Hong Leong Asia-Pacific Dividend Fund

Transcription

1 Reaching out to you Hong Leong Asia-Pacific Dividend Fund Annual Report 2016/ October 2017 Audited

2 Hong Leong Asia-Pacific Dividend Fund Contents Page Manager s Review and Report 1-9 Statement by the Manager 10 Trustee s Report 11 Independent Auditors Report Statement of Comprehensive Income 16 Statement of Financial Position 17 Statement of Changes in Equity 18 Statement of Cash Flows 19 Notes to the Financial Statements Performance Data Corporate Information 66 Corporate Directory 67 HONG LEONG ASIA-PACIFIC DIVIDEND FUND 1

3 Manager s Review and Report I. FUND INFORMATION Fund Name Hong Leong Asia-Pacific Dividend Fund Fund Category Equity Fund Type Growth & Income Investment Objective The Fund aims to provide investors with steady recurring income* that is potentially higher than the average fixed deposit rates. At the same time, the Fund also attempts to attain Medium-To-Long Term** capital gains from investing in high quality dividend yielding equities***. Benchmark MSCI AC Asia-Pacific ex Japan Index Distribution Policy The Fund intends to provide regular income* and potentially consistent Long-Term**** capital appreciation. Regular income returns will be declared annually on a best effort basis, depending on interest rates, market conditions and performance of the Fund. As such, the Fund will strive to declare distributions annually, if any, in the form of either cash or additional Units to the Unitholders. Breakdown of Unitholdings By Size Size of Holdings No. of Accounts No. of Units Held 5,000 and below 30 92, ,001 to 10, , ,001 to 50, ,330, ,001 to 500, ,162, ,001 and above 11 49,695, Notes: * Income may be distributed in the form of cash and/or Units. ** Medium-To-Long Term refers to a period of 3 to 5 years. *** High quality dividend yielding equities refer to equity securities that have dividend yields at and/or above market average. **** Long-Term refers to a period of above 5 years. HONG LEONG ASIA-PACIFIC DIVIDEND FUND 1

4 II. FUND PERFORMANCE Chart 1: Performance of the Fund versus the benchmark covering the last five financial years Percentage Growth /10/ /10/ /10/ /10/ /10/ /10/2017 From 31/10/2012 To 31/10/2017 Hong Leong Asia-Pacific Dividend Fund (HLAPDF) MSCI AC Asia Pacific ex Japan Source: Lipper For Investment Management, In Malaysian Ringgit terms, exdistribution, NAV Per Unit-to-NAV Per Unit basis with gross income (if any) from HLAPDF reinvested. Past performance is not necessarily indicative of future performance and unit prices and investment returns may go down, as well as up. 2 HONG LEONG ASIA-PACIFIC DIVIDEND FUND

5 Performance Review This Annual Report covers the twelve-month financial year from 1 November 2016 to 31 October The Fund posted a return of 18.85% in the past twelve months while its benchmark the MSCI AC Asia Pacific ex Japan Index registered a return of 25.46% (in Malaysian Ringgit terms). During the financial year under review, the Fund had distributed income distribution of 0.50 sen per unit to its Unitholders on 18 July Prior to the income distribution, the cum-distribution net asset value (NAV) per unit of the Fund was RM while the ex-distribution NAV per unit after the distribution was RM Unitholders should note that income distribution has the effect of reducing the NAV per unit of the Fund after distribution. For the five financial years ended 31 October 2017, the Fund posted a return of 32.76% compared to the benchmark s return of 72.81% while distributing a total gross income of 4.00 sen per unit. The Manager concluded that the Fund has not achieved its investment objective. Table 1: Performance of the Fund for the following periods as at 31 October 2017 (Source: Lipper For Investment Management) 28/02/06 31/07/17 30/04/17 31/10/16 31/10/15 31/10/14 31/10/12 31/10/07 31/10/17 31/10/17 31/10/17 31/10/17 31/10/17 31/10/17 31/10/17 31/10/17 Since 3 Months 6 Months 1 Year 2 Years 3 Years 5 Years 10 Years Launch HLAPDF (%) Benchmark (%) HONG LEONG ASIA-PACIFIC DIVIDEND FUND 3

