HSBC Global Investment Trust– HSBC RMB Bond FundAnnual Report 2017
Contents
Page
Investmentadviser’sreport 1Trustee’sreport 2Independentauditors’reporttotheunitholders 3Statementoffinancialposition 5Statementofcomprehensiveincome 7Statementofchangesinnetassetsattributabletounitholders 8Cashflowstatement 9Distributionstatement 10Notestothefinancialstatements 11Portfoliostatement(Unaudited) 25Statementofmovementsinportfolioholdings(Unaudited) 27Performancerecord(Unaudited) 28Administration 30
BoardofDirectorsofHSBCInvestmentFunds(HongKong)Limited 31
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InvestmentAdviser’sReport
HSBC RMB Bond Fund
Market review
Fortheyearendingat31July2017,theoffshorerenminbibondmarketdeliveredapositivereturninbothlocalcurrencyterms and in USD terms. Spreads tightened for bothinvestmentgradenamesandnon-investmentgradenames,which helped offset the broad rise in offshore renminbigovernmentbondyields.OffshoreChinagovernmentbondswere largely driven by volatility in the offshore renminbiliquiditywhileyieldsstarted tostabilizecoming intoJune2017onthebackofimprovedsentimenttowardstheoutlookfor the renminbi. As for the currency, the renminbidepreciatedamidbroadUSdollarweaknessinthesecondhalf of 2016. However, coming into 2017, depreciationpressure eased and the renminbi started to strengthenagainst the USdollarwith enhanced scrutinyover capitaloutflows, broad US dollar weakness, and more benignmacroeconomic outlook for China.The Fund delivered apositivereturnfortheyear,asourexposuretohighqualitycorporatebondsaddedvalue.Ourfundcontinuestofavourbetterqualitybondsoverlowerratedones,andcontinuestolook for relative value opportunities with solid creditfundamentals.TheFundremainsveryattractivefromayieldstandpointwithashortduration.
HSBC Global Asset Management (Hong Kong) Limited27November2017
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HSBC RMB Bond Fund (“the Fund”)
Weherebyconfirmthat,tothebestofourknowledge,theManageroftheFundhas,inallmaterialrespects,managedtheFundinaccordancewiththeprovisionsoftheTrustDeeddated31December2010,asamended,fortheyearended31July2017.
) BerthaTAM ) Forandonbehalfof EvaWONG ) HSBCTrustee(Cayman)Limited, ) Trustee )
Trustee’sReport
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Report on the Audit of Financial Statements
Opinion
Wehave audited thefinancial statementsofHSBCRMBBondFund(the“Fund”)setonpages5to24,whichcomprisethestatementoffinancialpositionasat31July2017, thestatement of comprehensive income, the statement ofchangesinnetassetsattributabletounitholders,thecashflowstatementandthedistributionstatementfortheyearthenended,andnotestothefinancialstatements,includingasummaryofsignificantaccountingpolicies.
Inouropinion,thefinancialstatementsgiveatrueandfairviewofthefinancialdispositionoftheFundasat31July2017,anditsfinancialtransactionsandcashflowsfortheyearthen ended in accordance with Hong Kong FinancialReportingStandards(“HKFRSs”)issuedbytheHongKongInstituteofCertifiedPublicAccountants(“HKICPA”).
Basis for Opinion
We conducted our audit in accordance with Hong KongStandardsonAuditing(“HKSAs”)issuedbytheHKICPA.OurresponsibilitiesunderthosestandardsarefurtherdescribedintheAuditors’ Responsibilities for the Audit of the Financial Statementssectionofourreport.WeareindependentoftheFund inaccordancewith theHKICPA’sCodeofEthics forProfessionalAccountants (“the Code”) together with theethical requirements that are relevant to our audit of thefinancialstatementsinCaymanIslands,andwehavefulfilledourotherethicalresponsibilities inaccordancewiththeserequirements and the Code.We believe that the auditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforouropinion.
Information Other than the Financial Statements and Auditors’ Report Thereon
TheManagerandtheTrusteeoftheFundareresponsiblefortheotherinformation.Theotherinformationcomprisestheinformationincludedintheannualreport,butdoesnotincludethefinancialstatementsandourauditors’reportthereon.
Ouropiniononthefinancialstatementsdoesnotcovertheother information and we do not express any form ofassuranceconclusionthereon.
Inconnectionwithourauditofthefinancialstatements,ourresponsibilityistoreadtheotherinformationand,indoingso, consider whether the other information is materiallyinconsistentwiththefinancialstatementsorourknowledgeobtainedintheaudit,orotherwiseappearstobematerially
IndependentAuditors’ReporttotheUnitholders
misstated. If,basedontheworkwehaveperformed,weconcludethatthereisamaterialmisstatementofthisotherinformation,weare required to report that fact.Wehavenothingtoreportinthisregard.
Responsibilities of the Manager and the Trustee of the Fund for the Financial Statements
TheManagerandtheTrusteeoftheFundareresponsibleforthepreparationandfairpresentationoffinancialstatementsinaccordancewithHKFRSsissuedbytheHKICPAandforsuchinternalcontrolastheManagerandtheTrusteeoftheFunddetermine isnecessarytoenablethepreparationoffinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror.
Inpreparingthefinancialstatements,theManagerandtheTrusteeoftheFundareresponsibleforassessingtheFund’sability to continue as a going concern, disclosing, asapplicable,mattersrelatedtogoingconcernandusingthegoingconcernbasisofaccountingunlesstheManagerandtheTrusteeoftheFundeitherintendtoliquidatetheFundortoceaseoperations,orhavenorealisticalternativebuttodoso.
In addition, theManager and theTrusteeof theFundarerequiredtoensurethatthefinancialstatementshavebeenproperlypreparedinaccordancewiththerelevantprovisionsoftheTrustDeed,asamended,(“theTrustDeed”)andtherelevantdisclosureprovisionsofAppendixEoftheCodeonUnitTrustsandMutualFunds(“theSFCCode”) issuedbytheHongKongSecuritiesandFuturesCommission.
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance aboutwhetherthefinancialstatementsasawholearefreefrommaterialmisstatement,whetherduetofraudorerror,andto issueanauditors’ reportthat includesouropinion.Thisreportismadesolelytoyou,asabody,inaccordancewithouragreedtermsofengagement,fornootherpurpose.Wedonotassumeresponsibilitytowardsoraccept liabilitytoanyotherpersonforthecontentsofthisreport.
Reasonableassuranceisahighlevelofassurance,butisnota guarantee that an audit conducted in accordance withHKSAswillalwaysdetectamaterialmisstatementwhenitexists.Misstatementscanarisefromfraudorerrorandareconsideredmaterialif,individuallyorintheaggregate,theycould reasonably be expected to influence the economicdecisions of users taken on the basis of these financialstatements.Inaddition,wearerequiredtoassesswhether
4
IndependentAuditors’ReporttotheUnitholders
the financial statements of the Fund have been properlyprepared, in allmaterial respects, in accordancewith therelevant provisions of theTrust Deed and the relevantdisclosureprovisionsofAppendixEoftheSFCCode.
AspartofanauditinaccordancewithHKSAs,weexerciseprofessionaljudgementandmaintainprofessionalscepticismthroughouttheaudit.Wealso:
• Identifyandassesstherisksofmaterialmisstatementofthefinancialstatements,whetherduetofraudorerror,designandperformauditproceduresresponsiveto those risks, and obtain audit evidence that issufficient andappropriate toprovide abasis for ouropinion.The risk of not detecting a materialmisstatementresultingfromfraudishigherthanforoneresultingfromerror,asfraudmayinvolvecollusion,forgery,intentionalomissions,misrepresentations,ortheoverrideofinternalcontrol.
• Obtainanunderstandingofinternalcontrolrelevanttotheauditinordertodesignauditproceduresthatareappropriate in the circumstances, but not for thepurposeofexpressinganopinionontheeffectivenessoftheFund’sinternalcontrol.
• Evaluate the appropriateness of accounting policiesusedandthereasonablenessofaccountingestimatesandrelateddisclosuresmadebytheManagerandtheTrusteeoftheFund.
• ConcludeontheappropriatenessoftheManager’sandtheTrustee’s use of the going concern basis ofaccountingand,basedontheauditevidenceobtained,whetheramaterialuncertaintyexistsrelatedtoeventsorconditionsthatmaycastsignificantdoubtontheFund’sability tocontinueasagoingconcern. Ifweconclude that a material uncertainty exists, we arerequiredtodrawattentioninourauditors’reporttotherelated disclosures in the financial statements or, ifsuchdisclosuresareinadequate,tomodifyouropinion.Our conclusions are based on the audit evidenceobtained up to the date of our auditors’ report.However,futureeventsorconditionsmaycausetheFundtoceasetocontinueasagoingconcern.
• Evaluatetheoverallpresentation,structureandcontentofthefinancialstatements,includingthedisclosures,andwhether thefinancialstatements represent theunderlyingtransactionsandevents inamannerthatachievesfairpresentation.
WecommunicatewiththeManagerandtheTrusteeoftheFund regarding, amongothermatters, theplannedscopeandtimingoftheauditandsignificantauditfindings,includinganysignificantdeficienciesininternalcontrolthatweidentifyduringouraudit.
Report on matters under the relevant provisions of the Trust Deed and the relevant disclosure provisions of Appendix E of the SFC Code
Inouropinion,thefinancialstatementshavebeenproperlyprepared, in allmaterial respects, in accordancewith therelevant provisions of theTrust Deed and the relevantdisclosureprovisionsofAppendixEoftheSFCCode.
