Investment adviser s report 1. Trustee s report 2. Independent auditors report to the unitholders 3. Statement of financial position 5

Transcription

1 HSBC Global Investment Trust HSBC RMB Bond Fund Annual Report 2017

2 Contents Page Investment adviser s report 1 Trustee s report 2 Independent auditors report to the unitholders 3 Statement of financial position 5 Statement of comprehensive income 7 Statement of changes in net assets attributable to unitholders 8 Cash flow statement 9 Distribution statement 10 Notes to the financial statements 11 Portfolio statement (Unaudited) 25 Statement of movements in portfolio holdings (Unaudited) 27 Performance record (Unaudited) 28 Administration 30 Board of Directors of HSBC Investment Funds (Hong Kong) Limited 31

3 Investment Adviser s Report HSBC RMB Bond Fund Market review For the year ending at 31 July 2017, the offshore renminbi bond market delivered a positive return in both local currency terms and in USD terms. Spreads tightened for both investment grade names and non-investment grade names, which helped offset the broad rise in offshore renminbi government bond yields. Offshore China government bonds were largely driven by volatility in the offshore renminbi liquidity while yields started to stabilize coming into June 2017 on the back of improved sentiment towards the outlook for the renminbi. As for the currency, the renminbi depreciated amid broad US dollar weakness in the second half of However, coming into 2017, depreciation pressure eased and the renminbi started to strengthen against the US dollar with enhanced scrutiny over capital outflows, broad US dollar weakness, and more benign macroeconomic outlook for China. The Fund delivered a positive return for the year, as our exposure to high quality corporate bonds added value. Our fund continues to favour better quality bonds over lower rated ones, and continues to look for relative value opportunities with solid credit fundamentals. The Fund remains very attractive from a yield standpoint with a short duration. HSBC Global Asset Management (Hong Kong) Limited 27 November

4 Trustee s Report HSBC RMB Bond Fund ( the Fund ) We hereby confirm that, to the best of our knowledge, the Manager of the Fund has, in all material respects, managed the Fund in accordance with the provisions of the Trust Deed dated 31 December 2010, as amended, for the year ended 31 July ) Bertha TAM ) For and on behalf of Eva WONG ) HSBC Trustee (Cayman) Limited, ) Trustee ) 2

5 Independent Auditors Report to the Unitholders Report on the Audit of Financial Statements Opinion We have audited the financial statements of HSBC RMB Bond Fund (the Fund ) set on pages 5 to 24, which comprise the statement of financial position as at 31 July 2017, the statement of comprehensive income, the statement of changes in net assets attributable to unitholders, the cash flow statement and the 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 disposition of the Fund as at 31 July 2017, and its financial transactions and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards ( HKFRSs ) issued by the Hong Kong Institute of Certified Public Accountants ( HKICPA ). Basis for Opinion We conducted our audit in accordance with Hong Kong Standards on Auditing ( HKSAs ) issued by the HKICPA. Our responsibilities under those standards are further described in the Auditors Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Fund in accordance with the HKICPA s Code of Ethics for Professional Accountants ( the Code ) together with the ethical requirements that are relevant to our audit of the financial statements in Cayman Islands, and we have fulfilled our other ethical responsibilities in accordance with these requirements and 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 Auditors Report Thereon The Manager and the Trustee of the Fund are responsible for the other information. The other information comprises the information included in the annual report, but does not include the financial statements and our auditors 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. 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 Fund for the Financial Statements The Manager and the Trustee of the Fund are responsible for the preparation and fair presentation of financial statements in accordance with HKFRSs issued by the HKICPA and for such internal control as the Manager and the Trustee of the 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 Fund are 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 and the Trustee of the Fund either intend to liquidate the Fund or to cease operations, or have no realistic alternative but to do so. In addition, the Manager and the Trustee of the Fund are required to ensure that the financial statements have been properly prepared in accordance with the relevant provisions of the Trust Deed, 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. Auditors 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 auditors report that includes our opinion. This report is made solely to you, as a body, in accordance with our agreed terms of engagement, for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with HKSAs 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 3

6 Independent Auditors Report to the Unitholders the financial statements of the 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 HKSAs, 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 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 Fund. 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 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. KPMG P.O. Box 493 Century Yard, Cricket Square Grand Cayman KY Cayman Islands 27 November 2017 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 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. The accompanying report of KPMG is for sole and exclusive use of the Fund. Further, the report of KPMG is as of 27 November 2017 and KPMG has carried out no procedures of any nature subsequent to that date which in any way extends that date. 4

