Asia Pacific Equity Income 31 May 2018

Transcription

1 Annual Report for Asia Pacific Equity Income 31 May 2018

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

3 CONTENTS 1 Manager s Report 8 Independent Auditor s Report to the Unitholders 11 Statement of Financial Position 12 Statement of Comprehensive Income 14 Statement of Changes in Equity 15 Statement of Cash Flows 16 Notes to the Financial Statements 35 Statement by the Manager 36 Trustee s Report 37 Directory Asia Pacific Equity Income

4 MANAGER S REPORT Dear Unitholders, We are pleased to present you the Manager s report and the audited accounts of Asia Pacific Equity Income ( Fund ) for the financial year ended 31 May Salient Information of the Fund Name Category/ Type Name of Target Fund Objective Asia Pacific Equity Income ( Fund ) Feeder Fund (Equity)/ Income and Growth BlackRock Global Funds-Asia Pacific Equity Income Fund The Fund seeks to provide income* and to a lesser extent long-term capital growth by investing in the Target Fund which has an investment focus on Asia Pacific ex- Japan equities. Note: *Income distribution (if any) will be paid via cheque or by instructing us to credit into your bank account. If you do not state your option in the account opening form or transaction form, and if income distribution is paid, such income will be automatically reinvested in the form of units. Duration Performance Benchmark The Fund was established on 18 April 2012 and shall exist for as long as it appears to the Manager and the Trustee that it is in the interests of the unitholders for it to continue. In some circumstances, the unitholders can resolve at a meeting to terminate the Fund. MSCI AC Asia Pacific ex-japan (Net) Index, which is also the performance benchmark of the Target Fund. (obtainable from: Notes: The Fund adheres to the benchmark of the Target Fund. The risk profile of the performance benchmark is not the same as the risk profile of the Fund. Source: MSCI. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used as a basis for or a component of any financial instruments or products or indices. None of the MSCI information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. Historical data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. The MSCI information is provided on an as is basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the MSCI Parties ) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the 1

5 foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages. ( Income Distribution Policy Breakdown of Unit Holdings by Size Subject to availability of income, distribution will be paid quarterly. For the financial year under review, the size of the Fund stood at 612,701,124 units. Size of holding As at 31 May 2018 As at 31 May 2017 No of units held Number of unitholders No of units held Number of unitholders 5,000 below 153, ,675,651 1,006 5,001-10, , ,744,940 1,302 10,001-50,000 3,392, ,576,452 2,647 50, ,000 9,485, ,600, ,001 above 599,454, ,436, Fund Performance Data Portfolio Composition Details of portfolio composition of the Fund for the financial years as at 31 May are as follows: FY 2018 % FY 2017 % FY 2016 % Foreign collective investment scheme Cash and others Total Note: The abovementioned percentages are calculated based on total net asset value. Performance Details Performance details of the Fund for the financial years ended 31 May are as follows: FY 2018 FY 2017 FY 2016 Net asset value ()* 638,072, ,128,164 1,038,257,773 Units in circulation* 612,701, ,034,301 1,238,580,016 Net asset value per unit ()* Highest net asset value per unit ()* Lowest net asset value per unit ()* Benchmark performance (%) Total return (%) (1) Capital growth (%) Income distribution (%) (Forward) 2

6 FY 2018 FY 2017 FY 2016 Gross distribution (sen per unit) Net distribution (sen per unit) Management expenses ratio (%) (2) Portfolio turnover ratio (times) (3) * Above prices and net asset value per unit are shown as ex-distribution. Note: (1) Total return is the actual return of the Fund for the respective financial years computed based on the net asset value per unit and net of all fees. (2) Management expense ratio ( MER ) is calculated based on the total fees and expenses incurred by the Fund divided by the average fund size calculated on a daily basis. (3) Portfolio turnover ratio ( PTR ) is calculated based on the average of the total acquisitions and total disposals of investment securities of the Fund divided by the average fund size calculated on a daily basis. The PTR increased by 0.04 times (11.4%) as compared to 0.35 times for the financial year ended 31 May 2017 mainly due to decrease in average fund size. Average Total Return (as at 31 May 2018) Asia Pacific Equity Income (a) % MSCI AC AP ex-japan (Net) (b) % One year Three years Five years Since launch (18 April 2012) Annual Total Return Financial Years Ended (31 May) Asia Pacific Equity Income (a) MSCI AC AP ex-japan (Net) (b) % % (a) Source: Novagni Analytics and Advisory Sdn Bhd. (b) MSCI AC Asia Pacific ex-japan (Net) Index ( MSCI AC AP ex-japan (Net) ) (obtainable from: The Fund performance is calculated based on the net asset value per unit of the Fund. Average total return of the Fund and its benchmark for a period is computed based on the absolute returns for that period annualised over one year. 3

