CIMB ISLAMIC SUKUK FUND FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 AUGUST 2017

Transcription

1 FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 AUGUST 2017

2 CONTENTS PAGE(S) INVESTORS LETTER 1-2 MANAGER S REPORT 3-8 Fund Objective and Policy Performance Data Market Review Fund Performance Portfolio Structure Market Outlook Investment Strategy Unit Holdings Statistics Soft Commissions and Rebates STATEMENT BY MANAGER 9 TRUSTEE'S REPORT 10 SHARIAH ADVISER S REPORT 11 INDEPENDENT AUDITOR S REPORT STATEMENT OF COMPREHENSIVE INCOME 16 STATEMENT OF FINANCIAL POSITION 17 STATEMENT OF CHANGES IN EQUITY 18 STATEMENT OF CASH FLOWS 19 NOTES TO THE FINANCIAL STATEMENTS DIRECTORY 48 LIST OF CWA (an Agency force of CIMB-Principal) OFFICES 49-53

3 INVESTORS' LETTER Dear Valued Investors, Thank you for your continued support and for the confidence that you have placed in us. We are pleased to share that CIMB-Principal Asset Management Berhad ( CIMB-Principal ) Malaysia concluded the year with RM48 billion in Asset Under Management ( AUM ) and the CIMB-Principal s Group AUM has increased by 7.6% to RM67.6 billion, for 1-year period ending 31 December Our AUM for Private Retirement Scheme ( PRS ) business has increased by 27% year-on-year ( y-o-y ) to RM343 million as at 31 December We continue to achieve prestigious recognitions from The Edge Thomson Reuters Lipper Fund Awards: The Edge Thomson Reuters Lipper Malaysia Fund Awards 2017 Best Equity Global, 3 years & 5 years : CIMB-Principal Global Titans Fund Best Equity Asia Pacific Ex-Japan, 5 years : CIMB-Principal Asian Equity Fund Best Equity Asia Pacific Ex-Japan - Malaysia Islamic, 5 years : CIMB Islamic Asia Pacific Equity Fund Thomson Reuters Lipper Fund Award Global Islamic 2016 Best Equity Asia Pacific Ex-Japan (Islamic), 3 years : CIMB Islamic Asia Pacific Equity Fund These awards reflect our consistent fund performance, in tandem with our commitment to provide the best customer experience to you. CIMB-Principal was also awarded Fund House of the Year in Malaysia by AsianInvestor for its Asset Management Awards 2017, its second consecutive win and The Employees' Provident Fund ( EPF ) External Portfolio Managers Awards 2017 for the Best Global Bond Portfolio Manager. These industry recognitions reflect our success in scaling up our investment capabilities while building a solid track record and earning the trust of our clients over time. With effect from 30 June 2017, the Fund may opt to seek investment exposure via Shariah-compliant collective investment schemes that is in line with the Fund s objective, subject to the requirements of the Securities Commision ( SC ) Guidelines. For clarity purpose, the Fund s asset allocation into other permissible investments is restated, in which the Fund may invest up to 28% of its NAV in other permissible investments. As for the Fund s investment in Sukuk, the minimum credit rating (by Standard & Poor ( S&P ) or equivalent rating by Moody's or Fitch) has been changed from BBB to BBB-. In addition, there are 3 additional risk (i.e. Risks associated with investment in warrants, country risk and currency risk) disclosure under "Specific risks associated with the investment portfolio of the funds" section. With effect from 1 December 2017, the investment limit in Unrated Sukuk will be changed from 25% to 40%. 1

4 INVESTORS' LETTER (CONTINUED) Pursuant to the revised SC Guidelines on Unit Trust Funds dated 24 May 2017, we now have the right to withdraw all units held by you in the event we are of the opinion that such withdrawal is necessary to ensure that we comply with any relevant laws, regulations and guidelines. We will first notify you before making any such compulsory withdrawal of your units. Please refer to the Master Prospectus (Shariah-compliant Funds) dated 30 June 2017 for further details. Thank you. Yours faithfully, for CIMB-Principal Asset Management Berhad Munirah Khairuddin Chief Executive Officer/Executive Director 2

