KAF TACTICAL FUND ANNUAL REPORT 31 AUGUST 2018

Transcription

1 KAF TACTICAL FUND ANNUAL REPORT 31 AUGUST 2018 KAF INVESTMENT FUNDS BERHAD ( K)

2 MANAGER S REPORT We are pleased to present the Manager s Report for the financial year ended 31 August 2018 (the period). 1. Launch Date KAF Tactical Fund (KTF) commenced operations on 2 September 2004 and will continue its operations until terminated according to the Master Deed dated 29 July 2004, Supplemental Master Deed dated 9 January 2014 and Second Supplemental Master Deed dated 12 March Type of Fund Growth Fund. 3. Category of Fund Equity Fund. 4. Fund s Objective, Benchmark and Distribution Policy KTF s investment objective is to provide unit holders with enhanced capital growth through a focused investment approach in certain preferred industry sectors at any given time. The Fund s strategic asset allocation is limited to a maximum 95% of its net asset value (NAV) in equities and a minimum 5% of NAV in liquid assets, either in cash or fixed-income securities. The benchmark used for the Fund is FTSE Bursa Malaysia EMAS Index (FBM EMAS). Income distribution (if any) is incidental. 5. Review of Fund Operations and Performance During the year under review, KTF realised a net gain amounting to 1.70 million from the disposal of shares, dividend income and interest income. As at the end of the financial year, the unrealised gain stood at 1.59 million. KTF s fund size decreased from million on 31 August 2017 to million on 31 August 2018 mainly due to the negative fund performance during the year under review, while its NAV per unit decreased to at the end of the year under review from at the end of the last financial year. 1

3 MANAGER S REPORT MANAGER S REPORT As at the end of the financial year, KTF has achieved a positive return of % since inception. The Fund underperformed to the FBM Emas Index which grew to % during the same period. The fund underperformed the benchmark during the period with a total negative return of 2.02% compared to the benchmark return of 0.87%. The underperformance during the period of review is mainly due to the higher exposure to the small cap space and underweighting of consumer staples due to lofty valuations. However, the Fund managed to achieve its overall investment objective. Performance Chart (Since end of initial offer period 22 September 2004 to 31 August 2018) Fund Performance as ranked by Lipper Asia Limited Mean of Industry s Equity Non- Islamic Fund KTF Category Period % Change Rank % Change 3 month 31/05/ /08/ / months 01/03/ /08/2018 (8.15) 62/71 (3.57) 1 year 31/08/ /08/2018 (2.02) 56/ years 31/08/ /08/ / years 30/08/ /08/ / Source: The Edge, 10 September 2018 issue, Edge-Lipper Fund Performance Table, an independent source. Past performance is not necessarily indicative of future performance. 6. Asset Allocation and Investment Strategies Employed Source: Novagni Analytics and Advisory Sdn Bhd, an independent source. Past performance is not necessarily indicative of future performance. Fund Performance against the Benchmark and Indices of the Bursa Malaysia Fund/Index 31/08/ /08/2018 Percentage Change (%) KTF (sen) (2.02) FBM Emas Index (benchmark) 12, , FBM-KLCI 1, , FBM Shariah Index 12, , During the period under review, KTF the equity exposure declined from 87.48% to 80.23%. The decline in equity exposure is due to portfolio rebalancing exercise as designated fund manager decided to realize gains on several of the investments and adopt a more cautious approach due to the heightened uncertainty resulting from trade tensions within the developed nations. Other than the investment strategy stated in the Master Prospectus dated 15 January 2017, Supplementary Master Prospectus dated 31 March 2017, Second Supplementary Master Prospectus dated 18 August 2017 and Third Supplementary Master Prospectus dated 12 October 2018, the designated Fund Manager has not employed any other investment strategy since the last reporting year. There were no significant changes in the Fund s state of affairs during the year. Also, there were no circumstances which could materially affect any interest of the unit holders. 2 3

