INVESTOR LETTER 1 MANAGER S REPORT 2-7

Transcription

1 CONTENTS PAGE(S) INVESTOR LETTER 1 MANAGER S REPORT 2-7 Fund objective and policy Performance Data Market review Fund performance Portfolio structure Market outlook Investment strategy Spread of unitholdings Soft commission and rebates STATEMENT BY MANAGER 8 TRUSTEE S REPORT 9 UNAUDITED STATEMENT OF COMPREHENSIVE INCOME 10 UNAUDITED STATEMENT OF FINANCIAL POSITION UNAUDITED STATEMENT OF CHANGES IN EQUITY UNAUDITED STATEMENT OF CASH FLOWS 15 NOTES TO THE FINANCIAL STATEMENTS DIRECTORY 41 LIST OF CIMB WEALTH ADVISORS BERHAD S OFFICES 42-44

2 INVESTOR LETTER Dear Valued Investors, In 2010, the Malaysian market exceeded almost everyone s expectations. We expected about a 15% return at the beginning of 2010, but the FTSE Bursa Malaysia 100 Index (FBM100) has jumped 19.4% over the course of the year. By the end of December, our conventional equity funds have showed an average return of %. In less than two years, the market has fully recovered from its low in March 2009, which was brought on by the global crisis. This is quite remarkable, considering that predictions about the rate of recovery at that time were quite dire. Investors, who stayed invested and continued to invest through the downturn, were rewarded with really good returns. We hope that with the experience of the Asian financial crisis and this most recent global financial crisis, investors have seen for themselves that markets do bounce back and it is not easy to predict the speed at which they can recover. We are cautiously optimistic for In light of the market having gone up two years in a row, our outlook for this year are returns in the low double digits. We expect the US economy to continue to recover, driven by consumer spending and corporate capital expenditures. The Federal Reserve s sustained purchases of bonds will continue to underpin the recovery. Events in Europe are expected to lead to volatility. At some point, we believe bond markets will force Portugal into accepting a bailout. We believe there is a chance that Spain will be bailed out as well. In Asia Pacific ex-japan, the concern is mainly over inflation and rising interest rates. In China, the recent hikes in bank reserve requirements to 18.5% will not be sufficient to tame inflation. Although higher food prices are currently the main source of inflation, there are signs that input prices are also rising. We expect China to hike interest rates by 1.25% next year. However, this hike is unlikely to derail the economy, especially if it is balanced with the rumored loan quota of Renminbi trillion. For Bursa Malaysia, conditions seem right for continued market appreciation. The implementation of the Economic Transformation Program (ETP) will lead to the roll out of large projects that will benefit the construction as well as oil and gas sectors, and closer ties with Singapore will benefit projects in the Iskandar Region all which could lead to a revival in corporate loans growth. We expect earnings growth in the mid-teens and price-to-earnings ratios (PERs) to re-rate to the long-term average of times. It s also been a busy year for us here at CIMB-Principal Asset Management Berhad ( CIMB- Principal ). We are happy to share that our total assets under management have grown 28% from RM billion to RM29.5 billion a clear sign of clients confidence. With 66 unit trust funds (23 are Shariah-compliant), including 6 wholesale funds and 2 exchange-traded funds (ETFs), the Company is also one of the largest institutional money managers. Institutional AUM rose 35.3% to RM18.0 billion in December last year, also made further inroads into the region, managing RM1.4 billion for regional clients. The stability of our senior management team, with an average tenure of 5.3 years, has endowed the CIMB-Principal with the flexibility to adapt strategically and innovatively to rapidlychanging circumstances in a competitive regional marketplace. 1 End December

3 MANAGER S REPORT What is the investment objective of the Fund? The investment objective of the Fund is to achieve medium to long-term capital appreciation by seeking to match the performance of the FTSE Bursa Malaysia KLCI Has the fund achieved its objective? For the period under review, the Fund is in line with its stated objectives as stated under the fund performance review. What are the fund investment policy and its strategy? The Fund is an index fund which aims to track the movement of the FTSE Bursa Malaysia KLCI. The Fund s indexing strategy is to hold a representative sample of the securities that make up its underlying index. Thus, the Fund normally invests at least 90% of its NAV in the index stocks representing 95%-98% of the index weights. As such, the Fund may invest up to 30 index stocks, being the representative index stocks of the FTSE Bursa Malaysia KLCI. The Fund may also utilize index futures to ensure it is fully invested at all times and to reduce transaction costs. The Fund s policies on investments were carried out in accordance with the Deed and it will continue its operations until terminated in accordance with the provisions of the Deed. Fund category/ type Equity / Index-tracking How long should you invest for? Recommended 3 to 5 years or more Indication of short-term risk (low, moderate, high) High When was the Fund launched? 8 June 2000 What was the size of the Fund as at 31 March 2011? RM39.16 million (37.51 million units) What is the fund s benchmark? FTSE Bursa Malaysia KLCI What is the fund distribution policy? Given its investment objective, the Fund is not expected to pay any distribution. What was the net income distribution for the period ended 31 March 2011? No distribution for the period ended 31 March

