TEMPLETON GLOBAL EQUITY FUND

Transcription

1 Audited Annual Report 30 September 2017 TEMPLETON GLOBAL EQUITY FUND

2 AUDITED ANNUAL REPORT FOR THE FINANCIAL PERIOD FROM 1 OCTOBER 2016 TO 30 SEPTEMBER 2017 I. GENERAL INFORMATION ABOUT THE FUND II. III. MANAGER S REPORT STATEMENT BY THE MANAGER AND AUDITED FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD FROM 1 OCTOBER 2016 TO 30 SEPTEMBER 2017

3 I. GENERAL INFORMATION ABOUT THE FUND Launch and Commencement Date The Templeton Global Equity Fund (the Fund ) was launched on 13 April 2015 and commenced operations on 28 April Fund Name, Category, Type Fund Name Templeton Global Equity Fund Fund Category Wholesale Feeder Fund (Global equity) Fund Type Growth Investment Objective, Policy and Strategy The Fund is structured as a feeder fund and it is currently available in two share classes, Class A (MYR) and Class A (USD). The Fund seeks to provide capital appreciation by investing in the Franklin Templeton Investment Funds Templeton Global Fund ( Target Fund ), which aims to invest in equity securities of companies throughout the world, including emerging markets. The Fund aims to invest a minimum of 95% of the NAV of the Fund in the Target Fund which is denominated in USD and domiciled in Luxembourg; the balance of the NAV of the Fund will be held in cash or invested in liquid assets to defray operating expenses and to provide liquidity. As the primary investment of the Fund, i.e., the Target Fund, is denominated in USD, the Manager intends to employ hedging for the classes of Units denominated in RM to reduce the Fund s exposure to foreign exchange fluctuations. The hedging tools that the Manager may utilise include but are not limited to foreign exchange forwards and total return swaps. As the Fund is a feeder fund, it will stay invested in the Target Fund in so far as its investment strategy is consistent with the objective of the Fund. In view of the aforesaid, the Fund will not undertake any temporary defensive position. Accordingly, the Fund s performance will be directly correlated to the performance of the Target Fund subject to the currency hedging strategy mentioned above being successful. The Target Fund, seeks to achieve its capital appreciation through a policy of investing in equity securities of companies throughout the world, including Emerging Markets. The Target Fund invests principally in common stocks. Since the Target Fund s investment objective is more likely to be achieved through an investment policy that is flexible and adaptable, the Target Fund may seek investment opportunities to invest the remaining net asset value of the Target Fund (not invested in common stocks of companies throughout the world) in other types of securities, such as preferred stock, securities convertible into common stock, and fixed income securities, which are USD and non-usd denominated. The asset allocation of the Fund will be as follows: Minimum 95% of the NAV to be invested in the Target Fund; and Up to 5% of the NAV in cash and/or other liquid assets. Fund Distribution Policy Distribution of income, if any, is subject to the availability of income and shall be in line with the dividend policy of the Target Fund. 1

