kpmg HFT (HK) China Investment Series II - HFT (HK) China High Yield Bond Fund

Transcription

1 kpmg HFT (HK) China Investment Series II - HFT (HK) China High Yield Bond Fund 31 December 2017

2 Year ended 31 December 2017 Contents Page(s) Investment Manager s report 1 Trustee s Report 2 Statement of responsibilities of the Manager and the Trustee 3 Independent auditor s report 4-7 Statement of assets and liabilities 8 Statement of comprehensive income 9 Statement of changes in net assets attributable to unitholders 10 Cash flow statement 11 Distribution statement Notes to the financial statements Portfolio statement (unaudited) Statement of movements in portfolio holdings (unaudited) 42 Performance record (unaudited) Administration 45-46

3 Year ended 31 December 2017 Investment Manager s report HFT (HK) China Investment Series II ( the sub-fund ) Domestic economy displayed stable growth with high resilience in Fixed asset investment maintained a relatively high growth due to the supply side reform and the monetization of shantytown. Benefiting from global economic recovery, export became the main stimulus for economy growth in China. Inflation stayed at a low level in 2017 and the RMB exchange rate was generally stable. The People s Bank of China (PBOC) stick to neutral and relatively tight monetary policy, aiming to deleverage and eliminate economic bubbles. Meanwhile, financial supervision was strengthened in order to standardize interbank activities and lead capital to support real economy. Under this circumstance, 10Y T-bond yields experiences three sharp rises in Q1, Q2 and Q4, reaching a high level of 4% in the fourth quarter. The liquidity of the market was in tight balance in The PBOC has maintained the monetary policy stance as neutral and stable with cautious money injection. In terms of policy interest rates, the PBOC raised the interest rate of medium-term lending facility (MLF) in late January, which was the first time that the central bank raised the policy interest rate over recent years. Also, the PBOC raised repo rates with different terms and rates of other monetary instruments, which substantially increased capital price in the market. Three-month SHIBOR rose from 3.5% to 4.9%. The yields of three-month interbank deposits and NCDs stayed at a high level as well. Number of default cases in China onshore public bond market was lower in 2017 comparing with that in This was likely due to government s effort behind the scene to maintain stability in order to ensure the Communist Party s smooth transition at the 19th Party Congress. Low bond issuance in 2017 amid a bear bond market added to refinancing pressure next year. We continue to be cautious in picking corporate bonds in prevailing market environment and prefer relatively short dated papers. For private sector companies, we prefer those issuers which are leaders in the respective sector. ) ) For and on behalf of ) HFT Investment Management (HK) ) Limited ) 1

4 Year ended 31 December 2017 Trustee s Report HFT (HK) China Investment Series II ( the sub-fund ) We hereby confirm that, in our opinion, the Manager of the sub-fund has, in all material respects, managed the sub-fund in accordance with the provisions of the Trust Deed dated 17 October 2013, as amended by Supplemental Trust Deeds dated 17 October 2013, 25 February 2014 and 12 July 2016 (collectively the Trust Deed ), for the year ended 31 December ) ) ) For and on behalf of ) BNP Paribas Trust Services (Hong Kong) Limited ) ) 2

5 Year ended 31 December 2017 Statement of responsibilities of the Manager and the Trustee Manager s responsibilities The Manager of HFT (HK) China Investment Series II HFT (HK) China High Yield Bond Fund ( the sub-fund ) is required by the Code of Unit Trusts and Mutual Funds issued by the Hong Kong Securities and Futures Commission and the Trust Deed dated 17 October 2013, as amended by Supplemental Trust Deeds dated 17 October 2013, 25 February 2014 and 12 July 2016 (collectively the Trust Deed ) to prepare financial statements for each annual accounting period which give a true and fair view of the financial position of the sub-fund at the end of that period and of the transactions for the period then ended. In preparing these financial statements the Manager is required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and appropriate; and prepare the financial statements on the on-going and continuity basis that the sub-fund will continue in operations unless it is inappropriate to presume this. The Manager is also required to manage the sub-fund in accordance with the Trust Deed and take reasonable steps for prevention and detection of fraud and other irregularities. HFT (HK) China Investment Series II ( the Trust ) is an open-ended umbrella unit trust governed by its Trust Deed. As at 31 December 2017, the Trust has established two sub-funds, namely HFT (HK) China High Yield Bond Fund and HFT (HK) China RMB Money Market Fund. Trustee s responsibilities The Trustee of the sub-fund is required to: ensure that the sub-fund is managed by the Manager in accordance with the Trust Deed and that the investment and borrowing powers are complied with; safeguard the property of the sub-fund and rights attached thereto; satisfy itself that sufficient accounting and other records have been maintained; and report to the unitholders for each annual accounting period on the conduct of the Manager in the management of the sub-fund. 3

