APS FUNDS - PhillipCapitalinternetfileserver.phillip.com.sg/Poems/UnitTrust/Reports/570801_AR... · (TMT) assets. Multipolar’s main assets are: 1) a 50.2% stake in Matahari Putra

APS FUNDS - APS ALPHA FUND (Constituted under a Trust Deed in the Republic of Singapore)

ANNUAL REPORT AND FINANCIAL STATEMENTS For the financial year ended December 31, 2015

C O N T E N T S PAGE

Manager’s investment report 1 - 5

Notes to unitholders 6 - 7

Report of the trustee 8

Statement by the manager 9

10 - 11

Financial statements

Statement of total return 12

Statement of financial position 13

Statement of portfolio 14

Notes to financial statements 15 - 29

Independent auditors’ report to the

unitholders of APS Funds – APS Alpha Fund

1

2


2

MANAGER’S INVESTMENT REPORT (cont’d) Fund Performance Analysis and Portfolio Activities Largest Contributors to Performance GOME Electrical Appliances is one of China’s largest retailers of electrical appliances both online and offline. The stock price was volatile and was correlated with the China A-share market in mid-2015. Gome ended the year with a 11.2% rise. Besides, the stock was negatively affected by increasing concerns over Gome’s corporate governance post announcement of asset injection by major shareholder. Investors disagreed with the hefty valuation Gome proposed to pay for the unlisted assets owned by the major shareholder Wong Kwong Yu. On 28 October, the company announced a revised proposal which was at a 19.3% discount to the initial asking price. The share price rebounded as investors took a positive view of the adjustment. Gome’s business performance remained healthy as of 9M2015, with revenue growth of 7.9% yoy and same-store sales growth of 2.3% yoy. Shenzhen International has been a defensive stock given it has 3 lines of businesses, toll roads, logistics and non-core investments, all attractive in the low rate environment. Recently, four expressways were converted into toll-free expressways with cash compensation from the local government. This event is in line with what has occurred in the past and the assumptions are conservative. The market continues to misprice the logistics business and underestimate the fact that it is fast-growing and demand exceeds supply. At 10x earnings, we think this stock has a margin of safety. Jin Jiang International Hotels (Group) Company is a Shanghai-based, state-owned hotel group. The company is the largest hotelier in China and one of the 20 largest hotel groups in the world. It has over 60,000 rooms (owned, managed, or franchised) covering 88 cities and municipalities in China. As an integrated hospitality services provider, the group’s activities range from budget hotel operations and franchising to 5-star hotel businesses under the brand names Jin Jiang Inn and Jin Jiang. The industry’s monthly metrics continue to be positive, with occupancy rates and revenue per average room (RevPAR) improving year-on-year. We continue to believe that the demand-and-supply balance of star-rated hotel rooms has reached an equilibrium state in Shanghai. This is evidenced by 6.1% growth in RevPAR for Shanghai-based 5-star hotels for the first 10 months of 2015. We expect the supply of star-rated rooms in Shanghai will be muted going forward due to high land costs as well as the fact that most of the international hotel operators have already established their presence in Shanghai. Jin Jiang’s management believe the opening of Shanghai Disneyland in mid-2016 and the free trade zone will drive strong demand for hotels.