4 II. MANAGER S REPORT MARKET REVIEW The global economy grew moderately during the 12-month period ended September 30, In this environment, global developed and emerging market stocks rose significantly, as measured by the MSCI All Country World Index. Global markets were aided by improved industrial commodity prices at certain points during the period, generally upbeat economic data across regions, investor optimism about pro-growth and pro-business policies in the United States (US), Emmanuel Macron s election as France s president, accommodative monetary policies of various central banks, encouraging corporate earnings reports, and the tax reform plan under the Trump administration toward period-end. However, investors expressed concerns about the timing and economic effects of United Kingdom s (UK) exit from the European Union (also known as Brexit ) and US executive orders banning entry from some Muslim-majority countries. Other headwinds included concerns about the health of European banks, political uncertainty in the US and the European Union (EU), geopolitical tensions in the Korean peninsula and other regions, global oil oversupply despite a pact by major oilproducing countries to extend production cuts, and hawkish comments from key central bankers around the world. The US economy strengthened in 2017 s second quarter (Q2), after moderating in the previous two quarters, largely due to growth in consumer spending, business investment, exports and federal government spending. The unemployment rate decreased from 4.9% in September 2016 to 4.2% at the period-end. Annual inflation, as measured by the Consumer Price Index, increased from 1.5% to 2.2% at the period-end. The US Federal Reserve (Fed) raised its target range for the federal Target Funds rate by 0.25% three times during the period, amid signs of a growing US economy, strengthening labour market, and improving business spending. At its September 2017 meeting, the Fed left its target range unchanged, but mentioned that it would begin implementing its balance sheet reduction in October, and most committee members indicated a likelihood of one more rate hike in In Europe, the UK s economy grew at a slower rate in 2017 s first quarter (Q1) over the previous quarter, largely due to slower growth in household spending. However, the nation s growth rate held steady in 2017 s Q2. The Bank of England kept its key policy rate unchanged during the period but indicated in September that it expected a rate hike soon so that inflation could return to target levels. The Eurozone s growth increased in 2017 s Q2 over the previous quarter. The bloc s annual inflation rate, while low, ended higher than it was at the start of the period. The European Central Bank (ECB) kept its key policy rates unchanged during the period. However, at its September meeting, ECB s President Mario Draghi signalled that the bank would reassess its policy stance on quantitative easing in October In Asia, Japan s quarterly gross domestic product (GDP) grew for the sixth consecutive quarter, driven by household spending, capital expenditure and government spending. In July 2017, the Bank of Japan marginally raised its GDP forecasts for fiscal years 2017 and 2018, but lowered its inflation forecasts for the same period. In emerging markets, Brazil s quarterly GDP rose in 2017 s first two quarters, following the recession in , as the country s central bank cut its benchmark interest rate numerous times during the period to spur economic growth. Russia s GDP grew in 2016 s fourth quarter (Q4) and in 2017 s Q1 and Q2 compared to the prior-year periods amid the Bank of Russia s continued policy support. China s annual GDP grew faster in 2017 s first half than in 2016 s second half, driven by solid growth in industrial production, services, fixed-asset investment, retail sales, and imports and exports. The People s Bank of China left its benchmark interest rate unchanged during the 2

5 MANAGER S REPORT (CONTINUED) period. Overall, emerging market stocks, as measured by the MSCI Emerging Markets Index, rose substantially during the period. REVIEW OF THE TARGET FUND PERFORMANCE DURING THE PERIOD During the fiscal year under review, the Target Fund s performance relative to its benchmark, the MSCI All Country World Index, benefitted from stock selection and an overweighting in the financials sector, an underweighting in the consumer staples sector and stock selection in the industrials sector. French banks BNP Paribas and Credit Agricole were among the top contributors in financials. Credit Agricole has successfully streamlined into a simpler corporate structure after the disposal of minority stakes. The European banking sector in general has continued to make progress. Earnings revisions have returned to a positive trajectory, regulatory capital has been largely rebuilt and the bulk of post-crisis re-regulation efforts are now complete. As economic data has improved and political risks have receded, credit demand has increased. With the bulk of recovery behind it, we believe sector performance will now be more dependent on factors outside company control, such as the trajectory of interest rates and credit demand. Value opportunities in European banks, in our view, have become more selective. South Korea-based Hana Financial Group also contributed. Improved risk management has resulted in lower loan losses, and net interest income growth and profitability have increased strongly, leading to increases in share price and valuation multiples. An underweighting in consumer staples and stock selection in the industrials sector also contributed to relative performance for the period. Consumer staples has remained the Target Fund s most underweighted allocation compared to the benchmark. We believe value opportunities in the sector have been limited as many investors appeared unconcerned with the pricing pressures impacting a highly commoditised and competitive industry, and appeared willing to pay for the sector s traditionally perceived defensive demand profile. In the industrials sector, shares of Deutsche Lufthansa, a leading provider of passenger, freight and cargo airline services, recovered strongly, beating earnings guidance. The company also finally reached an agreement with the pilots union, which has removed strike risk for the next few years. In contrast, stock selection and an overweighted allocation in health care was the most significant detractor from relative performance for the period. Israeli generic drugmaker Teva Pharmaceutical Industries was the Target Fund s biggest detractor, declining amidst investor concerns that the firm would be forced to raise equity to shore up its balance sheet and protect its investment-grade credit rating. In retrospect, we clearly underestimated the near-term challenges facing Teva s US generics business and the severity with which the market would penalise any perceived balance sheet vulnerabilities. Nevertheless, our analysis has continued to indicate to us that Teva does not have a liquidity problem and it should be able to address balance sheet issues in a timely manner and deliver on its more conservative outlook for Market expectations for the company have sunk to new lows, and we believe its share price at period-end reflected undue pessimism. The year 2018 is shaping up to be a big one for Teva, featuring a number of new launches and exciting pipeline developments. We expect the firm s core generics business will ultimately perform well through the cycle and over the course of our investment horizon. More broadly, we have continued to believe that political fears surrounding drug pricing and health care reform particularly in the US have unduly pressured valuations in the health care sector. We have continued to find substantial long-term value in what we view as depressed pharmaceutical companies with innovative pipelines and novel drug franchises capable of dealing with pricing and competitive issues on a case-by-case basis. 3