6 kpmg Independent auditors report to the unitholders of HFT (HK) China Investment Series II ( the sub-fund ) Report on the audit of financial statements Opinion We have audited the financial statements of HFT (HK) China Investment Series II - HFT (HK) China High Yield Bond Fund ( the sub-fund ) set out on pages 8 to 39, which comprise the statement of assets and liabilities as at 31 December 2017, the statement of comprehensive income, the statement of changes in net assets attributable to unitholders, cash flow statement and distribution statement for the year then ended and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the financial statements give a true and fair view of the financial position of the sub-fund as at 31 December 2017 and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards ( IFRSs ) issued by the International Accounting Standards Board ( IASB ). Basis for opinion We conducted our audit in accordance with International Standards on Auditing ( ISAs ) issued by the International Auditing and Assurance Standards Board. 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 are independent of the sub-fund in accordance with International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants ( the Code ) and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Information other than the financial statements and auditor s report thereon The Manager and the Trustee of the sub-fund are responsible for the other information. The other information comprises all the information included in the annual report, other than the financial statements and our auditor s report thereon. Our opinion on the financial statements 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, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. 4

7 kpmg Independent auditors report to the unitholders of HFT (HK) China Investment Series II ( the sub-fund ) (continued) Report on the audit of financial statements (continued) Information other than the financial statements and auditor s report thereon (continued) 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. Responsibilities of the Manager and the Trustee of the sub-fund for the financial statements The Manager and the Trustee of the sub-fund are responsible for the preparation of the financial statements that give a true and fair view in accordance with IFRSs issued by the IASB and for such internal control as the Manager and the Trustee of the sub-fund determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Manager and the Trustee of the sub-fund are responsible for assessing the sub-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 and the Trustee of the sub-fund either intend to liquidate the sub-fund or to cease operations, or have no realistic alternative but to do so. In addition, the Manager and the Trustee of the sub-fund are required to ensure that the financial statements have been properly prepared in accordance with the relevant provisions of the Trust Deed dated 17 October 2013, as amended ( the Trust Deed ), and the relevant disclosure provisions of Appendix E of the Code on Unit Trusts and Mutual Funds ( the SFC Code ) issued by the Hong Kong Securities and Futures Commission. Auditor s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. This report is made solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. 5

8 kpmg Independent auditors report to the unitholders of HFT (HK) China Investment Series II ( the sub-fund ) (continued) Report on the audit of financial statements (continued) Auditor s responsibilities for the audit of the financial statements (continued) Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs 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. In addition, we are required to assess whether the financial statements of the sub-fund have been properly prepared, in all material respects, in accordance with the relevant provisions of the Trust Deed and the relevant disclosure provisions of Appendix E of the SFC Code. As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial statements, 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. 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 sub-fund s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Manager and the Trustee of the sub-fund. Conclude on the appropriateness of the Manager s and the Trustee 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 sub-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 auditor s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report. However, future events or conditions may cause the sub-fund to cease to continue as a going concern. 6

9 kpmg Independent auditors report to the unitholders of HFT (HK) China Investment Series II ( the sub-fund ) (continued) Report on the audit of financial statements (continued) Auditor s responsibilities for the audit of the financial statements (continued) Evaluate the overall presentation, structure and content of the financial statements, 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 and the Trustee of the sub-fund 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. Report on matters under the relevant provisions of the Trust Deed and the relevant disclosure provisions of Appendix E of the SFC Code In our opinion, the financial statements have been properly prepared, in all material respects, in accordance with the relevant provisions of the Trust Deed and the relevant disclosure provisions of Appendix E of the SFC Code. Certified Public Accountants 8th Floor, Prince s Building 10 Chater Road Central, Hong Kong 7

