INFORMATION MEMORANDUM FOR AFFIN HWANG STRUCTURED INCOME FUND 9

Transcription

1 INFORMATION MEMORANDUM FOR AFFIN HWANG STRUCTURED INCOME FUND 9 Manager Trustee : Affin Hwang Asset Management Berhad ( T) : TMF Trustees Malaysia Berhad ( W) This Information Memorandum is dated 18 October The Affin Hwang Structured Income Fund 9 was constituted on 18 October 2016*. * The constitution date of this Fund is also the launch date of this Fund. INVESTORS ARE ADVISED TO READ AND UNDERSTAND THE CONTENTS OF THIS INFORMATION MEMORANDUM AND OBTAIN PROFESSIONAL ADVICE BEFORE SUBSCRIBING TO THE UNITS OF THE FUND. IF IN DOUBT, PLEASE CONSULT A PROFESSIONAL ADVISER. Due to the nature of the underlying investments of the Fund, you may lose your entire investment capital and future income distribution should a Credit Event occurs, a default by the Structurer of the Credit Linked Note or other legal prohibitions stated herein. The Credit Linked Note the Fund intends to invest in contains a feature known as First to Default or commonly known as a FTD. This constitutes an additional risk to the CLN as a default by any one Reference Entities in servicing its obligations under the Confirmation which will lead to a Credit Event. For further details on the FTD, please refer to page 11. Investors should note that the FTD feature embedded in the CLN increases the likelihood of a Credit Event occurring. The implication to investors and the Fund should a Credit Event occur is highlighted in page 12.

2 This Information Memorandum has been seen and approved by the directors of Affin Hwang Asset Management Berhad and they collectively and individually accept full responsibility for the accuracy of all information contained herein and confirm, having made all enquiries which are reasonable in the circumstances, that to the best of their knowledge and belief, there are no other facts omitted which would make any statement herein misleading. A copy of this Information Memorandum is deposited with the Securities Commission Malaysia. The Securities Commission Malaysia will not be liable for any non disclosure on the part of Affin Hwang Asset Management Berhad and takes no responsibility for the contents of this Information Memorandum, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from, or in reliance upon the whole or any part of the contents of this Information Memorandum. Sophisticated Investors should note that they may seek recourse under the Capital Markets and Services Act 2007 for breaches of securities laws and regulations including any statement in this Information Memorandum that is false, misleading, or from which there is a material omission; or for any misleading or deceptive act in relation to this Information Memorandum or the conduct of any other person in relation to the Fund. This Information Memorandum is to be issued and distributed in Malaysia only. Consequently, no representation has been and will be made as to its compliance with the laws of any foreign jurisdiction.

3 TABLE OF CONTENTS CHAPTER PAGE CORPORATE DIRECTORY... 1 GLOSSARY... 2 ABOUT AFFIN HWANG STRUCTURED INCOME FUND PERTINENT INFORMATION ABOUT THE CLN ABOUT THE FEES AND CHARGES UNDERSTANDING THE RISKS OF THE FUND DEALING INFORMATION RELATED PARTIES TO THE FUND ABOUT THE MANAGER - AHAM ABOUT THE TRUSTEE RELEVANT INFORMATION INVESTORS INFORMATION... 30

4 CORPORATE DIRECTORY The Manager Affin Hwang Asset Management Berhad ( T) Registered Office 27 th Floor, Menara Boustead, 69 Jalan Raja Chulan Kuala Lumpur Business Address Ground Floor, Menara Boustead, 69 Jalan Raja Chulan Kuala Lumpur Tel No.: (603) Fax No.: (603) Toll free line: E mail: customercare@affinhwangam.com Website: Board of Directors of the Manager Tan Sri Dato Seri Che Lodin Bin Wok Kamaruddin Puan Maimoonah Binti Mohamed Hussain Mr Teng Chee Wai Mr David Semaya Encik Abd Malik Bin A Rahman (Independent Director) Dato Hj Latip Bin Ismail (Independent Director) Manager s Delegate (fund valuation & accounting function) TMF Trustees Malaysia Berhad ( W) Registered & Business Address 10 th Floor, Menara Hap Seng No. 1 & 3, Jalan P. Ramlee Kuala Lumpur Tel No. : (603) Fax No. : (603) The Trustee TMF Trustees Malaysia Berhad ( W) Registered & Business Address 10 th Floor, Menara Hap Seng No. 1 & 3, Jalan P. Ramlee Kuala Lumpur Tel No. : (603) Fax No. : (603) Trustee s Delegate (Local & Foreign Custodian) Standard Chartered Bank Malaysia Berhad ( W) Business Address Level 16, Menara Standard Chartered 30 Jalan Sultan Ismail Kuala Lumpur Tel No. : (603) Fax No. : (603) Company Secretary Azizah Shukor(LS ) 27 th Floor Menara Boustead 69 Jalan Raja Chulan Kuala Lumpur Wilayah Persekutuan Tax Adviser Deloitte Tax Services Sdn. Bhd. Level 16, Menara LGB, 1 Jalan Wan Kadir Taman Tun Dr Ismail, Kuala Lumpur Auditor PricewaterhouseCoopers Level 10, 1 Sentral, Jalan Rakyat, KL Sentral P.O. Box Kuala Lumpur Banker HSBC Bank (M) Berhad Head Office 2, Leboh Ampang Kuala Lumpur Solicitors Messrs. Soon Gan Dion & Partners 1 st Floor, No. 73, Jalan SS 21/1A Damansara Utama Petaling Jaya FiMM Federation of Investment Managers Malaysia , 6 th Floor Wisma Tune 19, Lorong Dungun, Damansara Heights Kuala Lumpur Tel No. : (603) Fax No. : (603) info@fimm.com.my Website: Agents Registered unit trust consultants and other approved Institutional Unit Trust Advisers (as and when appointed) of the Manager. Page 1

