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Annual Report for

31 December 2016

ABF Malaysia Bond Index Fund



Annual Report

31 December 2016


TRUST DIRECTORY

Manager

AmFunds Management Berhad

9th & 10

th Floor, Bangunan AmBank Group

55 Jalan Raja Chulan

50200 Kuala Lumpur

Board of Directors

Pushparani a/p Moothathamby

Mustafa Mohd Nor

Tai Terk Lin

Datin Maznah Mahbob

Sum Leng Kuang

Investment Committee

Sum Leng Kuang

Tai Terk Lin

Mustafa Mohd Nor

Zainal Abidin Mohd Kassim

Datin Maznah Mahbob

Trustee

HSBC (Malaysia) Trustee Berhad

Auditors and Reporting Accountants

Ernst & Young

Taxation Adviser

Deloitte Tax Services Sdn Bhd


CORPORATE DIRECTORY


Registered Office

22nd

Floor, Bangunan AmBank Group

55, Jalan Raja Chulan, 50200 Kuala Lumpur

Tel:03-2036 2633 Fax: 03-2032 1914

Head Office

9th & 10

th Floor, Bangunan AmBank Group


Tel:03-2036 2888 Fax: 03-2031 5210

Secretary

Koh Suet Peng (MAICSA 7019861)

Hafidzah Binti Zakaria (MAICSA 7052802)

22nd



HSBC (Malaysia) Trustee Berhad

Business/Registered Office/Head Office

Fund Services, Bangunan HSBC, 13th Floor, South Tower

No.2, Leboh Ampang, 50100 Kuala Lumpur

Tel: 03-2075 7800 Fax: 03-2026 1273


CONTENTS

1 Manager’s Report

21 Additional Information

31 Independent Auditor’s Report to the Unitholders

35 Statement of Financial Position

36 Statement of Comprehensive Income

37 Statement of Changes in Equity

38 Statement of Cash Flows

39 Notes to the Financial Statements

59 Statement by the Manager

60 Trustee’s Report

61 Directory

1

MANAGER’S REPORT

Dear Unitholders,

We are pleased to present you the Manager’s report and the audited accounts of ABF Malaysia Bond

Index Fund (“Fund”) for the financial year ended 31 December 2016.

Salient Information of the Fund

Name ABF Malaysia Bond Index Fund (“Fund”)

Category/

Type

Fixed Income ETF/ Income

Objective A listed bond fund that is passively managed against the given benchmark and the

returns will be expected to correspond closely to the performance of the benchmark

index.

Note : Any material change to the Fund’s investment objective will require the

unitholders’ approval by way of special resolution.

Index

Component

Details of the index component as at 31 December 2016 are as follows:

Code Issuer

Coupon

%

Final

Maturity

Notional

Amount (RM)

VK110024 GovCo Holdings

Bhd 4.070 23 February 2018

1,500,000,000

MI130002 Malaysia

Government

Bond 3.260 01 March 2018

8,786,560,000

UN080007 Export-Import

Bank of Korea 4.500 12 March 2018 500,000,000

GG150005 Malaysia

Government

Investment

Issue

3.508 15 May 2018

7,500,000,000

VK110197 Pengurusan Air

SPV Berhad

4.040 15 June 2018

1,500,000,000

GL110001 Malaysia

Government

Investment

Issue

3.872 30 August 2018

8,500,000,000

MK110005 Malaysia

Government

Bond

3.580 28 September 2018

11,440,000,000

UG150088 Cagamas Berhad 4.200 22 October 2018 1,500,000,000

GN080031 Malaysia

Government

Investment

Issue

4.295

31 October 2018

7,500,000,000

(Forward)

2

Code

Issuer

Coupon

%

Final

Maturity

Notional

Amount (RM)

UI130109 Cagamas Berhad 3.900 16 November 2018 800,000,000

GJ130055 Malaysia

Government

Investment

Issue 3.399 30 November 2018

4,000,000,000

UG160018 Cagamas Berhad 4.100 04 February 2019 1,120,000,000

VI140030 Pengurusan Air

SPV Berhad 4.160 07 February 2019

1,000,000,000

VI140036 Prasarana

Malaysia Bhd 4.080 12 March 2019

1,500,000,000

MH150005 Malaysia

Government

Bond 3.759 15 March 2019

7,177,897,000

GJ130070 Malaysia

Government

Investment

Issue 3.558 30 April 2019

10,000,000,000

MS04003H Malaysia

Government

Bond 5.734 30 July 2019

7,315,545,000

GO090001 Malaysia

Government

Investment

Issue 3.910 13 August 2019

6,000,000,000

GL120021 Malaysia

Government

Investment

Issue 3.704 30 September 2019

8,000,000,000

UG160121 Cagamas Berhad 3.750 18 October 2019 580,000,000

MJ140004 Malaysia

Government

Bond 3.654 31 October 2019

11,800,000,000

MO090002 Malaysia

Government

Bond 4.378 29 November 2019

17,119,000,000

ML120006 Malaysia

Government

Bond 3.492 31 March 2020

11,000,000,000

VI150052 Danga Capital

Bhd 4.100 09 April 2020 2,000,000,000

GH160004 Malaysia

Government

Investment


3,500,000,000

(Forward)

3

Code

Issuer

Coupon

%

Final

Maturity

Notional

Amount (RM)

GO090061 Malaysia

Government

Investment


3,500,000,000

GL120098 Malaysia

Government

Investment

Issue 3.576 15 May 2020

11,000,000,000

GN100021 Malaysia

Government

Investment

Issue 4.284 15 Jun 2020

5,500,000,000

MK130006

Malaysia Government

Bond 3.889 31 July 2020

7,973,060,000

GJ150002

Malaysia

Government

Investment Issue 3.799 27 August 2020

10,000,000,000

VI150192

Pengurusan Air

SPV Berhad 4.280 28 September 2020

700,000,000

MJ150003

Malaysia

Government Bond 3.659 15 October 2020

11,742,134,000

VJ140355

Pengurusan Air

SPV Berhad 4.100 5 November 2020

500,000,000

GN100060

Malaysia

Government

Investment Issue 3.998 30 November 2020

3,000,000,000

VN110023

GovCo Holdings


1,500,000,000

GL130069

Malaysia

Government

Investment Issue 3.716 23 March 2021

9,500,000,000

GN110025

Malaysia

Government

Investment Issue 4.170 30 April 2021

12,500,000,000

MO110001 Malaysia

Government Bond 4.160 15 July 2021

13,500,000,000

GJ160002

Malaysia

Government


7,000,000,000

VK140222

Bank Pembangunan

Malaysia Berhad 4.190 10 September 2021

700,000,000

VI160277

Lembaga

Pembiayaan

Perumahan Sektor

Awam 3.600 21 September 2021

600,000,000

ML140003

Malaysia

Government Bond 4.048 30 September 2021

11,700,000,000

(Forward)

4

Code

Issuer

Coupon

%

Final

Maturity

Notional

Amount (RM)

MJ160004 Malaysia

Government Bond 3.620 30 November 2021

7,000,000,000

VN120202

Perbadanan Tabung

Pendidikan Tinggi

Nasional 3.850 15 June 2022

2,500,000,000

GL150001

Malaysia

Government

Investment Issue 4.194 15 July 2022

10,000,000,000

MO120001 Malaysia

Government Bond 3.418 15 August 2022

10,500,000,000

ML150002

Malaysia


11,000,000,000

VK150210

Rantau Abang

Capital Bhd 4.570 19 October 2022

1,500,000,000

GO120037

Malaysia

Government

Investment Issue 3.699 15 November 2022

8,500,000,000

VN120393

Turus Pesawat Sdn

Bhd 3.740 18 November 2022

500,000,000

VN130068

Turus Pesawat Sdn


500,000,000

MN130003

Malaysia

Government Bond 3.480 15 March 2023

11,420,000,000

GL160001

Malaysia

Government

Investment Issue 4.390 7 July 2023

10,500,000,000

DS081080

Khazanah Nasional

Berhad 0 14 August 2023

2,000,000,000

ML160001

Malaysia

Government Bond 3.800 17 August 2023

10,000,000,000

VK160278

Lembaga

Pembiayaan

Perumahan Sektor


700,000,000

VN130259 Cagamas Berhad 4.300 27 October 2023 645,000,000

GO130033

Malaysia

Government

Investment Issue 3.493 31 October 2023

4,000,000,000

VN140090

Perbadanan Tabung

Pendidikan Tinggi

Nasional 4.670 28 March 2024

1,800,000,000

GO130071

Malaysia

Government

Investment Issue 4.444 22 May 2024

12,500,000,000

MO140001

Malaysia


11,020,000,000

VN140223

Bank Pembangunan


500,000,000

(Forward)

5

Code Issuer

Coupon

% Final Maturity

Notional

Amount (RM)

VP120394

Turus Pesawat Sdn


500,000,000

VN150103 Jambatan Kedua

Sdn Bhd 4.300 28 May 2025 1,300,000,000

MY050003

Malaysia


3,000,000,000

MO150001 Malaysia


13,672,200,000

VN150193 Pengurusan Air

SPV Berhad 4.63 26 September 2025

860,000,000

GO150004 Malaysia

Government


10,500,000,000

VN160022 Danga Capital Bhd 4.600 23 February 2026 1,500,000,000

MS110003 Malaysia

Government Bond 4.392 15 April 2026

10,574,330,000

VN160231 Perbadanan Tabung

Pendidikan Tinggi

Nasional 4.200 27 July 2026

1,000,000,000

VN160235 Jambatan Kedua

Sdn Bhd 4.200 28 July 2026

1,000,000,000

VS110260 Prasarana Malaysia

Bhd 4.350 04 August 2026

1,200,000,000

MX060002 Malaysia


3,110,000,000

VN160279 Lembaga

Pembiayaan

Perumahan Sektor


700,000,000

GO160003 Malaysia

Government

Investment Issue 4.070 30 September 2026

10,500,000,000

VN160330 Bank Pembangunan

Malaysia Berhad 4.500 04 November 2026

850,000,000

MO160003 Malaysia

Government Bond 3.900 30 November 2026

9,000,000,000

MS120002 Malaysia


5,500,000,000

MX070003 Malaysia

Government Bond 3.502 31 May 2027

6,000,000,000

GS120059 Malaysia

Government

Investment Issue 3.899 15 June 2027

5,000,000,000

VS120395 Turus Pesawat Sdn


750,000,000

MS130005 Malaysia

Government Bond 3.733 15 June 2028

5,000,000,000

(Forward)

6

Code Issuer

Coupon

%

Final

Maturity

Notional

Amount (RM)

GT130001 Malaysia

Government


3,000,000,000

MX080003 Malaysia

Government Bond 5.248 18 September 2028 5,040,000,000

GS130072 Malaysia

Government

Investment Issue 4.943 06 December 2028

5,000,000,000

VS140224 Bank Pembangunan


900,000,000

VX090825 Prasarana Malaysia

Bhd 5.070 28 September 2029

1,500,000,000

VS150002 Danga Capital

Berhad 4.880 29 January 2030

1,500,000,000

VS150043 Prasarana Malaysia

Bhd 4.640 22 March 2030

1,100,000,000

MX100003 Malaysia


12,770,000,000

VS150104 Jambatan Kedua Sdn

Bhd 4.520 28 May 2030

700,000,000

GT150003 Malaysia

Government

Investment Issue 4.245 30 September 2030

7,000,000,000

VS160151 GovCo Holdings

Bhd 4.730 06 June 2031

550,000,000

MX110004 Malaysia

Government Bond 4.232 30 June 2031

8,750,000,000

VS160232 Perbadanan Tabung

Pendidikan Tinggi


500,000,000

MX120004 Malaysia


5,500,000,000

VX120396 Turus Pesawat Sdn


1,650,000,000

MX130004 Malaysia


4,500,000,000

GX130068 Malaysia

Government


4,000,000,000

VX140225 Bank Pembangunan


900,000,000

MY150004 Malaysia

Government Bond 4.254 31 May 2035

7,161,000,000

GX150006 Malaysia

Government


7,000,000,000

(Forward)

7

Code Issuer

Coupon

%

Final

Maturity

Notional

Amount (RM)

VX160280 Lembaga

Pembiayaan

Perumahan Sektor


900,000,000

VZ160031 Prasarana Malaysia


755,000,000

VZ160130 DanaInfra Nasional

Berhad 4.850 03 May 2041

1,000,000,000

VZ160237 Jambatan Kedua Sdn

Bhd 4.860 26 July 2041

900,000,000

VZ160233 Perbadanan Tabung

Pendidikan Tinggi


1,500,000,000


Berhad 4.780 18 October 2041

1,000,000,000

MZ130007 Malaysia


6,500,000,000


Berhad 5.050 06 April 2045

1,000,000,000

MZ160002 Malaysia


5,000,000,000


Berhad 5.020 03 May 2046

1,000,000,000

VZ160281 Lembaga

Pembiayaan

Perumahan Sektor


800,000,000


Berhad 4.950 19 October 2046

1,000,000,000

(Source: Markit Indices Limited)

Duration The Fund was established on 12 July 2005 and shall exist for as long as it appears to

the Manager and the Trustee that it is in the interests of the unitholders for it to

continue. In some circumstances, the unitholders+* can resolve at a meeting to

terminate the Fund.

Performance

Benchmark

iBoxx® ABF Malaysia Bond Index

Income

Distribution

Policy

Income distribution (if any) will be paid semi-annually.

8

Breakdown

of Unit

Holdings by

Size

For the financial year under review, the size of the Fund stood at 1,320,421,800 units.

