CIMB-PRINCIPAL BALANCED INCOME FUND FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 AUGUST 2017

Transcription

1 FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 AUGUST 2017

2 CONTENTS PAGE(S) INVESTORS' LETTER 1-2 MANAGER S REPORT 3-10 Fund Objective and Policy Performance Data Market Review Fund Performance Portfolio Structure Market Outlook Investment Strategy Unit Holdings Statistics Soft Commissions and Rebates STATEMENT BY MANAGER 11 TRUSTEE'S REPORT 12 INDEPENDENT AUDITORS REPORT STATEMENT OF COMPREHENSIVE INCOME 17 STATEMENT OF FINANCIAL POSITION 18 STATEMENT OF CHANGES IN EQUITY 19 STATEMENT OF CASH FLOWS 20 NOTES TO THE FINANCIAL STATEMENTS DIRECTORY 61 LIST OF CWA (an Agency force of CIMB-Principal) OFFICES 62-66

3 INVESTORS' LETTER Dear Valued Investors, Thank you for your continued support and for the confidence that you have placed in us. We are pleased to share that CIMB-Principal Asset Management Berhad ( CIMB-Principal ) Malaysia concluded the first half of 2017 with RM48 billion in Asset Under Management ( AUM ) and CIMB- Principal s Group AUM has increased by 14% to RM63 billion, for 1-year period ending 30 June Our AUM for Private Retirement Schemes ( PRS ) business has increased by 25% year-on-year ( y-o-y ) to RM388 million as at 30 June We continue to achieve prestigious recognitions from The Edge Thomson Reuters Lipper Fund Awards: The Edge Thomson Reuters Lipper Malaysia Fund Awards 2017 Best Equity Global, 3 years & 5 years : CIMB-Principal Global Titans Fund Best Equity Asia Pacific Ex-Japan, 5 years : CIMB-Principal Asian Equity Fund Best Equity Asia Pacific Ex-Japan - Malaysia Islamic, 5 years : CIMB Islamic Asia Pacific Equity Fund Thomson Reuters Lipper Fund Award Global Islamic 2017 Best Equity Asia Pacific Ex-Japan (Islamic), Best Fund over 5 years : CIMB Islamic Asia Pacific Equity Fund These awards reflect our consistent fund performance, in tandem with our commitment to provide the best customer experience to you. CIMB-Principal was also awarded Fund House of the Year in Malaysia by AsianInvestor for the Asset Management Awards 2017, its second consecutive win and The Employees' Provident Fund ( EPF ) External Portfolio Managers Awards 2017 for the Best Global Bond Portfolio Manager. These industry recognitions reflect our success in scaling up our investment capabilities while building a solid track record and earning the trust of our clients over time. With effect from 30 June 2017, the Fund may opt to seek investment exposure via collective investment scheme that is in line with the Fund's objective, subject to the requirement of the Securities Commission Malaysia ( SC ) Guidelines. As for the Fund s investment in fixed income securities, the minimum credit rating (by Standard & Poor s ( S&P ) or equivalent rating by Moody s or Fitch) has been changed from BBB to BBB-. In addition, there are additional risks (i.e. Country risk and Currency risk) disclosures under Specific risks associated with the investment portfolio of the funds section. With effective from 1 December 2017, the investment limit in Unrated Fixed Income Securities will be changed from 25% to 40%. 1

4 INVESTORS' LETTER (CONTINUED) Pursuant to the revised Guidelines on Unit Trust Funds dated 24 May 2017, we now have the right to withdraw all units held by you in the event we are of the opinion that such withdrawal is necessary to ensure that we comply with any relevant laws, regulations and guidelines. We will first notify you before making any such compulsory withdrawal of your units. Please refer to the Master Prospectus dated 30 June 2017 for further information. Thank you. Yours faithfully, for CIMB-Principal Asset Management Berhad Munirah Khairuddin Chief Executive Officer/Executive Director 2