5 GLOSSARY the Act Auction Settlement Process Base Currency Basket bid Bursa Malaysia Business Day Cash Settlement Amount Commencement Date Communiqué Confirmation Credit Event Credit Linked Note or CLN Means the Capital Markets and Services Act 2007 as originally enacted and amended or modified from time to time. Means the settlement process when a credit event occurs on a Reference Entity. An auction will be held to facilitate settlement of a number of contracts, to determine the Cash Settlement Amount. Means the currency in which the Fund is denominated i.e. MYR. Refers to all the Reference Entities whose performance (servicing of the Obligation stated in the Confirmation) determines the performance of the CLN. In relation to a financial instrument (such as a credit linked note), means the price that a buyer is willing to pay for that financial instrument. Means the stock exchange managed and operated by Bursa Malaysia Securities Berhad including such other name as it may be changed to from time to time. A day on which the Bursa Malaysia is open for trading. The Manager may declare certain Business Days a non Business Day when deemed necessary, such as in the event of market disruption. Means the amount the Structurer will pay to the Fund, being the value of the CLN, when the Structurer provides notification of a Credit Event. Means the date of this Information Memorandum and is the date on which sales of Units of the Fund may first be made. The Commencement Date is also the date of constitution of the Fund. Means the notice which the Manager will be giving to you. Means the contract entered into by the Structurer and the Manager and the Trustee, as the case may be, on behalf of the Fund for the purchase of the CLN. When any one of the Reference Entity defaults on the Obligation because of the occurrence of one or more of the following specific events: (1) bankruptcy (the Reference Entity becomes insolvent); or (2) failure to pay (the Reference Entity fails to make interest or principal payments in respect of the Obligation when due after a permitted grace period.); or (3) obligation default (the Reference Entity defaults on the terms of the Obligation); or (4) obligation acceleration (where the failure to observe terms of the Obligation result in the Obligation becoming immediately due); or (5) repudiation/moratorium (the Reference Entity or a governmental body declares a moratorium over the Obligation); or (6) restructuring (where the Reference Entity attempts or decides to restructure the terms of the Obligation because the Reference Entity is not able to satisfy one or more terms of the Obligation within a specified time); or (7) government intervention (actions taken or announcement made by any governmental authority that would affect creditors rights and mandatorily changes the beneficial holder of the obligations). Please see further on page 11 Pertinent Information About the CLN. The CLN that the Fund intends to purchase is a type of structured product whose principal and coupon payments are contingent on the performance of the Reference Entities. Page 2

6 Deed(s) FiMM In this Information Memorandum, the expression CLN or Credit Linked Note refers to the CLN that the Fund intends to purchase. The CLN will be denominated in United States Dollar (USD). Refers to the deed dated 4 October 2016 entered into between the Manager and the Trustee and includes any subsequent amendments and variations to the Deed. Means the Federation of Investment Managers Malaysia. Financial Institution Means (1) if the institution is in Malaysia (i) Licensed Bank; (ii) Licensed Investment Bank; (iii) Development Financial Institutions (DFIs); or (iv) Licensed Islamic Bank; (2) if the institution is outside Malaysia, any institution that is licensed,registered,approved or authorised by the relevant banking regulator to provide financial services. First to default or FTD Forward Pricing FTD is a feature commonly imposed by sellers of structured products in the nature of the CLN that the Fund intends to purchase. As the Basket consist of multiple Reference Entities, the Structurer has imposed this feature whereby if even one Reference Entity fails to observe the Obligation specified in the Confirmation, that in itself, is sufficient for the Structurer to provide a notification of a Credit Event, notwithstanding that the other Reference Entities continue to observe the Obligation diligently. Because of the nature of this FTD, it may also be considered a risk to the CLN. The trade off for imposing this FTD to the CLN is that the Structurer will increase the coupon payout or reduce the price of the CLN. Means the method of determining the price of a Unit which is the NAV per Unit calculated at the next valuation point after an application for purchase or repurchase request is received by the Manager. Fund Refers to Affin Hwang Structured Income Fund 9. GST Guidelines Information Memorandum Investment Date Refers to the tax levied on goods and services pursuant to the Goods and Services Tax Act Guidelines on Unlisted Capital Market Products Under The Lodge And Launch Framework issued by the SC and as amended from time to time. Means this offer document in respect of this Fund. Means the date on which the Fund first makes investments and it is the actual date the Fund pays for the CLN, which is not more than three (3) weeks from the end of Offer Period. A reference to the Fund s anniversary will be a reference from this Investment Date. Licensed Bank Means a bank licensed under the Financial Services Act Licensed Investment Bank Means an investment bank licensed under the Financial Services Act Licensed Islamic Bank Means an Islamic bank licensed under the Islamic Financial Services Act the Manager or AHAM Maturity Date Refers to Affin Hwang Asset Management Berhad. Means the date on which the Fund automatically terminates, which is the 3 January If the Fund is earlier terminated in accordance with the provisions of the Deed or upon the occurrence of Credit Event, the Maturity Date shall mean the date of such earlier termination. Page 3

