CIMB-PRINCIPAL PRS PLUS ASIA PACIFIC EX JAPAN EQUITY

Transcription

1 CONTENTS PAGE(S) MEMBERS LETTER 1 PRS PROVIDER'S REPORT 2-10 Fund Objective and Policy Performance Data Market Review Fund Performance Portfolio Structure Market Outlook Investment Strategy Members Statistics Soft Commissions and Rebates STATEMENT BY THE PRS PROVIDER 11 TRUSTEE'S REPORT 12 INDEPENDENT AUDITORS REPORT STATEMENT OF COMPREHENSIVE INCOME 15 STATEMENT OF FINANCIAL POSITION 16 STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO MEMBERS 17 STATEMENT OF CASH FLOWS 18 NOTES TO THE FINANCIAL STATEMENTS DIRECTORY 38 LIST OF CWA (an Agency force of CIMB-Principal) OFFICES 39-42

2 CIMB-PRINCIPAL PRS PLUS ASIA PACIFIC EX JAPAN MEMBERS LETTER Dear Valued Members, We are very pleased to share the great news that CIMB-Principal Asset Management Berhad (CIMB- Principal) has just received the coveted Best Overall Group award at The Edge-Thomson Reuters Lipper Fund Awards Our funds have also been recognised for being the best in its categories for the year ended 31 December 2015 by The Edge-Thomson Reuters Lipper Fund Awards 2016 and the Morningstar Award 2016 Malaysia: The Edge-Thomson Reuters Lipper Fund Awards 2016 CIMB-Principal Asia Pacific Dynamic Income Fund Best Equity Asia-Pacific Ex-Japan MYR (3 Years) CIMB-Principal Global Titans Fund Best Equity Global (3 & 5 Years) CIMB-Principal Asian Equity Fund Best Equity Asia-Pacific Ex-Japan (5 Years) CIMB Islamic Asia Pacific Equity Fund Best Equity Asia-Pacific Ex-Japan Islamic (3 Years) Morningstar Award 2016 Malaysia CIMB-Principal Asia Pacific Dynamic Income Best Asia-Pacific Equity Fund The awards came at the right time, proving that CIMB-Principal is a consistent performer and able to weather the headwinds despite the challenging market environment. They are also a great recognition of how our investment team implemented effective investment strategies to deliver risk-adjusted returns for our investors. These accolades reinforces our dedication in delivering the best value and demonstrates how we are moving forward to be the most preferred asset manager in the country. We would like to take this opportunity to sincerely thank you for your continuous support and confidence in our services. CIMB-Principal remains committed in helping you to grow your investment. Yours faithfully, for CIMB-Principal Asset Management Berhad Munirah Khairuddin Chief Executive Officer/Executive Director 1

3 PRS PROVIDER S REPORT FUND OBJECTIVE AND POLICY What is the investment objective of the Fund? The Fund seeks to provide capital growth over the long-term by investing in a target fund with investments in the Asia Pacific ex Japan region. Has the Fund achieved its objective? For the financial year under review, the Fund underperformed its target return of 8.00% per annum. However, since inception, the Fund has met its objective by delivering 10.69% average total return. The Fund s returns are stated and described under the Fund Performance section of this report. What are the Fund investment policy and principal investment strategy? The Fund will invest at least 95% of its Net Asset Value ( NAV ) in the CIMB-Principal Asia Pacific Dynamic Income Fund ( Target Fund ), a Malaysian-domiciled fund established on 25 April 2011, which invests in the Asia Pacific ex Japan region. The Fund will also maintain up to a maximum of 5% of its NAV in liquid assets. Information on the Target Fund Management Company: CIMB-Principal Asset Management Berhad Regulatory Authority : Securities Commission Malaysia ( SC ) Fund category/type Feeder Fund - Equity When was the Fund launched? 12 November 2012 What was the size of the Fund as at 31 January 2016? RM million ( million units) What is the Fund s benchmark? The Fund has a target return of 8% per annum. This is not a guaranteed return and is only a measurement of the Fund s performance. The Fund may not achieve the target return in any particular financial year but targets to achieve this growth over the long-term. Note: The risk profile of the Fund is not the same as the risk profile of the benchmark. What is the Fund distribution policy? The Fund is not expected to pay any distribution.. 2

4 CIMB-PRINCIPAL PRS PLUS ASIA PACIFIC EX JAPAN PERFORMANCE DATA Details of portfolio composition of the Fund for the last three financial years are as follows: % % % Collective investment scheme Cash and other net assets Performance details of the Fund for the last three financial years are as follows: NAV (RM Million) - Class A Class C Class X Units in circulation (Million) - Class A Class C Class X NAV per unit (RM) - Class A Class C Class X Highest NAV per unit (RM) - Class A Class C Class X Lowest NAV per unit (RM) - Class A Class C Class X Total return (%) - Class A (7.20) Class C (7.20) Class X (7.20) Capital growth (%) - Class A (7.20) Class C (7.20) Class X (7.20) Income distribution (%) - Class A Class C Class X

