Franklin Malaysia Sukuk Fund

Transcription

1 Prospectus 18 November 2016 Franklin Malaysia Sukuk Fund Manager: Franklin Templeton GSC Asset Management Sdn. Bhd. (Company No M) Trustee: Deutsche Trustees Malaysia Bhd. (Company No H) The constitution date of the Franklin Malaysia Sukuk Fund is 18 November INVESTORS ARE ADVISED TO READ AND UNDERSTAND THE CONTENTS OF THE PROSPECTUS. IF IN DOUBT, PLEASE CONSULT A PROFESSIONAL ADVISER. FOR INFORMATION CONCERNING CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, SEE RISK FACTORS COMMENCING ON PAGE 12.

2 PROSPECTUS OF THE FRANKLIN MALAYSIA SUKUK FUND Manager Trustee : Franklin Templeton GSC Asset Management Sdn. Bhd. (Company No M) : Deutsche Trustees Malaysia Berhad (Company No H) This Prospectus is dated 18 November 2016 The constitution date of the Franklin Malaysia Sukuk Fund is 18 November 2015 INVESTORS ARE ADVISED TO READ AND UNDERSTAND THE CONTENTS OF THE PROSPECTUS. IF IN DOUBT, PLEASE CONSULT A PROFESSIONAL ADVISER. FOR INFORMATION CONCERNING CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, SEE RISK FACTORS COMMENCING ON PAGE 12.

3 Responsibility Statement This Prospectus has been reviewed and approved by the directors of Franklin Templeton GSC Asset Management Sdn. Bhd. and they collectively and individually accept full responsibility for the accuracy of the information contained in this Prospectus. Having made all reasonable enquiries, they confirm to the best of their knowledge and belief, that there are no false or misleading statements, or omission of other facts which would make any statement in this Prospectus false or misleading. Statements of Disclaimer The Securities Commission Malaysia has authorised the Franklin Malaysia Sukuk Fund and a copy of this Prospectus has been registered with the Securities Commission Malaysia. The authorisation of the Franklin Malaysia Sukuk Fund, and registration of this Prospectus, should not be taken to indicate that Securities Commission Malaysia recommends the Franklin Malaysia Sukuk Fund or assumes responsibility for the correctness of any statement made, opinion expressed or report contained in this Prospectus. The Securities Commission Malaysia is not liable for any non-disclosure on the part of Franklin Templeton GSC Asset Management Sdn. Bhd., the management company responsible for the Franklin Malaysia Sukuk Fund and takes no responsibility for the contents in this Prospectus. The Securities Commission Malaysia makes no representation on the accuracy or completeness of this Prospectus, and expressly disclaims any liability whatsoever arising from, or in reliance upon, the whole or any part of its contents. INVESTORS SHOULD RELY ON THEIR OWN EVALUATION TO ASSESS THE MERITS AND RISKS OF THE INVESTMENT. IF INVESTORS ARE UNABLE TO MAKE THEIR OWN EVALUATION, THEY ARE ADVISED TO CONSULT PROFESSIONAL ADVISERS. Additional Statements Investors should note that they may seek recourse under the Capital Markets and Services Act 2007 for breaches of securities laws including any statement in this Prospectus that is false, misleading, or from which there is a material omission or for any misleading or deceptive act in relation to this Prospectus or the conduct of any other person in relation to the Franklin Malaysia Sukuk Fund. The Franklin Malaysia Sukuk Fund has been certified as Shariah-compliant by the Shariah adviser appointed for the Franklin Malaysia Sukuk Fund. This Prospectus is not intended to and will not be issued and distributed in any country or jurisdiction other than in Malaysia ( Foreign Jurisdiction ). Consequently, no representation has been and will be made as to its compliance with the laws of any Foreign Jurisdiction. Accordingly, no offer or invitation to subscribe or purchase Units of the Fund to which this Prospectus relates, may be made in any Foreign Jurisdiction or under any circumstances where such action is unauthorised. The Fund is not registered in the United States of America under the Investment Company Act of The Units of the Fund have not been registered in the United States of America under the Securities Act of The Units of the Fund made available under this Prospectus may not be directly or indirectly offered or sold in the United States of America or any of its territories or possessions or areas subject to its jurisdiction or to or for the benefit of nationals or residents thereof, unless pursuant to an exemption from registration requirements available under the U.S. law, any applicable statute, rule or interpretation. i

