REPORT AND FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER

Transcription

1 ASIA FRONTIER EQUITY FUND CHINA EQUITY FUND GLOBAL ALLOCATION FUND (EACH A SUB-FUND OF HARVEST FUNDS SERIES (HONG KONG)) (PREVIOUSLY NAMED AS EACH A SUB-FUND OF HARVEST FUNDS (CAYMAN) ) REPORT AND FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER

2 (each a Sub-fund of Harvest Funds Series (Hong Kong)) (Previously named as "each a Sub-Fund of Harvest Funds (Cayman)") REPORT AND FINANCIAL STATEMENTS For the financial year ended 31 December 2017

3 CONTENTS Page Directory 1 Manager's Report 2 Trustee's Report 5 Statement Of Responsibilities Of The Manager And The Trustee 6 Independent Auditor's Report 7 Statement of Financial Position 10 Statement of Comprehensive Income 12 Statement of Changes in Net Assets Attributable to Unitholders 14 Statement of Cash Flows 16 Notes to the Financial Statements 18 Investment Portfolio (Unaudited) 61 Statement of Movements in Investment Portfolio (Unaudited) 67 Performance table (Unaudited) 70

4 DIRECTORY DIRECTORS OF THE MANAGER ZHAO Xuejun WANG Wei LI Ming JING Lei (appointed on 16 April 2018) SUN Chen KWAN Chi Wang, Thomas Choy Peng Wah (removed on 31 January 2017) MANAGER AND DISTRIBUTOR Harvest Global Investments Limited 31/F, One Exchange Square 8 Connaught Place Central, Hong Kong TRUSTEE BNP Paribas Trust Services (Hong Kong) Limited 21/F, PCCW Tower Taikoo Place 979 King s Road Quarry Bay Hong Kong ADMINISTRATOR AND CUSTODIAN BNP Paribas Securities Services, acting through its Singapore Branch 20 Collyer Quay #01-01 Singapore REGISTRAR AND TRANSFER AGENT BNP Paribas Securities Services, acting through its Hong Kong Branch Hong Kong Branch: 21/F, PCCW Tower Taikoo Place 979 King s Road Quarry Bay Hong Kong AUDITOR PricewaterhouseCoopers 22 nd Floor, Prince's Building Central Hong Kong LEGAL ADVISER TO THE MANAGER Deacons 5th Floor, Alexandra House 18 Chater Road Central Hong Kong 1

5 MANAGER'S REPORT Asia Frontier Equity Fund Asian markets had a strong year in 2017 from start to finish. Most Asian markets recorded positive gains as well as outperformed their global peers was a year that was driven by China and the technology super cycle coupled with Asian currency strength. China s better than expected macroeconomic numbers kept surprising on the upside so did major markets like US and Europe. By the early months of the year, the markets were entering a period of synchronized global growth, something not seen since the last decade. The technology super cycle was aided by expectations of new smart-phone launches coupled with more demand for semiconductor chips to be used in everything from cloud computing to crypto-currency mining. Geopolitics did poise some concern like the China-South Korea tensions over the implementation of the THAAD missile, North Korea threat as well as President Trump s trade policies. However, all these concerns were allayed as economic data continued to show strength and this strength was soon reflected in better than expected corporate financial results that further fuelled the market rally. Some disappointment did happen towards the later part of the year where the highly anticipated iphone X did not live up to its expectations. The technology sector witnessed profit taking across the board and investors rotated into other old economy sectors like financials and commodities, sectors that benefit from global growth. During 2017 one notable event that took place was the first inaugural One Belt One Road summit held in Beijing with more financial commitment to the 29 attending countries. For the Asian Frontier markets, the strong recovery in commodity prices that was aided by stronger global growth was definitely a winning factor for markets like Kazakhstan and Mongolia. Both these markets have extremely high weightings in stocks in the commodity sector. Naturally, these 2 markets were the top 2 performing markets in the Asian Frontier space. Kazakhstan s market also had a boost when plans of KazMunaiGas s privatization were announced. For Mongolia, apart from stronger commodity prices, the markets also cheered on the successful handover of power to the country s new Prime Minister Ukhnaagiin Khurelsukh. Vietnam was also a strong performer, peaking near a decade high on liquidity surge. The surge in liquidity was largely driven liberalization of the stock market where foreign investor limits were lifted as the government sold more shares in the large listed companies particularly in the food & beverage sector. The biggest news was the successful stake sale of Saigon Beer, a leading brewery to Singapore listed Thai Beverage. Bangladesh also notched in positive gains during the year, largely led by banking sector on back of stronger economic growth. However, gains in Bangladesh began to falter on fears of monetary tightening. Sri Lanka posted the smallest gain among the Frontier peers but snapped its 2 year losing streak in 2015 and Gains were largely led by increased foreign investor portfolio flows into the market. One common factor among the Asian Frontier markets was that the liquidity surge only took place towards the later part of the year. 2

