Investments that stand the test of time

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1 UNAUDITED QUARTERLY REPORT FOR THE QUARTER AND FINANCIAL PERIOD ENDED 31 JULY 2018 Investments that stand the test of time FORWARD Your Investments

2 UNAUDITED QUARTERLY REPORT FOR THE QUARTER AND FINANCIAL PERIOD ENDED 31 JULY 2018

3 CONTENTS PAGE(S) INVESTORS' LETTER 1 MANAGER'S REPORT 2-10 Fund Objective and Policy Performance Data Market Review Fund Performance Portfolio Structure Market Outlook Investment Strategy Unit Holdings Statistics Soft Commissions and Rebates UNAUDITED STATEMENT OF COMPREHENSIVE INCOME UNAUDITED STATEMENT OF FINANCIAL POSITION UNAUDITED STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS UNAUDITED STATEMENT OF CASH FLOWS NOTES TO THE FINANCIAL STATEMENTS DIRECTORY 39

4 INVESTORS' LETTER Dear Valued Investor, 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 1 st Quarter of 2018 with RM52.06 billion in Asset under Management ( AUM ). We continue to achieve prestigious recognitions from The Edge Thomson Reuters Lipper Fund Awards as follows: The Edge Thomson Reuters Lipper Malaysia Fund Awards 2018 Best Fund Over 5 Years, Equity Global - Malaysia : CIMB-Principal Global Titans Fund Best Fund Over 5 Years, Equity Asia Pacific ex Japan - Malaysia : CIMB-Principal Asian Equity Fund Best Fund Over 5 Years, Equity Asia Pacific ex Japan - Malaysia : CIMB Islamic Asia Pacific Equity Fund Best Fund Over 5 Years, Equity Malaysia Diversified - Malaysia : CIMB-Principal Equity Growth & Income Fund Best Fund Over 5 Years, Mixed Asset MYR Bal - Malaysia : CIMB-Principal Income Plus Balanced Fund Best Fund Over 3 Years, Equity Global - Malaysia : CIMB-Principal Global Titans Fund In addition, we received recognition from Fundsupermart.com for Fund House of the Year award and Recommended Unit Trust 2018/2019 awards for the following funds: CIMB-Principal Global Titans Fund CIMB-Principal Asia Pacific Dynamic Income Fund CIMB Islamic Asia Pacific Equity Fund CIMB-Principal Greater China Equity Fund CIMB-Principal PRS Plus Conservative CIMB-Principal PRS Plus Growth These prestigious awards are a celebration of the trust that you have placed in us and testament to our capability in bringing potential value to your financial goals and needs. We look forward to serving you for many years to come and to the best of our ability. Thank you. Yours faithfully, for CIMB-Principal Asset Management Berhad Munirah Khairuddin Chief Executive Officer 1

5 MANAGER S REPORT FUND OBJECTIVE AND POLICY What is the investment objective of the Fund? The Fund aims to achieve income and capital appreciation primarily through investment in preferred securities. Has the Fund achieved its objective? For the financial period under review, the Fund has performed in line with its objective as stated under the Fund Performance section. What are the Fund investment policy and principal investment strategy? The Fund is a feeder fund and it invests in a single collective investment scheme, i.e. the Target Fund. The Manager will monitor the investment objective of the Target Fund to ensure that it is in line with the investment objective of the Fund. In order to achieve its investment objective, the Fund will invest at least 95% of its Net Asset Value ( NAV ) in the Target Fund; a Undertakings for Collective Investment in Transferable Securities ( UCITS ) domiciled in Ireland and established on 22 April The Fund will invest in Class I Income United States Dollar ( ) of the Target Fund, which is a share class denominated in with income distribution established on 15 January The Fund will also maintain up to 5% of its NAV in Liquid Assets. Information on the Target Fund: Target Fund Manager : Principal Global Investors (Ireland) Limited Investment Adviser : Principal Global Investors, LLC Sub Investment Adviser : Spectrum Asset Management, Inc Regulatory authority : Central Bank of Ireland Principal Global Investors Fund - Preferred Securities Fund is a Dublin based UCITS that invest primarily in a portfolio of denominated preferred securities and debt securities. Asset allocation At least 95% of the Fund s NAV will be invested in the Target Fund; and Up to 5% of the Fund s NAV will be invested in Liquid Assets for liquidity purposes. The Fund is a feeder fund that invests at least 95% of its NAV into the Target Fund. Hence, the Target Fund manager will employ a risk management process which combines financial techniques and instruments to manage at any time the risk of various positions and their contribution to the overall risk of the Target Fund s portfolio. Note: Anti-dilution levy is an allowance for fiscal and other charges that is added to the NAV per unit of the relevant class to reflect the costs of investing application monies in underlying assets of the Target Fund. The levy is intended to be used to ensure that all investors in the Target Fund Base Currency US Dollar ( ) Fund category/type Feeder Fund/Income How long should you invest for? Recommended three (3) years or more Indication of short-term risk (low, moderate, high) High 2