4 PERFORMANCE DATA Details of portfolio composition of the Fund for the last three financial periods are as follows: % % % Quoted Investments - Construction Consumer Finance Industrial Infrastructure project companies Plantations Trading/Services Technology Properties KLCI Futures Cash and Other Net Assets Performance details of the Fund for the last three financial periods are as follows: Net asset value (RM Million) Units in 31 March (Million) Net asset value per 31 March (RM)* Highest NAV per unit (RM) Lowest NAV per unit (RM) Total return (%) ^ (13.75) - Capital growth (%) (13.75) - Income distribution (%) Gross distribution per unit (sen) Net distribution per unit (sen) Date of distribution Management expense ratio (%) Portfolio turnover ratio (times) # Total Annualised Return % % - One Year^ Three Years^ Five Years^ Since inception * Ex-distribution (Launch date: 8 June 2000) ^ Source: Lipper # Portfolio turnover ratio was lower at 0.08 times in 2011 as compared to 0.31 times in During the 6 months under review ended 31 March 2011, the portfolio was relatively stable and there were little buying and selling activities. 3

5 PERFORMANCE DATA (CONTINUED) 6 Months to Years to Years to Years to Since Inception Annual total return (%) Source: Lipper 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 ended 31 March 2011 have been verified by Consulting Actuaries, Mercer Zainal Consulting Sdn Bhd (35090-H). FUND PERFORMANCE 6 Months to 31/03/11 1 Year to 31/03/11 3 years to 31/03/11 5 years to 31/03/11 Since Inception Income (%) Capital (%) Total Return (%) Benchmark (%) Average Total Return (%) During the six months under review, the total return of fund rose by 7.58%, outperforming the benchmark with increased by 5.58%. 4

6 Changes in Net Asset Value ( NAV ) % changes Net Asset Value ( NAV ) (RM Million) * (1.95) NAV/unit (RM) KLCI 1, , * NAV after distribution During the period under review, the Fund s NAV decreased by 1.95% to RM39.16million due to redemptions. There was a net redemption of 1.66 million units over the past 6 months, bringing the outstanding to 37.5 million units. For the six months ended 31 March 2011, the Fund gained 7.58%, outperforming the FBMKLCI, which rose 5.58%. In terms of ranking, the Fund for the 6-months and 12-months period is ranked 63 out of 128 funds (4 th quartile) and 26 out of 127 funds (2 nd quartile) During the six months under review, constant monitoring and adjustments were made to the Fund to reflect the changes to the index weightings of the FBMKLCI component stocks. This allows the Fund to maintain a low tracking error risk s relative to the benchmark index. The Fund s historical tracking error risk was relatively unchanged at 0.97% p.a. compared to 0.94% p.a. 6 months ago. Overall, the Fund has delivered the expected performance and achieved its objectives of tracking the FBMKLCI. 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 have been verified by Mercer Zainal Consulting Sdn Bhd, a Consulting Actuaries (35090-H). PORTFOLIO STRUCTURE Asset allocation (% of NAV) 31 March March 2010 Quoted investments Futures contracts Cash and other net assets TOTAL The Fund s equity exposure increased to 94.10% from 92.60% ; with the remaining exposure made up by 0.76% of futures at the end of the period under review. 5

7 PORTFOLIO STRUCTURE (CONTINUED) ASSET ALLOCATION Futures contracts 0.76% Cash and Other Net Assets 5.14% Quoted investments 94.10% Quoted investments Futures contracts Cash and Other Net Assets MARKET REVIEW & OUTLOOK Within ASEAN, Malaysia continued to be an oasis of stability in March. The markets continue to focus on the ETP and GTP rollout details as construction projects are being announced. Corporate profits are on track, with minimal revisions and far fewer surprises. Banks continue to raise cheap funding to bolster balance sheets to meet and exceed Basel III requirements. Politics continue to be background noise, but in increasing strident volume. The crescendo was reached last month on the release of another video allegedly implicating an opposition politician. Sarawak dissolved its state assembly, paving the way for the state elections to be held in mid-april. This is seen by markets as a barometer for public opinion going forward as the influx of new voter voting patterns can be valuable pointers for the next general elections strategy. There may be a knee-jerk reaction if the state election results are drastically different than the current results. Other than the Sarawak elections, there seems to be few other negative factors to drive markets down in the short term. We expect the Malaysian Market to remain flattish for the next 1 to 2 months as markets pause after the rebound in valuation. The Malaysian market PER is 14X, a 16% premium over the region. On a price-to-book calculation, the market looks fairly valued at 2.3X. However, if the ETP and GTP rollout is accelerated, we may see upward revisions to market ranges and a possible rally. For our portfolios, we remain fairly invested in the markets, paying careful attention to risk and volatility, and modifying these parameters through stock picking. 6