5 MANAGER S REPORT FUND OBJECTIVE AND POLICY What is the investment objective of the Fund? The investment objective of the Fund is to gain higher than average income over the medium to longterm by investing in a diversified portfolio consisting principally of Sukuk, certificates of deposit, shortterm money market instruments and other permissible investments under the Shariah principles. Has the Fund achieved its objective? For the financial year under review, the Fund is in line with its stated objective as stated under the Fund performance review. What are the Fund investment policy and principal investment strategy? A minimum of 70% and up to a maximum of 98% of the Fund s NAV may be invested in Sukuk carrying at least a BBB3 or P2 rating by RAM ratings ( RAM ) or equivalent rating by Malaysian Rating Corporation Berhad ( MARC ) or by local rating agency(ies) of the country of issuance; or BBB- by S&P or equivalent rating by Moody s or Fitch. The Fund may invest up to 40% of its NAV in Unrated Sukuk* and up to 28% of its NAV in other permissible investments. In line with its objective, the investment strategy and policy of the Fund is to invest in a diversified portfolio of Shariahcompliant fixed income securities consisting of Sukuk, aim to provide a steady stream of income from the profit of Sukuk. The Fund may also opt to seek investment exposure via Shariah-compliant Collective Investment Scheme that is in line with the Fund s objective, subject to the requirements of the SC Guidelines. The rest of the Fund is maintained in the form of Shariah-compliant liquid assets to meet any withdrawal payments to Unit holders. * With effective 1 December 2017, the investment limit in Unrated Sukuk will be changed from 25% to 40%. Fund category/type Sukuk/Income How long should you invest for? Recommended three (3) years or more Indication of short-term risk (low, moderate, high) Low When was the Fund launched? 8 October 2004 What was the size of the Fund as at 31 August 2017? RM million ( million units) What is the Fund s benchmark? Quantshop Government Investment Issues ( GII ) Medium Index Note: The Fund s benchmark is for performance comparison purpose only. Investors are cautioned that the risk profile of the Fund is higher than the benchmark. What is the Fund distribution policy? Distribution (if any) is expected to be distributed annually, depending on the performance of the Fund and at the Manager s discretion. What was the net income distribution for the financial year ended 31 August 2017? The Fund distributed a total net income of RM6.67 million to unit holders for the financial year ended 31 August As a result, the NAV per unit dropped from RM to RM on 26 April

6 PERFORMANCE DATA Details of portfolio composition of the Fund for the last three financial years are as follows: % % % Unquoted Sukuk Cash and other net assets Performance details of the Fund for the last three financial years are as follows: NAV (RM Million) Units in circulation (Million) NAV per unit (RM) Highest NAV per unit (RM) Lowest NAV per unit (RM) Total return (%) Capital growth (%) (1.80) 1.45 (1.72) - Income distribution (%) Management Expense Ratio ( MER ) (%) ^ Portfolio Turnover Ratio ("PTR ) (times) # ^ The Fund s MER decreased slightly from 1.11% to 1.10% due to increase in average NAV during financial year under review. # The Fund s PTR for the financial year under review was lower at 0.62 times as compared to 0.69 times. The lower PTR was due to the increase in average NAV during the financial year under review. Date of distribution Gross/Net distribution per unit (sen) % % % % % Annual total return (Launch date: 8 October 2004) Past performance is not necessarily indicative of future performance and that unit prices and investment returns may go down, as well as up. All performance figures for the financial year have been extracted from Lipper. 4

