AmDynamic Bond. Semi-Annual Report for. 31 January 2018

Transcription

1 AmDynamic Bond Semi-Annual Report for 31 January 2018

2 TRUST DIRECTORY Manager AmFunds Management Berhad 9 th & 10 th Floor, Bangunan AmBank Group 55 Jalan Raja Chulan Kuala Lumpur Board of Directors Raja Maimunah Raja Abdul Aziz Dato Mustafa Mohd Nor Tai Terk Lin Goh Wee Peng Sum Leng Kuang Investment Committee Sum Leng Kuang Tai Terk Lin Dato Mustafa Mohd Nor Zainal Abidin Mohd Kassim Goh Wee Peng Trustee HSBC (Malaysia) Trustee Berhad Auditors and Reporting Accountants Ernst & Young Taxation Adviser Deloitte Tax Services Sdn Bhd AmDynamic Bond

3 CONTENTS 1 Manager s Report 9 Condensed Statement of Financial Position 10 Condensed Statement of Comprehensive Income 11 Condensed Statement of Changes in Equity 12 Condensed Statement of Cash Flows 13 Notes to the Condensed Financial Statements 27 Statement by the Manager 28 Trustee s Report 29 Directory AmDynamic Bond

4 Manager s Report Dear Unitholders, We are pleased to present you the Manager s report and the unaudited accounts of AmDynamic Bond ( Fund ) for the financial period from 1 August 2017 to 31 January Salient Information of the Fund Name Category/ Type Objective AmDynamic Bond ( Fund ) Bond / Income AmDynamic Bond is a medium to long-term bond fund with potentially higher level of income* and risk. Note: *The income could be in the form of units or cash. Duration Performance Benchmark The Fund was established on 16 September 2003 and shall exist for as long as it appears to the Manager and the Trustee that it is in the interests of the unitholders for it to continue. In some circumstances, the unitholders can resolve at a meeting to terminate the Fund. BPAM Corporates All Bond Index. (source: Note: The risk profile of the Fund may not be the same as the risk profile of the performance benchmark. Income Distribution Policy Breakdown of Unit Holdings by Size Income distribution (if any) is paid at least twice every year. For the financial period under review, the size of the Fund stood at 146,709,855 units. Size of holding As at 31 January 2018 As at 31 July 2017 No of units held Number of unitholders No of units held Number of unitholders 5,000 and below 130, , ,001-10, , , ,001-50,000 2,667, ,903, , ,000 6,267, ,471, ,001 and above 137,382, ,207,

5 Fund Performance Data Portfolio Composition Details of portfolio composition of the Fund for the financial period as at 31 January 2018 and three financial years as at 31 July are as follows: As at % FY 2017 % FY 2016 % FY 2015 % Local corporate bonds Foreign corporate bonds Malaysian Government Securities Cash and others Total Note: The abovementioned percentages are calculated based on total net asset value. Performance Details Performance details of the Fund for the financial period ended 31 January 2018 and three financial years ended 31 July are as follows: Half year ended FY 2017 FY 2016 FY 2015 Net asset value (RM) 94,251,142* 95,341,977* 101,720, ,951,089 Units in circulation 146,709,855* 148,065,579* 152,173, ,386,096 Net asset value per unit (RM) * * Highest net asset value per unit (RM) * * Lowest net asset value per unit (RM) * * Benchmark performance (%) Total return (%) (1) Capital growth (%) Income distribution (%) Gross distribution (sen per unit) Net distribution (sen per unit) Management expense ratio (%) (2) Portfolio turnover ratio (times) (3) * Above prices and net asset value per unit are shown as ex-distribution. Note: (1) Total return is the actual/annualised return of the Fund for the respective financial period/years computed based on net asset value per unit and net of all fees. (2) Management expense ratio ( MER ) is calculated based on the total fees and expenses incurred by the Fund divided by the average fund size calculated on a 2

6 daily basis. (3) Portfolio turnover ratio ( PTR ) is calculated based on the average of the total acquisitions and total disposals of investment securities of the Fund divided by the average fund size calculated on a daily basis. The PTR increased by 0.10 times (21.7%) as compared to 0.46 times for the financial year ended 31 July 2017 mainly due to increase in investing activities. Average Total Return (as at 31 January 2018) BPAM Corps All Bond Index AmDynamic Bond (a) % /AMGS (b) % One year Three years Five years Ten years Annual Total Return Financial Years Ended (31 July) BPAM Corps All Bond Index /AMGS (b) % AmDynamic Bond (a) % (a) Source: Novagni Analytics and Advisory Sdn Bhd. (b) Until 30 September 2016 All Malaysian Government Securities Index ( AMGS ) (source: Effective from 1 October 2016 onwards- BPAM Corporates All Bond Index (Obtainable from: The Fund performance is calculated based on net asset value per unit of the Fund. Average total return of the Fund and its benchmark for a period is computed based on the absolute return for that period annualised over one year. Note: Past performance is not necessarily indicative of future performance and that unit prices and investment returns may go down, as well as up. 3