3


3

MANAGER’S INVESTMENT REPORT (cont’d) Largest Detractors from Performance TCC International (TCCI) is a major cement producer in south and southwest China that will likely be a beneficiary of consolidation in the industry. Being one of the largest producers with a 54.9 million tonne capacity, TCCI will be one of the few survivors of the industry shake-out in these two regions; the reduced competition will bode well for TCCI’s profitability in the future. The consolidation trend continues apace, supported by various policies. As an example, the Ministry of Industry and Information Technology, the National Development and Reform Commission, and the Administration of Quality Supervision recently announced electricity price hikes to accelerate the shuttering of outdated cement capacity. At the same time, demand growth is expected to be stable in these two regions as massive spending by the Guangdong, Sichuan and Guangxi provincial governments will more than offset the decreased demand due to a slowdown in the property market (property construction accounts for only 10% of cement consumption in these regions over the past several years). The stock is trading at EV/tonne of US$35, way below the replacement cost of US$70 per tonne for new capacity in China. Elnusa Tbk has been in the oil-and-gas services business since 1972 when its seismic division was incorporated. Currently, the company has three core business divisions: 1) integrated upstream services, 2) downstream services and 3) upstream supporting services. The company possesses a strong track record as well as a blue-chip client base such as ExxonMobil, BP, Chevron and ConocoPhillips. We believe that Indonesia’s domestic oil-and-gas exploration and production activities should remain brisk in the near future as the government has set an ambitious target for oil production of around 1,000 mbopd (thousand barrels of oil per day). Production volume will come from either existing areas (which will be limited since most assets are mature and face a higher declining rate of production) or from new exploration areas. These activities will allow Elnusa to sustain its business since Elnusa’s upstream services business is integrated from geodata acquisition to oilfield services. The share price has been rather volatile in the past year as investors are having doubts about the sustainability of its earnings amid the collapse in crude oil prices. To ease investors’ concern, the company had publicly guided that the soon-to-be-announced core earnings for FY2015 are expected to improve 15% year-on-year while profitability is expected to be maintained for FY2016 as well. Multipolar is a holding company with leading retail as well as telecommunication, multimedia and technology (TMT) assets. Multipolar’s main assets are: 1) a 50.2% stake in Matahari Putra Prima, one of the largest hypermarket operators in Indonesia with 91 stores and a market share of 32.3%; 2) a 20.5% stake in Matahari Department Store, the leading department store in Indonesia in terms of retail sales value in 2012, according to a Euromonitor analysis; 3) a 50% stake in a joint venture to operate Timezone, one of the leading family entertainment centers with 90 stores; 4) an 80% stake in Multipolar Technology, the largest IT system integrator in Indonesia with 100 service points in 80 cities; and 5) a 34% stake in First Media, a company that operates pay cable TV and high-speed internet services. Multipolar’s share price underperformed in the past year as investors were concerned about the continued losses at its 65%-owned BigTV, a pay TV operator. This concern has probably been factored into the share price as it is trading at an 85% discount to its sum-of-the-parts.

4


4

MANAGER’S INVESTMENT REPORT (cont’d) Recent Buys Tianjin Zhongxin Pharmaceutical is a primary beneficiary of China’s ageing population and sharply rising incidence of cardio-vascular diseases. Being a time-honored brand name with a number of exclusive products under China’s national essential drug catalog, Tianjin Zhongxin is in a good position to capitalize on China’s ageing population. Its flagship product, Su Xiao Jiu Xin pill, is widely recognized for its efficacy in treating cardio-vascular diseases with no known side effects. At the point of initiation, its Singapore-listed shares (S-shares) were traded at a 64% discount to its A-shares. Valuation at 13x forward earnings was compelling in view of the growth prospects for the company’s products. Red Star Macalline Group is the largest home improvement and furnishing shopping mall operator in China. As at 9M2015, the company delivered healthy revenue growth of 14.5%yoy where same-mall income grew 6.2%yoy. Average occupancy rate of the portfolio malls reached 94% in 1H2015. Due to its market leadership and brand recognition, the company possesses strong bargaining power over its tenants. Redstar is also actively working with mall landlords by providing management services. Revenue from management services has increased 34% yoy in 1H2015. With its first-mover advantage in Tier-1/2 cities, years of operational experience and a deep tenant pool, the company has established an attractive third-party platform that connects brands and customers within its malls. The share price has declined 27% since the IPO in June 2015, and the stock currently trades at 7.5x forward P/E, which is highly undervalued in view of its strong growth prospects and appreciation of its property asset value. China lags far behind the US and Japan in IT security expenditure, which accounted for only 1.1% of its total IT spending in 2014 (USA’s is 7.4%; Japan’s is 6.1%, according to IDC). We believe IT security in China will achieve significant growth over the next 5 years (CAGR: 30-40% YoY), as historical under-investments and increasing demand for network, endpoint, data and cloud security from the government and enterprises will provide strong tailwinds for growth. IT security was the second fastest growing segment in IT expenditure in 2013, and is poised to accelerate based on our research. Venustech is the domestic market leader in IT security solutions, with 14.2% market share, which is an industry that we believe to have good long-term growth prospects as: (i) the use of IT becomes more widespread, and (ii) governments and corporates step up IT security measures following Edward Snowden’s revelations. The firm can be expected to benefit from industry consolidation through strategic acquisitions to expand its market share and enhance its competitiveness. In 1H15, the firm unveiled the first domestic cloud computing security platform based on flow detection technology, allowing for an integrated IT security solution that encompasses cloud computing, internet and terminal. It also launched a number of other solutions targeted at the public security bureau and industrial enterprises, and is cooperating with tech industry bellwether, Tencent, to develop enterprise internet security solutions. Taken together, these widen the gap between the firm and its competitors. Venustech also recently completed its acquisition of an electronic technology firm, Scholar Electronics Co; a leading IT security provider, Anfang High Tech; and IT security solutions provider pertaining to big data processing technology and secure data exchange products, Union Data, which further extends Venustech’s product offering in document and signage security. In 2H15, we noted that President Xi touched on internet security issues multiple times during his state visit to the US in September. Venustech’s senior management increased their holdings in the open market in Q3.

