Annual Report 2016 INCOME PARTNERS ASIAN HIGH INCOME BOND FUND

Transcription

1 Annual Report 2016 INCOME PARTNERS ASIAN HIGH INCOME BOND FUND

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3 REPORT AND FINANCIAL STATEMENTS FOR THE PERIOD FROM 29 SEPTEMBER 2015 (DATE OF INCEPTION) TO 31 DECEMBER 2016

4 Contents Pages Management and administration 1 Manager s report 2-5 Trustee s report 6 Independent auditor s report 7-9 Statement of financial position 10 Statement of comprehensive income 11 Statement of changes in net assets attributable to unitholders 12 Statement of cash flows 13 Notes to the financial statements Investment portfolio (unaudited) Statement of movements in investment portfolio (unaudited) Performance table (unaudited) 45

5 MANAGEMENT AND ADMINISTRATION MANAGER Income Partners Asset Management (HK) Limited Suite Two International Finance Centre 8 Finance Street Central Hong Kong DIRECTORS OF THE MANAGER Emil Nguy Francis Tjia TRUSTEE, ADMINISTRATOR AND PRINCIPAL OFFICE Cititrust (Cayman) Limited P.O. Box 1093, Queensgate House Grand Cayman KY Cayman Islands CUSTODIAN Citibank, N.A. 50th Floor, Champion Tower Three Garden Road, Central Hong Kong REGISTRAR, AND PROCESSING AGENT (before 31 December 2015) Citi Fund Services (Asia) Limited 50th Floor, Citibank Tower Citibank Plaza 3 Garden Road, Central Hong Kong SUB-ADMINISTRATOR Cititrust Limited 50th Floor, Champion Tower Three Garden Road, Central Hong Kong (since 31 December 2015) SOLICITORS TO THE MANAGER Citicorp Financial Services Limited IN RESPECT OF HONG KONG LAW (before August 2016) 9th Floor, The Harbourfront, Tower Two Akin Gump Strauss Hauer & Feld Tak Fung Street Units & 10, 18/F, Gloucester Tower Hunghom, Kowloon The Landmark, 15 Queen s Road Hong Kong Central, Hong Kong (since August 2016) Citi Tower, One Bay East LEGAL ADVISOR TO THE MANAGER 83 Hoi Bun Road IN RESPECT OF CAYMAN ISLANDS LAW Kwun Tong, Kowloon Hong Kong Walkers (Singapore) Limited Liability Partnership 3 Church Street #16-02 Samsung Hub AUDITOR Singapore PricewaterhouseCoopers P.O. Box Forum Lane Camana Bay Grand Cayman KY Cayman Islands SWISS REPRESENTATIVE AGENT Hugo Fund Services SA 6, Cours de Rive CH-1204 Geneva Switzerland - 1 -

6 MANAGER S REPORT INCOME PARTNERS ASIAN HIGH INCOME BOND FUND 2016 PERFORMANCE OVERVIEW In 2016, the Income Partners Asian High Income Bond Fund (the Fund ) generated a total return of 8.50% for 2A Accumulation (USD) class, 8.50% for 2A Distribution (USD) class and 8.53% for 2B Accumulation (HKD) class. After SFC authorization of the Fund in October 2016, the Fund paid an annualized dividend yield 1 1 of 7.0% for 2A Distribution class. MARKET & PORTFOLIO OVERVIEW AND OUTLOOK The market was volatile in the beginning of the year. Most of the uncertainty originated from China, one of the main growth engines in the world, and its slowing economy and large capital outflows. With the Chinese currency and economy under heavy downside pressure, global commodity prices plummeted to levels we haven t seen since Despite the risk off sentiment, Asia credit markets were relatively resilient compared to other asset classes. Soon after, however, the fiscal stimulus deployed by the Chinese government began to take effect as the Chinese economy showed signs of stabilization. Meanwhile, the Federal Reserve postponed its initial plans to hike rates as the ECB and the BoJ announced programs to expand its monetary policies. Combined with the recovery in commodity prices, global financial assets rallied as risk sentiment improved. The Asian high yield credit market benefited not only from the rally of assets, but also from significant capital inflow into the asset class and a lack of high yield issuance. The market received another unexpected boost in June, when the UK voted to leave the European Union. While the initial reaction was negative, investors realized that the damage was local and limited. On the other hand, technical factors remained supportive of the Asia credit markets and Brexit forced the Fed to delay its rate hiking plans once again. As a result, global rates dropped, leading to another strong rally in the credit markets. Over the next few months, record levels of inflow into the asset class and low levels of issuance continued to compress the spread. Issuance finally picked up in September, but with the Fed announcing another delay in hiking rates, the Asia credit market stayed range bound. Going into the last quarter, the credit markets finally slowed down on the back of expectations of rising inflation and treasury rates in the US. In addition, Trump s victory in the US presidential elections injected many uncertainties to the market, and his plans on fiscal stimulus and Fed rate hikes drove US treasury rates even higher. The credit markets reacted negatively to the news; investment grade and long tenor credits took the brunt of the downturn. New issuance for 2016 totalled USD176 billion, compared to USD144 billion in 2015, with HY supply increased to USD35 billion from USD25 billion. As of December 2016 month end, the Fund s credit exposure was 92.9%. There was no non-dollar exposure. For 2017, the sharp spike in UST rates since the US Election has increased volatility for the EM credit market. We expect volatility to persist as we enter 2017 given the higher uncertainties in the macro picture. Protectionism policies under the Trump administration is viewed as negative to EM in general and increased fiscal spending could lead to higher inflation expectations and drive US rates higher. Compared to other regions in EM, we believe Asia will continue to be more resilient due to stronger fundamentals, shorter duration and more supportive local demand. Asia s rating is the highest amongst EM regions which we believe justifies the tighter valuation. A breakdown of the default rate by region also shows Asia is a lower beta segment. EM default rate, in particular Latam saw an increase this year mainly 1 Annualized Dividend Yield: [(1 + distribution per unit / ex-dividend NAV) ^ distribution frequency] 1. Yield figures are estimates and are based on the latest dividend distribution and the ex-dividend NAV of the previous month. Yield figures are for reference only. Positive dividend yield does not imply positive return. Dividend rate is not guaranteed and distributions may be paid from capital