7 MARKET REVIEW (1 SEPTEMBER 2016 TO 31 AUGUST 2017) In September 2016, the GII yield curve saw mixed movement with the short end of the curve moved higher while the long end moved lower. However, the sovereign securities were sold off in the month of October 2016 along with the Malaysian Ringgit ( MYR ) due to better than expected of the US third quarter Gross Domestic Product ( GDP ) and hawkish Federal Open Market Committee ( FOMC ) minutes triggered a flight of capital as market participants increased bets that the US Federal Reserve (the Fed ) will hike the Fed Funds Rate in its next meeting. The GII along with the Malaysian Government Securities ( MGS ) were further sold off after the surprise win by Donald Trump in the US Presidential Election in November 2016 as investors continued to anticipate proposed policies/measures under the new Trump administration. At FOMC meeting in December 2016, as expected the Fed hiked the Fed Funds Rate by 25 basis points ( bps ) from a range of 0.25% and 0.50% to 0.50% and 0.75%. According to the dot plot, which is part of the FOMC s Summary of Economic Projections, the median FOMC member saw rates between 1.25% to 1.75% at the end of 2017, suggesting a three 25 bps rate hikes instead of two in 2017 and continue to project three quarter point hike in January 2017 started with the GII yield curve bull steepened during the month which was driven by local buying as investors took up position for the new year. Yields for the longer end of the curve moved higher due to the expected large supply of long-tenor issuances in the government securities 2017 auction calendar. As expected, the Fed hiked 25 bps to range of 0.75% and 1.00% in the March 2017 FOMC meeting. The Fed s Janet Yellen said the hike signals her view the economy is doing well. Though the dotplot forecast for interest rates by the Fed points to two more rate hikes this year, Yellen sought to ensure markets that the Fed has not decided on faster pace of tightening. She signaled the Fed can tolerate inflation temporarily overshooting the 2.0% target as it balances growth and monetary policy. Locally, Bank Negara Malaysia ( BNM ) released its 2016 annual report in March The Central Bank projected firm GDP growth of 4.3% to 4.8% this year. Meantime, it indicated benign inflation in 2015 and 2016 is giving way to greater cost pressures. BNM revised the headline Consumer Price Index ( CPI ) for 2017 upwards by 100 bps to accelerate to a range at 3.0% and 4.0% with expectations that inflation will moderate in the second half of In April 2017, improved sentiment was seen in the domestic sovereign market after five consecutive months of outflows. We saw rally in the short end of the curve driven by strong buying interest from local and some foreign investors following the announcement by BNM to allow flexibility on currency trading on the onshore market. During the month, BNM unveiled a four-prong measure to: 1) promote a fair and effective financial market; 2) improve liquidity in the bond market; 3) provide additional foreign exchange flexibility; and 4) strengthen the financial market infrastructure. Specifically, under the second prong to improve liquidity, the BNM allowed wider but regulated short-selling of Malaysian Government bonds to all resident entities. The GII yield curve shifted higher in June 2016 in tandem with the MGS curve driven by the hawkish comments by few central bankers which caused massive selling pressure in the global bond markets. The mild correction continued towards July 2017 as market players were cautious to the potential tightening of monetary policy by the developed markets. In August 2017, the GII yield curve bull steepened but at a smaller scale with yields traded lower for the 3-year to 15-year Malaysian GII, supported by the strong movement in MGS. Meanwhile, foreign ownership in local securities saw marginal decline for the month of August 2017 from RM billion in July 2017 to RM billion in August The fall in non-resident holdings was mainly due to the drop in GII holdings by RM3.19 billion and short-term bills by RM0.20 billion but was set-off by an increase in MGS holdings by RM2.09 billion. Percentage wise, total foreign holdings in MGS stood at 40.3% while foreign holdings in GII stood at 6.3% as of August

8 MARKET REVIEW (1 SEPTEMBER 2016 TO 31 AUGUST 2017) (CONTINUED) CIMB ISLAMIC SUKUK FUND Malaysia's economy grew at its fastest pace in two years in the first quarter of 2017 bolstered by strong domestic demand, a rise in manufacturing activity and higher exports. It was also the third consecutive quarter of growth and it also beat market expectations. GDP rose by 5.6% in the three months ended 31 March 2017 from a year earlier, according to BNM. During the period under review, BNM kept Overnight Policy Rate ( OPR ) stable at 3.00%. In its recent July 2017 meeting, BNM kept its OPR unchanged for the sixth consecutive time and showed little inclination to adjust its monetary policy despite the strong growth and higher inflation in the first quarter of The policy statement also continued to strike a neutral tone. BNM reiterated that headline inflation is poised to moderate from here. FUND PERFORMANCE 1 year to years to years to Since inception to % % % % Income Capital (1.80) (2.09) (1.12) Total Return Benchmark Average Total Return For the financial year under review, the Fund delivered a total return of 3.23% versus the benchmark Quantshop GII Medium Index return of 1.94%. 6

9 FUND PERFORMANCE (CONTINUED) Changes in NAV Changes % NAV (RM Million) NAV/Unit (RM) (1.81) The Fund s NAV increased by 79.72% from RM91.12 million to RM million as at 31 August 2017 mainly due fund injections. Meanwhile, NAV per unit decreased by 1.81% to RM during the financial year under review. The Fund ranked 10 th out of 35 funds in the second quartile of the Lipper s Islamic Sukuk category ranking for 1-year period and ranked 11 th out of 35 funds for 3- year period in the second quartile. Performance data represents the combined income and capital return as a result of holding units in the Fund for the specified length of time, based on NAV to NAV price. The performance data assumes that all earnings from the Fund are reinvested and are net of management and trustee fees. Past performance is not reflective of future performance and income distributions are not guaranteed. Unit prices and income distributions, if any, may fall and rise. All performance figures for the financial year have been extracted from Lipper. PORTFOLIO STRUCTURE Asset allocation (% of NAV) Unquoted Sukuk Cash and other net assets Total The Fund was 86.63% invested in unquoted Sukuk with 13.37% in cash and other net assets. Liquidity is maintained for the Fund to take advantage of primary issues as well as to facilitate any redemption. MARKET OUTLOOK* The combination of the Fed s decision to reduce its USD4.5 trillion balance sheet and European Central Bank ( ECB ) tapering its Quantitative Easing ( QE ) program could limit flows into the Emerging Markets ( EM ) and is vulnerable to outflows as we have seen over the past 2 months in the Malaysian market. However, significant outflows may be some time off as the Central Banks are expected to move slowly. Early indications are that some inflows had returned in August 2017 though this is believed to be primarily attributable to a relatively weaker US Dollars ( USD ). Locally, Malaysia s real GDP growth exceeds expectation after it recorded growth of 5.8% y-o-y in the second quarter of 2017 (first quarter of 2017: 5.6%), driven mainly by higher private consumption growth, which accelerated by 7.1% and strong external activities as exports and imports maintained its robust growth of 9.6% y-o-y and 10.7% y-o-y respectively. CPI growth in July 2017 fell further to 3.2% y-o-y from 3.6% y-o-y recorded in June The moderation was attributed mainly to the drop in transport prices which fell by 1.1% month-on-month ( m-o-m ), reflecting the pass-through impact of the lower energy prices. As such, we maintain our view that inflation to stay modest for the rest of the year despite a strong domestic demand and expect BNM to keep its OPR unchanged on 7 September 2017 and believe BNM will maintain status quo for the rest of the year. 7

