南方五年国债《br-》南方五年国债－Ｒ 截至二零一四年十二月三十一日止的经审核账目

南方五年国债《br-》南方五年国债－Ｒ 截至二零一四年十二月三十一日止的经审核账目

CSOP CHINA5-YEAR TREASURY BOND ETF

(A SUB-FUND OF CSOP ETF SERIES II)

CSOP ETF SERIES II

(An umbrella unit trust established in Hong Kong)

CSOP CHINA5-YEAR TREASURY BOND ETF

(A sub-fund of CSOP ETF Series II)

Report and Financial Statements

FOR THE PERIOD FROM

17FEBRUARY2014(DATE OF INCEPTION)TO

31DECEMBER2014

南方五年国债《br-》南方五年国债－Ｒ 截至二零一四年十二月三十一日止的经审核账目

CSOP CHINA5-YEAR TREASURY BOND ETF

(A SUB-FUND OF CSOP ETF SERIES II)

CONTENTS

Page Report of the Manager to the Unitholders1-2 Report of the Trustee to the Unitholders3 Statement of Responsibilities of the Manager and the Trustee4 Independent Auditor’s Report5-6 Statement of Financial Position7 Statement of Comprehensive Income8 Statement of Changes in Net Assets Attributable to Unitholders9 Statement of Cash Flows10 Notes to the Financial Statements11-30 Investment Portfolio(Unaudited)31 Statement of Movements in Investment Portfolio(Unaudited)32-33 Performance Record(Unaudited)34 Management and Administration35

南方五年国债《br-》南方五年国债－Ｒ 截至二零一四年十二月三十一日止的经审核账目

CSOP CHINA 5-YEAR TREASURY BOND ETF (A SUB-FUND OF CSOP ETF SERIES II)

1

REPORT OF THE MANAGER TO THE UNITHOLDERS Introduction

The CSOP China 5-Year Treasury Bond ETF (the “Sub-Fund”)seeks to track the investment results of an index composed of PRC Treasury Bonds through the RQFII investment quota that are available to international investors,as represented by the ChinaBond 5-year Treasury Bond Index (the “Index”).It is intended that the Sub-Fund will invest not less than 80%of its NAV in the PRC Treasury Bonds included in the Index which have a term to maturity of over 4years and less than 7years.However,the Sub-Fund may also invest not more than 20%of its NAV in debt securities that are not included in the Index which have a term to maturity of less than 10years,provided that the sample closely reflects the overall characteristics of the Index which the Manager believes will help the Sub-Fund achieve its investment objective.Fund Performance

The CSOP China 5-Year Treasury Bond ETF seeks to provide investment results,before fees and expenses,which closely correspond to the performance of the Index.As of 31December 2014,the Net Asset Value (“NAV”)per unit of the CSOP China 5-Year Treasury Bond ETF was RMB 107.3375and there were 38,000,000units outstanding.The total asset under management was approximately RMB 4,078,826,514.

As at 31December 2014,the NAV of CSOP China 5-Year Treasury Bond ETF RMB counter (stock code 83199)performed 7.43%while the index performed 7.85%.The difference in performance between the NAV of the CSOP China 5-Year Treasury Bond ETF and the Index is mainly attributed to fees and expenses,including tax on dividends and CGT withholding.In order to minimize the tracking error,the Sub-Fund also invested in policy bank bonds which have higher liquidity and better yield return.As at 31December 2014,the duration of CSOP China 5-Year Treasury Bond ETF RMB counter (stock code 83199)was 4.82while the index was 4.89.

Annual total return

From 19February 2014to 31December 2014

Annual return Tracking Error (Annual ）

83199NAV (div reinvests)7.43%8.63%

0.84%

ChinaBond 5-year Treasury

Bond Index

7.85%

9.12%

Ex-Date Record Date Payable Date Dividend Per Unit Dividend Paid Out

of Net Distributable Income*

for the month Dividend Paid Out

of Capital 2014-4-172014-4-222014-4-28RMB 0.5per unit RMB 0.4**RMB 0.1**2014-7-212014-7-22

2014-7-28

RMB 1.05per unit

RMB 1.05**RMB 0.00**2014-10-212014-10-222014-10-28RMB 1.05per unit

RMB 0.7055

RMB 0.3445

*“Net distributable income”means the net investment income (i.e.dividend income and interest income net of fees and expenses)attributable to the relevant share class and may also include net realised gains (if any)based on unaudited management accounts.However,“net distributable income”does not include net unrealised gains.

南方五年国债《br-》南方五年国债－Ｒ 截至二零一四年十二月三十一日止的经审核账目

CSOP CHINA 5-YEAR TREASURY BOND ETF (A SUB-FUND OF CSOP ETF SERIES II)

2REPORT OF THE MANAGER TO THE UNITHOLDERS (continued)

**Dividends were paid out before share consolidation on 1September 2014and has been adjusted accordingly to reflect the consolidation effect.

The inception date of the Fund was 17February 2014.