6 MANAGER'S REPORT China Equity Fund A 52% return (calculated by MSCI China index) has made China market one of best-performing markets around the world, outmatching most emerging peers, not to mention developed markets. Earnings growth contributed the major part of return, which was above 30% in The rest of the return was mainly from valuation. To look into the market style, growth stocks led value names overall. Real estate and information technology were the two sectors with the best performance among all the other sectors. Hong Kong (HK) market attracted new flows from both domestic and overseas investors in Domestic investors (mainly through southbound) contributed large amount of the new fund flow of HK$340 billion in 2017 (vs. HK$246 billion in 2016) to HK market. Overseas investors also decreased their overweight on China market. The Harvest China Equity Fund gained 55.19% in Throughout the year, we have been sticking to our conviction of high growth sectors and ran a high deviation from the benchmark: we had significantly underweighted old economy sectors such as banks, energy and telecommunications while significantly overweighting the high growth sectors such as healthcare, consumer discretionary and technology. Our strategy of focusing on the new economy and high quality growth stocks worked out nicely for the year. We continue to be positive on HK market performance as 1) HK market will continue to attract new flows in 2018 from both mainland China and overseas investors thanks to its attractive valuation; 2) the macro growth of China will continue to be solid with more focus on quality growth going forward, as guided by the central government in the 19th Party s Congress. MSCI s A-share inclusion will also provide positive catalyst to the market. We believe the upside of the China market in 2018 will continue to come mainly from earnings growth (estimated 2018 earnings per share (EPS) growth of around 15%), with some valuation rerating. We tactically prefer those laggards with turnaround catalysts (e.g. banks and energy stocks) as well as our key growth theme in sectors with quality and sustainable growth (e.g. consumer discretionary, healthcare and information technology). Key events to watch: 1) Financial deleverage progress by the Chinese government; 2) the National People s Congress and the Chinese Political Consultative Conference (NPC& CPPCC) in March with cabinet of the government to be finalized and potentially more economic targets to be disclosed; 3) Geopolitical risks (e.g. North Korea); 4) US Federal Reserve s progress on interest rate hike, change of Federal Reserve s president and inflation expectation. 3

7 MANAGER'S REPORT Global Allocation Fund The fund has performed very well by delivering positive returns every month throughout the year. The full year net return was 21.2%. The excellent performance was predominantly driven by our high conviction in risky assets and their strong performance for the year. Specifically the strong performance came from the following three areas of active management. First, we allocated most of the risk on equity and used fixed income securities as a hedge. Second, within equity, we favored (especially Asian) emerging markets over developed markets. Third, the allocation from China/Asia index investments to active stock selection and corporate fixed income also added positive alpha. In retrospect, global economy in 2017 was a goldilocks state where we experienced relatively synchronized growth pickup, recovering yet still lukewarm inflation without forcing central banks to hike aggressively, and China s impressive progress in economic reforms (completely avoiding hard-landing scenarios). Consistent with this goldilocks state, asset market volatility generally was on a downward trend. For example, the highest daily close of the VIX index (a fear gauge for the S&P 500 Index) was only 16.0 in the year, a peaceful year we last experienced only in Going into 2018, we are much more cautious on equities, especially in the near-term as volatility may increase as US inflation shows signs of finally picking up and we will have a new Federal Reserve chair in February. Also, the market sentiment shows various developed markets close to being overbought. Market disappointments may also appear with investors over-pricing in Trump s potential fiscal stimulus package. However, over a medium to long term, we continue to be bullish on equities and prefer emerging vs. developed markets. 4

8 TRUSTEE'S REPORT We hereby confirm that, in our opinion, the Manager of Asia Frontier Equity Fund, China Equity Fund and Global Allocation Fund (the "Sub-Funds"), sub-funds of Harvest Funds Series (Hong Kong) (the "Trust") has, in all material respects, managed the Sub-Funds in accordance with the provisions of the Trust Deed dated 29 August 2011, as amended, for the year ended 31 December For and on behalf of the Trustee BNP Paribas Trust Services (Hong Kong) Limited Trustee 5