7 Statement of Financial Position HSBC RMB Bond Fund as at 31 July 2017 Note RMB RMB ASSETS Financial assets at fair value through profit or loss 5, 12(b), ,516,905 1,044,254,860 Interest receivable 8,457,887 12,695,978 Subscriptions receivable 4,100,186 Cash and cash equivalents 7(b), 15 2,773,769 9,518, ,848,747 1,066,469,603 LIABILITIES Bank overdrafts 7(b), 15 3,838 Redemptions payable 648,280 5,220,443 Amounts due to brokers 6 1,933,560 Distributions payable 10 8,216,385 11,130,687 Other payables 7(a), 7(c), 7(d) 702,318 1,206,833 11,504,381 17,557,963 Net assets attributable to unitholders 699,344,366 1,048,911,640 Representing: Financial liabilities 699,344,366 1,048,911,640 Total number of units in issue AD HKD class income unit 9(a) 28,077,841 36,534,053 AD RMB class income unit 9(b) 34,490,296 49,164,758 AD USD class income unit 9(c) 2,140,863 4,183,989 I USD class income unit 9(d) 40,365 13,521 5

8 Statement of Financial Position Note RMB RMB Net asset value per unit AD HKD class income unit 9(e) AD RMB class income unit 9(e) AD USD class income unit 9(e) I USD class income unit 9(e) Approved by the Trustee and the Manager on 27 November 2017 ) Bertha TAM ) For and on behalf of Eva WONG ) HSBC Trustee (Cayman) Limited, ) Trustee ) Guillermo Eduardo MALDONADO-CODINA ) For and on behalf of Chun Pong Stephen TAM ) HSBC Investment Funds ) (Hong Kong) Limited, ) Manager The notes on pages 11 to 24 form part of these financial statements. 6

9 Statement of Comprehensive Income HSBC RMB Bond Fund for the year ended 31 July 2017 Note RMB RMB Interest income 7(b) 6,560 Net gains from financial assets at fair value through profit or loss 3 35,149,712 61,627,002 Net foreign exchange gain/(loss) 357,395 (1,040,850) Other income 7(c), 7(d) 640, ,875 TOTAL REVENUE 36,154,513 60,799,027 Management fees 7(a) 6,243,036 10,711,597 Trustee s fees 7(c) 1,007,804 1,442,528 Auditors remuneration 101,020 67,788 Administrative fees 7(c) 123, ,482 Legal and professional fees 39,988 Registrar s fees 7(c) 17,069 16,307 Miscellaneous expenses 7(d) 180, ,627 TOTAL OPERATING EXPENSES 7,712,331 13,017,329 NET PROFIT FROM OPERATIONS BEFORE FINANCE COSTS 28,442,182 47,781,698 Distributions to unitholders 10 (37,458,936) (68,333,778) DECREASE IN NET ASSETS ATTRIBUTABLE TO UNITHOLDERS AND TOTAL COMPREHENSIVE INCOME FOR THE YEAR (9,016,754) (20,552,080) The notes on pages 11 to 24 form part of these financial statements. 7

10 Statement of Changes in Net Assets Attributable to Unitholders HSBC RMB Bond Fund for the year ended 31 July 2017 Note RMB RMB Balance at the beginning of the year 1,048,911,640 2,098,355,113 Decrease in net assets attributable to unitholders and total comprehensive income for the year (9,016,754) (20,552,080) Subscriptions of units (excluding equalisation) 78,993,686 77,140,008 Redemptions of units (excluding equalisation) (423,331,119) (1,109,178,991) Income equalisation on subscriptions and redemptions 11 3,786,913 3,147,590 (340,550,520) (1,028,891,393) Balance at the end of the year 699,344,366 1,048,911,640 The notes on pages 11 to 24 form part of these financial statements. 8

