Annual Report for US-Canada Income and Growth 31 July 2018

Transcription

1 Annual Report for US-Canada Income and Growth 31 July 2018

2 TRUST DIRECTORY AmFunds Management Berhad 9 th & 10 th Floor, Bangunan AmBank Group 55 Jalan Raja Chulan Kuala Lumpur Board of Directors Dato Mustafa Bin Mohd Nor Tai Terk Lin Sum Leng Kuang Goh Wee Peng Investment Committee Sum Leng Kuang Tai Terk Lin Dato Mustafa Bin Mohd Nor Zainal Abidin Bin Mohd Kassim Goh Wee Peng Trustee Deutsche Trustees Malaysia Berhad Auditors and Reporting Accountants Ernst & Young Taxation Adviser Deloitte Tax Services Sdn Bhd US-Canada Income and Growth

3 CONTENTS 1 Manager s Report 9 Independent Auditor s Report to the Unitholders 12 Statement of Financial Position 13 Statement of Comprehensive Income 14 Statement of Changes in Equity 15 Statement of Cash Flows 16 Notes to the Financial Statements 35 Statement by the Manager 36 Trustee s Report 37 Directory US-Canada Income and Growth

4 MANAGER S REPORT Dear Unitholders, We are pleased to present you the Manager s report and the audited accounts of US-Canada Income and Growth ( Fund ) for the financial year ended 31 July Salient Information of the Fund Name Name of the Target Fund US-Canada Income and Growth ( Fund ) Allianz Income and Growth Category/Type Wholesale (Feeder Fund) / Income and Growth Objective The Fund seeks to provide regular income* and to a lesser extent long term** capital appreciation by investing in the Target Fund, which will be investing in equities securities, debt securities and convertible securities. Note: * Income distribution (if any) is paid on a quarterly basis and will be reinvested. ** Long term means the investment horizon should at least be five (5) years. Duration Performance Benchmark The Fund was established on 17 June 2014 and shall exist for as long as it appears to the Manager and the Trustee that it is in the interests of the unitholders for it to continue. In some circumstances, the unitholders can resolve at a meeting to terminate the Fund. S&P 500 Index. Note: The S&P 500 Index is only used as a reference for investment performance comparison purpose. The Fund is not managed against the S&P 500 Index. The risk profile of the Fund is not the same as the risk profile of the S&P 500 Index. The S&P 500 Index is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by AmFunds Management Berhad. Copyright 2018 by S&P Dow Jones Indices LLC, a subsidiary of the McGraw- Hill Companies, Inc., and/or its affiliates. All rights reserved. Redistribution, reproduction and/or photocopying in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC s indices please visit S&P is a registered trademark of Standard & Poor s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. Neither S&P Dow Jones LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, Their affiliates nor their third party licensors shall have any liability for any errors, omissions, or interruption of any index or the data included therein. 1

5 Income Distribution Policy Breakdown of Unit Holdings by Size Subject to availability of income, distribution will be paid on a quarterly basis. For the financial year under review, the size of the Fund stood at 64,674,274 units. Size of holding As at 31 July 2018 As at 31 July 2017 No of units held Number of unitholders No of units held Number of unitholders 5,000 and below - - 4, ,001-10,000 5, ,001-50, , , , ,001 and above 64,119, ,046,591 3 Fund Performance Data Portfolio Composition Details of portfolio composition of the Fund for the financial years as at 31 July are as follows: FY 2018 % FY 2017 % FY 2016 % Foreign collective investment scheme Cash and others Total Note: The abovementioned percentages are calculated based on total net asset value. Performance Details Performance details of the Fund for the financial years ended 31 July are as follows: FY 2018 FY 2017 FY 2016 Net asset value (RM)* 61,786, ,849,179 11,744,621 Units in circulation* 64,674, ,051,534 12,371,656 Net asset value per unit (RM)* Highest net asset value per unit (RM)* Lowest net asset value per unit (RM)* Benchmark performance (%) Total return (%) (1) Capital growth (%) Income distribution (%) Gross distribution (sen per unit) Net distribution (sen per unit) Management expense ratio (%) (2) Portfolio turnover ratio (times) (3) * Above prices and net asset value per unit are shown as ex-distribution. Note: (1) Total return is the actual return of the Fund for the respective financial years computed based on the net asset value per unit and net of all fees. 2

6 (2) Management expense ratio ( MER ) is calculated based on the total fees and expenses incurred by the Fund divided by the average fund size calculated on a daily basis. The MER decreased by 0.04% as compared to 0.74% per annum for the financial year ended 31 July 2017 mainly due to increase in average fund size. (3) Portfolio turnover ratio ( PTR ) is calculated based on the average of the total acquisitions and total disposals of investment securities of the Fund divided by the average fund size calculated on a daily basis. The PTR decreased by 0.69 times (73.4%) as compared to 0.94 times for the financial year ended 31 July 2017 mainly due to decrease in investing activities. Average Total Return (as at 31 July 2018) US-Canada Income and Growth (a) % S&P 500 Index (b) % One year Three years Since launch (17 June 2014) Annual Total Return Financial Years/Period Ended (31 July) US-Canada Income and Growth (a) % S&P 500 Index (b) % (c) (a) Source: Novagni Analytics and Advisory Sdn Bhd. (b) S&P 500 Index (obtainable via: (c) Total actual return for the financial period 17 June 2014 (date of commencement) to 31 July The Fund performance is calculated based on the net asset value per unit of the Fund. Average total return of the Fund and its benchmark for a period is computed based on the absolute return for that period annualised over one year. Note: Past performance is not necessarily indicative of future performance and that unit prices and investment returns may go down, as well as up. Fund Performance For the financial year under review, the Fund registered a return of 0.89% comprising of negative 4.21% capital and 5.10% income distribution. Thus, the Fund s return of 0.89% has underperformed the benchmark s return of 9.81% by 8.92%. As compared with the financial year ended 31 July 2017, the net asset value ( NAV ) per unit of the Fund decreased by 4.29% from RM to RM0.9554, while units in circulations decreased by 41.76% from 111,051,534 units to 64,674,274 units. 3