Size of holding As at

31 December 2016

As at

31 December 2015

No of

units held

Number of

unitholders

No of

units held

Number of

unitholders

Less than 100 300 7 200 5

100 – 1,000 9,900 22 7,900 17

1,001 -10,000 54,700 13 32,200 8

10,001 – 100,000 109,600 4 27,000 2

100,001 to less than

5% of issue units 55,039,430 5 6,096,630 6

5% and above of

issue units 1,265,207,870 1 654,257,870 1

Fund Performance Data

Portfolio

Composition

Details of portfolio composition of the Fund for the financial years as at 31 December

are as follows:

FY

2016

%

FY

2015

%

FY

2014

%

Corporate bonds - 0.76 1.48

Malaysian Government Securities 95.16 90.57 78.21

Quasi-Government bonds 4.41 6.46 20.77

Cash and others 0.43 2.21 (0.46)

Total 100.00 100.00 100.00

Note: The abovementioned percentages are calculated based on total net asset value.

Performance

Details

Performance details of the Fund for the for the financial years ended 31 December are

as follows:

FY

2016

FY

2015

FY

2014

Net asset value (RM) 1,442,324,912* 1,341,876,193 685,894,438

Units in circulation 1,320,421,800* 1,265,421,800 660,421,800

Net asset value per unit (RM) 1.0923* 1.0604 1.0386

Highest net asset value per unit

(RM)

1.1224* 1.0655 1.0841

Lowest net asset value per unit

(RM)

1.0599* 1.0323 1.0355

Closing quoted price (RM/unit) 1.1100* 1.0520 1.0350

(Forward)

9

FY

2016

FY

2015

FY

2014

Highest quoted price (RM/unit) 1.1240* 1.0680 1.0840

Lowest quoted price (RM/unit) 1.0520* 1.0300 1.0350

Benchmark performance (%) 3.46 4.12 3.79

Total return (%)(1)

3.01 3.74 3.98

- Capital growth (%) 3.01 2.12 -1.70

- Income distribution (%) - 1.62 5.68

Gross distribution (sen per unit) - 1.68 6.00

Net distribution (sen per unit) - 1.68 6.00

Distribution yield (%)(2)

- 1.60 5.80

Management expense ratio (%)(3)

0.18 0.16 0.18

Portfolio turnover ratio (times)(4)

0.47 0.74 0.66

* Above price and net asset value per unit are not shown as ex-distribution.

Note:

(1) Total return is the annualised return of the Fund for the respective financial years

computed based on the net asset value per unit and net of all fees.

(2) Distribution yield is calculated based on the total distribution for the respective

financial years divided by the closing quoted price.

(3) Management expense ratio (“MER”) is calculated based on the total fees and

expenses incurred by the Fund divided by the average fund size calculated on a

daily basis. The MER increased by 0.02% as compared to 0.16% per annum for the

financial year ended 31 December 2015 mainly due to increase in expense.

(4) Portfolio turnover ratio (“PTR”) is calculated based on the average of the total

acquisitions and total disposals of investment securities of the Fund divided by the

average fund size calculated on a daily basis. The PTR decreased by 0.27 times

(36.5%) as compared to 0.74 times for the financial year ended 31 December 2015

mainly due to increase in average fund size.

Average Total Return (as at 31 December 2016)

ABFMY1(a)

%

iBoxx Index(b)

%

One year 3.01 3.46

Three years 3.57 3.79

Five years 2.97 3.27

Ten years 3.47 3.78

Annual Total Return

Financial Years Ended

(31 December)

ABFMY1(a)

%

iBoxx Index(b)

%

2016 3.01 3.46

2015 3.74 4.12

2014 3.98 3.79

2013 0.36 0.85

2012 3.80 4.18

(a) Source: Novagni Analytics and Advisory Sdn Bhd.

(b) iBoxx ABF Malaysia Index (“iBoxx Index”) (Obtainable from www.aminvest.com)

10

The Fund performance is calculated based on the net asset value per unit of the Fund.

Average total return of the Fund and its benchmark for a period is computed based on

the absolute return for that period annualised over one year.

Note: Past performance is not necessarily indicative of future performance and

that unit prices and investment returns may go down, as well as up.

Fund

Performance

For the financial year under review, the Fund registered a return of 3.01% which was

entirely capital growth in nature.

Thus, the Fund’s return of 3.01% has underperformed the benchmark’s return of 3.46%

by 0.45%.

As compared with the financial year ended 31 December 2015, the net asset value

(“NAV”) per unit of the Fund increased by 3.01% from RM1.0604 to 1.0923, while

units in circulation while units in circulations increased by 4.35% from 1,265,421,800

units to 1,320,421,800 units.

The closing price quoted at Bursa Malaysia of the Fund increased by 5.51% from

RM1.0520 to RM1.1100.

The line chart below shows the comparison between the annual performance of

ABFMY1 and its benchmark, iBoxx® Index, for the financial years ended 31

December.

Note: Past performance is not necessarily indicative of future performance and

that unit prices and investment returns may go down, as well as up.

11

Has the Fund

achieved its

objective?

For the financial year under review, the Fund has met its objective i.e passively

managed against the given benchmark.

Strategies

and Policies

Employed

For the financial year under review, the Fund used a passive strategy whereby the

Manager aims, by way of representative sampling, to achieve a return on the Fund

Assets that closely tracks the returns of the benchmark index.

Portfolio

Structure

This table below is the asset allocation of the Fund for the financial years under review.

As at

31-12-2016

%

As at

31-12-2015

%

Changes

%

Corporate bonds - 0.76 -0.76

Malaysian Government Securities 95.16 90.57 4.59

Quasi-Government bonds 4.41 6.46 -2.05

Cash and others 0.43 2.21 -1.78

Total 100.00 100.00

There has been no significant change to the asset allocation since the last reporting

period.

Distribution/

unit splits

There was no income distribution and unit split declared for the financial year under

review.

State of

Affairs of

the Fund

There has been neither significant change to the state of affairs of the Fund nor any

circumstances that materially affect any interests of the unit holders during the

financial year under review.

Rebates

and Soft

Commission

It is our policy to pay all rebates to the Fund. Soft commission received from

brokers/dealers are retained by the Manager only if the goods and services provided are

of demonstrable benefit to unitholders of the Fund.

During the financial year under review, the Manager had received on behalf of the

Fund, soft commissions in the form of fundamental database, financial wire services,

technical analysis software and stock quotation system incidental to investment

management of the Fund. These soft commissions received by the Manager are deem

to be beneficial to the unitholders of the Fund.

Market

Review

Bank Negara Malaysia (“BNM”) kept the Overnight Policy Rate at 3.25% as widely

expected in the first Monetary Policy Committee (“MPC”) meeting of the year.

However, the policymaker surprised the market by cutting the Statutory Reserve

Requirement (“SRR”) by 50 bps to 3.50% at the same meeting as an attempt to ease

liquidity conditions and ensure that financial markets continue to function in an orderly

manner. During the month, global crude oil price continue to trend lower and dipped

below USD30 per barrel (“bbl”) at one point in time and this led to PM Najib

announcing the need to recalibrate the Budget for 2016 given that the Budget was

announced in October last year with an oil price assumption of USD48/bbl. The

recalibrated budget was subsequently announced on 28 January 2016 and largely

continues to demonstrate the commitment of the Malaysian government to maintain

12

fiscal discipline despite the lower oil revenue.

The key takeaways from the recalibrated Budget are as follows:

2016 Gross Domestic Product (“GDP”) growth revise to 4.0 – 4.5% (from 4.0 –

5.0% previously)

Budget based on oil price assumption of USD30-35/bbl

Budget deficit target remains unchanged and maintained at 3.1% of GDP

Operating expenditure to cut by RM4.0b by cutting grants to Government

Linked Companies (“GLCs”) and reducing wastage

Reduction in Employee’s provident Fund (“EPF”) contribution by 3%

Lastly, Moody’s revised Malaysia’s sovereign rating outlook from A3/Positive to

A3/Stable, bringing its view largely in line with the two other major rating agencies

(both at A-/Stable). This is largely to reflect the current external headwinds in the form

of prolonged weakness seen in global crude oil price which will negatively impact the

government’s revenue. Nevertheless, Moody’s highlighted that they continue to view

prior measures taken by the government (such as removal of fuel subsidies and

successful implementation of Goods and Services Tax (“GST”)) to address its fiscal

position as credit positive as it demonstrates the government’s fiscal commitment.

The Malaysian Government Securities (“MGS”) market was fairly active in January as

investors build up positions for the year with total of RM43.3b being traded. Generally,

market sentiment was bullish despite crude oil price dipping below USD30/bbl and

buying interest was seen from both local and offshore investors. As a result, the MGS

yield curve bullish flattened during the month in tandem with the huge rally in

USDMYR which closed at 4.15 at end January 2016 from 4.29 in end December 2015.

In the primary market, three tenders were offered: (1) RM4.0b new issue of Malaysian

Government Investment Issue (“MGII”) 07/23, which drew strong bid-to-cover

(“BTC”) ratio of 2.68x with an average yield of 4.39%; (2) RM3b MGS 03/19

reopening, which drew healthy BTC ratio of 2.058x with an average yield of 3.271%

and; (3) RM2b Government Investment Issue (“GII”) 10/35 reopening, which

registered a decent BTC of 1.915x at an average yield of 4.647%. With these three

tenders, the year-to-date (“YTD”) MGS/GII issuance stood at RM9.0b at as end

January 2016.

During the month of February, Malaysia reported that 4Q2015 GDP grew by 4.5% thus

bringing overall GDP growth for the year to 5.0% and handily beating consensus

forecast of 4.1% for 4Q2015 and 4.8% for 2015. As expected, the outperformance

continued to be led by the resilience in Malaysia’s private consumption growth and a

rebound in exports especially the manufacturing sector. Meanwhile, Malaysia’s

Consumer Price Index (“CPI”) climbed to 3.5% Year-over-year (“YoY”) in Jan 16

(Dec 15: 2.7%). On a Month-over-month (“MoM”) basis, the index contracted by 0.3%

indicating an easing in domestic price pressure on the back of moderating domestic

demand. On the job front, Malaysia's unemployment rate continues to inch higher,

rising to 3.3% in December from 3.2% in the previous month and 3.0% a year ago. The

number of unemployed people climbed to 478,100 in December from 453,300 in

November 432,100 a year ago. The labor force participation rate came in at 67.8%, up

from 67.7% in November. On the commodities front, crude oil price has been

averaging around USD30 to USD35 per barrel as concerns of an oversupplied market

remains. Mirroring the volatility in oil prices, Malaysia’s Ringgit has also been trading

around a tight range of around USD/MYR of RM4.10 to RM4.25. Finally, Fitch

Ratings is keeping Malaysia’s rating at A- with Stable outlook as external liquidity

13

position deteriorated due to large capital outflows and loss of forex reserves.

Nevertheless, Fitch Ratings also mentioned that Malaysia’s liquidity, (as measured by

Fitch’s broader external liquidity metric) still remains above the “A” median.

Despite a shorter trading month, trading in the MGS/GII market was brisk with a total

of RM67.0b value recorded. After the bullish sentiment in January where we saw

active buying by both local and foreign funds, some of the investors probably took

some profit in February especially in the short to mid end of the curve. Overall, the

yields on the 3-year, 5-year, 7-year, 10-year, 15-year, 20-year and 30-year close at

3.30%, 3.58%, 3.72%, 3.95%, 4.25%, 4.45% and 4.75% respectively. In the primary

market, only two tenders were offered: (1) RM4.0b new issue of MGS 08/23, which

drew the lowest BTC ratio of the year at 2.85x with an average yield of 3.80% and; (2)

RM3.5b new issue of GII 08/21, which registered a very strong BTC of 2.85x at an

average yield of 3.743%.

In the month of March BNM kept the OPR (“Overnight Policy Rate”) unchanged at

3.25% as expected and also left the SRR ratio at 3.50% in the second MPC meeting of

the year. The tone of the MPC statement remained broadly similar to the previous MPC

statement as BNM continues to highlight global growth vulnerability to “downside

risks arising from prevailing fragilities that are both cyclical and structural, excessive

leverage, the sharp declines in commodity prices and the rising geopolitical risks.”

BNM released its Annual Report for 2015, highlighting its expectations of slower

domestic growth, which is projected to grow by 4.0 – 4.5% in 2016 primarily driven by

domestic demand and sustained mainly through private consumption. Meanwhile,

inflation is expected to range between 2.5 – 3.5% in 2016. Separately, it was also the

first time BNM released information on the composition of foreign holdings in

MGS/GII and the breakdown is as follows:

Asset Managers: 44%

Central Banks / Governments: 29%

Pension Funds: 13%

Banks:10%

Insurance Companies: 2%

Nominees / Custodians: 1%

Others: 1%

Lastly, S&P affirmed Malaysia’s A-/Stable rating premised on its expectations that the

1 Malaysia Development Berhad (“1MDB”) issues and the upcoming change in BNM

leadership will not diminish the effectiveness of policymaking either in the executive

branch or at the central bank. S&P also believes the government has taken sufficient

offsetting measures to compensate for lost hydrocarbon-related fiscal revenue. In

addition, the country's strong external position and fairly diverse economy can absorb

some weakness in the oil and gas sector.

In March, the MGS yield curve continued its bullish flattening stance as investor

sentiment improved drastically following Fed Chair Janet Yellen’s guidance of a more

cautious and gradual approach to interest rate hike cycle. This coupled with the

stabilization of global commodity prices led the recovery seen in the USD/MYR which

closed at 3.90 at the end of the month. Against the more positive backdrop, trading

volume jumped higher with a total of RM76.6b traded compared to RM67.0b in the

previous month. Overall, the yields on the 3-year, 5-year, 7-year, 10-year, 15-year, 20-

year and 30-year close at 3.22%, 3.45%, 3.67%, 3.82%, 4.15%, 4.37% and 4.69%

14

respectively. In the primary market, there were three tenders: (1) RM2.5b new issue of

MGS 03/46, which drew strong BTC ratio of 2.596x with an average yield of 4.736%;

(2) RM4b new issue of GII 9/26, which a registered a very strong BTC ratio of 3.2x

with an average yield of 4.07%; and (3) RM2.5b re-opening of MGS 06/31, which

garnered BTC ratio of 2.37x with an average yield of 4.20%.

