Annual Review 2014 For the Financial Year Ended 31 December 2014

Transcription

1 Annual Review 2014 For the Financial Year Ended 31 December 2014 MANULIFE INVESTMENT-LINKED FUNDS EQUITY FUND MANAGED FUND INCOME FUND DANA EKUITI DINAMIK MANULIFE FLEXI INVEST FUND MANULIFE EMERGING EASTERN EUROPE FUND MANULIFE CHINA VALUE FUND

2 ABOUT MANULIFE MALAYSIA Manulife Insurance Berhad, a wholly owned subsidiary of Manulife Holdings Berhad, is a member of Canadabased Manulife Financial Corporation. Manulife Insurance Berhad currently serves the needs of more than 290,000 policyholders. Through its subsidiary companies, the Manulife Group offers an innovative range of financial protection and wealth management products and services to meet different customer needs. Manulife Holdings Berhad has been listed on the Main Board of Bursa Malaysia since As at 31 December 2014, assets under management were over RM7.2 billion.

3 CONTENT 1. Market Commentary 2 2. Fund Performance 30 - Comparative 38 - Investment Information Summary of Financial Statement Notes to the Financial Information Statement by Manager Independent Auditors Report 77

4 MARKET COMMENTARY

5 MARKET COMMENTARY EQUITY FUND LOCAL FUNDS FUND OBJECTIVE The fund s investment objective is to provide investors with medium to long term capital appreciation by investing entirely in equities from various sectors of the Malaysian economy. Investors in this fund are able to tolerate short-term volatility. INVESTMENT REVIEW The year 2014 did not start on a positive note. Sentiment was hit by the sharp currency devaluations of several emerging markets, notably Argentina and South Africa. Global liquidity tightened as the Federal Reserve began its bond tapering, trimming its bond purchases to US$65bn per month in February from US$75bn in January. As the Index recovered, local investors focused on second and third liners. Results for the 2013 Q4, continued to disappoint. More stocks missed expectations compared to those that met. With more downgrades to earnings, consensus 2014 EPS growth was lowered to 3.8% for 2014 and 9.8% for 2015, raising the PER to 15.8x and 14.3x respectively. In the 2 nd Quarter, 2014, the market stayed within a narrow band but interest in small cap stocks persisted. The Index managed to notch new highs but gave back much of the gains. The blue chip rally which followed the announcement of stronger than expected GDP growth of 6.2% for 1Q14 failed to sustain. Market sentiment was further dampened by 1Q14 corporate results which were again uninspiring. In the 3 rd Quarter, 2014, Bank Negara Malaysia raised the Overnight Policy Rate by 25bps to 3.25% in July. 2Q14 GDP growth was released and it surprised the market at 6.5%. The market faced persistent selling pressure largely due to fears of interest rates rising following tapering of bond purchases by the Federal Reserve. The long awaited correction in FBM Small Cap Index occurred in August. In the 4 th Quarter, global markets were much more volatile after the US Federal Reserve ended its Quantitative Easing program in Oct. Markets sentiment was further hurt when oil prices collapsed to 4-year lows after the Organization of the Petroleum Exporting Countries (OPEC) unexpectedly resisted pressure to cut production at its 30 November meeting. Locally, Petronas reported net profit of RM15.1 billion for 2014 Q3, down 12.3% y-o-y. With lower crude oil prices, the national oil company expects to contribute lower revenues dividends, taxes and royalties to the government. As a result, there were concerns that development expenditures could be cut to meet the budget deficit target of 3.0% for The selling pressure intensified in Dec. The continued weakness in global oil prices, the massive floods in the East Coast of Peninsula Malaysia and the tragic plane crash of QZ8501 depressed local sentiment. In the month alone, the KLCI sank 3.28% or points to close at 1, Small caps performance was even worse with the FBM Small cap index plunging by 8.6% to 15,036. ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 3

6 MARKET COMMENTARY EQUITY FUND (CONTINUED) LOCAL FUNDS OUTLOOK Petronas reported net profit of RM15.1 billion for 2014 Q3, down 12.3% y-o-y. With lower crude oil prices, the national oil company expects to contribute lower revenues dividends, taxes and royalties to the government. Calculations show that just on taxes and royalties alone, at USD75 per barrel, government revenues from Petronas will fall from an estimated RM68 billion in 2014 to RM55 billion a shortfall of RM13 billion. This will be offset by the savings from the removal of fuel subsidies. But assuming the same dividend payout, a 20% fall in profit will reduce dividends from RM29 billion in 2014 to RM23.2 billion, which is a shortfall of RM5.8 billion. This represents 2.1% of the government budget of RM272 billion. Development expenditures could be cut to meet the budget deficit target of 3.0% for The recent results season has been one of the worst in recent memory where only 13% of stocks in CIMB Securities coverage beat forecasts while 36% missed. The revision ratio is at its lowest point since 2Q11 at 0.36x. As a result, earnings forecasts for both 2014 and 2015 have been downgraded further to -2.0% and 9.2% respectively. But as the impact of lower crude oil prices on the Oil & Gas sector is still unfolding, there will be more cuts to come. The introduction of the GST in April next year, will crimp domestic consumption providing another source of earnings downgrades. Bursa Malaysia valuations still appear elevated at PER of 15.3x and 14.0x for 2015 and 2016 respectively with corresponding EPS growth rates of 9.2% and 9.1%. If EPS growth rates are cut as expected, it does not appear that such valuations are sustainable. It is true that lower interest rates and lower risk premiums can justify higher valuations. But we will be stretching this argument a little too far if EPS growth rates fall to mid-to-low single digit levels. The market is in danger of being de-rated further. STRATEGY In terms of investment strategy, the market appears to have stabilized for now and we therefore plan to steadily increase equity exposure back up. We will however continue to position the Fund conservatively with a focus on stocks with visible earnings, high dividend yields and reasonable valuations. We are also adding stocks which will benefit from the lower oil prices and weaker Ringgit. In terms of sectors, the Fund is overweight in Telcos, F&B, Retail, Technology and Transport. ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 4

7 MARKET COMMENTARY EQUITY FUND (CONTINUED) LOCAL FUNDS TOP 5 HOLDINGS As at 31 st December 2014 TOP 5 CORE HOLDINGS Wgt% Berjaya Food Bhd 7.04% MISC Bhd - Local 6.99% AIRASIA X BHD 5.74% Tenaga Nasional Bhd 4.75% Press Metal Bhd 4.70% ASSET ALLOCATION As at 31 st December 2014 Equities : 59.09% Cash : 40.91% Total : % Trading Services - 35% Technology - 2% Plantation - 1% IPC - 5% Cash & Others - 41% Construction - 2% Consumer Products - 3% Finance - 3% Industrial Products - 8% MANAGEMENT FEE Fund management fee of 1.50% is charged to the Fund during the year. It is calculated on a daily basis based on the net asset value of the Fund. Equity Fund is underwritten by Manulife Insurance Berhad and is managed by CIMB-Principal Asset Management Berhad. This report is prepared by the managers for information purposes only. ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 5

8 MARKET COMMENTARY MANAGED FUND LOCAL FUNDS FUND OBJECTIVE The fund s investment objective is to provide investors with long term capital appreciation by investing in a range of equities, as well as enjoy the protection from a spread of fixed income securities. INVESTMENT REVIEW Equity The year 2014 did not start on a positive note. Sentiment was hit by the sharp currency devaluations of several emerging markets, notably Argentina and South Africa. Global liquidity tightened as the Federal Reserve began its bond tapering, trimming its bond purchases to US$65bn per month in February from US$75bn in January. As the Index recovered, local investors focused on second and third liners. Results for the 2013 Q4, continued to disappoint. More stocks missed expectations compared to those that met. With more downgrades to earnings, consensus 2014 EPS growth was lowered to 3.8% for 2014 and 9.8% for 2015, raising the PER to 15.8x and 14.3x respectively. In the 2 nd Quarter, 2014, the market stayed within a narrow band but interest in small cap stocks persisted. The Index managed to notch new highs but gave back much of the gains. The blue chip rally which followed the announcement of stronger than expected GDP growth of 6.2% for 1Q14 failed to sustain. Market sentiment was further dampened by 1Q14 corporate results which were again uninspiring. In the 3 rd Quarter, 2014, Bank Negara Malaysia raised the Overnight Policy Rate by 25bps to 3.25% in July. 2Q14 GDP growth was released and it surprised the market at 6.5%. The market faced persistent selling pressure largely due to fears of interest rates rising following tapering of bond purchases by the Federal Reserve. The long awaited correction in FBM Small Cap Index occurred in August. In the 4 th Quarter, global markets were much more volatile after the US Federal Reserve ended its Quantitative Easing program in Oct. Markets sentiment was further hurt when oil prices collapsed to 4-year lows after the Organization of the Petroleum Exporting Countries (OPEC) unexpectedly resisted pressure to cut production at its 30 November meeting. Locally, Petronas reported net profit of RM15.1 billion for 2014 Q3, down 12.3% y-o-y. With lower crude oil prices, the national oil company expects to contribute lower revenues dividends, taxes and royalties to the government. As a result, there were concerns that development expenditures could be cut to meet the budget deficit target of 3.0% for The selling pressure intensified in Dec. The continued weakness in global oil prices, the massive floods in the East Coast of Peninsula Malaysia and the tragic plane crash of QZ8501 depressed local sentiment. In the month alone, the KLCI sank 3.28% or points to close at 1, Small caps performance was even worse with the FBM Small cap index plunging by 8.6% to 15,036. ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 6

9 MARKET COMMENTARY MANAGED FUND (CONTINUED) LOCAL FUNDS Fixed Income In the first half of FY2014, Bank Negara Malaysia ( BNM ) kept the Overnight Policy Rate ( OPR ) at 3.00% as BNM recognizes risks of being balanced between growth and inflation. Consequently, BNM raised the OPR by 25 bps to 3.25% on 10 July, the first rate hike since May The move was widely expected after the statement made in May s MPC which indicated the possibility of a rate increase. BNM sees the hike as a normalization of monetary conditions which aims to mitigate the risk of broader economic and financial imbalances that could undermine growth prospects. BNM kept OPR at 3.25% during subsequent Monetary Policy Meetings ( MPC ) in September and November, stating that current stance of monetary policy remains supportive of growth. BNM also stated that they will need to further monitor the economic data before continuing its monetary policy. However, the language in the recent Monetary Policy Statement in November seems to be less hawkish as the central bank has turned less upbeat on its general assessment of the world economy and cautioned on the rising volatility in the international financial markets. BNM also cautioned on the increasing volatility in the international financial market amid shifts in global liquidity as well as uncertainty in global growth prospects and decline in commodity prices. Furthermore, BNM has put more weight on the need to assess external developments and their impact on Malaysian economy. BNM will further monitor the economic data and assess the external developments and their implications on the Malaysian economy before continuing its monetary policy. Separately, Malaysian Budget 2014/2015 was tabled in Parliament in October 2014 and the Government revised Malaysia s GDP growth projection upwards from % to %. Furthermore, the Government reinstated its commitment to reduce the country s fiscal deficit target to 3.0% of GDP in The Government has also further stated its commitment to rationalize its borrowings, namely committing to its self-imposed 55% of GDP debt threshold. However, the Government commented in December that it may be a challenge to achieve its targeted fiscal deficit of 3.0% of GDP for 2015 as the Government expects lower revenue from petroleum royalties, export duties and taxes as well as lower dividends from PETRONAS with the expectation that crude oil prices to remain below USD75/barrel in the near term. It was a mix picture for the Malaysian bond market in 2014 as Malaysian Government Securities yields bear flattened. The short-term MGS yield increased by 8-41bps due to the hike in OPR while the long-end decreased by 2-10bps due to higher interest from investors in search of higher yield securities. Overall, the benchmark MGS yields for 3-, 5-, 7-, 10- and 30-year ended at 3.70%, 3.85%, 4.08, 4.10%, and 4.83% respectively. On the PDS front, trading volume totalled RM114 billion during the January to December period with most of the trades centred around GGs and AA-rated corporate bonds. The average trading volume was lower in 2014 compared to 2013 as investors remained sideline due to expectation of a hike in interest rate in the first half of the year, followed by investors decision to remain sideline in lieu of the volatile sovereign market. Similarly, Corporate Bond yields bear flattened for all segments while the high-grade corporate bond yields remained fairly unchanged during the period under review. Credit spreads mostly widened across all ratings and tenures during the period except for the 3-year which tightened. At the end of the review period, credits spreads were trading lower than the 3 and 5-year average. ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 7

10 MARKET COMMENTARY MANAGED FUND (CONTINUED) LOCAL FUNDS OUTLOOK Equity Petronas reported net profit of RM15.1 billion for 2014 Q3, down 12.3% y-o-y. With lower crude oil prices, the national oil company expects to contribute lower revenues dividends, taxes and royalties to the government. Calculations show that just on taxes and royalties alone, at USD75 per barrel, government revenues from Petronas will fall from an estimated RM68 billion in 2014 to RM55 billion a shortfall of RM13 billion. This will be offset by the savings from the removal of fuel subsidies. But assuming the same dividend payout, a 20% fall in profit will reduce dividends from RM29 billion in 2014 to RM23.2 billion, which is a shortfall of RM5.8 billion. This represents 2.1% of the government budget of RM272 billion. Development expenditures could be cut to meet the budget deficit target of 3.0% for The recent results season has been one of the worst in recent memory where only 13% of stocks in CIMB Securities coverage beat forecasts while 36% missed. The revision ratio is at its lowest point since 2Q11 at 0.36x. As a result, earnings forecasts for both 2014 and 2015 have been downgraded further to -2.0% and 9.2% respectively. But as the impact of lower crude oil prices on the Oil & Gas sector is still unfolding, there will be more cuts to come. The introduction of the GST in April next year, will crimp domestic consumption providing another source of earnings downgrades. Bursa Malaysia valuations still appear elevated at PER of 15.3x and 14.0x for 2015 and 2016 respectively with corresponding EPS growth rates of 9.2% and 9.1%. If EPS growth rates are cut as expected, it does not appear that such valuations are sustainable. It is true that lower interest rates and lower risk premiums can justify higher valuations. But we will be stretching this argument a little too far if EPS growth rates fall to mid-to-low single digit levels. The market is in danger of being de-rated further. Fixed Income As we enter the new year, we expect BNM to keep the OPR unchanged at 3.25% in the near-tomid term. Recently, BNM expressed its concerns on the uneven pace of growth in the advanced economies as well as the increase in downside risks to global growth. As a result, we believe that the current monetary policy remains accommodative, against the backdrop of moderating GDP growth and higher inflation. BNM cited that domestic demand is expected to remain the key driver of growth amid slowing exports. BNM also indicated that investment activity should remain robust, but expects private consumption growth to ease off. ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 8

