities where the last traded price falls within the bid-ask spread. In circumstances where the last traded price is not within the bid-ask spread, the Manager will determine the point within the bid-ask spread that is most representative of fair value. (e) Foreign currency translation (i) Functional and presentation currency The Sub-Fund s investors are mainly from Singapore with the subscriptions and redemptions of the units denominated in Singapore Dollar and United States Dollar. The performance of the Sub-Fund is measured and reported to the investors in Singapore Dollar. The Manager considers the Singapore Dollar as the currency of the primary economic environment in which the Sub-Fund operates. The financial statements are presented in Singapore Dollar, which is the Sub-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 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 such as equities are also recognised in the Statement of Total Return within the net gain or loss of investments. 24

27 NOTES TO THE FINANCIAL STATEMENTS For the financial year ended 31 December Significant accounting policies (continued) (f) Expenses charged to the Sub-Fund All direct expenses relating to the Sub-Fund is 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 Sub-Fund based on the respective Sub-Fund s net asset value. (g) Financial derivatives Financial derivatives including forwards and swaps are entered into for the purposes of efficient portfolio management, tactical asset allocation or specific hedging of financial assets held as determined by the Manager and in accordance with the provision of the Trust Deed and the Code on Collective Investment Schemes. Financial derivatives outstanding on the reporting date are valued at the forward rate or at the 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. (h) Distributions The Manager has the absolute discretion to determine whether a distribution is to be made. In such an event, an appropriate amount will be transferred to a distribution account, to be paid out on the distribution date. The amount shall not be treated as part of the property of the Sub-Fund. Distributions are accrued for at the reporting date if the necessary approvals have been obtained and a legal or constructive obligation has been created. 3. Income tax and capital gains tax $ $ Overseas income tax 12,069 19,939 Capital gains tax The Sub-Fund was granted the status of a Designated Unit Trust ( DUT ) in Singapore. The Trustee of the Sub-Fund ensures that the Sub-Fund fulfills its reporting obligations under the DUT Scheme. 25

28 NOTES TO THE FINANCIAL STATEMENTS For the financial year ended 31 December Income tax and capital gains tax (continued) Under the DUT Scheme, certain income of the DUT Fund is not taxable in accordance with Sections 35(12) and 35(12A) of the Income Tax Act. Such income includes: (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); (iii) dividends derived from outside Singapore and received in Singapore; (iv) gains or profits derived from foreign exchange transactions, transactions in futures contracts, transactions in interest rate or currency forwards, swaps or option contracts and transactions in forwards, swaps or option contracts relating to any securities or financial index; (v) discount, prepayment fee, redemption premium and break cost from qualifying debt securities issued during the prescribed period; and (vi) distributions from foreign unit trusts 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. The Fund is required to recognise a tax liability when it is probable that the tax laws of foreign countries require a tax liability to be assessed on the Fund s gains on investments sourced from such foreign countries, assuming the relevant taxing authorities have full knowledge of all the facts and circumstances. The tax liability is then measured at the amount expected to be paid to the relevant taxation authorities using the tax laws and rates that have been enacted or substantively enacted by the end of the reporting period. There is sometimes uncertainty about the way enacted tax law is applied to offshore investment funds. This creates uncertainty about whether or not a tax liability will ultimately be paid by the Fund. Therefore when measuring any uncertain tax liabilities management considers all of the relevant facts and circumstances available at the time which could influence the likelihood of payment, including any formal or informal practices of the relevant tax authorities. As at 31 December 2016 and 2015, the Fund has uncertain tax exposure with respect to gains on investment of which the tax liability is estimated to be nil. While this represents the Manager s best estimate, the estimated value could differ significantly from the amount ultimately payable. 26

29 NOTES TO THE FINANCIAL STATEMENTS For the financial year ended 31 December Receivables $ $ Amounts receivable for creation of units Dividends receivable - 2,600 Other receivables 8,516 5,818 9,166 9, Payables $ $ Amount due to Manager 15,386 20,324 Amount due to Trustee 1,249 2,041 Other creditors and accrued expenses 18,938 16,048 35,573 38, Units in issue During the year ended 31 December 2016 and 2015, the number of units issued, redeemed and outstanding were as follows: Units at the beginning of the year 3,668,852 6,058,250 Units created 114, ,193 Units cancelled (1,059,681) (3,242,591) Units at the end of the year* 2,723,492 3,668,852 * Included above are units denominated in USD 348, ,243 Net assets attributable to unitholders ($) 3,006,587 4,000,756 Net asset value per unit ($) There is no difference between the net assets attributable to unitholders per unit per financial statements and the net assets attributable to unitholders per unit for issuing/redeeming of units. 27

