Hong Leong Growth Fund

Transcription

1 Reaching out to you Annual Report 2016/ June 2017 Audited

2 Contents Page Manager s Review and Report 19 Statement by the Manager 10 Trustee s Report 11 Independent Auditors Report 1215 Statement of Comprehensive Income 16 Statement of Financial Position 17 Statement of Changes in Equity 18 Statement of Cash Flows 19 Notes to the Financial Statements 2065 Performance Data 6667 Corporate Information 68 Corporate Directory 69 1

3 Manager s Review and Report I. Fund information Fund Name Fund Category Equity Fund Type Growth Investment Objective To provide Unitholders with an attractive* level of regular income** and capital gain on the value of Units at an acceptable risk. Benchmark FTSE Bursa Malaysia KLCI Distribution Policy The Fund intends to provide Unitholders with LongTerm*** capital growth. As such, cash distribution will be incidental to the overall capital growth objective and a substantial portion of the income returns from investments will be reinvested. The Fund may also declare distributions in the form of additional Units to its Unitholders. Breakdown of Unitholdings By Size Size of Holdings No. of Accounts No. of Units Held 5,000 and below 2,808 6,664, ,001 to 10,000 1,454 10,580, ,001 to 50,000 2,514 53,940, ,001 to 500, ,244, ,001 and above 12 83,284, Notes: * Please take note that the Fund aims to provide sustainable riskadjusted returns in the form of capital growth and income in accordance with the performance benchmark and distribution policy of the Fund, although this is not guaranteed. ** The Fund s main focus is on capital growth and to a lesser extent, income. Income may be distributed in the form of cash and/or units. *** LongTerm refers to a period of above 5 years. 1

4 II. Fund Performance Chart 1 : Performance of the Fund versus the benchmark covering the last five financial years Percentage Growth /6/ /6/ /6/ /6/ /6/ /6/2017 From 30/06/2012 To 30/06/2017 Hong Leong Growth Fund (HLGF) FTSE Bursa Malaysia KLCI Source: Lipper For Investment Management, In Malaysian Ringgit terms, exdistribution, NAV Per UnittoNAV Per Unit basis with gross income (if any) from HLGF reinvested. Past performance is not necessarily indicative of future performance and unit prices and investment returns may go down, as well as up. 2

5 Performance Review This Annual Report covers the twelvemonth financial year from 1 July 2016 to 30 June The Fund posted a return of 18.10% in the past twelve months, while its benchmark the FTSE Bursa Malaysia KLCI Index rose 6.63%. During the financial year under review, the Fund had distributed income distributions of 3.5 sen per unit on 19 July 2016 and 5.94 sen per unit on 18 January Prior to the income distributions, the cumdistribution net asset values (NAV) per unit of the Fund were RM and RM while the exdistribution NAV per unit were RM and RM respectively. Unitholders should note that income distributions have the effect of reducing the NAV per unit of the Fund after distributions. For the five financial years ended 30 June 2017, the Fund garnered a return of 46.79% compared to the benchmark s return of 10.29% while distributing a total gross income of sen per unit. As such, the Manager concluded that the Fund has achieved its investment objective. Table 1: Performance of the Fund for the following periods as at 30 June 2017 (Source: Lipper For Investment Management) HLGF (%) Benchmark (%) 31/03/17 30/06/17 3 Months /06/17 30/06/17 30/06/17 30/06/17 30/06/17 30/06/17 6 Months Year Years Years Years Years /12/16 30/06/16 30/06/15 30/06/14 30/06/12 30/06/07 30/06/17 08/09/95 Since Launch

6 Table 2: Return of the Fund based on NAV Per Unitto NAV Per Unit basis for the period 30 June 2016 to 30 June 2017 (Source: Lipper For Investment Management) 30Jun17 30Jun16 Return (%) NAV Per Unit Benchmark vs Benchmark (%) RM , RM , # # Return is calculated after adjusting for income distributions of 3.5 sen per unit on 19/07/2016 and 5.94 sen per unit on 18/01/2017. Table 3 : Financial Highlights The Net Asset Value attributable to Unitholders is represented by: 30Jun17 (RM) 30Jun16 (RM) Change (%) Unitholders Capital Retained Earnings Net Asset Value 71,819,117 95,307, ,126,717 64,825,237 87,795, ,620, Units in Circulation 211,713, ,228,