5 PERFORMANCE DATA (CONTINUED) Management Expense Ratio ("MER") (%) ^ Portfolio Turnover Ratio ("PTR") (times) # ^ The Fund s MER increased from 0.05% to 0.08% due to the increase in Private Pension Administrator s fee, Trustee s fee and other expenses after the implementation of Goods and Services Tax ( GST ) effective 1 April # The Fund s PTR decreased to 0.46 times from 1.13 times as there were less trading activities during the financial year under review Since inception to % % % % Annual total return - Class A (7.20) Class C (7.20) Class X (7.20) (Launch date: 12 November 2012) Past performance is not necessarily indicative of future performance and that unit prices and investment returns may go down, as well as up. All performance figures for the financial year have been extracted from Lipper. MARKET REVIEW (1 FEBRUARY 2015 TO 31 JANUARY 2016) In the first quarter of 2015, the confirmation that the European Central Bank ( ECB ) would embark on quantitative easing ( QE ) boosted market sentiment around the world. Asian equities took the cue and performed well up to April 2015 but gave it all back and more at year-end. The market initially rallied led by Hong Kong H-shares on the back of a strong rally in the domestic Chinese A-share market. Sentiment for H-shares was also helped by the Chinese Securities Regulatory Commission s announcement on 27 March 2015 to broaden access to southbound link for China funds. In the second quarter of 2015, the Asian markets were weighed down by the external factors namely Greece default risk and United States ( US ) rate rise. All asset classes from equities, fixed income to currencies weakened as investors started to lose confidence in the Chinese economy and its government s capacity to manage the slowdown and financial markets. The A-shares fell more than 40% from June 2015 to end of August 2015 triggered by a crack-down on margin financing. Lack of People's Bank of China ("PBOC") policy action and large Initial Public Offering ("IPO") in June 2015 also contributed negatively. The Chinese government then announced a slew of measures from late June 2015 ranging from cutting interest rates, lowering Reserve Requirement Ratio ("RRR"), setting up a national team to support stock prices, suspending new IPOs, PBOC to provide liquidity support in effort to stabilise the market, requesting State-Owned Enterprises ( SOEs ) not to sell shares and suspending almost half of total stocks in the A-share in early July However, not only these measures did not work, they also caused jitters among investors who were concerned about government control of the economy. In August 2015, the PBOC cut its daily reference rate by 1.9%, triggering the biggest Chinese Yuan Renminbi ( CNY ) one-day drop since China unified official and market exchange rates in This was compounded by weak Chinese manufacturing data fuelling China s growth concerns. The sell-off exacerbated across Asian equities, currencies and fixed income, hitting a low in late September In fact, all ASEAN currencies hit decade lows in September

6 CIMB-PRINCIPAL PRS PLUS ASIA PACIFIC EX JAPAN MARKET REVIEW (1 FEBRUARY 2015 TO 31 JANUARY 2016) (CONTINUED) In the last quarter of 2015, Moody s and the Asian Development Bank cut Asia s growth forecasts in September 2015 citing slower growth prospects. The Asian Development Bank cut Asian growth to 5.8% in 2015 and 6.0% in They also expect China s growth to slow to 6.8% in 2015, down from an initial forecast of 7.2%. The International Monetary Fund ( IMF ) followed suit in October 2015 by cutting projections for global growth to 3.1% (from 3.3%) in China s central bank meanwhile cut interest rates for the 6 th time, lowering the 1-year benchmark bank lending rate by 25 basis points ( bps ) to 4.25% to jumpstart a slowing economy. The ECB also hinted that the Eurozone may need additional stimulus measures. The much debated hike by the US Federal Reserve (the Fed ) finally happened as interest rates were raised by 25 bps in December In January 2016, Asian equities fell -10% in US Dollar ( USD ) terms. Weakness in China s economy and the depreciation of the CNY continued to weigh on sentiment. Falling oil and commodity prices have put downward pressure on inflation expectations, pushing up real rates across the region. With the Bank of Japan ( BoJ ) and ECB signaling intent for more drastic monetary stimulus, and the Fed likely to put its rate hikes on hold, central banks in Asia have the option of cutting interest rates to boost growth. Indeed, Indonesia has cut rates without causing weakness to the Indonesian Rupiah ( IDR ). FUND PERFORMANCE 1 year to 3 years to Since inception to Class A Class C Class X Class A Class C Class X Class A Class C Class X % % % % % % % % % Income Capital (7.20) (7.20) (7.20) Total Return (7.20) (7.20) (7.20) Benchmark Average Total Return (7.20) (7.20) (7.20) For the 1-year financial period, all three share classes: Class A, Class C and Class X were down by 7.20%, underperforming its target return of 8.00% per annum. As this Fund feeds into the Target Fund which invests in the Asia Pacific ex Japan region, the weak Asian equities market over the financial year has impacted the Target Fund s value. This has consequently unable the Fund to deliver its target return of 8.00% per annum. 5