7 The line chart below shows comparison between the annual performances of US- Canada Income and Growth and its benchmark, S&P 500 Index, for the financial period/years ended 31 July. Note: Past performance is not necessarily indicative of future performance and that unit prices and investment returns may go down, as well as up. Target Fund Performance Fund Performance Review of the Target Fund Allianz Income and Growth ( the Target Fund ) For the period, the Allianz Income & Growth AM H2-SGD returned 7.52% 1. For comparison purposes, the Russell 1000 Growth Index returned 22.84% 2. The ICE BofA Merrill Lynch All US Convertibles Index and the ICE BofA Merrill Lynch US High Yield Master II Index returned 10.47% and 2.49% respectively 2. By way of comparison, the 10-year Treasury declined % 2 and the S&P 500 gained by 16.24% 2. For the first half of the specified period, the Target Fund was a natural beneficiary of the increased risk appetite pre- and post-election and was able to capture the strong capital appreciation across the three asset classes that compose the portfolio. However, in the latter half of the specified period, the Target Fund contended with equity market volatility as risky assets corrected sharply and then fluctuated. The VIX index averaged 10.7 in the first half compared to an average of 16.7 in the second half of the specified 12M period. The Target Fund took advantage of the new opportunities provided by the elevated volatility environment in the latter half of the reported period, while convertibles weathered the volatility nicely by providing good protection on the downside. High yield provided additional buffering to limit downside participation as well. Individual sleeve performance was consistent with respective market returns. On average, equity holdings outperformed convertible bonds which outperformed high-yield bonds. 4

8 Source: Allianz Global Investors U.S. LLC (the Target Fund s investment manager) 1 Fund performance is calculated in the respective fund currency on a NAV-to-NAV basis with gross dividends re-invested, USD terms. Data as at 31 July Morningstar, 31 July 2018 Has the Fund achieved its objective? For the financial year under review, the Fund is in line with its stated objective to The Fund seeks to provide regular income by investing in the Target Fund, which will be investing in equities securities, debt securities and convertible securities. Strategies and Policies Employed Strategies and Policies of the Target Fund The Income and Growth strategy is a core holding that invests primarily in a portfolio of one-third high-quality large-cap stocks, one-third high-yield bonds and one-third convertible bonds. This "three-sleeve" approach allows the Strategy to offer an attractive risk/return profile. The Strategy aims to provide a steady income stream with increased potential upside and less downside risk. The Strategy also supplements its income stream with a covered call strategy. As a result the Income and Growth Strategy aims to capture multiple sources of income while participating in the upside potential of equities, with potentially less volatility than a pure stock investment. The Income and Growth investment team applies a forward-looking philosophy and employs a disciplined, fundamental approach which facilitates the early identification of corporate bond issuers demonstrating improving fundamental characteristics. The companies/issues selected for the portfolio exceed minimum credit statistics and exhibit the highest visibility of future expected operating performance. Macro factors are assessed at the individual issuer level. The final investment implementation occurs after a comparative analysis is conducted between an issuer s high yield bond, convertible security or equity with covered call. The investment team then selects which investment would provide the most optimal total return, depending on the current market environment. Source: Allianz Global Investors U.S. LLC (the Target Fund s investment manager) Strategies and Policies of the Fund For the financial year under review, the Fund seeks to achieve its investment objective by investing a minimum of 95% of the Fund s NAV in the Allianz Income and Growth at all times. This implies that this Fund has a passive strategy. Portfolio Structure This table below is the asset allocation of the Fund for the financial years under review. 5 As at % As at % Changes % Foreign collective investment scheme Cash and others Total For the financial year under review, the Fund has invested 97.42% of its NAV in the foreign collective investment scheme and the balance of 2.58% in cash and others.

9 Cross Trades There are no cross trades for the Fund during this financial year under review. Distribution/ Unit Splits During the financial year under review, the Fund declared income distribution, detailed as follows: 2.00 sen per unit income distribution 1.44 sen per unit income distribution 1.65 sen per unit income distribution Change in the unit price prior and subsequent to the income distribution Before income distribution on 20 September 2017 (RM) After income distribution on 20 September 2017 (RM) Net asset value per unit Change in the unit Before income price prior and distribution on subsequent to the 29 November 2017 income distribution (RM) After income distribution on 29 November 2017 (RM) Net asset value per unit Change in the unit Before income price prior and distribution on subsequent to the 14 May 2018 income distribution (RM) After income distribution on 14 May 2018 (RM) Net asset value per unit There was no unit split declared for the financial year under review. State of Affairs There has been neither significant change to the state of affairs of the Fund nor any circumstances that materially affect any interests of the unitholders during the financial year under review. Note: The Manager has appointed Deutsche Trustees Malaysia Berhad ( DTMB ) to carry out the fund accounting and valuation services for all funds effective 20 th June Rebates and Soft Commission Market Review It is our policy to pay all rebates to the Fund. Soft commission received from brokers/dealers is retained by the Manager only if the goods and services provided are of demonstrable benefit to unitholders of the Fund. During the financial year under review, the Manager had received on behalf of the Fund, soft commissions in the form of fundamental database, financial wire services, technical analysis software and stock quotation system incidental to investment management of the Fund. These soft commissions received by the Manager are deem to be beneficial to the unitholders of the Fund. Several factors influenced the three key markets during the period, including improving corporate fundamentals, healthy US economic trends, rising interest rates, and the impact of growing geopolitical concerns on international markets. US economic trends remained healthy with low unemployment, home price growth, higher retail sales, elevated consumer confidence and rising capital expenditures. Notably, these trends continued to support a positive operating environment for US issuers. Corporate fundamentals continued to improve with most issuers reporting betterthan-expected financial results and positive outlooks, citing increasing demand, a more favorable regulatory environment and recent tax-reform benefits. In fact, first- 6