6 MANAGER S REPORT (CONTINUED) Stock selection in the materials and information technology (IT) sectors also detracted from relative performance for the 12-month period. Returns in the materials sector were pressured by the underperformance of Canadian mining firms such as Tahoe Resources. Precious metals stocks trading at depressed levels have become increasingly attractive to us as the economic cycle matures, given what we view as their historically cheap valuations and defensive characteristics. We believe the time to buy insurance is when it is not needed, and our analysis indicates to us that exposure to precious metals stocks has historically helped optimise risk-adjusted returns over a long-term investment horizon. Record-high debt levels, geopolitical instability and major developed market central banks need to unwind experimental monetary policies all represent unresolved risks, in our view, that could potentially lead to materially higher gold and silver prices at some point during our investment horizon. Hong Kong-listed GCL-Poly was the top IT detractor. The company is the largest manufacturer of polysilicon, which it converts into multi-crystalline solar wafers sold to Chinese solar panel manufacturers. Its shares suffered following recent regulatory and political changes in China and the US. Global solar demand growth is now likely to be more muted, in our view, and current wafer oversupply could last longer than expected. Regionally, the Target Fund benefitted from stock selection and an overweighting in Europe. We have remained positive on the progress underway in the Eurozone. Corporate earnings have been recovering from a low base, with many analysts upgrading European company s earnings estimates in 2017 by the most since the initial recovery from the global financial crisis. The macro backdrop also has continued to improve, with policy still supportive, pro-european candidates gaining or retaining power in recent elections, the recapitalised banking system functioning well and economic data indicating an ongoing recovery. Despite such progress, regional equities overall still looked cheap to us at period-end, trading near their lowest cyclically adjusted price-to-earnings ratio relative to that of US equities. Stock selection in the US detracted from relative performance for the fiscal year. MARKET OUTLOOK Despite what has been a broadly sustained bull market in risk assets, we are excited that we still have been able to find investment themes and styles that we believe are poised for recovery. Many investors appear to increasingly fear that the market cycle has matured and the bulk of equity gains are in the rear-view mirror. We tend to agree with that sentiment in the US, but we do not underestimate the potential for a late-cycle rally in US cyclical stocks should President Trump manage to deliver on tax reform or other pro-growth campaign promises. However, looking outside of the US and over the longer term, equity opportunities remain abundant, in our assessment. Equity markets in Europe and parts of Asia appear to be in the early stages of their respective cycles, in our assessment. Within sectors such as health care, energy, materials, financials, telecommunication services and IT, substantial bottom-up values can still be found, in our analysis. We believe value investing as a style has remained depressed and ripe for recovery, as does the discipline of active managers more generally as falling market correlations create a better backdrop for stock pickers. Stock selection and portfolio positioning will be key to seizing the opportunities and avoiding the pitfalls that can unfold as market conditions evolve and long-standing market trends begin to inflect. At Franklin Templeton, we believe our patient, fundamentally focused value discipline has positioned our portfolios well for what is to come. 4

7 MANAGER S REPORT (CONTINUED) PORTFOLIO POSITIONING OF THE TARGET FUND As at the end of the period, the portfolio was overweighted in the energy, health care, financials and telecommunication services sectors and underweighted in the consumer staples, consumer discretionary, industrials, utilities and real estate sectors. CUMULATIVE RETURNS AS OF 30 SEP 2017 Currency 3 Months 1 Year Since Commencement (28 April 2015) Templeton Global Equity Fund MYR 3.37% 17.25% 1.70% Class A Templeton Global Equity Fund USD 3.32% 16.64% 1.48% Class A Franklin Templeton Investment Funds USD 3.84% 19.11% 5.95% Templeton Global Fund (the Target Fund ) MSCI All Country World Index USD 5.31% 19.29% 17.37% 5