10 Statement of assets and liabilities at 31 December 2017 (Expressed in Renminbi) Assets Note Cash and cash equivalents 6 578,192 1,499,444 Financial assets at fair value through profit or loss 5, 9(a), 10 15,382,070 16,657,694 Interest receivable 489, ,655 Prepayment and other receivables 6 133,414 47,950 Liabilities 16,583,094 18,638, Redemption payable 89,345 - Accrued expenses and other payables 6 424, ,504 Tax payables 46,605 41, , , Net assets attributable to unitholders 8 16,022,857 18,263,491 Number of units in issue - Class A units 7(a) 173, ,078 - Class D units 888 1,685 Net asset value per unit 7(b) - Class A units Class D units Approved by the Trustee and the Manager on ) ) For and on behalf of ) BNP Paribas Trust Services (Hong Kong) Limited ) ) ) For and on behalf of ) HFT Investment Management (HK) Limited ) The notes on pages 17 to 39 form part of these financial statements 8

11 Statement of comprehensive income for the year ended 31 December 2017 (Expressed in Renminbi) Note Interest income 840, ,173 Net losses from financial assets at fair value through profit or loss 3 (554,584) (21,933) Net foreign exchange (loss)/gain (1,863) 900 Other income 542, ,178 Total revenue 826,599 1,364, Management fees 6 213, ,104 Trustee s fees 6 9,953 10,173 Custodian fees 6 21,609 28,722 Auditors remuneration 130, ,221 Transaction costs 5,683 5,413 Other operating expenses 6 455, ,546 Total operating expenses 837, , (Loss)/income before distributions to unitholders (10,483) 487,139 Distributions to unitholders 11 (762,109) (831,389) Decrease in net assets attributable to unitholders before tax (772,592) (344,250) Taxation 4 (110,112) 53,487 Decrease in net assets attributable to unitholders and total comprehensive income for the year (882,704) (290,763) The notes on pages 17 to 39 form part of these financial statements 9

12 Statement of changes in net assets attributable to unitholders for the year ended 31 December 2017 (Expressed in Renminbi) Note Unitholders net assets at 1 January 18,263,491 20,270,797 Transactions with unitholders Subscriptions of units 7(a) 182, ,367 Redemption of units 7(a) (1,540,192) (1,935,910) Total transactions with unitholders (1,357,930) (1,716,543) Decrease in net assets attributable to unitholders and total comprehensive income for the year (882,704) (290,763) Unitholders net assets at 31 December 16,022,857 18,263,491 The notes on pages 17 to 39 form part of these financial statements 10

13 Cash flow statement for the year ended 31 December 2017 (Expressed in Renminbi) Operating activities Decreases in net assets attributable to unitholders (882,704) (290,763) Adjustments for: Net gains from financial assets at fair value through profit or loss 554,584 21,933 Payments for purchase of investments (12,902,799) (13,842,291) Proceeds from sale of investments 13,623,839 16,511,844 Distributions to unitholders 762, ,389 Taxation 110,112 (53,487) Tax paid (105,255) (103,549) Changes in working capital (Increase)/decrease in interest receivable (55,763) 140,900 (Increase)/decrease in prepayment and other receivables (85,464) 56,253 Increase/(decrease) in accrued expenses and other payables 90,783 (55,172) Cash generated from operating activities 1,109,442 3,217, Financing activities Proceeds from issue of units 182, ,367 Payments of redemption of units (1,450,847) (1,935,910) Payments for distributions to unitholders (762,109) (831,389) Cash used in financing activities (2,030,694) (2,547,932) Net (decrease)/increase in cash and cash equivalents (921,252) 669,125 Cash and cash equivalents at 1 January 1,499, ,319 Cash and cash equivalents at 31 December 578,192 1,499,444 The notes on pages 17 to 39 form part of these financial statements 11

14 Distribution statement for the year ended 31 December 2017 (Expressed in Renminbi) Note Undistributed income brought forward 18,263,491 20,270,797 Net paid and payable on redemptions of units (1,357,930) (1,716,543) Income before distributions to unitholders after taxation (120,595) 540,626 Amount available for distributions to unitholders 16,784,966 19,094,880 Distributions to unitholders 11 (762,109) (831,389) Undistributed income carried forward 16,022,857 18,263,491 The notes on pages 17 to 39 form part of these financial statements 12

15 Distribution statement for the year ended 31 December 2017 (continued) (Expressed in Renminbi) Note Distribution history Class A units First distribution per unit Date of distribution 17/01/ /01/2016 Second distribution per unit Date of distribution 16/02/ /02/2016 Third distribution per unit Date of distribution 16/03/ /03/2016 Fourth distribution per unit Date of distribution 19/04/ /04/2016 Fifth distribution per unit Date of distribution 16/05/ /05/2016 Sixth distribution per unit Date of distribution 16/06/ /06/2016 The notes on pages 17 to 39 form part of these financial statements 13