10 MARKET OUTLOOK* (CONTINUED) Malaysia is expected to meet its targeted fiscal deficit of 3.0% of GDP for 2017 which will be credit neutral to rating agencies. The next Budget 2018 announcement in October 2017 will be crucial as further fiscal consolidation will have positive impact to the domestic bond market. *This market outlook does not constitute an offer, invitation, commitment, advice or recommendation to make a purchase of any investment. The information given in this article represents the views of CIMB-Principal or based on data obtained from sources believed to be reliable by CIMB-Principal. Whilst every care has been taken in preparing this, CIMB-Principal makes no guarantee, representation or warranty and is under no circumstances liable for any loss or damage caused by reliance on, any opinion, advice or statement made in this market outlook. INVESTMENT STRATEGY We maintain overweight on corporate Sukuk with focus on primary corporate issuances with higher yields for better yield pick up but remain selective on the credits as downgrades and defaults on credit market may be increasing in Meanwhile, we hold a tactical position in the government securities when the opportunity arises. UNIT HOLDINGS STATISTICS Breakdown of unit holdings by size as at 31 August 2017 are as follows: Size of unit holdings (units) No. of unit holders No. of units held % of units held (million) 5,000 and below 11, ,001-10, ,001-50, , , ,001 and above Total 12, SOFT COMMISSIONS AND REBATES CIMB-Principal Asset Management Berhad (the Manager ), and the Trustee (including their officers) will not retain any form of rebate or soft commission from, or otherwise share in any commission with, any broker in consideration for directing dealings in the investments of the Funds unless the soft commission received is retained in the form of goods and services such as financial wire services and stock quotations system incidental to investment management of the Funds. All dealings with brokers are executed on best available terms. During the financial year under review, the Manager and Trustee did not receive any rebates from the brokers or dealers but have retained soft commission in the form of goods and services such as financial wire services and stock quotations system incidental to investment management of the Funds. 8

11 STATEMENT BY MANAGER TO THE UNIT HOLDERS OF CIMB ISLAMIC SUKUK FUND We, being the Directors of CIMB-Principal Asset Management Berhad (the "Manager"), do hereby state that, in the opinion of the Manager, the accompanying audited financial statements set out on pages 15 to 46 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 2017 and of its financial performance, changes in equity and cash flows for the financial year then ended in accordance with the provisions of the Malaysian Financial Reporting Standards ("MFRS") and International Financial Reporting Standards ("IFRS"). For and on behalf of the Manager CIMB-Principal Asset Management Berhad (Company No.: K) MUNIRAH KHAIRUDDIN Chief Executive Officer/Executive Director ALEJANDRO ECHEGORRI Executive Director Kuala Lumpur 16 October

12 TRUSTEE S REPORT TO THE UNIT HOLDERS OF CIMB ISLAMIC SUKUK FUND We, AmanahRaya Trustees Berhad, have acted as Trustee of CIMB Islamic Sukuk Fund for the financial year ended 31 August In our opinion, CIMB-Principal Asset Management Berhad, (the Manager ), has operated and managed CIMB Islamic Sukuk Fund in accordance with the limitations imposed on the investment powers of the management company under the Deed, securities laws and the applicable Guidelines on Unit Trust Funds for the financial year then ended. We are also of the opinion that: a) valuation and pricing is carried out in accordance with the Deeds and any regulatory requirement; b) creation and cancellation of units are carried out in accordance with the Deeds and any regulatory requirement; and c) the distribution of income made by CIMB Islamic Sukuk Fund as declared by the Manager is appropriate and reflects the investment objective of CIMB Islamic Sukuk Fund. For and on behalf of the Trustee, AmanahRaya Trustees Berhad HABSAH BINTI BAKAR Chief Executive Officer Kuala Lumpur 11 October

