hong leong global bond fund

Hong Leong Global Bond Fund

Reaching out to you

Annual Report29 February 2016 Audited

2015/2016

Contents

Page

Hong Leong Global Bond Fund

Manager’s Review and Report

Statement by the Manager

Trustee’s Report

Independent Auditors’ Report

Statement of Comprehensive Income

Statement of Financial Position

Statement of Changes in Equity

Statement of Cash Flows

Notes to the Financial Statements

Performance Data

Corporate Information

Corporate Directory

1-9

10

11

12-13

14

15

16

17

18-49

50-53

54

55

HONG LEONG GLOBAL BOND FUND 1

Manager’s Review and Report

I. FUND INFORMATION

Fund Name Hong Leong Global Bond Fund

Fund CategoryFixed Income

Fund TypeIncome

Investment ObjectiveThe Fund seeks to provide regular income* and to maximise total investment return whilst at the same time aims to offer stability of capital** with minimum risk.

BenchmarkJP Morgan Global GBI

Distribution PolicyThe Fund intends to provide regular income* on a half-yearly basis as well as Long-term*** capital growth. As such, income returns will be declared on a best effort basis, depending on interest rates, market conditions and the performance of the Fund.

Swap CounterpartyJP Morgan Chase Bank Berhad

Notes:* Income may be distributed in the form of cash and/or units. ** Please take note that this Fund is not a capital guaranteed fund or a

capital protect fund and the returns are not guaranteed. *** Long-Term refers to a period of above 5 years.

Breakdown of Unitholdings By SizeSize of Holdings5,000 and below5,001 to 10,00010,001 to 50,00050,001 to 500,000500,001 and above

No. of Accounts282430122

No. of Units Held75,759.73

169,515.58631,902.49

1,318,388.086,284,033.35

HONG LEONG GLOBAL BOND FUND2

II. FUND PERFORMANCE

Chart 1: Performance of the Fund versus the benchmark covering the last five financial years

Performance Review

This Annual Report covers the twelve-month financial year from 1 March 2015 to 29 February 2016.

The Fund slid 12.28% in the past twelve months, while its benchmark the JP Morgan Global GBI posted a gain of 19.82% (in Malaysian Ringgit terms). During the financial year under review, the Fund had distributed income distributions of 0.25 sen per unit, 0.25 sen per unit, 0.25 sen per unit and 0.25 sen per unit to its Unitholders on 17 March 2015, 16 June 2015, 15 September 2015 and 15 December 2015, respectively. Prior to the income distributions, the cum-distribution net asset values (NAV) per unit of the Fund were RM0.5458, RM0.5460, RM0.4957 and RM0.4973 while

Source: Lipper For Investment Management, In Malaysian Ringgit terms, ex-distribution, NAV Per Unit-to-NAV Per Unit basis with gross income (if any) from HLGBF reinvested.

Past performance is not necessarily indicative of future performance and unit prices and investment returns may go down, as well as up.

From 28/02/2011 To 29/02/2016Hong Leong Global Bond Fund (HLGBF) : -1.02JP Morgan Global GBI : 45.96

Deposits & CashEquivalents

51.99%Corporate Bonds

37.74%

TempletonGlobal Bond Swap

10.27%

AA-14.80%

Islamic Deposits &Cash Equivalents

45.72%AA1

14.60%

AAA8.73%

AA314.66%Shariah-compliant

Collective InvestmentSchemes

1.49%

Fixed Income Securities Templeton Global Bond SwapCollective Investment Schemes

100%

80%

60%

40%

20%

0%

Mar

-15

Apr-1

5

May

-15

Jun-

15

Jul-1

5

Aug-

15

Sep-

15

Oct-1

5

Nov

-15

Dec-

15

Jan-

16

Feb-

16

60

50

40

30

20

10

0

-10

29/2

/201

2

28/2

/201

3

28/2

/201

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28/2

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the ex-distribution NAV per unit after the distributions were RM0.5433, RM0.5435, RM0.4932 and RM0.4948 respectively. Unitholders should note that income distributions have the effect of reducing the NAV per unit of the Fund after distributions.

For the five financial years ended 29 February 2016, the Fund declined 1.02% compared to the benchmark’s return of 45.96% while distributing a total net income of 10.50 sen per unit. As such, the Manager concluded that the Fund has not achieved its investment objective.

Table 1: Performance of the Fund for the following periods as at 29 February 2016 (Source: Lipper For Investment Management)

HLGBF (%)

Benchmark (%)

30/11/15– 29/02/163 Months

-7.57

3.83

31/08/15– 29/02/166 Months

-4.60

4.30

28/02/15– 29/02/16

1 Year

-12.28

19.82

28/02/14– 29/02/16

2 Years

-12.91

27.66

28/02/13– 29/02/16

3 Years

-14.07

36.50

28/02/11– 29/02/16

5 Years

-1.02

45.96

18/04/08–29/02/16

Since Launch

21.00

62.31

Table 2: Return of the Fund on NAV Per Unit-to-NAV Per Unit basis for the period 28 February 2015 to 29 February 2016 (Source: Lipper For Investment Management)

# Return is calculated after adjusting for income distributions of 0.25 sen per unit on 17/03/2015, 0.25 sen per unit on 16/06/2015, 0.25 sen per unit on 15/09/2015 and 0.25 sen per unit on 15/12/2015.

NAV Per UnitBenchmarkVs Benchmark (%)

29-Feb-16

RM0.4737514.16

-

28-Feb-15

RM0.5505500.66

-

Return(%)

-12.28#19.82

-32.10


Table 3: Financial HighlightsThe Net Asset Value attributable to Unitholders is represented by:

Unitholders’ CapitalRetained EarningsNet Asset Value

Units in Circulation

29-Feb-16(RM)

1,109,3162,907,3564,016,672

8,479,599

28-Feb-15(RM)

4,656,3303,705,0428,361,372

15,187,830

Change(%)

-76.18-21.53-51.96

-44.17

Table 4: The Highest & Lowest NAV Per Unit, Total Return of the Fund, and the breakdown into Capital Growth and Income Distribution for the financial years

Highest NAV Per Unit (RM)Lowest NAV Per Unit (RM)Capital Growth (%)Income Distribution (%)Total Return (%)

Financial Year

28/02/15-29/02/16

0.56140.4620-13.95

1.67-12.28

Financial Year

28/02/14-28/02/15

0.57460.5385

-2.481.76

-0.72

Financial Year

28/02/13-28/02/14

0.60850.5481-6.284.94

-1.34



Table 5: Average Total Return of the Fund

Average Total Return (%)

28/02/15– 29/02/16

1 Year

-12.28

28/02/13– 29/02/16

3 Years

-4.69

28/02/11– 29/02/16

5 Years

-0.20

Table 6: Annual Total Return of the Fund

Financial Year

Annual Total Return (%)

28/02/15-29/02/16

-12.28

28/02/13-28/02/14

-1.34

28/02/14-28/02/15

-0.72

29/02/12–28/02/13

9.03

28/02/11–29/02/12

5.65



III. INVESTMENT PORTFOLIO

Chart 2: Asset Allocation - March 2015 to February 2016



37.74%


10.27%

AA-14.80%


45.72%AA1

14.60%

AAA8.73%



1.49%


100%

80%

60%

40%

20%

0%

Mar

-15

Apr-1

5

May

-15

Jun-

15

Jul-1

5

Aug-

15

Sep-

15

Oct-1

5

Nov

-15

Dec-

15

Jan-

16

Feb-

16

60

50

40

30

20

10

0

-10

29/2

/201

2

28/2

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Strategies employed during the period under review

During the review period, the Fund has positioned itself defensively against a rate hike and volatility in the sovereign bond market. To preserve capital without neglecting income, the Fund has remained invested in a mix of AA-rated private debt securities, which offer attractive risk adjusted carry.

