INDONESIA EQUITY FUND

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2 CONTENTS PAGE 1 General Information 1 2 Manager s Report 2 3 Policy On Stockbroking Rebates And Soft Commissions 8 4 Statement By The Manager 9 5 Trustee s Report 10 6 Independent Auditors Report 11 7 Statement Of Comprehensive Income 14 8 Statement Of Financial Position 15 9 Statement Of Changes In Equity Statement Of Cash Flows Summary Of Significant Accounting Policies Notes To The Financial Statements Corporate Information 39 i

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4 MANULIFE INVESTMENT INDONESIA EQUITY FUND 1 GENERAL INFORMATION 1.1 THE TRUST The Fund commenced operations on 19 October 2010 and will continue its operations until terminated as provided under Clause 12 of the Deed. 1.2 FUND TYPE / CATEGORY Growth / Equity 1.3 OBJECTIVE OF THE FUND To achieve capital appreciation over the long term through investments in equities and equityrelated instruments predominantly in Indonesia market. 1.4 DISTRIBUTION POLICY Incidental 1.5 PERFORMANCE BENCHMARK The performance of the Fund is measured against the Jakarta Composite Index (JCI). 1.6 INVESTMENT STYLE AND STRATEGY The Fund seeks to achieve its investment objective by investing at least 80% of its NAV in a diversified portfolio of equities and equities-related securities issued by companies listed on Indonesian market and other markets (mainly Singapore and Malaysia) whereby such companies in these countries derived at least 50% of their income from Indonesia as determined by the Fund Manager at the point of purchase. In the event the income derived from Indonesia from companies listed on other markets fall below 50%, the Fund Manager will assess if the investment rationale continues to meet their requirements and will dispose the investment if the investment rationale does not meet their requirements. The remaining NAV of the Fund will be invested in money market instruments and deposits. In addition, any active and frequent trading strategy will depend on investment opportunities or valuations. The investment process of the Fund employs both qualitative and quantitative analysis in identifying potential companies for investment. In identifying potential companies for investment, the Fund Manager adopts a bottom-up approach which relies on fundamentals research the fundamentals are assessed from a broad range of criteria including the company s growth and value profile, its cash-flow generation ability and its management. During the financial year under review, the Fund remained guided by its investment objective to invest in the Indonesia market. 1

5 2 MANAGER S REPORT 2.1 FUND PERFORMANCE For the financial year ended 31 August 2017, the Fund s return increased by 6.41% and underperformed its benchmark return, JCI, which increased by 13.98%. The underperformance was mainly due to stock selection in materials, industrials and real estate. The Fund s underweight in the materials sector negatively impacted performance given the broadbased rally in commodity prices during the period. Our positions in the materials and industrials space related to infrastructure developments detracted due to delays in government spending. We continue to like these companies as we have seen construction activity accelerating since July, with project workload and cement prices picking up. The real estate sector was plagued by slow pre-sales at the start of the year. However, the sector was lifted by expectations, and eventually the execution, of a policy rate cut by the local central bank in August. One of our holdings in this sector, which was also the main detractor for the period, rallied recently as it is one of the key beneficiaries of a rate cut due to its customer profile that usually employs mortgage and its loan structure. Key contributors to performance include stock selection in financials and energy. The financials sector s good performance was supported by improving economic data and Indonesia s sovereign credit rating upgrade by S&P to investment grade finally attaining full investment grade status among the major credit rating agencies. Our holding in a state-owned bank that specialises in lowend housing mortgages outperformed the sector and was the top contributor for the period. The bank consistently ramped up its loan portfolio and customer deposits besides being a beneficiary of a policy rate cut at the same time. In the energy sector, most of the positive performance came from an oil and gas exploration company that surged after announcing the acquisition of a gold and copper company last February. The transaction was immediately accretive, and sped up meaningfully the turnaround of the company s profitability. The graph below compares the 12-month performance of the Fund against its benchmark return: 16% 14% 12% 10% 8% 6% 4% -2% 0% 2% Aug 16 Sep 16 Fund Performance vs. Benchmark Index Return Oct 16 Nov 17 Dec 17 Jan 17 Feb 17 Mar 17 Apr 17 May 17 Jun 17 Manulife Investment Indonesia Equity Fund Return Benchmark Index Return Jul 17 Aug 17 Source: Lipper & Bloomberg Fund Size The Fund s total NAV decreased to RM21.64mil from RM31.08mil during the financial year under review. 2

