CIMB-PRINCIPAL BOND FUND UNAUDITED FINANCIAL STATEMENTS FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 30 JUNE 2018

Transcription

1 UNAUDITED FINANCIAL STATEMENTS FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 30 JUNE

2 CONTENTS PAGE(S) INVESTORS' LETTER 1 MANAGER'S REPORT 2-8 Fund Objective and Policy Performance Data Market Review Fund Performance Portfolio Structure Market Outlook Investment Strategy Unit Holdings Statistics Soft Commissions and Rebates STATEMENT BY MANAGER 9 TRUSTEE'S REPORT 10 UNAUDITED STATEMENT OF COMPREHENSIVE INCOME 11 UNAUDITED STATEMENT OF FINANCIAL POSITION 12 UNAUDITED STATEMENT OF CHANGES IN EQUITY 13 UNAUDITED STATEMENT OF CASH FLOWS 14 NOTES TO THE FINANCIAL STATEMENTS DIRECTORY 37

3 INVESTORS' LETTER Dear Valued Investor, Thank you for your continued support and for the confidence that you have placed in us. We are pleased to share that CIMB-Principal Asset Management Berhad ( CIMB-Principal ) Malaysia has achieved RM55 billion in Asset under Management ( AUM ) as at July The Edge Thomson Reuters Lipper Malaysia Fund Awards 2018 Best Fund Over 5 Years, Equity Global - Malaysia : CIMB-Principal Global Titans Fund Best Fund Over 5 Years, Equity Asia Pacific ex Japan - Malaysia : CIMB-Principal Asian Equity Fund Best Fund Over 5 Years, Equity Asia Pacific ex Japan - Malaysia : CIMB Islamic Asia Pacific Equity Fund Best Fund Over 5 Years, Equity Malaysia Diversified - Malaysia : CIMB-Principal Equity Growth & Income Fund Best Fund Over 5 Years, Mixed Asset MYR Bal - Malaysia : CIMB-Principal Income Plus Balance Fund Best Fund Over 3 Years, Equity Global - Malaysia : CIMB-Principal Global Titans Fund In addition, we received recognition from Fundsupermart.com for Fund House of the Year award and Recommended Unit Tust 2018/2019 awards for the following funds: CIMB-Principal Global Titans Fund CIMB-Principal Asia Pacific Dynamic Income Fund CIMB Islamic Asia Pacific Equity Fund CIMB-Principal Greater China Equity Fund CIMB-Principal PRS Plus Conservative CIMB-Principal PRS Plus Growth Our latest accomplishment is The Asset Triple A Private Banking, Wealth Management, Investment and Exchange-Traded Fund ( ETF ) Awards 2018 where we have been recognized for the Best Wealth Manager in Malaysia. These prestigious awards are a celebration of the trust that you have placed in us and testament to our capability in bringing potential value to your financial goals and needs. We look forward to serving you for many years to come and to the best of our ability. Thank you. Yours faithfully, for CIMB-Principal Asset Management Berhad Munirah Khairuddin Chief Executive Officer 1

4 MANAGER S REPORT FUND OBJECTIVE AND POLICY What is the investment objective of the Fund? The Fund aims to provide regular income as well as to achieve medium to long-term capital appreciation through investments primarily in Malaysian bonds. Has the Fund achieved its objective? For the financial period under review, the Fund is in line with its stated objectives as stated under the Fund performance review. What are the Fund investment policy and principal investment strategy? Between 70% to 98% (both inclusive) of the Fund s Net Asset Value ( NAV ) may be invested in debentures carrying at least a BBB3 or P2 rating by RAM Ratings ( RAM ) or equivalent rating by Malaysia Rating Corporation Berhad ( MARC ) or by local rating agency(ies) of the country of issuance or BBB- by S&P or equivalent rating by Moody s or Fitch. The Fund may invest up to 40% of its NAV in Unrated Debentures*. The Fund may opt to seek investment exposure via Collective Investment Schemes that is in line with the Fund s objective, subject to the requirement of the SC Guidelines. The rest of the Fund is maintained in the form of liquid assets to meet any withdrawal payments to investors. In line with its objective, the investment strategy and policy of the Fund is to invest in a diversified portfolio of approved fixed income securities consisting primarily of bonds, aimed to provide a steady stream of income. To achieve its objective, the Fund may also invest in structured products and/or derivatives such as forward contracts, options, futures contracts and swap agreements, that are related/linked to fixed income securities. * With effective 1 October 2017, the investment limit in Unrated Debentures will be changed from 25% to 40%. Fund category/type Bond/Income How long should you invest for? Recommended three (3) years or more Indication of short-term risk (low, moderate, high) Low When was the Fund launched? 15 November 1995 What was the size of the Fund as at 30 June 2018? RM million ( million units) What is the Fund s benchmark? Quant shop Malaysian Government Securities ( MGS ) Bond Index (Medium Sub-Index) Note: The benchmark is for performance comparison only. Investors are cautioned. 2