13 SHARIAH ADVISER S REPORT TO THE UNIT HOLDERS OF CIMB ISLAMIC SUKUK FUND We have acted as the Shariah Adviser of CIMB Islamic Sukuk Fund (the Fund ) for the financial year ended 31 August Our responsibility is to ensure that the procedures and processes employed by CIMB-Principal Asset Management Berhad (the Manager ) are in accordance with Shariah and Shariah Investment Guidelines. In our opinion, the Manager has managed and administered the Fund in accordance with the Shariah Investment Guidelines of the Fund and complied with applicable guidelines, rulings or decisions issued by the Securities Commission Malaysia pertaining to Shariah matters for the financial year ended 31 August In addition, we also confirm that the investment portfolio of the Fund comprises securities which have been classified as Shariah-compliant by the Shariah Advisory Council of the Securities Commission Malaysia and, where applicable the Shariah Advisory Council of Bank Negara Malaysia. For investments other than the abovementioned, we have reviewed the same and are of the opinion that these investments were in accordance with the rulings of the Shariah Adviser and the Shariah Investment Guidelines of the Fund. This report is made solely to the unit holders of the Fund, as a body, and for no other purpose. We do not assume responsibility to any other person for the content of this report and we shall not be liable for any errors or non-disclosure on the part of the Manager. For and on behalf of Shariah Adviser CIMB Islamic Bank Berhad ASHRAF GOMMA ALI Group Head, Shariah & Governance/Designated Person Responsible for Shariah Advisory Kuala Lumpur 16 October

14 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF CIMB ISLAMIC SUKUK FUND REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS Our opinion In our opinion, the financial statements of CIMB Islamic Sukuk Fund (the Fund ) give a true and fair view of the financial position of the Fund as at 31 August 2017, and of its financial performance and its cash flows for the 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 2017, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, as set out on pages 15 to 46. 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. 12

15 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF CIMB ISLAMIC SUKUK FUND (CONTINUED) REPORT ON THE AUDIT OF THE FINANCEIAL STATEMENTS (CONTINUED) Information other than the financial statements and auditors report thereon The Manager of the Fund is responsible for the other information. The other information comprises Manager s report but does include the financial statements of the Fund and our auditor s 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 give 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 control as the Manager determine 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 intend to liquidate the Fund or to cease operations, or have no realistic alternative but to do so. 13

16 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF CIMB ISLAMIC SUKUK FUND (CONTINUED) REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED) 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) (b) (c) (d) (e) 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. 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. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Manager. 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. 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. 14

17 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF CIMB ISLAMIC SUKUK FUND (CONTINUED) REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED) Auditors responsibilities for the audit of the financial statements (continued) 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. PRICEWATERHOUSECOOPERS (No. AF: 1146) Chartered Accountants Kuala Lumpur 16 October

18 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 AUGUST Note RM RM INVESTMENT INCOME Profit income 4 5,611,032 3,792,353 Net (loss)/gain on financial assets at fair value through profit or loss 9 (252,221) 2,152,935 5,358,811 5,945,288 EXPENSES Management fee 5 1,142, ,064 Trustee s fee 6 72,132 47,562 Audit fee 11,120 10,620 Tax agent s fee 7,500 4,000 Other expenses 93,188 62,484 1,326, ,730 PROFIT BEFORE TAXATION 4,032,786 5,067,558 Taxation PROFIT AFTER TAXATION AND TOTAL COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR 4,032,786 5,067,558 Profit after taxation is made up as follows: Realised amount 4,418,956 2,299,663 Unrealised amount (386,170) 2,767,895 4,032,786 5,067,558 The accompanying notes to the financial statements form an integral part of the audited financial statements. 16

19 STATEMENT OF FINANCIAL POSITION AS AT 31 AUGUST Note RM RM ASSETS Cash and cash equivalents (Shariah-compliant) 10 22,125,369 7,152,274 Financial assets at fair value through profit or loss (Shariah-compliant) 9 141,870,547 83,052,651 Amount due from Manager 134,688 1,043,614 TOTAL ASSETS 164,130,604 91,248,539 LIABILITIES Amount due to Manager 209,645 32,852 Accrued management fee 123,218 71,200 Amount due to Trustee 7,782 4,497 Other payables and accruals 26,576 24,953 TOTAL LIABILITIES 367, ,502 NET ASSET VALUE OF THE FUND 163,763,383 91,115,037 EQUITY Unit holders capital 146,723,471 71,439,947 Retained earnings 17,039,912 19,675,090 NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 163,763,383 91,115,037 NUMBER OF UNITS IN CIRCULATION (UNITS) ,189,704 69,488,155 NET ASSET VALUE PER UNIT (RM) The accompanying notes to the financial statements form an integral part of the audited financial statements. 17

