Annual Review 2016 For the Financial Year Ended 31 December 2016

Transcription

1 Annual Review 2016 For the Financial Year Ended 31 December 2016 MANULIFE INVESTMENT-LINKED FUNDS SIP AGGRESSIVE PORTFOLIO SIP GROWTH PORTFOLIO SIP BALANCED PORTFOLIO

2 ABOUT MANULIFE MALAYSIA Manulife Insurance Berhad, a wholly owned subsidiary of Manulife Holdings Berhad and a member of Canada-based Manulife Financial Corporation. We have been established over 53 years in Malaysia and was listed on the KLSE in As at 31 December 2016, assets under management were over RM8.04 billion. Through its subsidiary companies, the Manulife Group offers an innovative range of financial protection and wealth management products and services to meet different customer needs.

3 CONTENT 1. Market Commentary 2 2. Fund Performance 16 - Comparative Performance Tables 20 - Investment Information Summary of Financial Statement Notes to the Financial Information Statement by Manager Independent Auditors Report 40

4 MARKET COMMENTARY

5 MARKET COMMENTARY SIP AGGRESSIVE PORTFOLIO FUND OBJECTIVE SIP Aggressive Portfolio is a unitized fund, which is designed to provide long term capital growth. It is designed for those who hold a long term investment view and who are prepared to accept significant fluctuations in the value of their investment in order to achieve long term returns. PORTFOLIO BREAKDOWN As at 31 st December 2016 SIP GROWTH PORTFOLIO FUND OBJECTIVE SIP Growth Portfolio is a unitized fund, which is designed to provide medium to long term capital growth for those who hold a long term investment view and who are prepared to accept considerable fluctuations in the value of their investments in order to achieve long term returns. PORTFOLIO BREAKDOWN As at 31 st December 2016 ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 3

6 MARKET COMMENTARY (CONTINUED) SIP BALANCED PORTFOLIO FUND OBJECTIVE SIP Balanced Portfolio is a unitized fund, which is designed to provide medium to long term capital growth for those who hold a long term investment view and who are prepared to accept fluctuations in the value of their investments in order to achieve long term returns. PORTFOLIO BREAKDOWN As at 31 st December 2016 MANAGEMENT FEE Fund management fee are charged to the Fund during the year. It is calculated on a daily basis based on the net asset value of the Funds. The annual fee charged are as below: SIP Aggressive Portfolio 1.40 SIP Growth Portfolio 1.30 SIP Balanced Portfolio 1.20 The SIP Lifestyle Portfolio is managed by Manulife Asset Management Services Berhad and is fund of funds structure. It invests all of its assets into the Underlying Funds under the Manulife Global Fund Platform. This report is prepared for information purposes only. ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 4

7 MARKET COMMENTARY (CONTINUED) ASIA PACIFIC EX JAPAN PORTFOLIO REVIEW The sub-fund underperformed over the past year with the underperformance being broad based. Stock selection in China and Hong Kong, in addition to the underweight in India, were the primary performance detractors. Stock selection in India and Singapore, as well as the underweight in South Korea and overweight in Taiwan helped offset some of the underperformance. The sub-fund s holding in an automotive parts manufacturer was the largest positive contributor to performance. Growth prospects remain strong due to an improvement in sales and margins from a shift in product mix. A Taiwan listed vertical health food and cosmetic product original design manufacturer (ODM) performed well. The company reported stronger-than-expected earnings on an increase in sales and margin expansion due to a shift to higher margin products. The company also continued to provide earnings guidance that was much higher than consensus estimates. South Korean companies related to the beauty and personal care industry negatively impacted performance. This was due to concerns that sales to Chinese tourists may be impacted by potential restrictive policies on low cost tours group from China. That said, one of the top contributors was the overweight in South Korea s largest semiconductor and smartphone manufacturer as it announced several initiatives to improve shareholders returns. These include paying out half of its free cash flow for this year and next year; pay dividends quarterly by next year; and a potential corporate structure overhaul. Other contributors included an Indian automobile manufacturer, Taiwan application software developer for online gaming, and a Macau casino operator as gross gaming revenues (GGR) improved through the year. One of the detractors was a Philippine telecommunications services provider. Third quarter earnings missed on higher borrowing costs from a debt-funded acquisition for new spectrum and increasing competition. At the sector level, stock selection in the financials, information technology, and materials were the primary detractors to performance. The underweight in financials contributed positively, as did stock selection in real estate and industrials. MARKET REVIEW Asia Pacific ex Japan equities recorded small gains for the year despite a very volatile period, marked by the vote for Britain to exit the EU; the strengthening dollar and higher bond yields; the US elections and election results; and the Fed rate hike overhang. The equity market was supported by normalising commodity and oil prices, where 11 non-opec countries agreed to production cuts by November, as well as by Asia central banks pledge to support growth through easier monetary policies and guidance. In December, the Fed raised interest rates by 25 basis points (bps) for the second time post the global financial crisis. During the year, there was a notable improvement in manufacturing Purchasing Managers Indexes (PMIs) across Asia, and a recovery in exports in some countries. ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 5

8 MARKET COMMENTARY (CONTINUED) China economic activity has been improving by the latter half of the year with manufacturing PMI, industrial production, retail sales, and fixed asset investments. Producer Price Index (PPI) in September was positive for the first time in 55 months, and continued to grow for four consecutive months with December showing the fastest growth in five years. This should be positive for non-financial corporate earnings growth. The China Insurance Regulatory Commission allowed mainland Chinese insurance companies to invest in Hong Kong shares through the Hong Kong-Shanghai stock connect programme using wealth management products as the investment vehicle. Taiwan exports in November grew at its fastest pace in almost four years due to higher seasonal demand for hi-tech gadgets. In South Korea, the parliament voted to impeach the President, who was immediately suspended from her duties. Uncertainties surrounding the political environment dampened market performance. Bank Indonesia cut its benchmark interest rate by 25bps in October, the sixth time during the year. With the goal to finance a widening budget deficit, the parliament approved the long-awaited tax amnesty bill, resulting in total revenues of IDR103.3 trillion. In October, the Thai King passed away after 70 years of rule. Singapore industrial production in November increased above expectations driven by strong biomedical and electronic outputs. The new Philippine President, elected in May, took a four-day visit to China to strengthen bilateral relations between the countries and signed trade deals worth US$24 billion. In India, the government demonetised high-value currency notes (INR500 and INR1,000) to address black money and corruption. Given that most Indian transactions are in cash, sectors such as consumer discretionary, financials, and real estate were among the worst affected. Implementation of the Goods & Services Tax Bill (GST) has been delayed given the lack of consensus on key concerns during the winter parliamentary session. Australia third quarter GDP growth at 1.8 year-on-year was below consensus forecast. After two 25bps-cuts during the year, the Reserve Bank of Australia left the cash rate unchanged at a record-low. It sees the current policy settings as appropriate for achieving economic growth and inflation targets. OUTLOOK The outlook for 2017 is expected to be shaped by expectations of higher energy prices and a stronger US dollar, which should lead to an inflationary environment. Against this backdrop, interest rates in the US are expected to trend higher, while interest rates in Asia ex-japan economies are to stay at current levels (if not higher). The pace of renminbi depreciation remains a key factor to watch out for. There is risk that the currency may overshoot to the downside and concerns may ripple through the region. That said, over the longer term, the sub-fund s portfolio manager believes China s economic fundamentals should provide support to the renminbi and any panic reaction should be short-lived. ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 6