6 FUND OBJECTIVE AND POLICY (CONTINUED) When was the Fund launched? Class MYR & 11 January 2017 Class MYR-Hedged ( MYR-H ) 30 March 2017 What was the size of the Fund as at 31 July 2018? million (19.47 million units) CIMB-PRINCIPAL PREFERRED SECURITIES FUND What is the Fund s benchmark? 50% Bank of America Merrill Lynch Fixed Rate Preferred Securities Index and 50% Bank of America Merrill Lynch US Capital Securities Index. What is the Fund distribution policy? Quarterly, depending on the availability of realised income and/or realised gains and at our discretion. The Manager have the right to make provisions for reserves in respect of distribution of the Class. If the income available is too small or insignificant, any distribution may not be of benefit to Unit holders as the total cost to be incurred in any such distribution may be higher than the amount for distribution. The Manager have the discretion to decide on the amount to be distributed to the Unit holders. The Manager also have the discretion to make income distribution on an ad-hoc basis, taking into consideration the level of its realised income and/or realised gains, as well as the performance of the Fund. What was the net income distribution for the financial period from 1 May 2018 to 31 July 2018? The Fund distributed a total net income of 0.27 million to unit holders for the financial period from 1 May 2018 to 31 July Date NAV per unit (before distribution) NAV per unit (after distribution) Class MYR Class MYR-H Class

7 PERFORMANCE DATA Details of portfolio composition of the Fund for the last two unaudited financial periods are as follows: % % Collective investment scheme Cash and other net assets (0.07) Performance details of the Fund for the last two unaudited financial periods are as follows: NAV ( Million) - Class MYR Class MYR-H Class Units in circulation (Million) - Class MYR Class MYR-H Class NAV per unit () - Class MYR Class MYR-H Class to to Highest NAV per unit () - Class MYR Class MYR-H Class Lowest NAV per unit () - Class MYR Class MYR-H Class Total return (%) - Class MYR Class MYR-H (0.64) Class (0.84) 2.92 Capital growth (%) - Class MYR (0.12) Class MYR-H (9.55) Class (2.49) 2.92 Income distribution (%) - Class MYR Class MYR-H Class

8 PERFORMANCE DATA (CONTINUED) to to Date of distribution Gross/Net distribution per unit (cent) - Class MYR Class MYR-H Class Management Expense Ratio ( MER ) (%) ^ Portfolio Turnover Ratio ( PTR ) (times) # ^ The Fund s MER decreased from 0.36% to 0.31% due to increase of average NAV during the financial period under review. # The Fund s PTR decreased to 0.10 times from 0.47 times as there were less rebalancing activities during the financial period under review to Since inception to Annual total return - Class MYR (6.68) Class (1.70) 5.38 (Launch date: 11 January 2017) - Class MYR-H (0.84) 5.11 (Launch date: 30 March 2017) 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 MAY 2018 TO 31 JULY 2018) For the financial period under review, the combined 50% Bank of America Merrill Lynch Fixed Rate Preferred Securities Index and 50% Bank of America Merrill Lynch US Capital Securities Index gained 1.04% in US Dollar ( ) terms. For the month of May 2018, the preferred market was mixed as the retail-oriented 25 par preferred market had positive returns and the institutional 1000 par market had its fourth month of negative returns. The Standard & Poor s ( S&P ) 500 rose to 2.2% and US Treasury ( UST ) longbond futures rose by 1.5%. The 30-year UST bond closed yielding 3.02% and the 10-year UST note closed yielding 2.86%. The yield-curve differential between the two terms closed at 16 basis points ( bps ). The US Federal Reserve (the Fed ) minutes from the end of the month were dovish. There was a lot to worry about related to Italian politics and implication on markets. The primary concern is that the new populist Government intends to build a movement in Italy that ignores the rules of the European Union ( EU ), along a path to leaving the Euro Dollar ( EUR ). The headlines in the preferred securities markets were centered on redemptions of 25 par preferred securities. The shrinking of the retail sector of preferred securities is a trend that we have been discussing for years, which is the result of changes in global banking regulations that indirectly discourages tier 1 issuance of foreign banks in the retail sector for US investors. 5

