1 General Information 1. 2 Manager s Report 2. 3 Policy On Stockbroking Rebates And Soft Commissions 9. 4 Statement By The Manager 10

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2 CONTENTS PAGE 1 General Information 1 2 Manager s Report 2 3 Policy On Stockbroking Rebates And Soft Commissions 9 4 Statement By The Manager 10 5 Trustee s Report 11 6 Independent Auditors Report 12 7 Statement Of Comprehensive Income 15 8 Statement Of Financial Position 16 9 Statement Of Changes In Equity Statement Of Cash Flows Summary Of Significant Accounting Policies Notes To The Financial Statements Corporate Information 47 i

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4 MANULIFE INVESTMENT 1 GENERAL INFORMATION 1.1 THE TRUST The Fund commenced operations on 2 May 1991 and will continue its operations until terminated as provided under Clause 23 of the Deed. 1.2 FUND TYPE / CATEGORY Growth & Income / Balanced 1.3 BASE CURRENCY Malaysian Ringgit (MYR) 1.4 OBJECTIVE OF THE FUND The Fund s investment objective is to achieve medium- to long-term capital appreciation and to provide dividend income. Note: Any material change to the Fund s investment objective would require Unit Holders approval. 1.5 DISTRIBUTION POLICY Semi-annually, if any and subject to the availability of income, the Manager has the discretion to declare distribution at a higher frequency. 1.6 PERFORMANCE BENCHMARK The performance of the Fund is measured against Manulife Investment Balanced Index comprising 50% FBM % Maybank 12-month fixed deposit (FD) rate. The composite benchmark is chosen as it truly reflects the asset allocation strategy of the Fund. The allocation of 50:50 on the benchmark is to reflect the balanced position of the portfolio of the Fund in long time period. 1.7 INVESTMENT STYLE AND STRATEGY The Fund invests in equities and fixed income instruments based on its assessment of the respective market outlook. The Fund Manager uses a macro-economic top-down approach to decide on strategic asset allocation. The Fund Manager constantly monitors and assesses the investment environment to identify emerging investment trends and themes. More importantly, the Fund Manager evaluates macroeconomic variables and its impact on the asset classes in the asset allocation process. The Fund Manager believes that given the increased interdependence among markets, a bird s eye view of global financial markets is also critical to successful investment. In addition, any active and frequent trading strategy will depend on investment opportunities. In equity stock selection process, the Fund Manager emphasises strongly on internal research. Frequent company visits are made in order to obtain local knowledge and corporate information. Besides using traditional valuation yardsticks such as growth rate, price earnings (P/E) ratio, price-to-book (P/BV) ratio and price/earnings to growth (PEG) ratio, the Fund Manager focuses on capital structure, intrinsic value, cash flow, replacement costs, revised net asset value (RNAV), management and potential growth & income trends. When selecting fixed income investments, the Fund Manager adopts a prudent strategy in forming a portfolio of debt instruments, which is in accordance with the Fund s investment objective and the Fund Manager s assessment of investment prospects in line with the underlying interest rates and economic outlook. During the financial year under review, the Fund met its investment objective of providing medium- to long-term capital appreciation and dividend income. 1

5 2 MANAGER S REPORT 2.1 FUND PERFORMANCE For the financial year ended 30 June 2018, the Fund s return decreased by 6.91%. The Fund underperformed its benchmark return of 0.29%, mainly due to the Fund s equity allocation. The Fund s performance was impacted by its stock selection in the Industrial Products, Trading and Services, and Consumer Products sectors. Its allocation in the Technology sector also contributed to the underperformance. The Sukuk portion of the Fund outperformed the benchmark due primarily to income return from its Sukuk holdings. The distribution of 1.20 sen per unit on 27 June 2018 and 1.55 sen on 27 December 2017 had the effect of reducing the NAV per unit of the Fund. The ex-distribution NAV per unit was RM and RM respectively. The graph below compares the 12-month performance of the Fund against its benchmark return: 6% 4% 2% 0% -2% -4% -6% -8% Jun 17 Jul 17 Fund Performance vs. Benchmark Index Return Aug 17 Sep 17 Oct 17 Nov 17 Dec 17 Jan 18 Manulife Investment Balanced Fund Return Source: Lipper, Morningstar & Bloomberg Fund Size Feb 18 Mar 18 Apr 18 May 18 Jun 18 Benchmark Index Return The Fund s total NAV decreased to RM71.93 from RM83.85 during the financial year under review. Fund s Returns (a) The graph below compares the 5-year performance of the Fund against its benchmark return: 25% 20% 15% 10% 5% 0% -5% Jun 13 Oct 13 Feb 14 Fund Performance vs. Benchmark Index Return Jun 14 Oct 14 Feb 15 Jun 15 Oct 15 Feb 16 Manulife Investment Balanced Fund Return Source: Lipper, Morningstar & Bloomberg Jun 16 Oct 16 Feb 17 Jun 17 Oct 17 Feb 18 Jun 18 Benchmark Index Return 2