In the month of April, Malaysia released its February exports number, which

rebounded 6.7% YoY. The increase was generally driven by electrical and electronics

(E&E”) sector as well as increase in palm oil and palm-based and timber and timber

based products. On the inflation front, Malaysia’s CPI for March came in much weaker

than expected at 2.6% YoY against consensus expectations of 3.4%. The drop was due

to lower transport cost as RON95 petrol price was reduced by 15 sen to RM1.60 per

litre in March 2016 from RM1.75 in February. Meanwhile, BNM said that the

reduction of the SRR by 50 basis points on 1 February 2016 has had its desired impact

on the banking system’s interbank rates. The base rate of commercial banks, on

average, remained relatively stable at 3.89% in March (February: 3.88%). On the

consumer sentiment front, 1Q16 Consumer Sentiment Index (“CSI”) has rebounded to

72.9 points after plunging for six consecutive quarters. Recall that the index had hit its

all-time lows in the past two quarters, falling to 63.8 in 4Q15. In April, BNM’s

international reserves continue to climb steadily and were last seen at USD97b as at

end-March 2016. More pertinently, foreign holdings in Malaysian bonds of RM226.6b

as at end March has broken the previous record set in November 2014. Strengthening

crude oil prices and foreign fund inflows in both the bond as well as equities market

has help turned the Ringgit into Asia’s best-performing currency, confounding some

analyst’s expectation. The Ringgit has surged around 10% as at end April, the most in

43 years.

In April, the MGS yield curve bearish flattened with most of the selling occurring

towards the last week of the month. Trading volume dipped to RM71.6b compared to

RM76.6b in the previous month. Overall, the yields on the 3-year, 5-year, 7-year, 10-

year, 15-year, 20-year and 30-year close at 3.30% (March: 3.22%), 3.54% (March:

3.45%), 3.75% (March: 3.67%), 3.94% (March: 3.82%), 4.17% (March: 4.15%),

4.32% (March: 4.37%) and 4.67% (March: 4.69%) respectively. In the primary market,

there were three tenders: (1) RM3.5b re-opening of GII 07/23, which drew BTC ratio

of 2.686x with an average yield of 3.932%; (2) RM2.5b re-opening of MGS 05/35,

which a registered a fairly lackluster BTC ratio of 1.986x with an average yield of

4.24%; and (3) RM3.0b re-opening of MGS 08/23, which garnered BTC ratio of

2.044x with an average yield of 3.80%.

In May, BNM kept the OPR and SRR ratio unchanged at 3.25% and 3.50%

respectively as widely expected in Datuk Muhammad Ibrahim’s inaugural MPC

meeting as BNM Governor. The tone of the MPC statement was largely neutral with

the stance broadly similar to the previous MPC statements. BNM also reiterated its

expectations for the domestic economy to expand by 4.0 – 4.5% in 2016 while inflation

is expected to trend lower for the remaining parts of the year from the average CPI of

3.4% in the first quarter of 2016 (“1Q16”). This followed the release of Malaysia’s

1Q16 GDP data which grew at a slower pace of 4.2% YoY, on the back of weakness in

exports and soft private investment growth while on a quarter to quarter basis, the

domestic economy grew 1.0%, compared to 1.5% previously.

The MGS market saw some sell-off following the release of US Fed Federal Open

Market Committee (“FOMC”) April meeting minutes which indicated that members

are looking at potentially raising interest rate in its June FOMC meeting while Fed

15

Chair Janet Yellen signaled in a speech that that a rate increase would be appropriate in

the coming months if the US economy and labour market continue to strengthen. The

hawkish tone by the Fed sent MGS yields higher across all tenures, resulting in the

shift upward in the MGS yield curve. Trading volume for the month fell to RM69.2b

from RM71.6b in the previous month. Overall, the yields on the 3-year, 5-year, 7-year,

10-year, 15-year, 20-year and 30-year close at 3.30%, 3.56%, 3.84%, 3.92%, 4.21%,

4.35% and 4.71% respectively. In the primary market, there were three tenders: (1)

RM2.5b 15-year reopening of MGS 09/30, which drew healthy BTC ratio of 2.621

times with an average yield of 4.417%; (2) RM4.0b 10.5-year new issue of MGS 11/26

garnered BTC ratio of 2.193 times at average yield of 3.90%; and (3) RM4.0b 5.5-year

new issue of MGS 11/21 drew a weak BTC ratio of 1.42 times at average yield of

3.62%.

During the month of June, Malaysia reported a positive growth in exports of 1.6% YoY

for the month of April 2016, while imports contracted by 2.3%, thus leaving a positive

trade balance of RM9.1b. Main contributors to exports came from the E&E sector

which showed an encouraging growth of 2.1% versus 0.5% in the preceding month. On

the inflation front, May’s CPI eases marginally to 2.0% YoY matching market

expectations. Since the implementation of GST in April 2015, the initial price shock

has faded while the current record low pump prices continue to keep inflationary

pressure in check. Meanwhile, Malaysia’s unemployment rate continued to inch up in

April. At 3.6%, the unemployment figure is at the highest since 2010. Finally,

Malaysia’s Ringgit appreciated versus USD by 2.9% from RM4.15 to RM4.03 at as

end June. The Ringgit has been volatile in June primarily due to two key events, the

FOMC meeting as well as the UK Referendum on Brexit.

In contrast to the month of May, the MGS curve bull-flattened as trading volume for

the month of June soared to RM106.2b from RM69.2b in the previous month. The

strong rally was probably contributed by two significant events during the month: (1) a

weak May NFP figure which delayed the much anticipated Fed rate hike in the June

FOMC meeting and (2) Brexit which triggered fears of global economic slowdown. As

both events were bond positive, it’s not a surprised that yields fell across the curve.

Overall, 3-year, 5-year, 7-year, 10-year, 15-year, 20-year and 30-year close at 3.17%,

3.32%, 3.59%, 3.73%, 4.08%, 4.29% and 4.62% respectively. In the primary market,

there were two tenders: (1) RM3.5b 10-year reopening of GII 09/26, which drew

healthy bid-to-cover (“BTC”) ratio of 2.308 times with an average yield of 4.049%;

and (2) RM2.5b 30-year reopening of MGS 03/46 which garnered BTC ratio of 2.369

times at average yield of 4.613%.

In July, BNM cut the OPR by 25bps to 3.00% at its 13 July 2016 meeting. The market

was surprised with consensus expectation that the policy rate would be left unchanged.

BNM sees that it has policy room for easing due to subdued inflation, and has also

revised down the 2016 inflation expectation to 2-3% from 2.5-3.5% previously. The

rate cut is aimed at supporting domestic growth, given that the financial sector is not

expected to be destabilized by the lower policy rate. Malaysia’s inflation came in

significantly below expectations at 1.6% YoY for June 2016 mainly due to transport

prices which contracted -8.5%YoY that is weighted 13.7% of the CPI.

Subsequent to the unexpected OPR cut, the MGS market rallied across the curve even

as trading volume for the month of July dropped from June’s year to date high of

RM106.2b to RM80.8b. The stellar performance over the past two months was not

unexpected as not only has the U.S. Federal Reserve Bank held back the anticipated

rate hike back in June but global central banks including Malaysia seems to on the

16

dovish path ever since the U.S. Federal Reserve Bank meeting as well as the event of

Brexit. Overall, 3-year, 5-year, 7-year, 10-year, 15-year, 20-year and 30-year close at

2.99%, 3.17%, 3.38%, 3.59%, 3.92%, 4.21% (Jun: 4.29%) and 4.53% respectively. In

the primary market, there were two tenders: (1) RM2.5b 15-year reopening of MGS

06/31, which drew healthy BTC ratio of 2.222 times with an average yield of 3.856%;

and (2) RM3.5b 5-year reopening of GII 08/21 which garnered BTC ratio of 2.454

times at average yield of 3.401%.

During the month of August, Malaysia exports bounced back into gain of 3.4% y-o-y

in June after falling by -0.9% in May and compared with +1.6% in April. Meanwhile,

the foreign exchange reserves increased marginally by USD0.1b to USD97.3b as at 29

July 2016. The current account surplus in the balance of payments narrowed to

MYR1.9bn in 2Q 2016, after recording a surplus of MYR5.0bn in 1Q and compared

with a surplus of MYR8.1bn in 2Q 2015. This was attributed to a smaller surplus in the

merchandise trade account and a larger deficit in the income transfers. Meanwhile, the

financial account registered a higher net inflow of MYR9.5bn in 2Q, compared with an

inflow of MYR5.8bn in the previous quarter. The improvement was mainly due to a

rebound in net inflow on other investments and a larger net inflow of direct

investments. On the other hand, the slowdown in the Malaysian economy continued

with real GDP growing at a slower pace of 4.0% YoY in 2Q 2016, from +4.2% in 1Q

and +4.5% in 4Q 2016. The overall growth was dragged lower by a cutback in

inventories and subdued exports. CPI rose just at 1.1% in July 2016, as opposed to

1.6% in the prior month and against consensus of 1.2%. The low CPI rate has

prompted some market players to anticipate BNM to revise the OPR downward at the

next policy meeting.

The rallies in the Malaysian sovereign bonds/sukuk continued in August, following

BNM’s OPR cut by 25 bps to 3.0%. Some of the gains were pared after the BNM

governor stated that there were no plans for a series of rate cuts. Depressed global

yields and divided Fed officials as highlighted in the U.S. July FOMC minutes led to

sell-down of USD and strengthening of MYR. Yields of the local government bonds

shifted down across the board due to global yield hunting. Oil strength during the

month wherein the Brent crude oil closed above USD50.00 per barrel since 4 July 2016

also contributed to the local bond market rallies. On 17 August 2016, there was an

announcement that GII will be eligible for inclusion in the JP Morgan Emerging

Market (“JPM EM”) suite of indices i.e. Government Bond Index – Emerging Market

(“GBI-EM”) Global Diversified and GBI-EM Diversified. This sparked a significant

rally for the GII, particularly GII 7/23 and GII 9/26.The spread between the MGS and

GII has compressed significantly pre and post the announcement. The 7 year GII-MGS

spread has compressed from 14 bps to the current 4-5bps whereas the 10 year GII-

MGS has compressed from 19 bps to the current 5 bps. However, toward the end of the

month, several Fed officials made hawkish statement about raising fed rates possibly as

early as in September. Janet Yellen, The Fed Chair also remarked at the Monetary

Policy Meeting at Jackson Hole, Wyoming that the case for the rate hike has

strengthened, but she did not specify the timing of the rate hike as it will be data

dependent. This had caused the local market government bonds to weaken as traders

were seen trimming down their positions.



there were three tenders: (1) RM3.0b 7-year reopening of MGS 8/23 with BTC ratio of

1.577 times with average yield of 3.483 (2) RM3.0b 15-year reopening of MGII 09/30,

which drew strong BTC ratio of 2.493 times with an average yield of 4.160%. Demand

17

predominantly came from local banks, Islamic real money, life and pension funds that

are heavy cash-in-hand; and (3) RM3.0b 10-year reopening of MGS 11/26 which

garnered weak BTC ratio of 1.752 times at average yield of 3.563%.

Malaysia’s Purchasing Manager’s Index (“PMI”) reading rose to 48.6 in September

from 47.4 in August 2016. This marked the highest reading in eight months.

Nevertheless, it was still the eighteenth consecutive month of contraction as indicated

by the sub 50 reading. On the inflation front, headline inflation reading for August

rebounded to 1.5% versus consensus expectation of 1.3%. Main drivers were non-food

items particularly cultural services which saw inflation surging from 1.0% in July to

6.1% YoY in August. Finally, the banking sector’s loan growth moderated for the

twelfth consecutive month to 4.2% YoY in August from 5.1% YoY in July. Notably,

this is the lowest level in at least 13 years, as lending activities continue to face

headwinds from a slowing economy, tepid deposit growth and rising loan impairments.

Global markets revisited the prospect of a rate hike again as the FOMC met over two

days starting 20 Sep 2016. As expected, volatility spiked in the run-up to the meeting

as yields rose across the board globally as well as in Malaysia. The less than hawkish

decision post FOMC was well anticipated by the market and hence saw a reversal in

bond yields. Likewise, Malaysian Government bonds also saw yields declined in

response to the Fed’s decision and ended the month in a slight flattening of the curve.



there were two tenders: (1) RM3.0b 5-year Re-opening of MGS 11/21, which drew a

weak BTC ratio of 1.670 times with an average yield of 3.256%; and (2) RM2.0b 20-

year Re-opening of GII 10/35 which garnered BTC ratio of 2.890 times at average

yield of 4.226%.

In October, Malaysia reported its foreign exchange reserves rose by USD0.2bn to

USD97.7bn as at 30 September 2016, from USD97.5bn registered at end-August and

compared to USD95.3bn at end-December 2015. On the inflation front, the headline

inflation rate remained stable in September, as the easing in cost of food and beverages

was mitigated by the smaller magnitude of decline in cost of transport. The core

inflation rate inched lower in September. Growth of the broader money supply, M3,

slowed to 2.2% year-on-year (y-o-y) in September, from +2.4% in August, due to a

decline in external operations and a slowdown in demand for funds by the private and

public sector. Meanwhile, loan growth was stable at 4.2% y-o-y in September,

unchanged from the previous month but lower compared with +5.6 in July, as the

deceleration in growth of household loans were mitigated by the marginal increase in

business loans.