8 INVESTMENT STRATEGY The fund will continue to invest in a representative selection of FBMKLCI component stocks in similar weightings as the index. In addition, the fund will utilize index futures contracts to ensure that the fund is fully invested at all times. Constant monitoring and adjustments will be made to reflect changes to the index weightings. UNIT HOLDING STATISTICS Breakdown of unit holdings by size as at 31 March 2011 are as follows: No. of No. of units % of units Size of unit holding unit holders held held 5,000 and below 9, ,001 to 10, ,001 to 50, ,001 to 500, ,001 and above , REBATES AND SOFT COMMISSION Dealings on investments of the Fund through brokers or dealers will be on terms which are best available for the Fund. Any rebates from brokers or dealers will be directed to the account of the Fund. The Investment Manager may from time to time receive and retain soft commissions in the form of subscription for real-time services or advisory services that assist in the decision-making process relating to the Fund's investments from brokers or dealers. During the financial period under review, the management company did not receive any rebates and soft commissions from brokers or dealers. 7

9 STATEMENT BY MANAGER TO THE UNITHOLDERS OF CIMB-PRINCIPAL KLCI-LINKED FUND We, being the Director of CIMB Wealth Advisors Berhad, do hereby state that, in the opinion of the Manager, the accompanying unaudited financial statements set out on pages 10 to 40 are drawn up in accordance with the provisions of the Deed and give a true and fair view of the financial position of the Fund as at 31 March 2011 and of its financial performance, changes in net assets attributable to unitholders and cash flows for the financial year then ended in accordance with Financial Reporting Standards in Malaysia and the Securities Commission s Guidelines on Unit Trust Funds. For and on behalf of the Manager CIMB WEALTH ADVISORS BERHAD (Company No.: H) JOHN CAMPBELL TUPLING Chief Executive Officer/Director DATUK NORIPAH KAMSO Director Kuala Lumpur 31 May

10 TRUSTEE S REPORT TO THE UNITHOLDERS OF CIMB-PRINCIPAL KLCI-LINKED FUND We, Malaysian Trustees Berhad, being the Trustee of CIMB-Principal KLCI-Linked Fund ( the Fund ), are of the opinion that CIMB Wealth Advisors Berhad ( the Manager ), acting in the capacity of Manager of the Fund, have fulfilled their duties in the following manner for the financial period ended 31 March 2011: (a) (b) (c) the Fund is being managed in accordance with the limitations imposed on the investment powers of the Manager and the Trustee under the Deed, the Securities Commission s Guidelines on Unit Trust Funds, the Capital Markets and Services Act 2007 and other applicable laws during the financial period ended 31 March 2011; valuation/pricing is carried out in accordance with the Deed and any regulatory requirements; and creation and cancellation of units is carried out in accordance with the Deed and any regulatory requirements. For and on behalf of the Trustee MALAYSIAN TRUSTEES BERHAD TAY KOK LEONG General Manager Kuala Lumpur 31 May

11 UNAUDITED STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL PERIOD ENDED 31 MARCH 2011 CIMB-PRINCIPAL KLCI-LINKED FUND As restated Note RM RM NET INVESTMENT INCOME Dividend income 663, ,591 Interest income from deposits with licensed financial institutions 4 19,160 7,583 Net unrealised gain on financial assets at fair value through profit or loss 933,710 - Net realised gain/(loss) on sale of financial assets at fair value through profit or loss 1,417,693 1,137,527 3,034,084 1,284,701 EXPENSES Management fee 5 185, ,655 Trustee s fees 6 15,451 13,417 Transaction cost 25,767 - Audit fee 4,420 - Tax agent s fee 1,645 - Other expenses 14, , , ,915 NET PROFIT BEFORE TAXATION 2,787, ,786 TAXATION 7 (208,671) - NET PROFIT AFTER TAXATION REPRESENTING TOTAL COMPREHENSIVE INCOME FOR THE FOR THE FINANCIAL PERIOD 2,578, ,786 Net income/(loss) after taxation is made up as follows: Realised amount 1,644, ,786 Unrealised amount 933,710-2,578, ,786 The accompanying unaudited notes to the financial statements form an integral part of the financial statements. 10

12 UNAUDITED STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH As restated As restated Note RM RM RM INVESTMENTS Financial assets at fair value through profit or loss 8 36,859, Quoted investments 9-37,207,570 18,489,171 36,859,237 37,207,570 18,489,171 LIQUID ASSETS Deposits with licensed financial institutions 11 1,916, ,054 Bank balance in licensed bank 11 21, ,225 26,785 1,937, ,225 1,018,839 OTHER ASSETS Derivative assets 10 25, Amount due from futures broker 267, , ,428 Amount due from stockbrokers - 676,984 - Amount due from Manager 10,000 3, ,440 Dividends receivable 79, ,776 45,261 Interest receiveable 376 Tax recoverable 45, , , ,289 1,174, ,609 TOTAL ASSETS 39,224,957 38,527,578 20,407,619 LIABILITIES Amount due to stockbrokers - 88,755 - Amount due to Manager 7, ,650 16,634 Accrued management fee 31,147 31,499 16,449 Amount due to Trustee and custodian 2,623 2,520 2,503 Other payable and accruals 24,971 30,969 23,318 TOTAL LIABILITIES 66, ,393 58,904 NET ASSET VALUE OF THE FUND 12 39,158,878 38,214,185 20,348,715 11