9 STATEMENT OF RESPONSIBILITIES OF THE MANAGER AND THE TRUSTEE Manager s Responsibilities The Manager of Asia Frontier Equity Fund, China Equity Fund and Global Allocation Fund (the Sub-Funds ), Sub-Funds of Harvest Funds Series (Hong Kong), is required by the Code of Unit Trusts and Mutual Funds established by the Securities & Futures Commission of Hong Kong (the SFC Code ) and the Trust Deed dated 29 August 2011, as amended from time to time (the Trust Deed ) to cause to be made up the financial statements for each annual accounting year which give a true and fair view of the financial position of the Sub-Funds at the end of that year and of the transactions for the year ended. In preparing these financial statements the Manager is required to:- - select suitable accounting policies as agreed with the Trustee and then apply them consistently; - make judgements and estimates that are prudent and reasonable; and - cause to be made up the financial statements on the basis that the Sub-Funds will continue in operation unless it is inappropriate to assume this. The Manager is also required to manage the Sub-Funds in accordance with the Trust Deed and take reasonable steps for the prevention and detection of fraud and other irregularities. Harvest Funds Series (Hong Kong) (the Trust ) is an open ended umbrella unit trust governed by its Trust Deed. As at 31 December 2017, the Trust has established three sub-funds, namely, Asia Frontier Equity Fund, China Equity Fund and Global Allocation Fund. Trustee s Responsibilities The Trustee of the Sub-Funds is required to:- - ensure that the Sub-Funds in all material respects are managed in accordance with the Trust Deed and that the investment and borrowing powers are complied with; - satisfy itself that sufficient accounting and other records have been maintained; - safeguard the property of the Sub-Funds and rights attaching thereto; and - report to the unitholders for each annual accounting year should the Manager not managing the Sub-Funds in accordance to the Trust Deed. 6

10 Independent Auditor's Report To the unitholders (as a body) of Asia Frontier Equity Fund, China Equity Fund and Global Allocation Fund Report on the Audit of the Financial Statements Opinion What we have audited The financial statements of Asia Frontier Equity Fund, China Equity Fund and Global Allocation Fund (the Sub-Funds ), sub-funds of Harvest Funds Series (Hong Kong) (the Trust ) set out on pages 10 to 60, which comprise: the statements of financial position as at 31 December 2017; the statements of comprehensive income for the year then ended; the statements of changes in net assets attributable to unitholders for the year then ended; the statements of cash flows for the year then ended; and the notes to the financial statements, which include a summary of significant accounting policies. Our opinion In our opinion, the financial statements give a true and fair view of the financial position of each of the Sub-Funds as at 31 December 2017, and of its financial transactions and cash flows for the year then ended in accordance with International Financial Reporting Standards ( IFRSs ) issued by the International Accounting Standards Board (IASB). Basis for Opinion We conducted our audit in accordance with International Standards on Auditing ( ISAs ) issued by the IASB. Our responsibilities under those standards are further described in the Auditor s Responsibilities for the Audit of the Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Sub-Funds in accordance with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (the IESBA Code ), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. Other Information The Manager and the Trustee (the Management ) of the Sub-Funds are responsible for the other information. The other information comprises all of the information included in the annual report other than the financial statements and our auditor s report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. 7

11 Independent Auditor's Report (continued) To the unitholders (as a body) of Asia Frontier Equity Fund, China Equity Fund and Global Allocation Fund Report on the Audit of the Financial Statements (Continued) Other Information (Continued) If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Management for the Financial Statements The Management of the Sub-Funds is responsible for the preparation of the financial statements that give a true and fair view in accordance with IFRSs issued by the IASB, and for such internal control as the Management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Management of the Sub-Funds is responsible for assessing the Sub-Funds ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Management either intends to liquidate the Sub-Funds or to cease operations, or have no realistic alternative but to do so. In addition, the Management of the Sub-Funds is required to ensure that the financial statements have been properly prepared in accordance with the relevant disclosure provisions of the Trust Deed dated 29 August 2011 ( Trust Deed ) and Appendix E of the Code on Unit Trusts and Mutual Funds issued by the Hong Kong Securities and Futures Commission (the SFC Code ). Auditor s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. Our responsibilities is to express an opinion on these financial statements based on our audit and to report our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. In addition, we are required to assess whether the financial statements of the Sub-Funds have been properly prepared, in all material respects, in accordance with the relevant disclosure provisions of the Trust Deed and the SFC Code. 8

12 Independent Auditor's Report (continued) To the unitholders (as a body) of Asia Frontier Equity Fund, China Equity Fund and Global Allocation Fund Report on the Audit of the Financial Statements (Continued) As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Sub-Funds internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Management. Conclude on the appropriateness of the Management s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Sub-Funds ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report. However, future events or conditions may cause the Sub-Funds to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with the Management regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Report on Matters under the Relevant Disclosure Provisions of the Trust Deed and the SFC Code In our opinion, the financial statements have been properly prepared, in all material respects, in accordance with the relevant disclosure provisions of the Trust Deed and the SFC Code. PricewaterhouseCoopers Certified Public Accountants Hong Kong, 26 April

