CIMB ISLAMIC MONEY MARKET FUND UNAUDITED FINANCIAL STATEMENTS

Transcription

1 UNAUDITED FINANCIAL STATEMENTS FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 31 MAY 2018

2 CONTENTS PAGE(S) INVESTORS LETTER 1 MANAGER S REPORT 2-7 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 8 TRUSTEE'S REPORT 9 SHARIAH ADVISER 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 36

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 concluded the 1 st Quarter of 2018 with billion in Asset under Management ( AUM ). We continue to achieve prestigious recognitions from The Edge Thomson Reuters Lipper Fund Awards as follows: 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 Balanced 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 Trust 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 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/Executive Director 1

4 MANAGER S REPORT FUND OBJECTIVE AND POLICY What is the investment objective of the Fund? The Fund aims to provide investors with liquidity and regular income, whilst maintaining capital stability by investing primarily in money market instruments that conform with Shariah principles. Has the Fund achieved its objective? For the financial period under review, the Fund is in line with its stated objective. What are the Fund investment policy and principal investment strategy? The Fund will place at least 90% of its Net Asset Value ( NAV ) in Shariah-compliant money market instruments such as Islamic Accepted Bills, Islamic Negotiable Instruments of Deposits and Islamic Repurchase Agreements ( Repo-I ) as well as in any other Shariah-compliant fixed income instruments and placements of Deposits, all of which are highly liquid and have a remaining maturity period of less than 365 days. Up to 10% of the Fund s NAV may be invested in Shariah-compliant fixed income instruments, which have a remaining maturity period of more than 365 days but less than 732 days. The Fund will be actively managed. The strategy is to invest in liquid and low risk short-term investments for capital preservation*. The investment strategy adheres to the SC Guidelines pertaining to investments for a money market fund. Note: *The Fund is neither a capital guaranteed fund nor a capital protected fund. Fund category/type Money Market (Shariah-compliant)/Income How long should you invest for? Recommended one (1) year or more Indication of short-term risk (low, moderate, high) Low When was the Fund launched? 17 March 2008 What was the size of the Fund as at 31 May 2018? million ( million units) What is the Fund s benchmark? CIMB Islamic 1-Month Fixed Return Income Account-i ( FRIA-i ) Note: The benchmark is customised as such to align it closer to the structure of the portfolio and the objective of the Fund. The 1-Month FRIA-i Rate is reflective of the objective of the Fund. Thus, investors are cautioned that the risk profile of the Fund is higher than investing in Shariah-compliant deposits. What is the Fund distribution policy? Monthly, depending on the level of income (if any) the Fund generates. What was the net income distribution for the six months financial period ended 31 May 2018? The Fund distributed a total net income of 6.23 million to unit holders for the six months financial period ended 31 May

5 FUND OBJECTIVE AND POLICY (CONTINUED) The Fund s NAV per unit are as follows: Date NAV per unit (before distribution) NAV per unit (after distribution) PERFOANCE DATA Details of portfolio composition of the Fund for the last three unaudited financial periods are as follows: % % % Unquoted Sukuk and Islamic commercial papers Cash and other net assets Performance details of the Fund for the last three financial years are as follows: NAV ( Million)* Units in circulation (Million) NAV per unit ()* *Ex-distribution to to to Highest NAV per unit () Lowest NAV per unit () Total return (%) Capital growth (%) (0.40) Income distribution (%) Management Expense Ratio ( MER ) (%) ^ Portfolio Turnover Ratio ( PTR ) (times) # ^ The Fund s MER decreased from 0.29% to 0.28% mainly due to the increase of average NAV during the financial period under review. # The Fund s PTR for the financial period under review increased from 0.62 times to 0.75 times compared to the previous year s corresponding period due to higher number of transactions. 3