11 Cash Flow Statement HSBC RMB Bond Fund for the year ended 31 July 2017 Note RMB RMB OPERATING ACTIVITIES Interest received 6,008 Management fees paid (6,479,017) (11,394,328) Trustee s fees paid (1,010,103) (1,516,940) Payments on purchase of investments (259,328,600) (70,559,848) Proceeds from sale of investments 649,388,470 1,181,006,586 Other operating income received/(expenses) paid 270,515 (1,695,448) Cash provided by operating activities 382,847,273 1,095,840,022 FINANCING ACTIVITIES Proceeds from issue of units including equalisation 72,992,083 97,383,414 Payments on redemption of units including equalisation (422,214,952) (1,121,011,732) Distributions paid (40,373,238) (81,049,786) Cash used in financing activities (389,596,107) (1,104,678,104) Net decrease in cash and cash equivalents (6,748,834) (8,838,082) Cash and cash equivalents at the beginning of the year 9,518,765 18,356,847 Cash and cash equivalents at the end of the year 15 2,769,931 9,518,765 The notes on pages 11 to 24 form part of these financial statements. 9

12 Distribution Statement HSBC RMB Bond Fund for the year ended 31 July 2017 Note RMB RMB Amount available for distribution brought forward 1,048,911,640 2,098,355,113 Net paid or payable on issue and redemption of units (340,550,520) (1,028,891,393) Income before distributions after taxation 28,442,182 47,781,698 Amount available for distribution to unitholder 736,803,302 1,117,245,418 Distributions to unitholders (37,458,936) (68,333,778) Amount available for distribution carried forward 699,344,366 1,048,911,640 Distribution history Year ended 31 July 2017 Year ended 31 July 2016 Distribution per unit Date of distribution Distribution per unit Date of distribution Note RMB RMB AD HKD class income unit First distribution October October 2015 Second distribution January January 2016 Third distribution April April 2016 Fourth distribution July July 2016 AD RMB class income unit First distribution October October 2015 Second distribution January January 2016 Third distribution April April 2016 Fourth distribution July July 2016 AD USD class income unit First distribution October October 2015 Second distribution January January 2016 Third distribution April April 2016 Fourth distribution July July 2016 The notes on pages 11 to 24 form part of these financial statements. 10

13 Notes to the Financial Statements HSBC RMB Bond Fund 1 The Fund HSBC RMB Bond Fund ( the Fund ) is a sub-fund of HSBC Global Investment Trust ( the Trust ). The Trust is an openended umbrella unit trust established under the laws of the Cayman Islands by a trust deed dated 31 December 2010, as amended ( the Trust Deed ). The Trust registered under the Mutual Funds Law of the Cayman Islands on 5 January The Fund commenced its operations on 28 January The Fund aims to provide long term capital growth and income in Renminbi terms, primarily through investments in securities instruments, products and deposits which, or the underlying investments of which, are denominated in Renminbi. The Fund is authorised by the Hong Kong Securities and Futures Commission ( SFC ) under section 104 of the Hong Kong Securities and Futures Ordinance ( HKSFO ) and is governed by the Hong Kong Code on Unit Trusts and Mutual Funds issued by the SFC. 2 Significant accounting policies (a) Statement of compliance The financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards ( HKFRSs ), which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards ( HKASs ) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants ( HKICPA ), accounting principles generally accepted in Hong Kong, the relevant provisions of the Trust Deed and the relevant disclosure provisions of the Hong Kong Code on Unit Trusts and Mutual Funds issued by the SFC. A summary of the significant accounting policies adopted by the Fund is set out below. (b) Basis of preparation of the financial statements The functional and presentation currency of the Fund is Renminbi reflecting the fact that all the underlying investments of the Fund are denominated in Renminbi. The preparation of financial statements in conformity with HKFRSs 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. The accounting policies have been applied consistently by the Fund and are consistent with those used in the previous year. (c) Changes in accounting policies The Fund has not applied any new standard or interpretation that is not yet effective for the current accounting period (see note 16). (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 financial position. Foreign currency exchange differences arising on translation and realised gains and losses on disposals or settlements of monetary assets and liabilities are recognised in profit or loss. Foreign currency exchange differences relating to investments at fair value through profit or loss are included in net gains or losses 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. The financial statements are prepared on a fair value basis for financial assets at fair value through profit or loss. Other financial assets and financial liabilities are stated at amortised cost or redemption amount (redeemable units). 11