7 MANAGER S REPORT (Continued) INCOME PARTNERS ASIAN HIGH INCOME BOND FUND driven by the collapse in oil prices and corruption investigation in Brazil. We believe both risks have been largely played out and expect default rates to decline for Local demand will continue to support the technicals of the asset class. We have seen an increasing interest from onshore Chinese buyers for USD credits and view them as a sticky investor group. This trend is evident in the new issue allocation as a larger portion of new issuances are allocated to Asian investors. USD bonds from Chinese issuers often offer yield pickup to their onshore bonds. Also with the higher volatility in the RMB, we could see a higher demand from onshore investors to hold USD credits. PORTFOLIO OVERVIEW AS OF 31 DECEMBER 2016 Modified Duration Yield to Maturity (YTM) Current Yield Average Credit Rating 2.9 years 5.7% 6.4% BB Top 5 Holdings (Long Credit Portfolio): 13.4% Kaisa Group Holdings Ltd 3.1% West China Cement Ltd 2.9% GCX Ltd 2.7% Indo Energy Finance II BV 2.6% Sino-Ocean Land Treasure Finance I Ltd 2.1% Geographical Exposure Industry Exposure China Indonesia India Cash Japan Switzerland UK Australia Pakistan Russia Singapore Vietnam Thailand Sri Lanka France Philippines Hong Kong 12.2% 9.2% 7.1% 3.5% 3.4% 3.3% 1.9% 1.9% 1.8% 1.8% 1.7% 1.7% 1.7% 1.6% 1.5% 1.1% 44.4% Real Estate Banking and Finance Cash Technology Telecom Industrial Quasi-Sov Utilities Building Materials Commodity Automobile Consumer, Non- Sovereign Insurance Energy Retail 13.6% 7.1% 6.8% 6.3% 5.4% 5.3% 4.7% 4.5% 3.7% 3.2% 2.8% 1.9% 1.8% 1.7% 1.5% 29.6% - 3 -

8 MANAGER S REPORT (Continued) INCOME PARTNERS ASIAN HIGH INCOME BOND FUND Credit Rating Exposure Maturity Profile A A- 1.8% 3.7% % BBB BBB- 3.4% 7.7% % BB+ BB 12.5% 16.3% % BB- B+ 15.1% 16.6% % B B- 4.8% 8.4% After 33.3% Cash CCC+ 2.6% 7.1% Cash 7.1% Source: Income Partners, 31 December 2016 CORPORATE ACTION With effect from 3 October 2016, the Fund has been authorised by the Securities and Futures Commission of Hong Kong ( SFC ), for distribution to the Hong Kong public. In respect of the SFC authorization, the Fund re-designated certain classes of units and created new classes of units and their respective class currency. Additionally, the management fees for each class of units have been amended: (a) the management fees payable by all Class 1 Units will be increased from 0.9% to 1.0% of the net asset value of the Class 1 units per annum; (b) the management fees payable by all Class 2 Units will be decreased from 1.75% to 1.5% of the net asset value of the Class 2 units per annum; and (c) the management fees payable by all Class 3 Units will be decreased from 1.75% to 1.5% of the net asset value of the Class 3 units per annum. In relation to the authorization of the Sub-Fund, the following changes were made to the Explanatory Memorandum: (a) clarifying amendments to the investment objective and investment policies of the Sub-Fund; (b) clarification that payment of application moneys in kind will only be accepted upon certain conditions being satisfied (i.e. the assets are subject to independent valuation and such valuation costs will not be borne by the Sub-Fund, the Trustee s prior consent is given, the assets are in line with the investment objective and policy of the Sub-Fund, and the in kind arrangement is in the best interest of existing investors); (c) enhanced disclosures on distributions to be paid out of the capital of the Sub-Fund; (d) updated and enhanced risk disclosures; (e) amendments to reflect recent regulatory and other changes; and - 4 -