4 The term U.S. Person and U.S. Persons shall mean any person that is a United States person within the meaning of Regulation S under the United States Securities Act of 1933 or as defined by the U.S. Commodity Futures Trading Commission for this purpose, as the definition of such term may be changed from time to time by legislation, rules, regulations or judicial or administrative agency interpretations. U.S. Persons are not eligible to invest in the Fund. Prospective investors shall be required to declare that they are not a U.S. Person and are not applying for Units on behalf of any U.S. Person. Franklin Templeton GSC Asset Management Sdn. Bhd. has the right to reject any application for Units if it has reasonable grounds to believe that any applicant is a U.S. Person or if any applicant is seeking to purchase Units on behalf of a U.S. Person. In the absence of written notice to Franklin Templeton GSC Asset Management Sdn. Bhd. to the contrary, if a potential investor provide a non-u.s. address on the application form for investment in the Fund, this will be deemed to be representation and warranty from such investor that he/she/it is not a U.S. Person and that such investor will continue to be a non- U.S. Person so long as such investor holds any Units of the Fund. The Manager and/or its delegates will restrict or prevent the ownership of Units by any U.S. Person and/or any person, firm or corporate body if in the opinion of the Manager and/or its delegates, such holding may be detrimental to the Fund, Unit Holders, the Manager and/or its delegates or may result in a breach of any applicable law or regulations whether in Malaysia or in a foreign jurisdiction or may expose the Fund or the Unit Holders to liabilities (to include, inter alia, regulatory or tax liabilities and any other tax liabilities that might derive, inter alia, from any breach of FATCA requirements) or any other disadvantages that it or they would not have otherwise incurred or been exposed to. Such persons, firms or corporate bodies (including U.S. Persons and/or persons in breach of FATCA requirements) are herein referred to as "Prohibited Persons". More specifically, the Manager shall have the power to impose such restrictions as it may think necessary for the purpose of ensuring that no Units are acquired or held directly or beneficially by any Prohibited Person and may: 1) decline to issue any Units and decline to register any transfer of Units, where it appears to it that such issuance or transfer would or might result in beneficial ownership of such Units by a Prohibited Person; 2) at any time, require any person whose name is entered in, or any person seeking to transfer Units on, the register of Unit Holders to furnish it with any representations and warranties or any information, supported by affidavit, which it may consider necessary for the purpose of determining whether or not, to what extent and under which circumstances, beneficial ownership of such Units held by the Unit Holders rests or will rest in a Prohibited Person, or whether the transfer of Units will result in beneficial ownership of such Units by a Prohibited Person; 3) where it appears to the Manager that any Prohibited Person, either alone or in conjunction with any other person, is a beneficial owner of Units or is in breach of its representations and warranties or fails to make such representations and warranties in a timely manner as the Manager may require, compulsorily repurchase from any such Unit Holder all or part of the Units held by such Unit Holder; and 4) decline to accept the vote of any Prohibited Person at any meeting of Unit Holders of the Fund. ii

5 The Fund is not registered in any provincial or territorial jurisdiction in Canada and Units of the Fund have not been qualified for sale in any Canadian jurisdiction under applicable securities laws. The Units made available under this Prospectus may not be directly or indirectly offered or sold in any provincial or territorial jurisdiction in Canada or to or for the benefit of residents thereof, unless such Canadian resident is, and will remain at all times during their investment, a permitted client as that term is defined in Canadian securities legislation. Prospective investors may be required to declare that they are not a Canadian resident and are not applying for Units on behalf of any Canadian resident. If an investor becomes a Canadian resident after purchasing Units of the Fund, the investor will not be able to purchase any additional Units of the Fund. Automatic Exchange of Account Information On 27 January 2016, Malaysia signed the Multilateral Competent Authority Agreement ( MCAA ) on the implementation of global standard for automatic exchange of financial account information. By signing the MCAA, Malaysia has agreed to implement regulations to enable the adoption of automatic exchange of information with other signatory countries. The first exchange of information is anticipated to take place in year 2018 in relation to accounts held in year Investors are hereby notified that the Manager may be required under Malaysian laws and regulations to report details of specified accounts of a Unit Holder who is a resident in other MCAA signatory jurisdictions. The Malaysian tax authorities may share such account data in accordance with the MCAA with the tax authorities of other MCAA signatory jurisdictions where the Unit Holder is a tax resident. The information which may be reported includes the reportable person or entity s name, address, tax identification number, date and place of birth (for an individual), account balance and the total gross proceeds pair or credited to the account during the relevant reporting period. If and when requested by the Manager or its delegate, in order to meet its obligations under future Malaysian law adopting the MCAA, Unit Holders must provide certification of their tax residence and status to the Manager. Notice on Personal Data Protection For the purposes of the notice below, the term personal data shall have the same meaning prescribed in the Personal Data Protection Act 2010 ( the PDPA ) and the term processed shall have the same meaning as processing as prescribed in the PDPA. All personal data of investors contained in the investment application form and all and any further personal data collected in the course of the business relationship with the Manager may be processed by the Manager or its delegates and other related companies of the Manager, including those established outside Malaysia, the Trustee or its delegates and any other intermediaries related to the Fund. Such data shall be processed for the purposes of account administration, development of business relationships, anti-money laundering requirements and counter-terrorist financing identification, tax identification (including for the purpose of compliance with FATCA or similar laws and regulations), processing of transaction(s) and/or any other general business purposes (including direct marketing and promotion of the Manager s other products and services unless the Manager has been informed by the investor not to process his/her personal data for direct marketing and promotion) by the Manager. The investors have a right of access and of rectification of the personal data in cases where such data is incorrect or incomplete. Please refer to the investment application form for further details on the personal data protection requirements. iii

6 The Manager and/or its delegates, for the purpose of FATCA compliance, may be required to disclose personal data relating to U.S. Persons and/or non-participant Foreign Financial Institutions (as defined in FATCA) to the Malaysian tax authorities which may transfer them, if any, to the Internal Revenue Service in the United States of America. Data shall not be held for longer than necessary with regard to the purpose of the data processing, subject always to the applicable legal minimum retention periods. iv

7 TABLE OF CONTENTS 1. GLOSSARY CORPORATE DIRECTORY THE FUND FUND INFORMATION INVESTMENT OBJECTIVE INVESTMENT POLICY AND STRATEGY ASSET ALLOCATION PERFORMANCE BENCHMARK PERMITTED INVESTMENTS INVESTMENT RESTRICTIONS AND LIMITS DISTRIBUTION POLICY POLICY ON GEARING FOR THE FUND SHARIAH INVESTMENT GUIDELINES ADOPTED BY THE SHARIAH ADVISER RISK FACTORS GENERAL RISKS OF INVESTING IN THE FUND SPECIFIC RISKS OF INVESTING IN THE FUND RISK MANAGEMENT STRATEGIES FEES, CHARGES AND EXPENSES SALES CHARGE REDEMPTION CHARGE TRANSFER FEE SWITCHING FEE OTHER CHARGES ANNUAL MANAGEMENT FEE ANNUAL TRUSTEE FEE OTHER EXPENSES POLICY ON REBATES AND SOFT COMMISSIONS GOODS AND SERVICES TAX TRANSACTION INFORMATION COMPUTATION OF NAV AND NAV PER UNIT PRICING OF UNITS Bases for Valuation of the Assets of the Fund Valuation of the Fund Single Pricing Policy Incorrect Pricing Illustration on how Units are allocated Illustration on how redemption proceeds are calculated MINIMUM INITIAL INVESTMENT, MINIMUM ADDITIONAL INVESTMENT, MINIMUM HOLDING TO MAINTAIN ACCOUNT AND MINIMUM AMOUNT FOR REDEMPTION OF UNITS WHERE TO SUBSCRIBE AND REDEEM UNITS APPLICATION FOR UNITS v