6 Fund s Returns (a) The graph below compares the 5-years performance of the Fund against its benchmark return: 50% 40% 30% 20% 10% -10% 0% -20% -30% -40% Aug 12 Dec Apr Source: Lipper & Bloomberg Fund Performance vs. Benchmark Index Return Aug Dec Apr Aug Dec Apr Aug Dec Apr Aug Dec Apr Manulife Investment Indonesia Equity Fund Return Benchmark Index Return Aug 17 (b) Average Total Return of the Fund: For the financial year ended 31 August 2017 Fund (% p.a.) JCI (% p.a.) 1 year years (2.86) years (2.72) 7.12 Commencement Date: 19 October 2010 Source: Lipper & Bloomberg (c) Annual Total Return of the Fund: For the financial year ended: Fund (% p.a.) JCI (% p.a.) 31 August August August 2015 (27.32) (2.61) 31 August August 2013 (6.75) (5.16) Commencement Date: 19 October 2010 Source: Lipper & Bloomberg For the financial year under review, the fund has achieved its target of providing unit holders with optimal returns over the longer term based on stated Fund s objective. 3

7 BASES OF CALCULATION 1. Net Asset Value (NAV) Net Asset Value of the Fund is determined by deducting the value of all the Fund s liabilities from the value of all the Fund s assets, at the valuation point. 2. Net Asset Value per unit Net Asset Value per unit is the net asset value of the Fund divided by the total number of units in circulation, at the valuation point. 3. Fund s Return Fund s return can be calculated based on the computation methods as follows: Daily Total Fund s Return = {[End NAV (Ex-distribution) - Beginning NAV + Dividend Distribution] / Beginning NAV} x 100% Total Fund s Return Average Total Return = Total Fund s return for the period is derived from geometrically linking together the daily total fund s returns. The linking formula is = [(1+ R 1 ) x (1+ R 2 ) x (1+ R n )] -1 where: R 1 is the first daily return for the period, R 2 is the second daily return for the period, and R n is the last daily return for the period. = Annualised Total Return (Actual number of days in a year/ [(1+ Total fund s return for the period) number of days during the period) -1] x 100% The following table shows other financial and performance data of the Fund for the past three financial years: Fund Data 31 August August August 2015 NAV (RM) 21,639,434 31,084,147 17,418,388 Units in Circulation ( 000) 109, , ,172 NAV per unit (RM per unit) Highest / Lowest NAV (RM per unit) Total Fund Return (%) NAV Return (%) Income Return (%) / / / (27.32) (27.32) - Management Expenses Ratio (%) Portfolio Turnover Ratio (times)

8 NOTES (i) Management Expenses Ratio (MER) MER can be calculated based on the ratio of the sum of fees and the recovered expenses of the unit trust fund to the average value of the unit trust fund calculated on a daily basis. Fees of the unit trust fund + Recovered expenses of the unit trust fund Average value of the unit trust fund calculated on a daily basis x 100 Where: Fees Recovered expenses Average value of the unit trust fund = All ongoing fees deducted / deductible directly from the unit trust fund in respect of the period covered by the management expense ratio, expressed as a fixed amount, calculated on a daily basis. This would include the annual management fee, the annual trustee fee and any other fees deducted / deductible directly from the unit trust fund; = All expenses recovered from/ charged to the unit trust fund, as a result of the expenses incurred by the operation of the unit trust fund, expressed as a fixed amount. This should not include expenses that would otherwise be incurred by an individual investor (e.g. brokerage, taxes and levies); and = The NAV of the unit trust fund, including unit trust net income value of the fund, less expenses on an accrued basis, in respect of the period covered by the management expense ratio, calculated on a daily basis. The MER for the financial year is lower as compared to the previous financial year mainly due to increase in expenses incurred. (ii) Portfolio Turnover Ratio (PTR) PTR can be calculated based on the ratio of the average sum of acquisitions and disposals of the Shariah-compliant unit trust fund for the year to the average value of the unit trust fund for the year calculated on a daily basis [Total acquisitions of the fund for the year + Total disposals of the fund for the year]/2 Average value of the unit trust fund calculated on a daily basis The PTR for the financial year is lower as compared to the previous financial year mainly due to increase in average NAV. The Manager wishes to highlight that past performance of the Fund is not an indication of future performance. The price of units and the investment returns may go down, as well as up. 5