9 MARKET REVIEW (1 MAY 2018 TO 31 JULY 2018) (CONTINUED) CIMB-PRINCIPAL PREFERRED SECURITIES FUND In June 2018, stock prices and UST bond prices finished little changed. The S&P 500 rose by 0.48% and the September 2018 contract on UST long bonds declined by0.09%. The 30-year UST bond closed yielding 2.99% and the 10-year UST note closed yielding 2.86%. The Fed s statement on its policy decision was to raise its target range by 25 bps. The Fed views its monetary policy as continuing to be accommodative and that inflation should persist above 2%, which has been difficult to do since the end of the quantitative easing ( QE ) in Tax cuts and fiscal expansion are giving the Fed a boost of confidence that was not the case prior to the presidential election. Moving into July 2018, stock prices zoomed as UST bond prices drifted lower, the S&P 500 rose by 3.60% and the September 2018 contract on UST long bonds declined by 1.40%. The 30-year UST bond closed yielding 3.08% and the UST 10-year note closed yielding 2.96%. The yield curve differential between the two longer terms closed at 12 bps. We learned that the Federal Open Market Committee ( FOMC ) characterisation of the economy rising at a solid rate means 4.10%. The twin engines of tax cuts and fiscal expansion are giving the Fed confidence to keep raising rates. Overall, the cheer from equities brought back the credit buyers, helping preferred securities and contingent capital securities ( CoCos ) do well. FUND PERFORMANCE 3 months to months to Class MYR Class MYR-H Class Class MYR Class MYR-H Class % % % % % % Income Capital (0.12) (9.55) (2.49) (2.53) (15.58) (5.19) Total Return 2.76 (0.64) (0.84) 1.37 (2.40) (2.82) Benchmark Average Total Return N/A N/A N/A N/A N/A N/A Since inception to 1 year to Class MYR Class MYR-H Class Class MYR Class MYR-H Class % % % % % % Income Capital (1.43) (5.78) (4.09) 2.78 (2.70) 0.20 Total Return (6.68) (0.84) (1.70) (5.14) Benchmark (4.50) (4.50) 0.59 (2.27) (3.55) 7.50 Average Total Return (6.68) (0.84) (1.70) (3.34) For the 3-month period, both Class MYR-H and Class lost 0.64% and 0.84% respectively whereas Class MYR gained 2.76%. Meanwhile, the benchmark gained 4.68% on both Class MYR and MYR-H. As for Class, the benchmark gained 1.04%. 6

10 FUND PERFORMANCE (CONTINUED) CLASS MYR CLASS MYR-H 7

11 FUND PERFORMANCE (CONTINUED) CLASS Changes in NAV CLASS MYR Changes % NAV ( Million) > NAV/Unit () (3.66) CLASS MYR-H Changes % NAV ( Million) (13.41) NAV/Unit () (7.95) CLASS Changes % NAV ( Million) NAV/Unit () (4.27) 8

