SHARIAH ASIA-PACIFIC FUND

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2 CONTENTS PAGE 1 General Information 1 2 Manager s Report 2 3 Policy On Stockbroking Rebates And Soft Commissions 9 4 Statement By The Manager 10 5 Trustee s Report 11 6 Shariah Adviser s Report 12 7 Statement Of Comprehensive Income 13 8 Statement Of Financial Position 14 9 Statement Of Changes In Equity Statement Of Cash Flows Summary Of Significant Accounting Policies Notes To The Financial Statements Corporate Information 45 i

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4 MANULIFE INVESTMENT SHARIAH ASIA- PACIFIC FUND 1 GENERAL INFORMATION 1.1 THE TRUST The Fund commenced operations on 16 January 2008 and will continue its operations until terminated as provided under Clause 48.2 of the Deed. 1.2 FUND TYPE / CATEGORY Growth / Equity (Islamic Fund) 1.3 OBJECTIVE OF THE FUND To provide long-term capital appreciation through investment in Shariah-compliant equities and equity-related instruments listed on approved stock exchanges within the Asia-Pacific region. Note: Any material changes to the Fund s investment objective would require Unit Holders approval. 1.4 DISTRIBUTION POLICY Incidental 1.5 PERFORMANCE BENCHMARK The performance of the Fund is measured against the FTSE Shariah Asia Pacific Ex-Japan, India and Pakistan Index (SPXJIPU). The risk profile of the Fund is different from the risk profile of the benchmark. 1.6 INVESTMENT STYLE AND STRATEGY The Fund invests in a diversified portfolio of foreign Shariah-compliant equities and equityrelated instruments, and Islamic money market instruments with emphasis on high growth potential and/or undervalued Shariah-compliant stocks relative to their assessed true value. The Fund Manager adopts an active and frequent trading strategy in meeting the investment objective of the Fund. The Fund Manager adopts an active and frequent trading strategy in meeting the investment objective of the Fund. However, any active and frequent trading strategy will depend on investment opportunities or valuations. The Fund Manager focuses primarily on China, Hong Kong, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Taiwan, Thailand, Australia and New Zealand. During the six months financial period under review, the Fund remained guided by its investment objective as it kept a close tab on investment opportunities in Australia, China, Hong Kong, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Taiwan and Thailand. This was based on its assessment of the individual market, sector and Shariahcompliant stock fundamentals as well as prospects vis-à-vis valuation, while also taking into account the outlook of respective currencies. 1

5 2 MANAGER S REPORT 2.1 FUND PERFORMANCE For the six months financial period ended 31 March 2018, the NAV of the Fund s return decreased by 1.68%. The Fund underperformed its benchmark index return which decreased by 0.63%. The underperformance was primarily due to asset allocation decisions at the country level and Shariahcompliant stock selection at the sector level. Partly offsetting some of the underperformance was asset allocation decisions at the sector level. Shariah-compliant stock selection in South Korea and Malaysia were the primary performance detractors. The Fund s underweight in the healthcare sector in South Korea negatively impacted performance as the sector continued to perform strongly on the back of technical buying. The Chinese auto sector was negatively impacted due to concerns around China lowering the tariffs for imported cars, threatening the role of domestic auto OEMs (original equipment manufacturers). However, we believe that the impact to domestic auto OEMs is limited given that their foreign joint-venture (JV) partners have invested heavily in the production plants over the years. Strong fundamentals and the upgrade in consumption patterns domestically should support earnings growth for the Chinese auto sector. Contributing positively to performance was Shariah-compliant stock selection in Singapore, China, Australia and Thailand. The largest positive contributor was a Thai integrated oil company that reported Q417 earnings that were stronger than expected, driven by the company s natural gas business. Continuing to contribute positively to performance was a Singaporean electronic contract manufacturing services provider that reported stronger than expected earnings due to margin expansion and revenue growth that was broad-based. The graph below compares the 6-month performance of the Fund against its benchmark return: 7% 6% 5% 4% 3% 2% -1% 0% 1% -2% -3% Sep 17 Fund Performance vs. Benchmark Index Return Oct 17 Nov 17 Dec 17 Jan 18 Feb 18 Manulife Investment Shariah Asia-Pacific Fund Return Benchmark Index Return Mar 18 Source: Lipper & Morningstar Fund Size The Fund s total NAV increased to RM30.01mil from RM24.30mil during the six months financial period under review. 2

6 Fund s Returns a) The graph below compares the 5-year performance of the Fund against its benchmark return: 70% 60% 50% 40% 30% 20% 10% -10% 0% -20% Mar 13 Jul 13 Nov 13 Fund Performance vs. Benchmark Index Return Mar Jul Source: Lipper & Morningstar Nov 14 Mar Jul Nov 15 Mar Jul Nov 16 Mar Jul Manulife Investment Shariah Asia-Pacific Fund Return Benchmark Index Return Nov 17 Mar 18 (b) Average Total Return of the Fund: For the financial period ended 31 March 2018 Fund (% p.a.) Benchmark (% p.a.) 1 year years years Commencement Date: 16 January 2008 Source: Lipper & Morningstar (c) Annual Total Return of the Fund: For the financial period ended: Fund (% p.a.) Benchmark (% p.a.) 31 March March March 2016 (9.61) (9.37) 31 March March 2014 (2.14) 3.50 Commencement Date: 16 January 2008 Source: Lipper & Morningstar 3