13 UNAUDITED STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2011 (CONTINUED) Note 2011 RM 2010 As restated RM 2009 As restated RM Equity Unitholders capital (10,233,775) (7,610,685) (17,974,697) Retained earnings/ (accumulated losses) 49,392,653 36,586,897 33,376,876 Fair value reserve - 9,237,973 4,946,536 NET ASSET ATTRIBUTABLE TO UNITHOLDERS 39,158,878 38,214,185 20,348,715 Number of units in circulation 12 37,505,251 39,169,082 25,855,000 Net asset value per unit (RM) The accompanying unaudited notes to the financial statements form an integral part of the financial statements. 12

14 UNAUDITED STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL PERIOD ENDED 31 MARCH 2011 Note CIMB-PRINCIPAL KLCI-LINKED FUND Unitholders' Retained Fair value capital earnings reserve Total RM RM RM RM Balance as at 1 October 2010, as previously stated Prior year adjustment for adoption of amendments to FRS (a) (7,610,685) 36,586,897 9,237,973 38,214,185 Balance as at 1 October 2010, restated after adoption of amendments to FRS 132 (7,610,685) 36,586,897 9,237,973 38,214,185 Adjustment for adoption of FRS (b) - 9,237,973 (9,237,973) - Balance as at 1 October 2010, restated after adoption of FRS 139 (7,610,685) 45,824,870-38,214,185 Movement in unitholders' contribution: Creation of units from applications 12 4,406, ,406,305 Cancellation of units 12 (7,029,395) 989,221 - (6,040,174) Total comprehensive income for the financial year - 2,578,562-2,578,562 Balance as at 31 March 2011 (10,233,775) 49,392,653-39,158,878 The accompanying unaudited notes to the financial statements form an integral part of the financial statements. 13

15 UNAUDITED STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL PERIOD ENDED 31 MARCH 2011 (CONTINUED) Note Unitholders' capital Retained earnings Fair value reserve Total RM RM RM RM Balance as at 1 October 2009, as previously stated Prior year adjustment for adoption of amendments to FRS (a) (17,974,697) 33,376,876 4,946,536 20,348,715 Balance as at 1 October 2009, restated after adoption of amendments to FRS 132 (17,974,697) 33,376,876 4,946,536 20,348,715 Movement in unitholders' contribution: Creation of units from applications 12 22,902, ,902,550 Cancellation of units 12 (12,538,538) - - (12,538,538) Total comprehensive income for the financial year - 3,210,021-3,210,021 Change in fair value reserve - - 4,291,437 4,291,437 Balance as at 30 September 2010, restated (7,610,685) 36,586,897 9,237,973 38,214,185 The accompanying unaudited notes to the financial statements form an integral part of the financial statements. 14

16 UN AUDITED STATEMENT OF CASH FLOWS FOR THE FINANCIAL PERIOD ENDED 31 MARCH 2011 Note 2011 RM 2010 RM CASH FLOW FROM OPERATING ACTIVITIES Proceeds from sale of investments 5,737,617 10,564,657 Purchase of investments (2,653,142) (23,006,752) Dividends received 620, ,586 Interest income received from deposits with licensed financial institutions 17,161 30,018 Management fees paid (185,470) (349,684) Trustee s fees paid (15,348) (27,968) Payment for other fees and expenses (21,283) (38,153) Tax Refund 24,957 - Net cash outflow from operating activities 3,524,657 (11,891,296) CASH FLOW FROM FINANCING ACTIVITIES Cash proceeds from units created 4,400,038 23,413,257 Payments for cancellation of units (6,192,489) (12,395,522) Net cash inflow from financing activities (1,792,451) 11,017,735 Net (decrease)/increase in cash and cash equivalents 1,732,206 (873,561) Cash transferred from Margin Account 60,000 - Cash and cash equivalents at the beginning of the financial year 145,225 1,018,786 Cash and cash equivalents at the end of the financial year 11 1,937, ,225 The accompanying unaudited notes to the financial statements form an integral part of the financial statements. 15

