CIMB-PRINCIPAL ASEAN TOTAL RETURN FUND UNAUDITED FINANCIAL STATEMENT FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 31 MAY 2017

Transcription

1 UNAUDITED FINANCIAL STATEMENT FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 31 MAY 2017

2 CONTENTS PAGE(S) INVESTORS LETTER 1 MANAGER S REPORT 2-9 Fund Objective and Policy Performance Data Market Review Fund Performance Portfolio Structure Market Outlook Investment Strategy Unit Holdings Statistics Soft Commissions and Rebates STATEMENT BY MANAGER 10 TRUSTEE S REPORT 11 UNAUDITED STATEMENT OF COMPREHENSIVE INCOME 12 UNAUDITED STATEMENT OF FINANCIAL POSITION 13 UNAUDITED STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 14 UNAUDITED STATEMENT OF CASH FLOWS 15 NOTES TO THE FINANCIAL STATEMENTS DIRECTORY 42 LIST OF CWA (an Agency force of CIMB-Principal) OFFICES 43-47

3 INVESTORS' LETTER Dear Valued Investors, Thank you for your continued support and for the confidence that you have placed in us. We are pleased to share that CIMB-Principal Asset Management Berhad ("CIMB-Principal") Malaysia concluded the year with RM48 billion in Asset Under Management ( AUM ) and the CIMB-Principal s Group AUM has increased by 7.6% to RM67.6 billion, for 1-year period ending 31 December Our AUM for Private Retirement Scheme ("PRS") business has increased by 27% year-on-year ("y-o-y") to RM343 million as at 31 December We continue to achieve prestigious recognitions from The Edge Thomson Reuters Lipper Fund Awards: The Edge Thomson Reuters Lipper Malaysia Fund Awards 2017 Best Equity Global, 3 years & 5 years : CIMB-Principal Global Titans Fund Best Equity Asia Pacific Ex-Japan, 5 years : CIMB-Principal Asian Equity Fund Best Equity Asia Pacific Ex-Japan - Malaysia Islamic, 5 years : CIMB Islamic Asia Pacific Equity Fund Thomson Reuters Lipper Fund Award Global Islamic 2016 Best Equity Asia Pacific Ex-Japan (Islamic), 3 years : CIMB Islamic Asia Pacific Equity Fund These awards reflect our consistent fund performance, in tandem with our commitment to provide the best customer experience to you. CIMB-Principal was also awarded Fund House of the Year in Malaysia by AsianInvestor for its Asset Management Awards 2017, its second consecutive win and The Employees' Provident Fund ("EPF") External Portfolio Managers Awards 2017 for the Best Global Bond Portfolio Manager. These industry recognitions reflect our success in scaling up our investment capabilities while building a solid track record and earning the trust of our clients over time. We are also happy to share with you that in line with CIMB Group s policy to enhance customer experience, we have further expanded the payment options offered; CIMB-Principal has introduced the Virtual Account facility effective 7 December Please contact your servicing CWA Consultant or our Customer Care Centre at to find out more. Thank you. Yours faithfully, for CIMB-Principal Asset Management Berhad Munirah Khairuddin Chief Executive Officer/Executive Director 1

4 MANAGER S REPORT FUND OBJECTIVE AND POLICY What is the investment objective of the Fund? The Fund aims to achieve capital appreciation over the medium to long term by investing in the Association of Southeast Asian Nations ( ASEAN ) region. Has the Fund achieved its objective? The Fund outperformed the benchmark since inception for the MYR and SGD classes. The USD class still faces the headwind of the USD strength. What are the Fund investment policy and principal investment strategy? The Fund will be managed with the aim of achieving a stable and positive investment returns over the medium to long term through investments in ASEAN region regardless of market conditions. The companies invested in must be domiciled in, listed in, and/or have significant operations in the ASEAN region. For listed securities, the investment must be traded in an exchange that is a member of World Federation of Exchanges ( WFE ). Significant operations means major businesses of the company. For example, the Fund can invest in a company with significant operations in Thailand but listed on the New York Stock Exchange ( NYSE ). The threshold for significant operations would be at least 30% of total group revenue to derive from countries in the ASEAN region. The calculation would be based on the most recent financial reports released by the companies (e.g. interim and annual reports). Investment universe of the Fund will be in countries where the regulatory authority is an ordinary or associate member of the International Organisation of Securities Commissions ( IOSCO ) which include but not limited to Brunei Darussalam, Indonesia, Malaysia, Philippine, Singapore, Thailand and Vietnam. If the investment is a listed security, the investment must be traded in an exchange that is a member of WFE. In the event the Manager is unable to obtain the necessary licenses or permits, or the licenses or permits are revoked or not renewed (as the case may be), the Manager will seek to invest in other accessible markets. Under general market conditions, the Fund will invest in equities of companies which we believe will exhibit good growth potential^ when compared to its industry or the overall market #. The Fund may also invest up to 15% of the Fund s Net Asset Value ( NAV ) in debt securities to be in line with the Fund s objective. The minimum credit rating for these debt securities must be at least BBB by Fitch Ratings ( Fitch ) or its equivalent by Standard & Poor's ( S&P ) and Moody's Investors Service ( Moody s ). The Fund may opt to access into the equities and/or debt securities market via investment in units of other Collective Investment Schemes ( CIS ) that is in line with the Fund s objective*, subject to the requirements of the Securities Commission Malaysia ( SC ) Guidelines and the Standards of Qualifying CIS. ^ good growth potential - Refers to companies that have a better growth than the Gross Domestic Product ( GDP ) of the respective country and reasonably priced based on the Manager s estimate. Reasonably priced means when the intrinsic value is higher than the current market price. # compared to its industry or the overall market - The comparison will be conducted at the point of purchase. * with effect from 30 September Base Currency US Dollar ( USD ) Fund category/type Equity/Growth How long should you invest for? Medium term to long term Indication of short-term risk (low, moderate, high) High 2