7 Table 4: The Highest and Lowest NAV Per Unit, Total Return of the Fund and the breakdown into Capital Growth and Income Distribution for the financial years Highest NAV Per Unit (RM) Lowest NAV Per Unit (RM) Capital Growth (%) Income Distribution (%) Total Return (%) Financial Year 30/06/16 30/06/ Financial Year 30/06/15 30/06/ Financial Year 30/06/14 30/06/ Source: Lipper For Investment Management, In Malaysian Ringgit terms, exdistribution, NAV Per UnittoNAV Per Unit basis with gross income (if any) from HLGF reinvested. Table 5: Average Total Return (%) Average Total Return of the Fund 30/06/16 30/06/17 1 Year /06/14 30/06/17 3 Years /06/12 30/06/17 5 Years 9.36 Source: Lipper For Investment Management, In Malaysian Ringgit terms, exdistribution, NAV Per UnittoNAV Per Unit basis with gross income (if any) from HLGF reinvested. Table 6: Annual Total Return of the Fund Financial Year 30/06/16 30/06/17 30/06/15 30/06/16 30/06/14 30/06/15 30/06/13 30/06/14 30/06/12 30/06/13 Annual Total Return (%) Source: Lipper For Investment Management, In Malaysian Ringgit terms, exdistribution, NAV Per UnittoNAV Per Unit basis with gross income (if any) from HLGF reinvested

8 III. INVESTMENT PORTFOLIO Chart 2: Asset Allocation July 2016 to June 2017 Jul 16 Aug 16 Sep 16 Oct 16 Nov 16 Dec 16 Jan 17 Feb 17 Mar 17 Apr 17 May 17 Jun 17 Equities Collective Investment Schemes Warrants Chart 3: Sector Allocation as at 30 June 2017 Properties 3.76% Utilities 1.07% Information Technology 2.69% Infrastructure Project Companies 3.72% Hotels 0.76% Real Estate 0.65% Construction 5.56% Technology 7.53% Deposits & Cash Equivalents 12.08% Industrial Products 12.80% Financials 13.03% Trading/Services 18.38% Consumer Products 17.97% 6

9 Chart 4: Geographical Allocation as at 30 June 2017 Indonesia 0.05% Deposits & Cash Equivalents 12.08% Hong Kong 16.26% Malaysia 71.61% Strategies employed during the period under review During the financial year under review, the Fund gradually reduced its exposure to highdividendyield stocks and deployed the cash in stocks that will benefit from the depreciating Ringgit and also largecap stocks that were trading at attractive valuations. Market volatility persisted in the second half of 2016 due to Brexit, Federal Reserve (Fed) rate hike and policy uncertainties following the US election. As the market corrected, the Fund took the opportunity to buy into the dips. We continue to be positive on the Malaysia equities outlook as foreign shareholding level remains low and earnings expectations appear to have bottomed. The improving external demand outlook is expected to have a positive spillover effect into Malaysia s economy. As of 30 June 2017, the Fund s topthree holdings are Genting Berhad Malaysia (6.36%), Unisem (M) BerhadMalaysia (4.67%) and HAIO Enterprise BerhadMalaysia (3.83%). For the financial year under review, there were no significant changes in the state of affairs of the Fund or circumstances that would materially affect the interest of Unitholders up to the date of this Manager s report. 7