KPMGP.O.Box493CenturyYard,CricketSquareGrandCaymanKY1-1106CaymanIslands
27November2017
TheaccompanyingreportofKPMGisforsoleandexclusiveuseoftheFund.Further,thereportofKPMGisasof27November2017andKPMGhascarriedoutnoproceduresofanynaturesubsequenttothatdatewhichinanywayextendsthatdate.
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StatementofFinancialPosition
HSBC RMB Bond Fundasat31July2017
2017 2016Note RMB RMB
ASSETSFinancialassetsatfairvaluethroughprofitorloss 5,12(b),13 695,516,905 1,044,254,860Interestreceivable 8,457,887 12,695,978Subscriptionsreceivable 4,100,186 –Cashandcashequivalents 7(b),15 2,773,769 9,518,765
710,848,747 1,066,469,603
LIABILITIESBankoverdrafts 7(b),15 3,838 –Redemptionspayable 648,280 5,220,443Amountsduetobrokers 6 1,933,560 –Distributionspayable 10 8,216,385 11,130,687Otherpayables 7(a),7(c),7(d) 702,318 1,206,833
11,504,381 17,557,963
Net assets attributable to unitholders 699,344,366 1,048,911,640
Representing:Financial liabilities 699,344,366 1,048,911,640
Total number of units in issue
“AD–HKD”classincomeunit 9(a) 28,077,841 36,534,053
“AD–RMB”classincomeunit 9(b) 34,490,296 49,164,758
“AD–USD”classincomeunit 9(c) 2,140,863 4,183,989
“I–USD”classincomeunit 9(d) 40,365 13,521
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StatementofFinancialPosition
2017 2016Note RMB RMB
Net asset value per unit
“AD–HKD”classincomeunit 9(e) 8.138 8.231
“AD–RMB”classincomeunit 9(e) 9.628 9.739
“AD–USD”classincomeunit 9(e) 63.494 64.163
“I–USD”classincomeunit 9(e) 70.215 67.562
ApprovedbytheTrusteeandtheManageron27November2017
) BerthaTAM ) Forandonbehalfof EvaWONG ) HSBCTrustee(Cayman)Limited, ) Trustee
) GuillermoEduardoMALDONADO-CODINA ) Forandonbehalfof ChunPongStephenTAM ) HSBCInvestmentFunds ) (HongKong)Limited, ) Manager
Thenotesonpages11to24formpartofthesefinancialstatements.
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HSBC RMB Bond Fundfortheyearended31July2017
2017 2016Note RMB RMB
Interestincome 7(b) 6,560 –Netgainsfromfinancialassetsatfairvaluethroughprofitorloss 3 35,149,712 61,627,002Netforeignexchangegain/(loss) 357,395 (1,040,850)Otherincome 7(c),7(d) 640,846 212,875
TOTAL REVENUE 36,154,513 60,799,027
Managementfees 7(a) 6,243,036 10,711,597Trustee’sfees 7(c) 1,007,804 1,442,528Auditors’remuneration 101,020 67,788Administrativefees 7(c) 123,380 371,482Legalandprofessionalfees 39,988 –Registrar’sfees 7(c) 17,069 16,307Miscellaneousexpenses 7(d) 180,034 407,627
TOTAL OPERATING EXPENSES 7,712,331 13,017,329
NET PROFIT FROM OPERATIONS BEFORE FINANCE COSTS 28,442,182 47,781,698
Distributionstounitholders 10 (37,458,936) (68,333,778)
DECREASE IN NET ASSETS ATTRIBUTABLE TO UNITHOLDERS AND TOTAL COMPREHENSIVE INCOME FOR THE YEAR (9,016,754) (20,552,080)
Thenotesonpages11to24formpartofthesefinancialstatements.
StatementofComprehensiveIncome
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HSBC RMB Bond Fundfortheyearended31July2017
2017 2016Note RMB RMB
Balance at the beginning of the year 1,048,911,640 2,098,355,113
Decrease in net assets attributable to unitholders and total comprehensive income for the year (9,016,754) (20,552,080)
Subscriptionsofunits(excludingequalisation) 78,993,686 77,140,008Redemptionsofunits(excludingequalisation) (423,331,119) (1,109,178,991)Incomeequalisationonsubscriptionsandredemptions 11 3,786,913 3,147,590
(340,550,520) (1,028,891,393)
Balance at the end of the year 699,344,366 1,048,911,640
Thenotesonpages11to24formpartofthesefinancialstatements.
StatementofChangesinNetAssetsAttributabletoUnitholders
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HSBC RMB Bond Fundfortheyearended31July2017
2017 2016Note RMB RMB
OPERATING ACTIVITIESInterestreceived 6,008 –Managementfeespaid (6,479,017) (11,394,328)Trustee’sfeespaid (1,010,103) (1,516,940)Paymentsonpurchaseofinvestments (259,328,600) (70,559,848)Proceedsfromsaleofinvestments 649,388,470 1,181,006,586Otheroperatingincomereceived/(expenses)paid 270,515 (1,695,448)
Cash provided by operating activities 382,847,273 1,095,840,022
FINANCING ACTIVITIESProceedsfromissueofunitsincludingequalisation 72,992,083 97,383,414Paymentsonredemptionofunitsincludingequalisation (422,214,952) (1,121,011,732)Distributionspaid (40,373,238) (81,049,786)
Cash used in financing activities (389,596,107) (1,104,678,104)
Net decrease in cash and cash equivalents (6,748,834) (8,838,082)Cash and cash equivalents at the beginning of the year 9,518,765 18,356,847
Cash and cash equivalents at the end of the year 15 2,769,931 9,518,765
Thenotesonpages11to24formpartofthesefinancialstatements.
CashFlowStatement
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HSBC RMB Bond Fundfortheyearended31July2017
2017 2016Note RMB RMB
Amount available for distribution brought forward 1,048,911,640 2,098,355,113Netpaidorpayableonissueandredemptionofunits (340,550,520) (1,028,891,393)Incomebeforedistributionsaftertaxation 28,442,182 47,781,698
Amount available for distribution to unitholder 736,803,302 1,117,245,418
Distributionstounitholders (37,458,936) (68,333,778)
Amount available for distribution carried forward 699,344,366 1,048,911,640
Distribution history
Year ended 31 July 2017 Year ended 31 July 2016Distribution
per unitDate of
distributionDistribution
per unitDate of
distributionNote RMB RMB
“AD – HKD” class income unitFirstdistribution 10 0.0873 28October2016 0.1150 29October2015Seconddistribution 10 0.0996 25January2017 0.1127 28January2016Thirddistribution 10 0.1053 27April2017 0.1024 28April2016Fourthdistribution 10 0.0962 28July2017 0.0871 28July2016
“AD – RMB” class income unitFirstdistribution 10 0.1025 28October2016 0.1372 29October2015Seconddistribution 10 0.1181 25January2017 0.1331 28January2016Thirddistribution 10 0.1244 27April2017 0.1211 28April2016Fourthdistribution 10 0.1141 28July2017 0.1035 28July2016
“AD – USD” class income unitFirstdistribution 10 0.6801 28October2016 0.8966 29October2015Seconddistribution 10 0.7770 25January2017 0.8784 28January2016Thirddistribution 10 0.8216 27April2017 0.7982 28April2016Fourthdistribution 10 0.7498 28July2017 0.6787 28July2016
Thenotesonpages11to24formpartofthesefinancialstatements.
DistributionStatement
NotestotheFinancialStatements
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HSBC RMB Bond Fund
1 The Fund
HSBCRMBBondFund(“theFund”)isasub-fundofHSBCGlobalInvestmentTrust(“theTrust”).TheTrustisanopen-endedumbrellaunittrustestablishedunderthelawsoftheCaymanIslandsbyatrustdeeddated31December2010,asamended(“theTrustDeed”).TheTrustregisteredundertheMutualFundsLawoftheCaymanIslandson5January2011.TheFund commenced its operationson28 January2011.
The Fund aims to provide long term capital growth andincomeinRenminbiterms,primarilythroughinvestmentsinsecuritiesinstruments,productsanddepositswhich,ortheunderlying investments of which, are denominated inRenminbi.
The Fund is authorised by the Hong Kong Securities andFuturesCommission(“SFC”)undersection104oftheHongKongSecuritiesandFuturesOrdinance (“HKSFO”)and isgovernedbytheHongKongCodeonUnitTrustsandMutualFundsissuedbytheSFC.
2 Significant accounting policies
(a) Statementofcompliance
ThefinancialstatementshavebeenpreparedinaccordancewithallapplicableHongKongFinancialReportingStandards(“HKFRSs”), which collective term includes all applicableindividualHongKongFinancialReportingStandards,HongKongAccountingStandards(“HKASs”)andInterpretationsissued by the Hong Kong Institute of Certified PublicAccountants (“HKICPA”), accounting principles generallyacceptedinHongKong,therelevantprovisionsoftheTrustDeedandtherelevantdisclosureprovisionsoftheHongKongCodeonUnitTrustsandMutualFundsissuedbytheSFC.AsummaryofthesignificantaccountingpoliciesadoptedbytheFundissetoutbelow.
(b) Basisofpreparationofthefinancialstatements
The functional and presentation currency of the Fund isRenminbi reflecting the fact that all the underlyinginvestmentsoftheFundaredenominatedinRenminbi.