5 FUND OBJECTIVE AND POLICY (CONTINUED) When was the Fund launched? Class MYR 3 March 2015 Class SGD 9 July 2015 Class USD 3 March 2015 What was the size of the Fund as at 31 May 2017? USD6.54 million (42.55 million units) CIMB-PRINCIPAL ASEAN TOTAL RETURN FUND What is the Fund s benchmark? The performance of this Fund cannot be compared directly with any specific publicly available benchmark. However, the Fund has a target return of nine percent (9%) per annum. This is not a guaranteed return and is only a measurement of the Fund s performance. The Fund may not achieve the target return in any particular financial year but targets to achieve this growth over the medium to long term. What is the Fund distribution policy? Given the Fund s investment objective, the Class of the Fund is not expected to pay any distribution. Distributions, if any, are at the discretion of the Manager and will vary from period to period depending on the availability of realised income for distribution and performance of the Fund. What was the net income distribution for the six months financial period ended 31 May 2017? There was no distribution made for the six months financial period ended 31 May PERFORMANCE DATA Details of portfolio composition of the Fund for the last two unaudited financial periods are as follows: % % Quoted securities - Consumer Products Construction Finance Industrials Properties Technology Telecommunications Trading/Services Utilities Cash and other net assets

6 PERFORMANCE DATA (CONTINUED) Performance details of the Fund for the last two unaudited financial periods are as follows: NAV (USD Million) - Class MYR Class SGD Class USD Units in circulation (Million) - Class MYR Class SGD Class USD NAV per unit (USD) - Class MYR Class SGD Class USD to to Highest NAV per unit (USD) - Class MYR Class SGD Class USD Lowest NAV per unit (USD) - Class MYR Class SGD Class USD Total return (%) - Class MYR Class SGD Class USD Capital growth (%) - Class MYR Class SGD Class USD Income distribution (%) - Class MYR Class SGD Class USD - - Management Expense Ratio ("MER") (%) - - Portfolio Turnover Ratio ("PTR") (times) # # The Fund s PTR was at 1.09 times as we maintained equity allocation at between 75% - 98% during the financial period under review. 4

7 PERFORMANCE DATA (CONTINUED) Since inception to % % % Annual total return - Class MYR (0.20) - Class USD (6.88) 1.40 (Launch date: 3 March 2015) Since inception to % % Annual total return - Class SGD (Launch date: 9 July 2015) Past performance is not necessarily indicative of future performance and that unit prices and investment returns may go down, as well as up. All performance figures for the financial period have been extracted from Lipper. MARKET REVIEW (1 DECEMBER 2016 TO 31 MAY 2017) ASEAN markets were generally volatile in the month of December 2016 as investor sentiment remained cautious, following the sharp corrections in November 2016 post Trump victory. By the end of December 2016, markets recovered slightly, partly supported by window dressing towards year end. In the first three months of 2017, ASEAN markets recovered. In January 2017, Singapore saw a 20.4% month-on-month ( m-o-m ) seasonally adjusted surge in electronics output, driving the December 2016 production above expectations at 21.3% over a year ago. In the Philippines, the first tax reform package was filed to the house. The package will include lowering personal income tax, increase in oil excise taxes and auto excise taxes. Philippines Overseas Filipino Workers ( OFW ) remittances were up to 3.6% over a year ago in December 2016, with the full year growth settling at 5% over a year ago, easing the concern over the recent string of weaknesses. The final revised Singapore s fourth quarter of 2016 GDP was a 12.3% quarter-on-quarter ( q-o-q ) seasonally adjusted annual rate surge, with manufacturing being the key source of strength. With a rebound in global economic growth, and a moderate inflation, investors were keen to adopt a more risk-on attitude. Recovery in commodity prices was also beneficial to Malaysia, Indonesia and Singapore. This broad based economic recovery led to the USD slightly weakening from its highs in January 2017 which was positive for emerging markets. The strongest ASEAN currency was Thai Baht ( THB ) which strengthened against USD by 4.2% from December 2016, supported by strong current account surplus. The global reflationary theme continued to play out in Asian markets. Despite the widespread fears with Trump s protectionist inclination, the US had not initiated trade war with its major trading partners. ASEAN market continued its uptrend in April and May 2017, driven by better than expected corporate earnings in the first quarter of 2017 and early signs of economic recovery. In addition, the smooth Jakarta election in April 2017 and the Indonesia s rating upgrade by rating agency, S&P, to investment grade along with Fitch and Moody helped to boost the ASEAN market further. 5