4 MANAGER S REPORT MANAGER S REPORT Asset Allocation Asset Class Percentage of NAV as at 31/08/2017 (%) 31/08/2018 (%) Change in Exposure over Period (%) Equity (7.25) Liquid assets Portfolio of Investment and Other Assets as at 31 August 2018 fed funds target range to between 2.00% and 2.25%, signalling a continuation of its tightening. Furthermore, The European Central Bank (ECB) confirmed plans to phase out its asset purchases by end of The Malaysian Government Securities (MGS) benchmark 3-year, 5-year and 10-year yields closed at 3.48%, 3.70% and 4.04% from 3.36%, 3.56% and 3.89% respectively the previous period. US Treasury benchmark 2-year yield, 5-year and 10-year yield continue to increase during the period of review and closed at 2.63%, 2.74% and 2.86% from 1.33%, 1.72% and 2.15%. The Malaysian Ringgit appreciated against the US Dollars during this period closing at 4.11 from 4.27 previously. The Malaysian economy expanded 4.50% in the second quarter of 2018 moderating from 5.40% growth in the first quarter of The slowdown could be a result of the political transition following May s shock election result, with public sector investment contracting by 9.80% year-over-year (YOY). Furthermore, supply disruptions in agriculture and mining also contributed to the slowdown. Exports eased to a growth of 2.00% YoY from 3.70% in the previous quarter. 8. Market Outlook & Strategy 7. Equity Market Review During the period of review, FBM-KLCI and FBM EMAS registered gains of 2.62% and 0.87% however the FBM Small Cap index suffered losses of 13.70%. The Dow Jones Industrial Average, S&P 500 and NASDAQ gained 18.70%, 18.05% and 27.01% during the period of review. In addition to that, the MSCI World Index posted gains of 12.02% but the MSCI Emerging Markets Index registered losses of 2.77% during the period of review. Equity markets performed strongly at the start of the year before mounting tensions over trade and tariffs triggered a correction in February. The Monetary Policy Committee (MPC) met on the 5 th of September 2018 where Bank Negara has decided to maintain the Overnight Policy Rate (OPR) at 3.25% and a lower forecast for 2018 headline inflation to take into consideration the impact of recent policy measures on domestic cost factors. The Federal Reserve increased the The opposition party, Pakatan Harapan pulled off a shock victory in the 14th General Election as Barisan Nasional lost for the first time in 61 years. Over the long term, a return to meritocracy, dilution of racial based politics, reduction of wasteful government resources, proper structures for vital institutions (MACC, Election Commission, police, etc), check and balances in government, and various other such measures will provide a solid framework for the country to flourish and become the envy of the region. Including political maturity where Malaysia has demonstrated the ability to transition power in a peaceful manner means risk premium for Malaysia will fall, making Malaysian markets even more attractive. We maintain our positive outlook on the domestic equity markets and continue to reiterate our positive outlook on the oil & gas sector. 4 5

5 MANAGER S REPORT KEY PERFOANCE DATA 9. Analysis of Unit Holders Size of Holdings No. of Unit Holders No. of Units Held 5,000 and below 14,711 13,585,542 5,001 to 10, ,666,663 10,001 to 50, ,894,886 50,001 to 500, ,455, ,001 and above 11 64,060,035 Total 16, ,662,466 Note: The above is excluding the Manager s stock. 10. Policy on Stockbroking Rebates and Soft Commission The Securities Commission s (SC) guidelines states that a management company, a trustee or its delegate should not retain any rebate from, or otherwise share in any commission with any broker/dealer in consideration for directing dealings in a fund s property. Any rebate or shared commission should be directed to the account of the fund concerned. Hence, the Manager will credit all stockbroking rebates to KTF s account. The SC s guidelines further states that goods and services (soft commissions) provided by any broker/dealer may be retained by a management company or its delegate, but only if the goods and services are of demonstrable benefit to unit holders. During the financial year under review, the management company received soft commissions in the form of financial wire services and a stock quotation system incidental to the investment management of the Fund. As at 31 August Portfolio Composition (Percent of NAV) % % % Quoted Equities Construction & Building Materials Consumer Product Finance & Insurance Industrial Products Infrastructure Project Companies Plantation Properties Special Purpose Acquisition Company Technology Trading/Services Total Quoted Equities Liquid and Other Assets Total Total return for the year () Capital growth (1,278,566) 1,710,713 4,263,053 Income distribution 277,245 4,440,611 (1,912,597) Performance Income Capital Annual Total Return Return Return KTF Benchmark % % % % Financial year ended 31/08/ (2.02) (2.02) /08/ /08/ /08/ (30.25) (30.25) (15.54) 31/08/ Average Total Return KTF Benchmark % % One (1) year (2.02) 0.87 Three (3) years Five (5) years Note: Basis of calculation is in line with the compilation method used by Novagni Analytics and Advisory Sdn Bhd, an independent source. 6 7