7 Note: Past performance is not necessarily indicative of future performance and that unit prices and investment returns may go down, as well as up. Fund Performance For the financial year under review, the Fund registered a return of 5.57% comprising of 3.35% capital growth and 2.22% income distribution. Thus, the Fund s return of 5.57% has underperformed the benchmark s return of 7.75% by 2.18%. As compared with the financial year ended 31 May 2017, the net asset value ( NAV ) per unit of the Fund increased by 3.40% from to , while units in circulation decreased by 13.71% from 710,034,301 units to 612,701,124 units. The line chart below shows comparison between the annual performances of Asia Pacific Equity Income and its benchmark, MSCI AC AP ex-japan (Net), for financial years ended 31 May. Note: Past performance is not necessarily indicative of future performance and that unit prices and investment returns may go down, as well as up. Target Fund Performance Fund Performance Review of the Target Fund BlackRock Global Funds Asia Pacific Equity Income Fund (the Target Fund ) Over the period 1 June 2017 to 31 May 2018, the Target Fund returned 11.6%*, underperforming the MSCI AC Asia Pacific ex Japan Index, which returned 15.9% in USD (returns are net of fees). The Target Fund s underperformance was largely driven by our stock selection in China, while stock picks in Korea, Hong Kong and Singapore helped offset some of the losses. At a stock level, not owning Alibaba and an underweight position in Tencent detracted the most. The Target Fund is underweight those two stocks due to their lack of dividend yield. Tata Motors in India also hurt performance as global 4

8 luxury auto volume growth has begun to slip in recent years. Jaguar Land Rovers ( JLR ) volume growth is also under pressure due to a subdued demand environment in the West. JLR has a disproportionately high exposure to the UK where industry demand has come off sharply in recent months. On the other hand, Beach Energy, Australia s largest onshore oil producer, contributed to performance given the rising oil price and quarterly results which were well received by the market. Singapore s DBS also helped performance as the stock gained on generous dividend policy and continued strong revenue momentum in both volume and margin. Source: BlackRock Global Funds Asia Pacific Equity Income Fund (the Target Fund s investment manager), as of 31 May *Performance refers to the A2 USD share class, calculated on an NAV basis, net of fees. Past performance is not an indicator of future results. Has the Fund achieved its objective? Strategies and Policies Employed For the financial year under review, the Fund is in line with its stated objective to invest in the Target Fund which has an investment focus on Asia Pacific ex-japan equities. Strategies and Policies of the Target Fund The BGF Asia Pacific Equity Income Fund adopts a flexible equity dividend investment style. The flexibility of owning defensive yield when markets are expensive and cyclical yield when markets are cheap, allows a favourable riskreturn profile over the cycle. We believe having the flexibility to rotate between different equity dividend yield strategies (Bond proxies, Dividend champions, Growth at a Reasonable Yield and High Dividend Yield) can generate outperformance and the best outcomes of growth and income. Source: BlackRock Global Funds Asia Pacific Equity Income Fund (the Target Fund s investment manager), as of 31 May Strategies and Policies of the Fund For the financial year under review, the Fund seeks to achieve its investment objective by investing a minimum of 95% of the Fund s NAV in the SGD (Hedged) share class of the BlackRock Global Funds-Asia Pacific Equity Income Fund at all times. Portfolio Structure This table below is the asset allocation of the Fund for the financial years under review. 5 As at % As at % Changes % Foreign collective investment scheme Cash and others Total For the financial year under review, the Fund has invested 96.78% of its NAV in the foreign collective investment scheme and the balance of 3.22% in cash and other net current assets. There were no significant changes to the asset allocation as