Malaysian bond markets yields rose across the board in October, especially on the

longer end of the curve. There is a sharp steepening of the curve during the month,

following the significant sell-off in the global bond market and also sharp depreciation

of MYR against the USD. As an illustration of the steepening of the curve, the 20-year

MGS yields rose approx. 20 bps compared to the prior month. The sell-off was as a

result of growing expectation of Fed rate hike in December. In addition, the sell-off

was also sparked by major central banks such as Bank of Japan, Bank of England and

European Central Bank questioning the efficacy of unconventional monetary policies

and at times, rumored to taper their asset purchase programs. Overall, 3-year, 5-year, 7-

year, 10-year, 15-year, 20-year and 30-year close at 3.03%, 3.33%, 3.55%, 3.64%,

4.05%, 4.335% and 4.58% respectively. In the primary market, there were three

tenders: (1) RM3.5b New 5-year GII 4/20, which drew a weak bid-to-cover (BTC)

18

ratio of 2.066 times with an average yield of 3.200%; (2) RM3.0b 10-year Re-opening

of GII 9/26, which drew a weak BTC ratio of 2.023 times with an average yield of

3.813%; and (3) RM2.0b 20-year MGS 5/35 which garnered BTC ratio of 2.154 times

at average yield of 4.295%.

Malaysia’s foreign exchange reserves rose by USD0.5bn to USD98.3bn as at 15

November 2016, from USD97.8bn registered at end-October 2016 and compared to

USD95.3bn at end-December 2015. CPI for Oct 2016 came in marginally lower at

1.4% YoY compared to Sep 2016’s reading on 1.5% YoY. 3Q GDP was 4.3% YoY,

higher than consensus expectations of 4.0% YoY (2Q: 4.0%, 1Q: 4.2%). GDP growth

was boosted by higher consumer spending which grew 6.4% YoY, supported by wage

and employment growth. Private investment eased slightly to 4.7% from 5.6% in 2Q,

attributed to a decline in spending on machinery and equipment. Government spending

also slowed to 3.1% from 6.5% in 2Q, on the back of lower spending on supply and

services. BNM left its OPR unchanged at 3.00%, as expected by the market given the

significant degree of financial market volatility following Donald Trump's presidential

victory. Compared to September, BNM slightly upgraded its view on global growth in

2017, but retained its assessment that the domestic economy remains on track to

expand as projected in 2016 and 2017. Malaysian bond markets yields rose across the

board, especially on the shorter end of the curve. The sharp increase in MGS yields

was in line with the significant sell-off in the global bond market as well as the sharp

depreciation of MYR against the USD. As an illustration of the bear flattening of the

curve, the 3-year MGS yield rose approx. 83 bps whilst the 20-year MGS yield rose

approx. 50 bps compared to the prior month. The sell-off was as a result of increasing

global bond yields world-wide following the surprise electoral victory of Donald

Trump, the UST 10-year yield rose from 1.83% to 2.37% during the month. Market

expectation is for the Trump administration to embark on a very fiscally aggressive

policy of tax cuts and increased infrastructure spending which will lead to higher

inflation.



there were two tenders: (1) RM3.0 billion 7-year Re-opening of GII 7/23, which drew a

BTC ratio of 2.21 times with an average yield of 4.094%; and (2) RM2.0 billion 10-

year Re-opening of GII 11/26, which drew a BTC ratio of 2.65 times with an average

yield of 4.465%.

Malaysia’s manufacturing PMI continue to remain below the 50-level mark coming in

unchanged at 47.1 in December. This was the twenty first consecutive months of

contraction. On the trade front, exports were below expectations, recording a

contraction of 8.6% YoY in October (September: -3.0%). Consensus expectations were

for a contraction of -5.6%. Imports meanwhile also fell by 6.6% YoY (September: -

0.1%) driven by broad-based declines in capital imports (-2.0%), intermediate imports

(-8.9%), and consumption imports (-8.0%). Nevertheless, trade surplus continues to be

positive at RM9.76b (September: RM7.56b). Indicative of the huge foreign outflows in

the month of November, Malaysia’s foreign reserves fell USD1.4b to USD96.4b. This

was the lowest reserve level since March 2016. The current level of reserves is

sufficient to cover 1.2 times of short-term external debt and 8.3 months of retained

imports. During the month, BNM announced several measures to enhance onshore

foreign exchange liquidity effective 5 December 2016. The measures include the

liberalization and deregulation of the onshore MYR hedging market, streamlining

treatment for investment in foreign currency assets and incentives and treatment of

export proceeds. These pre-emptive measures were implemented to stabilise the ringgit

19

and support financial stability amid further broad strengthening of the USD. Finally,

the banking sector’s loan growth showed signs of bottoming. For the month of

November, growth accelerated to 5.3% YoY (October: 4.5%) and a robust 0.9% MoM,

resulting in YTD annualised loan growth improving to 4.7% (10M2016: 4.0%). The

main driver of loan growth was in working capital loans (+1.6% MoM vs average

MoM run rate of +0.3%). In terms of consumer loans, residential property loan growth

remained stable at 9.5% YoY while automobile loans remain mired in negative

territory at -0.8% YoY.

The November sell-off which emanated from Donald Trump’s winning election bid

took a breather in the month of December as investors digested the implications of

Trump’s policies. With most investors away on holidays, the Malaysian Government

bonds saw some recovery in the yield curve amidst thin volumes. Overall, 3-year, 5-

year, 7-year, 10-year, 15-year, 20-year and 30-year close at 3.55%, 3.67%, 4.13%,

4.21%, 4.66%, 4.65% and 4.58% respectively. In the primary market, there was just

one auction, the RM1.5b 20-year Re-opening of GII 10/35 which garnered BTC ratio

of 3.750 times at average yield of 4.811%. The final auction of the year brought gross

MGS/GII issuance to a total of RM86b. BNM also announced the 2017 government

bonds auction calendar which consist of a total of 32 offerings (2016: 29) made up of

16 MGS (2016: 15) and 16 GII (2016: 14) auctions. The schedule was skewed towards

longer tenures of 15-30y, given the significant redemption schedule in the period 2017

- 2021.

Market

Outlook

Post the US Federal Open Market Committee (“FOMC”) December rate hike, investors

are still digesting the potential implications of a more hawkish FOMC, but more

pertinently, the larger impact of President Trump’s economic policies. Until there is

greater clarity on what President Trump and his team will do, the volatilities in regional

and global markets will likely continue.

Nevertheless, in spite of the challenging global outlook, Malaysia’s economy continues

to display resilience, as shown by a higher than expected 3Q2016 Year-over-year

(“YoY”) Gross Domestic Product (“GDP”) growth of 4.3% which is a reversal from

five quarters of decelerating growth. Moving forward, private consumption is expected

to continue to underpin 2017’s GDP projected growth of 4.3% (Source: World Bank).

In particular, key infrastructure projects such as the ongoing RAPID, Pan Borneo

Highway, KVMRT2, LRT3 and the newly announced East Coast Rail Link will likely

provide positive spin-off effect to the economy.

With Bank Negara Malaysia (“BNM”) having implemented a pre-emptive OPR

(“Overnight Policy Rate”) cut back in July 2016 and given the encouraging 3Q2016

GDP growth, BNM will likely retain its neutral bias espoused in the recent Monetary

Policy Committee (“MPC”) November meeting. While BNM still have room to

implement future OPR cuts given the benign inflation rate, any future easing policy

move will likely take into account the volatile financial markets and the persistent

weakness of the Ringgit. After giving back more than half the gains acquired since

January 2016, the Malaysian Government bonds as represented by the Quantshop

Malaysian Government Securities (“MGS”) All Index closed the year with a return of

3.37%.

The record outflow of close to RM20b in November seems to have tapered in

December with bargain hunting apparent amidst thin liquidity. In fact, the partial

recovery in the MGS yield curve in December was not accompanied by a stronger

Ringgit (versus the USD). Our Ringgit closed 2016 at 4.4862, a level which has not

20

been seen since the Asian Financial Crisis in 1998 and 41.6% down against its

strongest close of 3.168 in 2011.

Given that foreign holdings of Malaysia’s domestic debt securities continue to be near

its recent record high, the prospects of a further rise in the US 10-year treasury and a

bullish USD will continue to weigh on both the Ringgit and by implication the MGS

market.

Finally, from the recently released 2017 government bond auction calendar, we

surmised the following:

The 32 offerings for 2017 is skewed towards the longer maturities (15-30Y).

There will be only 2 3Y benchmark offerings, one each for MGS and

Government Investment Issue (“GII”). Hence, the front end of the yield curve

will likely be well supported with a steepening of the MGS curve expected in

2017.

There will be heavy maturities in the month of February and March in the

1H2017 (RM22.3b) and another RM44.5b maturing in August-November 2017.

These are the months where there will likely be more opportunities to trade.

Except for the current 3Y GII and 30Y MGS, all the existing Benchmark for

MGS and GII will be replace with new Benchmarks.

Finally, a new Benchmark, the 30Y GII will be introduced for the first time

which will complete the Sukuk curve and provide a Benchmark pricing for

corporate Sukuks in future.

Kuala Lumpur, Malaysia


14 February 2017

21

ADDITIONAL INFORMATION

Board of Directors of the Manager

The Board of Directors, of which more than one-third are independent members, exercise

ultimate control over the operations of the Manager. For the financial year ended 31 December

2016 (1 January 2016 to 31 December 2016), there were eight (8) Board of Directors meeting

held by the Manager.

Details of the Directors of the Manager are set out as below:

Name : Pushparani a/p A Moothathamby

Age : 58 years old

Nationality : Malaysian

Qualification : i) Fellow Member of The Chartered Association of Certified

Accountants, United Kingdom

ii) Member of the Malaysian Institute of Accountants,

Malaysia

Executive/Non-Executive

Director

: Non-Executive Director

Independent/Non-Independent

Director

: Non-Independent Director

Working Experience : i) (Dec 1983 – Apr 1986)

Sri Alam Group

[Group Accountant ]

ii) (May 1986 – Apr 1989)

Coopers & Lybrand

(now known as PricewaterhouseCoopers Malaysia)

[Consultant]

iii) (May 1989 – Dec 2004)

AmMerchant Bank Berhad

(now known as AmInvestment Bank Berhad)

[Last position held - Head of Corporate Finance]

iv) (Jan 2005 – July 2008)

AmMerchant Bank Berhad

(now known as AmInvestment Bank Berhad)

[Executive Director]

v) (July 2008 – Oct 2009)

AmInvestment Bank Berhad

[Managing Director, Relationship Banking & Regional

Business]

22

vi) (Oct 2009 – Oct 2013)


[Managing Director, Corporate & Institutional Banking]

vii) (Oct 2013 – May 2014)


[Managing Director, Wholesale Banking Coverage]

viii) (May 2014 – Present)

AmBank (M) Berhad

[Managing Director, Wholesale Banking Coverage]

Occupation : Managing Director, Wholesale Banking and Acting Chief

Executive Officer of AmInvestment Bank Berhad

Date of appointment : 2 November 2015

Directorship of other public

companies

: FIDE Forum

Number of Board meeting

attended for the financial year

ended 31 December 2016

: Eight (8)

Member of any other Board

Committee

: Audit Committee of Directors

Date of appointment to the


: Not applicable

Number of Investment

Committee meeting attended for

the financial year ended 31

December 2016

: Not applicable

Family relationship with any

director

: None

Conflict of interest with the

Fund

: None

List of convictions for offences

within the past 10 years (if any)

: None

Name : Dato’ Mustafa bin Mohd Nor

Age : 65 years old


Qualification : i) Master of Arts (Economic Policy), Boston University,

USA

ii) Bachelor of Economics (Analytical), University of

Malaya, Malaysia


Director



Director

: Independent Director

23

Working Experience : i) (1975-1988)

Ministry of Finance

[Last position held – Head of Macroeconomic Section,

Economic and International Division]

ii) (1988-1990)

Development & Commercial Bank Berhad.