5 FUND OBJECTIVE AND POLICY (CONTINUED) What is the Fund distribution policy? Distribution (if any) is expected to be distributed once a year every January at the Manager s discretion. What was the net income distribution for the six months financial period ended 30 June 2018? The Fund distributed a total net income of RM10.98 million to unit holders for the six months financial period ended 30 June As a result, the NAV per unit dropped from RM to RM on 23 January PERFORMANCE DATA Details of portfolio composition of the Fund for the last three unaudited financial periods are as follows: % % % Unquoted fixed income securities Cash and other net assets Performance details of the Fund for the last three unaudited financial periods are as follows: NAV (RM Million) Units in circulation (Million) NAV per unit (RM) to to to Highest NAV per unit (RM) Lowest NAV per unit (RM) Total return (%) Capital growth (%) (3.33) (2.85) (3.26) - Income distribution (%) Management Expense Ratio ( MER ) (%) ^ Portfolio Turnover Ratio ( PTR ) (times) # ^ The Fund s MER decreased slightly from 0.57% to 0.55% due to increased in average NAV. # The PTR for the financial period under review was 0.51 times which reflected the number of transactions. Rebalancing may be done when there are redemptions or potential credit event. Date of distribution Gross/Net distribution per unit (sen)

6 PERFORMANCE DATA (CONTINUED) % % % % % Annual total return (Launch date: 15 November 1995) Past performance is not necessarily indicative of future performance and that unit prices and investment returns may go down, as well as up. All performance figures for the financial period have been extracted from Lipper. MARKET REVIEW (1 JANUARY 2018 TO 30 JUNE 2018) At the start of the new year, Bank Negara Malaysia ( BNM ) s Monetary Policy Committee ( MPC ) decided to raise the Overnight Policy Rate ( OPR ) by 25 basis points ( bps ) to 3.25% on 25 January 2018, citing the steady growth path for the economy and as a pre-emptive move to prevent a build-up of risks that could arise from low interest rates for a prolonged period of time. The Central Bank views that global growth will accelerate in 2018 and continued to strengthen, with global trade performing at a sustained pace. On the domestic front, BNM expects the strong growth momentum to carry on into 2018, on the back of spill overs from the external sector to the domestic economy. Meanwhile BNM expects the inflation rate to moderate in 2018, on account of a reduced effect of global cost factors, while the stronger Malaysia Ringgit ( MYR ) would also translate to lower import prices. The strong rally momentum in December 2017 faded away in January 2018 with the MGS yield curve flattened as short end yields rose on the back of the OPR hike. Overall, MGS yields we higher across the curve In the month of February 2018, the MGS yield curve saw a slight bear flattening as yields for the 3- year, 5-year and 10-year benchmark MGS traded 5 bps to 10 bps higher while the 15-year and 30- year MGS were 2 bps and 1 bps higher respectively from a month ago. The rise in yields across the MGS curve was in tandem with the rising global bond yields. However, buying interests appeared towards the end of the month amid a rebound in sentiment as the global bond selloff appeared to have stalled and higher yield levels start to attract investors. In March 2018, better buying interest was seen aided by the large maturity of Government Investment Issues ( GII ) totalling RM16.4 billion in February 2018 and March 2018 as well as the MYR strength which dipped below 3.90%.The MGS yield curve flattened in with the 3-year/10-year spreads narrowing from 64 bps to 61 bps month-on-months ( m-o-m ). As expected, BNM kept the OPR unchanged at 3.25% at its MPC in March 2018.The Central Bank remained positive on its global growth outlook while highlighting concerns over recent risks of financial market volatility and rising trade tensions. On the domestic front, BNM reiterated that growth is expected to remain strong in 2018 with domestic demand as the key growth driver further supported by the external sector. Headline inflation is projected to average lower in 2018 on expectations of a smaller effect from global cost factors. Meanwhile, BNM released its 2017 Annual Report and upgraded the 2018 growth forecast on the Malaysian economy to 5.5% to 6.0% from the previous forecast of 5.0% to 5.5%. According to the report, growth will be anchored by private domestic demand with external demand providing additional impetus. While growth forecast has been revised higher, inflation outlook is reduced to 2% to 3% in 2018 from the previous forecast of 2.5% to 3.5%.The moderation is mainly due to lower contribution from energy prices and imported inflation capped by the stronger MYR. Foreign ownership in Malaysian securities declined in February 2018 with an outflow of RM3.9 billion. During the month, MGS, GII and discount instruments all reported outflow with only corporate bonds saw a marginal increase of RM0.7 billion net inflow from foreign investors. On a percentage basis, foreign ownership of MGS and GII dropped to 45.4% and 6.7% versus the previous levels of 45.7% and 7.0%, respectively 4