Thefinancialstatementsarepreparedonafairvaluebasisforfinancialassetsatfairvaluethroughprofitorloss.Otherfinancialassetsandfinancialliabilitiesarestatedatamortisedcostorredemptionamount(redeemableunits).
ThepreparationoffinancialstatementsinconformitywithHKFRSs requires management to make judgements,estimates and assumptions that affect the application ofpoliciesandreportedamountsofassets,liabilities,incomeandexpenses.Theestimatesandassociatedassumptionsarebasedonhistoricalexperienceandvariousotherfactorsthatarebelievedtobereasonableunderthecircumstances,theresultsofwhichformthebasisofmakingthejudgementsaboutcarryingvaluesofassetsand liabilities thatarenotreadilyapparentfromothersources.Actualresultsmaydifferfromtheseestimates.
Theestimatesandunderlyingassumptionsarereviewedonan ongoing basis. Revisions to accounting estimates arerecognisedintheperiodinwhichtheestimateisrevisediftherevisionaffectsonlythatperiod,orintheperiodoftherevisionandfutureperiodsiftherevisionaffectsbothcurrentandfutureperiods.
TheaccountingpolicieshavebeenappliedconsistentlybytheFundandareconsistentwiththoseusedinthepreviousyear.
(c) Changesinaccountingpolicies
TheFundhasnotappliedanynewstandardorinterpretationthatisnotyeteffectiveforthecurrentaccountingperiod(seenote16).
(d) Foreigncurrencytranslation
ForeigncurrencytransactionsduringtheyeararetranslatedintoRenminbiattheexchangeratesrulingatthetransactiondates.Monetaryassetsandliabilitiesdenominatedinforeigncurrencies that are statedat fair valueare translated intoRenminbiattheforeignexchangeratesrulingatthedateofthe statement of financial position. Foreign currencyexchangedifferencesarisingontranslationandrealisedgainsandlossesondisposalsorsettlementsofmonetaryassetsandliabilitiesarerecognisedinprofitorloss.
Foreigncurrencyexchangedifferencesrelatingtoinvestmentsatfairvaluethroughprofitorlossareincludedinnetgainsorlossesfromfinancialassetsatfairvaluethroughprofitorloss.Allotherforeigncurrencyexchangedifferencesrelatingtomonetaryitemsincludingcashandcashequivalentsarepresentedseparatelyinprofitorloss.
NotestotheFinancialStatements
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(e) Financialinstruments
(i) Classification
AlloftheFund’sinvestmentsareclassifiedasfinancialassetsatfairvaluethroughprofitorloss.ThiscategorycomprisesfinancialinstrumentsheldfortradingwhichareinstrumentsthattheFundhasacquiredprincipallyfor the purpose of short-term profit-taking.Theseinclude investments in bonds and certificates ofdeposit.
Financialassetsatamortisedcostthatareclassifiedas loans and receivables include interest receivableandsubscriptionsreceivable.
Financial liabilities at amortised cost include bankoverdrafts, redemptions payable, amounts due tobrokers, distributions payable and other payables.Financialliabilitiesarisingfromtheredeemableunitsissued by the Fund are carried at the redemptionamount.
(ii) Recognition
The Fund recognises financial assets and financialliabilities on the date it becomes a party to thecontractualprovisionsoftheinstrument.
Aregularwaypurchaseorsaleoffinancialassetsisrecognisedusingtradedateaccounting.Fromthisdateanygainsandlossesarisingfromchangesinfairvalueof the financial assets or financial liabilities arerecorded.
Financial liabilitiesarenot recognisedunlessoneofthepartieshasperformedtheirobligationsunderthecontract or the contract is a derivative contract notexemptedfromthescopeofHKAS39.
(iii) Measurement
Financialinstrumentsaremeasuredinitiallyatfairvalue(transactionprice).Transactioncostsonfinancialassetsand liabilities at fair value through profit or loss areexpensed immediately, while on other financialinstrumentstheyareamortised.
Subsequent to initial recognition, all instrumentsclassified at fair value through profit or loss aremeasuredatfairvaluewithchangesintheirfairvaluerecognisedinprofitorloss.
Financialassetsclassifiedasloansandreceivablesarecarriedatamortisedcostusingtheeffectiveinterestratemethod,lessimpairmentlosses,ifany.
Financialliabilitiesotherthanthoseatfairvaluethroughprofitorlossaremeasuredatamortisedcostusingtheeffective interest rate method. Financial liabilitiesarisingfromtheredeemableunitsissuedbytheFundarecarriedattheredemptionamountrepresentingtheunitholders’ right toa residual interest in theFund’sassets.
(iv) Fairvaluemeasurementprinciples
Fairvalueisthepricethatwouldbereceivedtosellanasset or paid to transfer a liability in an orderlytransaction between market participants at themeasurementdateintheprincipal,orinitsabsence,themostadvantageousmarkettowhichtheFundhasaccessatthatdate.Thefairvalueofaliabilityreflectsitsnonperformancerisk.
Whenavailable,theFundmeasuresthefairvalueofan instrument using the quoted price in an activemarketforthatinstrumentprovidedsuchpriceiswithinthebidaskspread.Amarketisregardedasactiveiftransactionsfor theassetor liability takeplacewithsufficient frequency and volume to provide pricinginformation on an ongoing basis. In circumstanceswherethequotedpriceisnotwithinthebidaskspread,the manager of the Fund will determine the pointswithinthebidaskspreadthataremostrepresentativeofthefairvalue.
Whenthereisnoquotedpriceinanactivemarket,theFundusesvaluationtechniquesthatmaximisetheuseofrelevantobservableinputsandminimisetheuseofunobservableinputs.Thechosenvaluationtechniqueincorporates all the factors that market participantswouldtakeintoaccountinpricingatransaction.
The best evidence of the fair value of a financialinstrument at initial recognition is normally thetransactionpricei.e.thefairvalueoftheconsiderationgivenorreceived.IftheFunddeterminesthatthefairvalueatinitialrecognitiondiffersfromthetransactionpriceandthefairvalueisevidencedneitherbyaquotedpriceinanactivemarketforanidenticalassetorliabilitynorbasedonavaluationtechniquethatusesonlydatafromobservablemarkets,thefinancialinstrumentisinitiallymeasuredatfairvalue,adjustedtodeferthedifferencebetweenthefairvalueatinitialrecognition
NotestotheFinancialStatements
13
andthetransactionprice.Subsequently,thatdifferenceisrecognisedinprofitorlossonanappropriatebasisoverthelifeoftheinstrumentbutnolaterthanwhenthevaluationissupportedwhollybyobservablemarketdataorthetransactionisclosedout.
Portfoliosoffinancialassetsandfinancialliabilitiesthatare exposed to market risk and credit risk that aremanagedbytheFundonthebasisofthenetexposuretoeithermarketorcredit risk,aremeasuredonthebasisofapricethatwouldbereceivedtosellanetlongposition(orpaidtotransferanetshortposition)for a particular risk exposure.Those portfolio-leveladjustmentsareallocatedtotheindividualassetsandliabilitiesonthebasisoftherelativeriskadjustmentofeachoftheindividualinstrumentsintheportfolio.
TheFundrecognisestransfersbetweenlevelsofthefairvaluehierarchyasoftheendofthereportingperiodduringwhichthechangehasoccurred.
(v) Amortisedcostmeasurementprinciples
Theamortisedcostofafinancialassetorliabilityistheamount at which the financial asset or liability ismeasured at initial recognition, minus principalrepayments,plusorminusthecumulativeamortisationusingtheeffectiveinterestmethodofanydifferencebetweentheinitialamountrecognisedandthematurityamount,minusanyreductionforimpairment.
(vi) Impairment
Financialassetsthatarestatedatcostoramortisedcostare reviewedateachdateof thestatementoffinancial position to determine whether there isobjectiveevidenceofimpairment.Ifanysuchindicationexists, an impairment loss is recognised inprofitorloss as thedifference between the asset’s carryingamountandthepresentvalueofestimatedfuturecashflows discounted at the financial asset’s originaleffectiveinterestrate.
Ifinasubsequentperiodtheamountofanimpairmentlossrecognisedonafinancialassetcarriedatamortisedcost decreases and the decrease can be linkedobjectivelytoaneventoccurringafterthewrite-down,thewrite-downisreversedthroughprofitorloss.
(vii) Derecognition
The Fund derecognises a financial asset when thecontractualrightstothecashflowsfromthefinancialassetsexpireorittransfersthefinancialassetandthetransferqualifiesforderecognitioninaccordancewithHKAS39.
The Fund uses the weighted average method todeterminerealisedgainsandlossesonderecognition.
Afinancialliabilityisderecognisedwhentheobligationspecified in the contract is discharged, cancelledorexpired.
(viii) Offsetting
Financialassetsand liabilitiesareoffsetandthenetamount is reported in the statement of financialpositionwhentheFundhasalegallyenforceablerighttooffsettherecognisedamountsandthetransactionsare intended to be settled on a net basis orsimultaneously, e.g. through a market clearingmechanism.
(ix) Specificinstruments
Cash and cash equivalents
Cash comprises current deposits with banks. Cashequivalents are short-termhighly liquid investmentsthatarereadilyconvertibletoknownamountsofcash,aresubjecttoaninsignificantriskofchangesinvalue,andareheld for thepurposeofmeetingshort-termcashcommitmentsratherthanforinvestmentorotherpurposes.