7 BASES OF CALCULATION 1. Net Asset Value (NAV) Net Asset Value of the Fund is determined by deducting the value of all the Fund s liabilities from the value of all the Fund s assets, at the valuation point. 2. Net Asset Value per unit Net Asset Value per unit is the net asset value of the Fund divided by the total number of units in circulation, at the valuation point. 3. Fund s Return Fund s return can be calculated based on the computation methods as follows: Daily Total Fund s Return = {[End NAV (Ex-distribution) - Beginning NAV + Dividend Distribution] / Beginning NAV} x 100% Total Fund s Return Average Total Return = Total Fund s return for the period is derived from geometrically linking together the daily total fund s returns. The linking formula is = [(1+ R 1 ) x (1+ R 2 ) x (1+ R n )] -1 where: R 1 is the first daily return for the period, R 2 is the second daily return for the period, and R n is the last daily return for the period. = Annualised Total Return (Actual number of days in a year/ [(1+ Total fund s return for the period) number of days during the period) -1] x 100% The following table shows other financial and performance data of the Fund for the past three financial periods: Fund Data 31 March March March 2016 NAV (RM) 30,010,799 20,682,573 8,560,452 Units in Circulation ( 000) 86,675 63,405 32,625 NAV (RM per unit) Highest / Lowest NAV (RM per unit) Total Fund Return (%) NAV Return (%) Income Return (%) / (1.68) (1.68) / / (7.12) (7.12) - Management Expenses Ratio (%) Portfolio Turnover Ratio (times)

8 NOTES (i) Management Expenses Ratio (MER) MER can be calculated based on the ratio of the sum of fees and the recovered expenses of the unit trust fund to the average value of the unit trust fund calculated on a daily basis. Fees of the unit trust fund + Recovered expenses of the unit trust fund Average value of the unit trust fund calculated on a daily basis x 100 Where: Fees Recovered expenses Average value of the unit trust fund = All ongoing fees deducted / deductible directly from the unit trust fund in respect of the period covered by the management expense ratio, expressed as a fixed amount, calculated on a daily basis. This would include the annual management fee, the annual trustee fee and any other fees deducted / deductible directly from the unit trust fund; = All expenses recovered from/ charged to the unit trust fund, as a result of the expenses incurred by the operation of the unit trust fund, expressed as a fixed amount. This should not include expenses that would otherwise be incurred by an individual investor (e.g. brokerage, taxes and levies); and = The NAV of the unit trust fund, including unit trust net income value of the fund, less expenses on an accrued basis, in respect of the period covered by the management expense ratio, calculated on a daily basis. The MER for the financial period is lower as compared with previous financial period mainly due to the increase in average NAV. (ii) Portfolio Turnover Ratio (PTR) PTR can be calculated based on the ratio of the average sum of acquisitions and disposals of the unit trust fund for the year to the average value of the unit trust fund for the year calculated on a daily basis [Total acquisitions of the fund for the period + Total disposals of the fund for the period]/2 Average value of the unit trust fund calculated on a daily basis The PTR for the financial period is higher as compared with previous financial period mainly due to the increase in trading activities. The Manager wishes to highlight that past performance of the Fund is not an indication of future performance. The price of units and the investment returns may go down, as well as up. 5

9 2.2 ASSET ALLOCATION Asset allocation for the past three financial periods: Sector Allocation 31 March 2018 % of Net Asset Value 31 March March 2016 Trading/Services Construction Consumer Products Plantation Industrial Products Quoted Shariah-compliant Investments - Local Quoted Shariah-compliant Investments - Foreign Total Quoted Shariah-compliant Investments Other Assets & Liabilities Country Allocation 31 March 2018 % of Net Asset Value 31 March March 2016 Hong Kong/ China South Korea Australia Taiwan Indonesia Thailand Malaysia Singapore Philippines Total Shariah-compliant Investments As at 31 March 2018, the Fund was 92.83% invested in Shariah-compliant equities and 7.17% cash instruments. The Fund increased its exposure to Hong Kong/China and reduced exposure to South Korea. 2.3 MARKET REVIEW During the six months financial period under review (1st October 2017 to 31st March 2018), Asia Pacific ex Japan/Hong Kong equities closed higher for the quarter and finished 2017 at its all-time high. The strength in the markets continued in the first quarter of 2018 before retreating at the end of the period. US bond yields rose to their highest levels in nearly four years on concerns over higher inflation and a rise in real interest rates. This led to a sharp rise in volatility as the US Federal Reserve (Fed) Chairman s optimistic views resulted in expectations for a faster pace of rate hikes for