7 MARKET REVIEW (1 JANUARY 2018 to 30 JUNE 2018 (CONTINUED) CIMB-PRINCIPAL BOND FUND The international reserves of BNM remained stable at USD103.7 billion as of end of February 2018, unchanged from the previous month. The reserves position is sufficient to finance 7.2 months of retained imports and is 1.1 times the short-term external debt. Inflation rate slowed to 1.4% year-on-year ( y-o-y ) in February from 2.7% in January 2018, the lowest rate in 16 months. The drop in inflation was mainly due to a decline in transportation costs during the month while food and beverage, and housing eased due to base effects. The MGS yield curve bear flattened in April 2018 with the 3-year/10-year spreads widening by 15 bps to 23 bps. The correction in MGS market was driven by rising US Treasury ( UST ) yields as the 10- year UST broke the psychological 3.0% level. Foreign ownership in Malaysian securities increased in March 2018 with an inflow of RM2.88 billion. The increase was attributed to an increase in short-term bills, MGII and MGS holdings of RM2.34 billion, RM0.46 billion and RM0.44 billion respectively. Although the total of foreign holdings in MGS was marginally higher in March 2018 at RM billion, on a percentage basis, foreign ownership of MGS dropped to 45.0% versus the previous level of 45.4%. Generally the economic data in the first quarter of 2018 were weaker with the Malaysia Manufacturing Purchasing Manager Index ( PMI ) fell from 49.5 points in March 2018 to 48.6 points in April 2018, the third consecutive decline for the year. The reading was lowest since October 2017 as output volumes shrink further in line with waning demand for Malaysian products. Export shrank 2% in February 2018 after a 17.9% surge in the previous month making this the first contraction in outbound shipments since October 2016 as trade slowed during the Lunar New Year festival. Sales for most of the commodities, with the exception of petroleum, took a significant hit. Meanwhile, imports declined 2.8% y-o-y in February 2018 from a 11.6% increase in January 2018, attributed to a decline in fuel and lubricants as well as food and beverages. The trade surplus was RM9.0 billion in February 2018 down from RM9.7 billion in the previous month as import decline outpaced the export decline on month on month basis. Inflation rate slowed further to 1.3% y-o-y in March 2018 from 1.2% in February 2018, the lowest rate since July The drop in inflation was mainly due to a decline in transportation costs during the month while food and beverage, and housing eased due to base effects. Trading volume for corporate bond decreased in April 2018 by RM3.6 billion m-o-m to RM10.3 billion after the bearish turn in UST. Appetites were mostly for the quasi-sovereign and AA rated segments. Credit spreads during the month compressed across both rating segments and tenors as the respective govvies moved higher during the month while the corporate bonds remain supported. Total new issuance in April 2018 remained high albeit slightly lower at RM 10.7 billion versus the previous month s RM 12.2 billion. The MGS yield curve bear steepened in May 2018 with yields on the long-end of the curve widening by 9 bps to 16 bps compared to the short-end of the yield curve, which only widened by 3 bps to 6 bps. Notably, the 20-year yield curve moved up 16 bps ahead of a new 20-year auction in June Existing holders might be looking to switch to the new benchmark for better liquidity. There were four Government bond auctions in May 2018 with auction yields were mostly on the higher end of the guidance. Foreign investors reduced their holdings in Malaysian assets by RM4.69 billion in April 2018, after an increase in prior month. YTD as at end of April 2018, foreigners sold RM1.29 billion of Malaysian assets. The decrease in the non-resident holdings in April 2018 was attributed to a decrease across short-term bills, MGII and MGS, with MGS outflow estimated at RM3.12 billion. This is most likely due to 10-year UST breaching 3% in the same month. As of April 2018, total foreign holdings in MGS were marginally higher at RM billion, representing about 44.3% of outstanding MGS. 5

8 MARKET REVIEW (1 JANUARY 2018 to 30 JUNE 2018 (CONTINUED) CIMB-PRINCIPAL BOND FUND Post the 14 th General Election ( GE14 ) results, MPC stayed on hold at 3.25% as widely expected. The committee remains confident on global growth outlook while inflation is projected to average lower in 2018 on smaller effect from global cost factors. Projected 2018 Government revenue shortfall arising from this is expected to be around RM25.6bn or 1.7% of gross domestic product ( GDP ) without Sale & Services Tax ( SST ). Finally towards the end of the financial period under review, the domestic sovereign yield curve moved modestly with the shorter tenure (3 years and below) and ultra long (above 20 year) yields moved lower by 1 bps to 5 bps. The 10-year MGS remained at 4.20% while the 3-year dipped 5 bps to 3.59%. FUND PERFORMANCE 6 months 1 year 3 years 5 years Since inception to to to to to % % % % % Income Capital (3.33) (1.39) (5.04) (9.25) Total Return Benchmark Average Total Return N/A For the six month period under review ended 30 June 2018, the Fund delivered a total return of 1.72% versus the benchmark Quant shop MGS Bond Index (Medium Sub-Index) return of 0.98%. 250% 200% 150% 100% 50% CIMB-Principal Bond Fund Quant shop MGS Bond Index (Medium Sub-Index) 0% 6

