INVESTORS' LETTER 1 MANAGER'S REPORT 2-7

Transcription

1 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 38 LIST OF CWA (an Agency force of CIMB-Principal) OFFICES 39-43

2 INVESTORS' LETTER Dear Valued Investors, Thank you for investing in CIMB Islamic Al-Azzam Equity Fund. We are pleased to let you know that we have been recently named the Best Asset & Fund Manager ( ) in Malaysia by Alpha Southeast Asia for its Southeast Asia's 10th Annual Best Financial Institutions Awards The award came at the right time, proving that CIMB-Principal is a consistent performer beyond the industry benchmarks even in a challenging market environment. Please be informed that with effect from 30 June 2016, the following sentence under the "Processing a withdrawal in the Fund's prospectus has been removed: "If you request a specific amount in Ringgit Malaysia ( RM ), the number of units will be calculated by dividing the requested amount in RM by the unit pricing, and the number of units will be rounded to the second decimal place." Nevertheless, you are able to withdraw the desired amount from the CIMB Islamic Al-Azzam Equity Fund, where the amount will be derived by multiplying the units of the Fund with the Net Asset Value ( NAV ) per unit of the Fund, subject to the minimum withdrawal unit. Please refer to the Master Prospectus (Shariah-compliant Funds) Issue No. 9 dated 30 June 2016 for further details. Moving forward, we are committed to deliver a better customer experience to you. For your information, we have started a customer information update exercise through s, phone and registered mail so that we can interact better with you in the future. For those who have not updated their information, you are strongly encouraged to contact our Customer Care Centre directly at or your Consultant to update your latest information. We would like to take this opportunity to thank you for your continuous support and confidence in our services. CIMB-Principal remains committed in helping you to grow your investment. Yours faithfully, for CIMB-Principal Asset Management Berhad Munirah Khairuddin Chief Executive Officer/Executive Director 1

3 MANAGER S REPORT FUND OBJECTIVE AND POLICY What is the investment objective of the Fund? The Fund aims to achieve consistent capital growth over the medium to long-term. Has the Fund achieved its objective? For the financial period under review, the Fund has achieved its objective as stated under the fund performance review. What are the Fund investment policy and principal investment strategy? The Fund seeks to achieve its objective by investing a minimum of 70% and up to 98% of its NAV in Shariah-compliant Malaysian equities. The fund manager may also invest up to 30% of the Fund's NAV in other Shariah-compliant investments, such as Sukuk, and Shariah-compliant liquid assets, with at least 2% of the Fund's NAV maintained in the form of Shariah-compliant liquid assets such as Islamic money market instruments and/or Shariah-compliant Deposits for liquidity purpose. For this Fund, the investment in Sukuk must satisfy a minimum credit rating of A3 or P2 by RAM Ratings ("RAM") or equivalent rating by Malaysian Rating Corporation Berhad ("MARC"); BBB by Standard & Poor's ("S&P") or equivalent rating by Moody's or Fitch. In line with its objective, the investment strategy and policy of the Fund is to rebalance the portfolio to suit market conditions in order to reduce short-term volatility and provide consistency in capital growth. Fund category/type Equity (Shariah-compliant)/Growth How long should you invest for? Recommended three (3) years or more Indication of short-term risk (low, moderate, high) High When was the Fund launched? 1 August 2012 What was the size of the Fund as at 31 August 2016? RM27.39 million (98.48 million units) What is the Fund s benchmark? Financial Times Stock Exchange ("FTSE") Bursa Malaysia ( FBM ) Emas Shariah ("FBMS") Index What is the Fund distribution policy? Given its investment objective, the Fund is not expected to pay any distribution. However, distribution, if any, will be incidental and will vary from period to period depending on the interest rates*, market conditions and the performance of the Fund. *Note: The Fund does not invest in interest bearing instruments; the interest rate referred herein is to the general interest rate of the country, which may affect the value of the investments of the Fund. What was the net income distribution for the six months financial period ended 31 August 2016? The Fund distributed a total net income of RM1.48 million to unit holders for the six months financial period ended 31 August As a result, the NAV per unit dropped from RM to RM on 13 April