As of 29 February 2016, the top-three holdings of the Fund are UEM Sunrise Berhad-Unlisted Bond (12.64%), Sepangar Bay Power Corporation Sendirian Berhad-Unlisted Bond (12.64%) and Konsortium Lebuhraya Utara-Timur (KL) Sendirian Berhad - Unlisted Bond (12.46%).

For the financial year under review, there were no significant changes in the state of affairs of the Fund or circumstances that would materially affect the interest of Unitholders up to the date of this Manager’s report.

Chart 3: Sector Allocation as at 29 February 2016



37.74%


10.27%

AA-14.80%


45.72%AA1

14.60%

AAA8.73%



1.49%


100%

80%

60%

40%

20%

0%

Mar

-15

Apr-1

5

May

-15

Jun-

15

Jul-1

5

Aug-

15

Sep-

15

Oct-1

5

Nov

-15

Dec-

15

Jan-

16

Feb-

16

60

50

40

30

20

10

0

-10

29/2

/201

2

28/2

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IV. MARKET REVIEW

During the review period, the Malaysia Government Securities (MGS) curve steepened. The 3-year benchmark dropped 12 basis points (bps) to 3.31% whilst 10-year benchmark rose 5bps to 3.92%. Offshore investors were seen supporting the short end of the curve, in search for yields in a low rate environment. The eventful review period saw extended political negotiations for a Greek bailout causing uncertainties in Europe, local political headlines due to the 1MDB debacle culminating with a cabinet reshuffle by the Prime Minister and a change in the yuan fixing mechanism which saw the yuan depreciate severely.

After months of both uncertainty and anticipation, the Federal Reserve (Fed) carried out its first hike in its rate normalisation process in December. The action was followed by volatility in the financial markets at the turn of 2016. The period also saw the ringgit weakened from 3.60 to 4.20 due to the sharp fall in oil prices. Bank Negara Malaysia (BNM) maintained a stable monetary policy rate through the period, in line with market expectations.

In the Private Debt Securities (PDS) market, credit spreads widened during review period as the MGS market rallied. Investors remained selective, with higher interest in high-grade, short-tenured bonds. The PDS primary market was dominated by issuances from government-linked entities during review period. The notable primary issuances were from Maybank Berhad, Danga Capital Berhad and CIMB Bank Berhad.


V. FUTURE PROSPECTS AND PROPOSED STRATEGIES

There was mixed economic data out of the US in February. Non-farm payroll figures disappointed at 151,000, below the expected 190,000. Meanwhile, US fourth-quarter gross domestic product (GDP) was better than expected at 1.0%. Whilst most members of the Fed agreed the US economy is on track to recovery and that the US monetary policy should be normalised, the committee appreciates near term risks in the financial markets have to be considered.

Templeton remains confident in the economic outlook for the US and expects the Fed to continue in its rate normalisation path by the end of year. On the whole, Templeton continues to believe that global financial markets are poised to benefit from economic expansion in the US, economic stabilization in China, lower oil prices, and the abundance of global liquidity from the Bank of Japan and European Central Bank.

The Templeton Global Bond Fund positions itself defensively with regards to duration while aiming at a negative correlation with US Treasury returns. The Templeton Global Bond Fund also actively seeks opportunities that can potentially offer positive real yields without taking undue interest rate risk. Franklin Templeton favours countries that have solid underlying fundamentals and policymakers who have stayed ahead of the curve regarding fiscal, monetary and financial policy.


VI. SOFT COMMISSIONS

The Manager has received soft commissions from brokers/dealers in the form of goods and services such as research materials, data and quotation services, computer software incidental to investment management of the Fund and investment related publications. Such soft commissions received are of demonstrable benefit to Unitholders.

VII. CROSS-TRADE TRANSACTIONS

There were cross-trade transactions undertaken by the Fund during the financial year under review. The transactions were executed through brokers/dealers on an arm’s length and fair value basis and in the best interest of Unitholders.

10 HONG LEONG GLOBAL BOND FUND

STATEMENT BY THE MANAGER

I, Hoo See Kheng, as the Director of Hong Leong Asset Management Bhd, do hereby state that, in the opinion of the Manager, the financial statements set out on pages 14 to 49 are drawn up in accordance with the provision of the Deeds and give a true and fair view of the financial position of the Fund as at 29 February 2016 and its financial performance, changes in equity and cash flows for the financial year ended 29 February 2016 in accordance with the Malaysian Financial Reporting Standards (“MFRS”) and International Financial Reporting Standards (“IFRS”).

For and on behalf of the Manager, Hong Leong Asset Management Bhd(Company No.: 318717-M)

HOO SEE KHENGChief Executive Officer / Executive Director

Kuala Lumpur22 April 2016

11HONG LEONG GLOBAL BOND FUND

TRUSTEE’S REPORTTO THE UNITHOLDERS OF HONG LEONG GLOBAL BOND FUND

We, CIMB Commerce Trustee Berhad (“the Trustee”), being the Trustee for Hong Leong Global Bond Fund (“the Fund”), are of the opinion that Hong Leong Asset Management Bhd (“the Manager”), acting in the capacity as Manager of the Fund, has fulfilled its duties in the following manner for the financial year ended 29 February 2016.

(a) The Fund has been managed in accordance with the limitations imposed on the investment powers of the Manager and the Trustee under the Deeds, the Securities Commission Malaysia’s Guidelines on Unit Trust Funds, the Capital Markets and Services Act 2007 (as amended from time to time) and other applicable laws;

(b) Valuation/pricing of units of the Fund has been carried

out in accordance with the Deeds and relevant regulatory requirements;

(c) Creation and cancellation of units have been carried out in accordance with the Deeds, and relevant regulatory requirements; and

(d) The distributions of returns by the Fund are relavant and reflects the investment objective of the Fund.

For and on behalf ofCIMB Commerce Trustee Berhad (313031-A)

LEE KOOI YOKEChief Operating Officer



INDEPENDENT AUDITORS’ REPORTHONG LEONG GLOBAL BOND FUND

REPORT ON THE FINANCIAL STATEMENTS

We have audited the financial statements of Hong Leong Global Bond Fund on pages 14 to 49, which comprise the statement of financial position as at 29 February 2016 of the Fund, and the statements of comprehensive income, statement of changes in equity and statement of cash flows of the Fund for the financial year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on Notes 1 to 16.

Manager’s Responsibility for the Financial Statements

The Manager of the Fund is responsible for the preparation of financial statements so as to 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 that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Fund’s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Manager’s internal control. An audit also includes evaluating


the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Manager, as well as evaluating the overall presentation of the financial statements.

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

Opinion In our opinion, the financial statements give a true and fair view of the financial position of the Fund as of 29 February 2016 and of its financial performance and cash flows for the financial year then ended in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards.

OTHER MATTERS

This report is made solely to the unitholders of the Fund and for no other purpose. We do not assume responsibility to any other person for the content of this report.