7 Fund Performance For the financial period under review, the Fund registered a return of 2.25% comprising of negative 0.23% capital and 2.48% income distribution. Thus, the Fund s return of 2.25% has underperformed the benchmark s return of 2.43% by 0.18%. As compared with the financial year ended 31 July 2017, the net asset value ( NAV ) per unit of the Fund decreased by 0.23% from RM to RM0.6424, while units in circulation decreased by 0.92% from 148,065,579 units to 146,709,855 units. The line chart below shows comparison between the annual performances of AmDynamic Bond and its benchmark, All Malaysian Government Securities Index ( AMGS ), for the financial years ended 31 July. Note: Past performance is not necessarily indicative of future performance and that unit prices and investment returns may go down, as well as up. Strategies and Policies Employed For the financial period under review, the Fund invested primarily in bonds, and by active portfolio trading. In buying and selling securities for the Fund, the Manager uses a relative value approach involving yield curve positioning and credit spread arbitrage. The Fund s investment maturity profile is subject to active tactical duration management in view of the interest rate view. Portfolio Structure This table below is the asset allocation of the Fund for the financial period/year under review. (Forward) 4

8 As at % As at % Changes % Local corporate bonds Malaysian Government Securities Cash and others Total For the financial period under review, the Fund was highly invested in corporate bonds with an exposure of 84.74% of the Fund s NAV, 10.68% in government securities while 4.58% was held in cash to meet liquidity requirements. Cross Trades During the financial period under review, cross trades are conducted between the Fund and other funds; and private mandates managed by the Manager amounting to: Financial Institutions Transaction Value (RM) RHB Investment Bank Berhad 17,151, Hong Leong Investment Bank 7,070, AmBank (M) Berhad 2,287, Total 26,509, Funds Transaction Value (RM) AmIncome 9,102, AmIncome Regular 2 8,049, AmIncome Regular 3 7,339, AmBon Islam 2,017, Total 26,509, Distribution/ unit splits During the financial period under review, the Fund declared income distribution, detailed as follows: 1.60 sen per unit income distribution Change in the unit price prior and subsequent to the income distribution Before income distribution on 25 January 2018 (RM) After income distribution on 25 January 2018 (RM) Net asset value per unit There was no unit split declared for the financial period under review. State of Affairs Rebates and Soft Commission There has been neither significant change to the state of affairs of the Fund nor any circumstances that materially affect any interests of the unitholders during the financial period under review. It is our policy to pay all rebates to the Fund. Soft commissions received from brokers/dealers are retained by the Manager only if the goods and services provided are of demonstrable benefit to unitholders of the Fund. During the financial period under review, the Manager had received on behalf of the Fund, soft commissions in the form of fundamental database, financial wire services, 5

9 technical analysis software and stock quotation system incidental to investment management of the Fund. These soft commissions received by the Manager are deem to be beneficial to the unitholders of the Fund. Market Review In August 2017, Malaysia s real Gross Domestic Product ( GDP ) recorded a stronger growth of 5.8% YoY in 2Q17, up from +5.6% in 1Q, on the back of stronger external activities and private consumption. Malaysia s real GDP growth is expected to grow at a stronger pace moving forward as compared to the prior year. Meanwhile, the current account surplus in Malaysia s balance of payments widened to MYR9.6bn in 2Q17, due to a larger surplus in the merchandise trade balance. However, this surplus is expected to narrow amid a stronger import growth outlook that would likely outpace the increase in exports and a higher deficit in the services and income accounts. On rating actions, Fitch affirmed Malaysia s A- rating with a stable outlook on the back of strong GDP growth, sustained current account surpluses, mitigated by higher government debt compared to its A-rated peers and sizeable contingent liabilities. In September 2017, the banking sector s loan growth for August increased to 5.8% YoY from 5.6% YoY in the previous month. The marginally stronger growth was attributed to business loans which increased by 6.8% while household loan growth remained steady at 5.0%. In October 2017, the Malaysian government announced its 2018 budget, following are the highlights: 2017 GDP is revised up to % (from %), on the back of better performance in the agriculture, manufacturing and services sectors GDP is forecast to expand by %, driven by the manufacturing, construction and services sectors. The government remains committed to a gradual fiscal consolidation, with the deficit target moderating to 2.8% in 2018 (3.0% in 2017). Exports growth expected to jump 16.6% to RM917.5b for 2017, supported by strong demand in manufactured goods and commodities. This would normalize to 3.4% in Current account surplus estimated to be sustained at RM32.3b or 2.5% of GNI for 2017 and forecast to be marginally higher at RM32.9b or 2.3% of GNI for Revenue growth of 6.5% (6.1% in 2017) balanced by a 6.5% increase in operating expenditure, while development expenditure remains unchanged. The 2018 Budget is based on an oil price assumption of USD52 per barrel (USD50 in 2017 and current price of USD59). GST collection is projected to increase to RM43.8b (RM41.5b in 2017). Inflation is expected to be benign at % in 2018 ( % in 2017). 2% point reduction in RM20,000-70,000 personal income tax band, translating to about RM1.5b of foregone revenue. In November 2017, Malaysia s real GDP grew by a stronger 6.2% YoY in 3Q17, vs 5.8% in 2Q17, on the back of stronger export growth and overall domestic demand/private investment. This is the key driver for the strengthening of MYR as it reinforced rate hike expectations. Similarly, the current account surplus increased to MYR12.5b in 3Q17, mainly due to a larger surplus in the merchandise trade balance. The external outlook continues to be supported by improving global growth prospects, strong and stable global demand for E&E and commodity products. 6