10 quarter earnings growth for US companies increased to 26% on a year-over-year basis, according to Thomson Reuters, one of the strongest quarters in years. Against this favorable economic and corporate backdrop, the Federal Reserve raised its key interest rate 25 basis points to a range of 1.75% to 2.00%, and signaled two more rate hikes by year-end with continued balance sheet reduction. While the US economy remained healthy, the global environment was mixed. Rising global trade tensions, a surging US dollar, Italian government changes, a delayed Brexit agreement and continued conflicts in the Middle East weighed on global markets during the quarter. While these issues impacted investor sentiment, the US markets remained resilient and reflected a relative safe-haven for investors. Source: Allianz Global Investors (the Target Fund s investment manager) Market Outlook The US economy remains healthy. Growth is supported by elevated consumer and business confidence, low unemployment, favorable lending conditions, government and corporate spending growth and tax cuts. In addition, corporate profits are estimated to grow significantly in Major US tax reform implemented in December 2017 should provide upside benefits to earnings estimates with tax obligations of US corporations likely moving notably lower. Based on bottom-up estimates, the current earnings trajectory could result in double-digit year-over-year earnings growth for the S&P 500 Index in Potential risks to the economy include geopolitical issues including rising global trade tensions, higher energy prices, a stronger US dollar, monetary policy surprises by the Federal Reserve or higher than expected inflation. The Federal Reserve is expected to take a gradual approach toward monetary policy adjustments. Interest-rate hikes and balance-sheet reduction efforts signal confidence in the US economy s ability to grow. The purpose of these adjustments would be to achieve a normalized environment after an extended period of extreme accommodation. Until the Fed either moves aggressively or is well into the tightening cycle, monetary policy should not be expected to drive an extended selloff of risk-assets. Overseas, monetary policies continue to be constructive. Equity market volatility increased over the period, but positive market fundamentals remain. Solid corporate earnings growth and an improving global economic outlook continue to be supportive of investments in risk assets. Despite a more volatile backdrop, convertible and high-yield bond performance expectations should not deviate from their historical return profile of 1) delivering a compelling total return with less volatility than stocks and 2) providing fixed-income diversification benefits in rising interest-rate environments compared to US Treasuries and investment-grade corporate bonds. The investment team s disciplined approach of focusing on companies that are exceeding expectations and improving their credit statistics will be rewarded as those companies differentiate themselves from their peer groups. In this environment, companies that have reasonable earnings visibility should command premium valuations relative to other companies. 7

11 The team continues to build the portfolio one company at a time, by identifying companies that are opportunistically capitalizing on change. In addition, we are maintaining the discipline of seeking to identify the best total-return candidates with the optimal risk and reward profile. A discriminating environment that rewards corporations for exceeding expectations bodes well for the Income and Growth strategy s investment process. Source: Allianz Global Investors (the Target Fund s investment manager) Additional Information The following information has been updated: 1. Raja Maimunah Binti Raja Abdul Aziz has resigned from her position as a Non- Independent Non-Executive Director for AmFunds Management Berhad with effect from 1st July Seohan Soo has been appointed as a Non-Independent Non-Executive Director for AmFunds Management Berhad with effect from 1st August Kuala Lumpur, Malaysia AmFunds Management Berhad 7 September

12 Independent auditors report to the unitholders of US-Canada Income and Growth Report on the audit of the financial statements Opinion We have audited the financial statements of US-Canada Income and Growth ( the Fund ), which comprise the statement of financial position as at 31 July 2018, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended, and notes to the financial statements, including a summary of significant acounting policies, as set out on pages 12 to 34. In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Fund as at 31 July 2018 and of its financial performance and cash flows for the year then ended in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards. 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 Auditor s 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 is responsible for the other information. The other information comprises the Annual Report, but does not include the financial statements of the Fund and our auditors report thereon, which we obtained prior to the date of this auditors report. The Annual report is expected to be made available to us after the date of this auditors report. Our opinion on the financial statements of the Fund does not cover the other information and we do not and will 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 identified above 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. 9

13 Independent auditors report to the unitholders of US-Canada Income and Growth (cont d.) When we read the Annual Report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the Manager and Trustee of the Fund and take appropriate action to seek to have the uncorrected material misstatement appropriately brought to the attention of users for whom the auditors report is prepared. Responsibilities of the Manager and the Trustees for the financial statements The Manager 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 to cease operations, or has no realistic alternative to do so. The Trustee is responsible for ensuring that the Manager maintains proper accounting and other records as are necessary to enable true and fair presentation of these financial statements. Auditor s 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 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 the approved standards on auditing in Malaysia and International Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the planning and performance of the audit. We also: 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. 10

14 Independent auditors report to the unitholders of US-Canada Income and Growth (cont d.) Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Manager. Conclude on the appropriateness of the Manager s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Fund s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Fund to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements of the Fund, including the disclosures, and whether the financial statements of the Fund represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with the Manager regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Other matters This report is made solely to the unitholders of the Fund, as a body, and for no other purpose. We do not assume responsibility to any other person for the content of this report. Ernst & Young AF: 0039 Chartered Accountants Wan Daneena Liza Bt Wan Abdul Rahman No /03/2020 J Chartered Accountant Kuala Lumpur, Malaysia 7 September

15 US-Canada Income and Growth STATEMENT OF FINANCIAL POSITION AS AT 31 JULY Note RM RM ASSETS Investment 4 60,191, ,840,381 Amount due from Target Fund Manager 5 755,134 - Deposits with financial institutions 6 1,167,107 2,036,581 Cash at bank 2,663 1,398,588 TOTAL ASSETS 62,116, ,275,550 LIABILITIES Amount due to Manager 7 312,677 1,405,853 Amount due to Trustee 8 3,325 5,682 Sundry payables and accrued expenses 13,971 14,836 TOTAL LIABILITIES 329,973 1,426,371 EQUITY Unitholders capital 11(a) 62,689, ,262,713 (Accumulated loss)/retained earnings 11(b)(c) (902,785) 3,586,466 TOTAL EQUITY 11 61,786, ,849,179 TOTAL EQUITY AND LIABILITIES 62,116, ,275,550 UNITS IN CIRCULATION 11(a) 64,674, ,051,534 NET ASSET VALUE PER UNIT EX DISTRIBUTION sen sen The accompanying notes form an integral part of the financial statements. 12

16 US-Canada Income and Growth STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 JULY Note RM RM INVESTMENT INCOME Distribution income 7,150,395 5,139,919 Interest income 62,812 48,101 Net (loss)/gain from investment: Financial assets at fair value through profit or loss ( FVTPL ) 9 (6,385,979) 912,416 Other unrealised foreign exchange gain Gross Income 827,608 6,100,436 EXPENDITURE Manager s fee 7 (497,796) (348,920) Trustee s fee 8 (51,438) (36,237) Auditors remuneration (6,500) (6,500) Tax agent s fee (3,800) (3,850) Other expenses 10 (38,251) (30,991) Total Expenditure (597,785) (426,498) NET INCOME BEFORE TAX 229,823 5,673,938 LESS: INCOME TAX NET INCOME AFTER TAX 229,823 5,673,938 OTHER COMPREHENSIVE INCOME - - TOTAL COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR 229,823 5,673,938 Total comprehensive income comprises the following: Realised income 4,894,055 4,497,249 Unrealised (loss)/gain (4,664,232) 1,176, ,823 5,673,938 Distributions for the financial year: Net distributions 14 4,719,074 2,517,482 Gross/net distributions per unit (sen) The accompanying notes form an integral part of the financial statements. 13