(f) Revenuerecognition
ProvideditisprobablethattheeconomicbenefitswillflowtotheFundandtherevenueandcosts,ifapplicable,canbemeasuredreliably,revenueisrecognisedinprofitorlossasfollows:
Interestincome
Interestincomeisrecognisedinprofitorlossasitaccrues,usingtheeffectiveinterestratemethod.Interestincomeonbankdepositsisdisclosedseparatelyonthefaceofprofitorloss. Interest incomeondebtsecurities is includedinnetgainsor losses fromfinancialassetsat fairvalue throughprofitorloss.
NotestotheFinancialStatements
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(g) Expenses
Allexpensesarerecognisedinprofitorlossonanaccrualbasis.
(h) Foreignexchangegainsandlosses
Foreignexchangegainsandlossesonfinancialassetsatfairvalue through profit or loss are recognised together withotherchangesinthefairvalue.Includedinprofitorlosslineitem Net foreign exchange gain/(loss) are net of foreignexchangegainsandlossesonmonetaryfinancialassetsandfinancial liabilities other than those classified at fair valuethroughprofitofloss.
(i) Relatedparties
(a) Aperson,oraclosememberofthatperson’sfamily,isrelatedtotheFundifthatperson:
(i) hascontrolorjointcontrolovertheFund;
(ii) hassignificantinfluenceovertheFund;or
(iii) isamemberofthekeymanagementpersonneloftheFund.
(b) AnentityisrelatedtotheFundifanyofthefollowingconditionsapplies:
(i) The entity and the Fund are members of thesame group (which means that each parent,subsidiaryandfellowsubsidiaryisrelatedtotheothers);
(ii) Oneentityisanassociateorjointventureoftheotherentity(oranassociateorjointventureofamemberofagroupofwhichtheotherentityisamember);
(iii) Bothentitiesarejointventuresofthesamethirdparty;
(iv) Oneentityisajointventureofathirdentityandtheotherentityisanassociateofthethirdentity;
(v) TheentityisapostemploymentbenefitplanforthebenefitofemployeesofanentityrelatedtotheFund.
(vi) Theentityiscontrolledorjointlycontrolledbyapersonidentifiedin(a).
(vii) A person identified in (a)(i) has significantinfluenceovertheentityorisamemberofthekeymanagementpersonneloftheentity(orofaparentoftheentity).
(viii) Theentity,oranymemberofagroupofwhichitisapart,provideskeymanagementpersonnelservicestotheFund.
Closemembersof thefamilyofapersonarethosefamilymemberswhomaybeexpectedtoinfluence,orbeinfluencedby,thatpersonintheirdealingswiththeentity.
(j) Subscriptionsandredemptions
TheFund recognisesunitholders’ subscriptions and allotsunits upon receipt of a valid subscription application andderecognises them upon receipt of a valid redemptionapplication.
(k) Unitsinissue
TheFundclassifiesfinancialinstrumentsissuedasfinancialliabilities or equity instruments in accordance with thesubstanceofthecontractualtermsoftheinstruments.
TheFundhasmultipleclassesofredeemableunitsinissue–“AD–HKD”classincomeunit,“AD-RMB”classincomeunit,“AD–USD”class incomeunit and“I –USD”classincomeunit.AlltheclassesbelongtothemostsubordinateclassoffinancialinstrumentsintheFundandrankparipassuin all material respects and have the same terms andconditionsotherthandifferentcurrenciesandmanagementfeerates.Theredeemableunitsprovideunitholderswiththerighttorequireredemptionforcashatavalueproportionateto theunitholders’share in theFund’snetassetsateachredemption date, and also in the event of the Fund’sliquidation.Theredeemableunitsareclassifiedasfinancialliabilities and are measured at the present value of theredemptionamounts.
(l) Distributiontoholdersofredeemableunits
Distributions to holders of redeemable units classified asfinancialliabilitiesarerecognisedinprofitorlossasfinancecosts when they are authorised and no longer at thediscretionoftheFund.
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(m) Segmentreporting
An operating segment is a component of the Fund thatengages in business activities from which it may earnrevenues and incur expenses, including revenues andexpensesthatrelatetotransactionswithanyoftheFund’sothercomponents,whoseoperating resultsare reviewedregularly by the chief operating decision maker to makedecisions about resources allocated to the segment andassess its performance, and for which discrete financialinformationisavailable.Segmentresultsthatarereportedtothechiefoperatingdecisionmakerincludeitemsdirectlyattributable to a segment as well as those that can beallocatedonareasonablebasis.Thechiefoperatingdecisionmaker of the Fund is identified as the manager, HSBCInvestmentFunds(HongKong)Limited.
3 Net gains from financial assets at fair value through profit or loss
2017 2016RMB RMB
Realisedgains 39,188,606 57,072,569Unrealised(losses)/gains (4,038,894) 4,554,433
35,149,712 61,627,002
4 Taxation
There are currently no taxes on income or gains underCayman Islands law.Accordingly,noprovision for incometaxesisincludedinthesefinancialstatements.
NoprovisionforHongKongProfitsTaxhasbeenmadeinthefinancialstatementsas theFund isexempt fromtaxationundersection26A(1A)oftheHongKongInlandRevenueOrdinance.
UnderthecurrentgeneralprovisionsofthePRCCorporateIncomeTaxLawandpublishedtaxcirculars,theFundwouldbe subject to PRC withholding tax at the rate of 10% inrespectofitsPRCsourcedincomeearned,includingcapitalgainsrealisedonthesaleofoffshorePRCgovernmentbonds,offshorecorporatebondsandoffshorecorporatecertificatesofdepositissuedbyPRCtaxresidentsandinterestincomederivedfromoffshorecorporatebondsandoffshorecorporatecertificatesofdepositissuedbyPRCtaxresidents.TheFundwouldalsobesubjecttoBusinessTaxoncapitalgainsrealisedonthesaleofoffshorePRCgovernmentbondsandinterestincomederivedfromoffshorePRCgovernmentbonds.
TheExplanatoryMemorandum(“EM”)oftheFundgivestheManager the right toprovide forwithholding taxon suchgainsorincomeandwithholdthetaxfortheaccountoftheFund.The Manager assesses the tax expense to beinsignificanttotheFundandhasnotprovidedforanytaxationexpenseinthecurrentyearandpreviousperiods.
ForeignAccountTaxComplianceAct(“FATCA”)
On 18 March 2010, the Hiring Incentives to RestoreEmploymentAct of 2010 added chapter 4 to SubtitleA(“Chapter4”)oftheUSInternalRevenueCode(the“Code”).TheprovisionsinChapter4arecommonlyreferredtoastheForeignAccountTaxComplianceAct(“FATCA”).USTreasuryregulations providing guidance on the due diligence,reporting, and withholding obligations under FATCA werepassed and came into effect in January 2013 (“theRegulations”).
TheRegulationsrequireforeignfinancialinstitution(“FFI”)to provide the Internal Revenue Service (“IRS”) withinformation on certain U.S. persons invested in accountsoutsideoftheU.S.andforcertainnonU.S.entitiestoprovideinformationaboutanyU.S.owners.TheobligationsofanFFIunder FATCA may be modified by an IntergovernmentalAgreement(“IGA”)betweentheUSandtheFFI’scountryoforganization.TheCaymanIslandsenteredintoaModel1IGAon 29 November 2013, which provides for reporting andenforcementbyFFIstobefacilitatedbylocalauthorities.TheCayman Islands also entered into a similar IGA with theUnited Kingdom.Therefore, all Cayman Islands domiciled“financial institutions” are subject to domestic legislationandregulationsthatimplementboththeForeignAccountTaxComplianceAct (“USFATCA”)and itsUKequivalent (“UKFATCA” and together,“FATCA”).The due diligence andreportingregimesintroducedbythedomesticlegislationandregulationsapplytoallsuchfinancialinstitutionsirrespectiveofwhethertheyhaveUSorUKbasedaccountholdersand/orhaveUSorUKassetsorsourceincome.
TheFundisanon-reportingfinancialinstitutionandsuchisnotrequiredtoregisterforaGlobalIntermediaryIdentificationNumber(“GIIN”)forUSFATCApurposes.
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5 Financial assets at fair value through profit or loss
2017 2016RMB RMB
Debtsecurities
Listedbonds 671,354,705 942,269,653Unlistedbutquotedbonds 4,960,000 82,987,307Unlistedbutquoted
certificatesofdeposit 19,202,200 18,997,900
695,516,905 1,044,254,860
Investments,atcost 693,404,394 1,042,342,098Netunrealisedappreciation
invalueofinvestments 2,112,511 1,912,762
Investments,atfairvalue 695,516,905 1,044,254,860
6 Amounts due to brokers
2017 2016RMB RMB
Balances due to brokersAmountspayableon
purchaseofinvestments 1,933,560 –
7 Transactions with the Trustee, Manager and Connected Persons
The following is a summary of significant related partytransactions or transactions entered into during the yearbetweentheFundandtheTrustee,theManagerandtheirConnectedPersons.ConnectedPersonsarethoseasdefinedintheCodeonUnitTrustsandMutualFundsissuedbytheSFC.AlltransactionsduringtheyearbetweentheFundandtheManageranditsConnectedPersonswereenteredintoin the ordinary course of business and under normalcommercial terms.To the best of the knowledge of theTrusteeandtheManager,theFunddidnothaveanyothertransactions with Connected Persons except for thosedisclosedbelow.
(a) The Fund is managed by HSBC Investment Funds(HongKong)Limited(“theManager”),whichreceivesa management fee, payable monthly in arrears,equivalentto0.75%and0.3%perannumofthenet
assetvalueof“AD”class incomeunitand“I”classincomeunitrespectively.