6 Table 2: Return of the Fund based on NAV Per Unit-to-NAV Per Unit basis for the period 31 October 2016 to 31 October 2017 (Source: Lipper For Investment Management) NAV Per Unit Benchmark vs Benchmark (%) 31-Oct-17 RM Oct-16 RM Return (%) # # Return is calculated after adjusting for income distribution of 0.50 sen per unit on 18/07/2017. Table 3: Financial Highlights The Net Asset Value attributable to Unitholders is represented by: 31-Oct-17 (RM) 31-Oct-16 (RM) Change (%) Unitholders Capital Retained Earnings Net Asset Value 19,945,514 5,533,655 25,479,169 17,046,536 1,381,656 18,428, Units in Circulation 54,528,795 46,364, HONG LEONG ASIA-PACIFIC DIVIDEND FUND

7 Table 4: The Highest and Lowest NAV Per Unit, Total Return of the Fund and the breakdown into Capital Growth and Income Distribution for the financial years Highest NAV Per Unit (RM) Lowest NAV Per Unit (RM) Capital Growth (%) Income Distribution (%) Total Return (%) Financial Year 31/10/16 31/10/ Financial Year 31/10/15 31/10/ Financial Year 31/10/14 31/10/ Source: Lipper For Investment Management, In Malaysian Ringgit terms, exdistribution, NAV Per Unit-to-NAV Per Unit basis with gross income (if any) from HLAPDF reinvested. Table 5: Average Total Return (%) Average Total Return of the Fund 31/10/16 31/10/17 1 Year /10/14 31/10/17 3 Years /10/12 31/10/17 5 Years 6.55 Source: Lipper For Investment Management, In Malaysian Ringgit terms, exdistribution, NAV Per Unit-to-NAV Per Unit basis with gross income (if any) from HLAPDF reinvested. Table 6: Annual Total Return of the Fund Financial Year Annual Total Return (%) 31/10/16 31/10/ /10/15 31/10/ /10/14 31/10/ /10/13 31/10/ /10/12 31/10/ Source: Lipper For Investment Management, In Malaysian Ringgit terms, exdistribution, NAV Per Unit-to-NAV Per Unit basis with gross income (if any) from HLAPDF reinvested. HONG LEONG ASIA-PACIFIC DIVIDEND FUND 5

8 III. INVESTMENT PORTFOLIO Chart 2: Asset Allocation - November 2016 to October 2017 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Equities Collective Investment Schemes Warrants Chart 3: Sector Allocation as at 31 October 2017 Trading/Services 2.46% Materials 2.76% Properties 3.03% Construction 3.36% Information Technology 3.79% Basic & Diversified 3.94% Warrants 0.07% Technology 4.56% Deposits & Cash Equivalents 17.66% Industrial Products 5.48% Financial 24.21% Consumer Products 28.68% 6 HONG LEONG ASIA-PACIFIC DIVIDEND FUND

9 Chart 4: Geographical Allocation as at 31 October 2017 Deposits & Cash Equivalents 17.66% Indonesia 5.78% Thailand 10.06% Hong Kong 49.92% Malaysia 16.58% Strategies employed during the period under review During the financial year under review, the Fund increased its exposure to Hong Kong while reducing its exposure to Malaysia. The Fund is predominantly invested in selected stocks that will benefit from the improving global growth outlook and rising China domestic demand. On a country basis, the Fund is predominantly invested in selected stocks in Hong Kong, Malaysia, Thailand and Indonesia. The core holdings of the Fund consist of stocks with high quality earnings visibility and resilient cash flow. As of 31 October 2017, the Fund s top-three holdings are Oceancash Pacific Berhad Malaysia (4.01%), Kingboard Chemical Holdings Limited Hong Kong (3.94%) and China Huarong Asset Management Company Limited Hong Kong (3.91%). For the financial year under review, there were no significant changes in the state of affairs of the Fund or circumstances that would materially affect the interest of Unitholders up to the date of this Manager s report. HONG LEONG ASIA-PACIFIC DIVIDEND FUND 7