5 MANAGER S REPORT FUND OBJECTIVE AND POLICY What is the investment objective of the Fund? The investment objective of the Fund is to seek long-term growth in capital and income by investing in all types of investments. Has the Fund achieved its objective? For the financial year under review, the Fund has achieved its objective. What are the Fund investment policy and its strategy? The Fund aims to invest in a diversified portfolio of equities and fixed income investments. In line with the objective of the Fund, the investment policy and strategy of the Fund will be to maintain a balanced portfolio between equities and fixed income investments in the ratio of 60:40. The fixed income portion of the Fund is to provide some capital stability to the Fund whilst the equity portion will provide the added return in a rising market. The investments by the Fund in equity securities shall not exceed 60% of the Net Asset Value ( NAV ) of the Fund and investments in fixed income securities and liquid assets shall not be less than 40% of its NAV with a minimum credit rating of BBB3 or P2 by RAM Ratings ( RAM ) or equivalent rating by Malaysia Rating Corporation Berhad ( MARC ) or by local rating agency (ies) of the country of issuance or BBB- by S&P or equivalent rating by Moody s or Fitch. The Fund may invest up to 40% of its NAV in Unrated Fixed Income Securities*. The fixed income portion will provide capital stability to the Fund whilst the equity portion will provide the added return in a rising market. The Fund may opt to seek investment exposure via Collective Investment Scheme that is in line with the Fund s objective, subject to the requirement of the SC Guidelines. * With effective 1 st December 2017, the investment limit in Unrated Fixed Income Securities will be changed from 25% to 40%. Fund category/type Balanced/Growth and Income How long should you invest for? Recommended 5 years or more Indication of short-term risk (low, moderate, high) Moderate When was the Fund launched? 10 August 1995 What was the size of the Fund as at 31 August 2017? RM million ( million units) What is the Fund s benchmark? 60% Financial Times Stock Exchange ( FTSE ) Bursa Malaysia ( FBM ) Top 100 ( FBM100 ) Index + 40% CIMB Bank 1-Month Fixed Deposit Rate Note: The benchmark is for performance comparison only. The benchmark is customised as such to align it closer to the structure of the portfolio and objective of the Fund. Investor are cautioned that the risk profile of the Fund is higher than the benchmark. What is the Fund distribution policy? The Manager has the discretion to distribute part or all of the Fund s distributable income. The distribution (if any) may vary from period to period depending on the investment objective and the performance of the Fund. 3

6 FUND OBJECTIVE AND POLICY (CONTINUED) What was the net income distribution for the financial year ended 31 August 2017? The Fund distributed a total net income of RM18.20 million to unit holders for the financial year ended 31 August As a result of distribution, the NAV per unit dropped from RM to RM on 21 October PERFORMANCE DATA Details of portfolio composition of the Fund for the last three financial years are as follows: % % % Quoted securities - Construction Consumer Products Finance Industrials Infrastructure Project Companies ( IPC ) Plantation Properties Real Estate Investment Trusts ( REITs ) Technology Trading/Services Unquoted fixed income securities Cash and other net assets Performance details of the Fund for the last three financial years are as follows: NAV (RM Million) Units in circulation (Million) NAV per unit (RM) Highest NAV per unit (RM) Lowest NAV per unit (RM) Total return (%) (7.38) - Capital growth (%) 1.52 (0.54) (13.00) - Income distribution (%) Management expense ratio (%) Portfolio turnover ratio (times) # # The Fund s PTR fell from 1.16 times to 1.11 times due to lower trading and portfolio repositioning activities during the financial year under review. Date of distribution Gross/Net distribution per unit (sen) % % % % % Annual total return (7.38) (Launch date: 10 August 1995) 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 year have been extracted from Lipper. 4

7 MARKET REVIEW (1 SEPTEMBER 2016 TO 31 AUGUST 2017) Equities CIMB-PRINCIPAL BALANCED INCOME FUND For the financial year under review, the FBM100 Index (the Index ) rose by 6.8% from 11, points to 12, points. September 2016 was a volatile month for Malaysia as the Index rose on the back of some stability returning to regional markets and Wall Street, before reversing all gains due to concerns over the health of Deutsche Bank ( DB ), Germany s largest bank. A divided US Federal Reserve (the Fed ) left its policy interest rate unchanged at the September 2016 Federal Open Market Committee ( FOMC ) meeting to await more evidence of progress towards its goals. Meanwhile, the Bank of Japan ( BOJ ) shifted the focus of its monetary policy to controlling bond yields. For the month, the Index fell by points or -0.96% to close at 11, points. In October 2016, the Index rose by 0.9%, driven by a mild pre-budget 2017 run-up despite a weaker Malaysian Ringgit ( MYR ) and slightly lower Brent crude oil price. Financials outperformed, led by CIMB Group Sdn Bhd and Alliance Financial Group Bhd on company-specific drivers. Industrials outperformed, led by Sime Darby Bhd, on expectations of a Permodalan Nasional Bhd ( PNB )-led change. Meanwhile, the defensive telecommunications and utilities sectors underperformed. November 2016 saw the Index falling by 3.5% due to global uncertainties arising from the outcomes of the recent US Presidential Election. The MYR weakened by 6% month-on-month ( m-o-m ) and 10-year Malaysian Government Securities ( MGS ) yield spiked up to 4.35% (+75 basis points ( bps ) m-o-m), on rising fears of an eventual US rate hike. But the Index rebounded by 0.9% in December 2016 due to year-end window dressing activities. The Index started 2017 in positive territory, rebounding by 2.2% in January 2017 as local funds deployed their excess cash to reposition for the New Year. The gain extended into February 2017, March 2017 and April 2017 (+1.76%, +3.14% and +2.1% respectively), led by inflows from foreign funds. Corporate news on Government-Linked Companies ( GLCs ) reforms particularly PNB related companies remained a key theme and had increased optimism that the GLCs restructuring was gathering momentum. Malaysia s March 2017 headline inflation hit a high of 5.1% y-o-y, fuelled mainly by transport cost. The Index took a breather thereafter and traded sideways in May 2017 despite a strong first quarter of 2017 Gross Domestic Product ( GDP ) growth of 5.6% y-o-y. The MYR strengthened by 1.3% from RM4.341 to RM4.281 against US Dollar ( USD ) during the month, led by portfolio inflows in both the equity and fixed income markets. The Index continued to drift sideways in June 2017, rising marginally by 0.17%. For first half of 2017, the Index rose by 9.3%. Notable events during the month include: 1) UK Election resulting in a minority government; 2) Macron victory in French Election; 3) Qatar being sanctioned by its neighbours for alleged terrorism funding; 4) Brent breaking below USD50 per barrel to a low of USD44.82 per barrel; 5) the Fed raised the rates by 0.25 bps and impending balance sheet normalisation; 6) China A-shares inclusion in Morgan Stanley Capital International ( MSCI ) in 2018; and 7) Speculation of European Central Bank ( ECB ) Quantitative Easing ( QE ) tapering by Meanwhile, the local market was negatively surprised by the suspension of Felda Global Venture Holdings Bhd s ( FGV ) Chief Executive Officer ( CEO ) and Chief Financial Officer ( CFO ). The MYR touched a low of RM before closing the month at RM (weakened by 0.3% m-o-m) against USD. 5