9 MANAGER S REPORT (Continued) INCOME PARTNERS ASIAN HIGH INCOME BOND FUND (f) other disclosures as required by the Code on Unit Trusts and Mutual Funds and the Guide on Practices and Procedures for Application for Authorisation of Unit Trusts and Mutual Funds issued by the SFC. (together, the Changes ). With effect from 28 October 2016, the Fund has determined to distribute income or capital attributable to the Distribution Classes on a monthly basis, on such date as may be determined by the Manager, or such other time or frequency as the Manager considers appropriate. Furthermore, the Manager waived the Management Fee payable by all Class 2 Unitholders chargeable to the Sub-Fund for the period from 29 September 2015 to 14 November From 15 November 2016 onwards the Management Fee of 1.5% payable by all Class 2 Unitholders will continue to be charged until further notice. A revised copy of the amended and restated Explanatory Memorandum (the "Amended EM") reflecting the above Changes is available on the Manager s website (

10 TRUSTEE S REPORT INCOME PARTNERS ASIAN HIGH INCOME BOND FUND We hereby confirm that, in our opinion, the Manager of the Income Partners Asian High Income Bond Fund (the Sub-Fund ) as a Sub-Fund of Income Partners Liquidity Trust has, in all material respects, managed the Sub-Fund in accordance with the provisions of the Trust Deed dated 26 January 2015, as amended for the period from 29 September 2015 (date of inception) to 31 December Georgette Dames Marvin Nairn... Cititrust (Cayman) Limited, the Trustee Date: 30 March

11 INDEPENDENT AUDITOR S REPORT TO THE UNITHOLDERS (AS A BODY) OF INCOME PARTNERS ASIAN HIGH INCOME BOND FUND Our opinion In our opinion, the financial statements give a true and fair view of the financial position of Income Partners Asian High Income Bond Fund (the Sub-Fund ), a sub-fund of Income Partners Liquidity Trust as at 31 December 2016, and of its financial performance and its cash flows for the period from 29 September 2015 (date of inception) to 31 December 2016 in accordance with International Financial Reporting Standards. What we have audited The Sub-Fund s financial statements comprise: the statement of financial position as at 31 December 2016; the statement of comprehensive income for the period from 29 September 2015 (date of inception) to 31 December 2016; the statement of changes in net assets attributable to unitholders for the period from 29 September 2015 (date of inception) to 31 December 2016; the statement of cash flows for the period from 29 September 2015 (date of inception) to 31 December 2016; and the notes to the financial statements, which include a summary of significant accounting policies. Basis for opinion We conducted our audit in accordance with International Standards on Auditing ( ISAs ). 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 opinion. Independence We are independent of the Sub-Fund in accordance with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants ( IESBA Code ). We have fulfilled our other ethical responsibilities in accordance with the IESBA Code. Other Information The Trustee and the Manager ( Management ) are responsible for the other information. The other information comprises the Annual Report (but does not include the Sub-Fund s financial statements and our auditor s report thereon). Our opinion on the Sub-Fund s financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the Sub-Fund s 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, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard

12 INDEPENDENT AUDITOR S REPORT TO THE UNITHOLDERS (AS A BODY) OF INCOME PARTNERS ASIAN HIGH INCOME BOND FUND Responsibilities of Management for the financial statements Management is responsible for the preparation of the financial statements that give a true and fair view in accordance with International Financial Reporting Standards, and are responsible for ensuring that the financial statements have been properly prepared in accordance with the relevant disclosure provisions of the Trust Deed dated 26 January 2015, as amended (the Trust Deed) and Appendix E of the Code on Unit Trusts and Mutual Funds issued by the Securities and Futures Commission of Hong Kong (the SFC Code), and for such internal control as Management 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, Management is responsible for assessing the Sub-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 Management either intends to liquidate the Sub-Fund or to cease 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 ISAs 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. We are also required to assess whether the financial statements of the Sub-Fund have been properly prepared, in all material respects, in accordance with the relevant disclosure provisions of the Trust Deed and the SFC Code. As part of an audit in accordance with ISAs, we exercise professional judgment 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. 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 Sub-Fund s internal control

13 INDEPENDENT AUDITOR S REPORT TO THE UNITHOLDERS (AS A BODY) OF INCOME PARTNERS ASIAN HIGH INCOME BOND FUND Auditor s responsibilities for the audit of the financial statements (Continued) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by Management. Conclude on the appropriateness of Management 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 Sub-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 Sub-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 those charged with governance 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 matter This report, including the opinion, has been prepared for and only for the Sub-Fund s unitholders as a body represented by the trustee in accordance with the terms of our engagement letter and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Report on Other Legal and Regulatory Requirements In our opinion, the financial statements have been properly prepared, in all material respects, in accordance with the relevant disclosure provisions of the Trust Deed and the SFC Code. PricewaterhouseCoopers 30 March