6 (b) Average Total Return of the Fund: For the financial year ended 30 June 2018 Fund (% p.a.) Benchmark (% p.a.) 1 year (6.91) (0.29) 3 years years Commencement Date : 2 May 1991 Source: Lipper, Morningstar & Bloomberg (c) Annual Total Return of the Fund: For the financial year ended: Fund (% p.a.) Benchmark (% p.a.) 30 June 2018 (6.91) (0.29) 30 June June June 2015 (2.77) (3.32) 30 June Commencement Date : 2 May 1991 Source: Lipper, Morningstar & Bloomberg During the financial year, the Fund has met its objective of providing medium- to long-term capital appreciation, with its 3-year and 5-year average total return of 2.23% and 2.39% p.a. respectively; and a current income return of 3.07% in the financial year. BASES OF CALCULATION 1. Net Asset Value (NAV) Net Asset Value of the Fund is determined by deducting the value of all the Fund s liabilities from the value of all the Fund s assets, at the valuation point. 2. Net Asset Value per unit Net Asset Value per unit is the net asset value of the Fund divided by the total number of units in circulation, at the valuation point. 3. Fund s Return Fund s return can be calculated based on the computation methods as follows: Daily Total Fund s Return = {[End NAV (Ex-distribution) - Beginning NAV + Dividend Distribution] / Beginning NAV} x 100% Total Fund s Return Average Total Return = Total Fund s return for the period is derived from geometrically linking together the daily total fund s returns. The linking formula is = [(1+ R 1 ) x (1+ R 2 ) x (1+ R n )] -1 where: R 1 is the first daily return for the period, R 2 is the second daily return for the period, and R n is the last daily return for the period. = Annualised Total Return (Actual number of days in a year/ [(1+ Total fund s return for the period) number of days during the period) -1] x 100% 3

7 The following table shows other financial and performance data of the Fund for the past three financial years: Fund Data 30 June June June 2016 NAV (RM) 71,928,458 83,852,345 87,406,845 Units in Circulation ( 000) 189, , ,743 NAV (RM per unit) Highest / Lowest NAV (RM per unit) Total Fund Return (%) NAV Return (%) Income Return (%) Final Distribution Gross (RM per unit) Net (RM per unit) Ex-date Gross (RM per unit) Net (RM per unit) Ex-date / * (6.91) (12.95) / (0.32) / Management Expenses Ratio (%) Portfolio Turnover Ratio (times) * Ex-NAV NOTES (i) Management Expenses Ratio (MER) MER can be calculated based on the ratio of the sum of fees and the recovered expenses of the unit trust fund to the average value of the unit trust fund calculated on a daily basis. Fees of the unit trust fund + Recovered expenses of the unit trust fund Average value of the unit trust fund calculated on a daily basis x 100 Where: Fees Recovered expenses Average value of the unit trust fund = All ongoing fees deducted / deductible directly from the unit trust fund in respect of the period covered by the management expense ratio, expressed as a fixed amount, calculated on a daily basis. This would include the annual management fee, the annual trustee fee and any other fees deducted / deductible directly from the unit trust fund; = All expenses recovered from/ charged to the unit trust fund, as a result of the expenses incurred by the operation of the unit trust fund, expressed as a fixed amount. This should not include expenses that would otherwise be incurred by an individual investor (e.g. brokerage, taxes and levies); and = The NAV of the unit trust fund, including unit trust net income value of the fund, less expenses on an accrued basis, in respect of the period covered by the management expense ratio, calculated on a daily basis. The MER for the financial year is higher than the previous financial year mainly due to the increase in expenses incurred. 4

8 (ii) Portfolio Turnover Ratio (PTR) PTR can be calculated based on the ratio of the average sum of acquisitions and disposals of the unit trust fund for the period to the average value of the unit trust fund for the period calculated on a daily basis. [Total acquisitions of the fund for the year + Total disposals of the fund for the year]/2 Average value of the unit trust fund calculated on a daily basis The PTR for the financial year is higher than the previous financial year mainly due to the increase in trading activities. Impact On NAV Arising From Distribution Distributed For The Past Three Financial Years: Details Cum date June 26 December 23 June 27 June NAV before distribution (RM per unit) Less: Distribution (RM per unit) (0.0120) (0.0155) (0.0310) (0.0200) NAV after distribution (RM per unit) The Manager wishes to highlight that past performance of the Fund is not an indication of future performance. The price of units and the investment returns may go down, as well as up. 2.2 ASSET ALLOCATION Asset allocation for the past three financial years: % of Net Asset Value Sector Allocation 30 June June June 2016 Trading / Services Industrial Products Finance Consumer Products Plantation Infrastructure Project Companies (IPCs) Property Construction REITs Technology Warrants Total Quoted Investments Unquoted Fixed Income Securities Collective Investment Scheme Total Investments Deposits With Licensed Financial Institutions Other Assets & Liabilities (0.36) (0.13) (0.15) As at 30 June 2018, the Fund was 46.46% invested in Malaysian equities, 42.48% in fixed income securities, and 11.05% in cash and other financial instruments. Within equities, the Fund saw the largest change in the Trading and Services, Industrial Products, Construction, and Technology sectors. 5