7 FUND PERFORMANCE (CONTINUED) 1 year to % 10.00% 5.00% 0.00% Class A Class C Class X Benchmark -5.00% % 3 years to % Class A 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Class C Class X Benchmark Since inception to % 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% Class A Class C Class X Benchmark 0.00% 6

8 CIMB-PRINCIPAL PRS PLUS ASIA PACIFIC EX JAPAN FUND PERFORMANCE (CONTINUED) Changes in NAV CLASS A Changes % NAV (RM Million) NAV/unit (RM) (7.20) CLASS C Changes % NAV (RM Million) NAV/unit (RM) (7.20) CLASS X Changes % NAV (RM Million) NAV/unit (RM) (7.20) The Fund recorded strong net inflow from unit creations over the financial year under review for all the three share classes - Class A, Class C and Class X. This is possibly due to increased awareness on long-term savings plan for retirement among unit holders as well as the tax incentives offered by the Government. Class A remained as the most preferred choice as seen in its total NAV which stood at RM million, followed by Class C and Class X which stood at RM10.04 million and RM4.37 million respectively. For the 1-year financial period, the Fund ranked 18 th in Quartile 3 under the Equity Asia Pacific Ex Japan category in Lipper s ranking. Performance data represents the combined income and capital return as a result of holding units in the Fund for the specified length of time, based on NAV to NAV price. The performance data assumes that all earnings from the Fund are reinvested and are net of management and trustee fees. Past performance is not reflective of future performance and income distributions are not guaranteed. Unit prices and income distributions, if any, may fall and rise. All performance figures for the financial year have been extracted from Lipper. PORTFOLIO STRUCTURE Asset allocation (% of NAV) Collective investment scheme Cash and other net assets Total The Fund was fully invested during the financial year under review. A minimal level of liquid assets was maintained primarily for redemption purposes. 7

9 MARKET OUTLOOK* We continue to view 2016 as a year of slow global growth, low inflation and elevated volatility. With the Fed finally delivering its first rate hike in 12 years, the muddling through policy response is here to stay as Asian economies still faces numerous challenges. The Fed will keep the current accommodative policy and a gradual path of future rate hikes. Specifically on China, we believe the country s economy will continue to weaken, and it would export deflationary pressures to the world via a weakening currency. Accommodative fiscal policy will be the key policy tool, overlaid with supply side reforms, more infrastructures and social spending until macro improvement becomes more visible. We believe an outright credit or currency crisis can be averted through monetary easing and capital controls. We expect a gradual depreciation of the CNY of about 10% by the end of the financial year. The neighbouring city, Hong Kong, faces a structural downturn given the Hong Kong Dollar ("HKD") peg with the USD, which has a significant impact on the economy when the Fed tightens along with weak Chinese economy. Meanwhile, India s growth will be underpinned by consumption recovery as the upturn in capital expenditure cycle is pushed back to Balance of Payment risks is mitigated by low oil price and progress on market reforms such as GST, Land and Labour are key events. Indonesia faces a dilemma as it depends on deregulation and incentivising investment to revive growth. However, slower economic activity and softer commodity prices will renew deteriorating fiscal deficit concerns. Singapore s growth prospects also remain challenged by declining domestic property prices and tighter labor market conditions. Investment spending by Small Medium Enterprise ( SMEs ) will likely slow due to higher interest rates and a more difficult credit environment. In Thailand, political conditions are expected to remain stable under the military regime but undercurrents remain as the constitutional drafting process continues. Speed-up in government spending will be the key driver for the economy. Overall, we are neutral on Asian equities. Asian equities are likely to remain range-bound as long as the CNY is not allowed to depreciate meaningfully (to our fair value range of CNY7.20 to CNY7.50). Generally, Asian corporates in 2016 have a bit more downside and our bottoms-up analysis suggests zero growth versus consensus estimates of +3%. Post the large correction in January 2016, selective Technology and Finance companies appear to have been overly punished. Continued portfolio outflows remain a headwind. We like companies whose earnings may bottom in 2016, those that can administer self help to grow earnings and where expectations have been re-set to extremely low levels. In conclusion, the key issues that will have impact to market and require close monitoring are CNY movement, US inflation indicators, US high yield markets and commodity prices. That said, we believe that we live in a world of managed capitalism thus we expect the policymakers to act should markets over-react. * This market outlook does not constitute an offer, invitation, commitment, advice or recommendation to make a purchase of any investment. The information given in this article represents the views of CIMB-Principal or based on data obtained from sources believed to be reliable by CIMB-Principal. Whilst every care has been taken in preparing this, CIMB-Principal makes no guarantee, representation or warranty and is under no circumstances liable for any loss or damage caused by reliance on, any opinion, advice or statement made in this market outlook. 8