13 STATEMENT OF FINANCIAL POSITION As at 31 December 2017 Assets Asia Frontier Equity Fund China Equity Fund Note HK$ HK$ Current assets Financial assets at fair value through profit or loss 3(a) 19,591,289 22,588, ,694, ,217,567 Amount due from brokers ,966 Other receivable 305,598 25, ,112 Cash and cash equivalents 712,471 1,178,711 10,033,078 4,767,006 Total assets 20,609,358 23,793, ,727, ,296,651 Liabilities Current liabilities Administration fee payable 8 1,769 2,234 42,563 26,313 Audit fee payable 32,780 33, , ,520 Management fee payable 8 21,039 35, , ,755 Amount due to brokers - 509, Due to unitholders ,600 - Trustee fee payable 8 2,122 2,681 57,144 32,400 Other payables 22,704 22,704 11,813 11,703 Total liabilities (excluding net assets attributable to unitholders) 81, ,690 1,026, ,691 Net assets attributable to unitholders 20,528,310 23,186, ,701, ,691,960 The financial statements were approved and authorised for issue by the Trustee and the Manager BNP Paribas Trust Services (Hong Kong) Limited as Trustee Harvest Global Investments Limited as Manager The accompanying notes form an integral part of these financial statements 10

14 STATEMENT OF FINANCIAL POSITION As at 31 December 2017 Assets Global Allocation Fund Note Current assets Financial assets at fair value through profit or loss 3(a) 14,200,593 11,350,273 Interest receivable 40,172 54,461 Account receivable on redemption of investment 40,137 71,183 Other receivable 12,144 11,266 Cash and cash equivalents 99,033 1,008,754 Total assets 14,392,079 12,495,937 Liabilities Current liabilities Administration fee payable 8 1,392 1,188 Audit fee payable 22,000 23,000 Management fee payable 8 18,502 15,653 Trustee fee payable 8 1,670 1,426 Other payables 1,514 2,212 Total liabilities 45,078 43,479 Equity Net assets attributable to unitholders 14,347,001 12,452,458 The accompanying notes form an integral part of these financial statements 11

15 STATEMENT OF COMPREHENSIVE INCOME For the financial year ended 31 December 2017 Asia Frontier Equity Fund China Equity Fund Note HK$ HK$ Income Net gains/(losses) on financial assets and liabilities at fair value through profit or loss 6 7,190,479 (1,173,668) 179,898,425 5,865,681 Dividend income 495, ,398 6,795,172 7,077,095 Interest income 2,362 1, Other income ,660 Total investment income/(loss) 7,688,765 (601,885) 186,693,870 13,036,436 Expenses Administration fee 8 7,556 8, ,511 98,614 Audit fee 21,999 23, , ,162 Custody fee 8 37,021 32, , ,648 Legal and professional fee 18,441 13, ,548 67,869 Management fee 8 156, ,425 3,085,890 2,032,803 Other expenses 8,979 15,031 65,217 87,867 Transaction cost 159, ,116 3,181, ,794 Trustee fee 8 9,068 10, , ,045 Interest expense 4-2,857 - Total operating expenses 418, ,301 7,233,927 3,614,802 Gain/(loss) before tax 7,269,938 (1,171,186) 179,459,943 9,421,634 Withholding tax on dividends and other investment income (47,269) (51,962) (428,920) (513,614) Profit gain/(loss) after tax 7,222,669 (1,223,148) 179,031,023 8,908,020 Increase/(decrease) in net assets attributable to unitholders 7,222,669 (1,223,148) 179,031,023 8,908,020 The accompanying notes form an integral part of these financial statements 12

16 STATEMENT OF COMPREHENSIVE INCOME For the financial year ended 31 December 2017 Global Allocation Fund Note Income Net gains on financial assets and liabilities at fair value through profit or loss 6 2,443,812 59,377 Dividend income 258, ,214 Interest income 187, ,731 Other income - 1,362 Total investment gain 2,889, ,684 Expenses Administration fee 8 17,502 14,219 Audit fee 21,520 34,801 Custody fee 8 6,379 8,058 Impairment of account receivable on redemption of investment 14,310 - Legal and professional fee 5,828 4,706 Management fee 8 104, ,660 Other expenses 5,661 7,085 Transaction cost 26,965 58,660 Trustee fee 8 6,259 4,345 Interest expense Total operating expenses 208, ,723 Gain before tax 2,680, ,961 Withholding tax on dividends and other investment income (39,760) (53,670) Gain after tax 2,641, ,291 Increase in net assets attributable to unitholders 2,641, ,291 The accompanying notes form an integral part of these financial statements 13