4 PERFORMANCE DATA Details of portfolio composition of the Fund for the last three unaudited financial periods are as follows: % % % Shariah-compliant quoted securities - Constructions Consumer Products Finance Industrials Infrastructure Project Companies ("IPC") Real Estate Investment Trusts ("REIT") Plantation Properties Technology Trading/Services Cash and other net assets Performance details of the Fund for the last three unaudited financial periods are as follows: NAV (RM Million) Units in circulation (Million) NAV per unit (RM) to to to Highest NAV per unit (RM) Lowest NAV per unit (RM) Total return (%) 0.92 (5.04) Capital growth (%) (6.53) (5.04) (3.17) - Income distribution (%) Management Expense Ratio ("MER") (%) ^ Portfolio Turnover Ratio ("PTR") (times) # ^ The Fund's MER increased from 0.87% to 0.90% mainly due to the decrease in average NAV during the financial period under review. # The Fund's PTR rose marginally to 1.21 times from 1.02 times over the same corresponding period under review. This was mainly due to the equity allocation which are being kept above 90% for most of the financial period. Date of distribution Gross distribution per unit (sen) Net distribution per unit (sen)

5 PERFORMANCE DATA (CONTINUED) Since inception to % % % % % Annual total return 6.20 (5.16) (0.28) (Launch date: 1 August 2012) 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 MARCH 2016 TO 31 AUGUST 2016) During the financial period under review, the FBMS Index appreciated 1.48%. The FBMS Index ended the month of March 2016 at 12, points, a gain of 2.0% from the previous month. For the first quarter of 2016, the market has posted a return of negative 2.4%. Association of Southeast Asian Nations ( ASEAN ) markets were in general risk-on mode in March 2016 on the back of comments from the US Federal Reserve (the Fed ) that it would proceed cautiously in adjusting policy. Back in Malaysia, the Malaysian Ringgit ( MYR ) continued to appreciate against the US Dollar ( USD ), gaining by 7.2% month-on-month ( m-o-m ) to settle at RM In Bank Negara Malaysia s ( BNM ) 2015 Annual Report, it expects real Gross Domestic Product ( GDP ) growth to be between 4.0 to 4.5% in 2016 with inflation at the lower end of its forecast range of 2.5 to 3.5%. The month of April 2016 prove challenging with the Index shedding by 2.3% from the previous month. On a year-to-date ( YTD ) basis, the Index has posted a negative 4.6% return. China s GDP grew by 6.7% in the first quarter of 2016 which was in line with expectations indicating that there are some signs of stabilisation in the economy. Oil continued to be in focus after output talks between the world s biggest producers ended without agreement on limiting supplies. In Malaysia, investor concerns re-surfaced as 1Malaysia Development Berhad ( 1MDB ) defaulted on outstanding USD1.75 billion bond issue, triggering cross default on two other notes worth USD1.9 billion. As we moved into May 2016, investors shed holdings ahead of the summer holiday which saw the Index shedding by another 2.35% from the previous month. On a YTD basis, the Index has posted a negative 6.86% return. The first quarter of 2016 results season failed to inspire, with disappointment coming from most sectors. After three months of consecutive net buying, foreign institutions sold a net RM4.3 billion of Malaysian equities in May Meanwhile, currencies in emerging Asia fell as the Dollar Index extended gains after the Fed s Chairman Janet Yellen commented that a rate hike is probably appropriate in the coming months. Market sentiments took a breather in the month of June 2016 rebounding by 1.51% to 12, points despite the surprising result of the 52:48 vote in favour of Brexit on 23 June YTD, the Index has lost 5.45%. Post-Brexit, sovereign bond yields have collapsed and are expected to stay depressed. Brexit will likely delay the Fed hike and prompt more easing from central banks. Locally, there is speculation of early elections and a possible rate cut by BNM. This positive sentiment carried over into July 2016 which saw the Index rising by 0.79% to close at 12, points, failing to react significantly to BNM s 25 basis point ( bps ) cut in Overnight Policy Rate ( OPR ) on 13 July However, the 10-year Malaysian Government Securities ( MGS ) fell 16 bps m-o-m to 3.587% on anticipation of further rate cuts. During the month, the West Taxes Intermediate ( WTI ) oil price declined by 13.9% to USD41.6 per barrel. Being a laggard market in the region, Malaysia may continued to see inflows from foreigners. 4