16 Distribution statement for the year ended 31 December 2017 (continued) (Expressed in Renminbi) Note Distribution history (continued) Class A units Seventh distribution per unit Date of distribution 18/07/ /07/2016 Eighth distribution per unit Date of distribution 16/08/ /08/2016 Ninth distribution per unit Date of distribution 18/09/ /09/2016 Tenth distribution per unit Date of distribution 17/10/ /10/2016 Eleventh distribution per unit Date of distribution 16/11/ /11/2016 Twelfth distribution per unit Date of distribution 18/12/ /12/2016 The notes on pages 17 to 39 form part of these financial statements 14

17 Distribution statement for the year ended 31 December 2017 (continued) (Expressed in Renminbi) Note Distribution history (continued) Class D units First distribution per unit Date of distribution 17/01/ /01/2016 Second distribution per unit Date of distribution 16/02/ /02/2016 Third distribution per unit Date of distribution 16/03/ /03/2016 Fourth distribution per unit Date of distribution 19/04/ /04/2016 Fifth distribution per unit Date of distribution 16/05/ /05/2016 Sixth distribution per unit Date of distribution 16/06/ /06/2016 The notes on pages 17 to 39 form part of these financial statements 15

18 Distribution statement for the year ended 31 December 2017 (continued) (Expressed in Renminbi) Distribution history (continued) Class D units Note Seventh distribution per unit Date of distribution 18/07/ /07/2016 Eighth distribution per unit Date of distribution 16/08/ /08/2016 Ninth distribution per unit Date of distribution 15/09/ /09/2016 Tenth distribution per unit Date of distribution 17/10/ /10/2016 Eleventh distribution per unit Date of distribution 16/11/ /11/2016 Twelfth distribution per unit Date of distribution 18/12/ /12/2016 The notes on pages 17 to 39 form part of these financial statements 16

19 Notes to the financial statements (Expressed in Renminbi) 1. The sub-fund HFT (HK) China High Yield Bond Fund ( the sub-fund ) is a sub-fund of HFT (HK) China Investment Series II which is an open-ended unit trust established as an umbrella fund under the laws of Hong Kong by a trust deed dated 17 October 2013, as amended ( the Trust Deed ), between HFT Investment Management (HK) Limited ( the Manager ) as manager and BNP Paribas Trust Services (Hong Kong) Limited ( the Trustee ) as trustee. The sub-fund seeks to achieve income generation and long-term capital appreciation by investing primarily in fixed income securities in China, including (a) RMB-denominated debt instruments issued and distributed in the PRC and (b) debt instruments issued and distributed in Hong Kong. There can be no assurance that the sub-fund will achieve its investment objective. The Manager of the sub-fund is HFT Investment Management (HK) Limited. The Manager is responsible for the management of the sub-fund s assets. The Manager is a company incorporated on 14 April 2010 with limited liability under the laws of Hong Kong. It is licensed by the Securities and Futures Commission in Hong Kong for type 1 (dealing in securities), type 4 (advising on securities) and type 9 (asset management) regulated activities. The Trustee of the sub-fund is BNP Paribas Trust Services (Hong Kong) Limited. Under the Trust Deed, the Trustee is responsible for the safe-keeping of the assets of the sub-fund and monitoring the compliance by the Manager with the requirements of the Trust Deed. The Registrar of the sub-fund is BNP Paribas Securities Services, Hong Kong Branch and is responsible for maintaining the register of unitholders. 2. Significant accounting policies (a) Statement of compliance The financial statements have been prepared in accordance with all applicable International Financial Reporting Standards ( IFRSs ), which collective term includes all applicable individual International Financial Reporting Standards, International Accounting Standards ( IASs ) and Interpretations issued by the International Accounting Standards Board ( IASB ), and the relevant disclosure provisions of the Trust Deed and the relevant disclosure requirements of the Code on Unit Trusts and Mutual Funds ( the SFC Code ) issued by the Hong Kong Securities and Futures Commission ( the SFC ). Significant accounting policies adopted by the sub-fund are disclosed below. 17