9 the Fund is wholly invested in the Target Fund as stated above. Cross Trades Distribution/ Unit splits There are no cross trades for the Fund during this financial year under review. During the financial year under review, the Fund declared income distributions, detailed as follows: 0.78 sen per unit income distribution 0.78 sen per unit income distribution 0.68 sen per unit income distribution Change in the unit price prior and subsequent to the income distribution Before income distribution on 3 October 2017 () After income distribution on 3 October 2017 () Net asset value per unit Change in the unit Before income price prior and distribution on subsequent to the 30 January 2018 income distribution () After income distribution on 30 January 2018 () Net asset value per unit Change in the unit Before income price prior and distribution on subsequent to the 24 April 2018 income distribution () After income distribution on 24 April 2018 () Net asset value per unit There was no unit split declared for the financial year under review. State of Affairs Rebates and Soft Commission There has been neither significant change to the state of affairs of the Fund nor any circumstances that materially affect any interests of the unitholders during the financial year under review. It is our policy to pay all rebates to the Fund. Soft commission received from brokers/dealers are retained by the Manager only if the goods and services provided are of demonstrable benefit to unitholders of the Fund. During the financial year under review, the Manager had received on behalf of the Fund, soft commissions in the form of fundamental database, financial wire services, technical analysis software and stock quotation system incidental to investment management of the Fund. These soft commissions received by the Manager are deem to be beneficial to the unitholders of the Fund. Market Review Asia Pac x JP equities saw strong performance over the past 12 months. Most of the gains were realized in Performance to end 2017 was initially driven by a weaker USD and strong earnings as reform and capex discipline started to materialize. However, the rally was quite narrow and was led disproportionately by the IT sector. Thereafter volatility returned in the form of higher rates globally, a stronger US dollar and concerns over growth (partly driven by fears of trade protectionism). While company and macro fundamentals have remained strong, the rise in risk premium has seen interest and flows in the asset class take a breather. After an exceptional start to 2018 markets have drifted down giving up most of the early gains. Source: BlackRock Global Funds Asia Pacific Equity Income Fund (the Target Fund s investment manager), as of 31 May

10 Market Outlook We continue to be positive on Asian fundamentals. Company revenues are expanding, fuelled by improving global activity. Key reforms are starting to bear fruit in multiple countries. Costs are increasing at the margin but remain under control and pricing power has come back to Asian corporates, meaning margins are also expanding helping to improve profitability. Valuations have now past mid cycle but remain supportive. We are however also cognisant that risks from outside Asia are on the rise and will further increase market volatility as the current interest rate adjustments we are seeing are changing historic correlations within the market and we expect more rotation from here. Dollar and interest rate adjustments are driving the asset class right now. Growth is what should be driving the asset class going forward so anything that could impact global growth will have an impact on Asian markets. Trade tensions with the US and China, whilst so far having little impact on earnings in our region, is however not helping sentiment and we are watching closely how it evolves. We think volatility was abnormally low in Asia in 2017 when the asset class just went up in pretty much a straight line with no correction at all. We think volatility will continue as market adjusts to the new rate environment which will drive currencies and equity markets. This is however a good environment for us, active investors, as volatility creates opportunities and we are confident in the underlying drivers of the asset class. In terms of positioning, we are overweight Thailand and Singapore but underweight China and Australia. Our underweight in China is driven by our low exposure to the expensive and non-yielding IT (e-commerce) sector. We continue to like value exposure and have the largest overweight in materials and energy sectors. Source: BlackRock Global Funds Asia Pacific Equity Income Fund (the Target Fund s investment manager), as of 31 May Kuala Lumpur, Malaysia AmFunds Management Berhad 13 July

11 Independent auditors report to the unitholders of Asia Pacific Equity Income Report on the audit of the financial statements Opinion We have audited the financial statements of Asia Pacific Equity Income ( the Fund ), which comprise the statement of financial position as at 31 May 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 11 to 34. In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Fund as at 31 May 2018, and of its financial performance and its cash flows for the year then ended in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards. Basis for opinion We conducted our audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditor s Responsibilities for the Audit of the Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence and other ethical responsibilities We are independent of the Fund in accordance with the By-Laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants ( By-Laws ) and the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants ( IESBA Code ), and we have fulfilled our other ethical responsibilities in accordance with the By-Laws and the IESBA Code. Information other than the financial statements and auditors report thereon The Manager is responsible for the other information. The other information comprises information in the Annual Report, but does not include the financial statements of the Fund and our auditors report thereon. The annual report is expected to be made available to us after the date of this auditors report. Our opinion on the financial statements of the Fund does not cover the other information and we do not 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. 8