9 MARKET COMMENTARY (CONTINUED) The outlook for South East Asia, especially Indonesia, is expected to improve further from The government of Indonesia has made good progress in reforms. The country s economy is more resilient to external shocks compared to the first taper tantrum. The oil price recovery should also provide some relief to Malaysia s fiscal position, and an imminent election should provide near term support to economic activities. While India s economy is expected to slow following the demonetisation programme, the PM believes the country s current short term pains pave the way for long term gains in terms of economic development. Amid rapid change in market dynamics, opportunities in Asia still appear compelling relative to its peers in the developed markets. Earnings revisions are turning positive and valuations remain reasonable. A more stable currency, and a benign interest rate and inflation environment provide further appeal to the region. NORTH AMERICA PORTFOLIO REVIEW Security selection in the information technology sector on average, about 20 of the sub-fund s assets had a sizable negative impact, accounting for most of the sub-fund s underperformance. Among the portfolio s biggest individual detractors were professional networking company LinkedIn and leading Chinese e-commerce company Alibaba. Neither stock was in the S&P 500 Index. LinkedIn s share price collapsed in the first quarter of 2016 when the company gave a lower-than-expected outlook for its advertising business. The stock bounced after the company received a generous buyout offer last June from Microsoft (which the sub-fund did not own), but was still down significantly from the start of the year. The sub-fund s portfolio manager (PM) expected Alibaba to benefit from its sizable competitive advantage and strong secular advantages as more consumers shop online. However, China s slowing economic growth and yuan devaluation concerns pressured the stock. The PM eliminated both positions from the sub-fund in the first half of the period. A sizable overweight and stock picks in the consumer discretionary sector further detracted from relative performance. Disappointments included fashion brand apparel and home goods retailer Ralph Lauren and homebuilder Lennar. Ralph Lauren is experiencing a turnaround under a new management team. Despite progress cutting costs, it has struggled to grow revenues. This is partly because department store sales have been under pressure from online competition. Sluggish global growth and currency challenges further hampered the stock s performance, causing the stock to decline this past year. The PM concluded the turnaround would take longer than originally anticipated and sold the position. Although Lennar reported 14.6 growth in year-over-year revenues in December, its stock also fell in Challenges included fitful growth in the housing market, rising labour costs, and the looming likelihood of higher interest rates pricing some homebuyers out of the market. The PM held onto the position on the belief that the company is well positioned to benefit from the current shortage in US housing stock. Elsewhere, a non-benchmark stake in Switzerland-based pharmaceuticals Novartis detracted. The turnaround of its Alcon eye care division continued to take longer than expected. Furthermore, the ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 7

10 MARKET COMMENTARY (CONTINUED) portfolio s investment in Belgium-based global brewer Anheuser-Busch also contributed negatively. The company, best known for its Budweiser and Michelob franchises, reported disappointing third-quarter financial results, partly driven by exposure to weak emerging markets. In addition, the post-election shift away from more defensive stocks into more economically-sensitive sectors pressured Anheuser-Busch s return. Looking out longer term, the PM expects the recent acquisition of UK-based competitor SABMiller to help shape Anheuser-Busch as a dominant player in the beer business with good profit margin opportunities ahead. The sub-fund gained this past year from having an underweight in the weak-performing healthcare sector and an overweight in the strong-performing financials sector. Top contributors to relative performance included diversified financials Bank of America and JPMorgan. Both stocks rallied sharply after the Trump election. They benefited from expectations of improved economic growth, higher interest rates, lower corporate tax rates and less regulation. In healthcare, the late-period addition of Ireland-based pharmaceuticals company and benchmark component Allergan helped. The PM avoided the stock s significant decline earlier in the year. Allergan, best known for its Botox anti-wrinkle treatment, saw its shares slide after competitor Pfizer s plan to buy the company fell through last spring. Furthermore, pharmaceuticals stocks generally remained under pressure due to concerns that US legislators would cap drug prices. Allergan sold its generics business to Israel-based Teva Pharmaceutical Industries last August. This freed up cash for other purposes, including reducing debt, strengthening its own balance sheet, and investing in its product pipeline. The PM found Allergan s share price attractive for a branded-only company, which typically commands a higher price/earnings ratio multiple than a generics or hybrid pharmaceuticals company. Elsewhere, an overweighting in United Rentals posted a significant gain. This was buoyed by expectations that demand for rental equipment would increase, given the Trump administration s plans to boost infrastructure spending. MARKET REVIEW After a rocky start to 2016, US stocks surprised many investors with another strong year. The market plunged early on as oil prices collapsed to their lowest level in over a decade and global economic growth slowed, particularly in China. Furthermore, the uneven pace of the US economic recovery kept investors on edge. However, the tide turned in mid-february. Improved US economic reports, better news out of China, and a turnaround in oil prices spurred a rally that extended through much of the spring. The UK s surprise vote in late-june to leave the EU caused another sharp decline. But the market downturn was short-lived. Investors were reassured by swift support from central banks coupled with record-low bond yields globally, better-than-expected corporate earnings reports, and a positive jobs report. This helped drive stocks to new highs over the summer. Negative headlines in the financials sector, renewed interest-rate concerns, and an unpredictable US presidential election added volatility in the fall. However, stocks made a strong comeback following the election of Donald Trump as the next US president, resulting in new records being set in December. Investors expected the new administration s plans to lower corporate tax rates, reduce regulation, and increase fiscal stimulus to benefit economic growth. Furthermore, promised production cuts at the late- November meeting of OPEC helped stabilise oil prices. The Fed inched its federal funds rate higher in mid-december, a move that was widely anticipated by investors and had minimal impact on the market. ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 8

11 MARKET COMMENTARY (CONTINUED) The S&P 500 Index posted an advance for 2016, with about two-thirds of the gain coming in the second half of the period. The strongest returns came from the energy, telecommunication services and financials sectors. The most notable laggard was the healthcare sector, which was pressured by concern that legislators would start capping drug prices. OUTLOOK Although the stock market rose in 2016 for the eighth consecutive year and stock valuations appear relatively high, the PM remains optimistic for several reasons. Firstly, the PM expects continued recovery in the US economy in the coming year. Consumers, whose purchases drive two-thirds of US economic growth, are well positioned. By year-end, US consumer debt levels were their lowest in over a decade with near full employment, the fastest consumer wage growth in over five years, and the highest level of consumer confidence since This backdrop bodes well for increased consumer spending. Furthermore, any boost to economic growth would give the Fed more reason to increase interest rates, which it has said it hopes to do multiple times in the coming year. Higher interest rates would especially benefit the financials sector, and boost net interest margins (the difference between what banks charge for loans and pay out on deposits). Less government regulation would be an added advantage, not only for the financials sector but for US businesses generally. The PM also expects more fiscal stimulus under the new administration, including increased infrastructure spending, to help the economy. This type of spending is likely to benefit the industrials sector. Lastly, the PM thinks corporations stand to benefit if, as expected, the incoming administration lowers corporate tax rates. The average corporate tax rate is 33 to 35. If that were to drop to 25, for example, earnings estimates would go higher. If US economic growth remains ahead of many foreign developed countries and emerging markets, then US equities should continue to attract foreign and domestic investors. With this backdrop in mind, the sub-fund remains inclined at period-end toward the more economically sensitive financials and consumer discretionary sectors. Many US financials companies have cut spending and built up their capital reserves since the 2008 crisis, putting them in an excellent position to benefit as interest rates rise. In addition, the PM thinks many consumer discretionary companies stand to gain from increased consumer spending and improved consumer confidence. Although the portfolio remains significantly overweight both sectors, the PM did trim the sub-fund s consumer discretionary stake on the margin this past year. The PM also modestly reduced the sub-fund s information technology weighting with the sale of a couple of holdings. By contrast, the PM boosted exposure to the industrials and consumer staples sectors, and initiated a small stake in the materials sector. Going forward, the PM plans to continue to rely on bottom-up security selection that targets what looks to be competitively advantaged, financially sound companies with substantial cash flow and stock prices that look attractive relative to the PM s estimate of intrinsic value. The PM believes this strategy can help drive long-term outperformance. ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 9