10 IV. MARKET REVIEW During the period in review, the MSCI AC Asia Pacific ex Japan Index rose 25.5% (in Malaysian Ringgit terms). The best performing markets were Hong Kong and Korea while the laggards were Malaysia and China. In the local market, the FTSE Bursa Malaysia KLCI rose 4.5%. Small caps outperformed as the FTSE Bursa Malaysia Small Cap Index rose 13.6%. The fourth quarter of 2016 saw emerging markets underperforming developed markets as the surprise victory of Donald Trump resulted in higher US Dollar and US bond yields. The fall in bond prices led to redemptions in emerging market funds. The possibility of trade conflicts also resulted in foreign exchange weakness in the emerging market space. Crude oil rallied strongly as countries from outside the Organization of the Petroleum Exporting Countries (OPEC) agreed to reduce output following the agreement by OPEC members to cut production. Regional equities got off to a strong start in 2017, led by cyclical sectors such as the banking, technology and commodity sectors. The prospects of increased fiscal stimulus in the US and improving economic outlook spurred the return of fund inflows into emerging markets. The first half of the year has been a remarkably smooth journey for equity markets and the third quarter was no exception. Relatively low volatility in the US market was supported by decent corporate earnings growth and buoyant consumer confidence. Although there were concerns about rising geopolitical tension with regards to North Korea, markets continued to rally as investors maintained their focus on rising corporate profits. The Malaysia market performance was lacklustre for most part of the second half of 2016 as most corporate results continued to disappoint. Apart from a minor pre-budget 2017 run up, the market was trading sideways for most of the months. The local market was also hit along with most ASEAN countries following Donald Trump s surprise victory and sparked fears of US protectionist measures before recovering some of the losses towards the end of the year. Malaysia market bounced back in the beginning of 2017, but had a slower start as compared to regional peers. The restructuring of government-linked companies and a relatively solid earnings report helped improve market sentiment. The local market was rather muted during the 8 HONG LEONG ASIA-PACIFIC DIVIDEND FUND

11 third quarter of 2017 as investors risk appetite were dampened by the disappointing results season during the period. V. FUTURE PROSPECTS AND PROPOSED STRATEGIES In the US, the economy continues to look healthy as unemployment indicators have been falling sharply. Given the improving labour market, the Federal Reserve (Fed) raised rates twice in the first half of 2017 and announced that it is looking to reduce the size of its balance sheet soon. The Fed believes that factors weighing on inflation appear to be temporary and is likely to continue to tighten monetary policy. In Europe, the European Central Bank (ECB) also hints at scaling down its quantitative exercise as the economic outlook continues to improve. We expect the market to trade range-bound given that the local market is seen to be supported by local buying while upside will be capped by subdued corporate earnings growth. We maintain our bottom-up stock picking strategy and would take the opportunity to accumulate stocks that we like in the event of a market correction. We continue to be well invested in equities with preference for stocks that will benefit from the rising external demand outlook and corporates with healthy earnings growth. We are actively looking for companies that have good cash flow, earnings visibility and pricing power. VI. SOFT COMMISSIONS The Manager has received soft commissions from brokers/dealers in the form of goods and services such as research materials, data and quotation services incidental to investment management of the Fund and investment related publications. Such soft commissions received are of demonstrable benefit to Unitholders. HONG LEONG ASIA-PACIFIC DIVIDEND FUND 9

12 STATEMENT BY THE MANAGER I, Hoo See Kheng, as the Director of Hong Leong Asset Management Bhd, do hereby state that, in the opinion of the Manager, the financial statements set out on pages 16 to 63 are drawn up in accordance with the provision of the Deeds and give a true and fair view of the financial position of the Fund as at 31 October 2017 and of its financial performance, changes in equity and cash flows for the financial year ended 31 October 2017 in accordance with the Malaysian Financial Reporting Standards ( MFRS ) and International Financial Reporting Standards ( IFRS ). For and on behalf of the Manager, Hong Leong Asset Management Bhd (Company No.: M) HOO SEE KHENG Chief Executive Officer/Executive Director Kuala Lumpur 15 December HONG LEONG ASIA-PACIFIC DIVIDEND FUND