2017 2016RMB RMB
(i) Managementfeesfortheyear 6,243,036 10,711,597
(ii) Managementfeespayableatyearend 448,582 684,563
(b) AbankaccountismaintainedwithamemberoftheHSBCGroup.Thebalanceofthisaccountamountedto¥2,773,769(2016:¥9,518,765)atyearend.Interestincomearisingfromthisaccountamountedto¥6,560(2016:¥nil).BankoverdraftinbankaccountmaintainedwithamemberoftheHSBCGroupatyearendwas¥3,838(2016:¥nil).
(c) The trustee of the Fund is HSBCTrustee (Cayman)Limited (“theTrustee”), a fellow subsidiary of theManager within the HSBC Group, which receives amonthly feeequivalent to0.08% (2016:0.08%)perannumofthenetassetvalueoftheFund.Inaddition,theTrusteereceivesregistrar’sfeesperannumforeachclass of units and fee for various administrativefunctionsperformedonbehalfoftheFund.Effectivefrom1July2017,theTrusteereceivesamonthlyfeeequivalentto0.07%perannumofthenetassetvalueoftheFundandchargestheFundfinancialreportingservicefeeofUS$3,000persetoffinancialstatements.
Duringtheyear,theTrusteerebatedtrustee’sfeestotheFund(2016:¥nil).
2017 2016RMB RMB
(i) Trustee’sfeesfortheyear 1,007,804 1,442,528
(ii) Trustee’sfeespayableatyearend 97,400 99,699
(iii) Registrar’sfeesandadministrativefeesfortheyear 140,449 387,789
(iv) Registrar’sfeesandadministrativefeespayableattheyearend 29,442 202,781
(v) Rebateoftrustee’sfees 273,962 –
NotestotheFinancialStatements
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(d) ThecustodianoftheFundisHSBCTrustee(Cayman)Limited,afellowsubsidiaryoftheManagerwithintheHSBCGroup,whichreceivesamonthlyfeeequivalentto1.5-8basispointsbasedonsub-custodianvalueofthesecurities.ThecustodianalsoreceivesatransactionfeeofUS$21-60foreachtradehandled.Duringtheyear,theTrusteerebatedsafecustodyfeeschargedtotheFund(2016:¥nil).
2017 2016RMB RMB
(i) Safecustodyfeesfortheyear 135,642 257,753
(ii) Safecustodyfeepayableatyearend 7,042 15,278
(iii) Safecustodytransactionfeesfortheyear 18,662 32,912
(iv) Safecustodytransactionfeespayableatyearend 3,221 1,365
(v) Rebateofsafecustodyfees 364,857 –
(e) In itspurchasesandsalesof investments, theFundutilisesthebrokerageservicesofTheHongkongandShanghai Banking Corporation Limited, which is amemberoftheHSBCGroup.Detailsoftransactionseffectedthroughthecompanyareasfollows:
The Hongkong and Shanghai Banking Corporation Limited
2017 2016RMB RMB
Commissionpaidfortheyear – –
Averagerateofcommission – –Totalaggregatevalueof
suchtransactionsfortheyear 100,817,418 237,235,928
Percentageofsuchtransactionsinvaluetototaltransactionsfortheyear 11.61% 20.69%
8 Soft commission arrangements
Nosoftcommissionarrangementswereenteredintowithbrokersduringtheyear(2016:nil).
9 Units issued and redeemed
(a) “AD–HKD”classincomeunit
2017 2016
Numberofunitsinissuebroughtforward 36,534,053 66,600,133
Unitsissuedduringtheyear 1,908,058 1,516,932
Unitsredeemedduringtheyear (10,364,270) (31,583,012)
Numberofunitsinissuecarriedforward 28,077,841 36,534,053
(b) “AD–RMB”classincomeunit
2017 2016
Numberofunitsinissuebroughtforward 49,164,758 102,760,237
Unitsissuedduringtheyear 2,151,610 4,712,581
Unitsredeemedduringtheyear (16,826,072) (58,308,060)
Numberofunitsinissuecarriedforward 34,490,296 49,164,758
(c) “AD–USD”classincomeunit
2017 2016
Numberofunitsinissuebroughtforward 4,183,989 8,338,233
Unitsissuedduringtheyear 611,356 292,853
Unitsredeemedduringtheyear (2,654,482) (4,447,097)
Numberofunitsinissuecarriedforward 2,140,863 4,183,989
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(d) “I–USD”classincomeunit
2017 2016
Numberofunitsinissuebroughtforward 13,521 118,297
Unitsissuedduringtheyear 26,975 19,981
Unitsredeemedduringtheyear (131) (124,757)
Numberofunitsinissuecarriedforward 40,365 13,521
(e) AccordingtotheEMoftheFund,someoftheclassesare denominated in Hong Kong dollars and UnitedStatesdollarsfordealing,whicharedifferentfromthepresentationcurrencyoftheFund.ThenetassetvalueperunitforeachclassoftheFundintheirrespectivedenominationcurrenciesasatyearendisasfollows:
Denominationcurrency 2017 2016
Net asset value per unit“AD–HKD”classincomeunit HK$ 9.219 9.585“AD–RMB”classincomeunit RMB 9.628 9.739“AD–USD”classincomeunit US$ 9.271 9.633“I–USD”classincomeunit US$ 10.252 10.144
(f) ThecapitaloftheFundisrepresentedbythenetassetsattributable to unitholders which are subject tosubscriptionsandredemptionsofunits.TheTrustandtheFunddonothaveanyexternallyimposedcapitalrequirements.
Unitsmaybeacquiredandredeemedonanyvaluationdate at the unit value determined on that day.Thevaluationdateiseverybusinessday,whichisalsoaday on which banks in China are normally open forbusiness,orsuchotherday(s)as theManagermaydetermine.ForClassAUnits,theminimuminitialandsubsequentinvestmentamountisHK$10,000forClassAD-HKD,US$1,000forClassAD-USDand¥10,000forClassAD-RMB.ForClassIUnitsandClassZUnits,theminimuminitialinvestmentamountisHK$8,000,000orequivalentintheClassCurrencywhilenominimumsubsequentinvestmentamountsapply.
Unitsmayberedeemedonanyvaluationdate,attheredemptionpriceapplicableasatthecloseofbusinessin Hong Kong on such day. For ClassA Units, theminimumamountwhichcanberedeemedatanyonetime isHK$10,000 forClassAD-HKD,US$1,000 forClassAD-USD and ¥10,000 for ClassAD-RMB. NominimumredemptionamountsforClassIUnitsandClassZUnitsapply.Aunitholdermaynotmakeapartialredemptionifthiswouldresultinhisholdingbeinglessthan the minimum holding of HK$10,000 for ClassAD-HKD, US$1,000 for ClassAD-USD, ¥10,000 forClassAD-RMBandHK$8,000,000orequivalentintheClassCurrencyforClassIUnitsandClassZUnits.
10 Distributions
2017 2016RMB RMB
“AD – HKD” class income unit
Distributions attributable to the year
Distributionsdeclaredandpaidduringtheyear
– HK$0.0998peruniton33,492,136.204units(2016:HK$0.1411peruniton52,213,902.913units) 2,922,374 6,006,423
– HK$0.1131peruniton28,745,265.294units(2016:HK$0.1326peruniton45,415,328.971units) 2,863,900 5,117,733
– HK$0.1188peruniton27,805,817.071units(2016:HK$0.1224peruniton39,986,622.808units) 2,928,907 4,094,298
8,715,181 15,218,454
Distributionsdeclaredandunpaidduringtheyear
– HK$0.1115peruniton28,077,840.900units(2016:HK$0.1014peruniton36,612,052.536units) 2,700,666 3,188,156
NotestotheFinancialStatements
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2017 2016RMB RMB
“AD – RMB” class income unit
Distributions attributable to the year
Distributionsdeclaredandpaidduringtheyear
– ¥0.1025peruniton44,803,214.445units(2016:¥0.1372peruniton82,807,383.482units) 4,592,329 11,361,173
– ¥0.1181peruniton38,747,426.564units(2016:¥0.1331peruniton68,591,002.851units) 4,576,071 9,129,462
– ¥0.1244peruniton35,936,663.262units(2016:¥0.1211peruniton54,518,794.168units) 4,470,521 6,602,226
13,638,921 27,092,861
Distributionsdeclaredandunpaidduringtheyear
– ¥0.1141peruniton34,519,125.309units(2016:¥0.1035peruniton49,302,777.339units) 3,938,632 5,102,837
2017 2016RMB RMB
“AD – USD” class income unit
Distributions attributable to the year
Distributionsdeclaredandpaidduringtheyear
– US$0.1003peruniton3,567,395.883units(2016:US$0.1419peruniton6,810,191.320units) 2,426,093 6,105,888
– US$0.1137peruniton3,065,547.018units(2016:US$0.1327peruniton5,703,208.935units) 2,381,922 5,009,515
– US$0.1191peruniton2,532,102.216units(2016:US$0.1230peruniton4,730,914.698units) 2,080,434 3,776,373
6,888,449 14,891,776
Distributionsdeclaredandunpaidduringtheyear
– US$0.1113peruniton2,103,358.603units(2016:US$0.1019peruniton4,183,989.280units) 1,577,087 2,839,694
11 Income equalisation
Incomeportionofreceivedandreceivableonissueofunitsorpaidandpayableonredemptionofunitsiscalculatedbasedon the portion of the unit price related to undistributedaccumulated net investment income and accumulatedexpensesoftheunitatthedateofissueorredemption.