12 MARKET COMMENTARY (CONTINUED) EUROPE PORTFOLIO REVIEW From an individual securities perspective, the most significant contributor to the Fund s performance was ARM. The company s shares rose in response to an offer from Japanese telecommunications firm SoftBank buy ARM. Shell was a top contributor as the energy major continued to deliver against its targets and reaped the benefits of a higher oil price. HSBC benefited from the prospect of rising interest rates and from a rotation into value stocks. Asian bank Standard Chartered rerated on stabilisation in emerging markets economies and on strong cost-cutting this contributed to the Fund s performance. The Weir Group, which supplies pumps to the minerals and oil and gas industries, doubled from its lows on the rebounding oil price. The business generates most of its profits in the aftermarket and was therefore able to generate healthy earnings; even with an oil price below US$30 per barrel. A significant individual detractor from performance was the Fund s holding in Cobham. The company missed earnings expectations as its marine satellite communications business suffered from the falling price of oil and overcapacity in the shipping industry. Other detractors from performance included Groupe Eurotunnel. The company s share price fell in response to the Brexit outcome. We added a new Fund position in integrated Dutch telecommunications provider Koninklijke. The shares significantly underperformed over the period, which provides a good entry point into a franchise with three key advantages: it enjoys a duopoly in broadband services, has steadily taken market share in premium mobile services, and should see cash growth driven by capital expenditure and employee reductions. During the year, we also added Publicis, Liberty Global, Halfords and Groupe Eurotunnel to the Fund. Some of these stocks were trading at their most attractive levels since We increased the Fund s position in Hugo Boss after the company s stock price fell following an earnings downgrade. Conversely, we decreased the Fund s positions in AstraZeneca and GlaxoSmithKline after these companies posted strong returns. We eliminated the Fund s position in GEA Group, a German engineering company that had reached our price target. MARKET REVIEW The European market was broadly flat in US-dollar terms over the period, following a year of momentous political upheaval and profound change in equity sector leadership. In many ways, the markets completed a round trip in 2016, lurching to extreme valuations before snapping back to more normalised levels. The starkest examples were metal and energy prices, which had fallen by up to 80 by March At the time, this was caused by concerns that slowing Chinese demand and overproduction of US shale oil would create supply and demand imbalances. Falling commodity prices and weakening growth in Asia then drove bond yields to record lows as the world grappled with the prospect of deflation. However, by the end of the year, yields had returned to their January levels. This was due to the election of Donald Trump as the next US president and rising prices of raw materials increasing inflation expectations. ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 10

13 MARKET COMMENTARY (CONTINUED) The outcome of November s US presidential election injected an unexpected mood of optimism into financial markets, leading to a rotation out of highly valued, high-quality stocks into cyclical sectors on depressed valuations. The financials sector rebounded in the latter half of the year as investors no longer priced in a deflationary environment. Financials stocks decreased slightly over the year; uncertainty remained regarding the balance sheet strength of many European banks and their ability to generate adequate returns under the new regulatory regime. The materials sector was strong as the price of iron ore exceeded US$80, its highest level in two years, driven by speculation that a boom in US infrastructure projects will result in a significant pickup in steel demand. The energy sector increased into December after OPEC announced production cutbacks. The industrials sector indirectly benefitted from the commodities rebound, as many companies in the sector sell equipment to the oil and mining industries. Defensive sectors, such as consumer staples and healthcare, had a rare year of underperformance after their valuations had become stretched and amid political pressure to cut drug prices in the US. The British pound fell sharply in response to the UK s vote in late June to leave the EU (the Brexit referendum), but the UK equity market performed largely in-line with its peers because the UK market generates most of its earnings in US dollars. The European Central Bank (ECB) announced that it might taper quantitative easing into 2017, while the Fed hiked interest rates by 0.25 in late December and indicated that three further rate increases were likely next year. The divergence in monetary policy led to a further weakening of the euro, down by 2.9 over the period. OUTLOOK In the immediate term, we expect the eurozone economy to record further declines in unemployment, and accelerating GDP growth in We believe European corporates offer solid earnings growth potential due to improving consumer demand, higher commodity prices, and a weaker currency. Core European inflation is still well short of the ECB s target rate of 2, but is starting to pick up. This allows yield curves to steepen, which is important not only for share prices to perform in the financials sector, but also for the smooth functioning of the wider economy. In the medium to long term, we believe high debt levels globally mean the developed economies remain highly sensitive to input factors such as commodity prices, currency levels, and the cost of debt. Should these factors increase significantly in 2017, a faltering economy could prevail. While the fundamental economic backdrop is reasonable in the short term, all eyes in 2017 will likely be on political developments taking place in Europe and North America. First, the UK prime minister has committed to triggering the start of Britain s exit negotiations by March Next year will also likely see general elections held in France, Germany, and Holland. The rash of geopolitical unrest in 2016 has created fertile ground for conservative politicians to win support. We believe successful polling for these parties would be unsettling for equity investors it may pave the way for a rerun of Brexit, this time by a continental European country. The new US presidential administration will also likely be in the spotlight; investors will be seeing whether it will follow through on the bold campaign promises to boost fiscal spending, cut taxes, and repatriate manufacturing jobs. ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 11

14 MARKET COMMENTARY (CONTINUED) In these uncertain political times, our approach is to stick to the lodestone of company-specific stock analysis and seek good businesses that trade at a discount to their long-term cash generation. Ultimately, we believe buying good companies when they are out of favour will likely deliver better returns for investors than trying to second-guess the outcome of elections and the market s responses to them. Indeed, the futility of trying to position around these events was shown by the US election, which doubly confounded market expectations when Trump won and equities posted gains. JAPAN PORTFOLIO REVIEW The sub-fund underperformed the market over the year. The underperformance was driven by stock specific factors. The strongest performances came from SMFG, Dai-Ichi Life and NTT. However, these were offset by some very weak performers like Mitsubishi Motors, Japan Display, and Ricoh, none of which are currently held in the portfolio. MARKET REVIEW 2016 was a year of two halves both for the market and the sub-fund. The market was dominated by movement of the yen, which strengthened in the first half and weakened significantly in the second half. This led to a reversal in sector performance with financials and exporters performing better in the second half. The portfolio also saw significant improvement in relative performance in the second half of the year. This was due to a change of management in the sub-fund in August. Over the year, the best performing sectors were machinery and trading houses, which benefited the most from rising commodity prices and a steady improvement in global trade. The weakest sectors were air transport, utilities and pharmaceuticals. Among the top performers for the year were many stocks related to semiconductor production. They include Advantest (testing equipment), Tokuyama (polysilicon), Sumco (silicon wafers), and Screen Holdings (cleaning and coating equipment). The weakest performers included a number of companies which had either been involved in scandals (Mitsubishi Motors and Toyo Tire), or had seen big declines in pricing of their core product (Ono Pharmaceutical). OUTLOOK Improving global trade, the weaker yen, and government spending in the run-up to 2020 Olympics should all help drive earnings growth in Earnings growth stagnated in 2016 as the yen strengthened and companies struggled to grow sales both at home and overseas. The outlook is quite different for The government has recently upgraded its real GDP outlook for the year ahead from 1.2 to 1.5 and overseas ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 12