Past performance is no guarantee of future results.Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or on the redemption or sale of fund shares.Exchange Liquidity

Since inception,the CSOP China 5-Year Treasury Bond ETF has attracted great investor attention from investors across the globe.The trading value of the RMB counter (stock code:83199)remained steadily at an average daily turnover of RMB 3.08million from February 2014to December 2014.The trading value of the HKD counter (stock code:03199)remained steadily at an average daily turnover of HKD 5.01million from February 2014to December 2014.The trading volume for the CSOP China 5-Year Treasury Bond ETF reflected strong interest in the CSOP China 5-Year Treasury Bond ETF.Portfolio Rebalance

The CSOP China 5-Year Treasury Bond ETF adopts sampling strategy to track the Index.

Fund Holdings

Ticker Maturity date YTM Modified Duration Amount (10k )Portfolio Percentage (%)

Index Percentage

(%)

14030210/02/2017 4.02% 1.8950,000,000 1.26%0.00%14043816/07/2017 4.02% 2.31130,000,000 3.24%0.00%14034414/07/2019 4.08% 3.9450,000,000 1.27%0.00%14020314/01/2021 4.07% 4.85130,000,000 3.47%0.00%14021409/06/2021 4.09% 5.35130,000,000 3.31%0.00%14022107/08/2021 4.09% 5.47120,000,000 3.11%0.00%14000824/04/2019 3.46% 3.81270,000,000 6.77% 3.20%12001007/06/2019 3.47% 4.00150,000,000 3.63% 5.12%12001606/09/2019 3.49% 4.23180,000,000 4.37% 4.43%13000324/01/2020 3.59% 4.4360,000,000 1.46% 4.55%13000818/04/2020 3.68% 4.66150,000,000 3.61% 4.98%13001511/07/2020 3.64% 4.87500,000,00012.14% 4.74%13002017/10/2020 3.59% 5.06430,000,00010.80% 4.97%14000316/01/2021 3.57% 5.06400,000,00010.26% 3.83%14000603/04/2021 3.58% 5.27560,000,00014.29% 4.86%14001303/07/2021 3.59% 5.55500,000,00012.56% 4.60%14002423/10/2021

3.60% 5.9080,000,000

1.97% 4.28%Total

----97.52%

49.56%

南方五年国债《br-》南方五年国债－Ｒ 截至二零一四年十二月三十一日止的经审核账目

CSOP CHINA5-YEAR TREASURY BOND ETF

(A SUB-FUND OF CSOP ETF SERIES II)

REPORT OF THE TRUSTEE TO THE UNITHOLDERS

We hereby confirm that,in our opinion,the Manager of the CSOP China5-Year Treasury Bond ETF(the“Sub-Fund”),a sub-fund of CSOP ETF Series II,has,in all material respects,managed the Sub-Fund in accordance with the provisions of the Trust Deed dated20January2014,for the period from17February2014(date of inception)to31 December2014.

HSBC Institutional Trust Services(Asia)Limited

24April2015

3

南方五年国债《br-》南方五年国债－Ｒ 截至二零一四年十二月三十一日止的经审核账目

CSOP CHINA5-YEAR TREASURY BOND ETF

(A SUB-FUND OF CSOP ETF SERIES II)

STATEMENT OF RESPONSIBILITIES OF THE MANAGER AND THE TRUSTEE

MANAGER’S RESPONSIBILITIES

The Manager of the CSOP China5-Year Treasury Bond ETF(the“Sub-Fund”),a sub-fund of CSOP ETF Series II,is required by the Code on Unit Trusts and Mutual Funds established by the Securities&Futures Commission of Hong Kong and the Trust Deed dated20January2014,as amended,(the“Trust Deed”)to prepare financial statements for each annual accounting period which give a true and fair view of the financial position of the Sub-Fund at the end of period and of the transactions for the period then ended.In preparing these financial statements the Manager is required to:

-select suitable accounting policies and then apply them consistently;

-make judgments and estimates that are prudent and reasonable;and

-prepare the financial statements on the basis that the Sub-Fund will continue in operation unless it is inappropriate to presume this.

The Manager is also required to manage the Sub-Fund in accordance with the Trust Deed and take reasonable steps for the prevention and detection of fraud and other irregularities.

CSOP ETF Series II(the“Trust”)is an umbrella unit trust governed by its Trust Deed.As at31December2014,the Trust has established one sub-fund,namely,CSOP China5-year Treasury Bond ETF.

TRUSTEE’S RESPONSIBILITIES

The Trustee of the Sub-Fund is required to:

-ensure that the Sub-Fund in all material respects is managed in accordance with the Trust Deed and that the investment and borrowing powers are complied with;

-satisfy itself that sufficient accounting and other records have been maintained;

-safeguard the property of the Sub-Fund and rights attaching thereto;and

-report to the unitholders for each annual accounting period should the Manager not managing the Sub-Fund in accordance to the Trust Deed.