13 TRUSTEE S REPORT TO THE UNITHOLDERS OF HONG LEONG ASIA-PACIFIC DIVIDEND FUND We have acted as the Trustee for Hong Leong Asia-Pacific Dividend Fund ( the Fund ) for the financial year ended 31 October To the best of our knowledge, for the financial year under review, Hong Leong Asset Management Bhd ( the Manager ) has operated and managed the Fund in accordance with the following: - (a) limitations imposed on the investment powers of the Manager under the Deed(s), the Securities Commission s Guidelines on Unit Trust Funds, the Capital Markets and Services Act 2007 and other applicable laws; (b) valuation and pricing for the Fund has been carried out in accordance with the Deed(s) of the Fund and applicable regulatory requirements; and (c) creation and cancellation of units for the Fund have been carried out in accordance with the Deed(s) of the Fund and applicable regulatory requirements. We are of the view that the distribution made during the financial year ended 31 October 2017 by the Manager is not inconsistent with the objectives of the Fund. For Deutsche Trustees Malaysia Berhad Soon Lai Ching Senior Manager, Trustee Operations Richard Lim Hock Seng Chief Executive Officer Kuala Lumpur 15 December 2017 HONG LEONG ASIA-PACIFIC DIVIDEND FUND 11

14 INDEPENDENT AUDITORS REPORT TO THE UNITHOLDERS OF HONG LEONG ASIA-PACIFIC DIVIDEND FUND REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS Our opinion In our opinion, the financial statements of Hong Leong Asia-Pacific Dividend Fund ( the Fund ) give a true and fair view of the financial position of the Fund as at 31 October 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 October 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 16 to 63. 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. 12 HONG LEONG ASIA-PACIFIC DIVIDEND FUND

15 Information other than the financial statements and auditors report thereon The Manager of the Fund is responsible for the other information. The other information comprises Manager s Review & Report but does not include the financial statements of the Fund and our auditors 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. 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 have no realistic alternative but to do so. HONG LEONG ASIA-PACIFIC DIVIDEND FUND 13

16 Auditors responsibilities for the audit of the financial statements 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 judgment and maintain professional scepticism throughout the audit. We also: (a) 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. (b) 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. (c) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Manager. 14 HONG LEONG ASIA-PACIFIC DIVIDEND FUND

17 (d) 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. (e) 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. 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 unitholders 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 15 December 2017 HONG LEONG ASIA-PACIFIC DIVIDEND FUND 15

18 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 OCTOBER Note RM RM INVESTMENT INCOME Interest income 4 46,686 40,647 Dividend income 757, ,290 Net gain on financial assets at fair value through profit or loss ( FVTPL ) 10 4,467,665 1,302,081 Net gain/(loss) on derivatives ,888 (17,762) Net foreign currency exchange loss (40,016) (90,888) 5,385,926 1,756,368 EXPENDITURE Management fee 5 (366,066) (293,517) Trustee s fee 6 (18,000) (18,000) Auditors remuneration (8,800) (8,800) Tax agent s fee (5,433) (14,917) Custodian fees (25,069) (3,249) Transaction costs (380,609) (239,500) Other expenses (71,354) (42,867) (875,331) (620,850) PROFIT BEFORE TAXATION 4,510,595 1,135,518 Taxation 7 (40,843) (7,255) PROFIT AFTER TAXATION AND TOTAL COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR 4,469,752 1,128,263 Profit after taxation is made up as follows: Realised amount 4,382,109 2,043,029 Unrealised amount 87,643 (914,766) 4,469,752 1,128,263 Distribution for the financial year: Net distribution 8 317,753 - Net distribution per unit (sen) Gross distribution per unit (sen) The accompanying notes to the financial statements form an integral part of these financial statements. 16 HONG LEONG ASIA-PACIFIC DIVIDEND FUND