14 Notes to the Financial Statements (e) (i) Financial instruments Classification Financial assets classified as loans and receivables are carried at amortised cost using the effective interest rate method, less impairment losses, if any. All of the Fund s investments are classified as financial assets at fair value through profit or loss. This category comprises financial instruments held for trading which are instruments that the Fund has acquired principally for the purpose of short-term profit-taking. These include investments in bonds and certificates of deposit. 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 Fund are carried at the redemption amount representing the unitholders right to a residual interest in the Fund s assets. (ii) (iii) Financial assets at amortised cost that are classified as loans and receivables include interest receivable and subscriptions receivable. Financial liabilities at amortised cost include bank overdrafts, redemptions payable, amounts due to brokers, distributions payable and other payables. Financial liabilities arising from the redeemable units issued by the Fund are carried at the redemption amount. Recognition The 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 HKAS 39. 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 on other financial instruments they are amortised. 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. (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 Fund has access at that date. The fair value of a liability reflects its non performance risk. When available, the Fund measures the fair value of an instrument using the quoted price in an active market for that instrument provided such price is within the bid ask spread. 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. In circumstances where the quoted price is not within the bid ask spread, the manager of the Fund will determine the points within the bid ask spread that are most representative of the fair value. When there is no quoted price in an active market, the 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 the factors that market participants would take into account in pricing a transaction. The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price i.e. the fair value of the consideration given or received. If the Fund determines that the fair value at initial recognition differs from the transaction price and the fair value is evidenced neither by a quoted price in an active market for an identical asset or liability nor based on a valuation technique that uses only data from observable markets, the financial instrument is initially measured at fair value, adjusted to defer the difference between the fair value at initial recognition 12

15 Notes to the Financial Statements (v) (vi) and the transaction price. Subsequently, that difference is recognised in profit or loss on an appropriate basis over the life of the instrument but no later than when the valuation is supported wholly by observable market data or the transaction is closed out. Portfolios of financial assets and financial liabilities that are exposed to market risk and credit risk that are managed by the Fund on the basis of the net exposure to either market or credit risk, are measured on the basis of a price that would be received to sell a net long position (or paid to transfer a net short position) for a particular risk exposure. Those portfolio-level adjustments are allocated to the individual assets and liabilities on the basis of the relative risk adjustment of each of the individual instruments in the portfolio. The Fund recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the change has occurred. Amortised cost measurement principles The amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment. Impairment Financial assets that are stated at cost or amortised cost are reviewed at each date of the statement of financial position 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. (vii) Derecognition The Fund derecognises a financial asset when the contractual rights to the cash flows from the financial assets expire or it transfers the financial asset and the transfer qualifies for derecognition in accordance with HKAS 39. The 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. (viii) Offsetting (ix) (f) Financial assets and liabilities are offset and the net amount is reported in the statement of financial position when the 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. Specific instruments Cash and cash equivalents Cash comprises current deposits with banks. Cash equivalents are short-term highly liquid investments that are readily convertible to 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. Revenue recognition Provided it is probable that the economic benefits will flow to the 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 is disclosed separately on the face of profit or loss. Interest income on debt securities is included in net gains or losses from financial assets at fair value through profit or loss. 13

16 Notes to the Financial Statements (g) Expenses All expenses are recognised in profit or loss on an accrual basis. (vii) 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). (h) Foreign exchange gains and losses Foreign exchange gains and losses on financial assets 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 gain/(loss) are net of foreign exchange gains and losses on monetary financial assets and financial liabilities other than those classified at fair value through profit of loss. (i) (a) Related parties A person, or a close member of that person s family, is related to the Fund if that person: (i) (ii) (iii) has control or joint control over the Fund; has significant influence over the Fund; or is a member of the key management personnel of the Fund. (j) (viii) The entity, or any member of a group of which it is a part, provides key management personnel services to the Fund. 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. Subscriptions and redemptions The 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 Fund classifies financial instruments issued as financial liabilities or equity instruments in accordance with the substance of the contractual terms of the instruments. (b) An entity is related to the Fund if any of the following conditions applies: (i) (ii) (iii) (iv) (v) The entity and the 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 a post employment benefit plan for the benefit of employees of an entity related to the Fund. The Fund has multiple classes of redeemable units in issue AD HKD class income unit, AD - RMB class income unit, AD USD class income unit and I USD class income unit. All the classes belong to the most subordinate class of financial instruments in the Fund and rank pari passu in all material respects and have the same terms and conditions other than different currencies and management fee rates. The redeemable units provide unitholders with the right to require redemption for cash at a value proportionate to the unitholders share in the Fund s net assets at each redemption date, and also in the event of the Fund s liquidation. The redeemable units are classified as financial liabilities and are measured at the present value of the redemption amounts. (l) Distribution to holders of redeemable units Distributions to holders of redeemable units classified as financial liabilities are recognised in profit or loss as finance costs when they are authorised and no longer at the discretion of the Fund. (vi) The entity is controlled or jointly controlled by a person identified in (a). 14