9 FUND PERFORMANCE (CONTINUED) Changes in NAV Changes % NAV (RM Million) NAV/Unit (RM) (1.40) The Fund s NAV increased by 5.01% to RM 223 million as at 30 June 2018 due to injections as well as improvement in underlying bond valuation. Meanwhile NAV per unit decreased slightly by 1.4% y- o-y to end at RM partially due to distribution of income during the period under review. The Fund is ranked 24 th out of 55 funds, in the second quartile in the Lipper ranking for six month ending 30 June Performance data represents the combined income and capital return as a result of holding units in the Fund for the specified length of time, based on NAV to NAV price. The performance data assumes that all earnings from the Fund are reinvested and are net of management and trustee fees. Past performance is not reflective of future performance and income distributions are not guaranteed. Unit prices and income distributions, if any, may fall and rise. All performance figures for the financial period have been extracted from Lipper. PORTFOLIO STRUCTURE (% of NAV) Unquoted fixed income securities Cash and other net assets TOTAL The Fund is invested with cash and other net asset as liquidity for redemption purposes. MARKET OUTLOOK* At the last MPC meeting held in May 2018, immediately after the GE14, the Central Bank maintain the OPR at 3.25%. BNM maintained an upbeat assessment of Malaysia s economic outlook in 2018, supported by firm domestic demand and a supportive external environment. The MPC statement was light on addressing the shift in Malaysian politics overnight, but expressed the Central Bank s confidence that economic and financial conditions remain supportive in the post-election environment. However, external risks are still on the radar, particularly financial market volatility, trade tensions and geopolitical risks. Market expects the new Government to achieve its budget deficit at 2.8% this year but more clarity for 2019 fiscal position will be monitored closely in November 2018 when Budget 2019 will be unveiled. In terms of Government issuances for 2018, there will be a total of 33 auctions comprising of 15 MGS and 18 GII issuances compared to 32 auctions seen in 2017.The gross issuances for 2018 is expected to be around RM103 billion with sizeable maturities of about RM62.8 billion after BNM conducted a bond switching exercise reducing the 2018 MGS/MGII maturity amount. We expect BNM to target more issuances with longer durations to manage the maturities which are now mostly concentrated in the short end. The targeted amounts of private placements are smaller in 2018 versus 2017 with the bulk of it being in the first quarter of *This market outlook does not constitute an offer, invitation, commitment, advice or recommendation to make a purchase of any investment. The information given in this article represents the views of CIMB-Principal or based on data obtained from sources believed to be reliable by CIMB-Principal. Whilst every care has been taken in preparing this, CIMB-Principal makes no guarantee, representation or warranty and is under no circumstances liable for any loss or damage caused by reliance on, any opinion, advice or statement made in this market outlook. 7

10 INVESTMENT STRATEGY Our strategy going into 2018 is to opportunistically participate in sovereign markets as and when valuation turn attractive while focus on credit markets for a more stable and higher yield pick-up to anchor the fund. We have a preference on AA-rated for better total return as we expect potentially less issuances relative to the GGs and AAA-rated in UNIT HOLDINGS STATISTICS Breakdown of unit holdings by size as at 30 June 2018 are as follows: Size of unit holdings (units) No. of unit holders No. of units held % of units held (million) 5,000 and below ,001 to 10, ,001 to 50, ,001 to 500, ,001 and above Total 2, SOFT COMMISSIONS AND REBATES CIMB-Principal Asset Management Berhad (the "Manager") and the Trustee (including their officers) will not retain any form of rebate or soft commission from, or otherwise share in any commission with, any broker in consideration for directing dealings in the investments of the Funds unless the soft commission received is retained in the form of goods and services such as financial wire services and stock quotations system incidental to investment management of the Funds. All dealings with brokers are executed on best available terms. During the financial period under review, the Manager and the Trustee did not receive any rebates from the brokers or dealers but have retained soft commission in the form of goods and services such as financial wire services and stock quotations system incidental to investment management of the Funds. 8

11 STATEMENT BY MANAGER TO THE UNIT HOLDERS OF CIMB-PRINCIPAL BOND FUND We, being the Directors of CIMB-Principal Asset Management Berhad (the Manager ), do hereby state that, in the opinion of the Manager, the accompanying unaudited financial statements set out on pages 11 to 36 are drawn up in accordance with the provisions of the Deeds and give a true and fair view of the financial position of the Fund as at 30 June 2018 and of its financial performance, changes in equity and cash flows for the financial period then ended in accordance with Malaysian Financial Reporting Standards ( MFRS ) Interim Financial Reporting and International Accounting Standards ( IAS ) 34 - Interim Financial Reporting. For and on behalf of the Manager CIMB-Principal Asset Management Berhad (Company No.: K) ALEJANDRO ECHEGORRI Executive Director PEDRO ESTEBAN BORDA Director Kuala Lumpur 20 August

