Annual Report 2017 - ftlife.com.hk · Lippo Centre 89 Queensway Hong Kong Telephone No.:+852 3626 9700 ... 18 Whitfield Road Causeway Bay Hong Kong Custodian Bank of China (Hong Kong)

Annual Report 2017For the year ended 31 December 2017


CONTENTS

MANAGEMENT AND ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

REPORT OF THE MANAGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

REPORT OF THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

INFORMATION FOR INVESTORS IN SWITZERLAND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

INDEPENDENT AUDITOR’S REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

AUDITED FINANCIAL STATEMENTS

Statement of financial position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

Statement of comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Statement of changes in net assets attributable to holders of redeemable participating shares . . . . . . . .11

Statement of cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Notes to financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

INVESTMENT PORTFOLIO (UNAUDITED) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37

STATEMENT OF MOVEMENTS IN INVESTMENT PORTFOLIO (UNAUDITED) . . . . . . . . . . . . . . . . . . . . . . .39

INVESTMENT ACTIVITIES (UNAUDITED) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40

PERFORMANCE TABLE (UNAUDITED) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41


1

MANAGEMENT AND ADMINISTRATION

Manager Zeal Asset Management LimitedSuite 2605, Tower 1Lippo Centre89 QueenswayHong Kong

Telephone No.:+852 3626 9700Fax No.: +852 3626 9736

Directors of the Manager CHOI Nga ChungNGAN Wai WahPOON Chun Pong

Trustee, Administrator and Registrar BOCI-Prudential Trustee Limited12/F and 25/F Citicorp Centre18 Whitfield RoadCauseway BayHong Kong

Custodian Bank of China (Hong Kong) Limited14/F, Bank of China Tower1 Garden RoadCentralHong Kong

Legal Counsel to the Manager Simmons & Simmons13th Floor, One Pacific Place88 QueenswayHong Kong

Auditor Ernst & Young22/F, CITIC Tower1 Tim Mei AvenueCentralHong Kong


2

REPORT OF THE MANAGER

Review of 2017

Reviewing 2017 as a whole, we are glad to note that our 2017 performance was principally driven by alpha stock picks . In terms of geography, all categories contributed to performance with P-chips and H-shares contributing most to performance . By sector, Consumer Discretionary and Information Technology contributed the most while Energy detracted slightly .

In 2017, the offshore China market largely outperformed the onshore market . The Hang Seng Index (HSI) gained +41 .27% and the Hang Seng China Enterprises Index (HSCEI) was up +29 .63%1 . In contrast, the Shanghai Stock Exchange Composite Index appreciated +8 .75%, while the Shenzhen Stock Exchange Composite Index slipped -2 .72%1 .

We used to hear foreign institutional investors’ concerns about China . Some questioned the sustainability of three decades of debt-fueled growth in the world’s second-largest economy; some argued China’s economy is on the way to a hard landing . However, in fact, China’s Gross Domestic Product grew 6 .9% in 20172, picking up for the first time in seven years3 and beating the government’s target of 6 .5%1 .

Outlook for 2018

The first month of 2018 witnessed the Renminbi (RMB) gain +3 .35%4 against the U .S . dollar, over half of the 6 .31% that RMB appreciated in the whole of 20171 . We believe China’s improving economic fundamentals are lending support to the RMB . RMB appreciation, to some extent, reflects that global investors are changing their negative perceptions of RMB assets, which is likely to help raise market expectations . For now, global investors appear to hold a slightly more positive view compared to the sentiment in the last few years towards China’s future against the backdrop of sustained reflation and improving asset quality .

2017 was a good year for China; we are especially encouraged to witness the progress of China’s transition and transformation as well as its economic rebalancing . China has repeatedly defied those who call for a hard landing and we expect the economy to continue to be strong in 2018 .

Supply-side Reforms and Reflating EconomySupply-side reform embodies China’s flagship economic policy under current administration’s leadership, focusing on reining in excessive production capacity, reducing corporate costs and upgrading the country’s industrial value chain . Initiated in late 2015, the reform has made solid progress . For example, around 10% of capacity in the steel and coal sectors was cut between 2016 and 20175 . Prices of major commodities (e .g . cement, steel, coal, aluminum) rebounded strongly in the past two years, resulting in higher-than-expected Producer Price Index in 2017 . Meanwhile, upstream sectors saw further profit gains and northern China, where most heavy industries are located, saw pollution reduced significantly . With Beijing’s priority shifting from quantity of growth to quality growth, we believe “old economy” industries will achieve a balanced development in the years to come, thereby supporting a more enduring reflationary momentum .

1 Source: Bloomberg as of Dec 20172 Source: National Bureau of Statistics of the People’s Republic of China as of Jan 20183 Source: Reuters as of Jan 20184 Source: Bloomberg as of Jan 20185 Source: Credit Suisse Equity Research as of Dec 2017


3

REPORT OF THE MANAGER (continued)

Outlook for 2018 (continued)

Private Sector Striving to Innovate and UpgradeThrough increasing investment in innovation and upgrading production processes, China’s manufacturing has been moving up the value chain at an accelerated pace, which will continue to be one of its primary growth engines in the coming years . Here’s an interesting statistic we’d like to share: China’s Research & Development (R&D) spending only amounted to 12% of United States’ spending on R&D in 2000; in 2015, this figure rose to 81%6 . This massive commitment to Research & Development made China become the first-ever middle income economy in the top 25 world’s most-innovative countries7 . Innovation is set to permeate almost every industry . Since China’s State Council announced “Made in China 2025” in 2015 as a national initiative to overhaul the manufacturing industry, China’s robotic revolution is in full swing . According to International Federation of Robotics, while global sales of industrial robots will increase 77% from 2016 to 2020, China, over the same period, is forecasted to skyrocket by 140%8 .

Robust Return on Equity (ROE) Profile Warrants Market Re-ratingWe believe Return on Equity will improve in 2018 with increasing margin and asset turnover ratio, as well as a healthier economic structure .

Most reflation pressures in the economy at present are driven by supply-side causes rather than demand-pull factors . 2017 saw mild demand growth, as fixed-asset investment climbed 7 .2% for the year, the least since 20001 . However, on the supply side, material progress in capacity cuts and pollution control so far has been translating into better macro and corporate metrics . China industrial enterprises total profit growth increased +10 .8% YoY 20171 . From our on-the-ground research, we continue to see Chinese companies increase in efficiency and productivity as industry consolidation accelerates; hence the asset turnover ratio increases .

Curbing financial risks is a priority for China in 2018 and the government will seek to control financial risks and foster a “virtuous circle” between finance and the real economy, between financial and property sectors, as well as within the financial system9 . The authorities will continue to crack down on irregular and illegal activities in the financial sectors to forestall risks . With China seeking a balance between financial reform and stability at the same time, in the long-term, deleveraging will result in healthier development of capital markets . Therefore, we expect robust ROE profile to warrant a re-rating for the Chinese market in the coming year .

Zeal Asset Management Limited9 April 2018

6 Source: OECD as of 2015; Main Science and Technology Indicators7 Source: World Intellectual Property Organization as of June 20178 Source: Asian Robotics Review as of Dec 20179 Source: Xinhuanet as of Dec 2017

This document is based on management forecasts and reflects prevailing conditions and our views as of this date, all of which are accordingly subject to change . In preparing this document, we have relied upon and assumed without independent verification, the accuracy and completeness of all information available from public sources . All opinions or estimates contained in this document are entirely Zeal Asset Management Limited’s judgment as of the date of this document and are subject to change without notice . Past performance is not indicative of future performance . There can be no assurance that the Fund’s investment objective will be achieved and investment results may vary substantially over time . Investment in the Fund is not intended to be a complete investment program for any investor .


4

REPORT OF THE TRUSTEE

We hereby confirm that, in our opinion, the Manager of the Trust has, in all material respects, managed the Trust in accordance with the provisions of the Trust Deed dated 25 August 2010, the First Supplemental Deed dated 3 March 2011, the Second Supplemental Deed dated 19 September 2013, the Third Supplemental Deed dated 8 May 2014, the Forth Supplemental Deed dated 25 June 2015 and restated by the Fifth Supplemental Deed dated 25 June 2015, the Sixth Supplemental Deed dated 28 December 2016 and the Seventh Supplemental Deed dated 18 May 2017 for the year ended 31 December 2017, as amended .

BOCI-Prudential Trustee Limited9 April 2018


5

INFORMATION FOR INVESTORS IN SWITZERLAND

The Fund had appointed Société Générale as Swiss Representative and Paying Agent . The current Explanatory Memorandum, the Trust Deed, the annual report and semi-annual report of the Fund may be obtained free of charge from the representative in Switzerland, Société Générale, Paris, Zurich Branch, Talacker 50, P .O . Box 5070, CH-8021 Zurich . The paying agent of the Fund in Switzerland is Société Générale, Paris, Zurich Branch, Talacker 50, P .O . Box 5070, CH-8021 Zurich . The Company may offer Shares only to qualified investors in Switzerland . In respect of the Shares distributed in and from Switzerland, the place of performance and jurisdiction is the registered office of the Swiss Representative .


6

INDEPENDENT AUDITOR’S REPORT

To the Trustee and Manager of ZEAL Voyage China Fund(A unit trust established under the laws of Hong Kong)

Opinion

We have audited the financial statements of ZEAL Voyage China Fund (the “Fund”) set out on pages 9 to 36, which comprise the statement of financial position as at 31 December 2017, and statement of comprehensive income, statement of changes in net assets attributable to holders of redeemable participating shares and statement of cash flows 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 statement of financial position of the Fund as of 31 December 2017, and of its financial performance and its statement of cash flows for the year then ended in accordance with International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (“IASB”) .

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (“ISAs”) . Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report . We are independent of the Fund in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (“IESBA Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code . We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion .

Other information included in the Annual Report

The Trustee and the Manager of the Fund are responsible for the other information . The other information comprises the information included in the Annual Report, other than the financial statements and our auditor’s report thereon .

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon .

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated . 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 Trustee and Manager for the Financial Statements

The Trustee and Manager of the Fund are responsible for the preparation of financial statements that give a true and fair view in accordance with IFRSs issued by the IASB, and for such internal control as the Trustee and the Manager are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error .


7

INDEPENDENT AUDITOR’S REPORT (continued)

Responsibilities of Trustee and Manager for the Financial Statements (continued)

In preparing the financial statements, the Trustee and Manager 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 Trustee and Manager either intend to liquidate the Fund or to cease operations, or have no realistic alternative but to do so .

In addition, the Trustee and Manager of the Fund are required to ensure that the financial statements have been properly prepared in accordance with the relevant disclosure provisions of the Trust Deed dated 25 August 2010 (the “Trust Deed”) and its latest supplemental deed dated 18 May 2017 and the disclosure requirements specified in Appendix E to the Code on Unit Trusts and Mutual Funds of the Securities and Futures Commission of Hong Kong (the “SFC Code”) issued by the Hong Kong Securities and Futures Commission .

Auditor’s Responsibility

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion . Our report is made solely to you, as a body, and for no other purpose . We do not assume responsibility towards or accept liability to any other person for the contents of this report .

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists . Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements . In addition, we are required to assess whether the financial statements of the Fund have been properly prepared, in all material respects, in accordance with the relevant disclosure provisions of the Trust Deed and the relevant disclosure provisions of Appendix E of the SFC Code .

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism 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 Trustee and Manager .


8


Auditor’s Responsibility (continued)

• Conclude on the appropriateness of the Trustee and Manager 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 auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion . Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report . However, future events or conditions may cause the Fund to cease to continue as a going concern .

• 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 Trustee and Manager regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit .

Report on matters under the relevant disclosure 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 disclosure provisions of the Trust Deed, and the disclosure requirements specified in Appendix E to the SFC Code .

ERNST & YOUNGHong Kong9 April 2018


9

STATEMENT OF FINANCIAL POSITION

As at 31 December 2017

2017 2016NOTES HKD HKD

ASSETSFinancial assets at fair value through profit or loss 9 2,947,261,207 1,688,827,106Cash and cash equivalents 11 219,167,450 180,288,256Amounts due from broker 12 53,881,358 93,985,508Interest receivable 237,086 246,966Subscription proceeds receivable 9,223,839 3,005,128

TOTAL ASSETS 3,229,770,940 1,966,352,964

LIABILITIES (EXCLUDING NET ASSETS

ATTRIBUTABLE TO HOLDERS OF REDEEMABLE PARTICIPATING SHARES)

Amounts due to broker 12 2,597,155 60,740Financial liabilities at fair value through profit or loss 9, 10 – 5,610,633Redemption proceeds payable 49,536,660 12,286,545Performance fee payable 6 160,689,718 306,592Management fee payable 6 4,616,219 2,927,682Trustee fee payable 6 299,880 203,293Other accounts payable and accrual 395,380 337,247

TOTAL LIABILITIES 218,135,012 21,732,732

NET ASSETS ATTRIBUTABLE TO HOLDERS

OF REDEEMABLE PARTICIPATING SHARES 3,011,635,928 1,944,620,232

NUMBER OF ISSUES UNITSHKD units class 13 486,451,725 .0888 493,302,016 .2770HKD (dist) units class 13 80,147,961 .6593 89,862,562 .4464USD units class 13 97,623,249 .0130 104,793,378 .5007AUD (hedged) units class 13 97,186 .1855 98,164 .9257RMB (hedged) units class 13 310,027,238 .2900 109,094,550 .8406

NET ASSET VALUE PER UNITHKD units class 1 .9889 1 .3927HKD (dist) units class 1 .4229 1 .0465USD units class 1 .8043 1 .2652AUD (hedged) units class 1 .5168 1 .0728RMB (hedged) units class 1 .4862 1 .1120


10

STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2017


INCOMEDividend income 52,933,530 38,244,296Interest income 504,769 1,235,872

53,438,299 39,480,168

EXPENSESPerformance fees 6 (202,462,677) (2,064,049)Management fees 6 (44,062,530) (34,176,267)Brokerage fees (12,578,783) (19,291,299)Transaction costs (11,107,425) (10,949,027)Trustee fees 6 (2,942,859) (2,377,930)Dividend withholding tax (1,958,577) (881,794)Custodian fees (966,017) (862,163)Legal and professional fees (350,344) (349,121)Audit fees (244,786) (237,509)Other operating expenses (1,203,883) (1,043,622)

(277,877,881) (72,232,781)

Net loss before investments and exchange

differences (224,439,582) (32,752,613)

INVESTMENT AND EXCHANGE DIFFERENCESNet gains on financial assets and liabilities at fair

value through profit or loss 9 1,078,162,879 153,664,790Net foreign exchange differences (328,315) 47,161