8 MARKET REVIEW (1 SEPTEMBER 2016 TO 31 AUGUST 2017) (CONTINUED) Equities (continued) In July 2017, the Index fell by 0.32% to close at 12, points. The key highlight during the month was the listing of Lotte Chemical Titan Holding Bhd ( Lotte ), the largest Initial Public Offering ( IPO ) since The stock fell at debut due to weak investor demand and suffered another sharp drop after it announced a 72% decline in its second quarter of 2017 net profit. Lotte closed the month at RM4.70 or 27% below its IPO price of RM6.50. The Index rose by 86 points or 0.71% in August 2017 despite the geopolitical tension in Korea. Malaysia s macroeconomic fundamentals remain strong as GDP for the second quarter of 2017 came in at 5.8%, following a 5.6% expansion in the first quarter of Consequently, various economists have upgraded their full year GDP forecast for Malaysia between 5.2% to 5.5% (Government estimate between 4.3% to 4.8%). Meanwhile, inflation continues to moderate to 3.2% in July 2017 after peaking at 5.1% in March Bank Negara Malaysia ( BNM ) is expected to keep the Overnight Policy Rate ( OPR ) unchanged at 3.00% for the rest of Fixed Income In September 2016, the MGS yield curve saw mixed movement with the short end of the curve moved higher while the long end moved lower. However, the sovereign securities were sold off in the month of October 2016 along with the MYR due to better than expected US third quarter GDP and hawkish FOMC minutes triggered a flight of capital as market participants increased bets that the Fed will hike the Fed Funds Rate in its next meeting. The sovereign yield curve was further sold off after the surprise win by Donald Trump in the US Presidential Election in November 2016 as investors continued to anticipate proposed policies/measures under the new Trump administration. In December 2016 FOMC meeting, as expected the Fed hiked the Fed Funds Rate by 25 bps from a range of 0.25% to 0.50% to 0.50% to 0.75%. According to the dot plot, which is part of the FOMC s Summary of Economic Projections, the median FOMC member saw rates between 1.25% to 1.75% at the end of 2017, suggesting a three 25 bps rate hikes instead of two in 2017 and continue to project three quarter point hike in The MGS yield curve normalised in January 2017 following an inverted yield curve in December 2016 as 30-year MGS was traded lower versus the 20-year MGS. Consequently, yield curve bull steepened as demand on the shorter end from 15-year below pushed the yields lower versus a month ago. As expected, the Fed hiked rates by 25 bps to a range of 0.75% to 1.00% in the March 2017 FOMC meeting. The Fed s Chairman, Janet Yellen said the hike signals her view the economy is doing well. Though the dot-plot forecast for interest rates by the Fed points to two more rate hikes this year, Janet Yellen sought to ensure markets that the Fed has not decided on faster pace of tightening. She signalled the Fed can tolerate inflation temporarily overshooting the 2.0% target as it balances growth and monetary policy. Locally, BNM released its 2016 annual report in March BNM projected firm GDP growth between 4.3% to 4.8% this year. Meantime, it indicated benign inflation in 2015 and 2016 is giving way to greater cost pressures. BNM revised the headline Consumer Price Index ( CPI ) for 2017 upwards by 100 bps between accelerate to 3.0% to 4.0% with expectations that inflation will moderate in the second quarter of In April 2017, improved sentiment was seen in the domestic sovereign market after 5 consecutive months of outflows. We saw rally in the short end of the curve driven by strong buying interest from local and some foreign investors following the announcement by BNM to allow flexibility on currency trading on the onshore market. 6