PRICEWATERHOUSECOOPERS(No. AF: 1146)Chartered Accountants



STATEMENT OF COMPREHENSIVE INCOMEFOR THE FINANCIAL YEAR ENDED 29 FEBRUARY 2016

INVESTMENT INCOMEInterest income Dividend income Net loss on financial assets at fair value through profit or loss (“FVTPL”)Net gain on derivativesNet foreign currency exchange lossManagement fee rebate

EXPENDITUREManagement feeTrustee’s fee Auditors’ remunerationTax agent’s feeCustodian feeOther expenses

(Loss)/profit before taxation Taxation (Loss)/profit after taxation and total comprehensive (loss)/income for the financial year (Loss)/profit after taxation is made up as follows:Realised amountUnrealised amount

Distributions for the financial year:Net distributionsNet distributions per unit (sen)Gross distributions per unit (sen)

2016 RM

210,858

4,738

(717,287) - -

410 (501,281)

(72,017) (18,000) (8,400) (2,950)

(46,829) (33,035)

(181,231)

(682,512) -

(682,512)

(629,170) (53,342)

(682,512)

115,174 1.0000 1.0000

2015RM

463,583 3,138

(214,053) 9,156

(23,130) 933

239,627

(159,141) (18,000) (8,400) (2,950)

(20,402) (22,699) (231,592)

8,035 -

8,035

(350,209) 358,244

8,035

241,896 1.0000 1.0000

Note

4

9

5

56

8

7 7 7

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


STATEMENT OF FINANCIAL POSITIONAS AT 29 FEBRUARY 2016

ASSETSFinancial assets at fair value through profit or loss (“FVTPL”)Cash and cash equivalentsTOTAL ASSETS

LIABILITIESAmount due to the Manager -cancellation of unitsAmount due to the Manager -management feeAmount due to the Manager-expensesAmount due to the TrusteeOther payables and accrualsTOTAL LIABILITIES

NET ASSET VALUE OF THE FUND

EQUITYUnitholders’ capitalRetained earnings NET ASSETS ATTRIBUTABLE TO UNITHOLDERS UNITS IN CIRCULATION NET ASSET VALUE (“NAV”) PER UNIT

29.02.2016 RM

1,928,531 2,125,810 4,054,341

-

4,007 86

13,647 19,929 37,669

4,016,672

1,109,316 2,907,356

4,016,672

8,479,599

0.4737

28.02.2015 RM

4,516,941 4,791,904 9,308,845

908,764

8,769 93

8,376 21,471 947,473

8,361,372

4,656,330 3,705,042

8,361,372

15,187,830

0.5505

Note

910

11



STATEMENT OF CHANGES IN EQUITYFOR THE FINANCIAL YEAR ENDED 29 FEBRUARY 2016

Balance as at 1 March 2015Movement in net asset value: Creation of units from applications Creation of units from distributions Cancellation of unitsTotal comprehensive loss for the financial yearDistributions for the financial yearBalance as at 29 February 2016 Balance as at 1 March 2014Movement in net asset value: Creation of units from applications Creation of units from distributions Cancellation of unitsTotal comprehensive income for the financial year Distributions for the financial yearBalance as at 28 February 2015

Unitholders’ capital

RM

4,656,330

31,152

110,165 (3,688,331)

-

- 1,109,316

16,784,843

175,815

230,718 (12,535,046)

-

- 4,656,330

Retained earnings

RM

3,705,042

-

- -

(682,512)

(115,174) 2,907,356

3,938,903

-

-

8,035

(241,896) 3,705,042

TotalRM

8,361,372

31,152

110,165 (3,688,331)

(682,512)

(115,174) 4,016,672

20,723,746

175,815

230,718 (12,535,046)

8,035

(241,896) 8,361,372

Note

7

7



Note

10

STATEMENT OF CASH FLOWSFOR THE FINANCIAL YEAR ENDED 29 FEBRUARY 2016

CASH FLOWS FROM OPERATING AND INVESTING ACTIVITIESProceeds from sales of financial assets at FVTPL Proceeds from redemptions of financial assets at FVTPLPurchase of financial assets at FVTPLRealised gain on derivativesRealised foreign exchange differences arising from operating activitiesInterest income receivedDividend income received Management fee rebate receivedManagement fee paidTrustee’s fee paidOther expenses paidNet cash generated from operating and investing activities CASH FLOWS FROM FINANCING ACTIVITIESCash proceeds from units createdPayments for cancellation of unitsDistributions paid Net cash used in financing activities NET DECREASE IN CASH AND CASH EQUIVALENTSEFFECTS OF FOREIGN EXCHANGE RATE CHANGESCASH AND CASH EQUIVALENTS AT BEGINNING OF THE FINANCIAL YEARCASH AND CASH EQUIVALENTS AT END OF THE FINANCIAL YEAR

2016 RM

6,724,301

- (4,860,000)

-

- 217,680

4,738 410

(76,779) (12,729) (92,763)

1,904,858

141,317 (4,597,095)

(115,174) (4,570,952)

(2,666,094)

-

4,791,904

2,125,810

2015RM

21,948,540

4,843,587 (16,594,386)

52,719

(41,637) 490,712

3,138 933

(170,992) (10,944) (50,614)

10,471,056

420,695 (11,805,856)

(241,896) (11,627,057)

(1,156,001)

2,688

5,945,217

4,791,904



NOTES TO THE FINANCIAL STATEMENTSFOR THE FINANCIAL YEAR ENDED 29 FEBRUARY 2016

1. THE FUND, THE MANAGER AND THEIR PRINCIPAL ACTIVITIES

Hong Leong Global Bond Fund (“the Fund”) was constituted pursuant to the execution of a Deed dated 11 December 2007 and Supplemental Deeds dated 30 April 2010 and 25 March 2015 (“the Deeds”) between the Manager, Hong Leong Asset Management Bhd, the Trustee, CIMB Commerce Trustee Berhad and the registered unitholders of the Fund.

The Fund seeks to provide regular income and to maximise total investment return whilst at the same time aims to offer stability of capital with minimum risk.

The Fund will invest in fixed income instruments which include fixed income securities, money market instruments and deposits. The local fixed income securities that the Fund will invest in must have a credit rating of at least “BBB3” or “P3” as rated by RAM, or its equivalent ratings by MARC. For foreign fixed income securities, the credit rating must be at least “BB” as rated by S&P, or its equivalent rating by another recognised global rating agency. At the same time, the Fund may invest up to 20% of its NAV into total return swap transaction, structured products and/or options that offer exposure to global countries, global fixed income securities, global fixed income indices, global fixed income funds and/or global fixed income strategies. The Fund commenced operations on 18 April 2008 and will continue its operations until terminated as provided under Part 12 of the Deed. The Manager of the Fund is Hong Leong Asset Management Bhd, a company incorporated in Malaysia. The principal activity of the Manager is the management of unit trust funds and private investment mandates. Its holding company is Hong Leong Capital Berhad, a company incorporated in Malaysia and listed on the Main Market of Bursa Malaysia Securities Berhad.

The financial statements were authorised for issue by the Manager on 22 April 2016.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the financial statements:

(a) Basis of preparation

The financial statements have been prepared in accordance with the Malaysian Financial Reporting Standards (“MFRS”) and International Financial Reporting Standards (“IFRS”).

The financial statements have been prepared under the historical cost convention, as modified by the financial assets and financial liabilities (including derivative financial instruments) at fair value through profit or loss.

The preparation of financial statements in conformity with MFRS and IFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reported financial year. It also requires the Manager to exercise their judgment in the process of applying the Fund’s accounting policies. The Manager believes that the underlying assumptions are appropriate and the Fund’s financial statements therefore present the financial position results fairly. Although these estimates and judgment are based on the Manager’s best knowledge of current events and actions, actual results may differ.

The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 2( j).


The new standards and amendments to published standards that are applicable to the Fund but not yet effective and have not been early adopted are as follows:

• MFRS 9 ‘‘Financial Instruments’’ (effective from 1 January 2018) will replace MFRS 139 ‘‘Financial Instruments: Recognition and Measurement’’. The complete version of MFRS 9 was issued in November 2014.