9 2.3 MARKET REVIEW EQUITY MARKET During the financial year under review (1st July 2017 to 30th June 2018), global markets continued its uptrend in the first half of the period, supported by several major tailwinds. Economic data from the largest economies pointed towards a synchronised global growth, led by the US, which continued to post strong economic data and corporate earnings. The US Federal Reserve (Fed) expanded on its tightening trajectory by announcing its intention to reduce its USD4.5trn balance sheet. The optimism spilled over to the Asia Pacific markets as sentiment was further supported by a rally in crude oil prices and accommodative statements from Central Banks. China s Communist Party Congress concluded with President Xi Jinping strengthening his position at the top as General Secretary of the Party for another term. In addition, Japan continued its economic revival, registering a sustained gross domestic product (GDP) growth and its central bank reassuring that it intends to maintain its dovish stance. However, this positive momentum snapped when the US reported a stronger-than-expected wage growth in February 2018, raising fears that the Fed could tighten faster than expected, which triggered a return of volatility to the markets. The Fed eventually hiked interest rates in March and June to 2.0% and signalled potentially two more hikes in 2018, and three in As a consequence of a potential acceleration in inflation and interest rate hikes, the 10-year US Treasury yield temporarily breached the psychological 3.0% level in April 2018 for the first time since January The shock was soon followed by the US and China threatening to enact protectionist measures on trade. Tensions escalated when the US directed its threats to Canada and the Eurozone, and eventually enacted its steel and aluminium import tariffs. This was quickly met with retaliatory policies from Canada and the Eurozone. Malaysia however bucked the global trend in the first half of period under review, with its equity market subdued at the beginning from a lack of fresh catalysts. The FBM KLCI only began to rally strongly in tandem with the region at the end of 2017, spurred by Bank Negara s interest rate hike in January 2018 to reach a record high of 1, on 19 April 2018, ahead of the 14th General Election. With the unprecedented victory of the Pakatan Harapan government in the election on 9 May 2018, the FBM KLCI remained steady in the first few days after the election result, following a peaceful transition, but soon plunged by 6.9% over the month, led by a surge in foreign outflows of RM5.6bil. For the financial year, the FBM KLCI declined by 4.1% year-on-year (y-o-y). The broader markets also saw negative returns with the FBM Mid 70, FBM Small Cap, and FBM EMAS Shariah index declining by 3.0%, 19.7% and 5.7% respectively. Relative to the region, the FBM KLCI underperformed the MSCI Asia ex-japan Index, which recorded an increase of 7.5% y-o-y FIXED INCOME MARKET During the financial year under review (1st July 2017 to 30th June 2018), the US Treasury (UST) yield curve bear flattened. The 2-year, 5-year and 10-year UST yields went up 115 bps, 85 bps and 56 bps respectively. Short-term yields rose throughout the year amid expectation of rate hikes in year 2017 and year Yields retreated slightly in the summer months as the market was worried that the belowtarget inflation and disappointing economic data from the US would hinder the Fed s rate hike decisions. Rising geopolitical tension in relation to North Korea also fuelled risk aversion trades, sending UST yields lower. 6