20 2. Significant accounting policies (continued) The IASB has issued certain new and revised IFRSs that are first effective or available for early adoption for the current accounting period of the sub-fund. Note 2(c) provides information on any changes in accounting policies resulting from initial application of these developments to the extent that they are relevant to the sub-fund for the current and prior accounting periods reflected in these financial statements. (b) Basis of preparation of the financial statements The functional and presentation currency of the sub-fund is Renminbi reflecting the fact that all the underlying investments of the sub-fund are denominated in Renminbi. The financial statements are prepared on a fair value basis for financial assets and financial liabilities at fair value through profit or loss. Other financial assets and financial liabilities are stated at amortised cost or redemption amount (redeemable units). The preparation of financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. (c) Changes in accounting policies The sub-fund has consistently applied the accounting policies as set out in note 2 to all periods presented in these financial statements. The HKICPA has issued several amendments to IFRSs that are first effective for the current accounting period of the sub-fund. None of these developments have had a material effect on how the sub-fund s results and financial position for the current or prior periods have been prepared or presented. The sub-fund has not applied any new standard or interpretation that is not yet effective for the current accounting period. 18

21 2. Significant accounting policies (continued) (d) Foreign currency translation Foreign currency transactions during the year are translated into Renminbi at the exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated into Renminbi at the foreign exchange rates ruling at the date of the statement of assets and liabilities. Foreign currency exchange differences arising on translation and realised gains and losses on disposal or settlement of monetary assets and liabilities are recognised in profit or loss. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to Renminbi at the foreign currency exchange rates ruling at the date that the values were determined. Foreign currency exchange differences relating to financial assets at fair value through profit or loss are included in net gains from financial assets at fair value through profit or loss. All other foreign currency exchange differences relating to monetary items including cash and cash equivalents are presented separately in profit or loss. (e) (i) Financial instruments Classification All of the sub-fund s investments are classified as financial assets or financial liabilities at fair value through profit or loss. This category comprises financial instruments held for trading, which are instruments that the sub-fund has acquired principally for the purpose of short-term profit-taking. These include investments in debt securities. Financial assets that are classified as loans and receivable include interest receivable and prepayment and other receivables. Financial liabilities that are not at fair value through profit or loss include accrued expenses and other payables and tax payables. (ii) Recognition The sub-fund recognises financial assets and financial liabilities on the date it becomes a party to the contractual provisions of the instrument. A regular way purchase or sale of financial assets is recognised using trade date accounting. From this date any gains and losses arising from changes in fair value of the financial assets or financial liabilities are recorded. Financial liabilities are not recognised unless one of the parties has performed their obligations under the contract or the contract is a derivative contract not exempted from the scope of IAS 39. (iii) Measurement Financial instruments are measured initially at fair value (transaction price). Transaction costs on financial assets and liabilities at fair value through profit or loss are expensed immediately, while those on other financial instruments they are amortised. 19

22 2. Significant accounting policies (continued) Subsequent to initial recognition, all instruments classified at fair value through profit or loss are measured at fair value with changes in their fair value recognised in profit or loss. Financial assets classified as loans and receivables are carried at amortised cost using the effective interest rate method, less impairment losses, if any. Financial liabilities other than those at fair value through profit or loss are measured at amortised cost using the effective interest rate method. Financial liabilities arising from the redeemable units issued by the sub-fund are carried at the redemption amount representing the unitholders right to a residual interest in the sub-fund s assets. (iv) Fair value measurement principles Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the sub-fund has access at that date. The fair value of a liability reflects its non-performance risk. When available, the sub-fund measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The sub-fund measures instruments quoted in an active market at a quoted market price provided such price is within the bid-ask spread. If there is no quoted price in an active market, then the sub-fund uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction. The sub-fund recognises transfers between levels of the fair value hierarchy as at the end of the reporting period during which the change has occurred. (v) Impairment Financial assets that are stated at cost or amortised cost are reviewed at each date of the statement of assets and liabilities to determine whether there is objective evidence of impairment. If any such indication exists, 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 flows 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. 20

23 2. Significant accounting policies (continued) (vi) Derecognition The sub-fund derecognises a financial asset when the contractual rights to receive the cash flows from the financial assets expire or it transfers the financial asset and the transfer qualifies for derecognition in accordance with IAS 39. The sub-fund uses the weighted average method to determine realised gains and losses on derecognition. A financial liability is derecognised when the obligation specified in the contract is discharged, cancelled or expired. (vii) Offsetting Financial assets and liabilities are offset and the net amount is reported in the statement of assets and liabilities when, and only when, the sub-fund has a legally enforceable right to offset the recognised amounts and the transactions are intended to be settled on a net basis or simultaneously, e.g. through a market clearing mechanism. (viii) Specific instruments Cash and cash equivalents Cash comprises current deposits with banks. Cash equivalents are short-term highly liquid investments that are readily convertible into known amounts of cash, are subject to an insignificant risk of changes in value, and are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes. (f) Revenue recognition Provided it is probable that the economic benefits will flow to the sub-fund and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in profit or loss as follows: Interest income Interest income is recognised in profit or loss as it accrues, using the effective interest rate method. Interest income on bank deposits and debt securities are classified to interest income within the statement of comprehensive income. Interest income is recognised on a gross basis, including withholding tax, if any. (g) Expenses All expenses are recognised in profit or loss on an accrual basis. 21