8 6.6 REDEMPTION OF UNITS COOLING OFF SWITCHING OF UNITS TRANSFER OF UNITS MODE OF DISTRIBUTION UNCLAIMED MONEYS POLICY ANTI MONEY LAUNDERING POLICIES AND PROCEDURES HOLDING OF UNITS BY THE MANAGER SALIENT TERMS OF THE DEED YOUR RIGHTS AND LIABILITIES AS A UNIT HOLDER MAXIMUM FEES AND CHARGES PERMITTED PROCEDURES TO INCREASE THE DIRECT AND INDIRECT FEES AND CHARGES OTHER PERMITTED EXPENSES THAT MAY BE PAID OUT OF THE FUND RETIREMENT, REMOVAL AND REPLACEMENT OF THE MANAGER AND THE TRUSTEE TERMINATION OF THE FUND OR A CLASS OF UNITS PROVISIONS RELATING TO MEETINGS OF UNIT HOLDERS SUSPENSION OF DEALING IN UNITS THE MANAGER BACKGROUND INFORMATION ROLE OF THE MANAGER BOARD OF DIRECTORS MATERIAL LITIGATION INVESTMENT COMMITTEE MEMBERS FOR THE FUND THE DESIGNATED FUND MANAGER THE SHARIAH ADVISER Profile of the Shariah Adviser Roles and Responsibilities of Amanie as the Shariah Adviser Profile of the Shariah Team THE TRUSTEE ABOUT DEUTSCHE TRUSTEES MALAYSIA BERHAD EXPERIENCE IN TRUSTEE BUSINESS DUTIES AND RESPONSIBILITIES OF THE TRUSTEE TRUSTEE S DISCLOSURE OF MATERIAL LITIGATION TRUSTEE S DELEGATE DISCLOSURE ON RELATED PARTY TRANSACTIONS OR CONFLICT OF INTERESTS RELATED PARTY TRANSACTIONS AND CONFLICT OF INTERESTS ADDITIONAL INFORMATION AVENUE FOR ADVICE DEED AND SUPPLEMENTAL DEED (IF ANY) FINANCIAL YEAR END DOCUMENTS AVAILABLE FOR INSPECTION TAX ADVISERS LETTER APPROVALS AND CONDITIONS vi

9 1. GLOSSARY the Act or CMSA Authorised Distributor BNM Base Currency Business Day class(es) of Units Class A (MYR) Class I (MYR) Cooling-off Period Cooling-off Right CUTA Deed Emerging Market ETF FATCA : means the Capital Markets and Services Act 2007 as may be amended from time to time. : means any IUTA or CUTA that the Manager may appoint from time to time. : means Bank Negara Malaysia. : means the base currency of the Fund which is RM. : means a day (excluding Saturdays, Sundays and public holidays in Malaysia) on which banks in Kuala Lumpur are open for business. : means any class of Units representing similar interests in the assets of the Fund although a class of Units may have different features from another class of Units. : refers to the class of Units of the Fund which are denominated in RM, which is targeted at retail investors. : refers to the class of Units of the Fund which are denominated in RM, which is targeted at institutional investors. : means a period of six (6) Business Days from the date the application for purchase of Units from a Unit Holder, who is qualified for Cooling-off Rights, is received by the Manager. : means the right of a Unit Holder to obtain a refund of his investment in the Fund, if the request is made within the Cooling-off Period. This right is only given to an individual Unit Holder (other than a staff and agents of the Manager, and a person registered with a body approved by the SC to deal in unit trusts) who is investing in any fund managed by the Manager for the first time. : means a corporate unit trust adviser registered with the FIMM. : means the deed for the Fund dated 13 February 2015 entered into between the Manager and the Trustee, and any other supplemental deed that may be entered into between the Manager and the Trustee in respect of the Fund and registered with the SC from time to time. : means countries whose economy, stock market, political situation and regulatory framework are not fully developed. : means an exchange traded fund. : refers to Foreign Account Tax Compliance Act, United States of America. 1

10 FIMM : refers to Federation of Investment Managers Malaysia. financial institution : a) if the institution is in Malaysia: (i) licensed bank; (ii) licensed investment bank; or (iii) licensed Islamic bank; (b) if the institution is outside Malaysia, any institution that is licensed / registered / approved / authorized by the relevant banking regulator to provide financial services. forward pricing Fund Guidelines GST Initial Offer Period Initial Offer Price IOSCO IUTA Launch Date licensed bank licensed investment bank licensed Islamic bank long term : means the Selling Price and the Redemption Price is the NAV per Unit calculated at the next valuation point after an application for purchase or a redemption request, as the case may be, is received by the Manager. : means the Franklin Malaysia Sukuk Fund, which is a unit trust fund offered through this Prospectus. : means the Guidelines on Unit Trust Funds issued by the SC as may be revised, updated or amended from time to time. : means goods and services tax and includes any goods and services tax that is charged or levied in accordance with the Goods and Services Tax Act : in respect of a class of Units, means the period described as such for that class of Units in the Prospectus or supplemental or replacement prospectus (as the case may be) for the Fund; during this period, Units are created, cancelled, sold and redeemed at a fixed price per Unit; : in respect of a class of Units, means the fixed price at which Units are created, cancelled, sold and redeemed during the Initial Offer Period. : refers to International Organization of Securities Commissions. : means an institutional unit trust adviser registered with the FIMM. : means the date of the first prospectus of the Fund and is the date on which sale of Units of the Fund may first be made; the Launch Date is also the date of constitution of the Fund. : has the same meaning as prescribed under the Financial Services Act : has the same meaning as prescribed under the Financial Services Act : has the same meaning as prescribed under the Islamic Financial Services Act : means a period of more than 5 years. 2