8 FUND PERFORMANCE 6 months to year to Since inception to Class MYR Class SGD Class USD Class MYR Class SGD Class USD Class MYR Class SGD Class USD % % % % % % % % % Income Capital Total Return Benchmark Average Total Return N/A N/A N/A The Fund generated a total return of 25.62%, 27.00% and 9.34% since inception, for MYR, SGD, USD classes respectively. The variance in performance of the three classes was due to volatility in currencies. Class MYR 30.00% 20.00% CLASS MYR Benchmark MYR 10.00% 0.00% % Class SGD 30.00% 25.00% CLASS SGD Benchmark SGD 20.00% 15.00% 10.00% 5.00% 0.00% 6

9 FUND PERFORMANCE (CONTINUED) Class USD 30.00% 20.00% CLASS USD Benchmark USD 10.00% 0.00% % % Changes in NAV CLASS MYR Changes % NAV (USD Million) NAV/Unit (USD) CLASS SGD Changes % NAV (USD Million) NAV/Unit (USD) CLASS USD Changes % NAV (USD Million) (54.67) NAV/Unit (USD) For the financial period under review, NAV for Class MYR was at USD6.13 million, NAV for Class SGD was at USD0.07 million and NAV for Class USD was at USD0.34 million. Performance data represents the combined income and capital return as a result of holding units in the Fund for the specified length of time, based on NAV to NAV price. The performance data assumes that all earnings from the Fund are reinvested and are net of management and trustee fees. Past performance is not reflective of future performance and income distributions are not guaranteed. Unit prices and income distributions, if any, may fall and rise. All performance figures for the financial period have been extracted from Lipper. 7

10 PORTFOLIO STRUCTURE Asset allocation (% of NAV) Quoted securities - local Quoted securities - foreign Cash and other net assets TOTAL The Fund remained invested in quoted equities during the six months financial period under review. MARKET OUTLOOK* Massive liquidity inflow amidst low inflation and slowing economic growth has reduced volatility of assets and perceptions of risks, which is a conducive environment for risk assets to persist. However, it is expected to see a slowdown from the tepid pace of economic growth seen in the first half. European Central Bank ( ECB ) and Bank of Japan ( BOJ ) are on track to boost their balance sheets by a combined amount of almost USD3 trillion in 2017, more than double the US Federal Reserve s (the Fed ) balance sheet expansion during Quantitative Easing 1 ( QE1 ) in 2009, or Quantitative Easing 3 ( QE3 ) in The size of ECB and BOJ s expansion would dwarf any potential tapering from the Fed in Hence, it is expected that returns and volatility in developed market assets to remain suppressed, and for fund flows into Asia seeking higher returns to persist in * This market outlook does not constitute an offer, invitation, commitment, advice or recommendation to make a purchase of any investment. The information given in this article represents the views of CIMB-Principal or based on data obtained from sources believed to be reliable by CIMB-Principal. Whilst every care has been taken in preparing this, CIMB-Principal makes no guarantee, representation or warranty and is under no circumstances liable for any loss or damage caused by reliance on, any opinion, advice or statement made in this market outlook. INVESTMENT STRATEGY While we continue to overweight Indonesia, we recently turned less negative on the Thailand market due to the government incentive to revitalize the investment climate in the country through the Eastern Economic Corridor ( EEC ) scheme, a 20-year strategy to achieve long term sustainable growth. The Thai Government is hopeful the EEC initiative would take Thailand to the next level, making it part of China s One-Belt-One-Road ( OBOR ) initiative. Furthermore, there are signs of recovery in consumption pattern. Earlier, Thailand s consumer confidence was dented by the passing of the King in October 2016 and the prolonged rainy season in early We turned positive on ASEAN markets since the beginning of 2017 on the back of stabilising commodities prices which will eventually lead to recovery in consumption and capital expenditure. Our favoured sectors are early cyclicals such as Financials, Industrials and Consumer Discretionary in selective markets. 8