9 MARKET REVIEW (1 SEPTEMBER 2016 TO 31 AUGUST 2017) (CONTINUED) Fixed Income (continued) The sovereign yield curve shifted higher in June 2017 driven by the hawkish comments by few central bankers which caused massive selling pressure in the global bond markets. The mild correction continued towards July 2017 as market players were cautious to the potential tightening of monetary policy by the developed markets. In August 2017, the sovereign yield curve bull steepened driven by offshore buying. The buying interest was mainly concentrated on the short to mid-end of the curve. Meanwhile, foreign ownership in local securities saw marginal decline for the month of August 2017 from RM billion in July 2017 to RM billion in August The fall in non-resident holdings was mainly due to the drop in Government Investment Issues ( GII ) holdings by RM3.19 billion and short-term bills by RM0.20 billion but was set-off by an increase in MGS holdings by RM2.09 billion. Percentage wise, total foreign holdings in MGS stood at 40.3% while foreign holdings in GII stood at 6.3% as of August During the financial year under review, BNM kept OPR stable at 3.00%. In its recent July 2017 meeting, BNM kept its OPR unchanged for the sixth consecutive time and showed little inclination to adjust its monetary policy despite the strong growth and higher inflation in the first quarter of The policy statement also continued to strike a neutral tone. BNM reiterated that headline inflation is poised to moderate from here. FUND PERFORMANCE 1 year to years to years to Since Inception to % % % % Income Capital 1.52 (12.16) (2.30) Total Return Benchmark Average Total Return The Fund rose by 9.02% in the financial year under review, while the benchmark was up by a narrower 5.25%. On a 3-year and 5-year basis, the Fund appreciated by 7.11% and 26.65% which outperformed the benchmark return by 4.64% and 13.07% respectively. 7

10 FUND PERFORMANCE (CONTINUED) Changes in NAV Changes % NAV (RM million) (6.76) NAV/Unit (RM) The Fund s NAV per unit rose by 1.51% in the financial year under review on better fund performance but the NAV of the Fund fell by 6.76% partly due to unit redemptions. 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 year have been extracted from Lipper. 8

11 PORTFOLIO STRUCTURE Asset allocation (% of NAV) Quoted securities - local Quoted securities - foreign Unquoted fixed income securities - local Unquoted fixed income securities - foreign Cash and other net assets TOTAL During the financial year under review, investment in unquoted fixed income securities reduced from 43.46% to 34.53%. Liquidity is maintained for the Fund to take advantage of primary issues as well as to facilitate any redemption. Investment in quoted securities rose from 50.60% to 58.26% as we were more bullish on the local market on the back of net inflow of foreign funds, expectations on earnings upgrades and news on GLCs restructuring. MARKET OUTLOOK Equity Market continued in consolidation mode in September 2017 as investors watched for more evidence of a sustained global economic recovery. We are positioned for stronger forthcoming quarters leading into Fourteenth General Election ( GE ), which we expect to occur in the first quarter of The upcoming pre-election budget is expected to be expansionary and people-centric. While the rebound in crude oil prices will provide some fiscal relief for the Government, we believe fiscal discipline to be maintained. The risk to the market is if the Feds tightens more aggressively or Trump s tax plan attracts repatriation of US overseas earnings, thus sparking portfolio outflows from Emerging Markets ( EM ). However, we think that the risk of that is low at this point. Fixed Income Malaysia real GDP growth exceeds expectation after it recorded growth of 5.8% y-o-y in second quarter of 2017 (first quarter of 2017: 5.6%) driven mainly by higher private consumption growth, which accelerated by 7.1% and strong external activities as exports and imports maintained its robust growth of 9.6% y-o-y and 10.7% y-o-y respectively. CPI growth in July 2017 fell further to 3.2% y-o-y from 3.6% y-o-y recorded in June The moderation was attributed mainly to the drop in transport prices which fell by 1.1% m-o-m, reflecting the pass-through impact of the lower energy prices. As such, we maintain our view that inflation to stay modest for the rest of the year despite a strong domestic demand and expect BNM to keep its OPR unchanged on 7 September 2017 and believe BNM will maintain status quo for the rest of the year. Malaysia is expected to meet its targeted fiscal deficit of 3.0% of GDP for 2017 which will be credit neutral to rating agencies. The next Budget 2018 announcement in October 2017 will be crucial as further fiscal consolidation will have positive impact to the domestic bond market. 9

12 INVESTMENT STRATEGY Equity We will stay invested, with our favoured sectors being e-commerce/logistics, tourism, and construction, with GLCs reform remaining a structural market theme. We also seek ideas in personal consumption plays. Fixed Income We maintain overweight on corporate bonds with focus on primary corporate issuances and repriced secondary offers but remain selective on the credits as downgrades and defaults on credit market may be increasing in Meanwhile, we hold a tactical position in the government securities when the opportunity arises. UNIT HOLDING STATISTICS Breakdown of unit holdings by size as at 31 August 2017 are as follows: Size of holdings(units) No. of unit holders No. of units held % of units held (millions) 5,000 and below 53, ,001-10,000 1, ,001-50,000 4, , ,000 1, Above 500, Total 61, REBATES & SOFT COMMISSION 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 year under review, the Manager and the 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