4

南方五年国债《br-》南方五年国债－Ｒ 截至二零一四年十二月三十一日止的经审核账目

INDEPENDENT AUDITOR’S REPORT

TO THE UNITHOLDERS OF CSOP CHINA5-YEAR TREASURY BOND ETF

(A SUB-FUND OF CSOP ETF SERIES II,AN UMBRELLA UNIT TRUST ESTABLISHED IN HONG KONG) Report on the Financial Statements

We have audited the financial statements of CSOP China5-Year Treasury Bond ETF(the“Sub-Fund”),a sub-fund of CSOP ETF Series II,set out on pages7to30,which comprise the statement of financial position as at31December 2014,and the statement of comprehensive income,statement of changes in net assets attributable to unitholders and statement of cash flows for the period from17February2014(date of inception)to31December2014,and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Financial Statements

The Trustee and the Manager(the“Management”)of the Sub-Fund 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 are responsible for ensuring that the financial statements have been properly prepared in accordance with the relevant disclosure provisions of the Trust Deed dated20January 2014,as amended,(the“Trust Deed”)and Appendix E of the Code on Unit Trusts and Mutual Funds issued by the Securities and Futures Commission of Hong Kong(the“SFC Code”),and for such internal control as the Management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit and to report our opinion 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. We are also required to assess whether the financial statements of the Sub-Fund have been properly prepared,in all material respects,in accordance with the relevant disclosure provisions of the Trust Deed and the SFC Code.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements.The procedures selected depend on the auditor’s judgment,including the assessment of the risks of material misstatement of the financial statements,whether due to fraud or error.In making those risk assessments,the auditor considers internal control relevant to the Sub-Fund’s preparation of 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 Sub-Fund’s internal control.An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Management, 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.

5

南方五年国债《br-》南方五年国债－Ｒ 截至二零一四年十二月三十一日止的经审核账目

INDEPENDENT AUDITOR’S REPORT

TO THE UNITHOLDERS OF CSOP CHINA5-YEAR TREASURY BOND ETF(continued)

(A SUB-FUND OF CSOP ETF SERIES II,AN UMBRELLA UNIT TRUST ESTABLISHED IN HONG KONG) Opinion

In our opinion,the financial statements give a true and fair view of the financial position of the Sub-Fund as at31 December2014,and of its financial transactions and cash flows for the period from17February2014(date of inception)to31December2014in accordance with Hong Kong Financial Reporting Standards.

Emphasis of Matter

We draw attention to Note3to the financial statements which indicates that Management considers that the enforcement of PRC tax on gains and interest income arising from debt securities is uncertain as at the date of approval of these financial statements and the Management has exercised significant judgment in their assessment of the potential tax charge and the related provision included in the financial statements of the Sub-Fund as at31 December2014.Our opinion is not qualified in respect of this matter.

Report on Other Legal and Regulatory Requirements

In our opinion,the financial statements have been properly prepared,in all material respects,in accordance with the relevant disclosure provisions of the Trust Deed and the SFC Code.

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong,24April2015

6

南方五年国债《br-》南方五年国债－Ｒ 截至二零一四年十二月三十一日止的经审核账目

CSOP CHINA5-YEAR TREASURY BOND ETF

(A SUB-FUND OF CSOP ETF SERIES II)

STATEMENT OF FINANCIAL POSITION

As at31December2014

2014

Notes RMB ASSETS

CURRENT ASSETS

Investments7(c),8(a)3,977,801,850 Bank interest receivable550 Interest receivable on bonds94,781,697 Bank balances7(c)7,937,322

─────────────Total assets4,080,521,419

-----------------------LIABILITIES

CURRENT LIABILITIES

Management fee payable7(a)1,345,424 Other accounts payable349,481

─────────────Total liabilities1,694,905

-----------------------EQUITY

Net assets attributable to unitholders44,078,826,514

═════════════The financial statements on pages7to30were approved by the Trustee and the Manager on24April2015and were signed on their behalf.

For and on behalf of For and on behalf of

CSOP Asset Management Limited HSBC Institutional Trust Services(Asia)Limited

as the Manager as the Trustee

The notes on pages11to30form part of these financial statements.

7

南方五年国债《br-》南方五年国债－Ｒ 截至二零一四年十二月三十一日止的经审核账目

CSOP CHINA5-YEAR TREASURY BOND ETF

(A SUB-FUND OF CSOP ETF SERIES II)

STATEMENT OF COMPREHENSIVE INCOME

For the period from17February2014(date of inception)to31December2014

Period from

17February2014

(date of inception)

to31December2014

Notes RMB INCOME

Interest on bank deposits152,943 Interest on bonds87,925,160 Net gain on investments5117,674,006 Other income1,381,383

──────────────Total net income207,133,492

-------------------------EXPENSES

Management fee7(a)(8,333,592) Trustee fee7(b)(2,137,772) Safe custody and bank charges(7,320) Legal and other professional fee(67,048) Other operating expenses(3,316,812)

──────────────Total operating expenses(13,862,544)

-------------------------Operating profit193,270,948

-------------------------Taxation6(15,294)

-------------------------Total comprehensive income193,255,654

══════════════

The notes on pages11to30form part of these financial statements.