10 Chinese/ Hong Kong equity markets were boosted by expectation of positive policies from the 19th National Party Congress as well as solid earnings results. Over the period, Chinese equities was supported by a few key market news: Chinese government opening up access to the financial services sector and will gradually remove the limit of foreign ownership; further regulations on China s wealth management products; and announcement of import tariffs reduction for consumer goods. Additionally, during the National People s Congress, a comprehensive government restructuring plan was announced that would reduce 34 ministries and commissions into 26 new ones, and included a merger of China s banking and insurance regulators. Corporate fundamentals remained intact. South Korea s central bank raised its policy rates (by 25 basis points to 1.5%) for the first time since Higher commodity prices, including oil, helped drive performance in Thailand. As expected, Malaysia s central bank raised interest rates for the first time in three and a half years due to risk of rising inflation after stronger economic growth last year and higher fuel prices. 2.4 MARKET OUTLOOK AND INVESTMENT STRATEGY Despite the equity market s strong performance over the past 12 months, Asian equity valuations remain attractive relative to international markets. Recent share price weakness related to US/China trade tensions, in our view, do not represent a material risk to earnings for the companies we hold. Therefore, the negative sentiment represents a good buying opportunity for many stocks negatively affected. Earnings revisions have persisted in the positive territory, although we expect the pace of upward revisions to moderate over the coming quarters. Global interest rate normalisation is symptomatic of the acceleration in global growth which should continue to support the outlook for emerging markets and Asian equities. We continue to have constructive views on China as economic fundamentals remain robust. We like the internet sector as well as select exposures within the auto sector where we see strong model roll outs. Our other preferred North Asian market is South Korea. Fundamentals in the DRAM sector continue to look favourable within the context of the current product cycle and believe that the market has yet to fully appreciate the extent to which the industry is far less cyclical and more consolidated compared to history. We see a lot of re-rating potential in these names in South Korea. Within South East Asia, we continue to like Indonesia. The Indonesian government has made notable progress on reforms, and the resilience of the economy to external shocks is stronger than in the past. In addition, Indonesia s credit rating was upgraded to investment grade which we see as confirmation of its strong underlying fundamentals. Indonesia had lagged the regional index in Our least preferred market remains Australia. Economic fundamentals and earnings growth are muted relative to the rest of the region. Companies that do offer some reasonable growth are expensively priced compared to what you can find elsewhere in the region. Household leverage is uncomfortably high and low wage growth should see spending growth decelerate despite a recent uptick in employment. However, we do like some select names that have greater offshore exposure. From a fund positioning standpoint, our preferred sectors are within the information technology and consumer space. We have also grown more positive on the energy sector as we believe supply and demand fundamentals support the outlook for elevated oil prices which should favour the listed Shariah-compliant stocks which are currently discounting prices way below spot. 7

11 2.5 BREAKDOWN OF UNIT HOLDINGS BY SIZE AS AT 31 MARCH 2018 The following table presents the distribution of the Fund s unit holders according to size of unit holdings: Size of Holdings No. of Unit Holders % No. of Units Held ( 000) % 5,000 and below ,001 to 10, , ,001 to 50, , ,001 to 500, , Above 500, , Manager s stock Total 1, ,

12 3 POLICY ON STOCKBROKING REBATES AND SOFT COMMISSIONS The Management Company did not retain any rebates. For the six month financial period ended 31 March 2018, the Management company or its Fund Manager did not receive any rebates or soft commissions. 9

13 4 STATEMENT BY THE MANAGER We, Edmond Cheah Swee Leng and Chong Soon Min, being two of the Directors of Manulife Asset Management Services Berhad, do hereby state that, in the opinion of the Manager, the unaudited financial statements comprising the statement of comprehensive income, statement of financial position, statement of changes in equity, statement of cash flows, summary of significant accounting policies and notes to the financial statements, are drawn up in accordance with the provisions of the Deeds and give a true and fair view of the financial position of the Fund as at 31 March 2018 and of its financial performance, changes in equity and cash flows of the Fund for the six months financial period ended 31 March 2018 in accordance with the Malaysian Financial Reporting Standards ( MFRS ) and the International Financial Reporting Standards ( IFRS ). For and on behalf of the Manager MANULIFE ASSET MANAGEMENT SERVICES BERHAD EDMOND CHEAH SWEE LENG Director CHONG SOON MIN Director Kuala Lumpur 25 May

14 5 TRUSTEE S REPORT MANULIFE INVESTMENT TO THE UNIT HOLDERS OF MANULIFE INVESTMENT We have acted as Trustee of Manulife Investment Shariah Asia-Pacific Fund ( the Fund ) for the financial period ended 31 March To the best of our knowledge, Manulife Asset Management Services Berhad ( the Management Company ), has operated and managed the Fund in accordance with the following: a) limitations imposed on the investment powers of the Management Company and the Trustee under the Deeds, the Securities Commission s Guidelines on Unit Trust Funds, the Capital Markets and Services Act 2007 and other applicable laws; b) valuation/pricing is carried out in accordance with the Deeds and any regulatory requirements; and c) creation and cancellation of units are carried out in accordance with the Deeds and any regulatory requirements. For HSBC (Malaysia) Trustee Berhad Tan Bee Nie Head, Trustee Operations Kuala Lumpur 25 May