10 In December 2017, Malaysia s labour force grew by 2.2% YoY to 15.1m in October while unemployment rate remains at a healthy level 3.4%. Due to the strong economic performance in the past year, jobs creation has been steadily gaining momentum and thus outpacing unemployment growth since March Finally, the Government announced that it has agreed to provide RM929.4m for the subsidy and rebate of 1.80sen/kWh for the period of Jan 1 to June 30, 2018, hence sparing consumers the potential of an electricity rate hike for the next six months. In January 2018, Bank Negara Malaysia ( BNM ) raised its policy rate by 25 basis points during its Monetary Policy Committee ( MPC ) held on 25 January The rate hike raised the Overnight Policy Rate ( OPR ) to 3.25% the first increase since July In its statement following the rate hike BNM stated that the OPR hike was not monetary tightening but rather normalisation of the degree of monetary accommodation. It further added that the MPC wants to pre-emptively ensure that the policy stance is appropriate, to prevent a build-up of risks that could arise from interest rates being too low for too long. Market Outlook We expect that the direction of the domestic bond market will continue to be impacted by developments in the US bond market. The official guidance from the Fed is for 3 rate hikes in 2018, with the market widely expecting (93% probability) a 25 bps increase in March However, should inflation expectations increase in the US, there would be a risk that the Fed would decide on more rate hikes which in turn would result in higher US treasury (UST) yields. In January, the market started pricing in higher inflation expectation with the UST 10-year yield increasing from 2.46% to 2.72%. Inflation is expected to be bolstered by the low unemployment rate, the newly implemented tax cuts and a long-awaited raise in wages. The winding down of quantitative easing and increased inflationary expectations should result higher yields along the long end of the curve, preventing an inverted yield curve and thus allowing the Fed to continue its rate hike cycle. In Malaysia, following its rate hike in January there is little pressure on BNM on another rate hike for Core inflation, BNM s preferred gauge of inflation, has remained stable and within expectation at 2.2%. Whilst growth has been robust, there are no significant signs of overheating within the economy and growth should soften slightly in 2018 from 2017 s expected growth of 5.8%. As such, local investors will likely continue to be guided by external economic developments in the medium term whilst the perceived undervalued nature of the Ringgit will likely continue to attract fund flows in the near future. 7

11 Additional Information Following the renewal of the Master Prospectus effective from 10 September 2017, the Counterparty Credit Risk has been included on page 43 as the inclusion in the Fund explicitly describes the risk in counterparty dealing instead of issuer/obligor credit. The insertion of this risk is for clarity purposes. Counterparty Credit Risk Counterparty credit risk is the risk arising from the possibility that the counterparty may default or not able to fulfill a trade settlement prior or on the settlement date of the trade. This could adversely affect the value of the Fund. For more details, kindly refer to the Master Prospectus dated 10 September Kuala Lumpur, Malaysia AmFunds Management Berhad 7 March

12 AmDynamic Bond CONDENSED STATEMENT OF FINANCIAL POSITION AS AT 31 JANUARY (unaudited) (audited) Note RM RM ASSETS Investments 4 89,939,120 81,446,057 Deposits with financial institutions 5 5,219,579 16,073,931 Net amount due from Manager 6 1,354,610 - Sundry receivables 6,514 4,037 Tax recoverable 67,806 47,117 Cash at banks 12,396 11,355 TOTAL ASSETS 96,600,025 97,582,497 LIABILITIES Net amount due to Manager 6-87,594 Amount due to Trustee 7 4,174 4,137 Distributions payable and to be reinvested 2,311,409 2,117,338 Sundry payables and accrued expenses 33,300 31,451 TOTAL LIABILITIES 2,348,883 2,240,520 EQUITY Unitholders capital 10(a) 93,126,809 94,061,158 Retained earnings 10(b)(c) 1,124,333 1,280,819 TOTAL EQUITY 10 94,251,142 95,341,977 TOTAL EQUITY AND LIABILITIES 96,600,025 97,582,497 UNITS IN CIRCULATION 10(a) 146,709, ,065,579 NET ASSET VALUE PER UNIT EX DISTRIBUTION sen sen The accompanying notes form an integral part of the financial statements. 9

13 AmDynamic Bond CONDENSED STATEMENT OF COMPREHENSIVE INCOME (Unaudited) FOR THE FINANCIAL PERIOD FROM 1 AUGUST 2017 TO 31 JANUARY to to Note RM RM INVESTMENT INCOME/(LOSS) Interest income 2,470,347 4,149,528 Other income exit penalty 10(a) 58,154 77,628 Net gain/(loss) from investments: Financial assets at fair value through profit or loss ( FVTPL ) 8 179,188 (2,205,385) Gross Income 2,707,689 2,021,771 EXPENDITURE Manager s fee 6 (484,478) (514,758) Trustee s fee 7 (24,224) (25,730) Auditors remuneration (5,059) (2,369) Tax agent s fee (2,306) (2,269) Custodian s fee (156) (173) Other expenses 9 (34,402) (38,898) Total Expenditure (550,625) (584,197) NET INCOME BEFORE TAX 2,157,064 1,437,574 LESS: INCOME TAX 12 (2,141) (6,098) NET INCOME AFTER TAX 2,154,923 1,431,476 OTHER COMPREHENSIVE INCOME - - TOTAL COMPREHENSIVE INCOME FOR THE FINANCIAL PERIOD 2,154,923 1,431,476 Total comprehensive income comprises the following: Realised income 1,182,741 4,115,857 Unrealised gain/(loss) 972,182 (2,684,381) 2,154,923 1,431,476 Distributions for the financial period: Net distributions 13 2,311,409 3,539,305 Gross/net distributions per unit (sen) The accompanying notes form an integral part of the financial statements. 10