9 2.2 ASSET ALLOCATION Asset allocation for the past three financial years: Sector Allocation 31 August 2017 % of Net Asset Value 31 August August 2015 Financials Consumer Staples Telecommunications Energy Consumer Discretionary Basic Materials Real Estate Industrial Products Utilities Information Technology Health Care Consumer Product Consumer Service Total Quoted Investments Deposits with Licensed Financial Institutions Other Assets & Liabilities (0.17) As at 31 August 2017, the Fund s largest weights reside in the financials and consumer staples sectors, while the Fund s smallest weights are in the information technology and utilities sectors. 2.3 MARKET REVIEW During the financial year under review (1st September 2016 to 31st August 2017), the Indonesia equity market recorded gains despite pressures from a strengthening U.S. dollar and higher bond yields at the wake of the U.S election results early in the period in review. Post President Trump s victory, it raised concerns on the impact of his campaign platforms to inflation and the future path of the US Federal Reserve (Fed) hiking cycle, prompting foreign outflows for several weeks across Asia including Indonesia. By the middle of December, sentiment recovered and the market gradually climbed higher as concerns on President Trump s platforms abated and economic data continued to improve. Additionally, the normalisation of oil prices helped market sentiment for the country being a net oil exporter and equity markets in general. Several reforms were implemented during this period that strengthened the country s fundamentals; this led to the country s sovereign credit rating upgrade by S&P by one notch (to BBB-) last May, achieving full investment grade status among the major credit rating agencies. The tax amnesty programme which ran for five months concluded by the end of March, with total government revenue amounting to IDR411tn (~USD31bn) and accounting for around 35% of the estimated budget deficit for FY2017; about one million tax subjects participated in the programme, and a total of IDR4,866tn (~USD365bn) assets were declared (or almost 40% of the country s gross domestic product). Consumer confidence for the most part of 2017 achieved multi-year highs due to expectations of better economic conditions and job availability. However, second quarter GDP growth at 5.0% year-on-year, slightly disappointing on the back of slow domestic consumption. This drove the local central bank to cut policy rates (by 25bps) in August for the first time in the year as economic growth remains lacklustre. 6

10 2.4 MARKET OUTLOOK AND INVESTMENT STRATEGY MANULIFE INVESTMENT It has been a modest year for the Indonesian economy in Economic growth reached 5.0% year-on-year (vs. 4.8% in 2015) while inflation remained low at 3.3%. From the external side, the current account deficit narrowed gradually. Overall, we think that the country s economic growth has passed its bottom and it would carry on a positive vibe in We see a cyclical recovery in 2017 amid a rebound of commodity exports. Reform momentum will stay relatively robust albeit politics becoming more dynamic. Private capital expenditure (capex) may recover in the latter half of the year. It is comforting to note that the Indonesian government has been focusing on driving real economic growth, of which the effect is expected to gradually flow through to corporate earnings. Benign inflation, improving external balances, and the credit cycle normalisation are foundations for further growth recovery. The stable political climate suggests that execution should continue to improve, while reforms and the easing stance on monetary policy provide buffer against downside risks. Growth catalysts are fiscal spending and private consumption, which are showing tangible recovery. Three arguments for the recovery are: 1) the tax amnesty programme and the subsequent rebound in business confidence, complementing a mending consumer confidence; 2) the surge in commodity prices, accelerating recovery and equally relieving credit concerns specifically outside Java island; and 3) better loan demand led by infrastructure spending. Public spending on construction is accelerating since July. Infrastructure projects workload and building materials such as cement are picking up. Private consumption is lagging public consumption, and we expect it to improve by second half of Going forward, the Fund will add exposure to sectors and companies that will benefit from a recovery in the domestic economy, and companies with strong cash flows and robust balance sheets. Our investments are chosen on the basis of value, not popularity. Our portfolio represents good value in term of intrinsic business worth, and we expect satisfactory results from the portfolio over the long term. 2.5 BREAKDOWN OF UNIT HOLDINGS BY SIZE AS AT 31 AUGUST 2017 The following table presents the distribution of the Fund s unit holders according to size of unit holdings: Size of Holdings No. of Unit Holders % No. of Units Held ( 000) % 5,000 and below ,001 to 10, , ,001 to 50, , ,001 to 500, , Above 500, , Manager s stock Total 1, ,