6 MARKET REVIEW (1 MARCH 2016 TO 31 AUGUST 2016) (CONTINUED) CIMB ISLAMIC AL-AZZAM EQUITY FUND The market ended on a positive note rising by 1.90% in August 2016 to close at 12, points. During the month, the Fed s Chairman Janet Yellen's message from Jackson Hole was that the case for a rate hike had strengthened in recent months, with many Federal Open Market Committee ( FOMC ) participants taking the hint that September 2016 was "live. The recent weak September 2016 US non-farm payroll report (+151,000 jobs) is not expected to sway the Fed s normalisation decision. FUND PERFORMANCE 6 months to year to year to Since inception to % % % % Income Capital (6.53) (1.63) (0.60) Total Return Benchmark Average Total Return N/A The Fund s total return was 0.92% which underperformed the benchmark by 0.56% during the financial period under review. The Fund suffered from a reversal of gains held in exporters as the MYR appreciated over the same period. 5

7 FUND PERFORMANCE (CONTINUED) Changes in NAV Changes % NAV (RM Million) NAV/Unit (RM) (1.59) During the financial period under review, the Fund s NAV per unit fell marginally by 1.59% to RM while the Fund size increased by 4.94% to RM27.39 million. 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) Shariah-compliant quoted securities Cash and other net assets TOTAL The equity allocation of the Fund was maintained at a relatively high level of above 90% for most of the financial period under review and at the close of the financial period, equity asset allocation stood at 90.24%. MARKET OUTLOOK* Our market view that economies have entered a slow benign growth phase that will extend for a long period. We continue to expect growth to be sluggish, low inflation and easy central banks policies to support growth. Market uncertainties continue to set the cautious undertone due to large macro event such as concerns of a China slowdown and Brexit continue to remain. As market valuations are rich and near the top end of the range, we believe that markets will trade range-bound with a slight upward bias. Going forward, we will watch for: 1) Earnings growth stabilization; 2) Pre-election budget and; 3) Progress of Malaysian Government-Linked Company ( GLC ) restructuring efforts. We still see opportunities in the Malaysian GLC restructuring theme in the medium term in the plantation, property and services sectors. In a slow growth environment, we continue to like high dividend yielders. We also maintain our overweight in the construction sector as positive news flow from more fiscal expansion from the Government will continue this year. From a research perspective, we seek new ideas in the affordable housing segment. *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. 6

8 INVESTMENT STRATEGY Our strategy is to keep asset allocation of the Fund within the 80-85% range. Portfolio beta will also be kept low due to the market volatility amid the ongoing concerns on China s slowdown and other external risk factors. During this financial period of elevated market volatility, we will focus on stocks exhibiting quality of growth, not merely high growth. We expect corporate earnings to be downgraded post results season, as the recent second quarter of 2015 earnings continued to disappoint. Market continues to be very narrow and lacks positive catalysts. We favour stocks which show strong growth despite being in a low growth environment. As such, we like Exporters (Technology, Gloves, Furniture), Ports and Utilities. We remain underweighted in Oil & Gas, Plantation, Telecommunications and Financials. UNIT HOLDINGS STATISTICS Breakdown of unit holdings by size as at 31 August 2016 are as follows: Size of unit holdings (units) No. of unit holders No. of units held % of units held (million) 5,000 and below ,001-10, ,001-50, , , ,001 and above Total SOFT COMMISSIONS AND REBATES CIMB-Principal Asset Management Berhad (the Manager ) and the Trustee (including their officers) will not retain any form of rebate or soft commission from, or otherwise share in any commission with, any broker in consideration for directing dealings in the investments of the Funds unless the soft commission received is retained in the form of goods and services such as financial wire services and stock quotations system incidental to investment management of the Funds. All dealings with brokers are executed on best available terms. During the financial period under review, the Manager and the Trustee did not receive any rebates from the brokers or dealers but have retained soft commission in the form of goods and services such as financial wire services and stock quotations system incidental to investment management of the Funds. 7

