1. HSBC MANAGED FUNDS 1.1 HSBC MANAGED BALANCED FUND

Transcription

1 HSBC Managed Funds HSBC Global Money Funds Annual Report 2015

2 Contents 1. HSBC MANAGED FUNDS 1.1 HSBC MANAGED BALANCED FUND Investment Adviser s Report 3 Trustee s Report 4 Independent Auditors Report to the Unitholders 5 Statement of Assets and Liabilities 6 Statement of Comprehensive Income 7 Statement of Changes in Net Assets Attributable to Unitholders 8 Cash Flow Statement 9 Distribution Statement 10 Notes to the Financial Statements 11 Portfolio Statement (Unaudited) 28 Statement of Movements in Portfolio (Unaudited) 49 Performance Record (Unaudited) HSBC MANAGED GROWTH FUND Investment Adviser s Report 53 Trustee s Report 54 Independent Auditors Report to the Unitholders 55 Statement of Assets and Liabilities 56 Statement of Comprehensive Income 57 Statement of Changes in Net Assets Attributable to Unitholders 58 Cash Flow Statement 59 Distribution Statement 60 Notes to the Financial Statements 61 Portfolio Statement (Unaudited) 76 Statement of Movements in Portfolio (Unaudited) 97 Performance Record (Unaudited) HSBC MANAGED STABLE FUND Investment Adviser s Report 101 Trustee s Report 102 Independent Auditors Report to the Unitholders 103 Statement of Assets and Liabilities 104 Statement of Comprehensive Income 105 Statement of Changes in Net Assets Attributable to Unitholders 106 Cash Flow Statement 107 Distribution Statement 108 Notes to the Financial Statements 109 Portfolio Statement (Unaudited) 125 Statement of Movements in Portfolio (Unaudited) 148 Performance Record (Unaudited) HSBC MANAGED STABLE GROWTH FUND Investment Adviser s Report 152 Trustee s Report 153 Independent Auditors Report to the Unitholders 154 Statement of Assets and Liabilities 155 Statement of Comprehensive Income 156 Statement of Changes in in Net Assets Attributable to Unitholders 157 Cash Flow Statement 158 Notes to the Financial Statements 159 Portfolio Statement (Unaudited) 175 Statement of Movements in Portfolio (Unaudited) 196 Performance Record (Unaudited) 198 1

3 Contents 2. HSBC GLOBAL MONEY FUNDS 2.1 HSBC GLOBAL MONEY FUNDS - HONG KONG DOLLAR 2.2 HSBC GLOBAL MONEY FUNDS - US DOLLAR Investment Adviser s Report 199 Trustee s Report 200 Independent Auditors Report to the Unitholders 201 Statement of Assets and Liabilities 202 Statement of Comprehensive Income 203 Statement of Changes in Net Assets Attributable to Unitholders/Statement of Changes in Equity 204 Cash Flow Statement 205 Notes to the Financial Statements 206 Portfolio Statement (Unaudited) 220 Statement of Movements in Portfolio (Unaudited) 222 Performance Record (Unaudited) ADMINISTRATION BOARD OF DIRECTORS OF HSBC INVESTMENT FUNDS (HONG KONG) LIMITED 225 2

4 Investment Adviser s Report HSBC Managed Balanced Fund review In the past 1-year period ended July 2015, returns were mainly driven by the favorable stock performance in developed markets and the USD denominated Asian credits. The year has seen negative return from global government bonds as major market currencies weakened against the USD on the backdrop of improving economic outlook in the US and the divergence of moary policies between the US and other major countries. ECB has stepped up its purchases to EUR60bn per month, a program that began in March The Bank of Japan increased its purchases to 80 trillion Yen per annum and increased the maturity of bonds bought in the fourth quarter last year. In contrast, market has been discussing when the Fed will start to normalize the interest rates. The ongoing decline in the price of oil was another major feature of markets over the year adding uncertainties about the global growth background. Brent Crude oil, for example, had fallen to just over USD50 at the end of July In the short term markets are likely to continue to react to the prospects for a rise in US interest rates. We still see the risk premiums attached to equities and corporate bonds in particular as attractive for the long term. We therefore maintain a bias towards equities and corporate bonds. HSBC Global Asset Management (Hong Kong) Limited 24 November

5 Trustee s Report HSBC Managed Balanced Fund ( the Fund ) We hereby confirm that, to the best of our knowledge, the Manager of the Fund has, in all material respects, managed the Fund in accordance with the provisions of the Trust Deed dated 18 January 1990, as amended, for the year ended 31 July ) Bertha TAM ) For and on behalf of Eva WONG ) HSBC Trustee (Cayman) Limited, ) Trustee 4