24 2. Significant accounting policies (continued) (h) Foreign exchange gains and losses Foreign exchange gains and losses on financial assets and financial liabilities at fair value through profit or loss are recognised together with other changes in the fair value. Included in profit or loss line item Net foreign exchange (loss)/gain are net foreign exchange gains and losses on monetary financial assets and financial liabilities other than those classified as fair value through profit or loss. (i) Related parties (a) A person, or a close member of that person s family, is related to the sub-fund if that person: (i) (ii) (iii) has control or joint control over the sub-fund; has significant influence over the sub-fund; or is a member of the key management personnel of the sub-fund or the sub-fund s parent. (b) An entity is related to the sub-fund if any of the following conditions applies: (i) (ii) (iii) (iv) (v) (vi) The entity and the sub-fund are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others); One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member); Both entities are joint ventures of the same third party; One entity is a joint venture of a third entity and the other entity is an associate of the third entity; The entity is controlled or jointly controlled by a person identified in (a); A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity); or (vii) The entity, or any member of a group of which it is a part, provides key management personnel services to the sub-fund or to the sub-fund s parent. Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity. 22

25 2. Significant accounting policies (continued) (j) Subscriptions and redemptions The sub-fund recognises unitholders subscriptions and allots units upon receipt of a valid subscription application and derecognises them upon receipt of a valid redemption application. (k) Units in issue The sub-fund classifies financial instruments issued as financial liabilities or equity instruments in accordance with the substance of the contractual terms of the instruments. The sub-fund has multiple classes of redeemable units in issue - Class A units, Class B units, Class C units, Class D units, Class E units, Class F units and Class I units. All the classes belong to the most subordinate class of financial instrument in the sub-fund. The redeemable units provide unitholders with the right to require redemption for cash at a value proportionate to the unitholders share in the sub-fund s net assets at each redeemable date, and also in the event of the sub-fund s liquidation. The redeemable units of the sub-fund are classified as financial liabilities and are measured at the present value of the redemption amounts. 3. Net losses from financial instruments at fair value through profit or loss Realised (losses)/gains (224,409) 1,383 Unrealised losses (330,175) (23,316) (554,584) (21,933) 4. Taxation No provision for Hong Kong Profits Tax has been made in the financial statements as the sub-fund is exempted from taxation under section 26A (1A) of the Hong Kong Inland Revenue Ordinance. Under the current general provisions of the People s Republic China ( PRC ) Corporate Income Tax Law and published tax circulars, the sub-fund would be subject to PRC withholding tax at the rate of 10% in respect of its PRC sourced income earned, including interest income derived from PRC corporate bonds and RMB bank deposits. At the date of the approval of these financial statements, certain laws and regulations governing the taxation of Renminbi Qualified Foreign Institutional Investor Scheme s ( the RQFII ) investments have not been clarified. Therefore, the sub-fund has provided tax liabilities in its financial statement for the year ended 31 December 2017 and 2016 by reference to the general provision of laws and regulations and where the sub-fund considered to be a reasonable basis. However, the sub-fund may adjust the tax liabilities upon further clarification of the tax regulations. 23

26 4. Taxation (continued) The Explanatory Memorandum of the sub-fund gives the Manager the right to provide for withholding tax on such gains or income and withhold the tax for the account of the sub-fund. In 2016, upon the request of the Beijing Xicheng State Tax Bureau ( the Beijing Tax Authority ), the Manager submitted a backlog filing package to the Beijing Tax Authority for tax clearance concerning the capital gains through the trading of PRC debt securities and interest income of the sub-fund during the period from 24 January 2014 (date of the sub-fund s commencement of operations) to 16 November Following the issuance of tax payment certificate, the Manager, in consultation with the Trustee, acted in accordance with independent professional tax advice and reversed the excess of the PRC Corporate Income Tax provision over the actual withholding tax liability on the investments in debt securities through RQFII for the period from 24 January 2014 (date of the sub-fund s commencement of operations) to 16 November The backlog filing package was prepared on the basis that the Manager considers that the sub-fund should qualify as a Hong Kong tax resident and it should be able to enjoy treaty relief based on the Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income. Taxation in statement of comprehensive income represents: PRC withholding tax (charged)/ credited (110,112) 53, Financial assets at fair value through profit or loss Debt securities-listed bonds 15,382,070 16,657,694 Investments, at cost 15,554,686 16,500,135 Net unrealised (depreciation)/appreciation in value of investments (172,616) 157,559 Investments, at market value 15,382,070 16,657,694 24