20 STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 AUGUST 2017 Unit holders Retained capital earnings Total Note RM RM RM Balance as at 1 September ,439,947 19,675,090 91,115,037 Movement in unit holders contributions: - Creation of units from applications 112,651, ,651,115 - Creation of units from distribution 6,638,984-6,638,984 - Cancellation of units (44,006,575) - (44,006,575) Total comprehensive income for the financial year - 4,032,786 4,032,786 Distribution 7 - (6,667,964) (6,667,964) Balance as at 31 August ,723,471 17,039, ,763,383 Balance as at 1 September ,907,105 18,395,934 75,303,039 Movement in unit holders contributions: - Creation of units from applications 41,706,660-41,706,660 - Creation of units from distribution 3,786,690-3,786,690 - Cancellation of units (30,960,508) - (30,960,508) Total comprehensive income for the financial year - 5,067,558 5,067,558 Distribution 7 - (3,788,402) (3,788,402) Balance as at 31 August ,439,947 19,675,090 91,115,037 The accompanying notes to the financial statements form an integral part of the audited financial statements. 18

21 STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 AUGUST Note RM RM CASH FLOWS FROM OPERATING ACTIVITIES Proceeds from disposal of unquoted Sukuk 43,294,114 47,793,900 Purchase of unquoted Sukuk (107,194,938) (61,121,120) Proceeds from redemption of unquoted Sukuk 4,514,486 - Profit income received from Shariah-compliant deposits with licensed Islamic financial institutions and Hibah received 350, ,577 Profit income received from unquoted Sukuk 5,576,950 4,376,053 Management fee paid (1,090,067) (741,960) Trustee s fee paid (68,847) (46,861) Payments for other fees and expenses (110,185) (77,410) Net cash used in operating activities (54,728,184) (9,667,821) CASH FLOWS FROM FINANCING ACTIVITIES Cash proceeds from units created 113,560,041 42,718,733 Payments for cancellation of units (43,829,782) (32,196,956) Distribution paid (28,980) (1,712) Net cash generated from financing activities 69,701,279 10,520,065 Net increase in cash and cash equivalents 14,973, ,244 Cash and cash equivalents at the beginning of the financial year 7,152,274 6,300,030 Cash and cash equivalents at the end of the financial year 10 22,125,369 7,152,274 Cash and cash equivalents comprised of: Shariah-compliant deposits with licensed Islamic financial institutions 22,104,992 7,132,015 Bank balances 20,377 20,259 Cash and cash equivalents at the end of the financial year 22,125,369 7,152,274 The accompanying notes to the financial statements form an integral part of the audited financial statements. 19

22 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 AUGUST THE FUND, THE MANAGER AND ITS PRINCIPAL ACTIVITY CIMB Islamic Sukuk Fund (the Fund ) is governed by a Principal Master Deed dated 15 May 2008, a Third Supplemental Master Deed dated 25 June 2008, a Fourth Supplemental Master Deed dated 25 June 2008, a Fifth Supplemental Master Deed dated 25 June 2008, a Sixth Supplemental Master Deed dated 14 July 2008, a Seventh Supplemental Master Deed dated 19 November 2008, a Twelfth Supplemental Master Deed dated 14 June 2010, a Fourteenth Supplemental Master Deed dated 26 June 2012 and a Seventeenth Supplemental Master Deed dated 25 March 2015 (collectively referred to as the Deeds ), made between CIMB-Principal Asset Management Berhad (the Manager ) and AmanahRaya Trustees Berhad (the Trustee ). The principal activity of the Fund is to invest a minimum of 70% and up to a maximum of 98% of the Fund s NAV may be invested in Sukuk carrying at least a BBB3 or P2 rating by RAM or equivalent rating by MARC or by local rating agency(ies) of the country of issuance; or BBB- by S&P or equivalent rating by Moody s or Fitch. The Fund may invest up to 40% of its NAV in Unrated Sukuk and up to 28% of its NAV in other permissible investments. In line with its objective, the investment strategy and policy of the Fund is to invest in a diversified portfolio of Shariah-compliant fixed income securities consisting of Sukuk, aim to provide a steady stream of income from the profit of Sukuk. The Fund may also opt to seek investment exposure via Shariah-compliant Collective Investment Scheme that is in line with the Fund s objective, subject to the requirements of the SC Guidelines. The rest of the Fund is maintained in the form of Shariah-compliant liquid assets to meet any withdrawal payments to Unit holders. All investments are subjected to the SC Guidelines on Unit Trust Funds, SC requirements, the Deeds, except where exemptions or variations have been approved by the SC, internal policies and procedures and the Fund s objective. The Manager, a company incorporated in Malaysia, is a subsidiary of CIMB Group Sdn Bhd and regards CIMB Group Holdings Berhad as its ultimate holding company. The Manager is also an associate of Principal International (Asia) Limited, which is a subsidiary of Principal Financial Group Inc. The principal activities of the Manager are the establishment and management of unit trust funds and fund management activities. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following accounting policies have been used consistently in dealing with items which are considered material in relation to the financial statements: (a) Basis of preparation The financial statements have been prepared in accordance with the provisions of the MFRS and IFRS. The financial statements have been prepared under the historical cost convention, as modified by financial assets at fair value through profit or loss. The preparation of financial statements in conformity with MFRS and IFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported year. It also requires the Manager to exercise their judgment in the process of applying the Fund s accounting policies. Although these estimates and judgment are based on the Manager s best knowledge of current events and actions, actual results may differ. 20