10 However, the UST market was bearish in 4Q 2017 as market anticipated stronger economic growth as a result of a newly passed tax bill. The selloff in UST intensified early 2018 as the market was worried about ballooning US budget deficit and higher inflation pressure as a result of the tax cut plan. Positive economic data coming out of the US contributed to the rise in yields. To a certain extent, rise in yields were tempered by global growth concerns and potential trade conflict between US and China. As these risks dissipated in April and May 2018, we saw another round of UST selloff; the 10-year UST yield peaked at 3.03% highest since December 2013 before settling at levels slightly below 3% by the end of the financial year under review. The Malaysian Government Securities (MGS) yield curve shifted upwards in the financial year under review. The 3-year, 5-year and 10-year MGS yields went up 23 bps, 23 bps and 29 bps, respectively. MGS yields were largely influenced by external factors and generally tracked UST as well as global bond market movements. MGS started the financial year on strong footing, driven by gains from stronger MYR and subdued external risks post-french elections and Organisation of Petroluem Exporting Countries (OPEC) meeting. However, sentiments reversed towards the end of 2017 amid a global bond selloff sparked by renewed anticipation of a Fed rate hike in December and caution ahead of Trump s tax reform plan. Geopolitical risks relating to North Korea also weighed on the market. In early 2018, MYR bonds came under pressure as sentiment turned guarded ahead of the Monetary Policy Committee (MPC) meeting as well as from rise in UST yields. MGS did not change much after Bank Negara Malaysia s first Overnight Policy Rate (OPR) hike since July 2014 as market has priced it in to a large extent. The MGS market took its cue from UST movements in March and yields declined amid trade tensions between US and China. By April 2018, market liquidity was reduced significantly in the run up to the 14th Malaysian General Election (GE 14). However, this did not prevent recent a sharp rise in MGS yields, as local yields were pressured upwards by rising UST, in the wake of tapering global trade tensions. On 9 May 2018, the country received a jolt as the 61-year old incumbent federal government lost the GE 14. Fortunately, government transition was smooth and without turmoil. This placed a huge relief to market sentiment, with bond yields behaving in a surprisingly muted manner. USD/MYR movement and volatility were relatively stable and lower compared to regional currencies given this political event, which was still within foreign investors comfort level. Primary issuances of corporate bonds were aplenty in 4Q 2017 as corporate took the opportunity to tap the market before the anticipated OPR hike in January However, primary market activities turned slower in year 2018, in line with development in the MGS market as well as uncertainties in relation to local political developments. 2.4 MARKET OUTLOOK AND INVESTMENT STRATEGY EQUITY MARKET The persistent uncertainty posed by macroeconomic headwinds has been a major drag to global equity performance. This has resulted in value emerging but the mounting risks from a trade war will likely remain an overhang to any recovery. Nonetheless, global economic growth is expected to remain robust, ruling out any major adverse decisions on international trade and monetary policy. For the region, economic growth will be supported by a relatively benign interest rate environment as inflation is likely to stay at reasonable levels. For Malaysia, the lack of clarity surrounding the new government s policies, major projects, fiscal position, and the leadership of government-linked companies (GLCs) and governmentlinked investment companies (GLICs) will likely keep investor sentiment depressed. However, we view this as growing pains, and should strengthen the country fundamentally in the longer term. Hence, when the dust settles, investors should eventually return with a renewed vigour. We expect the economy to remain robust, underpinned by strong exports and commodity prices, and private consumption. 7

11 Our strategy is to remain defensive and focus on valuations and companies with high earnings visibility and with a more opportunistic approach. We will also continue to capitalise on opportunities during periods of volatility, which can result in some value emerging. Nonetheless, we are cognisant of the elevated level of risk in the short- to medium-term and the resulting volatility in currencies and fund flows FIXED INCOME MARKET We are positive on the local bond market over the longer term given ample support from domestic liquidity and improved market sentiment once there is more clarity on government policies relating to fiscal plans and infrastructure development. That said, external factors will continue to influence the local bond market. These factors include development relating to global trade protectionism, monetary policies of major global economies and geopolitical events, which will have bearing on global funds flow. At this juncture, we believe it is unlikely that there will be further rate hikes for Malaysia for the rest of 2018 unless there are upside surprises to real GDP growth and inflation rate. 2.5 BREAKDOWN OF UNIT HOLDINGS BY SIZE AS AT 30 JUNE 2018 The following table presents the distribution of the Fund s unit holders according to size of unit holdings: Size of Holdings No. of Unit Holders % No. of Units Held ( 000) % 5,000 and below 5, , ,001 to 10,000 2, , ,001 to 50,000 3, , ,001 to 500, , Above 500, , Manager s stock Total 11, ,

12 3 POLICY ON STOCKBROKING REBATES AND SOFT COMMISSIONS The Management Company did not retain any rebates. For the financial year ended 30 June 2018, the Manager and its Fund Manager did not receive any rebates or soft commissions. 9

13 4 STATEMENT BY THE MANAGER We, Edmond Cheah Swee Leng and Chong Soon Min, being two of the Directors of Manulife Asset Management Services Berhad, (the "Manager") do hereby state that, in the opinion of the Manager, the accompanying financial statements comprising the statement of comprehensive income, statement of financial position, statement of changes in equity, statement of cash flows, summary of significant accounting policies and notes to the financial statements, are drawn up in accordance with the provisions of the Deeds and give a true and fair view of the financial position of the Fund as at 30 June 2018 and of its financial performance, changes in equity and cash flows of the Fund for the financial year ended 30 June 2018 in accordance with the Malaysian Financial Reporting Standards ( MFRS ) and the International Financial Reporting Standards ( IFRS ). For and on behalf of the Manager MANULIFE ASSET MANAGEMENT SERVICES BERHAD EDMOND CHEAH SWEE LENG Director CHONG SOON MIN Director Kuala Lumpur 27 August