MFRS 9 retains but simplifies the mixed measurement model in MFRS 139 and establishes three primary measurement categories for financial assets: amortised cost, fair value through profit or loss and fair value through other comprehensive income (‘‘OCI’’). The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are always measured at fair value through profit or loss with an irrevocable option at inception to present changes in fair value in OCI (provided the instrument is not held for trading). A debt instrument is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest.

For liabilities, the standard retains most of the MFRS 139 requirements. These include amortised cost accounting for most financial liabilities, with bifurcation of embedded derivatives. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch.

There is now a new expected credit losses model on impairment for all financial assets that replaces the incurred loss impairment model used in MFRS 139.


The expected credit losses model is forward-looking and eliminates the need for a trigger event to have occurred before credit losses are recognised.

The Fund will apply this standard when effective. This standard is not expected to have a significant impact on the Fund’s financial statements.

(b) Financial assets and financial liabilities

Classification

Financial assets are designated at fair value through profit or loss when their performance are managed and evaluated on a fair value basis.

The Fund designates its investment in unquoted fixed income securities and excess return swap as financial assets at fair value through profit or loss at inception.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and have been included in assets. The Fund’s loan and receivable comprises cash and cash equivalents.

Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. The Fund classifies amount due to the Manager-cancellation of units, amount due to the Manager-management fee, amount due to Manager-expenses, amount due to the Trustee and other payables and accruals as other financial liabilities.

Recognition and measurement

Regular purchases and sales of financial assets are recognised on the trade-date – the date on which the Fund commits to purchase or sell the asset. Investments are initially recognised at fair value.


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 instruments.

Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Fund has transferred substantially all risks and rewards of ownership.

Financial liabilities are derecognised when it is extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or expired.

Unrealised gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss are presented in the statement of comprehensive income within net gain or loss on financial assets at fair value through profit or loss in the period which they arise.

Interest earned, amortisation of premium/accretion of discount and dividend income are recorded separately in ‘Interest income’ and ‘Dividend income’. The exchange differences on financial assets at FVTPL are not recognised separately in the statement of comprehensive income but are included in net gain or net loss on changes in fair value of financial instruments at FVTPL.

Local unquoted fixed income securities are revalued on a daily basis based on fair value prices quoted by a bond pricing agency (“BPA”) registered with the Securities Commission Malaysia as per the Securities Commission Malaysia’s Guidelines on Unit Trust Funds. Where such quotation are not available or where the Manager is of the view that the price quoted by the BPA for a specific unquoted fixed income securities


differs from the market price by more than 20 basis points, the Manager may use the market price, provided that the Manager:

(i) records its basis for using non-BPA price;(ii) obtains necessary internal approvals to use the

non-BPA price; and(iii) keeps an audit trail of all decisions and basis

for adopting the market yield.

Excess return swap is marked-to-market with rates obtained from its value at the bid prices quoted by respective foreign stock issuer on a daily basis.

Loans and receivables and other financial liabilities are subsequently carried at amortised cost using the effective interest method.

Deposits with licensed financial institutions are stated at cost plus accrued interest calculated on the effective interest method over the period from the date of placement to the date of maturity of the respective deposits, which is a close estimate of their fair value due to the short term nature of the deposits.

For assets carried at amortised cost, the Fund assesses at the end of the reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.


The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. If ‘loans and receivables’ has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.

As a practical expedient, the Fund may measure impairment on the basis of an instrument’s fair value using an observable market price.

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 (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in statement of comprehensive income.

When an asset is uncollectible, it is written off against the related allowance account. Such assets are written off after all the necessary procedures have been completed and the amount of the loss has been determined.

(c) Functional and presentation currency

Items included in the financial statements of the Fund are measured using the currency of the primary economic environment in which the Fund operates (the “functional currency”). The financial statements are presented in Ringgit Malaysia (“RM”), which is the Fund’s functional and presentation currency.


(d) Income recognition

Dividend income is recognised on the ex-dividend date when the Fund’s right to receive payment has been established.

Interest income from deposits with licensed financial institutions and unquoted fixed income securities are recognised on the effective interest method on an accrual basis.

Realised gain or loss on disposal of unquoted fixed income securities is accounted for as the difference between the net disposal proceeds and the carrying amount of unquoted fixed income securities, determined on cost adjusted for accretion of discount or amortisation of premium.

(e) Cash and cash equivalents

For the purpose of statement of cash flows, cash and cash equivalents comprise cash at banks and deposits held in highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

(f) Taxation

Current tax expense is determined according to Malaysian tax laws at the prevailing tax rate based on the taxable profit earned during the financial year.

(g) Distributions

A distribution to the Fund’s unitholders is accounted for as a deduction from realised reserve. A proposed distribution is recognised as a liability in the year in which it is approved by the Board of Directors of the Manager.


(h) Unitholders’ capital

The unitholders’ contributions to the Fund meet the criteria to be classified as equity instruments under MFRS 132 “Financial Instruments:Presentation”. Those criteria include:

• the units entitle the holder to a proportionate share of the Fund’s net assets value;

• the units are the most subordinated class and class features are identical;

• there is no contractual obligations to deliver cash or another financial asset other than the obligation on the Fund to repurchase the units; and

• the total expected cash flows from the units over its life are based substantially on the profit or loss and change in the net asset value of the Fund.

The outstanding units are carried at the redemption amount that is payable at each financial year if unitholder exercises the right to put the unit back to the Fund.

Units are created and cancelled at prices based on the Fund’s net asset value per unit at the time of creation and cancellation. The Fund’s net asset value per unit is calculated by dividing the net assets attributable to unitholders with the total number of outstanding units.

(i) Segmental information

Operating segments are reported in a manner consistent with the internal reporting used by the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Investment Committee of the Fund’s manager that undertakes strategic decisions for the Fund.


(j) Critical accounting estimates and judgments in applying accounting policies

The Fund makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. To enhance the information content of the estimates, certain key variables that are anticipated to have material impact to the Funds’ results and financial position are tested for sensitivity to changes in the underlying parameters.

Estimates and judgments are continually evaluated by the Manager and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

In undertaking any of the Fund’s investment, the Manager will ensure that all assets of the Fund under management will be valued appropriately, that is at fair value and in compliance with the Securities Commission Malaysia’s Guidelines on Unit Trust Funds.

3. RISK MANAGEMENT OBJECTIVES AND POLICIES

The investment objective of the Fund is to provide regular income and to maximise total investment return whilst at the same time aims to offer stability of capital with minimum risk.

The Fund is exposed to a variety of risks which include market risk (inclusive of price risk and interest rate risk), credit risk, liquidity risk, non compliance risk and capital risk.

Financial risk management is carried out through internal control process adopted by the Manager and adherence to the investment restrictions as stipulated in the prospectus.


All liabilities are financial liabilities which are carried at amortised cost.

The following table analyses the financial assets and financial liabilities of the Fund in the statement of financial position as at the reporting date.