12 FUND PERFORMANCE (CONTINUED) Changes in NAV The Fund recorded higher net inflow from unit creations over the reporting period for Class MYR and Class. However, Class MYR-H recorded slightly lower net inflow as compared to the same reporting period last year. The total NAV of Class and MYR both rose to 7.60 million and 1.11 million respectively. Meanwhile, total NAV of Class MYR-H declined to 1.55 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. PORTFOLIO STRUCTURE Asset allocation (% of NAV) Collective investment scheme Cash and other net assets (0.07) 3.36 TOTAL The Fund was fully invested during the financial period under review. A minimal level of liquid assets was maintained primarily for redemption purposes. The cash and other net assets was negative due to net liabilities. MARKET OUTLOOK* This has been an eventful seven months, between the implosion of volatility funds, the zoom up in London Interbank Offered Rate ( LIBOR ), Italian election surprises, and trade war advances. Spreads in the institutional sector are better than at the start the year. European bank shares should benefit from an end to QE. There is also a potential fundamental earnings benefit of a rumored Japanese Central Bank policy shift to allow for more yield in Japanese Government Bond ( JGBs ). Weakening technical forces that have helped to flatten the yield curve should foster delay on the risks of any UST yield curve inversion into We expect supportive fundamentals in financials to align with a forward steepening curve bias from reversing technicals. As the lines of least resistance appear pointed toward higher nominal (and real) rates in the US, we take comfort in convictions over solid credit fundamentals and rising income structural features that uniquely support juniorsubordinated debt over ordinary corporate bonds. * 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 The Fund will continue to remain fully invested in the Target Fund with minimal cash kept for liquidity purposes. 9

13 UNIT HOLDINGS STATISTICS Breakdown of unit holdings by size as at 31 July 2018 are as follows: CLASS MYR Size of unit holdings (units) No. of unit holders No. of units held % of units held (million) 5,000 and below ,001-10, ,001-50, , , ,001 and above Total CLASS MYR-H Size of unit holdings (units) No. of unit holders No. of units held % of units held (million) 5,000 and below ,001-10, ,001-50, , , ,001 and above Total CLASS Size of unit holdings (units) No. of unit holders No. of units held % of units held (million) 5,000 and below ,001-10, ,001-50, , , ,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 Trustee did not receive any rebates from the brokers or dealers but have retained soft commission in the form of goods and services such as financial wire services and stock quotations system incidental to investment management of the Funds. 10

14 UNAUDITED STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL PERIOD FROM 1 MAY 2018 TO 31 JULY 2018 CIMB-PRINCIPAL PREFERRED SECURITIES FUND to to Note INVESTMENT (LOSS)/INCOME Dividend income 138,891 50,005 Net (loss)/gain on financial assets at fair value through profit or loss 9 (209,237) 74,006 Net loss on derivative assets at fair value through profit or loss (56,437) (322) Net foreign currency loss (875) (195) Other income 4 11,026 3,911 (116,632) 127,405 EXPENSES Management fee 5 41,522 15,301 Trustee s fees 6 1, Audit fee Tax agent s fee Other expenses 975 1,470 44,540 18,115 (LOSS)/PROFIT BEFORE FINANCE COST AND TAXATION (161,172) 109,290 Finance cost - Distributions 7 (273,479) - (LOSS)/PROFIT BEFORE TAXATION (434,651) 109,290 Taxation (DECREASE)/INCREASE IN NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS (434,651) 109,290 (Loss)/Profit after taxation and total comprehensive (loss)/income are made up as follows: Realised amount (301,085) 35,309 Unrealised amount (133,566) 73,981 (434,651) 109,290 The accompanying notes to the financial statements form an integral part of the unaudited financial statements. 11

15 UNAUDITED STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL PERIOD FROM 1 NOVEMBER 2017 TO 31 JULY 2018 Year-to-date Year-to-date Note INVESTMENT (LOSS)/INCOME Dividend income 441,622 78,664 Net (loss)/gain on financial assets at fair value through profit or loss 9 (653,077) 98,972 Net gain/(loss) on derivative assets at fair value through profit or loss ,945 (322) Net foreign currency loss 2,362 (126) Other income 4 35,098 5,713 (47,050) 182,901 EXPENSES Management fee 5 138,118 22,361 Trustee s fees 6 3, Audit fee 1,889 1,088 Tax agent s fee Other expenses 1,424 1, ,113 26,602 (LOSS)/PROFIT BEFORE FINANCE COST AND TAXATION (193,163) 156,299 Finance cost - Distributions 7 (459,035) - (LOSS)/PROFIT BEFORE TAXATION (652,198) 156,299 Taxation (DECREASE)/INCREASE IN NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS (652,198) 156,299 (Loss)/Profit after taxation and total comprehensive income are made up as follows: Realised amount (77,974) 57,352 Unrealised amount (574,224) 98,947 (652,198) 156,299 The accompanying notes to the financial statements form an integral part of the unaudited financial statements. 12