13 STATEMENT BY MANAGER TO THE UNIT HOLDERS OF CIMB-PRINCIPAL BALANCED INCOME FUND CIMB-PRINCIPAL BALANCED INCOME FUND We, being the Director of CIMB-Principal Asset Management Berhad (the Manager ), do hereby state that, in the opinion of the Manager, the accompanying audited financial statements set out on pages 17 to 60 are drawn up in accordance with the provisions of the Deeds and give a true and fair view of the financial position of the Fund as at 31 August 2017 and of its financial performance, changes in equity and cash flows for the financial year then ended in accordance with the provisions of the Malaysian Financial Reporting Standards ( MFRS ) and International Financial Reporting Standards ( IFRS ). For and on behalf of the Manager CIMB-PRINCIPAL ASSET MANAGEMENT BERHAD (Company No.: K) MUNIRAH KHAIRUDDIN Chief Executive Officer/Executive Director ALEJANDRO ECHEGORRI Executive Director Kuala Lumpur 26 October

14 TRUSTEE S REPORT TO THE UNIT HOLDERS OF CIMB-PRINCIPAL BALANCED INCOME FUND CIMB-PRINCIPAL BALANCED INCOME FUND We have acted as the Trustee of CIMB-Principal Balanced Income Fund (the Fund ) for the financial year ended 31 August To the best of our knowledge, CIMB-Principal Asset Management Berhad (the Manager ), has operated and managed the Fund in accordance with the following: a) limitations imposed on the investment powers of the Manager and the Trustee under the Deeds, the Securities Commission s Guidelines on Unit Trust Funds, the Capital Markets and Services Act 2007 and other applicable laws; b) valuation/pricing for the Fund is carried out in accordance with the Deeds of the Fund and any regulatory requirements; and c) creation and cancellation of units for the Fund are carried out in accordance with the Deeds of the Fund and applicable regulatory requirements. During the financial year, a total distribution of 5.25 sen per unit (gross) has been distributed to the unit holders of the Fund. We are of the view that the distribution is consistent with the objective of the Fund. For and on behalf of the Trustee UNIVERSAL TRUSTEE (MALAYSIA) BERHAD ONG TEE VANN Chief Executive Officer Kuala Lumpur 26 October

15 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF CIMB-PRINCIPAL BALANCED INCOME FUND REPORT ON THE FINANCIAL STATEMENTS Our opinion CIMB-PRINCIPAL BALANCED INCOME FUND In our opinion, the financial statements of CIMB-Principal Balanced Income Fund (the Fund ) give a true and fair view of the financial position of the Fund as at 31 August 2017, and of its financial performance and its cash flows for the year then ended in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards. What we have audited We have audited the financial statements of the Fund, which comprise the statement of financial position as at 31 August 2017, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, as set out on pages 17 to 60. Basis for opinion We conducted our audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditors 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 and other ethical responsibilities We are independent of the Fund in accordance with the By-Laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants ( By-Laws ) and the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants ( IESBA Code ), and we have fulfilled our other ethical responsibilities in accordance with the By-Laws and the IESBA Code. 13

16 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF CIMB-PRINCIPAL BALANCED INCOME FUND (CONTINUED) REPORT ON THE FINANCIAL STATEMENTS (CONTINUED) Information other than the financial statements and auditors report thereon CIMB-PRINCIPAL BALANCED INCOME FUND The Manager of the Fund is responsible for the other information. The other information comprises Manager s report but does include the financial statements of the Fund and our auditor s report thereon. Our opinion on the financial statements of the Fund 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 of the Fund, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements of the Fund or our knowledge obtained in the audit or otherwise appears to be materially misstated. 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 Manager for the financial statements The Manager of the Fund is responsible for the preparation of the financial statements of the Fund that give a true and fair view in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards in Malaysia. The Manager is also responsible for such internal control as the Manager determine is necessary to enable the preparation of financial statements of the Fund that are free from material misstatement, whether due to fraud or error. In preparing the financial statements of the Fund, the Manager is responsible for assessing the Fund s 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 Manager either intend to liquidate the Fund or to cease operations, or have no realistic alternative but to do so. 14