11 UNIT HOLDINGS STATISTICS Breakdown of unit holdings by size as at 31 May 2017 are as follows: CLASS MYR Size of unit holdings (units) No. of unit holders No. of units held (million) % of units held 5,000 and below ,001 to 10, ,001 to 50, ,001 to 500, ,001 and above Total CLASS SGD Size of unit holdings (units) No. of unit holders No. of units held (million) % of units held 5,000 and below ,001 to 10, ,001 to 50, ,001 to 500, ,001 and above Total CLASS USD Size of unit holdings (units) No. of unit holders No. of units held (million) % of units held 5,000 and below ,001 to 10, ,001 to 50, ,001 to 500, ,001 and above Total SOFT COMMISSIONS AND REBATES CIMB-Principal Asset Management Berhad (the Manager ) and the Trustee (including their officers) will not retain any form of rebate or soft commission from, or otherwise share in any commission with, any broker in consideration for directing dealings in the investments of the Funds unless the soft commission received is retained in the form of goods and services such as financial wire services and stock quotations system incidental to investment management of the Funds. All dealings with brokers are executed on best available terms. During the financial period under review, the Manager and the Trustee did not receive any rebates from the brokers or dealers but have retained soft commissions in the form of goods and services such as financial wire services and stock quotations system incidental to investment management of the Funds. 9

12 STATEMENT BY MANAGER TO THE UNIT HOLDERS OF CIMB-PRINCIPAL ASEAN TOTAL RETURN FUND CIMB-PRINCIPAL ASEAN TOTAL RETURN FUND We, being the Directors of CIMB-Principal Asset Management Berhad (the Manager ), do hereby state that, in the opinion of the Manager, the accompanying unaudited financial statements set out on pages 12 to 41 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 May 2017 and of its financial performance, changes in net assets attributable to unit holders and cash flows for the financial period then ended in accordance with Malaysian Financial Reporting Standards ("MFRS") Interim Financial Reporting and International Accounting Standards ("IAS") 34 - Interim Financial Reporting. For and on behalf of the Manager CIMB-Principal Asset Management Berhad (Company No.: K) MUNIRAH KHAIRUDDIN Chief Executive Officer/Executive Director ALEJANDRO ECHEGORRI Executive Director Kuala Lumpur 31 July

13 TRUSTEE S REPORT TO THE UNIT HOLDERS OF CIMB-PRINCIPAL ASEAN TOTAL RETURN FUND CIMB-PRINCIPAL ASEAN TOTAL RETURN FUND We have acted as Trustee of CIMB-Principal ASEAN Total Return Fund (the Fund ) for the financial period ended 31 May To the best of our knowledge, CIMB-Principal Asset Management Berhad, (the Manager ), has operated and managed the Fund in accordance with the following:- a) limitations imposed on the investment powers of the Manager and the Trustee under the Deed, 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 Deed and any regulatory requirements; and c) creation and cancellation of units are carried out in accordance with the Deed and any regulatory requirements. For HSBC (Malaysia) Trustee Berhad Tan Bee Nie Head, Trustee Operations Kuala Lumpur 31 July

14 UNAUDITED STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 31 MAY 2017 CIMB-PRINCIPAL ASEAN TOTAL RETURN FUND to to Note USD USD INVESTMENT INCOME Dividend income 90,020 57,650 Interest income from deposits with licensed financial institutions 6,993 2,618 Net gain on financial assets at fair value through profit or loss 7 945, ,903 Net foreign exchange loss (7,995) (3,666) 1,034, ,505 EXPENSES Transaction costs 47,407 22,712 Other expenses ,690 23,442 PROFIT BEFORE TAXATION 987, ,063 Taxation 6 (8,294) (5,767) PROFIT AFTER TAXATION AND TOTAL COMPREHENSIVE INCOME FOR THE FINANCIAL PERIOD 978, ,296 Profit after taxation is made up as follows: Realised amount 437,408 (55,613) Unrealised amount 541, , , ,296 The accompanying notes to the financial statements form an integral part of the unaudited financial statements. 12