5


5

MANAGER’S INVESTMENT REPORT (cont’d) Recent Sells Jardine Strategic is a Hong Kong conglomerate, listed in Singapore. Its key listed holdings comprise of Hongkong Land (50% ownership), Dairy Farm (78%), Mandarin Oriental (74%) and Jardine Cycle & Carriage (71%). Jardine Cycle & Carriage in turn is a holding company for the Group’s stake in Astra International, an Indonesian conglomerate with interest in wide-ranging industries, such as auto, mining, banking and oil palm plantation. Jardine Strategic also has a 55% cross-shareholding in its parent Jardine Matheson, which provides exposure to the group's unlisted businesses – Jardine Pacific and Jardine Motors Group—as well as the listed insurer, Jardine Lloyd Thompson. The Fund decided to liquidate this holding as cyclical headwinds faced by its various units, especially at Dairy Farm and Jardine Cycle & Carriage, will result in weak earnings for the group in the near future. Robinsons Land manages a portfolio of recurring-income assets, such as malls, offices and hotels, in the Philippines. About 80% of its EBIT comes from malls, offices, and hotels. The Fund liquidated its position when the valuation reached 18x forward P/E, which was at a premium to its peers, as well as to its expected low-teens earnings growth. Chow Tai Fook is the largest Hong Kong-based group making and retailing gold and gemstone jewelry in Greater China. Although we are still bullish about the structural growth of demand for non-gold jewelry, especially the diamond gem sets, we doubt Chow Tai Fook will benefit from this trend. The company continues to suffer from operational deleveraging as revenues are experiencing a cyclical slowdown while costs continue to escalate due to an aggressive expansion of new stores. Investment Strategy While 2016 has got off to an eventful start, our investment approach will not waver with market volatility. We will remain true to our proven investment style and that means deep primary investigative research to understand business models, competitive dynamics as well as corporate governance. We will systematically exploit market inefficiencies and fears to uncover gems. We believe this discipline is important for success in investing in Asia, which is borne out by our long-term track record. Elevated volatility in the market, especially the Chinese market, should provide us with fertile hunting grounds for alpha-generating opportunities. New structural themes and trends, such as the increasing dominance of younger fun-seeking consumers, will continue to emerge in China while the corporate fundamentals and future prospects of "new China" companies remain attractive. The structural changes and dynamics driving sectors such as IT security, e-commerce, tourism, and healthcare remain intact and are distinct from market policy-related issues. While we continue to favor North Asian markets, in particular China, we are getting more active in Southeast Asia as the valuations of some names have become more attractive. Among the Southeast Asian markets, we are more bullish on Indonesia's longer-term outlook. While the country is not immune to a global slowdown, Indonesia’s long-term structural story is still very much intact, driven by domestic factors such as low debt, improvement in macrostability, favorable demographics and still respectable productivity dynamics. All things considered, 2016 looks to be another year full of opportunities for disciplined, fundamental investors in Asia.

6

APS FUNDS - APS ALPHA FUND (Constituted under a Trust Deed in the Republic of Singapore) NOTES TO UNITHOLDERS For the financial year ended December 31, 2015

6

1 TOP 10 HOLDINGS

Fair Value*

Percentage of total net

assets attributable

to unitholders

$ % 10 largest holding as at December 31, 2015 held by APS Far East Alpha Fund (the “Master Fund”): Security name Kerry Logistics Network 3,816,687 4.25 GOME Electrical Appliances Hldg. 3,578,516 3.99 Shanghai Jin Jiang Intl H 1,899,052 2.12 Tianjin Tasly Pharm. 'A' 1,566,500 1.75 Shenzhen Intl. Hldgs. 1,293,964 1.44 Fortis Healthcare 1,287,766 1.43 Samsung Electncs. 1,259,654 1.40 Tianjin Zhong Xin 'S' Cny1 1,207,385 1.34 Catcher Tech. 1,195,159 1.33 Keppel Telecoms. & Transp 1,167,302 1.30 10 largest holding as at December 31, 2014 held by APS Far East Alpha Fund (the “Master Fund”): Security name GOME Electrical Appliances Holding Limited 4,160,280 4.65 Shenzhen International Holdings 3,553,094 3.97 Kerry Logistics Network 2,495,563 2.79 Hutchison Whampoa 2,230,739 2.49 Jardine Strategic Holding 1,544,702 1.73 Tianjin Tasly Pharmaceutical Group Co. Ltd 1,506,613 1.68 Matahari Putra Prima 1,458,692 1.63 Robinsons Land Co 1,449,087 1.62 Chow Tai Fook Jewellery Group 1,408,355 1.57 IJM Corp Bhd 1,366,729 1.53 * This represents the Fund’s proportionate holding of the 10 largest holdings held by the Master

Fund.