10 IV. MARKET REVIEW During the financial year under review, the MSCI AC Asia Pacific ex Japan Index rose 21.9%. The best performing markets were Japan and Korea while the laggards were Philippines and Malaysia. All regional markets performance was in positive territory during the period. In the local market, the FTSE Bursa Malaysia KLCI rose 6.6%. Small caps outperformed as the FTSE Bursa Malaysia Small Cap Index rose 15.6%. Regional equities performed surprisingly well during the third quarter of 2016 given the relatively benign response to Brexit and growing confidence among investors that any fallout from the decision is likely to be contained. Developed market bond yields also hit alltime lows during the quarter as Janet Yellen reiterated the Fed s case for gradual rate increases. In Japan, Abe also announced a series of accommodative fiscal policies. China and Hong Kong market performed well as investors sentiment improved following the approval of the ShenzhenHong Kong stock connect. The fourth quarter of 2016 saw emerging markets underperforming developed markets as the surprise victory of Donald Trump resulted in higher US Dollar and US bond yields. The fall in bond prices led to redemptions in emerging market funds. The possibility of trade conflicts also resulted in forex weakness in the emerging market space. Crude oil rallied strongly as countries from outside the Organization of the Petroleum Exporting Countries (OPEC) agreed to reduce output following the agreement by OPEC members to cut production. Regional equities got off to a strong start in 2017, led by cyclical sectors such as the banking, technology and commodity sectors. The prospects of increased fiscal stimulus in the US and improving economic outlook spurred the return of fund inflows into emerging markets. Oil prices fell as high oil inventory levels and US rig counts led to rising concerns on oversupply of oil. The second quarter of 2017 saw markets carried over positive sentiments from previous quarter. The rally was driven by earnings upward revisions and foreign investor inflows. Some of the political developments include the announcement of a United Kingdom snap election by Prime Minister Theresa May and subsequently led the Conservatives to lose the majority. ProEuropean centrist candidate Emmanuel Macron won the French presidential election and the Euro surged as political risk subsided. 8

11 The Malaysia market performance was lacklustre for most part of the second half of 2016 as most corporate results continued to disappoint. Apart from a minor prebudget 2017 run up, the market was trading sideways for most of the months. The local market was also hit along with most ASEAN countries following Donald Trump s surprise victory and sparked fears of US protectionist measures before recovering some of the losses towards the end of the year. The first half of 2017 started brightly for Malaysia as the local market rallied along with global equity markets. Local market was buoyed by the return of foreign investors. The Malaysia market appears attractive due to the relatively low foreign ownership and the weak Ringgit. V. FUTURE PROSPECTS AND PROPOSED STRATEGIES In the US, the economy continues to look healthy as unemployment indicators have been falling sharply. Given the improving labour market, the Fed raised rates twice in the first half of 2017 and announced that it is looking to reduce the size of its balance sheet soon. The Fed believes that factors weighing on inflation appears to be temporary and is likely to continue to tighten monetary policy. In Europe, the European Central Bank (ECB) also hinted at scaling down its quantitative exercise as the economic outlook continues to improve. We expect the main index to trade sideways given that the local market is seen to be supported by local buying while upside will be capped by lacklustre corporate earnings growth. We would take the opportunity to accumulate stocks that we like in the event of a market correction. We are positive on wellmanaged companies that will benefit from possible government pump priming such as those in the construction and consumer sectors. We continue to be well invested in selected largecap stocks that are trading at attractive valuations. VI. SOFT COMMISSIONS The Manager has received soft commissions from brokers/dealers in the form of goods and services such as research materials, data and quotation services incidental to investment management of the Fund and investment related publications. Such soft commissions received are of demonstrable benefit to Unitholders. 9

12 STATEMENT BY THE MANAGER I, Hoo See Kheng, as the Director of Hong Leong Asset Management Bhd, do hereby state that, in the opinion of the Manager, the financial statements set out on pages 16 to 65 are drawn up in accordance with the provision of the Deeds and give a true and fair view of the financial position of the Fund as at 30 June 2017 and of its financial performance, changes in equity and cash flows for the financial year ended 30 June 2017 in accordance with the Malaysian Financial Reporting Standards ( MFRS ) and International Financial Reporting Standards ( IFRS ). For and on behalf of the Manager, Hong Leong Asset Management Bhd (Company No.: M) HOO SEE KHENG Chief Executive Officer/Executive Director Kuala Lumpur 21 August