15 6 SHARIAH ADVISER S REPORT TO THE UNIT HOLDERS OF MANULIFE INVESTMENT We have acted as the Shariah Adviser of Manulife Investment Shariah Asia-Pacific Fund. Our responsibility is to ensure that the procedures and processes employed by Manulife Asset Management Services Berhad are in accordance with Shariah principles. In our opinion, Manulife Asset Management Services Berhad has managed and administered Manulife Investment Shariah Asia-Pacific Fund in accordance with Shariah principles and complied with applicable guidelines, rulings and decisions issued by the Securities Commission pertaining to Shariah matters for the six months financial period ended 31 March In addition, we also confirm that the investment portfolio of Manulife Investment Shariah Asia-Pacific Fund comprises securities which have been classified as Shariah-compliant by the Shariah Advisory Council of the Securities Commission ( SACSC ) and/or Shariah Supervisory Board of FTSE Shariah Asia Pacific Index. As for the securities which are not certified by the SACSC, and/or Shariah Supervisory Board of FTSE Shariah Asia Pacific Index. we have reviewed the said securities and opined that these securities are designated as Shariah-compliant. For and on behalf of the Shariah Adviser IBFIM MUHAMMAD KHAIRULNIZAM BIN ALIAS Consultant (Shariah) / Designated Person Responsible for Shariah Advisory Kuala Lumpur 25 May

16 7 STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 31 MARCH 2018 INVESTMENT (LOSS)/(INCOME Note Gross dividend income 270, ,864 Net (loss)/gain on financial assets at fair value through profit or loss 6 (203,629) 1,230,928 Net foreign currency exchange loss (172,013) (15,296) RM RM (104,763) 1,351,496 EXPENSES Manager s fee 3 282, ,199 Trustee s fee 4 9,696 4,018 Auditors remuneration 2,743 2,742 Tax agent s fee 1,346 17,346 Other expenses 18,000 94,683 Transaction costs 205,247 24, , ,688 (LOSS)/(PROFIT) BEFORE TAXATION (624,605) 1,090,808 TAXATION 5 (57,253) (26,254) NET (LOSS)/(PROFIT) AFTER TAXATION AND TOTAL COMPREHENSIVE (LOSS)/INCOME (681,858) 1,064,554 (Loss)/profit after taxation is made up as follows: Realised 589, ,057 Unrealised (1,271,139) 668,497 (681,858) 1,064,554 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 13

17 8 STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2018 ASSETS Note RM RM Financial assets at fair value through profit or loss 6 27,859,943 19,789,381 Amount due from Manager 1,375, ,708 Amount due from stockbrokers 495,380 - Dividends receivable 117,039 64,836 Tax recoverable 3,796 3,796 Cash and cash equivalents 7 437,589 1,101,062 TOTAL ASSETS 30,289,608 21,172,783 LIABILITIES Amount due to Manager - Manager s fee 45,864 27,585 - Cancellation of units 128, ,667 Amount due to Trustee 1, Other payables 8 103, ,012 TOTAL LIABILITIES 278, ,210 NET ASSETS VALUE ( NAV ) OF THE FUND 30,010,799 20,682,57 3 EQUITY Unit holders capital 27,602,967 19,221,105 Retained earnings 2,407,832 1,461,468 30,010,799 20,682,573 NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 2 30,010,799 20,682,573 NUMBER OF UNITS IN CIRCULATION 10 86,675,000 63,405,000 NAV PER UNIT The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 14

18 9 STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 31 MARCH 2018 Unit holders Retained capital earnings Total RM RM RM BALANCE AS AT 1 OCTOBER ,212,181 3,089,690 24,301,871 Movement in unit holders contribution: Creation of units 27,191,659-27,191,659 Cancellation of units (20,800,873) - (20,800,873) Total comprehensive loss - (681,858) (681,858) BALANCE AS AT 31 MARCH ,602,967 2,407,832 30,010,799 Unit holders Retained capital earnings Total RM RM RM BALANCE AS AT 1 OCTOBER ,531, ,914 10,928,280 Movement in unit holders contribution: Creation of units 14,784,412-14,784,412 Cancellation of units (6,094,673) - (6,094,673) Total comprehensive loss - 1,064,554 1,064,554 BALANCE AS AT 31 MARCH ,221,105 1,461,468 20,682,573 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 15

19 10 STATEMENT OF CASH FLOWS FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 31 MARCH 2018 Note RM RM CASH FLOWS FROM OPERATING ACTIVITIES Purchase of Shariah-compliant investments (21,981,674) (11,356,265) Sale of Shariah-compliant investments 17,426,818 2,852,641 Net realised foreign exchange (loss)/gain (763,958) 184,837 Dividends received 112,172 63,319 Manager s fee paid (273,914) (105,747) Trustee s fee paid (8,212) (3,591) Audit fee paid (6,296) (5,500) Tax agent s fee paid (34,927) - Payment for other fees and expenses (214,875) (88,724) Net cash used in operating activities (5,744,866) (8,459,030) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from creation of units 26,244,230 14,631,528 Payments for cancellation of units (20,672,602) (5,751,146) Net cash generated from financing activities 5,571,628 8,880,382 Net (decrease)/increase in cash and cash equivalents (173,238) 421,352 Currency translation differences (38,661) 25,238 Cash and cash equivalents at beginning of the financial period 649, ,472 Cash and cash equivalents at end of the financial period 7 437,589 1,101,062 Cash and cash equivalents comprise: Bank balances in a licensed bank 7 437,589 1,101,062 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 16