19 STATEMENT OF FINANCIAL POSITION AS AT 31 OCTOBER Note RM RM ASSETS Cash and cash equivalents 9 3,033,869 2,620,069 Financial assets at fair value through profit or loss ( FVTPL ) 10 20,978,911 15,648,670 Amount due from brokers/dealers 797, ,669 Amount due from the Manager-creation of units 1,208,424 - Dividends receivable 36,330 27,149 Tax recoverable TOTAL ASSETS 26,055,189 18,676,457 LIABILITIES Amount due to brokers/dealers 480, ,109 Amount due to the Manager-cancellation of units 3,354 1,163 Amount due to the Manager-management fee 30,923 23,763 Amount due to the Trustee 2,360 5,411 Derivatives 11 35,061 3,268 Other payables and accruals 23,394 23,551 TOTAL LIABILITIES 576, ,265 NET ASSET VALUE OF THE FUND 25,479,169 18,428,192 EQUITY Unitholders capital 19,945,514 17,046,536 Retained earnings 5,533,655 1,381,656 NET ASSETS ATTRIBUTABLE TO UNITHOLDERS 25,479,169 18,428,192 UNITS IN CIRCULATION (UNITS) 12 54,528,795 46,364,207 NET ASSET VALUE PER UNIT (RM) The accompanying notes to the financial statements form an integral part of these financial statements. HONG LEONG ASIA-PACIFIC DIVIDEND FUND 17

20 STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 OCTOBER 2017 Unitholders Retained capital earnings Total Note RM RM RM Balance as at 1 November ,046,536 1,381,656 18,428,192 Movement in net asset value: Creation of units from applications 15,838,264-15,838,264 Creation of units from distribution 142, ,129 Cancellation of units (13,081,415) - (13,081,415) Total comprehensive income for the financial year - 4,469,752 4,469,752 Distribution for the financial year 8 - (317,753) (317,753) Balance as at 31 October ,945,514 5,533,655 25,479,169 Balance as at 1 November ,833, ,393 21,086,680 Movement in net asset value: Creation of units from applications 1,269,098-1,269,098 Cancellation of units (5,055,849) - (5,055,849) Total comprehensive income for the financial year - 1,128,263 1,128,263 Balance as at 31 October ,046,536 1,381,656 18,428,192 The accompanying notes to the financial statements form an integral part of these financial statements. 18 HONG LEONG ASIA-PACIFIC DIVIDEND FUND

21 STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 OCTOBER Note RM RM CASH FLOWS FROM OPERATING ACTIVITIES Proceeds from sales of financial assets at FVTPL 62,477,291 36,362,738 Purchase of financial assets at FVTPL (63,804,193) (32,029,031) Realised gain/(loss) on derivatives 185,681 (28,025) Realised foreign exchange differences arising from operating activities (33,939) (90,665) Interest received 46,686 40,647 Dividends received 663, ,010 Management fee paid (358,906) (296,043) Trustee s fee paid (21,051) (17,621) Payment for other fees and expenses (110,813) (86,896) Tax refund Net cash (used in)/generated from operating activities (955,335) 4,344,114 CASH FLOWS FROM FINANCING ACTIVITIES Cash proceeds from units created 14,771,969 1,645,179 Payments for cancellation of units (13,079,224) (5,065,928) Distribution paid (317,753) - Net cash generated from/(used in) financing activities 1,374,992 (3,420,749) NET INCREASE IN CASH AND CASH EQUIVALENTS 419, ,365 EFFECTS OF FOREIGN EXCHANGE RATE CHANGES (5,857) (1,574) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE FINANCIAL YEAR 2,620,069 1,698,278 CASH AND CASH EQUIVALENTS AT END OF THE FINANCIAL YEAR 9 3,033,869 2,620,069 The accompanying notes to the financial statements form an integral part of these financial statements. HONG LEONG ASIA-PACIFIC DIVIDEND FUND 19