14 AmDynamic Bond CONDENSED STATEMENT OF CHANGES IN EQUITY (Unaudited) FOR THE FINANCIAL PERIOD FROM 1 AUGUST 2017 TO 31 JANUARY 2018 Unitholders Retained Total capital earnings equity Note RM RM RM At 1 August ,657,373 5,063, ,720,604 Total comprehensive income for the financial period - 1,431,476 1,431,476 Creation of units 1,650,317-1,650,317 Reinvestment of distribution 3,216,058-3,216,058 Cancellation of units (7,043,664) - (7,043,664) Distribution - (3,539,305) (3,539,305) Balance at 31 January ,480,084 2,955,402 97,435,486 At 1 August ,061,158 1,280,819 95,341,977 Total comprehensive income for the financial period - 2,154,923 2,154,923 Creation of units 10(a) 2,555,536-2,555,536 Reinvestment of distribution 10(a),13 1,932,825-1,932,825 Cancellation of units 10(a) (5,422,710) - (5,422,710) Distribution 13 - (2,311,409) (2,311,409) Balance at 31 January ,126,809 1,124,333 94,251,142 The accompanying notes form an integral part of the financial statements. 11

15 AmDynamic Bond CONDENSED STATEMENT OF CASH FLOWS (Unaudited) FOR THE FINANCIAL PERIOD FROM 1 AUGUST 2017 TO 31 JANUARY to to RM RM CASH FLOWS FROM OPERATING AND INVESTING ACTIVITIES Proceeds from maturity/sale of investments 49,739,886 23,442,608 Interest received 3,077,386 3,057,174 Other income exit penalty 55,677 74,234 Manager s fee paid (483,858) (508,445) Trustee s fee paid (24,187) (25,414) Custodian s fee paid (156) (173) Tax paid (22,830) - Payments for other expenses (39,918) (37,240) Purchase of investments (58,660,800) (27,188,620) Net cash used in operating and investing activities (6,358,800) (1,185,876) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from creation of units 898,964 1,644,958 Payments for cancellation of units (5,208,962) (7,066,909) Distributions paid (184,513) (323,247) Net cash used in financing activities (4,494,511) (5,745,198) NET DECREASE IN CASH AND CASH EQUIVALENTS (10,853,311) (6,931,074) CASH AND CASH EQUIVALENTS AT BEGINNING OF FINANCIAL PERIOD 16,085,286 11,017,188 CASH AND CASH EQUIVALENTS AT END OF FINANCIAL PERIOD 5,231,975 4,086,114 Cash and cash equivalents comprise: Deposits with financial institutions 5,219,579 4,074,440 Cash at banks 12,396 11,674 5,231,975 4,086,114 The accompanying notes form an integral part of the financial statements. 12

16 AmDynamic Bond NOTES TO THE CONDENSED FINANCIAL STATEMENTS 1. GENERAL INFORMATION AmDynamic Bond ( the Fund ) was established pursuant to a Deed dated 11 September 2003 as amended by Deeds Supplemental thereto ( the Deed ), between AmFunds Management Berhad as the Manager, HSBC (Malaysia) Trustee Berhad as the Trustee and all unitholders. The Fund was set up with the objective of providing investors a medium to long term bond fund with potentially higher level of income and risk. As provided in the Deed, the accrual period or the financial year shall end on 31 July and the units in the Fund were first offered for sale on 16 September BASIS OF PREPARATION OF FINANCIAL STATEMENTS The financial statements of the Fund have been prepared in accordance with Malaysian Financial Reporting Standards 134: Interim Financial Reporting ( MFRS 134 ) as issued by the Malaysian Accounting Standards Board ( MASB ). The financial statements of the Fund have been prepared under the historical cost convention, unless otherwise stated in the accounting policies. Standards effective during the financial period The adoption of MFRS which have been effective during the financial period did not have any material financial impact to the financial statements. Standards issued but not yet effective As at the date of authorisation of these financial statements, the following Standards, which are relevant to the Fund, have been issued by MASB but are not yet effective and have not been adopted by the Fund. Effective for financial periods beginning on or after MFRS 9: Financial Instruments MFRS 15: Revenue From Contracts With Customers 1 January January 2018 The Fund plans to adopt the above pronouncements when they become effective in the respective financial periods. These pronouncements are expected to have no significant impact to the financial statements of the Fund upon their initial application except as described below: 13