11 MARKET COMMENTARY MANAGED FUND (CONTINUED) LOCAL FUNDS On the inflation front, Consumer Price Index ( CPI ) has stabilized over the recent months as the impact of price adjustment on fuel and utilities moderated. However, inflation levels are expected to trend higher due to the weakening of Ringgit. Furthermore, inflation is expected to stay above its long-run average in 2015 once GST is implemented in April Separately, crude oil prices are expected to remain low for some time and may impact to the MGS/ GII market in particularly from the weaker Ringgit. Market participants also appeared jittery in response to the falling crude oil prices and the depreciation of Ringgit against the USD. As such, we expect the MGS/GII market to bear the brunt of the falling Ringgit as offshore investors looked to lighten the MGS exposure if crude oil prices continue to remain low. The MGS calendar for 2015 was recently released in December 2014 with expectation that this year s auction will see larger MGS/GII (Government Investment Issues) issuances compared with Separately, credit spreads are expected to widen slightly taking cue from the recent MGS/GII selloff. Nonetheless, we do not foresee major selloff in the domestic corporate bond market as current market liquidity is still robust. Furthermore, there could be a spill-over effect from policy rate cuts by global central bankers which may see demand for local sovereign bonds. Hence, we expect credit spreads may tighten in the medium term. STRATEGY Equity In terms of investment strategy, the equity market appears to have stabilized for now and we therefore plan to steadily increase equity exposure back up. We will however continue to position the Fund conservatively with a focus on stocks with visible earnings, high dividend yields and reasonable valuations. We are also adding stocks which will benefit from the lower oil prices and weaker Ringgit. In terms of sectors, the Fund is overweight in Telcos, F&B, Retail, Technology and Transport. Fixed Income Overall, our strategy is to stay cautious in the near term considering the unstable crude oil prices and will position the fund marginally below the benchmark duration. However, we plan to extend portfolio duration once the oil prices stabilizes. Nonetheless, we will continue to be fully invested with preference for lower rated new issues for yield enhancement and trade on longer-end higher rated corporate bond segment for better yield pickup. ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 9

12 MARKET COMMENTARY MANAGED FUND (CONTINUED) LOCAL FUNDS TOP 5 HOLDINGS As at 31 st December 2014 TOP 5 CORE EQUITY HOLDINGS Wgt% Tenaga Nasional Bhd 8.72% MISC Bhd - Local 6.94% Berjaya Food Bhd 6.58% AIRASIA X BHD 4.73% Westports Hldgs Bhd 3.48% TOP 5 CORE FIXED INCOME HOLDINGS Wgt% Sports Toto Malaysia Sdn Bhd 2.19% Bank Muamalat Malaysia 2.18% Hyundai Capital Services 2.16% Nur Power Sdn Bhd 2.15% Hong Leong Bank Bhd 2.12% ASSET ALLOCATION As at 31 st December 2014 Equities : 60.90% Fixed Income : 21.74% Cash : 17.36% Total : % Plantation - 1% IPC - 5% Industrial Products - 7% Finance - 5% Consumer Products - 2% Trading Services - 40% PDS-Conventional Bond - 11% PDS-Islamic Bonds - 11% Cash & Others - 17% Construction - 1% ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 10

13 MARKET COMMENTARY MANAGED FUND (CONTINUED) LOCAL FUNDS MANAGEMENT FEE Fund management fee of 1.35% is charged to the Fund during the year. It is calculated on a daily basis based on the net asset value of the Fund. Managed Fund is underwritten by Manulife Insurance Berhad and is managed by CIMB-Principal Asset Management Berhad. This report is prepared by the managers for information purposes only. ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 11

14 MARKET COMMENTARY INCOME FUND LOCAL FUNDS FUND OBJECTIVE The Fund s investment objective is to provide investors a steady return through accumulation of capital over the long term. It is suitable for investors seeking stability of principal and a higher return compared to bank deposits but with an acceptance risk to capital invested. INVESTMENT REVIEW Malaysian Government Securities (MGS) yield curve flattened. Short-term MGS yields rose amid expectations of hikes in Overnight Policy Rates (OPR) by Bank Negara Malaysia, with the 3-year benchmark yield up 29 bps year-on-year (y-o-y). Although yields of longer-dated MGS rose in tandem, the quantum of increase was capped by foreign buying and carry trades, in line with rallies of longer-dated USTs. That said, the MGS market weakened significantly in December 2014 following a plunge in global oil prices and sharp depreciation of MYR. Being a net oil exporting country, low oil prices poses threats to Malaysia s GDP growth as well as fiscal position. In all, yields of MGS maturing 5 years and longer increased 4 bps 18 bps y-o-y. Amid the rate hike expectations, OPR was only raised once by 25 bps in July The central bank had opted to maintain OPR in subsequent MPC meetings and tones of accompanying monetary policy outlook turned more dovish towards the end of the period under review. Despite Malaysia s strong GDP numbers in 1H 2014, (6.2% y-o-y in 1Q 2014 and 6.4% y-o-y in 2Q 2014), there are rising concerns about the impact of slowing global growth and lower oil prices on Malaysia s economy. The government s effort to consolidate fiscal position and achieve the budget target deficit of 3.5% in 2014 resulted in subsidy cuts, e.g. increase in electricity tariffs and removal of petrol subsidies. This led to higher inflation, with headline CPI number above 3.0% for most of Gross issuance of government bonds totalled RM85 billion in 2014, broadly in line with market expectation. Demand for government bonds during primary auctions was generally strong early 2014 but eased towards 4Q 2014 as MGS market softened significantly. Demand for Government Investment Issues came in higher in general, likely due to more attractive yield pickup.meanwhile, corporate bond yields increased in line with yield increases for MGS. With limited yield increases for longer term MGS, however, credit spreads widened for longer-dated bonds but remained flattish or even declined for shorter term credits. OUTLOOK One of the key areas to look out for remains the response of rating agencies and global investors to the possible deterioration of Malaysia s fiscal position. If oil price remains low for the whole of 2015, it will be challenging for Malaysia to achieve both its 2015 budget deficit target of 3.0% and GDP growth target of 5 to 5.5%. Nonetheless, we think that likelihood of sovereign rating downgrades remain low at this juncture as rating agencies typically act on long-term sustainable impact and less on cyclical market movements. Furthermore, the government has sent strong signals of commitment to improve fiscal position via the introduction of a 6.0% Goods and Service Tax (GST) in 2015 as well as the removal of government subsidies (e.g. oil and sugar subsidies). ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 12

15 MARKET COMMENTARY INCOME FUND (CONTINUED) LOCAL FUNDS Meanwhile, inflation is likely to spike in 2015 with the implementation of GST. Nevertheless, the recent implementation of a managed float fuel price scheme and expected low oil price should mitigate price pressure and cushion the overall increase in Malaysia s inflation level. At this juncture, we are expecting inflation level to hover about 3.5%-4.0% in 2015 and ease going into With inflation at a manageable level and downside risks to real GDP growth, we expect the timing of Overnight Policy Rate hike to be deferred, possibly even beyond We believe that the drastic depreciation in MYR, the sharp drop in equity prices and quick rise in bond yields were driven more by excessive fear and investors herd sentiment at this juncture. Market weaknesses were also aggravated by the year- end decline in liquidity. To this end, we are cognizant that the market could experience heightened volatility and weaknesses well into 1Q 2015, until oil price and other external factors stabilize and fundamentals prevails. In the longer term, however, the recent sell-off in MGS has improved valuations significantly. This presents pockets of investment opportunities in 2015 once the market has stabilized and found its footing. STRATEGY Going forward, our strategy for the Fund is to maintain a neutral duration position, favour investment grade corporate bonds for better yield pick up and opportunistic trades arising from the volatile market. PORTFOLIO STATEMENT Net Book Value Market Value % on Securities (RM) (RM) Net Asset Value Corporate Bonds - Unquoted & Unsecured 18,830, ,700, % Government Guaranteed Bonds 2,707, ,646, % Total 21,538, ,346, % TOP 5 BOND HOLDINGS As at 31 st December 2014 Coupon Holdings Maturity Wgt% 8.65% Jimah Energy Ventures Sdn Bhd 10/11/ % 5.30% GB Services Bhd 08/11/ % 5.70% Bank Pembangunan Malaysia Bhd 25/04/ % 4.62% Malaysia Government Bond (ML140003) 17/07/ % 4.90% UEM Sunrise Bhd 30/06/ % ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 13

16 MARKET COMMENTARY INCOME FUND (CONTINUED) LOCAL FUNDS ASSET ALLOCATION As at 31 st December 2014 Cash & Deposits : 3.44% Bonds : 96.56% Total : % Cash & Deposits % Bonds % MANAGEMENT FEE Fund management fee of 0.75% is charged to the Fund during the year. It is calculated on a daily basis based on the net asset value of the Fund. Income Fund is underwritten by Manulife Insurance Berhad and is managed by the Manulife Asset Management Services Berhad. This report is prepared by the managers for information purposes only. ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 14

17 MARKET COMMENTARY DANA EKUITI DINAMIK LOCAL FUNDS FUND OBJECTIVE Dana Ekuiti Dinamik s investment objective is to seek to maximize medium to long term capital appreciation by investing in Shariah compliant equity and equity-related securities listed on Bursa Malaysia. INVESTMENT REVIEW The year 2014 did not start on a positive note. Sentiment was hit by the sharp currency devaluations of several emerging markets, notably Argentina and South Africa. Global liquidity tightened as the Federal Reserve began its bond tapering, trimming its bond purchases to US$65bn per month in February from US$75bn in January. As the Index recovered, local investors focused on second and third liners. Results for the 2013 Q4, continued to disappoint. More stocks missed expectations compared to those that met. With more downgrades to earnings, consensus 2014 EPS growth was lowered to 3.8% for 2014 and 9.8% for 2015, raising the PER to 15.8x and 14.3x respectively. In the 2 nd Quarter, 2014, the market stayed within a narrow band but interest in small cap stocks persisted. The Index managed to notch new highs but gave back much of the gains. The blue chip rally which followed the announcement of stronger than expected GDP growth of 6.2% for 1Q14 failed to sustain. Market sentiment was further dampened by 1Q14 corporate results which were again uninspiring. In the 3 rd Quarter, 2014, Bank Negara Malaysia raised the Overnight Policy Rate by 25bps to 3.25% in July. 2Q14 GDP growth was released and it surprised the market at 6.5%. The market faced persistent selling pressure largely due to fears of interest rates rising following tapering of bond purchases by the Federal Reserve. The long awaited correction in FBM Small Cap Index occurred in August. In the 4 th Quarter, global markets were much more volatile after the US Federal Reserve ended its Quantitative Easing program in Oct. Markets sentiment was further hurt when oil prices collapsed to 4-year lows after the Organization of the Petroleum Exporting Countries (OPEC) unexpectedly resisted pressure to cut production at its 30 November meeting. Locally, Petronas reported net profit of RM15.1 billion for 2014 Q3, down 12.3% y-o-y. With lower crude oil prices, the national oil company expects to contribute lower revenues dividends, taxes and royalties to the government. As a result, there were concerns that development expenditures could be cut to meet the budget deficit target of 3.0% for The selling pressure intensified in Dec. The continued weakness in global oil prices, the massive floods in the East Coast of Peninsula Malaysia and the tragic plane crash of QZ8501 depressed local sentiment. In the month alone, the KLCI sank 3.28% or points to close at 1, Small caps performance was even worse with the FBM Small cap index plunging by 8.6% to 15,036. ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 15