15 MARKET COMMENTARY (CONTINUED) demand looks better with Chinese PPI (Producer Price Index) rising sharply into positive territory. The sub-fund s portfolio manager (PM) is expecting earnings growth for 2017 to be ahead of consensus. Japan remains the cheapest developed market on both price-to-earnings and price-to-book. Japan s return on equity (ROE) has also been steadily improving and currently stands at 8.5. The PM believes this could reach over 10 in Although this remains below the US, it is on a faster growth path. One of the drivers for higher ROE is the record level of share buybacks. The majority of Japanese corporates have a net cash position giving them ample opportunity to make further buybacks in All data sources from Bloomberg. GLOBAL PORTFOLIO REVIEW Stock selection in the financials and healthcare sectors contributed to the sub-fund s performance. Individual contributors included PNC, Arthur J. Gallagher and Whirlpool. PNC s share price rose in response to a late-year rally in bank stocks. The sector responded favourably to the US election results and the Fed raising interest rates. Arthur J. Gallagher s share price rose in response to solid earnings releases, driven by strong performance in the company s brokerage and risk management segments, as well as improved margins. Whirlpool posted strong earnings, led by gains in North American market share and margin improvements. Underweight exposure to the energy sector and stock selection in the materials sector detracted from performance. Individual detractors included Japan Tobacco, Roche Holding and SES. Japan Tobacco reported lower overseas earnings owing to weaker sales momentum and a stronger yen. Roche Holding reported strong growth in its cancer and immunotherapy drugs, but the company s share price fell in response to weakness in the broader healthcare sector. SES s share price declined after the company announced it was issuing shares to purchase the remaining interest in O3b Networks, a satellite service operator in which SES was already the majority shareholder. Despite the strong performance of commodity-related equities in 2016, the sub-fund maintained underweight exposure to commodity industries, with its only exposure being to the energy sector. The sub-fund also maintained underweight exposure to the European financials sector, though this was partly offset by reasonable exposure to the US financials sector. The sub-fund maintains large exposures to sustainable, quality franchises in sectors such as healthcare and consumer staples. MARKET REVIEW A volatile year ended on a high note as major equity indices rose over At the beginning of the year, equity markets were volatile amid concerns about a slowdown in the Chinese economy. Volatility further increased later in the year due to the UK s Brexit referendum vote to leave the EU, as well as elections in the US and Europe. Markets were resilient, however, recovering losses and rallying to end the year higher. Over the year, cyclical sectors such as energy and materials ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 13

16 MARKET COMMENTARY (CONTINUED) had strong performances as the price of oil recovered following a difficult The healthcare sector was the only sector to post a negative return. Global central bank policies were in focus all year as the Fed held off on raising interest rates until December, and other global central banks maintained accommodative policies. Following the Fed s interest rate increase, bond market yields declined. This benefited the financials sector and led to significant market rotation as investors sold equities with bond-like characteristics in favour of cyclical stocks. The results of the US election initially contributed to volatility across asset classes. However, financial markets appeared to embrace the potential for lower taxes, decreased regulation and increased fiscal spending. The impact of the election could take a while to become clear because it will take time for long-term policy implications to emerge. OUTLOOK The sub-fund s portfolio manager (PM) believes that equity markets could remain volatile as the global challenges of deflation risk, excess debt and political uncertainty could overwhelm the possibility of global economic growth. Both Brexit and the US presidential election results surprised equity markets in The PM believes there could be more uncertainty in 2017 as the Netherlands, France and Germany go to the polls. The PM believes the future direction of Europe, and by implication the euro, has become uncertain. Even if president of the European Central Bank (ECB) Mario Draghi sees out his mandate, he would still step down in October In the PM s view, this suggests that eurozone monetary policies could remain accommodative for an extended time and therefore that investors desire for yield, at least in continental Europe, should remain strong. In Europe, there could be further calls for fiscal spending, which would have to be accomplished against the constraint of excess debt. The Japanese market, generally a beneficiary of cyclical recovery, has benefited from the US election results and from a weakening yen. The PM believes there will be implications for Japanese equity markets if the Bank of Japan targets the yield curve and keeps the 10-year bond rate at zero. Unlimited buying of Japanese government bonds could be negative for the yen and positive for equities. On average, US and European companies have returned to pre-2008 debt levels, with debtadjusted multiples stretched to multi-year highs. Japan is the exception where multiples are high. Quantitative easing has driven up asset prices while operating earnings have been falling. Companies have taken advantage of the low interest rates to issue debt for buybacks and, increasingly, for mergers and acquisitions. Given this, the PM believes some caution is warranted. A new direction for the US will take some time to be implemented and any impact on the companies held by the sub-fund could take even longer. In addition, the PM believes any rotation away from quality and into more traditional value sectors will be highly dependent on the potential for an economic recovery. Earnings growth would likely have to recover to reduce future multiples to more acceptable levels. ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 14

17 MARKET COMMENTARY (CONTINUED) The PM will continue to monitor the continued strength of the US dollar, which could dampen an economic recovery. This is particularly relevant for emerging markets. Although emerging markets are typically more sensitive to growth expectations, they also tend to struggle when the US dollar is strong. The PM remains wary of excess debt, and will continue to focus on companies with what the PM believes to be sustainable cash flow streams. There will also be a continued focus on quality and valuation to uncover opportunities with convincing upside potential, but are trading at lower multiples than the broader market. This report is compiled for information purposes only. ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 15

18 FUND PERFORMANCE

19 FUND PERFORMANCE SIP AGGRESSIVE PORTFOLIO FUND PERFORMANCE The Portfolios Net Asset Value per unit increased from USD as at 31 December 2015 to USD as at 31 December The Portfolio recorded a total return of since inception. Performance calculated as at 31 st December mth 3 mths 6 mths YTD 16 2 yrs 3 yrs 5 yrs Since Inception* SIP Aggressive Portfolio **80 S&P LB AGG Relative +/(-) 0.04 (0.01) 2.66 (1.79) (5.34) (17.98) (30.71) (48.62) The Fund s performance is calculated on NAV to NAV basis. The value of units may go down as well as up. Past performance is not indicative of its future performance. The fund performance is strictly the performance of the investment-linked (IL) fund and not to the gross premium/contribution of the IL insurance product. *Inception Date : 23 th July 2008 **Indicative benchmark: Standard & Poor s 500 (S&P 500) + Barclays US Aggregate Total Return Value (LB AGG) Note: It is computed based on USD denomination. Note: The fund performance is based on the last trading day of the month/year. AVERAGE ANNUAL RETURN AND BENCHMARK 1 year 3 year 5 year SIP Aggressive Portfolio **80 S&P LB AGG Relative +/(-) (1.79) (5.63) (4.51) **Indicative benchmark: Standard & Poor s 500 (S&P 500) + Barclays US Aggregate Total Return Value (LB AGG) Note: It is computed based on USD denomination. Note: The fund performance is based on the last trading day of the month/year. ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 17