11 3 POLICY ON STOCKBROKING REBATES AND SOFT COMMISSIONS The Management Company did not retain any rebates. For the financial year ended 31 August 2017, the Management Company or its Fund Manager did not receive any rebates or soft commission. 8

12 4 STATEMENT BY THE MANAGER MANULIFE INVESTMENT We, Chong Soon Min and Wong Boon Choy, being two of the Directors of Manulife Asset Management Services Berhad, do hereby state that, in the opinion of the Manager, the accompanying financial statements comprising the statement of comprehensive income, statement of financial position, statement of changes in equity, statement of cash flows, summary of significant accounting policies and notes to the financial statements, 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 of the Fund for the financial year ended 31 August 2017 in accordance with the Malaysian Financial Reporting Standards ( MFRS ) and the International Financial Reporting Standards ( IFRS ). For and on behalf of the Manager MANULIFE ASSET MANAGEMENT SERVICES BERHAD CHONG SOON MIN Director WONG BOON CHOY Director Kuala Lumpur 27 October

13 5 TRUSTEE S REPORT TO THE UNIT HOLDERS OF MANULIFE INVESTMENT We have acted as Trustee of Manulife Investment Indonesia Equity Fund (the Fund ) for the financial year ended 31 August In our opinion and to the best of our knowledge, Manulife Asset Management Services 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 is carried out in accordance with the Deed and any relevant regulatory requirements; and c) Creation and cancellation of units are carried out in accordance with the Deeds and relevant regulatory requirements. For and on behalf of RHB TRUSTEES BERHAD (Company No: U) LEE YIT CHENG Head, Group Int l Ops Support & Trustees Ops MOHD SOFIAN BIN KAMARUDDIN Vice President Kuala Lumpur, Malaysia 27 October

14 6 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF MANULIFE INVESTMENT INDONESIA EQUITY FUND REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS Our opinion In our opinion, the financial statements of Manulife Investment Indonesia Equity 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 of the Fund and other explanatory notes, as set out on pages 14 to 38. 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. 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 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. 11

15 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 determines 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 intends to liquidate the Fund or has no realistic alternative but to do so. 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 judgement 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. 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. 12

16 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 27 October

17 7 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 AUGUST 2017 INVESTMENT INCOME Note Gross dividend income 607, ,139 Net gain on financial assets at fair value through profit or loss 6 2,458,525 4,768,573 Net foreign currency exchange loss (259,968) (379,896) Other income 8,371 - RM RM 2,814,041 4,853,816 EXPENSES Manager s fee 3 509, ,441 Trustee s fee 4 22,645 19,118 Auditors remuneration 5,500 5,610 Tax agent s fee 2,700 2,700 Other expenses 112, ,752 Transaction costs 158, , , ,988 PROFIT BEFORE TAXATION 2,003,290 4,165,828 TAXATION 5 (121,423) (93,068) PROFIT AFTER TAXATION AND TOTAL COMPREHENSIVE PROFIT 1,881,867 4,072,760 Profit after taxation is made up as follows: Realised 2,431,225 (694,333) Unrealised (549,358) 4,767,093 1,881,867 4,072,760 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 14

18 8 STATEMENT OF FINANCIAL POSITION AS AT 31 AUGUST 2017 ASSETS Current assets Note RM RM Financial assets at fair value through profit or loss 6 21,675,176 30,248,653 Amount due from Manager - 129,990 Amount due from stockbrokers 235, ,066 Cash and cash equivalents 7 235, ,340 TOTAL ASSETS 22,145,470 31,590,049 LIABILITIES Current liabilities Amount due to Manager - Manager s fee 34,510 48,023 - Cancellation of units 452, ,012 Amount due to Trustee 3,036 2,134 Other payables 8 16,361 31,733 TOTAL LIABILITIES 506, ,902 NET ASSET VALUE ( NAV ) OF THE FUND 21,639,434 31,084,147 EQUITY Unit holders capital 17,083,897 28,410,477 Retained earnings 4,555,537 2,673,670 21,639,434 31,084,147 NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 2 21,639,434 31,084,147 NUMBER OF UNITS IN CIRCULATION 9 109,502, ,372,000 NAV PER UNIT The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 15