22 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 OCTOBER THE FUND, THE MANAGER AND THEIR PRINCIPAL ACTIVITIES Hong Leong Asia-Pacific Dividend Fund ( the Fund ) was constituted pursuant to the execution of a Deed dated 27 January 2006 and Supplemental Deed dated 30 April 2010 between the Manager, Hong Leong Asset Management Bhd, HSBC (Malaysia) Trustee Berhad and the registered unitholders of the Fund. HSBC (Malaysia) Trustee Berhad has been replaced with Deutsche Trustees Malaysia Berhad ( the Trustee ) effective 1 November 2012 and Supplemental Master Deeds were entered into between the Manager, the Trustee and the registered unitholders of the Fund on 21 September 2012 and 25 March 2015 to effect the change ( the Deeds ). The Fund aims to provide investors with steady recurring income that is potentially higher than the average fixed deposit rates. At the same time, the Fund also attempts to attain Medium-To-Long Term capital gains from investing in high quality dividend yielding equities. The Fund will invest a minimum 70% of its NAV into equities and equity-related securities which include common stock and depository receipts of companies in the Asia-Pacific ex Japan region. The Fund may invest in ETFs and REITs. A maximum 30% of its NAV may be invested into fixed income instruments which include fixed income securities, money market instruments and deposits. The Fund s investments may include derivatives which include futures, options, forward contracts and warrants to gain exposure to equities in the Asia-Pacific ex Japan region and in fixed income instruments. The Fund commenced operations on 28 February 2006 and will continue its operations until terminated as provided under Part 12 of the Deed. The Manager of the Fund is Hong Leong Asset Management Bhd, a company incorporated in Malaysia. The principal activity of the Manager is the management of unit trust funds and private investment mandates. Its holding company is Hong Leong Capital Berhad, a company incorporated in Malaysia and listed on the Main Market of Bursa Malaysia Securities Berhad. The financial statements were authorised for issue by the Manager on 15 December HONG LEONG ASIA-PACIFIC DIVIDEND FUND

23 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following accounting policies have been applied 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 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 the financial assets and financial liabilities (including derivative financial instruments) 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 revenue and expenses during the reported financial year. It also requires the Manager to exercise their judgment in the process of applying the Fund s accounting policies. The Manager believes that the underlying assumptions are appropriate and the Fund s financial statements therefore present the financial position results fairly. 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(m). HONG LEONG ASIA-PACIFIC DIVIDEND FUND 21

24 The Fund has applied the relevant new accounting standards, amendments and improvements to published standards and interpretations to existing accounting standards that are effective 1 January 2016 are as follows: Amendments to MFRS 101 Presentation of financial statements - Disclosure initiative Annual Improvements to MFRS Cycle The adoption of these amendments did not have any impact on the current period or any prior period and is not likely to affect future years. 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: 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. MFRS 9 Financial Instruments (effective from 1 January 2018) will replace MFRS 139 Financial Instruments: Recognition and Measurement. MFRS 9 retains but simplifies the mixed measurement model in MFRS 139 and establishes three primary measurement categories for financial assets: amortised cost, fair value through profit or loss and fair value through other comprehensive income ( OCI ). The basis of classification depends on the entity s business model and the contractual cash flow characteristics of the financial asset. 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 22 HONG LEONG ASIA-PACIFIC DIVIDEND FUND

25 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 other comprehensive income rather than the income statement, unless this creates an accounting mismatch. MFRS 9 introduces an expected credit losses model on impairment that replaces the incurred loss impairment model used in MFRS 139. The expected credit losses model is forward-looking and eliminates the need for a trigger event to have occurred before credit losses are recognised. The Fund will apply these standards when effective. These standards are not expected to have a significant impact on the Fund s financial statements. (b) Financial assets and financial liabilities Classification Financial assets are designated at fair value through profit or loss when their performance are managed and evaluated on a fair value basis. The Fund designates its investments in quoted equity securities, quoted warrants, quoted exchange traded fund and quoted collective investment schemes as financial assets at fair value through profit or loss at inception. Derivatives are financial assets/liabilitites at fair value through profit or loss unless they are designated hedges (Note 2(l)). HONG LEONG ASIA-PACIFIC DIVIDEND FUND 23

26 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 assets. The Fund s loans and receivables comprise cash and cash equivalents, amount due from brokers/dealers, amount due from the Manager-creation of units 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 brokers/dealers, amount due to the Manager-cancellation of units, amount due to the Manager-management fee, amount due to the Trustee and other payables and accruals (excludes GST reverse charge payable) 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. 24 HONG LEONG ASIA-PACIFIC DIVIDEND FUND