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12 Financial instruments and associated risks
TheFundmaintainsaninvestmentportfolio inavarietyoflistedandunlistedfinancial instrumentsasdictatedby itsinvestmentmanagementstrategy.TheFundaimstoprovidelong term capital growth and income in Renminbi terms,primarily through investments in securities, instruments,productsanddepositswhich,ortheunderlyinginvestmentof which, are denominated in Renminbi.The Fund’sinvestmentportfoliocomprisesdebtsecurities.
TheFund’sinvestingactivitiesexposeittovarioustypesofrisksthatareassociatedwiththefinancialinstrumentsandmarkets inwhich it invests.TheManagerand theTrusteehavesetoutbelowthemost important typesoffinancialrisks inherent in each type of financial instrument.TheManager and theTrustee would like to highlight that thefollowinglistofassociatedrisksonlysetsoutsomeoftherisksbutdoesnotpurporttoconstituteanexhaustivelistofalltherisksinherentinaninvestmentintheFund.Unitholdersshouldnote thatadditional information in respectof risksassociated with financial instruments in the Fund can befoundintheFund’sofferingdocument.
The nature and extent of the financial instrumentsoutstandingatthedateofstatementoffinancialpositionandthe risk management policies employed by the Fund arediscussedbelow.
(a) Pricerisk
Priceriskistheriskthatthevalueofafinancialinstrumentwillfluctuateasaresultofchangesinmarketprices,whethercausedby factorsspecific toan individual investment, itsissuerorall factorsaffectingall instruments traded in themarket.
TheFundholddebtsecuritiesinboth2017and2016.Asaresult,theFundisnotexposedtosignificantpriceriskarisingfromchangesinmarketprice.
(b) Interestraterisk
InterestrateriskarisesfromchangesininterestrateswhichmayaffectthevalueofdebtinstrumentsandthereforeresultinpotentialgainorlosstotheFund.TheFund’sinterestrateriskismanagedonanongoingbasisbytheManager.
Thefollowingtableindicatestheperiodinwhichtheinterestbearingassetsmatureatthedateofstatementoffinancialposition:
2017
1 year or lessOver 1 year
to 5 yearsOver
5 years TotalRMB RMB RMB RMB
AssetsFinancialassetsatfair
valuethroughprofitorloss 185,411,730 396,747,125 113,358,050 695,516,905
Total interest bearing assets 185,411,730 396,747,125 113,358,050
2016
1 year or lessOver 1 year
to 5 yearsOver
5 years TotalRMB RMB RMB RMB
AssetsFinancialassetsatfair
valuethroughprofitorloss 467,969,168 434,321,083 141,964,609 1,044,254,860
Total interest bearing assets 467,969,168 434,321,083 141,964,609
Interest rate sensitivity
Atthedateofstatementoffinancialposition,assumingallotherfactorsunchanged,itisestimatedthatanincreaseininterestratesof100basispoints(2016:50basispoints)wouldresult in a decrease in the net assets attributable tounitholdersandtheprofitfortheyearby¥15,801,404(2016:¥7,637,332);anequalchangeintheoppositedirectionwouldresult in an increase in the net assets attributable tounitholdersbyanapproximatelyequalamount.
(c) Currencyrisk
TheFundmayinvestinfinancialinstrumentsandenterintotransactions denominated in currencies other than itsfunctionalcurrency.Consequently,theFundisexposedtorisksthattheexchangerateofitsfunctionalcurrencyrelativetootherforeigncurrenciesmaychangeinamannerthathasanadverseeffectonthevalueofthatportionoftheFund’sassets or liabilities denominated in currencies other thanRenminbi.
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Thefluctuationsintherateofexchangebetweenthecurrencyin which the asset or liability is denominated and thefunctional currency could result in an appreciation ordepreciation in the fair value of that asset or liability.TheManager monitors the Fund’s currency exposures on anongoingbasis.
Currency sensitivity
At31July2017,hadtheRenminbi (“RMB”)weakenedby5%(2016:5%)inrelationtorespectivecurrencies,withallother variables held constant, net assets attributable tounitholdersandprofitfortheyearwouldhaveincreasedbytheamountsshownbelow.
Net exposure
Change in netassets if RMB
weakened by 5%RMB RMB
As at 31 July 2017
CurrenciesHongKongdollar (2,122,612) (106,131)UnitedStatesdollar 1,568,973 78,449
Total (553,639) (27,682)
As at 31 July 2016
CurrenciesHongKongdollar (5,335,136) (266,757)UnitedStatesdollar (3,144,770) (157,239)
Total (8,479,906) (423,996)
(d) Creditrisk
Credit risk is the risk that a counterparty to a financialinstrumentwillfailtodischargeanobligationorcommitmentthatithasenteredintowiththeFund.TheFund’sexposuretocredit risk ismonitoredbytheManageronanongoingbasis.
At31July2017and2016,alloftheFund’sfinancialassetswereexposedtocreditrisk.Theseincludeinvestmentsandcash and cash equivalents placed with banks and thecustodian.
Atthedateofthestatementoffinancialposition,theFundinvestedindebtsecuritieswiththefollowingcreditqualityexpressedasapercentageofdebtsecurities:
% of debt securities2017 2016
Rating (Moody’s/S&P/Fitch)
Aaa/AAA/AAA 1.40 0.94Aa2/AA/AA 5.73 3.35Aa3/AA-/AA- 11.08 8.02A1/A+/A+ 31.01 2.73A2/A/A 4.27 10.33A3/A-/A- 9.04 11.53Baa1/BBB+/BBB+ 12.83 12.88Baa2/BBB/BBB 5.50 4.33Baa3/BBB-/BBB- 0.38 –Ba1/BB+/BB+ 1.63 2.65Ba2/BB/BB 6.37 4.65B1/B+/B+ 3.32 7.68B2/B/B – 3.08B3/B-/B- 0.15 –NR 7.29 27.83
Total 100.00 100.00
CreditriskismanagedbyreviewingandmonitoringthecreditqualityofdebtsecuritiesheldbytheFundortheissuersofthedebtsecuritiesheldbytheFundonanongoingbasis.
Creditriskarisingfromtransactionswithbrokersrelatestotransactionsawaitingsettlement.Riskrelatingtounsettledtransactionsisconsideredsmallduetotheshortsettlementperiod involved and the high credit quality of the brokersused.
AmajorityofthecashheldbytheFundisdepositedwiththeHSBCGroup.BankruptcyorinsolvencyofthebankmaycausetheFund’srightswithrespecttothecashheldbythebanktobedelayedorlimited.TheManagermonitorsthecreditratingandfinancialpositionofthebankonanongoingbasis.
SubstantiallyalloftheassetsoftheFundareheldbythecustodian.Bankruptcyor insolvencyofthecustodianmaycausetheFund’srightswithrespecttosecuritiesheldbythecustodiantobedelayedorlimited.ThecustodianisagroupcompanyofHSBC,forwhichthecreditrisk isconsideredinsignificant.
Thecarryingamountsoffinancialassetsbestrepresentthemaximumcreditriskexposureatthedateofstatementoffinancialposition.
At 31 July 2017 and 2016, there were no significantconcentrationsofcreditrisktocounterpartiesexcepttothecustodian.
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(e) Liquidityrisk
LiquidityriskistheriskthattheFundwillencounterdifficultyinmeetingobligationsarisingfromitsfinancialliabilitiesthataresettledbydeliveringcashoranotherfinancialasset,orthat such obligations will have to be settled in a mannerdisadvantageoustotheFund.TheFundisexposedtodailyliquidityriskonredemptionofunits.
TheFund’spolicyistoregularlymonitorcurrentandexpectedliquidityrequirementstoensurethatitmaintainssufficientreservesofcashandreadilyrealisablemarketablesecuritiestomeet its liquidity requirements in theshort and longerterm.
The Fund’s listed investments are considered to haveinsignificantexposuretoliquidityriskastheyareallreadilyrealisable under normal market conditions.The Fund alsoinvestsinunlistedinvestmentssuchasunlistedbondsandcertificates of deposits, which are not publicly traded onexchanges.
Asat31July2017and2016,theFund’sfinancialliabilitiesareduewithinthreemonths,exceptforredemptionspayable,bank overdrafts and net asset attributable to unitholderswhicharerepayableondemand.
(f) Capitalmanagement
TheFund’scapitalasattheyearenddateisrepresentedbyitsredeemableunits,whichisclassifiedasfinancialliabilities.
TheFund’sobjectiveinmanagingthecapitalistoensureastableandstrongbasetoprovidelong-termcapitalgrowthandincomeinRMBterms,andtomanageliquidityriskarisingfromtheredemptions.TheManagermanagesthecapitaloftheFundinaccordancewiththeFund’sinvestmentobjectivesandpoliciesstatedintheFund’sEM.
TherewerenochangesinthepoliciesandproceduresduringtheyearwithrespecttotheFund’sapproachtoitscapitalmanagement.
Theamountandthemovementofnetassetsattributabletounitholdersarestated in thestatementofchanges innetassetsattributabletounithholders.Astheredeemableunitsare redeemed on demand at the unitholders’ option, theactual level of redemption may differ significantly fromhistoricalexperience.