11 MARC Manager or FTGSC Net Asset Value or NAV NAV per Unit Prospectus RAM Redemption Charge Redemption Price : refers to Malaysian Rating Corporation Berhad. : refers to Franklin Templeton GSC Asset Management Sdn. Bhd. : means the value of all the assets of the Fund less the value of all the liabilities of that Fund at a valuation point; solely for the purpose of computing the annual management fee and annual trustee fee, the NAV of the Fund is inclusive of the management fee and trustee fee for the relevant day; where the Fund has more than one class of Units, there shall be a Net Asset Value of the Fund attributable to each class of Units. : means the NAV of the Fund at a particular valuation point divided by the number of Units in circulation at the same valuation point; where the Fund has more than one class of Units, there shall be a Net Asset Value per Unit for each class of Units; the Net Asset Value per Unit of a class of Units at a particular valuation point shall be the Net Asset Value of the Fund attributable to that class of Units divided by the number of Units in circulation for that class of Units at the same valuation point. : means this document which is registered with the SC in relation to the Fund. refers to RAM Rating Services Berhad. : means a fee payable pursuant to a redemption request. : means the price at which Units will be redeemed by a Unit Holder pursuant to a redemption request. The Redemption Price is equivalent to the Initial Offer Price during the Initial Offer Period, and the NAV per Unit after the Initial Offer Period. As such, any Redemption Charge, if applicable, is excluded from the calculation of the Redemption Price. RM or MYR SACBNM : means Ringgit Malaysia, the official currency of Malaysia. : means the Shariah Advisory Council of Bank Negara Malaysia. SACSC : means the Shariah Advisory Council of the Securities Commission of Malaysia. Sales Charge SC Selling Price : means a fee payable pursuant to an application for purchase of Units. : means the Securities Commission Malaysia established under the Securities Commission Act : means the price at which Units will be sold to a Unit Holder pursuant to an application for purchase of Units. The Selling Price is equivalent to the Initial Offer Price during the 3

12 Initial Offer Period, and the NAV per Unit after the Initial Offer Period. As such, any Sales Charge, if applicable, is excluded from the calculation of the Selling Price. Shariah Shariah Adviser Shariah Principles or Shariah Requirements short term Special Resolution sukuk Trustee Unit(s) Unit Holder USD Zakat : means Islamic law comprising the whole body of rulings pertaining to human conduct which are embodied in the Qur an, the Sunnah of the Prophet Muhammad as well as the interpretations of the Muslim jurists. : refers to Amanie Advisors Sdn Bhd, the Shariah adviser of the Fund. : is a phrase or expression which generally means making sure that any conduct or activity must not contravene Shariah principles and that in performing that conduct or activity, all the essential elements as stipulated in the Shariah that make up the conduct or activity must be present and each essential element must meet all the necessary conditions as stipulated in the Shariah. : means a period of less than 2 years. : means a resolution passed at a meeting of Unit Holders duly convened in accordance with the Deed by a majority of not less than three-fourths of the Unit Holders present and voting at the meeting in person or by proxy; for the avoidance of doubt, threefourths of the Unit Holders present and voting in person or by proxy means three-fourths of the votes cast by the Unit Holders present and voting; for the purposes of winding-up the Fund or a class of Units, Special Resolution means a resolution passed at a meeting of Unit Holders duly convened in accordance with the Deed by a majority in number holding not less than threefourths of the value of the votes cast by the Unit Holders present and voting at the meeting in person or by proxy. : means Islamic fixed income securities that comply with Shariah and where the holder owns an undivided exposure over an underlying asset. : refers to Deutsche Trustees Malaysia Berhad, the trustee for the Fund. : means a measurement of the right or interest of a Unit Holder in the Fund; if the Fund has more than one class of Units, it means a Unit issued for each class of Units. : means a registered holder of a Unit or Units of the Fund including any jointholder whose name appears in the Manager s register of Unit Holders. : means United States dollars, the official currency of the United States of America. : an obligation under Shariah to pay a certain amount on wealth above a specified minimum for defined beneficiaries. 4

13 2. CORPORATE DIRECTORY THE MANAGER NAME : Franklin Templeton GSC Asset Management Sdn. Bhd. COMPANY NO. : M REGISTERED OFFICE : Suite 31-02, 31st Floor AND BUSINESS Menara Keck Seng OFFICE No. 203, Jalan Bukit Bintang Kuala Lumpur Malaysia TELEPHONE NO. : FAX NO. : WEBSITE ADDRESS : THE TRUSTEE NAME : Deutsche Trustees Malaysia Berhad COMPANY NO. : H REGISTERED OFFICE AND BUSINESS ADDRESS : Level 20, Menara IMC No. 8, Jalan Sultan Ismail Kuala Lumpur Malaysia TELEPHONE NO. : FAX NO. : THE SHARIAH ADVISER NAME : Amanie Advisors Sdn Bhd COMPANY NO. : H ADDRESS : Level 33, Menara Binjai No. 2, Jalan Binjai Off Jalan Ampang Kuala Lumpur Malaysia TELEPHONE NO. : FAX NO. : TAX ADVISERS NAME ADDRESS : Ernst & Young Tax Consultants Sdn. Bhd. ( K) : Level 23A, Menara Millenium Jalan Damanlela Pusat Bandar Damansara Kuala Lumpur Malaysia 5