15 UNAUDITED STATEMENT OF FINANCIAL POSITION AS AT 31 MAY 2017 CIMB-PRINCIPAL ASEAN TOTAL RETURN FUND Audited Note USD USD ASSETS Cash and cash equivalents 8 806,361 1,604,108 Financial assets at fair value through profit or loss 7 5,862,207 4,366,162 Amount due from Manager 45,183 21,487 Dividends receivable 10,728 9,440 Other receivables 1,917 9,550 TOTAL ASSETS 6,726,396 6,010,747 LIABILITIES Amount due to stockbrokers 186, ,319 Amount due to Manager 3,548 15,676 TOTAL LIABILITIES (EXCLUDING NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS) 190, ,995 NET ASSET VALUE OF THE FUND 6,536,352 5,857,752 NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 6,536,352 5,857,752 REPRESENTED BY: FAIR VALUE OF OUTSTANDING UNITS (USD) - Class MYR 6,125,959 5,079,352 - Class SGD 67, ,611 - Class USD 343, ,789 6,536,352 5,857,752 NUMBER OF UNITS IN CIRCULATION (UNITS) - Class MYR 41,851,435 40,624,306 - Class SGD 73, ,224 - Class USD 629,319 1,313, ,554,289 42,151,311 NET ASSET VALUE PER UNIT (USD) - Class MYR Class SGD Class USD NET ASSET VALUE PER UNIT IN RESPECTIVE CURRENCIES - Class MYR RM RM Class SGD SGD SGD Class USD USD USD The accompanying notes to the financial statements form an integral part of the unaudited financial statements. 13

16 UNAUDITED STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 31 MAY to to USD USD NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS AT THE BEGINNING OF THE FINANCIAL PERIOD 5,857,752 6,508,069 Movement due to units created and cancelled during the financial period: Creation of units from applications - Class MYR 1,287, ,800 - Class SGD ,922 - Class USD 245, ,647 1,534, ,369 Cancellation of units - Class MYR (1,112,397) (1,441,538) - Class SGD (115,203) (23,231) - Class USD (606,976) (451,757) (1,834,576) (1,916,526) Increase in net assets attributable to unit holders during the financial period: Profit after taxation and total comprehensive income 978, ,296 NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS AT THE END OF THE FINANCIAL PERIOD 6,536,352 5,928,208 The accompanying notes to the financial statements form an integral part of the unaudited financial statements. 14

17 UNAUDITED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 31 MAY 2017 CIMB-PRINCIPAL ASEAN TOTAL RETURN FUND to to USD USD CASH FLOWS FROM OPERATING ACTIVITIES Proceeds from disposal of quoted securities 6,626,356 3,209,904 Purchase of quoted securities (7,178,785) (1,809,774) Dividend income received 66,562 41,152 Interest income from deposits with licensed financial institutions 6,993 2,618 Net realised foreign exchange income 4, Reimbursement received 8,850 9,868 Payments for other fees and expenses (1,501) (8,813) Net cash (used in)/generated from operating activities (466,896) 1,445,953 CASH FLOWS FROM FINANCING ACTIVITIES Cash proceeds from units created 1,512, ,946 Payments for cancellation of units (1,848,429) (1,855,904) Net cash used in financing activities (335,590) (954,958) Net (decrease)/increase in cash and cash equivalents (802,486) 490,995 Effects of foreign exchange differences 4,739 (2,106) Cash and cash equivalents at the beginning of the financial period 1,604, ,269 Cash and cash equivalents at the end of the financial period 806,361 1,484,158 Cash and cash equivalents comprises of Deposits with licensed financial institutions 525,846 61,309 Bank balances 280,515 1,422,849 Cash and cash equivalents at the end of the financial period 806,361 1,484,158 The accompanying notes to the financial statements form an integral part of the unaudited financial statements. 15

18 NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 31 MAY THE FUND, THE MANAGER AND ITS PRINCIPAL ACTIVITY CIMB-PRINCIPAL ASEAN TOTAL RETURN FUND CIMB-Principal ASEAN Total Return Fund (the "Fund ) was constituted pursuant to the execution of a Deed dated 23 February 2015 (referred to as the Deed ) between CIMB- Principal Asset Management Berhad (the Manager ) and HSBC (Malaysia) Trustee Berhad (the Trustee ). The Fund will be managed with the aim of achieving a stable and positive investment returns over the medium to long term through investments in ASEAN region regardless of market conditions. The companies invested in must be domiciled in, listed in, and/or have significant operations in the ASEAN region. For listed securities, the investment must be traded in an exchange that is a member of WFE. Significant operations means major businesses of the company. For example, the Fund can invest in a company with significant operations in Thailand but listed on the NYSE. The threshold for significant operations would be at least 30% of total group revenue to derive from countries in the ASEAN region. The calculation would be based on the most recent financial reports released by the companies (e.g. interim and annual reports). Investment universe of the Fund will be in countries where the regulatory authority is an ordinary or associate member of the IOSCO which include but not limited to Brunei Darussalam, Indonesia, Malaysia, Philippine, Singapore, Thailand and Vietnam. If the investment is a listed security, the investment must be traded in an exchange that is a member of WFE. In the event the Manager is unable to obtain the necessary licenses or permits, or the licenses or permits are revoked or not renewed (as the case may be), the Manager will seek to invest in other accessible markets. Under general market conditions, the Fund will invest in equities of companies which we believe will exhibit good growth potential when compared to its industry or the overall market. The Fund may also invest up to 15% of the Fund s NAV in debt securities to be in line with the Fund s objective. The minimum credit rating for these debt securities must be at least BBB by Fitch or its equivalent by S&P and Moody s. The Fund may opt to access into the equities and/or debt securities market via investment in units of other CIS that is in line with the Fund s objective, subject to the requirements of the SC Guidelines and the Standards of Qualifying CIS. All investments are subjected to the Securities Commission Malaysia ( SC ) Guidelines on Unit Trust Funds, SC requirements, the Deed, except where exemptions or variations have been approved by the SC, internal policies and procedures and the Fund s objective. The Manager, a company incorporated in Malaysia, is a subsidiary of CIMB Group Sdn Bhd and regards CIMB Group Holdings Berhad as its ultimate holding company. The Manager is also an associate of Principal International (Asia) Limited, which is a subsidiary of Principal Financial Group Inc. The principal activities of the Manager are the establishment and management of unit trust funds and fund management activities. 16