12 TRUSTEE S REPORT TO THE UNIT HOLDERS OF CIMB-PRINCIPAL BOND FUND We have acted as the Trustee of CIMB-Principal Bond Fund (the Fund ) for the six months financial period ended 30 June To the best of our knowledge, CIMB-Principal Asset Management Berhad (the Manager ) has managed the Fund in accordance with the following: (a) (b) (c) limitations imposed on the investment powers of the Manager and the Trustee under the Deeds, the Securities Commission Malaysia Guidelines on Unit Trust Funds, the Capital Markets and Services Act 2007 and other applicable laws; valuation/pricing is carried out in accordance with the Deeds of the Fund and applicable regulatory requirements; and creation and cancellation of units have been carried out in accordance with the Deeds of the Fund and applicable regulatory requirements. During the financial period, a total distribution of 5.60 sen per unit (gross) has been distributed to the unit holders of the Fund. We are of the view that the distribution is consistent with the objective of the Fund. For and on behalf of the Trustee PB TRUSTEE SERVICES BERHAD JULIA BINTI MUSTAFFA Chief Executive Officer Kuala Lumpur 20 August

13 UNAUDITED STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 30 JUNE 2018 CIMB-PRINCIPAL BOND FUND to to Note RM RM INVESTMENT INCOME Interest income 4 5,136,531 5,027,501 Net (loss)/gain on financial assets at fair value through profit or loss 9 (265,164) 1,426,888 4,871,367 6,454,389 EXPENSES Management fee 5 1,070,581 1,077,050 Trustee's fees 6 53,529 53,852 Audit fee 7,550 7,120 Tax agent's fee 100 3,500 Other expenses 60,029 77,819 1,191,789 1,219,341 PROFIT BEFORE TAXATION 3,679,578 5,235,048 Taxation PROFIT AFTER TAXATION AND TOTAL COMPREHENSIVE INCOME FOR THE FINANCIAL PERIOD 3,679,578 5,235,048 Profit after taxation is made up as follows: Realised amount 3,634,157 3,740,045 Unrealised amount 45,421 1,495,003 3,679,578 5,235,048 The accompanying notes to the financial statements form an integral part of the unaudited financial statements. 11

14 UNAUDITED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE Audited Note RM RM ASSETS Cash and cash equivalents 10 9,994,109 9,541,707 Financial assets at fair value through profit and loss 9 208,521, ,681,406 Amount due from brokers - 10,335,322 Amount due from Manager 6,208, ,084 TOTAL ASSETS 224,724, ,703,519 LIABILITIES Amount due to brokers - 10,203,014 Amount due to Manager 1,476, ,669 Accrued management fee 175, ,438 Amount due to Trustee 8,795 9,422 Other payables and accruals 17,551 30,614 TOTAL LIABILITIES 1,678,586 10,775,157 NET ASSET VALUE OF THE FUND 223,046, ,928,362 EQUITY Unit holders capital 214,401, ,982,599 Retained earnings 8,644,604 15,945,763 NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 223,046, ,928,362 NUMBER OF UNITS IN CIRCULATION (UNITS) ,120, ,628,426 NET ASSET VALUE PER UNIT (RM) The accompanying notes to the financial statements form an integral part of the unaudited financial statements. 12

15 UNAUDITED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 30 JUNE 2018 CIMB-PRINCIPAL BOND FUND Unit holders Retained capital earnings Total Note RM RM RM Balance as at 1 January ,982,599 15,945, ,928,362 Movement in unit holders contributions: - Creation of units from applications 70,639,338-70,639,338 - Creation of units from distribution 10,564,255-10,564,255 - Cancellation of units (69,784,590) - (69,784,590) Total comprehensive income for the financial period - 3,679,578 3,679,578 Distribution 7 - (10,980,737) (10,980,737) Balance as at 30 June ,401,602 8,644, ,046,206 Balance as at 1 January ,182,144 17,966, ,148,710 Movement in unit holders contributions: - Creation of units from applications 35,529,777-35,529,777 - Creation of units from distribution 11,065,465-11,065,465 - Cancellation of units (52,014,188) - (52,014,188) Total comprehensive income for the financial period - 5,235,048 5,235,048 Distribution 7 - (11,561,221) (11,561,221) Balance as at 30 June ,763,198 11,640, ,403,591 The accompanying notes to the financial statements form an integral part of the unaudited financial statements. 13

16 UNAUDITED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 30 JUNE 2018 CIMB-PRINCIPAL BOND FUND to RM to RM CASH FLOWS FROM OPERATING ACTIVITIES Proceeds from disposal of unquoted fixed income securities 122,383, ,818,609 Proceeds from redemption of unquoted fixed income securities - 2,500,000 Purchase of unquoted fixed income securities (121,576,579) (151,824,700) Interest income received from deposits with financial institutions 160, ,299 Interest income received from unquoted fixed securities 5,196,516 5,453,681 Management fee paid (1,083,119) (1,091,145) Trustee s fee paid (54,156) (54,557) Payments for other fees and expenses (80,742) (89,670) Net cash generated from operating activities 4,945,280 14,918,517 CASH FLOWS FROM FINANCING ACTIVITIES Cash proceeds from units created 64,575,523 35,859,615 Payments for cancellation of units (68,651,919) (50,691,858) Distribution paid (416,482) (495,756) Net cash used in operating activities (4,492,878) (15,327,999) Net increase/(decrease) in cash and cash equivalents 452,402 (409,482) Cash and cash equivalents at the beginning of the financial period 9,541,707 12,181,667 Cash and cash equivalents at the end of the financial period 9,994,109 11,772,185 Cash and cash equivalents comprised of: Deposits with licensed financial institutions 9,913,650 11,704,816 Bank balances 80,459 67,369 Cash and cash equivalents at the end of the financial period 9,994,109 11,772,185 The accompanying notes to the financial statements form an integral part of the unaudited financial statements. 14