6 KEY PERFOANCE DATA TRUSTEE S REPORT NAV and Units in Circulation As at 31 August Total NAV () 54,891,024 55,963,360 20,755,014 Units in circulation 109,698, ,563,100 51,253,100 NAV per unit () Unit Prices for the year ( per unit) NAV (year high) NAV (year low) NAV (year high, ex-distribution) Nil Nil Nil NAV (year low, ex-distribution) Nil Nil Nil NAV Distributions Nil Nil Nil Unit split Nil Nil Nil Management Expense Ratio (MER) 1.83% 1.99% 2.24% TO THE UNIT HOLDERS OF KAF TACTICAL FUND We, Universal Trustee (Malaysia) Berhad (the Trustee) being the Trustee of KAF Tactical Fund (KTF) are of the opinion that KAF Investment Funds Berhad (the Manager), acting in the capacity of Manager of KTF, have fulfilled their duties in the following manner for the financial year ended 31 August (a) KTF is being managed in accordance with the limitations imposed on the investment powers of the Manager and the Trustee under the Deed, Supplemental Deed, other provisions of the Deed, the Securities Commission s Guidelines on the Unit Trust Funds, the Capital Markets and Services Act 2007 and other applicable laws; (b) Valuation/pricing is carried out in accordance with the Deed and any regulatory requirements; and (c) Creation and cancellation of units are carried out in accordance with the Deed and any regulatory requirements. For and on behalf of the Trustee, Universal Trustee (Malaysia) Berhad Portfolio Turnover Ratio (PTR) 1.14 times 1.24 times 1.75 times Note: Management Expense Ratio (MER) is calculated by taking the total fees and recovered expenses incurred by the Fund divided by the average fund size. Portfolio Turnover Ratio (PTR) is calculated by taking the average of the acquisition and disposal of the Fund divided by the average fund size. Ong Tee Vann Chief Executive Officer Kuala Lumpur, Malaysia 23 October 2018 The MER for the year was lower as compared to last year due to increase in the average Net Asset Value (NAV) (refer to Note 13). The PTR for the year was lower at 1.14 times mainly due to increase in average NAV (refer to Note 14). Past performance is not necessarily indicative of future performance. Unit prices and investment returns may go down, as well as up. 8 9

7 STATEMENT BY THE MANAGER INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF KAF TACTICAL FUND We, Tan Sri Abu Talib Othman and Mohammed Reza Tan Sri Abu Talib, two of the Directors of KAF Investment Funds Berhad, do hereby state that, in the opinion of the Manager, the audited financial statements set out on pages 15 to 64 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 2018 and of its financial performance, changes in equity and cash flows of the Fund for the financial year ended on that date in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards. For and on behalf of the Manager KAF Investment Funds Berhad Tan Sri Abu Talib Othman Mohammed Reza Tan Sri Abu Talib Director Executive Director Kuala Lumpur, Malaysia 23 October 2018 TO THE UNIT HOLDERS OF KAF TACTICAL FUND REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS Our opinion In our opinion, the financial statements of KAF Tactical Fund ( the Fund ) give a true and fair view of the financial position of the Fund as at 31 August 2018, and of its financial performance and its cash flows for the financial year then ended in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards. What we have audited We have audited the financial statements of the Fund, which comprise the statement of financial position as at 31 August 2018, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the financial year then ended, and notes to the financial statements, including a summary of significant accounting policies, as set out on pages 15 to 64. Basis for opinion We conducted our audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditors responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence and other ethical responsibilities We are independent of the Fund in accordance with the By-Laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants ( By-Laws ) and the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants ( IESBA Code ), and we have fulfilled our other ethical responsibilities in accordance with the By-Laws and the IESBA Code