20 11 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 31 MARCH 2018 The following accounting policies have been used consistently in dealing with items which are considered material in relation to the financial statements. The policies have been consistently applied to all the financial years presented, unless otherwise stated. A BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS The unaudited financial statements of the Fund have been prepared in accordance with the Malaysian Financial Reporting Standards ( MFRS ) and the International Financial Reporting Standards ( IFRS ). The financial statements have been prepared under the historical cost convention as modified by financial assets at fair value through profit or loss. The preparation of financial statements in conformity with MFRS and IFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. It also requires the Provider to exercise judgement in the process of applying the Fund s accounting policies. Although these estimates and judgement are based on the Provider s best knowledge of current events and actions, actual results may differ. There are no significant areas of judgement or complexity that have significant effect on the amounts recognised in the financial statements. There are no critical accounting estimates and assumptions used in the preparation of the financial statements of the Fund for the six months financial period ended 31 March The Fund has applied the following amendments for the first time for the financial period beginning 1 April 2017: Amendments to MFRS 107 Statement of Cash Flows - Disclosure Initiatives (effective from 1 January 2017) introduce an additional disclosure in changes in liabilities arising from financing activities. The adoption of the Amendment to MFRS 107 has required additional disclosure of changes in liabilities arising from financing activities. Other than that, the adoption of these amendments did not have any impact on the current period or any prior period and is not likely to affect future periods. The Fund will apply this standard when effective. This standard is not expected to have a significant impact on the Fund's financial statements. Financial period beginning on/after 1 April 2018 MFRS 9 Financial Instruments (effective from 1 January 2018) will replace MFRS 139 Financial Instruments: Recognition and Measurement. MFRS 9 retains but simplifies the mixed measurement model in MFRS 139 and establishes three primary measurement categories for financial assets: amortised cost, fair value through profit or loss and fair value through other comprehensive income ( OCI ). The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset. Investment in equity¹ instruments is always measured at fair value through profit or loss with a irrevocable option at inception to present changes in fair value in OCI (provided the instrument is not held for trading). A debt instrument² is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest³. 17

21 For liabilities, the standard retains most of the MFRS 139 requirements. These include amortised cost accounting for most financial liabilities, with bifurcation of embedded Shariah compliant derivatives. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in OCI rather than the income statement, unless this creates an accounting mismatch MFRS 9 introduces an expected credit losses model on impairment that replaces the incurred loss impairment model used in MFRS 139.The expected credit losses model is forward-looking and eliminates the need for a trigger event to have occurred before credit losses are recognised. The Fund has reviewed its financial assets and liabilities and has assessed the following impacts from the adoption of the new standard as below: There will be no impact on the Fund s accounting for financial assets as the Fund s equity investments currently measured at fair value through profit or loss will continue to be measured on the same basis under MFRS 9. There will be no impact on the Fund s accounting for financial liabilities as the new requirements only affect the accounting for financial liabilities that are designated at fair value through profit or loss and the Fund does not have any such liabilities. The new impairment model requires the recognition of impairment provisions based on ECL rather than only incurred credit losses as is the case under MFRS 139. It applies to financial assets classified at amortised cost. Based on the assesments undertaken to date, the Fund does not expect any loss allowance to be recognised upon adoption of MFRS 9. 1 For the purposes of the investments made by the Fund, equity instruments and derivatives refers to Shariah-compliant equity instruments and Shariah-compliant derivatives. 2 For the purposes of the investments made by the Fund, debt instruments refers to sukuk. 3 For the purposes of this Fund, interest refers to profits earned from Shariah-compliant investments. B (i) FINANCIAL ASSETS AND FINANCIAL LIABILITIES Classification The Fund classifies its financial assets in the following categories: at fair value through profit or loss and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification at initial recognition. Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. Financial assets at fair value through profit or loss Financial assets are designated at fair value through profit or loss when they are managed principally for the purpose of selling or replacing in the near term and their peformance evaluated on a fair value basis. The Fund designates its investment in Shariah-compliant investments as financial assets at fair value through profit or loss at inception. Receivables Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as noncurrent assets. The Fund s receivables comprise amount due from Manager, amount due from stockbrokers, dividends receivable, tax recoverable, and cash and cash equivalents in the statement of financial position. 18