8

南方五年国债《br-》南方五年国债－Ｒ 截至二零一四年十二月三十一日止的经审核账目

CSOP CHINA5-YEAR TREASURY BOND ETF

(A SUB-FUND OF CSOP ETF SERIES II)

STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO UNITHOLDERS

For the period from17February2014(date of inception)to31December2014

Period from

17February2014

(date of inception)

to31December2014

Note RMB Net assets attributable to unitholders at the beginning

of the period-

------------------------Proceeds on issue of units4,993,443,160 Payments on redemption of units(1,048,412,300)

──────────────Net increase from unit transactions3,945,030,860 Distribution to unitholders9(59,460,000) Total comprehensive income for the period193,255,654

──────────────Net assets attributable to unitholders at the end of

the period4,078,826,514

══════════════

The notes on pages11to30form part of these financial statements.

9

南方五年国债《br-》南方五年国债－Ｒ 截至二零一四年十二月三十一日止的经审核账目

CSOP CHINA5-YEAR TREASURY BOND ETF

(A SUB-FUND OF CSOP ETF SERIES II)

STATEMENT OF CASH FLOWS

For the period from17February2014(date of inception)to31December2014

Period from

17February2014

(date of inception)

to31December2014

RMB OPERATING ACTIVITIES

Payments for purchase of investments(5,068,715,198) Proceeds from sale of investments1,208,587,354 Interest on deposits received152,393 Interest on bonds received(6,856,537) Other income received1,381,383 Management fee paid(6,988,168) Taxation paid(15,294) Other operating expenses paid(5,179,471)

───────────────Net cash used in operating activities(3,877,633,538)

---------------------------FINANCING ACTIVITIES

Proceeds on issue of units4,993,443,160 Payments on redemption of units(1,048,412,300) Dividend distribution paid(59,460,000)

───────────────Net cash generated from financing activities3,885,570,860

---------------------------Net increase in cash and cash equivalents7,937,322

---------------------------Cash and cash equivalents at the beginning of the period-

───────────────Cash and cash equivalents at the end of the period7,937,322

═══════════════Analysis of balances of cash and cash equivalents

Bank balances7,937,322

═══════════════

The notes on pages11to30form part of these financial statements.

10

南方五年国债《br-》南方五年国债－Ｒ 截至二零一四年十二月三十一日止的经审核账目

CSOP CHINA5-YEAR TREASURY BOND ETF

(A SUB-FUND OF CSOP ETF SERIES II)

NOTES TO THE FINANCIAL STATEMENTS

1.GENERAL INFORMATION

CSOP ETF Series II(the“Trust”)is an umbrella unit trust governed by its trust deed dated20January2014 (the“Trust Deed”)and authorised by the Securities and Futures Commission of Hong Kong(the“SFC”) pursuant to Section104(1)of the Securities and Futures Ordinance.The terms of the Trust Deed are governed by the laws of Hong Kong.As at31December2014,the Trust has one Sub-Fund which is CSOP China5-Year Treasury Bond ETF(the“Sub-Fund”).The date of inception of the Sub-Fund was17February2014.The Sub-Fund is listed on The Stock Exchange of Hong Kong Limited.

The manager and the trustee of the Sub-Fund are CSOP Asset Management Limited(the“Manager”)and HSBC Institutional Trust Services(Asia)Limited(the“Trustee”)respectively.

The investment objective of the Sub-Fund is to provide investment results that,before of fees and expenses, closely correspond to the performance of the underlying index,namely,ChinaBond5-year Treasury Bond Index.In order to achieve the investment objective of the Sub-Fund,the Manager will adopt a representative sampling strategy.A representative sampling strategy involves investing in a representative sample of securities that collectively has an investment profile that reflects the profile of the index.

Under current regulations in the People’s Republic of China(“PRC”),foreign investors can invest only in the domestic securities market through certain foreign institutional investors that have obtained status as a Qualified Foreign Institutional Investor(“QFII”)or a Renminbi Qualified Foreign Institutional Investor (“RQFII”)from the China Securities Regulatory Commission(“CSRC”)and have been granted quota(s)by the State Administration of Foreign Exchange(“SAFE”)of the PRC to remit foreign freely convertible currencies(in the case of a QFII)and Chinese Renminbi(“RMB”)(in the case of a RQFII)into the PRC for the purpose of investing in the PRC’s domestic securities markets.

The Sub-Fund obtains exposure to securities issued within the PRC through the RQFII quotas of the Manager.

The Manager has obtained RQFII status in the PRC and the RQFII quotas have been granted,on behalf of the Sub-Fund.To the extent that the Manager has,on behalf of the Sub-Fund,utilised its entire RQFII quota,the Manager may,subject to any applicable requirements,apply for an increase of the RQFII quota.On the other hand,the Manager actively manages the RQFII quota obtained and may impose limits on creation applications as it considers appropriate.

These financial statements are prepared for the Sub-Fund only.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these financial statements are set out below.

These policies have been consistently applied to the period presented,unless otherwise stated.