14 STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2016 Assets - Current assets Notes 2016 USD Financial assets at fair value through profit or loss 3(a) 13,577,230 Subscription receivables 990 Interest receivables 228,321 Bank balances 902,971 Total assets 14,709,512 Liabilities - Current liabilities Other liabilities and accrued expenses 13 61,469 Liabilities (excluding net assets attributable to unitholders) 61, Net assets attributable to unitholders 12 14,648, ,709,512 Represented by: Net assets attributable to unitholders and after adjustment to establishment costs 12 14,859,047 Adjustments for different bases adopted by the Sub-Fund in arriving at the net assets attributable to unitholders 12 (211,004) Net asset value per unit USD 2016 Analysed by: Class 2A USD (Distribution) Units Class 2A USD (Accumulation) Units Class 2B HKD (Accumulation) Units Georgette Dames Marvin Nairn Emil Nguy Cititrust (Cayman) Limited, Income Partners Asset Management (HK) Limited, the Trustee the Manager The notes on pages 14 to 37 are an integral part of these financial statements

15 STATEMENT OF COMPREHENSIVE INCOME FOR THE PERIOD FROM 29 SEPTEMBER 2015 (DATE OF INCEPTION) TO 31 DECEMBER 2016 Notes For the period from 29 September 2015 (date of inception) to 31 December 2016 USD Income Debt interest income 1,034,255 Net gains on financial assets and liabilities at fair value through profit or loss 7 479,809 Foreign exchange loss (6) Bank interest income 79 Consent fee income 18,005 Total net income 1,532, Expenses Management fee 8(a) (28,520) Trustee fee 8(b) (12,541) Custodian, administration and registrar fees 9 (135,449) Auditor s remuneration (28,500) Establishment costs 10 (217,695) Legal and professional fees (74,223) Other expenses (19,414) Total operating expenses (516,342) Operating profit 1,015,800 Finance costs Distributions to holders of redeemable units 14 (9,320) Profit for the period 1,006,480 Adjustment for establishment costs ,004 Increase in net assets attributable to unitholders from operations 1,217,484 The notes on pages 14 to 37 are an integral part of these financial statements

16 STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO UNITHOLDERS FOR THE PERIOD FROM 29 SEPTEMBER 2015 (DATE OF INCEPTION) TO 31 DECEMBER 2016 For the period from 29 September 2015 (date of inception) to 31 December 2016 USD Net assets attributable to unitholders at the beginning of the period - Issuance of redeemable units 14,697,737 Redemption of redeemable units (1,056,174) Increase in net assets attributable to unitholders from operations 1,217,484 Net assets attributable to unitholders at the end of the period 14,859,047 The notes on pages 14 to 37 are an integral part of these financial statements

17 STATEMENT OF CASH FLOWS FOR THE PERIOD FROM 29 SEPTEMBER 2015 (DATE OF INCEPTION) TO 31 DECEMBER 2016 For the period from 29 September 2015 (date of inception) to 31 December 2016 USD Cash flow from operating activities Profit for the period 1,006,480 Adjustment for: Interest income (1,034,334) Distributions to holders of redeemable units 9,320 Operating loss before working capital changes (18,534) Increase in financial assets at fair value through profit or loss (13,577,230) Increase in other liabilities and accrued expenses 61,469 Cash used in operations (13,534,295) Interest received 806,013 Net cash used in operating activities (12,728,282) Cash flows from financing activities Issuance of redeemable units 14,696,747 Redemption of redeemable units (1,056,174) Distributions paid to holders of redeemable units (9,320) Net cash generated from financing activities 13,631, Net increase in cash and cash equivalents 902,971 Cash and cash equivalents at beginning of the period - Cash and cash equivalents at end of the period 902,971 Analysis of balances of cash and cash equivalents Bank balances 902,971 The notes on pages 14 to 37 are an integral part of these financial statements