6 Independent Auditors Report to the Unitholders Report on the financial statements We have audited the financial statements of HSBC Managed Balanced Fund ( the Fund ), which comprise the statement of s and liabilities as at 31 July 2015, and the statement of comprehensive income, statement of changes in s attributable to unitholders, cash flow statement and distribution statement for the year then ended, and a summary of significant accounting policies and other explanatory information. Manager s and Trustee s responsibilities for the financial statements The Manager and the Trustee are responsible for the preparation of financial statements that give a true and fair view in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants, and for such internal control as the Manager and the Trustee determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In addition, the Manager and the Trustee also have responsibilities to ensure that the financial statements comply with the relevant disclosure provisions of the Trust Deed, as amended, and the relevant disclosure requirements set out in Appendix E to the Hong Kong Code on Unit Trusts and Mutual Funds issued by the Hong Kong Securities and Futures Commission ( the Code ). Auditors responsibility Our responsibility is to express an opinion on these financial statements based on our audit. This report is made solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity s preparation of the financial statements that give a true and fair view 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 entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Manager and the Trustee, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements give a true and fair view of the financial position of the Fund as at 31 July 2015, and of its transactions and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards. Report on disclosure requirements under the Code We report that the financial statements have been properly prepared in accordance with the relevant disclosure provisions of the Trust Deed, as amended, and the relevant disclosure requirements set out in the Code. KPMG P.O. Box 493 Century Yard, Cricket Square Grand Cayman KY Cayman Islands 24 November 2015 The accompanying report of KPMG is for sole and exclusive use of the Fund. Further, the report of KPMG is as of 24 November 2015 and KPMG has carried out no procedures of any nature subsequent to that date which in any way extends that date. 5

7 Statement of Assets and Liabilities HSBC Managed Balanced Fund as at 31 July Note ASSETS Financial s at fair through profit or loss 5, 7(f), 12(g) 2,262,950,742 2,012,604,088 Interest and dividends receivable 6,075,498 6,494,384 Subscriptions receivable 14,297,856 4,051,917 Amounts due from brokers 6 18,700,000 1,406,279 Cash and cash equivalents 7(b) 77,465, ,683,456 2,379,489,685 2,264,240,124 LIABILITIES Redemptions payable 14,959,100 4,891,874 Amounts due to brokers 6 4,853,917 Distributions payable ,361 2,487,422 Other payables 7(a), 7(c), 7(f) 4,924,965 5,328,934 20,033,426 17,562,147 Net s attributable to unitholders 2,359,456,259 2,246,677,977 Representing: Financial liabilities 2,359,456,259 2,246,677,977 Total number of units in issue A class income units 9(a) 14,935,630 14,627,791 L class income units 9(b) 8,040 Provident class units 9(c) 58,066,823 54,054,724 Accumulation units 9(d) 6,846,301 6,693,800 Net per unit A class income units L class income units Provident class units Accumulation units Approved by the Trustee and the Manager on 24 November ) Bertha TAM ) For and on behalf of Eva WONG ) HSBC Trustee (Cayman) Limited, ) Trustee ) Stuart Glenn BERRY ) For and on behalf of Chun Pong Stephen TAM ) HSBC Investment Funds ) (Hong Kong) Limited, ) Manager The notes on pages 11 to 27 form part of these financial statements.

8 Statement of Comprehensive Income HSBC Managed Balanced Fund for the year ended 31 July Note Interest income 7(b) 106,797 92,219 Dividend income 7(f) 42,660,935 50,156,214 Net (losses)/gains from financial instruments at fair through profit or loss 3 (30,071,481) 208,715,538 Net foreign exchange loss (496,527) (1,581,553) Total revenue 12,199, ,382,418 Management fees 7(a) 20,036,192 19,275,840 Transaction fees 7(c), 7(e) 8,014,435 7,970,480 Trustee s fees 7(c) 2,426,850 2,557,533 Administrative fees 7(a), 7(g) 608, ,541 Auditors remuneration 348, ,174 Registrar s fees 7(a) 105, ,000 Legal and professional fees 37,990 Safe custody fees, bank charges and miscellaneous expenses 7(d) 1,417,148 1,361,608 Total operating expenses 32,993,780 32,357,176 Net (loss)/profit from operations before taxation (20,794,056) 225,025,242 Taxation 4 (5,482,512) (7,284,334) Net (loss)/profit from operations before distributions (26,276,568) 217,740,908 Distributions to holders of A class income units 11 (149,361) (2,487,422) (Decrease)/Increase in s attributable to unitholders and total comprehensive income for the year (26,425,929) 215,253,486 The notes on pages 11 to 27 form part of these financial statements. 7

9 Statement of Changes in Net Assets Attributable to Unitholders HSBC Managed Balanced Fund for the year ended 31 July Note Balance at the beginning of the year 2,246,677,977 2,252,522,412 (Decrease)/Increase in s attributable to unitholders and total comprehensive income for the year (26,425,929) 215,253,486 Subscriptions of units (excluding equalisation) A class income units 72,744, ,853,749 L class income units 3,426,080 Provident class units 358,893, ,940,895 Accumulation units 5,604,971 6,014,385 Redemptions of units (excluding equalisation) A class income units (65,627,174) (54,977,863) L class income units (218,938) (23,131,372) Provident class units (248,329,156) (432,129,141) Accumulation units (3,738,733) (10,254,592) Income equalisation on subscriptions and redemptions 10 19,875,616 (51,840,062) 139,204,211 (221,097,921) Balance at the end of the year 2,359,456,259 2,246,677,977 The notes on pages 11 to 27 form part of these financial statements. 8