(a)Basis of preparation

The financial statements of the Sub-Fund have been prepared in accordance with Hong Kong

Financial Reporting Standards("HKFRS")issued by the Hong Kong Institute of Certified Public

Accountants("HKICPA").The financial statements have been prepared under the historical cost

convention,as modified by the revaluation of investments.

The preparation of financial statements in conformity with HKFRS requires the use of certain critical

accounting estimates.It also requires the Trustee and Manager(together the“Management”)to

exercise their judgment in the process of applying the Sub-Fund’s accounting policies.The areas

involving a higher degree of judgment or complexity,or areas where assumptions and estimates are

significant to the financial statements are disclosed in Note3.

11

南方五年国债《br-》南方五年国债－Ｒ 截至二零一四年十二月三十一日止的经审核账目

CSOP CHINA5-YEAR TREASURY BOND ETF

(A SUB-FUND OF CSOP ETF SERIES II)

NOTES TO THE FINANCIAL STATEMENTS(continued)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued)

(a)Basis of preparation(continued)

New standards,amendments and interpretations issued but not effective for the financial period

beginning1January2014and have not been early adopted by the Sub-Fund

HKFRS9,‘Financial instruments’,addresses the classification,measurement and recognition of

financial assets and financial liabilities.The complete version of HKFRS9was issued in July2014.It

replaces the guidance in HKAS39that relates to the classification and measurement of financial

instruments.HKFRS9retains but simplifies the mixed measurement model and establishes three

primary measurement categories for financial assets:amortised cost,fair value through other

comprehensive income and fair value through profit or loss.The basis of classification depends on the

entity’s business model and the contractual cash flow characteristics of the financial asset.

Investments in equity instruments are required to be measured at fair value through profit or loss with

the irrevocable option at inception to present changes in fair value in other comprehensive income not

recycling.There is now a new expected credit losses model that replaces the incurred loss impairment

model used in HKAS39.For financial liabilities there were no changes to classification and

measurement except for the recognition of changes in own credit risk in other comprehensive income,

for liabilities designated at fair value through profit or loss.HKFRS9relaxes the requirements for

hedge effectiveness by replacing the bright line hedge effectiveness tests.It requires an economic

relationship between the hedged item and hedging instrument and for the‘hedged ratio’to be the

same as the one management actually use for risk management purposes.Contemporaneous

documentation is still required but is different to that currently prepared under HKAS39.HKFRS9

will be effective for annual periods beginning on or after1January2018.Early adoption is permitted.

The Manager of the Sub-Fund is yet to assess HKFRS9’s full impact.

HKFRS15,‘Revenue from contracts with customers’deals with revenue recognition and establishes

principles for reporting useful information to users of financial statements about the nature,amount,

timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers.

Revenue is recognised when a customer obtains control of a good or service and thus has the ability to

direct the use and obtain the benefits from the good or service.The standard replaces HKAS18

‘Revenue’and HKAS11‘Construction contracts’and related interpretations.The standard is

effective for annual periods beginning on or after1January2017and earlier application is permitted.

The Manager of the Sub-Fund is assessing the impact of HKFRS15.

There are no other standards,interpretations or amendments to existing standards that are not yet

effective that would be expected to have a material impact on the Sub-Fund.

(b)Investments

(i)Classification

The Sub-Fund classifies its investments as financial assets at fair value through profit or loss.

These financial assets are designated by the Management at fair value through profit or loss at

inception.Financial assets designated at fair value through profit or loss at inception are those

that are managed and their performance evaluated on a fair value basis in accordance with the

Sub-Fund’s documented investment strategies.The Sub-Fund’s policies require the

Management to evaluate the information about these financial assets on a fair value basis

together with other related financial information.

12

南方五年国债《br-》南方五年国债－Ｒ 截至二零一四年十二月三十一日止的经审核账目

CSOP CHINA5-YEAR TREASURY BOND ETF

(A SUB-FUND OF CSOP ETF SERIES II)

NOTES TO THE FINANCIAL STATEMENTS(continued)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued)

(b)Investments(continued)

(ii)Recognition/derecognition

Purchases and sales of investments are accounted for on the trade date basis.Investments are

derecognised when the rights to receive cash flows from the investments have expired or the

Sub-Fund has transferred substantially all risks and rewards of ownership.

(iii)Measurement

Investments are initially recognised at fair value.Transaction costs are expensed in the

statement of comprehensive income.

Subsequent to initial recognition,all investments are measured at fair value.Realised and

unrealised gains and losses on investments are recognised in the statement of comprehensive

income in the period in which they arise.

(iv)Fair value estimation

Fair value is the price that would be received to sell an asset or paid to transfer a liability in

an orderly transaction between market participants at the measurement date.The fair value of

financial assets and liabilities traded in active markets(such as publicly traded derivatives

and trading securities)are based on quoted market prices at the close of trading on the

reporting date.The Sub-Fund utilises the last traded market price for both listed financial

assets and liabilities where the last traded price falls within the bid-ask spread.In

circumstances where the last traded price is not within the bid-ask spread,management will

determine the point within the bid-ask spread that is most representative of fair value.