27 Unrealised gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss including the effects of currency translation 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 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 dividend income when the Fund s right to receive payments is established. Local quoted investments are valued at the last done market prices quoted on Bursa Malaysia Securities Berhad ( Bursa Securities ) at the date of the statement of financial position. Foreign quoted investments are valued at the last traded market prices 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 investments, for example during abnormal market conditions or when no market price is available, including in the event of a suspension in the quotation of the quoted securities for a period exceeding 14 days, or such shorter period as agreed by the Trustee, then the quoted securities are valued as determined in good faith by the Manager, based on the methods or bases approved by the Trustee after appropriate technical consultation. Deposits with licensed financial institutions are stated at cost plus accrued interest calculated on the effective interest method over the period from the date of placement to the date of maturity of the respective deposits, which is a close estimate of their fair value due to the short term nature of the deposits. Loans and receivables and other financial liabilities are subsequently carried at amortised cost using the effective interest method. HONG LEONG ASIA-PACIFIC DIVIDEND FUND 25

28 Impairment 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 carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. 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 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. 26 HONG LEONG ASIA-PACIFIC DIVIDEND FUND

29 (c) 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 Ringgit Malaysia ( RM ), which is the Fund s functional and presentation currency. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss, except when deferred in other comprehensive income as qualifying cash flow hedges. Translation differences on non-monetary financial assets and liabilities such as equities and exchange-traded fund held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. (d) Income recognition Dividend income is recognised on the ex-dividend date when the Fund s right to receive payment is established. Interest income from deposits with licensed financial institutions is recognised on the effective interest method on an accrual basis. Realised gain or loss on disposal of quoted investments is accounted for as the difference between the net disposal proceeds and the carrying amount of quoted investments, determined on a weighted average cost basis. HONG LEONG ASIA-PACIFIC DIVIDEND FUND 27

30 (e) Cash and cash equivalents For the purpose of statement of cash flows, cash and cash equivalents comprise cash at banks 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) Amount due from/to brokers/dealers Amount due from/to brokers/dealers represents receivables/ payables for investments sold/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 for amount due from brokers/dealers. A provision for impairment of amount due from a broker/dealer is established when there is objective evidence that the Fund will not be able to collect all amounts due from the relevant broker/dealer. Significant financial difficulties of the broker/dealer, probability that the broker/dealer will enter bankruptcy or financial reorganisation, and default in payments are considered indicators that the amount due from brokers/dealers is impaired. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. (g) Taxation Current tax expense is determined according to Malaysian tax laws at the prevailing tax rate based on the taxable profit earned during the financial year. Tax on investment income from foreign investments is based on the tax regime of the respective countries that the Fund invests in. 28 HONG LEONG ASIA-PACIFIC DIVIDEND FUND

31 (h) Distributions A distribution to the Fund s unitholders is accounted for as a deduction from realised reserve. A proposed distribution is recognised as a liability in the financial year in which it is approved by the Board of Directors of the Manager. (i) Transaction costs Transaction costs are costs incurred to acquire or dispose financial assets or liabilities at fair value through profit or loss. They include fees and commissions paid to agents, advisors and brokers/dealers. Transaction costs, when incurred, are immediately recognised in the statement of comprehensive income as expenses. (j) Unitholders capital The unitholders contributions to the Fund meet the criteria to be classified as equity instruments under MFRS 132 Financial Instruments: Presentation. Those criteria include: the units entitle the unitholder to a proportionate share of the Fund s net asset value; the units are the most subordinated class and class features are identical; there is no contractual obligations to deliver cash or another financial asset other than the obligation on the Fund to repurchase the units; and the total expected cash flows from the units over its life are based substantially on the profit or loss and change in the net asset value of the Fund. The outstanding units are carried at the redemption amount that is payable at the date of the statement of financial position if unitholder exercises the right to put the unit back to the Fund. HONG LEONG ASIA-PACIFIC DIVIDEND FUND 29