13 TRUSTEE S REPORT TO THE UNITHOLDERS OF HONG LEONG GROWTH FUND We have acted as the Trustee for ( the Fund ) for the financial year ended 30 June To the best of our knowledge, for the financial year under review, Hong Leong Asset Management Bhd ( the Manager ) has operated and managed the Fund in accordance with the following: (a) limitations imposed on the investment powers of the Manager under the Deed(s), the Securities Commission s Guidelines on Unit Trust Funds, the Capital Markets and Services Act 2007 and other applicable laws; (b) valuation and pricing for the Fund has been carried out in accordance with the Deed(s) of the Fund and applicable regulatory requirements; and (c) 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. We are of the view that the distributions made during the financial year ended 30 June 2017 by the Manager are not inconsistent with the objectives of the Fund. For Deutsche Trustees Malaysia Berhad Soon Lai Ching Senior Manager, Trustee Operations richard Lim Hock Seng Chief Executive Officer Kuala Lumpur 21 August

14 INDEPENDENT AUDITORS REPORT TO THE UNITHOLDERS OF HONG LEONG GROWTH FUND REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS Our Opinion In our opinion, the financial statements of ( the Fund ) give a true and fair view of the financial position of the Fund as at 30 June 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 June 2017, and the statement of comprehensive income, statement of changes in equity 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 16 to 65. 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 ByLaws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants ( ByLaws ) 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 ByLaws and the IESBA Code. 12

15 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 Review & Report but does not include the financial statements of the Fund and our auditors report thereon. Our opinion on the financial statements of the Fund does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements of the Fund, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements of the Fund or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Manager for the financial statements The Manager of the Fund is responsible for the preparation of the financial statements of the Fund that give a true and fair view in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards. The Manager is also responsible for such internal control as the Manager determine is necessary to enable the preparation of financial statements of the Fund that are free from material misstatement, whether due to fraud or error. In preparing the financial statements of the Fund, the Manager is responsible for assessing the Fund s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Manager either intend to liquidate the Fund or have no realistic alternative but to do so. 13

16 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 judgment and maintain professional scepticism throughout the audit. We also: (a) 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. (b) 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. (c) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Manager. 14

17 (d) 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. (e) 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. 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 unitholders 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 21 August

18 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 30 JUNE note RM RM INVESTMENT INCOME/(LOSS) Interest income 4 227, ,223 Dividend income 4,598,600 3,540,884 Net gain/(loss) on financial assets at fair value through profit or loss ( FVTPL ) 10 25,664,061 (5,202,355) Net loss on derivatives 11 (657,675) (1,212,331) Net foreign currency exchange gain 639,052 1,042,396 30,471,686 (1,526,183) EXPENDITURE Management fee 5 (2,380,467) (2,375,971) Trustee s fee 6 (95,219) (95,039) Auditors remuneration (8,800) (8,800) Tax agent s fee (3,950) (2,950) Custodian fees (21,015) (14,386) Transaction costs (1,448,212) (2,002,493) Other expenses (299,964) (315,494) (4,257,627) (4,815,133) PROFIT/(LOSS) BEFORE TAXATIon 26,214,059 (6,341,316) Taxation 7 (63,603) (136,143) PROFIT/(LOSS) AFTER TAXATION AND TOTAL COMPREHENSIVE INCOME/(LOSS) FOR THE FINANCIAL YEAR 26,150,456 (6,477,459) Profit/(loss) after taxation is made up as follows: Realised amount 17,149,196 (11,305,029) Unrealised amount 9,001,260 4,827,570 26,150,456 (6,477,459) Distributions for the financial year: Net distributions 8 18,638,423 6,933,602 Net distributions per unit (sen) Gross distributions per unit (sen) The accompanying notes to the financial statements form an integral part of these financial statements. 16

19 STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE note RM RM ASSETS Cash and cash equivalents 9 11,323,174 21,665,596 Financial assets at fair value through profit or loss ( FVTPL ) ,929, ,649,696 Amount due from brokers/dealers 8,920,674 6,516,177 Amount due from the Manager creation of units 950 Derivatives ,138 Dividends receivable 432, ,020 Tax recoverable 55, ,922 TOTAL ASSETS 167,663, ,278,549 LIABILITIES Amount due to brokers/dealers 2,341,798 Amount due to the Manager cancellation of units 28,772 93,818 Amount due to the Manager management fee 205, ,982 Amount due to the Trustee 8,226 7,479 Derivatives 11 83,917 Amount due to the Managerexpenses 720 Distribution payable 179,597 Other payables and accruals 30,146 26,948 TOTAL LIABILITIES 536,305 2,657,745 NET ASSET VALUE OF THE Fund 167,126, ,620,804 EQUITY Unitholders capital 71,819,117 64,825,237 Retained earnings 95,307,600 87,795,567 NET ASSETS ATTRIBUTABLE TO UNITHOLDERS 167,126, ,620,804 UNITS IN CIRCULATION (UNITS) ,713, ,228,795 NET ASSET VALUE PER UNIT (RM) The accompanying notes to the financial statements form an integral part of these financial statements. 17