The fair value of financial assets that are not traded in an active market(for example,over-

the-counter derivatives)is determined by using broker quotes or valuation techniques.

(v)Transfers between levels of the fair value hierarchy

Transfers between levels of the fair value hierarchy are deemed to have occurred at the

beginning of the reporting period.

(c)Amounts due from/to participating dealers

Amounts due from/to participating dealers represent the subscription receivable and redemption

payable to the participating dealer at the end of the reporting period.The amounts are non-interest

bearing and repayable on demand.

(d)Interest income

Interest income is recognised on a time-proportionate basis using the effective interest method.

13

南方五年国债《br-》南方五年国债－Ｒ 截至二零一四年十二月三十一日止的经审核账目

CSOP CHINA5-YEAR TREASURY BOND ETF

(A SUB-FUND OF CSOP ETF SERIES II)

NOTES TO THE FINANCIAL STATEMENTS(continued)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(continued)

(e)Distributions to unitholders

Distributions to unitholders are recognised in the statement of changes in net assets attributable to

unitholders when they are approved by the Manager.

(f)Other income/expense

Other income/expense mainly represents the difference between the proceeds received from/paid to

participating dealers and cost of investment purchased/sold.

(g)Expenses

Expenses are accounted for on an accrual basis.

(h)Cash and cash equivalents

Cash and cash equivalents include cash in hand,demand deposits with original maturities of three

months or less and bank overdrafts.

(i)Foreign currencies translation

Functional and presentation currency

Items included in the financial statements are measured using the currency of the primary economic

environment in which the Sub-Fund operates(the“functional currency”).The Sub-Fund invests in

PRC bonds and the performance of the Sub-Fund is measured and reported to the unitholders in RMB.

The Manager considers RMB as the currency that most faithfully represents the economic effects of

the underlying transactions,events and conditions.The financial statements are presented in RMB,

which is the Sub-Fund’s functional and presentation currency.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates

prevailing at the dates of the transactions.Foreign currency assets and liabilities are translated into the

functional currency using the exchange rate prevailing at the reporting date.

Foreign exchange gains and losses arising from translation are included in the statement of

comprehensive income.

Foreign exchange gains and losses relating to the financial assets and liabilities carried at fair value

through profit or loss are presented in the statement of comprehensive income within“net gain/(loss)

on investments”.

14

南方五年国债《br-》南方五年国债－Ｒ 截至二零一四年十二月三十一日止的经审核账目

CSOP CHINA 5-YEAR TREASURY BOND ETF

(A SUB-FUND OF CSOP ETF SERIES II)

15NOTES TO THE FINANCIAL STATEMENTS (continued)

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(j)Redeemable units

The Sub-Fund issues redeemable units,which are redeemable at the holder’s option represents puttable financial instruments of the Sub-Fund.The Sub-Fund classifies its puttable financial instruments as equity in accordance with HKAS 32(Amendment),“Financial instruments:Presentation”as those puttable financial instruments meet all the following criteria:

?

the puttable financial instruments entitle the holder to a pro-rata share of net asset value;?

the puttable financial instruments are the most subordinated units in issue and unit features are identical;?

there are no contractual obligations to deliver cash or another financial asset;and ?the total expected cash flows from the puttable financial instrument over its life are based

substantially on the profit or loss of the Sub-Fund.

Units are issued and redeemed at the holder’s option at prices based on the Sub-Fund’s net asset value per unit at the time of issue or redemption.The Sub-Fund’s net asset value per unit is calculated by dividing the net assets attributable to unitholders with the total number of outstanding units.

In accordance with the Prospectus of the Sub-Fund,investment positions are valued based on the last traded market price for the purpose of determining the net asset value per unit for creations and redemptions of the Sub-Fund.

(k)Taxation

The Sub-Fund currently incurs withholding taxes imposed by PRC on investment income.Such income is recorded gross of withholding taxes in the statement of comprehensive income.Withholding taxes are included as taxation in the statement of comprehensive income.

The Sub-Fund also makes tax provisions on the gains arising from PRC bonds which Management expects such amount may have to be paid to the tax authorities.

Deferred income tax is provided,using the liability method,on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements.However,the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction that at the time of the transaction affects neither accounting nor taxable profit or loss.Deferred income tax is determined using tax rates (and laws)that have been enacted or substantially enacted by the statement of financial position date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

(l)Establishment costs

Establishment costs are recognized as an expense in the period in which they are incurred.

南方五年国债《br-》南方五年国债－Ｒ 截至二零一四年十二月三十一日止的经审核账目

CSOP CHINA5-YEAR TREASURY BOND ETF

(A SUB-FUND OF CSOP ETF SERIES II)

NOTES TO THE FINANCIAL STATEMENTS(continued)

3.CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The Manager makes estimates and assumptions concerning the future.The resulting accounting estimates will, by definition,seldom equal the related actual results.Estimates are continually evaluated and are based on historical experience and other factors,including expectations of future events that are believed to be reasonable under the circumstances.The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined below.

PRC tax provision

In preparing these financial statements,the Manager has made certain assumptions and used various estimates concerning the tax exposure which is dependent on what might happen in the future.The resulting accounting estimates may not equal the related actual results.

