REPORT ANNUAL. For The Financial Period From 21 April 2016 (Date Of Launch) To 30 June

Transcription

1 ANNUAL REPORT For The Financial Period From 21 April 2016 (Date Of Launch) To 30 June PACIFIC MUTUAL FUND BHD ( U) A member of the OCBC Group

2 CONTENTS Fund Information Financial Highlights Fund Performance Market Review Fund Review Fund Returns Asset Allocation Income Distribution Report Of The Trustee Statement By The Manager Independent Auditors' Report Statement Of Financial Position Statement Of Comprehensive Income Statement Of Changes In Net Asset Value Statement Of Cash Flows Notes To The Financial Statements

3 FUND INFOATION As at 30 June 2017 Name Of Fund : Manager Of Fund : Launch Date : Pacific Real Opportunities Absolute Return Fund (Pacific ROAR Fund) Pacific Mutual Fund Bhd ( U) 21 April 2016 The Fund will continue its operations until terminated as provided under Part 11 of the Deed and Clause 3.1 (c) of the First Supplemental Master Deed. Category Of Fund : Type Of Fund : Investment Objective : Mixed assets (wholesale) Growth Pacific ROAR Fund aims to provide capital growth in the medium* to long term* by investing in a portfolio of local and foreign investments. * Medium term is defined as a period of one to three years, and long term is a period of more than three years. Performance Benchmark : Distribution Policy : Fund Size : Maybank 12-Month Fixed Deposit Rate % Subject to the Manager s discretion, distribution of income will be on an annual basis million units 2

4 Breakdown : Of Unitholdings Size Of Holdings No. Of Unitholders % Of Unitholders No. Of Units (million) 5,000 units & below ,001-10,000 units ,001-50,000 units , ,000 units ,001 units & above Total

5 FINANCIAL HIGHLIGHTS Category Quoted Equity Securities Banks Capital Goods Consumer Durables & Apparel Energy Materials Real Estate Technology Hardware & Equipment Transportation Utilities Foreign Equity Securities: - Australia - Great Britain - United States of America Warrants Cash And Liquid Assets Total Net Asset Value ( 000) ex-distribution Number Of Units In Circulation (Units 000) Net Asset Value Per Unit ()* Management Expense Ratio ( MER ) 1 Portfolio Turnover Ratio (times) As At % ,838 3, % The MER does not include brokerage and other transaction fees. Notes: The net asset value per unit of the Fund is largely determined by market factors. Therefore past performance figures shown are only a guide and should not be taken as indicative of future performance. Net asset value per unit and investment returns may go up or down. * Price quoted is ex-distribution. 4

6 FUND PERFOANCE For The Financial Period From 28 April 2016 (Start Investing Date Of Fund) To 30 June 2017 Market Review Despite several market moving geopolitical events, global equity markets did well during the period under review: US +16%; Europe +9%; UK +15%; Japan +15%; South Korea +18%; Shanghai +8%; Hong Kong +19%; Taiwan +21%; Singapore +9%; Indonesia +19%; Malaysia +3%; Thailand +11%; Philippines +8%; and Australia +9%. Commodity price recovery, interest rate normalization in the US, and expectations for stronger global economic growth prompted a flight from safety into risky assets. Malaysia was a clear laggard owing to unfavourable local political developments. Following some gains in early 2016 owing to stronger commodity prices and dovish signals from the US Federal Reserve (Fed), the global market showed signs of fatigue in May 2016 after the release of weak Chinese manufacturing data and a downgrade to Eurozone growth forecasts. Subsequent release of weak US economic data, hawkish comments from a US Fed official and impending Brexit referendum further dampened investors sentiment. Following the Fed s decision to leave rates unchanged in mid-june, equity markets strengthened despite a delayed inclusion of Chinese A-shares by MSCI into its emerging market index. However, the rally was short-lived. On 24 June 2016, an estimated USD2.1 trillion was wiped off from global equity markets following the unexpected vote by UK citizens to leave the European Union. In July 2016, risk appetite returned with record inflows into emerging markets as investors built up expectations for stimulus measures to alleviate the impact from Brexit. Gains turned muted in August 2016 when market participants started to debate on whether Japan would roll back its stimulus plan. Cautious sentiment continued into September when the US Fed hinted strongly at rate hikes by end of the year, and was dampened further by concerns over systemic risk from Deutsche Bank which was fined USD14 billion by the US Department of Justice. Towards the month-end, equity markets started to recover along with oil prices on an informal OPEC agreement to limit output. Asia was the biggest winner in October, as Japan led the pack with a monthly gain of 5.9% after a shift in Bank of Japan s policy to rely less on rate cuts. Chinese A-shares also did well with a gain of 3.2% as market participants were pleased by rosy economic data which indicated a long-overdue recovery in manufacturing activities. 5