20 STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 30 JUNE 2017 unitholders Retained capital earnings Total note RM RM RM Balance as at 1 July ,825,237 87,795, ,620,804 Movement in net asset value: Creation of units from applications 8,728,769 8,728,769 Creation of units from distributions 16,253,079 16,253,079 Cancellation of units (17,987,968) (17,987,968) Total comprehensive income for the financial year 26,150,456 26,150,456 Distributions for the financial year 8 (18,638,423) (18,638,423) Balance as at 30 June ,819,117 95,307, ,126,717 Balance as at 1 July ,736, ,206, ,943,434 Movement in net asset value: Creation of units from applications 1,828,427 1,828,427 Creation of units from distribution 6,073,389 6,073,389 Cancellation of units (10,813,385) (10,813,385) Total comprehensive loss for the financial year (6,477,459) (6,477,459) Distribution for the financial year 8 (6,933,602) (6,933,602) Balance as at 30 June ,825,237 87,795, ,620,804 The accompanying notes to the financial statements form an integral part of these financial statements. 18

21 STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 30 JUNE note RM rm CASH FLOWS FROM OPERATING ACTIVITIES Proceeds from sales of financial assets at FVTPL 238,483, ,859,365 Purchase of financial assets at FVTPL (238,965,834) (319,427,628) Realised loss on derivatives (437,620) (1,593,028) Realised foreign exchange differences arising from operating activities 437,627 1,384,410 Interest received 227, ,223 Dividends received 3,969,605 3,769,077 Management fee paid (2,361,802) (2,402,263) Trustee s fee paid (94,472) (96,091) Payment for other fees and expenses (331,251) (351,552) Tax refund 66,492 Net cash generated from operating activities 993,830 10,447,513 CASH FLOWS FROM FINANCING ACTIVITIES Cash proceeds from units created 24,980,898 7,901,816 Payments for cancellation of units (18,053,014) (10,854,891) Distributions paid (18,458,826) (6,933,602) Net cash used in financing activities (11,530,942) (9,886,677) NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (10,537,112) 560,836 EFFECTS OF FOREIGN EXCHANGE RATE CHANGES 194,690 (339,838) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE FINANCIAL Year 21,665,596 21,444,598 CASH AND CASH EQUIVALENTS AT end OF THE FINANCIAL YEAR 9 11,323,174 21,665,596 The accompanying notes to the financial statements form an integral part of these financial statements. 19

22 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE THE FUND, THE MANAGER AND THEIR PRINCIPAL ACTIVITIES ( the Fund ) was constituted pursuant to the execution of a Deed dated 23 August 1995 and Supplemental Deeds dated 12 November 1998, 11 April 2001, 6 October 2003, 2 June 2009 and 30 April 2010 between the Manager, Hong Leong Asset Management Bhd, PB Trustee Services Berhad and the registered unitholders of the Fund. PB Trustee Services Berhad has been replaced with Deutsche Trustees Malaysia Berhad ( the Trustee ) effective 1 September 2012 and Supplemental Master Deeds were entered into between the Manager, the Trustee and the registered unitholders of the Fund on 27 July 2012 and 25 March 2015 to effect the change ( the Deeds ). The Fund aims to provide unitholders with an attractive level of regular income and capital gain on the value of units at an acceptable risk. The Fund will invest primarily in equity securities of growth companies operating in Malaysia, and to a lesser extent in foreign markets. Generally, companies that exhibit high probability of achieving above market and/or industry growth rate; that operate within a high growth sector; that have a professional and capable management team with proven ability to achieve sustainable growth; and that have a viable and scalable business model with products that continue to meet market needs are selected. The Fund commenced operations on 8 September 1995 and will continue its operations until terminated as provided under Part 12 of the Deed. The Manager of the Fund is Hong Leong Asset Management Bhd, a company incorporated in Malaysia. The principal activity of the Manager is the management of unit trust funds and private investment mandates. Its holding company is Hong Leong Capital Berhad, a company incorporated in Malaysia and listed on the Main Market of Bursa Malaysia Securities Berhad. The financial statements were authorised for issue by the Manager on 21 August