1,077,834,564 153,711,951

INCREASE IN NET ASSETS ATTRIBUTABLE TO

HOLDERS OF REDEEMABLE PARTICIPATING SHARES FROM OPERATIONS FOR THE YEAR BEFORE DISTRIBUTION 853,394,982 120,959,338

FINANCE COSTDistributions to unitholders 7 4,943,088 –

INCREASE IN NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE PARTICIPATING SHARES FROM OPERATIONS FOR THE YEAR 848,451,894 120,959,338


11

STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE PARTICIPATING SHARES


2017 2016HKD HKD

Net assets attributable to holders of redeemable participating shares at the beginning of the year 1,944,620,232 1,933,010,534

Issuance of redeemable participating shares during the year 1,749,860,459 662,156,450Redemption of redeemable participating shares during the

year (1,531,296,657) (771,506,090)Increase in net assets attributable to holders of redeemable

participating shares from operations for the year 848,451,894 120,959,338

Net assets attributable to holders of redeemable participating shares at the end of the year 3,011,635,928 1,944,620,232


12

STATEMENT OF CASH FLOWS


2017 2016NOTE HKD HKD

CASH FLOWS FROM OPERATING ACTIVITIESIncrease in net assets attributable to holders of

redeemable participating shares from operations for the year before distribution 853,394,982 120,959,338

Adjustments for:Interest income (504,769) (1,235,872)Dividend income, net of withholding tax (50,974,953) (37,362,502)

(Increase)/decrease in financial assets at fair value through profit and loss (1,258,434,101) 23,410,274

Decrease/(increase) in amounts due from broker 40,104,150 (44,072,573)(Decrease)/increase in financial liabilities at fair value

through profit and loss (5,610,633) 5,610,633Increase/(decrease) in amounts due to broker 2,536,415 (9,782,837)Increase in performance fee payable 160,383,126 306,592Increase in management fee payable 1,688,537 51,581Increase in trustee fee payable 96,587 2,848Increase in other accounts payable and accruals 58,133 39,022

(257,262,526) 57,926,504

Interest received 514,649 1,242,899Dividends received 50,974,953 37,362,502

Net cash flows (used in)/from operating activities (205,772,924) 96,531,905

CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issue of redeemable participating

shares 1,743,641,748 659,341,926Payment on redemptions of redeemable

participating shares (1,494,046,542) (763,543,397)Distribution paid (4,943,088) –

Net cash flows from/(used in) financing activities 244,652,118 (104,201,471)

Net increase/(decrease) in cash and cash

equivalents 38,879,194 (7,669,566)Cash and cash equivalents at beginning of year 180,288,256 187,957,822

Cash and cash equivalents at end of year 219,167,450 180,288,256

ANALYSIS OF BALANCES OF CASH AND

CASH EQUIVALENTS:Cash at bank 11 219,167,450 180,288,256


13

NOTES TO FINANCIAL STATEMENTS

1. THE FUND

ZEAL Voyage China Fund (the “Fund”) is a unit trust established under the laws of Hong Kong by the Trust Deed dated 25 August 2010, the First Supplemental Deed dated 3 March 2011, the Second Supplemental Deed dated 19 September 2013 and the Third Supplemental Deed dated 8 May 2014 (the “Trust Deed”) between Zeal Asset Management Limited as manager (the “Manager”) and Cititrust Limited (as the previous trustee of the Fund) amended by a Fourth Supplemental Deed dated 25 June 2015 (being the Deed of Retirement and Appointment), and as amended and restated by a Fifth Supplemental Deed dated 25 June 2015, the Sixth Supplemental Deed dated 28 Dec 2016 and Seventh Supplement Deed dated 18 May 2017 . By way of a deed of retirement and appointment, the Manager has appointed BOCI-Prudential Trustee Limited as the new trustee of the Fund (the “Trustee”) with effect from 27 July 2015 (the “Deed of Retirement and Appointment”) . The Fund has been authorised by the Securities and Futures Commission in Hong Kong (the “SFC”) under Section 104 of the Securities and Futures Ordinance of Hong Kong and is required to comply with the Code on Unit Trusts and Mutual Funds established by the SFC of Hong Kong (the “Code”) . The Fund is approved by the Immigration Department in Hong Kong as one of the Eligible Collective Investment Schemes under the Capital Investment Entrant Scheme (“the Scheme”) . However, the Scheme had been suspended with effect from 15 January 2015 until further notice as announced by the Hong Kong Government . With effect from 18 December 2015, the Fund has been approved by the China Securities Regulatory Commission to register as one of the northbound funds under the Mainland-Hong Kong Mutual Recognition of Funds scheme .

The Manager of the Fund is Zeal Asset Management Limited . Under the Trust Deed, the Manager is responsible for the management of the assets of the Fund . The Manager is also responsible, in conjunction with the Trustee, for the maintenance of the accounts and records of the Fund as well as certain other administrative matters relating to the Fund .

The investment objective of the Fund is to generate long-term capital appreciation by primarily investing in listed equities with a China focus . The Fund will seek to achieve its investment objective primarily through exposure to companies established in China or which derive a significant proportion of their revenue from business related to China . The Fund may also invest in companies incorporated elsewhere that have significant assets, business, production, trading activity or other interests in China . The Fund obtains investment exposure to such companies primarily through investing in securities listed on The Stock Exchange of Hong Kong, the Shanghai Stock Exchange and/or the Shenzhen Stock Exchange .

2.1 BASIS OF PREPARATION

The financial statements of the Fund have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by International Accounting Standard Board (“IASB”) . The financial statements have been prepared under the historical cost basis, except for financial assets and financial liabilities held at fair value through profit or loss, that have been measured at fair value . The financial statements are presented in Hong Kong dollars (“HKD”) and all values are rounded to the nearest dollar except where otherwise indicated .


NOTES TO FINANCIAL STATEMENTS (continued)

14

2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES

The accounting policies adopted by the Fund are consistent with those of the previous financial year except for the following amendments to IFRSs effective as of 1 January 2017:

Amendments to IAS 7 Statement of Cash Flows: Disclosure InitiativeThe amendments require entities to provide disclosure of changes in their liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes (such as foreign exchange gains or losses) . These amendments do not have any impact on the Fund .

There are no other standards, interpretations or amendments to existing standards that are not yet effective that would be expected to have a significant impact on the Fund .

2.3 IMPACT OF ISSUED BUT NOT YET EFFECTIVE INTERNATIONAL FINANCIAL REPORTING STANDARDS

The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Fund’s financial statements are disclosed below . The Fund intends to adopt these standards, if applicable, when they become effective .

• IFRS 9 Financial Instruments• IFRS 15 Revenue from Contracts with Customers

IFRS 9 Financial Instruments – Classification and MeasurementIn July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9 . IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting . IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted . Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory . For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions .

The Fund plans to adopt the new standard on the required effective date and will not restate comparative information . This assessment is based on currently available information and may be subject to changes arising from further reasonable and supportable information being made available to the Fund in 2018 when the Fund will adopt IFRS 9 . Overall, the Fund expects no significant impact on its results of financial performance or position .

IFRS 15 Revenue from Contracts with CustomersIFRS 15 was issued in May 2014, and amended in April 2016, and establishes a five-step model to account for revenue arising from contracts with customers . Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer .



15

2.3 IMPACT OF ISSUED BUT NOT YET EFFECTIVE INTERNATIONAL FINANCIAL REPORTING STANDARDS (continued)

IFRS 15 Revenue from Contracts with Customers (continued)The new revenue standard will supersede all current revenue recognition requirements under IFRSs . Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after 1 January 2018 . Early adoption is permitted .

The Fund plans to adopt the new standard on the required effective date and will not restate comparative information . This assessment is based on currently available information and may be subject to changes arising from further reasonable and supportable information being made available to the Fund in 2018 when the Fund will adopt IFRS 15 . The Fund expects no significant impact on its results of financial performance or position .

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of the Fund’s financial statements requires management to make judgements and assumptions that affect the amounts recognised in the financial statements . However, uncertainty about these assumptions and judgements could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future .

JudgementsIn the process of applying the Fund’s accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the financial statements:

Functional currencyThe primary objective of the Fund is to generate return in HKD, its capital-raising currency . The liquidity of the Fund is managed on a day-to-day basis in HKD in order to handle the issue, acquisition and resale of the Fund’s redeemable participating shares . The Fund’s performance is evaluated in HKD . Therefore, management considers the HKD as the currency that most faithfully represents the economic effects of the underlying transactions, events and condition .

Going concern The Fund’s management has made an assessment of its ability to continue as a going concern and is satisfied that it has the resources to continue in business for the foreseeable future . Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the Fund’s ability to continue as a going concern . Therefore, the financial statements continue to be prepared on the going concern basis .

Fair value measurement of financial instrumentsWhen the fair values of financial assets and financial liabilities recorded in the statement of financial position cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques . The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values . Judgments include considerations of inputs such as liquidity risk, credit risk and last trade price . Changes in assumptions about these factors could affect the reported fair value of financial instruments .



16

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (continued)

Estimates and assumptionsThe key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below . The Fund based its assumptions and estimates on parameters available when the financial statements were prepared .

However, existing circumstances and assumptions about future developments may change due to market changes or circumstances arising beyond the control of the Fund . Such changes are reflected in the assumptions when they occur .

TaxesUncertainties exist with respect to the interpretation of complex tax regulations and changes in tax laws on foreign withholding tax . Given the wide range of international investments, differences arising between the actual investment income and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax expense already recorded . The Fund establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective countries in which it invests . The amounts of such provisions are based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority . Such differences of interpretation may arise on a wide variety of issues depending on the conditions prevailing in the respective investment’s domicile . As the Fund assesses the probability for litigation and subsequent cash outflow with respect to taxes as remote, no contingent liability has been recognised .

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Financial instruments(a) Classification

The Fund classifies its financial assets and financial liabilities into the categories below in accordance with IAS 39 .

Financial assets and financial liabilities designated at fair value through profit or lossThe Fund has classified all of its investments as financial assets and financial liabilities held for trading, which comprise of listed equities, forward contracts and future contracts . These instruments are acquired or incurred principally for the purpose of generating a profit from fluctuation in price . The Fund’s policy is not to apply hedge accounting .

Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market . The Fund includes in this category cash and cash equivalents, amounts due from broker and subscription proceeds receivable .

Other financial liabilitiesThis category includes all financial liabilities . The Fund includes in this category amount due to broker, performance fee payable, management fee payable, administration fee payable, other accounts payable and accruals and redemption proceeds payable .



17

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Financial instruments (continued)(b) Recognition

The Fund recognises a financial asset or a financial liability when, and only when, it becomes a party to the contractual provisions of the instrument .

Purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the marketplace are recognised on the trade date, i .e ., the date that the Fund commits to purchase or sell the asset .

(c) Initial measurementFinancial assets are recorded in the statement of financial position at fair value . All transaction costs for such investments are recognised directly in profit or loss .

Loans and receivables and other financial liabilities are measured initially at their fair value plus any directly attributable incremental costs of acquisition or issue .

(d) Subsequent measurementAfter initial measurement, the Fund measures financial instruments which are classified as at fair value through profit or loss at their fair values . Subsequent changes of those financial instruments are recorded in ‘Net unrealised gains or losses on financial assets and liabilities at fair value through profit or loss’ . Interest and dividend income elements of such instruments are recorded separately in ‘Interest income’ and ‘Dividend income’, respectively .

Loans and receivables are carried at amortised cost using the effective interest method less any allowance for impairment . Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process .

Financial liabilities, other than those classified as at fair value through profit or loss, are measured at amortised cost using the effective interest method . Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the amortisation process .

The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period . The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability . When calculating the effective interest rate, the Fund estimates cash flows considering all contractual terms of the financial instruments but does not consider future credit losses . The calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts .



18


Financial instruments (continued)(e) Derecognition

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when:

• The rights to receive cash flows from the asset have expired; or

• The Fund has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass through’ arrangement; and

• Either (a) the Fund has transferred substantially all the risks and rewards of the asset, or (b) the Fund has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset .

When the Fund has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership . When it has neither transferred nor retained substantially all of the risks and rewards of the assets, nor transferred control of the asset, the asset is recognised to the extent of the Fund’s continuing involvement in the asset . In that case, the Fund also recognised an associated liability . The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Fund has retained .

The Fund derecognises a financial liability when the obligation under the liability is discharged, cancelled or expires .

Fair value measurementFair 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 .

The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability or, in the absence of a principal market, in the most advantageous market for the asset or liability . The principal or the most advantageous market must be accessible to the Fund .

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest .

The fair value for financial instruments traded in active markets (i .e . future contracts) at the reporting date is based on their quoted price or binding dealer price quotations, without any deduction for transaction costs .

For the fair value of financial instruments not traded in an active market (i .e . forward contracts), the most frequently applied valuation techniques include forward pricing models, using present value calculations . The models incorporate various inputs including the price of the underlying equities, the credit quality of counterparties, foreign exchange spot and forward rates and interest rate curves .



19


Fair value measurement (continued)For all other financial instruments not traded in an active market, the fair value is determined by using appropriate valuation techniques . Valuation techniques include the market approach (i .e ., using recent arm’s length market transactions adjusted as necessary and reference to the current market value of another instrument that is substantially the same) and the income approach (i .e ., discounted cash flow analysis and option pricing models making as much use of available and supportable market data as possible) .

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilitiesLevel 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement

is directly or indirectly observableLevel 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement

is unobservable

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Fund determines whether transfers have occurred between levels in the hierarchy by re-assessing the categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the beginning of each reporting period .

Impairment of financial assetsThe Fund assesses at each reporting date whether a financial asset group of financial assets classified as loans and receivables is impaired . A financial asset or group of financial assets is deemed impaired if, and only if, there is an objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the assets (an incurred ‘loss event’) and that the loss event has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated . Evidence of impairment may include indications that the debtor is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults . If there is objective evidence that an impairment loss has been incurred, the amount of loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred) discounted using the asset’s original effective interest rate .

Offsetting financial instrumentsFinancial assets and liabilities are offset and the net amount reported in the statement of assets and liabilities if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously .



20


Cash and cash equivalentsCash and cash equivalents in the statement of assets and liabilities comprise cash at bank and time deposits . Cash equivalents are short term, highly liquid investments readily convertible to known amounts of cash and subject to an insignificant risk of changes in value .

For the purpose of the statement of cash flows, cash and cash equivalents consist of cash at bank and time deposits, net of outstanding bank overdrafts .