27 6. Related party transactions/transactions with the Trustee, the Manager and their Connected Persons In addition to the transactions and balances disclosed elsewhere in these financial statements, the sub-fund entered into the following significant related party transactions with the Trustee, the Manager and their Connected Persons for the year. Connected Persons are those as defined in the SFC Code issued by the SFC. All transactions during the year between the sub-fund and the Trustee, the Manager and their Connected Persons were entered into in the ordinary course of business and under normal commercial terms. To the best of the knowledge of the Trustee and the Manager, the sub-fund did not have any other transactions with Connected Persons except for those disclosed below and elsewhere in these financial statements. The relevant receivables and payables are unsecured, interest-free and repayable on demand. The sub-fund appointed HFT Investment Management (HK) Limited, an investment management company incorporated in Hong Kong, to implement the investment strategy as specified in the Trust Deed. The investment manager receives management fee at an annual rate of 1.25% (2016: 1.25%) of the net asset value for Class A, Class B, Class C, Class D, Class E and Class F and 0.5% (2016: 0.5%) of the net asset value for Class I of the sub-fund. The management fee is accrued daily and calculated as at each valuation day. The management fees incurred during the year amounted to 213,886 (2016: 244,104). The management fees payable by the sub-fund at 31 December 2017 was 52,979 (2016: 61,880). The Trustee of the sub-fund is BNP Paribas Trust Services (Hong Kong) Limited, which receives trustee s fee at an annual rate up to 0.175% of the net asset value of the sub-fund, subject to a minimum fee of US$6,000 per annum. The Trustee s fee is accrued daily and calculated as at each valuation day. The Trustee s fees incurred during the year amounted to 9,953 (2016: 10,173). The trustee s fee payable by the sub-fund at 31 December 2017 was 4,161 (2016: 2,583). The Administrator and Custodian of the sub-fund is BNP Paribas Securities Services, acting through its Singapore Branch, which is a group company of the Trustee. The administration fees and custodian fees incurred during the year amounted to 374,888 (2016: 370,802) and 21,609 (2016: 28,722) respectively. The administration fees and custodian fees payable by the sub-fund at 31 December 2017 was 156,717 (2016: 112,365) and 4,262 (2016: 2,849) respectively. The Registrar of the sub-fund is BNP Paribas Securities Services, Hong Kong Branch, which is a group company of the Trustee. The registrar fees incurred during the year amounted to 50,523 (2016: 53,528). The registrar fees payable by the sub-fund at 31 December 2017 was 13,870 (2016: 8,633). The sub fund maintained bank accounts and placed bank deposits of 468,688 (2016: 344,029) as at 31 December 2017 with BNP Paribas Securities Services, acting through its Singapore Branch, which is a group company of the Trustee. Interest income earned from these bank accounts during the year amounted to 2,226 (2016: 3,693). 25

28 6. Related party transactions/transactions with the Trustee, the Manager and their Connected Persons (continued) The investment manager has agreed to reimburse expenses of the sub-fund with effect from 25 January 2016 if the before tax expenses and charges of the sub-fund exceeds 2.25% per annum of the net asset value of the relevant class of the sub-fund. The rebate received during the year amounted to 542,104 (2016: 502,178). The rebate receivable by the sub-fund at 31 December 2017 was 130,449 (2016: 44,375). 7. Units issued and redeemed (a) Number of units in issues 2017 Class A Class D Balance at 1 January ,078 1,685 Subscriptions of units during the year 1,931 - Redemptions of units during the year (15,628) (797) Balance at 31 December , Class A Class D Balance at 1 January ,620 10,528 Subscriptions of units during the period 2,227 - Redemptions of units during the period (12,769) (8,843) Balance as at 31 December ,078 1,685 (b) Net assets value per unit According to the Explanatory Memorandum of the sub-fund, some of the classes are denominated in EUR, HKD, JPY, SGD and USD for dealing, which are different from the presentation currency of the sub-fund. The net asset value per unit for each class of the sub-fund in their respective denomination currencies at the date of statement of assets and liabilities is as follows: Denomination currency Net asset value per unit - Class A units RMB Class D units HKD