18 MARKET COMMENTARY DANA EKUITI DINAMIK (CONTINUED) LOCAL FUNDS OUTLOOK Petronas reported net profit of RM15.1 billion for 2014 Q3, down 12.3% y-o-y. With lower crude oil prices, the national oil company expects to contribute lower revenues dividends, taxes and royalties to the government. Calculations show that just on taxes and royalties alone, at USD75 per barrel, government revenues from Petronas will fall from an estimated RM68 billion in 2014 to RM55 billion a shortfall of RM13 billion. This will be offset by the savings from the removal of fuel subsidies. But assuming the same dividend payout, a 20% fall in profit will reduce dividends from RM29 billion in 2014 to RM23.2 billion, which is a shortfall of RM5.8 billion. This represents 2.1% of the government budget of RM272 billion. Development expenditures could be cut to meet the budget deficit target of 3.0% for The recent results season has been one of the worst in recent memory where only 13% of stocks in CIMB Securities coverage beat forecasts while 36% missed. The revision ratio is at its lowest point since 2Q11 at 0.36x. As a result, earnings forecasts for both 2014 and 2015 have been downgraded further to -2.0% and 9.2% respectively. But as the impact of lower crude oil prices on the Oil & Gas sector is still unfolding, there will be more cuts to come. The introduction of the GST in April next year, will crimp domestic consumption providing another source of earnings downgrades. Bursa Malaysia valuations still appear elevated at PER of 15.3x and 14.0x for 2015 and 2016 respectively with corresponding EPS growth rates of 9.2% and 9.1%. If EPS growth rates are cut as expected, it does not appear that such valuations are sustainable. It is true that lower interest rates and lower risk premiums can justify higher valuations. But we will be stretching this argument a little too far if EPS growth rates fall to mid-to-low single digit levels. The market is in danger of being de-rated further. STRATEGY In terms of investment strategy, the market appears to have stabilized for now and we therefore plan to steadily increase equity exposure back up. We will however continue to position the Fund conservatively with a focus on stocks with visible earnings, high dividend yields and reasonable valuations. We are also adding stocks which will benefit from the lower oil prices and weaker Ringgit. In terms of sectors, the Fund is overweight in Telcos, F&B, Retail, Technology and Transport. TOP 5 HOLDINGS As at 31 st December 2014 Wgt% Tenaga Nasional Bhd 9.09% MISC Bhd - Local 8.96% Westports Hldgs Bhd 6.19% Cahya Mata Sarawak Berhad 6.19% Maxis Bhd 6.07% ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 16

19 MARKET COMMENTARY DANA EKUITI DINAMIK (CONTINUED) LOCAL FUNDS ASSET ALLOCATION As at 31 st December 2014 Equities : 81.71% Cash : 18.29% Total : % Technology - 1.2% Properties - 5.1% Plantations - 1.6% IPC - 7.5% Industrial - 7.0% Trading Services % Cash % Construction - 2.5% Consumer - 5.1% Finance - 2.3% MANAGEMENT FEE Fund management fee of 1.50% is charged to the Fund during the year. It is calculated on a daily basis based on the net asset value of the Fund. Dana Ekuiti Dinamik is underwritten by Manulife Insurance Berhad and is managed by CIMB-Principal Asset Management Berhad. This report is prepared by the managers for information purposes only. ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 17

20 MARKET COMMENTARY MANULIFE FLEXI INVEST FUND LOCAL FUNDS FUND OBJECTIVE Manulife Flexi Invest Fund s investment objective is to provide medium-to-long-term capital appreciation. The Fund may invest between 0-100% of the Fund s NAV in equities and equityrelated instruments and/or fixed income securities (including but not limited to money market instruments and other liquid assets.) The Fund may also invest up to 30% into foreign markets. INVESTMENT REVIEW 2014 was a tumultuous year for Malaysian equity. At the beginning of 2014, our market, along with emerging markets, experienced a poor start as the US Fed Reserve accelerated QE and China reported weak manufacturing data. Fund flow crowded back to the US, resulting in a sell-off in the emerging markets. Malaysia was no exception to this sell-off. This trend reversed quickly to an uptrend towards end of 1Q 2014, following the accommodative remarks by the Federal Reserves, strong US economic data and expectations of the Chinese Government implementing stimulus. Domestically, the encouraging 1Q2014 GDP growth of 6.2% and the stronger than expected upturn in the exports growth of 18.9% in April compared to 8.3% in March, boosted market sentiment. The positive momentum continued into the early part of second half 2014, with the benchmark index, represented by FBM KLCI reaching its record high of 1, points on 8th July, up 1.4% since Jan Not surprisingly, the smallmid cap segment, on perceived robust earnings momentum, enjoyed stronger interests from investors. FBMSC scaled up 23.2% to its peak on 19 th August Correction started progressively in the mid-3q What started off as profit-taking in the oil & gas equity names given concerns over declining oil price impacting energy-related capital spending spiraled into other non-related sectors. As oil price heads further south, foreign investors began to worry about negative impact of lower oil revenue on the country s budget deficit and balance of payment/current account positions. A poor 3 rd quarter reporting season in November added to the already weak sentiment. Panic mode set in and foreign investors sold across the board, even the blue chip names. Adding to the momentum was the pick-up in local redemptions, forcing managers to continue selling down in order to raise money. This further aggravated the negative sentiments and scared potential buyers away for fear of catching a falling knife and the percentage of market decline widened significantly. From the peak of 1, points in in July 2014, FBMKLCI tumbled a whopping 11.6% to a low of 1, points on December 16 th, Not surprising, the heavy-weighted sectors like banks, oil & gas, and plantation were the worst hit. ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 18

21 MARKET COMMENTARY MANULIFE FLEXI INVEST FUND (CONTINUED) LOCAL FUNDS By year end of 2014, the Malaysian equity turned out to be the worst performing market in the Asian space, clocking a decline of 5.7% y-o-y as seen in the FBM KLCI performance. Benchmark, FBM 100 Index is down 6.2% y-o-y. MYR weakened significantly, almost 10% in a short span, from RM3.15 to the US$ in late August to RM at the end of the year. OUTLOOK One of the key areas to look out for remains the response of rating agencies and global investors to the possible deterioration of Malaysia s fiscal position. If oil price remains low for the whole of 2015, it will be challenging for Malaysia to achieve both its 2015 budget deficit target of 3.0% and GDP growth target of 5 to 5.5%. Nonetheless, we think that likelihood of sovereign rating downgrades remain low at this juncture as rating agencies typically act on long-term sustainable impact and less on cyclical market movements. Furthermore, the government has sent strong signals of commitment to improve fiscal position via the introduction of a 6.0% Goods and Service Tax (GST) in 2015 as well as the removal of government subsidies (e.g. oil and sugar subsidies). Meanwhile, inflation is likely to spike in 2015 with the implementation of GST. Nevertheless, the recent implementation of a managed float fuel price scheme and expected low oil price should mitigate price pressure and cushion the overall increase in Malaysia s inflation level. At this juncture, we are expecting inflation level to hover about 3.5%-4.0% in 2015 and ease going into With inflation at a manageable level and downside risks to real GDP growth in 2015, we expect the timing of Overnight Policy Rate hike to be deferred, possibly even beyond While the recent plunge in MYR evoked fears of another 1998 Financial Crisis, Malaysia is in a much better condition fundamentally to withstand the external shocks today. Firstly, Malaysia s foreign exchange reserves is much higher now compared to the period leading to the Asian Financial Crisis (Nov 2014: USD124 bn vs USD25 bn in 1998), providing cushion against further deterioration in currency. Corporate leverage is also reduced now, with debts mostly denominated in local currencies, thus reducing currency mismatches. We are cognizant that the market could experience heightened volatility and weaknesses well into 1Q 2015, until oil price and other external factors stabilize and fundamentals prevails. Weak crude oil prices that curtail the federal government s fiscal stimulus programmes, rising domestic inflation with the implementation of the 6% GST in April 2015, and weaker Ringgit remain major challenges. ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 19

22 MARKET COMMENTARY MANULIFE FLEXI INVEST FUND (CONTINUED) LOCAL FUNDS STRATEGY In a market condition that is driven by excessive fears, we will remain disciplined in our focus on fundamentals quality and consistency. With the sharp drop in share prices, market valuations are increasingly more palatable and we start to see values emerging. This provides a rare opportunity to capitalize on large valuation gaps; companies where fundamentals continue to remain intact but share prices collapsed regardless. That said, we expect 2015 s market return to be driven by bottom-up earnings deliverance than multiples expansion. With that in mind, we will be looking to maximize portfolio return via leveraging on the following strategies: - Invest mainly in large mid-caps with selective small cap exposure to provide performance kicker; - Capitalize on various trend such as lower energy and commodity prices beneficiaries; USD strength winners, Japanese QE beneficiaries; Infrastructure development railways, power plants etc; Technology & Internet of Things revolution; - Overlay the portfolio with stabilizers such as growth and income stocks. These stocks are likely to benefit in current benign interest rate environment given their relatively steady payout and yet have strong growth elements over the next 2-3 years to provide capital appreciation. We are also monitoring the risk to the markets: - Oil Price further decline or sustain at low levels for a prolonged period - Economic recovery outside of US continue to weaken - Drastic currency movements TOP 5 HOLDINGS As at 31 st December 2014 TOP 5 EQUITY HOLDING Wgt% PESTECH International Bhd 3.88% Hong Leong Bank Bhd 3.72% Berjaya Auto Bhd 3.49% MISC Bhd 3.15% Sunway Bhd 3.06% ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 20

23 MARKET COMMENTARY MANULIFE FLEXI INVEST FUND (CONTINUED) LOCAL FUNDS ASSET ALLOCATION As at 31 st December 2014 Equities : 85.75% Cash : 14.25% Total : % Trading/Services % Technology % Properties % Plantations % Infrastructure % Cash & Deposits % Constructions % Consumer Products % Finance % Foreign % Industrial Products % MANAGEMENT FEE Fund management fee of 1.50% is charged to the Fund during the year. It is calculated on a daily basis based on the net asset value of the Fund. Manulife Flexi Invest Fund is underwritten by Manulife Insurance Berhad and is managed by the Manulife Asset Management Services Berhad. This report is prepared by the managers for information purposes only. ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 21

24 MARKET COMMENTARY MANULIFE EMERGING EASTERN EUROPE FUND FOREIGN FUNDS FUND OBJECTIVE Manulife Emerging Eastern Europe Fund aims to achieve capital growth through investment, primarily in securities listed or traded on the stock exchanges of Central and Eastern European countries. It is intended that the Fund will concentrate on securities traded on stock exchanges in the Czech Republic, Hungary, Poland, Slovakia and Russia whilst such securities may also be listed in other exchanges as depository receipts or certificates, or in other forms of instruments. However, the Fund will seek to broaden its participation in other markets within the region as they develop. Manulife Emerging Eastern Europe Fund is a feeder fund that invests in Manulife Global Fund-Emerging Eastern Europe A Share. PORTFOLIO REVIEW Against a challenging market backdrop, the sub-fund returned a disappointing performance in 2014 as share prices fell heavily in most markets, especially Russia. The sub-fund underperformed underlying markets, largely as a result of its stock selection in Russia. As the Russian stockmarket lost close to 50% of its value in US dollar terms, almost exclusively over the second half of the period under review, off-benchmark holdings in such otherwise robust and well-run companies as the power generator E.ON Russia and the pipeline group TMK were responsible for much of the underperformance. An off-benchmark holding in the airline Aeroflot also had a marked negative impact on relative performance as its share price fell almost 80%, with the benefits of cheaper aviation fuel more than wiped out by the impact of the weaker rouble. Such quality companies were widely held by international investors and their share prices suffered disproportionately as some investment funds abandoned Russia on risk grounds as the rouble fell sharply. Where significant Russian companies were not held in the portfolio, this added relative value. Foremost amongst these was the gas exporter and national energy champion Gazprom, which was divested during 2014; the stockmarket value of this company fell by close to 50% over the year. The portfolio s position in the leading Russian bank Sberbank was also pared back significantly, though some exposure has been retained. Those companies held in the portfolio that added most value over the period under review came largely from Turkey, the only market to end the year in positive territory. Overweight or off-benchmark positions in the development bank TSKB, the car group Tofas and the airports operator TAV were particularly beneficial. All recorded share price gains over the period. Over the course of 2014 the portfolio s exposure to Russia was reduced from a significant overweight position to a neutral position. This was balanced by a move to an overweight position in Turkey as well as by the introduction of a neutral exposure to Greece, which was reclassified as an emerging market, and therefore became part of the sub-fund s benchmark index, late in At the sector level, an overweight exposure to energy became an underweight whilst an underweight exposure to financials was turned into an overweight exposure. At the same time, the significant overweight position in industrials was reduced somewhat. ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 22

25 MARKET COMMENTARY FOREIGN FUNDS MANULIFE EMERGING EASTERN EUROPE FUND (CONTINUED) Significant changes at the stock level, in addition to those already mentioned in Russia, included the divestment of the Polish insurance group PZU in favour of an increased weighting in the bank PKO Bank Polski, on valuation grounds. The latter is the least expensive Polish bank and the one most likely to gain from higher interest rates, given the structure of its balance sheet. MARKET PORTFOLIO The emerging markets of eastern Europe endured a volatile 2014, with share prices falling heavily over the second half of the year. This decline was led by Russia with other markets, although weaker, showing greater resilience. Turkey was the only market across the region to generate a positive performance over the year as a whole. The particularly weak performance of the Russian stockmarket was due to a number of factors. A series of sanctions imposed by the West in the wake of Russia s perceived involvement in the conflict in Ukraine and the arrest of the owner of the Russian holding company Sistema, which served to highlight governance concerns and the tendency of the Kremlin to become involved at a personal level in corporate affairs, were undoubted negatives. But these were however overshadowed by the fall in the oil price, which gathered pace towards the end of the year after OPEC refused to cut back on production. The Russian economy is heavily dependent upon oil revenues and runs a budget deficit with oil below around USD 100 a barrel. Although the country has strong reserves, the value of the rouble was marked down aggressively in line with the oil price, prompting significant central bank intervention in the foreign exchange market as well as an emergency interest rate hike. These developments are also likely to have a marked impact on economic activity, with GDP now forecast to contract by as much as 5% in What is bad for Russia is however often good for Turkey and share prices on the Borsa Istanbul held up relatively well as a lower oil price will put downward pressure on inflation, helping the central bank to loosen monetary policy, and putting more money into the pockets of consumers. A narrowing of the current account deficit is a further positive for share prices. On the political front, the ruling Justice and Development Party, or AKP, secured a convincing victory in local elections held in March whilst prime minister Recep Tayyip Erdogan became Turkey s first directly elected president in August, putting a line under the graft investigation that had embroiled his closest circle at the beginning of the year, with the market reacting positively despite some concern for his increasingly autocratic style. The AKP under Erdogan has been largely credited with a benign period of economic growth and prosperity that has seen share prices reach record highs. In Poland, the end of the pension fund transfer process saw many more savers than expected elect to stay in the private system, relieving some of the downward pressure on the stockmarket, which had feared that a wholesale exodus to the new state system could prompt significant selling of equities. ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 23