14 5 TRUSTEE S REPORT TO THE UNIT HOLDERS OF MANULIFE INVESTMENT We have acted as Trustee for Manulife Investment Balanced Fund ( the Fund ) for the financial year ended 30 June To the best of our knowledge, Manulife Asset Management Services Berhad ( the Manager ) has managed the Fund in the financial year under review in accordance with the following: 1. Limitations imposed on the investment powers of the Manager under the deed, securities laws and Guidelines on Unit Trust Funds; 2. Valuation and pricing of the Fund are carried out in accordance with the deed and any regulatory requirement; and 3. Creation and cancellation of units are carried out in accordance with the deed and any regulatory requirements. A total income distributions of 2.75 sen per unit was declared to the unit holders of the Fund for the financial year under review. We are of the view that the distributions are consistent with the investment objective and distribution policy of the Fund. For Maybank Trustees Berhad (Company No.: 5004-P) BERNICE K M LAU Head, Operations Kuala Lumpur, Malaysia 27 August

15 6 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF MANULIFE INVESTMENT REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS Our Opinion In our opinion, the financial statements of Manulife Investment Balanced Fund ( the Fund ) give a true and fair view of the financial position of the Fund as at 30 June 2018, and of its financial performance and its cash flows for the financial year then ended in accordance with the Malaysian Financial Reporting Standards and International Financial Reporting Standards. What we have audited We have audited the financial statements of the Fund which comprise the statement of financial position as at 30 June 2018, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements including a summary of significant accounting policies as set out on pages 15 to 46. Basis for opinion We conducted our audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. Our responsibilities under those standards are further described in the "Auditors' responsibilities for the audit of the financial statement" section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence and other ethical responsibilities We are independent of the Fund in accordance with the By-Laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants ("By-Laws") and the International Ethics Standards Board for Accountants' Code of Ethics for Professional Accountants ("IESBA Code"), and we have fulfilled our other ethical responsibilities in accordance with the By-Laws and the IESBA Code. Information other than the financial statements and auditors' report thereon The Manager of the Fund is responsible for the other information. The other information comprises Manager's report but does not include the financial statements of the Fund and out auditors' report thereon. Our opinion on the financial statements of the Fund does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements of the Fund, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements of the Fund or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 12

16 Responsibilities of the Manager for the financial statements MANULIFE INVESTMENT The Manager of the Fund is responsible for the preparation of financial statementsof the Fund that give a true and fair view in accordance with the Malaysian Financial Reporting Standards and the International Financial Reporting Standards. The Manager is also responsible for such internal control as the Manager determines is necessary to enable the preparation of financial statements of the Fund that are free from material misstatement, whether due to fraud or error. In preparing the financial statements of the Fund, the Manager is responsible for assessing the Fund's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Manager either intends to liquidate the Fund or has no realistic alternative but to do so. Auditors' responsibilities for the audit of the financial statements. Our objectives are to obtain reasonable assurance about whether the financial statements of the Fund as a whole are free from material misstatement, whether due to fraud or error, and to issues and auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a gurantee that an audit conducted in accordance with approved standards on auditing in Malaysia and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing, we exercise professional judgement and maintain professional secpticism throughout the audit. We also: (a) Identify and assess the risks of material misstatement of the financial statements of the Fund, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. (b) Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control. ( c) Evaluate the appropriateness of accounting policies used and the reasonableness of accouting estimates and related disclosures made by the Manager. (d) Conclude on the appropriateness of the Manager's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Fund's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors' report to the related disclosures in the financial statements of the Fund or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors' report. However, future events or conditions may cause the Fund to cease to continue as a going concern. (e ) Evaluate the overall presentation, structure and content of the financial statements of the Fund, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with the Manager regarding, among other matters, the planned scope and timing of the audit and siginificant audit findings, including any significant deficiencies in internal control that we identify during our audit. 13

17 OTHER MATTERS This report is made solely to the unit holders of the Fund and for no other purpose. We do not assume responsibility to any other person for the content of this report. PRICEWATERHOUSECOOPERS PLT (No.LLP LCA & AF 1146) Chartered Accountants Kuala Lumpur 27 August