17 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 31 MARCH THE FUND, THE MANAGER AND ITS PRINCIPAL ACTIVITY CIMB-Principal KLCI-Linked Fund ("the Fund") is governed by a Master Deed dated 30 November 2007, a First Supplemental Deed dated 25 June 2008, a Supplemental Master Deed dated 14 July 2008 and a Third Supplemental Deed dated 16 July 2009 (collectively referred to as "the Deeds"), made between, inter alia, CIMB Wealth Advisors Berhad (the Manager ) and Malaysian Trustees Berhad (the Trustee ). The Fund is an index fund which aims to track the movement of the FTSE Bursa Malaysia KLCI. The Fund s indexing strategy is to hold a representative sample of the securities that make up its underlying index. Futures contracts are used to allow the Fund to minimize risk of tracking error between the Fund and the benchmark index. All investments will be subjected to the Securities Commission s ( SC ) Guidelines on Unit Trust Funds, the Deed, 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-Principal Asset Management Berhad and regards CIMB Group Holdings Berhad as its ultimate holding company. Its principal activities are the management of unit trusts 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 under the historical cost convention in accordance with Financial Reporting Standards ( FRS ) in Malaysia and the SC Guidelines on Unit Trust Funds. The preparation of financial statements in conformity with the FRS 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 financial period. It also requires the Manager to exercise their judgement in the process of applying the Fund s accounting policies. Although these estimates and judgement are based on the Manager s best knowledge of current events and actions, actual results may differ. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in Note 2(n). 16

18 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CIMB-PRINCIPAL KLCI-LINKED FUND (a) Basis of preparation (continued) (i) Standards, amendments and interpretations to published standards that are applicable and effective FRS 8 "Operating Segments" (effective from 1 July 2009) replaces FRS Segment Reporting. The new standard requires a management approach, under which segment information is reported in a manner that is consistent with the internal reporting provided to the chief operating decision-maker. The improvement to FRS 8 (effective from 1 January 2010) clarifies that entities that do not provide information about segment assets to the chief operating decision-maker will no longer need to report this information. Prior year comparatives must be restated. FRS 7 Financial instruments: Disclosures (effective from 1 January 2010) provides information to users of financial statements about an entity s exposure to risks and how the entity manages those risks. The improvement to FRS 7 clarifies that entities must not present total interest income and expense as a net amount within finance costs on the face of the Income Statement. This standard does not have any impact on the classification and valuation of the Fund's financial statements. The revised FRS 101 Presentation of financial statements (effective from 1 January 2010) prohibits the presentation of items of income and expenses (that is, 'non-owner changes in equity') in the statement of changes in equity. 'Non-owner changes in equity' are to be presented separately from owner changes in equity. All non-owner changes in equity will be required to be shown in a performance statement, but entities can choose whether to present one performance statement (the statement of comprehensive income) or two statements (the income statement and statement of comprehensive income). Where entities restate or reclassify comparative information, they will be required to present a restated balance sheet as at the beginning comparative period in addition to the current requirement to present balance sheets at the end of the current period and comparative period. FRS 107 Statement of cash flows (effective from 1 January 2010) clarifies that only expenditure resulting in a recognised asset can be categorised as a cash flow from investing activities. FRS 110 Events after the balance sheet date (effective from 1 January 2010) reinforces existing guidance that a dividend declared after the reporting date is not a liability of an entity at that date given that there is no obligation at that time. FRS 118 Revenue (effective from 1 January 2010) provides more guidance when determining whether an entity is acting as a principal or as an agent. This standard does not have material impact on the classification and valuation of the Fund's financial statements. 17

19 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CIMB-PRINCIPAL KLCI-LINKED FUND (a) Basis of preparation (continued) (i) Standards, amendments and interpretations to published standards that are applicable and effective (continued) Amendment FRS 132 Financial Instruments: Presentation In the previous financial year, the Fund had classified its puttable instruments as liabilities in accordance with FRS 132, 'Financial instruments: Presentation'. However, the FRS 132 (amendment), 'Financial instruments: Presentation', and FRS 101 (amendment), 'Presentation of financial statements' - 'Puttable financial instruments and obligations arising on liquidation' (effective from 1 January 2010) (the 'amendment') requires puttable financial instruments that meet the definition of a financial liability to be classified as equity where certain strict criteria are met. Those criteria include: (i) the puttable instruments must entitle the holder to a pro-rata share of net assets; (ii) the puttable instruments must be the most subordinated class and that class's features must be identical; (iii) there must be no contractual obligations to deliver cash or another financial asset other than the obligation on the issuer to repurchase; and (iv) the total expected cash flows from the puttable instrument over its life must be based substantially on the profit or loss of the issuer. As a result, the prior year financial statements are restated from amounts previously reported to conform with the amendment. The amendment has been applied retrospectively. The effects as a result of adoption of the amendment on the statement of financial position for the prior periods are set out in Note 19(a). FRS 139 Financial Instruments: Recognition and Measurement In the previous financial year, unrealised gains or losses from the derivative financial instrument are recognised in the statement of financial position as receivables and payables while the corresponding effect are transferred to the fair value reserve included in the capital and reserves attributable to equity holders of the fund. However, the FRS 139 (new standard) Financial Instruments: Recognition and Measurement (effective 1 January 2010) (the standard ) requires the Fund to recognise all derivatives in its balance sheet as assets and shall measure them at fair value (except for a derivative that is linked to and that must be settled by delivery of an unquoted equity instrument whose fair value cannot be measured reliably) at the beginning of the financial period in which this standard is initially applied. The unrealised gains or losses transferred to the fair value reserve in the previous financial period shall be recognised as an adjustment of the balance of retained earnings at the beginning of the financial period in which this Standard is initially applied (other than for a derivative that is a designated hedging instrument). 18