20 FUND PERFORMANCE SIP GROWTH PORTFOLIO FUND PERFORMANCE The Portfolios Net Asset Value per unit increased from USD as at 31 December 2015 to USD as at 31 December The Portfolio recorded a total return of since inception. Performance calculated as at 31 st December mth 3 mths 6 mths YTD 16 2 yrs 3 yrs 5 yrs Since Inception* SIP Growth Portfolio (0.39) **60 S&P LB AGG Relative +/(-) 0.01 (0.27) 1.40 (1.97) (6.45) (17.20) (23.40) (39.70) The Fund s performance is calculated on NAV to NAV basis. The value of units may go down as well as up. Past performance is not indicative of its future performance. The fund performance is strictly the performance of the investment-linked (IL) fund and not to the gross premium/contribution of the IL insurance product. *Inception Date : 23 th July 2008 **Indicative benchmark: Standard & Poor s 500 (S&P 500) + Barclays US Aggregate Total Return Value (LB AGG) Note: It is computed based on USD denomination. Note: The fund performance is based on the last trading day of the month/year. AVERAGE ANNUAL RETURN AND BENCHMARK 1 year 3 year 5 year SIP Growth Portfolio **60 S&P LB AGG Relative +/(-) (1.97) (0.13) 5.31 (5.44) (3.64) **Indicative benchmark: Standard & Poor s 500 (S&P 500) + Barclays US Aggregate Total Return Value (LB AGG) Note: It is computed based on USD denomination. Note: The fund performance is based on the last trading day of the month/year. ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 18

21 FUND PERFORMANCE SIP BALANCED PORTFOLIO FUND PERFORMANCE The Portfolios Net Asset Value per unit increased from USD as at 31 December 2015 to USD as at 31 December The Portfolio recorded a total return of since inception. Performance calculated as at 31 st December mth 3 mths 6 mths YTD 16 2 yrs 3 yrs 5 yrs Since Inception* SIP Balanced Portfolio 0.80 (0.55) (0.43) (0.17) **40 S&P LB AGG 0.81 (0.49) Relative +/(-) (0.01) (0.06) 1.35 (2.45) (6.22) (14.62) (15.32) (30.27) The Fund s performance is calculated on NAV to NAV basis. The value of units may go down as well as up. Past performance is not indicative of its future performance. The fund performance is strictly the performance of the investment-linked (IL) fund and not to the gross premium/contribution of the IL insurance product. *Inception Date : 23 th July 2008 **Indicative benchmark: Standard & Poor s 500 (S&P 500) + Barclays US Aggregate Total Return Value (LB AGG) Note: It is computed based on USD denomination. Note: The fund performance is based on the last trading day of the month/year. AVERAGE ANNUAL RETURN AND BENCHMARK 1 year 3 year 5 year SIP Balanced Portfolio **40 S&P LB AGG Relative +/(-) (2.45) (0.06) 4.60 (4.66) (2.52) **Indicative benchmark: Standard & Poor s 500 (S&P 500) + Barclays US Aggregate Total Return Value (LB AGG) Note: It is computed based on USD denomination. Note: The fund performance is based on the last trading day of the month/year. ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 19

22 COMPARATIVE PERFORMANCE TABLES

23 COMPARATIVE PERFORMANCE TABLES The table below shows the performance table of the Investment-Linked Funds: SIP-Aggressive Portfolio RM RM RM RM RM Net asset value (NAV) 24,766,878 24,282,696 26,984,314 29,635,437 29,431,209 Number of units in circulation 4,501,968 4,908,545 6,454,745 7,400,305 9,214,136 NAV per unit Highest NAV per unit during the year Lowest NAV per unit during the year SIP-Balanced Portfolio RM RM RM RM RM Net asset value (NAV) 20,653,990 21,289,493 20,583,292 24,120,195 24,806,957 Number of units in circulation 3,574,177 3,965,802 4,549,687 5,700,145 6,750,394 NAV per unit Highest NAV per unit during the year Lowest NAV per unit during the year SIP-Growth Portfolio RM RM RM RM RM Net asset value (NAV) 23,361,277 22,910,187 24,354,209 28,097,660 26,601,778 Number of units in circulation 4,130,790 4,439,335 5,549,723 6,770,621 7,650,339 NAV per unit Highest NAV per unit during the year Lowest NAV per unit during the year The table below shows the performance table of the Investment-Linked Funds: Capital Growth* Income Distribution SIP Aggressive Portfolio SIP Balanced Portfolio SIP Growth Portfolio * Capital growth is determined using the NAV denominated in RM equivalent. Note: The performance is based on the last calendar day of the year. ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 21

24 INVESTMENT INFORMATION

25 INVESTMENT INFORMATION SIP AGGRESSIVE PORTFOLIO The details of investments of the Investment-Linked Funds are set out as follows: Percentage over NAV Quantity Cost Market value (USD) SIP Aggressive Portfolio units USD RM USD RM MGF AMERICAN GROWTH FUND 66, ,738 3,862,634 2,168,700 9,728, MGF ASIAN EQUITY FUND 34,168 78, ,594 95, ,160 2 MGF EUROPEAN GROWTH FUND 79, ,514 2,607, ,143 3,490, MGF GLOBAL PROPERTY FUND 111,154 85, , , ,828 2 MGF GLOBAL RESOURCES FUND 354, , , ,390 1,302,660 5 MGF JAPANESE GROWTH FUND 82, , , ,906 1,269,086 5 MGF US BOND FUND 338, ,067 1,332, ,512 1,769,740 7 MGF US SMALL CAP EQUITY FUND 630, ,592 2,008, ,126 3,858, MGF US SPECIAL OPPORTUNITIES 667, ,304 2,042, ,914 2,596, MGF US TIP FUND 134, , , , , ,498,485 4,157,001 14,622,556 5,731,694 25,711, ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 23

26 INVESTMENT INFORMATION SIP BALANCED PORTFOLIO The details of investments of the Investment-Linked Funds are set out as follows: (continued) Percentage over NAV Quantity Cost Market value (USD) SIP Balanced Portfolio units USD RM USD RM MGF AMERICAN GROWTH FUND 28, ,545 2,062, ,414 4,191, MGF ASIAN EQUITY FUND 15,315 36, ,708 42, ,909 1 MGF EUROPEAN GROWTH FUND 36, ,917 1,039, ,157 1,611,141 8 MGF GLOBAL PROPERTY FUND 230, , , ,474 1,033,880 5 MGF JAPANESE GROWTH FUND 34,700 84, , , ,090 3 MGF US BOND FUND 1,673,166 1,981,408 6,655,541 1,952,751 8,759, MGF US SMALL CAP EQUITY FUND 137, , , , ,807 4 MGF US SPECIAL OPPORTUNITIES 717, ,796 2,145, ,272 2,791, MGF US TIP FUND 146, , , , , ,019,645 4,042,355 13,890,770 4,634,730 20,790, ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 24