6 PERFOANCE DATA (CONTINUED) Date of distribution to to to Gross/Net distribution per unit (sen) Distribution on 29 December Distribution on 30 January Distribution on 28 February Distribution on 30 March Distribution on 30 April Distribution on 31 May Distribution on 30 December Distribution on 31 January Distribution on 28 February Distribution on 31 March Distribution on 28 April Distribution on 31 May Distribution on 31 December Distribution on 29 January Distribution on 29 February Distribution on 31 March Distribution on 29 April Distribution on 31 May % % % % % Annual total return (Launch date: 17 March 2008) 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 DECEMBER 2017 TO 31 MAY 2018) During the financial period under review, Bank Negara Malaysia s ( BNM ) Monetary Policy Committee ( MPC ) met three times from the month of January 2018 up to the end of May There were no further meetings held in 2017 following the last meeting which was held on 9 November The MPC kept the Overnight Policy Rate ( OPR ) at 3.00% throughout 2017 but commented at the last meeting of the year then that they may consider reviewing the current degree of monetary accommodation to ensure sustainability of growth prospects of the Malaysian economy. Following this, BNM decided to raise the OPR by 25 basis points ( bps ) to 3.25% at the first MPC meeting held on 25 January The MPC cited that with the economy firmly on a steady growth path, they have decided to normalise the degree of monetary accommodation. Consecutively, they have also recognised the need to pre-emptively ensure that the stance of monetary policy is appropriate to prevent the build-up of risks that could arise from interest rates being too low for a prolonged period of time. There were no further changes to the OPR at the following two MPC meetings held in March and May At the last MPC meeting on 10 May 2018, the MPC stated that the domestic economic outlook remains positive, the financial sector is strong and monetary and financial conditions are supportive of economic growth in the post-election environment. They believe that at the current level of OPR, the degree of monetary accommodativeness is consistent with the policy stance to ensure that the domestic economy continues on a steady growth path amid lower inflation. The MPC will continue to monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation. 4

7 MARKET REVIEW (1 DECEMBER 2017 TO 31 MAY 2018) (CONTINUED) In terms of inflation, headline inflation averaged at 3.70% in Inflation is expected to average lower in 2018, on expectations of a smaller effect from global cost factors. The Consumer Price Index ( CPI ) increased by 1.40% in April 2018 to compared to in corresponding month of the preceding year. On a monthly basis, Malaysia s CPI remained unchanged as compared to March CPI for the period January to April 2018 registered an increase of 1.70% as compared to the same period last year. The Malaysian economy grew 5.40% y-o-y in the first quarter ended 31 March The gross domestic product ( GDP ) growth came in below market expectations and below the previous quarter s 5.90% increase. The Malaysian economy grew 1.40% on a quarter-on-quarter ( q-o-q ) seasonally adjusted basis, compared with 1.00% in the last quarter of The performance was spearheaded by resilient private consumption while fixed investment growth was nearly flat. On the external front, exports increased 3.70%, coming in below the 6.70% seen in the fourth quarter of 2017 as external demand growth weakened. On the external front, the US Federal Reserve (the Fed ) raised interest rates twice during the financial period under review. They raised interest rates by 25 bps at the last Federal Open Market Committee ( FOMC ) meeting held in December 2017 and by another 25 bps in March 2018 to a range of 1.50% to 1.75%.The economic projections released at the meeting in March 2018 indicated that officials were split on whether they expected to raise rates a total of three or four times in The Fed held interest rates steady at their meeting in May In their statement, they acknowledged rising inflation but gave little indication that they are worried about a sudden, rapid escalation in prices or an abrupt slowdown in economic growth. FUND PERFOANCE 6 months to year to years to years to Since inception to % % % % % Income Capital (0.40) (0.72) Total Return Benchmark Average Total Return N/A As at 31 May 2018, the total return for 6-months, 1-year and 3-years stood at 1.71%, 3.53% and 10.91% respectively which outperformed the benchmark by 0.19%, 0.5% and 1.51%. Since inception, the Fund achieved a total return of 35.86%. 5