20 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CIMB-PRINCIPAL KLCI-LINKED FUND (a) Basis of preparation (continued) (ii) Standards, amendments and interpretations to published standards that are applicable and effective (continued) FRS 139 Financial Instruments: Recognition and Measurement (continued) The effects as a result of adoption of the new standard on the opening balances of the statement of financial position at the beginning of the financial year are set out in Note 19(b). Amendments to FRS 7 "Financial instruments: Disclosures" and FRS 1 "First-time adoption of financial reporting standards" (effective from 1 January 2011) require enhanced disclosures about fair value measurement and liquidity risk. In particular, the amendment requires disclosure of fair value measurements by level of a fair value measurement hierarchy. The Fund will apply this standard when effective. The Fund has applied the transitional provision which exempts entities from disclosing the possible impact arising from the initial application of this amendment on the financial statements of the Fund. IC Interpretation 17 "Distribution of non-cash assets to owners" (effective from 1 July 2010) provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends. FRS 5 has also been amended to require that assets are classified as held for distribution only when they are available for distribution in their present condition and the distribution is highly probable. (b) Investments Investments are recorded at cost, which include transaction costs, and subsequently revalued to their fair values at the statement of financial position date. In accordance with the Deed, quoted investments in Malaysia are valued at the last done market price quoted on Bursa Malaysia Securities Berhad ( Bursa Securities ) at the date of the Statement of Assets and Liabilities. Investments in FTSE Bursa Malaysia KLCI ( FBM KLCI ) Futures are recorded at cost of the initial margin paid and subsequently adjusted for any changes arising from the marking to market value of the FBM KLCI Futures, until their disposal or expiry. If a valuation based on the market price does not represent the fair value of the 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 securities for a period exceeding 14 days, or such shorter period as agreed by the Trustee, then the 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. Unrealised gains or losses on revaluation are transferred to the fair value reserve included in net assets attributable to unitholders and are not distributable. 19

21 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CIMB-PRINCIPAL KLCI-LINKED FUND (c) Income recognition Dividend income is recognised on the ex-dividend date. Interest income is recognised on the accrual basis. Realised gain or loss on disposal of quoted investments is accounted for as the difference between the net disposal proceeds and the carrying amount of investments, determined on a weighted average cost basis. (d) Functional and presentation currency Items included in the financial statements of the Fund are measured using the currency of the primary economic environment in which the Fund operates (the functional currency ). The financial statements are presented in Ringgit Malaysia, which is the Fund s functional and presentation currency. (e) Creation and cancellation of units The Fund issues cancellable units, which are cancelled at the unitholder s option and are classified as equity. Cancellable units can be returned to the Fund at any time for cash equal to a proportionate share of the Fund s net asset value. The outstanding units are carried at the redemption amount that is payable at the statement of financial position date if the holder exercises the right to return the unit to the Fund. Units are created and cancelled at the unitholder s option at prices based on the Fund s net asset value per unit at the time of creation or cancellation. The Fund s net asset value per unit is calculated by dividing the net assets attributable to unitholders with the total number of outstanding units. (f) Cash and cash equivalents For the purpose of cash flow statement, cash and cash equivalents comprise cash and bank balances and deposits held in highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. (g) Taxation Current tax expense is determined according to Malaysian tax laws and includes all taxes based upon the taxable profits. Tax on dividend income from foreign quoted investments is based on the tax regime of the respective countries that the Fund is invested. (h) Finance cost Proposed distributions to unitholders are recognised in the statement of comprehensive income upon approval by the Board of Directors of the Manager. The distribution to the unitholders is recognised as finance cost in the statement of comprehensive income. 20

22 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CIMB-PRINCIPAL KLCI-LINKED FUND (i) Amount due from/to stockbrokers Amounts due from and to brokers represent receivables for securities sold and payables for securities purchased 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 interest method, less provision for impairment for amounts due from brokers. A provision for impairment of amounts due from brokers is established when there is objective evidence that the Fund will not be able to collect all amounts due from the relevant broker. Significant financial difficulties of the broker, probability that the broker will enter bankruptcy or financial reorganisation, and default in payments are considered indicators that the amount due from brokers 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 interest rate used to discount the future cash flows for the purpose of measuring the impairment loss. The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts throughout the expected life of the financial instrument, or, when appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Fund estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. (j) Proceeds and payments on creation and cancellation of units The net asset value per unit is computed for each dealing day. The price at which units are created or cancelled is calculated by reference to the net asset value per unit as at the close of business on the relevant dealing day. Units in the Fund are classified as financial liability in the statement of financial position and are stated at fair value representing the price at which unitholders can redeem the units from the Fund. (k) Segmental reporting A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographic segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments. Operating segments are reported in a manner consistent with the internal reporting used by the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Investment Committee of the Fund s manager that undertakes strategic decisions for the Fund. 21