7 It is important to note that the Maturity Date can be extended, if in the opinion of the Structurer that a Credit Event may have occurred in respect of any of the Reference Entities, the Structurer may notify the Fund that the Maturity Date has been postponed to the third (3 rd ) Business Day following the date as specified in the notice or not more than twenty one (21) days after 3 January For the avoidance of doubt, if the Structurer provides a notification of Credit Event in respect of the issuer of the bond (the Reference Entity), the Fund ceases to be entitled to receive the Notional Amount. Instead, the Fund will receive the Cash Settlement Amount. Maturity of the Fund or Fund s Maturity Mid quote MYR NAV NAV per Unit Notional Amount Obligation(s) Offer Period Offer Price PHS Recovery Rate Reference Entity or Reference Entities The Fund will mature: (1) on the Maturity Date; or (2) upon the occurrence of Credit Event; whichever occurs first. Means the average of total bids and offers for the bond of which its Reference Entity has experienced a Credit Event. Means the Malaysian Ringgit, the lawful currency of Malaysia. Determined by deducting the value of all the Fund s liabilities from the value of all the Fund s assets, at the valuation point. For the purpose of computing the management fee and the annual trustee fee, the NAV of the Fund should be inclusive (that is, before any deduction) of the management fee and the trustee fee for the relevant day. Means the NAV of the Fund at a particular point divided by the number of Units in Circulation at the same valuation point. Means the amount the Structurer is contractually obliged to pay to the Fund under the Confirmation, being the value of the CLN, on the Maturity Date. The Notional Amount payable to the Fund and distributed to Unit Holders (together with the remaining cash and cash equivalents of the Fund) will not be less than the Offer Price plus the Sales Charge (minus any relevant fees incurred by the Fund) for each Unit held by the Unit Holders. In relation to the CLN, means the types of obligation that the Reference Entities have to satisfy (or service). The types of Obligation will be stated in the Confirmation. On the Trade Date, only those types of Obligation stated in the Confirmation will be applicable to the CLN. The Obligations will include all current AND future obligations within the type stated in the Confirmation. For instance, if loans are stated as a type of Obligation, the Obligation will be in respect of all current loans taken and future loans to be taken by the Reference Entities. Means a limited period where the Units of this Fund are available for purchase. No Units of the Fund shall be available for purchase after the Offer Period. The Offer Price is RM1.00 per Unit during the Offer Period. Is a disclosure document that contains clear and concise information of the salient features of the unlisted capital market product. Means the rate (in percentage terms) for the bond that is able to be recovered from its par value when the Structurer provides notification of a Credit Event in respect of the issuer of the bond (the Reference Entity). Please see further on page 11 Pertinent Information About the CLN. The entities (whether corporate or sovereigns) that determines the performance of the Credit Linked Note. Reference Entity refers to any one of the Reference Entities. Page 4

8 Repurchase Charge Repurchase Price SC Sales Charge Selling Price Each of the Reference Entities is assigned a particular bond. When a Reference Entity fails to service the Obligation stated in the Confirmation and the Structurer provides a notification of a Credit Event, the Recovery Rate of that bond, post the notification of a Credit Event, will accordingly, be applied to the Notional Amount. Means a charge imposed pursuant to a repurchase request. Means the price payable to a Unit Holder by the Manager for a Unit pursuant to a repurchase request and it shall be exclusive of any Repurchase Charge. Means the Securities Commission Malaysia established under the Securities Commission Malaysia Act Means a charge imposed pursuant to the Unit Holder s purchase request. Means the NAV per Unit payable by the Unit Holder for the Manager to create a Unit in the Fund and it shall be exclusive of any Sales Charge. Sophisticated Investors Refers to (1) an individual whose total net personal assets, or total net joint assets with his or her spouse, exceed RM3 million or its equivalent in foreign currencies, excluding the value of the individual s primary residence; (2) an individual who has a gross annual income exceeding RM300,000 or its equivalent in foreign currencies per annum in the preceding 12 months; (3) an individual who, jointly with his or her spouse, has a gross annual income exceeding RM400,000 or its equivalent in foreign currencies per annum in the preceding 12 months; (4) a corporation with total net assets exceeding RM10 million or its equivalent in foreign currencies based on the last audited accounts; (5) a partnership with total net assets exceeding RM10 million or its equivalent in foreign currencies; (6) a unit trust scheme or prescribed investment scheme; (7) a private retirement scheme; (8) a closed end fund approved by SC; (9) a company that is registered as a trust company under the Trust Companies Act 1949 which has assets under management exceeding RM10 million or its equivalent in foreign currencies; (10) a corporation that is a public company under the Companies Act 1965 which is approved by the SC to be a trustee under the Act and has assets under management exceeding RM10 million or its equivalent in foreign currencies; (11) a statutory body established by an Act of Parliament or an enactment of any State; (12) a pension fund approved by the Director General of Inland Revenue under section 150 of the Income Tax Act 1967 [Act 53]; (13) central bank of Malaysia; (14) a holder of a capital markets services licence or an executive director or a chief executive officer of a holder of a capital markets services licence; (15) a licensed institution as defined in the Financial Services Act 2013; (16) an Islamic bank as defined in the Islamic Financial Services Act 2013; (17) an insurance company licensed under the Financial Services Act 2013; (18) a takaful operator registered under the Islamic Financial Services Act 2013; (19) a bank licensee or insurance licensee as defined under the Labuan Financial Services and Securities Act 2010 [704]; Page 5