8 INDEPENDENT AUDITORS REPORT INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF KAF TACTICAL FUND REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONT D) Information other than the financial statements and auditors report thereon The Manager of the Fund are responsible for the other information. The other information comprises Manager s report but does not include the financial statements of the Fund and our auditors report thereon. Our opinion on the financial statements of the Fund does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements of the Fund, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements of the Fund or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Manager for the financial statements The Manager of the Fund is responsible for the preparation of the financial statements of the Fund that gives a true and fair view in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards. The Manager is also responsible for such internal controls as the Manager determines is necessary to enable the preparation of financial statements of the Fund that are free from material misstatement, whether due to fraud or error. In preparing the financial statements of the Fund, the Manager is responsible for assessing the Fund s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Manager either intends to liquidate the Fund or has no realistic alternative but to do so. TO THE UNIT HOLDERS OF KAF TACTICAL FUND REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONT D) Auditors responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements of the Fund as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with approved standards on auditing in Malaysia and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: (a) Identify and assess the risks of material misstatement of the financial statements of the Fund, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. (b) Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund s internal control. (c) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Manager

9 INDEPENDENT AUDITORS REPORT STATEMENT OF COMPREHENSIVE INCOME TO THE UNIT HOLDERS OF KAF TACTICAL FUND REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONT D) Auditors responsibilities for the audit of the financial statements (cont d) (d) Conclude on the appropriateness of the Manager s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Fund s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the financial statements of the Fund or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Fund to cease to continue as a going concern. (e) Evaluate the overall presentation, structure and content of the financial statements of the Fund, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with the Manager regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. OTHER MATTERS This report is made solely to the unit holders of the Fund and for no other purpose. We do not assume responsibility to any other person for the content of this report. Note INCOME Dividend income 1,266, ,918 Interest income from deposits with licensed financial institutions 234, ,804 Net (loss)/gain on financial assets at fair value through profit or loss 6 (1,082,679) 6,155, ,554 7,090,216 EXPENSES Manager s fee 3 (884,154) (515,557) Trustee s fee 4 (41,261) (24,060) Transaction costs (385,768) (291,680) Audit fee (5,500) (1,000) Tax agent s fee (5,400) (7,400) Other expenses (97,792) (99,195) (1,419,875) (938,892) NET (LOSS)/PROFIT BEFORE TAXATION (1,001,321) 6,151,324 TAXATION NET (LOSS)/PROFIT AFTER TAXATION AND TOTAL COMPREHENSIVE INCOME (1,001,321) 6,151,324 Net (loss)/profit after taxation is made up of the following: Realised amount 277,245 4,440,611 Unrealised amount (1,278,566) 1,710,713 (1,001,321) 6,151,324 PRICEWATERHOUSECOOPERS PLT LLP LCA & AF 1146 Chartered Accountants Kuala Lumpur 23 October 2018 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements

10 STATEMENT OF FINANCIAL POSITION AS AT 31 AUGUST 2018 STATEMENT OF CHANGES IN EQUITY Note ASSETS Cash and cash equivalents 7 8,401,640 8,691,932 Financial assets at fair value through profit or loss 6 44,031,436 48,943,088 Amount due from brokers 8 2,504,976 - Amount due from Manager - creation of units 80,604 - Dividend receivable - 116,250 TOTAL ASSETS 55,018,656 57,751,270 LIABILITIES Amount due to brokers 8-1,448,114 Amount due to Manager - Manager s fees 67,144 74,246 Amount due to Trustee 3,133 3,465 Amount due to Manager - cancellation of units - 200,229 Other payables and accruals 9 57,355 61,856 TOTAL LIABILITIES 127,632 1,787,910 NAV OF THE FUND 54,891,024 55,963,360 EQUITY Unit holders capital 41,977,699 42,048,714 Retained earnings 12,913,325 13,914,646 TOTAL NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 54,891,024 55,963,360 NUMBER OF UNITS IN CIRCULATION ,698, ,563,100 NAV PER UNIT Unit holders Retained capital earnings Total BALANCE AS AT 1 SEPTEMBER ,048,714 13,914,646 55,963,360 Movement in unit holders contribution: Creation of units arising from application 9,848,763-9,848,763 Cancellation of units (9,919,778) - (9,919,778) (71,015) - (71,015) Total comprehensive loss for the financial year - (1,001,321) (1,001,321) BALANCE AS AT 31 AUGUST ,977,699 12,913,325 54,891,024 BALANCE AS AT 1 SEPTEMBER ,991,692 7,763,322 20,755,014 Movement in unit holders contribution: Creation of units arising from application 31,853,600-31,853,600 Cancellation of units (2,796,578) - (2,796,578) 29,057,022-29,057,022 Total comprehensive income for the financial year - 6,151,324 6,151,324 BALANCE AS AT 31 AUGUST ,048,714 13,914,646 55,963,360 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements

11 STATEMENT OF CASH FLOWS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Note CASH FLOWS FROM OPERATING ACTIVITIES Proceeds from sale of investments 63,570,671 31,624,058 Purchase of investments (64,080,556) (53,090,044) Dividends received 1,382, ,669 Interest received 234, ,804 Manager s fee paid (891,257) (470,393) Trustee s fee paid (41,592) (21,952) Payment of other fees and expenses (113,194) (111,888) Net cash generated from/ (used in) operating activities 61,556 (21,244,746) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from creation of units 9,768,159 31,853,600 Payments for cancellation of units (10,120,007) (2,656,769) Net cash (used in)/ generated from financing activities (351,848) 29,196,831 NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (290,292) 7,952,085 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE FINANCIAL YEAR 8,691, ,847 CASH AND CASH EQUIVALENTS AT THE END OF THE FINANCIAL YEAR 7 8,401,640 8,691,932 ANALYSIS OF CASH AND CASH EQUIVALENTS Cash at bank 15, ,310 Deposits with licensed financial institutions 8,385,855 8,089, ,401,640 8,691,932 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. A The following accounting policies have been used in dealing with items which are considered material in relation to the financial statements. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS The financial statements have been prepared in accordance with the provision of the Malaysian Financial Reporting Standards ( MFRS ) and International Financial Reporting Standards ( IFRS ). The financial statement have been prepared under the historical cost convention, as modified by the revaluation of 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 contigent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported financial year. 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. Estimates and judgements 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 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 M

12 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (CONT D) A BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (CONT D) (i) The new standards, amendments and interpretations to published standards that have been adopted by the Fund for the first time for the financial year beginning on or after 1 September 2017 (ii) The new standards, amendments and interpretations to published standards which are relevant to the Fund but not yet effective and have not been early adopted are as follows: (cont d) Amendments to MFRS 107, Statement of Cash Flows Financial year beginning on/after 1 September 2018 (cont d) Amendments to MFRS 107, Statement of Cash Flows became effective for annual periods beginning on or after 1 January These amendments require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. Adoption of these amendments did not have a material impact on the Fund s financial statements. There are no other standards, amendments to standards or interpretations that are effective for annual periods beginning on 1 January 2017 that have a material effect on the financial statements of the Fund. MFRS 9 retains but simplifies the mixed measurement model in MFRS 139 and establishes three primary measurement categories for financial assets: amortised cost, fair value through profit or loss and fair value through other comprehensive income ( OCI ). The basis of classification depends on the entity s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments 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 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. (ii) The new standards, amendments and interpretations to published standards which are relevant to the Fund but not yet effective and have not been early adopted are as follows: Financial year beginning on/after 1 September 2018 MFRS 9 Financial Instruments (effective from 1 January 2018) will replace MFRS 139 Financial Instruments: Recognition and Measurement. 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. 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 other comprehensive income 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