23 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CIMB-PRINCIPAL KLCI-LINKED FUND (l) Financial instruments Financial instruments comprise financial assets and financial liabilities. Fair value is the amount at which a financial asset could be exchanged or a financial liability settled, between knowledgeable and willing parties in an arm s length transaction. The information presented herein represents the estimates of fair values as at the date of the statement of financial position. Financial instruments as at 31 March 2011 are as follows: Financial assets Financing and dividends at fair value through receivables profit or loss Total RM RM RM Financial assets at fair value through profit or loss (Note 8) - 36,859,237 36,859,237 Cash and cash equivalents (Note 10) 1,937,431-1,937,431 Amount due from stockbrokers - - Amount due from futures broker 267, ,198 Amount due from Manager 10,000-10,000 Dividend receivable 79,988-79,988 2,294,617 36,859,237 39,153,854 All current liabilities are financial liabilities which are carried at amortised cost. (m) Derivative financial instruments A derivative financial instrument is any contract that gives rise to both a financial asset of one enterprise and a financial liability or equity instrument of another enterprise. A financial asset is any asset that is cash, a contractual right to receive cash or another financial asset from another enterprise, a contractual right to exchange financial instruments with another enterprise under conditions that are potentially favourable, or an equity instrument of another enterprise. A financial liability is any liability that is a contractual obligation to deliver cash or another financial asset to another enterprise, or to exchange financial instruments with another enterprise under conditions that are potentially unfavourable. The Fund uses derivative financial instruments such as the FBM KLCI Futures contract to minimise the tracking error between the Fund and the benchmark index. It does not trade in derivative financial instruments. This derivative financial instrument is not recognised in the financial statements on inception. It is entered to allow the Fund to better track the KLCI s movement. Trading gains and losses on contracts are recognised in the statement of comprehensive income when settled. 22

24 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CIMB-PRINCIPAL KLCI-LINKED FUND (n) Critical accounting estimates and judgments in applying accounting policies The preparation of financial statements in conformity with FRS and the SC Guidelines on Unit Trust Funds requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the statement of financial position date, and the reported amounts of income and expenses during the reported financial period. Although these estimates are based on the Manager s best knowledge of current events and actions, actual results may differ from those estimates. Estimates and judgments are continually evaluated by the Manager and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results. 3. RISK MANAGEMENT OBJECTIVES AND POLICIES The investment objective of the Fund is to achieve medium to long-term capital appreciation by seeking to match the performance of the FTSE Bursa Malaysia KLCI. The investments strategy of the Fund is to invest up to a maximum of 99.5% of its net asset value in the index stocks representing 95%-98% of the index weights. As such, the Fund may invest up to 30 index stocks, being the representative index stocks of the FTSE Bursa Malaysia KLCI. The Fund is exposed to a variety of risks which include market risk, single issuer risk, interest rate risk, credit risk and liquidity risk arising from the financial instruments it holds. The risk management policies employed by the Fund to manage these risks are discussed below: (a) Market risk (i) Price risk Price risk is the risk that the fair value of an investment in quoted security will fluctuate because of changes in market prices (other than those arising from interest rate risk and currency risk). The value of securities may fluctuate according to the activities of individual companies, sector and overall political and economic conditions. Such fluctuation may cause the Fund's net asset value 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 portfolio diversification and selection of securities and other financial instruments within specified limits according to the Deed. At 31 March 2011, the Fund s overall exposures to price risk were as follows: 2011 RM Quoted securities designated at fair value through profit or loss 36,859,237 23

25 3. RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) CIMB-PRINCIPAL KLCI-LINKED FUND (a) Market risk (continued) (i) Price risk (continued) The table below summarises the sensitivity of the Fund s net asset value to movements in prices of quoted securities as at 28 February The analysis is based on the assumptions that the price of the quoted securities fluctuates by 5% with all other variables held constant. This represents management s best estimate of a reasonable possible shift in the quoted securities, having regard to the historical volatility of the prices. Market Impact on net % Change in price of value asset value quoted securities RM RM - 5% 35,016,275 (1,842,962) 0% 36,859,237-5% 38,702,199 1,842,962 (ii) Interest rate risk Interest rate risk is the risk that the value of the Fund s investments and its return will fluctuate because of changes in market interest rates. To manage exposure to interest rate risk, investments will be concentrated in investment grade issues by financial institutions and companies determined by the Manager. The Fund holds a limited amount cash and cash equivalents that expose the Fund to cash flow interest rate risk. The Fund s asset allocation strategy requires at least 0.5% of its net asset value in liquid assets Interest rate is a general economic indicator that will have an impact on the management of the Fund. The Fund s exposure to the interest rate risk is mainly confined to short term placements with financial institutions. The Manager overcomes the exposure by way of maintaining deposits on short term basis. As at 31 March 2011, the Fund is not exposed to a material level of interest rate risk (b) Single issuer risk Any major price fluctuation of a particular security invested by the Fund may affect the Fund's net asset value and thus the prices of units. The single issuer risk is managed by adhering to the investment limits as specified in the SC Guidelines on Unit Trust Funds. 24