17 Notes to the Financial Statements (m) Segment reporting An operating segment is a component of the Fund that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Fund s other components, whose operating results are reviewed regularly by the chief operating decision maker to make decisions about resources allocated to the segment and assess its performance, and for which discrete financial information is available. Segment results that are reported to the chief operating decision maker include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. The chief operating decision maker of the Fund is identified as the manager, HSBC Investment Funds (Hong Kong) Limited. 3 Net gains from financial assets at fair value through profit or loss RMB RMB Realised gains 39,188,606 57,072,569 Unrealised (losses)/gains (4,038,894) 4,554,433 4 Taxation 35,149,712 61,627,002 There are currently no taxes on income or gains under Cayman Islands law. Accordingly, no provision for income taxes is included in these financial statements. No provision for Hong Kong Profits Tax has been made in the financial statements as the Fund is exempt from taxation under section 26A (1A) of the Hong Kong Inland Revenue Ordinance. Under the current general provisions of the PRC Corporate Income Tax Law and published tax circulars, the Fund would be subject to PRC withholding tax at the rate of 10% in respect of its PRC sourced income earned, including capital gains realised on the sale of offshore PRC government bonds, offshore corporate bonds and offshore corporate certificates of deposit issued by PRC tax residents and interest income derived from offshore corporate bonds and offshore corporate certificates of deposit issued by PRC tax residents. The Fund would also be subject to Business Tax on capital gains realised on the sale of offshore PRC government bonds and interest income derived from offshore PRC government bonds. The Explanatory Memorandum ( EM ) of the 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 Fund. The Manager assesses the tax expense to be insignificant to the Fund and has not provided for any taxation expense in the current year and previous periods. Foreign Account Tax Compliance Act ( FATCA ) On 18 March 2010, the Hiring Incentives to Restore Employment Act of 2010 added chapter 4 to Subtitle A ( Chapter 4 ) of the US Internal Revenue Code (the Code ). The provisions in Chapter 4 are commonly referred to as the Foreign Account Tax Compliance Act ( FATCA ). US Treasury regulations providing guidance on the due diligence, reporting, and withholding obligations under FATCA were passed and came into effect in January 2013 ( the Regulations ). The Regulations require foreign financial institution ( FFI ) to provide the Internal Revenue Service ( IRS ) with information on certain U.S. persons invested in accounts outside of the U.S. and for certain non U.S. entities to provide information about any U.S. owners. The obligations of an FFI under FATCA may be modified by an Intergovernmental Agreement ( IGA ) between the US and the FFI s country of organization. The Cayman Islands entered into a Model 1 IGA on 29 November 2013, which provides for reporting and enforcement by FFIs to be facilitated by local authorities. The Cayman Islands also entered into a similar IGA with the United Kingdom. Therefore, all Cayman Islands domiciled financial institutions are subject to domestic legislation and regulations that implement both the Foreign Account Tax Compliance Act ( US FATCA ) and its UK equivalent ( UK FATCA and together, FATCA ). The due diligence and reporting regimes introduced by the domestic legislation and regulations apply to all such financial institutions irrespective of whether they have US or UK based account holders and/ or have US or UK assets or source income. The Fund is a non-reporting financial institution and such is not required to register for a Global Intermediary Identification Number ( GIIN ) for US FATCA purposes. 15