17 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF CIMB-PRINCIPAL BALANCED INCOME FUND (CONTINUED) REPORT ON THE FINANCIAL STATEMENTS (CONTINUED) Auditors responsibilities for the audit of the financial statements CIMB-PRINCIPAL BALANCED INCOME FUND Our objectives are to obtain reasonable assurance about whether the financial statements of the Fund as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with approved standards on auditing in Malaysia and International Standards on Auditing 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. As part of an audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: (a) (b) (c) (d) (e) Identify and assess the risks of material misstatement of the financial statements of the Fund, 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 Fund s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Manager. Conclude on the appropriateness of the Manager 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 Fund s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the financial statements of the Fund 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 auditors report. However, future events or conditions may cause the Fund to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements of the Fund, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 15

18 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF CIMB-PRINCIPAL BALANCED INCOME FUND (CONTINUED) REPORT ON THE FINANCIAL STATEMENTS (CONTINUED) Auditors responsibilities for the audit of the financial statements (continued) CIMB-PRINCIPAL BALANCED INCOME FUND We communicate with the Manager 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. OTHER MATTERS This report is made solely to the unit holders of the Fund and for no other purpose. We do not assume responsibility to any other person for the content of this report. PRICEWATERHOUSECOOPERS (No. AF: 1146) Chartered Accountants Kuala Lumpur 26 October

19 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 AUGUST 2017 CIMB-PRINCIPAL BALANCED INCOME FUND Note RM RM INVESTMENT INCOME Dividend income 4,600,928 4,417,852 Interest income 4 4,746,254 5,752,534 Net gain on financial assets at fair value through profit or loss 9 17,781,101 11,990,055 Net foreign exchange gain 31, ,159,707 22,160,490 EXPENSES Management fee 5 3,841,763 4,190,603 Trustee s and custodian fees 6 66,498 88,856 Audit fee 17,430 13,290 Tax agent s fee 5,140 6,500 Transaction costs 944, ,799 Other expenses 368, ,989 5,243,660 5,620,037 PROFIT BEFORE TAXATION 21,916,047 16,540,453 Taxation 8 (1,991) 95,510 PROFIT AFTER TAXATION AND TOTAL COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR 21,914,056 16,635,963 Profit after taxation is made up as follows: Realised amount 11,721,908 5,569,870 Unrealised amount 10,192,148 11,066,093 21,914,056 16,635,963 The accompanying notes to the financial statements form an integral part of the audited financial statements. 17

20 STATEMENT OF FINANCIAL POSITION AS AT 31 AUGUST Note RM RM ASSETS Cash and cash equivalents 10 21,330,591 16,621,314 Financial assets at fair value through profit or loss 9 231,174, ,301,103 Amount due from stockbrokers 400,563 3,658,563 Amount due from Manager 17,064 72,763 Dividends receivable 97, ,840 TOTAL ASSETS 253,020, ,887,583 LIABILITIES Amount due to stockbrokers 2,716,480 3,398,297 Amount due to Manager 795, ,116 Accrued management fee 319, ,322 Amount due to Trustee and custodian 8,008 8,149 Distribution payable 8, Other payables and accruals 56,913 57,505 TOTAL LIABILITIES 3,904,889 4,712,427 NET ASSET VALUE OF THE FUND 249,115, ,175,156 EQUITY Unit holders capital 154,791, ,562,876 Retained earnings 94,324,580 90,612,280 NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 249,115, ,175,156 NUMBER OF UNITS IN CIRCULATION (UNITS) ,398, ,167,478 NET ASSET VALUE PER UNIT (RM) The accompanying notes to the financial statements form an integral part of the audited financial statements. 18

21 STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 AUGUST 2017 CIMB-PRINCIPAL BALANCED INCOME FUND Unit holders Retained capital earnings Total Note RM RM RM Balance as at 1 September ,562,876 90,612, ,175,156 Movement in unit holders contributions: - Creation of units from applications 6,871,617-6,871,617 - Creation of units from distribution 17,679,668-17,679,668 - Cancellation of units (46,322,883) - (46,322,883) Total comprehensive income for the financial year - 21,914,056 21,914,056 Distribution 7 - (18,201,756) (18,201,756) Balance as at 31 August ,791,278 94,324, ,115,858 Balance as at 1 September ,740,472 92,153, ,893,783 Movement in unit holders contributions: - Creation of units from applications 10,365,460-10,365,460 - Creation of units from distribution 17,681,262-17,681,262 - Cancellation of units (40,224,318) - (40,224,318) Total comprehensive income for the financial year - 16,635,963 16,635,963 Distribution 7 - (18,176,994) (18,176,994) Balance as at 31 August ,562,876 90,612, ,175,156 The accompanying notes to the financial statements form an integral part of the audited financial statements. 19