13 Fair value information
TheFund’sfinancialinstrumentsaremeasuredatfairvalueonthedateofthestatementoffinancialposition.Fairvalueestimatesaremadeataspecifiedpointintime,basedonmarket conditions and information about the financialinstruments.Usually,fairvaluescanbereliablydeterminedwithin a reasonable rangeofestimates. For certainotherfinancial instruments, including interest receivable,subscriptions receivable, bank overdrafts, redemptionspayable,amountsduetobrokers,distributionspayableandotherpayables,thecarryingamountsapproximatefairvaluesduetotheimmediateorshorttermnatureofthesefinancialinstruments.
Valuationoffinancialinstruments
TheFund’saccountingpolicyonfairvaluemeasurementsisdetailedinaccountingpolicyinnote2(e)(iv).
TheFundmeasuresfairvaluesusingthefollowingfairvaluehierarchythatreflectsthesignificanceoftheinputsusedinmakingthemeasurements.
– Level 1: Inputs that are quoted market prices(unadjusted)inactivemarketsforidenticalinstruments.
– Level2:InputsotherthanquotedpricesincludedwithinLevel1thatareobservableeitherdirectly(i.e.asprices)or indirectly (i.e. derived fromprices).This categoryincludes instruments valued using: quoted marketpricesinactivemarketsforsimilarinstruments;quotedpricesfor identicalorsimilar instrumentsinmarketsthatareconsideredlessthanactive;orothervaluationtechniquesinwhichallsignificantinputsaredirectlyorindirectlyobservablefrommarketdata.
– Level3: Inputsthatareunobservable.Thiscategoryincludes all instruments for which the valuationtechnique includes inputs not based on observabledataand theunobservable inputshaveasignificanteffect on the instrument’s valuation.This categoryincludesinstrumentsthatarevaluedbasedonquotedpricesforsimilarinstrumentsbutforwhichsignificantunobservableadjustmentsorassumptionsarerequiredtoreflectdifferencesbetweentheinstruments.
When fairvaluesof listedandquoted investmentsat thereportingdatearebasedonquotedmarketpricesorbindingdealer price quotations in an active market, without anydeduction for transactions costs, the instruments areincludedwithinLevel1ofthehierarchy.Whenfairvaluesofdebtsecuritiesatthereportingdaterepresentquotedprices
NotestotheFinancialStatements
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inmarketsthatareconsideredlessthanactiveorconsensusprices derived by third parties using valuation techniqueswhere all significant inputs are directly or indirectlyobservable from market data, those debt securities areincludedwithinLevel2ofthehierarchy.Forallotherfinancialinstruments,theFunddeterminesfairvalueusingvaluationtechniques.
The Fund uses widely recognised valuation models fordeterminingthefairvalueoftheunittrustswhichdonothavequotedmarketpricesinactivemarkets.Valuationtechniquesinclude net present value, discounted cash flow models,comparison to similar instruments for which marketobservable prices exist, comparison to quoted prices foridentical instruments that are considered less thanactiveandothervaluationmodels.
Thefollowinganalysesfinancialassetsatfairvalueatthedateofthestatementoffinancialposition,bythelevelinthefairvaluehierarchyintowhichthefairvaluemeasurementiscategorised.
Financialassetatfairvaluethroughprofitorloss
Level 1 Level 2 Level 3 Total31 July 2017 RMB RMB RMB RMB
Listedbonds – 671,354,705 – 671,354,705Unlistedbutquotedbonds – 4,960,000 – 4,960,000Unlistedbutquoted
certificatesofdeposit – 19,202,200 – 19,202,200
– 695,516,905 – 695,516,905
Level 1 Level 2 Level 3 Total31 July 2016 RMB RMB RMB RMB
Listedbonds – 942,269,653 – 942,269,653Unlistedbutquotedbonds – 82,987,307 – 82,987,307Unlistedbutquoted
certificatesofdeposit – 18,997,900 – 18,997,900
– 1,044,254,860 – 1,044,254,860
Duringtheyearended31July2017and31July2016,therewerenotransferoffinancialinstrumentsbetweenthefairvaluehierarchylevels.
Valuationoffinancialinstrumentsnotmeasuredatfairvalue
Thefinancialinstrumentsnotmeasuredatfairvaluethroughprofitor loss are short termfinancial assets andfinancialliabilitieswhosecarryingamountsapproximatefairvalue.
The following table sets out the fair values of financialinstrumentsnotmeasuredatfairvalueandanalysesitbythelevel in the fair value hierarchy into which each fair valuemeasurementiscategorised.
Level 1 Level 2 Level 3 Total31 July 2017 RMB RMB RMB RMB
Financial assets
Interestreceivable – 8,457,887 – 8,457,887Subscriptionsreceivable – 4,100,186 – 4,100,186Cashandcashequivalents – 2,773,769 – 2,773,769
– 15,331,842 – 15,331,842
Financial liabilities
Bankoverdrafts – 3,838 – 3,838Redemptionspayable – 648,280 – 648,280Amountsduetobrokers – 1,933,560 – 1,933,560Distributionspayable – 8,216,385 – 8,216,385Otherpayables – 702,318 – 702,318Netassetsattributableto
unitholders – 699,344,366 – 699,344,366
– 710,848,747 – 710,848,747
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Level 1 Level 2 Level 3 Total31 July 2016 RMB RMB RMB RMB
Financial assets
Interestreceivable – 12,695,978 – 12,695,978Cashandcashequivalents – 9,518,765 – 9,518,765
– 22,214,743 – 22,214,743
Financial liabilities
Redemptionspayable – 5,220,443 – 5,220,443Distributionspayable – 11,130,687 – 11,130,687Otherpayables – 1,206,833 – 1,206,833Netassetsattributableto
unitholders – 1,048,911,640 – 1,048,911,640
– 1,066,469,603 – 1,066,469,603
14 Segment information
The Manager makes the strategic resource allocation onbehalfoftheFundanddeterminesoperatingsegmentsbasedoninternalreportingusedtomakestrategicdecisions.
TheManager’sassetallocationdecisionsarebasedononesingleand integrated investmentstrategy,and theFund’sperformanceisevaluatedonanoverallbasis.AccordinglytheManagerconsidersthattheFundhasonesingleoperatingsegment which is investing in a portfolio of financialinstrumentstogenerateinvestmentreturnsinaccordancewith the investment objective stipulated in its EM.Therewerenochangesintheoperatingsegmentduringtheyear.
AllrevenuesandlossesgeneratedfrominvestmentsbytheFund are disclosed in note 3.The segment informationprovidedtotheManageristhesameasthatdisclosedinthestatementofcomprehensiveincomeandthestatementoffinancialposition.
15 Cash and cash equivalents
2017 2016
Cashatbank 2,773,769 9,518,765Bankoverdrafts (3,838) –
Cash and cash equivalents in the cash flow statement 2,769,931 9,518,765
16 Possible impact of amendments, new standards and interpretations issued but not yet effective for the annual accounting year ended 31 July 2017
Uptothedateofissueofthesefinancialstatements,theHKICPAhasissuedafewamendmentsandnewstandardswhicharenotyeteffectivefortheyearended31July2017and which have not been adopted in these financialstatements.These include the following which may berelevanttotheFund:
Effective foraccounting periods
beginning on or after
AmendmentstoHKAS7,Statement of cash flows: Disclosure initiative 1January2017
HKFRS9 Financial instruments 1January2018
TheFundisintheprocessofmakinganassessmentofwhattheimpactoftheseamendmentsisexpectedtobeintheperiodofinitialapplication.SofarithasconcludedthattheadoptionofthemisunlikelytohaveasignificantimpactontheFund’sresultsofoperationsandfinancialposition.