Amounts due from/to brokerAmounts due to prime broker are payables for securities purchased (in a regular way transaction) that have been contracted for but not yet delivered on the reporting date . Amounts due from prime broker include cash accounts and receivables for securities sold (in a regular way transaction) that have been contracted for but not yet delivered on the reporting date . Cash held with brokers represent cash deposits held with broker as collateral against open futures contracts .

Net assets attributable to unitholdersRedeemable units are classified as equity instruments when:

• The redeemable units entitle the holder to a pro rata share of the Fund’s net assets in the event of the Fund’s liquidation .

• The redeemable units are in the class of instruments that is subordinate to all other classes of instruments .

• All redeemable units in the class of instruments that is subordinate to all other classes of instruments have identical features .

• The redeemable units do not include any contractual obligation to deliver cash or another financial asset other than the holder’s rights to a pro rata share of the Fund’s net assets .

• The total expected cash flows attributable to the redeemable units over the life of the instrument are based substantially on the profit or loss, the change in the recognised net assets or the change in the fair value of the recognised and unrecognised net assets of the Fund over the life of the instrument .

In addition to the instrument having all the above features, the Fund must have no other financial instrument or contract that has:

• Total cash flows based substantially on profit or loss, the change in the recognised net assets or the change in the fair value of the recognised and unrecognised net assets of the Fund, and

• The effect of substantially restricting or fixing the residual return to the puttable instrument holders .



21


Net assets attributable to unitholders (continued)The Fund continuously assesses the classification of the redeemable units . If the redeemable units cease to have all the features or meet all the conditions set out to be classified as equity, the Fund will reclassify them as financial liabilities and measure them at fair value at the date of reclassification, with any differences from the previous carrying amount recognised in equity . If the redeemable units subsequently have all the features and meet the conditions set out to be classified as equity, the Fund will reclassify them as equity instruments and measure them at the carrying amount of the liabilities at the date of the reclassification .

The Fund’s redeemable HKD class, HKD (dist) class, USD class, AUD (hedged) class and RMB (hedged) class units meet the definition of redeemable instruments classified as liability instruments under IAS 32 Financial Instruments: Presentation .

The issuance, acquisition and resale of redeemable units are accounted for as equity transactions . Upon issuance of units, the consideration received is included in equity .

Transaction costs incurred by the Fund in issuing, acquiring or reselling its own equity instruments are accounted for as a deduction from equity to the extent that they are incremental costs directly attributable to the equity transaction that otherwise would have been avoided .

Own equity instruments which are acquired are deducted from equity and accounted for at amounts equal to the consideration paid, including any directly attributable incremental costs .

No gain or loss is recognised in the statement of comprehensive income on the purchase, sale, issuance or cancellation of the Fund’s own equity instruments .

Dividend incomeDividend income is recognised when the shareholder’s right to receive the payment is established . Dividend income is presented gross of any non-recoverable withholding taxes, which are disclosed separately as an expense in the revenue statement .

Interest income and expenseInterest income and expense are recognised in the revenue statement for all interest-bearing financial instruments using the effective interest method .

Net gain or loss on financial assets and liabilities at fair value through profit or lossThis item includes changes in the fair value of financial assets and liabilities held for trading or designated upon initial recognition as ‘at fair value through profit or loss’ and excludes interest and dividend income and expense .

Realised gains and losses on disposals of financial instruments at ‘fair value through profit or loss’ are calculated using the average cost method . They represent the difference between an instrument’s initial carrying amount and disposal amount, or cash payments or receipts made on derivative contracts (excluding payments or receipts on collateral margin accounts for such instruments) .

ExpensesAll expenses, including management fees and performance fees, are recognised in the statement of comprehensive income on an accrual basis .



22


Foreign currency transactionsThese financial statements are presented in HKD, which is the Fund’s functional and presentation currency . Transactions during the period, including purchases and sales of securities, income and expenses, are translated at the rate of exchange prevailing on the date of the transaction . Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the end of reporting period .

Foreign currency transaction gains and losses on financial instruments classified as at fair value through profit or loss are included in profit or loss in the statement of comprehensive income . Foreign exchange differences on other financial instruments are included in the statement of comprehensive as ‘Net foreign exchange differences’ .

Related parties(a) the party is a person or a close member of that person’s family and that person

(i) has control or joint control over the Fund;

(ii) has significant influence over the Fund; or

(iii) is a member of the key management personnel of the Fund or of a parent of the Fund;

or

(b) the party is an entity where any of the following conditions applies:

(i) the entity and the Fund are members of the same group;

(ii) one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity);

(iii) the entity and the Fund are joint ventures of the same third party;

(iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity;

(v) the entity is a post-employment benefit plan for the benefit of employees of either the Fund or an entity related to the Fund;

(vi) the entity is controlled or jointly controlled by a person identified in (a);

(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); and

(viii) the entity, or any member of a group of which it is a part, provides key management personnel services to the Fund or to the parent of the Fund .



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5. RELATED PARTY TRANSACTIONS

The Fund is managed by the Manager, a company incorporated in Hong Kong . The Manager is responsible, subject to the policies, controls and approval of the Trustee, for the investment of the Fund’s assets . Details of the fees to which the Manager is entitled are provided in Note 6 to the financial statements .

Connected persons of the Manager are those as defined in the SFC Code . All transactions entered into during the year between the Fund and the Manager were carried out in the normal course of business and on normal commercial terms .

6. FEES

In addition to the transactions disclosed elsewhere in these financial statements, the Fund had the following transactions with the connected persons during the year .

Management feeThe Manager is entitled to receive a management fee which is equal to 1 .75% per annum of the Net Asset Value (“NAV”) of the Fund and before making any deduction for any accrued performance fees . The management fee will be accrued as at each Valuation Day and will be payable monthly in arrears .

The total management fee for the year ended 31 December 2017 amounted to HKD44,062,530 (2016: HKD34,176,267) . As at 31 December 2017, the management fee payable to the Manager amounted to HKD4,616,219 (2016: HKD2,927,682) .

Performance feeThe Manager is entitled to receive a performance fee which is equal to 15% of the appreciation in the NAV per Unit (prior to the deduction of any provision for any distribution declared or paid in respect of that Performance Period) during the relevant Performance Period above the High Watermark per Unit . The performance fee shall be calculated daily in accordance with high-on-high basis and accrued on each Valuation Day throughout the relevant Performance Period . On each Valuation Day, a new performance fee accrual will be calculated and made in accordance with the above methodology .

The total performance fee for the year ended 31 December 2017 amounted to HKD202,462,677 (2016: HKD2,064,049) all of which were crystallised during the year . As at 31 December 2017, the performance fee payable to the Manager amounted to HKD160,689,718 (2016: HKD306,592) .

Trustee feeBOCI-Prudential Trustee Limited (the “Trustee, Administrator and Registrar”) is entitled to receive a trustee fee which is calculated at an annual rate up to 0 .15% on NAV of the Fund .

The total trustee fee for the year ended 31 December 2017 amounted to HKD2,942,859 (2016: HKD2,377,930) . As at 31 December 2017, the trustee fee payable amounted to HKD299,880 (2016: HKD203,293) .

7. DISTRIBUTIONS

The total distribution to unitholders declared for the year ended 31 December 2017 amounted to HKD4,943,088 (2016: Nil) .



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8. TAXATION

The Fund is exempt from Hong Kong profits tax on profit arising from its authorised activities under Section 26A(1A) of the Hong Kong Inland Revenue Ordinance .

Overseas withholding tax was charged on certain dividend and investment income received during the year .

9. FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

2017 2016HKD HKD

Financial assets at fair value through profit or loss

Held for trading– Equity securities 2,859,728,927 1,387,758,018– Government bonds 83,883,150 124,890,030– Forward contracts 3,649,130 –– Participatory notes – 176,179,058

2,947,261,207 1,688,827,106

2017 2016HKD HKD

Financial liabilities at fair value through profit or loss

Held for trading– Forward contracts – 1,237,796– Futures contracts – 4,372,837

– 5,610,633

2017 2016HKD HKD

Net changes in fair value on financial assets and liabilities at fair value through profit or lossGross realised gains 833,477,724 430,973,230Gross realised losses (162,734,494) (330,569,146)Gross unrealised gains 454,891,938 120,594,045Gross unrealised losses (47,472,289) (67,333,339)

Total gains 1,078,162,879 153,664,790



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9. FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS (continued)

The following tables illustrate the fair value measurement hierarchy of the Fund’s financial instruments:

2017 Level 1 Level 2 Level 3 TotalHKD HKD HKD HKD

Financial assets at fair value through profit or loss– Equity securities 2,859,728,927 – – 2,859,728,927– Government Bonds 83,883,150 – – 83,883,150– Forward Contracts – 3,649,130 – 3,649,130

2,943,612,077 3,649,130 – 2,947,261,207


Financial assets at fair value through profit or loss– Equity securities 1,387,758,018 – – 1,387,758,018– Participatory notes – 176,179,058 – 176,179,058– Government bonds 124,890,030 – – 124,890,030

1,512,648,048 176,179,058 – 1,688,827,106

Financial liabilities at fair value through profit or loss– Forward contracts – 1,237,796 – 1,237,796– Futures contracts – 4,372,837 – 4,372,837

– 5,610,633 – 5,610,633



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9. FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS (continued)

The following table presents the movement in Level 3 instruments for the year ended 31 December 2017:

2017HKD

Opening balance at 1 January –Purchases for the year ended 31 December –Sales for the year ended 31 December –Transfers into Level 3 for the year ended 31 December 95,534,550Transfers out of Level 3 for the year ended 31 December (101,702,965)Gains and losses included in the statement of comprehensive income for the

year ended 31 December 6,168,415

Ending balance at 31 December –

Change in unrealised gains or losses for level 3 instruments held at 31 December and included in the net changes in fair value on financial assets and liabilities at fair value through profit or loss –

During the year, there were no transfers of fair value measurements between Level 1 and Level 2 (2016: nil) and 1 transfer into and out of Level 3 for both financial assets and liabilities . The investments transferred out of Level 3 relate to an equity investment wherein it was suspended and also resumed trading during the year .

The Fund’s Level 3 investments have been valued using unadjusted net assets value as reported by the respective fund administrators or fund managers . No observable inputs internally developed by the Manager have been applied to these investments .

As at 31 December 2017, the Fund’s investments were listed securities, government bonds, and forward contracts with fair values are determined based on quoted market prices or counterparty quotations while in 2016, the Fund’s investments were equity securities, participatory notes, government bonds, forward and futures contract . As at 31 December 2017, the equity securities and government bonds are included within Level 1 while the forward contracts are included in Level 2 of the hierarchy while in 2016, the equity securities and government bonds are included within Level 1 and the participatory notes, forward and futures contracts are included in Level 2 of the hierarchy .



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10. DERIVATIVE CONTRACTS

The Fund uses derivative financial instruments to economically hedge its risks associated primarily with interest rate and foreign currency fluctuations . Derivative financial instruments may also be used for trading purposes where the Manager believes this would be more effective than investing directly in the underlying financial instruments . The derivative contract that the Fund holds includes forward currency contracts and futures contracts .

Forward currency contractsForward contracts entered into by Fund represent a firm commitment to buy or sell an underlying currency at a specified value and point in time based upon an agreed or contracted quantity . The realised/unrealised gain or loss is equal to the difference between the value of the contract at the onset and value of the contract at the settlement date/period end date and are included in the statement of comprehensive income . Forward currency contracts are used to hedge against AUD and RMB foreign currency exchange risks for its non-HKD classes of shares .

Futures contracts Futures contracts are contractual agreements to buy or sell a specified financial instrument at a specific price and date in the future . Futures contracts are transacted in standardised amounts on regulated exchanges and are subject to daily cash margin requirements . The credit risk related to future contracts is considered minimal because the exchange ensures that these contracts are always honoured . As at 31 December 2017, the Fund has no futures position (2016: short position of H-shares index future) .

As at 31 December 2017 Assets LiabilitiesNominalAmount

HKD HKD HKD

Forward contracts 3,649,130 – (276,749,039)

3,649,130 – (276,749,039)

As at 31 December 2016 Assets LiabilitiesNominalAmount

HKD HKD HKD

Forward contracts – 1,237,796 (135,439,856)Futures contracts – 4,372,837 (189,489,363)

– 5,610,633 (324,929,219)



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11. CASH AND CASH EQUIVALENTS

2017 2016HKD HKD

Cash at bank 219,167,450 100,288,256Short-term deposits – 80,000,000

219,167,450 180,288,256

As at 31 December 2017, the cash at bank of HKD219,167,450 (2016: HKD100,288,256) was held with Bank of China (Hong Kong) Limited at normal commercial rates . Time deposits of HKD80,000,000 as of 31 December 2016 was placed in Industrial and Commercial Bank of China (Asia) Limited had interest ranging from 0 .82% to 1 .00% and was already due on 3-6 January 2017 . There was no time deposit as of 31 December 2017 .

12. AMOUNTS DUE FROM/TO BROKER

2017 2016HKD HKD

Amounts due from brokerCash held with broker 19,058,174 66,699,306Receivable for securities sold but not yet settled 34,823,184 27,286,202

53,881,358 93,985,508

Amounts due to brokerPayable for securities purchased but not yet settled 2,597,155 60,740



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13. UNITS IN ISSUE

The number of units in issue of the Fund is classified as financial liability . The units of the Fund have no par value . All issued redeemable units are fully paid .

2017HKD

Units ClassHKD (dist)

Units ClassUSD

Units ClassAUD (hedged)

Units ClassRMB (hedged)

Units Class

At beginning of the year 493,302,016 .2770 89,862,562 .4464 104,793,378 .5007 98,164 .9257 109,094,550 .8406Issued during the year 136,706,099 .6709 23,961,689 .9196 23,714,986 .5467 75,466 .5536 735,069,588 .6300Redeemed during the year (143,556,390 .8591) (33,676,290 .7067) (30,885,116 .0344) (76,445 .2938) (534,136,901 .1806)

At the end of the year 486,451,725 .0888 80,147,961 .6593 97,623,249 .0130 97,186 .1855 310,027,238 .2900

2016HKD

Units ClassHKD (dist)

Units ClassUSD


Units ClassRMB (hedged)

Units Class

At beginning of the year 615,495,748 .9026 163,993,715 .3910 104,541,447 .2683 1,310,487 .9628 1,105,692 .9636Issued during the year 33,499,652 .7759 5,374,098 .9291 21,119,182 .9286 – 327,186,642 .3500Redeemed during the year (155,693,385 .4015) (79,505,251 .8737) (20,867,251 .6962) (1,212,323 .0371) (219,197,784 .4730)

At the end of the year 493,302,016 .2770 89,862,562 .4464 104,793,378 .5007 98,164 .9257 109,094,550 .8406

Unitholders who wish to subscribe or redeem their units in the Fund may do so on any dealing day which is (a) any business day, except by except any business day, determined at the Manager’s discretion, on which any exchange or market on which a substantial portion of the Fund’s investments is traded is closed or on which dealings are restricted or suspended; or (b) such other day as the Manager may determine from time to time with the approval of the Trustee .