17 MFRS 9 Financial Instruments MFRS 9 reflects International Accounting Standards Board s ( IASB ) work on the replacement of MFRS 139 Financial Instruments: Recognition and Measurement ( MFRS 139 ). MFRS 9 will be effective for financial year beginning on or after 1 January Based on the Fund s preliminary assessment shows that there is a minimal impact on the classification and measurement of the Fund s financial assets and will continue to be measured at FVTPL. Further, there is no impact on the classification and measurement of the Fund s financial liabilities. 3. SIGNIFICANT ACCOUNTING POLICIES Income recognition Income is recognised to the extent that it is probable that the economic benefits will flow to the Fund and the income can be reliably measured. Income is measured at the fair value of consideration received or receivable. Interest income on fixed income securities and short-term deposits are recognised on an accrual basis using the effective interest method, which includes the accretion of discounts and amortisation of premiums. Income tax Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the tax authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date. Current taxes are recognised in profit or loss except to the extent that the tax relates to items recognised outside profit or loss, either in other comprehensive income or directly in equity. Functional and presentation currency Functional currency is the currency of the primary economic environment in which the Fund operates that most faithfully represents the economic effects of the underlying transactions. The functional currency of the Fund is Ringgit Malaysia which reflects the currency in which the Fund competes for funds, issues and redeems units. The Fund has also adopted Ringgit Malaysia as its presentation currency. Foreign currency transactions Transactions in currencies other than the Fund s functional currency (foreign currencies) are recorded in the functional currency using exchange rates prevailing at the transaction dates. At each reporting date, foreign currency monetary items are translated into Ringgit Malaysia at exchange rates ruling at the reporting date. All exchange gains or losses are recognised in profit or loss. Statement of cash flows The Fund adopts the direct method in the preparation of the statement of cash flows. 14

18 Cash equivalents are short-term, highly liquid investments that are readily convertible to cash with insignificant risk of changes in value. Distribution Distributions are at the discretion of the Fund. A distribution to the Fund s unitholders is accounted for as a deduction from realised reserves. A proposed distribution is recognised as a liability in the period in which it is approved. Unitholders capital The unitholders capital of the Fund meets the definition of puttable instruments and is classified as equity instruments under MFRS 132 Financial Instruments: Presentation ( MFRS 132 ). Financial assets Financial assets are recognised in the statement of financial position when, and only when, the Fund becomes a party to the contractual provisions of the financial instrument. When financial assets are recognised initially, they are measured at fair value, plus, in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs. The Fund determines the classification of its financial assets at initial recognition, and the categories applicable to the Fund include financial assets at fair value through profit or loss ( FVTPL ) and loans and receivables. (i) Financial assets at FVTPL Financial assets are classified as financial assets at FVTPL if they are held for trading or are designated as such upon initial recognition. Financial assets held for trading by the Fund include fixed income securities acquired principally for the purpose of selling in the near term. Subsequent to initial recognition, financial assets at FVTPL are measured at fair value. Changes in the fair value of those financial instruments are recorded in Net gain or loss on financial assets at fair value through profit or loss. Interest earned element of such instrument is recorded separately in Interest income. Exchange differences, if any, on financial assets at FVTPL are not recognised separately in profit or loss but are included in net gains or net losses on changes in fair value of financial assets at FVTPL. For investments in local fixed income securities, fair value is determined based on the indicative prices from Bond Pricing Agency Malaysia Sdn Bhd plus accrued interest, which includes the accretion of discount and amortisation of premium. Adjusted cost of investments relates to the purchase cost plus accrued interest, adjusted for amortisation of premium and accretion of discount, if any, calculated over the period from the date of acquisition to the date of maturity of the respective securities as approved by the Manager and the Trustee. Unrealised gains or losses recognised in profit or loss are not distributable in nature. On disposal of investments, the net realised gain or loss on disposal is measured as the difference between the net disposal proceeds and the carrying amount of the investments. The net realised gain or loss is recognised in profit or loss. 15

19 (ii) Loans and receivables Financial assets with fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, and through the amortisation process. Impairment of financial assets The Fund assesses at each reporting date whether there is any objective evidence that a financial asset is impaired. (i) Loans and receivables carried at amortised cost To determine whether there is objective evidence that an impairment loss on financial assets has been incurred, the Fund considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments. If any such evidence exists, the amount of impairment loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the financial asset s original effective interest rate. The impairment loss is recognised in profit or loss. The carrying amount of the financial asset is reduced through the use of an allowance account. When loans and receivables become uncollectible, they are written off against the allowance account. If in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed to the extent that the carrying amount of the asset does not exceed its amortised cost at the reversal date. The amount of reversal is recognised in profit or loss. Financial liabilities Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. Financial liabilities, within the scope of MFRS 139, are recognised in the statement of financial position when, and only when, the Fund becomes a party to the contractual provisions of the financial instrument. The Fund s financial liabilities are recognised initially at fair value plus directly attributable transaction costs and subsequently measured at amortised cost using the effective interest method. A financial liability is derecognised when the obligation under the liability is extinguished. Gains and losses are recognised in profit or loss when the liabilities are derecognised, and through the amortisation process. 16