22 Other financial liabilities MANULIFE INVESTMENT The Fund classifies amount due to Manager, amount due to Trustee and other payables as other financial liabilities. (ii) Recognition and initial measurement Regular purchases and sales of financial assets are recognised on the trade-date, the date on which the Fund commits to purchase or sell the assets. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in profit or loss. Receivables are initially recognised at fair value plus transaction costs. Financial liabilities, within the scope of MFRS 139, are recognised in the statement of financial position when, and only when, the Fund becomes a party to the contractual provisions of the financial instrument. (iii) Subsequent measurement - gains and losses Financial assets at fair value through profit or loss are subsequently carried at fair value. Gains and losses arising from changes in the fair value of the financial assets at fair value through profit or loss are included in the profit or loss in the period which they arise. Receivables are subsequently carried at amortised cost using the effective profit rate method. (iv) Subsequent measurement - impairment of financial assets The Fund assesses at the end of the reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The criteria that the Fund uses to determine that there is objective evidence of an impairment loss include indications that the obligor is experiencing significant financial difficulty, high probability that the obligor will enter bankruptcy or other distressed financial reorganisation and events that would adversely affect the financial capability of the obligor. The amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective profit rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. If receivables has a variable profit rate, the discount rate for measuring any impairment loss is the current effective profit rate determined under the contract. As a practical expedient, the Fund may measure impairment on the basis of an instrument s fair value using an observable market price. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment is recognised (such as an improvement in the debtor s/issuer s credit rating), the reversal of the previously recognised impairment loss is recognised in profit or loss. When an asset is uncollectible, it is written off against the related allowance account. Such assets are written off after all the necessary procedures have been completed and the amount of the loss has been determined. (v) De-recognition Financial assets are de-recognised when the rights to receive cash flows from the Shariahcompliant investments have expired or have been transferred and the Fund has transferred substantially all risks and rewards of ownership. Financial liabilities are de-recognised when they are extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or has expired. 19

23 C CREATION AND CANCELLATION OF UNITS The Fund issues cancellable units, which are cancelled at the unit holder s option and are classified as equity. Cancellable units can be put back to the Fund at any time for cash equal to a proportionate share of the Fund s net asset value. The outstanding unit is carried at the redemption amount that is payable at the date of the statement of financial position if the unit holder exercises the right to put the unit back to the Fund. Units are created and cancelled at the unit holder s option at prices based on the Fund s net asset value per unit at the time of creation and cancellation. The Fund s net asset value is calculated by dividing the net assets attributable to unit holders with the total number of outstanding units. The net asset value per unit is computed each dealing day. The price at which units are created or cancelled is calculated by reference to the net asset value per unit as at the close of business on the relevant dealing day. Units in the Fund are classified as equity in the statement of financial position and are stated at fair value representing the price at which unit holders can redeem the units from the Fund. D INCOME RECOGNITION Profit income from Islamic deposits is recognised on an accrual basis using the effective profit rate method. Dividend income on quoted Shariah-compliant investments is recognised on the ex-dividend date. Realised gains or losses on sale of quoted Shariah-compliant investments are accounted for as the difference between the net disposal proceeds and the carrying amount of Shariahcompliant investments, determined on a weighted average cost basis. E EXPENSES Expenses are accounted for on an accrual basis and charged to the statement of comprehensive income. Expenses arising from the disposal of investments are recognised as transaction costs (Note K to the financial statements). F CASH AND CASH EQUIVALENTS For the purpose of statement of cash flows, cash and cash equivalents comprise cash at banks and Islamic deposits held in highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. G CURRENCY TRANSLATION The financial statements are presented in Ringgit Malaysia, which is the Fund s functional and presentation currency. Transactions in foreign currencies during the financial period are converted to Ringgit Malaysia at the rate of exchange ruling at transaction dates. Assets and liabilities denominated in foreign currencies at the date of the statement of financial position are translated into Ringgit Malaysia at the rate of exchange approximating those ruling on that date. Exchange differences arising from the settlement of foreign currency transactions and from the translation of foreign currency monetary assets and liabilities are included in the statement of comprehensive income. 20

24 H FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value is price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The information presented herein represents the estimates of fair values as at the date of statement of financial position. Where available, quoted and observable market prices are used as the measure of fair values. Where such quoted and observable market prices are not available, fair values are estimated based on a range of methodologies and assumptions regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows and other factors. Changes in the uncertainties and assumptions could materially affect these estimates and the resulting fair value estimates. A range of methodologies and assumptions has been used in deriving the fair values of the Fund s financial instruments as at the date of the statement of financial position. The total fair value of each financial instrument is not materially different from the total carrying value. The fair values are based on the following methodologies and assumptions: (a) Short-term Islamic deposits with licensed financial institutions For Islamic deposits and placements with licensed financial institutions with maturities of less than three months, the carrying value is a reasonable estimate of fair value. For Islamic deposits and placements with maturities of three months and above, the estimated fair value is based on discounted cash flows using prevailing Islamic interbank money market rates at which similar Islamic deposits and placements would be made with financial institutions of similar credit risk and remaining period to maturity. (b) Quoted Shariah-compliant investments The estimated fair value is based on quoted and observable market prices. (c) Other short-term financial instruments Other short-term financial instruments comprise amount due from/to Manager, amount due from stockbrokers, dividends receivable, amount due to Trustee and other payables. The carrying values of the assets and liabilities are assumed to approximate their fair values due to the short tenure of less than one year. I TAXATION Current tax expense is determined according to the tax laws in the jurisdictions of the taxable profit earned during the financial period from the financial assets in which the Fund invests and includes all taxes based upon the taxable profit. J SEGMENT REPORTING Operating segments are reported in a manner consistent with the internal reporting used by the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the strategic asset allocation committee of the Manager that makes the strategic decisions. K TRANSACTION COSTS Transaction costs are costs incurred to acquire or dispose of financial assets or liabilities at fair value through profit or loss. They include fees and commissions paid to agents, advisors, brokers and dealers. Transaction costs, when incurred, are immediately recognised in the statement of comprehensive income as expenses. 21