HSBC RMB Bond Fundasat31July2017
PortfolioStatement(Unaudited)
25
HoldingsMarket
value
% of net
asset value
RMB
Debt securities
BondsListedinvestments
AIRLIQUIDEFINANCESA3.95%19SEPTEMBER2018 15,000,000 15,046,050 2.15
ASIANDEVELOPMENTBANK2.85%21OCTOBER2020 10,000,000 9,765,500 1.40
AUSTRALIAANDNEWZEALANDBANKINGGROUPVAR30JANUARY2025 25,000,000 25,172,500 3.60
BANKOFCHINALTD(NEWYORKBRANCH)3.6%12JULY2018 20,000,000 19,964,400 2.86
BESTGAINREALESTATELYRALTD4.5%4DECEMBER2018 15,000,000 15,091,650 2.16
BOCAVIATIONLTD4.2%5NOVEMBER2018 14,970,000 15,024,640 2.15
BPCAPITALMARKETSPLC3.65%28FEBRUARY2019 19,000,000 18,865,480 2.70
BPCAPITALMARKETSPLC3.95%8OCTOBER2018 6,000,000 6,010,080 0.86
BSHBOSCHUNDSIEMENSHA4%28SEPTEMBER2018 20,000,000 20,046,800 2.87
CHINACONSTRUCTIONBANKCORPVAR12NOVEMBER2024 20,000,000 20,267,000 2.90
CHINADEVELOPMENTBANK4.2%19JANUARY2027 12,000,000 12,032,520 1.72
CHINAGOVERNMENTBOND3.16%27JUNE2023 20,000,000 19,331,800 2.76
CHINAGOVERNMENTBOND3.25%4JULY2021 6,500,000 6,384,885 0.91
CHINAGOVERNMENTBOND3.3%4JULY2023 10,000,000 9,719,100 1.39
CHINAGOVERNMENTBOND3.38%21NOVEMBER2024 11,000,000 10,619,620 1.52
CHINAGOVERNMENTBOND3.38%4JULY2026 13,000,000 12,388,350 1.77
CHINAGOVERNMENTBOND3.39%21MAY2025 30,000,000 28,801,500 4.12
CHINAGOVERNMENTBOND3.4%12DECEMBER2019 10,000,000 9,964,000 1.43
CHINAGOVERNMENTBOND3.55%12DECEMBER2021 8,000,000 7,938,400 1.14
HoldingsMarket
value
% of net
asset value
RMB
CHINAGOVERNMENTBOND3.6%27JUNE2028 4,000,000 3,837,280 0.55
CHINAGOVERNMENTBOND3.9%4JULY2036 6,000,000 5,679,480 0.81
CHINAGOVERNMENTBOND4%22MAY2024 1,000,000 1,007,400 0.14
CHINAGOVERNMENTBOND4.15%12DECEMBER2031 10,000,000 9,941,000 1.42
CNICAPITALLTD4.3%11NOVEMBER2019 7,500,000 7,488,900 1.07
COMMONWEALTHBANKOFAUSTRALIAVAR11MARCH2025 15,000,000 15,339,150 2.19
DORSETTHOSPITALITYINTERNATIONAL6%3APRIL2018 15,000,000 15,065,550 2.15
EXPORT-IMPORTBANKOFKOREA3.625%27JANUARY2019 15,000,000 14,923,200 2.13
FANTASIAHOLDINGSGROUPCOLTD9.5%4MAY2019 1,000,000 1,031,820 0.15
FONTERRACOOPERATIVEGROUP3.6%29JANUARY2019 18,000,000 17,901,720 2.56
GREENLANDHONGKONGHOLDINGSLTD5.5%23JANUARY2018 22,000,000 22,039,820 3.15
HUNGARYGOVERNMENTBOND6.25%25APRIL2019 2,590,000 2,674,952 0.38
ICBCLTD3.75%19NOVEMBER2018 23,000,000 23,005,290 3.29ICBCILFINANCECOLTD3.9%18
JUNE2018 6,710,000 6,716,442 0.96INDUSTRIALANDCOMMERCIALBANK
OFCHINALTDVARPERP 21,740,000 22,288,935 3.19KOREADEVELOPMENTBANK3.55%
19JUNE2018 10,000,000 9,961,900 1.43KOREADEVELOPMENTBANK4.1%24
AUGUST2018 10,000,000 9,998,400 1.43LAIFUNGHOLDINGSLTD6.875%25
APRIL2018 23,000,000 23,061,640 3.30LONGFORPROPERTIESCOLTD6.75%
28MAY2018 11,130,000 11,336,128 1.62NEWWORLDCHINALANDLTD5.5%6
FEBRUARY2018 18,000,000 18,123,840 2.59SHENZHENQIANHAIFINANCIAL
HOLDINGSCOLTD4.55%28OCTOBER2017 16,000,000 16,035,200 2.29
SHINHANBANK4.2%6AUGUST2018 20,000,000 19,997,000 2.86SINOSTRONGINTERNATIONALLTD
4%28MAY2018 10,000,000 9,996,400 1.43
HSBC RMB Bond Fundasat31July2017
PortfolioStatement(Unaudited)
26
HoldingsMarket
value
% of net
asset value
RMB
TINGYICAYMANISLANDSHOLDINGCORP4.375%6AUGUST2018 18,300,000 18,342,273 2.62
TMBBANKPUBLICCOLTD(CAYMANISLANDSBRANCH)5.5%9MARCH2018 8,000,000 8,112,560 1.16
TOTALCAPITALSA3.75%24SEPTEMBER2018 25,000,000 24,996,750 3.57
VOLKSWAGENINTERNATIONALFINANCENV3.5%23JANUARY2019 15,000,000 14,907,450 2.13
WESTPACBANKINGCORPVAR9FEBRUARY2025 10,000,000 10,112,100 1.45
WHARFFINANCENO1LTD4%27MARCH2018 10,000,000 10,004,000 1.43
ZHUHAIDAHENGQINCOLTD4.75%11DECEMBER2017 15,000,000 14,993,850 2.14
671,354,705 96.00
Unlistedbutquotedinvestments
HONGKONGMORTGAGECORPLTD3.4%25OCTOBER2018 5,000,000 4,960,000 0.71
4,960,000 0.71
Certificates of depositUnlistedbutquotedinvestments
CHINADEVELOPMENTBANKCORP3.2%23SEPTEMBER2021 20,000,000 19,202,200 2.74
19,202,200 2.74
Total debt securities 695,516,905 99.45
HoldingsMarket
value
% of net
asset value
RMB
Total investments (Totalcostofinvestments:¥693,404,394) 695,516,905 99.45
Other net assets 3,827,461 0.55
Total net assets 699,344,366 100.00
27
HSBC RMB Bond Fundfortheyearended31July2017
% of net asset
value
% of net asset
value2017 2016
Debt securities
Listedbonds 96.00 89.83Unlistedbutquotedbonds 0.71 7.92Unlistedbutquotedcertificatesofdeposit 2.74 1.81
Debt securities (Total) 99.45 99.56
Total investments 99.45 99.56
Other net assets 0.55 0.44
Total net assets 100.00 100.00
StatementofMovementsinPortfolioHoldings(Unaudited)
PerformanceRecord(Unaudited)
28
HSBC RMB Bond FundPrice record (Dealing net asset value per unit)
“AD – HKD” class income unit
Bid OfferYear Lowest Highest Lowest Highest
HKD HKD HKD HKD
2017 9.062 9.667 9.343 9.9662016 9.314 10.297 9.603 10.6162015 10.096 10.760 10.409 11.0932014 10.488 11.039 10.813 11.3812013 10.201 10.930 10.517 11.2692012 9.894 10.308 10.200 10.6272011 9.997 10.264 10.307 10.582
“AD – RMB” class income unit
Bid OfferYear Lowest Highest Lowest Highest
RMB RMB RMB RMB
2017 9.534 9.822 9.829 10.1262016 9.390 9.837 9.681 10.1422015 9.651 10.054 9.950 10.3652014 9.990 10.160 10.299 10.4752013 9.928 10.249 10.236 10.5662012 9.670 9.993 9.970 10.3032011 9.966 10.093 10.303 10.406
“AD – USD” class income unit
Bid OfferYear Lowest Highest Lowest Highest
USD USD USD USD
2017 9.108 9.717 9.390 10.0182016 9.311 10.354 9.599 10.6752015 10.147 10.814 10.461 11.1492014 10.544 11.096 10.871 11.4402013 10.253 10.975 10.571 11.3152012 9.906 10.326 10.213 10.6462011 9.997 10.265 10.307 10.583
PerformanceRecord(Unaudited)
29
“I – USD” class income unit
Bid OfferYear Lowest Highest Lowest Highest
USD USD USD USD
2017 9.711 10.684 10.012 11.0142016 9.560 11.811 9.856 12.1772015 11.270 11.846 11.619 12.2132014 11.179 11.686 11.525 12.0482013 10.309 11.304 10.628 11.6542012 9.922 10.368 10.229 10.6892011 10.035 10.270 10.346 10.588
2017 2016 2015 2014Total net asset value (calculated in
accordance with HKFRS)
“AD–HKD”classincomeunit HKD 258,835,667 350,180,761 684,807,088 1,800,766,560“AD–RMB”classincomeunit RMB 332,085,637 478,816,007 1,003,576,584 2,561,934,475“AD–USD”classincomeunit USD 19,848,250 40,305,832 86,209,272 200,296,730“I–USD”classincomeunit USD 413,842 137,153 1,395,122 4,009,283
Net asset value per unit (calculated in accordance with HKFRS)
“AD–HKD”classincomeunit HKD 9.219 9.585 10.282 10.618“AD–RMB”classincomeunit RMB 9.628 9.739 9.766 10.010“AD–USD”classincomeunit USD 9.271 9.633 10.339 10.680“I–USD”classincomeunit USD 10.252 10.144 11.793 11.577
Total expense ratio
2017Average net asset value
Total expenses
Total expense ratio
RMB RMB %
–“AD–HKD”class 218,654,216 2,318,695 1.06%–“AD–RMB”class 328,329,285 3,618,025 1.10%–“AD–USD”class 139,023,871 1,759,055 1.27%–“I–USD”class 2,078,503 8,507 0.41%
30
Manager and registrar’s agent
HSBCInvestmentFunds(HongKong)LimitedHSBCMainBuilding1Queen’sRoadCentralHongKong
Directors of the Manager
StuartGlennBERRYPedroAugustoBOTELHOBASTOSGuillermoEduardoMALDONADO-CODINAChunPongStephenTAMKaYinJoanneLAU
Investment adviser
HSBCGlobalAssetManagement(HongKong)LimitedHSBCMainBuilding1Queen’sRoadCentralHongKong
Custodian, trustee and registrar
HSBCTrustee(Cayman)LimitedP.O.Box484HSBCHouse68WestBayRoadGrandCaymanKY1-1106CaymanIslands
Auditors
KPMGP.O.Box493CenturyYardCricketSquareGrandCaymanKY1-1106CaymanIslands
Administration
31
StuartGlennBERRY
PedroAugustoBOTELHOBASTOS
GuillermoEduardoMALDONADO-CODINA
ChunPongStephenTAM
KaYinJoanneLAU
BoardofDirectorsofHSBCInvestmentFunds(HongKong)Limited
HG
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17A
Prin
ted
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Kong
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Issued by HSBC Global Asset Management (Hong Kong) Limited