10 CIMB-PRINCIPAL PRS PLUS ASIA PACIFIC EX JAPAN INVESTMENT STRATEGY As this is a Feeder Fund under the PRS, the Fund will continue to remain fully invested in the Target Fund with minimal cash kept for liquidity purposes. MEMBERS STATISTICS AS AT 31 JANUARY 2016 CLASS A Size of unit holdings (units) No. of members No. of units held % of units held (million) 5,000 and below 5, ,001-10,000 1, ,001-50, , , ,001 and above Total 8, CLASS C Size of unit holdings (units) No. of members No. of units held % of units held (million) 5,000 and below 1, ,001-10, ,001-50, , , ,001 and above Total 1, CLASS X Size of unit holdings (units) No. of members No. of units held % of units held (million) 5,000 and below ,001-10, ,001-50, , , ,001 and above Total 1,

11 SOFT COMMISSIONS AND REBATES The PRS Provider and the Trustee (including their officers) will not retain any form of rebate or soft commission from, or otherwise share in any commission with, any broker in consideration for directing dealings in the investments of the Funds unless the soft commission received is retained in the form of goods and services such as financial wire services and stock quotations system incidental to investment management of the Funds. All dealings with brokers are executed on best available terms. During the financial year under review, the PRS Provider and the Trustee did not receive any rebates from brokers or dealers but have retained soft commissions in the form of goods and services such as financial wire services and stock quotations system incidental to investment management of the Funds. 10

12 CIMB-PRINCIPAL PRS PLUS ASIA PACIFIC EX JAPAN STATEMENT BY THE PRS PROVIDER TO THE MEMBERS OF I, being a Director of CIMB-Principal Asset Management Berhad (the PRS Provider ), do hereby state that, in the opinion of the PRS Provider, the accompanying audited financial statements set out on pages 15 to 37 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 January 2016 and of its financial performance, changes in net assets attributable to members and cash flows for the financial year then ended in accordance with the provisions of the Malaysian Financial Reporting Standards ( MFRS ) and International Financial Reporting Standards ( IFRS ). For and on behalf of the PRS Provider CIMB-Principal Asset Management Berhad (Company No.: K) PEDRO ESTEBAN BORDA Director Kuala Lumpur 31 March

13 TRUSTEE S REPORT TO THE MEMBERS OF We have acted as Trustee for CIMB-Principal PRS Plus Asia Pacific Ex Japan Equity (the Fund ) for the financial year ended 31 January To the best of our knowledge, for the financial year under review, CIMB-Principal Asset Management Berhad (the PRS Provider ) has operated and managed the Fund in accordance with the following:- (a) (b) (c) limitations imposed on the investment powers of the PRS Provider and Trustee under the Deeds, the Securities Commission s Guidelines on Private Retirement Schemes, the Capital Markets and Services Act 2007 and other applicable laws; the valuation/pricing is carried out in accordance with the Deeds and any regulatory requirement; and creation and cancellation of units are carried out in accordance with the Deeds and any regulatory requirement. For Deutsche Trustees Malaysia Berhad SOON LAI CHING Manager, Trustee Operations WONG MUN LOONG Manager, Trustee Operations Kuala Lumpur 31 March

14 CIMB-PRINCIPAL PRS PLUS ASIA PACIFIC EX JAPAN INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF REPORT ON THE FINANCIAL STATEMENTS We have audited the financial statements of CIMB-Principal PRS Plus Asia Pacific Ex Japan Equity on pages 15 to 37 which comprise the statement of financial position as at 31 January 2016 of the Fund, and the statement of comprehensive income, statement of changes in net assets attributable to members and statement of cash flows for the financial year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on Notes 1 to 16. The PRS Provider s Responsibility for the Financial Statements The PRS Provider of the Fund is responsible for the preparation of financial statements so as to give a true and fair view in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards. The PRS Provider is also responsible for such internal control as the PRS Provider determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Fund s preparation of financial statements that give a true and fair view 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 PRS Provider s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the PRS Provider, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 13