17 US-Canada Income and Growth STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 Retained earnings/ Unitholders (Accumulated Total capital loss) equity Note RM RM RM At 1 August ,314, ,010 11,744,621 Total comprehensive income for the financial year - 5,673,938 5,673,938 Creation of units 11(a) 105,244, ,244,677 Reinvestments of distributions 11(a),14 2,517,482-2,517,482 Cancellation of units 11(a) (11,814,057) - (11,814,057) Distributions 14 - (2,517,482) (2,517,482) Balance at 31 July ,262,713 3,586, ,849,179 At 1 August ,262,713 3,586, ,849,179 Total comprehensive income for the financial year - 229, ,823 Creation of units 11(a) 747, ,265 Reinvestments of distributions 11(a),14 4,719,074-4,719,074 Cancellation of units 11(a) (50,039,690) - (50,039,690) Distributions 14 - (4,719,074) (4,719,074) Balance at 31 July ,689,362 (902,785) 61,786,577 The accompanying notes form an integral part of the financial statements. 14

18 US-Canada Income and Growth STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 JULY Note RM RM CASH FLOWS FROM OPERATING AND INVESTING ACTIVITIES Proceeds from sale of investment 41,508,002 5,904,269 Distributions received 7,150,395 5,139,919 Interest received 62,812 48,101 Manager s fee paid (522,202) (295,755) Trustee s fee paid (53,795) (31,347) Tax agent s fee paid (3,800) (3,500) Payments for other expenses (45,616) (32,883) Purchase of investment - (102,267,088) Net cash generated from/(used in) operating and investing activities 48,095,796 (91,538,284) CASH FLOWS FROM FINANCING ACTIVITIES Proceed from creation of units 747, ,244,677 Payments for cancellation of units (51,108,460) (10,790,588) Net cash (used in)/generated from financing activities (50,361,195) 94,454,089 NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (2,265,399) 2,915,805 CASH AND CASH EQUIVALENTS AT BEGINNING OF FINANCIAL YEAR 3,435, ,364 CASH AND CASH EQUIVALENTS AT END OF FINANCIAL YEAR 1,169,770 3,435,169 Cash and cash equivalents comprise: Deposits with financial institutions 6 1,167,107 2,036,581 Cash at banks 2,663 1,398,588 1,169,770 3,435,169 The accompanying notes form an integral part of the financial statements. 15

19 US-Canada Income and Growth NOTES TO THE FINANCIAL STATEMENTS 1. GENERAL INFORMATION US-Canada Income and Growth ( the Fund ) was established pursuant to a Deed dated 17 June 2014 as amended by Deeds Supplemental thereto ( the Deed ), between AmFunds Management Berhad as the Manager, Deutsche Trustees Malaysia Berhad as the Trustee and all unitholders. The Fund seeks to provide regular income and to a lesser extent long term capital appreciation by investing in a fund, Allianz Income and Growth ( Target Fund ) which will be investing in equities securities, debt securities and convertible securities. Being a feeder fund, a minimum of 95% of the Fund s net asset value will be invested in the Target Fund, which is a separate unit trust fund managed by Allianz Global Investors (Luxembourg) S.A. ( Target Fund Manager ). As provided in the Deeds, the accrual period or financial period shall end on 31 July and the units in the Fund were first offered for sale on 17 June BASIS OF PREPARATION OF FINANCIAL STATEMENTS The financial statements of the Fund have been prepared in accordance with Malaysian Financial Reporting Standards ( MFRS ) as issued by the Malaysian Accounting Standards Board ( MASB ) and are in compliance with International Financial Reporting Standards. The financial statements of the Fund have been prepared under the historical cost convention, unless otherwise stated in the accounting policies. Standards effective during the financial year The adoption of MFRS which have been effective during the financial year did not have any material financial impact to the financial statements. Standards issued but not yet effective As at the date of authorisation of these financial statements, the following Standards, which are relevant to the Fund, have been issued by MASB but are not yet effective and have not been adopted by the Fund. Effective for financial periods beginning on or after MFRS 9 : Financial Instruments MFRS 15: Revenue From Contracts With Customers 1 January January

20 MFRS 9 Financial Instruments In November 2014, MASB issued the final version of MFRS 9 Financial Instruments which reflects all phases of the financial instruments project and replaces MFRS 139 Financial Instruments: Recognition and Measurement and all previous versions of MFRS 9. The standard introduces new requirements for classification and measurement, impairment and hedge accounting. MFRS 9 is effective for annual periods beginning on or after 1 January Retrospective application is required, but comparative information is not compulsory. MFRS 9 will require all financial assets, other than equity instruments and derivatives, to be classified on the basis of two criteria, namely the entity s business model for managing the assets, as well as the instruments contractual cash flow characteristics. Financial assets will be measured at amortised cost if they are held within a business model whose objective is to hold financial assets in order to collect contractual cash flows that are solely payments of principal and interest. If the financial assets are held within a business model whose objective is achieved by both selling financial assets and collecting contractual cash flows that are solely payments of principal and interest, the assets shall be measured at fair value through other comprehensive income ( FVOCI ). Any financial assets that are not measured at amortised cost or FVOCI will be measured at fair value through profit or loss ( FVTPL ). MFRS 9 will also allow entities to continue to irrevocably designate instruments that qualify for amortised cost or FVOCI as FVTPL, if doing so eliminates or significantly reduces a measurement or recognition inconsistency. Equity instruments are normally measured at FVTPL; nevertheless entities are allowed to irrevocably designate equity instruments that are not held for trading as FVOCI, with no subsequent reclassification of gains or losses to the profit or loss. MFRS 9 will fundamentally change the impairment methodology for financial assets. The standard will replace MFRS 139 s incurred loss approach with a forward-looking expected credit loss ( ECL ) approach. The impairment requirements based on ECL approach is applicable for all debt financial assets not held at FVTPL, as well as loan commitments and financial guarantee contracts. The allowance for expected losses shall be determined based on the expected credit losses associated with the probability of default in the next twelve months unless there has been a significant increase in credit risk since origination, in which case, the allowance is based on the probability of default over the lifetime of the asset. The Fund plans to adopt MFRS 9 on the required effective date and, as permitted by the new standard, will not restate comparative information. During the financial year, the Fund has performed a detailed impact assessment on all aspects of MFRS 9. This assessment is based on currently available information and may be subject to changes arising from further reasonable and supportable information being made available to the Fund in financial year ending 31 July 2019 when the Fund will adopt MFRS 9. Based on the detailed impact assessment, the adoption of MFRS 9 is not expected to result in any significant impact as the investment in collective investment scheme, which is held for trading, will continue to be measured at FVTPL and is not subjected to the impairment requirements of MFRS 9. In addition, deposits with financial institutions, which are held for collection of contractual cash flows that are solely payments of principal and interest over their tenure, will continue to be measured at amortised cost. 17