17 NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 30 JUNE THE FUND, THE MANAGER AND ITS PRINCIPAL ACTIVITY CIMB-PRINCIPAL BOND FUND CIMB-Principal Bond Fund (the Fund ) is governed by a Principal Master Deed dated 15 May 2008, an Eighth Supplemental Master Deed dated 14 June 2010 and an Eighteenth Supplemental Master Deed dated 25 March 2015 (collectively referred to as the Deeds ) made between CIMB-Principal Asset Management Berhad (the Manager ) and PB Trustee Services Berhad (the Trustee ). Between 70% to 98% (both inclusive) of the Fund s NAV may be invested in debentures carrying at least a BBB3 or P2 rating by RAM or equivalent rating by MARC or by local rating agency(ies) of the country of issuance or BBB- by S&P or equivalent rating by Moody s or Fitch.The Fund may invest up to 40% of its NAV in Unrated Debentures. The Fund may opt to seek investment exposure via Collective Investment Schemes that is in line with the Fund s objective, subject to the requirement of the SC Guidelines.The rest of the Fund is maintained in the form of liquid assets to meet any withdrawal payments to investors. In line with its objective, the investment strategy and policy of the Fund is to invest in a diversified portfolio of approved fixed income securities consisting primarily of bonds, aimed to provide a steady stream of income.to achieve its objective, the Fund may also invest in structured products and/or derivatives such as forward contracts,options, futures contracts and swap agreements, that are related/linked to fixed income securities. All investments are subjected to the SC Guidelines on Unit Trust Funds, SC requirements, the Deeds, except where exemptions or variations have been approved by the SC, internal policies and procedures and the Fund s objective. The Manager, a company incorporated in Malaysia, is jointly owned by CIMB Group Sdn Bhd and Principal International (Asia) Limited. The principal activities of the Manager are the establishment and management of unit trust funds and fund management activities. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following accounting policies have been used consistently in dealing with items which are considered material in relation to the financial statements: (a) Basis of preparation The financial statements have been prepared in accordance with the provisions of the MFRS and International Financial Reporting Standards ( IFRS ). The financial statements have been prepared under the historical cost convention, as modified by financial assets at fair value through profit or loss. The preparation of financial statements in conformity with MFRS and IFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. It also requires the Manager to exercise their judgment in the process of applying the Fund s accounting policies. Although these estimates and assumptions are based on the Manager s best knowledge of current events and actions, actual results may differ. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 2(j). 15

18 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CIMB-PRINCIPAL BOND FUND (a) Basis of preparation (continued) Standards, amendments to published standards and interpretations to existing standards that are effective: The Fund has applied the following amendments for the first time for the financial period beginning 1 January 2018: MFRS 9 Financial Instruments (effective from 1 January 2018) will replace MFRS 139 Financial Instruments: Recognition and Measurement. The adoption of these amendments did not have any impact on the current financial period or any prior period and is not likely to affect future periods. Classification The Fund designates its investments in unquoted fixed income securities as financial assets at fair value through profit or loss at inception. Financial assets are designated at fair value through profit or loss when they are managed and their performance are evaluated on a fair value basis. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and have been included in current assets. The Fund s loan and receivables comprise cash and cash equivalents, and amount due from Manager. Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. The Fund classifies amount due to Manager, accrued management fee, amount due to Trustee, and other payables and accruals as other financial liabilities. Recognition and measurement Regular purchases and sales of financial assets are recognised on the trade-date, the date on which the Fund commits to purchase or sell the asset. Investments are initially recognised at fair value. Financial liabilities, within the scope of MFRS 139, are recognised in the statement of financial position when, and only when, the Fund becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Fund has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognised when it is extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or expired. Unrealised gains or losses arising from changes in fair value of the financial assets at fair value through profit or loss are presented in the statement of comprehensive income within net gain or loss on financial assets at fair value through profit or loss in the financial period which they arise. 16