26 MARKET COMMENTARY FOREIGN FUNDS MANULIFE EMERGING EASTERN EUROPE FUND (CONTINUED) MARKET OUTLOOK The regional focus across emerging European markets remains firmly on Russia, where the combination of a sharply lower oil price and ongoing sanctions arising from the countries involvement in Ukraine have sent the rouble and financial markets tumbling. Here, although the market is likely to remain volatile over the short term, the rouble will eventually find a level that is commensurate with a lower oil price. This should provide some clarity on economic activity over the coming year with a wide range of current forecasts for the extent of the decline of GDP for 2015 clearly having an impact on corporate earnings. It remains too early to assess the position of individual companies as the situation remains fluid. However, some very attractive valuations are beginning to emerge. The victory of the anti-austerity Syriza party in the January Greek election, if not quite leading to the immediate breakup of the euro as some had feared, certainly brings with it a period of uncertainty and perhaps instability as the new Greek government negotiates with the European Union, European Central Bank and the International Monetary Fund for some relief from the terms of its bailout, thereby bringing to an end four bleak years of austerity. This will most likely impact not only the Greek holdings in the portfolio but also holdings in other countries such as Poland that may depend to some extent upon the strength of economic activity across the European Union, their main export market. In contrast to these concerns, the Turkish economy should continue to do well, as lower oil prices put downward pressure on inflation, making it easier for the central bank to loosen monetary policy. This should help to narrow the current account deficit, as well as boosting the disposable incomes of consumers; both positive developments for share prices. General elections are scheduled for June 2015, with the ruling AK Party looking to secure an increased majority, sufficient to enable changes to the constitution giving increased executive powers to the president. Although current opinion polls suggest that the status quo will be preserved, heightened political uncertainty could see renewed market volatility. TOP 5 HOLDINGS As at 31 st December 2014 Wgt% LUKOIL 9.20% Garanti Bank 5.30% Sberbank 5.10% Surgutneftegas 5.00% PKO Bank Polski 5.00% ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 24

27 MARKET COMMENTARY FOREIGN FUNDS MANULIFE EMERGING EASTERN EUROPE FUND (CONTINUED) ASSET ALLOCATION As at 31 st December 2014 Sector Exposure Telecoms - 3.1% IT - 2.3% Financials % Con Staples - 9.3% Utilities - 1.7% Cash - 1.9% Energy % Materials - 4.0% Industrials - 6.4% Con Discretionary - 7.5% Geographic Exposure Cash - 1.9% Turkmenistan - 2.7% Turkey % Russia % Albanaia - 1.2% Czech Republic - 1.8% Greece - 5.8% Hungary - 1.2% Kazakhstan - 3.2% Poland % Romania - 2.6% MANAGEMENT FEE Fund management fee of 1.50% is charged to the Fund during the year. It is calculated on a daily basis based on the net asset value of the Fund. Manulife Emerging Eastern Europe Fund is a feeder fund which feeds into the Manulife Global Fund- Emerging Eastern Europe Fund A Share (MGF-EEEF). The investment reviews are on MGF-EEEF. Manulife Emerging Eastern Europe Fund is managed by Manulife Asset Management Services Berhad while MGF-EEEF is managed by Charlemagne Capital (UK) Limited. This report is prepared by the managers for information purposes only. ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 25

28 MARKET COMMENTARY MANULIFE CHINA VALUE FUND FOREIGN FUNDS FUND OBJECTIVE Manulife China Value Fund aims to achieve long-term capital growth through investment, primarily in companies with substantial business interests in the Greater China Region (which includes People s Republic of China, Hong Kong and Taiwan) which are listed on stock exchanges of Shanghai, Shenzhen, Hong Kong, Taipei or other overseas exchanges and which are currently under-valued but may have long term potential. Manulife China Value Fund is a feeder fund that invests in Manulife Global Fund-China Value Fund A Share. PORTFOLIO REVIEW In 2014, the sub-fund made a net gain of 6.8%. For reference, the FTSE Greater China Index increased by 7.5% over the same period. Sector-wise, financials, technology and health care contributed most to the sub-fund s performance in Geographically speaking, the Chinese market was the top contributor in the region during the review period. For macro positioning, the portfolio manager had taken a more proactive stance in the sub-fund s portfolio and maintained a low cash allocation throughout most of the year. By the end of the review period and compared with the reference index, the sub-fund remained underweight in Taiwan and overweight in China, particularly in sectors such as insurance, banking, property, health care, telecommunications and oil & gas. The sub-fund s overweight exposure to the Chinese insurance sector is in-line with the portfolio manager s positive view towards Chinese financial stocks amidst China s rate cut cycle. In the past two to three years, valuations of Chinese insurance stocks had been falling as insurers investment gains were dragged by the poor performance of stock and bond markets. Besides, the relatively higher returns offered by wealth management products also weakened the competitive advantage of insurance policies. However, amidst rate cut cycles, falling interest rates will boost bond prices and the stock market is also likely to perform well, generating better investment returns to insurance companies. At the same time, interest rate cuts will lead to a decline in the returns of wealth management products, making insurance policies more appealing and hence improving the business of insurers. In the second half of 2014, the portfolio manager had also increased the sub-fund s exposure to the Chinese banking sector which benefited from the recent monetary loosening. In terms of valuations, Chinese banks were among the cheapest in Asia or even globally. Valuations had remained low as investors were worried that Chinese banks had understated their nonperforming loan (NPL) ratios. In fact, the valuations of Chinese banks had implied an overly pessimistic NPL formation. As such, the portfolio manager thought that this had fully priced in the risks. Additionally, more targeted monetary loosening as well as potential reserve requirement ratio (RRR) cuts by the People s Bank of China (PBoC), if any, may provide support to drive loan growth higher and benefit the Chinese banking sector. ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 26

29 MARKET COMMENTARY MANULIFE CHINA VALUE FUND (CONTINUED) FOREIGN FUNDS Meanwhile, the sub-fund s exposure to the health care sector is reflective of the portfolio manager s positive view towards China s health care sector. As China is increasingly focusing on the quality of growth, the portfolio manager remains confident that the healthcare sector will continue to grow at 1.5 to 2 times the GDP growth rate as it did in the past, benefiting drug and medical equipment manufacturers. The sub-fund s positions in the healthcare sector had continued to do well in 2014 and made contributions to portfolio return. On the policy front, the portfolio manager had positioned the portfolio with the third plenary session in mind by making a number of investments in the oil & gas sector. The investments reflected a participation in China s reforms that had been occurring both in the energy sector, as well as for China s state-owned enterprises (SOEs) in general. MARKET REVIEW The Greater China equity market recorded modest gains amid volatility in Within the region, the Hong Kong and Taiwanese markets delivered positive returns but underperformed the Chinese equity market which saw a strong rally towards the end of the year on monetary loosening by the Chinese government. The first half of 2014 had been a volatile time for Chinese stocks. A new round of weak economic data had compounded the otherwise cautious sentiment towards equity markets. Combined with concerns still over financial and property risks, Chinese stockmarkets slumped in the first quarter. Nevertheless, the Chinese equity markets finished the second quarter on a positive note as stocks continued to rebound from the first quarter. Macro data out of China had been mixed but there were some signs of potential green shoots. In addition, relaxation in policies and reforms by the Chinese government had all led to actions that had had an impact. At the beginning of the third quarter, the Chinese stockmarket continued its upward momentum from the first half of 2014 on the back of various positive economic data. After a temporary correction in September, market sentiment turned more positive again in October when the property sector in China started to see some early signs of recovery following a series of loosening measures by the Chinese government. In November, the widely anticipated Shanghai-Hong Kong Stock Connect finally went live. Investment flows had been active northbound, but southbound flows had been relatively muted. Before the end of the month, the PBoC surprised the market by announcing a cut in interest rates on 21 November, two years after its last rate cut in July As a result of the surprising rate cut and expectation of further monetary easing by the Chinese government, the Chinese equity market continued its upward trend in December and finished 2014 on a high. ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 27

30 MARKET COMMENTARY MANULIFE CHINA VALUE FUND (CONTINUED) FOREIGN FUNDS MARKET OUTLOOK As US economy is gradually picking up and both Europe and Japan are continuing with their quantitative easing policies, investors can be optimistic about an accommodative global monetary environment. Meanwhile, China continues to speed up the pace of reform and this may also improve its long-term economic growth outlook. As the era of rapid economic growth has passed, many people are worried that factors that supported China s growth momentum, such as exports, low wages and production costs, may be difficult to be sustained going forward. However, the portfolio manager believes China can maintain economic growth in the next few years through continuous reforms. The portfolio manager believes China s GDP will likely grow by at least 7% in 2015 after expanding by an estimated 7.3% to 7.4% in Firstly, the rate cuts and targeted loosening in recent months did show that the Chinese government has a bottom line for growth. Secondly, while the recent monetary loosening and expansionary fiscal policies will help China avoid the risk of hard landing, the early-stage recovery of China s physical property may also prevent fixed asset investment (FAI) growth from a further slowdown. Last but not least, China is undergoing reforms that are of great importance. Although such reforms may have a short-term impact on the economy, they may help to sustain quality growth in the long run and present investment opportunities in different sectors. As the Chinese government continued to roll out reform measures and started cutting interest rates, these will likely be important factors determining the performance of China s economy and stockmarkets for The portfolio manager believes the interest rate cut will strengthen investor confidence about China s ability in keeping economic growth at 7% or above, thereby reversing the de-ratings of Mainland stocks, particularly old economy stocks, over the past year. TOP 5 HOLDINGS As at 31 st December 2014 Wgt% Chongqing Changan Automobile 6.40% Taiwan Semiconductor Manufacturing 5.80% China Vanke 4.60% New China Life Insurance 3.70% CGN Power 3.40% ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 28

31 MARKET COMMENTARY MANULIFE CHINA VALUE FUND (CONTINUED) FOREIGN FUNDS ASSET ALLOCATION As at 31 st December 2014 Sector Exposure Others % Insurance % Technology % Oil & Gas % Consumer Goods % Liquidity (Cash) % Other Financials % Consumer Services % HealthCare % Telecommunications % Real Estate Inv. Service % Industrials % Utilities % Banks % Geographic Exposure Others % H Shares % Taiwan % Cash % China B Shares % Red Chips % Hong Kong % MANAGEMENT FEE Fund management fee of 1.50% is charged to the Fund during the year. It is calculated on a daily basis based on the net asset value of the Fund. Manulife China Value Fund is a feeder fund which feeds into the Manulife Global Fund - China Value Fund A Share (MGF-CVFA). The investment reviews are on MGF-CVFA. Manulife China Value Fund is managed by Manulife Asset Management Services Berhad while MGF-CVFA is managed by Value Partners Limited. This report is prepared by the managers for information purposes only. ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 29

32 FUND PERFORMANCE

33 FUND PERFORMANCE EQUITY FUND LOCAL FUNDS FUND PERFORMANCE For the year under review, the Fund out-performed the benchmark FBM100 by 4.99%; the Fund s net asset value per unit eased 1.18%, while the benchmark fell 6.17%. The tactical changes to equity exposure of the Fund to match the changing market conditions and good stocks selection contributed to the continued good performance. At year end, equity exposure was at 59%. Performance calculated as at 31 st December 2014 Since 1 mth 3 mths 6 mths YTD 14 2 yrs 3 yrs 5 yrs Inception* % % % % % % % % Equity Fund (5.34) (7.52) (6.59) (1.18) FBM100 (3.39) (5.54) (6.83) (6.17) Relative +/(-) (1.95) (1.98) The Fund s performance is calculated on NAV to NAV basis. The value of units may go down as well as up. Past performance is not indicative of future results. The fund performance is strictly the performance of the investment-linked (IL) fund and not to the gross premium/contribution of the IL insurance product. * Inception Date: 10 th July 2000 AVERAGE ANNUAL RETURN AND BENCHMARK 1 year 3 years 5 years % % % Equity Fund (1.18) FBM100 (6.17) (5.10) (10.37) Relative +/(-) ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 31

34 FUND PERFORMANCE MANAGED FUND LOCAL FUNDS FUND PERFORMANCE For the year under review, the Fund out-performed the benchmark (70% FBM % RAM QS MGS ALL) by 4.36%; the Fund s net asset value per unit rose 1.11%, while the benchmark was down 3.25%. The tactical changes to equity exposure of the Fund to match the changing market conditions and good stocks selection contributed to the continued good performance. At year end, equity exposure was at 61% while fixed income exposure stood at 22%. Performance calculated as at 31 st December 2014 Since 1 mth 3 mths 6 mths YTD 14 2 yrs 3 yrs 5 yrs Inception* % % % % % % % % Managed Fund (3.97) (5.18) (3.58) % FBM % RAM QS MGS ALL (2.63) (3.93) (4.41) (3.25) Relative +/(-) (1.34) (1.25) The Fund s performance is calculated on NAV to NAV basis. The value of units may go down as well as up. Past performance is not indicative of future results. The fund performance is strictly the performance of the investment-linked (IL) fund and not to the gross premium/contribution of the IL insurance product. * Inception Date: 10 th July 2000 AVERAGE ANNUAL RETURN AND BENCHMARK 1 year 3 years 5 years % % % Managed Fund % FBM % RAM QS MGS ALL (3.25) Relative +/(-) ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 32