25 12 NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 31 MARCH INFORMATION ON THE FUND Manulife Investment Shariah Asia-Pacific Fund ( the Fund ) was established pursuant to a Master Deed dated 31 January 2002, as amended and supplemented by subsequent Supplemental Deeds (hereinafter referred to as the Deeds ) between Manulife Asset Management Services Berhad ( the Manager ) and HSBC (Malaysia) Trustee Berhad ( the Trustee ). The principal activity of the Fund is to invest in Investments as defined under Clause 1 of the Deed, which includes Shariah-compliant stocks and securities of companies listed on Bursa Malaysia Berhad and foreign Shariah-compliant securities listed on any recognised Stock Exchange(s) subject to approval by Bank Negara Malaysia and the Securities Commission, unlisted Shariah-compliant securities of a Malaysian issuer, Islamic deposits with financial institutions, quoted and unquoted sukuk. The Fund commenced operations on 16 January 2008 and will continue its operations until terminated as provided under Clause 48.2 of the Deed. The main objective of the Fund is to provide unit holders with long-term capital appreciation through investment in Shariah-compliant equities and equity-related instruments listed on approved stock exchanges within the Asia-Pacific region. The Manager of the Fund, a company incorporated in Malaysia, is a wholly-owned subsidiary of Manulife Holdings Berhad, a public limited liability company, incorporated and domiciled in Malaysia, and listed on the main market of Bursa Malaysia. Its principal activities are the management of unit trusts, private retirement schemes, fund management activities and financial planning. The financial statements were authorised for issue by the Board of Directors of the Manager in accordance with a resolution of the Directors on 25 May NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS The net assets attributable to unit holders meet the definition of puttable instruments classified as equity instruments under the revised MFRS 132, Financial Instruments: Presentation. The units in the Fund are puttable instruments which entitle the unit holders to a pro-rata share of the net assets of the Fund. The units are subordinated and have identical features. There is no contractual obligation to deliver cash or another financial asset other than the obligation on the Fund to repurchase the units. The total expected cash flows from the units in the Fund over the life of the units are based on the change in the net assets of the Fund. 3 MANAGER'S FEE In accordance with the Deed, the Manager is entitled to Manager s fee at a rate of 1.75% per annum of the net asset value of the Fund before deducting Trustee s fee and Manager s fee for the day, calculated on a daily basis. There will be no further liability to the Manager in respect of Manager s fee other than the amount recognised above. 4 TRUSTEE'S FEE In accordance with the Deed, the Trustee is entitled to a fee of 0.06% per annum of the net asset value of the Fund before deducting Trustee s fee and Manager s fee for the day, calculated on a daily basis. There will be no further liability to the Trustee in respect of Trustee s fee other than the amount recognised above. 22

26 5 TAXATION RM RM Current taxation - Foreign 57,253 26,254 Numerical reconciliation between (loss)/profit before taxation multiplied by the Malaysian statutory tax rate and tax expenses of the Fund is as follows: RM RM (Loss)/profit before taxation (624,605) 1,090,808 Tax calculated at Malaysian tax rate of 24% (2017:24%) (149,905) 261,794 Tax effect in respect of: - Expenses not deductible for tax purposes 46,773 30,258 - Restriction on tax deductible expenses for unit trust funds 77,989 32,307 - Investment loss not subject to tax (16,140) (324,359) - Investment income subject to different tax rate 57, Effect of foreign tax on foreign taxable income 41,283 26,254 - Tax expenses 57,253 26,254 6 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS Designated at fair value through profit or loss Quoted Shariah-compliant investments - Local (Note 6(a)) 615, ,044 - Quoted Shariah-compliant investments - Foreign (Note 6(b)) 27,244,189 19,133,337 RM RM 27,859,943 19,789,381 Net (loss)/gain on financial assets at fair value through profit or loss Realised 1,157, ,669 - Unrealised (1,361,006) 643,259 RM RM (203,629) 1,230,928 23

27 6 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) (a) QUOTED SHARIAH-COMPLIANT INVESTMENTS - LOCAL QUOTED SHARIAH- COMPLIANT INVESTMENTS Quantity MAIN MARKET Cost of shares Fair value as at Fair value as at expressed as percentage of value of Fund Units RM RM % CONSTRUCTION Gamuda Berhad 35, , , TRADING/SERVICES Sime Darby Berhad 162, , , TOTAL QUOTED SHARIAH- COMPLIANT INVESTMENTS - LOCAL 198, , , (b) QUOTED SHARIAH-COMPLIANT INVESTMENTS - FOREIGN QUOTED SHARIAH- COMPLIANT INVESTMENTS Quantity AUSTRALIA Cost of shares Fair value as at Fair value as at expressed as percentage of value of Fund Units RM RM % BASIC MATERIALS BHP Billiton Limited 15,131 1,296,231 1,267, Rio Tinto Limited 2, , , ,434 1,766,469 1,764, CONSUMER DISCRETIONARY ALS Limited 21, , , ENERGY Caltex Australia Limited 1, , , Oil Search Limited 17, , , Woodside Petroleum Limited 8, , , ,162 1,379,179 1,251, TECHNOLOGY Computershare Limited 12, , ,