9 Special Resolution Trade Date Trustee Unit or Units Units in Circulation Unit Holder or Unit Holders or You (20) an Islamic bank licensee or takaful licensee as defined under the Labuan Islamic Financial Services and Securities Act 2010 [705]; and (21) such other investor(s) as may be permitted by the Securities Commission Malaysia from time to time and/or under the relevant guidelines for wholesale funds. Means a resolution passed by a majority of not less than three quarter (¾) of Unit Holders voting at a meeting of the Unit Holders. For the purpose of terminating or winding up the Fund, a Special Resolution is passed by a majority in number representing at least three quarter (¾) of the value of Units held by the Unit Holders voting at the meeting in person or by proxy. Means the actual date stated in the Confirmation where the Fund enters into a contractual transaction with the Structurer for the purpose of purchasing the CLN. Refers to TMF Trustees Malaysia Berhad. Means an undivided share in the beneficial interest and/or right in the Fund and a measurement of the interest and/or right of a Unit Holder in the Fund and means a Unit of the Fund and if the Fund has more than one class of Units, it means a Unit issued for each Class. Means Units created and fully paid for and which has not been cancelled. It is also the total number of Units issued at a particular valuation point. Refers to the person or persons registered for the time being as the holder or holders of Units of the Fund including persons jointly registered. Reference to first person pronouns such as we, us or our in this Information Memorandum means the Manager/AHAM. Unless otherwise stated, reference to day means calendar day. Page 6

10 ABOUT AFFIN HWANG STRUCTURED INCOME FUND 9 FUND CATEGORY : Structured Product (wholesale / close ended) BASE CURRENCY : MYR FUND TYPE : Income LAUNCH DATE : 18 October 2016 FINANCIAL YEAR END : 31 January OFFER PRICE & OFFER PERIOD The offer period shall be for a period of not more than 45 calendar days from the Commencement Date of the Fund. The offer period may be shortened in the event we determine that it is in your best interest. We will then issue a Communiqué to you, notifying that the Offer Period is shortened and the actual Investment Date will be stated in the same Communiqué. The offer price during the offer period is set at MYR 1.00 only. Units will ONLY be sold during the offer period. VIABLE FUND SIZE We reserve the right not to proceed with the Fund if the Fund has not achieved a viable size of 80 million Units at the end of the Offer Period. INVESTORS PROFILE The Fund is suitable for you, if you: seek regular income distribution; have a short term investment horizon; and have a high risk tolerance. INVESTMENT OBJECTIVE The Fund aims to provide income distribution through investment in Credit linked Note. Any material change to the Fund s investment objective would require Unit Holders approval. PERFORMANCE BENCHMARK 12 Month Malayan Banking Berhad fixed deposit rate. The risk profile of this Fund is different from the risk profile of the benchmark. ASSET ALLOCATION A minimum of 95% of the Fund s NAV to be invested in CLN; and A maximum of 5% of the Fund s NAV to be invested in money market instruments, fixed deposits and/or liquid assets. INVESTMENT STRATEGY The Fund will invest a minimum of 95% of the Fund s NAV in a USD denominated CLN issued by a Financial Institution (the Structurer ), while the remaining balance will be invested in money market instruments, fixed deposits and/or liquid assets. The minimum allocation of CLN however will not be observed nearing the Maturity Date as the maturity period of the CLN may be shorter than the Maturity Date of this Fund. The CLN that the Fund intends to purchase provides exposure to multiple corporation or sovereign referred to as Reference Entities (please refer to page 11 for further details). The CLN will only be sourced from a Structurer with a minimum credit rating of Baa3 by Moody s or its equivalent. Page 7

11 Being a holder of the CLN, the Fund will be paid by the Structurer in the form of quarterly coupon payments (the amount is fixed at the onset when the purchase of the CLN is made and stated in the Confirmation). These coupons received by the Fund would be used to provide quarterly income distributions by the Fund to you, subject to the applicable Fund expenses and fees. All income distributions will be in MYR terms. At the Maturity Date, the Structurer will pay the Fund the Notional Amount. The payment of proceeds is expected to be paid to you within two (2) weeks from the Maturity Date and will not be more than one (1) months from the Maturity Date. The Fund may also employ derivatives such as foreign exchange forward contracts and cross currency swaps for hedging purpose. Cross currency swaps and/or foreign exchange forward contracts may be used to hedge the principal and/or the returns of the foreign currency denominated investments back to MYR. The employment of derivatives under these circumstances is expected to reduce the impact of foreign currency movements on the Fund s NAV. While the hedging strategy will assist with mitigating the potential foreign exchange loss by the Fund, any potential gains from the hedging strategy will be capped as well. Please refer to the illustration below for a better understanding of the mechanics of the Fund: The Fund Coupon payout provided by the Structurer CLN issued by the Structurer At the Maturity Date, the Structurer will return the Notional Amount. Cash flows at Investment Date Cash flows during the tenure of Fund Cash flows at Maturity Date PERMITTED INVESTMENT The Fund will invest in the following investments: Credit linked Note; Money market instruments; Fixed deposits; and Any other form of investments as may be determined by us from time to time that is in line with the Fund s objective. DISTRIBUTION POLICY Subject to the availability of income, the Fund aims to distribute income on a quarterly basis until the Maturity Date. In the absence of a Credit Event, the Fund will receive coupon payments from the Structurer every quarter and payable to you only at the end of that quarter. At Maturity Date the Fund will distribute the final quarterly income and maturity proceeds of the Fund (based on the number of Units held), subject to the applicable Fund expenses and fees. The payment of final quarterly income and Page 8

