HW SHARIAH FLEXI FUND

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2 CONTENTS PAGE 1 General Information 1 2 Manager s Report 3 3 Policy On Stockbroking Rebates And Soft Commissions 9 4 Statement By The Manager 10 5 Trustee s Report 11 6 Shariah Adviser s Report 12 7 Statement Of Comprehensive Income 13 8 Statement Of Financial Position 14 9 Statement Of Changes In Equity Statement Of Cash Flows Summary Of Significant Accounting Policies Notes To The Financial Statements Corporate Information 38 i

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4 MANULIFE INVESTMENT-HW SHARIAH FLEXI FUND GENERAL INFORMATION 1.1 THE TRUST The Fund commenced operations on 18 October 2012 and will continue its operations until terminated as provided under Clause 12 of the Deed. 1.2 FUND TYPE / CATEGORY Growth / Mixed Assets (Islamic) 1.3 OBJECTIVE OF THE FUND To provide Unit Holders with long-term capital appreciation. 1.4 DISTRIBUTION POLICY Incidental 1.5 PERFORMANCE BENCHMARK The performance of the Fund is measured against a composite index comprising 50% FBMSHA + 50% Maybank 12-month GIA-i Rate. The benchmark is available at the Manager s website. The index data can be obtained from major daily newspapers and the GIA-i rate is available at The benchmark reflects the investment and asset allocation strategies of the Fund, where the Fund is allowed to invest its asset in Shariah-compliant equities as well as sukuk and Islamic money market instruments, depending on the interest rate outlook for the market. The allocation of 50:50 on the benchmark is to reflect the balanced position of the portfolio of the Fund in long time period. The risk profile of the Fund is different from the risk profile of the benchmark. 1.6 INVESTMENT STYLE AND STRATEGY The Fund invests in a diversified portfolio of Shariah-compliant equities and equity-related instruments. The Fund will also invest in sukuk and Islamic money market instruments depending on the interest rate outlook for the market. The Fund may invest up to 98% of its NAV in a single asset class of Shariah-compliant equities or sukuk and Islamic money market instruments. For defensive consideration, the Fund invests in a mix of Shariah-compliant equities, sukuk and Islamic money market instruments depending on the short-term and long-term market outlook. At any one time, the asset mix may also comprise all asset classes. The Fund will maintain at least 2% of its NAV in Islamic liquid assets. Please note that this Fund is not a capital guaranteed fund or a capital protected fund. Therefore, this Fund does not offer protection of your investment. 1

5 The Fund adopts an absolute return approach which seeks to provide investors with consistent returns across market cycles while managing the impact of the volatility. In terms of investing in Shariah-compliant equity investments, the Fund Manager intends to invest in companies that have recorded 10%-15% growth in profits from preceding year, as well as quality companies which the Fund Manager classifies as having strong balance sheets, positive cash flows and low gearing levels compared to business peers and sector norm. The quality of the management is also crucial when searching for an investment opportunity. The Fund Manager aims to identify mispricing opportunities as they occur and take advantage of them regardless of whether these companies exhibit growth, value or defensive characteristics. The Fund Manager also aims to identify investment themes that will eventually capture market interest. In terms of investing in sukuk, the Fund follows a strict selection process to ensure only appropriate sukuk are invested in with respect to the investment objective. The selection process is in essence a screening process that selects quality sukuk with risk-return profiles that match the Fund s requirements. The selection of sukuk will largely depend on the credit rating of the issuer to assure relative certainty of principal payment and overall total return stability. Similarly for Islamic deposits, the Fund will place the deposits with Islamic financial institutions whose credit profile the Fund Manager is comfortable with. The Fund invests in both the Shariah-compliant equity and sukuk of corporations in Malaysia that practise good corporate governance, a key driver in the selection of securities. Some of the criteria chosen are transparency, accountability and integrity. These include having independent directors on the board, transparent business procedures and financial information, accessibility of the management team to investors and the protection of minority shareholders rights. In addition, any active and frequent trading strategy will depend on investment opportunities or valuations. During the six months financial period under review, the Manager was focused on bottomsup Shariah-compliant stock selection. The Shariah-compliant stocks were chosen based on a set of important criteria: firstly quality management with a clear and established track record. Secondly, the Manager was looking for a sustainable business model that would be able to deliver growth even in a volatile macroeconomic environment. Thirdly, the Manager paid close attention to the individual company s financials, in particular its balance sheet and cash flow. Highly leveraged companies with poor cash flows were quickly discarded. Fourthly, the Manager considered the valuation of the individual company. At all times, the Manager favoured companies which practised good corporate governance, with a high degree of transparency and disclosure In keeping with the mandate of the Fund, the Manager was highly flexible in terms of its asset allocation. January 2017 July 2017 was both challenging but mainly fruitful period in particular during January April 2017, due to a number of factors, 1) corporate earnings surprised the market on the upside 2) stable US Dollar/Malaysain Ringgit 3) Less political noises 4) inflows of foreigners back into Malaysia as they saw the country as a laggard. All these factors prompted the Manager to reduce cash levels to 15%-10% In January - February, the Manager remained alert to not chasing all stocks and selectively placing higher weightage on Shariah-compliant stocks that would give higher returns which led to increased equity weighting from December onwards. The asset allocation flexibility remains one of the key strengths of the fund. 2