8 FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017

9 FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017 CONTENTS PAGE(S) STATEMENT BY MANAGER 1 TRUSTEE S REPORT 2 INDEPENDENT AUDITORS REPORT 3-5 STATEMENT OF FINANCIAL POSITION 6 STATEMENT OF COMPREHENSIVE INCOME 7 STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 8 STATEMENT OF CASH FLOWS

10 STATEMENT BY THE MANAGER TO THE UNIT HOLDERS OF TEMPLETON GLOBAL EQUITY FUND I, Gerald Sheah, being the Director of the Manager, Franklin Templeton Asset Management (Malaysia) Sdn. Bhd., for Templeton Global Equity Fund do hereby state that, in the opinion of the Manager, the accompanying financial statements comprising the statement of financial position as at 30 September 2017 of the Fund, and the statements of comprehensive income, changes in net assets attributable to unit holders and cash flows for the financial year then ended, and a summary of significant accounting policies and other explanatory notes: (a) (b) are drawn up in accordance with the provisions of the Deed, Malaysian Financial Reporting Standards ( MFRS ) and the International Financial Reporting Standards ( IFRS ); and give a true and fair view of the financial position of the Fund as at 30 September 2017 and of its financial performance, changes in net assets attributable to unit holders and cash flows for the financial year then ended. For and on behalf of the Manager Franklin Templeton Asset Management (Malaysia) Sdn. Bhd. Gerald Sheah Director Kuala Lumpur 9 November

11 TRUSTEE S REPORT TO THE UNIT HOLDERS OF TEMPLETON GLOBAL EQUITY FUND We have acted as Trustee for Templeton Global Equity Fund (the Fund ) for the financial year ended 30 September To the best of our knowledge, for the financial year under review, Franklin Templeton Asset Management (Malaysia) Sdn. Bhd. (the Manager ) has operated and managed the Fund in accordance with the following: (a) (b) (c) limitations imposed on the investment powers of the Manager under the Information Memorandum and in accordance with the Deed(s), 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; valuation and pricing for the Fund has been carried out in accordance with the Deed(s) of the Fund and applicable regulatory requirements; and creation and cancellation of units for the Fund have been carried out in accordance with the Deed(s) of the Fund and applicable regulatory requirements. For Deutsche Trustees Malaysia Berhad Soon Lai Ching Senior Manager, Trustee Operations Richard Lim Hock Seng Chief Executive Officer Kuala Lumpur 9 November

12 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF TEMPLETON GLOBAL EQUITY FUND REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS Our opinion In our opinion, the financial statements of Templeton Global Equity Fund (the Fund ) give a true and fair view of the financial position of the Fund as at 30 September 2017, and of its financial performance and its cash flows for the year then ended in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards. What we have audited We have audited the financial statements of the Fund, which comprise the statement of financial position as at 30 September 2017, and the statement of comprehensive income, statement of changes in net assets attributable to unit holders and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, as set out on pages 6 to 32. Basis for opinion We conducted our audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditors responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence and other ethical responsibilities We are independent of the Fund in accordance with the By-Laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants ( By-Laws ) and the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants ( IESBA Code ), and we have fulfilled our other ethical responsibilities in accordance with the By-Laws and the IESBA Code. Information other than the financial statements and auditors report thereon The Manager of the Fund is responsible for the other information. The other information comprises Manager s Report, but does not include the financial statements of the Fund and our auditors report thereon. Our opinion on the financial statements of the Fund does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements of the Fund, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements of the Fund or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. PricewaterhouseCoopers (AF 1146), Chartered Accountants, Level 10, 1 Sentral, Jalan Rakyat, Kuala Lumpur Sentral, P.O. Box 10192, Kuala Lumpur, Malaysia T: +60 (3) , F: +60 (3) , 3

13 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF TEMPLETON GLOBAL EQUITY FUND (CONTINUED) REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED) 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 Standard. The Manager is also responsible for such internal control as the Manager determines is necessary to enable the preparation of financial statements of the Fund that are free from material misstatement, whether due to fraud or error. In preparing the financial statements of the Fund, the Manager is responsible for assessing the Fund s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Manager either intend to liquidate the Fund or to cease operations, or have no realistic alternative but to do so. Auditors responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements of the Fund as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with approved standards on auditing in Malaysia and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: (a) (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. 4

14 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF TEMPLETON GLOBAL EQUITY FUND (CONTINUED) REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED) 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 9 November