12 Independent auditors report to the unitholders of Asia Pacific Equity Income (cont d.) 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. When we read the annual report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the Manager and take appropriate action. Responsibilities of the Manager and the Trustees for the financial statements The Manager is responsible for the preparation of the financial statements of the Fund that give a true and fair view in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards. The Manager is also responsible for such internal control as the Manager determines is necessary to enable the preparation of financial statements of the Fund that are free from material misstatement, whether due to fraud or error. In preparing the financial statements of the Fund, the Manager is responsible for assessing the Fund s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Manager either intends to liquidate the Fund or to cease operations, or has no realistic alternative to do so. The Trustee is responsible for ensuring that the Manager maintains proper accounting and other records as are necessary to enable true and fair presentation of these financial statements. Auditor s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements of the Fund, as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance approved standards on auditing in Malaysia and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with the approved standards on auditing in Malaysia and International Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the planning and performance of the audit. We also: Identify and assess the risks of material misstatement of the financial statements of the Fund, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 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. 9

13 Independent auditors report to the unitholders of Asia Pacific Equity Income (cont d.) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Manager. Conclude on the appropriateness of the Manager s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Fund s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Fund to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements of the Fund, including the disclosures, and whether the financial statements of the Fund represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with the Manager regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Other matters This report is made solely to the unitholders of the Fund, as a body, and for no other purpose. We do not assume responsibility to any other person for the content of this report. Ernst & Young AF: 0039 Chartered Accountants Wan Daneena Liza Bt Wan Abdul Rahman No /03/2020 (J) Chartered Accountant Kuala Lumpur, Malaysia 13 July

14 Asia Pacific Equity Income STATEMENT OF FINANCIAL POSITION AS AT 31 MAY Note ASSETS Investment 4 617,523, ,306,560 Net amount due from Manager 5 224,275 - Deposits with financial institutions 6 20,440,932 45,205,311 Cash at banks 3,981 3,583 TOTAL ASSETS 638,192, ,515,454 LIABILITIES Net amount due to Manager 5-8,187,871 Amount due to Target Fund Manager 7-15,018,407 Amount due to Trustee 8 21,667 25,652 Distribution payable and to be reinvested - 7,100,343 Sundry payables and accrued expenses 98,758 55,017 TOTAL LIABILITIES 120,425 30,387,290 EQUITY Unitholders capital 11(a) 423,484, ,242,744 Retained earnings 11(b)(c) 214,588, ,885,420 TOTAL EQUITY ,072, ,128,164 TOTAL EQUITY AND LIABILITIES 638,192, ,515,454 UNITS IN CIRCULATION 11(a) 612,701, ,034,301 NET ASSET VALUE PER UNIT EX DISTRIBUTION sen sen The accompanying notes form an integral part of the financial statements. 11

15 Asia Pacific Equity Income STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 MAY Note INVESTMENT INCOME Distribution income 17,824,159 23,189,678 Interest income 609, ,924 Net gain from investment: Financial assets at fair value through profit or loss ( FVTPL ) 9 31,507, ,431,399 Gross Income 49,940, ,268,001 EXPENDITURE Manager s fee 5 (2,326,531) (2,759,758) Trustee s fee 8 (268,293) (322,851) Auditors remuneration current financial year (9,000) (6,000) Auditors remuneration under provision in prior financial year (3,000) - Tax agent s fee current financial year (3,800) (3,500) Tax agent s fee under provision in prior financial year (300) - Custodian s fee - (50) Other expenses 10 (227,958) (273,200) Total Expenditure (2,838,882) (3,365,359) NET INCOME BEFORE TAX 47,101, ,902,642 LESS: INCOME TAX NET INCOME AFTER TAX 47,101, ,902,642 OTHER COMPREHENSIVE INCOME - - TOTAL COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR 47,101, ,902,642 Total comprehensive income comprises the following: Realised income 80,154,942 75,303,091 Unrealised (loss)/gain (33,053,083) 121,599,551 (Forward) 47,101, ,902,642 12