18 NOTES TO THE FINANCIAL STATEMENTS 1 General information Income Partners Asian High Income Bond Fund (the Sub-Fund ), is a sub-fund of Income Partners Liquidity Trust (the "Trust"), in respect of which a separate class or classes of units will be issued. The Sub-Fund s objective is to achieve a high total investment return through income and capital appreciation. The Trust is a Cayman Islands unit trust established as an exempted unit trust. The Sub-Fund is governed by a trust deed dated 26 January 2015, as amended. Cititrust (Cayman) Limited (the Trustee ) was appointed as trustee of the Sub-Fund. Income Partners Asset Management (HK) Limited continues to act as the Manager of the Sub-Fund. On 6 October 2016, the Sub-Fund is authorised by the Securities and Futures Commission of Hong Kong (the SFC ) under Section 104 of the Hong Kong Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). The Fund s Class 2 units are available for public offering in Hong Kong. As at 31 December 2016, the Trust has two sub-fund, which are Income Partners Renminbi Money Market Fund and the Sub-Fund, in respect of which separate classes of units were issued. During the period, there are the following key changes: With effect from 3 October 2016, Class 2C (Distribution) Units HKD and Class 2C (Accumulation) Units HKD have been re-designated to Class 2B HKD (Distribution) Units and Class 2B HKD (Accumulation) Units respectively. The Sub-Fund created new classes of units and their respective class currency. Additionally, the management fees for each class of units have been amended. With effect from 28 October 2016, the Sub-Fund has determined to distribute income or capital attributable to the distribution classes on a monthly basis, on such date as may be determined by the Manager, or such other time or frequency as the Manager considers appropriate. The Manager waived the management fee payable by all Class 2 unitholders chargeable to the Sub-Fund for the period from 29 September 2015 to 14 November From 15 November 2016 onwards the management fee of 1.5% payable by all Class 2 unitholders will continue to be charged until further notice. The date of commencement of operations of the Sub-Fund is 29 September The Sub-Fund seeks to invest primarily (i.e. not less than 70% of its Net Asset Value) in a diversified portfolio of high yielding fixed income securities and other financial instruments issued in the Asia Pacific region. The Sub-Fund may also invest up to 30% of its Net Asset Value in in money market instruments, cash and bank deposits. The Trustee of the Sub-Fund is Cititrust (Cayman) Limited, which was incorporated in the Cayman Islands in The Trustee is licensed as a trust company pursuant to the Banks and Trust Companies Law (2014 Revision) of the Cayman Islands and is a licensed mutual fund administrator pursuant to the Mutual Funds Law (2014 Revision)

19 NOTES TO THE FINANCIAL STATEMENTS 2 Summary of significant accounting policies The principal accounting policies applied in the preparation of these financial statements are set out below. (a) Basis of preparation The financial statements of the Sub-Fund have been prepared in accordance with International Financial Reporting Standards ( IFRS ). The financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss. The preparation of financial statements in conformity with IFRS requires the use of accounting estimates. It also requires the Trustee and the Manager (together, the Management ) to exercise its judgement in the process of applying the Sub-Fund s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 5. All references to Net Asset Value ( NAV ) throughout these financial statements refer to net assets attributable to unitholders unless otherwise stated. Standards and amendments to existing standards that are relevant to the Sub-Fund There are no standards, interpretations or amendments to existing standards relevant to the Sub- Fund that have had a material impact on the Sub-Fund. New standards, amendments and interpretations relevant to the Sub-Fund that are effective but have not been early adopted A number of new standards, amendments to standards and interpretations relevant to the Sub- Fund that are effective, and have not been applied in preparing these financial statements. IFRS 9, Financial instruments addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through other comprehensive income ( OCI ) and fair value through profit or loss ( P&L ). 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 required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities, there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the hedged ratio to be the same as the one management actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under IAS 39. The standard is effective for accounting periods beginning on or after 1 January Early adoption is permitted. The Sub-Fund is yet to assess IFRS 9 s full impact

20 NOTES TO THE FINANCIAL STATEMENTS 2 Summary of significant accounting policies (continued) (a) Basis of preparation (continued) New standards, amendments and interpretations relevant to the Sub-Fund that are effective but have not been early adopted (continued) There are no other standards, interpretations or amendments to existing standards that are not yet effective that would be expected to have a significant impact on the Sub-Fund. (b) Foreign currency translation (i) Functional and presentation currency The Sub-Fund s subscriptions and redemptions of redeemable units are mainly denominated in the US Dollars, ( USD ). The primary activity of the Sub-Fund is to invest in USD denominated high yielding fixed income securities and other financial instruments issued in the Asia Pacific region. The performance of the Sub-Fund is measured and reported to unitholders in the US dollar. The management considers the US dollar as the currency that most faithfully represents the economic effects of the transactions, events and conditions (the functional currency ). The Sub-Fund s financial statements are presented in the US dollar, which is the Sub-Fund s functional and presentation currency. (ii) Translations and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign currency assets and liabilities are translated into the functional currency using the exchange rate prevailing at the statement of financial position date. Foreign exchange gains and losses arising from translation are included in the statement of comprehensive income. Foreign exchange gains and losses relating to cash and cash equivalents are presented in the statement of comprehensive income within foreign exchange gains or losses. Foreign exchange gains and losses relating to the financial assets and liabilities carried at fair value through profit or loss are presented in the statement of comprehensive income within Net gains/(losses) on financial assets and liabilities at fair value through profit or loss