8 FUND PERFOANCE (CONTINUED) Changes in NAV Changes % NAV ( Million)* > NAV/Unit ()* (0.72) *Ex-distribution The Fund s NAV increased by more than % from million as at 31 May 2017 to million as at 31 May Meanwhile, the NAV per unit decreased by 0.72% from per unit to per unit. 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 Asset allocation (% of NAV) Unquoted Sukuk and Islamic commercial papers Cash and other net assets Total As at 31 May 2018, the Fund was 83.76% invested in unquoted Sukuk with the remaining 16.24% in cash and other net assets. 6

9 MARKET OUTLOOK* In March 2018, BNM raised its forecast for Malaysia s economic growth to 5.50% to 6.00% from 5.00% to 5.50% previously. In its 2017 Annual Report, the Central Bank said their optimistic outlook was due to continued expansion in domestic demand and key economic sectors as well as strengthening exports. However, post-elections, the central bank has stated that the GDP growth target would be further assessed following the release of policy initiatives under the new Government. Overall, we expect the Central Bank to maintain OPR at 3.25% for the remainder of We also expect headline inflation to moderate this year in line with the Central Bank s view. We foresee an increase in near term volatility following the change in government as well as pockets of policy uncertainty. That being said, we believe there may be long term gains following this short term volatility. *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. INVESTMENT STRATEGY In line with the cautious investor sentiment, we continue to maintain overweight on selective corporate bonds with strong fundamentals. UNIT HOLDINGS STATISTICS Breakdown of unit holdings by size as at 31 May 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 14, ,001 to 10, ,001 to 50,000 1, ,001 to 500, ,001 and above Total 16, 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 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. 7

10 STATEMENT BY MANAGER TO THE UNIT HOLDERS OF 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 35 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 31 May 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) MUNIRAH KHAIRUDDIN Chief Executive Officer/Executive Director ALEJANDRO ECHEGORRI Executive Director Kuala Lumpur 18 July

11 TRUSTEE S REPORT TO THE UNIT HOLDERS OF We, MTrustee Berhad, being the Trustee of CIMB Islamic Money Market Fund (the Fund ), are of the opinion that CIMB-Principal Asset Management Berhad (the Manager ), has managed the Fund for the six months financial period ended 31 May 2018 in accordance with the following: (a) (b) (c) (d) limitations imposed on the investment powers of the Manager and the Trustee under the Deeds, the Securities Commission Malaysia s Guidelines on the Unit Trust Funds, the Capital Markets and Services Act 2007 and other applicable laws; valuation/pricing is carried out in accordance with the Deeds and relevant regulatory requirements; creation and cancellation of units is carried out in accordance with the Deeds and relevant regulatory requirements; and during the financial year, a total distribution of 2.28 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 MTrustee Berhad NURIZAN JALIL Chief Executive Officer Selangor 18 July

12 SHARIAH ADVISER S REPORT TO THE UNIT HOLDERS OF We have acted as the Shariah Adviser of CIMB Islamic Money Market Fund (the Fund ) for the six months financial period ended 31 May Our responsibility is to ensure that the procedures and processes employed by CIMB-Principal Asset Management Berhad (the Manager ) are in accordance with Shariah and Shariah Investment Guidelines. In our opinion, the Manager has managed and administered the Fund in accordance with the Shariah Investment Guidelines of the Fund and complied with applicable guidelines, rulings or decisions issued by the Securities Commission Malaysia pertaining to Shariah matters for the six months financial period ended 31 May In addition, we confirm that the investment portfolio of the Fund comprises securities which have been classified as Shariah-compliant by the Shariah Advisory Council of the Securities Commission Malaysia ( SACSC ) and where applicable the Shariah Advisory Council of Bank Negara Malaysia. For investments other than the abovementioned, we have reviewed the same and are of the opinion that these investments were in accordance with the Shariah Investment Guidelines of the Fund. This report is made solely to the unit holders of the Fund, as a body, and for no other purpose. We do not assume responsibility to any other person for the content of this report and we shall not be liable for any errors or non-disclosure on the part of the Manager. For and on behalf of Shariah Adviser CIMB Islamic Bank Berhad ASHRAF GOMMA ALI Director/Regional Head, Shariah & Governance/Designated Person Responsible for Shariah Advisory Kuala Lumpur 18 July