27 INVESTMENT INFORMATION SIP GROWTH PORTFOLIO The details of investments of the Investment-Linked Funds are set out as follows: (continued) Percentage over NAV Quantity Cost Market value (USD) SIP Growth Portfolio units USD RM USD RM MGF AMERICAN GROWTH FUND 52, ,925 3,370,910 1,726,139 7,743, MGF ASIAN EQUITY FUND 20,195 45, ,635 56, ,057 1 MGF EUROPEAN GROWTH FUND 44, ,506 1,274, ,751 1,945,760 8 MGF GLOBAL PROPERTY FUND 379, ,367 1,154, ,571 1,698,228 7 MGF GLOBAL RESOURCES FUND 336, , , ,021 1,233,716 5 MGF JAPANESE GROWTH FUND 44, , , , ,636 3 MGF US BOND FUND 818, ,991 3,261, ,819 4,283, MGF US SMALL CAP EQUITY FUND 157, , , , ,402 4 MGF US SPECIAL OPPORTUNITIES 1,002, ,398 3,084, ,065 3,903, MGF US TIP FUND 212, , , ,241 1,216, ,068,073 4,307,454 14,899,363 5,335,407 23,934, Market value of investment holding as a percentage of net asset value SIP Aggressive Portfolio SIP Balanced Portfolio SIP Growth Portfolio ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 25

28 SUMMARY OF FINANCIAL STATEMENT

29 SUMMARY OF FINANCIAL STATEMENT STATEMENTS OF INCOME AND EXPENDITURE FOR THE FINANCIAL YEAR ENDED 31 DECEMBER SIP Aggressive Portfolio SIP Balanced Portfolio SIP Growth Portfolio INCOME USD RM USD RM USD RM Net investment income Dividend income 48, ,150 83, ,043 71, ,066 Rebate income 38, ,855 28, ,355 34, ,469 Profits on disposal of investments 317,205 1,370, ,666 1,324, ,866 1,135,609 Unrealised capital gains on investments 154, , , ,266 Total income 558,476 2,412, ,867 1,805, ,296 1,919,410 OUTGO Management expenses 174, , , , , ,964 Unrealised capital losses on investments , , Taxation 46, ,084 27, ,165 38, ,735 Total outgo 221, , ,086 1,235, , ,699 Excess of income over outgo 337,080 1,456, , , ,833 1,057,711 Undistributed income brought forward 3,046,651 9,041,319 3,009,951 9,399,418 2,701,178 8,015,847 Undistributed income carried forward 3,383,731 10,497,539 3,141,732 9,968,720 2,946,011 9,073,558 (The RM financial information of the investment linked funds are provided for information of the policyholders only) ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 27

30 SUMMARY OF FINANCIAL STATEMENT STATEMENTS OF INCOME AND EXPENDITURE FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2016 (CONTINUED) 2015 SIP Aggressive Portfolio SIP Balanced Portfolio SIP Growth Portfolio INCOME USD RM USD RM USD RM Net investment income Dividend income 65, , , , , ,939 Rebate income 52, ,659 35, ,162 46, ,720 Profits on disposal of investments 1,207,810 5,174, ,494 2,020, ,489 4,003,704 Total income 1,326,039 5,681, ,906 2,685,902 1,084,256 4,645,363 OUTGO Management expenses 222, , , , , ,454 Unrealised capital losses on investments 1,265,832 5,423, ,671 2,552,079 1,079,237 4,623,863 Taxation 63, ,979 47, ,213 54, ,646 Total outgo 1,551,384 6,646, ,033 3,457,632 1,334,373 5,716,963 Excess of outgo over income (225,345) (965,466) (180,127) (771,730) (250,117) (1,071,600) Undistributed income brought forward 3,271,996 10,006,785 3,190,078 10,171,148 2,951,295 9,087,447 Undistributed income carried forward 3,046,651 9,041,319 3,009,951 9,399,418 2,701,178 8,015,847 (The RM financial information of the investment linked funds are provided for information of the policyholders only) ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 28

31 SUMMARY OF FINANCIAL STATEMENT STATEMENTS OF ASSETS AND LIABILITIES AS AT 31 DECEMBER SIP Aggressive Portfolio SIP Balanced Portfolio SIP Growth Portfolio ASSETS USD RM USD RM USD RM Investments : Foreign investments 5,731,694 25,711,771 4,634,730 20,790,907 5,335,407 23,934,071 Cash and cash equivalents 9,121 40,915 91, ,210 38, ,306 Total assets 5,740,815 25,752,686 4,726,620 21,203,117 5,374,041 24,107,377 LIABILITIES Other liabilities 55, ,817 37, ,299 49, ,955 Current tax liabilities 38, ,878 37, ,241 35, ,241 Deferred tax liabilities 125, ,113 47, ,587 82, ,904 Total liabilities 219, , , , , ,100 NET ASSETS ATTRIBUTABLE TO POLICYHOLDERS 5,521,057 24,766,878 4,604,208 20,653,990 5,207,719 23,361,277 REPRESENTED BY: Policyholders capital 2,137,326 6,609,020 1,462,476 4,775,666 2,261,708 7,201,718 Currency translation reserve - 7,660,319-5,909,604-7,086,001 Undistributed income carried forward 3,383,731 10,497,539 3,141,732 9,968,720 2,946,011 9,073,558 NET ASSETS ATTRIBUTABLE TO POLICYHOLDERS 5,521,057 24,766,878 4,604,208 20,653,990 5,207,719 23,361,277 NUMBER OF UNITS IN CIRCULATION 4,501,968 4,501,968 3,574,177 3,574,177 4,130,790 4,130,790 NET ASSET VALUE ATTRIBUTABLE TO POLICYHOLDERS PER UNIT (The RM financial information of the investment linked funds are provided for information of the policyholders only) ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 29

32 SUMMARY OF FINANCIAL STATEMENT STATEMENTS OF ASSETS AND LIABILITIES AS AT 31 DECEMBER 2016 (CONTINUED) 2015 SIP Aggressive Portfolio SIP Balanced Portfolio SIP Growth Portfolio ASSETS USD RM USD RM USD RM Investments : Foreign investments 5,900,386 25,338,551 5,061,473 21,735,933 5,487,430 23,565,160 Cash and cash equivalents 22,587 96,995 33, ,106 53, ,904 Total assets 5,922,973 25,435,546 5,095,030 21,880,039 5,540,733 23,794,064 LIABILITIES Other liabilities 36, ,154 23, ,896 33, ,902 Current tax liabilities 115, ,009 56, ,002 94, ,033 Deferred tax liabilities 116, ,687 57, ,648 77, ,942 Total liabilities 268,455 1,152, , , , ,877 NET ASSETS ATTRIBUTABLE TO POLICYHOLDERS 5,654,518 24,282,696 4,957,514 21,289,493 5,334,914 22,910,187 REPRESENTED BY: Policyholders capital 2,607,867 8,719,813 1,947,563 6,951,708 2,633,736 8,870,591 Currency translation reserve - 6,521,564-4,938,367-6,023,749 Undistributed income carried forward 3,046,651 9,041,319 3,009,951 9,399,418 2,701,178 8,015,847 NET ASSETS ATTRIBUTABLE TO POLICYHOLDERS 5,654,518 24,282,696 4,957,514 21,289,493 5,334,914 22,910,187 NUMBER OF UNITS IN CIRCULATION 4,908,545 4,908,545 3,965,802 3,965,802 4,439,335 4,439,335 NET ASSET VALUE ATTRIBUTABLE TO POLICYHOLDERS PER UNIT (The RM financial information of the investment linked funds are provided for information of the policyholders only) ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 30