10 Cash Flow Statement HSBC Managed Balanced Fund for the year ended 31 July Operating activities Interest received 106,797 92,178 Dividends received 43,935,233 48,829,676 Management fees paid (19,949,008) (19,350,917) Trustee s fees paid (2,429,366) (2,588,624) Payments on purchase of investments (1,691,477,485) (1,058,465,170) Proceeds from sale of investments 1,388,056,300 1,500,374,063 Tax paid (5,799,567) (7,271,748) Other operating expenses paid (11,198,847) (11,230,113) Cash (used in)/provided by operating activities (298,755,943) 450,389,345 Financing activities Proceeds from issue of units including equalisation 492,358, ,586,082 Payments on redemption of units including equalisation (353,332,921) (611,419,456) Distributions paid (2,487,422) (2,218,653) Cash provided by/(used in) financing activities 136,538,076 (233,052,027) Net (decrease)/increase in cash and cash equivalents (162,217,867) 217,337,318 Cash and cash equivalents at the beginning of the year 239,683,456 22,346,138 Cash and cash equivalents at the end of the year 77,465, ,683,456 The notes on pages 11 to 27 form part of these financial statements. 9

11 Distribution Statement HSBC Managed Balanced Fund for the year ended 31 July Note Amount available for distribution brought forward 280,482, ,980,570 Profit for the year available for distribution* 21,019,259 34,828,926 Income equalisation on subscriptions and redemptions 10 19,875,616 (51,840,062) Distributions to unitholders 11 (149,361) (2,487,422) Amount available for distribution carried forward 321,227, ,482,012 Distribution history A class income units Distribution per unit Date of distribution 30 July July 2014 * Profit for the year available for distribution is the adjusted total comprehensive income for the year, for which the calculation basis is in accordance with the relevant clauses of the Trust Deed. The notes on pages 11 to 27 form part of these financial statements. 10

12 Notes to the Financial Statements HSBC Managed Balanced Fund 1 The Fund HSBC Managed Balanced Fund ( the Fund ) is an openended unit trust established under a trust deed dated 18 January 1990, as amended ( the Trust Deed ), and governed by the laws of the Cayman Islands. The Fund registered under the Mutual Funds Law of the Cayman Islands on 13 March The purpose of the Fund is to invest in a diversified portfolio of investments with steady long-term capital growth that will at least exceed Hong Kong inflation and is designed for individual unitholders, pension and provident funds and retirement schemes. The Fund is authorised by the Hong Kong Securities and Futures Commission ( SFC ) under section 104 of the Hong Kong Securities and Futures Ordinance ( HKSFO ) and is governed by the Hong Kong Code on Unit Trusts and Mutual Funds issued by the SFC. 2 Significant accounting policies (a) Statement of compliance The financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards ( HKFRSs ), which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards ( HKASs ) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants ( HKICPA ), accounting principles generally accepted in Hong Kong, the relevant disclosure provisions of the Trust Deed and the relevant disclosure requirements of the Hong Kong Code on Unit Trusts and Mutual Funds issued by the SFC. A summary of the significant accounting policies adopted by the Fund is set out below. The HKICPA has issued certain new and revised HKFRSs that are first effective or available for early adoption for the current accounting period of the Fund. Note 2(c) provides information on any changes in accounting policies resulting from initial application of these developments to the extent that they are relevant to the Fund for the current and prior accounting periods reflected in these financial statements. (b) Basis of preparation of the financial statements The functional and presentation currency of the Fund is Hong Kong dollar reflecting the fact that the participating redeemable units of the Fund are issued and redeemed in Hong Kong dollars. The financial statements are prepared on a fair basis for financial s and financial liabilities at fair through profit or loss and derivative financial instruments. Other financial s and financial liabilities are stated at amortised cost or redemption amount (redeemable units). The preparation of financial statements in conformity with HKFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of s, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying s of s and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The accounting policies have been applied consistently by the Fund and are consistent with those used in the previous year except as stated in note 2(c) below. (c) Changes in accounting policies The HKICPA has issued a number of amendments to HKFRSs that are first effective for the current accounting period of the Fund. Of these, the following developments are relevant to the Fund s financial statements: Amendments to HKAS 32, Financial instruments: Presentation Offsetting financial s and financial liabilities Annual Improvements to HKFRSs Cycle Annual Improvements to HKFRSs Cycle The Fund has not applied any new standard or interpretation that is not yet effective for the current accounting period (see note 16). Impacts of the adoption of amended HKFRSs are discussed below: 11