12 maturity proceeds is expected to be paid within two (2) weeks (no longer than 1 month) from the Maturity Date of the Fund. All income shall be paid in cash. There will be no option for Unit Holders to reinvest the income in the form of additional Units for this Fund. VALUATION OF THE FUND The Fund will be valued at 6.00 p.m. on every Business Day (or trading day or T day). However, if the Fund has exposure to investments outside of Malaysia, the Fund shall be valued at a.m. on the next Business Day (or T + 1 ). All foreign assets are translated into the Base Currency based on the exchange rate quoted by Bloomberg or Reuters at 4.00 p.m. (United Kingdom time) which is equivalent to 11 p.m. or 12 a.m. midnight (Malaysian time) on the same day, or at such time as stipulated in the investment management standards issued by FiMM. If the foreign market in which the Fund is invested in is closed for business, we will value the underlying assets based on the latest available price as at the day the particular foreign market was last opened for business. VALUATION OF ASSETS In valuing the Fund s investments, we will ensure that all the assets of the Fund will be valued at fair value and in accordance to the Financial Reporting Standard 139 issued by the Malaysian Accounting Standards Board. CLN The valuation will be at bid price of the CLN provided by the Structurer based on fair value. The Structurer generates the market valuation through the use of their own proprietary valuation models which incorporates all the relevant and available market data in respect of the CLN (e.g. interest rate, credit spread of Reference Entities, remaining duration). However, the valuation of the CLN may be close to zero due to impending news that may adversely affect the pricing of the CLN. For example, there may be circumstances that the company reporting weaker profits which may affect its ability to meet its debt commitments. This would lead to higher risk of default of the Reference Entities. In Specific Risk of the Fund Liquidity Risk section, we have stated that the OTC trade has the effect of the Fund not being in a better bargaining position due to lack of multiple buyers. It applies to this instance as well. We cannot disregard the valuation conducted by the Structurer and proceed to request a third party to conduct a valuation. Nevertheless, this does not mean that the Structurer is free to quote any price it deems as fair value since, as stated above the valuation will be premised on incorporating all relevant and available market data which can be independently verified, to a large extent. On this basis we will ensure that the value of the CLN quoted by the Structurer is fair at all times. The market valuation provided by the Structurer would be counter checked against our internal tracking of the market data that affects the price of the CLN to ensure valuation is fair. This method of valuation is verified by the auditor of the Fund. Fixed Deposit Valuation of fixed deposits placed with Financial Institutions will be done by reference to the principal value of the fixed deposits and the interests accrued thereon for the relevant period. Money Market Instruments Valuation of money market instruments will be based on amortised costs. Derivatives The valuation of derivatives will be based on the rates provided by the respective issuers. For foreign exchange forward contracts ( FX Forwards ), we will apply interpolation formula to compute the value of the FX Forwards based on the rates provided by the Bloomberg. If the rates are not available on the Bloomberg, the FX Forwards will be valued by reference to the average indicative rate quoted by at least 3 independent dealers. In the case where we are unable to obtain quotation from 3 independent dealers, the FX Forwards will be valued in accordance to fair value as determined in good faith by us, on methods or bases which have been verified by the auditor of the Fund and approved by the Trustee. Any Other Investment Fair value as determined in good faith by us, on methods or bases which have been verified by the auditor of the Fund and approved by the Trustee. Page 9

13 CROSS TRADES POLICY We may conduct cross trades between funds we currently manage provided that all criteria imposed by the regulators are met. Notwithstanding, cross trades between the personal account of our employee and the Fund s account(s); and between our proprietary trading accounts and the Fund s account(s) are strictly prohibited. Compliance with the criteria are monitored by our compliance unit, and reported to our compliance and risk management committee, to avoid conflict of interests and manipulation that could have a negative impact on the investors. Page 10

14 PERTINENT INFORMATION ABOUT THE CLN WHAT IS A CLN A CLN is a structured product issued by a Structurer that provides exposure for the Fund in multiple corporations and/or sovereigns referred to as Reference Entities. So long as the Reference Entities continue to service the Obligation specified in the Confirmation (meaning that their credits remain intact), the Structurer will pay the Fund quarterly fixed coupon payments. The Fund then uses these quarterly coupon payments to distribute income to you on a quarterly basis. Each Reference Entity will have a bond assigned to it where the bond will act as a: 1. determination of the price of the Reference Entity for valuation of the CLN; and 2. determination of the Recovery Rate when the Structurer provides a notification of a Credit Event. SELECTION OF EACH BOND ASSIGNED TO EACH REFERENCE ENTITY In selecting the bonds, we will ensure that the bonds will so far as they are possible, be rated. With a rated bond, the Manager may be able to better judge the credit background of a Reference Entity. In certain situations, a particular bond may not be rated but if it is backed by a Reference Entity with good credit standing, the Manager may select that bond. Good credit standing in this context may include Reference Entities with sound financial position, good corporate governance and business prospects. Regardless of whether the bond is rated, we are able to track its performance and its price based on quotes from multiple independent sources. SELECTION OF EACH BOND ASSIGNED TO EACH REFERENCE ENTITY To mitigate credit risk, we will conduct a risk assessment and select the Reference Entity for the CLN. The primary criteria of the selection is the credit quality and in determining the credit quality of a particular Reference Entity, we will review certain traits possessed by that Reference Entity. If the Reference Entity is a corporation, the following are the important traits, such as but not limited to: the levels of cash flows stable and consistent cash flows the industry position operates in non cyclical markets high barriers to entry operating in regulated environments government linked or backed (directly and/ or indirectly) If the Reference Entity is a sovereign, the following are the important traits, but not limited to: the economic fundamentals the current account balances the foreign exchange reserves The traits listed above are non exhaustive and is not intended to be all encompassing. As such, the Reference Entities may not necessarily satisfy ALL the traits listed above. We use these traits as a means of evaluating the overall credit worthiness of the Reference Entities. ILLUSTRATION OF HOW THE COUPONS WOULD PROVIDE INCOME DISTRIBUTION Assuming the following (provided no occurrences of a Credit Event): Investment Date : 30 November 2016 Maturity Date : 3 January 2020 Page 11