16 Asia Pacific Equity Income STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 MAY 2018 (CONT D.) Note Distributions for the financial year: Gross/net distributions 14 13,398,973 30,934,284 Gross/net distributions per unit (sen) The accompanying notes form an integral part of the financial statements. 13

17 Asia Pacific Equity Income STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 MAY 2018 Unitholders Retained Total capital earnings equity Note At 1 June ,023,340,711 14,917,062 1,038,257,773 Total comprehensive income for the financial year - 196,902, ,902,642 Creation of units 11(a) 143,982, ,982,523 Reinvestment of distributions 11(a),14 22,388,042-22,388,042 Cancellation of units 11(a) (655,468,532) - (655,468,532) Distributions 14 - (30,934,284) (30,934,284) Balance at 31 May ,242, ,885, ,128,164 At 1 June ,242, ,885, ,128,164 Total comprehensive income for the financial year - 47,101,859 47,101,859 Creation of units 11(a) 276,915, ,915,028 Reinvestment of distributions 11(a),14 19,227,547-19,227,547 Cancellation of units 11(a) (406,901,130) - (406,901,130) Distributions 14 - (13,398,973) (13,398,973) Balance at 31 May ,484, ,588, ,072,495 The accompanying notes form an integral part of the financial statements. 14

18 Asia Pacific Equity Income STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 MAY Note CASH FLOWS FROM OPERATING AND INVESTING ACTIVITIES Proceeds from sale of investment 315,131, ,916,083 Distributions received 17,824,159 23,189,678 Interest received 609, ,924 Manager s fee paid (2,348,848) (2,835,438) Trustee s fee paid (272,278) (332,560) Tax agent s fee paid (3,800) (3,500) Custodian s fee paid - (50) Payments for other expenses (196,517) (254,866) Purchase of investment (215,860,228) (25,438,969) Net cash generated from operating and investing activities 114,883, ,887,302 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from creation of units 276,845, ,809,910 Payments for cancellation of units (415,221,448) (647,388,808) Distributions paid (1,271,769) (1,445,899) Net cash used in from financing activities (139,647,700) (506,024,797) NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (24,763,981) 6,862,505 CASH AND CASH EQUIVALENTS AT BEGINNING OF FINANCIAL YEAR 45,208,894 38,346,389 CASH AND CASH EQUIVALENTS AT END OF FINANCIAL YEAR 20,444,913 45,208,894 Cash and cash equivalents comprise: Deposits with financial institutions 6 20,440,932 45,205,311 Cash at banks 3,981 3,583 20,444,913 45,208,894 The accompanying notes form an integral part of the financial statements. 15

19 Asia Pacific Equity Income NOTES TO THE FINANCIAL STATEMENTS 1. GENERAL INFOATION Asia Pacific Equity Income ( the Fund ) was established pursuant to a Deed dated 25 May 2011 as amended by Deeds Supplemental thereto ( the Deed ), between AmFunds Management Berhad as the Manager, Deutsche Trustees Malaysia Berhad as the Trustee and all unitholders. By a Supplemental Deed dated 23 October 2015, the Fund has changed its name from AmAsia Pacific Equity Income to Asia Pacific Equity Income. The Fund was set up with the objective to provide income and to a lesser extent long term capital growth by investing in the BlackRock Global Funds - Asia Pacific Equity Income Fund ( Target Fund ) which has an investment focus on Asia Pacific ex-japan equities. Being a feeder fund, a minimum of 95% of the Fund s net asset value will be invested in the Target Fund, which is a separate unit trust fund managed by BlackRock (Luxembourg) S.A. ( Target Fund Manager ). As provided in the Deeds, the accrual period or financial period shall end on 31 May and the units in the Fund were first offered for sale on 18 April BASIS OF PREPARATION OF FINANCIAL STATEMENTS The financial statements of the Fund have been prepared in accordance with Malaysian Financial Reporting Standards ( MFRS ) as issued by the Malaysian Accounting Standards Board ( MASB ) and are in compliance with International Financial Reporting Standards. The financial statements of the Fund have been prepared under the historical cost convention, unless otherwise stated in the accounting policies. Standards effective during the financial year The adoption of MFRS which have been effective during the financial year did not have any material financial impact to the financial statements. Standards issued but not yet effective As at the date of authorisation of these financial statements, the following Standards, which are relevant to the Fund, have been issued by MASB but are not yet effective and have not been adopted by the Fund. Effective for financial periods beginning on or after MFRS 9: Financial Instruments MFRS 15: Revenue From Contracts With Customers 1 January January