21 NOTES TO THE FINANCIAL STATEMENTS 2 Summary of significant accounting policies (continued) (c) Financial assets and financial liabilities at fair value through profit or loss (i) Classification The Sub-Fund classifies its investments in debt securities and derivative financial instruments, as financial assets or financial liabilities at fair value through profit or loss. This category has two sub-categories: financial assets or financial liabilities held for trading; and those designated at fair value through profit or loss at inception. Financial assets and liabilities held for trading A financial asset or financial liability is classified as held for trading if it is acquired or incurred principally for the purpose of selling or repurchasing in the near term 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. Derivatives are also categorised as held for trading. The Sub-Fund does not classify any derivatives as hedges in a hedging relationship. Financial assets and liabilities designated at fair value through profit or loss at inception Financial assets and financial liabilities designated at fair value through profit or loss at inception are financial instruments that are not classified as held for trading but are managed, and their performance is evaluated on a fair value basis in accordance with the Sub-Fund s documented investment strategy. The Sub-Fund s policy requires the Manager and the Trustee to evaluate the information about these financial assets and liabilities on a fair value basis together with other related financial information. (ii) Recognition, derecognition and measurement Regular purchases and sales of investments are recognised on the trade date - the date on which the Sub-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. Transaction costs are expensed as incurred in the statement of comprehensive income. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or the Sub-Fund has transferred substantially all risks and rewards of ownership. Subsequent to initial recognition, all financial assets and financial liabilities at fair value through profit or loss are measured at fair value. Gains and losses arising from changes in the fair value of the financial assets or financial liabilities at fair value through profit or loss category are presented in the statement of comprehensive income within other net changes in fair value of financial assets and liabilities at fair value through profit or loss in the period in which they arise. Interest on debt securities at fair value through profit or loss is recognised in the statement of comprehensive income within interest income based on the effective interest rate

22 NOTES TO THE FINANCIAL STATEMENTS 2 Summary of significant accounting policies (continued) (c) Financial assets and financial liabilities at fair value through profit or loss (Continued) (iii) Fair value estimation The fair value of financial assets and liabilities traded in active markets (such as publicly traded derivatives and trading securities) are based on quoted market prices at the statement of financial position date. The Sub-Fund utilises the mid-market price for its fair valuation input to both financial assets and financial liabilities where the mid-market price falls within the bid-ask spread. In circumstances where the mid-market price is not within the bid-ask spread, management will determine the point within the bid-ask spread that is most representative of fair value. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm s length basis. The Manager will obtain as many quotes from brokers as they can. Upon receipt of all quotes, the Manager will review all quotes to remove any outliers. Once outliers are removed, an average of the quotes is used to value each investment position. The fair value of financial assets and liabilities that are not traded in an active market is determined by using valuation techniques. The Sub-Fund uses a variety of methods and makes assumptions that are based on market conditions existing at each statement of financial position date. Valuation techniques used include the use of comparable recent arm s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity specific inputs. (iv) Transfers between levels of the fair value hierarchy Transfers between levels of the fair value hierarchy are deemed to have occurred at the beginning of the reporting period. (d) Amounts due from and due to brokers Amounts due from and to the broker represent receivables for securities sold and payables for securities purchased that have been contracted for but not yet settled or delivered on the statement of financial position date respectively

23 NOTES TO THE FINANCIAL STATEMENTS 2 Summary of significant accounting policies (Continued) (e) Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. (f) Cash and cash equivalents Cash and cash equivalents includes cash in hand and deposits held at call with banks, other shortterm highly liquid investments with original maturities of three months or less. (g) Accrued expenses Accrued expenses are accounted for on an accruals basis and charged to the statement of comprehensive income. (h) Redeemable units The Sub-Fund issues eighteen classes of redeemable units which are redeemable at the unitholder s option and do not have identical rights. Such units are classified as financial liabilities. Redeemable units can be put back to the Sub-Fund at any dealing date for cash equal to a proportionate unit of the Sub-Fund s net asset value attributable to the unit class. The redeemable units are redeemable daily. The redeemable units are carried at the redemption amount that is payable at the statement of financial position date if the holder exercises the right to put the unit back to the Sub-Fund. Redeemable units are issued and redeemed at the holder s option at prices based on the Sub- Fund s NAV per unit at the time of issue or redemption. The Sub-Fund s NAV per unit is calculated by dividing the net assets attributable to the holders of each class of redeemable units with the total number of outstanding redeemable units for each respective class. In accordance with the provisions of the Sub-Fund s regulations, investment positions are valued based on the mid-price for the purpose of determining the NAV per unit for subscriptions and redemptions. (i) Revenue recognition Debt interest income is recognised in the statement of comprehensive income for all interest bearing instruments on an accrual basis using the effective interest rate method. It represents interest income on debt securities at fair value through profit or loss. Other income is accounted for on an accrual basis. (j) Distributions to holders of redeemable units Proposed distributions to holders of redeemable units are recognised in the statement of comprehensive income when they are appropriately authorised and no longer at the discretion of the Sub-Fund. During the period, distributions were declared to the redeemable unitholders of Class 2A USD (Distribution) Units. The distribution on the redeemable units is recognised as a finance cost in the statement of comprehensive income