[Manager, Treasury Department]

iii) March 1990-August 1992)

Arab Malaysian Securities Sdn Bhd

[Chief Economist]

iv) (September 1992-December 2001)

AmSecurities Sdn Bhd

[Executive Director/Chief Economist]

v) (January 2002-December 2005)

AmSecurities Sdn Bhd

[Managing Director]

vi) (January 2006-May 2009) (Retirement)

AmInvestment Bank Berhad Group

[Economic Advisor]

vii) (September 2009-August 2012) (Contract)

Permodalan Nasional Berhad

[Senior Vice President/Head, Research Division]

Occupation : Director

Date of appointment : 3 March 2014


companies

: KUISAS Berhad




: Eight (8)


Committee

: i) Audit Committee of Directors

ii) Investment Committee



: 3 March 2014




December 2016

: Four (4)


director

: None

24


Fund

: None



: None

Name : Tai Terk Lin

Age : 56 years old


Qualification : i) Master of Business Administration (School of

Management), Cranfield Institute of Technology,

United Kingdom.

ii) Bachelor of Science with Education, Mathematics &

Physics, University of Malaya, Malaysia.

iii) Certified Financial Planner Board of Standard, Inc,

USA Certified Financial Planner

iv) Financial Industry Certified Professional, FICP,

Institute of Banking & Finance (IBF), Singapore


Director



Director


Working Experience : i) (October 2009 – September 2012)

(Oct 2012 with ICB Indonesia)

AGICB Banking Group

[Group Chief Executive Officer of ICB Financial Group

Holdings]

ii) (January 2009 – August 2009)

Platinum Capital Management (Asia) Pte Ltd,

Singapore

[Executive Director/Head of Business Development

Asia]

iii) (January 2007 – November 2008)

DBS Bank, Singapore

[Senior Vice President/Head – Malaysia Coverage

Private Banking]

iv) (March 2002 – December 2006)


[Director/Head, Private Banking]

v) (April 1995 – December 2001)

HLB Unit Trust Management Bhd

[Chief Executive Officer]

25

vi) (April 1994 – March 1995)

Hong Leong Bank Berhad (Ex-Hong Leong Finance)

[Chief Project Manager/Credit Manager]

vii) (January 1994 – April 1994)

United Merchant Finance Berhad

[Special Assistant to Executive Chairman]

viii) (June 1992 – December 1993)

Hong Leong Management Company Sdn Bhd

[Senior Analyst (Executive Chairman’s Office)]

ix) (January 1991 – June 1992)

Corporate Care Division, PricewaterhouseCoopers

[Consulting Manager]

Occupation : Director

Date of appointment : 15 December 2014


companies

: Nil




: Eight (8)


Committee

: Investment Committee and Audit Committee of Directors

(Independent)



: 15 December 2014




December 2016

: Four (4)


director

: None


Fund

: None



: None

Name : Sum Leng Kuang

Age : 62 years old


Qualification : i) Bachelor of Commerce (Finance), University of

Canterbury, New Zealand

ii) Certified Financial Planner, Financial Planning

Association of Malaysia

26


Director



Director


Working Experience : i) (May 1982- September 2001)

Overseas Assurance (M) Berhad

Deputy Head, Investment

ii) (September 2001-December 2011)

Great Eastern Life Assurance (M) Berhad

[Last position as Senior Vice President & Head Fixed

Income Investment]

iii) (January 2012-April 2013)

Great Eastern Life Assurance (M) Berhad

[Senior Vice President & Advisor, Fixed Income

Investment]

iv) (May 2013-July 2014)

Hong Leong Asset Management Berhad

[Chief Investment Officer of Fixed Income & Acting

Chief Executive Officer]

v) (May 2015-Present)

Credit Guarantee Corporation Malaysia Berhad

[Advisor, Investment (Contract)]

Occupation : Advisor, Investment Credit Guarantee Corporation Malaysia

Berhad

Date of appointment : 18 January 2016


companies

: Pacific & Orient Insurance Co. Berhad




: Eight (8)


Committee

: Investment Committee and Audit Committee of Directors



: 18 January 2016


Committee meetings attended

for the financial year ended 31

December 2016

: Four (4)


director

: None


Fund

: None

27



: None

Name : Datin Maznah binti Mahbob

Age : 57 years old


Qualification : i) Degree, The Institute of Chartered Secretaries and

Administrators, United Kingdom

ii) Capital Markets Services Representative’s Licence holder,

Malaysia


Director

: Executive Director


Director

: Non-Independent Director

Working Experience : She has been in the funds management industry since Year

1987, in a fund management role, before assuming the

responsibility as the Chief Executive Officer of Funds

Management Divison, AmInvestment Bank Group in Year

2002. Prior to this, she was in the Corporate Finance

Department of AmFunds Management Berhad for 3 years.

Occupation : Chief Executive Officer/Executive Director of AmFunds

Management Berhad

Date of appointment : 29 December 2005


companies

: None




: Eight (8)


Committee

: Investment Committee



: 17 August 2015




December 2016

: Three (3)


director

: None


Fund

: None



: None

28


The Investment Committee, of which more than one-third are independent members, exercise

ultimate select appropriate strategies and efficiently implemented to achieve the proper

performance, actively monitor, measure and evaluate the fund management performance of the

Manager. For the financial year ended 31 December 2016 (1 January 2016 to 31 December 2016,

there were eight (8) Board of Directors meeting held by the Manager.

Madam Sum Leng Kuang (profile as mentioned above)

Y. Bhg. Dato’ Mustafa bin Mohd Nor (profile as mentioned above)

Mr Tai Terk Lin (profile as mentioned above)

Zainal Abidin Bin Mohd Kassim (profile as mentioned below)

Y Bhg Datin Maznah binti Mahbob (profile as mentioned above)

Name : Zainal Abidin Bin Mohd Kassim

Age : 61 years old


Qualification : i) Bachelor of Science, (First Class Honours), in Actuarial

Science (1978), City University London.

ii) Fellow of the Actuarial Society of Malaysia.

iii) Fellow of the Society of Actuaries of Singapore.

iv) Associate of the Society of Actuaries, USA.


Director

: Not applicable


Director

: Not applicable

Working Experience : i) Consulting Actuary and Senior Partner,

Actuarial Partners Consulting, Malaysia

(1982 – Present)

ii) Actuarial Assistant,

Prudential Assurance Plc, London

(1978 -1982)

Occupation : Consulting Actuary, Actuarial Partners Consulting Sdn Bhd


companies

: None


Committee

: None



: 30 November 2016




: Three (3)

29

December 2016


director

: None


Fund

: None



: None

Material Litigation

For the financial period under review, neither the Directors of the management company nor the

Manager of the Fund were engaged in any material litigation and arbitration, including those

pending or threatened, and any facts likely to give any proceedings, which might materially

affect the business/financial position of the Manager and of its delegates. The Fund has also not

engaged in any material litigation and arbitration, including those pending or threatened, and any

facts likely to give any proceedings, which might materially affect the Fund.

Manager

Previously, we have appointed AmInvestment Management Sdn Bhd (“AIM”) to implement the

Fund’s investment strategy on behalf of us to achieve the objectives of the Fund. However,

following the consolidation of business activities of AmFunds Management Berhad (formerly

known as AmInvestment Services Berhad) (“AFM”) and AIM on 1 December 2014, AFM has

acquired/assume the obligations, undertaking, commitments and contingencies of AIM. Effective

1 December 2014, AFM is a licensed fund manager approved by the Securities Commission

Malaysia and manages the Fund.


The Investment Committee reviews the Fund’s investment objective and guidelines; and to

ensure that the Fund is invested appropriately. For the financial year ended 31 December 2016 (1

January 2016 to 31 December 2016, there were eight (8) Board of Directors meeting held by the

Manager.

30

Unitholders

List of the unit holders having the largest number of units:

NAME

Number of

Unit Held

Unit Held

(%)

HSBC NOMINEES (ASING) SDN BHD 1265207870 95.81872%

AMSEC NOMINEES (TEMPATAN) SDN BHD 49110100 3.71928%

AMINVESTMENT BANK BERHAD 3089330 0.23397%

DB (MALAYSIA) NOMINEE (ASING) SDN BHD 2300000 0.17419%

CITIGROUP NOMINEES (ASING) SDN BHD 400000 0.03029%

CITIGROUP NOMINEES (ASING) SDN BHD 140000 0.01060%

CIMSEC NOMINEES (TEMPATAN) SDN BHD 44100 0.00334%

HSBC NOMINEES (ASING) SDN BHD 40000 0.00303%

PUBLIC NOMINEES (TEMPATAN) SDN BHD 15000 0.00114%

TEE KAR YONG 10500 0.00080%

JAY SURIAR A/L RAJASURIAR 9600 0.00073%

MALACCA EQUITY NOMINEES (TEMPATAN) SDN

BHD 8200 0.00062%

CHEW KIAN SHEN 5000 0.00038%

FOO CHIT FONG 5000 0.00038%

MELVIN WON SOON LOONG 5000 0.00038%

WONG SOOK YEE 3600 0.00027%

JOHN MELVILLE KAYES NEWMAN 3500 0.00027%

CHA KAR HUEI 3000 0.00023%

LAU KAI CHONG 3000 0.00023%

MAYBANK NOMINEES (TEMPATAN) SDN BHD 3000 0.00023%

GRACE CHRYSTAL GOH YEE HING 2300 0.00017%


WONG SOOK KENG 1500 0.00011%

CHONG YAM SONG 1000 0.00008%

CIMSEC NOMINEES (TEMPATAN) SDN BHD 1000 0.00008%

K.VIJAYAN A/L G.KERISNAN 1000 0.00008%

KOH AH KOW @ KOH BOON KWEE 1000 0.00008%



GARY CHEW KIEW SENG 700 0.00005%

Independent auditors’ report to the unitholders of


Report on the audit of the financial statements

Opinion

Key audit matters

Basis for opinion

We conducted our audit in accordance with approved standards on auditing in Malaysia and

International Standards on Auditing. Our responsibilities under those standards are further described

in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We

believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for

our opinion.

Independence and other ethical responsibilities

We are independent of the Fund in accordance with the By-Laws (on Professional Ethics, Conduct

and Practice) of the Malaysian Institute of Accountants (“By-Laws”) and the International Ethics

Standards Board for Accountants’ Code of Ethics for Professional Accountants (“IESBA Code”),

and we have fulfilled our other ethical responsibilities in accordance with the By-Laws and the

IESBA Code.

Key audit matters are those matters that, in our professional judgement, were of most significance in

our audit of the financial statements of the Fund for the current year. These matters were addressed

in the context of our audit of the financial statements as a whole, and in forming our opinion thereon,

and we do not provide a separate opinion on these matters. For the matter below, our description of

how our audit addressed the matter is provided in that context.

We have audited the financial statements of ABF Malaysia Bond Index Fund (“the Fund”), which

comprise the statement of financial position as at 31 December 2016, the statement of

comprehensive income, statement of changes in equity and statement of cash flows for the financial

year then ended, and a summary of significant accounting policies and other explanatory notes, as set

out on pages 35 to 58.

In our opinion, the accompanying financial statements give a true and fair view of the financial

position of the Fund as at 31 December 2016, and of its financial performance and its cash flows for

the year then ended in accordance with Malaysian Financial Reporting Standards and International

Financial Reporting Standards.

31

Valuation and existence of investments

If based on the work we have performed, we conclude that there is a material misstatement of this

other information, we are required to report that fact. We have nothing to report in this regard.

Our response: Our audit work included, but was not restricted to, understanding the Manager’s

process and controls for the valuation of investments in order to assess compliance with relevant

accounting standards, performing walkthrough procedures and testing the operating effectiveness of

relevant controls on a sample basis. We agreed the valuation of all investments as at the year end to

an independent source of market prices. We obtained confirmation of the existence and ownership of

the investments as at the year- end directly from the Fund’s independent Trustee. The Fund’s

accounting policy on the valuation of investments is included in Note 3, and its disclosures about

investments held at the year-end are included in Note 4.

The risk: The Fund’s business is investing in a portfolio consisting of mainly Ringgit Malaysia

denominated Government and quasi-Government debt securities for investors who seek an ‘index-

based approach to investing. Accordingly, the investment portfolio of mainly Government debt

securities is a significant material item in the financial statements. The valuation of the assets held in

the investment portfolio is the key driver of the Fund’s net asset value and investment return.

Incorrect asset pricing or a failure to maintain proper legal title of assets by the Fund could have a

significant impact on portfolio valuation and, therefore, the return generated for shareholders. We

therefore identified the valuation and existence of the investment portfolio as risks that require

particular audit attention.

Independent auditors’ report to the unitholders of

Information other than the financial statements and auditors’ report thereon

Our opinion on the financial statements of the Fund does not cover the other information and we do

not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements of the Fund, our responsibility is to read the

other information and, in doing so, consider whether the other information is materially inconsistent

with the financial statements of the Fund or our knowledge obtained in the audit or otherwise

appears to be materially misstated.

The Manager is responsible for the other information. The other information comprises information

in the Manager’s Report, but does not include the financial statements of the Fund and our auditors’

report thereon.

ABF Malaysia Bond Index Fund (cont’d.)

Responsibilities of the Manager and the Trustees for the financial statements

The Manager is responsible for the preparation of the financial statements of the Fund that give a

true and fair view in accordance with Malaysian Financial Reporting Standards and International

Financial Reporting Standards. The Manager is also responsible for such internal control as the

Manager determines is necessary to enable the preparation of financial statements of the Fund that

are free from material misstatement, whether due to fraud or error.

32

Our objectives are to obtain reasonable assurance about whether the financial statements of the Fund,

as a whole are free from material misstatement, whether due to fraud or error, and to issue an

auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is

not a guarantee that an audit conducted in accordance approved standards on auditing in Malaysia

and International Standards on Auditing will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the

aggregate, they could reasonably be expected to influence the economic decisions of users taken on

the basis of these financial statements.

As part of an audit in accordance with the approved standards on auditing in Malaysia and

International Standards on Auditing, we exercise professional judgment and maintain professional

skepticism throughout the planning and performance of the audit. We also:

ABF Malaysia Bond Index Fund (cont’d.)Independent auditors’ report to the unitholders of

The Trustee is responsible for ensuring that the Manager maintains proper accounting and other

records as are necessary to enable true ad fair presentation of these financial statements.

Auditor’s responsibilities for the audit of the financial statements

Identify and assess the risks of material misstatement of the financial statements of the Fund,

whether due to fraud or error, design and perform audit procedures responsive to those risks,

and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.

The risk of not detecting a material misstatement resulting from fraud is higher than for one

resulting from error, as fraud may involve collusion, forgery, intentional omissions,

misrepresentations, or the override of internal control.

Obtain an understanding of internal control relevant to the audit in order to design audit

procedures that are appropriate in the circumstances, but not for the purpose of expressing an

opinion on the effectiveness of the Fund’s internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting

estimates and related disclosures made by the Manager.

Conclude on the appropriateness of the Manager’s use of the going concern basis of

accounting and, based on the audit evidence obtained, whether a material uncertainty exists

related to events or conditions that may cast significant doubt on the Fund’s ability to continue

as a going concern. If we conclude that a material uncertainty exists, we are required to draw

attention in our auditors’ report to the related disclosures in the financial statements or, if such

disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit

evidence obtained up to the date of our auditors’ report. However, future events or conditions

may cause the Fund to cease to continue as a going concern.