21 There will be no impact on the Fund s accounting for financial liabilities, as the new requirements only affect the accounting for financial liabilities that are designated at FVTPL and the Fund does not have any such liabilities. 3. SIGNIFICANT ACCOUNTING POLICIES Income recognition Income is recognised to the extent that it is probable that the economic benefits will flow to the Fund and the income can be reliably measured. Income is measured at the fair value of consideration received or receivable. Distribution income is recognised when the Fund s right to receive payment is established. Interest income on short-term deposits is recognised on an accrual basis using the effective interest method. Income tax Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the tax authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date. Current taxes are recognised in profit or loss except to the extent that the tax relates to items recognised outside profit or loss, either in other comprehensive income or directly in equity. Functional and presentation currency Functional currency is the currency of the primary economic environment in which the Fund operates that most faithfully represents the economic effects of the underlying transactions. The functional currency of the Fund is Ringgit Malaysia which reflects the currency in which the Fund competes for funds, issues and redeems units. The Fund has also adopted Ringgit Malaysia as its presentation currency. Foreign currency transactions Transactions in currencies other than the Fund s functional currency (foreign currencies) are recorded in the functional currency using exchange rates prevailing at the transaction dates. At each reporting date, foreign currency monetary items are translated into Ringgit Malaysia at exchange rates ruling at the reporting date. All exchange gains or losses are recognised in profit or loss. Statement of cash flows The Fund adopts the direct method in the preparation of the statement of cash flows. Cash equivalents are short-term, highly liquid investment that is readily convertible to cash with insignificant risk of changes in value. 18

22 Distribution Distributions are at the discretion of the Fund. A distribution to the Fund s unitholders is accounted for as a deduction from realised reserves. A proposed distribution is recognised as a liability in the period in which it is approved. Unitholders capital The unitholders capital of the Fund meets the definition of puttable instruments and is classified as equity instruments under MFRS 132 Financial Instruments: Presentation ( MFRS 132 ). Financial assets Financial assets 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. When financial assets are recognised initially, they are measured at fair value, plus, in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs. The Fund determines the classification of its financial assets at initial recognition, and the categories applicable to the Fund include financial assets at fair value through profit or loss ( FVTPL ) and loans and receivables. (i) Financial assets at FVTPL Financial assets are classified as financial assets at FVTPL if they are held for trading or are designated as such upon initial recognition. Financial assets held for trading by the Fund include foreign collective investment scheme acquired principally for the purpose of selling in the near term. Subsequent to initial recognition, financial assets at FVTPL are measured at fair value. Changes in the fair value of those financial instruments are recorded in Net gain or loss on financial assets at fair value through profit or loss. Distribution revenue and interest earned elements of such instruments are recorded separately in Distribution income and Interest income respectively. Exchange differences, if any, on financial assets at FVTPL are not recognised separately in profit or loss but are included in net gains or net losses on changes in fair value of financial assets at FVTPL. For investment in foreign collective investment scheme, fair value is determined based on the closing net asset value per unit of the foreign collective investment scheme. The difference between the cost and fair value is treated as unrealised gain or loss and is recognised in profit or loss. Unrealised gains or losses recognised in profit or loss are not distributable in nature. On disposal of investment, the net realised gain or loss on disposal is measured as the difference between the net disposal proceeds and the carrying amount of the investment. The net realised gain or loss is recognised in profit or loss. 19

23 (ii) Loans and receivables Financial assets with fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, and through the amortisation process. Impairment of financial assets The Fund assesses at each reporting date whether there is any objective evidence that a financial asset is impaired. (i) Loans and receivables carried at amortised cost To determine whether there is objective evidence that an impairment loss on financial assets has been incurred, the Fund considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments. If any such evidence exists, the amount of impairment loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the financial asset s original effective interest rate. The impairment loss is recognised in profit or loss. The carrying amount of the financial asset is reduced through the use of an allowance account. When loans and receivables become uncollectible, they are written off against the allowance account. If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed to the extent that the carrying amount of the asset does not exceed its amortised cost at the reversal date. The amount of reversal is recognised in profit or loss. Financial liabilities Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. 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. The Fund s financial liabilities are recognised initially at fair value plus directly attributable transaction costs and subsequently measured at amortised cost using the effective interest method. 20

24 A financial liability is derecognised when the obligation under the liability is extinguished. Gains and losses are recognised in profit or loss when the liabilities are derecognised, and through the amortisation process. Classification of realised and unrealised gains and losses Unrealised gains and losses comprise changes in the fair value of financial instruments for the period and from reversal of prior period s unrealised gains and losses for financial instruments which were realised (i.e. sold, redeemed or matured) during the reporting period. Realised gains and losses on disposals of financial instruments classified at fair value through profit or loss are calculated using the weighted average method. They represent the difference between an instrument s initial carrying amount and disposal amount. Significant accounting estimates and judgments The preparation of the Fund s financial statements requires the Manager to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability in the future. The Fund classifies its investment as financial assets at FVTPL as the Fund may sell its investment in the short-term for profit-taking or to meet unitholders cancellation of units. No major judgments have been made by the Manager in applying the Fund s accounting policies. There are no key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. 4. INVESTMENT Financial assets at FVTPL RM RM At cost: Foreign collective investment scheme 63,673, ,657,961 At fair value: Foreign collective investment scheme 60,191, ,840,381 21

25 Details of investment as at 31 July 2018 are as follows: Fair value as a percentage of Foreign collective Number Fair Purchase net asset investment scheme of units value cost value RM RM % Allianz Income and Growth ( Target Fund ) 2,286,861 60,191,646 63,673, Shortfall of fair value over cost (3,482,192) A minimum of 95% of its net asset value will be invested in the Target Fund. However, the asset allocation may be reduced due to creation of units at the point of reporting date. The ratio will be adjusted back to the minimum level after the reporting period, if need be. The Target Fund s investment objective is geared towards generating long term capital appreciation and income by investing primarily in a combination of common stocks and other equities securities, debt securities (inclusive of high-yield debt securities) and convertible securities. As at the reporting date, the investment portfolio of the Target Fund is made up of the following: % of % of By sector portfolio portfolio Information technology Consumer discretionary Healthcare Industrials Financials Consumer staples Energy Materials Telecom services Cash and others AMOUNT DUE FROM TARGET FUND MANAGER The amounts due from the Target Fund Manager was for the sale of investment where settlement was not due as at the financial year end. 22