7 In November, global markets had another shock when Donald Trump was elected as the 45 th US President. S&P futures hit limit down during the night. The bearish impact spread to Asia and Japan the next morning, which fell 2.3% and 5.4% respectively, while the European markets also opened sharply lower. However, a subdued and graceful tone taken by Trump during his victory speech was positively received by investors, who subsequently reassessed the presidential elect and his proposed policies as market positive. This led both the Europe and US markets to close higher by 1.1% at the end of the day. Subsequently, Wall Street rallied as funds switched out of bonds and emerging markets into US in anticipation of stronger US growth and bond yields fuelled by Trump s reflationary policies. The momentum continued into December, despite the Fed s rate hike and increasingly hawkish statement during the month, while emerging markets continued to suffer fund outflows due to a strengthening US Dollar and potential headwinds from Trump s protectionist stance. While market participants started the year of 2017 with a cautious stance, risk appetite returned after a smooth inauguration of President Donald Trump, whose proposal for tax cuts fuelled high hopes for stronger corporate earnings growth. A positive corporate earnings season further helped to propel Dow Jones Index above the 20,000 point-threshold for the first time in January, unscathed by US withdrawal from the Trans-Pacific Partnership trade deal. Investors bullishness continued into February supported by strong economic data releases in China and Eurozone, with US equities being the clear outperformer on President Trump s rhetoric. In March, stock markets were generally still positive despite the Fed s first interest rate hike for 2017 and lower GDP growth forecast from China. S&P 500, however, weakened closer to the end of the month when investors started to doubt Trump s ability to deliver on Trumpflation policies after his failure to reform the US healthcare bill. Following heightened investor concerns over tougher regulations and policies from Beijing to defuse potential debt-fuelled bubbles in the mainland Chinese economy, Shanghai Composite Index slumped 2.1% in April. UK investors also turned defensive during the month after Prime Minister Theresa May s unexpected call for an early general election. Across the English Channel, sentiment was however buoyant after the Greece bailout deal and favourable outcome from the French presidential election. In the energy market, oil traders initial optimism on crude oil price recovery started to fade on rising US shale production. In May, Moody s downgrade of China s sovereign rating and a disappointing status-quo in OPEC s production cut further compounded investors worry on Chinese equities and energy markets. Crude oil prices fell into a bear market territory in the following month. Yet, most equity markets ended the month of June positively amidst hawkish comments from the Fed, European Central Bank and Bank of England. UK was a clear underperformer following incumbent Conservative Party s loss of majority in the general election, which would undermine the country s strength during Brexit negotiations in the next two years. 6

8 Moving on to macro-economic data, US real GDP growth was revised upwards to an annual pace of 1.4% in first quarter 2017 compared to the initial estimate of 0.7% and second estimate of 1.2%, but still lower compared with +2.1% of expansion in the previous quarter. The boost was due to an upward revision to consumer spending, which accounts for more than two-thirds of US economic activity. Consumer spending rose at a 1.1% pace in the first quarter, the weakest reading since the second quarter of 2013 but almost double the 0.6% reported in the preceding quarter. In addition, May retail sales recorded their biggest drop in more than a year at 0.3% month-on-month against an expected increase of 0.1% amid declining purchases of motor vehicles and discretionary spending. Separately, job creation fell sharply in May with just 138,000 new jobs created (consensus expectations: 185,000), while unemployment rate declined to 4.3% (consensus: 4.4%), the lowest since May In the Eurozone, the economy grew 0.6% quarter-on-quarter in the first quarter, from 0.5% for the last quarter of Household consumption expenditure and gross fixed capital formation were the main drivers of the expansion. Consumer confidence hit its highest level since 2001 at -1.3 in June, from -3.3 in the previous month. The upbeat sentiment was partly fuelled by improved employment conditions, with unemployment rate declining to 9.3% in April, its lowest level since In Japan, the economy grew less than initially thought in the first quarter of 2017, expanding 0.3% from the previous quarter instead of the 0.5% that was estimated earlier. The latest figure was less than market expectation of 0.6% growth, but still marked the fifth straight quarter of growth. This was Japan s longest economic expansion in more than a decade. Jobless rate in Japan rose unexpectedly to 3.1% in May from 2.8% in the previous month, which the government attributed to workers resigning to seek better jobs and new entrants joining the labour market. In China, the economy expanded 6.9% in first quarter 2017, slightly higher than consensus expectation of 6.8%. CPI accelerated to 1.5% year-on-year in May, on par with market expectation, largely due to an increase in non-food items. Caixin Manufacturing PMI fell to 49.6 in May, lower than consensus forecast of 50.1 and April s 50.3, indicating a contraction of manufacturing activities by small and medium-sized enterprises for the first time in 11 months. China s exports and imports in May rose by 8.7% and 14.8% respectively bringing trade balance to USD40.81 billion, which surpassed prior month s surplus of USD38.05 billion. 7