In preparing the financial statements of the Fund, the Manager is responsible for assessing the Fund’s

ability to continue as a going concern, disclosing, as applicable, matters related to going concern and

using the going concern basis of accounting unless the Manager either intends to liquidate the Fund

or to cease operations, or has no realistic alternative to do so.

33

Wan Daneena Liza Bt Wan Abdul Rahman

No. 2978/03/18(J)

Chartered Accountants Chartered Accountant


14 February 2017

Independent auditors’ report to the unitholders of ABF Malaysia Bond Index Fund (cont’d.)

Evaluate the overall presentation, structure and content of the financial statements of the

Fund, including the disclosures, and whether the financial statements of the Fund represent the

underlying transactions and events in a manner that achieves fair presentation.

Other matters

We communicate with the Manager regarding, among other matters, the planned scope and timing of

the audit and significant audit findings, including any significant deficiencies in internal control that

we identify during our audit.

AF: 0039

Ernst & Young

This report is made solely to the unitholders of the Fund, as a body, and for no other purpose. We do

not assume responsibility to any other person for the content of this report.

We also provide the Manager with a statement that we have complied with relevant ethical

requirements regarding independence, and to communicate with them all relationships and other

matters that may reasonably be thought to bear on our independence, and where applicable, related

safeguards.

34


STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2016

2016 2015

Note RM RM

ASSETS

Investments 4 1,436,208,939 1,312,223,284

Deposits with financial institutions 5 6,402,202 29,527,721

Amount due from Manager 6 - 358,332

Cash at banks 1,427 1,340

TOTAL ASSETS 1,442,612,568 1,342,110,677

LIABILITIES

Amount due to Manager 6 115,557 -

Amount due to Trustee 7 57,779 46,389

Amount due to index provider 8 10,328 91,581

Sundry payables and accrued expenses 103,992 96,514

TOTAL LIABILITIES 287,656 234,484

EQUITY

Unitholders’ capital 11(a) 1,396,802,853 1,325,924,353

Retained earnings 11(b)(c) 45,522,059 15,951,840

TOTAL EQUITY 11 1,442,324,912 1,341,876,193

TOTAL EQUITY AND LIABILITIES 1,442,612,568 1,342,110,677

UNITS IN CIRCULATION 11(a) 1,320,421,800 1,265,421,800

NET ASSET VALUE PER UNIT

− EX DISTRIBUTION 109.23 sen 106.04 sen

The accompanying notes form an integral part of the financial statements.

35


STATEMENT OF COMPREHENSIVE INCOME

FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2016

2016 2015

Note RM RM

Interest income 62,367,686 29,282,421

Net (loss)/gain from investments:

− Financial assets at fair value through profit or

loss (“FVTPL”) 9 (29,749,728) 1,004,959

Gross Income 32,617,958 30,287,380

EXPENDITURE

Manager’s fee 6 (1,652,424) (774,837)

Trustee’s fee 7 (826,212) (387,419)

Licence fee (116,625) (108,582)

Auditors’ remuneration − current financial year (10,700) (7,700)

Auditors’ remuneration - over provision in prior financial year - 3,300

Tax agent’s fee (5,000) (3,000)

Other expenses − current financial year 10 (436,778) (61,923)

Other expenses − over provision in prior financial year - 55,372

Total Expenditure (3,047,739) (1,284,789)

NET INCOME BEFORE TAX 29,570,219 29,002,591

LESS: INCOME TAX 13 - -

NET INCOME AFTER TAX 29,570,219 29,002,591

OTHER COMPREHENSIVE INCOME - -

TOTAL COMPREHENSIVE INCOME

FOR THE FINANCIAL YEAR 29,570,219 29,002,591

Total comprehensive income comprises the following:

Realised income 43,401,051 27,006,629

Unrealised (loss)/gain (13,830,832) 1,995,962

29,570,219 29,002,591

Distributions for the financial year:

Net distributions 14 - 11,557,086

Gross/net distributions per unit (sen) 14 - 1.68


INVESTMENT INCOME/(LOSS)

36


STATEMENT OF CHANGES IN EQUITY


(Accumulated

loss)/

Unitholders’ retained Total

capital earnings equityNote RM RM RM

At 1 January 2015 693,348,293 (7,453,855) 685,894,438Total comprehensive income

for the financial year - 29,002,591 29,002,591

Creation of units 11(a) 638,536,250 - 638,536,250Distributions 14 (5,960,190) (5,596,896) (11,557,086)

Balance at 31 December 2015 1,325,924,353 15,951,840 1,341,876,193

At 1 January 2016 1,325,924,353 15,951,840 1,341,876,193

Total comprehensive income

for the financial year - 29,570,219 29,570,219 Creation of units 11(a) 662,590,500 - 662,590,500 Cancellation of units 11(a) (591,712,000) - (591,712,000)

Balance at 31 December 2016 1,396,802,853 45,522,059 1,442,324,912


37


STATEMENT OF CASH FLOWS


2016 2015

Note RM RM

CASH FLOWS FROM OPERATING AND

INVESTING ACTIVITIES

Proceeds from sale of investments 962,746,905 259,991,838

Interest received 62,087,298 23,498,459

Manager’s fee paid (1,629,645) (745,067)

Trustee’s fee paid (814,822) (372,534)

Licence fee paid (197,878) (79,569)

Tax agent’s fee paid (4,000) (4,000)

Payments for other expenses (441,000) (58,659)

Purchase of investments (1,116,201,900) (876,343,250)

Net cash used in operating and investing activities (94,455,042) (594,112,782)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from creation 663,041,610 638,085,140

Payments for cancellation of units (591,712,000) -

Distributions paid - (37,973,958)

Net cash generated from financing activities 71,329,610 600,111,182

NET (DECREASE)/INCREASE IN CASH AND

CASH EQUIVALENTS (23,125,432) 5,998,400

CASH AND CASH EQUIVALENTS AT

BEGINNING OF FINANCIAL YEAR 29,529,061 23,530,661

CASH AND CASH EQUIVALENTS AT

END OF FINANCIAL YEAR 6,403,629 29,529,061

Cash and cash equivalents comprise:

Deposits with financial institutions 5 6,402,202 29,527,721

Cash at banks 1,427 1,340

6,403,629 29,529,061


38


NOTES TO THE FINANCIAL STATEMENTS

1. GENERAL INFORMATION

2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS

Standards effective during the financial year

Standards issued but not yet effective

Effective for

financial periods

beginning on or after

MFRS 9: Financial Instruments

MFRS 15: Revenue from contracts with Customers

1 January 2018

1 January 2018

The adoption of MFRS which have been effective during the financial year did not have any material

financial impact to the financial statements.

As at the date of authorisation of these financial statements, the following Standards and Amendments

have been issued by MASB but are not yet effective and have not been adopted by the Fund.

The financial statements of the Fund have been prepared in accordance with Malaysian Financial

Reporting Standards (“MFRS”) as issued by the Malaysian Accounting Standards Board (“MASB”)

and are in compliance with International Financial Reporting Standards.

ABF Malaysia Bond Index Fund (“the Fund”) was established pursuant to a Deed dated 12 July 2005

as amended by Deeds Supplemental thereto (“the Deed”), between AmFunds Management Berhad as

the Manager, HSBC (Malaysia) Trustee Berhad as the Trustee and all unitholders.

The Fund plans to adopt the above pronouncements when they become effective in the respective

financial periods. These pronouncements are expected to have no significant impact to the financial

statements of the Fund upon their initial application except as described below:

The Fund was set up with the objective for investors who seek an “index-based” approach to investing

in a portfolio of Ringgit Malaysia denominated Government and quasi-Government debt securities. As

provided in the Deeds, the “accrual period” or financial year shall end on 31 December and the units in

the Fund were first offered for sale on 13 July 2005.

The financial statements of the Fund have been prepared under the historical cost convention, unless

otherwise stated in the accounting policies.

39

MFRS 9 Financial Instruments

3. SIGNIFICANT ACCOUNTING POLICIES

Income recognition

Income tax

Functional and presentation currency

Statement of cash flows

Distribution

Income is recognised to the extent that it is probable that the economic benefits will flow to the Fund

and the income can be reliably measured. Income is measured at the fair value of consideration

received or receivable.

Current taxes are recognised in profit or loss except to the extent that the tax relates to items

recognised outside profit or loss, either in other comprehensive income or directly in equity.

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to

the tax authorities. The tax rates and tax laws used to compute the amount are those that are enacted or

substantively enacted at the reporting date.

The Fund adopts the direct method in the preparation of the statement of cash flows.

Functional currency is the currency of the primary economic environment in which the Fund operates

that most faithfully represents the economic effects of the underlying transactions. The functional

currency of the Fund is Ringgit Malaysia which reflects the currency in which the Fund competes for

funds, issues and redeems units. The Fund has also adopted Ringgit Malaysia as its presentation

currency.

Interest income on fixed income securities and short-term deposits are recognised on an accrual basis

using the effective interest method, which includes the accretion of discounts and amortisation of

premiums.

MFRS 9 reflects International Accounting Standards Board’s (“IASB”) work on the replacement of

MFRS 139 Financial Instruments: Recognition and Measurement (“MFRS 139”). MFRS 9 will be

effective for financial year beginning on or after 1 January 2018. The Fund is in the process of

quantifying the impact of the first adoption of MFRS 9.

Cash equivalents are short-term, highly liquid investments that are readily convertible to cash with

insignificant risk of changes in value.

Distributions are at the discretion of the Fund. A distribution to the Fund’s unitholders is accounted for

as a deduction from realised reserves except where distribution is sourced out of distribution/loss

equalisation which is accounted for as a deduction from/addition to unitholders’ capital. A proposed

distribution is recognised as a liability in the period in which it is approved.

40

Unitholders’ capital

Distribution/loss equalisation

Financial assets

(i) Financial assets at FVTPL

(ii) Loans and receivables

Distribution/loss equalisation represents the average distributable amount included in the creation and

cancellation prices of units. This amount is either refunded to unitholders by way of distribution and/or

adjusted accordingly when units are cancelled.

Investments are stated at fair value on a portfolio basis in accordance with the provisions of the

Deed, fair value is determined based on prices provided by the index provider, Markit Indices

Limited, plus accrued interest. Adjusted cost of investments relates to the purchase cost plus

accrued interest, adjusted for amortisation of premium and accretion of discount, if any, calculated

over the period from the date of acquisition to the date of maturity of the respective securities as

approved by the Manager and the Trustee. Unrealised gain or loss recognised in profit or loss is

not distributable in nature.

On disposal of investments, the net realised gain or loss on disposal is measured as the difference

between the net disposal proceeds and the carrying amount of the investments. The net realised

gain or loss is recognised in profit or loss.

Financial assets are recognised in the statement of financial position when, and only when, the Fund

becomes a party to the contractual provisions of the financial instrument.

When financial assets are recognised initially, they are measured at fair value, plus, in the case of

financial assets not at fair value through profit or loss, directly attributable transaction costs.

The unitholders’ capital of the Fund meets the definition of puttable instruments and is classified as

equity instruments under MFRS 132 Financial Instruments: Presentation (“MFRS 132”).

Financial assets are classified as financial assets at FVTPL if they are held for trading or are

designated as such upon initial recognition. Financial assets held for trading by the Fund include

fixed income securities acquired principally for the purpose of selling in the near term.

The Fund determines the classification of its financial assets at initial recognition, and the categories

applicable to the Fund include financial assets at fair value through profit or loss (“FVTPL”) and loans

and receivables.

Financial assets with fixed or determinable payments that are not quoted in an active market are

classified as loans and receivables.

Subsequent to initial recognition, financial assets at FVTPL are measured at fair value. Changes in

the fair value of those financial instruments are recorded in ‘Net gain or loss on financial assets at

fair value through profit or loss’. Interest earned element of such instrument is recorded separately

in ‘Interest income’.

41

Impairment of financial assets

(i) Loans and receivables carried at amortised cost

Financial liabilities

Financial liabilities are classified according to the substance of the contractual arrangements entered

into and the definitions of a financial liability.

A financial liability is derecognised when the obligation under the liability is extinguished. Gains and

losses are recognised in profit or loss when the liabilities are derecognised, and through the

amortisation process.

Financial liabilities, within the scope of MFRS 139, are recognised in the statement of financial

position when, and only when, the Fund becomes a party to the contractual provisions of the financial

instrument.

The Fund assesses at each reporting date whether there is any objective evidence that a financial asset

is impaired.

To determine whether there is objective evidence that an impairment loss on financial assets has

been incurred, the Fund considers factors such as the probability of insolvency or significant

financial difficulties of the debtor and default or significant delay in payments.

The Fund’s financial liabilities are recognised initially at fair value plus directly attributable

transaction costs and subsequently measured at amortised cost using the effective interest method.

If any such evidence exists, the amount of impairment loss is measured as the difference between

the asset’s carrying amount and the present value of estimated future cash flows discounted at the

financial asset’s original effective interest rate. The impairment loss is recognised in profit or loss.

The carrying amount of the financial asset is reduced through the use of an allowance account.

When loans and receivables become uncollectible, they are written off against the allowance

account.

If in a subsequent period, the amount of the impairment loss decreases and the decrease can be

related objectively to an event occurring after the impairment was recognised, the previously

recognised impairment loss is reversed to the extent that the carrying amount of the asset does not

exceed its amortised cost at the reversal date. The amount of reversal is recognised in profit or

loss.

Subsequent to initial recognition, loans and receivables are measured at amortised cost using the

effective interest method. Gains and losses are recognised in profit or loss when the loans and

receivables are derecognised or impaired, and through the amortisation process.