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

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

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

23 (ii) Loans and receivables Financial assets with fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, and through the amortisation process. Impairment of financial assets The Fund assesses at each reporting date whether there is any objective evidence that a financial asset is impaired. (i) Loans and receivables carried at amortised cost To determine whether there is objective evidence that an impairment loss on financial assets has been incurred, the Fund considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments. If any such evidence exists, the amount of impairment loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the financial asset s original effective interest rate. The impairment loss is recognised in profit or loss. The carrying amount of the financial asset is reduced through the use of an allowance account. When loans and receivables become uncollectible, they are written off against the allowance account. If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed to the extent that the carrying amount of the asset does not exceed its amortised cost at the reversal date. The amount of reversal is recognised in profit or loss. Financial liabilities Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. Financial liabilities, within the scope of MFRS 139, are recognised in the statement of financial position when, and only when, the Fund becomes a party to the contractual provisions of the financial instrument. The Fund s financial liabilities are recognised initially at fair value plus directly attributable transaction costs and subsequently measured at amortised cost using the effective interest method. A financial liability is derecognised when the obligation under the liability is extinguished. Gains and losses are recognised in profit or loss when the liabilities are derecognised, and through the amortisation process. 20

24 Classification of realised and unrealised gains and losses Unrealised gains and losses comprise changes in the fair value of financial instruments for the period and from reversal of prior period s unrealised gains and losses for financial instruments which were realised (i.e. sold, redeemed or matured) during the reporting period. Realised gains and losses on disposals of financial instruments classified at fair value through profit or loss are calculated using the weighted average method. They represent the difference between an instrument s initial carrying amount and disposal amount. Significant accounting estimates and judgments The preparation of the Fund s financial statements requires the Manager to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability in the future. The Fund classifies its investment as financial assets at FVTPL as the Fund may sell its investment in the short-term for profit-taking or to meet unitholders cancellation of units. No major judgments have been made by the Manager in applying the Fund s accounting policies. There are no key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. 4. INVESTMENT Financial assets at FVTPL At cost: Foreign collective investment scheme 523,638, ,368,080 At fair value: Foreign collective investment scheme 617,523, ,306,560 Details of investment as at 31 May 2018 are as follows: Fair value as a percentage of Foreign collective Number Fair Purchase net asset investment scheme of units value cost value % BlackRock Global Funds Asia Pacific Equity Income Fund ( Target Fund ) 14,789, ,523, ,638, Excess of fair value over cost 93,885,397 21

25 A minimum of 95% of its net asset value will be invested in the Target Fund. However, the asset allocation may be reduced due to creation of units at the point of reporting date. The ratio will be adjusted back to the minimum level after the reporting period, if need be. The Target Fund s investment objective and policy are to provide income to a lesser extent long term capital growth by investing primarily at least 70% of its total assets in equity securities of companies domiciled in, or exercising the predominant part of their economic activity in the Asia Pacific region excluding Japan. As at the reporting date, the investment portfolio of the Target Fund is made up of the following: % of % of By country portfolio portfolio China Australia Taiwan Korea India Hong Kong Thailand Indonesia Singapore Japan Malaysia New Zealand Philippines Cash and others % of % of By sector portfolio portfolio Financials Information technology Materials Consumer discretionary Energy Industrials Real estate Consumer staples Utilities Telecommunications Cash and others