13 UNAUDITED STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 31 MAY to to Note INVESTMENT INCOME Profit income 4 5,996,018 3,213,282 Net (loss)/gain on financial assets at fair value through profit or loss 9 (214,281) 343,065 5,781,737 3,556,347 EXPENSES Management fee 5 726, ,758 Trustee s fee 6 43,575 23,326 Audit fee 3,790 5,025 Tax agent s fee 4,600 2,781 Other expenses 47,378 34, , ,188 PROFIT BEFORE TAXATION 4,956,140 3,102,159 Taxation PROFIT AFTER TAXATION AND TOTAL COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR 4,956,140 3,102,159 Profit after taxation is made up as follows: Realised amount 4,974,744 2,631,811 Unrealised amount (18,604) 470,348 4,956,140 3,102,159 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 31 MAY Audited Note ASSETS Cash and cash equivalents (Shariah-compliant) 10 92,418,766 47,708,071 Financial assets at fair value through profit or loss (Shariah-compliant) 9 334,428, ,550,648 Amount due from Manager 102, ,770 TOTAL ASSETS 426,950, ,500,489 LIABILITIES Amount due to stockbroker 27,403,752 - Amount due to Manager 68, ,085 Accrued management fee 135, ,766 Amount due to Trustee 8,152 6,106 Distribution payable 57,058 47,042 Other payables and accruals 16,647 25,843 TOTAL LIABILITIES 27,690, ,842 NET ASSET VALUE OF THE FUND 399,260, ,595,647 EQUITY Unit holders capital 374,763, ,826,768 Retained earnings 24,496,638 25,768,879 NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 399,260, ,595,647 NUMBER OF UNITS IN CIRCULATION (UNITS) ,856, ,828,930 NET ASSET VALUE PER UNIT () (EX-DISTRIBUTION) 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 31 MAY 2018 Unit holders Retained capital earnings Total Note Balance as at 1 December ,826,768 25,768, ,595,647 Movement in unit holders contributions: - Creation of units from applications 350,066, ,066,203 - Creation of units from distribution 5,874,209-5,874,209 - Cancellation of units (206,003,715) - (206,003,715) Total comprehensive income for the financial period - 4,956,140 4,956,140 Distribution 7 - (6,228,381) (6,228,381) Balance as at 31 May ,763,465 24,496, ,260,103 Balance as at 1 December ,919,794 26,034, ,954,413 Movements in unit holders' contributions: - Creation of units from applications 69,001,240-69,001,240 - Creation of units from distributions 2,459,765-2,459,765 - Cancellation of units (52,405,661) - (52,405,661) Total comprehensive income for the financial period - 3,102,159 3,102,159 Distributions 7 - (2,492,463) (2,492,463) Balance as at 31 May ,975,138 26,644, ,619,453 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 31 MAY to to CASH FLOWS FROM OPERATING ACTIVITIES Proceeds from disposal of unquoted Sukuk and Islamic commercial papers 106,818,682 41,485,700 Purchase of unquoted Sukuk and Islamic commercial papers (302,791,071) (100,572,785) Proceeds from redemption of unquoted Sukuk and Islamic commercial papers 93,000,000 49,500,000 Profit income received from Shariah-compliant deposits with licensed Islamic financial institutions and Hibah received 601, ,140 Profit income received from unquoted Sukuk and Islamic commercial papers 4,678,502 3,091,960 Management fee paid (692,149) (385,107) Trustee s fee paid (41,529) (23,107) Payments for other fees and expenses (64,964) (39,224) Net cash used in operating activities (98,491,461) (6,544,423) CASH FLOWS FROM FINANCING ACTIVITIES Cash proceeds from units created 350,205,120 69,317,618 Payments for cancellation of units (206,658,808) (57,235,973) Distributions paid (344,156) - Net cash generated from financing activities 143,202,156 12,081,645 Net increase in cash and cash equivalents 44,710,695 5,537,222 Cash and cash equivalents at the beginning of the financial period 47,708,071 40,141,157 Cash and cash equivalents at the end of the financial period 92,418,766 45,678,379 Cash and cash equivalents comprised of: Shariah-compliant deposits with licensed Islamic financial institutions 92,299,076 45,654,965 Bank balances 119,690 23,414 Cash and cash equivalents at the end of the financial period 92,418,766 45,678,379 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 31 MAY THE FUND, THE MANAGER AND ITS PRINCIPAL ACTIVITY CIMB Islamic Money Market Fund (the Fund ) is governed by a Master Deed dated 15 May 2008, a Third Supplemental Master Deed dated 25 June 2008, a Sixth Supplemental Master Deed dated 14 July 2008, a Seventh Supplemental Master Deed dated 19 November 2008 and a Seventeenth Supplemental Master Deed dated 25 March 2015 (collectively referred to as the Deeds ) between CIMB-Principal Asset Management Berhad (the Manager ) and MTrustee Berhad (the Trustee ). The Fund will place at least 90% of its NAV in Shariah-compliant money market instruments such as Islamic Accepted Bills, Islamic Negotiable Instruments of Deposits and Repo-i as well as in any other Shariah-compliant fixed income instruments and placements of Deposits, all of which are highly liquid and have a remaining maturity period of less than 365 days. Up to 10% of the Fund s NAV may be invested in Shariah-compliant fixed income instruments, which have a remaining maturity period of more than 365 days but less than 732 days. The Fund will be actively managed. The strategy is to invest in liquid and low risk short-term investments for capital preservation. The investment strategy adheres to the SC Guidelines pertaining to investments for a money market fund. 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 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 judgment are based on the Manager s best knowledge of current events and actions, actual results may differ. 15