15 Agreed coupon rate : 5.50% per annum (i.e % coupon for every quarter) Based on the above assumptions, the following will be applicable: Coupon payment intervals : Quarterly (i.e. every three months) Total No. of coupon payment intervals : 12 Total percentage of coupon expected to be received : 5.50% per annum x 3 years = 16.50% The Fund Investment Date: Investment in the CLN End 1 st quarter: 1.375% coupon income End 2 nd quarter: 1.375% coupon income End 11 th quarter: 1.375% coupon income End 12 th quarter: 1.375% coupon income + Notional Amount CLN issued by the Structurer Cash flows at Investment Date Cash flows during the tenure of Fund Cash flows at Maturity Date WHAT IS A CREDIT EVENT? A Credit Event is when any one of the Reference Entity defaults on the Obligation because of the occurrence of one or more of the following specific events: (1) bankruptcy (the Reference Entity becomes insolvent); or (2) failure to pay (the Reference Entity fails to make interest or principal payments in respect of the Obligation when due after a permitted grace period); or (3) obligation default (the Reference Entity defaults on the terms of the Obligation); or (4) obligation acceleration (where the failure to observe terms of the Obligation result in the Obligation becoming immediately due); or (5) repudiation/moratorium (the Reference Entity or a governmental body declares a moratorium over the Obligation); or (6) restructuring (where the Reference Entity attempts or decides to restructure the terms of the Obligation because the Reference Entity is not able to satisfy one or more terms of the Obligation within a specified time); OR (7) Government intervention (actions taken or announcement made by any governmental authority that would affect the creditors right and mandatorily changes the beneficial holder of the Obligation) The Structurer will provide notification when a Credit Event has occurred. Please note that whilst there may be a possibility of an overlapping occurrence of the specific events, for instance, failure to pay and bankruptcy occurring simultaneously, only one of those specific events is required for the Structurer to provide notification of a Credit Event. Page 12

16 For the Structurer to notify the occurrences of a Credit Event, at least one of the specific events highlighted above must have occurred and be within public knowledge. Instances of heightened possibility that one or more of the specific events highlighted above may occur does not result in the occurrence of a Credit Event. WHAT HAPPENS IF THE STRUCTURER PROVIDES A NOTIFICATION OF A CREDIT EVENT? It is important to note that when the Structurer provides notification of a Credit Event, the Fund ceases to be entitled to receive the Notional Amount. Instead, the Fund will receive the Cash Settlement Amount. Upon the occurrence of the Credit Event, the Structurer will firstly ascertain the Recovery Rate of the bond issued by the Reference Entity which has experienced a Credit Event. Upon determination of the Recovery Rate, the Structurer will include some cost which may arise from, for instance, any commissions, brokerage, unwinding or having to close out positions with other counterparties and other related costs (referred to as the termination rate ). The Structurer will also include any accrued coupon that is due to the Fund (referred to as accrued coupon rate ). RRNA TR ACR CSR Terminology: RRNA : Recovery Rate on the Notional Amount TR : termination rate ACR : accrued coupon rate CSR : Cash Settlement Rate For illustration purposes, assuming the following: RRNA : 40.00% TR : 2.00% ERD : 1.00% Notional Amount : MYR 100 million 40% 2.00% 1.00% 39% From the figures above, the Cash Settlement Amount is payable to the Fund will be RM39.0 million (i.e. 39.0% x MYR 100 million). When the Structurer provides a notification of a Credit Event, the Fund will mature immediately since a Credit Event constitutes the Maturity of the Fund. IMPACT OF THE OCCURENCES OF A CREDIT EVENT ON YOU Therefore, using the illustration stated in What happens if the Structurer Provides Notification of a Credit Event, the Cash Settlement Amount that the Fund will receive from the Structurer is derived using the Notional Amount as the base. A certain percentage (in the illustration above, 40%) is applied to that Notional Amount, that being the Recovery Rate. The recoverable amount will be further reduced (in percentage terms) to account for applicable cost, being the Page 13