23 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CIMB ISLAMIC SUKUK FUND (a) Basis of preparation (continued) The areas involving a higher degree of judgment or complexity, or areas where estimates and assumptions are significant to the financial statements are disclosed in Note 2(j). Standards, amendments to published standards and interpretations to existing standards that are effective: The Fund has applied the following amendments for the first time for the financial year beginning 1 September 2016: Amendments to MFRS 101 Presentation of Financial Statements - Disclosure Initiative provide clarifications on a number of issues, including: Materiality - an entity should not aggregate or disaggregate information in a manner that obscures useful information. Where items are material, sufficient information must be provided to explain the impact on the financial position or performance. Disaggregation and subtotals - line items specified in MFRS 101 may need to be disaggregated where this is relevant to an understanding of the entity s financial position or performance. There is also new guidance on the use of subtotals. Notes - confirmation that the notes do not need to be presented in a particular order. Other comprehensive income ( OCI ) arising from investments accounted for under the equity method - the share of OCI arising from equity-accounted investments is grouped based on whether the items will or will not subsequently be reclassified to profit or loss. Each group should then be presented as a single line item in the statement of other comprehensive income. According to the transitional provisions, the disclosures in MFRS 108 regarding the adoption of new standards/accounting policies are not required for these amendments. Annual Improvements to MFRSs Cycle The adoption of these amendments did not have any impact on the current financial year or any prior financial year and is not likely to affect future financial year. The standards, amendments to published standards and interpretations to existing standards that are applicable to the Fund but not yet effective and have not been early adopted are as follows: 21

24 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CIMB ISLAMIC SUKUK FUND (a) Basis of preparation (continued) (i) Financial year beginning on/after 1 September 2017 Amendments to MFRS 107 Statement of Cash Flows - Disclosure Initiative (effective from 1 January 2017) introduce an additional disclosure on changes in liabilities arising from financing activities. The Fund will apply this standard when effective. This standard is not expected to have a significant impact on the Fund s financial statements. (ii) Financial year beginning on/after 1 September 2018 MFRS 15 Revenue from Contracts with Customers (effective from 1 January 2018) replaces MFRS 118 Revenue and MFRS 111 Construction Contracts and related interpretations. The core principle in MFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Revenue is recognised when a customer obtains control of goods or services, i.e. when the customer has the ability to direct the use of and obtain the benefits from the goods or services. A new five-step process is applied before revenue can be recognised: Identify contracts with customers; Identify the separate performance obligations; Determine the transaction price of the contract; Allocate the transaction price to each of the separate performance obligations; and Recognise the revenue as each performance obligation is satisfied. Key provisions of the new standard are as follows: Any bundled goods or services that are distinct must be separately recognised, and any discounts or rebates on the contract price must generally be allocated to the separate elements. If the consideration varies (such as for incentives, rebates, performance fees, royalties, success of an outcome etc), minimum amounts of revenue must be recognised if they are not at significant risk of reversal. The point at which revenue is able to be recognised may shift: some revenue which is currently recognised at a point in time at the end of a contract may have to be recognised over the contract term and vice versa. There are new specific rules on licenses, warranties, non-refundable upfront fees, and consignment arrangements, to name a few. As with any new standard, there are also increased disclosures. 22