18 7 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018 INVESTMENT (LOSS)/INCOME Note Interest income 1,283,421 1,428,727 Gross dividend income 1,116,152 1,164,945 Net (loss)/gain on financial assets at fair value through profit or loss 6 (6,011,131) 4,520,490 RM RM (3,611,558) 7,114,162 EXPENSES Manager s fee 3 1,186,488 1,258,129 Trustee s fee 4 63,279 67,201 Auditors remuneration 8,000 6,820 Tax agent s fee 2,700 2,700 Other expenses 227, ,819 Transaction costs 279, ,149 1,767,025 1,690,818 (LOSS)/PROFIT BEFORE TAXATION (5,378,583) 5,423,344 TAXATION 5 (1,202) 8,909 (LOSS)/PROFIT AFTER TAXATION AND TOTAL COMPREHENSIVE LOSS INCOME (5,379,785) 5,432,253 (Loss)/Profit after taxation is made up as follows: Realised (4,159,880) 5,333,453 Unrealised (1,219,905) 98,800 (5,379,785) 5,432,253 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 15

19 8 STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2018 ASSETS Note RM RM Financial assets at fair value through profit or loss 6 63,987,020 78,504,500 Amount due from Manager 2,216,345 5,342,760 Amount due from stockbrokers 54, ,331 Dividends receivable 83,581 73,903 Cash and cash equivalents 7 8,269,622 5,477,705 TOTAL ASSETS 74,610,638 89,648,199 LIABILITIES Amount due to Manager - Manager s fee 89, ,879 - Cancellation of units 86,108 43,644 Amount due to Trustee 4,797 5,541 Amount due to stockbrokers 265,487 - Other payables 8 27,966 56,562 Provision for tax 2,725 2,725 Distribution payable 2,205,156 5,583,503 TOTAL LIABILITIES 2,682,180 5,795,854 NET ASSET VALUE ( NAV ) OF THE FUND 71,928,458 83,852,345 EQUITY Unit holders capital 46,857,348 50,186,035 Retained earnings 25,071,110 33,666,310 71,928,458 83,852,345 NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 2 71,928,458 83,852,345 NUMBER OF UNITS IN CIRCULATION 9 189,423, ,253,000 NAV PER UNIT The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 16

20 9 STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018 MANULIFE INVESTMENT Unit holders Retained capital earnings Total RM RM RM BALANCE AS AT 1 JULY ,186,035 33,666,310 83,852,345 Movement in unit holders contribution: Creation of units arising from applications 1,401,045-1,401,045 Creation of units arising from distribution 5,042,787-5,042,787 Cancellation of units (7,945,147) - (7,945,147) Total comprehensive loss - (5,379,785) (5,379,785) Distribution (Note 15) (1,827,372) (3,215,415) (5,042,787) BALANCE AS AT 30 JUNE ,857,348 25,071,110 71,928,458 Unit holders Retained capital earnings Total RM RM RM BALANCE AS AT 1 JULY ,898,489 33,508,356 87,406,845 Movement in unit holders contribution: Creation of units arising from applications 1,565,098-1,565,098 Creation of units arising from distribution 5,583,503-5,583,503 Cancellation of units (10,551,851) - (10,551,851) Total comprehensive income - 5,432,253 5,432,253 Distribution (Note 15) (309,204) (5,274,299) (5,583,503) BALANCE AS AT 30 JUNE ,186,035 33,666,310 83,852,345 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 17

21 10 STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018 Note RM RM CASH FLOWS FROM OPERATING ACTIVITIES Purchase of investments (52,757,598) (56,431,097) Sale of investments 61,445,557 58,153,313 Dividends received 1,106,474 1,170,621 Interest income received 1,283,421 1,375,575 Net tax refund received - 9,940 Manager s fee paid (1,205,979) (1,260,950) Trustee s fee paid (64,319) (67,906) Audit fee paid (8,640) (8,000) Tax agent s fee paid (2,700) (2,700) Payment for other fees and expenses (249,528) (141,142) Tax paid (1,202) - Net cash generated from operating activities 9,545,485 2,797,654 CASH FLOWS FROM FINANCING ACTIVITIES Distribution paid (8,421,134) (3,832,060) Proceeds from creation of units 9,570,248 5,644,643 Payments for cancellation of units (7,902,683) (10,604,853) Net cash used in financing activities (6,753,569) (8,792,270) Net increase/(decrease) in cash and cash equivalents 2,791,917 (5,994,616) Cash and cash equivalents at the beginning of the financial year 5,477,705 11,472,321 Cash and cash equivalents at the end of the financial year 7 8,269,622 5,477,705 Cash and cash equivalents comprise: Deposits with licensed financial institutions 8,210,553 5,449,539 Bank balance in a licensed bank 59,069 28, ,269,622 5,477,705 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 18