17 termination rate. Finally any accrued coupon that is due to the Fund will be added to the recoverable amount but in percentage rate. Thus, taking the illustration stated in What happens if the Structurer provides notification of a Credit Event, and assuming again that the Notional Amount is MYR 100,000,000: Cash Settlement Amount = Notional Amount x (Recovery Rate termination rate + accrued coupon rate) = MYR 100,000,000 x (40% 2% + 1%) = MYR 100,000,000 x 39% = MYR 39,000,000 Thus, the Cash Settlement Amount, that is the amount the Fund will receive from the Structurer upon a Credit Event is only 39% of the Notional Amount or 39,000, out of the MYR 100,000, Notional Amount. The Cash Settlement Amount plus any remaining assets held by the Fund will form the NAV for the Fund. WHAT AMOUNT WILL YOU RECEIVE WHEN THERE IS A NOTIFICATION OF A CREDIT EVENT? You will receive Cash Settlement Amount plus any remaining assets held by the Fund divided by the number of Units in Circulation. Cash Settlement Amount + Remaining assets held by the Fund = NAV per Unit Units in Circulation Amount payable to you = NAV per Unit X Number of Units you hold Please note that the Cash Settlement Amount may be as little as zero. WHAT WILL BE DISCLOSED IN THE COMMUNIQUÉ? You will be informed of the following via the Communiqué, including but not limited to: The Investment Date of the Fund; The final selection of the CLN and its Reference Entities; The details of the Structurer(s) and its credit rating; Income distribution rate and distribution frequency of the Fund; Bond assigned to each Reference Entity; The type of bonds and other material information pertaining to the bonds; The composition of the Reference Entities forming the Basket; Circumstances that will lead to a Credit Event. Page 14

18 ABOUT THE FEES AND CHARGES There are fees and charges involved and you are advised to consider the fees and charges before investing in the Fund. The fees, charges and expenses quoted in this Information Memorandum are exclusive of GST. We (including the Trustee and other service providers of the Fund) will charge GST at the prevailing rate of 6% on the fees, charges and expenses in accordance with the Goods and Services Tax Act SALES CHARGE 2.00% of the Offer Price and it is not negotiable. The following are the charges that may be directly incurred by you. PENALTY CHARGE We will impose a penalty charge of 5.00% on the NAV per Unit, if repurchase of Units is made after the Investment Date of the Fund. Note: There will not be any penalty fee applicable on the repurchase request made before the Investment Date. The penalty fee is fixed and non negotiable. It will be retained by the Fund for the benefit of the existing Unit Holders. The penalty fee is not subject to GST. Assuming that the number of Units repurchased is 100,000 and the NAV per Unit is MYR 1.00, the repurchased amount would be: 100,000 Units x MYR 1.00 = MYR 100,000 Then, the penalty charge would be: MYR 100,000 x 5.00% = MYR 5,000 TRANSFER FEE MYR 5.00 transfer fee will be levied for each transfer of Units. SWITCHING FEE Not applicable as switching facility is not available for this fund. The following are the fees and expenses that you may indirectly incur when you invest in the Fund MANAGEMENT FEE The management fee will only be calculated one (1) Business Day prior to the Maturity Date of the Fund (referred to as Calculation Date ). We will earn a 20% management fee which is conditional upon the appreciation in the NAV per Unit on the Calculation Date over and above the hurdle value* (referred to as the Condition ). However, in the interest of investors, we impose a hurdle value, where the NAV per Unit must exceed MYR before we are eligible for a management fee. If the Condition is fulfilled, we are eligible for a management fee which is payable to us on the Calculation Date. * A hurdle value is the minimum value that needs to be achieved before we are eligible to earn the management fee. The hurdle value is calculated by adding the quarterly coupon payment and Sales Charge (inclusive of GST on the Offer Price). Page 15

19 1. Setting the Hurdle Value The hurdle value is computed based on the formula below: Offer Price x (1 + quarterly coupon payment) x (1 + Sales Charge) For illustration purposes, let s assume the following: Offer Price : MYR 1.00 Annual coupon payment : 5.50% Sales Charge : 2.00% GST on : 6% Based on the above assumption, the hurdle value of the fund will be: Quarterly coupon payment = 5.50% / 4 = 1.375% Sales Charge (inclusive of GST) = 2.00% + (2.00% x 6%) = 2.00% % = 2.12% Hurdle value = MYR 1.00 x ( %) x (1+2.12%) 2. Calculating the Management Fee = MYR 1.00 x ( ) x (1.0212) = MYR The management fee in respect of each Unit will be equal to 20% of the appreciation in the NAV per Unit over and above the hurdle value. Though the Fund is valued daily, the calculation to determine if the hurdle value has been exceeded will only be made on the Calculation Date. We are eligible for a management fee provided the hurdle value has been exceeded on the Calculation Date. If this condition is fulfilled, the management fee is applicable and payable to us on the Calculation Date. Please see the following illustration on the eligibility to impose the management fee: Formula for the computation of: The excess value per Unit = NAV per Unit on the Calculation Date hurdle value per Unit The management fee payable = excess value per Unit x 20% X Units in Circulation The GST payable on the management fee = management fee payable x 6% The NAV per Unit net of management fee = NAV per unit on the Calculation Date management fee payable GST Illustration 1 Illustration 2 Maturity Date of the Fund 3 January January 2020 Calculation Date for management fee 2 January January 2020 Units in Circulation on the Calculation Date 100 million Units 100 million Units NAV per Unit on the Calculation Date MYR MYR Hurdle value per Unit MYR MYR Eligible to impose management fee Yes No Excess value per Unit MYR MYR = MYR Not applicable Page 16