9 Fund Review Following the launch of the Pacific ROAR Fund on 21 April 2016, equity exposure was slowly raised to 37% by end-may 2016 and to 43% by end-june The slow build-up in equity exposure was due to substantial and lumpy inflows and a cautious stance ahead of the UK referendum in June. The low equity exposure cushioned the Fund against the substantial and massive sell-off following UK s decision to exit the European Union. In addition, the Fund also generated good trading gains from its holdings of an ETF (exchange-traded fund) that tracked market volatility, which spiked up during the period. The Fund began increasing its equity allocation more aggressively to 89% at end-august 2016 in energy and commodity stocks to capitalise on the bottoming commodity prices. In September, the Fund reduced its equity allocation slightly to 83.4% post the Federal Reserve s (Fed) decision to leave rates unchanged and to lower its outlook for future rate hikes in The Fund continued to cut its equity allocation further to 48.5% in October in light of the impending US FOMC meeting and US presidential election in November. Following Donald Trump s unexpected win over Hillary Clinton during the US presidential election, the Fund began to ramp up its equities allocation to 67.5% to ride on the US market rally post elections as it tactically traded the US market mainly in high-beta sectors and stocks from which it realised some currency as well as capital gains. The Fund ended the year with a 16% equity allocation to realise some gains from year-end window dressing activities. The start of 2017 saw investor sentiment turn bullish on the back of higher global growth expectations, a smooth start to Trump s presidency, stabilisation in China s financial markets and the recovery in oil prices. The Fund increased its investments in the Malaysian and US markets, bringing the equity exposure to 56.5% in January. The Fund switched out of some Australian mining plays and invested into Malaysian blue chips in February, increasing the equity exposure to 84.1% to capitalise on the foreign inflows into the Malaysian market. The Fund continued to raise its equity exposure further to 88.5% at the end of March In April, the Fund took some profit, bringing down equity exposure to 78.57% as European and US markets were bolstered by Emmanuel Macron s win in the first round of the French elections and US President Donald Trump s proposed tax reductions. In May, the Fund bought into some commodity names and some Malaysian small-caps on positive developments and attractive valuations. The period under review ended with an equity exposure of 89.1%. The average equity exposure during the entire period under review was at 79.4%. Moving forward, for the next few months the Fund will maintain its long only bias and continue to adopt the strategy of rotating out of overvalued outperformers into undervalued laggards. 8

10 Fund Returns (date of launch: ) to to to to to Since Launch (date of launch: ) to Total Returns Pacific ROAR Fund 0.17% 3.18% 0.14% 4.23% -4.54% 2.98% Benchmark 0.99% 1.39% 1.38% 1.35% 1.37% 6.66% Source: Lipper, Maybank Asset Allocation Quoted Equity Securities Warrants Cash And Liquid Assets As At 30 June % 3.42% 10.93% % 9

11 Income Distribution Gross distribution per unit Net distribution per unit NAV per unit before declaration (as at 30 June 2017) NAV per unit after declaration (as at 30 June 2017) Pacific ROAR Fund 2.00 sen 2.00 sen Income distributions amounting to less than or equal to 200 will be automatically reinvested into further units of the Fund based on the net asset value (NAV) per unit of the Fund on the fourth business day after declaration of distribution at no cost. Similarly, distribution cheques that are returned through mail will be reinvested based on the Fund s NAV per unit on the date Pacific Mutual receives the returned mail. 10

12 REPORT OF THE TRUSTEE To the Unitholders of PACIFIC REAL OPPORTUNITIES ABSOLUTE RETURN FUND We, CIMB COMMERCE TRUSTEE BERHAD ("the Trustee"), being the Trustee of PACIFIC REAL OPPORTUNITIES ABSOLUTE RETURN FUND ("the Fund"), are of the opinion that PACIFIC MUTUAL FUND BHD ("the Manager"), acting in the capacity as Manager of the Fund, has fulfilled its duties in the following manner for the financial period from 21 April 2016 (date of launch) to 30 June (a) The Fund has been managed in accordance with the limitations imposed on the investment powers of the Manager under the Deeds, the Securities Commission Malaysia's Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework, the Capital Markets and Services Act 2007 (as amended from time to time) and other applicable laws; (b) Valuation/pricing for the Fund has been carried out in accordance with the Deeds and relevant regulatory requirements; (c) Creation and cancellation of units have been carried out in accordance with the Deeds and relevant regulatory requirements; and (d) The distribution of returns by the Fund is relevant and reflects the investment objectives of the Fund. For and on behalf of CIMB COMMERCE TRUSTEE BERHAD LIEW PIK YOONG Chief Executive Officer Kuala Lumpur, Malaysia 2 August