35 FUND PERFORMANCE INCOME FUND LOCAL FUNDS FUND PERFORMANCE The Fund achieved an overall return for the year of 2.95% with the Net Asset Value per unit increasing from RM as at end-december 2013 to RM as at end-december Overall return since the Fund s inception in February 2002 was 63.31%. Performance calculated as at 31 st December 2014 Quarter Since 1 mth to-date 6 mths YTD 14 2 yrs 3 yrs 5 yrs Inception* % % % % % % % % Income Fund (0.04) mth MBB FD Rate* Relative +/(-) (0.32) (0.33) 0.05 (0.27) (2.31) (2.58) (2.11) 9.17 Performance calculated on published NAV to NAV basis net of management fees and expenses. The value of units may go down as well as up. Past performance is not indicative of future results. The fund performance is strictly the performance of the investment-linked (IL) fund and not to the gross premium/contribution of the IL insurance product. * Effective 1 st August 2011, fund s benchmark change from HSBC Asian Local Bond Index (Malaysia) to 12 month MBB Fixed Deposit Rate. * Inception Date: 1 st February 2002 AVERAGE ANNUAL RETURN AND BENCHMARK 1 year 3 years 5 years % % % Income Fund month MBB FD rate Relative +/(-) (0.27) (0.81) (1.66) ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 33

36 FUND PERFORMANCE DANA EKUITI DINAMIK LOCAL FUNDS FUND PERFORMANCE For the year under review, the Fund out-performed the benchmark FBMS by 4.30%; the Fund s net asset value per unit rose 0.13%, while the benchmark was down 4.17%. The tactical changes to equity exposure of the Fund to match the changing market conditions and good stocks selection contributed to the continued good performance. At year end, equity exposure was at 82%. Performance calculated as at 31 st December 2014 Since 1 mth 3 mths 6 mths YTD 14 2 yrs 3 yrs 5 yrs Inception* % % % % % % % % Dana Ekuiti Dinamik (2.93) (4.37) (7.37) FBM Emas Shariah Index (4.06) (5.15) (6.58) (4.17) Relative +/(-) (0.79) The Fund s performance is calculated on NAV to NAV basis. The value of units may go down as well as up. Past performance is not indicative of future results. The fund performance is strictly the performance of the investment-linked (IL) fund and not to the gross premium/contribution of the IL insurance product. * Inception Date: 6 th October 2003 AVERAGE ANNUAL RETURN AND BENCHMARK 1 year 3 years 5 years % % % Dana Ekuiti Dinamik FBM Emas Shariah Index (4.17) Relative +/(-) ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 34

37 FUND PERFORMANCE MANULIFE FLEXI INVEST FUND LOCAL FUNDS FUND PERFORMANCE For the period under, Manulife Flexi Invest Fund (MFIF) was up 3.74%, outperformed the benchmark (50% FBM % 12-month Maybank FD rate) s loss of 1.54%. The Fund s out-performance was mainly attributable to the overweight position in equities in the 1H of 2014 as well as good sector and stock selection strategies. Selection in industrial products, trading & services and foreign holdings contributed positively to the portfolio. Investments in Sarawak play like CMS, Berjaya Auto, Pestech also bode well for the portfolio. Underweight positions in financials and plantation helped as both sectors under-performed during the year. The positive performance was slightly negated by the positions in oil & gas towards the 2H of 2014, albeit a small impact. Performance calculated as at 31 st December 2014 Since 1 mth 3 mths 6 mths 9 mths YTD 14 2 yrs Inception* % % % % % % % Manulife Flexi Invest Fund (3.74) (8.35) (7.71) (1.75) % FBM % 12-month Maybank FD Rate (1.56) (2.39) (2.66) (1.42) (1.54) Relative +/(-) (2.18) (5.96) (5.05) (0.33) The Fund s performance is calculated on NAV to NAV basis. The value of units may go down as well as up. Past performance is not indicative of future results. The fund performance is strictly the performance of the investment-linked (IL) fund and not to the gross premium/contribution of the IL insurance product. * Inception Date: 17 th February 2012 AVERAGE ANNUAL RETURN AND BENCHMARK 1 year 3 years 5 years % % % Manulife Flexi Invest Fund % FBM % 12-mth MBB FD (1.54) Relative +/(-) 5.28 ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 35

38 FUND PERFORMANCE MANULIFE EMERGING EASTERN EUROPE FUND FOREIGN FUNDS FUND PERFORMANCE The Fund s Net Asset Value per unit decreased from RM as at end December 2013 to RM as at December Overall return since the Fund s inception was 26.56%. Performance calculated as at 31 st December 2014 Since 1 mth 3 mths 6 mths YTD 14 3 yrs 5 yrs Inception* % % % % % % % Manulife Emerging Eastern Europe Fund (11.29) (15.57) (23.83) (27.34) (6.87) (31.50) (39.47) MSCI Emerging Europe 10/40 Index (16.11) (22.60) (31.77) (35.96) (27.23) (41.25) (66.03) Relative +/(-) The Fund s performance is calculated on NAV to NAV basis. The value of units may go down as well as up. Past performance is not indicative of its future performance. The fund performance is strictly the performance of the investment-linked (IL) fund and not to the gross premium/ contribution of the IL insurance product. * Inception Date: 12 th November 2007 AVERAGE ANNUAL RETURN AND BENCHMARK 1 year 3 years 5 years % % % Manulife Emerging Eastern Fund (27.34) (2.34) (7.29) MSCI Emerging Europe 10/40 Index (35.96) (10.05) (10.09) Relative +/(-) ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 36

39 FUND PERFORMANCE MANULIFE CHINA VALUE FUND FOREIGN FUNDS FUND PERFORMANCE The Fund s Net Asset Value per unit increased from RM as at end December 2013 to RM as at end December Overall return since the Fund s inception was 7.14%. Performance calculated as at 31 st December 2014 Since 1 mth 3 mths 6 mths YTD 14 3 yrs 5 yrs Inception* % % % % % % % Manulife China Value Fund FTSE All World Greater China Index (0.52) Relative +/(-) 1.24 (0.59) (6.36) (0.63) 7.14 The Fund s performance is calculated on NAV to NAV basis. The value of units may go down as well as up. Past performance is not indicative of its future performance. The fund performance is strictly the performance of the investment-linked (IL) fund and not to the gross premium/ contribution of the IL insurance product. * Inception Date: 12 th November 2007 AVERAGE ANNUAL RETURN AND BENCHMARK 1 year 3 years 5 years % % % Manulife China Value Fund FTSE All Wld Greater China Index Relative +/(-) 0.70 (1.69) (0.11) ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 37

40 COMPARATIVE

41 COMPARATIVE LOCAL FUNDS The table below shows the performance table of the Investment-Linked Funds. EQUITY FUND RM RM RM RM RM Net Asset Value ( NAV ) 183,267, ,753, ,586,305 83,108,886 66,462,957 Number of units in circulation 38,225,326 32,927,146 27,828,549 23,069,416 19,315,772 NAV per unit Highest NAV per unit during the financial year Lowest NAV per unit during the financial year Categories of investments % % % % % - Quoted securities Other liquid assets Quoted equities by sectors Percentage Percentage Percentage Percentage Percentage of NAV of NAV of NAV of NAV of NAV % % % % % Construction Consumer products Corporate action Finance Industrial products Infrastructure project company Plantations Properties Technology Trading /services ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 39

42 COMPARATIVE (CONTINUED) LOCAL FUNDS MANAGED FUND RM RM RM RM RM Net Asset Value ( NAV ) 183,784, ,201, ,869, ,377, ,046,913 Number of units in circulation 43,834,907 42,008,806 39,196,525 35,796,420 32,716,516 NAV per unit Highest NAV per unit during the financial year Lowest NAV per unit during the financial year Categories of investments % % % % % - Quoted securities Unquoted debt securities Other liquid assets Quoted securities by sectors Percentage Percentage Percentage Percentage Percentage of NAV of NAV of NAV of NAV of NAV % % % % % Construction Consumer products Corporate action Finance Industrial products Infrastructure project company Plantations Properties Technology Trading services Unquoted debt securities by sectors Agriculture, forestry and fishing Construction Electricity, gas and water Finance, insurance, real estate and business services Government and other service Manufacturing 1.01 Transport, storage and communications ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 40

43 COMPARATIVE (CONTINUED) LOCAL FUNDS INCOME FUND RM RM RM RM RM Net Asset Value ( NAV ) 22,107,557 21,064,730 19,563,793 16,113,242 11,502,362 Number of units in circulation 14,248,590 13,974,138 13,133,091 11,136,912 8,195,377 NAV per unit Highest NAV per unit during the financial year Lowest NAV per unit during the financial year Categories of investments % % % % % - Unquoted debt securities Other liquid assets Loans Composition of unquoted debt securities Percentage Percentage Percentage Percentage Percentage of NAV of NAV of NAV of NAV of NAV % % % % % Bonds Loans 2.22 Government Guaranteed Bonds Unit Trust Unquoted debt securities by sectors Agriculture, forestry and fishing Construction 4.65 Electricity, gas and water Finance, insurance, real estate and business services Government and other services Manufacturing Transport, storage and communications ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 41

44 COMPARATIVE (CONTINUED) LOCAL FUNDS DANA EKUITI DINAMIK RM RM RM RM RM Net Asset Value ( NAV ) 21,028,796 20,930,440 14,761,879 11,823,677 10,651,356 Number of units in circulation 7,105,065 7,081,223 6,469,269 5,998,681 5,720,304 NAV per unit Highest NAV per unit during the financial year Lowest NAV per unit during the financial year Categories of investments % % % % % - Quoted securities Other liquid assets Quoted securities by sectors Percentage Percentage Percentage Percentage Percentage of NAV of NAV of NAV of NAV of NAV % % % % % Construction Consumer products Corporate action Finance Industrial products Infrastructure project company Plantations Properties Technology Trading services ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 42

45 COMPARATIVE (CONTINUED) LOCAL FUNDS MANULIFE FLEXI INVEST FUND RM RM RM Net Asset Value ( NAV ) 26,985,474 20,874,505 14,746,589 Number of units in circulation 21,819,344 17,509,359 13,890,226 NAV per unit Highest NAV per unit during the financial year Lowest NAV per unit during the financial year Categories of investments % % % - Quoted securities Other liquid assets Quoted equities by sectors (within Malaysia) Percentage Percentage Percentage of NAV of NAV of NAV % % % Construction Consumer products Finance Industrial products Infrastructure project company Plantations Properties Technology Trading/services Quoted equities by sectors (outside Malaysia) Consumer goods industry Construction 1.31 Industrial products 1.57 Plantation 1.50 Resources Services ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 43

46 COMPARATIVE (CONTINUED) FOREIGN FUNDS MANULIFE EMERGING EASTERN EUROPE FUND RM RM RM RM RM Net Asset Value ( NAV ) 2,320,742 2,865,554 2,171,480 1,667,859 1,720,257 Number of units in circulation 4,036,044 3,620,894 3,076,079 2,701,668 2,135,161 NAV per unit Highest NAV per unit during the financial year Lowest NAV per unit during the financial year MANULIFE CHINA VALUE FUND RM RM RM RM RM Net Asset Value ( NAV ) 11,421,249 9,371,557 6,146,389 4,666,044 5,015,898 Number of units in circulation 11,275,564 10,367,630 7,871,143 6,305,760 5,619,103 NAV per unit Highest NAV per unit during the financial year Lowest NAV per unit during the financial year CAPITAL GROWTH AND INCOME DISTRIBUTION TABLE Capital Growth Income Distribution % % % % % % Equity Fund (1.18) Managed Fund Dana Ekuiti Dinamik Manulife Flexi Invest Fund Income Fund Manulife China Value Fund (17.13) 3.84 Manulife Emerging Eastern Europe Fund (27.34) (23.41) 3.73 ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 44

47 INVESTMENT INFORMATION

48 INVESTMENT INFORMATION LOCAL FUNDS The details of investments of the Investment-Linked Funds are set out as follows: EQUITY FUND Quoted securities PERCENTAGE OF NET AGGREGATE MARKET ASSET QUANTITY COST VALUE VALUE RM RM % Derivatives FINANCE BIMB HOLDINGS BERHAD - WARRANT 810, , , TRADING SERVICES BERJAYA FOOD BERHAD - WARRANT 639, ,002 1,388, Equities CONSTRUCTION HO HUP CONSTRUCTION COMPANY BHD 2,893,400 3,903,343 3,645, CONSUMER NESTLE (MALAYSIA) BERHAD 46,800 3,051,624 3,205, SASBADI HOLDINGS BERHAD 1,426,400 2,143,840 2,111, FINANCE MALAYAN BANKING BERHAD 199,093 1,960,506 1,825, OSK HOLDINGS BERHAD 2,003,600 4,269,111 4,067, INDUSTRIAL CAHYA MATA SARAWAK BERHAD 1,403,600 3,748,916 5,558, PRESS METAL BERHAD 3,327,000 10,092,209 8,616, SKP RESOURCES BERHAD 1,407, , , ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 46

49 INVESTMENT INFORMATION (CONTINUED) LOCAL FUNDS EQUITY FUND (continued) Quoted securities (continued) PERCENTAGE OF NET AGGREGATE MARKET ASSET QUANTITY COST VALUE VALUE RM RM % INFRASTRUCTURE PROJECT COMPANY DIGI.COM BERHAD 588,400 2,991,093 3,630, PUNCAK NIAGA HOLDINGS BERHAD 2,187,300 7,028,279 6,474, PLANTATION TDM BERHAD 1,131,900 1,103, , TECHNOLOGY INARI AMERTRON BERHAD 259, , , K-ONE TECHNOLOGY BERHAD 3,637,400 1,705,513 1,545, UNISEM (M) BERHAD 368, , , TRADING SERVICES AEON CO. (M) BERHAD 1,204,800 2,555,378 3,795, AIRASIA BERHAD 1,767,900 4,974,522 4,808, AIRASIA X BERHAD 16,307,300 11,974,010 10,518, BERJAYA FOOD BERHAD 4,162,700 6,632,788 12,904, MISC BERHAD 1,774,700 13,057,588 12,813, PBA HOLDING BERHAD 2,314,700 3,097,616 2,985, WESTPORTS HOLDINGS BERHAD 1,848,200 5,788,108 6,209, TENAGA NASIONAL BERHAD 631,300 7,608,846 8,711, TOTAL 52,341, ,610, ,323, ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 47