13 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (CONT D) (ii) The new standards, amendments and interpretations to published standards which are relevant to the Fund but not yet effective and have not been early adopted are as follows: (cont d) Financial year beginning on/after 1 September 2018 (cont d) The Fund has reviewed its financial assets and liabilities and does not expect any impact from the adoption of the new standard on 1 September There will be no impact on the Fund s accounting for financial assets at the Fund s equity investments currently measured at fair value through profit or loss will continues to be measured on the same basis under MFRS 9. There will be no impact on the Fund s accounting for financial liabilities as the new requirements only affect the accounting for financial liabilities that are designated at fair value through profit or loss and the Fund does not have any such liabilities. The new impairment model requires the recognition of impairment provisions based on expected credit losses ( ECL ) rather than only incurred credit losses as is the case under MFRS 139. It applies to financial assets classified at amortised cost. Based on the assessments undertaken to date, the Fund does not expect any loss allowance to be recognised upon adoption of MFRS 9. Unless otherwise disclosed, the above standards, amendments to published standards and interpretations to existing standards are not anticipated to have any significant impact on the financial statements of the Fund in the year of initial application. B C D E INCOME RECOGNITION Dividend income is recognised on the ex-dividend date, when the right to receive the dividend has been established. Interest income earned from short-term deposits with licensed financial institution is recognised using the effective interest rate method on an accrual basis. Realised gains or losses on sale of investments are accounted for as the difference between the net disposal proceeds and the carrying amount of the investments, which is determined on a weighted average cost basis. 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 year in which it is approved by the Trustee. TAXATION Current tax expense is determined according to the Malaysian tax laws at the current rate based upon the taxable profits earned during the financial year. 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

14 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES F FINANCIAL ASSETS AND FINANCIAL LIABILITIES F FINANCIAL ASSETS AND FINANCIAL LIABILITIES (CONT D) (i) Classification (ii) Recognition and measurement (cont d) The Fund designates its investment in quoted securities as financial assets at fair value through profit or loss at inception. Financial liabilities are derecognised when it is extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or expired. Financial assets are designated at fair value through profit or loss when they are managed principally for the purpose of selling or repurchasing in the near term and their performance evaluated on a fair value basis. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and have been included in current assets. The Fund s loans and receivables comprise cash and cash equivalents, amount due from brokers and dividend receivable which are all due within 12 months. Financial liabilities are classified according to substance of the contractual arrangements entered into and the definitions of a financial liability. The Fund classifies amount due to brokers, amount due to Manager, amount due to Trustee and other payables and accruals as other financial liabilities. (ii) Recognition and measurement Regular purchases and sales of financial assets are recognised on the trade-date, the date on which the Fund commits to purchase or sell the asset. Investments are initially recognised at fair value. Transaction costs are expensed in the statement of comprehensive income. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Fund has transferred substantially all risks and rewards of ownership. Gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss category are presented in the statement of comprehensive income within net gain/(loss) on financial assets at fair value through profit or loss in the period in 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. In accordance to the Deed, quoted investments in Malaysia are valued at the last done market price quoted on the Bursa Malaysia Securities Berhad (Bursa Securities) at the date of the statement of financial position. Quoted investments outside Malaysia are valued at the market bid prices quoted of the respective stock exchanges as at the date of the statement of financial position. In circumstances where the last traded market 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. Deposits with licensed financial institutions are stated at cost plus accrued interest calculated using the effective interest method over the period from the date of placement to the date of maturity of the respective deposits. Loans and receivables and other financial liabilities are subsequently carried at amortised cost using the effective interest method