19 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CIMB-PRINCIPAL ASEAN TOTAL RETURN FUND The following accounting policies have been used consistently in dealing with items which are considered material in relation to the financial statements: (a) Basis of preparation The financial statements have been prepared in accordance with the provisions of the MFRS and 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 Manager to exercise their judgment in the process of applying the Fund s accounting policies. Although these estimates and assumptions are based on the Manager s best knowledge of current events and actions, actual results may differ. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 2(l). Standards, amendments to published standards and interpretations to existing standards that are effective: The Fund has applied the following amendments for the first time for the financial year beginning 1 December 2016: Amendments to MFRS 101 Presentation of Financial Statements - Disclosure Initiative provide clarifications on a number of issues, including: Materiality - an entity should not aggregate or disaggregate information in a manner that obscures useful information. Where items are material, sufficient information must be provided to explain the impact on the financial position or performance. Disaggregation and subtotals - line items specified in MFRS 101 may need to be disaggregated where this is relevant to an understanding of the entity s financial position or performance. There is also new guidance on the use of subtotals. Notes - confirmation that the notes do not need to be presented in a particular order. Other comprehensive income ( OCI ) arising from investments accounted for under the equity method - the share of OCI arising from equity-accounted investments is grouped based on whether the items will or will not subsequently be reclassified to profit or loss. Each group should then be presented as a single line item in the statement of other comprehensive income. 17

20 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (a) Basis of preparation (continued) The Fund has applied the following amendments for the first time for the financial year beginning 1 December 2016 (continued): According to the transitional provisions, the disclosures in MFRS 108 regarding the adoption of new standards/accounting policies are not required for these amendments. Annual Improvements to MFRSs Cycle The adoption of these amendments did not have any impact on the current financial period or any prior period and is not likely to affect future periods. The standards, amendments to published standards and interpretations to existing standards that are applicable to the Fund but not yet effective and have not been early adopted are as follows: (i) Financial year beginning on/after 1 December 2017 Amendments to MFRS 107 Statement of Cash Flows - Disclosure Initiative (effective from 1 January 2017) introduce an additional disclosure on changes in liabilities arising from financing activities. The Fund will apply this standard when effective. This standard is not expected to have a significant impact on the Fund s financial statements. (ii) Financial year beginning on/after 1 December 2018 MFRS 15 Revenue from Contracts with Customers (effective from 1 January 2018) replaces MFRS 118 Revenue and MFRS 111 Construction Contracts and related interpretations. The core principle in MFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Revenue is recognised when a customer obtains control of goods or services, i.e. when the customer has the ability to direct the use of and obtain the benefits from the goods or services. A new five-step process is applied before revenue can be recognised: Identify contracts with customers; Identify the separate performance obligations; Determine the transaction price of the contract; Allocate the transaction price to each of the separate performance obligations; and Recognise the revenue as each performance obligation is satisfied. 18