15 STATEMENT OF FINANCIAL POSITION AS AT 30 SEPTEMBER Note RM RM CURRENT ASSETS Financial assets at fair value through profit or loss 3 61,778,437 57,124,640 Due from Manager 149, ,373 Due from the Manager of the Target Fund 502, ,016 Cash and cash equivalents 4 1,031,543 1,399,752 TOTAL ASSETS 63,462,109 58,820,781 CURRENT LIABILITIES Due to Manager 794, ,045 Due to the Manager of the Target Fund - 75,129 Accrued management fee 5 95,699 90,754 Accrued trustee fee 5 2,734 2,593 Other payables and accruals 29,141 23,082 TOTAL LIABILITIES (EXCLUDING NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS) 921, ,603 NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 62,540,340 58,425,178 REPRESENTED BY: NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS RM CLASS 35,728,969 40,747,253 USD CLASS 26,811,371 17,677,925 62,540,340 58,425,178 NUMBER OF UNITS IN CIRCULATION RM CLASS 6 70,260, ,955, USD CLASS 6 12,524, ,834, NET ASSET VALUE PER UNIT RM CLASS RM RM USD CLASS USD USD The accompanying notes form an integral part of these audited financial statements. 6

16 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER Oct Oct 2015 to to 30 Sep Sep 2016 Note RM RM INVESTMENT INCOME Interest income 12,624 15,901 Dividend income 1,097,712 1,518,770 Net gain from financial assets at fair value through profit or loss 3 9,031, ,151 Net foreign currency exchange gain/(loss) 41,895 (749,592) 10,183,523 1,606,230 EXPENSES Management fee 5 1,081,585 1,112,575 Trustee fee 5 30,902 31,788 Audit fee 8,395 9,158 Professional fee 4,143 10,139 Custodian fee 14,181 14,466 Printing fee 11,149 10,577 1,150,355 1,188,703 NET INCOME BEFORE 9,033, ,527 TAXATION Taxation INCREASE IN NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 9,033, ,527 Net income after taxation and total comprehensive income comprises the following: Realised amount 2,872,078 1,260,325 Unrealised amount 6,161,090 (842,798) 9,033, ,527 The accompanying notes form an integral part of these audited financial statements. 7

17 STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER Oct Oct 2015 to to 30 Sep Sep 2016 RM RM NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS AT THE BEGINNING OF THE FINANCIAL YEAR 58,425,178 37,995,615 Movement due to units created and cancelled during the financial year: Creation of units 42,080,302 52,473,421 Cancellation of units (46,998,308) (32,461,385) (4,918,006) 20,012,036 Increase in net assets attributable to unit holders during the financial year 9,033, ,527 NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS AT THE END OF THE FINANCIAL YEAR 62,540,340 58,425,178 The accompanying notes form an integral part of these audited financial statements. 8

18 STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER Oct Oct 2015 to 30 Sep Sep 2016 Note RM RM to CASH FLOWS FROM OPERATING ACTIVITIES Proceeds from sales of investments 39,597,762 36,324,406 Purchase of investments (34,500,586) (54,454,479) Interest income received 12,624 15,901 Management fee paid (1,076,640) (1,081,143) Trustee fee paid (30,761) (30,890) Audit fee paid (8,395) (6,784) Professional fee paid (4,673) (10,150) Custodian fee paid (14,181) (14,466) Printing fee paid (4,560) (9,229) Net cash generated from/(used in) operating activities 3,970,590 (19,266,834) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from creation of units 42,070,101 52,334,046 Payments for cancellation of units (46,408,323) (32,257,721) Net cash (used in)/generated from financing activities (4,338,222) 20,076,325 NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (367,632) 809,491 CASH AND CASH EQUIVALENTS AT BEGINNING OF FINANCIAL YEAR 1,399, ,337 EFFECTS OF UNREALISED FOREIGN EXCHANGE (577) (2,076) CASH AND CASH EQUIVALENTS AT END OF THE FINANCIAL YEAR 4 1,031,543 1,399,752 The accompanying notes form an integral part of these audited financial statements. 9