26 6. DEPOSITS WITH FINANCIAL INSTITUTIONS RM RM At nominal value: Short-term deposits with licensed banks 1,167,000 2,036,400 At carrying value: Short-term deposits with licensed banks 1,167,107 2,036,581 Details of deposits with financial institutions as at 31 July 2018 are as follows: Carrying value as a percentage Maturity Nominal Carrying Purchase of net asset date Bank value value cost value RM RM RM % Short-term deposit with a licensed bank Public Bank Berhad 1,167,000 1,167,107 1,167, The weighted average effective interest rate and average remaining maturity of short-term deposit are as follows: Weighted average effective Remaining interest rate maturity % % Day Day Short-term deposit with licensed banks AMOUNT DUE TO MANAGER RM RM Redemption of units* (278,414) (1,347,183) Manager s fee payable (34,263) (58,670) * The amount represents net amount payable to the Manager for units redeemed. (312,677) (1,405,853) 23

27 As the Fund is investing in a Target Fund, the Manager s fee was charged as follows: % p.a. % p.a. Manager s fee charged by the Target Fund Manager, on the net asset value of the Target Fund (Note a) Manager s fee charged by the Manager, on the net asset value of investment in the Target Fund (Note b) Manager s fee charged by the Manager, on the remaining net asset value of the Fund (Note b) Note a) Note b) The Fund s share of manager s fee to the Target Fund Manager has been accounted for as part of net unrealised changes in fair value of investment in foreign collective investment scheme. The manager s fee of the Fund chargeable in the Statement of Comprehensive Income relates to 0.55% on the net asset value of investment in the Target Fund and 1.80% on the remaining net asset value of the Fund. The normal credit period in the previous and current financial years for creation and redemption of units is three business days. The normal credit period in the previous and current financial years for Manager s fee payable is one month. 8. AMOUNT DUE TO TRUSTEE Trustee s fee is at a rate of 0.06% (2017: 0.06%) per annum on the net asset value of the Fund, calculated on a daily basis, subject to a minimum fee of RM10,000 per annum. The normal credit period in the previous and current financial years for Trustee s fee payable is one month. 9. NET (LOSS)/GAIN FROM INVESTMENT RM RM Net (loss)/gain on financial assets at FVTPL comprised: Net realised loss on sale of investment (322,593) (427,059) Net realised (loss)/gain on foreign currency exchange (1,398,774) 162,786 Net unrealised (loss)/gain on changes in fair value of investment (472,748) 620,144 Net unrealised (loss)/gain on foreign currency fluctuation of investment denominated in foreign currency (4,191,864) 556, (6,385,979) 912,416

28 10. OTHER EXPENSES Included in other expenses is Goods and Services Tax incurred by the Fund during the financial year amounting to RM29,590 (2017: RM24,515). 11. TOTAL EQUITY Total equity is represented by: Note RM RM Unitholders capital (a) 62,689, ,262,713 Retained earnings Realised income (b) 2,579,027 2,404,046 Unrealised (loss)/gain (c) (3,481,812) 1,182,420 (a) UNITHOLDERS CAPITAL/UNITS IN CIRCULATION 61,786, ,849, Number of Number of units RM units RM At beginning of the financial year 111,051, ,262,713 12,371,656 11,314,611 Creation during the financial year 767, , ,355, ,244,677 Distribution reinvested (Note 14) 4,916,763 4,719,074 2,625,137 2,517,482 Cancellation during the financial year (52,061,071) (50,039,690) (12,300,313) (11,814,057) At end of the financial year 64,674,274 62,689, ,051, ,262,713 (b) REALISED DISTRIBUTABLE RM RM At beginning of the financial year 2,404, ,279 Total comprehensive income for the financial year 229,823 5,673,938 Net unrealised loss/(gain) attributable to investment and others held transferred to unrealised reserve [Note 11(c)] 4,664,232 (1,176,689) Distributions out of realised reserve (Note 14) (4,719,074) (2,517,482) (Forward) 25

29 RM RM Net increase in realised reserve for the financial year 174,981 1,979,767 At end of the financial year 2,579,027 2,404,046 (c) UNREALISED NON-DISTRIBUTABLE RM RM At beginning of the financial year 1,182,420 5,731 Net unrealised (loss)/gain attributable to investment and others held transferred from realised reserve [Note 11(b)] (4,664,232) 1,176,689 At end of the financial year (3,481,812) 1,182, UNITS HELD BY RELATED PARTIES The Manager and parties related to the Manager did not hold any units in the Fund as at 31 July 2018 and 31 July INCOME TAX Income tax payable is calculated on investment income less deduction for permitted expenses as provided for under Section 63B of the Income Tax Act, Pursuant to Schedule 6 of the Income Tax Act, 1967, local interest income derived by the Fund is exempted from tax. A reconciliation of income tax expense applicable to net income before tax at the statutory income tax rate to income tax expense at the effective income tax rate of the Fund is as follows: RM RM Net income before tax 229,823 5,673,938 Taxation at Malaysian statutory rate of 24% (2017:24%) 55,158 1,361,745 Tax effects of: Income not subject to tax (1,731,260) (1,566,599) Loss not deductible for tax purposes 1,532, ,494 Restriction on tax deductible expenses for unit trust fund 110,339 77,430 Non-permitted expenses for tax purposes 20,868 16,326 (Forward) 26

30 RM RM Permitted expenses not used and not available for future financial years 12,260 8,604 Tax expense for the financial year DISTRIBUTIONS Distributions to unitholders declared on 20 September 2017, 29 November 2017 and 14 May 2018 (declared on 18 August 2016, 23 November 2016, 26 April 2017 and 6 June 2017 for the previous financial year) are from the following sources: RM RM Distribution income 5,270,560 2,916,685 Interest income 46,299 27,295 5,316,859 2,943,980 Less: Expenses (597,785) (426,498) Total amount of distributions 4,719,074 2,517,482 Gross/net distributions per unit (sen) Distributions made out of: Realised reserve [Note 11(b)] 4,719,074 2,517,482 Comprising: Distributions reinvested [Note 11(a)] 4,719,074 2,517,482 The above distributions has been proposed before taking into account the net realised loss of RM1,721,367 (2017:RM427,059) and net unrealised loss of RM3,481,812 which are carried forward to the next financial year. 15. MANAGEMENT EXPENSE RATIO ( MER ) The Fund s MER is as follows: % p.a. % p.a. Manager s fee Trustee s fee Fund s other expenses Total MER