Under the general tax provision of PRC Corporate Income Tax Law(“PRC CIT Law”),the non-PRC residents with the gains derived from the sale of PRC securities will be subject to10%PRC capital gain tax.

In addition,the non-PRC residents with interest income derived from the debt securities will be subject to 10%withholding interest income tax.Pursuant to the PRC CIT Law,debt securities issuers in PRC are obligated to withhold the10%interest income tax for those debt securities holders who are subject to the interest income tax in the PRC.However,interest income derived from government bonds is exempt from PRC withholding income tax(“WIT”)under the PRC CIT Law.

(a)Capital gains on PRC Investments

During the period from17February2014(date of inception)to31December2014,the Sub-Fund invests in debt securities(“PRC Investments”)in PRC through the RQFII program.The Manager considers that the enforcement of PRC tax on gains derived from the PRC Investments is uncertain as at the date of approval of these financial statements and has exercised its judgment when assessing whether the Sub-Fund may be liable for PRC taxation on its gains,the amount of potential liability and the probability of such tax being levied up to the reporting date.However,significant uncertainties exist and estimation of the Manager may substantially differ from the actual events.The Manager considers that its estimation may be impacted by any future clarification by the PRC State Administration of Taxation(“SAT”)and the applicability of double tax treaty between Hong Kong and China for Hong Kong tax residents,which may be materially different from what the Manager envisioned.

For the period from17February2014(date of inception)to31December2014,the Sub-Fund had invested into PRC Investments.The Manager had made no tax provision for gross realised gains for the period17 February2014(date of inception)to31December2014and gross unrealised gains of the Sub-Fund as at31 December2014respectively.

Notice issued on14November2014

On14November2014,the Ministry of Finance of the PRC(the“MoF”),the State Administration of Taxation of the PRC(the“SAT”)and the China Securities Regulatory Commission(the“CSRC”)jointly issued the“Notice on temporary exemption of Corporate Income Tax on capital gains derived from the transfer of equity investment assets such as PRC domestic stocks by QFII and RQFII”(“the“Notice”).

16

南方五年国债《br-》南方五年国债－Ｒ 截至二零一四年十二月三十一日止的经审核账目

CSOP CHINA5-YEAR TREASURY BOND ETF

(A SUB-FUND OF CSOP ETF SERIES II)

NOTES TO THE FINANCIAL STATEMENTS(continued)

3.CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS(continued)

(a)Capital gains on PRC Investments(continued)

According to the Notice,amongst other things:

(i)QFIIs and RQFIIs,which do not have an establishment or place of business in the PRC or have an

establishment or place in the PRC but the income so derived in the PRC is not effectively connected

with such establishment,will be temporarily exempt from corporate income tax on gains derived from

the transfer of PRC equity investment assets(including China A-Shares)effective from17November

2014;

(ii)PRC corporate income tax will be imposed on gains by QFIIs and RQFIIs from transfer of equity investment assets(including China A-Shares)realised prior to17November2014in accordance with

laws.

The Manager considered that the withholding tax policy for investment in debt securities has not been clarified in the Notice.The Manager has reassessed the withholding tax provisioning approach and considered the assessment on the Sub-Fund’s PRC taxation position for investment in PRC Investments remains unchanged as the Notice has not addressed the withholding tax policy for investment in debt securities.As such,the Sub-Fund has not provided WIT provision on the gross realised gains for the period from17 February2014(date of inception)to31December2014and gross unrealised gains as at31December2014 derived from the PRC Investments of the Sub-Fund.

The Manager considers that the capital gains tax provision amount for gross realised capital gains derived by the Sub-Fund from trading of PRC Investments may differ significantly from the amounts that may have to be ultimately borne by the Sub-Fund.In the event a capital gains tax is levied at an amount that is different from what was provided by the Sub-Fund,the Sub-Fund may incur a liability that is different from the existing tax provision,which could be significantly impact the net assets attributable to unitholders of redeemable units and consequently,the price per unit of the Sub-Fund based on the calculation of the net assets attributable to unitholders of redeemable units when distributing to the unitholders of redeemable units at such relevant time.

The Manager estimates the gross realised gains from17February2014(date of inception)to31December 2014and gross unrealised gains of the Sub-Fund as at31December2014which could be exposed to PRC taxation at the rate of10%to be RMB8,223,307and RMB110,185,644respectively.The estimated capital gain tax exposure arisen from realised gains and unrealised gains would be RMB822,331and RMB11,018,564 respectively which represents0.29%of the net assets attributable to unitholders of the Sub-Fund as at31 December2014.

(b)Interest income on debt securities in PRC

The Manager considers that the enforcement of PRC withholding tax on interest income arising from debt securities is uncertain as at the date of approval of these financial statements.The Manager has exercised significant judgment in their assessment of the PRC withholding tax expense and the related tax provision.