23 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the financial statements: (a) Basis of preparation The financial statements have been prepared in accordance with the 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 the financial assets and financial liabilities (including derivative financial instruments) 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 revenue 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. The Manager believes that the underlying assumptions are appropriate and the Fund s financial statements therefore present the financial position results fairly. Although these estimates and judgment are based on the Manager s best knowledge of current events and actions, actual results may differ. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 2(m). 21

24 The Fund has applied the relevant new accounting standards, amendments and improvements to published standards and interpretations to existing accounting standards that are effective 1 January 2016 are as follows: Amendments to MFRS 101 Presentation of financial statements Disclosure initiative Annual Improvements to MFRS Cycle The adoption of these amendments did not have any impact on the current period or any prior period and is not likely to affect future years. The standards, amendments to published standards and interpretations to existing standards that are applicable to the Fund but not yet effective and have not been early adopted are as follows: 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. MFRS 9 Financial Instruments (effective from 1 January 2018) will replace MFRS 139 Financial Instruments: Recognition and Measurement. MFRS 9 retains but simplifies the mixed measurement model in MFRS 139 and establishes three primary measurement categories for financial assets: amortised cost, fair value through profit or loss and fair value through other comprehensive income ( OCI ). The basis of classification depends on the entity s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are always measured at fair value through profit or loss with an irrevocable option at inception to present changes in fair value in OCI (provided the instrument is not held for trading). A debt instrument is measured at amortised 22

25 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 other comprehensive income rather than the income statement, unless this creates an accounting mismatch. MFRS 9 introduces an expected credit losses model on impairment that replaces the incurred loss impairment model used in MFRS 139. The expected credit losses model is forwardlooking and eliminates the need for a trigger event to have occurred before credit losses are recognised. MFRS 15 Revenue from Contracts with Customers (effective from 1 January 2018) replaces MFRS 118 Revenue and MFRS 111 Construction Contracts and related interpretations. The standard deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity s contracts with customers. The core principle in MFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The Fund will apply these standards when effective. These standards are not expected to have a significant impact on the Fund s financial statements. 23

26 (b) Financial assets and financial liabilities Classification Financial assets are designated at fair value through profit or loss when their performance are managed and evaluated on a fair value basis. The Fund designates its investment in quoted equity securities, quoted collective investment schemes and quoted warrant as financial assets at fair value through profit or loss at inception. Derivatives are financial assets/liabilitites at fair value through profit or loss unless they are designated hedges (Note 2(l)). Loans and receivables are nonderivative financial assets with fixed or determinable payments that are not quoted in an active market and have been included in assets. The Fund s loans and receivables comprise cash and cash equivalents, amount due from brokers/dealers, amount due from the Managercreation of units and dividends receivable. Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. The Fund classifies amount due to brokers/dealers, amount due to the Managercancellation of units, amount due to the Managermanagement fee, amount due to the Trustee, amount due to the Managerexpenses, distribution payable and other payables and accruals as other financial liabilities. Recognition and measurement Regular purchases and sales of financial assets are recognised on the tradedate the date on which the Fund commits to purchase or sell the asset. Investments are initially recognised at fair value. Transaction costs are expensed in the statement of comprehensive income. 24

27 Financial liabilities, within the scope of MFRS 139, are recognised in the statement of financial position when, and only when, the Fund becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Fund has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognised when it is extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or expired. Unrealised gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss including the effects of currency translation are presented in the statement of comprehensive income within net gain or loss on financial assets at fair value through profit or loss in the period which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the statement of comprehensive income as part of dividend income when the Fund s right to receive payments is established. Local quoted investments are valued at the last done market prices quoted on Bursa Malaysia Securities Berhad ( Bursa Securities ) at the date of the statement of financial position. Foreign quoted investments are valued at the last traded market prices quoted on the respective foreign stock exchanges at the close of the business day of the respective foreign stock exchanges. 25