21 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (a) Basis of preparation (continued) (ii) Financial year beginning on/after December 2018 (continued) Key provisions of the new standard are as follows: Any bundled goods or services that are distinct must be separately recognised, and any discounts or rebates on the contract price must generally be allocated to the separate elements. If the consideration varies (such as for incentives, rebates, performance fees, royalties, success of an outcome etc), minimum amounts of revenue must be recognised if they are not at significant risk of reversal. The point at which revenue is able to be recognised may shift: some revenue which is currently recognised at a point in time at the end of a contract may have to be recognised over the contract term and vice versa. There are new specific rules on licenses, warranties, non-refundable upfront fees, and consignment arrangements, to name a few. As with any new standard, there are also increased disclosures. MFRS 9 Financial Instruments (effective from 1 January 2018) will replace MFRS 139 Financial Instruments: Recognition and Measurement. MFRS 9 retains but simplifies the mixed measurement model in MFRS 139 and establishes three primary measurement categories for financial assets: amortised cost, fair value through profit or loss and fair value through OCI. The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are always measured at fair value through profit or loss with an irrevocable option at inception to present changes in fair value in OCI (provided the instrument is not held for trading). A debt instrument is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest. For liabilities, the standard retains most of the MFRS 139 requirements. These include amortised cost accounting for most financial liabilities, with bifurcation of embedded derivatives. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in OCI rather than the income statement, unless this creates an accounting mismatch. MFRS 9 introduces an expected credit loss model on impairment that replaces the incurred loss impairment model used in MFRS 139. The expected credit loss model is forward-looking and eliminates the need for a trigger event to have occurred before credit losses are recognised. The Fund will apply these standards when effective. These standards are not expected to have a significant impact on the Fund s financial statements. 19

22 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) Financial assets and financial liabilities Classification The Fund designates its investments in quoted securities as financial assets at fair value through profit or loss at inception. Financial assets are designated at fair value through profit or loss when they are managed and their performance evaluated on a fair value basis. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and have been included in current assets. The Fund s loans and receivables comprise cash and cash equivalents, amount due from Manager, dividends receivable and other receivables. Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. The Fund classifies amount due to stockbrokers and amount due to Manager as other financial liabilities. Recognition and measurement Regular purchases and sales of financial assets are recognised on the trade-date, the date on which the Fund commits to purchase or sell the asset. Investments are initially recognised at fair value. Transaction costs are expensed in the statement of comprehensive income. Financial liabilities, within the scope of MFRS 139, are recognised in the statement of financial position when, and only when, the Fund becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Fund has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognised when it is extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or expired. Unrealised gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss are presented in the statement of comprehensive income within net gain or loss on financial assets at fair value through profit or loss in the financial period which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the statement of comprehensive income as part of gross dividend income when the Fund s right to receive payments is established. Quoted securities in Malaysia are valued at the last done market price quoted on Bursa Malaysia Securities Bhd ( Bursa Securities ) at the date of the statement of financial position. Foreign quoted securities are valued based on the last traded market price quoted on the respective foreign stock exchange at the close of the business day of the respective foreign stock exchanges. 20

23 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) Financial assets and financial liabilities (continued) Recognition and measurement (continued) If a valuation based on the market price does not represent the fair value of the quoted securities, for example during abnormal market conditions or when no market price is available, including in the event of a suspension in the quotation of the quoted securities for a period exceeding 14 days, or such shorter period as agreed by the Trustee, then the quoted securities are valued as determined in good faith by the Manager, based on the methods or bases approved by the Trustee after appropriate technical consultation. Deposits with licensed financial institutions are stated at cost plus accrued interest calculated on the effective interest method over the period from the date of placement to the date of maturity of the respective deposits. Loans and receivables and other financial liabilities are subsequently carried at amortised cost using the effective interest method. Impairment for assets carried at amortised costs For assets carried at amortised cost, the Fund assesses at the end of the reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest rate. The asset s carrying amount is reduced and the amount of the loss is recognised in statement of comprehensive income. If loans and receivables has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Fund may measure impairment on the basis of an instrument s fair value using an observable market price. If, in a subsequent financial period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor s credit rating), the reversal of the previously recognised impairment loss is recognised in statement of comprehensive income. When an asset is uncollectible, it is written off against the related allowance account. Such assets are written off after all the necessary procedures have been completed and the amount of the loss has been determined. 21

24 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (c) Income recognition Dividend income is recognised on the ex-dividend date when the right to receive payment is established. Interest income from deposits with licensed financial institutions is recognised on a time proportionate basis using the effective interest rate method on an accrual basis. Realised gain or loss on disposal of quoted securities is accounted for as the difference between the net disposal proceeds and the carrying amount of investments, determined on a weighted average cost basis. (d) Foreign currency Functional and presentation currency Items included in the financial statements of the Fund are measured using the currency of the primary economic environment in which the Fund operates (the functional currency ). The financial statements are presented in USD, which is the Fund s functional and presentation currency. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in statement of comprehensive income. (e) Units in circulation The unit holders contributions to the Fund meet the definition of puttable instruments classified as financial liability under MFRS 132 Financial Instruments: Presentation. The Fund issues cancellable units, in three classes of units, known respectively as the Class MYR, Class SGD and Class USD, which are cancelled at the unit holder s option. The units are classified as financial liabilities. Cancellable units can be put back to the Fund at any time for cash equal to a proportionate share of the Fund s NAV of respective classes. The outstanding units are carried at the redemption amount that is payable at the date of the statement of financial position if the member exercises the right to put back the unit to the Fund. Units are created and cancelled at the unit holders option at prices based on the Fund s NAV per unit of respective classes at the close of business on the relevant dealing day. The Fund s NAV per unit of respective classes is calculated by dividing the net assets attributable to members of respective classes with the total number of outstanding units of respective classes. (f) Cash and cash equivalents For the purpose of statement of cash flows, cash and cash equivalents comprise bank balances and deposits held in highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. 22