50 INVESTMENT INFORMATION (CONTINUED) LOCAL FUNDS MANAGED FUND Quoted securities PERCENTAGE OF NET AGGREGATE MARKET ASSET QUANTITY COST VALUE VALUE RM RM % CONSTRUCTION HO HUP CONSTRUCTION COMPANY BERHAD 1,480,200 2,128,680 1,865, CONSUMER NESTLE (MALAYSIA) BERHAD 41,200 2,639,932 2,822, SASBADI HOLDINGS BERHAD 332, , , FINANCE BIMB HOLDINGS BERHAD 135, , , BIMB HOLDINGS BERHAD - WARRANT 1,868,420 1,192, , MALAYAN BANKING BERHAD 203,229 2,002,158 1,863, OSK HOLDINGS BERHAD 3,038,400 6,483,577 6,167, INDUSTRIAL BERJAYA FOOD BERHAD - WARRANT 229, , , CAHYA MATA SARAWAK BERHAD 1,424,800 4,136,725 5,642, PRESS METAL BERHAD 2,191,600 6,854,840 5,676, SKP RESOURCES BERHAD 2,419,100 1,748,503 1,548, INFRASTRUCTURE PROJECT COMPANY DIGI.COM BERHAD 597,000 2,993,411 3,683, PUNCAK NIAGA HOLDINGS BERHAD 1,794,700 5,824,311 5,312, PLANTATION IOI CORPORATION BERHAD TDM BERHAD 2,192,400 2,079,428 1,819, TRADING SERVICES AEON CO. (M) BHD 1,601,000 4,699,573 5,043, AIRASIA BERHAD 1,449,300 4,110,530 3,942, AIRASIA X BERHAD 13,645,400 9,730,724 8,801, BERJAYA FOOD BERHAD 3,947,600 6,274,634 12,237, MISC BERHAD 1,786,600 13,173,631 12,899, PBA HOLDING BERHAD 1,450,400 1,916,915 1,871, SIME DARBY BERHAD 397,900 3,755,223 3,656, TELEKOM MALAYSIA BERHAD 482,600 3,270,248 3,320, TENAGA NASIONAL BERHAD 1,174,600 14,111,446 16,209, WESTPORTS HOLDINGS BERHAD 1,924,600 6,306,196 6,466, TOTAL 45,808, ,820, ,202, ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 48

51 INVESTMENT INFORMATION (CONTINUED) LOCAL FUNDS MANAGED FUND (continued) Unquoted debt securities PERCENTAGE OF NET NOMINAL NET BOOK MARKET ASSET VALUE VALUE VALUE VALUE RM RM RM % BANK MUAMALAT MALAYSIA BERHAD 5.15% 15/06/2021 4,000,000 4,071,172 4,044, BERJAYA LAND BERHAD 4.850% 16/12/2019 2,500,000 2,516,409 2,517, BUMITAMA AGRI LTD 5.25% 18/03/2019 3,500,000 3,515,306 3,569, GAMUDA BERHAD 4.215% 26/10/2018 1,000, , , HONG LEONG BANK BERHAD 4.75% 30/12/2020 1,500,000 1,511,628 1,505, HONG LEONG BANK BERHAD 4.50% 21/06/2024 4,000,000 4,000,000 3,927, HYUNDAI CAPITAL SERVICES INC 4.00% 25/05/2015 4,000,000 4,000,852 4,000, IMPIAN EKSPRESI SDN BHD 4.58% 29/11/2019 2,000,000 1,985,928 1,996, MALAKOFF POWER BERHAD 5.25% 17/12/2021 1,000,000 1,003,988 1,001, MANJUNG ISLAND ENERGY BERHAD 4.58% 25/11/2027 2,000,000 2,036,171 1,965, N.U.R POWER SDN BHD 4.43% 25/06/2021 4,000,000 3,989,274 3,991, SABAH DEVELOPMENT BANK 4.45% 10/02/2016 3,000,000 3,000,000 3,000, SPORTS TOTO MALAYSIA SDN BHD 4.8% 11/10/2016 4,000,000 4,014,084 4,024, SUNRISE BHD 5.40% 15/03/2024 1,000,000 1,000,948 1,001, TELEKOM MALAYSIA BERHAD 4.50% 25/06/2021 2,000,000 2,011,148 2,002, WESTPORTS MALAYSIA SDN BHD 5.32% 02/05/ , , , TOTAL 40,100,000 40,291,581 40,166, ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 49

52 INVESTMENT INFORMATION (CONTINUED) LOCAL FUNDS INCOME FUND Unquoted debt securities PERCENTAGE OF NET NOMINAL NET BOOK MARKET ASSET VALUE VALUE VALUE VALUE RM RM RM % AMAN SUKUK BERHAD 3.9% 3/6/2020 1,000,000 1,000, , AMBANK MALAYSIA BERHAD /14/2022 1,000, , , AQUASAR CAPITAL SDN BHD 4.62% 7/17/2020 1,000,000 1,008,393 1,007, BANK PEMBANGUNAN MALA 5.7 4/25/2016 1,000,000 1,000,751 1,024, CAGAMAS MBS BERHAD /7/2015 1,000,000 1,006,585 1,004, CIMB BANK BERHAD 4.15% 8/6/2021 1,000,000 1,003, , CIMB ISLAMIC BANK BERHAD 5.3% 08/11/2019 1,000,000 1,007, , DANGA CAPITAL BERHAD 4.35% 4/13/2015 1,000,000 1,002,508 1,001, GB SERVICES BERHAD /8/2019 1,000,000 1,049,258 1,037, HYUNDAI CAPITAL SERVICES 4.2% 2/23/2017 1,000,000 1,001, , IMTIAZ SUKUK II BERHAD 4.8% 11/10/2016 1,000,000 1,000,000 1,006, JIMAH ENERGY VENTURES 8.65% 11/10/2017 1,100,000 1,228,374 1,222, KUALA LUMPUR KEPONG 4% 9/2/ , , , MALAYSIA GOVERNMENT 4.048% 9/30/2021 1,000,000 1,008, , MALAYSIA INVESTMENT ISSUE 3.576% 5/15/2 500, , , MANJUNG ISLAND ENERGY BERHAD 4.22% 11/25/22 1,000,000 1,018, , ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 50

53 INVESTMENT INFORMATION (CONTINUED) LOCAL FUNDS INCOME FUND (continued) Unquoted debt securities (continued) PERCENTAGE OF NET NOMINAL NET BOOK MARKET ASSET VALUE VALUE VALUE VALUE RM RM RM % MANULIFE CASH MANAGEMENT FUND 479, , , PUBLIC BANK BERHAD 4.28% 8/3/2022 1,000,000 1,006,003 1,000, SUKUK PERUMAHAN KERAJAAN 3.729% 3/22/2 1,000, , , SYARIKAT PRASARANA NEGARA 4.58% 8/29/28 200, , , TANJUNG BIN O&M BERHAD 4.25% 6/30/2017 1,000,000 1,004, , UEM SUNRISE BERHAD 4.25% 12/21/2017 1,000, , , UEM SUNRISE BERHAD 4.9% 6/30/2021 1,000,000 1,000,000 1,007, YTL CORPORATION BERHAD 4.38% 4/25/2023 1,000,000 1,002, , TOTAL 21,779,789 22,024,969 21,833, ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 51

54 INVESTMENT INFORMATION (CONTINUED) LOCAL FUNDS DANA EKUITI DINAMIK Quoted securities PERCENTAGE OF NET AGGREGATE MARKET ASSET QUANTITY COST VALUE VALUE RM RM % CONSTRUCTION GAMUDA BERHAD 21, , , HO HUP CONSTRUCTION COMPANY BERHAD 336, , , CONSUMER FRASER & NEAVE HOLDINGS BHD 18, , , NESTLE (MALAYSIA) BERHAD 11, , , FINANCE BIMB HOLDINGS BERHAD 49, , , BIMB HOLDINGS BERHAD - WARRANT 661, , , INDUSTRIAL CAHYA MATA SARAWAK BERHAD 328, ,980 1,302, SUCCESS TRANSFORMER CORPORATION BERHAD 103, , , INFRASTRUCTURE PROJECT COMPANY DIGI.COM BERHAD 128, , , PUNCAK NIAGA HOLDINGS BERHAD 267, , , PLANTATION TDM BERHAD 400, , , PROPERTIES UOA DEVELOPMENT BERHAD 507,400 1,069,674 1,070, TECHNOLOGY UNISEM (M) BERHAD 147, , , TRADING SERVICES AEON CO. (M) BERHAD 217, , , AXIATA GROUP BERHAD 61, , , MAXIS BERHAD 186,300 1,273,799 1,276, MISC BERHAD 260,900 1,918,411 1,883, MMC CORPORATION BERHAD 90, , , PBA HOLDING BERHAD 387, , , SIME DARBY BERHAD 94, , , STAR PUBLICATIONS (MALAYSIA) BERHAD 91, , , TELEKOM MALAYSIA BERHAD 155,653 1,017,026 1,070, TENAGA NASIONAL BERHAD 138,500 1,626,301 1,911, WESTPORTS HOLDINGS BERHAD 387,700 1,185,229 1,302, TOTAL 5,053,133 16,204,865 17,183, ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 52

55 INVESTMENT INFORMATION (CONTINUED) LOCAL FUNDS MANULIFE FLEXI INVEST FUND Quoted securities (within Malaysia) PERCENTAGE OF NET AGGREGATE MARKET ASSET QUANTITY COST VALUE VALUE RM RM % CONSTRUCTION GAMUDA BERHAD 56, , , MUHIBBAH ENGINEERING (M) BHD 106, , , CONSUMER BRITISH AMERICAN TOBACCO (MALAYSIA) BERHAD 6, , , PELIKAN INTERNATIONAL CORPORATION 371, , , POWER ROOT BERHAD 116, , , FINANCE CAHYA MATA SARAWAK BERHAD 145, , , CIMB GROUP HOLDINGS BERHAD 97, , , HONG LEONG BANK BERHAD 72,000 1,020,627 1,005, HONG LEONG FINANCIAL GROUP BERHAD 39, , , TUNE INS HOLDINGS BERHAD 62, , , INDUSTRIAL PRODUCTS HUME INDUSTRIES BERHAD 34,968 9, , LAFARGE MALAYSIA BERHAD 74, , , MUDA HOLDINGS BERHAD 581,300 1,014, , P.I.E. INDUSTRIAL BERHAD 86, , , SLP RESOURCES BHD 135,000 86,505 70, V.S. INDUSTRY BERHAD 222, , , INFRASTRUCTURE PROJECT COMPANY TIME DOTCOM BERHAD 143, , , PLANTATION IJM PLANTATIONS BERHAD 72, , , IOI CORPORATION BERHAD 55, , , ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 53

56 INVESTMENT INFORMATION (CONTINUED) LOCAL FUNDS MANULIFE FLEXI INVEST FUND (continued) Quoted securities (within Malaysia) (continued) PERCENTAGE OF NET AGGREGATE MARKET ASSET QUANTITY COST VALUE VALUE RM RM % PROPERTIES EASTERN & ORIENTAL BERHAD 201, , , IJM LAND BERHAD 84, , , NAIM HOLDINGS BERHAD 126, , , S P SETIA BERHAD 122, , , SUNWAY BERHAD 251, , , TECHNOLOGY VITROX CORPORATION BERHAD 116, , , TRADING SERVICES BERJAYA AUTO BERHAD 286, , , BERJAYA FOOD BERHAD 95, , , CYPARK RESOURCES BERHAD 214, , , DKSH HOLDINGS (MALAYSIA) BERHAD 73, , , ENGTEX GROUP BERHAD 178, , , GENTING MALAYSIA BERHAD 142, , , HARBOUR-LINK GROUP BERHAD 219, , , MAGNUM BERHAD 19,100 58,654 51, MALAYSIA MARINE AND HEAVY ENGINEERING HOLDINGS BERHAD 180, , , MBM RESOURCES BHD 30,700 87,295 85, MISC BERHAD 117, , , PESTECH INTERNATIONAL BHD 300, ,475 1,047, POS MALAYSIA BERHAD 65, , , SAPURA KENCANA PETROLEUM BERHAD 148, , , TELEKOM MALAYSIA BERHAD 102, , , TENAGA NASIONAL BERHAD 54, , , UZMA BERHAD 209, , , WESTPORTS HOLDINGS BERHAD 60, , , TOTAL 5,882,569 19,373,240 18,978, ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 54

57 INVESTMENT INFORMATION (CONTINUED) LOCAL FUNDS MANULIFE FLEXI INVEST FUND (continued) Quoted securities (outside Malaysia) PERCENTAGE OF NET AGGREGATE MARKET ASSET QUANTITY COST VALUE VALUE RM RM % FOREIGN INVESTMENT CONSUMER GOODS INDUSTRY PT ULTRAJAYA MILK INDUSTRY & TRADING CO TBK 364, , , SAMSUNG ELECTRONICS CO LTD , , CONSTRUCTION PT TOTAL BANGUN PERSADA 254,600 57,985 79, SEMEN INDONESIA PERSERO TBK 60, , , INDUSTRIAL PRODUCTS LEE & MAN PAPER MANUFACTURING LTD 217, , , PLANTATION FIRST RESOURCES LTD 82, , , RESOURCES BANGKOK AVIATION FUEL SERVICES PLC 152, , , PT PERUSAHAAN GAS NEGARA TBK 345, , , SANDS CHINA LTD 22, , , SERVICES GALAXY ENTERTAINMENT GROUP LTD 19, , , GREAT WALL MOTOR COMPANY LTD 14, , , TOTAL 1,531,612 4,009,398 4,153, ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 55