31 The MER of the Fund is the ratio of the sum of annualised fees and expenses incurred by the Fund to the average net asset value of the Fund, calculated on a daily basis. 16. PORTFOLIO TURNOVER RATIO ( PTR ) The PTR of the Fund, which is the ratio of average total acquisitions and disposals of investment to the average net asset value of the Fund calculated on a daily basis, is 0.25 times (2017: 0.94 times). 17. SEGMENTAL REPORTING As stated in Note 1, the Fund is a feeder fund whereby a minimum of 95% of the Fund s net asset value will be invested in the Target Fund. As the Fund operates substantially as a feeder fund which invests primarily in the Target Fund, it is not possible or meaningful to classify its investment by separate business or geographical segments. A summary of the investment portfolio of the Target Fund is disclosed in Note TRANSACTIONS WITH THE TARGET FUND MANAGER AND FINANCIAL INSTITUTION Details of transactions with the Target Fund Manager and financial institution for the financial year ended 31 July 2018 are as follows: Target Fund Manager/Financial institution Transaction value RM % Public Bank Berhad 480,891, Allianz Global Investors (Luxembourg) S.A. 42,421, ,312, There was no transaction with financial institutions related to the Manager, during the financial year. The above transaction was in respect of foreign collective investment scheme and money market deposits. Transaction in this investment do not involve any commission or brokerage. 28

32 19. FINANCIAL INSTRUMENTS (a) Classification of financial instruments The significant accounting policies in Note 3 describe how the classes of financial instruments are measured, and how income and expenses, including fair value gains and losses, are recognised. The following table analyses the financial assets and liabilities of the Fund in the statement of financial position by the class of financial instrument to which they are assigned, and therefore by the measurement basis. Loans and Financial Financial receivables liabilities at assets at amortised amortised at FVTPL cost cost Total RM RM RM RM 2018 Assets Investment 60,191, ,191,646 Amount due from Target Fund Manager - 755, ,134 Deposits with financial institutions - 1,167,107-1,167,107 Cash at bank - 2,663-2,663 Total financial assets 60,191,646 1,924,904-62,116,550 Liabilities Amount due to Manager , ,677 Amount due to Trustee - - 3,325 3,325 Sundry payables and accrued expenses ,971 13,971 Total financial liabilities , , Assets Investment 108,840, ,840,381 Deposits with financial institutions - 2,036,581-2,036,581 Cash at bank - 1,398,588-1,398,588 Total financial assets 108,840,381 3,435, ,275,550 (Forward) 29

33 Loans and Financial Financial receivables liabilities at assets at amortised amortised at FVTPL cost cost Total RM RM RM RM 2017 Liabilities Amount due to Manager - - 1,405,853 1,405,853 Amount due to Trustee - - 5,682 5,682 Sundry payables and accrued expenses ,836 14,836 Total financial liabilities - - 1,426,371 1,426,371 Income, expense, gains and losses RM RM Net (loss)/gain on financial assets at FVTPL (6,385,979) 912,416 Income, of which derived from: Distribution income from financial assets at FVTPL 7,150,395 5,139,919 - Interest income from loans and receivables 62,812 48,101 - Other unrealised foreign exchange gain (b) Financial instruments that are carried at fair value The Fund s financial assets and liabilities at FVTPL are carried at fair value. The Fund uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities; Level 2: Level 3: other techniques for which all inputs which have a significant effect on the recorded fair values are observable; either directly or indirectly; or techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. The following table shows an analysis of financial instruments recorded at fair value by the level of the fair value hierarchy: Level 1 Level 2 Level 3 Total RM RM RM RM 2018 Financial assets at FVTPL - 60,191,646-60,191,646 (Forward) 30

34 Level 1 Level 2 Level 3 Total RM RM RM RM 2017 Financial assets at FVTPL - 108,840, ,840,381 (c) Financial instruments that are not carried at fair value and whose carrying amounts are reasonable approximation of fair value The following are classes of financial instruments that are not carried at fair value and whose carrying amounts are reasonable approximation of fair value due to their short period to maturity or short credit period: Amount due from Target Fund Manager Deposits with financial institutions Cash at bank Amount due to Manager Amount due to Trustee Sundry payables and accrued expenses There are no financial instruments which are not carried at fair values and whose carrying amounts are not reasonable approximation of their respective fair values. 20. RISK MANAGEMENT POLICIES The Fund is exposed to a variety of risks that include market risk, credit risk, liquidity risk, single issuer risk, regulatory risk, country risk, management risk and non-compliance risk. Risk management is carried out by closely monitoring, measuring and mitigating the above said risks, careful selection of investment coupled with stringent compliance to investment restrictions as stipulated by the Capital Market and Services Act 2007, Securities Commission s Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework and the Deed as the backbone of risk management of the Fund. Market risk Market risk, in general, is the risk that the value of a portfolio would decrease due to changes in market risk factors such as equity prices, interest rates, foreign exchange rates and commodity prices. (i) Price risk Price risk refers to the uncertainty of an investment s future prices. In the event of adverse price movements, the Fund might endure potential loss on its investment in the Target Fund. In managing price risk, the Manager actively monitors the performance and risk profile of the investment portfolio. 31

35 The result below summarised the price risk sensitivity of the Fund s NAV due to movements of price by -5.00% and +5.00% respectively: Percentage movements in Sensitivity of the Fund s NAV price by: RM RM -5.00% (3,009,582) (5,442,019) +5.00% 3,009,582 5,442,019 (ii) Interest rate risk Interest rate risk will affect the value of the Fund s investments, given the interest rate movements, which are influenced by regional and local economic developments as well as political developments. Domestic interest rates on deposits and placements with licensed financial institutions are determined based on prevailing market rates. The result below summarised the interest rate sensitivity of the Fund s NAV, or theoretical value (applicable to money market deposit) due to the parallel movement assumption of the yield curve by +100bps and -100bps respectively. Parallel shift in yield Sensitivity of the Fund s NAV, or theoretical value curve by: RM RM +100 bps (31) (54) -100 bps (iii) Currency risk Currency risk is associated with the Fund s assets and liabilities that are denominated in currencies other than the Fund s functional currency. Currency risk refers to the potential loss the Fund might face due to unfavorable fluctuations of currencies other than the Fund s functional currency against the Fund s functional currency. The result below summarised the currency risk sensitivity of the Fund s NAV due to appreciation/depreciation of the Fund s functional currency against currencies other than the Fund s functional currency. Percentage movements in Sensitivity of the Fund s NAV currencies other than the Fund s functional currency: RM RM -5.00% (3,047,339) (5,442,019) +5.00% 3,047,339 5,442,019 32