18 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (a) Basis of preparation (continued) 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(k). 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 year beginning 1 December 2017: Amendments to MFRS 107 Statement of Cash Flows - Disclosure Initiative introduce an additional disclosure on changes in liabilities arising from financing activities. The adoption of these amendments did not have any impact on the current financial period or any prior financial period and is not likely to affect future financial period. The standards, amendments to published standards and interpretations to existing standards that are applicable to the Fund but not yet effective and have not been early adopted are as follows: (i) Financial year beginning on/after 1 December 2018 MFRS 9 Financial Instruments (effective from 1 January 2018) will replace MFRS 139 Financial Instruments: Recognition and Measurement. MFRS 9 retains but simplifies the mixed measurement model in MFRS 139 and establishes three primary measurement categories for financial assets: amortised cost, fair value through profit or loss and fair value through other comprehensive income ( OCI ). The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments 1 are always measured at fair value through profit or loss with an irrevocable option at inception to present changes in fair value in OCI (provided the instrument is not held for trading). A debt instrument 2 is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest 3. For liabilities, the standard retains most of the MFRS 139 requirements. These include amortised cost accounting for most financial liabilities, with bifurcation of embedded derivatives 1. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in OCI rather than the income statement, unless this creates an accounting mismatch. MFRS 9 introduces an expected credit loss ( ECL ) model on impairment that replaces the incurred loss impairment model used in MFRS 139. The expected credit loss model is forward-looking and eliminates the need for a trigger event to have occurred before credit losses are recognised. ¹ For the purposes of the investments made by the Fund, equity instruments and derivatives refers to Shariah-compliant equity instruments and Shariah-compliant derivatives. ² For the purposes of the investments made by the Fund, debt instruments refers to Sukuk. ³ For the purposes of this Fund, interest refers to profits earned from Shariah-compliant investments. 16