13 Notes to the Financial Statements Amendments to HKAS 32, Financial instruments: Presentation Offsetting financial s and financial liabilities The amendments to HKAS 32 clarify the offsetting criteria in HKAS 32 by explaining when an entity currently has a legally enforceable right to set off and when gross settlement is considered to be equivalent to settlement. The amendments do not have an impact on these financial statements as they are consistent with the policies already adopted by the Fund. Annual Improvements to HKFRSs Cycle This cycle of annual improvement contains amendments to seven standards with consequential amendments to other standards and interpretations. Details relevant to the Fund s financial statements are as follows: HKFRS 13, Fair measurement has been amended to clarify that entities are not prevented from measuring short term receivables and payables that have no stated interest rate at their invoiced amounts without discounting, if the effect of not discounting is immaterial. HKAS 24, Related party disclosures has been amended to extend the definition of a related party to include a management entity that provides key management personnel ( KMP ) services to the reporting entity, either directly or through a group entity. Consequently, the entity is required to disclose the amounts incurred for the KMP services provided by the management entity, but it is not required to look through the management entity and disclose compensation paid by the management entity to the individuals providing the KMP services. The amendments do not have an impact on these financial statements as they are consistent with the policies already adopted by the Fund. Annual Improvements to HKFRSs Cycle This cycle of annual improvement contains amendments to four standards with consequential amendments to other standards and interpretations. Details relevant to the Fund s financial statements are as follows: HKFRS 13, Fair measurement has been amended to clarify that its portfolio exception, which allows entities to measure the fair of a group of financial s and financial liabilities with offsetting risk positions on a basis, applies to all contracts within the scope of HKAS 39 and HKFRS 9, regardless of whether the contracts meet the definitions of financial s or financial liabilities in HKAS 32. The amendments do not have an impact on these financial statements as they are consistent with the policies already adopted by the Fund. (d) Foreign currency translation Foreign currency transactions during the year are translated into Hong Kong dollars at the exchange rates ruling at the transaction dates. Moary s and liabilities denominated in foreign currencies that are stated at fair are translated into Hong Kong dollars at the exchange rates ruling at the date of the statement of s and liabilities. Foreign currency exchange differences arising on translation and realised gains and losses on disposal or settlement of moary s and liabilities are recognised in profit or loss. Foreign currency exchange differences relating to investments at fair through profit or loss are included in gains or losses from financial instruments at fair through profit or loss. All other foreign currency exchange differences relating to moary items including cash and cash equivalents are presented separately in profit or loss. (e) (i) Financial instruments Classification All of the Fund s investments are classified as financial s or financial liabilities at fair through profit or loss. This category comprises financial instruments held for trading, which are instruments that the Fund has acquired principally for the purpose of short-term profit-taking. These include investments in equities, debt securities, unit trusts and rights. All derivatives in a receivable position (positive fair ) are reported as financial s. All derivatives in a payable position (negative fair ) are reported as financial liabilities. Financial s at amortised cost that are classified as loans and receivables include interest and dividends receivable, subscriptions receivable and amounts due from brokers. Financial liabilities at amortised cost include redemptions payable, amounts due to brokers, 12

14 Notes to the Financial Statements (ii) (iii) (iv) distributions payable and other payables. Financial liabilities arising from the redeemable units issued by the Fund are carried at the redemption amount. Recognition The Fund recognises financial s and financial liabilities on the date it becomes a party to the contractual provisions of the instrument. A regular way purchase or sale of financial s is recognised using trade date accounting. From this date any gains and losses arising from changes in fair of the financial s or financial liabilities are recorded. Financial liabilities are not recognised unless one of the parties has performed their obligations under the contract or the contract is a derivative contract not exempted from the scope of HKAS 39. Measurement Financial instruments are measured initially at fair (transaction price). Transaction costs on financial s and liabilities at fair through profit or loss are expensed immediately, while on other financial instruments they are amortised. Subsequent to initial recognition, all instruments classified at fair through profit or loss are measured at fair with changes in their fair recognised in profit or loss. Financial s classified as loans and receivables are carried at amortised cost using the effective interest rate method, less impairment losses, if any. Financial liabilities other than those at fair through profit or loss are measured at amortised cost using the effective interest rate method. Financial liabilities arising from the redeemable units issued by the Fund are carried at the redemption amount representing the unitholders right to a residual interest in the Fund s s. Fair measurement principles Fair is the price that would be received to sell an or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal, or in its absence, the most advantageous market to which the Fund has access at that date. The fair of a liability reflects its non-performance risk. When available, the Fund measures the fair of an instrument using the quoted price in an active market for that instrument provided such price is within the bid-ask spread. A market is regarded as active if transactions for the or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. In circumstances where the quoted price is not within the bid-ask spread, the manager of the Fund will determine the points within the bid-ask spread that are most representative of the fair. When there is no quoted price in an active market, the Fund uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all the factors that market participants would take into account in pricing a transaction. The best evidence of the fair of a financial instrument at initial recognition is normally the transaction price i.e. the fair of the consideration given or received. If the Fund determines that the fair at initial recognition differs from the transaction price and the fair is evidenced neither by a quoted price in an active market for an identical or liability nor based on a valuation technique that uses only data from observable markets, the financial instrument is initially measured at fair, adjusted to defer the difference between the fair at initial recognition and the transaction price. Subsequently, that difference is recognised in profit or loss on an appropriate basis over the life of the instrument but no later than when the valuation is supported wholly by observable market data or the transaction is closed out. Portfolios of financial s and financial liabilities that are exposed to market risk and credit risk that are managed by the Fund on the basis of the exposure to either market or credit risk, are measured on the basis of a price that would be received to sell a long position (or paid to transfer a short position) or a particular risk exposure. Those portfolio-level adjustments are allocated to the individual s and liabilities on the basis of the relative risk adjustment of each of the individual instruments in the portfolio. The Fund recognises transfers between levels of the fair hierarchy as of the end of the reporting period during which the change has occurred. 13