22 11 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 30 JUNE 2018 The following accounting policies have been used consistently in dealing with items which are considered material in relation to the financial statements. The policies have been consistently applied to all the financial years presented, unless otherwise stated. A BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS The financial statements of the Fund have been prepared in accordance with the Malaysian Financial Reporting Standards ( MFRS ) and the International Financial Reporting Standards ( IFRS ). The financial statements have been prepared under the historical cost convention, as modified by financial assets at fair value through profit or loss. The preparation of financial statements in conformity with MFRS and IFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. It also requires the Manager to exercise judgement in the process of applying the Fund s accounting policies. Although these estimates and judgement are based on the Manager s best knowledge of current events and actions, actual results may differ. There are no significant areas of judgement or complexity that have significant effect on the amounts recognised in the financial statements. There are no critical accounting estimates and assumptions used in the preparation of the financial statements of the Fund for the financial year ended 30 June Amendments to MFRS 107 Statement of Cash Flows - Disclosure Initiatives (effective from 1 January 2017) introduce an additional disclosure of changes in liabilities arising from financing activities. Other than the above, the adoption of these amendments did not have any impact on the current period or any other period and is not likely to affect further periods. The new standards and amendments to published standards and interpretations to existing standards that are applicable to the Fund but not yet effective and have not been adopted are as follows: Financial year beginning on/after 1 July 2018 MFRS 9 Financial Instruments (effective from 1 January 2018) will replace MFRS 139 Financial Instruments: Recognition and Measurement. MFRS 9 retains but simplifies the mixed measurement model in MFRS 139 and establishes three primary measurement categories for financial assets: amortised cost, fair value through profit or loss and fair value through other comprehensive income ( OCI ). The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset. Investment in equity instruments is always measured at fair value through profit or loss with a irrevocable option at inception to present changes in fair value in OCI (provided the instrument is not held for trading). A debt instrument is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest. 19

23 For liabilities, the standard retains most of the MFRS 139 requirements. These include amortised cost accounting for most financial liabilities, with bifurcation of embedded derivatives. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in OCI rather than the income statement, unless this creates an accounting mismatch. MFRS 9 introduces an expected credit losses (ECL) model on impairment that replaces the incurred loss impairment model used in MFRS 139.The ECL model is forward-looking and eliminates the need for a trigger event to have occurred before credit losses are recognised. The Fund has reviewed its financial assets and liabilities and has assessed the following impacts from the adoption of the new standard as stated below: There will be no impact on the Fund's accounting for financial assets as the Fund's equity investments currently measured at fair value through profit or loss will continue to be measured on the same basis under MFRS 9. 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 designed at fair value through profit or loss and the Fund does not have any such liabilities. The new impairment model requires the recognition of impairment provisions based on ECL rather than only incurred credit losses as is the case under MFRS 139. It applies to financial assets classified at amortised cost. Based on the assessment undertaken to date, the Fund does not expect any loss allowance to be recognised upon adoption of MFRS 9. The Fund will apply this standard when effective. This standard is not expected to have a significant impact on the Fund s financial statements. B (i) FINANCIAL ASSETS AND FINANCIAL LIABILITIES Classification The Fund classifies its financial assets in the following categories: at fair value through profit or loss and loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification at initial recognition. Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. Financial assets at fair value through profit or loss Financial assets are designated at fair value through profit or loss when they are managed principally for the purposes of selling or repurchasing in the near term and their performance are evaluated on a fair value basis. The Fund designates its investment in quoted investments as financial assets at fair value through profit or loss at inception. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. The Fund s loans and receivables comprise amount due from Manager, amount due from stockbrokers, dividends receivable and cash and cash equivalents in the statement of financial position. The Fund classifies amount due to Manager, amount due to Trustee, other payables and distribution payable as other financial liabilities. 20

24 Other financial liabilities The Fund classifies amount due to Manager, amount due to Trustee, amount due to stockbrokers, other payables and distribution payable as other financial liabilities. (ii) Recognition and initial measurement Regular purchases and sales of financial assets are recognised on the trade-date, the date on which the Fund commits to purchase or sell the assets. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in profit or loss. Loans and receivables are initially recognised at fair value plus transaction costs. Financial liabilities, within the scope of MFRS 139, are recognised in the statement of financial position when, and only when, the Fund becomes a party to the contractual provisions of the financial instrument. If a valuation based on the market price does not represent the fair value of the quoted securities, for example during abnormal market conditions or when no market price is available, including in the event of a suspension in the quotation of the quoted securities for a period exceeding 14 days, or such shorter period as agreed by the Trustee, then the quoted securities are valued as determined in good faith by the Manager, based on the methods or basis approved by the Trustee after appropriate technical consultation. (iii) Subsequent measurement - gains and losses Financial assets at fair value through profit or loss are subsequently carried at fair value. Gains and losses arising from changes in the fair value of the financial assets at fair value through profit or loss are included in the profit or loss in the financial period which they arise. Loans and receivables and other financial liabilities are subsequently carried at amortised cost using the effective interest rate method. (iv) Subsequent measurement - impairment of financial assets The Fund assesses at the end of the reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The criteria that the Fund uses to determine that there is objective evidence of an impairment loss include indications that the obligor is experiencing significant financial difficulty, high probability that the obligor will enter bankruptcy or other distressed financial reorganisation and events that would adversely affect the financial capability of the obligor. The amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. If loans and receivables has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Fund may measure impairment on the basis of an instrument s fair value by using an observable market price. 21