19 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CIMB-PRINCIPAL BOND FUND (b) Financial assets and financial liabilities Recognition and measurement (continued) Unquoted fixed income securities denominated in RM are revalued on a daily basis based on fair value prices quoted by a Bond Pricing Agency ( BPA ) registered with the SC as per the SC Guidelines on Unit Trust Funds. Refer to Note 2(j) for further explanation. Deposits with licensed financial institutions are stated at cost plus accrued interest calculated on the effective interest method over the period from the date of placement to the date of maturity of the respective deposits. Loans and receivables and other financial liabilities are subsequently carried at amortised cost using the effective interest method. Impairment for assets carried at amortised costs For assets carried at amortised cost, the Fund assesses at the end of the reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest rate. The asset s carrying amount is reduced and the amount of the loss is recognised in statement of comprehensive income. If loans and receivables has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Fund may measure impairment on the basis of an instrument s fair value using an observable market price. If, in a subsequent financial period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor s credit rating), the reversal of the previously recognised impairment loss is recognised in statement of comprehensive income. When an asset is uncollectible, it is written off against the related allowance account. Such assets are written off after all the necessary procedures have been completed and the amount of the loss has been determined. (c) Income recognition Interest income from deposits with licensed financial institutions and unquoted fixed income securities are recognised on a time proportionate basis using the effective interest rate method on an accrual basis. Realised gain or loss on disposal of unquoted fixed income securities is accounted for as the difference between the net disposal proceeds and the carrying amount of investments, determined on cost adjusted for accretion of discount or amortisation of premium. 17

20 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CIMB-PRINCIPAL BOND FUND (d) Functional and presentation currency Items included in the financial statements of the Fund are measured using the currency of the primary economic environment in which the Fund operates (the functional currency ).The financial statements are presented in Ringgit Malaysia ( RM ), which is the Fund s functional and presentation currency. (e) Cash and cash equivalents For the purpose of cash flow statement, cash and cash equivalent comprise bank balances and deposits held in highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. (f) Taxation Current tax expense is determined according to Malaysian tax laws at the current rate based upon the taxable profit earned during the financial period. (g) Distribution A distribution to the Fund s unit holders is accounted for as a deduction from realised reserve. A proposed distribution is recognised as a liability in the financial period in which it is approved by the Trustee. (h) Unit holders capital The unit holders contributions to the Fund meet the criteria to be classified as equity instruments under MFRS 132 Financial Instruments: Presentation. Those criteria include: the units entitle the holder to a proportionate share of the Fund s NAV; the units are the most subordinated class and class features are identical; there is no contractual obligations to deliver cash or another financial asset other than the obligation on the Fund to repurchase; and the total expected cash flows from the units over its life are based substantially on the profit or loss of the Fund. The outstanding units are carried at the redemption amount that is payable at each financial period if unit holder exercises the right to put the unit back to the Fund. Units are created and cancelled at prices based on the Fund s NAV per unit at the time of creation or cancellation. The Fund s NAV per unit is calculated by dividing the net assets attributable to unit holders with the total number of outstanding units. (i) Segment information Operating segments are reported in a manner consistent with the internal reporting used by the chief operating decision-maker. The chief operating decision-maker is responsible for allocating resources and assessing performance of the operating segments. 18

21 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CIMB-PRINCIPAL BOND FUND (j) Critical accounting estimates and judgments in applying accounting policies The Fund makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results.to enhance the information content of the estimates, certain key variables that are anticipated to have material impact to the Fund s results and financial position are tested for sensitivity to changes in the underlying parameters. Estimates and judgments are continually evaluated by the Manager and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Estimate of fair value of unquoted fixed income securities In undertaking any of the Fund s investment, the Manager will ensure that all assets of the Fund under management will be valued appropriately, that is at fair value and in compliance with the SC Guidelines on Unit Trust Funds. Ringgit-denominated unquoted fixed income securities are valued using fair value prices quoted by a BPA. Where the Manager is of the view that the price quoted by BPA for a specific unquoted fixed income securities differs from the market price by more than 20 bps, the Manager may use market price, provided that the Manager records its basis for using a non-bpa price, obtains necessary internal approvals to use the non-bpa price, and keeps an audit trail of all decisions and basis for adopting the use of non-bpa price. 3. RISK MANAGEMENT OBJECTIVES AND POLICIES The investment objective of the Fund is to provide regular income as well as to achieve medium to long-term capital appreciation through investments primarily in Malaysian bonds. The Fund is exposed to a variety of risks which include market risk (inclusive of price risk and interest rate risk), credit risk and liquidity risk. Financial risk management is carried out through internal control process adopted by the Manager and adherence to the investment restrictions as stipulated in the Deeds and SC Guidelines on Unit Trust Funds. (i) Price risk This is the risk that the fair value of an investment in unquoted fixed income securities will fluctuate because of changes in market prices (other than those arising from interest rate risk and currency risk). The Fund is exposed to price risk arising from interest rate fluctuation in relation to its investments of RM208,521,784 in unquoted fixed income securities. The Fund s exposure to price risk arising from interest rate fluctuation and the related sensitivity analysis are disclosed in interest rate risk below. 19