A partial redemption of a holding of units in the Fund may be effected provided that such redemption will not result in the unitholder holding less than the minimum holding of units of a class, which is the lesser of 50,000 units of that class or units of that class with an aggregate net asset value of HKD50,000 (or its equivalent in another currency) . The Manager has the right to compulsorily redeem any holding of Units which is less than such minimum holding . The Manager may, in its absolute discretion, waive the requirement for such minimum holding of units of any class, whether generally or in any particular case .

For HKD (dist) units class, it is the current intention of the Manager that distributions will be made on a semi-annual basis . Distributions will not be paid out of capital or effectively out of capital of the Fund . There is no guarantee that any distributions will be made and there is no target level of distribution payout . Any distributions payable (if any) will be automatically reinvested unless otherwise elected by the Unitholder .

For all other classes of units, it is the current intention of the Manager that distributions of income will not be made from the Fund .



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14. SOFT COMMISSION ARRANGEMENT

The Manager has not entered into any soft commission arrangements for the Fund .

15. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Fund is subject to various risks as the Fund invested in underlying financial instruments during the period . The Manager’s objective in managing the risks is to achieve a superior risk adjusted return . The Fund is managed through a process of ongoing identification, measurement and monitoring, subject to risks limits and other controls .

The main risks associated with the financial assets and liabilities of the Fund are set out below:

(a) Market risk

(i) Price risk

The Manager manages price risk primarily through diversification of the portfolio and through a careful selection of securities and other financial instruments within specific limits stated in the Explanatory Memorandum . The Fund’s overall market positions are monitored on a daily basis by the Manager .

The table below shows the analysis of the equity securities by industry as of 31 December 2017 .

% of net assets % of net assets2017 2016

Consumer Discretionary 49 .25% 26 .63%Consumer Staples 3 .96% –Energy – 2 .98%Financial 5 .34% 22 .46%Health Care 1 .75% 6 .78%Industrials – –Information Technology 18 .83% 14 .82%Materials 7 .64% 6 .75%Real Estate 5 .52% –Utilities 2 .66% –Others 2 .79% -3 .61%



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15. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued)

(a) Market risk (continued)

(i) Price risk (continued)

The table below summarises the sensitivity of the Fund’s net assets value to equity price movements . For the year ended 31 December 2017 and 2016, the analysis is based on the assumptions that the Hang Seng Index increased/decreased with all other variables held constant and that the fair value of the Fund’s portfolio of equity securities moved according to their historical correlation with the index . The Fund is not directly correlated with any Asian market indices . The indices should be used only for guidance and performance comparison purposes . The Manager does not manage market price risk with reference to any market index .

Estimatechange in net

asset value


asset valuePercentage

changeHKD HKD2017 2016

Hang Seng Index +/- 20% +/-554,758,708 +/-267,823,318

(ii) Interest rate risk

Interest rate risk arises from the possibility that changes in interest rates offset future cash flows or the fair values of financial assets .

As at 31 December 2017, the Fund’s exposure to interest rate risk is considered to be relatively small as the Fund’s financial instruments were mainly bank balances, fixed income securities and time deposits, which were carried at minimal interest rates .

The Manager considers the movement in the interest rates will have insignificant cash flow impact on the daily net assets attributable to the holders of redeemable units as at 31 December 2017 and 2016, and therefore no sensitivity analysis on bank balances and fixed income securities is presented .

(iii) Foreign currency risk

Foreign currency risk is the risk that the value of financial assets or liabilities will fluctuate due to changes in foreign exchange rates . The Fund’s direct exposure to foreign currency risk is minimal as substantial of the Fund’s assets and liabilities are denominated in HKD .



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(b) Liquidity risk

Liquidity risk is the risk that the Fund will encounter difficulty in raising funds to meet commitments associated with financial assets and liabilities . Liquidity risk may result from an inability to sell a financial asset quickly at an amount close to its fair value .

The markets in which the Fund invests may be relatively illiquid and the liquidity of these markets may fluctuate substantially over time . Investment of the Fund’s assets in relatively illiquid securities may restrict the ability of the Fund to dispose of its investments at a price and time that it wishes . The risk of illiquidity also arises in the case of over-the-counter transactions . The Manager monitors the liquidity of the Fund by conducting liquidity testing on the investment portfolio on a monthly and ad-hoc basis . The objective of testing is to monitor liquidity of financial assets to meet the cash outflows on financial liabilities . As at 31 December 2017, the Fund held investments in listed securities and other liquid assets, including bank balances and amounts receivable on sales of financial assets and financial liabilities at fair value through profit or loss, we expect the majority of the assets to be able to liquidate within 7 days or less to generate cash inflows for managing liquidity risk .

Financial assets: Analysis of equity securities at fair value through profit or loss into maturity groupings based on the expected date on which these assets will be realised . For other assets, the analysis into maturity groupings is based on the remaining period from the end of the reporting period to the contractual maturity date or, if earlier, the expected date on which these assets will be realised .

Financial liabilities: The maturity grouping is based on the remaining period from the end of the reporting period to the contractual maturity date . When a counter party has a choice of when the amount is paid, the liability is allocated to the earliest period in which the Fund can be required to pay .



33


(b) Liquidity risk (continued)

The following table summarises the maturity profile of the Fund’s financial assets and financial liabilities, based on the contractual undiscounted cash flows .

OnDemand

Less than3 months

3 to 12Months Other* Total

HKD HKD HKD HKD HKD

31 December 2017

Financial assetsFinancial assets at fair value through

profit or loss – 2,947,261,207 – – 2,947,261,207Amounts due from broker – 53,881,358 – – 53,881,358Cash and cash equivalents 219,167,450 – – – 219,167,450Interest receivable – 237,086 – – 237,086Subscription proceeds receivable – 9,223,839 – – 9,223,839

Total undiscounted financial assets 219,167,450 3,010,603,490 – – 3,229,770,940

Financial liabilitiesFinancial liabilities at fair value

through profit or loss – – – – –Amounts due to broker – 2,597,155 – – 2,597,155Accounts payable and accruals 166,001,197 – – – 166,001,197Redemption proceeds payable – 49,536,660 – – 49,536,660Net assets attributable to holders of

redeemable participating shares – – – 3,011,635,928 3,011,635,928

Total undiscounted financial liabilities 166,001,197 52,133,815 – 3,011,635,928 3,229,770,940



34



OnDemand

Less than3 months

3 to 12Months Other* Total

HKD HKD HKD HKD HKD

31 December 2016


profit or loss – 1,688,827,106 – – 1,688,827,106Amounts due from Brokers – 93,985,508 – – 93,985,508Cash and cash equivalents 100,288,256 80,000,000 – – 180,288,256Interest receivable – 246,966 – – 246,966Subscription proceeds receivable – 3,005,128 – – 3,005,128

Total undiscounted financial assets 100,288,256 1,866,064,708 – – 1,966,352,964


through profit or loss – 5,610,633 – – 5,610,633Amounts due to brokers – 60,740 – – 60,740Accounts payable and accruals 3,774,814 – – – 3,774,814Redemption proceeds payable – 12,286,545 – – 12,286,545Net assets attributable to holders of

redeemable participating shares – – – 1,944,620,232 1,944,620,232

Total undiscounted financial liabilities 3,774,814 17,957,918 – 1,944,620,232 1,966,352,964

* See Note 13 for the detailed discussion of the Fund’s redemption term on its redeemable participating shares .



35


(c) Credit risk

Credit risk is the risk that the counterparty to a financial instrument will cause a financial loss for the Fund by failing to discharge an obligation .

The Fund is exposed to credit risk on its cash at bank, amounts due from the broker and its investments placed with the broker .

It is the Fund’s policy to enter into the financial instruments with reputable counterparties .

The Fund placed all of the cash at bank and investments with the broker, Bank of China (Hong Kong) Limited, a reputable financial institution with credit rating of A+ or A-1 for long term debt or short term debt respectively from Standard & Poor’s . Another bank that the Fund placed its cash is Industrial and Commercial Bank of China (Asia) Limited, a reputable bank with credit rating A (2016: A) from Standard & Poor’s .

The Fund’s maximum exposure to credit risk in the event the counterparties fail to perform their obligations without taking account of any collateral held as of 31 December 2017 in relation to each class of recognised financial assets is the carrying amount of those assets as disclosed in the statement of assets and liabilities .

The Manager continuously monitors the credit standing of its counterparties and does not expect any material losses as a result of this concentration .

(d) Capital management

The Fund considers the redeemable participating units as the capital of the Fund . The Fund strives to invest the subscriptions of redeemable participating units in investments that meet the Fund’s investment objectives while maintaining sufficient liquidity to meet unitholders’ redemptions .



36

16. EVENTS AFTER THE REPORTING PERIOD

a) HKD units classDuring the period from 1 January 2018 to 28 February 2018, a total of 17,803,622 .5339 units were subscribed and 28,257,313 .2219 units were redeemed giving rise to total subscription proceeds of HKD36,373,260 .37 and total redemption payments of HKD57,027,670 .04 .

b) USD units classDuring the period from 1 January 2018 to 28 February 2018, a total of 4,622,494 .7135 units were subscribed and 5,183,373 .3757 units were redeemed giving rise to total subscription proceeds of HKD65,493,810 .98 and total redemption payments of HKD74,095,343 .57 .

c) HKD (dist) units classDuring the period from 1 January 2018 to 28 February 2018, a total of 4,006,299 .2339 units were subscribed and 8,199,106 .9163 units were redeemed giving rise to total subscription proceeds of HKD5,850,000 .00 and total redemption payments of HKD11,743,236 .26 .

d) RMB (hedged) units classDuring the period from 1 January 2018 to 28 February 2018, a total of 91,512,377 .4788 units were subscribed and 118,367,543 .2380 units were redeemed giving rise to total subscription proceeds of HKD169,294,223 .52 and total redemption payments of HKD217,178,937 .60 .

17. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the Manager and the Trustee on 9 April 2018 .


37

INVESTMENT PORTFOLIO (UNAUDITED)

31 December 2017

Securities Name

Number ofShares/

NominalsFair value as of

31 December 2017% of Net

Asset ValueHKD %

Listed Equities

Hong Kong Equities3SBio Incorporated 3,183,000 48,827,220 1 .62AAC Technologies Holdings Incorporated 635,500 88,588,700 2 .94ANTA Sports Products Limited 5,506,000 195,187,700 6 .48Brilliance China Automotive Holdings Limited 6,382,000 133,383,800 4 .43China Hongqiao Group Limited 15,155,000 132,606,250 4 .40China Mengniu Dairy Company Limited 2,488,000 57,846,000 1 .92China Taiping Insurance Holdings Co . Ltd . 5,493,200 160,950,760 5 .34China Vanke Co ., Ltd . – H 5,324,200 166,115,040 5 .52ENN Energy Holdings Limited 1,436,000 80,057,000 2 .66Galaxy Entertainment Group Limited 2,092,000 131,168,400 4 .36Guangzhou Automobile Group Co ., Ltd . – H 4,284,000 79,339,680 2 .63Kingboard Laminates Holdings Limited 12,946,500 157,688,370 5 .24Luk Fook Holdings (International) Limited 2,695,000 90,417,250 3 .00MGM China Holdings Limited 6,919,600 163,648,540 5 .43MicroPort Scientific Corporation 525,000 3,963,750 0 .13Minth Group Limited 5,148,000 242,728,200 8 .07Nexteer Automotive Group Limited 11,606,000 216,103,720 7 .18Shenzhou International Group Holdings Limited 3,106,000 231,086,400 7 .67

2,379,706,780 79 .02

China EquitiesHangzhou Hikvision Digital Technology Co Ltd . – A 1,994,846 93,288,774 3 .10Kweichow Moutai Co Ltd . – A 73,442 61,423,970 2 .04Tongkun Group Co Ltd . – A 3,621,571 97,665,654 3 .24

252,378,398 8 .38

Taiwan EquitiesSilergy Corporation 774,000 138,369,528 4 .59

138,369,528 4 .59

Depositary Receipt

United StatesBaidu Inc . – ADR 48,770 89,274,221 2 .96

89,274,221 2 .96


38

INVESTMENT PORTFOLIO (UNAUDITED) (continued)

31 December 2017

Securities Name

Number ofShares/

NominalsFair value as of

31 December 2017% of Net

Asset ValueHKD %

Fixed Income Securities

Hong KongHong Kong SAR 0 .77% 21-Aug-2019 84,500,000 83,883,150 2 .79

83,883,150 2 .79

Foreign Currency ForwardsForeign Exchange Forward receivable 3,649,130 0 .12

3,649,130 0 .12

Total financial assets at fair value through profit

and loss (cost: HKD2,477,539,575) 2,947,261,207 97 .86

Other net assets 63,374,721 2 .14

NET ASSETS 3,011,635,928 100 .00


39

STATEMENT OF MOVEMENTS IN INVESTMENT PORTFOLIO (UNAUDITED)

31 December 2017

% of net assets value

% of net assets value

2017 2016

Listed equitiesConsumer Discretionary 49 .25% 26 .63%Consumer Staples 3 .96% –Energy – 2 .98%Financial 5 .34% 22 .46%Health Care 1 .75% 6 .78%Industrials – –Information Technology 18 .83% 14 .82%Materials 7 .64% 6 .75%Real Estate 5 .52% –Utilities 2 .66% –Others 2 .79% -3 .61%

97 .74% 76 .81%


40

INVESTMENT ACTIVITIES (UNAUDITED)

31 December 2017

Purchase Sale(HKD million) (HKD million)

2017 2017

Listing CountryChina 1,113 .63 1,226 .21Hong Kong 5,029 .15 4,843 .36Taiwan 82 .06 11 .11United States 645 .00 634 .50

6,869 .84 6,715 .18


41

PERFORMANCE TABLE (UNAUDITED)

31 December 2017

NET ASSET VALUES (“NAV”) – Published NAV

NAV per unit

Year

NAV ofthe Fund

(HKD)

HKDUnits Class

(HKD)

HKD (Dist)Units Class

(HKD)

USDUnits Class

(USD)

AUD(Hedged)

Units Class(AUD)

RMB(Hedged)

Units Class(RMB)