15 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES F FINANCIAL ASSETS AND FINANCIAL LIABILITIES (CONT D) G CASH AND CASH EQUIVALENTS (iii) Impairment for assets carried at amortised cost 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. H For the purpose of statement of cash flows, cash and cash equivalents comprise cash and bank balance and deposits held in highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. AMOUNT DUE FROM/(TO) BROKERS Amounts due from/(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. The amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest rate. The asset s carrying amount is reduced and the amount of the loss is recognised in profit or loss. If loans and receivables or a heldto-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Fund may measure impairment on the basis of an instrument s fair value using an observable market price. If, in a subsequent 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. 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 rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. 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

16 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES H AMOUNT DUE FROM/(TO) BROKERS (CONT D) K UNIT HOLDERS CAPITAL I 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. TRANSACTION COSTS The unit holders capital to the Fund meets the definition of puttable instruments classified as equity instruments under MFRS 132 Financial Instruments: Presentation. Those criteria include: the unit 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. 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. L The outstanding units are carried at the redemption amount that is payable at each financial year if the unit holder exercises the right to put the unit back to the Fund. SEGMENTAL INFOATION J CREATION AND CANCELLATION OF UNITS The Fund issues cancellable units, which are cancelled at the unit holder s option and are classified as equity. Cancellable units can be put back to the Fund at any time for cash equal to a proportionate share of the Fund s Net Asset Value ( NAV ). The outstanding units are carried at the redemption amount that is payable as at the date of the statement of financial position if the unit holder exercises the right to put the units back to the Fund. Operating segments are reported in a manner consistent with the internal reporting used by the chief operating decision-maker. The chief operating decisionmaker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as investment team of the Manager that makes strategic decisions for the Fund. Units are created and cancelled at the unit holder s option 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

17 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES M CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENT 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 contents 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 judgements 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. 1. THE FUND, THE MANAGER AND THEIR PRINCIPAL ACTIVITIES KAF Tactical Fund (hereinafter referred to as the Fund ) was constituted pursuant to a Deed dated 29 July 2004 (hereinafter referred to as the Deed ), between KAF Investment Funds Berhad ( the Manager ) and Universal Trustee (Malaysia) Berhad ( the Trustee ) as well as the subsequent issuance of the Supplemental Master Deed dated 9 January 2014 and Second Supplemental Master Deed dated 12 March The principal activity of the Fund is to invest in Permitted Investments as defined under schedule 7 of the Deed, which includes stocks and shares of companies quoted on Bursa Malaysia Securities Berhad (Bursa Malaysia) and short term investment. The Fund commenced operations on 2 September 2004 and will continue its operations until terminated according to the conditions in the Deed. All investment will be subject to Security Comission s ( SC ) Guidelines, the Deed, except where exemptions and variations have been approved by the SC, internal policies and procedures and the Fund s objective. The Manager, KAF Investment Funds Berhad, is incorporated in Malaysia. Its principal activities are the management of unit trust funds, provision of fund management and investment advisory services. The principal place of business of the Manager is located at Level 11, Chulan Tower, No.3, Jalan Conlay, Kuala Lumpur

18 2. FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES Financial instruments of the Fund as at the financial year end are as follows: Financial instruments Loans and at fair value receivables/ through profit or loss other financial liabilities Total 2018 Cash and cash equivalents - 8,401,640 8,401,640 Financial assets at fair value through profit and loss 44,031,436-44,031,436 Amount due from brokers - 2,504,976 2,504,976 Amount due to Manager - creation of units - 80,604 80,604 44,031,436 10,987,220 55,018,656 Amount due to Manager - Manager s fees - 67,144 67,144 Amount due to Trustee - 3,133 3,133 Other payables and accruals - 57,355 57, , , FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT D) Financial instruments of the Fund as at the financial year end are as follows: (cont d) Financial instruments Loans and at fair value receivables/ through profit or loss other financial liabilities Total 2017 Cash and cash equivalent - 8,691,932 8,691,932 Financial assets at fair value through profit and loss 48,943,088-48,943,088 Dividend receivable - 116, ,250 48,943,088 8,808,182 57,751,270 Amount due to brokers - 1,448,114 1,448,114 Amount due to Manager - Manager s fees - 74,246 74,246 Amount due to Trustee - 3,465 3,465 Amount due to Manager - cancellation of units - 200, ,229 Other payables and accruals - 61,856 61,856-1,787,910 1,787,