36 The net unhedged financial assets of the Fund that are not denominated in Fund s functional currency are as follows: Assets denominated in RM % of net RM % of net Singapore Dollar equivalent asset value equivalent asset value Investment 60,191, ,840, Amount due from Target Fund Manager 755, Credit risk Liquidity risk 60,946, ,840, Credit risk is the risk that the counterparty to a financial instrument will cause a financial loss to the Fund by failing to discharge an obligation. Credit risk applies to short-term deposits and distributions receivable. The issuer of such instruments may not be able to fulfill the required interest payments or repay the principal invested or amount owing. These risks may cause the Fund s investment to fluctuate in value. The Fund, as a feeder fund, invests significantly all its assets in the Target Fund. The Target Fund manages the risk by setting internal counterparty limits and undertaking internal credit evaluation to minimise such risk. For deposits with financial institutions, the Fund makes placements with financial institutions with sound rating of P1/MARC-1 and above. Cash at bank is held for liquidity purposes and is not exposed to significant credit risk. Liquidity risk is defined as the risk of being unable to raise funds or borrowings to meet payment obligations as they fall due. This is also the risk of the Fund experiencing large redemptions, when the Investment Manager could be forced to sell large volumes of its holdings at unfavourable prices to meet redemption requirements. The Fund maintains sufficient level of liquid assets, after consultation with the Trustee, to meet anticipated payments and cancellations of units by unitholders. Liquid assets comprise of deposits with licensed financial institutions and other instruments, which are capable of being converted into cash within 5 to 7 days. The Fund s policy is to always maintain a prudent level of liquid assets so as to reduce liquidity risk. The fund s financial liabilities have contractual maturities of not more than six months. 33

37 Single Issuer Risk The Fund, as a feeder fund, invests significantly all its assets in the Target Fund. The Target Fund is restricted from investing in securities issued by any issuer in excess of a certain percentage of its net asset value. Under such restriction, the risk exposure to the securities of any single issuer is diversified and managed by the Target Fund Manager based on internal/external ratings. Regulatory risk Any changes in national policies and regulations may have effects on the capital market and the net asset value of the Fund. Country risk The risk of price fluctuation in foreign securities may arise due to political, financial and economic events in foreign countries. If this occurs, there is a possibility that the net asset value of the Fund may be adversely affected. Management risk Poor management of the Fund may cause considerable losses to the Fund that in turn may affect the net asset value of the Fund. Non-compliance risk This is the risk of the Manager, the Trustee or the Fund not complying with internal policies, the Deed of the Fund, securities law or guidelines issued by the regulators. Non-compliance risk may adversely affect the investment of the Fund when the Fund is forced to rectify the noncompliance. The specific risks associated to the Target Fund include market risk, securities risk, emerging market risk, settlement and credit risks, regulatory and accounting standards risks, political risk, custody risk and liquidity risk. 21. CAPITAL MANAGEMENT The primary objective of the Fund s capital management is to ensure that it maximises unitholders value by expanding its fund size to benefit from economies of scale and achieving growth in net asset value from the performance of its investment. The Fund manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Fund may issue new or bonus units, make distribution payment, or return capital to unitholders by way of redemption of units. No changes were made in the objective, policies or processes during the financial years ended 31 July 2018 and 31 July

38 US-Canada Income and Growth STATEMENT BY THE MANAGER I, GOH WEE PENG, for and on behalf of the Manager, AmFunds Management Berhad, for US- Canada Income and Growth do hereby state that in the opinion of the Manager, the accompanying statement of financial position, statement of comprehensive income, statement of changes in equity, statement of cash flows and the accompanying notes are drawn up in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards so as to give a true and fair view of the financial position of the Fund as at 31 July 2018 and the comprehensive income, the changes in equity and cash flows of the Fund for the financial year then ended. GOH WEE PENG For and on behalf of the Manager AmFunds Management Berhad Kuala Lumpur, Malaysia 7 September

39 TRUSTEE'S REPORT TO THE UNIT HOLDERS OF US-CANADA INCOME AND GROWTH We have acted as Trustee for US-Canada Income and Growth (the Fund ) for the financial year ended 31 July To the best of our knowledge, for the financial year under review, AmFunds Management Berhad (the Manager ) has operated and managed the Fund in accordance with the following: a) b) c) limitations imposed on the investment powers of the Manager under the Deed(s), the Securities Commission s Guidelines on Unlisted Capital Market Products under The Lodge and Launch Framework, the Capital Markets and Services Act 2007 and other applicable laws; valuation and pricing for the Fund is carried out in accordance with the Deed(s) of the Fund and any regulatory requirements; and creation and cancellation of units for the Fund are carried out in accordance with the Deed(s) of the Fund and any regulatory requirements. We are of the view that the distributions made during this financial year ended 31 July 2018 by the Manager are not inconsistent with the objective of the Fund. For Deutsche Trustees Malaysia Berhad Soon Lai Ching Senior Manager, Trustee Operations Richard Lim Hock Seng Chief Executive Officer Kuala Lumpur, Malaysia 7 September

40 DIRECTORY Head Office 9 th Floor, Bangunan Ambank Group 55, Jalan Raja Chulan, Kuala Lumpur Tel: (03) Facsimile: (03) enquiries@aminvest.com Postal Address AmFunds Management Berhad P.O Box 13611, Kuala Lumpur Related Institutional Unit Trust Agent AmBank (M) Berhad Company No D AmInvestment Bank Berhad Company No V Head Office 31 st Floor, Menara AmBank No. 8 Jalan Yap Kwan Seng, Kuala Lumpur Head Office 22 nd Floor, Bangunan AmBank Group 55 Jalan Raja Chulan, Kuala Lumpur For more details on the list of IUTAs, please contact the Manager. For enquiries about this or any of the other Funds offered by AmFunds Management Berhad Please call between 8.45 a.m. to 5.45 p.m. (Monday to Thursday), Friday (8.45 a.m. to 5.00 p.m.) 37

41 Semi-Annual Report 28 February aminvest.com AmFunds Management Berhad ( A)