26 5. NET AMOUNT DUE FROM/(TO) MANAGER Net creation/(redemption) of units* 443,974 (7,945,855) Manager s fee payable (219,699) (242,016) 224,275 (8,187,871) * The amount represents net amount receivable from/(payable to) the Manager for units created/(redeemed). As the Fund is investing in a Target Fund, the Manager s fee was charged as follows: % p.a. % p.a. Manager s fee charged by the Target Fund Manager, on the net asset value of the Target Fund (Note a) Manager s fee charged by the Manager, on the net asset value of investment in the Target Fund (Note b) Manager s fee charged by the Manager, on the remaining net asset value of the Fund (Note b) Note a) Note b) The Fund s share of manager s fee to the Target Fund Manager has been accounted for as part of net unrealised changes in fair value of investment in foreign collective investment scheme. Manager s fee of the Fund chargeable in the Statement of Comprehensive Income relates to 0.30% on the net asset value of investment in the Target Fund and 1.80% on the remaining net asset value of the Fund. The normal credit period in the previous and current financial years for creation and redemption of units is three business days. The normal credit period in the previous and current financial years for Manager s fee payable is one month. 6. DEPOSITS WITH FINANCIAL INSTITUTIONS At nominal value: Short-term deposits with licensed banks 20,439,000 45,201,100 At carrying value: Short-term deposits with licensed banks 20,440,932 45,205,311 23

27 Details of deposit with financial institution as at 31 May 2018 are as follows: Carrying value as a percentage Maturity Nominal Carrying Purchase of net asset date Bank value value cost value % Short-term deposit with a licensed bank Public Bank Berhad 20,439,000 20,440,932 20,439, The weighted average effective interest rate and average remaining maturity of short-term deposits are as follows: Weighted average Remaining effective interest rate maturity % % Day Day Short-term deposits with licensed banks AMOUNT DUE TO TARGET FUND MANAGER The amounts due to the Target Fund Manager was for the purchase of investment where settlement was not due as at the financial year end. The normal trade credit period is three business days. 8. AMOUNT DUE TO TRUSTEE Trustee s fee is at a rate of 0.04% (2017: 0.04%) per annum on the net asset value of the Fund, calculated on a daily basis, subject to a minimum fee of 10,000 per annum. The normal credit period in the previous and current financial years for Trustee s fee payable is one month. 24

28 9. NET GAIN FROM INVESTMENT Net gain on financial assets at FVTPL comprised: Net realised gain/(loss) on sale of investment 31,174,601 (19,684,802) Net realised gain on foreign currency exchange 33,385,597 74,516,650 Net unrealised gain on changes in fair value of investment 21,853, ,500,372 Net unrealised loss on foreign currency fluctuation of investment denominated in foreign currency (54,906,539) (48,900,821) 31,507, ,431, OTHER EXPENSES Included in other expenses is Goods and Services Tax incurred by the Fund during the financial year amounting to 160,513 (2017: 191,113). 11. TOTAL EQUITY Total equity is represented by: Note Unitholders capital (a) 423,484, ,242,744 Retained earnings - Realised income (b) 120,702,909 53,946,940 - Unrealised gain (c) 93,885, ,938, ,072, ,128,164 (a) UNITHOLDERS CAPITAL/UNITS IN CIRCULATION Number of Number of units units At beginning of the financial year 710,034, ,242,744 1,238,580,016 1,023,340,711 Creation during the financial year 262,927, ,915, ,349, ,982,523 (Forward) 25

29 Number of Number of units units Distributions reinvested (Note 14) 18,321,671 19,227,547 23,972,137 22,388,042 Cancellation during the financial year (378,582,079) (406,901,130) (700,866,998) (655,468,532) At end of the financial year 612,701, ,484, ,034, ,242,744 (b) REALISED DISTRIBUTABLE At beginning of the financial year 53,946,940 9,578,133 Total comprehensive income for the financial year 47,101, ,902,642 Net unrealised loss/(gain) attributable to investment held transferred to unrealised reserve [Note 11(c)] 33,053,083 (121,599,551) Distribution out of realised reserve (Note 14) (13,398,973) (30,934,284) Net increase in realised reserve for the financial year 66,755,969 44,368,807 At end of the financial year 120,702,909 53,946,940 (c) UNREALISED NON-DISTRIBUTABLE At beginning of the financial year 126,938,480 5,338,929 Net unrealised (loss)/gain attributable to investment held transferred from realised reserve [Note 11(b)] (33,053,083) 121,599,551 At end of the financial year 93,885, ,938, UNITS HELD BY RELATED PARTIES The Manager and parties related to the Manager did not hold any units in the Fund as at 31 May 2018 and 31 May