17 STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO UNITHOLDERS For the financial year ended 31 December 2017 Asia Frontier Equity Fund 31 December December 2016 Number of units Number of units Net assets attributable to unitholders at the beginning of year 1,612,584 23,186,325 1,600,187 24,205,948 Subscriptions of units 85,713 1,717,228 34, ,556 Redemption of units (835,348) (11,597,912) (22,146) (361,031) Net (decrease)/increase from units transaction (749,635) (9,880,684) 12, ,525 Gain/(loss) after tax - 7,222,669 - (1,223,148) Increase/(decrease) in net assets attributable to unitholders - (2,658,015) - (1,019,623) Net assets attributable to unitholders at the end of year 862,949 20,528,310 1,612,584 23,186,325 China Equity Fund 31 December December 2016 Number of units HK$ Number of units HK$ Net assets attributable to unitholders at the beginning of year 2,804, ,691,960 2,839, ,398,031 Subscriptions of units 595,339 70,004,884 31,061 3,513,534 Redemption of units (85,740) (12,026,773) (65,678) (7,127,625) Net increase/(decrease) from units transaction 509,599 57,978,111 (34,617) (3,614,091) Gain after tax - 179,031,023-8,908,020 Increase in net assets attributable to unitholders - 237,009,134-5,293,929 Net assets attributable to unitholders at the end of year 3,314, ,701,094 2,804, ,691,960 The accompanying notes form an integral part of these financial statements 14

18 STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO UNITHOLDERS For the financial year ended 31 December December December 2016 Global Allocation Fund Number of units Number of units Net assets attributable to unitholders at the beginning of year 1,301,989 12,452,458 1,301,989 12,200,167 Redemption of units (65,000) (746,590) - - Net Increase from units transaction (65,000) (746,590) - - Gain after tax 2,641, ,291 Increase in net assets attributable to unitholders - 1,894, ,291 Net assets attributable to unitholders at the end of year 1,236,989 14,347,001 1,301,989 12,452,458 The accompanying notes form an integral part of these financial statements 15

19 STATEMENT OF CASH FLOWS For the financial year ended 31 December 2017 Asia Frontier Equity Fund China Equity Fund HK$ HK$ Cash flows from operating activities Profit/(loss) before tax 7,269,938 (1,171,186) 179,459,943 9,421,634 Adjustments for: - Dividend income (495,838) (570,398) (6,795,172) (7,077,095) - Interest income (2,362) (1,385) (273) - - Other income (86) - - (289) - Interest expense 4-2,857 - Operating cash flow before working capital changes 6,771,656 (1,742,969) 172,667,355 2,344,250 - Decrease/(increase) in financial assets at fair value through profit or loss 2,997, ,577 (232,477,216) (6,281,647) - Decrease in financial liabilities at fair value through profit or loss - (45) Increase in amount due from brokers - 302,127 72,966 6,013,758 - (Decrease)/increase in administration fee payable (465) 1,470 16,250 17,307 - (Decrease)/increase in audit fee payable (521) (4,462) 31,882 31,999 - (Decrease)/increase in management fee payable (14,854) 17, , ,625 - (Decrease)/increase in amount due to brokers (509,877) 138,957 - (12,323,253) - (Decrease)/increase in trustee fee payable (559) 1,765 24,744 21,280 - (Increase)/decrease in other payables - (3,984) 110 (85,616) - Dividend income received 484, ,350 7,034,557 6,882,265 - Interest paid (4) - (2,857) - - Withholding tax paid (47,269) (51,962) (428,920) (513,614) Net cash generated/(used in) from operating activities 9,680,121 93,146 (52,769,639) (3,726,646) Cash flows generated from financing activities Proceeds from subscriptions of units 1,450, ,556 70,004,884 3,513,534 Payments of redeemable units (11,597,278) (361,031) (11,969,173) (7,127,625) Net cash (used in)/generated from financing activities (10,146,361) 203,525 58,035,711 (3,614,091) Net (decrease)/increase in cash and cash equivalents (466,240) 296,671 5,266,072 (7,340,737) Cash and cash equivalent at beginning of the year 1,178, ,040 4,767,006 12,107,743 Cash and cash equivalent at end of the year 712,471 1,178,711 10,033,078 4,767,006 The accompanying notes form an integral part of these financial statements 16

20 STATEMENT OF CASH FLOWS For the financial year ended 31 December 2017 Global Allocation Fund Cash flows from operating activities Profit before tax 2,680, ,961 Adjustments for: - Dividend income (258,926) (265,214) - Interest income (187,002) (233,731) - Other income - (1,362) - Interest expense Impairment on account receivable on redemption of investment 14,310 - Operating cash flow before working capital changes 2,249,375 (194,157) - Increase in financial assets at fair value through profit or loss (2,850,320) (232,563) - Decrease in account receivable on redemption of investment 16, ,317 - Increase in administration fee payable (Decrease)/increase in audit fee payable (1,000) 6,001 - Increase in management fee payable 2, Decrease in amount due to brokers - (1,000,000) - Increase in trustee fee payable 244 1,165 - Decrease in other payables (698) (997) - Dividend income received 258, ,714 - Interest and other income received 201, ,717 - Interest paid (100) (189) - Withholding tax paid (39,760) (53,670) Net cash (used in)/ generated from operating activities (163,131) 11,137 Cash flows used in financing activities Payments of redeemable units (746,590) - Net cash used in financing activities (746,590) - Net (decrease)/increase in cash and cash equivalents (909,721) 11,137 Cash and cash equivalent at beginning of the year 1,008, ,617 Cash and cash equivalent at end of the year 99,033 1,008,754 The accompanying notes form an integral part of these financial statements 17