2017 3,011,635,928 1 .9889 1 .4229 1 .8043 1 .5168 1 .48622016 1,944,620,232 1 .3927 1 .0465 1 .2652 1 .0728 1 .11202015 1,933,010,534 1 .3042 0 .9800 1 .1857 1 .0125 1 .05092014 1,949,461,676 1 .3991 1 .0799 1 .2859 1 .0968 1 .10232013 1,613,938,704 1 .3778 – 1 .2664 – –2012 949,070,935 1 .2343 – 1 .1366 – –2011 393,292,323 1 .0452 – 0 .9591 – –2010 212,235,796 1 .0729 – – – –

PERFORMANCE RECORD

Highest issue price per unit

HKDUnits Class


USDUnits Class

AUD(Hedged)

Units Class

RMB(Hedged)

Units ClassYear (HKD) (HKD) (USD) (AUD) (RMB)

2017 2 .0455 1 .4618 1 .8458 1 .5516 1 .54002016 1 .4808 1 .1149 1 .3472 1 .1444 1 .18402015 1 .7057 1 .2899 1 .5517 1 .3279 1 .35682014 1 .3991 1 .0799 1 .2859 1 .0968 1 .10232013 1 .3778 – 1 .2664 – –2012 1 .2343 – 1 .1366 – –2011 1 .2029 – 1 .1061 – –2010 1 .1164 – – – –


42

PERFORMANCE RECORD (continued)

Lowest issue price per unit

HKDUnits Class


USDUnits Class

AUD(Hedged)

Units Class

RMB(Hedged)

Units ClassYear (HKD) (HKD) (USD) (AUD) (RMB)

2017 1 .3860 1 .0415 1 .2589 1 .0678 1 .10882016 1 .1866 0 .8915 1 .0693 0 .9187 0 .95122015 1 .2271 0 .9220 1 .1156 0 .9522 0 .98282014 1 .2153 0 .9580 1 .1173 0 .9713 0 .97452013 1 .1810 – 1 .0868 – –2012 1 .0453 – 0 .9591 – –2011 1 .0087 – 0 .9190 – –2010 0 .9958 – – – –

Annual Report 2018

For the year ended 31 March 2018

Annual Report 2018For the year ended 31 March 2018

CONTENTS

MANAGEMENT AND ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

REPORT OF THE MANAGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

REPORT OF THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

INDEPENDENT AUDITOR’S REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

AUDITED FINANCIAL STATEMENTS

Statement of financial position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Statement of comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Statement of changes in net assets attributable to holders of redeemable participating units . . . . . 9

Statement of cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Notes to financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

INVESTMENT PORTFOLIO (UNAUDITED) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

STATEMENT OF MOVEMENTS IN INVESTMENT PORTFOLIO (UNAUDITED) . . . . . . . . . . . . . . . . . . . 36

PERFORMANCE TABLE (UNAUDITED) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37


1

MANAGEMENT AND ADMINISTRATION

Manager Zeal Asset Management LimitedSuite 2605, Tower 1Lippo Centre89 QueenswayHong Kong

Directors of the Manager CHOI Nga ChungNGAN Wai WahPOON Chun Pong

Trustee, Administrator and Registrar BOCI-Prudential Trustee Limited12/F and 25/F Citicorp Centre18 Whitfield RoadCauseway BayHong Kong

Custodian Bank of China (Hong Kong) Limited14/F, Bank of China Tower1 Garden RoadCentralHong Kong

Legal Counsel to the Manager Simmons & Simmons13/F, One Pacific Place88 QueenswayHong Kong

Auditor Ernst & Young22/F, CITIC Tower1 Tim Mei AvenueCentralHong Kong


2

REPORT OF THE MANAGER

After a fruitful 2017 and a strong start to 2018 in January, Chinese stock markets have experienced increased volatility in February and March of 2018, in part due to worries about the US’ pace of interest rate rise, the impact of the Chinese government’s deleveraging efforts on the real economy, and trade disputes between China and the United States . While there is perceived uncertainty in the market, we believe that it should not be enough to derail the current positive economic outlook in China .

President Trump’s trade war may affect investor sentiment in the short run, but our base case is that the situation will not deteriorate significantly to result in a full-fledged trade war . First of all, we believe that in many cases, the US consumer will ultimately bear a large part of the price since for many Chinese manufactured products going into the US from China, there are almost no other countries in the world that can provide that sort of scale and quality at the price that Chinese companies can offer . Secondly, the US needs China to recycle its trade surplus with the US back into US bonds to prop up US’ current account so that it has funds to pursue its plans of improving infrastructure . Finally and perhaps, this is already coming to light, is that the talk of trade war is the US trying to get leverage to strike a deal with China on, for example, getting China to open up its various markets to US corporates .

On deleveraging in China, we agree that it may decrease the availability of capital and increase the cost of capital in the short term . However, credit tightening does not necessarily indicate that Chinese economic growth will lose momentum as capital efficiency also matters, furthermore, deleveraging is profoundly important to the health of the economy in the long term and it is an opportune time to tackle this now while growth momentum is robust . With capital allocation disciplines kicking in, we’ve seen improvement in capital efficiency in the recent two years, which means Chinese economy, can now produce the same level of output with less capital than the previous year .

Recent economic figures and better-than-expected FY17 result reaffirmed the solid fundamentals on China’s sustainable growth . March NBS manufacturing PMI rebounded to 51 .5 from 50 .3 in February, higher than the market consensus of 50 .6[1] . The pick-up in the headline manufacturing PMI indicated that China’s economic fundamentals are more resilient than the market expects . FY17 results were generally better than the market expected as well, confirming the continued corporate earnings recovery . We maintain our views that Chinese equities as an asset class should see continued re-rating with the lowering of its equity risk premium amid significantly improving economic fundamentals, which are supported by a noticeably better risk-adjusted corporate Return on Equity (RoE) profile on the back of a reflating macro backdrop . Finally, we continue to believe that the sustainability of China’s economic recovery is good as it is supply driven and not demand driven . It is our expectation that the strong fundamentals of our holdings will play out in stock price as short term shocks diminishes under a robust economic backdrop .

Zeal Asset Management Limited29 June 2018

1 Source: CICC Strategy Research as of Apr 2018

This document is based on management forecasts and reflects prevailing conditions and our views as of this date, all of which are accordingly subject to change . In preparing this document, we have relied upon and assumed without independent verification, the accuracy and completeness of all information available from public sources . All opinions or estimates contained in this document are entirely Zeal Asset Management Limited’s judgment as of the date of this document and are subject to change without notice . Past performance is not indicative of future performance . There can be no assurance that the Fund’s investment objective will be achieved and investment results may vary substantially over time . Investment in the Fund is not intended to be a complete investment program for any investor .


3

REPORT OF THE TRUSTEE

We hereby confirm that, in our opinion, the Manager of the Trust has, in all material respects, managed the Trust in accordance with the provisions of the Trust Deed dated 29 June 2015, the First Supplemental Deed dated 29 June 2015, the Second Supplemental Deed dated 4 December 2015, the Third Supplemental Deed dated 3 February 2017, and the Fifth Supplemental Deed dated 22 June 2017, for the year ended 31 March 2018, as amended .

BOCI-Prudential Trustee Limited29 June 2018


4

INDEPENDENT AUDITOR’S REPORT

To the Trustee and Manager of ZEAL China Connect Fund(A sub-fund of ZEAL Investment Series, a trust fund established under the laws of Hong Kong)

Opinion

We have audited the financial statements of ZEAL China Connect Fund (the “Fund”) set out on pages 7 to 33, which comprise the statement of financial position as at 31 March 2018, and statement of comprehensive income, statement of changes in net assets attributable to holders of redeemable participating units and statement of cash flows 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 statement of financial position of the Fund as of 31 March 2018, and of its financial performance and its statement of cash flows for the year then ended in accordance with International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (“IASB”) .

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (“ISAs”) . Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report . We are independent of the Fund in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (“IESBA Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code . We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion .

Other information included in the Annual Report

The Trustee and the Manager of the Fund are responsible for the other information . The other information comprises the information included in the Annual Report, other than the financial statements and our auditor’s report thereon .

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon .

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated . 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 Trustee and Manager for the Financial Statements

The Trustee and Manager of the Fund are responsible for the preparation of financial statements that give a true and fair view in accordance with IFRSs issued by the IASB, and for such internal control as the Trustee and the Manager are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error .


5


Responsibilities of Trustee and Manager for the Financial Statements (continued)

In preparing the financial statements, the Trustee and Manager 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 Trustee and Manager either intend to liquidate the Fund or to cease operations, or have no realistic alternative but to do so .

In addition, the Trustee and Manager of the Fund are required to ensure that the financial statements have been properly prepared in accordance with the relevant disclosure provisions of the Trust Deed dated 29 June 2015, the First Supplemental Deed dated 29 June 2015, the Second Supplemental Deed dated 4 December 2015, the Third Supplemental Deed dated 3 February 2017, and the Fifth Supplemental Deed dated 22 June 2017 (the “Trust Deed”) and the disclosure requirements specified in Appendix E to the Code on Unit Trusts and Mutual Funds of the Securities and Futures Commission of Hong Kong (the “SFC Code”) issued by the Hong Kong Securities and Futures Commission .

Auditor’s Responsibility

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion . Our report is made solely to you, as a body, and for no other purpose . We do not assume responsibility towards or accept liability to any other person for the contents of this report .

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists . Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements . In addition, we are required to assess whether the financial statements of the Fund have been properly prepared, in all material respects, in accordance with the relevant disclosure provisions of the Trust Deed and the relevant disclosure provisions of Appendix E of the SFC Code .

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism 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 Trustee and Manager .


6


Auditor’s Responsibility (continued)

• Conclude on the appropriateness of the Trustee and Manager 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 auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion . Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report . However, future events or conditions may cause the Fund to cease to continue as a going concern .

• 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 Trustee and Manager regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit .

Report on matters under the relevant disclosure 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 disclosure provisions of the Trust Deed, and the relevant disclosure requirements specified in Appendix E to the SFC Code .

ERNST & YOUNGHong Kong29 June 2018


7

STATEMENT OF FINANCIAL POSITION

As at 31 March 2018


ASSETSFinancial assets at fair value through profit or loss 8 165,362,904 71,517,116Cash and cash equivalents 10 5,144,308 4,573,137Amounts due from brokers 11 1,022,797 600,016Other receivables 232,563 170,515

TOTAL ASSETS 171,762,572 76,860,784

LIABILITIES (EXCLUDING NET ASSETS

ATTRIBUTABLE TO HOLDERS OF REDEEMABLE PARTICIPATING UNITS)

Amounts due to brokers 11 2,298 –Financial liabilities at fair value through profit or loss 8,9 5,595 –Performance fee payable 6 1,371,168 77,008Management fee payable 6 59,824 2,731Trustee fee payable 6 40,000 40,000Other accounts payable and accrual 285,451 169,704

TOTAL LIABILITIES 1,764,336 289,443

NET ASSETS ATTRIBUTABLE TO HOLDERS

OF REDEEMABLE PARTICIPATING UNITS 169,998,236 76,571,341

NUMBER OF ISSUES UNITSHKD(M) units class 12 37,082,574 .4629 24,934,443 .3452USD(M) units class 12 5,611,632 .0540 4,837,591 .0880HKD units class 12 18,677,420 .0635 517,811 .0612USD units class 12 993,371 .4204 287,133 .0449AUD(hedged) units class 12 138,849 .4403 –

NET ASSET VALUE PER UNIT (PRESENTED IN LOCAL CURRENCY)

HKD(M) units class (HKD) 1 .6343 1 .1758USD(M) units class (USD) 1 .6143 1 .1732HKD units class (HKD) 1 .4084 1 .1556USD units class (USD) 1 .4268 1 .1489AUD(hedged) units class (AUD) 1 .0364 –


8

STATEMENT OF COMPREHENSIVE INCOME



INCOMEDividend income 4,506,055 1,134,852Interest income 5,738 1,781Sundry income 5 245,428 325,879

4,757,221 1,462,512

EXPENSESPerformance fee 6 (3,068,933) (125,538)Brokerage fee (860,611) (264,747)Management fee 6 (493,840) (13,961)Trustee fee 6 (480,000) (480,000)Dividend withholding tax (218,401) (38,867)Audit fee (151,320) (140,400)Custodian fee (109,867) (64,776)Transaction cost (44,760) (29,840)Preliminary expense – (59,761)Other operating expenses (408,620) (419,964)

(5,836,352) (1,637,854)

Net loss before investments and exchange

differences (1,079,131) (175,342)

INVESTMENT AND EXCHANGE DIFFERENCESNet gains on financial assets and liabilities at

fair value through profit or loss 8 37,985,620 13,600,068Net foreign exchange differences 126,261 (1,966)

38,111,881 13,598,102

INCREASE IN NET ASSETS ATTRIBUTABLE TO

HOLDERS OF REDEEMABLE PARTICIPATING UNITS FROM OPERATIONS FOR THE YEAR 37,032,750 13,422,760


9

STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE PARTICIPATING UNITS


2018 2017HKD HKD

Net assets attributable to holders of redeemable participating shares at the beginning of the year 76,571,341 41,778,156

Issuance of redeemable participating units during the year 117,506,551 26,099,538

Redemption of redeemable participating units during the year (61,112,406) (4,729,113)

Increase in net assets attributable to holders of redeemable participating units from operations for the year 37,032,750 13,422,760

Net assets attributable to holders of redeemable

participating units at the end of the year 169,998,236 76,571,341


10

STATEMENT OF CASH FLOWS


2018 2017NOTE HKD HKD

CASH FLOWS FROM OPERATING ACTIVITIESIncrease in net assets attributable to holders of

redeemable participating units from operations for the year 37,032,750 13,422,760

Adjustments for:Interest income (5,738) (1,781)Dividend income, net of withholding tax (4,287,654) (1,095,985)

Increase in financial assets at fair value through profit and loss (93,845,788) (37,164,466)

(Increase)/decrease in amounts due from brokers (422,781) 2,891,365Increase in other receivables (62,048) (165,696)Increase in financial liabilities at fair value through

profit and loss 5,595 –Increase/(decrease) in amounts due to brokers 2,298 (2,369,118)Increase in performance fee payable 1,294,160 77,008Increase in management fee payable 57,093 2,469Increase in other accounts payable and accrual 115,747 38,115

(60,116,366) (24,365,329)

Interest received 5,738 1,781Dividends received 4,287,654 1,095,985

Net cash flows used in operating activities (55,822,974) (23,267,563)

CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issuance of redeemable

participating units 117,506,551 26,099,538Payments for redemption of redeemable

participating units (61,112,406) (4,729,113)

Net cash flows from financing activities 56,394,145 21,370,425

Net increase/(decrease) in cash and cash equivalents 571,171 (1,897,138)Cash and cash equivalents at the beginning

of the year 4,573,137 6,470,275

Cash and cash equivalents at the end of the year 5,144,308 4,573,137

ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS:

Cash at bank 10 5,144,308 4,573,137


11

NOTES TO FINANCIAL STATEMENTS

1. THE FUND

ZEAL China Connect Fund (the “Fund”) is a sub-fund of ZEAL Investment Series, a trust fund established under the laws of Hong Kong by the Trust Deed dated 29 June 2015, the First Supplemental Deed dated 29 June 2015, the Second Supplemental Deed dated 4 December 2015, the Third Supplemental Deed dated 3 February 2017, and the Fifth Supplemental Deed dated 22 June 2017 (the “Trust Deed”) between Zeal Asset Management Limited as manager (the “Manager”) and BOCI-Prudential Trustee Limited (the “Trustee”) . With effective 9 December 2015, the Fund has been authorised by the Securities and Futures Commission in Hong Kong (the “SFC”) under Section 104 of the Securities and Futures Ordinance of Hong Kong and is required to comply with the Code of Unit Trusts and Mutual Funds established by the SFC of Hong Kong (the “Code”) .