25 If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment is recognised (such as an improvement in the debtor s/issuer s credit rating), the reversal of the previously recognised impairment loss is recognised in profit or loss. When an asset is uncollectible, it is written off against the related allowance account. Such assets are written off after all the necessary procedures have been completed and the amount of the loss has been determined. (v) De-recognition Financial assets are de-recognised when the rights to receive cash flows from the investments have expired or have been transferred and the Fund has transferred substantially all risks and rewards of ownership. Financial liabilities are de-recognised when they are extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or has expired. C CREATION AND CANCELLATION OF UNITS The Fund issues cancellable units, which are cancelled at the unit holder s option and are classified as equity. Cancellable units can be put back to the Fund at any time for cash equal to a proportionate share of the Fund s net asset value. The outstanding unit is carried at the redemption amount that is payable at the date of the statement of financial position if the unit holder exercises the right to put the unit back to the Fund. Units are created and cancelled at the unit holder s option at prices based on the Fund s net asset value per unit at the time of creation and cancellation. The Fund s net asset value is calculated by dividing the net assets attributable to unit holders with the total number of outstanding units. The net asset value per unit is computed each dealing day. The price at which units are created or cancelled is calculated by reference to the net asset value per unit as at the close of business on the relevant dealing day. Units in the Fund are classified as equity in the statement of financial position and are stated at fair value representing the price at which unit holders can redeem the units from the Fund. D INCOME RECOGNITION Interest income from deposits placed with licensed financial institutions is recognised on an accrual basis using the effective interest rate method. Dividend income on quoted investments is recognised on the ex-dividend date. Realised gains or losses on sale of quoted investments are accounted for as the difference between the net disposal proceeds and the carrying amount of the investments, determined on a weighted average cost basis. Realised gains or losses on sale/redemption of unquoted fixed income securities are calculated based on the difference between the net disposal proceeds and the carrying amount of investments, determined on cost adjusted for accretion of discount or amortisation of premium. E EXPENSES Expenses are accounted for on an accrual basis and charged to the statement of comprehensive income. Expenses arising from net disposal of investments are recognised as transaction costs (Note L to the financial statements). 22

26 F AMOUNT DUE FROM/TO STOCKBROKERS Amounts due from and to stockbrokers represent receivables for securities sold and payables for securities purchased that have been contracted for but not yet settled or delivered on the statement of financial position date respectively. These amounts are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method, less provision for impairment for amount due from stockbrokers. A provision for impairment of amount due from a stockbroker is established when there is objective evidence that the Fund will not be able to collect the amount due from the relevant stockbroker. Significant financial difficulties of the stockbroker, probability that the stockbroker will enter bankruptcy or financial reorganisation, and default in payments are considered indicators that the amount due from the stockbroker is impaired. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest to discount the future cash flows for the purpose of measuring the impairment loss. The effective interest rate method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts throughout the expected life of the financial instrument, or, when appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Fund estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. G CASH AND CASH EQUIVALENTS For the purpose of statement of cash flows, cash and cash equivalents comprise bank balances and deposits held in highly liquid investments that are readily convertible to known amounts of cash, and which are subject to an insignificant risk of changes in value. H DISTRIBUTION A distribution to the Fund s unit holders is accounted for as a deduction from realised reserve. A proposed distribution to unit holders is recognised in the statement of changes in equity upon approval by the Trustee. Distribution equalisation is the amount attributable to net realised income that is included in the price of units created or units cancelled by the Fund during the reporting period. I FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value is price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants and the measurement date. The information presented herein represents the estimates of fair value as at the date of the statement of financial position. Where available, quoted and observable market prices are used as the measure of fair values. Where such quoted and observable market prices are not available, fair values are estimated based on a range of methodologies and assumptions regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows and other factors. Changes in the uncertainties and assumptions could materially affect these estimates and the resulting fair value estimates. A range of methodologies and assumptions has been used in deriving the fair values of the Fund s financial instruments as at the date of statement of financial position. The total fair value of each financial instrument is not materially different from the total carrying value. 23