58 INVESTMENT INFORMATION (CONTINUED) FOREIGN FUNDS MANULIFE EMERGING EASTERN EUROPE FUND PERCENTAGE OF NET AGGREGATE MARKET ASSET QUANTITY COST VALUE VALUE RM RM % MGF EEEF-CLASS A 199,362 2,994,927 2,225, MANULIFE CHINA VALUE FUND PERCENTAGE OF NET AGGREGATE MARKET ASSET QUANTITY COST VALUE VALUE RM RM % MGF CVF-CLASS A 371,471 8,543,898 11,058, ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 56

59 SUMMARY OF FINANCIAL STATEMENT

60 SUMMARY OF FINANCIAL STATEMENT STATEMENT OF INCOME AND EXPENDITURE FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2014 LOCAL FUNDS Manulife Dana Flexi Equity Managed Ekuiti Income Invest Fund Fund Dinamik Fund Fund 2014 RM RM RM RM RM INCOME Net Investment Income Interest income 1,112,359 2,466, ,214 84,464 Profit sharing income 96,623 Dividend income 3,196,042 2,937, ,466 42, ,025 Rebate income Other income 1, Profits on disposal of investments 10,616,116 12,276,007 2,159,646 3,647 2,240,806 Realised exchange gains Unrealised exchange gains Unrealised capital gains 1,411 Deferred Tax 319,308 5,688 Total income 15,245,100 17,680,301 2,681, ,946 2,835,295 OUTGO Management expenses 2,669,011 2,507, , , ,734 Amortisation of premiums 7,688 96,271 Loss on disposal of investments 112,310 6,899 Unrealised capital losses 15,719,829 13,190,893 2,326,673 1,770,557 Taxation 117,123 70,374 38,630 Total outgo 18,388,840 15,935,881 2,655, ,909 2,454,820 Excess of (outgo over income)/income over outgo (3,143,740) 1,744,420 25, , ,475 Undistributed income brought forward 69,544,945 75,202,151 11,935,614 4,385,434 2,808,877 Undistributed income/ (loss) carried forward 66,401,205 76,946,571 11,961,401 5,020,471 3,189,352 ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 58

61 SUMMARY OF FINANCIAL STATEMENT FOREIGN FUNDS STATEMENT OF INCOME AND EXPENDITURE FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2014 (CONTINUED) Manulife Manulife Emerging China Eastern Value Europe Fund Fund 2014 RM RM INCOME Net Investment Income Interest income Profit sharing income Dividend income 73,214 18,428 Rebate income 95,659 26,466 Profits on disposal of investments Realised exchange gains Unrealised exchange gains 643, ,031 Unrealised capital gains 734,779 Deferred Tax 50,786 Total income 1,547, ,009 OUTGO Management expenses 104,646 32,656 Amortisation of premiums Loss on disposal of investments Unrealised capital losses 1,137,244 Taxation 180,752 Total outgo 285,398 1,169,900 Excess of (outgo over income)/income over outgo 1,262,276 (843,891) Undistributed income brought forward 1,148, ,410 Undistributed income/(loss) carried forward 2,411,145 (677,481) ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 59

62 SUMMARY OF FINANCIAL STATEMENT LOCAL FUNDS STATEMENT OF INCOME AND EXPENDITURE FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2014 (CONTINUED) Manulife Dana Flexi Equity Managed Ekuiti Income Invest Fund Fund Dinamik Fund Fund 2013 RM RM RM RM RM INCOME Net Investment Income Interest income 759,887 2,079, , ,245 Profit sharing income 75,517 Dividend income 3,036,961 2,835, ,191 13, ,881 Rebate income 8,000 Profits on disposal of investments 11,297,173 14,790,906 2,967,554 19,474 1,189,567 Realised exchange gains Unrealised exchange gains 25,528 Unrealised capital gains 13,592,480 10,314,366 1,790, ,907 Total income 28,686,501 30,028,712 5,251, ,095 2,694,128 OUTGO Management expenses 1,964,974 2,067, , , ,005 Amortisation of premiums 7,780 38,735 Loss on disposal of investments 14, ,656 Realised exchange losses Unrealised capital losses 359,228 Taxation 2,083,236 2,195, ,156 35, ,022 Total outgo 4,048,210 4,285, , , ,683 Excess of income over outgo 24,638,291 25,743,287 4,587, ,858 2,053,445 Undistributed income/ (loss) brought forward 44,906,654 49,458,864 7,348,010 4,144, ,432 Undistributed income carried forward 69,544,945 75,202,151 11,935,614 4,385,434 2,808,877 ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 60

63 SUMMARY OF FINANCIAL STATEMENT FOREIGN FUNDS STATEMENT OF INCOME AND EXPENDITURE FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2014 (CONTINUED) Manulife Manulife Emerging China Eastern Value Europe Fund Fund 2013 RM RM INCOME Net Investment Income Interest income Profit sharing income Dividend income 52,411 55,249 Rebate income 76,427 24,280 Profits on disposal of investments Realised exchange gains 142 Unrealised exchange gains 508, ,959 Unrealised capital gains 739, ,507 Total income 1,376, ,137 OUTGO Management expenses 84,685 30,478 Amortisation of premiums Loss on disposal of investments Realised exchange losses 156 Unrealised capital losses Taxation 123,097 33,099 Total outgo 207,938 63,577 Excess of income over outgo 1,168, ,560 Undistributed income(loss) brought forward (19,654) (132,150) Undistributed income carried forward 1,148, ,410 ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 61

64 SUMMARY OF FINANCIAL STATEMENT STATEMENT OF ASSETS AND LIABILITIES AS AT 31 DECEMBER 2014 LOCAL FUNDS Manulife Dana Flexi Equity Managed Ekuiti Income Invest Fund Fund Dinamik Fund Fund 2014 RM RM RM RM RM ASSETS Investments Quoted securities 108,323, ,202,471 17,183,275 18,978,630 Unquoted debt securities 40,166,862 21,833,117 Investment in foreign assets 4,153,375 Fixed deposits 76,998,000 33,396,000 4,075,000 2,955,055 Other receivables 2,671,448 2,361, , ,877 1,683,866 Cash and bank balances 20,159 20,184 20, , ,625 Deferred tax assets 15,348 22,726 Total assets 188,013, ,147,250 21,452,448 22,264,367 28,652,277 LIABILITIES Payables 3,270,211 3,692, ,878 88,591 1,493,588 Current tax liabilities 938,278 1,169, ,501 68, ,215 Deferred tax liabilities 537, ,586 78,273 Total liabilities 4,745,556 5,363, , ,810 1,666,803 NET ASSETS ATTRIBUTABLE TO POLICYHOLDERS 183,267, ,784,015 21,028,796 22,107,557 26,985,474 REPRESENTED BY: Policyholders capital 116,866, ,837,444 9,067,395 17,087,086 23,796,122 Undistributed income/ (loss) carried forward 66,401,205 76,946,571 11,961,401 5,020,471 3,189,352 NET ASSETS ATTRIBUTABLE TO POLICYHOLDERS 183,267, ,784,015 21,028,796 22,107,557 26,985,474 NUMBER OF UNITS IN CIRCULATION 38,225,326 43,834,907 7,105,065 14,248,590 21,819,344 NET ASSET VALUE ATTRIBUTABLE TO POLICYHOLDERS PER UNIT ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 62

65 SUMMARY OF FINANCIAL STATEMENT STATEMENT OF ASSETS AND LIABILITIES AS AT 31 DECEMBER 2014 (CONTINUED) FOREIGN FUNDS Manulife Manulife Emerging China Eastern Value Europe Fund Fund 2014 RM RM ASSETS Investments Quoted securities Unquoted debt securities Investment in foreign assets 11,058,059 2,225,904 Fixed deposits Other receivables 77,067 26,588 Cash and bank balances 530,970 21,215 Deferred tax assets 61,522 Total assets 11,666,096 2,335,229 LIABILITIES Payables 13,914 6,372 Current tax liabilities 29,800 8,115 Deferred tax liabilities 201,133 Total liabilities 244,847 14,487 NET ASSETS ATTRIBUTABLE TO POLICYHOLDERS 11,421,249 2,320,742 REPRESENTED BY: Policyholders capital 9,010,104 2,998,223 Undistributed income/(loss) carried forward 2,411,145 (677,481) NET ASSETS ATTRIBUTABLE TO POLICYHOLDERS 11,421,249 2,320,742 NUMBER OF UNITS IN CIRCULATION 11,275,564 4,036,044 NET ASSET VALUE ATTRIBUTABLE TO POLICYHOLDERS PER UNIT ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 63

66 SUMMARY OF FINANCIAL STATEMENT STATEMENT OF ASSETS AND LIABILITIES AS AT 31 DECEMBER 2014 (CONTINUED) LOCAL FUNDS Manulife Dana Flexi Equity Managed Ekuiti Income Invest Fund Fund Dinamik Fund Fund 2013 RM RM RM RM RM ASSETS Investments Quoted securities 149,107, ,036,589 19,466,322 17,123,354 Unquoted debt securities 35,857,450 19,308,460 Investment in foreign assets 1,236,023 Fixed deposits 18,987,000 13,268,000 1,891,000 1,553,547 1,921,060 Other receivables 2,858,194 5,744, , , ,998 Cash and bank balances 890, ,372 20,061 79, ,256 Current tax assets 15,461 Total assets 171,843, ,083,446 21,985,450 21,176,021 21,469,691 LIABILITIES Payables 9,400,040 14,038, ,248 47, ,307 Current tax liabilities 895,193 1,287, ,355 63,869 75,919 Deferred tax liabilities 1,794,653 1,555, , ,960 Total liabilities 12,089,886 16,881,841 1,055, , ,186 NET ASSETS ATTRIBUTABLE TO POLICYHOLDERS 159,753, ,201,605 20,930,440 21,064,730 20,874,505 REPRESENTED BY: Policyholders capital 90,208,641 98,999,454 8,994,826 16,679,296 18,065,628 Undistributed income carried forward 69,544,945 75,202,151 11,935,614 4,385,434 2,808,877 NET ASSETS ATTRIBUTABLE TO POLICYHOLDERS 159,753, ,201,605 20,930,440 21,064,730 20,874,505 NUMBER OF UNITS IN CIRCULATION 32,927,146 42,008,806 7,081,223 13,974,138 17,509,359 NET ASSET VALUE ATTRIBUTABLE TO POLICYHOLDERS PER UNIT ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 64

67 SUMMARY OF FINANCIAL STATEMENT STATEMENT OF ASSETS AND LIABILITIES AS AT 31 DECEMBER 2014 (CONTINUED) FOREIGN FUNDS Manulife Manulife Emerging China Eastern Value Europe Fund Fund 2013 RM RM ASSETS Investments Quoted securities Unquoted debt securities Investment in foreign assets 9,116,973 2,856,802 Fixed deposits Other receivables 117,069 2,169 Cash and bank balances 264,186 29,401 Current tax assets Total assets 9,498,228 2,888,372 LIABILITIES Payables 12,528 1,262 Current tax liabilities 23,287 10,501 Deferred tax liabilities 90,856 11,055 Total liabilities 126,671 22,818 NET ASSETS ATTRIBUTABLE TO POLICYHOLDERS 9,371,557 2,865,554 REPRESENTED BY: Policyholders capital 8,222,688 2,699,144 Undistributed income carried forward 1,148, ,410 NET ASSETS ATTRIBUTABLE TO POLICYHOLDERS 9,371,557 2,865,554 NUMBER OF UNITS IN CIRCULATION 10,367,630 3,620,894 NET ASSET VALUE ATTRIBUTABLE TO POLICYHOLDERS PER UNIT ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 65

68 SUMMARY OF FINANCIAL STATEMENT STATEMENT OF CHANGES IN NET ASSET VALUE FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2014 LOCAL FUNDS Manulife Dana Flexi Equity Managed Ekuiti Income Invest Fund Fund Dinamik Fund Fund 2014 RM RM RM RM RM Net asset value at the beginning of the financial year 159,753, ,201,605 20,930,440 21,064,730 20,874,505 Net realised income after taxation 12,576,089 14,935,313 2,352, ,626 2,151,032 Net unrealised capital (losses)/gains on investments (15,719,829) (13,190,893) (2,326,673) 1,411 (1,770,557) Amounts received from net creation of units 68,667,770 39,777,593 4,170,471 4,154,069 14,606,129 Amounts paid for net cancellation of units (42,009,825) (31,939,603) (4,097,902) (3,746,279) (8,875,635) Net asset value at the end of the financial year 183,267, ,784,015 21,028,796 22,107,557 26,985, Net asset value at the beginning of the financial year 112,586, ,869,186 14,761,879 19,563,793 14,746,589 Net realised income after taxation 11,045,811 15,428,921 2,797, ,086 1,173,538 Net unrealised capital gains/(losses) on investments 13,592,480 10,314,366 1,790,519 (359,228) 879,907 Amounts received from net creation of units 56,812,064 38,095,882 4,768,984 4,815,581 8,776,183 Amounts paid for net cancellation of units (34,283,074) (27,506,750) (3,188,027) (3,555,502) (4,701,712) Net asset value at the end of the financial year 159,753, ,201,605 20,930,440 21,064,730 20,874,505 ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 66