15 INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF (CONTINUED) REPORT ON THE FINANCIAL STATEMENTS (CONTINUED) Opinion In our opinion, the financial statements give a true and fair view of the financial position of the Fund as of 31 January 2016 and of its financial performance and cash flows for the financial year then ended in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards. OTHER MATTERS This report is made solely to the members 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 31 March

16 CIMB-PRINCIPAL PRS PLUS ASIA PACIFIC EX JAPAN STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 JANUARY Note RM RM INVESTMENT (LOSS)/INCOME Dividend income 4,416, ,610 Net (loss)/gain on financial assets at fair value through profit or loss 7 (15,204,502) 7,398,533 (10,788,193) 7,739,143 EXPENSES Private Pension Administrator s fee 4 45,832 - Trustee s fee 5 20,640 - Audit fee 8,500 8,500 Tax agent s fee 9,200 4,000 Other expenses 7, ,709 13,277 (LOSS)/PROFIT BEFORE TAXATION (10,879,902) 7,725,866 Taxation 6 (4,655) 148 (DECREASE)/INCREASE IN NET ASSETS ATTRIBUTABLE TO MEMBERS (10,884,557) 7,726,014 (Loss)/Profit after taxation and total comprehensive (loss)/income comprise the following: Realised amount 4,557, ,224 Unrealised amount (15,441,744) 6,859,790 (10,884,557) 7,726,014 The accompanying notes to the financial statements form an integral part of the audited financial statements. 15

17 STATEMENT OF FINANCIAL POSITION AS AT 31 JANUARY Note RM RM CURRENT ASSETS Financial assets at fair value through profit or loss 7 115,817,766 60,404,560 Cash and cash equivalents 8 430,422 6,040 Amount due from the PRS Provider 9 1,084,881 6,098,648 Tax recoverable - 4,655 TOTAL ASSETS 117,333,069 66,513,903 CURRENT LIABILITIES Amount due to the PRS Provider 9 4,336 1,329,109 Other payables and accruals 22,022 11,000 TOTAL LIABILITIES (EXCLUDING NET ASSETS ATTRIBUTABLE TO MEMBERS) 26,358 1,340,109 NET ASSET VALUE OF THE FUND 117,306,711 65,173,794 NET ASSETS ATTRIBUTABLE TO MEMBERS 117,306,711 65,173,794 REPRESENTED BY: FAIR VALUE OF OUTSTANDING UNITS - CLASS A 102,898,254 57,942,409 - CLASS C 10,035,632 4,771,361 - CLASS X 4,372,825 2,460, ,306,711 65,173,794 NUMBER OF UNITS IN CIRCULATION (UNITS) - CLASS A 148,348,675 77,517,936 - CLASS C 14,468,137 6,383,339 - CLASS X 6,303,962 3,291, ,120,774 87,192,404 NET ASSET VALUE PER UNIT (RM) - CLASS A CLASS C CLASS X The accompanying notes to the financial statements form an integral part of the audited financial statements. 16

18 CIMB-PRINCIPAL PRS PLUS ASIA PACIFIC EX JAPAN STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO MEMBERS FOR THE FINANCIAL YEAR ENDED 31 JANUARY RM RM NET ASSETS ATTRIBUTABLE TO MEMBERS AT THE BEGINNING OF THE FINANCIAL YEAR Movement due to units created and cancelled during the financial year: - Creation of units from applications 65,173, ,548,031 8,244,384 70,368,584 - Cancellation/Switching of units (44,530,557) (21,165,188) 128,191,268 57,447,780 (Decrease)/Increase in net assets attributable to members during the financial year: (Loss)/Profit after taxation and total comprehensive (loss)/income NET ASSETS ATTRIBUTABLE TO MEMBERS AT THE END OF THE FINANCIAL YEAR (10,884,557) 7,726, ,306,711 65,173, The accompanying notes to the financial statements form an integral part of the audited financial statements.

19 STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 JANUARY Note RM RM CASH FLOWS FROM OPERATING ACTIVITIES Proceeds from disposal of collective investment scheme 18,661,700 7,967,700 Purchase of collective investment scheme (86,443,100) (51,781,100) Private Pension Administrator s fee paid (41,694) - Trustee s fee paid (16,502) - Payment for other fees and expenses (22,490) (11,712) Receipt of/(repayment on) advances from the PRS Provider 9,435 (1,000) Tax refund received Net cash used in operating activities (67,852,651) (43,825,964) CASH FLOWS FROM FINANCING ACTIVITIES Cash proceeds from units created 113,432,363 64,335,038 Payments for cancellation/switching of units (45,155,330) (20,541,460) Net cash generated from financing activities 68,277,033 43,793,578 Net increase/(decrease) in cash and cash equivalents 424,382 (32,386) Cash and cash equivalents at the beginning of the financial year 6,040 38,426 Cash and cash equivalents at the end of the financial year 8 430,422 6,040 The accompanying notes to the financial statements form an integral part of the audited financial statements 18