19 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (a) Basis of preparation (continued) (i) Financial year beginning on/after 1 December 2018 (continued) The Fund has reviewed its financial assets and liabilities and has assessed the impacts from the adoption of the new standard on 1 January 2018: There will be no impact on the Fund's accounting for financial assets as the Fund's equity investments currently measured at fair value through profit or loss will continue to be measured on the same basis under MFRS 9. There will be no impact on the Fund's accounting for financial liabilities as the new requirements only affect the accounting for financial liabilities that are designated at fair value through profit or loss and the Fund does not have any such liabilities. The new impairment model requires the recognition of impairment provisions based on ECL rather than only incurred credit losses as is the case under MFRS 139. It applies to financial assets classified at amortised cost. Based on the assessments undertaken to date, the Fund does not expect any loss allowance to be recognised upon adoption of MFRS 9. (b) Financial assets and financial liabilities Classification The Fund designates its Shariah-compliant investments in unquoted Sukuk and Islamic commercial papers 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 evaluated on a fair value basis. Financing 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 financing 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 stockbroker, amount due to Manager, accrued management fee, amount due to Trustee, distribution payable and other payables and accruals as other financial liabilities. 17

20 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) Financial assets and financial liabilities (continued) 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. Shariah-compliant 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 Shariah-compliant investments have expired or have been transferred and the Fund has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognised when it is extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or expired. Unrealised gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss are presented in the statement of comprehensive income within net gain or loss on financial assets at fair value through profit or loss in the financial period which they arise. Unquoted Sukuk denominated in Ringgit Malaysia ( ) 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(k) for further explanation. Islamic commercial papers are revalued at least weekly by reference to bid and offer prices quoted by three (3) independent and reputable financial institutions of similar standing at the close of trading. Shariah-compliant deposits with licensed Islamic financial institutions are stated at cost plus accrued profit calculated on the effective profit method over the period from the date of placement to the date of maturity of the respective deposits. Financing and receivables and other financial liabilities are subsequently carried at amortised cost using the effective profit method. 18

21 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) Financial assets and financial liabilities (continued) Impairment on 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 profit rate. The asset s carrying amount is reduced and the amount of the loss is recognised in statement of comprehensive income. If financing and receivables has a variable profit rate, the discount rate for measuring any impairment loss is the current effective profit 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 Profit income from Shariah-compliant deposits with licensed Islamic financial institutions, unquoted Sukuk and Islamic commercial papers are recognised on a time proportionate basis using the effective profit method on an accrual basis. Realised gain or loss on disposal of unquoted Sukuk and Islamic commercial papers are accounted for as the difference between the net disposal proceeds and the carrying amount of unquoted Sukuk and Islamic commercial papers, determined on cost adjusted for accretion of discount or amortisation of premium. (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, which is the Fund s functional and presentation currency. 19

22 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (e) Cash and cash equivalents For the purpose of statement of cash flows, cash and cash equivalents comprise bank balances and Shariah-compliant 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) Amount due to stockbrokers Amount due to stockbrokers represent payables for Shariah-compliant investments purchased that have been contracted for but not yet settled or delivered on the statement of financial position date. These amounts are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment for amount due from stockbrokers. A provision for impairment of amount due from stockbrokers is established when there is objective evidence that the Fund will not be able to collect all amounts due from the relevant stockbroker. Significant financial difficulties of the stockbroker, probability that the stockbroker will enter bankruptcy or financial reorganisation, and default in payments are considered indicators that the amount due from stockbrokers is impaired. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. (i) 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. 20