69 SUMMARY OF FINANCIAL STATEMENT FOREIGN FUNDS STATEMENT OF CHANGES IN NET ASSET VALUE FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2014 (CONTINUED) Manulife Manulife Emerging China Eastern Value Europe Fund Fund 2014 RM RM Net asset value at the beginning of the financial year 9,371,557 2,865,554 Net realised income after taxation 527, ,353 Net unrealised capital (losses)/gains on investments 734,779 (1,137,244) Amounts received from net creation of units 2,941, ,431 Amounts paid for net cancellation of units (2,154,362) (663,352) Net asset value at the end of the financial year 11,421,249 2,320, Net asset value at the beginning of the financial year 6,146,389 2,171,480 Net realised income after taxation 429, ,053 Net unrealised capital gains/(losses) on nvestments 739, ,507 Amounts received from net creation of units 4,196,870 1,029,374 Amounts paid for net cancellation of units (2,140,225) (633,860) Net asset value at the end of the financial year 9,371,557 2,865,554 ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 67

70 NOTES TO THE FINANCIAL INFORMATION

71 NOTES TO THE FINANCIAL INFORMATION 31 DECEMBER PRINCIPAL ACTIVITIES The principal activities of the Investment-Linked Funds of Manulife Insurance Berhad consisting of Equity Fund, Managed Fund, Dana Ekuiti Dinamik, Income Fund, Manulife Flexi Invest Fund, Manulife China Value Fund and Manulife Emerging Eastern Europe Fund (herein referred to collectively as the Investment-Linked Funds ) are to invest in authorised investments. The objective of the Equity Fund and Managed Fund are to invest in authorised investments listed on the Bursa Malaysia Securities Berhad ( Bursa Malaysia ) which seeks to maximise medium to long-term capital appreciation. The objective of the Dana Ekuiti Dinamik seeks to maximise medium to long term capital appreciation by investing in Shariah compliant equity and equity-related securities listed on the Bursa Malaysia. The objective of the Income Fund seeks to provide a steady return to policyholders through accumulation of capital over the long term. The objective of the Manulife Flexi Invest Fund is to provide a platform for investors who seek supervised capital appreciation at medium to high level of risk over a mid-to long term investment horizon. Investors have the opportunity to benefit from equity returns during a market upturn and earn steady return from fixed income during times of market uncertainties. The Manulife Flexi Invest Fund may invest between 0 to 100% of the fund s net asset value in equities and equity related instruments and/or fixed income securities (including but not limited to money market instruments and other liquid assets). The Investment-Linked Fund is also allowed to invest up to 30% of the fund s net asset value in foreign markets as and when opportunities arise. The objective of the Manulife China Value Fund aims to achieve long-term capital growth through investment, primarily in companies with substantial business interests in the Greater China Region (which includes People s Republic of China, Hong Kong and Taiwan) which are listed on stock exchanges of Shanghai, Shenzhen, Hong Kong, Taipei or other exchanges. The objective of the Manulife Emerging Eastern Europe Fund aims to achieve capital growth through investment primarily in securities which are listed or traded on the stock exchanges of Central and Eastern European countries. It is intended that the Fund will concentrate (although not necessarily exclusively) on securities listed or traded on stock exchanges in the Czech Republic, Hungary, Poland, Slovakia and Russia whilst such securities may also be listed in other exchanges as depository receipts or certificates, or in other forms of instruments. The Manager of the Investment-Linked Funds is Manulife Insurance Berhad, a company incorporated in Malaysia, engaged principally in the underwriting of life insurance business including investment-linked business. ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 69

72 NOTES TO THE FINANCIAL INFORMATION 31 DECEMBER 2014 (CONTINUED) 2. BASIS OF PREPARATION The financial information of the Investment-Linked Funds have been prepared in accordance with the accounting policies as described in Note 3 to the financial information and Guidelines on Investment-linked Insurance/Takaful Business issued by Bank Negara Malaysia ( BNM ). The financial information of the Investment-Linked Funds have been prepared under the historical cost convention except as disclosed in the significant accounting policies in Note 3 to the financial information. 3. SIGNIFICANT ACCOUNTING POLICIES (a) Financial assets and liabilities (i) Classification A financial instrument is any contract that gives rise to both a financial asset of one enterprise and a financial liability or equity instrument of another enterprise. 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 favourable, 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 unfavourable. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The Investment-Linked Funds loans and receivables comprise loans, deposits with licensed financial institutions and other receivables. The Fund classifies payables as other financial liabilities. (ii) Recognition and measurement All purchases of investments are recognised on their trade dates, i.e. the date the commitment exists to purchase the investments. The investments are initially recorded at cost, being fair value of the consideration given. The attributable transaction costs are recognised in the profit or loss when incurred. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Investment-Linked Funds have transferred substantially all risks and rewards of ownership. ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 70

73 NOTES TO THE FINANCIAL INFORMATION 31 DECEMBER 2014 (CONTINUED) 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (a) Financial assets and liabilities (continued) (ii) Recognition and measurement (continued) Financial liabilities are derecognised when it is extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or expires. Financial assets at fair value through profit or loss Investments of the Investment-Linked Funds are designated at initial recognition at fair value through profit or loss. After initial recognition, the investments are recorded at fair value and the unrealised gains or losses on re-measurement to fair value are taken to the statements of income and expenditure. The fair value of investments is determined by using open market valuation at the year-end date. Quoted equity investments are valued based on quoted market price as at the date of the statements of financial position and the quoted market price used is the current bid price. Unquoted debt securities are initially recognised at fair value and subsequently re-measured at fair value based on the fair values quoted by a bond pricing agency. Investment in foreign assets comprised of investments under the Manulife Global Fund platform of mutual funds and is valued at the net asset values of the underlying funds as at the date of the statements of assets and liabilities. Other receivables Loans and receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method, less any impairment losses. Loans are stated at valuation based on discounted future cash flows, taking into consideration of market conditions and contractual terms of the loans. Collectability of loans and receivables is reviewed on an on going basis. An allowance account is used when there is objective evidence that the Investment- Linked Funds will not be able to collect all amounts due according to the original terms of loans and receivables. ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 71

74 NOTES TO THE FINANCIAL INFORMATION 31 DECEMBER 2014 (CONTINUED) 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (a) Financial assets and liabilities (continued) (ii) Recognition and measurement (continued) Other receivables (continued) 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 ). The amount of the impairment allowance is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short term receivables are not discounted if the effect of discounting is immaterial. The amount of the impairment loss is recognised in the statement of income and expenditure. When loans and receivables for which an impairment allowance had been recognised become uncollectable in a subsequent period, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to the statements of income and expenditure. (b) Net creation of units Net creation of units represents premiums paid by policyholders as payment for a new contract or subsequent payments to increase the amount of that contract. Net creation of units is recognised on a receipt basis. (c) Net cancellation of units Net cancellation of units represents cancellation of units arising from surrenders and withdrawals by policyholders. Net cancellation of units is recognised upon surrendering of the related insurance contract. (d) Income recognition Interest income and profit sharing income earned are recognised on a time proportion basis that takes into account the effective yield of the assets. Dividend income is recognised when the right to receive payment is established. ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 72

75 NOTES TO THE FINANCIAL INFORMATION 31 DECEMBER 2014 (CONTINUED) 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (e) Management expenses Management expenses charged to the Funds include management fee, audit fee and tax fee and are recognised on accrual basis. (f) Foreign currencies (i) Functional and presentation currency Items included in the financial information of the Investment-Linked Funds are measured using the currency of the primary economic environment in which the Investment-Linked Funds operate ( the functional currency ). The functional currency and presentation currency of the Investment-Linked Funds is Ringgit Malaysia. (ii) Transactions and balances (g) Taxation Transactions in a currency other than the functional currency ( foreign currency ) are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Currency translation gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statements of income and expenditure. The income tax charge is calculated at current tax rate based on the method prescribed under the Income Tax Act, 1967 for life insurance business. Deferred tax is recognised in full, using the liability method, on temporary differences arising between the amounts attributed to assets and liabilities for tax purposes and their carrying amounts in the financial statements. Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which the deductible temporary differences or unutilised tax losses can be utilised. Tax rate enacted or substantively enacted by the date of the statement of assets and liabilities is used to determine deferred tax. (h) Cash and cash equivalents Cash and cash equivalents consist of cash and bank balances which have an insignificant risk of changes in value. Deposits with financial institutions are not part of cash and cash equivalents as these are held for investment purposes. ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 73

76 NOTES TO THE FINANCIAL INFORMATION 31 DECEMBER 2014 (CONTINUED) 4. AVERAGE ANNUAL RETURNS AND BENCHMARK The average annual return measurement and the performance against relevant benchmark indices of the Investment-Linked Funds for the comparative periods are set out on pages 31 to 37 of the Fund Performance Report. 5. INVESTMENTS The details of investments and market value of investment holding as a percentage of net asset value of the Investment-Linked Funds are set out on pages 46 to 56 of the Fund Performance Report. 6. COMPARATIVE PERFORMANCE TABLE The details of Investment-Linked Funds net asset value, units in circulation, percentage of investment Linked funds by categories of investments and industry sectors to the total fund s value and the breakdown of the total annual return of the Investment-Linked Funds into capital growth and income distribution composition of the investment are set out on pages 39 to 44 of the Fund Performance Report. ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 74

77 STATEMENT BY MANAGER

78 STATEMENT BY MANAGER We, Dato Md Agil bin Mohd Natt and Chew Yee Ming George, two of the Directors of Manulife Insurance Berhad ( the Manager ), state that, in the opinion of the Manager, the accompanying financial information of Manulife Investment-Linked Funds, which consists of Equity Fund, Managed Fund, Dana Ekuiti Dinamik, Income Fund, Manulife Flexi Invest Fund, Manulife China Value Fund and Manulife Emerging Eastern Europe Fund set out on pages 58 to 74 have been prepared in accordance with the accounting policies described in Note 3 to the financial information and the Guidelines on Investment-Linked Insurance/Takaful Business issued by Bank Negara Malaysia. On behalf of the Manager, DATO MD AGIL BIN MOHD NATT DIRECTOR CHEW YEE MING GEORGE DIRECTOR Kuala Lumpur 25 March 2015 ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 76

79 INDEPENDENT AUDITORS REPORT

80 INDEPENDENT AUDITORS REPORT Independent auditors report to the policyholders of Equity Fund, Managed Fund, Dana Ekuiti Dinamik, Income Fund, Manulife Flexi Invest Fund, Manulife China Value Fund and Manulife Emerging Eastern Europe Fund of Manulife Insurance Berhad (Incorporated in Malaysia) REPORT ON THE FINANCIAL INFORMATION We have audited the financial information of Investment-Linked Funds (comprising of Equity Fund, Managed Fund, Dana Ekuiti Dinamik, Income Fund, Manulife Flexi Invest Fund, Manulife China Value Fund and Manulife Emerging Eastern Europe Fund) ( the Funds ) of Manulife Insurance Berhad, which comprise the statements of assets and liabilities as at 31 December 2014, and the statements of income and expenditure and statement of changes in net asset value for the financial year then ended, and a summary of significant accounting policies and other explanatory information ( financial information ), as set out on pages 58 to 74. Directors Responsibility for the Financial Information The Directors of Manulife Insurance Berhad ( the Manager ) are responsible for the preparation of financial information in accordance with the accounting policies as described in Note 3 to the financial information and the Guidelines on Investment-Linked Insurance/Takaful Business issued by Bank Negara Malaysia and for such internal control as the directors of the Manager determine is necessary to enable the preparation of financial information that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial information based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial information are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial information. The procedures selected depend on our judgement, including the assessment of risks of material misstatement of the financial information, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Funds preparation of financial information in accordance with the accounting policies as described in the Note 3 to the financial information and the Guidelines on Investment-linked Insurance/Takaful Business issued by Bank Negara Malaysia 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 Funds internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors of the Manager, as well as evaluating the overall presentation of the financial information. ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 78

81 INDEPENDENT AUDITORS REPORT (CONTINUED) Independent auditors report to the policyholders of Equity Fund, Managed Fund, Dana Ekuiti Dinamik, Income Fund, Manulife Flexi Invest Fund, Manulife China Value Fund and Manulife Emerging Eastern Europe Fund of Manulife Insurance Berhad (continued) (Incorporated in Malaysia) Auditors Responsibility (continued) We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial information have been prepared, in all material respects, in accordance with the accounting policies as described in Note 3 to the financial information and Guidelines on Investment-Linked Insurance/Takaful Business issued by Bank Negara Malaysia. OTHER MATTERS This report is made solely to the policyholders of the Funds, as a body, in accordance with the Guidelines on Investment-Linked Insurance/Takaful Business issued by Bank Negara Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report. Ernst & Young AF: 0039 Chartered Accountants Brandon Bruce Sta Maria No. 2937/09/15(J) Chartered Accountant Kuala Lumpur 25 March 2015 ANNUAL REVIEW 2014 MANULIFE INVESTMENT-LINKED FUNDS 79

82 MENGENAI MANULIFE MALAYSIA Manulife Insurance Berhad, sebuah subsidiari milik penuh Manulife Holdings Berhad adalah ahli Manulife Financial Corporation yang berasas di Kanada. Manulife Insurance Berhad kini memberi khidmat kepada lebih daripada 290,000 pemegang polisi. Melalui syarikat-syarikat subsidiarinya, Manulife Group menawarkan produk dan perkhidmatan perlindungan kewangan dan pengurusan harta yang inovatif bagi memenuhi pelbagai keperluan pelanggan. Manulife Holdings Berhad telah disenaraikan di Papan Utama Bursa Malaysia sejak tahun Pada 31 Disember 2014, aset dalam pengurusan bernilai lebih RM7.2 bilion.