21 NOTES TO THE FINANCIAL STATEMENTS 1. General Information Harvest Funds Series (Hong Kong) (the Fund ), which was originally constituted as an umbrella unit trust by a trust deed dated 29 August 2011 as amended, varied or supplemented from time to time (the Trust Deed ) between Harvest Global Investments Limited (the Manager ) as manager and BNP Paribas Bank & Trust Cayman Limited as trustee, was governed by the laws of the Cayman Islands and regulated by the Cayman Islands Monetary Authority in the Cayman Islands. Pursuant to a Deed of Removal of the Trust to Another Jurisdiction and Retirement and Appointment of Trustee dated 6 June 2016, the Fund was removed from the jurisdiction of the Cayman Islands to the jurisdiction of Hong Kong and BNP Paribas Trust Services (Hong Kong) Limited (the Trustee ) was appointed as trustee in place of BNP Paribas Bank & Trust Cayman Limited with effect from 29 June The Trust Deed is currently governed by the laws of Hong Kong. The Fund has been established as an umbrella fund and accordingly the assets of the Fund will be separated into different sub-funds. As at 31 December 2017, the Fund has three sub-funds, Asia Frontier Equity Fund, China Equity Fund and Global Allocation Fund (together, the "Sub-Funds"). BNP Paribas Trust Services (Hong Kong) Limited ("the Trustee") has been appointed as the Trustee of the Trust. Units of each Sub-Fund may be issued in different classes of units. The Manager may issue one or more sub-funds and/or a new class or classes of units related thereto from time to time subject to the Trustee's acceptance of a notice of establishment given to the Trustee by the Manager as provided for in the Trust Deed. The assets of a sub-fund will be invested and administered separately from the assets of the other sub-funds issued. Since 7 April 2016, the Global Allocation Fund is authorized by the SFC. The Sub-Funds have different investment objectives and policies. Date of constitution Asia Frontier Equity Fund 29 August 2011 China Equity Fund 10 February 2012 Global Allocation Fund 28 January 2015 Asia Frontier Equity Fund The investment objective of the Sub-Fund is to provide long-term capital appreciation by investing primarily in equity and equity related securities of corporations whose predominant business will benefit from or is related to the growth in Asia Frontier Markets. The term Asia Frontier Markets shall refer to developing emerging markets or economies in Asia which are considered to be smaller, less developed and less accessible than more developed emerging markets in Asia including but not limited to Bangladesh, Kazakhstan, Mongolia, Sri Lanka, Vietnam and western Chinese provinces. Western Chinese provinces shall include, but not be limited to, Inner Mongolia, Tibet, Xinjiang and Yunnan. China Equity Fund The investment objective of the Sub-Fund is to provide capital appreciation over the medium to long term by investing primarily in equity and equity-related securities of companies which are incorporated in, have their area of primary activity in or which are related to the growth of the People s Republic of China ( PRC ). Global Allocation Fund The investment objective of the Sub-Fund is to achieve long term capital growth and income through investing in a diversified portfolio of investments in global markets. 18

22 NOTES TO THE FINANCIAL STATEMENTS 1. General Information (continued) Manager Harvest Global Investments Limited (the "Manager") has been appointed as the Manager of the Sub-Funds with responsibility for the selection of investments and day-to-day management of the Sub-Funds. The Manager was established in Hong Kong on 23 September 2008 and is a wholly owned subsidiary of Harvest Fund Management Co., Ltd, a company registered in the People's Republic of China. The Manager is licensed and regulated by the SFC to conduct Type 1 regulated activity (dealing in securities), Type 4 regulated activity (advising on securities) and Type 9 regulated activities (asset management). 2. Summary of significant accounting policies The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to the period presented, unless otherwise stated. All references to net asset value ( NAV ) throughout these financial statements refer to net assets attributable to unitholders (after amortisation of preliminary expenses adjustment) unless otherwise stated. (a) Basis of preparation The financial statements of the Sub-Funds have been prepared in accordance with International Financial Reporting Standards ( IFRS ). The financial statements are prepared under the historical cost convention as modified by the fair valuation of financial assets and financial liabilities (including derivative instruments) held at fair value through profit or loss. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Sub-Funds' accounting policies. The principal accounting policies adopted in the preparation of these financial statements are set out below. Standards amendments and interpretations to existing standards that have been adopted las 7, Statement of Cash Flows (effective 1 January 2017) requires an entity to present a Statement of Cash Flows as an integral part of its primary financial statements. las 7 was amended on 29 January 2016, requiring entities to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities. The amendment will affect the layout and disclosure of the Funds Statement of Cash Flows. The adoption of the new or amended FRS did not impact the Funds level of disclosures and accounting policies, and had no material effect on the amounts reported for the current or prior financial years New standards, amendments and interpretations effective after 1 January 2017 and have not been early adopted IFRS 9 Financial Instruments addresses the classification, measurement and derecognition of financial assets and liabilities. It replaces the multiple classification and measurement models in IAS 39 and is effective for reporting periods beginning on or after 1 January