18 Notes to the Financial Statements 5 Financial assets at fair value through profit or loss Debt securities RMB RMB Listed bonds 671,354, ,269,653 Unlisted but quoted bonds 4,960,000 82,987,307 Unlisted but quoted certificates of deposit 19,202,200 18,997, ,516,905 1,044,254,860 Investments, at cost 693,404,394 1,042,342,098 Net unrealised appreciation in value of investments 2,112,511 1,912,762 Investments, at fair value 695,516,905 1,044,254,860 6 Amounts due to brokers RMB RMB Balances due to brokers Amounts payable on purchase of investments 1,933,560 7 Transactions with the Trustee, Manager and Connected Persons The following is a summary of significant related party transactions or transactions entered into during the year between the Fund and the Trustee, the Manager and their Connected Persons. Connected Persons are those as defined in the Code on Unit Trusts and Mutual Funds issued by the SFC. All transactions during the year between the Fund and the Manager and its 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 Fund did not have any other transactions with Connected Persons except for those disclosed below. (a) The Fund is managed by HSBC Investment Funds (Hong Kong) Limited ( the Manager ), which receives a management fee, payable monthly in arrears, equivalent to 0.75% and 0.3% per annum of the net asset value of AD class income unit and I class income unit respectively. RMB RMB (i) Management fees for the year 6,243,036 10,711,597 (ii) Management fees payable at year end 448, ,563 (b) (c) A bank account is maintained with a member of the HSBC Group. The balance of this account amounted to 2,773,769 (2016: 9,518,765) at year end. Interest income arising from this account amounted to 6,560 (2016: nil). Bank overdraft in bank account maintained with a member of the HSBC Group at year end was 3,838 (2016: nil). The trustee of the Fund is HSBC Trustee (Cayman) Limited ( the Trustee ), a fellow subsidiary of the Manager within the HSBC Group, which receives a monthly fee equivalent to 0.08% (2016: 0.08%) per annum of the net asset value of the Fund. In addition, the Trustee receives registrar s fees per annum for each class of units and fee for various administrative functions performed on behalf of the Fund. Effective from 1 July 2017, the Trustee receives a monthly fee equivalent to 0.07% per annum of the net asset value of the Fund and charges the Fund financial reporting service fee of US$3,000 per set of financial statements. During the year, the Trustee rebated trustee s fees to the Fund (2016: nil). RMB RMB (i) Trustee s fees for the year 1,007,804 1,442,528 (ii) Trustee s fees payable at year end 97,400 99,699 (iii) Registrar s fees and administrative fees for the year 140, ,789 (iv) Registrar s fees and administrative fees payable at the year end 29, ,781 (v) Rebate of trustee s fees 273,962 16

19 Notes to the Financial Statements (d) The custodian of the Fund is HSBC Trustee (Cayman) Limited, a fellow subsidiary of the Manager within the HSBC Group, which receives a monthly fee equivalent to basis points based on sub-custodian value of the securities. The custodian also receives a transaction fee of US$ for each trade handled. During the year, the Trustee rebated safe custody fees charged to the Fund (2016: nil). RMB RMB (i) Safe custody fees for the year 135, ,753 (ii) Safe custody fee payable at year end 7,042 15,278 (iii) Safe custody transaction fees for the year 18,662 32,912 (iv) Safe custody transaction fees payable at year end 3,221 1,365 (v) Rebate of safe custody fees 364,857 (e) In its purchases and sales of investments, the Fund utilises the brokerage services of The Hongkong and Shanghai Banking Corporation Limited, which is a member of the HSBC Group. Details of transactions effected through the company are as follows: The Hongkong and Shanghai Banking Corporation Limited RMB RMB Commission paid for the year Average rate of commission Total aggregate value of such transactions for the year 100,817, ,235,928 Percentage of such transactions in value to total transactions for the year 11.61% 20.69% 9 Units issued and redeemed (a) AD HKD class income unit Number of units in issue brought forward 36,534,053 66,600,133 Units issued during the year 1,908,058 1,516,932 Units redeemed during the year (10,364,270) (31,583,012) Number of units in issue carried forward 28,077,841 36,534,053 (b) AD RMB class income unit Number of units in issue brought forward 49,164, ,760,237 Units issued during the year 2,151,610 4,712,581 Units redeemed during the year (16,826,072) (58,308,060) Number of units in issue carried forward 34,490,296 49,164,758 (c) AD USD class income unit Number of units in issue brought forward 4,183,989 8,338,233 Units issued during the year 611, ,853 Units redeemed during the year (2,654,482) (4,447,097) Number of units in issue carried forward 2,140,863 4,183,989 8 Soft commission arrangements No soft commission arrangements were entered into with brokers during the year (2016: nil). 17