29.02.2016Financial assets Financial assets at FVTPL (Note 9)Cash and cash equivalents (Note 10)

Financial liabilitiesAmount due to the Manager -management feeAmount due to the Manager-expensesAmount due to the TrusteeOther payables and accruals

28.02.2015 Financial assetsFinancial assets at FVTPL (Note 9)Cash and cash equivalents (Note 10)

Financial liabilities Amount due to the Manager -cancellation of unitsAmount due to the Manager -management feeAmount due to the Manager-expensesAmount due to the TrusteeOther payables and accruals

Financial assets

at FVTPLRM

1,928,531 -

1,928,531

- - - - -

4,516,941 -

4,516,941

- - - - - -

Total RM

1,928,531 2,125,810 4,054,341

4,007

86 13,647 19,929 37,669

4,516,941 4,791,904 9,308,845

908,764

8,769

93 8,376 21,471

947,473

Loans and receivables/

other financial liabilities

RM

- 2,125,810 2,125,810

4,007

86 13,647 19,929 37,669

- 4,791,904 4,791,904

908,764

8,769

93 8,376 21,471

947,473


(a) Market risk

(i) Price risk

Price risk arises mainly from the uncertainty about future prices of investments. It represents the potential loss the Fund might suffer through holding market positions in the face of price movements. The Manager manages the risk of unfavourable changes in prices by continuous monitoring of the performance and risk profile of the investment portfolio.

The price risk is managed through diversification and selection of securities and other financial instruments within specified limits according to the Deeds.

The Fund’s overall exposure to price risk is as follows:

The table below summarises the sensitivity of the Fund’s net asset value and (loss)/profit after taxation to movements in prices of local unquoted fixed income securities and excess swap at the end of the reporting period. The analysis is based on the assumptions that the price of the investments increased and decreased by 5% with all other variables held constant. This represents management’s best estimate of a reasonable possible shift in the investments, having regard to the historical volatility of the prices.

Financial assets at FVTPL: - Unquoted fixed income securities - local- Excess return swap

29.02.2016RM

1,515,857 412,674

1,928,531

28.02.2015 RM

3,519,338 997,603

4,516,941


% Change in priceof financial assetsat FVTPL

29.02.2016 -5% 0% 5%

28.02.2015 -5% 0% 5%

Market value

RM

1,832,104 1,928,531 2,024,958

4,291,094 4,516,941 4,742,788

Impact on (loss)/profit after

taxation/netasset value

RM

(96,427) -

96,427

(225,847) -

225,847

(ii) Interest rate risk

In general, when interest rates rise, prices of fixed income securities will tend to fall and vice versa. Therefore, the NAV of the Fund may also tend to fall when interest rates rise or are expected to rise. However, investors should be aware that should the Fund hold a fixed income securities till maturity, such price fluctuations would dissipate as it approaches maturity, and thus the growth of the NAV shall not be affected at maturity. In order to mitigate interest rates exposure of the Fund, the Manager will manage the duration of the portfolio via shorter or longer tenured assets depending on the view of the future interest rate trend of the Manager, which is based on its continuous fundamental research and analysis.

This risk is crucial since unquoted fixed income securities portfolio management depends on forecasting interest rate movements. Prices of unquoted fixed income securities move inversely to interest rate movements, therefore as interest rates rise, the prices of unquoted fixed income securities decrease and vice versa.


% Change in interest rate

+1% -1%

29.02.2016 RM

(4,222) 4,244

28.02.2015RM

(10,310) 9,609

Impact on (loss)/profit after taxation/net asset value

Furthermore, unquoted fixed income securities with longer maturity and lower yield coupon rates are more susceptible to interest rate movements.

Investors should note that unquoted fixed income securities are subject to interest rate fluctuations. Such investments may be subject to unanticipated rise in interest rates which may impair the ability of the issuers to make payments of interest income and principal, especially if the issuers are highly leveraged. An increase in interest rates may therefore increase the potential for default by an issuer.

The table below summarises the sensitivity of the Fund’s net asset value and (loss)/profit after taxation to movements in prices of unquoted fixed income securities held by the Fund at the end of the reporting period as a result of movement in interest rate. The analysis is based on the assumptions that the interest rate changed by 1% (100 basis points) with all other variables held constant. This represents management’s best estimate of a reasonable possible shift in the interest rate, having regard to the historical volatility of the interest rate.

The Fund’s exposure to interest rate risk associated with deposits with licensed financial institutions is not material as the deposits with licensed financial institutions are placed on a short term basis.


(b) Credit risk

Credit risk refers to the ability of an issuer or counterparty to make timely payments of interest, principals and proceeds from realisation of investment.

Investment in unquoted fixed income securities may involve a certain degree of credit/default risk with regards to the issuers. Generally, credit risk or default risk is the risk of loss due to the issuer’s non-payment or untimely payment of the investment amount as well as the returns on investment. This will cause a decline in value of the defaulted unquoted fixed income securities and subsequently depress the NAV of the Fund. Usually credit risk is more apparent for an investment with a longer tenure, i.e. the longer the duration, the higher the credit risk. Credit risk can be managed by performing continuous fundamental credit research and analysis to ascertain the creditworthiness of its issuer. In addition, the Manager imposes a minimum rating requirement as rated by either local and/or foreign rating agencies and manages the duration of the investment in accordance with the objective of the Fund.

The credit risk arising from placements of deposits with licensed financial institutions is managed by ensuring that the Fund will only place deposits in reputable licensed financial institutions. The settlement terms of the proceeds from the creation of units receivable from the Manager are governed by the Securities Commission Malaysia’s Guidelines on Unit Trust Funds.

The credit/default risk is minimal as all transactions in unquoted investments are settled/paid upon delivery using approved brokers/dealers.


29.02.2016 Finance- AAA- AA1- AA2- NR Highway- AA-Power- AA1Properties- AA-Total

28.02.2015Finance- AAA- AA1- AA2- AA-- NR Highway- AA-Power- AA1Properties- AA-Total

Cash and cash

equivalentsRM

1,606,146 19,619

500,045 -

-

-

- 2,125,810

2,671,330 20,194

1,250,226 850,154

-

-

-

- 4,791,904

Unquoted fixed income

securities/Excess return

swapRM

- - -

412,674

500,426

507,700

507,731 1,928,531

- - - -

997,603

1,493,598

1,012,882

1,012,858 4,516,941

TotalRM

1,606,146 19,619

500,045 412,674

500,426

507,700

507,731 4,054,341

2,671,330 20,194

1,250,226 850,154 997,603

1,493,598

1,012,882

1,012,858 9,308,845

All financial assets of the Fund are neither past due nor impaired.


(c) Liquidity risk

Liquidity risk is the risk that investments cannot be readily sold at or near its actual value without taking a significant discount. This will result in lower net asset value of the Fund.

The Manager manages this risk by maintaining sufficient level of liquid assets to meet anticipated payments and cancellations of the units by unitholders. Liquid assets comprise cash at banks, deposits with licensed financial institutions and other instruments.

The table below summarises the Fund’s financial liabilities into relevant maturity groupings based on the remaining period as at the end of the reporting period to the contractual maturity date. The amounts in the table are the contractual undiscounted cash flows.

29.02.2016 Financial liabilitiesAmount due to the Manager -management feeAmount due to the Manager-expensesAmount due to the TrusteeOther payables and accrualsContractual cash out flows

28.02.2015Financial liabilitiesAmount due to the Manager -cancellation of unitsAmount due to the Manager -management feeAmount due to the Manager-expensesAmount due to the TrusteeOther payables and accrualsContractual cash out flows

1 month to 1 year

RM

-

- -

19,929 19,929

-

-

- -

21,471 21,471

Less than1 month

RM

4,007

86 13,647

- 17,740

908,764

8,769

93 8,376

- 926,002

TotalRM

4,007

86 13,647 19,929 37,669

908,764

8,769

93 8,376 21,471

947,473


(d) Non-compliance risk

Non-compliance risk arises when the Manager and others associated with the Fund do not follow the rules set out in the Fund’s constitution, or the law that govern the Fund, or act fraudulently or dishonestly. It also includes the risk of the Manager not complying with internal control procedures.