30 NOTES TO THE FINANCIAL STATEMENTS For the financial year ended 31 December Financial risk management The Sub-Fund s activities expose it to a variety of market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. The Sub-Fund s overall risk management programme seeks to minimise potential adverse effects on the Sub-Fund s financial performance. The Sub-Fund may use financial futures contracts, financial options contracts and/or currency forward contracts subject to the terms of the Trust Deed to moderate certain risk exposures. Specific guidelines on exposures to individual securities and certain industries are in place for the Sub-Fund at any time as part of the overall financial risk management to reduce the Sub-Fund s risk exposures. The Sub-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 Sub- 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 Sub-Fund s investments are substantially dependent on changes in market prices. The Sub-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 Sub-Fund. Guidelines are set to reduce the Sub-Fund s risk exposures to market volatility such as diversifying the portfolio by investing across various geographies, alternatively, the Sub-Fund may be hedged using derivative strategies. (i) Foreign exchange risk The Sub-Fund has monetary financial assets and liabilities denominated in currencies other than Singapore Dollar and it may be affected favourably or unfavourably by exchange rate regulations or changes in the exchange rates between the Singapore Dollar 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 Sub-Fund. 28

31 NOTES TO THE FINANCIAL STATEMENTS For the financial year ended 31 December Financial risk management (continued) (a) Market risk (continued) (i) Foreign exchange risk (continued) The table below summarises the Sub-Fund s exposure to foreign currencies as of the end of the financial year. As at 31 December 2016 SGD KRW INR HKD IDR TWD Others Total $ $ $ $ $ $ $ $ Assets Portfolio of investments 244, , ,623 1,536, , , ,699 2,907,287 Receivables 9, ,166 Cash and bank balances 117, ,019 7, ,707 Total Assets 371, , ,623 1,536, , , ,105 3,042,160 Liabilities Payables 35, ,573 Total Liabilities 35, ,573 Net currency exposure 335, , ,623 1,536, , , ,816 29

32 NOTES TO THE FINANCIAL STATEMENTS For the financial year ended 31 December Financial risk management (continued) (a) Market risk (continued) (i) Foreign exchange risk (continued) As at 31 December 2015 SGD KRW INR HKD IDR TWD Others Total $ $ $ $ $ $ $ $ Assets Portfolio of investments 471, , ,204 2,179, , , ,039 3,904,939 Receivables 9, ,068 Cash and bank balances 104, , ,162 Total Assets 585, , ,204 2,179, , , ,880 4,039,169 Liabilities Payables 37, ,413 Total Liabilities 37, ,413 Net currency exposure 547, , ,204 2,179, , , ,114 Investments, which is a significant item in the Statement of Financial Position 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 Sub-Fund s net financial assets comprise significantly non-monetary investments, hence currency risk sensitivity analysis has not been performed on the remaining financial assets. 30

33 NOTES TO THE FINANCIAL STATEMENTS For the financial year ended 31 December 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 Sub-Fund s underlying investments in equities on the Sub-Fund s net assets attributable to unitholders at 31 December 2016 and 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 Sub-Fund s investments moved according to the historical correlation with the index. Benchmark component Net impact to Net impact to net assets net assets attributable to attributable to unitholders unitholders $ % $ % MSCI Asia ex Japan Financials ex Real Estate 575, , (iii) Interest rate risk Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. Investment funds that invest in equity securities may be subject to interest rate risk as any interest rate change may affect the equity risk premium though at varying degrees. To manage this risk, the Manager analyses how interest rate changes may affect different industries and securities and then seeks to adjust the Sub-Fund s portfolio investments accordingly. However, the effects of changes in interest rates on the Sub-Fund s portfolio may not be quantified as the relationship between the interest rates and the value of equity securities is indirect. Other than the cash and bank balances which are subjected to insignificant interest rate risk, the Sub-Fund s financial assets and liabilities are largely non-interest bearing. Hence, no sensitivity analysis has been presented separately. 31

34 NOTES TO THE FINANCIAL STATEMENTS For the financial year ended 31 December Financial risk management (continued) (b) Liquidity risk The Sub-Fund is exposed to daily cash redemptions and disbursements for the settlements of purchases. The Manager therefore ensures that the Sub-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. The Sub-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 Sub-Fund s financial liabilities into relevant maturity groupings based on the remaining period at the reporting 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 31 December 2016 Less than 3 months $ Payables 35,573 As at 31 December 2015 Less than 3 months $ Payables 38,413 (c) Credit risk The Sub-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 Sub-Fund s credit risk is concentrated on cash and bank balances, and 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. 32