9 STATEMENT BY MANAGER TO THE UNIT HOLDERS OF CIMB ISLAMIC AL-AZZAM EQUITY FUND CIMB ISLAMIC AL-AZZAM EQUITY FUND We, being the Directors of CIMB-Principal Asset Management Berhad (the Manager ), do hereby state that, in the opinion of the Manager, the accompanying unaudited financial statements set out on pages 11 to 37 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 August 2016 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 31 October

10 TRUSTEE S REPORT TO THE UNIT HOLDERS OF CIMB ISLAMIC AL-AZZAM EQUITY FUND We, AmanahRaya Trustees Berhad, have acted as Trustee of CIMB Islamic Al-Azzam Equity Fund for the six months financial period ended 31 August In our opinion, CIMB-Principal Asset Management Berhad, the Manager, has operated and managed CIMB Islamic Al-Azzam Equity Fund in accordance with the limitations imposed on the investment powers of the management company under the Deed, securities laws and the applicable Guidelines on Unit Trust Funds for the six months financial period ended 31 August We are of the opinion that: (a) (b) (c) valuation and pricing is carried out in accordance with the Deed and any regulatory requirement; creation and cancellation of units are carried out in accordance with the Deed and any regulatory requirement the distribution of income made by CIMB Islamic Al-Azzam Equity Fund as declared by the Manager is appropriate and reflects the investment objective of CIMB Islamic Al-Azzam Equity Fund. Yours faithfully AMANAHRAYA TRUSTEES BERHAD HABSAH BINTI BAKAR Chief Executive Officer Kuala Lumpur 31 October

11 SHARIAH ADVISER S REPORT TO THE UNIT HOLDERS OF CIMB ISLAMIC AL-AZZAM EQUITY FUND CIMB ISLAMIC AL-AZZAM EQUITY FUND We have acted as the Shariah Adviser of CIMB Islamic Al-Azzam Equity Fund (the Fund ) for the six months financial period ended 31 August 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 August In addition, we also 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") with the exception of Sunway Construction. However, the security had been disposed on 30 June For other investment than the abovementioned, we have reviewed the same and 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 ABDUL GHANI ENDUT Group Head, Shariah & Governance/Designated Person Responsible for Shariah Advisory Kuala Lumpur 31 October

12 UNAUDITED STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 31 AUGUST 2016 CIMB ISLAMIC AL-AZZAM EQUITY FUND to to Note RM RM INVESTMENT INCOME/(LOSS) Dividend income 292, ,453 Profit income 4 49,622 48,370 Net gain/(loss) on financial assets at fair value through profit or loss 9 478,064 (1,531,925) 820,662 (809,102) EXPENSES Management fee 5 169, ,697 Trustee s fee 6 5,636 9,356 Transaction costs 189, ,959 Audit fee 7,820 7,620 Tax agent s fee 2,000 9,700 Other expenses 26,750 33, , ,647 PROFIT/(LOSS) BEFORE TAXATION 420,236 (1,396,749) Taxation PROFIT/(LOSS) AFTER TAXATION AND TOTAL COMPREHENSIVE INCOME/(LOSS) FOR THE FINANCIAL PERIOD 420,236 (1,396,239) Profit/(Loss) after taxation is made up as follows: Realised amount 442,375 1,858,707 Unrealised amount (22,139) (3,254,946) 420,236 (1,396,239) The accompanying notes to the financial statements form an integral part of the unaudited financial statements. 11