22 STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 AUGUST 2017 CIMB-PRINCIPAL BALANCED INCOME FUND Note RM RM CASH FLOWS FROM OPERATING ACTIVITIES Proceeds from disposal of quoted securities 174,073, ,013,540 Purchase of quoted securities (164,093,506) (158,051,179) Proceeds from disposal of unquoted fixed income securities 121,000, ,050,346 Proceeds from redemption of unquoted fixed income securities 22,586,867 9,069,355 Purchase of unquoted fixed income securities (114,017,831) (162,620,850) Dividend income received 4,735,085 3,369,514 Interest income received from deposits with licensed financial institutions 722, ,671 Interest income received from unquoted fixed income securities 4,012,154 5,392,419 Management fee paid (3,864,064) (4,212,275) Trustee s and custodian fees paid (66,639) (95,675) Payments for other fees and expenses (391,301) (406,002) Tax refund received - 160,471 Net cash generated from operating activities 44,696,294 14,597,335 CASH FLOWS FROM FINANCING ACTIVITIES Cash proceeds from units created 6,927,316 10,479,631 Payments for cancellation of units (46,434,094) (40,052,373) Distribution paid (513,564) (495,892) Net cash used in financing activities (40,020,342) (30,068,634) Net increase/(decrease) in cash and cash equivalents 4,675,952 (15,471,299) Effects of foreign exchange differences 33, Cash and cash equivalents at the beginning of the financial year 16,621,314 32,092,564 Cash and cash equivalents at the end of the financial year 10 21,330,591 16,621,314 Cash and cash equivalent comprised of: Deposits with licensed financial institutions 19,403,029 16,253,021 Bank balance 1,927, ,293 Cash and cash equivalents at the end of the financial year 10 21,330,591 16,621,314 The accompanying notes to the financial statements form an integral part of the audited financial statements. 20

23 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 AUGUST THE FUND, THE MANAGER AND ITS PRINCIPAL ACTIVITY CIMB-PRINCIPAL BALANCED INCOME FUND CIMB-Principal Balanced Income Fund (the Fund ) is governed by a Principal Master Deed dated 15 May 2008, a First Supplemental Master Deed dated 25 June 2008, a Supplemental Master Deed dated 14 July 2008 and an Eighteenth supplemental Master Deed dated 25 March 2015 (collectively referred to as the Deeds ), between CIMB-Principal Asset Management Berhad (the Manager ) and Universal Trustee (Malaysia) Berhad (the Trustee ). The Fund aims to invest in a diversified portfolio of equities and fixed income investments. In line with the objective of the Fund, the investment policy and strategy of the Fund will be to maintain a balanced portfolio between equities and fixed income investments in the ratio of 60:40. The fixed income portion of the Fund is to provide some capital stability to the Fund whilst the equity portion will provide the added return in a rising market. The investments by the Fund in equity securities shall not exceed 60% of the NAV of the Fund and investments in fixed income securities and liquid assets shall not be less than 40% of its NAV with a minimum credit rating of BBB3 or P2 by RAM or equivalent rating by MARC or by local rating agency (ies) of the country of issuance or BBB- by S&P or equivalent rating by Moody s or Fitch. The Fund may invest up to 40% of its NAV in Unrated Fixed Income Securities. The fixed income portion will provide capital stability to the Fund whilst the equity portion will provide the added return in a rising market. The Fund may opt to seek investment exposure via Collective Investment Scheme that is in line with the Fund s objective, subject to the requirement of the SC Guidelines. All investments are subjected to the SC Guidelines on Unit Trust Funds, SC requirements, the Deeds, except where exemptions or variations have been approved by the SC, internal policies and procedures and the Fund s objective. The Manager, a company incorporated in Malaysia, is a subsidiary of CIMB Group Sdn Bhd and regards CIMB Group Holdings Berhad as its ultimate holding company. The Manager is also an associate of Principal International (Asia) Limited, which is a subsidiary of Principal Financial Group Inc. The principal activities of the Manager are the establishment and management of unit trust funds and fund management activities. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following accounting policies have been used consistently in dealing with items which are considered material in relation to the financial statements: (a) Basis of preparation The financial statements have been prepared in accordance with the provisions of the MFRS and 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 year. 21

24 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (a) Basis of preparation (continued) 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(l). Standards, amendments to published standards and interpretations to existing standards that are effective: The Fund has applied the following amendments for the first time for the financial year beginning 1 September 2016: Amendments to MFRS 101 Presentation of Financial Statements - Disclosure Initiative provide clarifications on a number of issues, including: Materiality - an entity should not aggregate or disaggregate information in a manner that obscures useful information. Where items are material, sufficient information must be provided to explain the impact on the financial position or performance. Disaggregation and subtotals - line items specified in MFRS 101 may need to be disaggregated where this is relevant to an understanding of the entity s financial position or performance. There is also new guidance on the use of subtotals. Notes - confirmation that the notes do not need to be presented in a particular order. Other comprehensive income ( OCI ) arising from investments accounted for under the equity method - the share of OCI arising from equity-accounted investments is grouped based on whether the items will or will not subsequently be reclassified to profit or loss. Each group should then be presented as a single line item in the statement of other comprehensive income. According to the transitional provisions, the disclosures in MFRS 108 regarding the adoption of new standards/accounting policies are not required for these amendments. Annual Improvements to MFRSs Cycle The adoption of these amendments did not have any impact on the current financial year or any prior financial year and is not likely to affect future years. 22