13 STATEMENT BY THE MANAGER We, TEH CHI-CHEUN and ONG EU JIN, being two of the directors of PACIFIC MUTUAL FUND BHD, do hereby declare that, in the opinion of the Manager, the accompanying financial statements set out on pages 16 to 37 are prepared in accordance with the requirements of the Deeds, Malaysian Financial Reporting Standards, International Financial Reporting Standards and Securities Commission's Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework in Malaysia so as to give a true and fair view of the financial position of PACIFIC REAL OPPORTUNITIES ABSOLUTE RETURN FUND as at 30 June 2017 and of its results, changes in net asset value and cash flows for the financial period from 21 April 2016 (date of launch) to 30 June Signed on behalf of the Manager in accordance with a resolution of the directors TEH CHI-CHEUN Chief Executive Officer ONG EU JIN Kuala Lumpur, Malaysia 2 August

14 INDEPENDENT AUDITORS' REPORT To the Unitholders of PACIFIC REAL OPPORTUNITIES ABSOLUTE RETURN FUND Report On The Audit Of The Financial Statements Opinion We have audited the financial statements of PACIFIC REAL OPPORTUNITIES ABSOLUTE RETURN FUND ("the Fund"), which comprise the statement of financial position as at 30 June 2017, and the statement of comprehensive income, statement of changes in net asset value and statement of cash flows of the Fund for the financial period from 21 April 2016 (date of launch) to 30 June 2017, and notes to the financial statements, including a summary of significant accounting policies, as set out on pages 16 to 37. In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Fund as at 30 June 2017, and of its financial performance and cash flows for the financial period from 21 April 2016 (date of launch) to 30 June 2017 in accordance with Malaysian Financial Reporting Standards ("MFRS") and International Financial Reporting Standards ("IFRS"). Basis For Opinion We conducted our audit in accordance with approved standards of 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 Statement And Auditors' Report Thereon The Manager of the Fund is responsible for the other information. The other information comprises the information included in the annual report of the Fund, but does not include the financial statements of the Fund and our auditors report thereon. Our opinion on the financial statements of the Fund does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements of the Fund, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements of the Fund or our knowledge obtained in the audit or otherwise appears to be materially misstated. 13

15 If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibility Of The Manager And Trustee For The Financial Statements The Manager of the Fund is responsible for the preparation of 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 have no realistic alternative but to do so. The Trustee is responsible for overseeing the Fund's financial reporting process. The Trustee is also 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. Auditors' Responsibilities For The Audit Of The Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements of the Fund as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with approved standards on auditing in Malaysia and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with approved standards of auditing in Malaysia and International Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout 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. 14

16 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 Manager s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Fund s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the financial statements of the Fund or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors' report. However, future events or conditions may cause the Fund to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements of the Fund, including the disclosures, and whether the financial statements 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, in accordance with the Guidelines on Unit Trust Funds issued by Securities Commission Malaysia 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 YEO BENG YEAN No /10/2018 J Chartered Accountant Kuala Lumpur, Malaysia 2 August

17 STATEMENT OF FINANCIAL POSITION As at 30 June 2017 Assets Investments Dividend receivable Interest receivable Amount due from brokers/dealers Other receivables Cash and cash equivalents Total Assets Liabilities Amount due to Manager Amount due to brokers/dealers Other payables Distribution payable Total Liabilities Net Asset Value Of The Fund Equity Unitholders' capital Retained earning Net Asset Value Attributable To Unitholders Total Equity And Liabilities Number Of Units In Circulation (Units) Net Asset Value Per Unit (ex-distribution) Note ,418, ,326 92, ,200 4,054,908 9, ,680 13,647 76, ,856 3,838,052 3,777,859 60,193 3,838,052 4,054,908 3,801, The accompanying notes form an integral part of the financial statements. 16

18 STATEMENT OF COMPREHENSIVE INCOME For the financial period from 21 April 2016 (date of launch) to 30 June 2017 Investment Income Gross dividends from financial assets at fair value through profit or loss Interest income Net gain on investments - Financial assets at fair value through profit or loss - Foreign exchange Net unrealised gain on foreign exchange Net unrealised loss on changes in value of financial assets at fair value through profit or loss Expenses Audit fee Tax agent's fee Manager's fee Trustee's fee Custodian's fee Brokerage and other transaction fees Administration expenses Net Income Before Taxation Taxation Net Income After Taxation Total Comprehensive Income Total Comprehensive Income Is Made Up As Follows: Realised Unrealised Note to ,696 36, , , (1,450) 865,657 7,600 3, ,833 5, ,433 25, , , , , ,288 (1,231) 246,057 The accompanying notes form an integral part of the financial statements. 17