The Manager of the Fund is Zeal Asset Management Limited . Under the Trust Deed, the Manager is responsible for the management of the assets of the Fund . The Manager is also responsible, in conjunction with the Trustee, for the maintenance of the accounts and records of the Fund as well as certain other administrative matters relating to the Fund .

The investment objective of the Fund is to generate long-term capital appreciation by primarily investing in equities and debt securities with a China focus .

2.1 STATEMENT OF COMPLIANCE AND BASIS OF PREPARATION

The financial statements of the Fund have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) as issued by International Accounting Standard Board (“IASB”) . The financial statements have been prepared under the historical cost basis, except for financial assets held at fair value through profit or loss, that have been measured at fair value .

The financial statements are presented in Hong Kong dollars (“HKD”) and all values are rounded to the nearest dollar except where otherwise indicated .

2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES

The accounting policies adopted are consistent with those of the previous financial year, except for the following amendment to IFRS effective as of 1 January 2017:

Amendments to IAS 7 Statement of Cash Flows: Disclosure InitiativeThe amendments require entities to provide disclosure of changes in their liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes (such as foreign exchange gains or losses) . These amendments do not have any impact on the Fund .

There are no other standards, interpretations or amendments to existing standards that are not yet effective that would be expected to have a significant impact on the Fund .



12

2.3 IMPACT OF ISSUED BUT NOT YET EFFECTIVE IFRSs

The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Fund’s financial statements are disclosed below . The Fund intends to adopt these standards, if applicable, when they become effective .

• IFRS 9 Financial Instruments

• IFRS 15 Revenue from Contracts with Customers

IFRS 9 Financial InstrumentsIn July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9 . IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting . IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted . Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory . For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions .

The Fund plans to adopt the new standard on the required effective date and will not restate comparative information . This assessment is based on currently available information and may be subject to changes arising from further reasonable and supportable information being made available to the Fund in 2018 when the Fund will adopt IFRS 9 . Overall, the Fund expects no significant impact on its results of financial performance or position .

IFRS 15 Revenue from Contracts with CustomersIFRS 15 was issued in May 2014, and amended in April 2016, and establishes a five-step model to account for revenue arising from contracts with customers . Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer .

The new revenue standard will supersede all current revenue recognition requirements under IFRS . Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after 1 January 2018 . Early adoption is permitted .

The Fund plans to adopt the new standard on the required effective date and will not restate comparative information . This assessment is based on currently available information and may be subject to changes arising from further reasonable and supportable information being made available to the Fund in 2018 when the Fund will adopt IFRS 15 . The Fund expects no significant impact on its results of financial performance or position .



13

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of the Fund’s financial statements requires management to make judgements and assumptions that affect the amounts recognised in the financial statements . However, uncertainty about these assumptions and judgements could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future .

JudgementsIn the process of applying the Fund’s accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the financial statements:

Functional currencyThe primary objective of the Fund is to generate return in HKD, its capital-raising currency . The liquidity of the Fund is managed on a day-to-day basis in HKD in order to handle the issue, acquisition and resale of the Fund’s redeemable participating units . The Fund’s performance is evaluated in HKD . Therefore, management considers the HKD as the currency that most faithfully represents the economic effects of the underlying transactions, events and condition .

Going concernThe Fund’s management has made an assessment of its ability to continue as a going concern and is satisfied that it has the resources to continue in business for the foreseeable future . Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the Fund’s ability to continue as a going concern . Therefore, the financial statements continue to be prepared on the going concern basis .

Fair value measurement of financial instrumentsWhen the fair values of financial assets recorded in the statement of financial position cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques . The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values . Judgments include considerations of inputs such as liquidity risk, credit risk and last trade price . Changes in assumptions about these factors could affect the reported fair value of financial instruments .

Estimates and assumptionsThe key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below . The Fund based its assumptions and estimates on parameters available when the financial statements were prepared .

However, existing circumstances and assumptions about future developments may change due to market changes or circumstances arising beyond the control of the Fund . Such changes are reflected in the assumptions when they occur .



14

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (continued)

Estimates and assumptions (continued)TaxesUncertainties exist with respect to the interpretation of complex tax regulations and changes in tax laws on foreign withholding tax . Given the wide range of international investments, differences arising between the actual investment income and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax expense already recorded . The Fund establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective countries in which it invests . The amounts of such provisions are based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority . Such differences of interpretation may arise on a wide variety of issues depending on the conditions prevailing in the respective investment’s domicile . As the Fund assesses the probability for litigation and subsequent cash outflow with respect to taxes as remote, no contingent liability has been recognised .

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Financial instruments(a) Classification

The Fund classifies its financial assets and financial liabilities into the categories below in accordance with IAS 39 .

Financial assets and financial liabilities at fair value through profit or lossThe Fund has classified all of its investments as financial assets and financial liabilities held for trading comprises of equity securities, depositary receipts, and forward contracts . These instruments are acquired or incurred principally for the purpose of generating a profit from fluctuation in price .

Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market . The Fund includes in this category cash and cash equivalents, amounts due from brokers and other receivables .

Other financial liabilitiesThis category includes all financial liabilities . The Fund includes in this category amounts due to brokers, performance fee payable, management fee payable, trustee fee payable and other accounts payable and accrual .

(b) RecognitionThe Fund recognises a financial asset or a financial liability when, and only when, it becomes a party to the contractual provisions of the instrument .

Purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the marketplace are recognised on the trade date, i .e ., the date that the Fund commits to purchase or sell the asset .



15


Financial instruments (continued)(c) Initial measurement

Financial assets are recorded in the statement of financial position at fair value . All transaction costs for such investments are recognised directly in profit or loss .

Loans and receivables and other financial liabilities are measured initially at their fair value plus any directly attributable incremental costs of acquisition or issue .

(d) Subsequent measurementAfter initial measurement, the Fund measures financial instruments which are classified as at fair value through profit or loss at their fair values . Subsequent changes of those financial instruments are recorded in ‘Net unrealised gains or losses on financial assets at fair value through profit or loss’ . Interest and dividend income elements of such instruments are recorded separately in ‘Interest income’ and ‘Dividend income’, respectively .

Loans and receivables are carried at amortised cost using the effective interest method less any allowance for impairment . Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process .

Financial liabilities, other than those classified as at fair value through profit or loss, are measured at amortised cost using the effective interest method . Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the amortisation process .

The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period . The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability . When calculating the effective interest rate, the Fund estimates cash flows considering all contractual terms of the financial instruments but does not consider future credit losses . The calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts .

(e) DerecognitionA financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when:

• The rights to receive cash flows from the asset have expired; or

• The Fund has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass through’ arrangement; and

• Either (a) the Fund has transferred substantially all the risks and rewards of the asset, or (b) the Fund has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset .



16


Financial instruments (continued)(e) Derecognition (continued)

When the Fund has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership . When it has neither transferred nor retained substantially all of the risks and rewards of the assets, nor transferred control of the asset, the asset is recognised to the extent of the Fund’s continuing involvement in the asset . In that case, the Fund also recognised an associated liability . The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Fund has retained .

The Fund derecognises a financial liability when the obligation under the liability is discharged, cancelled or expires .

Fair value measurementFair 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 .

The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability or, in the absence of a principal market, in the most advantageous market for the asset or liability . The principal or the most advantageous market must be accessible to the Fund .

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest .

The fair value for financial instruments traded in active markets at the reporting date is based on their last traded price or binding dealer price quotations, without any deduction for transaction costs . In circumstances where the last trade price falls outside the bid/ask spread, last trade price or a representative price within the bid/ask spread may be used as determined by the management .

The fair value of participatory notes is based on the quoted price of the underlying equity securities .

For the fair value of financial instruments not traded in an active market (i .e . forward contracts), the most frequently applied valuation techniques include forward pricing models, using present value calculations . The models incorporate various inputs including the price of the underlying equities, the credit quality of counterparties, foreign exchange spot and forward rates and interest rate curves .

For all other financial instruments not traded in an active market, the fair value is determined by using appropriate valuation techniques . Valuation techniques include the market approach (i .e ., using recent arm’s length market transactions adjusted as necessary and reference to the current market value of another instrument that is substantially the same) and the income approach (i .e ., discounted cash flow analysis and option pricing models making as much use of available and supportable market data as possible) .



17


Fair value measurement (continued)All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1– Quoted (unadjusted) market prices in active markets for identical assets or liabilitiesLevel 2– Valuation techniques for which the lowest level input that is significant to the fair value measurement

is directly or indirectly observableLevel 3– Valuation techniques for which the lowest level input that is significant to the fair value measurement

is unobservable

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Fund determines whether transfers have occurred between levels in the hierarchy by re-assessing the categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the beginning of each reporting period .

Impairment of financial assetsThe Fund assesses at each reporting date whether a financial asset group of financial assets classified as loans and receivables is impaired . A financial asset or group of financial assets is deemed impaired if, and only if, there is an objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the assets (an incurred ‘loss event’) and that the loss event has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated . Evidence of impairment may include indications that the debtor is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults . If there is objective evidence that an impairment loss has been incurred, the amount of loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred) discounted using the asset’s original effective interest rate .

Offsetting financial instrumentsFinancial assets and liabilities are offset and the net amount reported in the statement of assets and liabilities if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously .

Cash and cash equivalentsCash and cash equivalents in the statement of assets and liabilities comprise cash at bank . Cash equivalents are short term, highly liquid investments readily convertible to known amounts of cash and subject to an insignificant risk of changes in value .

For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents defined above, net of outstanding bank overdrafts .



18


Amounts due from/to brokersAmounts due to brokers are payables for securities purchased (in a regular way transaction) that have been contracted for but not yet delivered on the reporting date . Amounts due from brokers include cash accounts and receivables for securities sold (in a regular way transaction) that have been contracted for but not yet delivered on the reporting date . Cash held with brokers represent cash deposits held with broker as collateral against open futures contracts .

Net assets attributable to holders of redeemable participating unitsRedeemable units are classified as equity instruments when:

• The redeemable units entitle the holder to a pro rata share of the Fund’s net assets in the event of the Fund’s liquidation .

• The redeemable units are in the class of instruments that is subordinate to all other classes of instruments .

• All redeemable units in the class of instruments that is subordinate to all other classes of instruments have identical features .

• The redeemable units do not include any contractual obligation to deliver cash or another financial asset other than the holder’s rights to a pro rata share of the Fund’s net assets .

• The total expected cash flows attributable to the redeemable units over the life of the instrument are based substantially on the profit or loss, the change in the recognised net assets or the change in the fair value of the recognised and unrecognised net assets of the Fund over the life of the instrument .

In addition to the instrument having all the above features, the Fund must have no other financial instrument or contract that has:

• Total cash flows based substantially on profit or loss, the change in the recognised net assets or the change in the fair value of the recognised and unrecognised net assets of the Fund, and

• The effect of substantially restricting or fixing the residual return to the puttable instrument holders .

The Fund continuously assesses the classification of the redeemable units . If the redeemable units cease to have all the features or meet all the conditions set out to be classified as equity, the Fund will reclassify them as financial liabilities and measure them at fair value at the date of reclassification, with any differences from the previous carrying amount recognised in equity . If the redeemable units subsequently have all the features and meet the conditions set out to be classified as equity, the Fund will reclassify them as equity instruments and measure them at the carrying amount of the liabilities at the date of the reclassification .

The Fund’s redeemable HKD(M) class, USD(M) class, USD class, HKD class and AUD(hedged) class units meet the definition of redeemable instruments classified as liability instruments under IAS 32 Financial Instruments: Presentation .



19


Dividend incomeDividend income is recognised when the shareholder’s right to receive the payment is established . Dividend income is presented gross of any non-recoverable withholding taxes, which are disclosed separately as an expense in the revenue statement .

Interest income and expenseInterest income and expense are recognised in the revenue statement for all interest-bearing financial instruments using the effective interest method .

Net gain or loss on financial assets and liabilities at fair value through profit or lossThis item includes changes in the fair value of financial assets and liabilities held for trading or designated upon initial recognition as ‘at fair value through profit or loss’ and excludes interest and dividend income and expense .

Realised gains and losses on disposals of financial instruments at ‘fair value through profit or loss’ are calculated using the average cost method . They represent the difference between an instrument’s initial carrying amount and disposal amount, or cash payments or receipts made on derivative contracts (excluding payments or receipts on collateral margin accounts for such instruments) .

ExpensesAll expenses, including management fee and performance fee, are recognised in the statement of comprehensive income on an accrual basis .

Foreign currency transactionsThese financial statements are presented in HKD, which is the Fund’s functional and presentation currency . Transactions during the period, including purchases and sales of securities, income and expenses, are translated at the rate of exchange prevailing on the date of the transaction . Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the end of reporting period .

Foreign currency transaction gains and losses on financial instruments classified as at fair value through profit or loss are included in profit or loss in the statement of comprehensive income . Foreign exchange differences on other financial instruments are included in the statement of comprehensive as ‘Net foreign exchange differences’ .