20 Classification of realised and unrealised gains and losses Unrealised gains and losses comprise changes in the fair value of financial instruments for the period and from reversal of prior period s unrealised gains and losses for financial instruments which were realised (i.e. sold, redeemed or matured) during the reporting period. Realised gains and losses on disposals of financial instruments classified at fair value through profit or loss are calculated using the weighted average method. They represent the difference between an instrument s initial carrying amount and disposal amount. Significant accounting estimates and judgments The preparation of the Fund s financial statements requires the Manager to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability in the future. The Fund classifies its investments as financial assets at FVTPL as the Fund may sell its investments in the short-term for profit-taking or to meet unitholders cancellation of units. No major judgments have been made by the Manager in applying the Fund s accounting policies. There are no key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period. 4. INVESTMENTS Financial assets at FVTPL RM RM At nominal value: Corporate bonds 72,950,000 74,950,000 Government Investment Issues 10,000,000-82,950,000 74,950,000 At fair value: Corporate bonds 79,868,239 81,446,057 Government Investment Issues 10,070,881-89,939,120 81,446,057 17

21 Details of investments as at 31 January 2018 are as follows: Fair value as a percentage of Maturity Nominal Fair Adjusted net asset date Issuer value value cost value RM RM RM % Corporate bonds DRB-Hicom Berhad 8,750,000 8,992,242 9,029, KT Kira Sertifikalari Varlik Kiralama A.S. 5,000,000 5,131,571 5,115, DRB-Hicom Berhad 3,000,000 3,049,639 3,066, Special Power Vehicle Berhad 1,000,000 1,505,658 1,431, Special Power Vehicle Berhad 5,000,000 8,145,313 8,165, Abu Dhabi National Energy Company P.J.S.C. 4,000,000 4,057,419 4,097, YTL Corporation Berhad 5,000,000 5,002,900 5,009, Celcom Networks Sdn Berhad 5,000,000 5,167,311 5,185, First Abu Dhabi Bank P.J.S.C. 1,000,000 1,001,917 1,023, Konsortium Lebuhraya Utara-Timur (KL) Sdn Bhd 3,000,000 3,095,497 3,050, Jimah East Power Sdn Bhd 4,000,000 4,474,928 4,428, Tanjung Bin Energy Issuer Berhad 11,000,000 12,414,287 12,279, Sarawak Energy Berhad 1,000, ,638 1,038, YTL Corporation Berhad 4,000,000 3,902,466 4,078, Edra Energy Sdn Bhd 10,000,000 10,426,697 10,418, Lebuhraya DUKE Fasa 3 Sdn Bhd 2,200,000 2,510,756 2,335, (Forward) 72,950,000 79,868,239 79,753,

22 Fair value as a percentage of Maturity Nominal Fair Adjusted net asset date Issuer value value cost value RM RM RM % Government Investment Issues Government of Malaysia 10,000,000 10,070,881 10,093, Total financial assets at FVTPL 82,950,000 89,939,120 89,847, Excess of fair value over cost 91, DEPOSITS WITH FINANCIAL INSTITUTIONS RM RM At nominal value: Short-term deposits with licensed banks 5,219,100 16,072,500 At carrying value: Short-term deposits with licensed banks 5,219,579 16,073,931 Details of deposit with financial institution as at 31 January 2018 are as follows: Carrying value as a percentage of Maturity Nominal Carrying Purchase net asset date Bank value value cost value RM RM RM % Short-term deposit with a licensed bank Public Bank Berhad 5,219,100 5,219,579 5,219,

23 6. NET AMOUNT DUE FROM/(TO) MANAGER RM RM Net creation of units* 1,443, Manager s fee payable (88,709) (88,089) 1,354,610 (87,594) * The amount represents net amount receivable from the Manager for units created. Manager s fee is at a rate of 1.00% (2017: 1.00%) per annum on the net asset value of the Fund, calculated on a daily basis. The normal credit period in the previous financial year and current financial period for creation and redemption of units is three business days. The normal credit period in the previous financial year and current financial period for Manager s fee payable is one month. 7. AMOUNT DUE TO TRUSTEE Trustee s fee is at a rate of 0.05% (2017: 0.05%) per annum on the net asset value of the Fund, calculated on a daily basis. The normal credit period in the previous financial year and current financial period for Trustee s fee payable is one month. 8. NET GAIN/(LOSS) FROM INVESTMENTS to to RM RM Net gain/(loss) on financial assets at FVTPL comprised: Net realised (loss)/gain on sale of investments (792,250) 478,271 Net realised (loss)/gain on foreign currency exchange (744) 725 Net unrealised gain/(loss) on changes in fair values of investments 972,182 (2,684,381) 179,188 (2,205,385) 9. OTHER EXPENSES Included in other expenses is Goods and Services Tax incurred by the Fund during the financial period amounting to RM31,143 (2017: RM32,922). 20