25 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CIMB ISLAMIC SUKUK FUND (a) Basis of preparation (continued) (ii) Financial year beginning on/after 1 September 2018 (continued) MFRS 9 Financial Instruments (effective from 1 January 2018) will replace MFRS 139 Financial Instruments: Recognition and Measurement. MFRS 9 retains but simplifies the mixed measurement model in MFRS 139 and establishes three primary measurement categories for financial assets: amortised cost, fair value through profit or loss and fair value through OCI. The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments 1 are always measured at fair value through profit or loss with an irrevocable option at inception to present changes in fair value in OCI (provided the instrument is not held for trading). A debt instrument 2 is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest 3. For liabilities, the standard retains most of the MFRS 139 requirements. These include amortised cost accounting for most financial liabilities, with bifurcation of embedded derivatives 1. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in OCI rather than the income statement, unless this creates an accounting mismatch. MFRS 9 introduces an expected credit loss model on impairment that replaces the incurred loss impairment model used in MFRS 139. The expected credit loss model is forward-looking and eliminates the need for a trigger event to have occurred before credit losses are recognised. The Fund will apply these standards when effective. These standards are not expected to have a significant impact on the Fund s financial statements. (b) Financial assets and financial liabilities Classification The Fund designates its Shariah-compliant investments in unquoted Sukuk as financial assets at fair value through profit or loss at inception. Financial assets are designated at fair value through profit or loss when they are managed and their performance evaluated on a fair value basis. Financing and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and have been included in current assets. The Fund s financing and receivables comprise cash and cash equivalents, and amount due from Manager. Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. The Fund classifies amount due to Manager, accrued management fee, amount due to Trustee, and other payables and accruals as other financial liabilities. ¹ For the purposes of the investments made by the Fund, equity instruments and derivatives refers to Shariahcompliant equity instruments and Shariah-compliant derivatives. ² For the purposes of the investments made by the Fund, debt instruments refers to Sukuk. ³ For the purposes of this Fund, interest refers to profits earned from Shariah-compliant investments. 23

26 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CIMB ISLAMIC SUKUK FUND (b) Financial assets and financial liabilities (continued) Recognition and measurement Regular purchases and sales of financial assets are recognised on the trade-date, the date on which the Fund commits to purchase or sell the asset. Shariah-compliant investments are initially recognised at fair value. Financial liabilities, within the scope of MFRS 139, are recognised in the statement of financial position when, and only when, the Fund becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognised when the rights to receive cash flows from the Shariah-compliant investments have expired or have been transferred and the Fund has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognised when it is extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or expired. Unrealised gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss are presented in the statement of comprehensive income within net gain or loss on financial assets at fair value through profit or loss in the financial year which they arise. Unquoted Sukuk denominated in Ringgit Malaysia ( RM ) are revalued on a daily basis based on fair value prices quoted by a Bond Pricing Agency ( BPA ) registered with the SC as per the SC Guidelines on Unit Trust Funds. Refer to Note 2(j) for further explanation. Shariah-compliant deposits with licensed Islamic financial institutions are stated at cost plus accrued profit calculated on the effective profit method over the period from the date of placement to the date of maturity of the respective deposits. Financing and receivables and other financial liabilities are subsequently carried at amortised cost using the effective profit method. Impairment on assets carried at amortised costs For assets carried at amortised cost, the Fund assesses at the end of the reporting year whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective profit rate. The asset s carrying amount is reduced and the amount of the loss is recognised in statement of comprehensive income. If financing and receivables has a variable profit rate, the discount rate for measuring any impairment loss is the current effective profit rate determined under the contract. As a practical expedient, the Fund may measure impairment on the basis of an instrument s fair value using an observable market price. 24

27 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CIMB ISLAMIC SUKUK FUND (b) Financial assets and financial liabilities (continued) Impairment on assets carried at amortised costs (continued) If, in a subsequent financial year, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor s credit rating), the reversal of the previously recognised impairment loss is recognised in statement of comprehensive income. When an asset is uncollectible, it is written off against the related allowance account. Such assets are written off after all the necessary procedures have been completed and the amount of the loss has been determined. (c) Income recognition Profit income from Shariah-compliant deposits with licensed Islamic financial institutions and unquoted Sukuk are recognised on a time proportionate basis using the effective profit method on an accrual basis. Realised gain or loss on disposal of unquoted Sukuk is accounted for as the difference between the net disposal proceeds and the carrying amount of unquoted Sukuk, determined on cost adjusted for accretion of discount or amortisation of premium. (d) Functional and presentation currency Items included in the financial statements of the Fund are measured using the currency of the primary economic environment in which the Fund operates (the functional currency ). The financial statements are presented in RM which is the Fund s functional and presentation currency. (e) Cash and cash equivalents For the purpose of statement of cash flows, cash and cash equivalents comprise bank balances and Shariah-compliant deposits held in highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. (f) Taxation Current tax expense is determined according to Malaysian tax laws at the current rate based upon the taxable profit earned during the financial year. (g) Distribution A distribution to the Fund s unit holders is accounted for as a deduction from realised reserve. A proposed distribution is recognised as a liability in the financial year in which it is approved by the Trustee. 25