14 3. THE FUND 3.1 FUND INFORMATION Name of the Fund Base Currency Fund Category Fund Type Franklin Malaysia Sukuk Fund RM Sukuk Growth and income 3.2 INVESTMENT OBJECTIVE The Fund seeks to maximise total investment return consisting of profit income* and capital gains in the long term through investments primarily in RM-denominated sukuk. *Distributions (if any) may be paid by cash or reinvested as additional Units of the Fund. Please refer to Section 6.10, Mode of Distribution for more information. Any material change to the Fund s investment objective will require the Unit Holders approval. 3.3 INVESTMENT POLICY AND STRATEGY The Fund seeks to achieve its objective by investing a minimum of 70% of its NAV in RMdenominated sukuk which are issued or guaranteed by governments, quasi-government entities and/or government related entities, or issued by corporate entities which are incorporated or domiciled anywhere in the world. The Fund may also invest up to 20% of its NAV in non RM-denominated Islamic Instruments such as non RM-denominated sukuk, Islamic commercial papers, Islamic negotiable instruments, short term Islamic money market instruments, Islamic deposits and/or any other fixed income investments which comply with the Shariah Principles which are issued or guaranteed by governments, quasi-government entities and/or government related entities, or issued by corporate entities incorporated or domiciled in the Asian region (which includes, without limitation, Singapore, Indonesia, China, Hong Kong, Japan and Brunei). The fund manager may also invest the NAV of the Fund in any other countries worldwide (where the regulatory authority of the countries in which the Fund invests is an ordinary or associate member of the IOSCO) if the fund manager sees a potential in the Islamic fixed income market in those countries. The Fund s maximum exposure to any single country other than Malaysia shall not exceed 15% of the Fund s NAV at the time of purchase. In addition, the Fund s investment in non RM-denominated Islamic Instruments may include non RMdenominated units of Shariah-compliant fixed-income collective investment schemes (including ETFs). The balance of the Fund s NAV not invested in RM-denominated sukuk and non RMdenominated Islamic Instruments will be invested in Other RM-denominated Islamic Instruments such as RM-denominated Islamic commercial papers, RM-denominated Islamic negotiable instruments issued or guaranteed by governments, quasi-government entities and/or government related entities, or issued by corporate entities which are incorporated or domiciled anywhere in the world and RM-denominated Islamic Liquid Assets such as short term Islamic money market instruments, Islamic deposits and/or cash. At least 2% of the Fund s NAV will comprise of RM-denominated Islamic Liquid Assets, for purposes of 6

15 (including but are not limited to) meeting redemption requests, meeting liquidity needs and/or defraying Fund expenses. The Manager may adopt temporary defensive strategies by lowering the Fund s exposure to RM-denominated sukuk below the stated minimum 70% of its NAV and by increasing the Fund s exposure to RM-denominated Islamic Liquid Assets in adverse market conditions or if the fund manager is of the view that investments in RMdenominated Islamic Liquid Assets during such period may offer more attractive investment opportunities compared to investments in sukuk. The fund manager targets to build a portfolio of RM-denominated and non RM-denominated instruments which, at the time of purchase, have a minimum credit rating of BBB3 by RAM or have an equivalent credit rating by MARC or any other recognised credit rating agency. If an instrument is not rated, it may be added to the portfolio of the Fund if, at the time of purchase, the issuer of the instrument has a minimum credit rating of BBB3 by RAM or has an equivalent credit rating by MARC or any other recognised credit rating agency. If an instrument and its issuer are both unrated, the instrument may be added to the portfolio of the Fund if, at the time of purchase, the instrument is assigned an internal rating which in the opinion of the Manager is the equivalent of (or higher than) BBB3 by RAM or an equivalent credit rating by MARC or any other recognised credit rating agency in accordance with its internal guidelines. If an instrument that the Fund invests in falls below the minimum credit rating stated above or goes into default, the Manager may either dispose of the instrument if the Manager is of the opinion that it is in the best interest of Unit Holders, or continue to hold on to the downgraded or defaulted instrument if the Manager is of the opinion that the immediate disposal of the instrument would not be in the best interest of Unit Holders. While foreign exchange is not expected to be a primary source of returns for the Fund, it may potentially generate some returns as the Fund may invest up to 20% of its NAV in non RMdenominated Islamic Instruments. On the other hand, the value of the Fund s investments in non RM-denominated Islamic Instruments may depreciate due to movements in the exchange rate between Ringgit Malaysia and the currency of the foreign countries that the Fund invests in. The performance and the NAV of the Fund may be adversely affected as a result of such currency loss. The Manager may also employ Shariah-compliant hedging instruments to reduce the Fund s exposure to foreign exchange fluctuations and for efficient portfolio management from time to time. The hedging tools that the Manager may utilise include, but are not limited to, Islamic foreign exchange forwards and profit rate swaps. The Manager s investment process uses a mix of bottom up, top down and quantitative approaches. 3.4 ASSET ALLOCATION The asset allocation of the Fund is as follows: A minimum of 70% of its NAV in RM-denominated sukuk; Up to 20% of its NAV in non RM-denominated Islamic Instruments; At least 2% of its NAV in RM-denominated Islamic Liquid Assets; and The balance of its NAV, not invested in RM-denominated sukuk, non RM-denominated Islamic Instruments or RM-denominated Islamic Liquid Assets, in Other RM-denominated Islamic Instruments; where: a. non RM-denominated Islamic Instruments include: i) non RM-denominated sukuk; 7