6 2 MANAGER S REPORT 2.1 FUND PERFORMANCE MANULIFE INVESTMENT- For the six months financial period ended 31 July 2017, the Fund s return increased by 14.46%. The Fund outperformed its benchmark return, FBMEMAS, which increased by 2.85%. The outperformance was due to the lower cash levels employed throughout the 6 months of the period under review with big injections throughout the period which forced the Manager to deploy cash to below 10%, The Fund was weighted in the manufacturing and construction sectors throughout the period. Winners for the portfolio during the period included Pentamaster (+191%), Econpile (+37.7%), Scientex (+24.7%), Inari (+46.7%), Kerjaya Prospek (+59.9%), Unisem (+54%), Chin Hin (+56%), and Globetronics (+51%) The graph below compares the 6-month performance of the Fund against its benchmark return: 16% 14% 12% 10% 8% 6% 4% 2% 0% Jan 17 Fund Performance vs. Benchmark Index Return Feb 17 Mar 17 Apr 17 May 17 Jun 17 Manulife Investment-HW Shariah Flexi Fund Return Benchmark Index Return Jul 17 Source: Bloomberg L.P Fund Size The Fund s total NAV increased to RM80.02 mil from RM40.30 mil during the financial period under review. Fund s Returns (a) The graph below compares the performance of the Fund against its benchmark return since the Fund s commencement : 16% 14% 12% 10% 8% 6% 4% 2% 0% Jan 17 Fund Performance vs. Benchmark Index Return Feb 17 Mar 17 Apr 17 May 17 Jun 17 Manulife Investment-HW Shariah Flexi Fund Return Benchmark Index Return Jul 17 Source: Bloomberg L.P 3

7 (b) Average Total Return of the Fund: For the financial period ended 31 July 2017 Fund (% p.a.) Benchmark (% p.a.) 1 year years years Since commencement Commencement Date: 18 October 2012 Source: Bloomberg L.P (c) Annual Total Return of the Fund: For the financial period ended Fund (% p.a.) Benchmark (% p.a.) 31 July July 2016 (0.98) July 2015 (6.51) (2.15) 31 July Since commencement to 31 July Commencement Date: 18 October 2012 Source: Bloomberg L.P BASES OF CALCULATION 1. Net Asset Value (NAV) Net Asset Value of the Fund is determined by deducting the value of all the Fund s liabilities from the value of all the Fund s assets, at the valuation point. 2. Net Asset Value per unit Net Asset Value per unit is the net asset value of the Fund divided by the total number of units in circulation, at the valuation point. 3. Fund s Return The total Fund s return comprises both NAV return and income return. The returns can be calculated based on the computation methods as follows: Total Fund s Return = [(NAV Return*Series of Income Return) 1] x 100% NAV Return = {[End NAV (Ex-distribution)/Beginning NAV]-1} x 100% Income Return = (Gross Distribution / Ex-NAV price) x 100% Average Total Return = (NAV Return*Series of Income Return) (365.25/n) x , where n = number of days between beginning and end dates. 4

8 The following table shows other financial and performance data of the Fund for the past three financial periods: Fund Data 31 July July July 2015 NAV (RM) 80,024,759 45,018,010 65,644,746 Units in Circulation ( 000) 253, , ,943 NAV (RM per unit) Highest / Lowest NAV (RM per unit) Total Fund Return (%) NAV Return (%) Income Return (%) / / / (6.51) (6.51) - Management Expenses Ratio (%) Portfolio Turnover Ratio (times) NOTES (i) Management Expenses Ratio (MER) MER can be calculated based on the ratio of the sum of fees and the recovered expenses of the unit trust fund to the average value of the unit trust fund calculated on a daily basis. Fees of the unit trust fund + Recovered expenses of the unit trust fund Average value of the unit trust fund calculated on a daily basis x 100 Where: Fees Recovered expenses Average value of the unit trust fund = All ongoing fees deducted / deductible directly from the unit trust fund in respect of the period covered by the management expense ratio, expressed as a fixed amount, calculated on a daily basis. This would include the annual management fee, the annual trustee fee and any other fees deducted / deductible directly from the unit trust fund; = All expenses recovered from/ charged to the unit trust fund, as a result of the expenses incurred by the operation of the unit trust fund, expressed as a fixed amount. This should not include expenses that would otherwise be incurred by an individual investor (e.g. brokerage, taxes and levies); and = The NAV of the unit trust fund, including unit trust net income value of the fund, less expenses on an accrued basis, in respect of the period covered by the management expense ratio, calculated on a daily basis. The MER for the financial period is lower as compared to the previous financial period mainly due to the increase in average NAV. 5