7

APS FUNDS - APS ALPHA FUND (Constituted under a Trust Deed in the Republic of Singapore) NOTES TO UNITHOLDERS For the financial year ended December 31, 2015

7

2 PORTFOLIO TURNOVER RATIO Please refer to the Note 9 of the financial statements. 3 EXPENSE RATIO Please refer to the Note 9 of the financial statements. 4 SCHEDULE OF INVESTMENT BY COUNTRY (EXCLUDING CASH AND CASH EQUIVALENT)

Country

Fair value as at December 31,

2015

Percentage total assets

attributable to unitholders as at December 31,

2015


2014



2014 $ % $ % Ireland 51,721,912 98.00 50,427,204 95.80 5 SCHEDULE OF INVESTMENT BY INDUSTRY

Industry


2015



2015


2014



2014 $ % $ % Investment funds 51,721,912 98.00 50,427,204 95.80 Other net assets 1,053,826 2.00 2,210,081 4.20 Net assets attributable to unitholders 52,775,738 100.00 52,637,285 100.00

8

APS FUNDS - APS ALPHA FUND (Constituted under a Trust Deed in the Republic of Singapore) REPORT OF THE TRUSTEE

8

The Trustee is under a duty to take into custody and hold the assets of APS Funds - APS Alpha Fund in trust for the unitholders. In accordance with the Securities and Futures Act (Cap. 289), its subsidiary legislation and the Code on Collective Investment Schemes (collectively referred to as the “laws and regulations”), the Trustee shall monitor the activities of the Manager for compliance with the limitations imposed on the investment and borrowing powers as set out in the Trust Deed in each annual accounting period and report thereon to unitholders in an annual report. To the best knowledge of the Trustee, the Manager has, in all material respects, managed APS Funds - APS Alpha Fund during the period covered by these financial statements, set out on pages 12 to 29, comprising the statement of total return, statement of financial position, statement of portfolio and notes to the financial statements, in accordance with the limitations imposed on the investment and borrowing powers set out in the Trust Deed, laws and regulations and otherwise in accordance with the provisions of the Trust Deed. For and on behalf of the Trustee RBC Investor Services Trust Singapore Limited Singapore March 22, 2016

9

APS FUNDS - APS ALPHA FUND (Constituted under a Trust Deed in the Republic of Singapore) STATEMENT BY THE MANAGER

9

In the opinion of the directors of APS Funds - APS Alpha Fund, the accompanying financial statements set out

on pages 12 to 29, comprising the statement of total return, statement of financial position, statement of portfolio

and notes to the financial statements are drawn up so as to present fairly, in all material respects, the financial

position of APS Funds - APS Alpha Fund as at December 31, 2015, and the total return for the year then ended

in accordance with the Recommendations of Statement of Recommended Accounting Practice 7 “Reporting

Framework for Unit Trusts” issued by the Institute of Singapore Chartered Accountants. At the date of this

statement, there are reasonable grounds to believe that APS Funds - APS Alpha Fund will be able to meet its

financial obligation as and when they materialise.

FOR AND ON BEHALF OF THE DIRECTORS OF THE MANAGER, APS ASSET MANAGEMENT PTE LTD Mr Wong Kok Hoi Director Singapore March 22, 2016

10

10

INDEPENDENT AUDITORS’ REPORT TO THE UNITHOLDERS OF APS FUNDS - APS ALPHA FUND (Constituted under a Trust Deed in the Republic of Singapore) We have audited the financial statements of APS Funds - APS Alpha Fund (the “Fund”), which comprise the statement of financial position and statement of portfolio as at December 31, 2015, and the statement of total return for the year then ended, and a summary of significant accounting policies and other explanatory information, as set out on pages 12 to 29. Manager’s Responsibility for the Financial Statements The Fund’s Manager (the “Manager”) is responsible for the preparation and fair presentation of these financial statements in accordance with the recommendations of Statement of Recommended Accounting Practice 7 “Reporting Framework for Unit Trusts” issued by the Institute of Singapore Chartered Accountants, and for such internal control as the Manager determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Fund’s preparation and fair presentation of financial statements 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. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Manager, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

11

11

INDEPENDENT AUDITORS’ REPORT TO THE UNITHOLDERS OF APS FUNDS - APS ALPHA FUND (Constituted under a Trust Deed in the Republic of Singapore) Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as at December 31, 2015 and the total return for the year then ended in accordance with the recommendations of Statement of Recommended Accounting Practice 7 “Reporting Framework for Unit Trusts” issued by the Institute of Singapore Chartered Accountants. Deloitte & Touche LLP Public Accountants and Chartered Accountants Singapore March 22, 2016

12

APS FUNDS - APS ALPHA FUND (Constituted under a Trust Deed in the Republic of Singapore) STATEMENT OF TOTAL RETURN For the financial year ended December 31, 2015

See accompanying notes to the financial statements.