19 9 STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 AUGUST 2017 Unit holders Retained capital earnings Total RM RM RM BALANCE AS AT 1 SEPTEMBER ,410,477 2,673,670 31,084,147 Movement in unit holders contribution: Creation of units 24,006,555-24,006,555 Cancellation of units (35,333,135) - (35,333,135) Total comprehensive income - 1,881,867 1,881,867 BALANCE AS AT 31 AUGUST ,083,897 4,555,537 21,639,434 Unit holders capital (Accumulated losses) / Retained earnings Total RM RM RM BALANCE AS AT 1 SEPTEMBER ,817,478 (1,399,090) 17,418,388 Movement in unit holders contribution: Creation of units 42,033,385-42,033,385 Cancellation of units (32,440,386) - (32,440,386) Total comprehensive loss - 4,072,760 4,072,760 BALANCE AS AT 31 AUGUST ,410,477 2,673,670 31,084,147 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 16

20 10 STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 AUGUST 2017 Note RM RM CASH FLOWS FROM OPERATING ACTIVITIES Purchase of investments (18,801,384) (27,694,887) Sale of investments 29,847,919 15,967,806 Dividends received 607, ,071 Other income 8,371 - Manager s fee paid (522,982) (384,149) Trustee s fee paid (21,744) (19,939) Audit fee paid (5,500) (5,610) Tax agent s fee paid (3,900) (2,700) Payment for other fees and expenses (283,672) (111,135) Net cash used in operating activities 10,824,221 (11,878,543) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from creation of units 24,136,545 42,478,784 Payments for cancellation of units (35,305,017) (32,016,374) Net cash generated from/(used in) financing activities (11,168,473) 10,462,410 Net decrease in cash and cash equivalents (344,252) (1,416,133) Currency translation differences (259,968) 10,442 Cash and cash equivalents at the beginning of the financial year 839,340 2,245,031 Cash and cash equivalents at the end of the financial year 7 235, ,340 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 17

21 11 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 AUGUST 2017 The following accounting policies have been used consistently in dealing with items which are considered material in relation to the financial statements. The policies have been consistently applied to all the financial years presented, unless otherwise stated. A BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS The financial statements of the Fund have been prepared in accordance with the Malaysian Financial Reporting Standards ( MFRS ) and the International Financial Reporting Standards ( IFRS ). The financial statements have been prepared under the historical cost convention, as modified by financial assets at fair value through profit or loss. The preparation of financial statements in conformity with MFRS and IFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. It also requires the Manager to exercise judgement in the process of applying the Fund s accounting policies. Although these estimates and judgement are based on the Manager s best knowledge of current events and actions, actual results may differ. There are no significant areas of judgement or complexity that have significant effect on the amounts recognised in the financial statements. There are no critical accounting estimates and assumptions used in the preparation of the financial statements of the Fund for the financial year ended 31 August 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 Amendments to MFRS 10, 12 & 128 "Investment entities - Applying the consolidation exception Annual improvements to MFRSs Cycle There were no significant impact to other accounting policies of the Fund as a result of the above mentioned. The following are standards, amendments to published standards and interpretations to the existing standards that are applicable to the Fund but not yet effective and have not been early adopted by the Fund. Financial year beginning on/after 1 September 2017 Amendments to MFRS 107 "Statement of Cash Flows - Disclosure Initiatives" (effective from 1 January 2017) introduce an additional disclosure in 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. 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. 18

22 Revenue is recognised when a customer obtains control of goods or services, i.e. when the customer has the ability or direct the use of and obtain the benefit 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 transactions 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 standards 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 considerations varies (such as 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 licences, warranties, non-refundable up-front fees, and consignment arrangements, to name a few. As with any new standard, there are increased disclosures. MFRS 9 Financial Instruments (effective from 1 January 2018) will replace MFRS 139 Financial Instruments: Recognition and Measurement. MFRS 9 retains but simplifies the mixed measurement model in MFRS 139 and establishes three primary measurement categories for financial assets: amortised cost, fair value through profit or loss and fair value through 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. Investment in equity instruments is always measured at fair value through profit or loss with a 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 losses model on impairment for all financial assets 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 the standards when effective. These standards are not expected to have a significant impact on the Fund s financial statements. 19