24 10. TOTAL EQUITY Total equity is represented by: Note RM RM Unitholders capital (a) 93,126,809 94,061,158 Retained earnings Realised income (b) 1,032,554 2,161,222 Unrealised gain/(loss) (c) 91,779 (880,403) (a) UNITHOLDERS CAPITAL/UNITS IN CIRCULATION 94,251,142 95,341, Number of Number of units RM units RM At beginning of the financial period/year 148,065,579 94,061, ,173,420 96,657,373 Creation during the financial period/year 3,958,498 2,555,536 6,207,781 4,153,846 Distributions reinvested 3,001,748 1,932,825 7,386,987 4,768,590 Cancellation during the financial period/year (8,315,970) (5,422,710) (17,702,609) (11,518,651) At end of the financial period/year 146,709,855 93,126, ,065,579 94,061,158 The Manager charged an exit penalty fee of 1.00% (2017: 1.00%) on the net asset value per unit of the Fund during the financial period. The exit penalty shall be placed back to the Fund. (b) REALISED DISTRIBUTABLE RM RM At beginning of the financial period/year 2,161,222 3,321,663 Total comprehensive income for the financial period/year 2,154,923 3,579,959 Net unrealised (gain)/loss attributable to investments held transferred to unrealised reserve [Note 10(c)] (972,182) 2,621,971 Distributions out of realised reserve (2,311,409) (7,362,371) Net decrease in realised reserve for the financial period/year (1,128,668) (1,160,441) At end of the financial period/year 1,032,554 2,161,222 21

25 (c) UNREALISED NON-DISTRIBUTABLE RM RM At beginning of the financial period/year (880,403) 1,741,568 Net unrealised gain/(loss) attributable to investments held transferred from realised reserve [Note 10(b)] 972,182 (2,621,971) At end of the financial period/year 91,779 (880,403) 11. UNITS HELD BY RELATED PARTIES The Manager and parties related to the Manager did not hold any units in the Fund as at 31 January 2018 and 31 July INCOME TAX to to RM RM Current financial period - local tax 2,141 6,098 Income tax payable is calculated on investment income less deduction for permitted expenses as provided for under Section 63B of the Income Tax Act, Pursuant to Schedule 6 of the Income Tax Act, 1967, local interest income derived by the Fund is exempted from tax. A reconciliation of income tax expense applicable to net income before tax at the statutory income tax rate to income tax expense at the effective income tax rate of the Fund is as follows: to to RM RM Net income before tax 2,157,064 1,437,574 Taxation at Malaysian statutory rate of 24% 517, ,018 Tax effects of: Income not subject to tax (826,207) (1,110,846) Loss not deductible for tax purposes 190, ,251 Restriction on tax deductible expenses for unit trust fund 106, ,795 Non-permitted expenses for tax purposes 13,988 14,880 Tax expense for the financial period 2,141 6,098 22

26 13. DISTRIBUTIONS Distributions to unitholders declared on 25 January 2018 (declared on 5 August 2016 for the previous financial period) are from the following sources: to to RM RM Undistributed net income brought forward 335,674 - Interest income 2,470,347 3,641,158 Other income 58,154 68,119 Net realised gain on sale of investments - 419,687 Net realised gain on foreign currency exchange ,864,175 4,129,600 Less: Expenses (550,625) (584,197) Tax (2,141) (6,098) Total amount of distributions 2,311,409 3,539,305 Gross/net distributions per unit (sen) Distributions made out of: Realised reserve 2,311,409 3,539,305 Comprising : Distribution payable and to be reinvested 2,311,409 3,216,058 Cash distribution - 323,247 2,311,409 3,539,305 Included in the distribution for the financial period ended 31 January 2018 was RM335,674 distributed from previous financial periods realised income. The above distributions have been proposed before taking into account the net realised loss of RM792,994 and prior period net unrealised loss of RM942,813 which were carried forward to the current financial period. 14. MANAGEMENT EXPENSE RATIO ( MER ) The Fund s MER is as follows: to to % p.a. % p.a. Manager s fee (Forward) 23

27 to to % p.a. % p.a. Trustee s fee Fund s other expenses Total MER The MER of the Fund is the ratio of the sum of annualised fees and expenses incurred by the Fund to the average net asset value of the Fund calculated on a daily basis. 15. PORTFOLIO TURNOVER RATIO ( PTR ) The PTR of the Fund, which is the ratio of average total acquisitions and disposals of investments to the average net asset value of the Fund calculated on a daily basis, is 0.56 times (2017: 0.25 times). 16. SEGMENTAL REPORTING In accordance with the objective of the Fund, substantially all of the Fund s investments are made in the form of fixed income securities in Malaysia. The Manager is of the opinion that the risk and rewards from these investments are not individually or segmentally distinct and hence the Fund does not have a separately identifiable business or geographical segments. 17. TRANSACTIONS WITH FINANCIAL INSTITUTIONS Details of transactions with financial institutions for the financial period ended 31 January 2018 are as follows: Transaction value Financial institutions RM % Standard Chartered Bank Malaysia Berhad 37,816, AmBank (M) Berhad * 19,638, Malayan Banking Berhad 15,369, Bank Islam Malaysia Berhad 12,645, RHB Investment Bank Berhad 10,902, CIMB Bank Berhad 5,082, Citibank Berhad 5,051, Bank of America Malaysia Berhad 2,537, Total 109,045,