12

Note 2015 2014 $ $ Income Other income - 111,944 Net income - 111,944 Net gain on value of investments

Net gains on investments 2,411,275 1,609,122 Net foreign exchange gains 26,093 6,250

Net gain on value of investments 2,437,368 1,615,372 Total return for the year before income tax 2,437,368 1,727,316 Less: Income tax - - Total return for the year 2,437,368 1,727,316

13

APS FUNDS - APS ALPHA FUND (Constituted under a Trust Deed in the Republic of Singapore) STATEMENT OF FINANCIAL POSITION As at December 31, 2015


13

Note 2015 2014 $ $ ASSETS Portfolio of investments 51,721,912 50,427,204 Cash and bank balances 1,054,192 2,212,172 Total assets 52,776,104 52,639,376 LIABILITY Payables 5 366 2,091 EQUITY Net assets attributable to unitholders 6 52,775,738 52,637,285

14

APS FUNDS - APS ALPHA FUND (Constituted under a Trust Deed in the Republic of Singapore) STATEMENT OF PORTFOLIO As at December 31, 2015


14

Holdings as at December 31,

2015

Holdings as at December 31,

2014


2015


2014

Percentage of total net assets attributable to

unitholders as at December 31,

2015



2014 $ $ $ $ % % By Geography (Primary) Ireland APS Far East

Alpha Fund - Class E 156,548 159,923 51,721,912 50,427,204 98.00 95.80 Total Ireland 51,721,912 50,427,204 98.00 95.80 Other net assets 1,053,826 2,210,081 2.00 4.20 Net assets attributable

to unit holders 52,775,738 52,637,285 100.00 100.00

Fair value as at December

31, 2015


2014



2015



2014 $ $ % %

By Industry (Secondary) Quoted Investment Funds

Ireland Investment Funds 51,721,912 50,427,204 98.00 95.80

Portfolio of investments 51,721,912 50,427,204 98.00 95.80 Other net assets 1,053,826 2,210,081 2.00 4.20 Net assets attributable to unitholders 52,775,738 52,637,285 100.00 100.00

15

APS FUNDS - APS ALPHA FUND (Constituted under a Trust Deed in the Republic of Singapore) NOTES TO FINANCIAL STATEMENTS As at December 31, 2015

15

1 GENERAL APS Funds - APS Alpha Fund (the “Fund”) is an open-umbrella fund established by way of a Trust Deed

dated May 14, 2003, as amended by Amending and Restating Deeds dated July 18, 2003, June 29, 2004, August 2, 2004, June 29, 2010, June 29, 2011 and September 30, 2011 between APS Asset Management Pte Ltd (the “Manager”) and RBC Investor Services Trust Singapore Limited (the “Trustee”). The Trust Deed is governed by the laws of the Republic of Singapore.

Only units in APS Alpha Fund (a sub-fund of APS) are currently being offered. The Fund is a feeder fund and all or substantially all of the assets of the Fund, to the extent not retained

in cash, are invested in the units of APS Far East Alpha Fund (the “Master Fund”). The Master Fund is a sub-fund of APS Fund which was established as an open-ended umbrella Unit Trust authorised by the Central Bank of Ireland pursuant to the provisions of the European Communities Undertakings for Collecting Investment in Transferable Securities regulations. The Master Fund is listed on the Irish Stock Exchange. The Manager also acts as the investment manager for the Master Fund.

The principal objective of the Fund is to achieve capital appreciation in the medium to long term through

its investment in the Master Fund. The Master Fund invest in listed equities, quoted convertible bonds and financial derivative instruments specifically those traded on a recognised exchange in the Far East (excluding Japan).

The Fund is included under the Central Provident Fund Investment Scheme. 2 SIGNIFICANT ACCOUNTING POLICIES BASIS OF ACCOUNTING - The financial statements have been prepared under the historical cost basis

as modified by the revaluation of investments and in accordance with the Statement of Recommended Accounting Practice 7 “Reporting Framework for Unit Trusts” (“RAP 7”) issued by the Institute of Singapore Chartered Accountants.

For the purposes of preparation of these financial statements, the basis used for calculating the ratio of

expenses and portfolio turnover rate are in accordance with the guidelines issued by the Investment Management Association of Singapore and the Code on Collective Investment Schemes under the Securities and Futures Act (Cap. 289), respectively.