23 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (j) 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. (k) 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 judgment 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 Sukuk and Islamic commercial papers In undertaking any of the Fund s Shariah-compliant 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 Sukuk 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 Sukuk 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. Islamic commercial papers are revalued at least weekly by reference to bid and offer prices quoted by three (3) independent and reputable financial institutions of similar standing at the close of trading. 3. RISK MANAGEMENT OBJECTIVES AND POLICIES The investment objective of the Fund is to provide investors with liquidity and regular income, whilst maintaining capital stability by investing primarily in money market instruments that conform with Shariah principles. 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. 21

24 3. RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) (a) Market risk (i) Price risk This is the risk that the fair value of a Shariah-compliant investment in unquoted Sukuk and Islamic commercial papers will fluctuate because of changes in market prices (other than those arising from interest rate risk). The value of unquoted Sukuk and Islamic commercial papers may fluctuate according to the activities of individual companies, sector and overall political and economic conditions. Such fluctuation may cause the Fund s NAV and prices of units to fall as well as rise, and income produced by the Fund may also fluctuate. The price risk is managed through diversification and selection of unquoted Sukuk, Islamic commercial papers and other financial instruments within specified limits according to the Deeds. (ii) Interest rate risk In general, when profit rates rise, unquoted Sukuk and Islamic commercial papers prices will tend to fall and vice versa. Therefore, the NAV of the Fund may also tend to fall when profit rates rise or are expected to rise. However, investors should be aware that should the Fund holds an unquoted Sukuk and Islamic commercial papers 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 profit 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 profit rate trend of the Manager, which is based on its continuous fundamental research and analysis. Investors should note that the movement in prices of unquoted Sukuk, Islamic commercial papers and Shariah-compliant money market instruments are benchmarked against profit rates. As such, the investments are exposed to the movement of the profit rates. It does not in any way suggest that this Fund will invest in conventional financial instruments. All investments carried out for the Fund including placement and deposits are in accordance with Shariah. This risk is crucial since unquoted Sukuk and Islamic commercial papers portfolio management depends on forecasting profit rate movements. Prices of unquoted Sukuk and Islamic commercial papers move inversely to profit rate movements, therefore as profit rates rise, the prices of unquoted Sukuk and Islamic commercial papers decrease and vice versa. Furthermore, unquoted Sukuk and Islamic commercial papers with longer maturity and lower yield coupon rates are more susceptible to profit rate movements. Such investments may be subject to unanticipated rise in profit rates which may impair the ability of the issuers to meet obligation under the instrument, especially if the issuers are highly leveraged. An increase in profit rates may therefore increase the potential for default by an issuer. The Fund s exposure to interest rate risk associated with Shariah-compliant deposits with licensed Islamic financial institutions is not material as the Shariahcompliant deposits are held on short-term basis. The Fund is not exposed to cash flow interest rate risk as the Fund does not hold any financial instruments at variable profit rate. 22

25 3. RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) (b) Credit risk Credit risk refers to the risk that counterparty will default on its contractual obligation resulting in financial loss to the Fund. Investment in unquoted Sukuk and Islamic commercial papers 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 Sukuk and Islamic commercial papers 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. For this Fund, the unquoted Sukuk and Islamic commercial papers investments must satisfy a minimum rating requirement of at least BBB3 or P2 rating by RAM Rating Services Berhad ( RAM Ratings ) or equivalent rating by Malaysian Rating Corporation Berhad ( MARC ) or by local rating agency(ies) of the country; BBB- by S&P or equivalent rating by Moody s or Fitch. The credit risk arising from placements of Shariah-compliant deposits in licensed Islamic financial institutions is managed by ensuring that the Fund will only place deposits in reputable licensed Islamic 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 and Shariah-compliant deposits with licensed Islamic financial institutions, 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. 23

26 3. RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) (d) Capital risk management The capital of the Fund is represented by equity consisting of unit holders capital of 374,763,465 ( : 224,826,768) and retained earnings of 24,496,638 ( : 25,768,879). 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 value 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. 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. 24