23 B (i) FINANCIAL ASSETS AND FINANCIAL LIABILITIES Classification The Fund classifies its financial assets in the following categories: at fair value through profit or loss and loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification at initial recognition. Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. Financial assets at fair value through profit or loss Financial assets are designated at fair value through profit or loss when they are managed principally for the purposes of selling or repurchasing in the near term and their performance are evaluated on a fair value basis. The Fund designates its investment in quoted investments as financial assets at fair value through profit or loss at inception. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. The Fund s loans and receivables comprise amount due from Manager, amount due from stockbrokers and cash and cash equivalents in the statement of financial position. Other financial liabilities The Fund classifies amount due to Manager, cancellation of units, amount due to Trustee and other payables as other financial liabilities. (ii) Recognition and initial 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 assets. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in profit or loss. Loans and receivables are initially recognised at fair value plus transaction costs. 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. (iii) Subsequent measurement - gains and losses Financial assets at fair value through profit or loss are subsequently carried at fair value. Gains and losses arising from changes in the fair value of the financial assets at fair value through profit or loss are included in the profit or loss in the financial period which they arise. Loans and receivables are subsequently carried at amortised cost using the effective interest rate method. 20

24 (iv) Subsequent measurement - impairment of financial 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 criteria that the Fund uses to determine that there is objective evidence of an impairment loss include indications that the obligor is experiencing significant financial difficulty, high probability that the obligor will enter bankruptcy or other distressed financial reorganisation and events that would adversely affect the financial capability of the obligor. 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 by 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 is recognised (such as an improvement in the debtor s/issuer s credit rating), the reversal of the previously recognised impairment loss is recognised in profit or loss. 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. (v) De-recognition Financial assets are de-recognised 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 de-recognised when they are extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or has expired. C CREATION AND CANCELLATION OF UNITS The Fund issues cancellable units, which are cancelled at the unit holder s option and are classified as equity. Cancellable units can be put back to the Fund at any time for cash equal to a proportionate share of the Fund s net asset value. The outstanding unit is carried at the redemption amount that is payable at the date of the statement of financial position if the unit holder exercises the right to put the unit back to the Fund. Units are created and cancelled at the unit holder s option 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 is calculated by dividing the net assets attributable to unit holders with the total number of outstanding units. The net asset value per unit is computed each dealing day. The price at which units are created or cancelled is calculated by reference to the net asset value per unit as at the close of business on the relevant dealing day. Units in the Fund are classified as equity in the statement of financial position and are stated at fair value representing the price at which unit holders can redeem the units from the Fund. 21

25 D INCOME RECOGNITION Interest income from deposits placed with licensed financial instituitions is recognised on an accrual basis using the effective interest rate method. Dividend income from quoted investments is recognised on the ex-dividend date. Realised gains or losses on sale of quoted investments are accounted for as the difference between the net disposal proceeds and the carrying amount of the investments, determined on a weighted average cost basis. E EXPENSES Expenses are accounted for on an accrual basis and charged to the statement of comprehensive income. Expenses arising from net disposal of investments are recognised as transaction costs (Note L to the financial statements). F AMOUNT DUE FROM/TO STOCKBROKERS Amounts due from and to stockbrokers represent receivables for securities sold and payables for securities 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 rate method, less provision for impairment for amounts due from stockbrokers. A provision for impairment of amount due from a stockbroker is established when there is objective evidence that the Fund will not be able to collect the amount due from the relevant stockbroker. Significant financial difficulties of the stockbroker, probability that the stockbroker will enter bankruptcy or financial reorganisation, and default in payments are considered indicators that the amount due from the stockbroker 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 to discount the future cash flows for the purpose of measuring the impairment loss. The effective interest rate method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts throughout the expected life of the financial instrument, or, when appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Fund estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. G CASH AND CASH EQUIVALENTS 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. H CURRENCY TRANSLATION The financial statements are presented in Ringgit Malaysia, which is the Fund s functional and presentation currency. Transactions in foreign currencies during the financial year are converted to Ringgit Malaysia at rate of exchange ruling at transaction dates. Assets and liabilities denominated in foreign currencies at the date of the statement of financial position are translated into Ringgit Malaysia at the rate of exchange approximating those ruling on that date. Exchange differences arising from the settlement of foreign currency transactions and from the translation of foreign currency monetary assets and liabilities are included in the statement of comprehensive income. 22