The financial statements are expressed in Singapore dollars, which is the functional currency of the Fund.

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16

2 SIGNIFICANT ACCOUNTING POLICIES (cont’d)

ADOPTION OF NEW AND REVISED STANDARDS - On January 1, 2015, the Fund adopted all the new and revised FRSs and Interpretations of FRS (“INT FRS”) that are effective from that date and are relevant to its operations. The adoption of these new/revised FRSs and INT FRSs does not result in changes to the Fund’s accounting policies and has no material effect on the amounts reported for the current or prior years. At the date of authorisation of the financial statements, there are no FRSs, INT FRSs and amendments to FRS that are relevant to the Fund were issued but not effective. RECOGNITION OF INCOME - Dividend income is recognised when declared and is stated gross of tax credits. Interest income on deposits is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

INVESTMENTS - Investments are classified as fair value through profit and loss. (i) Initial recognition Purchases of investments are recognised on the trade date. Investments are recorded at fair value

on initial recognition. (ii) Subsequent measurement Investments are subsequently carried at fair value based on the bid prices at the reporting date. Net

changes in fair value of investments are included in the Statement of Total Return in the year in which they arise.

(iii) Derecognition Investments are derecognised on the trade date of disposal. The realised gains and losses including

gain and losses on foreign exchange on the sale of investment are taken up in the Statement of Total Return.

BASIS OF VALUATION OF INVESTMENTS - Investment in the Master Fund is stated at the last

published net asset value per unit as at the end of the reporting period.

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17


FOREIGN CURRENCIES TRANSACTION - Foreign currency monetary assets and liabilities are converted to Singapore dollars at the rates of exchange prevailing as at the end of the reporting period. Transactions in foreign currencies during the year are translated into Singapore dollars at exchange rates prevailing at the transaction dates. Exchange differences arising on the settlement of monetary items, and on retranslation of monetary assets and liabilities are included in the Statement of Total Return.

DERIVATIVE FINANCIAL INSTRUMENTS - Derivatives are recognised at fair value on the date on

which a derivative contract is entered into and are subsequently re-measured at their fair values. Fair values are obtained from quoted market prices in active markets, including recent market transactions and valuation techniques. All derivatives are carried as assets when fair value is positive and as liabilities when fair value is negative. Subsequent changes in the fair value of any derivative instrument are recognised in the Statement of Total Return.

PRELIMINARY EXPENSES - Preliminary expenses consist of legal fees and other fees, incurred in the

establishment of the Master Fund. All preliminary expenses are taken up in the Statement of Total Return of the Master Fund in the period in which they are incurred.

RECEIVABLES - Receivables are non-derivative financial assets with fixed or determinable payments

that are not quoted in an active market. Receivables are carried at anticipated realisable value. CASH AND BANK BALANCES - Cash and bank balances comprise cash in banks are subject to an

insignificant risk of changes in value. PAYABLES - Payables and accruals are initially measured at fair value, net of transaction cost, and are

subsequently measured at amortised cost, using the effective interest rate method, with interest expense recognised on an effective yield basis.

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18


TAXATION - The taxation charge relates to tax deducted at source and withholding tax suffered on

dividend income and interest income. The Fund was granted the status of a Designated Unit Trust and, therefore, the following income is

exempted from tax in accordance with Section 35(12) of the Income Tax Act (Cap. 134): • gains or profits derived from Singapore or elsewhere from the disposal of securities;

• interest (other than interest for which Singapore tax has been withheld); and

• dividend derived from outside Singapore and received in Singapore.

3 FINANCIAL RISK MANAGEMENT

As the Fund invests solely in the Master Fund, the Fund is exposed to the same risks faced by the Master

Fund. The Master Fund’s activities expose it to a variety of market risk (including price risk, currency risk and interest rate risk), credit risk and liquidity risk. The Master Funds’ overall risk management programme seeks to minimise potential adverse effects on its financial performance.

The Master Fund’s assets principally consist of investments in listed equities, warrants, bonds, cash and

short-term receivables arising from its operations. They are held in accordance with the investment policies stated in the prospectus of the Master Fund. The allocation of assets between the various types of investments is determined by the investment manager of the Master Fund to achieve the Master Fund’s investment objectives.

The following is a summary of the main risks and risk management policies: (a) Market risk Market risk is the risk of potential adverse changes to the value of financial instruments to changes

in market conditions like interest and currency rate movements and volatility in security prices. External factors such as changes in economic environment, consumption patterns and investor’s

expectation contribute to market risk which may have a significant impact on the assets’ value. The Master Fund’s market risk is affected by changes in three main components: changes in actual

market prices, foreign exchange movements and interest rate volatility.