24 NOTES TO THE FINANCIAL STATEMENTS 2 Summary of significant accounting policies (Continued) (k) Taxation The Sub-Fund is domiciled in Cayman Islands. Under the current laws of Cayman Islands, there are no incomes, estate, corporation, capital gains or other taxes payable by the Sub-Fund. The Sub-Fund currently incurs withholding taxes imposed by certain countries on investment income and capital gains. Investment income and capital gains are recorded gross of any withholding tax in the statement of comprehensive income. Withholding taxes are shown as a separate item in the statement of comprehensive income. 3 Financial risk management The Sub-Fund s activities expose it to a variety of financial risks: market risk (including price risk, currency risk and interest rate risk), credit risk and liquidity risk. The principle investment objective of Sub-Fund is to achieve a high total investment return through income and capital appreciation. The Sub-Fund mainly invests in high yielding fixed income securities and other financial instruments issued in the Asia Pacific region. The portfolio of the Sub-Fund is expected to maintain a level of diversity across countries and industries. The Sub-Fund uses different methods to measure and manage the various types of risk to which it is exposed, these methods are explained below. (a) Market price risk Market price risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices, whether those changes are caused by factors specific to the individual instrument or factors affecting all instruments in the market. The Sub-Fund s investment in debt securities and derivative financial instruments are susceptible to market price risk arising from uncertainties about future prices of the instruments. The Manager monitors the Sub-Fund s market price risk on a daily basis and the Trustee reviews it on a daily basis. The following table discloses the financial asset investments at fair value through profit or loss of the Sub-Fund by product type: 2016 USD Financial assets at fair value through profit or loss Corporate bonds 13,302,421 (1) Government bonds 274,809 (1) 13,577,230 (1) The amount represents only the fair value of the debt instruments without accrued interests, which are separately disclosed as interest receivable on the statement of financial position

25 NOTES TO THE FINANCIAL STATEMENTS 3 Financial risk management (Continued) (a) Market price risk (continued) The following tables disclose the financial assets at fair value through profit or loss of the Sub- Fund by country: 2016 USD % of NAV Corporate bonds Australia 279, France 244, Hong Kong 167, India 1,342, Indonesia 1,776, Japan 517, People's Republic of China 6,501, Philippines 214, Russia 268, Singapore 260, Sri Lanka 245, Switzerland 498, Thailand 252, United Kingdom 477, Vietnam 254, Total corporate bonds 13,302,421 (2) Government bonds Pakistan 274,809 (2) Total financial assets at fair value through profit or loss 13,577,230 (2) (2) The amount represents only the fair value of the debt instruments without accrued interests, which are separately disclosed as interest receivable on the statement of financial position

26 NOTES TO THE FINANCIAL STATEMENTS 3 Financial risk management (Continued) (a) Market price risk (continued) The following tables disclose the financial assets at fair value through profit or loss of the Sub- Fund by sector: 2016 USD % of NAV Corporate bonds Automobile 465, Banking and Finance 1,989, Building Materials 663, Commodity 533, Consumer, Non-Cyclical 416, Energy 252, Industrial 790, Insurance 258, Quasi-sovereign 786, Real Estate 4,322, Retail 209, Technology 1,007, Telecom 922, Utilities 683, Total corporate bonds 13,302,421 (3) Government bonds Sovereign 274,809 (3) Total financial assets at fair value through profit or loss 13,577,230 (3) (3) The amount represents only the fair value of the debt instruments without accrued interests, which are separately disclosed as interest receivable on the statement of financial position. (b) Currency risk Foreign currency risk arises as the fair value and future cash flows of monetary assets and monetary liabilities denominated in other currencies fluctuate due to changes in foreign exchange rate. The Sub-Fund has exposure to fluctuation in currency exchange rates where it invests in assets and liabilities denominated in currencies other than USD, the functional currency. As at the period ended 31 December 2016, the Sub-Fund is not exposed to currency risk. The Manager monitors the Sub-Fund s currency position on a daily basis and the Trustee reviews it on a daily basis. IFRS 7 considers the foreign exchange exposure relating to non-monetary assets and liabilities to be a component of market price risk not foreign currency risk. Management however monitors the exposure on all foreign currency denominated assets and liabilities