19 STATEMENT OF CHANGES IN NET ASSET VALUE For the financial period from 21 April 2016 (date of launch) to 30 June 2017 At 21 April 2016 Net income after taxation Creation of units Cancellation of units Distribution At 30 June 2017 Note 14 Unitholders Capital 1,000-8,206,048 (4,539,033) 109,844 3,777,859 Retained Earning - 246, (185,864) 60,193 Net Asset Value Attributable To Unitholders 1, ,057 8,206,048 (4,539,033) (76,020) 3,838,052 The accompanying notes form an integral part of the financial statements. 18

20 STATEMENT OF CASH FLOWS For the financial period from 21 April 2016 (date of launch) to 30 June 2017 Cash Flows From Operating And Investing Activities Proceeds from sale of investments Purchase of investments Dividends received Interest received Manager's fee paid Trustee's fee paid Custodian's fee paid Payment for other fees and expenses Net cash used in operating and investing activities Cash Flows From Financing Activities Cash proceeds from units created Cash paid on units cancelled Net cash generated from financing activities Net Increase In Cash And Cash Equivalents Effect Of Exchange Rate Changes Cash And Cash Equivalents At Date Of Launch Cash And Cash Equivalents At End Of Financial Period Cash And Cash Equivalents Comprise: Cash at banks Deposits with financial institutions to ,317,905 (54,467,034) 101,207 36,872 (136,324) (4,734) (323) (49,945) (3,202,376) 8,206,048 (4,539,033) 3,667, ,639 (19,439) 1, , , , ,200 The accompanying notes form an integral part of the financial statements. 19

21 NOTES TO THE FINANCIAL STATEMENTS 30 June The Fund, The Manager And Their Principal Activities Pacific Real Opportunities Absolute Return Fund (hereinafter referred to as "the Fund") was constituted pursuant to the execution of the Master Deed dated 20 November 2015, First Supplemental Master Deed dated 18 April 2016, Second Supplemental Master Deed dated 22 December 2016 and its Third Supplemental Master Deed dated 12 January 2017 (hereinafter referred to as "the Deeds"), made between the Manager, Pacific Mutual Fund Bhd, the Trustee, CIMB Commerce Trustee Berhad and the registered holders of the Fund. The principal activity of the Fund is to invest in Permitted Investments as defined in the Deeds, which include stocks and shares of companies quoted on Bursa Malaysia Securities Berhad, foreign securities, unlisted securities, futures contracts and any other investments approved by the Securities Commission from time to time. The Fund was launched on 21 April 2016 and will continue its operations until terminated as provided in the Deeds. The Manager is a 70% owned subsidiary of Lion Global Investors Limited (formerly known as Lion Capital Management Limited), a company incorporated in Singapore. The remaining 30% of the share capital of the Manager is held by Koperasi Angkatan Tentera Malaysia Bhd. The ultimate holding company is Oversea-Chinese Banking Corporation Limited, a public listed company incorporated in Singapore. The principal activities of Pacific Mutual Fund Bhd are the establishment and management of unit trust funds as well as the management of private investment mandates. The financial statements were authorised for issue by the Board of Directors of the Manager in accordance with a resolution of the directors on 2 August Summary Of Significant Accounting Policies (a) Basis Of Preparation The financial statements of the Fund have been prepared on a historical cost basis, except as otherwise stated in the accounting policies and comply with Malaysian Financial Reporting Standards ("MFRS"), International Financial Reporting Standards ("IFRS"), the Deeds and the Securities Commission's Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework in Malaysia. 20

22 (b) Standards Issued But Not Yet Effective The following Standards, Amendments and Interpretations have been issued by the Malaysian Accounting Standards Board ("MASB") but are not yet effective and have not been early adopted by the Fund. Effective for financial year beginning on or after 1 January 2017 Amendments to MFRS 107 Disclosure Initiative Amendments to MFRS 112 Recognition of Deferred Tax Assets for Unrealised Losses* Amendments to MFRSs contained in the document entitled "Annual Improvements to MFRS Standards Cycle" Effective for financial year beginning on or after 1 January 2018 MFRS 9 Financial Instruments MFRS 15 Revenue from Contracts with Customers* Amendments to MFRS 2 Classification and Measurement of Share-based Payment Transactions* Amendments to MFRS 4 Applying MFRS 9 Financial Instruments with MFRS 4 Insurance Contracts* Amendments to MFRS 140 Transfer of Investment Property* Amendments to MFRSs contained in the document entitled "Annual Improvements to MFRS Standards Cycle" IC Interpretations 22 Foreign Currency Transactions and Advance Consideration Effective for financial year beginning on or after 1 January 2019 MFRS 16 Leases* Effective date to be announced Amendments to MFRS 10 and MFRS 128 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture* * These MFRSs and amendments to MFRSs are not relevant to the Fund. The Fund is still in the process of assessing the financial implication for adopting the relevant MFRS, amendments to MFRS and IC Interpretations. (c) Functional And Presentation Currency 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 (""), which is also the Fund's functional currency. 21