23 NOTES TO THE FINANCIAL STATEMENTS 2. Summary of significant accounting policies (continued) Classification and measurement of debt assets will be driven by the entity s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. A debt instrument is measured at amortised cost if the objective of the business model is to hold the financial asset for the collection of the contractual cash flows and the contractual cash flows under the instrument solely represent payments of principal and interest (SPPI). A debt instrument is measured at fair value through other comprehensive income if the objective of the business model is to hold the financial asset both to collect contractual cash flows from SPPI and to sell. All other debt instruments must be recognised at fair value through profit or loss. An entity may however, at initial recognition, irrevocably designate a financial asset as measured at fair value through profit or loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency. Derivative and equity instruments are measured at fair value through profit or loss unless, for equity instruments not held for trading, an irrevocable option is taken to measure at fair value through other comprehensive income. IFRS 9 also introduces a new expected credit loss (ECL) impairment model. On adoption of IFRS 9 the Sub-Fund s investment portfolio will continue to be classified as fair value through profit or loss. Other financial assets which are held for collection will continue to be measured at amortised cost with no material impact expected from application of the new impairment model. As a result, the adoption of IFRS 9 is not expected to have a material impact on the Sub-Fund s financial statements. There will be no impact on the Sub-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 Sub-Fund does not have any such liabilities. (b) Financial assets and liabilities at fair value through profit or loss (i) Classification The Sub-Funds classify their investments in equities, investment funds, debts and derivatives instruments as financial assets at fair value through profit or loss. These financial assets are held for trading. Financial assets held for trading are acquired or incurred principally for the purpose of selling or repurchasing in the short term. Derivatives are also categorised as held for trading, as the Sub-Funds do not designate any derivatives as hedges in a hedging relationship. (ii) Recognition/derecognition Regular-way purchases and sales of investments are recognised on trade date - the date on which the Sub-Funds commit to purchase or sell the investments. Investments are derecognised when the rights to receive cash flows from the investments have expired or the Sub-Funds have transferred substantially all risks and rewards of ownership. (iii) Measurement Investments are initially recognised at fair value, and transaction costs for financial assets carried at fair value through profit or loss are expensed as incurred. Subsequent to initial recognition, investments are measured at fair value. The fair value of financial assets and liabilities traded in active markets is based on their quoted market prices at the close of trading on the reporting date. The quoted market price used for financial assets held by the Sub-Funds is the market closing price at reporting date. Gains and losses arising from changes in the fair value of the financial assets at fair value through profit or loss category are included in the statement of comprehensive income within net gain/(loss) of financial assets at fair value through profit or loss in the period in which they arise." 20

24 NOTES TO THE FINANCIAL STATEMENTS 2. Summary of significant accounting policies (continued) (c) Derivative financial instruments Derivative financial instruments are recognised at fair value on the date on which a derivative contract is entered into and subsequently are re-measured at their fair value. Fair values are obtained from quoted market prices in active markets. All derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative. Changes in fair values of derivatives are included in the statement of comprehensive income. (d) Fair value estimation Fair value is the price that would be received to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of financial assets and liabilities traded in active markets are based on quoted market price at the close of trading on the reporting date. The quoted market price used for the financial assets and financial liabilities held by the Sub-Funds was the last traded market price which falls within the bid-ask spread. (e) Transfer between levels of fair value hierarchy Transfers between levels of fair value hierarchy are deemed to have occurred at the end of the reporting period. (f) Offsetting financial instruments Financial assets and liabilities are offset and the net amount is reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. (g) Structured entities A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. A structured entity often has some or all of the following features or attributes: (a) restricted activities, (b) a narrow and well-defined objective, such as to provide investment opportunities for investors by passing on risks and rewards associated with the assets of the structured entity to investors, (c) insufficient equity to permit the structured entity to finance its activities without subordinated financial support and (d) financing in the form of multiple contractually linked instruments to investors that create concentrations of credit or other risks (tranches). The Sub-Fund consider all of its investments in other funds ("investee Funds") to be investments in unconsolidated structured entities. The Sub-Funds invest in investee Funds whose objectives range from achieving medium to long term capital growth and whose investment strategy does not include the use of leverage. The lnvestee Funds apply various investment strategies to accomplish their respective investment objectives. The lnvestee Funds finance their operations by issuing redeemable shares which are puttable at the holder's option and entitles the holder to a proportional stake in the respective fund's net assets. The Sub-Funds hold redeemable shares in each of its lnvestee Funds. The change in fair value of each lnvestee Fund is included in the statement of comprehensive income in "Net gain/(loss) on financial assets at fair value through profit or loss". (h) Amounts due from/to brokers Amounts due from/to brokers represent receivables for securities sold and payables for securities purchased that have been contracted for but not yet settled or delivered on the period end date respectively. 21