27 NOTES TO THE FINANCIAL STATEMENTS 3 Financial risk management (Continued) (c) Interest rate risk The Sub-Fund is exposed to risks associated with the effects of fluctuations in the prevailing levels of market interest rates on the fair value of financial assets and liabilities and future cash flow. The tables below summarise the Sub-Fund s exposure to interest rate risks at the statement of financial position date. Included in the table are the Sub-Fund s assets and liabilities at fair values, categorised by the earlier of contractual repricing or maturity dates. The fair values of derivative financial instruments are included below under the heading Non-interest bearing. The interest rate exposures for all interest rate derivative financial instruments represent the net notional amounts of the contracts. Refer to note 3(a) for details. Maturity Maturity Maturity Non-interest up to 1 year 1-5 years over 5 years bearing Total As at 31 December 2016 USD USD USD USD USD Assets Financial assets at fair value through profit or loss - Corporate bonds 1,232,718 8,881,928 3,187,775-13,302,421 - Government bonds , ,809 Subscription receivables Interest receivables 228, ,321 Bank balances 902, ,971 Total assets 2,135,689 8,881,928 3,462, ,311 14,709,512 Liabilities Other liabilities ,469 61,469 Total liabilities (excluding net assets attributable to unitholders) ,469 61,469 At 31 December 2016, if interest rates on the bank balance and deposits had been 10 basis points higher or lower with all variables held constant, net assets attributable to unitholders would have been USD903 higher or lower as a result of higher or lower interest income on interest bearing bank deposits. The Manager has used their view of what would be a reasonable shift in the market interest rates to estimate the change for use in the interest rate risk sensitivity analysis above. Disclosures above are shown in absolute terms, changes and impacts could be positive or negative. Changes in basis points are revised annually depending on the Manager s current view of market interest rate sensitivity and other relevant factors

28 NOTES TO THE FINANCIAL STATEMENTS 3 Financial risk management (Continued) (c) Interest rate risk (Continued) The table below summarises the average effective interest rate for monetary financial instruments at the statement of financial position date. For puttable or callable financial instruments, the effective interest rates are based on the lower of yield to maturity, yield to call or yield to put % Assets Bank balances 0.18 Corporate bonds 6.26 Government bonds 6.73 The majority of the Sub-Fund s interest rate exposure on debt instruments are USD denominated. Interest rate exposures are expressed in terms of rate of weighted modified duration. The Manager and Trustee monitor the interest rate risks by quantifying (a) market exposure in percentage terms; and (b) exposure in duration terms by different countries. The figures in the tables below imply the interest rate exposure in duration terms. Given a 100bps change in the rate of all debt securities held by the Sub-Fund as at 31 December 2016, the percentage change in the debt securities will be the total weighted average modified duration multiplied by 1%, i.e. 2.82% while holding all other variables constant. The sensitivity of the Sub- Fund s debt securities as a whole in percentage terms to movements in specific types of interest rate exposure can be derived from the tables below. Portfolio weighted average modified duration analysis by country Country Portfolio weighted average modified duration (debt securities) 2016 Australia 0.13 France 0.04 Hong Kong 0.02 India 0.22 Indonesia 0.45 Japan 0.20 Russia 0.09 Pakistan 0.12 People's Republic of China 1.13 Philippines 0.02 Singapore 0.06 Sri Lanka 0.04 Switzerland 0.16 Thailand 0.04 United Kingdom 0.09 Vietnam 0.01 Total

29 NOTES TO THE FINANCIAL STATEMENTS 3 Financial risk management (Continued) (d) Credit risk The Sub-Fund is exposed to credit risk, which is the risk that counterparty will be unable to pay amounts in full when they fall due. The main concentration to which the Sub-Fund is exposed arises from the Sub-Fund s investments in debt securities. The Sub-Fund is also exposed to counterparty credit risk on cash and cash equivalents and other receivables balances. (i) Investment s credit risk The Sub-Fund s credit risk concentration is spread between debt securities as discussed above under market risk diversification. The credit ratings of the debt securities range from BBB+ to NR. Debt securities which are not rated represented approximately 32% of the NAV of the Sub-Fund. The Manager will regularly monitor the credit risk of all investments by assessing global credit market and the impact of different scenarios. The analysis below summarises the credit quality of the Sub-Fund s debt portfolio as a percentage of NAV at the period end. Credit rating (Standard & Poor s) 2016 % BBB BBB BB BB 3.38 BB B B B CCC NR (4) As at 31 December 2016, no unrated investment is defaulted. The Manager considered that the credit quality and credit worthiness of unrated debt securities are comparable to other debt securities that the Sub-Fund held. The Manager considered that the unrated debt securities which have a credit quality similar to the investment grade or above represented approximately 3% of the NAV of the Sub-Fund. Details of the investments are disclosed in Note 3(a). As refer to Note 3(d)(ii), assets placed with the brokers and Custodian by the Sub-Fund is amounted to USD14,480,201. At any time, the net exposure of the Sub-Fund to the obligations of any one issuer will not normally exceed 10% of the gross assets, except for securities issued or guaranteed by government, sovereign and quasi-sovereign entities, public or local authorities which are above investment grade. (4) The percentage is calculated based on the fair value of the debt instruments without accrued interests, which are separately disclosed as interest receivable on the statement of financial position