29 8. Reconciliation of net asset values The net asset value presented in the financial statements and that quoted for pricing purposes at the year end ( Dealing NAV ) are different as the principles for calculating the Dealing NAV as set out in the sub-fund s Explanatory Memorandum are different from those required for financial reporting purposes under IFRSs. The following reconciliation provides details of the differences: Net asset value as reported in the financial statements as at 31 December 16,022,857 18,263,491 Adjustments for different basis adopted by the sub-fund in arriving at the Dealing NAV: - Formation cost 74, ,530 Dealing NAV as at 31 December 16,097,270 18,470, Financial instruments and associated risks The sub-fund maintains an investment portfolio in a variety of listed financial instruments as dictated by its investment management strategies. The objective is to achieve income generation and long-term capital appreciation by investing primarily in fixed income securities in China, including (a) RMB-denominated debt instruments issued and distributed in the PRC and (b) debt instruments issued and distributed in Hong Kong. The sub-fund s investing activities expose it to various types of risks that are associated with the financial instruments and markets in which it invests. The Manager and the Trustee have set out below the most important types of financial risks inherent in each type of financial instruments. The Manager and the Trustee would like to highlight that the following list of associated risks only sets out some of the risks but does not purport to constitute an exhaustive list of all the risks inherent in an investment in the sub-fund. Unitholders should note that additional information in respect of risks associated with financial instruments in the sub-fund can be found in the sub-fund s Explanatory Memorandum. The nature and extent of the financial instruments outstanding at the date of the statement of assets and liabilities and the risk management policies employed by the sub-fund are discussed below. 27

30 9. Financial instruments and associated risks (continued) (a) Price risk Price risk is the risk that value of the instrument will fluctuate as a result of changes in market prices, whether caused by factors specific to an individual investment, its issuer or all factors affecting all instruments traded in the market. The sub-fund is exposed to price risk arising from changes in market price. Price risk is managed by investing in a portfolio of different investments in accordance with the investments objectives of the sub-fund. Price sensitivity The impact of a 5% increase in value of the investments at 31 December 2017 and 2016, with all other variables held constant, is shown below. An equal change in the opposite direction would have reduced the net asset value by an equal but opposite amount. Market exposures Change in net assets if investment value increased by 5% As at 31 December 2017 Debt securities 15,382, ,104 As at 31 December 2016 Debt securities 16,657, ,885 (b) Interest rate risk Interest rate risk arises from changes in interest rates which may affect the value of debt instruments and therefore result in potential gain or loss to the sub-fund. The sub-fund s interest rate risk is managed on an ongoing basis by the Manager. The following table indicates the year in which the interest-bearing assets and liabilities mature at the date of statement of assets and liabilities. 28

31 9. Financial instruments and associated risks (continued) As at 31 December year or less Over 1 year to 5 years Over 5 years Total Assets Financial assets at fair value through profit or loss 2,500,750 12,881,320-15,382,070 Cash and cash equivalents 578, ,192 Total interest sensitivity gap 3,078,942 12,881,320 - As at 31 December year or less Over 1 year to 5 years Over 5 years Total Assets Financial assets at fair value through profit or loss 1,507,800 13,485,894 1,664,000 16,657,694 Cash and cash equivalents 1,499, ,499,444 Total interest sensitivity gap 3,007,244 13,485,894 1,664,000 Interest rate sensitivity At the date of the statement of assets and liabilities, assuming all other factors remain unchanged, it is estimated that an increase in interest rate of 100 basis points (2016: 100 basis points) would result in an decrease in the net assets attributable to the unitholders and the profit for the year by 318,855 (2016: 527,815); an equal change in the opposite direction would result in an increase in the net assets attributable to unitholders by an equal amount. (c) Currency risk The sub-fund may invest in financial instruments and enter into transactions denominated in currencies other than its functional currency. Consequently, the sub-fund is exposed to risks that the exchange rate of its functional currency relative to other foreign currencies may change in a manner that has an adverse effect on the value of that portion of the sub-fund s assets or liabilities denominated in currencies other than the Renminbi ( RMB ). 29