Related parties(a) the party is a person or a close member of that person’s family and that person

(i) has control or joint control over the Fund;

(ii) has significant influence over the Fund; or

(iii) is a member of the key management personnel of the Fund or of a parent of the Fund;

or



20


Related parties (continued)(b) the party is an entity where any of the following conditions applies:

(i) the entity and the Fund are members of the same group;

(ii) one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity);

(iii) the entity and the Fund are joint ventures of the same third party;

(iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity;

(v) the entity is a post-employment benefit plan for the benefit of employees of either the Fund or an entity related to the Fund;

(vi) the entity is controlled or jointly controlled by a person identified in (a);

(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); and

(viii) the entity, or any member of a group of which it is a part, provides key management personnel services to the Fund or to the parent of the Fund .

5. RELATED PARTY TRANSACTIONS

The Fund is managed by the Manager, a company incorporated in Hong Kong . The Manager is responsible, subject to the policies, controls and approval of the Trustee, for the investment of the Fund’s assets . Details of the fees to which the Manager is entitled are provided in Note 6 to the financial statements .

Certain fees and expenses are borne by the Manager until the Gross Asset Value of the Fund is above HKD150 million . Such fees amounted to HKD245,428 (2017: HKD325,879) are borne by the Manager during the year .

Connected persons of the Manager are those as defined in the SFC Code . All transactions entered into during the year between the Fund and the Manager were carried out in the normal course of business and on normal commercial terms . To the best of the Manager’s knowledge, the Fund does not have any other transactions with connected persons except for what is disclosed in Note 6 to the financial statements .

6. FEES

In addition to the transactions disclosed elsewhere in these financial statements, the Fund had the following transactions with the connected persons during the year .

Management feeThe Manager is entitled to receive a management fee which is equal to 1 .75% per annum of the Net Asset Value (“NAV”) of the Fund and before making any deduction for any accrued performance fees . The management fee will be accrued as at each valuation day and will be payable monthly in arrears .

With effective from 1 January 2016, HKD(M) Units class and USD(M) Units class are not subject to management fee as both classes are offered to employees of the Manager and are not available for subscription pursuant to Explanatory Memorandum .



21

6. FEES (continued)

Management fee (continued)The total management fee for the year ended 31 March 2018 amounted to HKD493,840 (2017: HKD13,961) and HKD59,824 (2017: HKD2,731) was payable to the Manager as at 31 March 2018 .

Performance feeThe Manager is entitled to receive a performance fee which is equal to 15% of the appreciation in the NAV per unit during the relevant performance period above the high watermark per Unit . The performance fee shall be calculated daily in accordance with high-on-high basis and accrued on each valuation day throughout the relevant performance period . On each valuation day, a new performance fee accrual will be calculated and made in accordance with the above methodology .

With effective from 1 January 2016, HKD(M) Units class and USD(M) Units class are not subject to performance fee as both classes are offered to employees of the Manager and are not available for subscription pursuant to Explanatory Memorandum .

The total performance fee for the year ended 31 March 2018 amounted to HKD3,068,933 (2017: HKD125,538) and total performance fee payable to the Manager as at 31 March 2018 amounted to HKD1,371,168 (2017: HKD77,008) .

Trustee feeThe Trustee is entitled to receive a trustee fee which is calculated at an annual rate up to 0 .15% on NAV of the Fund subject to minimum fee of HKD20,000 per month for first 6 months and minimum of HKD40,000 per month afterwards .

The total trustee fee for the year ended 31 March 2018 amounted to HKD480,000 (2017: HKD480,000) and HKD40,000 (2017: HKD40,000) was payable to the Trustee as at 31 March 2018 .

7. TAXATION

The Fund is exempt from Hong Kong profits tax on profit arising from its recognised activities under Section 26A(1A) of the Hong Kong Inland Revenue Ordinance .

Overseas withholding tax was charged on certain dividend and investment income received during the year .

8. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

2018 2017HKD HKD

Financial assets at fair value through profit or loss– Equity securities 157,845,105 62,409,569– Depositary receipts 7,517,799 6,830,733– Participatory notes – 2,276,814

165,362,904 71,517,116



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8. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (continued)

2018 2017HKD HKD

Financial liabilities at fair value through profit or loss– Forward contracts 5,595 –

2018 2017HKD HKD

Net changes in fair value on financial assets and liabilities at fair value through profit or loss– Gross realised gains 34,709,211 6,886,852– Gross realised losses (4,449,643) (3,920,229)– Gross unrealised gains 19,055,787 11,730,120– Gross unrealised losses (11,329,735) (1,096,675)

Total gains 37,985,620 13,600,068

The following tables illustrate the fair value measurement hierarchy of the Fund’s financial instruments:


Financial assets at fair value through profit or loss– Equity securities 157,845,105 – – 157,845,105– Depositary receipts 7,517,799 – – 7,517,799

165,362,904 – – 165,362,904

Financial liabilities at fair value through profit or loss– Forward contracts – (5,595) – (5,595)


Financial assets at fair value through profit or loss– Equity securities 58,846,203 – 3,563,366 62,409,569– Depositary receipts 6,830,733 – – 6,830,733– Participatory notes – 2,276,814 – 2,276,814

65,676,936 2,276,814 3,563,366 71,517,116



23


The following table shows a reconciliation of all movements in the fair value of financial instruments categorised within Level 3 between the beginning and the end of the reporting period:

2018 2017HKD HKD

Opening balance at 1 April 3,563,366 428,284Transfers into Level 3 – 4,265,588Transfers out of Level 3 (3,842,662) (2,111,623)Gains and losses included in the statement of

comprehensive income 279,296 981,117

Ending balance at 31 March – 3,563,366

Change in unrealised gains or losses for Level 3 instruments held at 31 March and included in the net changes in fair value on financial assets and liabilities at fair value through profit or loss – 981,117

During the year, there were no transfers of fair value measurements between Level 1 and Level 2 (2017: nil) and 1 transfer into and out of Level 3 for financial assets . The investments transferred out of Level 3 relate to an equity investment wherein it was suspended and also resumed trading during the year .

As at 31 March 2018 and 31 March 2017, the Fund’s investments consisted of equity securities, depositary receipts, forward contracts and participatory notes . Equity securities and depositary receipts were valued using fair values determined based on quoted market prices or counterparty quotations and were included in Level 1 .

The participatory notes not actively traded in the market were valued based on the quoted market prices of the underlying equity securities and are classified as Level 2 .

Forward contracts classified as Level 2 were valued using the most frequently applied valuation techniques using the present value calculations .

Financial instrument classified within Level 3 include suspended equity security and suspended participatory note .

As at 31 March 2017, a security was suspended trading from 22 March 2017 and have been valued using a relative valuation model under the market approach . The input used for the investment valuation is the price movement of two comparable securities .



24


The following table provides information on valuation techniques, significant unobservable inputs and the ranges of financial assets at fair value through profit or loss categorised within Level 3 as at 31 March 2017 . There is no Level 3 investments as at 31 March 2018 .

Fair valueHKD

Valuation technique

SignificantUnobservable

Input RangeSensitivity

used

Sensitivity ofthe input to

fair value

2017

Suspended equity security 3,563,366

Relative valuation model

Price movement of comparable

securities0 .50% to

(3 .06%) +/-5% +/- HKD178,168

Valuation process for Level 3 valuationsValuation of suspended stock is the responsibility of the Manager’s Valuation Committee and the Trustee of the Fund has veto power if the Trustee does not agree the re-valuation price of the suspended stock .

The valuation of investment is performed on weekly and monthly basis by the Manager . The valuations are also subject to quality assurance procedures performed by the Manager . The Manager verifies the major inputs applied in the latest valuation by agreeing the information in the valuation computation to relevant documents and market information . In addition, the accuracy of the computation is tested . The latest valuation is also compared with the valuations in the each preceding month . If fair value changes (positive or negative) are more than certain thresholds set, the changes are further considered by the Manager .

9. DERIVATIVE CONTRACTS

The Fund uses derivative financial instruments to economically hedge its risks associated primarily with interest rate and foreign currency fluctuations . Derivative financial instruments may also be used for trading purposes where the Manager believes this would be more effective than investing directly in the underlying financial instruments . The derivative contract that the Fund holds includes forward currency contracts and futures contracts .

Forward currency contractsForward contracts entered into by Fund represent a firm commitment to buy or sell an underlying currency at a specified value and point in time based upon an agreed or contracted quantity . The realised/unrealised gain or loss is equal to the difference between the value of the contract at the onset and value of the contract at the settlement date/period end date and are included in the statement of comprehensive income . Forward currency contracts are used to hedge against AUD foreign currency exchange risks for its non-HKD classes of shares .

Assets Liabilities Nominal AmountAs at 31 March 2018 HKD HKD HKD

Forward contracts – (5,595) (5,595)

– (5,595) (5,595)



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10. CASH AND CASH EQUIVALENTS

2018 2017HKD HKD

Cash at bank 5,144,308 4,573,137

As at 31 March 2018, the cash at bank of HKD5,144,308 (2017: HKD4,573,137) was held with Bank of China (Hong Kong) Limited at normal commercial rates .

11. AMOUNTS DUE FROM/TO BROKERS

2018 2017HKD HKD

Amounts due from brokersCash held with broker 4,610 600,016Receivable for securities sold but not yet settled 1,018,187 –

1,022,797 600,016

Amounts due to brokersPayable for securities purchased but not yet settled 2,298 –

The amounts due from brokers were pledged to the brokers up to the amounts due to brokers as collateral for the derivative trading taken by the Fund .



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12. UNITS IN ISSUE

The number of units in issue of the Fund is classified as financial liability . The units of the Fund have no par value . All issued redeemable units are fully paid .

2018HKD(M)

Units ClassUSD(M)

Units ClassHKD

Units ClassUSD

Units ClassAUD(hedged)

Units Class

At beginning of the year 24,934,443 .3452 4,837,591 .0880 517,811 .0612 287,133 .0449 –Issued during the year 12,148,131 .1177 837,520 .9380 29,299,325 .9033 4,783,722 .6315 138,849 .4403Redeemed during the year – (63,479 .9720) (11,139,716 .9010) (4,077,484 .2560) –

At the end of the year 37,082,574 .4629 5,611,632 .0540 18,677,420 .0635 993,371 .4204 138,849 .4403

2017HKD(M)

Units ClassUSD(M)

Units ClassHKD

Units ClassUSD


Units Class

At beginning of the year 15,387,043 .0869 4,000,000 .0000 111,076 .3733 10,000 .0000 –Issued during the year 9,547,400 .2583 837,591 .0880 4,826,399 .6606 281,018 .2583 –Redeemed during the year – – (4,419,664 .9727) (3,885 .2134) –

At the end of the year 24,934,443 .3452 4,837,591 .0880 517,811 .0612 287,133 .0449 –

Unitholders who wish to subscribe or redeem their units in the Fund may do so on any dealing day which is (a) any business day, except any business day, determined at the Manager’s discretion, on which any exchange or market on which a substantial portion of the Fund’s investments is traded is closed or on which dealings are restricted or suspended; or (b) such other day as the Manager may determine from time to time with the approval of the Trustee .

HKD(M) Units and USD(M) Units are offered to employees of the Manager and are not available for subscription pursuant to Explanatory Memorandum .

A partial redemption of a holding of units in the Fund may be effected provided that such redemption will not result in the unitholder holding less than the minimum holding of units of a class, which is the lesser of 50,000 units of that class or units of that class with an aggregate net asset value of HKD50,000 (or its equivalent in another currency) . The minimum holding amount in respect of USD(M) Units is USD100,000 . The Manager has the right to compulsorily redeem any holding of Units which is less than such minimum holding . The Manager may, in its absolute discretion, waive the requirement for such minimum holding of units of any class, whether generally or in any particular case . For all classes of units, it is the current intention of the Manager that distributions of income will not be made from the Fund .



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13. RECONCILIATION BETWEEN NET ASSET VALUE PER THE AUDITED FINANCIAL STATEMENTS AND THE PUBLISHED NET ASSET VALUE PER FINANCIAL YEAR END

2018HKD(M)

Units ClassUSD(M)

Units ClassHKD

Units ClassUSD


Units ClassHKD HKD HKD HKD HKD

Published net asset value attributable to unitholders for the year (as at 29 March 2018) 60,834,638 71,366,217 26,407,038 11,061,194 870,289

Revaluation adjustment (a) (110,924) (130,127) (48,149) (20,362) (1,587)Recognition of subscriptions and

redemptions (b) – – (302) 105,706 –Accrual of NAV-based fees and sundry

income (c) (2,091) (2,453) (3,436) (1,452) (113)Opening adjustment and recognition of

preliminary expenses (d) (116,168) (136,278) (50,421) (21,321) (1,662)

Net asset value attributable to unitholders per audited financial statements 60,605,455 71,097,359 26,304,730 11,123,765 866,927

2017HKD(M)

Units ClassUSD(M)

Units ClassHKD

Units ClassUSD


Units ClassHKD HKD HKD HKD HKD

Published net asset value attributable to unitholders for the year 29,495,065 44,361,140 602,020 2,578,564 –

Opening adjustment and recognition of preliminary expenses (e) (178,206) (268,026) (3,637) (15,579) –

Net asset value attributable to unitholders

per audited financial statements 29,316,859 44,093,114 598,383 2,562,985 –

Notes:a) On 29 March 2018, the last valuation day of the Fund, total market value of investments amounted

to HKD165,674,052 is adjusted down to HKD311,149 in order to reflect the market value downward movements of listed China-A shares and Taiwan shares of HKD218,344 and HKD92,805, respectively . This is to reflect the fair market value of the shares in their respective principal trading markets, China and Taiwan on their last trading days, 30 March 2018 (China market) and 31 March 2018 (Taiwan market) .



28

13. RECONCILIATION BETWEEN NET ASSET VALUE PER THE AUDITED FINANCIAL STATEMENTS AND THE PUBLISHED NET ASSET VALUE PER FINANCIAL YEAR END (continued)

b) Adjustments were made to recognise subscriptions and redemptions for 29 March 2018 since shares will be issued or redeemed on the third business day after receipt of subscription or redemption request . Subscriptions amounting to HKD105,706 equivalent to 9,402 .9879 units of USD units class was received and a net effect of HKD302 was redeemed since the subscriptions amounting to HKD98,039 equivalent to 69,344 .4688 was offset by the redemptions amounting to HKD98,341 equivalent of 69,558 .3959 units of HKD units class .

c) Adjustments were made to recognise the two-day accrual for 30 and 31 March 2018 of the NAV-based fees such as variable QRMO fee, trustee fee, and management fee and sundry income composed of fixed QRMO fee, audit fee, license fee and FATCA service fee .

d) At beginning of the year, preliminary expenses had an opening balance amounting to HKD465,448 which should have been zero since these were expensed in the prior period . During the year, there were additional preliminary expenses recorded in the income statement amounting to HKD139,598 which should be offset by the credit balance of preliminary expenses recorded in the balance sheet amounting to HKD139,598 resulting to a net effect of preliminary expenses amounting to nil in accordance with IFRS .

e) At beginning of the year, preliminary expenses had an opening balance amounting to HKD561,966 which should have been zero since these were expensed in the prior period . During the year, there were additional preliminary expenses recorded in the income statement amounting to HKD156,279 which should be offset by the credit balance of preliminary expenses recorded in the balance sheet amounting to HKD96,518 resulting to a net effect of preliminary expenses amounting to HKD59,761 in accordance with IFRS .