42

Classification of realised and unrealised gains and losses

Significant accounting estimates and judgments

4. INVESTMENTS

2016 2015

RM RM

Financial assets at FVTPL

At nominal value:

Quasi-Government Bonds 60,000,000 95,000,000

Malaysian Government Securities 794,500,000 777,500,000

Government Investment Issues 580,500,000 435,000,000

1,435,000,000 1,307,500,000

At fair value:




1,436,208,939 1,312,223,284

The Fund classifies its investments as financial assets at FVTPL as the Fund may sell its investments

in the short-term for profit-taking or to meet unitholders’ cancellation of units.

Realised gains and losses on disposals of financial instruments classified at fair value through profit or

loss are calculated using the weighted average method. They represent the difference between an

instrument’s initial carrying amount and disposal amount.

The preparation of the Fund’s financial statements requires the Manager to make judgments, estimates

and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the

disclosure of contingent liabilities at the reporting date. However, uncertainty about these assumptions

and estimates could result in outcomes that could require a material adjustment to the carrying amount

of the asset or liability in the future.

No major judgments have been made by the Manager in applying the Fund’s accounting policies.

There are no key assumptions concerning the future and other key sources of estimation uncertainty at

the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts

of assets and liabilities within the next financial year.

Unrealised gains and losses comprise changes in the fair value of financial instruments for the period

and from reversal of prior period’s unrealised gains and losses for financial instruments which were

realised (i.e. sold, redeemed or matured) during the reporting period.

43

Details of investments as at 31 December 2016 are as follows:

Fair

value as a

percentage of

Maturity Credit Nominal Fair Adjusted net asset

date Issuer rating value value cost value

RM RM RM %

Quasi-Government Bonds

27.05.2039 1Malaysia

Development

Berhad NR 35,000,000 38,291,151 38,754,036 2.65

12.03.2019

Malaysia

Berhad NR 5,000,000 5,043,271 5,082,679 0.35

04.08.2026

Malaysia

Berhad NR 10,000,000 10,070,428 10,335,534 0.70

26.02.2041

Malaysia

Berhad NR 10,000,000 10,229,207 10,545,193 0.71

60,000,000 63,634,057 64,717,442 4.41

Malaysian Government Securities

01.03.2018 Government

of Malaysia NR 30,000,000 30,260,001 30,224,337 2.10

Government

of Malaysia NR 10,000,000 10,101,661 10,112,501 0.70


of Malaysia NR 60,000,000 61,014,651 61,290,810 4.23


of Malaysia NR 10,000,000 10,755,155 10,730,661 0.75


of Malaysia NR 50,000,000 50,333,365 50,255,284 3.50


of Malaysia NR 40,000,000 40,958,802 41,320,785 2.84


of Malaysia NR 40,000,000 40,089,837 40,631,657 2.78


of Malaysia NR 10,000,000 10,216,889 10,275,406 0.71


of Malaysia NR 65,000,000 65,285,363 65,610,398 4.52


of Malaysia NR 30,000,000 30,542,436 30,543,851 2.12


of Malaysia NR 70,000,000 70,046,408 71,444,961 4.85


of Malaysia NR 52,500,000 52,090,592 52,532,142 3.61


of Malaysia NR 18,000,000 17,939,763 18,218,654 1.24

(Forward)

28.09.2018

Prasarana

Prasarana

Prasarana

44

Fair

value as a

percentage of



RM RM RM %


of Malaysia NR 70,000,000 70,770,055 71,650,112 4.91


of Malaysia NR 8,500,000 8,346,832 8,428,933 0.58


of Malaysia NR 25,000,000 25,132,019 26,270,401 1.74


of Malaysia NR 30,000,000 29,304,642 30,876,354 2.03


of Malaysia NR 10,000,000 9,555,040 10,252,442 0.66


of Malaysia NR 45,000,000 41,418,040 42,421,610 2.87


of Malaysia NR 47,500,000 46,741,188 48,525,959 3.24


of Malaysia NR 13,000,000 12,655,637 13,326,657 0.88


of Malaysia NR 10,000,000 8,957,515 9,939,035 0.62


of Malaysia NR 20,000,000 18,923,258 19,559,680 1.31


of Malaysia NR 20,000,000 20,285,062 20,731,786 1.41


of Malaysia NR 10,000,000 10,285,487 10,584,403 0.71

794,500,000 792,009,698 805,758,819 54.91

Government Investment Issues


of Malaysia NR 44,000,000 44,157,418 44,428,936 3.06


of Malaysia NR 20,000,000 20,332,079 20,374,816 1.41


of Malaysia NR 30,000,000 30,033,166 30,056,119 2.08


of Malaysia NR 10,000,000 10,174,450 10,245,803 0.71


of Malaysia NR 35,000,000 34,741,562 35,005,799 2.41


of Malaysia NR 10,000,000 10,271,912 10,447,831 0.71


of Malaysia NR 20,000,000 19,912,082 20,138,082 1.38


of Malaysia NR 95,000,000 95,844,307 95,864,089 6.64

(Forward)

45

Fair

value as a

percentage of



RM RM RM %


of Malaysia NR 30,000,000 29,928,376 29,916,499 2.08


of Malaysia NR 10,000,000 10,115,868 10,314,600 0.70


of Malaysia NR 16,000,000 16,115,959 16,359,398 1.12


of Malaysia NR 30,000,000 30,690,915 30,540,887 2.13


of Malaysia NR 33,000,000 34,217,533 34,528,452 2.37


of Malaysia NR 10,000,000 9,595,860 9,658,437 0.67


of Malaysia NR 20,000,000 20,182,155 20,385,324 1.40


of Malaysia NR 52,500,000 51,300,395 51,661,806 3.55


of Malaysia NR 25,000,000 24,621,920 25,719,998 1.71


of Malaysia NR 20,000,000 18,878,677 20,251,063 1.31


of Malaysia NR 10,000,000 10,211,149 10,341,660 0.71


of Malaysia NR 30,000,000 28,960,174 31,103,639 2.01


of Malaysia NR 10,000,000 9,909,731 9,993,976 0.69


of Malaysia NR 20,000,000 20,369,496 20,865,881 1.41

580,500,000 580,565,184 588,203,095 40.26

Total financial assets at FVTPL 1,435,000,000 1,436,208,939 1,458,679,356 99.58

Shortfall of fair value over cost (22,470,417)

2016 2015

% %

Corporare bond - 3.95

4.87 4.72

3.89 3.68

3.96 3.85

* As provided by Markit Indices Limited.

Government Investment Issues

Effective yield*

Malaysian Government Securities

The weighted average effective yield on unquoted investments are as follows:

Quasi-Government Bonds

46

1 year to More than

5 years 5 years

RM RM

2016

At nominal value:




2015

At nominal value:

Corporate bond 10,000,000 -

Quasi-Government Bonds - 85,000,000



5. DEPOSITS WITH FINANCIAL INSTITUTIONS

2016 2015

RM RM

At nominal value:

Short-term deposits with licensed banks 6,401,500 29,524,000

At carrying value:

Short-term deposits with licensed banks 6,402,202 29,527,721

Details of deposit with financial institution as at 31 December 2016 are as follows:

Carrying

value as a

percentage of

Maturity Nominal Carrying Purchase net asset

date Bank value value cost value

RM RM RM %

Short-term deposit with a licensed bank

Malayan Banking

Berhad 6,401,500 6,402,202 6,402,202 0.44

Weighted average effective Remaining

interest rate maturity2016 2015 2016 2015

% % Days Days

Short-term deposits with

licensed banks 4.00 4.60 3 4

Analyses of the remaining maturity of unquoted investments as at 31 December 2016 and 31

December 2015 are as follows:

The weighted average effective interest rate and average remaining maturity of short-term deposits are

as follows:

03.01.2017.

47

6. AMOUNT DUE (TO)/FROM MANAGER

2016 2015

RM RM

Creation of units* - 451,110

Manager’s fee payable (115,557) (92,778)

(115,557) 358,332

* The amount represents amount receivable from the Manager for units created.

7. AMOUNT DUE TO TRUSTEE

8. AMOUNT DUE TO INDEX PROVIDER

Fund Size % p.a.

From 1 July 2008 onwards

For amount equal to or less than Initial Funding 0.0175

For amount above Initial Funding, but equal to or less than 275%

of Initial Funding 0.01

For amount above 275% of Initial Funding No charge

Subject to a minimum annual fee of USD21,234

* Initial Funding for the Fund was USD115,400,000.

Trustee’s fee is at a rate of 0.05% (2015: 0.05%) per annum on the net asset value of the Fund,

calculated on a daily basis, subject to a minimum fee of RM10,000 per annum.

The normal credit period in the previous and current financial years for Trustee’s fee payable is one

month.

Amount due to index provider is the licence fee payable to Markit Indices Limited, the provider of the

benchmark index.

Manager’s fee is charged at a rate of 0.10% (2015: 0.10%) per annum on the net asset value of the

Fund, calculated on a daily basis.

The normal credit period in the previous and current financial years for Manager’s fee payable is one

month.

Licence fee is calculated on a daily basis at the following rate:

The normal credit period in the previous and current financial years for creation of units is three

business days.

48

9. NET (LOSS)/GAIN FROM INVESTMENTS

2016 2015

RM RM

Net (loss)/gain on financial assets at FVTPL comprised:

− Net realised loss on sale of investments (15,918,896) (991,003)

− Net unrealised (loss)/gain on changes in fair values of

investments (13,830,832) 1,995,962

(29,749,728) 1,004,959

10. OTHER EXPENSES

11. TOTAL EQUITY

Total equity is represented by:

2016 2015Note RM RM

Unitholders’ capital (a) 1,396,802,853 1,325,924,353

Retained earnings

− Realised income (b) 67,992,476 24,591,425

− Unrealised loss (c) (22,470,417) (8,639,585)

1,442,324,912 1,341,876,193

(a) UNITHOLDERS’ CAPITAL/UNITS IN CIRCULATION

2015

Number of Number of

units RM units RM

At beginning of the

financial year 1,265,421,800 1,325,924,353 660,421,800 693,348,293

Creation/adjustment during

the financial year 605,000,000 662,590,500 605,000,000 638,536,250

Cancellation during the

financial year (550,000,000) (591,712,000) - -

Distributions out of

distribution/loss

equalisation (Note 14) - - - (5,960,190)

At end of the financial year 1,320,421,800 1,396,802,853 1,265,421,800 1,325,924,353

Included in other expenses is Goods and Services Tax incurred by the Fund during the financial year

amouting to RM152,040 (2015: RM54,405).

2016

49

(b) REALISED – DISTRIBUTABLE

2016 2015

RM RM

At beginning of the financial year 24,591,425 3,181,692

Total comprehensive income for the financial year 29,570,219 29,002,591

Net unrealised loss/(gain) attributable to investments

held transferred to unrealised reserve [Note 11(c)] 13,830,832 (1,995,962)

Distributions out of realised reserve (Note 14) - (5,596,896)

Net increase in realised reserve for the

financial year 43,401,051 21,409,733

At end of the financial year 67,992,476 24,591,425

(c) UNREALISED – NON-DISTRIBUTABLE

2016 2015

RM RM

At beginning of the financial year (8,639,585) (10,635,547)Net unrealised (loss)/gain attributable to investments

held transferred from realised reserve [Note 11(b)] (13,830,832) 1,995,962

At end of the financial year (22,470,417) (8,639,585)

12. UNITS HELD BY RELATED PARTIES

Number of Number of

units RM units RM

Parties related to the Manager* 52,212,530 57,955,908 181,833,330 191,288,663

*

13. INCOME TAX

The parties related to the Manager are the legal and beneficial owners of the units. The Manager

did not hold any units in the Fund as at 31 December 2016 and 31 December 2015.

Pursuant to Schedule 6 of the Income Tax Act, 1967, local interest income derived by the Fund is

exempted from tax.

A reconciliation of income tax expense applicable to net income before tax at the statutory income tax

rate to income tax expense at the effective income tax rate of the Fund is as follows:

Income tax payable is calculated on investment income less deduction for permitted expenses as

provided for under Section 63B of the Income Tax Act, 1967.

2016 2015

50

2016 2015

RM RM

Net income before tax 29,570,219 29,002,591

Taxation at Malaysian statutory rate of 24% (2015: 25%) 7,096,900 7,250,600

Tax effects of:

Income not subject to tax (14,968,200) (7,819,600)

Loss not deductible for tax purposes 7,139,900 247,800

Restriction on tax deductible expenses for Exchange Traded

Funds 359,900 162,900

Non-permitted expenses for tax purposes 331,500 140,200

Permitted expenses not used and not available for future

40,000 18,100

Tax expense for the financial year - -

14. DISTRIBUTIONS

2016 2015

RM RM

Interest income - 6,881,685

Distribution/loss equalisation - 5,960,190

- 12,841,875

Less: Expenses - (1,284,789)

Total amount of distributions - 11,557,086

Gross/net distributions per unit (sen) - 1.68

Distributions made out of:

− Realised reserve [Note 11(b)] - 5,596,896

− Distribution/loss equalisation [Note 11(a)] - 5,960,190

- 11,557,086

Comprising:

Cash distributions - 11,557,086

The prior year distribution has been proposed before taking into account the net realised loss of

RM991,003 and net unrealised loss of RM8,639,585 which were carried forward to the next financial

year.

Distributions to unitholders declared on 15 Jun 2015 for the previous financial year is from the

following sources:

financial years

51

15. MANAGEMENT EXPENSE RATIO (“MER”)

2016 2015

% p.a. % p.a.