25 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (a) Basis of preparation (continued) 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 September 2017 Amendments to MFRS 107 Statement of Cash Flows - Disclosure Initiative (effective from 1 January 2017) introduce an additional disclosure on changes in liabilities arising from financing activities. The Fund will apply this standard when effective. This standard is not expected to have a significant impact on the Fund s financial statements. (ii) Financial year beginning on/after 1 September 2018 MFRS 15 Revenue from Contracts with Customers (effective from 1 January 2018) replaces MFRS 118 Revenue and MFRS 111 Construction Contracts and related interpretations. The core principle in MFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Revenue is recognised when a customer obtains control of goods or services, i.e. when the customer has the ability to direct the use of and obtain the benefits from the goods or services. A new five-step process is applied before revenue can be recognised: Identify contracts with customers; Identify the separate performance obligations; Determine the transaction price of the contract; Allocate the transaction price to each of the separate performance obligations; and Recognise the revenue as each performance obligation is satisfied. Key provisions of the new standard are as follows: Any bundled goods or services that are distinct must be separately recognised, and any discounts or rebates on the contract price must generally be allocated to the separate elements. If the consideration varies (such as for incentives, rebates, performance fees, royalties, success of an outcome etc), minimum amounts of revenue must be recognised if they are not at significant risk of reversal. The point at which revenue is able to be recognised may shift: some revenue which is currently recognised at a point in time at the end of a contract may have to be recognised over the contract term and vice versa. There are new specific rules on licenses, warranties, non-refundable upfront fees, and consignment arrangements, to name a few. As with any new standard, there are also increased disclosures. 23

26 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (a) Basis of preparation (continued) (ii) Financial year beginning on/after 1 September 2018 (continued) MFRS 9 Financial Instruments (effective from 1 January 2018) will replace MFRS 139 Financial Instruments: Recognition and Measurement. MFRS 9 retains but simplifies the mixed measurement model in MFRS 139 and establishes three primary measurement categories for financial assets: amortised cost, fair value through profit or loss and fair value through OCI. The basis of classification depends on the entity s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are always measured at fair value through profit or loss with an irrevocable option at inception to present changes in fair value in OCI (provided the instrument is not held for trading). A debt instrument is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest. For liabilities, the standard retains most of the MFRS 139 requirements. These include amortised cost accounting for most financial liabilities, with bifurcation of embedded derivatives. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in OCI rather than the income statement, unless this creates an accounting mismatch. MFRS 9 introduces an expected credit loss model on impairment that replaces the incurred loss impairment model used in MFRS 139. The expected credit loss model is forward-looking and eliminates the need for a trigger event to have occurred before credit losses are recognised. The Fund will apply these standards when effective. These standards are not expected to have a significant impact on the Fund s financial statement. (b) Financial assets and financial liabilities Classification The Fund designates its investments in quoted securities and unquoted fixed income securities as financial assets at fair value through profit or loss at inception. Financial assets are designated at fair value through profit or loss when they are managed and their performance evaluated on a fair value basis. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and have been included in current assets. The Fund s loans and receivables comprise cash and cash equivalents, amount due from stockbrokers, amount due from Manager, and dividends receivable. Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. The Fund classifies amount due to stockbrokers, amount due to Manager, accrued management fee, amount due to Trustee and custodian, other payables and accruals, and distribution payable as other financial liabilities. 24

27 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) Financial assets and financial liabilities (continued) 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 financial income within net gain or loss on financial assets at fair value through profit or loss in the financial year which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the statement of comprehensive income as part of gross dividend income when the Fund s right to receive payments is established. Quoted securities in Malaysia are valued at the last done market price quoted on Bursa Malaysia Securities Berhad ( Bursa Securities ) at the date of the statement of financial position. Foreign quoted securities are valued at the last traded market price quoted on the respective foreign stock exchanges at the close of the business day of the respective foreign stock exchanges. If a valuation based on the market price does not represent the fair value of the quoted securities, for example during abnormal market conditions or when no market price is available, including in the event of a suspension in the quotation of the quoted securities for a period exceeding 14 days, or such shorter period as agreed by the Trustee, then the quoted securities are valued as determined in good faith by the Manager, based on the methods or basis approved by the Trustee after appropriate technical consultation. Unquoted fixed income securities denominated in Ringgit Malaysia ( RM ) are revalued on a daily basis based on fair value prices quoted by a Bond Pricing Agency ( BPA ) registered with the SC as per the SC Guidelines on Unit Trust Funds. Refer to Note 2(l) for further explanation. Unquoted fixed income securities denominated in foreign currencies are revalued on a daily basis based on fair value prices quoted by Interactive Data Corporation ( IDC ), a provider of financial market data. However, if such quotations are not available on any business day, the unquoted fixed income securities will be valued by reference to the average indicative yield quoted by three (3) independent and reputable financial institutions. 25