15 Notes to the Financial Statements (v) Amortised cost measurement principles (ix) Specific instruments (vi) The amortised cost of a financial or liability is the amount at which the financial or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment. Impairment Cash and cash equivalents Cash comprises current deposits with banks. Cash equivalents are short-term highly liquid investments that are readily convertible to known amounts of cash, are subject to an insignificant risk of changes in, and are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes. (vii) Financial s that are stated at cost or amortised cost are reviewed at each date of the statement of s and liabilities to determine whether there is objective evidence of impairment. If any such indication exists, an impairment loss is recognised in profit or loss as the difference between the s carrying amount and the present of estimated future cash flows discounted at the financial s original effective interest rate. If in a subsequent period the amount of an impairment loss recognised on a financial carried at amortised cost decreases and the decrease can be linked objectively to an event occurring after the write-down, the write-down is reversed through profit or loss. Derecognition The Fund derecognises a financial when the contractual rights to the cash flows from the financial s expire or it transfers the financial and the transfer qualifies for derecognition in accordance with HKAS 39. The Fund uses the weighted average method to determine realised gains and losses on derecognition. A financial liability is derecognised when the obligation specified in the contract is discharged, cancelled or expired. (viii) Offsetting Financial s and liabilities are offset and the amount is reported in the statement of s and liabilities when the Fund has a legally enforceable right to offset the recognised amounts and the transactions are intended to be settled on a basis or simultaneously, e.g. through a market clearing mechanism. (f) Revenue recognition Provided it is probable that the economic benefits will flow to the Fund and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in profit or loss as follows: (i) (ii) (g) Dividends Dividend income from listed investments is recognised when the share price of the investment goes ex-dividend. Dividends from other investments are recognised in profit or loss as dividend income when declared. In some cases, the Fund may choose to receive dividends in the form of additional shares rather than cash. In such cases, the Fund recognises the dividend income for the amount of the equivalent cash dividend with the corresponding debit treated as an additional investment. Interest income Interest income is recognised in profit or loss as it accrues, using the effective interest rate method. Interest income on bank deposits is disclosed separately on the face of profit or loss. Interest income on debt securities is included in gains or losses from financial instruments at fair through profit or loss. Expenses All expenses are recognised in profit or loss on an accrual basis. (h) Foreign exchange gains and losses Foreign exchange gains and losses on financial s and financial liabilities at fair through profit or loss are recognised together with other changes in the fair. 14

16 Notes to the Financial Statements Included in profit or loss line item Net foreign exchange loss are of foreign exchange gains and losses on moary financial s and financial liabilities other than those classified as fair through profit or loss. (i) Related parties (j) Subscriptions and redemptions The Fund recognises unitholders subscriptions and allots units upon receipt of a valid subscription application and derecognises them upon receipt of a valid redemption application. (a) (b) A person, or a close member of that person s family, is related to the Fund if that person: (i) (ii) (iii) has control or joint control over the Fund; has significant influence over the Fund; or is a member of the key management personnel of the Fund. An entity is related to the Fund if any of the following conditions applies: (i) (ii) (iii) (iv) (v) (vi) The entity and the Fund are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others); One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member); Both entities are joint ventures of the same third party; One entity is a joint venture of a third entity and the other entity is an associate of the third entity; The entity is controlled or jointly controlled by a person identified in (a); or 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). Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity. (k) Units in issue The Fund classifies financial instruments issued as financial liabilities or equity instruments in accordance with the substance of the contractual terms of the instruments. The Fund has multiple classes of redeemable units in issue A class, L class, Provident class and Accumulation class. All the classes belong to the most subordinate class of financial instruments in the Fund and rank pari passu in all material respects and have the same terms and conditions other than different management fee rates and distribution rights. The redeemable units provide unitholders with the right to require redemption for cash at a proportionate to the unitholders share in the Fund s s at each daily redemption date, and also in the event of the Fund s liquidation. The redeemable units are classified as financial liabilities and are measured at the present of the redeemable amounts. (l) Distribution to holders of redeemable units Distributions to holders of redeemable units classified as financial liabilities are recognised in profit or loss when they are authorised and no longer at the discretion of the Fund. (m) Segment reporting An operating segment is a component of the Fund that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Fund s other components, whose operating results are reviewed regularly by the chief operating decision maker to make decisions about resources allocated to the segment and assess its performance, and for which discrete financial information is available. Segment results that are reported to the chief operating decision maker include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. The chief operating decision maker of the Fund is identified as the manager, HSBC Investment Funds (Hong Kong) Limited. 15