13 UNAUDITED STATEMENT OF FINANCIAL POSITION AS AT 31 AUGUST Audited Note RM RM ASSETS Cash and cash equivalents (Shariah-compliant) 10 3,381,029 3,228,843 Financial assets at fair value through profit or loss (Shariah-compliant) 9 24,715,630 16,756,901 Amount due from stockbrokers 873, ,957 Amount due from Manager 730,905 52,898 Dividends receivable 44,144 25,275 Tax recoverable - - TOTAL ASSETS 29,745,276 20,516,874 LIABILITIES Amount due to stockbrokers 2,153,950 63,776 Amount due to Manager 121,573 - Accrued management fee 32,994 24,480 Amount due to Trustee 1, Donation to charitable bodies 29,847 29,847 Other payables and accruals 19,455 17,372 TOTAL LIABILITIES 2,358, ,291 NET ASSET VALUE OF THE FUND 27,386,357 20,380,583 EQUITY Unit holders' capital 21,759,567 13,698,603 Retained earnings 5,626,790 6,681,980 NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 27,386,357 20,380,583 NUMBER OF UNITS IN CIRCULATION (UNITS) 11 98,484,576 68,550,252 NET ASSET VALUE PER UNIT (RM) The accompanying notes to the financial statements form an integral part of the unaudited financial statements. 12

14 UNAUDITED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 31 AUGUST 2016 CIMB ISLAMIC AL-AZZAM EQUITY FUND Unit holders Retained capital earnings Total Note RM RM RM Balance as at 1 March ,698,603 6,681,980 20,380,583 Movement in unit holders' contributions: - Creation of units from applications 10,181,167-10,181,167 - Creation of units from distribution 1,475,426-1,475,426 - Cancellation of units (3,595,629) - (3,595,629) Total comprehensive income for the financial period - 420, ,236 Distribution 8 - (1,475,426) (1,475,426) Balance as at 31 August ,759,567 5,626,790 27,386,357 Balance as at 1 March ,845,073 6,572,082 48,417,155 Movement in unit holders' contributions: - Creation of units from applications 893, ,807 - Cancellation of units (21,812,671) - (21,812,671) Total comprehensive loss for the financial period - (1,396,239) (1,396,239) Balance as at 31 August ,926,209 5,175,843 26,102,052 The accompanying notes to the financial statements form an integral part of the unaudited financial statements. 13

15 UNAUDITED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 31 AUGUST 2016 CIMB ISLAMIC AL-AZZAM EQUITY FUND to to RM RM CASH FLOWS FROM OPERATING ACTIVITIES Purchase of Shariah-compliant quoted securities (31,202,887) (28,883,715) Proceeds from disposal of Shariah-compliant quoted securities 25,202,634 48,504,274 Dividend income received 274, ,981 Profit income received from Shariah-compliant deposits with licensed Islamic financial institutions and Hibah 49,622 48,370 Management fee paid (160,555) (302,127) Trustee's fee paid (5,352) (10,071) Payments for other fees and expenses (34,487) (48,584) Tax refund received - 11,634 Net cash (used in)/generated from operating activities (5,876,918) 20,069,762 CASH FLOWS FROM FINANCING ACTIVITIES Cash proceeds from units created 9,503, ,563 Payments for cancellation of units (3,474,056) (21,742,578) Net cash generated from/(used in) financing activities 6,029,104 (20,788,015) Net increase/(decrease) in cash and cash equivalents 152,186 (718,253) Cash and cash equivalents at the beginning of the financial period 3,228,843 5,463,211 Cash and cash equivalents at the end of the financial period 3,381,029 4,744,958 The accompanying notes to the financial statements form an integral part of the unaudited financial statements. 14