28 * A financial institution related to the Manager. The Manager and the Trustee are of the opinion that the above transactions have been entered in the normal course of business and have been established under terms that are no less favourable than those arranged with independent third parties. The above transactions were in respect of fixed income instruments. Transactions in these investments do not involve any commission or brokerage. 18. RISK MANAGEMENT POLICIES The Fund is exposed to a variety of risks that include market risk, credit risk, liquidity risk, single issuer risk, regulatory risk, country risk, management risk and non-compliance risk. Risk management is carried out by closely monitoring, measuring and mitigating the above said risks, careful selection of investments coupled with stringent compliance to investment restrictions as stipulated by the Capital Market and Services Act 2007, Securities Commission s Guidelines on Unit Trust Funds and the Deed as the backbone of risk management of the Fund. Market risk Market risk, in general, is the risk that the value of a portfolio would decrease due to changes in market risk factors such as equity prices, interest rates (yield curve), foreign exchange rates and commodity prices. (i) Interest rate risk Interest rate risk will affect the value of the Fund s investments, given the interest rate movements, which are influenced by regional and local economic developments as well as political developments. Domestic interest rates on deposits and placements with licensed financial institutions are determined based on prevailing market rates. (ii) Currency risk Currency risk is associated with the Fund s assets and liabilities that are denominated in currencies other than the Fund s functional currency. Currency risk refers to the potential loss the Fund might face due to unfavorable fluctuations of currencies other than the Fund s functional currency against the Fund s functional currency. The net unhedged financial assets of the Fund that are not denominated in Fund s functional currency are as follows: Assets denominated in RM % of net RM % of net United States Dollar equivalent asset value equivalent asset value Cash at banks 7, ,

29 Credit risk Credit risk is the risk that the counterparty to a financial instrument will cause a financial loss to the Fund by failing to discharge an obligation. The Fund is exposed to the risk of bond issuers and financial institutions defaulting on their repayment obligations which in turn would affect the net asset value of the Fund. For deposits with financial institutions, the Fund makes placements with financial institutions with sound rating of P1/MARC-1 and above. Cash at banks are held for liquidity purposes and are not exposed to significant credit risk. Liquidity risk Liquidity risk is defined as the risk of being unable to raise funds or borrowings to meet payment obligations as they fall due. This is also the risk of the Fund experiencing large redemptions, when the Investment Manager could be forced to sell large volumes of its holdings at unfavorable prices to meet redemption requirements. The Fund maintains sufficient level of liquid assets, after consultation with the Trustee, to meet anticipated payments and cancellations of units by unitholders. Liquid assets comprise of deposits with licensed financial institutions and other instruments, which are capable of being converted into cash within 5 to 7 days. The Fund s policy is to always maintain a prudent level of liquid assets so as to reduce liquidity risk. Single issuer risk Internal policy restricts the Fund from investing in securities issued by any issuer of not more than a certain percentage of its net asset value. Under such restriction, the risk exposure to the securities of any single issuer is diversified and managed based on internal/external ratings. Regulatory risk Any changes in national policies and regulations may have effects on the capital market and the net asset value of the Fund. Country risk The risk of price fluctuation in foreign securities may arise due to political, financial and economic events in foreign countries. If this occurs, there is a possibility that the net asset value of the Fund may be adversely affected. Management risk Poor management of the Fund may cause considerable losses to the Fund that in turn may affect the net asset value of the Fund. Non-compliance risk This is the risk of the Manager, the Trustee or the Fund not complying with internal policies, the Deed of the Fund, securities law or guidelines issued by the regulators. Non-compliance risk may adversely affect the investments of the Fund when the Fund is forced to rectify the noncompliance. 26

30 AmDynamic Bond STATEMENT BY THE MANAGER I, GOH WEE PENG, for and on behalf of the Manager, AmFunds Management Berhad, for AmDynamic Bond do hereby state that in the opinion of the Manager, the accompanying condensed statement of financial position, condensed statement of comprehensive income, condensed statement of changes in equity, condensed statement of cash flows and the accompanying notes are drawn up in accordance with Malaysian Financial Reporting Standards so as to give a true and fair view of the financial position of the Fund as at 31 January 2018 and the comprehensive income, the changes in equity and cash flows of the Fund for the half year then ended. GOH WEE PENG For and on behalf of the Manager AmFunds Management Berhad Kuala Lumpur, Malaysia 7 March

31 TRUSTEE S REPORT 28

32 DIRECTORY Head Office 9 th Floor, Bangunan Ambank Group 55, Jalan Raja Chulan, Kuala Lumpur Tel: (03) Facsimile: (03) enquiries@aminvest.com Postal Address AmFunds Management Berhad P.O Box 13611, Kuala Lumpur Related Institutional Unit Trust Agent AmBank (M) Berhad Company No D AmInvestment Bank Berhad Company No V Head Office 31 st Floor, Menara AmBank No. 8 Jalan Yap Kwan Seng, Kuala Lumpur Head Office 22 nd Floor, Bangunan AmBank Group 55 Jalan Raja Chulan, Kuala Lumpur For more details on the list of IUTAs, please contact the Manager. For enquiries about this or any of the other Funds offered by AmFunds Management Berhad Please call between 8.45 a.m. to 5.45 p.m. (Monday to Thursday), Friday (8.45 a.m. to 5.00 p.m.) 29

33 Semi-Annual Report 28 February aminvest.com AmFunds Management Berhad ( A)