17 Notes to the Financial Statements 3 Net (losses) / gains from financial instruments at fair through profit or loss Net realised gains 97,757, ,148,659 Net unrealised (losses)/gains (127,829,225) 97,566,879 4 Taxation (30,071,481) 208,715,538 There are currently no taxes on income or gains under Cayman Islands law. Accordingly, no provision for Cayman Islands taxes is included in these financial statements. No provision for Hong Kong profits tax has been made in the financial statements as the Fund is exempt from taxation under section 26A(1A) of the Hong Kong Inland Revenue Ordinance. Dividend income received by the Fund may be subject to non-recoverable withholding tax imposed in the country of origin. Dividend income is recorded gross of such taxes and the withholding tax is recognised in profit or loss as incurred. Capital gains realised in certain jurisdictions may be subject to capital gains tax. Capital gains tax is charged to profit or loss on an accrual basis, using tax rates enacted or substantively enacted at the date of the statement of s and liabilities. Foreign Account Tax Compliance Act ( FATCA ) On 18 March 2010, the Hiring Incentives to Restore Employment Act of 2010 added chapter 4 to Subtitle A ( Chapter 4 ) of the US Internal Revenue Code (the Code ). The provisions in Chapter 4 are commonly referred to as the Foreign Account Tax Compliance Act ( FATCA ). US Treasury regulations providing guidance on the due diligence, reporting, and withholding obligations under FATCA were passed and came into effect in January 2013 ( the Regulations ). The Regulations require foreign financial institution ( FFI ) to provide the Internal Revenue Service ( IRS ) with information on certain U.S. persons invested in accounts outside of the U.S. and for certain non U.S. entities to provide information about any U.S. owners. The obligations of an FFI under FATCA may be modified by an Intergovernmental Agreement ( IGA ) between the US and the FFI s country of organization. The Cayman Islands entered into a Model 1 IGA on 29 November 2013, which provides for reporting and enforcement by FFIs to be facilitated by local authorities. The Cayman Islands also entered into a similar IGA with the United Kingdom. Therefore, all Cayman Islands domiciled financial institutions are subject to domestic legislation and regulations that implement both the Foreign Account Tax Compliance Act ( US FATCA ) and its UK equivalent ( UK FATCA and together, FATCA ). The due diligence and reporting regimes introduced by the domestic legislation and regulations apply to all such financial institutions irrespective of whether they have US or UK based account holders and/ or have US or UK s or source income. The Fund is a non-reporting financial institution and such is not required to register for a Global Intermediary Identification Number ( GIIN ) for US FATCA purposes. Taxation in profit or loss represents: Overseas withholding tax 740,997 6,167,617 Capital gains tax 4,741,515 1,116,717 5,482,512 7,284,334 5 Financial s at fair through profit or loss Financial s at fair through profit or loss Equities Listed shares 1,639,567,588 1,520,933,937 Debt securities Listed bonds 404,115, ,537,264 Unlisted but quoted bonds 12,299,532 26,783, ,415, ,321,216 16

18 Notes to the Financial Statements Other investments In addition, the Manager, as the registrar s agent, receives registrar s fees per annum for each class of units and fees for various administrative functions performed on behalf of the Fund. Listed unit trusts 13,275,379 29,641,989 Unlisted unit trusts 193,687, ,593,203 Rights 5, , ,968, ,348,935 2,262,950,742 2,012,604,088 Investments, at cost 2,120,499,504 1,741,468,213 Net unrealised appreciation in of investments 142,451, ,135,875 Investments, at fair 2,262,950,742 2,012,604,088 6 Amounts due from/(to) brokers Balances due from brokers Amounts receivable on sale of investments 18,700,000 1,406,279 Balances due to brokers Amounts payable on purchase of investments 4,853,917 7 Related party transactions The following is a summary of transactions with related parties for the year. All such transactions were entered into in the ordinary course of business and on normal commercial terms. (a) The Fund is managed by HSBC Investment Funds (Hong Kong) Limited ( the Manager ), which receives a management fee, payable monthly in arrears, equivalent to a percentage per annum of the of the Fund as follows: For A class income units 1.50% For L class income units 1.20% For Provident class units 0.75% For Accumulation units 0.75% (b) (c) (i) Management fees for the year 20,036,192 19,275,840 (ii) Registrar s fees and other administrative fees for the year 136, ,985 (iii) Management fees payable at year end 1,759,618 1,672,434 (iv) Registrar s fees and other administrative fees payable at year end 213,647 77,003 Bank accounts are maintained with members of the HSBC Group. The balances of these accounts amounted to $77,266,295 (2014: $239,460,528) at year end. Interest income arising from these accounts amounted to $113 (2014: $412). The Trustee of the Fund is HSBC Trustee (Cayman) Limited ( the Trustee ), a fellow subsidiary of the Manager within the HSBC Group, which receives a monthly fee equivalent to 0.1% (2014: 0.1%) per annum of the of the Fund, subject to a minimum monthly fee of $10,000 (2014: $10,000). In addition, the Trustee provides valuation services to the Fund in return for a daily fee of $580 (2014: $580). Also, the Trustee provides services in connection with purchases and sales transactions, for which the Trustee receives a transaction fee of $400 (2014: $400) for each trade handled (i) Trustee s fees for the year 2,426,850 2,557,533 (ii) Trustee s fees payable at year end 213, ,780 (iii) Transaction fees for the year 2,471,600 2,625,600 (iv) Transaction fees payable at year end 77, ,400 17