16 ii) non RM-denominated Islamic commercial papers; iii) non RM-denominated Islamic negotiable instruments; iv) non RM-denominated short term Islamic money market instruments; v) non RM-denominated Islamic deposits; vi) non RM-denominated units of Shariah-compliant fixed-income collective investment schemes including ETFs); and/or vii) any other non RM-denominated fixed income investments which comply with the Shariah Principles which are issued or guaranteed by governments, quasigovernment entities and/or government related entities, or issued by corporate entities which are incorporated or domiciled in the Asian region (which includes, without limitation, Singapore, Indonesia, China, Hong Kong, Japan and Brunei), or in any other countries worldwide (where the regulatory authority of the countries in which the Fund invests is an ordinary or associate member of the IOSCO) if the fund manager sees a potential in the Islamic fixed income market in those countries. b. RM-denominated Islamic Liquid Assets include RM-denominated short term Islamic money market instruments, Islamic deposits and/or cash; and c. Other RM-denominated Islamic Instruments include: i) RM-denominated Islamic commercial papers; ii) RM-denominated Islamic negotiable instruments; and/or iii) any other RM-denominated fixed income investments which comply with the Shariah Principles. 3.5 PERFORMANCE BENCHMARK Thomson Reuters Bond Pricing Agency Malaysia (BPAM) 3-7 year Sukuk Index. Source: Thomson Reuters RIC code TRBPAMALL3YI. Note: Please note that the risk profile of the Fund may be higher than the risk profile of the benchmark. 3.6 PERMITTED INVESTMENTS Unless otherwise prohibited by the relevant authorities or any relevant laws and provided always that there are no inconsistencies with the objective of the Fund, the Fund is permitted to invest in the following: 1. Sukuk and Islamic commercial papers which are issued or guaranteed by governments, quasi-government entities and/or government related entities; 2. Sukuk and Islamic commercial papers which are issued by corporate entities; 3. Islamic negotiable instruments and short term Islamic money market instruments issued by financial institutions; 4. Islamic deposits with financial institutions; 5. Units of Shariah-compliant fixed-income collective investment schemes; 6. Shariah-compliant derivatives and hedging instruments such as Islamic foreign exchange forwards and profit rate swaps; and 7. Any other form of Shariah-compliant investments as may be permitted by the SC and/or 8

17 the Shariah Adviser and as may be agreed between the Manager and the Trustee from time to time. 3.7 INVESTMENT RESTRICTIONS AND LIMITS The Fund will be managed in accordance with the following investment restrictions and limits: 1. The value of the Fund s investments in unlisted Shariah-compliant securities must not exceed 10% of the NAV of the Fund unless the investments are in sukuk traded on an organised over-the-counter (OTC) market. 2. The value of the Fund s placement in Islamic deposits with any single institution must not exceed 20% of the NAV of the Fund. 3. The aggregate value of the Fund s investments in transferable Shariah-compliant securities, Islamic money market instruments and Islamic deposits, issued by or placed with (as the case may be) any single issuer or institution must not exceed 25% of the NAV of the Fund. 4. The value of the Fund s investments in units or shares of any Shariah-compliant collective investment scheme must not exceed 20% of the NAV of the Fund. 5. The value of the Fund s investments in sukuk issued by any single issuer must not exceed 20% of the NAV of the Fund. The single issuer limit may be increased to 30% if the sukuk are rated by any domestic or global rating agency to be of the best quality and offer highest safety for timely payment of profit and principal. Where the single issuer limit is increased to 30%, the limit for the aggregate value of the Fund s investment as set out under item 3 above must not exceed 30% of the NAV of the Fund. 6. The value of the Fund s investments in sukuk issued by any one group of companies must not exceed 30% of the NAV of the Fund. 7. The Fund s investments in sukuk must not exceed 20% of the sukuk issued by any single issuer. 8. The Fund s investments in Islamic money market instruments must not exceed 10% of the instruments issued by any single issuer. Note: This limit does not apply to Islamic money market instruments that do not have a pre-determined issue size. 9. The Fund s investments in Shariah-compliant collective investment schemes must not exceed 25% of the units or shares in any one Shariah-compliant collective investment scheme. 10. Any other investments or restrictions imposed by the SC and/or the Shariah Adviser or pursuant to the Guidelines, or any laws and/or regulations applicable to the Fund. The above limits and restrictions shall be complied with at all times based on the most up-todate value of the Fund s investments. However, a 5% allowance in excess of any limit or restriction shall be permitted where the limit or restriction is breached through the appreciation or depreciation of the NAV of the Fund. The Manager should not make any further acquisitions when the relevant limit or restriction is breached and the Manager should, within a reasonable period of not more than 3 months from the date of the breach, take all necessary steps and actions to rectify the breach. All the restrictions and limits as stated above do not apply to Shariah-compliant instruments issued or guaranteed by the Malaysian government or Bank Negara Malaysia. 9