Non-compliance may expose the Fund to higher risks of a fall in the value of the Fund which in turn may affect its investment goals. However, the risk can be mitigated by the internal controls and compliance monitoring undertaken by the Manager.

(e) Capital risk

The capital of the Fund is represented by equity consisting of unitholders’ capital and retained earnings. The amount of equity can change significantly on a daily basis as the Fund is subject to daily subscriptions and redemptions at the discretion of unitholders. The Fund’s objective when managing capital is to safeguard the Fund’s ability to continue as a going concern in order to provide returns for unitholders’ and benefits for other stakeholders and to maintain a strong capital base to support the development of the investment activities of the Fund.

(f) Fair value estimation

Financial instruments comprise financial assets and financial liabilities. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The information presented herein represents the estimates of fair values as at the date of the statement of financial position.

The Fund’s financial assets and financial liabilities are measured on an ongoing basis at either fair value or at amortised cost based on the respective classification.


The fair value of financial assets traded in active markets (such as publicly traded derivatives and trading securities) are based on quoted market prices at the close of trading on the reporting date. The Fund utilises the last traded market price for financial assets where the last traded price falls within the bid-ask spread. In circumstances where the last traded price is not within the bid-ask spread, the Manager will determine the point within the bid-ask spread that is most representative of the fair value.

A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis.

The fair value of financial assets that are not traded in an active market is determined by using valuation techniques. The Fund uses a variety of methods and makes assumptions that are based on market conditions existing at each period end date. Valuation techniques used for non-standardised financial instruments such as options, currency swaps and other over-the-counter derivatives, include the use of comparable recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity-specific inputs.

For instruments for which there is no active market, the Fund may use internally developed models, which are usually based on valuation methods and techniques generally recognised as standard within the industry. Valuation models are used primarily to value unlisted equity, debt securities and other debt instruments for which market were or have been inactive during the financial year. Some of the inputs to these models may not be market observable and are therefore estimated based on assumptions.


The output of a model is always an estimate or approximation of a value that cannot be determined with certainty, and valuation techniques employed may not fully reflect all factors relevant to the positions the Fund holds. Valuations are therefore adjusted, where appropriate, to allow for additional factors including model risk, liquidity risk and counterparty risk.

An active market is a market in which transactions for the asset take place with sufficient frequency and volume to provide pricing information on an on-going basis.

(i) Fair value hierarchy

The table below analyses financial instruments carried at fair value. The different levels have been defined as follows:

• Quoted prices (unadjusted) in active market for identical assets or liabilities (Level 1)

• Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2)

• Inputs for the asset and liability that are not based on observable market data (that is, unobservable inputs) (Level 3)

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirely is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirely. For this purpose, the significance of an input is assessed against the fair value measurement in its entirely. If a fair value measurement uses observable inputs that requires significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value


Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. These include unquoted fixed income securities and excess return swap. As Level 2 instruments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability,

29.02.2016 Financial assets at FVTPL:- Unquoted fixed income securities - local- Excess return swap

28.02.2015Financial assets at FVTPL:- Unquoted fixed income securities - local- Excess return swap

Level 2RM

1,515,857 412,674

1,928,531

3,519,338 997,603

4,516,941

Level 3RM

- - -

- - -

Level 1RM

- - -

- - -

TotalRM

1,515,857

412,674 1,928,531

3,519,338 997,603

4,516,941

measurement in its entirely requires judgment, considering factors specific to the asset or liability.

The determination of what constitutes ‘observable’ requires significant judgment by the Fund. The Fund considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary and provided by independent sources that are actively involved in the relevant market.

The following table analyses within the fair value hierarchy the Fund’s financial assets (by class) measured at fair value:


which are generally based on available market information. The Fund’s policies on valuation of these financial assets are stated in Note 2(b).

(ii) The carrying values of cash and cash equivalents, financial assets and financial liabilities are a reasonable approximation of the fair values due to their short term nature.

4. INTEREST INCOME

Interest income from:- Deposits with licensed financial institutions- Unquoted fixed income securities

2016 RM

74,779 136,079 210,858

2015 RM

141,707 321,876 463,583

5. MANAGEMENT FEE AND MANAGEMENT FEE REBATE

In accordance with Division 13.1 of the Deed, the Manager is entitled to a management fee of up to 2.00% per annum calculated daily based on the net asset value of the Fund.

For the financial year ended 29 February 2016, the management fee is recognised at a rate of 1.25% (2015: 1.25%) per annum.

Management fee rebate relates to the rebate received from the Manager for investing in Hong Leong Income Management Fund (2015: Hong Leong Institutional Bond Fund). The rebate was 0.30% (2015: 0.50%) per annum calculated on the net asset value of Hong Leong Income Management Fund (2015: Hong Leong Institutional Bond Fund) on a daily basis.

There will be no further liability to the Manager in respect of management fee other than the amount recognised above.


6. TRUSTEE’S FEE

In accordance with Division 13.2 of the Deed, the Trustee is entitled to a fee not exceeding 0.20% subject to a minimum of RM18,000 per annum (excluding foreign custodian fees and charges) calculated daily based on the net asset value of the Fund.

For the financial year ended 29 February 2016, the trustee’s fee is recognised at a rate of 0.08% (2015: 0.08%) per annum.

There will be no further liability to the Trustee in respect of trustee’s fee and custodian fees other than the amount recognised above.

7. DISTRIBUTIONS

Prior financial years’ realised incomeNet distributions amount

Net distributions per unit (sen)Gross distributions per unit (sen)

Date of Declaration

Distribution on 17/18 MarchGross/net distribution per unit (sen)

Distribution on 16/17 JuneGross/net distribution per unit (sen)

Distribution on 15/17 SeptemberGross/net distribution per unit (sen)

Distribution on 15/16 DecemberGross/net distribution per unit (sen)

2015RM

241,896 241,896

1.0000 1.0000

0.2500

0.2500

0.2500

0.2500

2016RM

115,174 115,174

1.0000 1.0000

0.2500

0.2500

0.2500

0.2500

Net distribution above is sourced from prior financial years’ realised income. Gross distribution is derived using total income less total expenses.


Tax charge for the financial year: Current taxation

(Loss)/profit before taxation Taxation at Malaysian statutory rate of 24% (2015: 25%) Tax effects of: Investment loss not deductible for tax purposes/Investment income not subject to tax Expenses not deductible for tax purposes Restriction on tax deductible expenses for unit trust fundTaxation

2015RM

-

2015RM

8,035

2,009

(59,674) 12,208

45,457 -

2016RM

-

2016RM

(682,512)

(163,803)

120,406 19,967

23,430 -

The numerical reconciliation between (loss)/profit before taxation multiplied by the Malaysian statutory income tax rate and tax expense of the Fund is as follows:

Gross distribution per unit is derived from net realised income less expenses divided by the number of units in circulation, while net distribution per unit is derived from net realised income less expenses and taxation divided by the number of units in circulation.

The above distributions have been proposed before taking into account the unrealised loss of RM53,342 (2015: unrealised gain of RM358,244) which is carried forward to the next financial year.