28 6 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) (b) QUOTED SHARIAH-COMPLIANT INVESTMENTS - FOREIGN (CONTINUED) QUOTED SHARIAH- COMPLIANT INVESTMENTS Quantity HONG KONG / CHINA MATERIALS Cost of shares Fair value as at Fair value as at expressed as percentage of value of Fund Units RM RM % Anhui Conch Cement Corporation Limited 19, , , CONSUMER DISCRETIONARY Brilliance China Automotive Holdings Limited 80, , , Geely Automobile Holdings Limited 49, , , Shenzhou International Group Holdings Limited 6, , , Techtronic Industries Company Limited 12, , , ,500 1,727,851 1,714, ENERGY CNOOC Limited 164, , , PetroChina Company Limited 202, , , ,000 1,519,145 1,468, HEALTH CARE China Medical System Holdings Limited 38, , , Shanghai Fosun Pharmaceutical (Group) Company Limited 18, , , , , , INDUSTRIAL PRODUCTS China Railway Construction Corporation Limited 64, , , CRRC Corporation Limited 124, , , Shenzhen Expressway Corporation Limited 62, , , ,000 1,067, ,

29 6 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) (b) QUOTED SHARIAH-COMPLIANT INVESTMENTS - FOREIGN (CONTINUED) QUOTED SHARIAH- COMPLIANT INVESTMENTS Quantity HONG KONG / CHINA (CONTINUED) ISLAMIC REAL ESTATE INVESTMENT TRUST (i-reits) Cost of shares Fair value as at Fair value as at expressed as percentage of value of Fund Units RM RM % China Resources Land Limited 46, , , KWG Property Holding Limited 96, , , Longfor Properties Company Limited 14, , , ,611 1,149,245 1,324, TECHNOLOGY ASM Pacific Technology Limited 3, , , Tencent Holdings Limited 13,500 1,983,736 2,720, Vtech Holdiings Limited 7, , , ,600 2,627,969 3,281, TELECOMMUNICATIONS China Mobile Limited 10, , , INDONESIA BASIC MATERIALS United Tractors Tbk PT 54, , , CONSUMER STAPLES Indofood CBP Sukses Makmur Tbk PT 70, , , TELECOMMUNICATIONS Telekomunikasi Indonesia Persero Tbk PT 139, , ,

30 6 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) (b) QUOTED SHARIAH-COMPLIANT INVESTMENTS - FOREIGN (CONTINUED) QUOTED SHARIAH- COMPLIANT INVESTMENTS Quantity SOUTH KOREA MATERIALS Cost of shares Fair value as at Fair value as at expressed as percentage of value of Fund Units RM RM % LG Chem Limited , , POSCO , , , , CONSUMER DISCRETIONARY Coway Corporation Limited , , HEALTH CARE Yuhan Corporation , , INDUSTRIAL PRODUCTS CJ Logistics Corporation , , Hyundai Robotics Corporation Limited , , , , TECHNOLOGY Samsung Electronics Corporation Limited 314 3,050,804 2,807, Samsung Electronics Corporation Limited- Preferred Shares , , Samsung SDI Corporation Limited , , SK Hynix Incorporated 3, , , ,554 5,418,012 5,253, SINGAPORE TECHNOLOGY Venture Corporation Limited 7, , ,

31 6 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) (b) QUOTED SHARIAH-COMPLIANT INVESTMENTS - FOREIGN (CONTINUED) QUOTED SHARIAH- COMPLIANT INVESTMENTS Quantity THAILAND ENERGY Cost of shares Fair value as at Fair value as at expressed as percentage of value of Fund Units RM RM % PTT Global Chemical Public Company Limited-NVDR* 10, , , TAIWAN MATERIALS Formosa Plastics Corporation 21, , , TECHNOLOGY Advanced Semiconductor Engineering Incorporated 19,687 99, , Advantech Corporation Limited 7, , , Globalwafers Company Limited 1,000 63,255 62, Hon Hai Precision Industry Company Limited Company Limited 25, , , Taiwan Semiconductor Manufacturing 86,000 2,540,652 2,803, ,286 3,308,381 3,488, TOTAL QUOTED SHARIAH- COMPLIANT INVESTMENTS - FOREIGN 1,559,359 26,193,466 27,244, TOTAL QUOTED SHARIAH- COMPLIANT INVESTMENTS 1,758,059 26,753,903 27,859, ACCUMULATED UNREALISED GAIN ON FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS 1,106,040 TOTAL FAIR VALUE OF FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS 27,859,943 28