20 Notes to the Financial Statements (d) I USD class income unit Number of units in issue brought forward 13, ,297 Units issued during the year 26,975 19,981 Units redeemed during the year (131) (124,757) Number of units in issue carried forward 40,365 13,521 Units may be redeemed on any valuation date, at the redemption price applicable as at the close of business in Hong Kong on such day. For Class A Units, the minimum amount which can be redeemed at any one time is HK$10,000 for Class AD-HKD, US$1,000 for Class AD-USD and 10,000 for Class AD-RMB. No minimum redemption amounts for Class I Units and Class Z Units apply. A unitholder may not make a partial redemption if this would result in his holding being less than the minimum holding of HK$10,000 for Class AD-HKD, US$1,000 for Class AD-USD, 10,000 for Class AD-RMB and HK$8,000,000 or equivalent in the Class Currency for Class I Units and Class Z Units. (e) According to the EM of the Fund, some of the classes are denominated in Hong Kong dollars and United States dollars for dealing, which are different from the presentation currency of the Fund. The net asset value per unit for each class of the Fund in their respective denomination currencies as at year end is as follows: 10 Distributions AD HKD class income unit RMB RMB Denomination currency Distributions attributable to the year Net asset value per unit AD HKD class income unit HK$ AD RMB class income unit RMB AD USD class income unit US$ I USD class income unit US$ (f) The capital of the Fund is represented by the net assets attributable to unitholders which are subject to subscriptions and redemptions of units. The Trust and the Fund do not have any externally imposed capital requirements. Units may be acquired and redeemed on any valuation date at the unit value determined on that day. The valuation date is every business day, which is also a day on which banks in China are normally open for business, or such other day(s) as the Manager may determine. For Class A Units, the minimum initial and subsequent investment amount is HK$10,000 for Class AD-HKD, US$1,000 for Class AD-USD and 10,000 for Class AD-RMB. For Class I Units and Class Z Units, the minimum initial investment amount is HK$8,000,000 or equivalent in the Class Currency while no minimum subsequent investment amounts apply. Distributions declared and paid during the year HK$ per unit on 33,492, units (2016: HK$ per unit on 52,213, units) 2,922,374 6,006,423 HK$ per unit on 28,745, units (2016: HK$ per unit on 45,415, units) 2,863,900 5,117,733 HK$ per unit on 27,805, units (2016: HK$ per unit on 39,986, units) 2,928,907 4,094,298 8,715,181 15,218,454 Distributions declared and unpaid during the year HK$ per unit on 28,077, units (2016: HK$ per unit on 36,612, units) 2,700,666 3,188,156 18

21 Notes to the Financial Statements RMB RMB RMB RMB AD RMB class income unit Distributions attributable to the year Distributions declared and paid during the year per unit on 44,803, units (2016: per unit on 82,807, units) 4,592,329 11,361, per unit on 38,747, units (2016: per unit on 68,591, units) 4,576,071 9,129, per unit on 35,936, units (2016: per unit on 54,518, units) 4,470,521 6,602,226 13,638,921 27,092,861 Distributions declared and unpaid during the year per unit on 34,519, units (2016: per unit on 49,302, units) 3,938,632 5,102,837 AD USD class income unit Distributions attributable to the year Distributions declared and paid during the year US$ per unit on 3,567, units (2016: US$ per unit on 6,810, units) 2,426,093 6,105,888 US$ per unit on 3,065, units (2016: US$ per unit on 5,703, units) 2,381,922 5,009,515 US$ per unit on 2,532, units (2016: US$ per unit on 4,730, units) 2,080,434 3,776,373 6,888,449 14,891,776 Distributions declared and unpaid during the year US$ per unit on 2,103, units (2016: US$ per unit on 4,183, units) 1,577,087 2,839, Income equalisation Income portion of received and receivable on issue of units or paid and payable on redemption of units is calculated based on the portion of the unit price related to undistributed accumulated net investment income and accumulated expenses of the unit at the date of issue or redemption. 19