26 3. RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) CIMB-PRINCIPAL KLCI-LINKED FUND (c) Credit risk Credit risk refers to the possibility that an issuer or a counterparty fails to make timely payments of profit, principals and proceeds from realisation of investments. Credit risk arises in on statement of financial position form such as placement of deposits, investments and amount due from brokers/leaders. The credit risk arising from placements of deposits in licensed financial institutions is managed by ensuring that the Fund will only place deposits in reputable licensed financial institutions. For amount due from stockbrokers, the settlement terms are governed by the relevant rules and regulations as prescribed by respective foreign stock exchanges. The settlement terms of the proceeds from the creation of units receivable from the Manager are governed by SC Guidelines on Unit Trust Funds. The credit/default risk is minimal as all transactions in quoted investments are settled/paid upon delivery using approved brokers. The following table sets out the credit risk concentration of the Fund as at 31 March 2011: As at Amount due Quoted investments KLCI Futures Cash balance and deposits from stockbroker / futures broker Dividends receivable Other assets Total RM RM RM RM RM RM RM Bank ,520-31,520 Construction 978, , ,663 Consumer Products 1,543, ,543,216 Finance 12,809,133 25,350 1,937, ,198 4,253-15,043,365 Industrial Products 1,987, ,646-2,018,238 Infrastructure Project Companies 2,392, ,400-2,402,660 Plantations 6,592, ,592,420 Trading Services 10,556, ,556,122 Others ,753 55,753 36,859,237 25,350 1,937, ,198 79,988 55,753 39,224,957 25

27 3. RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) CIMB-PRINCIPAL KLCI-LINKED FUND (d) Liquidity risk Liquidity risk arises when the Fund do not have sufficient funds to meet its financial obligations when they fall due. It arises when investments cannot be readily sold at or near its actual value without taking a significant discount, resulting in lower net asset value of the Fund. The Manager manages this risk by maintaining sufficient level of liquid assets to meet anticipated payments and cancellations of the units by unitholders. Liquid assets comprise cash, deposits with licensed financial institutions and other instruments, which are capable of being converted into cash within 7 days. The table below summarises the Fund s financial liabilities into relevant maturity groupings based on the remaining period as at the statement of financial position date to the contractual maturity date. The amounts in the table are the contractual undiscounted cash flows. Less than 1 month RM At 31 March 2011 Amount due to Manager 7,338 Accrued management Fee 31,147 Amount due to Trustee and custodian 2,623 Other payables and accruals 24,971 Contractual cash out flows 66, INTEREST INCOME RM RM Interest income from deposits with licensed financial institutions 17,537 6,910 Interest income from futures margin 1, ,160 7, MANAGEMENT FEE In accordance with Clause 18.1(c) of the Eighth Supplemental Deed dated 30 November 2007, the Manager is entitled to a maximum management fee of 1.50% (2010: 1.50%) per annum calculated daily based on the net asset value of the Fund. For the financial priod ended 31 March 2011, the management fee is recognised at a rate of 0.95% (2010: 0.95%) per annum. 26

28 6. TRUSTEE S FEE In accordance with Clause 18.2 of the Eighth Supplemental Deed dated 30 November 2007, the Trustee is entitled to a maximum fee of 0.08% (2010: 0.08%) per annum calculated daily based on the net asset value of the Fund. This fee, however may only be increased up to a maximum of 0.2% per annum subject to the management by the Manager and the Trustee. For the financial period ended 31 March 2011, the Trustee fee is recognised at a rate of 0.08% (2010: 0.08%) per annum. 7. TAXATION RM RM Current taxation: 208,671 - The numerical reconciliation between net profit taxation multiplied by the Malaysian statutory tax rate and tax expense of the Fund is as follows: RM RM Net profit before taxation 2,787, ,587 Taxation at Malaysian statutory rate of 25%% (2010: 25%) 696,808 89,397 Tax effects of: Income not subject to tax (75,080) (36,207) Net realised gain on sale of investments not subject to tax (581,409) (102,316) Expenses not deductible for tax purposes 6,287 6,461 Permitted expenses not deducted and not carried forward Restriction on tax deductible expenses for unit trust funds 44,086 42,329 Over provision in prior financial years 117,979 - Tax expense 208, FINANCIAL ASSETS FAIR VALUE THROUGH PROFIT OR LOSS 2011 RM Designated at fair value through profit or loss at inception - Quoted securities (Note (i)) 36,859,237 Net gain on financial assets at fair value through profit or loss - Realised 1,417,693 - Unrealised 933,710 2,351,403 27