16 NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 31 AUGUST THE FUND, THE MANAGER AND ITS PRINCIPAL ACTIVITY CIMB ISLAMIC AL-AZZAM EQUITY FUND CIMB Islamic Al-Azzam Equity Fund (the Fund ) is governed by a Principal Master Deed dated 15 May 2008, a Thirteenth Supplemental Master Deed dated 23 February 2012 and a Seventeenth Supplemental Master Deed dated 25 March 2015 (collectively referred to as the Deeds ), made between CIMB-Principal Asset Management Berhad (the Manager ) and AmanahRaya Trustees Bhd (the Trustee ). The Fund seeks to achieve its objective by investing a minimum of 70% and up to 98% of its NAV in Shariah-compliant Malaysian equities. The fund manager may also invest up to 30% of the Fund's NAV in other Shariah-compliant investments, such as Sukuk, and Shariahcompliant liquid assets, with at least 2% of the Fund's NAV maintained in the form of Shariahcompliant liquid assets such as Islamic money market instruments and/or Shariah-compliant Deposits for liquidity purpose. For this Fund, the investment in Sukuk must satisfy a minimum credit rating of A3 or P2 by RAM or equivalent rating by MARC; BBB by S&P or equivalent rating by Moody's or Fitch. In line with its objective, the investment strategy and policy of the Fund is to rebalance the portfolio to suit market conditions in order to reduce short-term volatility and provide consistency in capital growth. All investments are subjected to the Securities Commission Malaysia ("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 a subsidiary of CIMB Group Sdn Bhd and regards CIMB Group Holdings Berhad as its ultimate holding company. The Manager is also an associate of Principal International (Asia) Limited, which is a subsidiary of Principal Financial Group Inc. 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 revenue 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

17 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(l). 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 end beginning 1 March 2016: Amendments to MFRS 101 Presentation of financial statements - Disclosure Initiative Annual Improvements to MFRS Cycle 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 periods. 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 March 2017 MFRS 15 Revenue from contracts with customers (effective from 1 January 2017) replaces MFRS 118 Revenue and MFRS 111 Construction contracts and related interpretations. The standard deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity s contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The core principle in MFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Fund will apply this standard when effective. This standard is not expected to have a significant impact on the Fund s financial statements. (ii) Financial year beginning on/after 1 March 2018 MFRS 9 Financial Instruments (effective from 1 January 2018) will replace MFRS 139 Financial Instruments: Recognition and Measurement. The complete version of MFRS 9 was issued in November 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"). 16

18 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (a) Basis of preparation (continued) (ii) Financial year beginning on/after 1 March 2018 (continued) 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 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. The Fund will apply this standard when effective. This standard is not expected to have a significant impact on the Fund s financial statements. (b) Financial assets and financial liabilities Classification The Fund designates its investments in Shariah-compliant quoted securities as financial assets at fair value through profit or loss at inception. Financial assets are designated at fair value through profit or loss when they are managed and their performance 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, amount due from stockbrokers, amount due from Manager and dividends receivable. 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 stockbrokers, amount due to Manager, accrued management fee, amount due to Trustee, donation to charitable bodies, and other payables and accruals as other financial liabilities. 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. 17

19 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 quoted securities are initially recognised at fair value. Transaction costs are expensed in the statement of comprehensive income. 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 quoted securities 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. Dividend income from financial assets at fair value through profit or loss is recognised in the statement of comprehensive income as part of gross dividend income when the Fund s right to receive payments is established. Shariah-compliant quoted securities in Malaysia are valued at the last done market price quoted on Bursa Malaysia Securities Bhd ( Bursa Securities ) at the date of the statement of financial position. If a valuation based on the market price does not represent the fair value of the Shariah-compliant quoted securities, for example during abnormal market conditions or when no market price is available, including in the event of a suspension in the quotation of the Shariah-compliant quoted securities for a period exceeding 14 days, or such shorter period as agreed by the Trustee, then the Shariah-quoted compliant securities are valued as determined in good faith by the Manager, based on the methods or bases approved by the Trustee after appropriate technical consultation. 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

20 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (c) Financial assets and financial liabilities (continued) Impairment for assets carried at amortised costs For assets carried at amortised cost, the Fund assesses at the end of the reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective 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 Dividend income is recognised on the ex-dividend date when the right to receive payment is established. Profit income earned from Shariah-compliant deposits with licensed Islamic financial institutions is recognised on a time proportionate basis using the effective profit method on an accrual basis. Realised gain or loss on disposal of Shariah-compliant quoted securities is accounted for as the difference between net disposal proceeds and the carrying amount of Shariah-compliant quoted securities, determined on a weighted average cost basis. (d) 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 amount of cash and which are subject to an insignificant risk of changes in value. 19