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19

3 FINANCIAL RISK MANAGEMENT (cont’d)

(i) Price risk The Fund’s investment in the Master Fund is subject to the fluctuation in the quoted net asset

value of the Master Fund. Such risk is primarily managed by the investment manager of the Master Fund through constant monitoring to ensure effective portfolio diversification via countries, industries and stocks to limit its exposure. The investment manager also performs regular portfolio reviews to revalidate the weightings of each stock, sector and country to prevent unintended large underweight or overweight positions.

Manager’s estimate of the reasonable possible increase (decrease) of 5% in the Master Fund

has a potential impact of approximately $2,586,096 (2014 : $2,521,360) on the increase (decrease) in the Fund’s net asset attributable to unitholders.

(ii) Currency risk The Master Funds’ accounting books and records are kept in United States dollars. The

Master Fund invests in underlying securities which are denominated in foreign currencies where the fluctuations in the relevant exchange rates may have an impact on the income and value of the Master Fund.

The tables below summarise the Master Fund’s currency risk based on Singapore dollar

equivalents, denominated in the following currencies:

20

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21

21

22


22

3 FINANCIAL RISK MANAGEMENT (cont’d) (iii) Interest rate risk (cont’d)

Up to 1 year 1 to 5 years Non-interest

Bearing Total $ $ $ $ As at December 31, 2014 Assets Portfolio of investments - 417,619 80,532,859 80,950,478 Receivables - - 706,299 706,299 Cash and bank balances 9,160,098 - - 9,160,098 Total assets 9,160,098 417,619 81,239,158 90,816,875 Liabilities Payables - - 1,362,154 1,362,154 Total interest sensitivity gap 9,160,098 417,619 79,877,004 89,454,721 As of December 31, 2015, should interest rates lower or rise by 1% (2014 : 1%), with all other

variables remaining constant, the increase or decrease in net assets attributable to unitholders would be $56,887 (2014 : $95,777).

(b) Credit risk The Master Fund is exposed to the credit risk of the counterparty, where the counterparty may be

unable to pay amounts in part or in full when due, including transactions with counterparties such as issuers, custodians and banks.

The carrying amounts of financial assets best represent the maximum credit risk exposure at the

financial year end. This relates also to financial assets carried at amortised costs, as they have a short-term maturity.

The Master Fund’s credit risk is managed regularly by the investment manager through active

monitoring of changes in counterparty’s credit rating. The investment manager has in place an internal credit evaluation process to review the credit rating of each counterparty. To mitigate counterparty default, the investment manager will generally deal with well-established and reputable counterparties on a delivery versus payment basis whenever market practice permits.

23


23


(c) Liquidity risk The Master Fund’s assets comprise mainly readily realisable securities. The main liability of the

Master Fund is the redemption of any units that investors wish to sell. The Master Fund constitution provides for the daily creation and cancellation of units and is therefore exposed to the liquidity risk of meeting unitholder redemption at any time.

(d) Fair value of financial assets and financial liabilities The financial assets and financial liabilities of the Fund comprise of investments, receivables, cash

and bank balances and payables. The fair values of these financial assets and financial liabilities as at the reporting date approximate their carrying amounts as shown in the statement of financial position.

The Fund classifies fair value measurements using a fair value hierarchy that reflects the

significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

(i) quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1); (ii) quoted prices for similar investments in active markets; quoted prices for identical or similar

investments in markets that are not active and model-derived valuations whose significant value drives are observable (Level 2); and

(iii) inputs for the asset or liability that are not based on observable market data (unobservable

inputs) (Level 3).

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24


Financial instruments measured at fair value: Total Level 1 Level 2 Level 3 $ $ $ $ Financial assets 2015 Financial assets at fair value through profit or loss: - Investment in the Master Fund 51,721,912 51,721,912 - - 2014 Financial assets at fair value through profit or loss: - Investment in the Master Fund 50,427,204 50,427,204 - - (e) Capital management The objective of the Fund is to provide medium and long-term capital appreciation through

investment in the Master Fund. The Master Fund invests in listed equities, bonds and warrants traded on recognised exchange in the Far East (excluding Japan).

The Fund strives to invest the subscriptions of units in investments that meet the Fund’s investment

objectives while maintaining sufficient liquidity to meet unitholder redemption during the year. The Fund is not subjected to externally imposed capital requirements, and there were no changes

in the Fund’s approach to capital management during the year.