25 NOTES TO THE FINANCIAL STATEMENTS 2. Summary of significant accounting policies (continued) (i) Income and expenses Interest income and expenses are recognised on a time-proportionate basis using the effective interest method. It includes interest income from cash and cash equivalents at fair value through profit or loss. Dividend income from financial assets at fair value through profit or loss is recognised in the statement of comprehensive income when the Sub-Funds' right to receive payment is established with the corresponding foreign withholding taxes recorded as a taxation charge. Dividend received on securities borrowed and sold short belongs to the stock lenders and represents a liability of the Sub-Funds. Accordingly, dividend received on securities borrowed is recognised as an expense in the statement of comprehensive income. Expenses are accounted for on an accrual basis. (j) Transaction costs Transaction costs are costs incurred to acquire financial assets or liabilities at fair value through profit or loss. They include fees and commissions paid to agents, brokers and dealer. Transaction costs when incurred, are immediately recognised in profit or loss as an expense. (k) Foreign currency translation (i) Functional and presentation currency Items included in each of the Sub-Funds' financial statements are measured using the currency of the primary economic environment in which they operate (the functional currency ). This is the United States dollar (the ) for Asia Frontier Equity Fund and Global Allocation Fund and the Hong Kong dollar (the "HK$") for China Equity Fund, which reflects the primary capital raising market. The U.S. dollar for Asia Frontier Equity Fund and Global Allocation Fund, the HK dollar for China Equity Fund is also their presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign currency assets and liabilities are translated into the functional currency, using the exchange rate prevailing at the financial position date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of all assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income. The Sub-Funds do not isolate that portion of gains or losses on trading securities and derivative financial instruments which is due to changes in foreign exchange rates from that which is due to changes in the market price of securities. Such fluctuations are included in the net gain or loss on financial assets and financial liabilities at fair value through profit or loss in the statement of comprehensive income. (l) Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts, if any, are shown as liabilities in the statement of financial position. 22

26 NOTES TO THE FINANCIAL STATEMENTS 2. Summary of significant accounting policies (continued) (m) Redeemable units Units are redeemable at the unitholder s option. Units can be redeemed by the unitholders at any time, subject to redemption terms, for cash equal to a proportionate share of each Sub-Fund s net asset value. Units are issued and redeemed at the holder s option at prices based on each Sub-Fund s net asset value per unit at the time of issue or redemption. Each Sub-Fund s net asset value per unit is calculated by dividing the net assets attributable to the unitholders of each series of class of unitholders with the total number of outstanding units. Units are carried at the redemption amounts that are payable at the statement of financial position date if the holder exercises his rights to redeem the units. Units are classified as financial liabilities when there are more than one series of class of units outstanding for a sub-fund as at the statement of financial position date as these units are subject to different rates for management fee calculation and therefore do not meet all the conditions under IAS 32 (Amendment) Financial Instruments: Presentation and IAS 1 (Amendment) Presentation of Financial Statements Puttable Financial Instruments and Obligations Arising on Liquidation for classification as equity. Units are classified as equity when there is only one series of class of units outstanding for a sub-fund as at the statement of financial position date and these units meet all the other conditions of equity classification under IAS 32 (Amendment) Financial Instruments: Presentation and IAS 1 (Amendment) Presentation of Financial Statements Puttable Financial Instruments and Obligations Arising on Liquidation, including the condition that these units were the most subordinated units in issue in that sub-fund. (n) Taxation The Sub-Funds currently incur withholding taxes imposed by certain countries on investment income and capital gains. Such income or gains are recorded gross of withholding taxes in the statement of comprehensive income. Withholding taxes are shown as a separate item in the statement of comprehensive income. Refer to Note 9 for details of taxation. (o) Preliminary expenses The preliminary expenses of the Trust and the Sub-Funds are borne by the Sub-Funds. The preliminary expenses incurred in the establishment of the Trust and the Sub-Funds are recognised as expenses of the Sub-Funds in the period in which they arise. 3. Financial risk management The Sub-Funds' activities expose them to a variety of risk, including but not limited to market price risk, interest rate risk, currency risk, credit risk and liquidity risk arising from the financial instruments held. The financial instruments are held in accordance with the published investment policies of the Sub-Funds and managed accordingly to achieve the investment objectives. The risks and the respective risk management policies employed by the Sub-Funds to manage these risks are discussed below: 23