For the debt securities disposed of during the period,the Manager has not made provision on the accrued interest income of debt securities during the period and as at the reporting date as they consider that:

(i)the issuers of debt securities are required to withhold10%interest income tax at the coupon payment

date before distributing the interest income to the bond holder;and

(ii)the Management intends to sell the debt securities before the coupon payment dates or the maturity dates of the debt securities.

17

南方五年国债《br-》南方五年国债－Ｒ 截至二零一四年十二月三十一日止的经审核账目

CSOP CHINA5-YEAR TREASURY BOND ETF

(A SUB-FUND OF CSOP ETF SERIES II)

NOTES TO THE FINANCIAL STATEMENTS(continued)

3.CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS(continued)

(b)Interest income on debt securities in PRC(continued)

The Manager estimates that for the period from17February2014(date of inception)to31December2014, the Sub-Fund accumulated interest income derived from disposal of RMB denominated corporate bonds of RMB87,925,160which could be exposed to10%PRC withholding tax of approximately RMB8,792,516.For the period17February2014(date of inception)to31December2014,the Sub-Fund had made no provision for the interest income from PRC Investments.

The Manager reviews the relevant PRC tax rules on the PRC Investments from time to time,including the likelihood of the Sub-Fund benefiting from double tax treaty agreements between Hong Kong and PRC for Hong Kong tax residents.Any change in taxation imposed on RQFIIs is likely to have a subsequent impact on the required provision and accordingly the net assets attributable to unitholders of the Sub-Fund.When the SAT issues clarifications,this might ultimately result in either an increase or a decrease in the amount provided.The Manager will always act in the best interest of unitholders and will continually assess the tax provision on an on-going basis.

Events subsequent to31December2014

On1April2015,The Third Branch of Shanghai Municipal Office,SAT and The Third Branch of Shanghai Municipal Bureau of Local Taxation jointly issued the Notice on Tax Issues to notify that the QFII/RQFII shall declare and handle the tax-related issues concerning the gains from transfer of equity investment assets, including A-Shares,realised prior to17November2014to the Authority before30September2015in accordance with the relevant PRC tax law and the Notice.Those QFII/RQFII's eligible for treaty relief under an applicable tax treaty should follow the requirement of Circular124for tax treaty application.

The Manager is in the process of engaging a tax advisor to file their tax return and required documents by30 September2015.

4.NUMBER OF UNITS IN ISSUE AND NET ASSETS ATTRIBUTABLE TO UNITHOLDERS PER

UNIT

The Sub-Fund’s capital is represented by the units in the Sub-Fund,and shown as“net assets attributable to unitholders”in the statement of financial position.Subscriptions and redemptions of units during the period are shown in the statement of changes in net assets attributable to unitholders.In order to achieve the investment objectives,the Sub-Fund endeavors to invest its capital in accordance with the investment policies, whilst maintaining sufficient liquidity to meet redemption requests.

In accordance with the provisions of the Trust’s Trust Deed dated20January2014,and the Prospectus of the Sub-Fund,investments are stated at the last traded price on the valuation day for the purpose of determining net asset value per unit for subscriptions and redemptions and for various fee calculations.

As stated in Note2(j),redeemable units of the Sub-Fund are classified as equity and they are carried at the redemption amount that would be payable at the reporting date if the unitholder exercised the right to redeem the units in the Sub-Fund.

18

南方五年国债《br-》南方五年国债－Ｒ 截至二零一四年十二月三十一日止的经审核账目

CSOP CHINA5-YEAR TREASURY BOND ETF

(A SUB-FUND OF CSOP ETF SERIES II)

NOTES TO THE FINANCIAL STATEMENTS(continued)

4.NUMBER OF UNITS IN ISSUE AND NET ASSETS ATTRIBUTABLE TO UNITHOLDERS PER

UNIT(continued)

The movements of the redeemable units for the period from17February2014(date of inception)to31 December2014are as follows:

Period from

17February2014

(date of inception)

to31December2014 Number of units in issue at the beginning of the period-Units issued184,000,000 Units redeemed(38,800,000) Units consolidated on1September2014(Note)(107,200,000)

───────────────Number of units in issue at the end of the period38,000,000

═══════════════

2014

RMB Net assets attributable to unitholders per unit at31December2014107.3375

═══════════════Note:Pursuant to the Change of the Trading Board Lot Size and Unit Consolidation Announcement dated1 August2014,effective from1September2014,the Management has determined that each of the

existing five units in the Sub-Fund be consolidated into one unit.The minimum size for creation and

redemption of units in issue by the participating dealers of the Sub-Fund will be decreased to200,000

consolidation units from1,000,000units.The consolidation units will rank pari passu in all respects

with each other and the unit consolidation will not result in any change in the relative rights of the

unitholders.

In accordance with the Trust’s Offering Memorandum,the costs and expenses in connection with the

establishment of the Trust will be borne by the first Sub-Fund.For the purpose of calculating the

subscription and redemption net asset value,the establishment costs will be amortized within the period

from the close of the initial offer period of the units of the first Sub-Fund to the end of the first Sub-

Fund's fifth financial year unless the Manager or its duly authorized agent decides that some other

method is to be applied.

19

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