23 (d) Foreign Currency Translation Assets and liabilities denominated in foreign currencies are translated into at rates of exchange prevailing at the reporting date. Transactions in foreign currencies are translated into at the rates of exchange ruling on the dates of transactions. Exchange differences arising are included in profit or loss. (e) Financial Instruments The Fund recognises financial assets and financial liabilities in the Statement of Financial Position on the date it becomes a party to the contractual provisions of the instruments. Regular way purchase and sales of all categories of investments in financial instruments are recognised on trade dates i.e. dates on which the Fund commits to purchase or sell the financial instruments. The Fund determines the classification of its financial assets and financial liabilities at initial recognition, and the categories include financial assets at fair value through profit or loss, receivables and financial liabilities. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. Financial Assets At Fair Value Through Profit Or Loss Financial assets classified as financial assets at fair value through profit or loss are all financial assets acquired for the purpose of generating a profit from short-term fluctuations in price, or part of a portfolio with a pattern of short-term profit taking (held for trading); or those financial assets designated in this category by the Manager. Subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value with gain and loss recognised in profit or loss. Transaction costs are recognised in profit or loss as incurred. Exchange differences on financial assets at fair value through profit or loss 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 fair value through profit or loss. The fair values of quoted investments are determined by reference to last done prices as at the close of the business at the reporting date. 22

24 Receivables Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. These include cash and cash equivalents, amounts due from Manager, brokers/dealers and other receivables. Receivables are recognised initially at fair value including transaction costs. These are subsequently measured at amortised cost using the effective interest method, less impairment. Financial Liabilities Financial liabilities are recognised initially at fair value i.e. the consideration for goods and services received and subsequently stated at amortised cost. These include amounts due to Manager, brokers/dealers, Trustee and other payables. The difference between the proceeds and the amount payable is recognised over the period of the payable using the effective interest method. (f) Derecognition Of Financial Assets And Liabilities Financial Assets A financial asset is derecognised when the asset is disposed and the contractual right to receive cash flows from the asset has expired. On derecognition of a financial asset, the difference between the carrying amount and the sum of the consideration received is recognised in profit or loss. Financial Liabilities A financial liability is derecognised when the obligation under the liability is extinguished. Gains and losses are recognised in profit or loss when the liability is derecognised, and through the amortisation process. (g) Impairment Of Financial Assets The Fund assesses at each reporting date whether there is any objective evidence that a financial asset or group of financial assets is impaired. Financial Assets Carried At Amortised Cost If a financial asset carried at amortised cost is impaired, an impairment loss is recognised in profit or loss as the difference between the asset's carrying amount and the present value of estimated future cash flow discounted at the financial asset's original effective interest rate. If in a subsequent period the amount of an impairment loss recognised on a financial asset carried at amortised cost decreases and the decrease can be linked objectively to an event occurring after the write-down, the write-down is reversed through profit or loss. 23

25 (h) 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. Dividend income is recognised when the Fund's right to receive payment is established. Interest income is recognised using the effective interest method on an accrual basis. (i) Unrealised Reserves/(Deficits) The unrealised reserves/(deficits) represent the net gain or loss arising from carrying quoted investments at their fair value and are recognised in Statement of Comprehensive Income. (j) Cash And Cash Equivalents Cash and cash equivalents comprise cash at banks and deposits with financial institutions which have an insignificant risk of changes in value. (k) Taxation Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the tax authorities. The tax rate and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date. (l) Distribution Distributions made by the Fund are accounted for as a deduction from realised reserves except where distributions are sourced out of distribution equalisation which are accounted for as a deduction from Unitholders' Capital. Distributions are recognised in the Statement of Changes in Net Asset Value when they are approved by the Manager and the Trustee. (m) Unitholders' Capital Unitholders' Capital meets the conditions for the definition of puttable instruments classified as equity instruments. Distribution equalisation is accounted for on the date of creation and cancellation of units. It represents the average distributable amount included in the creation and cancellation prices of units. This amount is either refunded to unitholders by way of distribution and/or adjusted accordingly when units are cancelled. 24