26 I FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value is price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants and the measurement date. The information presented herein represents the estimates of fair value as at the date of the statement of financial position. Where available, quoted and observable market prices are used as the measure of fair values. Where such quoted and observable market prices are not available, fair values are estimated based on a range of methodologies and assumptions regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows and other factors. Changes in the uncertainties and assumptions could materially affect these estimates and the resulting fair value estimates. A range of methodologies and assumptions has been used in deriving the fair values of the Fund s financial instruments as at the date of statement of financial position. The total fair value of each financial instrument is not materially different from the total carrying value. The fair values are based on the following methodologies and assumptions: (a) Short-term deposits with financial institutions For deposits and placements with financial institutions with maturities of less than three months, the carrying value is a reasonable estimate of fair value. For deposits and placements with maturities of three months and above, the estimated fair value is based on discounted cash flows by using prevailing interbank money market rates at which similar deposits and placements would be made with financial institutions of similar credit risk and remaining period to maturity. (b) Quoted investments The estimated fair value is based on quoted and observable market prices. (c) Other short-term financial instruments Other short-term financial instruments comprise amount due from/to Manager, amount due from/to stockbrokers, amount due to Trustee and other payable. The carrying values of the assets and liabilities are assumed to approximate their fair values due to the short tenure of less than one year. J TAXATION Current tax expense is determined according to the tax laws in the jurisdictions of the taxable profit earned during the financial year from the financial assets in which the Fund invests and includes all taxes based upon the taxable profit. K SEGMENT REPORTING 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 strategic asset allocation committee of the Manager that makes the strategic decisions. L TRANSACTION COSTS Transaction costs are costs incurred to acquire or dispose of financial assets or liabilities at fair value through profit or loss. They include fees and commissions paid to agents, advisors, brokers and dealers. Transaction costs, when incurred, are immediately recognised in the statement of comprehensive income as expenses. 23

27 12 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 AUGUST INFORMATION ON THE FUND Manulife Investment Indonesia Equity Fund ( the Fund ) was established pursuant to a Master Deed dated 8 August 2008, as amended and supplemented by subsequent Supplemental Deeds (hereinafter referred to as the Deed ) between Manulife Asset Management Services Berhad ( the Manager ) and RHB Trustees Berhad ( the Trustee ). The principal activity of the Fund is to invest in Authorised Investments as defined under Clause 1 as mentioned in the Seventh Schedule of the Deed. The Fund commenced operations on 19 October 2010 and will continue its operations until terminated as provided under Clause 12 of the Deed. The main objective of the Fund is to achieve long-term capital appreciation by investing in equities and equity-related instruments predominanlty in Indonesia market. The Manager of the Fund, a company incorporated in Malaysia, is a wholly-owned subsidiary of Manulife Holdings Berhad, a public limited liability company, incorporated and domiciled in Malaysia, and listed on the main market of Bursa Malaysia. Its principal activities are the management of unit trusts, private retirement schemes, financial planning and fund management activities. The financial statements were authorised for issue by the Board of Directors of the Manager in accordance with a resolution of the Directors on 27 October NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS The net assets attributable to unit holders meet the definition of puttable instruments classified as equity instruments under MFRS 132 Financial Instruments: Presentation. The units in the Fund are puttable instruments which entitle the unit holders to a pro-rata share of the net assets of the Fund. The units are subordinated and have identical features. There is no contractual obligation to deliver cash or another financial asset other than the obligation on the Fund to repurchase the units. The total expected cash flows from the units in the Fund over the life of the units are based on the change in the net assets of the Fund. 3 MANAGER S FEE In accordance with the Deed, the Manager is entitled to Manager s fee at a rate of 1.80% per annum of the net asset value of the Fund before deducting Trustee s fee and Manager s fee for the day, calculated on a daily basis. There will be no further liability to the Manager in respect of Manager s fee other than the amount recognised above. 4 TRUSTEE S FEE In accordance with the Deed, the Trustee is entitled to a fee of 0.08% per annum of the net asset value of the Fund before deducting Trustee s fee and Manager s fee for the day, calculated on a daily basis, subject to a minimum fee of RM18,000 per annum. There will be no further liability to the Trustee in respect of Trustee s fee other than the amount recognised above. 24