28 If a valuation based on the market price does not represent the fair value of the quoted investments, for example during abnormal market conditions or when no market price is available, including in the event of a suspension in the quotation of the quoted securities for a period exceeding 14 days, or such shorter period as agreed by the Trustee, then the quoted securities are valued as determined in good faith by the Manager, based on the methods or bases approved by the Trustee after appropriate technical consultation. Deposits with licensed financial institutions are stated at cost plus accrued interest calculated on the effective interest method over the period from the date of placement to the date of maturity of the respective deposits, which is a close estimate of their fair value due to the short term nature of the deposits. Loans and receivables and other financial liabilities are subsequently carried at amortised cost using the effective interest method. Impairment For assets carried at amortised cost, the Fund assesses at the end of the reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. 26

29 The amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. If loans and receivables has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Fund may measure impairment on the basis of an instrument s fair value using an observable market price. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor s credit rating), the reversal of the previously recognised impairment loss is recognised in statement of comprehensive income. When an asset is uncollectible, it is written off against the related allowance account. Such assets are written off after all the necessary procedures have been completed and the amount of the loss has been determined. (c) Foreign currency Functional and presentation currency Items included in the financial statements of the Fund are measured using the currency of the primary economic environment in which the Fund operates (the functional currency ). The financial statements are presented in Ringgit Malaysia ( RM ), which is the Fund s functional and presentation currency. 27

30 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 periodend exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss, except when deferred in other comprehensive income as qualifying cash flow hedges. Translation differences on nonmonetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. (d) Income recognition Dividend income is recognised on the exdividend date when the Fund s right to receive payment is established. Interest income from deposits with licensed financial institutions is recognised on the effective interest method on an accrual basis. Realised gain or loss on disposal of quoted investments is accounted for as the difference between the net disposal proceeds and the carrying amount of quoted investments, determined on a weighted average cost basis. (e) Cash and cash equivalents For the purpose of statement of cash flows, cash and cash equivalents comprise cash at banks and deposits held in highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. 28

31 (f) Amount due from/to brokers/dealers Amount due from/to brokers/dealers represents receivables/ payables for investments sold/purchased that have been contracted for but not yet settled or delivered on the statement of financial position date respectively. These amounts are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment for amount due from brokers/dealers. A provision for impairment of amount due from a broker/dealer is established when there is objective evidence that the Fund will not be able to collect all amounts due from the relevant broker/dealer. Significant financial difficulties of the broker/dealer, probability that the broker/dealer will enter bankruptcy or financial reorganisation, and default in payments are considered indicators that the amount due from brokers/dealers is impaired. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. (g) Taxation Current tax expense is determined according to Malaysian tax laws at the prevailing tax rate based on the taxable profit earned during the financial year. Tax on investment income from foreign investments is based on the tax regime of the respective countries that the Fund invests in. (h) Distributions A distribution to the Fund s unitholders is accounted for as a deduction from realised reserve. A proposed distribution is recognised as a liability in the financial year in which it is approved by the Board of Directors of the Manager. 29

32 (i) Transaction costs Transaction costs are costs incurred to acquire or dispose financial assets or liabilities at fair value through profit or loss. They include fees and commissions paid to agents, advisors and brokers/dealers. Transaction costs, when incurred, are immediately recognised in the statement of comprehensive income as expenses. (j) Unitholders capital The unitholders contributions to the Fund meet the criteria to be classified as equity instruments under MFRS 132 Financial Instruments: Presentation. Those criteria include: the units entitle the unitholder to a proportionate share of the Fund s net asset value; the units are the most subordinated class and class features are identical; there is no contractual obligations to deliver cash or another financial asset other than the obligation on the Fund to repurchase the units; and the total expected cash flows from the units over its life are based substantially on the profit or loss and change in the net asset value of the Fund. The outstanding units are carried at the redemption amount that is payable at the date of the statement of financial position if unitholder exercises the right to put the unit back to the Fund. Units are created and cancelled at prices based on the Fund s net asset value per unit at the time of creation and cancellation. The Fund s net asset value per unit is calculated by dividing the net assets attributable to unitholders with the total number of outstanding units. 30