16 UNAUDITED STATEMENT OF FINANCIAL POSITION AS AT 31 JULY 2018 CIMB-PRINCIPAL PREFERRED SECURITIES FUND Audited Note ASSETS Cash and cash equivalents 11 5, ,380 Financial assets at fair value through profit or loss 9 10,268,750 11,914,641 Derivative asset at fair value through profit or loss Amount due from Manager - 254,933 Amount due from Manager of collective investment scheme - Management fee rebate 7,205 4,866 TOTAL ASSETS 10,281,475 12,488,962 LIABILITIES Derivative liability at fair value through profit or loss 1,027 - Amount due to Manager - - Amount due to Manager of collective investment scheme - Purchase of collective investment scheme - 220,000 Accrued management fee 13,195 14,917 Amount due to Trustee Other payables and accruals 5,631 3,739 TOTAL LIABILITIES (EXCLUDING NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS) 20, ,054 NET ASSET VALUE OF THE FUND 10,261,270 12,249,908 NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 10,261,270 12,249,908 The accompanying notes to the financial statements form an integral part of the unaudited financial statements. 13

17 UNAUDITED STATEMENT OF FINANCIAL POSITION (CONTINUED) AS AT 31 JULY 2018 (CONTINUED) CIMB-PRINCIPAL PREFERRED SECURITIES FUND REPRESENTED BY: Audited Note FAIR VALUE OF OUTSTANDING UNITS () - Class MYR 1,108, ,076 - Class MYR-H 1,552,140 2,362,621 - Class 7,600,861 9,314,211 10,261,270 12,249,908 NUMBER OF UNITS IN CIRCULATION (UNITS) - Class MYR 4,842,473 2,388,685 - Class MYR-H 7,094,164 9,706,804 - Class 7,534,312 8,749, ,470,949 20,845,029 NET ASSET VALUE PER UNIT () - Class MYR Class MYR-H Class NET ASSET VALUE PER UNIT IN RESPECTIVE CURRENCIES - Class MYR RM RM Class MYR-H RM RM Class The accompanying notes to the financial statements form an integral part of the unaudited financial statements. 14

18 UNAUDITED STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS FOR THE FINANCIAL PERIOD FROM 1 MAY 2018 TO 31 JULY to to NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS AT THE BEGINNING OF THE FINANCIAL PERIOD 11,816,218 2,740,101 Movement due to units created and cancelled during the financial period: Creation of units from applications - Class MYR 12, ,743 - Class MYR-H 143,866 1,773,355 - Class 204,383 1,831,143 Creation of units from distribution - Class MYR Class MYR-H Class - - Cancellation of units - Class MYR (2,266) (27,213) - Class MYR-H (157,280) - - Class (1,321,864) - 10,695,921 6,701,129 (Decrease)/Increase in net assets attributable to unit holders during the financial period: (Loss)/Profit after taxation (434,651) 109,290 NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS AT THE END OF THE FINANCIAL PERIOD 10,261,270 6,810,419 The accompanying notes to the financial statements form an integral part of the unaudited financial statements. 15

19 UNAUDITED STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS FOR THE FINANCIAL PERIOD FROM 1 NOVEMBER 2017 TO 31 JULY 2018 Year-to-date Year-to-date NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS AT THE BEGINNING OF THE FINANCIAL PERIOD 12,249,908 - Movement due to units created and cancelled during the financial period: Creation of units from applications - Class MYR 742, ,113 - Class MYR-H 153,026 1,773,355 - Class 1,016,936 4,480,865 Creation of units from distribution - Class MYR 2, Class MYR-H 90, Class 88,118 - Cancellation of units - Class MYR (168,111) (27,213) - Class MYR-H (917,869) - - Class (2,345,117) - 10,913,468 6,654,120 (Decrease)/Increase in net assets attributable to unit holders during the financial period: (Loss)/Profit after taxation (652,198) 156,299 NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS AT THE END OF THE FINANCIAL PERIOD 10,261,270 6,810,419 The accompanying notes to the financial statements form an integral part of the unaudited financial statements. 16