14. SOFT COMMISSION ARRANGEMENT

The Manager has not entered into any soft commission arrangements for the Fund .

15. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Fund is subject to various risks as the Fund invested in underlying financial instruments during the year . The Manager’s objective in managing the risks is to achieve a superior risk adjusted return . The Fund is managed through a process of ongoing identification, measurement and monitoring, subject to risks limits and other controls .



29


The main risks associated with the financial assets and liabilities of the Fund are set out below:

(a) Market risk

(i) Price risk

The Manager manages price risk primarily through diversification of the portfolio and through a careful selection of securities and other financial instruments within specific limits stated in the Explanatory Memorandum . The Fund’s overall market positions are monitored on a daily basis by the Manager .

The table below shows the analysis of the equity securities by industry:

% of NAV % of NAV2018 2017

Consumer Discretionary 18 .71% 16 .37%Consumer Staples 6 .86% –Financials 17 .12% 21 .53%Health Care 2 .60% –Industrials 1 .69% 4 .74%Information Technology 14 .30% 18 .92%Materials 15 .16% 16 .67%Others – 2 .97%Real Estate 20 .83% 6 .32%Utilities – 5 .88%

97 .27% 93 .40%

The table below summarises the sensitivity of the Fund’s net assets value to equity price movements . For the year ended 31 March 2018 and 2017, the analysis is based on the assumptions that the Hang Seng China Enterprises Index and Shanghai Shenzhen CSI 300 Index increased/decreased with all other variables held constant and that the fair value of the Fund’s portfolio of equity securities moved according to their historical correlation with the index and on market values of the investments as at 29 March 2018, being the last valuation day of the year . The Fund is not directly correlated with any Asian market indices . The indices should be used only for guidance and performance comparison purposes . The Manager does not manage market price risk with reference to any market index .


asset value


asset valuePercentage

change2018 2017HKD HKD

Hang Seng China Enterprises Index +/- 20% +/- 25,966,891 +/- 9,397,874Shanghai Shenzhen CSI 300 Index +/- 20% +/- 33,760,956 +/- 9,519,654



30


(a) Market risk (continued)

(ii) Interest rate risk

Interest rate risk arises from the possibility that changes in interest rates offset future cash flows or the fair values of financial assets .

As at 31 March 2018 and 31 March 2017, the Fund’s exposure to interest rate risk is considered to be relatively small as the Fund’s financial instruments were mainly bank balances which were carried at minimal interest rates .

The Manager considers the movement in the interest rates will have insignificant cash flow impact on the daily net assets attributable to the holders of redeemable participating units as at 31 March 2018 and 31 March 2017 and therefore no sensitivity analysis on bank balances are presented .

(iii) Foreign currency risk

Foreign currency risk is the risk that the value of financial assets or liabilities will fluctuate due to changes in foreign exchange rates . The Fund’s direct exposure to foreign currency risk is minimal as substantial of the Fund’s assets and liabilities are denominated in HKD .

(b) Liquidity risk

Liquidity risk is the risk that the Fund will encounter difficulty in raising funds to meet commitments associated with financial assets and liabilities . Liquidity risk may result from an inability to sell a financial asset quickly at an amount close to its fair value .

The markets in which the Fund invests may be relatively illiquid and the liquidity of these markets may fluctuate substantially over time . Investment of the Fund’s assets in relatively illiquid securities may restrict the ability of the Fund to dispose of its investments at a price and time that it wishes . The risk of illiquidity also arises in the case of over-the-counter transactions . The Manager monitors the liquidity of the Fund by conducting liquidity testing on the investment portfolio on a monthly and ad-hoc basis . The objective of testing is to monitor liquidity of financial assets to meet the cash outflows on financial liabilities . As at 31 March 2018 and 31 March 2017, the Fund held investments in equity securities, depositary receipts, forward contracts, participatory notes and other liquid assets, including bank balances and amounts receivable on sales of financial assets and financial liabilities at fair value through profit or loss, we expect the majority of the assets to be able to liquidate within 7 days or less to generate cash inflows for managing liquidity risk .

Financial assets: Analysis of equity securities at fair value through profit or loss into maturity groupings based on the expected date on which these assets will be realised . For other assets, the analysis into maturity groupings is based on the remaining period from the end of the reporting period to the contractual maturity date or, if earlier, the expected date on which these assets will be realised .



31



Financial liabilities: The maturity grouping is based on the remaining period from the end of the reporting period to the contractual maturity date . When a counter party has a choice of when the amount is paid, the liability is allocated to the earliest period in which the Fund can be required to pay .

The following table summarises the maturity profile of the Fund’s financial assets and financial liabilities, based on the contractual undiscounted cash flows .

OnDemand

Less than3 months

3 to 12Months Other Total

HKD HKD HKD HKD HKD

31 March 2018


profit or loss – 165,362,904 – – 165,362,904Amounts due from brokers – 1,022,797 – – 1,022,797Cash and cash equivalents 5,144,308 – – – 5,144,308Other receivables – 232,563 – – 232,563

Total undiscounted financial assets 5,144,308 166,618,264 – – 171,762,572

Financial liabilitiesFinancial l iabi l i t ies at fair value

through profit or loss – – 5,595 – 5,595Accounts payable and accrual 1,758,741 – – – 1,758,741Net assets attributable to holders of

redeemable participating units* – – – 169,998,236 169,998,236

Total undiscounted financial liabilities 1,758,741 – 5,595 169,998,236 171,762,572



32



OnDemand

Less than3 months

3 to 12Months Other Total

HKD HKD HKD HKD HKD

31 March 2017


profit or loss – 65,676,936 2,276,814 3,563,366 71,517,116Amounts due from brokers – 600,016 – – 600,016Cash and cash equivalents 4,573,137 – – – 4,573,137Other receivables – 170,515 – – 170,515

Total undiscounted financial assets 4,573,137 66,447,467 2,276,814 3,563,366 76,860,784


through profit or loss – – – – –Accounts payable and accrual 289,443 – – – 289,443Net assets attributable to holders of

redeemable participating units* – – – 76,571,341 76,571,341

Total undiscounted financial liabilities 289,443 – – 76,571,341 76,860,784

* See Note 12 and the explanatory memorandum for the detailed discussion of the Fund’s redemption term on its redeemable participating units .

(c) Credit risk

Credit risk is the risk that the counterparty to a financial instrument will cause a financial loss for the Fund by failing to discharge an obligation .

The Fund is exposed to credit risk on its cash at bank, amounts due from brokers and its investments placed with the custodian and brokers .

It is the Fund’s policy to enter into the financial instruments with reputable counterparties .

The Fund placed all of the cash at bank and investments with the custodian, Bank of China (Hong Kong) Limited, a reputable financial institution with credit rating of A (2017: A) for long term debt and A-1 (2017: A-1) for short term debt from Standard & Poor’s .



33


(c) Credit risk (continued)

The Fund’s maximum exposure to credit risk in the event the counterparties fail to perform their obligations without taking account of any collateral held as of 31 March 2018 and 31 March 2017 in relation to each class of recognised financial assets is the carrying amount of those assets as disclosed in the statement of financial position .

The Manager continuously monitors the credit standing of its counterparties and does not expect any material losses as a result of this concentration .

(d) Capital management

The Fund considers the redeemable participating units as the capital of the Fund . The Fund strives to invest the subscriptions of redeemable participating units in investments that meet the Fund’s investment objectives while maintaining sufficient liquidity to meet unitholders’ redemptions .

16. EVENTS AFTER THE REPORTING PERIOD

(a) HKD(M) units classDuring the period from 1 April 2018 to 1 June 2018, there were no units subscribed and redeemed thus, there were also no subscription proceeds and redemption payments .

(b) USD(M) units classDuring the period from 1 April 2018 to 1 June 2018, there were no units subscribed and redeemed thus, there were also no subscription proceeds and redemption payments .

(c) HKD units classDuring the period from 1 April 2018 to 1 June 2018, a total of 2,787,792 .5149 units were subscribed and a total of 7,009,406 .3944 units were redeemed giving rise to total subscription proceeds of HKD3,881,162 .91 and total redemption payments of HKD10,005,389 .53 .

(d) USD units classDuring the period from 1 April 2018 to 1 June 2018, a total of 277,925 .2352 units were subscribed and a total of 200,210 .0130 units were redeemed giving rise to total subscription proceeds of HKD3,092,954 .52 and total redemption payments of HKD2,203,225 .23 .

(e) AUD(hedged) units classDuring the period from 1 April 2018 to 1 June 2018, there were no units subscribed and redeemed thus, there were also no subscription proceeds and redemption payments .

17. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the Manager and the Trustee on 29 June 2018 .


34

INVESTMENT PORTFOLIO (UNAUDITED)

31 March 2018

Securities NameNumber of

SharesFair value

(HKD)% of Net

Asset Value

Equity Securities

ChinaBeijing Oriental Yuhong Waterproof Technology

Co ., Ltd – A 204,160 10,472,644 6 .16Kweichow Moutai Co Ltd – A 9,600 8,198,846 4 .82Ping An Insurance Group Co of China Ltd – A 74,600 6,086,747 3 .58ShenZhen YUTO Packaging Technology Co Ltd – A 46,024 3,070,382 1 .81Suzhou Gold Mantis Construction Decoration

Co Ltd – A 176,650 2,864,541 1 .69

30,693,160 18 .06

Hong KongAAC Technologies Holdings Inc . 39,500 5,593,200 3 .29Agricultural Bank of China Limited – H 1,974,000 8,804,040 5 .18ANTA Sports Products Limited 152,000 6,019,200 3 .54China Construction Bank Corporation – H 703,000 5,666,180 3 .33China Hongqiao Group Limited 1,426,000 12,220,820 7 .19China Medical System Holdings Limited 98,000 1,746,360 1 .03China Mengniu Dairy Company Limited 129,000 3,470,100 2 .04China Vanke Co ., Ltd . – H 220,500 7,893,900 4 .64Country Garden Holdings Company Limited 665,000 10,746,400 6 .32Future Land Development Holdings Limited 662,000 4,402,300 2 .59Industrial and Commercial Bank of China Limited – H 713,000 4,798,490 2 .82Kingboard Laminates Holdings Limited 964,000 10,970,320 6 .45Logan Property Holdings Company Limited 300,000 3,582,000 2 .11Longfor Properties Co . Ltd . 366,500 8,796,000 5 .17Luk Fook Holdings (International) Limited 16,000 456,000 0 .27MGM China Holdings Limited 123,600 2,502,900 1 .47Minth Group Limited 120,000 4,290,000 2 .52Nexteer Automotive Group Limited 279,000 3,297,780 1 .94Shenzhou International Group Holdings Limited 108,000 8,926,200 5 .25SJM Holdings Limited 145,000 988,900 0 .58WuXi Biologics (Cayman) Inc . 35,500 2,678,475 1 .58Zhongsheng Group Holdings Limited 248,500 5,330,325 3 .14

123,179,890 72 .45

TaiwanSilergy Corp 23,000 3,972,054 2 .34

3,972,054 2 .34


35

INVESTMENT PORTFOLIO (UNAUDITED) (continued)

31 March 2018

Securities NameNumber of

SharesFair Value

(HKD)% of Net

Asset Value

Depositary Receipts

United StatesBaidu Inc – ADR 2,155 3,774,784 2 .22Yirendai Ltd – ADR 11,855 3,743,016 2 .20

7,517,800 4 .42

Foreign currency forwardsForeign Exchange Forward contract (5,595) –

(5,595) –

Total financial assets at fair value through profit

and loss (cost: HKD145,873,133) 165,357,309 97 .27

OTHER NET ASSETS 4,640,927 2 .73

NET ASSETS 169,998,236 100 .00


36

STATEMENT OF MOVEMENTS IN INVESTMENT PORTFOLIO (UNAUDITED)

31 March 2018

% of NAV % of NAV2018 2017

Consumer Discretionary 18 .71% 16 .37%Consumer Staples 6 .86% –Financial 17 .12% 21 .53%Health Care 2 .60% –Industrials 1 .69% 4 .74%Information Technology 14 .30% 18 .92%Materials 15 .16% 16 .67%Others – 2 .97%Real Estate 20 .83% 6 .32%Utilities – 5 .88%

97 .27% 93 .40%


37

PERFORMANCE TABLE (UNAUDITED)

31 March 2018 NET ASSET VALUES (“NAV”) – Published NAV

NAV per unit

NAV ofthe Fund

HKD(M)Units Class

USD(M)Units Class

HKDUnits Class

USDUnits Class

AUD(hedged)

Units ClassYear/Period (HKD) (HKD) (USD) (HKD) (USD) (AUD)

2018 170,539,376 1 .6405 1 .6204 1 .4138 1 .4324 1 .04042017 77,036,789 1 .1829 1 .1803 1 .1626 1 .1559 –2016* 42,340,061 0 .9086 0 .9084 0 .9691 0 .9686 –

PERFORMANCE RECORD

Highest issue price per unit

HKD(M)Units Class

USD(M)Units Class

HKDUnits Class

USDUnits Class

AUD(hedged)

Units ClassYear/Period (HKD) (USD) (HKD) (USD) (AUD)

2018 1 .8025 1 .7874 1 .5712 1 .5965 1 .13132017 1 .1962 1 .1939 1 .1744 1 .1792 –2016* 1 .0032 1 .0032 1 .0000 1 .0000 –

Lowest issue price per unit

HKD(M)Units Class

USD(M)Units Class

HKDUnits Class

USDUnits Class

AUD(hedged)

Units ClassYear/Period (HKD) (USD) (HKD) (USD) (AUD)

2018 1 .1674 1 .1627 1 .1453 1 .1365 0 .9632017 0 .8522 0 .8512 0 .9071 0 .9057 –2016* 0 .8244 0 .8186 0 .8819 0 .8758 –

* For the period from 31 July 2015 (date of commencement of operations) to 31 March 2016

Annual Report 2017 - ftlife.com.hk · Lippo Centre 89 Queensway Hong Kong Telephone No.:+852 3626 9700 ... 18 Whitfield Road Causeway Bay Hong Kong Custodian Bank of China (Hong Kong)

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