19 2. FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT D) The Fund is exposed to a variety of risks which include market risk (including price risk and interest rate risk), liquidity risk, credit risk and capital risk from its financial instruments. Financial risk management is carried out through internal control processes adopted by the Manager and adherence to the investment restrictions as stipulated in the Master Prospectus, Supplementary Master Prospectus, Second Supplementary Master Prospectus, Third Supplementary Master Prospectus and SC Guidelines on Unit Trust Funds. Market risk (a) Price risk The Fund is exposed to equity price risk because of investments held by the Fund and classified at fair value through profit or loss. Price risk is the risk that the fair value of an investment will fluctuate because of changes in market prices (other than those arising from interest rate risk). Such fluctuation may cause the Fund s NAV and price 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 securities and other financial instruments within specified limits according to the Deed. The table below shows the assets of the Fund as at 31 August which are exposed to price risk. 2. FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT D) Market risk (cont d) (a) Price risk (cont d) The following table summarises the sensitivity of the Fund s investments to price risk movements as at 31 August. The analysis is based on the assumptions that the market price increased and decreased by 5% (2017: 5%) with all other variables held constant and that fair value of the Fund s investments moved according to the historical correlation of the index. Disclosures below are shown in absolute terms, changes and impacts could be positive or negative. Impact Change on profit in before price tax/nav % 2018 Local equities designated at fair value through profit or loss 5 2,201, Local equities designated at fair value through profit or loss 5 2,447, Quoted investment Local equities designated at fair value through profit or loss 44,031,436 48,943,

20 2. FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT D) Market risk (cont d) (b) Interest rate risk Interest rate is the risk that the value of the Funds will fluctuate because of changes in market interest rates. The Fund s exposure to the interest rate risk is mainly confined to short-term deposits with licensed financial institutions. Interest rate risk is actively managed by duration targeting based on the interest rate outlook. The Manager overcomes the exposure to interest rate risk by way of maintaining deposits on a short-term basis. The effective weighted average interest rate of return per annum and the average remaining maturities of the deposits placements with licensed financial institutions as at the date of the statement of financial position is as follows: Weighted average interest rates Average remaining maturities % % Day Days Deposit with licensed financial institution Liquidity risk Liquidity risk is the risk that the Fund will encounter difficulties in meeting its financial obligations. The Manager manages this risk by maintaining sufficient level of liquid assets to meet anticipated payment and cancellations of unit by unit holders. Liquid assets comprise cash, deposits with licensed financial institutions and other instruments, which are capable of being converted into cash within 7 days. 2. FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT D) Liquidity risk (cont d) The table below analyses the Fund s financial liabilities into relevant maturity groupings based on the remaining period at the statement of financial position date to the contractual maturity date. The amounts in the table below are the contractual undiscounted cashflows. Between Less than 1 month 1 month to 1 year Total As at 31 August 2018 Amount due to Manager - Manager s fees 67,144-67,144 Amount due to Trustee 3,133-3,133 Other payables and accruals - 57,355 57,355 Contractual undiscounted cash outflows 70,277 57, ,632 As at 31 August 2017 Amount due to brokers 1,448,114-1,448,114 Amount due to Manager - Manager s fees 74,246-74,246 Amount due to Trustee 3,465-3,465 Amount due to Manager - cancellation of units 200, ,229 Other payables and accruals - 61,856 61,856 Contractual undiscounted cash outflows 1,726,054 61,856 1,787,