20 UNAUDITED STATEMENT OF CASH FLOWS FOR THE FINANCIAL PERIOD FROM 1 MAY 2018 TO 31 JULY 2018 CIMB-PRINCIPAL PREFERRED SECURITIES FUND to to CASH FLOWS FROM OPERATING ACTIVITIES Proceeds from disposal of collective investment scheme 1,737,000 1,600 Purchase of collective investment scheme (526,136) (3,464,500) Dividend income received 138,891 50,005 Management fee paid (43,021) (11,247) Management fee rebates received 10,388 2,308 Trustee s fees paid (1,147) (300) Payments for other fees and expenses (1,862) (1,082) Net realised foreign exchange (loss)/gain (875) (194) Net realised (loss)/gain on forward foreign currency contracts (60,781) 1,995 Net cash generated from/(used in) operating activities 1,252,457 (3,421,415) CASH FLOWS FROM FINANCING ACTIVITIES Cash proceeds from units created 361,113 3,629,667 Payments for cancellation of units (1,484,993) - Distributions paid (273,479) (22,529) Net cash (used in)/generated from financing activities (1,397,359) 3,607,138 Net (decrease)/increase in cash and cash equivalents (144,902) 185,723 Effects of foreign exchange differences (106) (2,595) Cash and cash equivalents at the beginning of the financial period 150, ,409 Cash and cash equivalents at the end of the financial period 5, ,537 Cash and cash equivalents comprised of: Bank balances 5, ,537 Cash and cash equivalents at the end of the financial period 5, ,537 The accompanying notes to the financial statements form an integral part of the unaudited financial statements. 17

21 UNAUDITED STATEMENT OF CASH FLOWS (CONTINUED) FOR THE FINANCIAL PERIOD FROM 1 NOVEMBER 2017 TO 31 JULY 2018 Year-to-date Year-to-date CASH FLOWS FROM OPERATING ACTIVITIES Proceeds from disposal of collective investment scheme 3,539,000 1,600 Purchase of collective investment scheme (2,763,136) (6,079,608) Dividend income received 441,622 78,664 Management fee paid (139,840) (15,008) Management fee rebates received 29,712 3,131 Trustee s fees paid (3,729) (400) Payments for other fees and expenses (2,422) (1,347) Net realised foreign exchange (loss)/gain 2,362 (125) Net realised (loss)/gain on forward foreign currency contracts 131,739 1,995 Net cash generated from/(used in) operating activities 1,235,308 (6,011,098) CASH FLOWS FROM FINANCING ACTIVITIES Cash proceeds from units created 2,167,714 6,322,759 Payments for cancellation of units (3,431,097) - Distributions paid (277,160) (22,529) Net cash (used in)/generated from financing activities (1,540,543) 6,300,230 Net (decrease)/increase in cash and cash equivalents (305,235) 289,132 Effects of foreign exchange differences (3,625) (2,595) Cash and cash equivalents at the beginning of the financial period 314,380 - Cash and cash equivalents at the end of the financial period 5, ,537 Cash and cash equivalents comprised of: Bank balances 5, ,537 Cash and cash equivalents at the end of the financial period 5, ,537 The accompanying notes to the financial statements form an integral part of the unaudited financial statements. 18