33 SUMMARY OF FINANCIAL STATEMENT STATEMENTS OF CHANGES IN NET ASSET VALUE FOR THE FINANCIAL YEAR ENDED 31 DECEMBER SIP Aggressive Portfolio SIP Balanced Portfolio SIP Growth Portfolio USD RM USD RM USD RM Net asset value at the beginning of the financial year 5,654,518 24,282,696 4,957,514 21,289,493 5,334,914 22,910,187 Net realised income after taxation 182, , ,081 1,080, , ,445 Net unrealised capital gains/(losses) on investments 154, ,310 (118,300) (511,074) 75, ,266 Amounts paid for net cancellation of units (470,541) (2,110,793) (485,087) (2,176,042) (372,028) (1,668,873) Currency translation reserve - 1,138, ,237-1,062,252 Net asset value at the end of the financial year 5,521,057 24,766,878 4,604,208 20,653,990 5,207,719 23,361, SIP Aggressive Portfolio SIP Balanced Portfolio SIP Growth Portfolio USD RM USD RM USD RM Net asset value at the beginning of the financial year 7,717,730 26,984,314 5,886,987 20,583,293 6,965,499 24,354,209 Net realised income after taxation 1,040,487 4,457, ,544 1,780, ,120 3,552,263 Net unrealised capital losses on investments (1,265,832) (5,423,305) (595,671) (2,552,079) (1,079,237) (4,623,863) Amounts paid for net cancellation of units (1,837,867) (7,892,516) (749,346) (3,217,982) (1,380,468) (5,928,269) Currency translation reserve - 6,156,364-4,695,912-5,555,847 Net asset value at the end of the financial year 5,654,518 24,282,696 4,957,514 21,289,493 5,334,914 22,910,187 (The RM financial information of the investment linked funds are provided for information of the policyholders only) ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 31

34 NOTES TO THE FINANCIAL INFORMATION

35 NOTES TO THE FINANCIAL INFORMATION 31 DECEMBER PRINCIPAL ACTIVITIES The principal activities of the Investment-Linked Funds of Manulife Insurance Berhad consisting of Secure Income Plus Aggressive Portfolio (SIP Aggressive Portfolio), Secure Income Plus Balanced Portfolio (SIP Balanced Portfolio) and Secure Income Plus Growth Portfolio (SIP Growth Portfolio) (herein referred to collectively as the Investment-Linked Funds ) are to invest in authorised investments. The objective of the Investment-Linked Funds is to invest all or substantially all of their assets into the underlying funds under the Manulife Global Fund platform. The Manulife Global Fund is a platform of mutual funds, created with the objective to provide a vehicle, catering primarily for capital growth, through which investors can invest their capital in the main stock and bond markets of the world. SIP Aggressive Portfolio is designed to provide long-term capital growth. It is designed for those who hold a long term investment view and who are prepared to accept significant fluctuations in the value of their investments in order to achieve long term returns. It is intended that the investments will be made on a diversified basis. Around 80 per cent of its underlying investment portfolio will consist of equities and equity-related investments, with the remainder of the assets being directly or indirectly invested in bonds, deposits and other investments. SIP Growth Portfolio is designed to provide medium to long term capital growth for those who hold a long term investment view and who are prepared to accept considerable fluctuations in the value of their investments in order to achieve long term returns. It is intended that the investments will be made on a diversified basis. Around 60 per cent of its underlying investment portfolio will consist of equities and equity-related investments, with the remainder of the assets being directly or indirectly invested in bonds, deposits and other investments. SIP Balanced Portfolio is designed to provide medium to long term capital growth for those who hold a long term investment view and who are prepared to accept fluctuations in the value of their investments in order to achieve long term returns. It is intended that the investments will be made on a diversified basis. Around 40 per cent of its underlying investment portfolio will consist of equities and equity-related investments, with the remainder of the assets being directly or indirectly invested in bonds, deposits and other investments. The Manager of the Investment-Linked Funds is Manulife Insurance Berhad, a company incorporated in Malaysia, engaged principally in the underwriting of life insurance business including investment-linked business. ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 33

36 NOTES TO THE FINANCIAL INFORMATION 31 DECEMBER 2016 (CONTINUED) 2. BASIS OF PREPARATION The financial information of the Investment-Linked Funds have been prepared in accordance with the accounting policies as described in Note 3 to the financial information and the Guidelines on Investment-Linked Insurance/Takaful Business issued by Bank Negara Malaysia ( BNM ). The financial information of the Investment-Linked Funds have been prepared under the historical cost convention except as disclosed in Note 3 to the financial information. 3. SIGNIFICANT ACCOUNTING POLICIES (a) Investments (i) Fair value through profit or loss financial assets The Investment-Linked Funds designate their investment portfolio into fair value through profit or loss ( FVTPL ) financial assets at inception as they are managed and evaluated on a fair value basis, in accordance with the respective investment strategies and mandates. Financial assets classified as FVTPL are initially recorded at fair value. Subsequent to initial recognition, the financial assets are remeasured at fair values with fair value adjustments and realised gains and losses recognised in the statement of income and expenditure. (ii) Fair value of financial assets The fair values of investments are valued based on the net asset values of the underlying funds which comprise investments under the Manulife Global Fund platform of mutual funds as at the date of the statement of assets and liabilities. (b) Net creation of units Net creation of units represents premiums paid by policyholders as payment for a new contract or subsequent payments to increase the amount of that contract. Net creation of units is recognised on a receipt basis. (c) Net cancellation of units Net cancellation of units represents cancellation of units arising from surrenders and withdrawals by policyholders. Net cancellation of units is recognised upon surrendering of the related insurance contract. ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 34

37 NOTES TO THE FINANCIAL INFORMATION 31 DECEMBER 2016 (CONTINUED) 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (d) Income recognition Dividend income is recognised when the right to receive payment is established. Rebate income refers to management fee rebate from Manulife Asset Management Hong Kong for investments placed into Manulife Global Funds and it is accrued on a daily basis. Gain or loss on disposal of financial assets is calculated by comparing the net proceeds with the original cost of the financial assets and is credited or charged to the statement of income and expenditure. (e) Management expenses Management expenses charged to the Fund include management fee, audit fee and tax fee and are recognised on accrual basis. (f) Foreign currencies (i) Functional and presentation currency Items included in the financial information of the Investment-Linked Funds are measured using the currency of the primary economic environment in which the Investment-Linked Funds operate ( the functional currency ). The functional currency and presentation currency of the Investment-Linked Funds is United States Dollar ( USD ). The RM financial information of the Investment-Linked Funds are provided for information of the policyholders only. The resulting exchange differences of the translation from USD to RM is recognised in the currency translation reserve. (ii) Transactions and balances Transactions in a currency other than the functional currency ( foreign currency ) are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Currency translation gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of income and expenditure. ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 35