8. TAXATION


9. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (“FVTPL”)

Financial assets at FVTPL:Unquoted fixed income security - localExcess return swap

28.02.2015 RM

3,519,338 997,603

4,516,941

29.02.2016 RM

1,515,857 412,674

1,928,531

Net loss on financial assets at FVTPL:Realised loss on disposals Changes in unrealised fair values

2015 RM

(597,353) 383,300

(214,053)

2016 RM

(663,945) (53,342)

(717,287)

UNQUOTED FIXED INCOME SECURITIES - LOCAL

Private Debt Securities 4.75% Konsortium Lebuhraya Utara-Timur (KL) Sdn Bhd (AA-) 02/12/2024 - IMTN 64.70% Sepangar Bay Power Corporation Sdn Bhd (AA1) 01/07/2022 - Series 84.80% UEM Sunrise Berhad (AA-) 08/04/2022 - Issue No. 6

TOTAL UNQUOTED FIXED INCOME SECURITIES - LOCAL

EXCESS RETURN SWAP

Templeton Global Bond Swap

TOTAL EXCESS RETURN SWAP

TOTAL INVESTMENTS

UNREALISED GAIN ON FINANCIAL ASSETS AT FVTPL

TOTAL FAIR VALUE OF FINANCIAL ASSETS AT FVTPL

Percentageof netassetvalue

%

12.46

12.64

12.64

37.74

10.27

10.27

48.01

Fair value

RM

500,426

507,700

507,731

1,515,857

412,674

412,674

1,928,531

Aggregate

cost RM

488,447

500,935

509,271

1,498,653

360,000

360,000

1,858,653

69,878

1,928,531

Nominal value

RM

500,000

500,000

500,000

1,500,000

3,600,000

3,600,000

5,100,000

Financial assets at FVTPL as at 29 February 2016 are as detailed below:


UNQUOTED FIXED INCOME SECURITIES - LOCAL

Private Debt Securities 4.75% Konsortium Lebuhraya Utara-Timur (KL) Sdn Bhd (AA-) 02/12/2024 - IMTN 64.70% Sepangar Bay Power Corporation Sdn Bhd (AA1) 01/07/2022 - Series 84.60% UEM Sunrise Berhad (AA-) 13/12/2018 - IMTN Issue No. 2

TOTAL UNQUOTED FIXED INCOME SECURITIES - LOCAL

EXCESS RETURN SWAP

Templeton Global Bond Swap

TOTAL EXCESS RETURN SWAP

TOTAL INVESTMENTS

UNREALISED GAIN ON FINANCIAL ASSETS AT FVTPL

TOTAL FAIR VALUE OF FINANCIAL ASSETS AT FVTPL

Percentageof netassetvalue

%

17.86

12.12

12.11

42.09

11.93

11.93

54.02

Fair value

RM

1,493,598

1,012,882

1,012,858

3,519,338

997,603

997,603

4,516,941

Aggregate

cost RM

1,460,552

1,000,896

1,012,273

3,473,721

920,000

920,000

4,393,721

123,220

4,516,941

Nominal value

RM

1,500,000

1,000,000

1,000,000

3,500,000

9,200,000

9,200,000

12,700,000

Financial assets at FVTPL as at 28 February 2015 are as detailed below:


10. CASH AND CASH EQUIVALENTS

Deposits with licensed financial institutionsCash at banks

At the beginning of the financial yearAdd: Creation of units during the financial year - Arising from applications - Arising from distributionsLess: Cancellation of units during the financial yearAt the end of the financial year

Deposits with licensed financial institutions

28.02.2015 RM

4,770,870 21,034

4,791,904

28.02.2015 No. of units

36,714,554

312,886 412,468

(22,252,078) 15,187,830

28.02.2015 %

3.33

29.02.2016 RM

2,106,191

19,619 2,125,810

29.02.2016 No. of units

15,187,830

57,439 210,765

(6,976,435) 8,479,599

29.02.2016%

3.31

The effective weighted average interest rates per annum are as follows:

Deposits with licensed financial institutions have an average maturity of 1 day (28.02.2015: 2 days).

11. UNITS IN CIRCULATION


Management expense ratio includes management fee (net of management fee rebate), trustee’s fee, auditors’ remuneration, tax agent’s fee, custodian fee and other expenses for the financial year divided by the Fund’s average net asset value calculated on a daily basis and is calculated as follows:

12. MANAGEMENT EXPENSE RATIO (“MER”)

MER

2016 %

3.14

2015%

1.81

The average net asset value of the Fund for the financial year calculated on a daily basis is RM5,761,127 (2015: RM12,730,832).

MER = (A+B+C+D+E+F) GWhere;A = Management fee, net of management fee rebateB = Trustee’s feeC = Auditors’ remunerationD = Tax agent’s feeE = Custodian feeF = Other expensesG = Average net asset value of the Fund calculated on a daily basis

X 100


13. PORTFOLIO TURNOVER RATIO (‘’PTR”)

PTR

2015 Times

1.36

2016 Times

1.00

PTR is derived from the following calculation:

(Total acquisitions for the financial year + total disposals for the financial year) / 2

Average net asset value of the Fund for the financialyear calculated on a daily basis

Where; total acquisitions for the financial year = RM4,860,000 (2015: RM16,552,928) total disposals for the financial year = RM6,692,546 (2015: RM18,104,023)

No units were held by the Manager and parties related to the Manager as at 29 February 2016 and 28 February 2015.

14. UNITS HELD BY THE MANAGER AND RELATED PARTIES TRANSACTIONS AND BALANCES

The related parties and their relationships with the Fund are as follows:

Related partiesHong Leong Asset Management BhdHong Leong Capital BerhadHong Leong Financial Group Berhad (“HLFG”)Subsidiaries and associates of HLFG as disclosed in its financial statements

Relationships

The Manager Holding company of the Manager Ultimate holding company of the ManagerSubsidiaries and associate companies of the ultimate holding company of the Manager


In addition to related party disclosures mentioned elsewhere in the financial statements, set out below are other related party transactions and balances. The Manager is of the opinion that all transactions with the related companies have been entered into the normal course of business at agreed terms between the related parties.

Related party balancesCash at bank - Hong Leong Bank BerhadDeposits with licensed financial institution:- Hong Leong Investment Bank Berhad

29.02.2016 RM

19,619

- 19,619

28.02.2015RM

20,194

850,154 870,348

Related party transactionsInterest income from deposits with licensed financial institutions: - Hong Leong Bank Berhad - Hong Leong Investment Bank Berhad

Dividend income from collective investment scheme managed by the Manager

Purchase of collective investment scheme:- Hong Leong Asset Management Bhd

Purchase of fixed income securities:- Hong Leong Investment Bank Berhad

Disposal of collective investment scheme:- Hong Leong Asset Management Bhd

Disposal of fixed income security:- Hong Leong Investment Bank Berhad

2016 RM

- 2,050 2,050

4,738

1,000,000

-

1,000,000

-

2015 RM

671

13,993 14,664

3,138

2,000,000

2,999,268

2,003,531

1,844,508


15. TRANSACTIONS WITH BROKERS/DEALERS

Detail of transactions with brokers/dealers are as follows:

2016Public Bank BerhadCIMB Bank BerhadRHB Bank BerhadMalayan Banking BerhadUnited Overseas Bank (Malaysia) BerhadHong Leong Investment Bank Berhad*J.P. Morgan Chase Bank Berhad Kenanga Investment Bank Berhad

2015Public Bank BerhadUnited Overseas Bank (Malaysia) BerhadRHB Bank BerhadHong Leong Investment Bank Berhad*Bank Islam Malaysia BerhadOCBC Al-Amin Bank BerhadCIMB Bank BerhadCitibank BerhadJPMorgan Chase Bank BerhadKenanga Investment Bank BerhadOthers

Values

of tradeRM

164,573,000 153,644,000 145,220,257 47,847,000 37,263,000 16,229,000 5,592,936 1,537,127

571,906,320

204,134,000 202,126,000 194,048,796

60,310,776 29,589,000 24,166,000 17,237,083 4,997,750 4,963,587 4,042,715 1,996,758

747,612,465

Percentage of total

trade%

28.78 26.86 25.39 8.37 6.51 2.84 0.98 0.27

100.00

27.30 27.04 25.95 8.07 3.96 3.23 2.31 0.67 0.66 0.54 0.27

100.00

* Transactions with brokers/dealers related to the Manager.