22 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD FROM 1 MAY 2018 TO 31 JULY THE FUND, THE MANAGER AND ITS PRINCIPAL ACTIVITY CIMB-PRINCIPAL PREFERRED SECURITIES FUND CIMB-Principal Preferred Securities Fund (the Fund ) is governed by Principal Deed dated 21 November 2016 (the Deed ), made between CIMB-Principal Asset Management Berhad (the Manager ) and HSBC (Malaysia) Trustee Berhad (the Trustee ). The Fund is a feeder fund and it invests in a single collective investment scheme, i.e. the Target Fund. The Manager will monitor the investment objective of the Target Fund to ensure that it is in line with the investment objective of the Fund. In order to achieve its investment objective, the Fund will invest at least 95% of its NAV in the Target Fund; a UCITS domiciled in Ireland and established on 22 April The Fund will invest in Class I Income of the Target Fund, which is a share class denominated in with income distribution established on 15 January The Fund will also maintain up to 5% of its NAV in Liquid Assets. Information on the Target Fund Target Fund Manager : Principal Global Investors (Ireland) Limited Investment Adviser : Principal Global Investors, LLC Sub Investment Adviser : Spectrum Asset Management, Inc Regulatory authority : Central Bank of Ireland Principal Global Investors Fund - Preferred Securities Fund is a Dublin based UCITS that invest primarily in a portfolio of denominated preferred securities and debt securities. Asset allocation At least 95% of the Fund s NAV will be invested in the Target Fund; and Up to 5% of the Fund s NAV will be invested in Liquid Assets for liquidity purposes. The Fund is a feeder fund that invests at least 95% of its NAV into the Target Fund. Hence, the Target Fund manager will employ a risk management process which combines financial techniques and instruments to manage at any time the risk of various positions and their contribution to the overall risk of the Target Fund s portfolio. All investments are subjected to the Securities Commission Malaysia ( SC ) Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework, 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 jointly owned by CIMB Group Sdn Bhd and Principal International (Asia) Limited. The principal activities of the Manager are the establishment and management of unit trust funds and fund management activities. 19

23 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CIMB-PRINCIPAL PREFERRED SECURITIES 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 the Malaysian Financial Reporting Standards ( MFRS ) and International Financial Reporting Standards ( IFRS ). The financial statements have been prepared under the historical cost convention, as modified by 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 judgment are based on the Manager s best knowledge of current events and actions, actual results may differ. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 2(n). 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 period beginning 1 November 2017: Amendments to MFRS 107 Statement of Cash Flows - Disclosure Initiative introduce an additional disclosure on changes in liabilities arising from financing activities. The adoption of these amendments did not have any impact on the current financial period or any prior financial 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 November 2018 MFRS 9 Financial Instruments (effective from 1 January 2018) will replace MFRS 139 Financial Instruments: Recognition and Measurement. 20

24 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (a) Basis of preparation (continued) (i) Financial year beginning on/after 1 November 2018 (continued) MFRS 9 retains but simplifies the mixed measurement model in MFRS 139 and establishes three primary measurement categories for financial assets: amortised cost, fair value through profit or loss and fair value through other comprehensive income ( OCI ). The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are always measured at fair value through profit or loss with an irrevocable option at inception to present changes in fair value in OCI (provided the instrument is not held for trading). A debt instrument is measured at amortised 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 ( ECL ) 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 has reviewed its financial assets and liabilities and has assessed the following impacts from the adoption of the new standard on 1 January 2018: There will be no impact on the Fund s accounting for financial assets as the Fund s equity investments currently measured at fair value through profit or loss will continue to be measured on the same basis under MFRS 9. There will be no impact on the Fund s accounting for financial liabilities as the new requirements only affect the accounting for financial liabilities that are designated at fair value through profit or loss and the Fund does not have any such liabilities. The new impairment model requires the recognition of impairment provisions based on ECL rather than only incurred credit losses as is the case under MFRS 139. It applies to financial assets classified at amortised cost. Based on the assessments undertaken to date, the Fund does not expect any loss allowance to be recognised upon adoption of MFRS 9. 21

25 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) Financial assets and financial liabilities Classification The Fund designates its investments in collective investment scheme 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, derivative contracts, amount due from Manager and amount due from Manager of collective investment scheme. Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. The Fund classifies derivative liability, amount due to Manager of collective investment scheme, accrued management fee, amount due to Trustee, and other payables and accruals 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. Collective investment scheme is valued based on the most recent published NAV per unit or share of such collective investment scheme or, if unavailable, the last published price of such unit or share (excluding any sales charge included in such selling price). Loans and receivables and other financial liabilities are subsequently carried at amortised cost using the effective interest method. 22

26 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) Financial assets and financial liabilities (continued) 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. (c) Income recognition Dividend income is recognised on the ex-dividend date when the right to receive payment is established. Realised gain or loss on disposal of collective investment scheme is accounted for as the difference between the net disposal proceeds and the carrying amount of collective investment scheme, determined on a weighted average cost basis. 23

27 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (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, which is the Fund s functional and presentation 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 primarily due to the following factors: i) Significant portion of the NAV is invested in the form of cash denominated in for the purpose of making settlement of the foreign trades; and ii) Significant portion of the Fund s expenses are denominated in. 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 financial period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in statement of comprehensive income. (e) Cash and cash equivalents For the purpose of statement of cash flow, cash and cash equivalent 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. (f) Creation and cancellation of units 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 MYR-Hedged and Class, 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. 24