18 IN THE CASE OF BREACH OF REGULATORY RESTRICTIONS, WE SHALL TAKE ALL NECESSARY STEPS AND ACTIONS TO RECTIFY THE BREACH AS REQUIRED UNDER THE RELEVANT LAWS OR AS DIRECTED BY THE REGULATORS. IN THE CASE OF BREACH OF OTHER RESTRICTIONS SUCH AS RESTRICTIONS IMPOSED BY INTERNAL POLICIES, WE WILL TAKE STEPS AND ACTIONS TO RECTIFY THE BREACH WITHIN A REASONABLE PERIOD AS WE DEEM NECESSARY. 3.8 DISTRIBUTION POLICY Class A (MYR) Although the Deed provides that, subject to the availability of income, distribution is at least on a yearly basis, the Manager currently intends to distribute on a quarterly basis. Class I (MYR) Subject to the availability of income, distribution is at least on a yearly basis. Please refer to Section 6.10 for information regarding the mode of distribution. 3.9 POLICY ON GEARING FOR THE FUND The Fund is not permitted to seek cash financing or borrow other assets (including the borrowing of securities within the meaning of the Securities Borrowing and Lending Guidelines) in connection with its activities. However, the Fund may seek Shariah-compliant cash financing for the purpose of meeting redemption requests for Units and for short term bridging requirements. Such financings are subject to the following: the financing obtained by the Fund is only on a temporary basis and that borrowings are not persistent; the financing period should not exceed a month; the aggregate financing obligation of th e Fund should not exceed 10% of its NAV at the time the financing is obtained; and the Fund may only seek Shariah-compliant financing from financial institutions SHARIAH INVESTMENT GUIDELINES ADOPTED BY THE SHARIAH ADVISER Shariah Investment Guidelines Sukuk and Islamic Money Market Instruments The Shariah Adviser will verify the sukuk and/or Islamic money market instruments based on the data available at Bond Info Hub ( and Fully Automated System For Issuing/Tendering ( Any investments into non RM-denominated Islamic Instruments will be subject to the Shariah Adviser s approval. 10

19 Cleansing Process for the Fund Investment deemed non-shariah compliant by the Shariah Adviser This refers to non Shariah-compliant investment made by the Manager. The said investment will be disposed of or withdrawn with immediate effect. If the investment resulted in gain (through capital gain and/or profit), the gain is to be channelled to baitulmal or any other charitable bodies of the Manager s choice in consultation with the Shariah Adviser. If the disposal of the investment resulted in losses to the Fund, the losses are to be borne by the Manager. Zakat (tithe) for the Fund The Fund does not pay zakat on behalf of Muslim individuals and Islamic legal entities who are Unit Holders of the Fund. Thus, Unit Holders are advised to pay zakat on their own. The investment portfolio of the Fund comprises sukuk which have been classified as Shariahcompliant by the SACSC and Islamic fixed income instruments (other than sukuk) which have been classified as Shariah-compliant by the SACBNM. For sukuk not certified by the SACSC and Islamic fixed income instruments (other than sukuk) not certified by the SACBNM, the status of such instrument has been determined in accordance with the ruling issued by the Shariah Adviser. 11

20 4. RISK FACTORS This part of the Prospectus describes the general risks related to investing in the Fund, the specific risks related to investing in the Fund as well as the mitigating factors in relation to these risks. The Manager encourages Unit Holders to give careful consideration to the risks associated when investing in the Fund, and, accordingly to obtain independent financial and taxation advice before investing in the Fund. 4.1 GENERAL RISKS OF INVESTING IN THE FUND Below are some of the general risks which potential investors should be aware of when investing in the Fund: Fund management risk The performance of the Fund depends on the experience, knowledge and expertise of the management company for the Fund. Any error in the investment techniques and processes adopted by the management company may have an adverse impact on the Fund s performance. The Manager seeks to mitigate this risk by implementing a consistent and structured investment process, systematic operational procedures and processes along with stringent internal controls. There is also a risk that the Manager may not adhere to the investment mandate of the Fund. Although it is the intention of the Manager to adhere to the investment mandate of the Fund, there is a risk that the Manager may not be able to do that due to an oversight on the part of the Manager. This risk is mitigated by the Manager as follows: adherence to internal policies and procedures on investment limits and restrictions; monitoring by the Performance Analysis and Investment Risk (PAIR) and Global Investment Adviser Compliance (GIAC) teams; and regular reporting to the senior management team and the board of directors of the Manager and the investment committee for the Fund. Inflation risk Inflation rate risk is the risk of potential loss in the purchasing power of investment due to a general increase of consumer prices. Inflation erodes the nominal rate of return giving a lower real rate of return. Inflation is thus one of the major risks over the long term that could also impact the short term in the event of a sudden shock such as a spike in oil prices, resulting in uncertainty over the future value of investments. Investors are advised to take note that the Fund is not designed with the objective of matching the inflation rate of Malaysia. Market risk Market risk arises because of factors that affect the market overall, and particularly the market where the Fund will be focusing its investments. Factors such as economic growth, financial market conditions, political stability and the social environment are some examples of conditions that have an impact on businesses, which in turn may impact the market value of the investment of the Fund positively or negatively depending on how the market values of the underlying investments held in the portfolio of the Fund are impacted. Investors who purchase Units of the Fund may not get back the full amount that they have invested if the NAV per Unit of the Fund falls below the investors purchase price due to adverse price movements of the Fund s underlying investments. Operational risk This risk refers to the possibility of a breakdown in the Manager s internal controls and policies. The breakdown may be a result of human error (for instance the keying of wrong details), system failure (causing unnecessary downtime) or even fraud (where employees of the Manager collude with one another). Whilst this risk may not necessarily cause monetary loss to the Fund, it will most certainly cause inconvenience to Unit Holders. The Manager will regularly review its internal policies and system capability to mitigate the occurrence of this 12