19 FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER THE FUND, THE MANAGER AND ITS PRINCIPAL ACTIVITIES The Templeton Global Equity Fund (the Fund ) was constituted pursuant to a Deed dated 3 April 2015, between Franklin Templeton Asset Management (Malaysia) Sdn. Bhd. (the Manager ) and Deutsche Trustees Malaysia Berhad (the Trustee ). The principal objective of the Fund is to provide capital appreciation by investing in the Franklin Templeton Investment Funds Templeton Global Fund (the Target Fund ) which aims to invest in equity securities of companies throughout the world, including emerging markets. Being a feeder fund, a minimum of 95% of the Fund s net asset value will be invested in the Target Fund, which is a separate unit trust fund managed by Templeton Global Advisors Limited (the Manager of the Target Fund ). The Fund offers the investors two different classes of units known respectively as the RM class and USD class. All investments will be subjected to the Securities Commission ( SC ) Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework, the Deed and the objective of the Fund. The Fund commenced operations on 28 April 2015 and will continue its operations until terminated as provided under Clause 11 of the Deed. The Manager, a company incorporated in Malaysia, is a wholly owned subsidiary of Franklin Resources Inc., a global investment management organisation. Its principal activities are fund management and investment advisory. The financial statements have been approved for issue by the Manager on 9 November SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to the items which are considered material to the financial statements unless otherwise stated. 2.1 Basis of preparation The financial statements have been prepared in accordance with the provisions of the Malaysian Financial Reporting Standards ( MFRS ) and International Financial Reporting Standards ( IFRS ). The financial statements have been prepared under the historical cost convention, as modified by revaluation of financial assets and liabilities (including derivative instruments) held 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 financial year. It also requires the Manager to exercise their judgment in the process of applying the Fund s accounting policies. Although these estimates and assumptions 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

20 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.1 Basis of preparation (continued) (a) Standards, amendments to published standards and interpretations that are effective and applicable to the Fund: The Fund has applied the following amendments for the first time for the financial year beginning 1 October 2016: Amendments to MFRS 101 Presentation of financial statements - Disclosure Initiative (effective from 1 January 2016) provides clarification 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. 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 significant impact on the current financial year or any prior year and is not likely to affect future years. 11

21 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.1 Basis of preparation (continued) (b) The new 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 October 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 October 2018 MFRS 9 Financial Instruments (effective from 1 January 2018) will replace MFRS 139 Financial Instruments: Recognition and Measurement. MFRS 9 retains but simplifies the mixed measurement model in MFRS 139 and establishes three primary measurement categories for financial assets: amortised cost, fair value through profit or loss and fair value through 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. 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 this standard when effective. This standard is not expected to have a significant impact on the Fund s financial statements. 12

22 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.2 Financial assets and financial liabilities Classification (a) Financial assets and liabilities at fair value through profit or loss A financial asset is designated at fair value through profit or loss when they are managed and their performance evaluated on a fair value basis. Investment in foreign collective investment scheme is designated at fair value through profit or loss. A financial asset is classified as held for trading if it is acquired or incurred principally for the purpose of selling or repurchasing in the near terms or if on initial recognition is part of a portfolio of identifiable financial investments that are managed together and for which there is evidence of a recent actual pattern of short-term profit taking, or if it is a derivative. Investment in derivatives are categorised as held for trading. (b) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. If collection amount is expected in one year or less they are classified as current assets. If not, they are classified as non-current assets. The Fund s loans and receivables comprise Due from Manager, Due from the Manager of the Target Fund and Cash and cash equivalents in the statement of financial position. (c) Other financial liabilities Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. The Fund classifies Due to Manager, Due to the Manager of the Target Fund, Accrued management fee, Accrued trustee fee and Other payables and accruals as other financial liabilities Recognition, de-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 investment. Financial assets and financial liabilities at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the statement of comprehensive income. 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. Subsequent to initial recognition, all financial assets at fair value through profit or loss are measured at fair value. Loans and receivables are carried at amortised cost using the effective interest method. Gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss category are presented in the statement of comprehensive income within net gain/loss on financial assets at fair value through profit or loss in the period in which they arise. 13