21 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (e) Taxation Current tax expense is determined according to Malaysian tax laws at the current rate based on the taxable profit earned during the financial period. (f) Functional and presentation currency Items included in the financial statements of the Fund are measured using the currency of the primary economic environment in which the Fund operates (the functional currency ). The financial statements are presented in Ringgit Malaysia ("RM"), which is the Fund s functional and presentation currency. (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 from/to stockbrokers Amounts due from/to stockbrokers represent receivables for Shariah-compliant quoted securities sold and payable for Shariah-compliant quoted securities that have been contracted for but not yet settled or delivered on the statement of financial position date respectively. These amounts are recognised initially at fair value and subsequently measured at amortised cost using the effective profit method, less provision for impairment. A provision for impairment of amounts 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, profit income is recognised using the profit rate used to discount the future cash flows for the purpose of measuring the impairment loss. (i) Transaction costs Transaction costs are costs incurred to acquire or dispose financial assets or liabilities at fair value through profit or loss. They include fees and commissions paid to agents, advisors, brokers and dealers. Transaction costs, when incurred, are immediately recognised in the statement of comprehensive income as expenses. 20

22 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (j) 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. (k) 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. (l) 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. In undertaking any of the Fund s investment, the Manager will ensure that all assets of the Fund under management will be valued appropriately, that is at fair value and in compliance with the SC Guidelines on Unit Trust Funds. 21

23 3. RISK MANAGEMENT OBJECTIVES AND POLICIES CIMB ISLAMIC AL-AZZAM EQUITY FUND The investment objective of the Fund is to achieve consistent capital growth over the medium to long-term. 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. (a) Market risk (i) Price risk This is the risk that the fair value of an investment in Shariah-compliant quoted securities will fluctuate because of changes in market prices (other than those arising from interest rate risk). The value of Shariah-compliant quoted securities 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 Shariahcompliant quoted securities and other financial instruments within specified limits according to the Deeds. (ii) Interest rate risk Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. Interest rate is a general economic indicator that will have an impact on the management of the Fund. It does not in any way suggest that this Fund will invest in conventional financial instruments. All investment carried out for the Fund including placements and deposits are in accordance with Shariah. The Fund s exposure to fair value interest rate risk arises from Shariahcompliant deposits in licensed Islamic financial institutions. The interest rate risk is expected to be minimal as the Fund s investments comprise mainly Shariah-compliant short term deposits with approved licensed Islamic financial institutions. As at the end of each financial period, the Fund is not exposed to a material level of interest rate risk. The Fund is not exposed to cash flow interest rate risk as the Fund does not hold any financial instruments at variable interest rate. 22

24 3. RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) CIMB ISLAMIC AL-AZZAM EQUITY FUND (b) Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligation resulting in financial loss to the Fund. 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 Shariah-compliant deposits in reputable licensed Islamic financial institutions. 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. For amount due from stockbrokers, the settlement terms are governed by the relevant rules and regulations as prescribed by respective stock exchanges. The credit risk is minimal as all transactions in Shariah-compliant quoted securities are settled/paid upon delivery using approved stockbrokers. (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, Shariah-compliant deposits with licensed Islamic financial institutions and other instruments, which are capable of being converted into cash within 7 business days. Generally, all investments are subject to a certain degree of liquidity risk depending on the nature of the investment instruments, market, sector and other factors. For the purpose of the Fund, the Manager will attempt to balance the entire portfolio by investing in a mix of assets with satisfactory trading volume and those that occasionally could encounter poor liquidity. This is expected to reduce the risks for the entire portfolio without limiting the Fund s growth potentials. (d) 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. 23

25 3. RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) CIMB ISLAMIC AL-AZZAM EQUITY FUND (d) Fair value estimation (continued) Fair value hierarchy (i) The table below analyses financial instruments carried at fair value. The different levels have been defined as follows: Quoted prices (unadjusted) in active market for identical assets or liabilities (Level 1) Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2) Inputs for the asset and liability that are not based on observable market data (that is, unobservable inputs) (Level 3) The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability. The determination of what constitutes observable requires significant judgment by the Fund. The Fund considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. Level 1 Level 2 Level 3 Total RM RM RM RM Financial assets at fair value through profit or loss: - Shariahcompliant quoted securities 24,715, ,715,630 24