25

26


26

5 PAYABLES 2015 2014 $ $ Other accrued expenses 366 2,091 366 2,091 6 NET ASSETS ATTRIBUTABLE TO UNITHOLDERS 2015 2014 $ $ At beginning of the year 52,637,285 50,587,536 Operations Change in net assets attributable to unitholders resulting from operations 2,437,368 1,727,316 Unitholders’ (withdrawals) contributions Units created 51,294 1,682,031 Units cancelled (2,350,209) (1,359,598)

Change in net (liabilities)/assets attributable to unitholders

resulting from net creation and cancellation of units (2,298,915) 322,433 Total increase in net assets attributable to unitholders 138,453 2,049,749 At end of the year 52,775,738 52,637,285 Units in issue (see Note 7) 32,167,088 33,585,215 Net assets attributable to unitholders per unit 1.641 1.567

27


27

7 UNITS IN USE 2015 2014 $ $ Units at beginning of the year 33,585,215 33,358,456 Units created 30,062 1,098,778 Units cancelled (1,448,189) (872,019) Units at end of the year 32,167,088 33,585,215 8 PERFORMANCE FEE The Manager is entitled to receive a performance fee payable annually out of the assets of Class A. In

order for the Manager to qualify for the payment of the performance fee in any Performance Fee Period (the “PF Period”), the appreciation in the gross value per Class A Unit during that PF Period must exceed the non-cumulative annual hurdle rate of 6% (the “Hurdle”) in annualised terms and the gross value per Class A Unit at the end of that PF Period must be higher than the High Water Mark (the “HWM”) in order for a performance fee to be payable.

The “PF Period” for each Class A Unit (other than the first PF Period) shall be a period commencing

from 1st January and ending at the close of business on the 31st day of every December and thereafter, each PF Period commences on the day following the last day of the preceding PF Period for the Class A Units and ending at the close of business on the 31st day of every December. In respect of a financial year where 1st day of January or 31st day of December is a non-Business Day, the gross value per Unit shall be determined with reference to the immediately preceding Business Day.

The Performance Fee in respect of each Class A Unit will be equal to 25% of the appreciation in the

gross value per Class A Unit above its HWM during that PF Period. The HWM is the higher of (1) the highest gross value per Class A Unit in respect of which a performance fee has been paid at the end of any previous PF Period (if any) during which such Class A Unit was in issue; or (2) the gross value per Class A Unit at the beginning of that PF Period.

There is no performance payable for Class B units.

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28

9 FINANCIAL RATIOS 2015 2014 % % Expense ratio - (excluding performance fee) for the 12 months ended (Note 1) 0.00 0.00 Expense ratio - (including performance fee) for the 12 months ended (Note 1) 0.00 0.00 Turnover ratio for the 12 months ended (Note 2) 0.00 0.00 The financial ratios of Master Fund (Note 3): Expense ratio of Class E - (excluding performance fee) 0.00 0.00 for the 12 months ended Expense ratio of Class E - (including performance fee) 0.00 0.00 for the 12 months ended Turnover ratio for the 12 months ended (Note 2) 78.65 82.10 Note 1 - The expense ratio is calculated in accordance with the Investment Management Association of

Singapore’s guidelines on the disclosures of expense ratio. It does not include brokerage and other transaction costs, foreign exchange gains or losses, front or back-end loads arising from the purchase or sale of the Master Fund and tax deducted at source or arising out of income received.

Note 2 - The turnover ratio is calculated based on the lesser of purchases and sales expressed as a percentage of the daily average net asset value.

Note 3 - The Fund currently has Class A units only which invest into Class E of the Master Fund. Class E of the Master Fund is available only for investment by the Fund and not available for other investors. The Manager bears all expenses attributable to Class E of the Master Fund such as the administration fees, accounting and valuation fees, custodian, sub-custodian and depository fees, registrar fees, legal and professional fees and audit fees. No management and performance fees are repayable by Class E units of the Master Fund.


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10 SOFT DOLLAR ARRANGEMENT In its management of the Fund, the Manager receives soft dollar commissions from, or enters into soft

dollar arrangements with a number of brokers in respect of the Fund. The brokers also execute trades for other schemes managed by the Manager. The goods and services under the soft dollar arrangement may include the following:

(a) Research and advisory services; (b) Economic and political analyses; (c) Portfolio analyses; (d) Market analyses; (e) Data and quotation services; (f) Computer hardware and software used for or in support of the investment process

The goods and services received under the soft dollar arrangement were for the benefit of the Fund. The transactions were executed on best execution basis and the Manager did not enter into unnecessary trades in order to achieve a sufficient volume of transactions to qualify for soft dollars.

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Documents

APS FUNDS - PhillipCapitalinternetfileserver.phillip.com.sg/Poems/UnitTrust/Reports/570801_AR... · (TMT) assets. Multipolar’s main assets are: 1) a 50.2% stake in Matahari Putra