Manager’s fee 0.10 0.10Trustee’s fee 0.05 0.05Licence fee 0.01 0.01Fund’s other expenses 0.02 -*

Total MER 0.18 0.16

* represents less than 0.01%

16. PORTFOLIO TURNOVER RATIO (“PTR”)

17. SEGMENTAL REPORTING

18. TRANSACTIONS WITH FINANCIAL INSTITUTIONS

Financial institutions Transaction value

RM %

Malayan Banking Berhad 2,245,283,800 52.94

Public Bank Berhad 978,801,600 23.08

Citibank Berhad 355,893,218 8.39

Standard Chartered Bank Malaysia Berhad 328,371,752 7.74

Bank Islam Malaysia Berhad 237,625,603 5.60

CIMB Bank Berhad 80,391,900 1.90

RHB Investment Bank Berhad 10,082,329 0.23

Hong Leong Bank Berhad 5,033,412 0.12

Total 4,241,483,614 100.00

(Forward)

The MER of the Fund is the ratio of the sum of annualised fees and expenses incurred by the Fund to

the average net asset value of the Fund calculated on a daily basis.

In accordance with the objective of the Fund, substantially all of the Fund’s investments are made in

the form of fixed income instruments in Malaysia. The Manager is of the opinion that the risk and

rewards from these investments are not individually or segmentally distinct and hence the Fund does

not have a separately identifiable business or geographical segments.

The PTR of the Fund, which is the ratio of average total acquisitions and disposals of investments to

the average net asset value of the Fund calculated on a daily basis, is 0.47 times (2014: 0.74 times).

The Fund’s MER is as follows:

Details of transactions with financial institutions for the financial year ended 31 December 2016 are as

follows:

52

19. FINANCIAL INSTRUMENTS

(a) Classification of financial instruments

Loans and Financial

Financial receivables liabilities at

assets at amortised amortised

at FVTPL cost cost Total

RM RM RM RM

Assets

Investments 1,436,208,939 - - 1,436,208,939 Deposits with financial

institutions - 6,402,202 - 6,402,202

Cash at banks - 1,427 - 1,427

Total financial assets 1,436,208,939 6,403,629 - 1,442,612,568

LiabilitiesAmount due to Manager - 115,557 - 115,557 Amount due to Trustee - - 57,779 57,779 Amount due to index provider - - 10,328 10,328 Sundry payables and accrued

expenses - - 103,992 103,992

Total financial liabilities - 115,557 172,099 287,656

Assets

Investments 1,312,223,284 - - 1,312,223,284Deposits with financial institutions - 29,527,721 - 29,527,721Amount due from Manager - 358,332 - 358,332

Cash at banks - 1,340 - 1,340

Total financial assets 1,312,223,284 29,887,393 - 1,342,110,677

Liabilities

Amount due to Trustee - - 46,389 46,389 Amount due to index provider - - 91,581 91,581 Sundry payables and accrued

expenses - - 96,514 96,514

Total financial liabilities - - 234,484 234,484

The significant accounting policies in Note 3 describe how the classes of financial instruments are measured,

and how income and expenses, including fair value gains and losses, are recognised. The following table

analyses the financial assets and liabilities of the Fund in the statement of financial position by the class of

financial instrument to which they are assigned, and therefore by the measurement basis.

2015

The above transactions were in respect of fixed income instruments and money market deposits. Transactions in

these investments do not involve any commission or brokerage.

2016

There was no transaction with financial institutions related to the Manager, during the financial year.

53

Income, expense, gains

and losses

2016 2015

RM RM

Net (loss)/gain from financial assets at FVTPL (29,749,728) 1,004,959Income, of which derived from:

– Interest income from financial assets at FVTPL 61,914,984 28,762,187

- Interest income from loans and receivables 452,702 520,234

(b) Financial instruments that are carried at fair value

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;

Level 2:

Level 3:

Level 1 Level 2 Level 3 Total

RM RM RM RM

- 1,436,208,939 - 1,436,208,939

- 1,312,223,284 - 1,312,223,284

(c)

Deposits with financial institutions

Amount due from/(to) Manager

Cash at banks

Amount due to Trustee

Amount due to index provider

Sundry payables and accrued expenses

There are no financial instruments which are not carried at fair values and whose carrying amounts are not

reasonable approximation of their respective fair values.


other techniques for which all inputs which have a significant effect on the recorded fair values

are observable; either directly or indirectly; or

The Fund’s financial assets and liabilities at FVTPL are carried at fair value.

The following table shows an analysis of financial instruments recorded at fair value by the level of the fair

value hierarchy:

Financial instruments that are not carried at fair value and whose carrying amounts are reasonable

approximation of fair value


2015

The following are classes of financial instruments that are not carried at fair value and whose carrying

amounts are reasonable approximation of fair value due to their short period to maturity or short credit

period:

The Fund uses the following hierarchy for determining and disclosing the fair value of financial instruments

by valuation technique:

techniques which use inputs which have a significant effect on the recorded fair value that are

not based on observable market data.

2016

54

20. RISK MANAGEMENT POLICIES

Market risk

(i) Interest rate risk

Parallel shift in yieldcurve by: 2016 2015

RM RM

+100 bps (77,627,715) (66,321,821) -100 bps 85,643,095 72,176,902

Credit risk

(i) Credit quality of financial assets

As a % of As a % of

debt net asset

Credit rating RM securities value

2016

NR* 1,436,208,939 100.00 99.58

(Forward)

The Fund is exposed to a variety of risks that include market risk, credit risk, liquidity risk, single issuer risk,

regulatory risk, management risk and non-compliance risk.

Sensitivity of the Fund’s NAV, or theoretical value

The result below summarised the interest rates sensitivity of the Fund’s NAV due to the parallel movement

assumption of the yield curve by +100bps and -100bps respectively:

The following table analyses the Fund’s portfolio of debt securities by rating category as at 31 December

2016 and 31 December 2015:

Risk management is carried out by closely monitoring, measuring and mitigating the above said risks, careful

selection of investments coupled with stringent compliance to investment restrictions as stipulated by the Capital

Market and Services Act 2007, Securities Commission’s Guidelines on Exchange Traded Funds and the Deed as

the backbone of risk management of the Fund.

Credit risk is the risk that the counterparty to a financial instrument will cause a financial loss to the Fund by

failing to discharge an obligation. The Fund invests in fixed income instruments. As such the Fund would be

exposed to the risk of bond issuers and financial institutions defaulting on its repayment obligations which in

turn would affect the net asset value of the Fund.

Market risk is the risk that the value of a portfolio would decrease due to changes in market risk factors such as

equity prices, interest rates (yield curve), foreign exchange rates and commodity prices.

Interest rates risk will affect the value of the Fund’s investments, given the interest rates movements, which

are influenced by regional and local economic developments as well as political developments.

Domestic interest rates on deposits and placements with licensed financial institutions are determined based

on prevailing market rates.

55

As a % of As a % of

debt net asset

RM securities value

2015

AAA 10,175,375 0.78 0.76

NR* 1,302,047,909 99.22 97.03

1,312,223,284 100.00 97.79

* Non-rated

As a % of

As a % of net asset

Credit rating RM deposits value

2016

P1/MARC-1 6,402,202 100.00 0.44

2015

P1/MARC-1 29,527,721 100.00 2.20

(ii) Credit risk concentration

As a % of As a % of

debt net asset

Sector RM securities value

2016

Public Finance 1,410,866,033 98.24 97.82

Transportation 25,342,906 1.76 1.76

1,436,208,939 100.00 99.58

As a % of As a % of

debt net asset

Sector RM securities value

2015

Financial services 10,175,375 0.78 0.76

Public Finance 1,302,047,909 99.22 97.03

1,312,223,284 100.00 97.79

Concentration of risk is monitored and managed based on sectorial distribution. The table below analyses the

Fund’s portfolio of debt securities by sectorial distribution as at 31 December 2016 and 31 December 2015:

There is no geographical risk as the Fund invests only in investments in Malaysia.

For deposits with financial institutions, the Fund only makes placements with financial institutions with

sound rating. The following table presents the Fund’s portfolio of deposits by rating category as at 31

December 2016 and 31 December 2015:

Cash at banks are held for liquidity purposes and are not exposed to significant credit risk.

56

Liquidity risk

Objectives and assumptions

(i) For bonds

(a)

(b) For coupon-bearing bonds, the coupons could be paid on annual, bi-annual or quarterly basis.

Cash received from bonds are calculated as follows:

$ = cash received

R = coupon rate p.a.

F = coupon frequency

For zero coupon bonds, F = 0

At maturity: $ = Nominal

For F > 0

Before maturity: coupon payment, $ = Nominal * (R/F)

At maturity: maturity payment, $ = Nominal + (Nominal * R/F)

(ii) For money market instruments and deposits

The nominal amount and interest will be paid at maturity date. Cash received are calculated as follows:

$ = cash received

R = interest/profit rate p.a.

F = time to maturity (days)

At maturity: $ = Nominal + (Nominal*R*d/365)

0 – 1 1 – 2 2 – 3 3 – 4 4 – 5 More than

year years years years years 5 years

2016

Investments 160,041,800 256,885,240 318,734,090 190,746,740 911,154,325

Deposits

with financial

institutions - - - - -

Total assets 63,706,866 160,041,800 256,885,240 318,734,090 190,746,740 911,154,325

(Forward)

6,404,306

The following table presents the undiscounted contractual cash flows from different asset and liability classes in

the Fund:

Liquidity risk is defined as the risk of being unable to raise funds or borrowing to meet payment obligations as

they fall due. The Fund maintains sufficient level of liquid assets, after consultation with the Trustee, to meet

anticipated payments and cancellations of units by unitholders. Liquid assets comprise of deposits with licensed

financial institutions and other instruments, which are capable of being converted into cash within 5 to 7 days.

The Fund’s policy is to always maintain a prudent level of liquid assets so as to reduce liquidity risk.

For each security in the Fund, the cash flows are projected according to its asset class. Each asset class, if

any, follows the calculation method as below:

For zero-coupon bonds, the nominal amount will be returned at maturity date.

Contractual cash flows (undiscounted)

Financial assets

57,302,560

57

0 – 1 1 – 2 2 – 3 3 – 4 4 – 5 More than

year years years years years 5 years


Other liabilities 287,656 - - - - -

2015

Investments 50,770,100 194,407,875 146,581,700 215,366,275 294,278,900 767,743,975

Deposits

with financial

institutions 29,538,883 - - - - -

Cash at banks 1,340 - - - - -

Other assets 358,332 - - - - -

Total assets 80,668,655 194,407,875 146,581,700 215,366,275 294,278,900 767,743,975


Other liabilities 234,484 - - - - -

Single issuer risk

Regulatory risk

Management risk

Non-compliance risk

21 CAPITAL MANAGEMENT

No changes were made in the objective, policies or processes during the financial years ended 31 December 2016

and 31 December 2015.

Internal policy restricts the Fund from investing in securities issued by any issuer of not more than a certain

percentage of its net asset value. Under such restriction, the risk exposure to the securities of any single issuer is

diversified and managed based on internal/external ratings.

Any changes in national policies and regulations may have effects on the capital market and the net asset value of

the Fund.

Poor management of the Fund may cause considerable losses to the Fund that in turn may affect the net asset

value of the Fund.

This is the risk of the Manager, the Trustee or the Fund not complying with internal policies, the Deed of the

Fund, securities law or guidelines issued by the regulators. Non-compliance risk may adversely affect the

investments of the Fund when the Fund is forced to rectify the non-compliance.

The primary objective of the Fund’s capital management is to ensure that it maximises unitholders’ value by

expanding its fund size to benefit from economies of scale and achieving growth in net asset value from the

performance of its investments.

The Fund manages its capital structure and makes adjustments to it, in light of changes in economic conditions.

To maintain or adjust the capital structure, the Fund may issue new or bonus units, make distribution payment, or

return capital to unitholders by way of redemption of units.

Financial assets

Contractual cash flows (undiscounted)

58


STATEMENT BY THE MANAGER


14 February 2017

I, DATIN MAZNAH MAHBOB, for and on behalf of the Manager, AmFunds Management

Berhad for ABF Malaysia Bond Index Fund do hereby state that in the opinion of the Manager,

the accompanying statement of financial position, statement of comprehensive income, statement of

changes in equity, statement of cash flows and the accompanying notes are drawn up in accordance

with Malaysian Financial Reporting Standards and International Financial Reporting Standards so

as to give a true and fair view of the financial position of the Fund as at 31 December 2016 and the

comprehensive income, the changes in equity and cash flows of the Fund for the financial year then

ended.

DATIN MAZNAH MAHBOB

For and on behalf of the Manager


59

60

02 February 2017

61

DIRECTORY

Head Office 9th Floor, Bangunan Ambank Group


Tel: (03) 2032 2888 Facsimile: (03) 2031 5210

Email: [email protected]

Postal Address AmFunds Management Berhad

P.O Box 13611, 50816 Kuala Lumpur

Related Institutional Unit Trust Agent

AmBank (M) Berhad Head Office

Company No. 8515-D 31st Floor, Menara AmBank

No. 8 Jalan Yap Kwan Seng, 50450 Kuala Lumpur

AmInvestment Bank Berhad Head Office

Company No. 23742-V 22nd


55 Jalan Raja Chulan, 50200 Kuala Lumpur

For more details on the list of IUTAs, please contact the Manager.

For enquiries about this or any of the other Funds offered by AmFunds Management Berhad

Please call 2032 2888 between 8.45 a.m. to 5.45 a.m. (Monday to Thursday),

Friday (8.45 a.m. to 5.00 p.m.)

mailto:[email protected]

Semi-Annual Report28 February 2015

03 2132 2888 | aminvest.com | [email protected]

AmFunds Management Berhad (155432-A)

abf malaysia bond index fund - malaysiastock.biz name abf malaysia bond index fund (“fund”) ......

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