38 NOTES TO THE FINANCIAL INFORMATION 31 DECEMBER 2016 (CONTINUED) 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (g) Taxation The income tax charge is calculated at current tax rate based on the method prescribed under the Income Tax Act, 1967 for life insurance business. Deferred tax is recognised in full, using the liability method, on temporary differences arising between the amounts attributed to assets and liabilities for tax purposes and their carrying amounts in the financial statements. Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which the deductible temporary differences or unutilised tax losses can be utilised. The tax rate enacted or substantively enacted by the date of the statement of financial position is used to determine deferred tax. (h) Cash and cash equivalents Cash and cash equivalents consist of cash and bank balances which have an insignificant risk of changes in value. Deposits with financial institutions are not part of cash and cash equivalents as these are held for investment purposes. 4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgements are continuously 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. The Manager 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 Investment-Linked Funds results and financial position are tested for sensitivity to changes in the underlying parameters. 5. AVERAGE ANNUAL RETURNS AND BENCHMARK The average annual returns measurement and performance against relevant benchmark indices of the Investment-Linked Funds for the comparative periods are set out on pages 16 to 19 of the Fund Performance Report. ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 36

39 NOTES TO THE FINANCIAL INFORMATION 31 DECEMBER 2016 (CONTINUED) 6. INVESTMENTS The details of investments and market value of investment holdings as a percentage of net asset value of the Investment-Linked Funds are set out on pages 22 to 25 of the Fund Performance Report. 7. COMPARATIVE PERFORMANCE TABLE The details of the Investment-Linked Funds net asset value, number of units in circulation, percentage of investment holdings to the fund s net asset value and the breakdown into capital growth are set out on pages 20 to 21 of the Fund Performance Report. ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 37

40 STATEMENT BY MANAGER

41 STATEMENT BY MANAGER We, Dato Md Agil Bin Mohd Natt and Mark Steven O Dell, two of the Directors of Manulife Insurance Berhad ( the Manager ), state that, in the opinion of the Manager, the accompanying financial information of Manulife Investment-Linked Funds, which consists of Secure Income Plus Aggressive Portfolio (SIP Aggressive Portfolio), Secure Income Plus Balanced Portfolio (SIP Balanced Portfolio) and Secure Income Plus Growth Portfolio (SIP Growth Portfolio) set out on pages 26 to 37 have been prepared in accordance with the accounting policies described in Note 3 to the financial information and the Guidelines on Investment-Linked Insurance/Takaful Business issued by Bank Negara Malaysia. On behalf of the Manager, DATO MD AGIL BIN MOHD NATT DIRECTOR MARK STEVEN O DELL DIRECTOR Kuala Lumpur 22 March 2017 ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 39

42 INDEPENDENT AUDITORS REPORT

43 INDEPENDENT AUDITORS REPORT Independent auditors report to the policyholders of Secure Income Plus Funds of Manulife Insurance Berhad (Incorporated in Malaysia) Report on the Audit of the Financial Information Opinion We have audited the financial information of Secure Income Plus Fund- Aggressive Portfolio, Secure Income Plus Fund- Balanced Portfolio and Secure Income Plus Fund- Growth Portfolio ( the Funds ), which comprise the statements of assets and liabilities as at 31 December 2016, and the statements of income and expenditure, statements of changes in net asset value of the Funds for the year then ended, and a summary of significant accounting policies, as set out on pages 26 to 37. In our opinion, the accompanying financial information of the Funds for the year ended 31 December 2016, are prepared, in all material respects in accordance with the accounting policies as described in Note 3 to the financial information and the Guidelines on Investment-linked Insurance/Takaful Business issued by Bank Negara Malaysia. 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 Auditors Responsibilities for the Audit of the Financial Information section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Emphasis of Matter We draw attention to Note 2 to the financial information of the Funds, which describes the basis of accounting. The financial information of the Funds are prepared to assist the Funds in complying with the Guidelines on Investment-linked Insurance/Takaful Business issued by Bank Negara Malaysia. As a result, the financial information of the Funds may not be suitable for another purpose. Our report is intended solely for the policyholders of the Funds, as a body and should not be distributed to or used by parties other than the policyholders of the Funds. Our opinion is not modified in respect of this matter. Independence and Other Ethical Responsibilities We are independent of the Funds 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. ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 41

44 INDEPENDENT AUDITORS REPORT (CONTINUED) Independent auditors report to the policyholders of Secure Income Plus Funds of Manulife Insurance Berhad (continued) (Incorporated in Malaysia) Information Other than the Financial Information and Auditors Report Thereon The directors of the Manager are responsible for the other information. The other information comprises the information contained in the Annual Report of the Funds, but does not include the financial information of the Funds and our auditors report thereon. Our opinion on the financial information of the Funds 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 information of the Funds, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial information of the Funds or our knowledge obtained in the audit or otherwise appears to be materially misstated. 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. Responsibilities of the Directors of the Manager for the Financial Information The directors of the Manager ( the directors ) are responsible for the preparation of financial information of the Funds that give a true and fair view in accordance with the accounting policies as described in Note 3 to the financial information and the Guidelines on Investment-linked Insurance/Takaful Business issued by Bank Negara Malaysia. The directors are also responsible for such internal control as the directors determine is necessary to enable the preparation of financial information of the Funds that are free from material misstatement, whether due to fraud or error. In preparing the financial information of the Funds, the directors are responsible for assessing the Funds 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 directors either intend to liquidate the Funds or to cease operations, or have no realistic alternative but to do so. ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 42

45 INDEPENDENT AUDITORS REPORT (CONTINUED) Independent auditors report to the policyholders of Secure Income Plus Funds of Manulife Insurance Berhad (continued) (Incorporated in Malaysia) Auditors Responsibilities for the Audit of the Financial Information Our objectives are to obtain reasonable assurance about whether the financial information of the Funds 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 with 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 information. As part of an audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial information of the Funds, 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 Funds internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors 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 Funds 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 information of the Funds 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 Funds to cease to continue as a going concern. ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 43

46 INDEPENDENT AUDITORS REPORT (CONTINUED) Independent auditors report to the policyholders of Secure Income Plus Funds of Manulife Insurance Berhad (continued) (Incorporated in Malaysia) Auditors Responsibilities for the Audit of the Financial Information (continued) We communicate with the directors 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. Ernst & Young AF: 0039 Chartered Accountants Brandon Bruce Sta Maria No. 2937/09/17 (J) Chartered Accountant Kuala Lumpur 22 March 2017 ANNUAL REVIEW 2016 SECURE INCOME PLUS FUNDS 44

47 MENGENAI MANULIFE MALAYSIA Manulife Insurance Berhad merupakan anak syarikat milik penuh Manulife Holdings Berhad dan ahli Manulife Financial Corporation yang berpangkalan di Kanada. Kami telah bertapak di Malaysia selama lebih 53 tahun dan disenaraikan di KLSE pada Setakat 31 Disember 2016, aset di bawah pengurusan kami berjumlah lebih RM8.04 bilion. Menerusi anak-anak syarikatnya, Kumpulan Manulife menawarkan rangkaian produk dan perkhidmatan perlindungan kewangan dan pengurusan kekayaan yang terpelbagai untuk memenuhi keperluan pelanggan yang berbeza.