25 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (g) Taxation Current tax expense is determined according to Malaysian tax laws at the current rate based on taxable profit earned during the financial period. Tax on income from foreign quoted securities is based on the tax regime of the respective countries that the Fund invests in. (h) Transaction costs Transaction costs are costs incurred to acquire or dispose financial assets or liabilities at fair value through profit or loss. They include fees and commissions paid to agents, advisers, brokers and dealers. Transaction costs, when incurred, are immediately recognised in the statement of comprehensive income as expenses. (i) Increase/Decrease in net assets attributable to unit holders Income not distributed is included in net assets attributable to unit holders. (j) Amount due to stockbrokers Amount due to stockbrokers represent payables for quoted securities purchased that have been contracted for but not yet settled or delivered on the statement of financial position date. These amounts are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment for amount due from stockbrokers. A provision for impairment of amount due from stockbrokers is established when there is objective evidence that the Fund will not be able to collect all amounts due from the relevant stockbroker. Significant financial difficulties of the stockbroker, probability that the broker will enter bankruptcy or financial reorganisation, and default in payments are considered indicators that the amount due from stockbrokers is impaired. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. (k) Segment information Operating segments are reported in a manner consistent with the internal reporting used by the chief operating decision-maker. The chief operating decision-maker is responsible for allocating resources and assessing performance of the operating segments. 23

26 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (l) Critical accounting estimates and judgments in applying accounting policies The Fund makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. To enhance the information content of the estimates, certain key variables that are anticipated to have material impact to the Funds results and financial position are tested for sensitivity to changes in the underlying parameters. Estimates and judgments are continually evaluated by the Manager and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In undertaking any of the Fund s investment, the Manager will ensure that all assets of the Fund under management will be valued appropriately, that is at fair value and in compliance with the SC Guidelines on Unit Trust Funds. Functional currency Due to mixed factors in determining the functional currency of the Fund, the Manager has used its judgement to determine the functional currency that most faithfully represents the economic effects of the underlying transactions, events and conditions and have determined the functional currency to be in USD primarily due to the following factors: (i) (ii) Significant portion of the NAV is invested in the form of cash denominated in USD for the purpose of making settlement of the foreign trades. Significant portion of the Fund s expenses are denominated in USD. 24

27 3. RISK MANAGEMENT OBJECTIVES AND POLICIES CIMB-PRINCIPAL ASEAN TOTAL RETURN FUND The Fund aims to achieve capital appreciation over the medium to long term by investing in the ASEAN region. The Fund is exposed to a variety of risks which include market risk (inclusive of price risk, currency risk and interest rate risk), credit risk and liquidity risk. Financial risk management is carried out through internal control process adopted by the Manager and adherence to the investment restrictions as stipulated in the Deed and SC Guidelines on Unit Trust Funds. (a) Market risk (i) Price risk Price risk is the risk that the fair value of an investment in quoted securities will fluctuate because of changes in market prices (other than those arising from interest rate risk and currency risk). The value of quoted securities may fluctuate according to the activities of individual companies, sector and overall political and economic conditions. Such fluctuation may cause the Fund s NAV and prices of units to fall as well as rise, and income produced by the Fund may also fluctuate. The price risk is managed through diversification and selection of quoted securities and other financial instruments within specified limits according to the Deed. (ii) Currency risk Currency risk is associated with investments that are quoted and/or priced in foreign currency denomination. Foreign currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. The Manager will evaluate the likely directions of a foreign currency versus USD based on considerations of economic fundamentals such as interest rate differentials, balance of payments position, debt levels, and technical chart considerations. (iii) Interest rate risk Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. Interest rate is a general economic indicator that will have an impact on the management of the Fund. The Fund s exposure to fair value interest rate risk arises from investment in money market instruments. The interest rate risk is expected to be minimal as the Fund s investments comprise mainly short term deposits with approved licensed financial institutions. As at the end of each financial period, the Fund is not exposed to a material level of interest rate risk. The Fund is not exposed to cash flow interest rate risk as the Fund does not hold any financial instruments at variable interest rate. 25