19 Notes to the Financial Statements (d) (e) The safe custodian of the Fund is HSBC Trustee (Cayman) Ltd, a fellow subsidiary of the Manager within the HSBC Group, which receives a monthly fee equivalent to 1-55 basis points based on sub-custodian of the securities. The safe custodian also receives a transaction fee of US$ for each trade handled (i) Safe custody fees for the year 873, ,960 (ii) Sale custody fees payable at year end 69,867 In its purchases and sales of investments, the Fund utilises the brokerage services of HSBC Investment Funds (Hong Kong) Limited, The Hongkong and Shanghai Banking Corporation Limited, HSBC Bank plc and HSBC s Limited, which are members of the HSBC Group. Details of transactions effected through these companies are as follows: HSBC HSBC Bank plc s Limited Commission paid for the year 135, ,490 Average rate of commission 0.15% 0.15% Total aggregate of such transactions for the year 90,614, ,326,466 17,933,241 64,772,548 Percentage of such transactions in to total transactions for the year 2.94% 4.50% 0.58% 2.60% The figures for commission paid do not include any trading margin which may be reflected in the market price of transactions with these entities on any transactions by the Fund during the year. HSBC Investment Funds (Hong Kong) Limited The Hongkong and Shanghai Banking Corporation Limited Commission paid for the year 32,844 47,272 Average rate of commission 0.06% 0.04% Total aggregate of such transactions for the year 76,192, ,170,388 52,130, ,649,980 Percentage of such transactions in to total transactions for the year 2.47% 10.03% 1.69% 4.31% (f) (g) The Fund has invested in equities issued by entities within the HSBC Group during the current and prior years. The portfolio holdings as at 31 July are as follows: HSBC plc Hang Seng Bank Limited ,517,395 52,546,663 5,818,282 Dividend income 2,876,376 2,765,278 40,278 34,760 HSBC Life (International) Limited, a fellow subsidiary of the Manager and the Trustee within the HSBC Group, receives a quarterly administrative fee equivalent to 0.7% per annum of the of Accumulation units in return for providing certain management services to holders of Accumulation units (i) Administrative fees for the year 608, ,556 (ii) Administrative fees payable at year end 82,344 82,528 18

20 Notes to the Financial Statements 8 Soft commission arrangements (d) Accumulation units The Manager had entered into soft commission arrangements with brokers under which certain goods and services used to support investment decision making are received by the Manager. The Manager did not make a direct payment for these services but transacts an agreed amount of business with the brokers on behalf of the Fund. Commission was paid from the Fund on these transactions. During the year ended 31 July 2015, the goods and services utilised for the Fund include During the year ended 31 July 2015 and 31 July 2014, the goods and services utilised for the Fund were limited to research services only. 9 Units issued and redeemed (a) A class income units Number of units in issue brought forward 14,627,791 9,646,316 Units issued during the year 2,766,290 7,112,478 Units redeemed during the year (2,458,451) (2,131,003) Number of units in issue carried forward 14,935,630 14,627,791 (b) L class income units Number of units in issue brought forward 8, ,518 Units issued during the year 131,139 Units redeemed during the year (8,040) (900,617) Number of units in issue carried forward 8,040 (c) Provident class units Number of units in issue brought forward 54,054,724 64,405,147 Units issued during the year 13,077,194 5,808,932 Units redeemed during the year (9,065,095) (16,159,355) Number of units in issue carried forward 58,066,823 54,054, Number of units in issue brought forward 6,693,800 7,040,749 Units issued during the year 449, ,803 Units redeemed during the year (296,787) (844,752) Number of units in issue carried forward 6,846,301 6,693,800 The Fund does not have any externally imposed capital requirements. 10 Income equalisation Income portion of received and receivable on issue of units or paid and payable on redemption of units is calculated based on the portion of the unit price related to undistributed accumulated investment income and accumulated expenses of the unit at the date of issue or redemption. 11 Distributions A class income unit (a) Distributions attributable to the year Distributions declared of $0.01 per unit on 14,936,069 units as at 30 July 2015 (2014: $0.17 per unit on 14,631,895 units as at 30 July 2014) 149,361 2,487,422 (b) Distributions attributable to the previous financial year, approved and paid during the year Distributions declared during the previous financial year and paid during the year of $0.17 per unit on 14,631,895 units as at 30 July 2014 (2014: $0.23 per unit on 9,646,316 units as at 30 July 2013) 2,487,422 2,218,653 19