21 risk. Additionally, the Manager maintains a strict segregation of duties to mitigate the occurrence of fraudulent practices amongst employees of the Manager. Performance risk The performance of the Fund depends on the Fund s investments. If the investments of the Fund do not perform in accordance with expectations, there will be a negative impact on the performance of the Fund. This is where the experience and expertise of the Manager is important as highlighted in the fund management risk write-up above. In view of the aforesaid, there is never a guarantee that investing in the Fund will produce the desired investment returns. Risk of non-compliance There is a risk that the Manager may not be able to observe the rules governing the Fund. It is the intention of the Manager to observe all rules governing the Fund at all times. However, both external factors (adverse market conditions, natural disasters or political instability) and internal factors (oversight by the fund manager, a lapse in the compliance function, or a clerical error) could impact the ability of the Manager to observe rules governing the Fund. Whilst non-compliance with the rules governing the Fund will not necessarily result in losses to the Fund, Unit Holders cannot discount the risk that losses may be suffered by the Fund if the non-compliance with the rules is sufficiently serious. 4.2 SPECIFIC RISKS OF INVESTING IN THE FUND Below are some of the specific risks when investing in the Fund; they may include, but are not limited to: Counterparty risk Counterparty risk is the risk to each party of a contract that the counterparty will fail to perform its contractual obligations and/or to respect its commitments under the term of such contract, whether due to insolvency, bankruptcy or other cause. When over-the-counter ( OTC ) or other bilateral contracts are entered into (inter alia, OTC derivatives, repurchase agreements, security lending, etc.), the Fund may find itself exposed to risks arising from the solvency of its counterparties and from their inability to respect the conditions of these contracts. Credit risk Credit risk, a fundamental risk relating to all sukuk as well as Islamic money market instruments, is the chance that an issuer will fail to make principal and/or profit payments when due. Issuers with higher credit risk typically offer higher yields for this added risk. Conversely, issuers with lower credit risk typically offer lower yields. Generally, sukuk issued by governments and Islamic money market instruments are considered to be the safer in terms of credit risk under normal market conditions, while corporate sukuk, especially those issued by companies with poorer credit ratings, have higher credit risk. Changes in the financial condition of an issuer, changes in economic and political conditions in general, or changes in economic and political conditions which may have specific effect on an issuer (particularly a sovereign or supranational issuer) are all factors that may have an adverse impact on an issuer s credit quality and the values of sukuk and Islamic money market instruments. Related to credit risk is the risk of downgrade by a rating agency. Rating agencies such as RAM, MARC, among others, provide ratings for a wide array of Shariah-compliant fixed income securities (corporate, sovereign, or supranational) based on their creditworthiness. The rating agencies may change their ratings from time to time due to financial, economic, political, or other factors, which, if the change represents a downgrade, can adversely impact the value of the affected sukuk or Islamic money market instruments. Currency risk The base currency of the Fund is Ringgit Malaysia. As the Fund may invest up to 20% of its NAV in non RM-denominated Islamic instruments, the Fund may have exposures to 13

22 currencies other than Ringgit Malaysia. Should Ringgit Malaysia strengthen against those currencies, the Fund s investments may be subject to currency loss in addition to any capital gains or losses, which will affect the NAV of the Fund. Similarly, should Ringgit Malaysia weaken against those currencies, the Fund s investments may see a currency gain in addition to any capital gain or losses, which will affect the NAV of the Fund. As a result, the performance of the Fund may be affected by movements in the exchange rate between Ringgit Malaysia and other currencies. The Manager may employ currency management strategies to reduce the Fund s exposure to currency risks. Currency management strategies may change the Fund s exposure to currency exchange rates and could result in losses to the Fund if the currencies that the Fund invests in do not perform as the Manager expects. In addition, currency management strategies, to the extent that they reduce the Fund s exposure to currency risks, may also reduce the Fund s ability to benefit from favourable changes in currency exchange rates. There is no assurance that the Manager s use of currency management strategies will benefit the Fund or that they will be, or can be, used at appropriate times due to potentially unfavourable market conditions. Furthermore, the market value of securities in a particular currency may fluctuate such that the notional amount of forward foreign currency contracts intended to hedge that market value exposure (typically done using rolling one month forwards) may no longer exactly correspond on a day-to-day basis, resulting in an imperfect hedge. Derivative risk A derivative is a financial instrument whose value is derived from the value of another asset. In Islamic finance, derivative instruments may only be used for (i) Islamic hedging purposes, (ii) reduction of cost and/or (iii) generation of additional capital or return with a level of risk which is consistent with the risk profile of the Fund, and not for speculation which, like gambling, is a prohibited (Haram) activity. Subject to the above and the Fund s investment policy and strategy, the Manager may engage, within the limits established by the investment restrictions and the Shariah Investment Guidelines (as set out in Section 3.10), in various portfolio strategies involving the use of Shariah-compliant derivative instruments in order to protect the Fund against market and currency risks. The use of derivative instruments and hedging transactions may or may not achieve its intended objective and involves specific risks, including the incurrence of transactions costs, the possibility of volatility or a leverage effect, counterparty risk, and liquidity risk, as is more fully described below. Performance and value of derivative instruments depend, at least in part, on the performance or value of the underlying asset. Derivative instruments involve cost, may be volatile, and may involve a small investment relative to the risk assumed (leverage effect). The successful use of derivative instruments may depend on the Manager s ability to predict market movements. Risks include delivery failure, default by the other party (counterparty risk) or the inability to close out a position because the trading market becomes illiquid. Some derivative instruments are particularly sensitive to changes in interest rates. OTC derivative instruments involve a higher degree of risk as OTC markets are less liquid and less regulated. The risk of loss to the Fund for a swap transaction on a net basis depends on which party is obliged to pay the net amount to the other party. If the counterparty is obliged to pay the net amount to the Fund, the risk of loss to the Fund is the loss of the entire amount that the Fund is entitled to receive should the counterparty default; if the Fund is obliged to pay the net amount, the Fund s risk of loss is limited to the net amount due. Emerging Market risk The investment of the Fund in sukuk and Islamic financial instruments issued by companies, governments, quasi-government entities and government related entities in different countries and denominated in different currencies involve certain risks. These risks are typically increased in Emerging Markets. Such risks, which can have adverse effects on portfolio 14