20 CIMB-PRINCIPAL PRS PLUS ASIA PACIFIC EX JAPAN NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JANUARY THE FUND, THE PRS PROVIDER AND ITS PRINCIPAL ACTIVITY CIMB-Principal PRS Plus Asia Pacific Ex Japan Equity (the Fund ) is governed by a Deed dated 8 November 2012, First Supplemental Deed dated 2 January 2014 and Second Supplemental Deed dated 25 November 2014 (collectively referred to as the Deeds ) made between CIMB-Principal Asset Management Berhad (the PRS Provider ) and Deutsche Trustees Malaysia Berhad (the Trustee ). The Fund offers three classes of units known respectively as Class A, Class C and Class X. In accordance with the Disclosure Document, Class A and Class C are for Members who have attained 18 years of age as of the date of opening a private pension account. Class A and C have different management fee. Class X is for members who participate via respective employers and is subject to a minimum of 200 participating employees per employer or 50 participating employees under payroll deduction per employer. The Fund will invest at least 95% of its NAV in the Target Fund, a Malaysian-domiciled fund established on 25 April 2011, which invests in the Asia Pacific ex Japan region. The Fund will also maintain up to a maximum of 5% of its NAV in liquid assets. All investments will be subjected to the SC Guidelines on PRS, SC requirements, the Deeds, except where exemptions or variations have been approved by the SC, internal policies and procedures and the Fund s objective. The PRS Provider, a company incorporated in Malaysia, is a subsidiary of CIMB Group Sdn Bhd and regards CIMB Group Holdings Berhad as its ultimate holding company. The PRS Provider is also an associate of Principal International (Asia) Limited, which is a subsidiary of Principal Financial Group Inc. The principal activities of the PRS Provider are the establishment and management of unit trust funds and fund management activities. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following accounting policies have been used consistently in dealing with items which are considered material in relation to the financial statements: (a) Basis of preparation The financial statements have been prepared in accordance with the provisions of the MFRS and IFRS. The financial statements have been prepared under the historical cost convention, as modified by financial assets at fair value through profit or loss. The preparation of financial statements in conformity with MFRS and IFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported financial year. 19

21 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (a) Basis of preparation (continued) It also requires the PRS Provider to exercise their judgment in the process of applying the Fund s accounting policies. Although these estimates and judgment are based on the PRS Provider 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(j). Standards, amendments to published standards and interpretations to existing standards that are effective: The Fund has applied the following amendments for the first time for the financial year beginning 1 February 2015: Annual Improvements to MFRS Cycle Annual Improvements to MFRS Cycle The adoption of these amendments did not have any impact on the current financial year or any prior period and is not likely to affect future periods. The standards, amendments to published standards and interpretations to existing standards that are applicable to the Fund but not yet effective and have not been early adopted are as follows: (i) Financial year beginning on/after 1 February 2016 Amendments to MFRS 101 Presentation of financial statements - Disclosure Initiative (effective from 1 January 2016) provide clarifications on a number of issues, including: Materiality an entity should not aggregate or disaggregate information in a manner that obscures useful information. Where items are material, sufficient information must be provided to explain the impact on the financial position or performance. Disaggregation and subtotals line items specified in MFRS 101 may need to be disaggregated where this is relevant to an understanding of the entity s financial position or performance. There is also new guidance on the use of subtotals. Notes confirmation that the notes do not need to be presented in a particular order. Other comprehensive income ( OCI ) arising from investments accounted for under the equity method the share of OCI arising from equity-accounted investments is grouped based on whether the items will or will not subsequently be reclassified to profit or loss. Each group should then be presented as a single line item in the statement of other comprehensive income. 20

22 CIMB-PRINCIPAL PRS PLUS ASIA PACIFIC EX JAPAN 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (a) Basis of preparation (continued) (i) Financial year beginning on/after 1 February 2016 (continued) According to the transitional provisions, the disclosures in MFRS 108 regarding the adoption of new standards/accounting policies are not required for these amendments. Annual Improvements to MFRS Cycle (effective from 1 January 2016) As these amendments merely clarify the existing requirements, they do not affect the Fund s accounting policies or any of the disclosures. (ii) Financial year beginning on/a fter 1 February 2017 MFRS 15 Revenue from Contracts with Customers (effective from 1 January 2017) replaces MFRS 118 Revenue and MFRS 111 Construction contracts and related interpretations. The standard deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity s contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. 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. The Fund will apply this standard when effective. This standard is not expected to have a significant impact on the Fund s financial statements. (iii) Financial year beginning on/after 1 February 2018 MFRS 9 Financial Instruments (effective from 1 January 2018) will replace MFRS 139 Financial Instruments: Recognition and Measurement. The complete version of MFRS 9 was issued in November MFRS 9 retains but simplifies the mixed measurement model in MFRS 139 and establishes three primary measurement categories for financial assets: amortised cost, fair value through profit or loss and fair value through OCI. The basis of classification depends on the entity s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are always measured at fair value through profit or loss with 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. 21 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.