26 (n) Significant Accounting Estimates And Judgments The preparation of financial statements in accordance with MFRS and IFRS requires the use of certain accounting estimates and exercise of judgments. Estimates and judgments are continually evaluated and are based on past experience, reasonable expectations of future events and other factors. No major estimations 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 at reporting date. 3. Investments Financial Assets At Fair Value Through Profit Or Loss Quoted investments - Equity securities - Warrants Total investments ,287, ,150 3,418,386 25

27 The composition of quoted investments at the reporting date is as detailed below. The industry classifications are based on MSCI's Global Industry Classification Standard. EQUITY SECURITIES Quantity 29,000 33,800 6,000 24,520 Name Of Counter Malaysia Banks Alliance Financial Group Berhad BIMB Holdings Berhad Hong Leong Financial Group Berhad Malayan Banking Berhad Cost 113, ,779 99, , ,266 Fair Value 111, , , , ,368 Fair Value As A % Of Net Asset Value ,500 19,900 Capital Goods Ahmad Zaki Resources Berhad Sime Darby Berhad 91, , ,571 97, , , ,700 Consumer Durables & Apparel Hume Industries Berhad 207, , ,000 Energy Bumi Armada Berhad 131, , ,000 Materials Chemical Company of Malaysia Berhad 106, , ,200 17,520 30,000 Real Estate Eco World International Berhad S P Setia Berhad -Preference Share Sunway Berhad 27,468 17, , ,078 27,972 19, , , ,700 Technology Hardware & Equipment Green Packet Berhad 68,212 62, ,500 Transportation Yinson Holdings Berhad 104, ,

28 Quantity 81,594 13,200 Name Of Counter Utilities Salcon Berhad Tenaga Nasional Berhad Cost 50, , ,982 Fair Value 45, , ,341 Fair Value As A % Of Net Asset Value Total Equity Securities - Malaysia 1,861,637 1,897, Australia Banks Commonwealth Bank of Australia 101,104 98, Exchange Traded Fund Vanguard Australian Shares Index ETF 94,049 96, , Materials BHP Billiton Limited Rio Tinto Limited 155, , , , , , Total Equity Securities - Australia 499, , ,801 Great Britain Exchange Traded Fund ETFS WTI Crude Oil 88,826 79,

29 Quantity 149 Name Of Counter United States of America Capital Goods Raytheon Company Cost 102,548 Fair Value 103,268 Fair Value As A % Of Net Asset Value ,100 3,542 Exchange Traded Fund Consumer Staples Select Sector SPDR Fund Financial Select Sector SPDR Fund Guggenheim S&P 500 Equal Weight ETF ProShares VIX Short-Term Futures ETF United States Oil Fund LP (ETF) 74,248 99, , , , ,176 71,448 98, , , , , Total Equity Securities - United States of America 834, , Total Equity Securities 3,284,711 3,287, WARRANTS 430,000 Eco World International Berhad - WA 04/04/ , , TOTAL QUOTED INVESTMENTS 3,419,836 3,418, UNREALISED LOSS FROM QUOTED INVESTMENTS (1,450) 28

30 4. Fair Value Hierarchy The Fund uses the following hierarchy for determining and disclosing the fair values of financial instruments by valuation technique: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. prices) or indirectly (i.e. derived from prices). Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs). Financial Assets At Fair Value Through Profit Or Loss Quoted investments Level 1 3,418,386 Total 3,418,386 The carrying amounts of other financial assets and financial liabilities approximate fair values due to the relatively short term maturities of these financial instruments. 29

31 5. Cash And Cash Equivalents Cash and cash equivalents include cash at banks and deposits with financial institutions. Cash at banks - Malaysia - Outside Malaysia Deposits with licensed financial institutions: - Commercial banks Cash and cash equivalents , , , , ,200 The weighted average rate of return and remaining maturity at the reporting date were as follows: Weighted Average Weighted Average Rate Of Return Remaining Maturity (% Per Annum) (Days) Deposits with licensed financial institutions: - Commercial banks Amount Due To Manager The amount due to Manager represents amount payable for unit cancelled and/or amount payable for management fee. Management fee is payable on a monthly basis and amount payable for units cancelled is paid within 10 days of the transaction dates. 7. Amount Due From/To Brokers/Dealers The amount due from/to brokers/dealers relates to disposal/purchase of investments which remain outstanding as at reporting date. These are normally received/paid within 3 business days of the transaction dates. 8. Manager's Fee The Manager s fee provided in the financial statements is computed at 1.75% per annum of the net asset value attributable to unitholders of the Fund, calculated on a daily basis. 4 30