22 3. RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) CIMB-PRINCIPAL BOND FUND (a) Market risk (ii) Interest rate risk In general, when interest rates rise, unquoted fixed income securities prices will tend to fall and vice versa. Therefore, the NAV of the Fund may also tend to fall when interest rates rise or are expected to rise. However, investors should be aware that should the Fund holds an unquoted fixed income securities till maturity, such price fluctuations would dissipate as it approaches maturity, and thus the growth of the NAV shall not be affected at maturity. In order to mitigate interest rates exposure of the Fund, the Manager will manage the duration of the portfolio via shorter or longer tenured assets depending on the view of the future interest rate trend of the Manager, which is based on its continuous fundamental research and analysis. Investors should note that movement in prices of unquoted fixed income securities and money market instruments are benchmarked against interest rates. As such, the investments are exposed to the movement of the interest rates. This risk is crucial since unquoted fixed income securities portfolio management depends on forecasting interest rate movements. Prices of unquoted fixed income securities move inversely to interest rate movements, therefore as interest rates rise, the prices of unquoted fixed income securities decrease and vice versa. Furthermore, unquoted fixed income securities with longer maturity and lower yield coupon rates are more susceptible to interest rate movements. Such investments may be subject to unanticipated rise in interest rates which may impair the ability of the issuers to make payments of interest income and principal, especially if the issuers are highly leveraged. An increase in interest rates may therefore increase the potential for default by an issuer. (b) Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligation resulting in financial loss to the Fund. Investment in unquoted fixed income securities may involve a certain degree of credit/default risk with regards to the issuers. Generally, credit risk or default risk is the risk of loss due to the issuer s non-payment or untimely payment of the investment amount as well as the returns on investment. This will cause a decline in value of the defaulted unquoted fixed income securities and subsequently depress the NAV of the Fund. Usually credit risk is more apparent for an investment with a longer tenure, i.e. the longer the duration, the higher the credit risk. Credit risk can be managed by performing continuous fundamental credit research and analysis to ascertain the creditworthiness of its issuer. In addition, the Manager imposes a minimum rating requirement as rated by either local and/or foreign rating agencies and manages the duration of the investment in accordance with the objective of the Fund. 20

23 3. RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) CIMB-PRINCIPAL BOND FUND (b) Credit risk (continued) For this Fund, the unquoted fixed income securities must satisfy a minimum rating requirement of at least a BBB3 or P2 rating by RAM or equivalent rating by MARC or by local rating agency(ies) of the country of issuance or BBB- by S&P or equivalent rating by Moody s or Fitch. The credit risk arising from placements of deposits with licensed financial institutions is managed by ensuring that the Fund will only place deposits in reputable licensed financial institutions. For amount due from Manager, the settlement terms of the proceeds from the creation of units receivable from the Manager are governed by the SC Guidelines on Unit Trust Funds. (c) Liquidity risk Liquidity risk is the risk that the Fund will encounter difficulty in meeting its financial obligations. The Manager manages this risk by maintaining sufficient level of liquid assets to meet anticipated payments and cancellations of the units by unit holders. Liquid assets comprise bank balances, deposits with licensed financial institutions and other instruments, which are capable of being converted into cash within 7 business days. Generally, all investments are subject to a certain degree of liquidity risk depending on the nature of the investment instruments, market, sector and other factors. For the purpose of the Fund, the Manager will attempt to balance the entire portfolio by investing in a mix of assets with satisfactory trading volume and those that occasionally could encounter poor liquidity. This is expected to reduce the risks for the entire portfolio without limiting the Fund s growth potentials. (d) Capital risk management The capital of the fund is represented by equity consisting of unit holders capital of RM214,401,602 ( :RM202,982,599) and retained earnings of RM8,644,604 ( :RM15,945,763). The amount of capital can change significantly on a daily basis as the Fund is subject to daily subscriptions and redemptions at the discretion of unit holders. The Fund s objective when managing capital is to safeguard the Fund s ability to continue as a going concern in order to provide returns to unit holders and benefits for other stakeholders and to maintain a strong capital base to support the development of the investment activities of the Fund. (e) Fair value estimation Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. an exit price). The fair values of financial assets traded in active markets (such as trading securities) are based on quoted market prices at the close of trading on the financial period end date. The Fund utilises the last traded market price for financial assets where the last traded price falls within the bid-ask spread. In circumstances where the last traded price is not within the bid-ask spread, the Manager will determine the point within the bid-ask spread that is most representative of the fair value. 21

24 3. RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) CIMB-PRINCIPAL BOND FUND (e) Fair value estimation (continued) An active market is a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The fair value of financial assets that are not traded in an active market is determined by using valuation techniques. (i) Fair value hierarchy The table below analyses financial instruments carried at fair value. The different levels have been defined as follows: Quoted prices (unadjusted) in active market for identical assets or liabilities (Level 1) Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2) Inputs for the asset and liability that are not based on observable market data (that is, unobservable inputs) (Level 3) The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability. The determination of what constitutes observable requires significant judgment by the Fund. The Fund considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. Level 1 Level 2 Level 3 Total RM RM RM RM Financial assets at fair value through profit or loss: - Unquoted fixed income securities - 208,521, ,521,784 22