20 Management fee payable Illustration 1 Illustration 2 MYR x 20% x 100 million Units = MYR 446, GST payable on the management fee MYR 446, x 6% = MYR 26, Not applicable Not applicable ANNUAL TRUSTEE FEE The trustee fee is up to 0.03% per annum of the NAV of the Fund (excluding foreign custodian fees and charges), and is calculated using the Fund s Base Currency (before deducting the management fee and trustee fee). The trustee fee is accrued daily and payable monthly. In addition to the annual trustee fee, the Trustee may be reimbursed by the Fund for any expenses properly incurred by it in the performance of its duties and responsibilities. Please note that the example below is for illustration only: MYR 120 million x 0.03% ADMINISTRATIVE FEE 365 days = MYR per day Only fees and expenses that are directly related and necessary to the business of the Fund may be charged to the Fund. These include the following: Commissions or fees paid to brokers in effecting dealings in the investments of the Fund, shown on the contract notes or confirmation notes; (where the custodial function is delegated by the Trustee for the custody of foreign investments) charges and fees paid to sub custodians taking into custody any foreign assets of the Fund; Tax and other duties charged on the Fund by the government and/or other authorities; Costs, fee and other expenses properly incurred by the auditor appointed for the Fund; Costs, fees and expenses incurred for the valuation of any investments of the Fund by independent valuers for the benefit of the Fund; Costs, fees and expenses incurred for any modification of the Deed save where modification is for the benefit of the Manager and/or the Trustee; Costs, fees and expenses incurred for any meeting of the Unit Holders save where such meeting is convened for the benefit of the Manager and/or Trustee; any tax such as GST and/or other indirect or similar tax now or hereafter imposed by law or required to be paid in connection with any costs, fees and expenses incurred by the Fund; and Other fees and expenses related to the Fund allowed under the Deed. MAXIMUM RATE OF FEES AND CHARGES ALLOWABLE BY THE DEED We may impose higher fees and charges up to the following stated maximum rate, provided that we have taken the necessary procedures (please refer to page 28 for details) to increase the fees and charges. Sales Charge Repurchase Charge Management Fee Annual Trustee Fee Not applicable Not applicable Not applicable 0.10% per annum of the NAV of the Fund or its equivalent in the Base Currency of the Fund calculated and accrued daily (excluding foreign custodian fees and charges) Page 17

21 REBATES AND SOFT COMMISSIONS We, including our delegate (if any) will not retain any rebate or soft commission from, or otherwise share in any commission with, any broker/dealer in consideration for directing dealings in the investments of the Fund. Accordingly, any rebates or shared commissions will be directed to the account of the Fund. The soft commission can be retained by us or any of our delegates, provided that the goods and services are of demonstrable benefit to the Unit Holders such as research materials, data and quotation services, financial wire services and investment related tools/publication which are incidental to the investment management activities of the Fund. Page 18

22 UNDERSTANDING THE RISKS OF THE FUND Below are the risks associated with the investments of the Fund. It is important to note that events affecting the investments cannot always be foreseen. Therefore, it is not possible to protect investments against all risks. You are recommended to read the whole Information Memorandum to assess the risks associated to the Fund. If necessary, you should consult your professional adviser(s) for a better understanding of the risks. GENERAL RISKS OF THE FUND Market risk Fund management risk Inflation risk Loan financing risk Operational risk Market risk arises because of factors that affect the entire market place. Factors such as economic growth, political stability and social environment are some examples of conditions that have an impact on businesses, whether positive or negative. It stems from the fact that there are economy wide perils, or instances of political or social instability which threaten all businesses. Hence, the Fund will be exposed to market uncertainties and fluctuations in the economic, political and social environment that will affect the market price of the investments either in a positive or negative way. This risk refers to the day to day management of the Fund by us which will impact the performance of the Fund. For example, investment decisions undertaken by us as a result of an incorrect view of the market or any non compliance with internal policies, investment mandate, the Deed, relevant law or guidelines due to factors such as human error, fraudulent, dishonesty or weaknesses in operational process and systems, may adversely affect the performance of the Fund. This is the risk that your investment in the Fund may not grow or generate income at a rate that keeps pace with inflation. This would reduce your purchasing power even though the value of the investment in monetary terms has increased. This risk occurs when you take a loan/financing to finance your investment. The inherent risk of investing with borrowed money includes you being unable to service the loan repayments. In the event Units are used as collateral, you may be required to top up your existing instalment if the prices of Units fall below a certain level due to market conditions. Failing which, the Units may be sold at a lower net asset value per unit as compared to the net asset value per unit at the point of purchase towards settling the loan. Operational risk is the risk of loss due to the breakdown, deficiencies or weaknesses in the operational support functions resulting in the operations or internal control processes producing an insufficient degree of customer quality or internal control by the Manager. Operational risk is typically associated with human error, system failure, fraud and inadequate or defective procedures and controls. SPECIFIC RISKS OF THE FUND Investment concentration risk Counterparty risk This risk exists because the Fund will only purchase a single investment instrument which is the CLN and as such, there is a lack of diversification. The ability of the Fund to achieve its objective is dependent entirely on the performance of the CLN. We will seek to mitigate this risk by choosing only Reference Entities with good credit standing. The Manager s determination of good credit standing in this context may include Reference Entities with sound financials, good corporate governance and business prospects. Please refer to page 11 on the Selection of Reference Entities. As the Fund intends to purchase the CLN from only one seller, i.e. the Structurer, and the purchase forms a minimum of 95% of the NAV of the Fund, counterparty risk becomes more pronounced. This risk refers to the inability of the Structurer to keep its end of the Page 19