32 9. Trustee's Fee The Trustee's fee provided in the financial statements is computed at 0.06% per annum of the net asset value attributable to unitholders of the Fund, calculated on a daily basis. 10. Custodian's Fee The custodian's fee provided in the financial statements ranges from 0.01% to 0.3% per annum, computed based on the net asset value attributable to unitholders of the Fund of the respective foreign portfolio on a daily basis. 11. Portfolio Turnover Ratio Portfolio turnover ratio ( PTR ) to times The PTR of the Fund is the ratio of average acquisitions and disposals of the Fund for the financial period over the average net asset value attributable to unitholders of the Fund calculated on a daily basis. 12. Management Expense Ratio Management expense ratio ( MER ) to times MER is the ratio of expenses of the Fund expressed as a percentage of the average net asset value attributable to unitholders of the Fund for the financial period calculated on a daily basis. 1 The MER does not include brokerage and other transaction fees. 31

33 13. Taxation Malaysian income tax: Current period's provision to Income tax is calculated at the Malaysian statutory rate of taxation of 24% of the estimated assessable income for the financial period. There was no taxation charge for the current financial period due to tax exempt income received. A reconciliation of income tax expense applicable to net income before taxation at the statutory rate of taxation to income tax expense at the effective rate of taxation is as follows: to Net income before taxation 246,057 Taxation at Malaysian statutory rate of 24% Tax effects of: Income not subject to tax Losses not subject to tax Expenses not deductible for tax purpose Restriction on tax deductible expenses for wholesale funds Tax expense for the financial period 59,054 (208,106) ,796 37,908-32

34 14. Distribution Net final distribution, to be paid on 6 July 2017 Distribution to unitholders is from the following sources: Dividend income Interest income Realised gains on sale of investments Distribution equalisation Less: Expenses Taxation Gross distribution per unit (sen) Net distribution per unit (sen) ,020 94,474 27, ,348 (109,844) 541,713 (465,693) - 76, The unrealised loss arising from investments at the reporting date is 1, Net Asset Value Attributable To Unitholders Unitholders' capital Retained earning - Realised reserve - Unrealised deficit Net asset value attributable to unitholders ,777,859 61,424 (1,231) 3,838,052 The net asset value per unit is rounded up to four decimal places. 16. Number Of Units In Circulation At beginning of the financial period Creation Cancellation At end of the financial period 2017 No. Of Units 1,000 8,185,000 (4,385,000) 3,801,000 33

35 17. Units Held By The Manager And Its Related Parties Manager There were no units held by other related parties. ^ All units are held legally by the Manager as per unitholder register No. Of Units^ Transactions With Brokers/Dealers Details of transactions with the brokers for the financial period ended 30 June 2017 are as follows: % Of % Of Total Total Brokerage Brokers/Dealers Trades Fees J.P. Morgan Securities (Malaysia) Sdn Bhd Hong Leong Investment Bank Bhd Maybank Investment Bank Bhd CIMB Investment Bank Bhd Nomura Securities Malaysia Sdn Bhd RHB Investment Bank Bhd UOB Kay Hian Pte Ltd DBS Vickers Securities (Singapore) Pte Ltd Alliance Investment Bank Berhad Value Of Trade # 38,509,303 10,180,600 9,534,928 8,639,835 7,209,785 5,059,846 4,424,465 4,033,135 3,009,656 90,601, Brokerage Fee* 133,462 34,263 31,537 29,370 25,310 17,787 15,505 10,105 4, , # Exclusive of brokerage and other transaction fees. * Only applicable to equity securities. The transactions above are from non related parties. 34

36 19. Financial Risk Management Objectives And Policies The Fund is exposed to a variety of risks which include market risk, credit risk, liquidity risk, specific risk and single issuer risk. Financial risk management is carried out through policy reviews, internal control systems and adherence to the investment restrictions as stipulated in the Securities Commission's Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework in Malaysia. (i) Market Risk The Fund's principal exposure to market risk arises primarily due to changes in the market environment, global economic and geo-political developments. The Fund seeks to diversify some of these risks by investing into different sectors to mitigate risk exposure to any single asset class. The Fund s market risk is affected primarily due to the following risks: (a) Equity Price Risk Equity price risk is the adverse changes in the fair value of equities as a result of changes in the levels of equity indices and the value of individual shares. The equity price risk exposure arises from the Fund s quoted investments. The table below summarises the effect on the net asset value of the Fund at the reporting date due to possible changes in prices, with all other variables held constant: Change In Price (%) +5/ (5) Effect On Net Asset Value Attributable To Unitholders 170,919/ (170,919) (b) Interest Rate Risk This risk refers to the effect of interest rate changes on the market value of deposits with financial institutions. In the event of reduction in interest rates, the return on deposits with financial institutions will decrease thus affecting the net asset value of the Fund. This risk will be minimised via the management of the deposits with financial institutions. The Fund's exposure to interest rate risk with respect to deposits with financial institutions is not considered to be significant at the reporting date and consequently no sensitivity analysis on interest rate risk has been presented. 35