33 (k) Segmental information Operating segments are reported in a manner consistent with the internal reporting used by the chief operating decisionmaker. The chief operating decisionmaker, 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. (l) Derivatives A derivative is any contract that gives rise to a financial asset/liability of the Fund and a financial liability/asset or equity instrument of another enterprise. A financial asset is any asset that is cash, a contractual right to receive cash or another financial asset from another enterprise, a contractual right to exchange financial instruments with another enterprise under conditions that are potentially favorable, or an equity instrument of another enterprise. A financial liability is any liability that is a contractual obligation to deliver cash or another financial asset to another enterprise, or to exchange financial instruments with another enterprise under conditions that are potentially unfavorable. The Fund s derivatives comprise unquoted forward currency contracts. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and is subsequently remeasured at their fair value. (m) Critical accounting estimates and judgments in applying accounting policies The Fund makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. To enhance the information content of the estimates, certain key variables that are anticipated to have material impact to the Funds results and financial position are tested for sensitivity to changes in the underlying parameters. 31

34 Estimates and judgments 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 Securities Commission Malaysia s Guidelines on Unit Trust Funds. However, the Manager is of the opinion that there are no accounting policies which require significant judgment to be exercised. 3. RISK MANAGEMENT OBJECTIVES AND POLICIES The Fund is exposed to a variety of risks which include market risk (inclusive of price risk, interest rate risk and currency risk), credit risk, liquidity risk and capital risk. Financial risk management is carried out through internal control process adopted by the Manager and adherence to the investment restrictions as stipulated in the prospectus. 32

35 The following table analyses the financial assets and financial liabilities of the Fund in the statement of financial position as at the reporting date: Loans and Financial receivables/ assets other financial at FVTPL liabilities Total rm rm rm 2017 Financial assets Cash and cash equivalents (Note 9) 11,323,174 11,323,174 Financial assets at FVTPL (Note 10) 146,929, ,929,943 Amount due from brokers/dealers 8,920,674 8,920,674 Amount due from the Managercreation of units Dividends receivable 432, , ,929,943 20,677, ,607,592 Financial liabilities Amount due to the Managercancellation of units 28,772 28,772 Amount due to the Managermanagement fee 205, ,647 Amount due to the Trustee 8,226 8,226 Derivatives (Note 11) 83,917 83,917 Distribution payable 179, ,597 other payables and accruals 30,146 30,146 83, , ,305 33

36 Loans and Financial receivables/ assets other financial at FVTPL liabilities Total rm rm rm 2016 Financial assets Cash and cash equivalents (Note 9) 21,665,596 21,665,596 Financial assets at FVTPL (Note 10) 126,649, ,649,696 Amount due from brokers/dealers 6,516,177 6,516,177 Derivatives (Note 11) 136, ,138 Dividends receivable 189, , ,785,834 28,370, ,156,627 Financial liabilities Amount due to brokers/dealers 2,341,798 2,341,798 Amount due to the Managercancellation of units 93,818 93,818 Amount due to the Managermanagement fee 186, ,982 Amount due to the Trustee 7,479 7,479 Amount due to the Managerexpenses other payables and accruals 26,948 26,948 2,657,745 2,657,745 All liabilities except derivatives are financial liabilities which are carried at amortised cost. 34

37 (a) Market risk (i) Price risk Price risk arises mainly from the uncertainty about future prices of investments. It represents the potential loss the Fund might suffer through holding market positions in the face of price movements. The Manager manages the risk of unfavourable changes in prices by continuous monitoring of the performance and risk profile of the investment portfolio. The price risk is managed through diversification and selection of securities and other financial instruments within specified limits according to the Deeds. The Fund s overall exposure to price risk is as follows: rm rm Financial assets at FVTPL: Quoted equity securities local 119,668, ,637,855 Quoted equity securities foreign 27,261,002 11,319,947 Quoted collective investment shemes local 6,077,942 Quoted collective investment sheme foreign 2,230,317 Quoted warrant local 383, ,929, ,649,696 Derivatives (83,917) 136, ,846, ,785,834 35