23 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (a) Basis of preparation (continued) (iii) Financial year beginning on/after 1 February 2018 (continued) MFRS 9 introduces an expected credit loss model on impairment that replaces the incurred loss impairment model used in MFRS 139. The expected credit loss model is forward-looking and eliminates the need for a trigger event to have occurred before credit losses are recognised. The Fund will apply this standard when effective. This standard is not expected to have a significant impact on the Fund s financial statements. (b) Financial assets and financial liabilities Classification The Fund designates its investments in collective investment scheme as financial assets at fair value through profit or loss at inception. Financial assets are designated at fair value through profit or loss when they are managed and their performance are evaluated on a fair value basis. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and have been included in current assets. The Fund s loans and receivables comprise cash and cash equivalents, and amount due from the PRS Provider. 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 the PRS Provider, and other payables and accruals as other financial liabilities. Recognition and measurement Regular purchases and sales of financial assets are recognised on the trade-date, the date on which the Fund commits to purchase or sell the asset. Investments are initially recognised at fair value. Financial liabilities, within the scope of MFRS 139, are recognised in the statement of financial position when, and only when, the Fund becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Fund has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognised when it is extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or expired. Unrealised gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss are presented in the statement of comprehensive income within net gain or loss on financial assets at fair value through profit or loss in the financial year which they arise. 22

24 CIMB-PRINCIPAL PRS PLUS ASIA PACIFIC EX JAPAN 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) Financial assets and financial liabilities (continued) Recognition and measurement (continued) Dividend income from financial assets at fair value through profit or loss is recognised in the statement of comprehensive income as part of gross dividend income when the Fund s right to receive payments is established. Collective investment scheme is valued based on the most recent published NAV per unit or share of such collective investment scheme or, if unavailable, on the last published price of such unit or share (excluding any sales charge included in such selling price). Loans and receivables and other financial liabilities are subsequently carried at amortised cost using the effective interest method. Impairment for assets carried at amortised costs For assets carried at amortised cost, the Fund assesses at the end of the reporting financial year whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest rate. The asset s carrying amount is reduced and the amount of the loss is recognised in statement of comprehensive income. If loans and receivables has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Fund may measure impairment on the basis of an instrument s fair value using an observable market price. If, in a subsequent financial year, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor s credit rating), the reversal of the previously recognised impairment loss is recognised in statement of comprehensive income. When an asset is uncollectible, it is written off against the related allowance account. Such assets are written off after all the necessary procedures have been completed and the amount of the loss has been determined. (c) Income recognition Dividend income is recognised on the ex-dividend date when the right to receive payment is established. Realised gain or loss on disposal of collective investment scheme is accounted for as the difference between the net disposal proceeds and the carrying amount of investments, determined on a weighted average cost basis. 23

25 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (d) 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. (e) Creation and cancellation of units The members contributions to the Fund meet the definition of puttable instruments classified as financial liability under MFRS 132 Financial Instruments: Presentation. The Fund issues cancellable units, in three classes of units, known respectively as the Class A, Class C and Class X, which are cancelled at the member s option and do not have identical features subject to restrictions as stipulated in the Disclosure Document and SC Guidelines on PRS. The units are classified as financial liabilities. Cancellable units can be put back to the Fund at any time for cash equal to a proportionate share of the Fund s NAV of respective classes. The outstanding units are carried at the redemption amount that is payable at the date of statement of financial position if the member exercises the right to put back the unit to the Fund. Units are created and cancelled at the member s option at prices based on the Fund s NAV per unit of respective classes at the close of business on the relevant dealing day. The Fund s NAV per unit of respective classes is calculated by dividing the net assets attributable to members of respective classes with the total number of outstanding units of respective classes. (f) Cash and cash equivalents For the purpose of statement of cash flows, cash and cash equivalents comprise bank balances which are subject to an insignificant risk of changes in value. (g) Taxation Current tax expense is determined according to Malaysian tax laws at the current rate based upon the taxable profit earned during the financial year. (h) Increase/Decrease in net assets attributable to members Income not distributed is included in net assets attributable to members. (i) Segment information Operating segments are reported in a manner consistent with the internal reporting used by the chief operating decision-maker. The chief operating decision-maker is responsible for allocating resources and assessing performance of the operating segments. (j) 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 Fund s results and financial position are tested for sensitivity to changes in the underlying parameters. 24