22 Notes to the Financial Statements 12 Financial instruments and associated risks The Fund maintains an investment portfolio in a variety of listed and unlisted financial instruments as dictated by its investment management strategy. The Fund aims to provide long term capital growth and income in Renminbi terms, primarily through investments in securities, instruments, products and deposits which, or the underlying investment of which, are denominated in Renminbi. The Fund s investment portfolio comprises debt securities. The 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 instrument. 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 Fund. Unitholders should note that additional information in respect of risks associated with financial instruments in the Fund can be found in the Fund s offering document. The nature and extent of the financial instruments outstanding at the date of statement of financial position and the risk management policies employed by the Fund are discussed below. (a) Price risk Price risk is the risk that the value of a financial 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 Fund hold debt securities in both 2017 and As a result, the Fund is not exposed to significant price risk arising from changes in market price. The following table indicates the period in which the interest bearing assets mature at the date of statement of financial position: year or less Over 1 year to 5 years Over 5 years Total RMB RMB RMB RMB Assets Financial assets at fair value through profit or loss 185,411, ,747, ,358, ,516,905 Total interest bearing assets 185,411, ,747, ,358, Over 1 year Over 1 year or less to 5 years 5 years Total RMB RMB RMB RMB Assets Financial assets at fair value through profit or loss 467,969, ,321, ,964,609 1,044,254,860 Total interest bearing assets 467,969, ,321, ,964,609 Interest rate sensitivity At the date of statement of financial position, assuming all other factors unchanged, it is estimated that an increase in interest rates of 100 basis points (2016: 50 basis points) would result in a decrease in the net assets attributable to unitholders and the profit for the year by 15,801,404 (2016: 7,637,332); an equal change in the opposite direction would result in an increase in the net assets attributable to unitholders by an approximately equal amount. (b) Interest rate risk (c) Currency 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 Fund. The Fund s interest rate risk is managed on an ongoing basis by the Manager. The Fund may invest in financial instruments and enter into transactions denominated in currencies other than its functional currency. Consequently, the 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 Fund s assets or liabilities denominated in currencies other than Renminbi. 20

23 Notes to the Financial Statements The fluctuations in the rate of exchange between the currency in which the asset or liability is denominated and the functional currency could result in an appreciation or depreciation in the fair value of that asset or liability. The Manager monitors the Fund s currency exposures on an ongoing basis. Currency sensitivity At 31 July 2017, had the Renminbi ( RMB ) weakened by 5% (2016: 5%) in relation to respective currencies, with all other variables held constant, net assets attributable to unitholders and profit for the year would have increased by the amounts shown below. As at 31 July Net exposure RMB Change in net assets if RMB weakened by 5% RMB Currencies Hong Kong dollar (2,122,612) (106,131) United States dollar 1,568,973 78,449 Total (553,639) (27,682) As at 31 July 2016 Currencies Hong Kong dollar (5,335,136) (266,757) United States dollar (3,144,770) (157,239) Total (8,479,906) (423,996) (d) Credit risk Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Fund. The Fund s exposure to credit risk is monitored by the Manager on an ongoing basis. At 31 July 2017 and 2016, all of the Fund s financial assets were exposed to credit risk. These include investments and cash and cash equivalents placed with banks and the custodian. At the date of the statement of financial position, the Fund invested in debt securities with the following credit quality expressed as a percentage of debt securities: Rating (Moody s/s&p/fitch) % of debt securities Aaa/AAA/AAA Aa2/AA/AA Aa3/AA-/AA A1/A+/A A2/A/A A3/A-/A Baa1/BBB+/BBB Baa2/BBB/BBB Baa3/BBB-/BBB Ba1/BB+/BB Ba2/BB/BB B1/B+/B B2/B/B 3.08 B3/B-/B NR Total Credit risk is managed by reviewing and monitoring the credit quality of debt securities held by the Fund or the issuers of the debt securities held by the Fund on an ongoing basis. Credit risk arising from transactions with brokers relates to transactions awaiting settlement. Risk relating to unsettled transactions is considered small due to the short settlement period involved and the high credit quality of the brokers used. A majority of the cash held by the Fund is deposited with the HSBC Group. Bankruptcy or insolvency of the bank may cause the Fund s rights with respect to the cash held by the bank to be delayed or limited. The Manager monitors the credit rating and financial position of the bank on an ongoing basis. Substantially all of the assets of the Fund are held by the custodian. Bankruptcy or insolvency of the custodian may cause the Fund s rights with respect to securities held by the custodian to be delayed or limited. The custodian is a group company of HSBC, for which the credit risk is considered insignificant. The carrying amounts of financial assets best represent the maximum credit risk exposure at the date of statement of financial position. At 31 July 2017 and 2016, there were no significant concentrations of credit risk to counterparties except to the custodian.