The Manager is of the opinion that all transactions with the related companies have been entered into the normal course of business at agreed terms between the related parties.


16. SEGMENT INFORMATION

The internal reporting provided to the chief operating decision maker for the Fund’s assets, liabilities and performance is prepared on a consistent basis with the measurement and recognition principles of MFRS and IFRS. The chief operating decision-maker is responsible for the performance of the Fund and considers the business to have a single operating segment. Asset allocation decisions are based on a single, integrated investment strategy and the Fund’s performance is evaluated on an overall basis.

The reportable operating segment derives its income by seeking investments to achieve targeted returns consummate with an acceptable level of risk within the portfolio. These returns consist of interest, dividends and gains on the appreciation in the value of investments and are derived in Malaysia.

There were no changes in reportable segment during the financial year.

50

Performance Data

HONG LEONG GLOBAL BOND FUND

A i)

(ii)

(iii)

(iv)

(v)

(vi)

Portfolio Compositions:Corporate BondsCollective Investment SchemesTempleton Global Bond SwapCredit Linked InvestmentsMalaysian Government SecuritiesDeposits & Cash Equivalents

Asset Allocation of The Underlying Fund:Templeton Global Bond FundInternational Government/Agency BondsSovereign BondsSupranationalMunicipalDerivativesDeposits & Cash Equivalents

Geographical Allocation of The Underlying Fund: Templeton Global Bond FundNon-Japan AsiaNon-U.S. AmericaNon-EMU, Europe & AfricaEuropean Monetary Union (EMU)United States (U.S.)SupranationalDeposits & Cash Equivalents

Total Net Asset Value

Net Asset Value Per UnitUnits in Circulation

Highest / Lowest NAV Per Unit (ex-distribution)

Total Return of the Fund* - Capital Growth - Income Distribution

Distribution Per Unit

(ex-distribution)

(ex-distribution)(ex-distribution)

Highest NAV Per UnitLowest NAV Per Unit

Additional UnitsDistribution (Gross)

Distribution (Net)Distribution Date



Financial Year28/02/15-29/02/16

%

37.74-

10.27--

51.99

79.0712.330.49

--2.8911.00

41.4733.5314.57

1.92-2.980.49

11.00

RM4,016,672

RM0.47378,479,599

RM0.5614RM0.4620

-12.28%-13.95%

1.67%

-0.25 sen/unit0.25 sen/unit

17/03/2015


16/06/2015


Financial Year 28/02/14-28/02/15

%

42.09-

11.93--

45.98

64.8810.850.40

--1.21

25.08

30.5618.9021.924.30-1.160.40

25.08

RM8,361,372

RM0.550515,187,830

RM0.5746RM0.5385

-0.72%-2.48%1.76%


18/03/2014


17/06/2014


%

42.59----

57.41

------

-------

RM20,723,746

RM0.564536,714,554

RM0.6085RM0.5481

-1.34%-6.28%4.94%

-2.0 sen/unit2.0 sen/unit29/03/2013



%

37.719.429.62

-15.6427.61

72.9511.071.440.13

-0.8015.21

32.449.0831.918.591.331.44

15.21

RM31,836,805

RM0.602352,855,743

RM0.6040RM0.5071

9.03%9.03%

-

----

----


%

9.24-

27.436.81

-56.52

75.0812.023.481.47-1.109.05

39.709.32

33.774.260.423.489.05

RM44,063,912

RM0.552479,770,529

RM0.5995RM0.5069

5.65%-4.00%9.65%



52

Performance Data

HONG LEONG GLOBAL BOND FUND

* Source : Lipper For Investment Management (Returns are calculated after adjusting for distributions and/or additional

units, if any)

# The MER was 1.33 percentage point higher as compared to 1.81% for the financial year ended 28 February 2015 mainly due to decrease in average net asset value of the Fund.

## The PTR decreased by 0.36 times (26.47%) as compared to 1.36 times for the financial year ended 28 February 2015 mainly due to lower level of rebalancing activities undertaken by the Fund.

(vii)

(viii)

B.

(i)(ii)(iii)(iv)(v)

Management Expense Ratio (MER)

Portfolio Turnover Ratio (PTR) (times)

Average Total Return, NAV Per Unit-to-NAVPer Unit basis (to 29/02/16)*1 Year2 Years3 Years5 YearsSince launch (18 April 2008)





Financial Year28/02/15-29/02/16

%


15/09/2015


15/12/2015

3.14%#

1.00##

-12.28%-6.46%-4.69%0.20%2.67%



%


17/09/2014


16/12/2014

1.81%

1.36


%


18/09/2013


17/12/2013

1.50%

1.24


%

----

----

1.47%

0.88


%

----

----

1.22%

1.99


Corporate Information

ManagerHong Leong Asset Management Bhd (318717-M)

Registered OfficeLevel 8, Wisma Hong Leong8, Jalan Perak50450 Kuala Lumpur

Business OfficeLevel 26, Menara LGB1, Jalan Wan KadirTaman Tun Dr. Ismail60000 Kuala Lumpur

Board of DirectorsMr. Hoo See KhengDato’ Abdul Majit Bin Ahmad KhanTunku Dato’ Mahmood Fawzy Bin Tunku Muhiyiddin

Executive Director / Chief Executive OfficerMr. Hoo See Kheng

SecretariesMs. Christine Moh Suat Moi (MAICSA No. 7005095)Mr. Lee Tiong Jie (MAICSA No. 7060133)

The Underlying FundTempleton Global Bond Fund

Manager of the Underlying FundFranklin Advisers, Inc

Swap CounterpartyJ.P. Morgan Chase Bank Berhad

TrusteeCIMB Commerce Trustee Berhad (313031-A)

AuditorsPricewaterhouseCoopers (AF 1146)

Tax AdviserPricewaterhouseCoopers Taxation Services Sdn Bhd (464731-M)

SolicitorNaqiz & Partners

BankerHong Leong Bank Berhad (97141-X)

AgentsHong Leong Bank Berhad (97141-X)OCBC Bank (Malaysia) Berhad (295400-W)Malayan Banking Berhad (3813-K)Citibank (Malaysia) Berhad (297089-M)Registered Independent Tied Agents with FiMM


Corporate Directory

Head OfficeLevel 26, Menara LGB1, Jalan Wan KadirTaman Tun Dr. Ismail60000 Kuala Lumpur Tel: 03-7723 3500Fax: 03-7873 6088, 03-7873 6091Website: www.hlam.com.myE-mail: [email protected]

KuchingNo. 80, 1st Floor, Jalan Pending93450 Kuching, SarawakTel: 082-342 897, 082-342 902Fax: 082-342 903

Pulau PinangNo. 441-1-3Pulau Tikus Plaza, Jalan Burmah10350 Pulau Tikus, Pulau PinangTel: 04-2288 112, 04-2289 112Fax: 04-2283 112

Kota KinabaluLot 76, 1st FloorJalan Gaya, 88000 Kota Kinabalu, SabahTel: 088-318 021, 088-318 052, 088-264 893Fax: 088-310 190

Ipoh7A, 1st Floor, Persiaran Greentown 4Greentown Business Centre30450 Ipoh, PerakTel: 05-2558 388, 05-2559 388, 05-2534 388Fax: 05-2558 389


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Hong Leong Asset Management Bhd (318717-M) www.hlam.com.my

hong leong global bond fund

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