23 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Recognition, de-recognition and measurement (continued) The fair value of foreign collective investment scheme is based on the most recent published net asset value per unit or share of such foreign collective investment schemes or, if unavailable, on the last published price of such unit or share (excluding any sales charge included in such selling price). The Fund assesses at each year end date whether there is objective evidence that a financial asset or a group of financial assets is impaired. Impairment loss, if any, will be recognised in the statement of comprehensive income in the period which they arise. 2.3 Derivative financial instruments A derivative financial instrument is any contract that gives rise to both a financial asset of one enterprise and a financial liability or equity instrument of another enterprise. The Fund s derivative financial instruments may comprise foreign currency swap, as part of the currency hedging techniques employed by the Manager to hedge the investment in the foreign collective investment scheme, so as to minimise the impact of fluctuations in the foreign currency versus Ringgit Malaysia exchange rate. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value at the end of each reporting period. The resulting gain or loss is recognised in the statement of comprehensive income. 2.4 Income and expenses recognition (a) Interest income Interest income is recognised in the statement of comprehensive income on a timeproportion basis using the effective interest rate method. (b) Dividend income Dividend income is recognised in the statement of comprehensive income when the right to receive payment is established. (c) Realised gain or loss on sale Realised gain or loss on sale of foreign collective investment schemes and foreign currency swap is accounted for as the difference between the net disposal proceeds and the carrying amount of investments, determined on a weighted average cost basis. (d) Expenses Expenses are recognised in the statement of comprehensive income on an accrual basis. 14

24 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.5 Foreign currencies translation (a) 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 Ringgit Malaysia ( RM ), which is the Fund s functional and presentation currency. (b) 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 period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in statement of comprehensive income. 2.6 Creation and cancellation of units The Fund issued cancellable units, in two different classes of units, known respectively as the RM class and USD class which are cancellable at the unit holder s option and do not have identical features. In accordance with MFRS 132 (Amendment) Financial Instruments: Presentation, such units, by virtue of not having identical features, are classified as financial liabilities. The cancellable units can be put back to the Fund at any time for cash equal to a proportionate share of the Fund s net asset value ( NAV ) of respective classes. The outstanding units are carried at the redemption amount that is payable at the statement of financial position if the unit holder exercises the right to put back the unit to the Fund. Units are created and cancelled at the unit holder s 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 unit holders of respective classes with the total number of outstanding units of respective classes. 2.7 Due from and due to Manager Due from Manager and Due to Manager represents receivable from and payable to the Manager for units created and cancelled. Due from Manager is recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less an allowance for doubtful debts. The allowance is established when there is objective evidence that the Fund will not be able to collect all amounts due according to the original terms of receivables. Bad debts are written off when identified. Due to Manager is recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. 2.8 Due from and due to Manager of the Target Fund Due from the Manager of the Target Fund and Due to the Manager of the Target Fund represent receivables for investment in foreign collective investment scheme sold and payables for investment in foreign collective investment scheme purchased that have been contracted for but not yet settled or delivered on the statement of financial position date respectively. 15

25 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.8 Due from and due to Manager of the Target Fund (continued) These amounts are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment for Due from the Manager of the Target Fund. A provision for impairment of amounts Due from the Manager of the Target Fund is established when there is objective evidence that the Fund will not be able to collect all amounts due. 2.9 Cash and cash equivalents For the purpose of the statement of cash flow, cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investments or other purposes. Cash and cash equivalents comprise cash held in bank, other short term, highly liquid investments with original maturities of 3 months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk changes in value Other payables and accruals Other payables and accruals are obligations to pay for expenses incurred by the Fund. Other payables and accruals are classified as current liabilities as payment is due within the normal operating cycle of the Fund. Other payables and accruals are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method Taxation Current tax expense is determined according to Malaysian tax laws at the current rate based upon the taxable profit earned during the financial year. Tax on dividend income from foreign collective investment schemes is based on the tax regime of the respective countries that the Fund invests in Increase/decrease in net assets attributable to unit holders Income not distributed is included in net assets attributable to unit holders. Movements in net assets attributable to unit holders are recognised in the statement of comprehensive income as finance costs Finance cost A distribution to the Fund s unit holders is recognised in the statement of comprehensive income when they are appropriately approved by the Board of Directors of the Manager. The distribution is recognised as a finance cost in the statement of comprehensive income Segmental 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, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Investment Committee of the Fund s Manager that undertakes strategic decisions for the Fund. 16

26 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.15 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 Fund s 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 ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS RM RM Designated at fair value through profit or loss at inception: - Foreign collective investment scheme (Note 3(a)) 61,912,803 57,256,879 - Foreign currency swap (Note 3(b)) (134,366) (132,239) 61,778,437 57,124,640 1 Oct Oct 2015 to to 30 Sep Sep 2016 RM RM Net gain on financial assets at fair value through profit or loss: - Realised gain on disposals 2,868,488 1,661,326 - Unrealised fair value gain/(loss) 6,162,804 (840,175) 9,031, ,151 17