32 Units are created and cancelled at prices based on the Fund s net asset value per unit at the time of creation and cancellation. The Fund s net asset value per unit is calculated by dividing the net assets attributable to unitholders with the total number of outstanding units. (k) Segmental 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, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Investment Committee of the Fund s manager that undertakes strategic decisions for the Fund. (l) Derivatives A derivative is any contract that gives rise to a financial asset/ liability of the Fund and a financial liability/asset 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 favorable, 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 derivatives comprise unquoted forward currency contracts. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and is subsequently re-measured at their fair value. 30 HONG LEONG ASIA-PACIFIC DIVIDEND FUND

33 (m) Critical accounting estimates and judgments in applying accounting policies The Fund makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. To enhance the information content of the estimates, certain key variables that are anticipated to have material impact to the Funds results and financial position are tested for sensitivity to changes in the underlying parameters. Estimates and judgments are continually evaluated by the Manager and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In undertaking any of the Fund s investment, the Manager will ensure that all assets of the Fund under management will be valued appropriately, that is at fair value and in compliance with the Securities Commission Malaysia s Guidelines on Unit Trust Funds. However, the Manager is of the opinion that there are no accounting policies which require significant judgment to be exercised. HONG LEONG ASIA-PACIFIC DIVIDEND FUND 31

34 3. RISK MANAGEMENT OBJECTIVES AND POLICIES The Fund is exposed to a variety of risks which include market risk (inclusive of price risk, interest rate risk and currency risk), credit risk, liquidity risk and capital 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 prospectus. The following table analyses the financial assets and financial liabilities of the Fund in the statement of financial position as at the reporting date: Financial Loans and assets/ receivables/ liabilities other financial at FVTPL liabilities Total RM RM RM 2017 Financial assets Cash and cash equivalents (Note 9) - 3,033,869 3,033,869 Financial assets at FVTPL (Note 10) 20,978,911-20,978,911 Amount due from brokers/dealers - 797, ,655 Amount due from the Manager -creation of units - 1,208,424 1,208,424 Dividends receivable - 36,330 36,330 20,978,911 5,076,278 26,055,189 Financial liabilities Amount due to brokers/dealers - 480, ,928 Amount due to the Manager -cancellation of units - 3,354 3,354 Amount due to the Manager -management fee - 30,923 30,923 Amount due to the Trustee - 2,360 2,360 Derivatives (Note 11) 35,061-35,061 Other payables and accruals - 21,801 21,801 35, , , HONG LEONG ASIA-PACIFIC DIVIDEND FUND

35 Financial Loans and assets/ receivables/ liabilities other financial at FVTPL liabilities Total RM RM RM 2016 Financial assets Cash and cash equivalents (Note 9) - 2,620,069 2,620,069 Financial assets at FVTPL (Note 10) 15,648,670-15,648,670 Amount due from brokers/dealers - 379, ,669 Dividends receivable - 27,149 27,149 15,648,670 3,026,887 18,675,557 Financial liabilities Amount due to brokers/dealers - 191, ,109 Amount due to the Manager -cancellation of units - 1,163 1,163 Amount due to the Manager -management fee - 23,763 23,763 Amount due to the Trustee - 5,411 5,411 Derivatives (Note 11) - 3,268 3,268 Other payables and accruals - 23,191 23, , ,905 All liabilities except derivatives are financial liabilities which are carried at amortised cost. HONG LEONG ASIA-PACIFIC DIVIDEND FUND 33

36 (a) Market risk (i) Price risk Price risk arises mainly from the uncertainty about future prices of investments. It represents the potential loss the Fund might suffer through holding market positions in the face of price movements. The Manager manages the risk of unfavourable changes in prices by continuous monitoring of the performance and risk profile of the investment portfolio. The price risk is managed through diversification and selection of securities and other financial instruments within specified limits according to the Deeds. The Fund s overall exposure to price risk is as follows: RM RM Financial assets at FVTPL: - Quoted equity securities - local 4,206,696 10,736,042 - Quoted equity securities - foreign 16,755,165 2,951,111 - Quoted exchange traded fund - foreign - 1,011,517 - Quoted collective investment schemes - local - 908,400 - Quoted warrants - local 17,050 41,600 20,978,911 15,648,670 Derivatives (35,061) (3,268) 20,943,850 15,645, HONG LEONG ASIA-PACIFIC DIVIDEND FUND