28 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (g) Management fee rebate Management fee rebate is deemed from the collective investment scheme held by the Fund on an accrual basis to ensure no double charging of management fee. It is accrued daily based on the fair value of collective investment scheme held. (h) Taxation Current tax expense is determined according to Malaysian tax laws at the current rate based upon the taxable profit earned during the financial period. Tax on income from foreign collective investment scheme is based on the tax regime of the respective countries that the Fund invests in. (i) Increase/Decrease in net assets attributable to unit holders Income not distributed is included in net assets attributable to unit holders. (j) Distribution A distribution to the Fund s unit holders is accounted for as a finance cost in the statement of comprehensive income. A proposed distribution is recognised as a financial liability in the year in which it is approved. (k) Amount due to Manager of collective investment scheme (purchase of investment) Amounts due to Manager of collective investment scheme represent payables for collective investment scheme purchased that have been contracted for but not yet settled or delivered on the statement of financial position date respectively. These amounts are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of amounts due from Manager of collective investment scheme is established when there is objective evidence that the Fund will not be able to collect all amounts due from the Manager of collective investment scheme. Significant financial difficulties of the Manager of collective investment scheme, probability that the Manager of collective investment scheme will enter bankruptcy or financial reorganisation, and default in payments are considered indicators that the amount due from Manager of collective investment scheme 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 interest rate used to discount the future cash flows for the purpose of measuring the impairment loss. 25

29 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (l) Derivative financial instruments A derivative financial instrument is any contract that gives rise to both a financial asset of one enterprise and a financial liability or equity instrument of another enterprise. A financial asset is any asset that is cash, a contractual right to receive cash or another financial asset from another enterprise, a contractual right to exchange financial instruments with another enterprise under conditions that are potentially favourable, or an equity instrument of another enterprise. A financial liability is any liability that is a contractual obligation to deliver cash or another financial asset to another enterprise, or to exchange financial instruments with another enterprise under conditions that are potentially unfavorable. The Fund s derivative financial instruments comprise forward foreign exchange contracts. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. The fair value of forward foreign exchange contracts is determined using forward exchange rates at the date of statements of financial position, with the resulting value discounted back to present value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and the nature of the item being hedged. Derivatives that do not qualify for hedge accounting are classified as held-fortrading and accounted for in accordance with the accounting policy set out in Note 2(b). (m) 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. (n) 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 judgment 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 Unlisted Capital Market Products under the Lodge and Launch Framework. However, the Manager is of the opinion that in applying these accounting policies, no significant judgment was required. 26

30 3. RISK MANAGEMENT OBJECTIVES AND POLICIES CIMB-PRINCIPAL PREFERRED SECURITIES FUND The Fund aims to achieve income and capital appreciation primarily through investment in preferred securities. The Fund is exposed to a variety of risks which include market risk (inclusive of price risk and currency 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 Unlisted Capital Market Products under the Lodge and Launch Framework. (a) Market risk (i) Price risk Price risk is the risk that the fair value of an investment in collective investment scheme will fluctuate because of changes in market prices (other than those arising from interest rate risk and currency risk). The value of collective investment scheme 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 collective investment scheme 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 based on considerations of economic fundamentals such as interest rate differentials, balance of payments position, debt levels, and technical chart considerations. (b) Credit risk Credit risk refers to the risk that counterparty will default on its contractual obligation resulting in financial loss to the Fund. For amount due from Manager, the settlement terms of the proceeds from the creation of units receivable from the Manager are governed by the SC Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework. (c) Liquidity risk Liquidity risk is the risk that the Fund will encounter difficulty in meeting its financial obligations. The Manager manages this risk by maintaining sufficient level of liquid assets to meet anticipated payments and cancellations of the units by unit holders. Liquid assets comprise bank balances and other instruments, which are capable of being converted into cash within 7 business days. The Fund s investments in collective investment scheme are realisable which are capable of being converted into cash within 10 business days. This is expected to reduce the risks for the entire portfolio without limiting the Fund s growth potentials. 27