26 CIMB-PRINCIPAL PRS PLUS ASIA PACIFIC EX JAPAN 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (j) Critical accounting estimates and judgments in applying accounting policies (continued) Estimates and judgment are continually evaluated by the PRS Provider 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 PRS Provider will ensure that all assets of the Fund under management will be valued appropriately, that is at fair value and in compliance with the SC Guidelines on PRS. 3. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT OBJECTIVES AND POLICIES Financial instruments of the Fund are as follows: Financial assets at fair value through profit or loss Loans and receivables Total RM RM RM 2016 Collective investment scheme (Note 7) 115,817, ,817,766 Cash and cash equivalents (Note 8) - 430, ,422 Amount due from the PRS Provider (Note 9) - 1,084,881 1,084, ,817,766 1,515, ,333, Collective investment scheme (Note 7) 60,404,560-60,404,560 Cash and cash equivalents (Note 8) - 6,040 6,040 Amount due from the PRS Provider (Note 9) - 6,098,648 6,098,648 60,404,560 6,104,688 66,509,248 All current liabilities are financial liabilities which are carried at amortised cost. The investment objective of the Fund is to provide capital growth over the long-term by investing in a Target Fund with investments in the Asia Pacific ex Japan region. The Fund is exposed to a variety of risks which include market risk (inclusive of price risk), credit risk and liquidity risk. Financial risk management is carried out through internal control process adopted by the PRS Provider and adherence to the investment restrictions as stipulated in the Deeds and SC Guidelines on PRS. 25

27 3. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) (a) Market risk (i) Price risk This is the risk that the fair value of investment in collective investment scheme will fluctuate because of changes in market prices. The value of investment may fluctuate according to the activities of individual companies, sector and overall political and economic conditions. Such fluctuation may cause the Fund s NAV and prices of units to fall as well as rise, and income produced by the Fund may also fluctuate. The price risk is managed through diversification and selection of other financial instruments within specified limits according to the Deeds. The Fund s overall exposure to price risk was as follows: 2016 RM 2015 RM Financial assets at fair value through profit or loss: - Collective investment scheme 115,817,766 60,404,560 The table below summarises the sensitivity of the Fund s profit after tax and NAV to movements in prices of collective investment scheme at the end of financial year. The analysis is based on the assumptions that the price of the collective investment scheme fluctuates by 5% with all other variables held constant. This represents the PRS Provider s best estimate of a reasonable possible shift in the collective investment scheme, having regard to the historical volatility of the prices. % Change in price of collective investment scheme Market value Impact on profit after tax/nav RM RM % 110,026,878 (5,790,888) 0% 115,817,766-5% 121,608,654 5,790, % 57,384,332 (3,020,228) 0% 60,404,560-5% 63,424,788 3,020,228 26

28 CIMB-PRINCIPAL PRS PLUS ASIA PACIFIC EX JAPAN 3. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) (b) Credit risk Credit risk refers to the risk that a counter party will default on its contractual obligation resulting in financial loss to the Fund. The credit risk arising from cash and cash equivalents is managed by ensuring that the Fund will only place deposits in reputable licensed financial institutions. The settlement terms of the proceeds from the creation of units receivable from the PRS Provider are governed by the SC Guidelines on PRS. The following table sets out the credit risk concentration of the Fund: Amount due Cash and cash equivalents from the PRS Provider Total RM RM RM 2016 Finance - Deutsche Bank (Malaysia) Bhd (AA1) 430, ,422 Others - Not Rated - 1,084,881 1,084, ,422 1,084,881 1,515, Finance - Deutsche Bank (Malaysia) Bhd (AA1) 6,040-6,040 Others - Not Rated - 6,098,648 6,098,648 6,040 6,098,648 6,104,688 All financial assets of the Fund as at the end of each financial year are neither past due nor impaired. (c) Liquidity risk Liquidity risk is the risk that the Fund will encounter difficulty in meeting its financial obligations. The PRS Provider manages this risk by maintaining sufficient level of liquid assets to meet anticipated payments and cancellations of the units by members. Liquid assets comprise bank balances and other instruments, which are capable of being converted into cash within 7 business days. The Fund s investments in collective investment scheme are realisable which are capable of being converted into cash within 10 business days. This is expected to reduce the risk for the entire portfolio without limiting to the Fund's growth potential. 27