21 Notes to the Financial Statements 12 Financial instruments and associated risks The Fund maintains an investment portfolio in a variety of listed and unlisted financial instruments as dictated by its investment management strategy. The investment objective of the Fund is to achieve steady long-term capital growth that will at least exceed Hong Kong inflation. The Fund s investment portfolio comprises equities, debt securities, unit trusts and rights. As at 31 July 2015 exposures Change in s if investment increased by 15% The Fund s investing activities expose it to various types of risks that are associated with the financial instruments and markets in which it invests. The Manager and the Trustee have set out below the most important types of financial risks inherent in each type of financial instrument. The Manager and the Trustee would like to highlight that the following list of associated risks only sets out some of the risks but does not purport to constitute an exhaustive list of all the risks inherent in an investment in the Fund. Unitholders should note that additional information in respect of risks associated with financial instruments in the Fund can be found in the Fund s offering document. The nature and extent of the financial instruments outstanding at the date of the statement of s and liabilities and the risk management policies employed by the Fund are discussed below. (a) Price risk Price risk is the risk that of the instrument will fluctuate as a result of changes in market prices, whether caused by factors specific to an individual investment, its issuer or all factors affecting all instruments traded in the market. The impact of a 15% (2014: 15%) increase in of the investments at 31 July 2015, with all other variables held constant, is shown below. An equal change in the opposite direction would have reduced the s attributable to unitholders by an equal amount. Equities 1,639,567, ,935,138 Unit trusts 206,962,751 31,044,413 Rights 5, As at 31 July 2014 Equities 1,520,933, ,140,091 Unit trusts 221,235,192 33,185,279 Rights 113,743 17,061 (b) Interest rate risk Interest rate risk arises from changes in interest rates which may affect the of debt instruments and therefore result in potential gain or loss to the Fund. The Fund s interest rate risk is managed on an ongoing basis by the Manager. The following table indicates the period in which the interest bearing s mature at the date of statement of s and liabilities. All amounts stated in year Over 1 year Over Non-interest or less to 5 years 5 years bearing Total Financial s at fair through profit or loss 46, , ,759 1,846,536 2,262,951 Total interest bearing s 46, , ,759 20

22 Notes to the Financial Statements year Over 1 year Over Non-interest or less to 5 years 5 years bearing Total Net exposure Change in s if weakened by 5% Financial s at fair through profit or loss 21, , ,396 1,742,283 2,012,605 Total interest bearing s 21, , ,396 Interest rate sensitivity At the date of the statement of s and liabilities, assuming all other factors unchanged, it is estimated that an increase in interest rate of 50 basis points would result in a decrease in the s attributable to the unitholders and the profit for the year by $10,628,637 (2014: $8,144,460); an equal change in the opposite direction would result in an increase in the s attributable to unitholders by an approximately equal amount. The analysis is performed on the same basis for (c) Currency risk The Fund may invest in financial instruments and enter into transactions denominated in currencies other than its functional currency. Consequently, the Fund is exposed to risks that the exchange rate of its functional currency relative to other foreign currencies may change in a manner that has an adverse effect on the of that portion of the Fund s s or liabilities denominated in currencies other than Hong Kong dollars. As at 31 July 2015 Currencies Argentine peso 199,294 9,965 Australian dollar 71,443,388 3,572,169 Canadian dollar 28,274,534 1,413,727 Danish krone 14,367, ,393 Euro 236,937,308 11,846,865 Indonesian rupiah 6,675, ,772 Japanese yen 300,919,857 15,045,993 Malaysian ringgit 8,961, ,052 Mexican peso 2,829, ,461 New Taiwan dollar 33,286,070 1,664,304 Norwegian krone 7,367, ,390 Polish zloty 5,403, ,184 Pound sterling 128,006,712 6,400,336 Renminbi 118,142,527 5,907,126 Singapore dollar 13,084, ,230 South African rand 1,001,607 50,080 South Korean won 43,282,120 2,164,106 Swedish krona 17,202, ,145 Swiss franc 51,555,038 2,577,752 Thai baht 5,252, ,650 Total 1,094,193,997 54,709,700 The fluctuations in the rate of exchange between the currency in which the or liability is denominated and the functional currency could result in an appreciation or depreciation in the fair of that or liability. The Manager may attempt to mitigate this risk by using financial derivative instruments. The Manager monitors the Fund s currency exposures on an ongoing basis. Currency sensitivity At 31 July 2015, had the Hong Kong dollar ( ) weakened by 5% (2014: 5%) in relation to respective currencies, with all other variables held constant, s attributable to unitholders and the profit for the year would have increased by the amounts shown below. 21