9 (ii) Portfolio Turnover Ratio (PTR) PTR can be calculated based on the ratio of the average sum of acquisitions and disposals of the Shariah-compliant unit trust fund for the year to the average value of the unit trust fund for the year calculated on a daily basis [Total acquisitions of the fund for the year + Total disposals of the fund for the year]/2 Average value of the unit trust fund calculated on a daily basis The PTR for the financial period is lower as compared to the previous financial period mainly due to the increase in average NAV The Manager wishes to highlight that past performance of the Fund is not an indication of future performance. The price of units and the investment returns may go down, as well as up. 2.2 ASSET ALLOCATION Asset allocation for the past three financial periods: Sector Allocation 31 July July July 2015 Trading / Services Properties Plantation Industrial Products Consumer Products Infrastructure Project Companies Finance Technology Construction Islamic Real Estate Investment Trusts ACE Market Shariah-Compliant Warrants Total Shariah-compliant Investments Islamic deposits with Licensed Financial Institutions Other Assets & Liabilities (0.43) As at 31 July 2017, the Fund was 88.86% invested in Shariah-compliant equities, a slight increase from 77.94% at the end of July The Fund was 90-95% invested in Shariahcompliant equities, an increase from 80% at the end of January This was due to the high injection during the month due to promising market outlook. The Fund has been deploying cash and adding positions in the exporters such as Manufacturers, Technology and Construction to take advantage of the corporate earnings surprises and construction awards given out by the government on LRT3 and MRT2, as well as the continuous shift of asset allocation to the dividend-yielding Shariah-compliant stocks. The Manager notes that Malaysia is at risk both from domestic and external pressures and will redeploy cash in a gradual manner. 2.3 MARKET REVIEW During the six months financial period under review (1st February 2017 to 31st July 2017), the FBMSHA gained +4.01%, underperforming the FBM KLCI which gained +5.29%. The underperformance of the FBMSHA vs. the FBM KLCI can be attributed to the former s lack of weighting in the banking sector, as the FBMSHA has higher weighting in the Technology & Manufacturers as well as smaller Construction companies. 6

10 2.4 MARKET OUTLOOK AND INVESTMENT STRATEGY MANULIFE INVESTMENT- The FBM KLCI I rose steadily from 1,642 pts on 30 Dec 2016 to peak at 1,792 pts as at 14 June 2017 (+9%) before retreating to close the 1H17 at 1,764 pts. In 1H17, the Malaysian market rose 7.4% and traded in a wider range of 157 points compared to a narrower trading range of 127 points in 1H16. The improved global market sentiment and higher foreign buying boosted the market s average daily trading value in 1H17 by 32% year-on-year (yoy) to RM2.67bn. So far, 2017 has been a much better year than 2016, broadly in line with expectations. However, the pace of the increase in FBM KLCI for 1H17 was better than expectations due to the stronger gross domestic product (GDP) growth, improving corporate earnings prospects, positive sentiment in the global market and improved foreign funds inflows. These factors more than offset concerns over uncertain global developments. External headwinds in the form of two US rate hikes in 1H17, fears of Britain leaving the European Union (Brexit) fallout in the UK economy and geopolitical risks (Qatar crisis and North Korea missile launches) were more than offset by projections of stronger global growth prospects. The International Monetary Fund (IMF) raised its global economy growth projections to 3.5% for 2017 (previous forecast was 3.4%) and 3.6% for This represents a faster growth rate in global gross domestic product (GDP) compared to 2016 of 3.1. We remain positive on the outlook for Malaysia equities on the back of the rosier outlook for global growth led by stronger growth in the US but are cautious in the near term, as things have risen sharply over this past 6 months, which was helped by the pick-up in domestic growth and recovery in corporate earnings. 1Q17 GDP growth of +5.6% comprehensively beat market expectations. Improving investor risk appetite for emerging market equities would continue to attract higher foreign institutional participation. We expect the Trump administration to at least partially deliver on its reflationary policies. Key investment themes include a preference for cyclical sectors, exporters, large-cap beneficiaries of rising foreign participation, high-growth small- and mid-cap stocks, election plays and high dividend yield stocks. Malaysia s 1Q17 GDP grew at a faster-than-expected 5.6% pace (consensus: +4.8%), driven by the services, manufacturing and agriculture sectors. Private consumption is expected to remain resilient while exports are anticipated to rise 10% YoY in 2017 (2016: +1.1%). Corporate earnings are still expected to grow 7-8% this year, with the broad-based recovery driven by a recovery in the oil & gas and plantation, technology and construction sectors earnings Net buying from foreign funds has continued unabated with year-to-date (YTD) net foreign flows into Malaysian equities reaching MYR10.1bn, outpacing flows into other ASEAN markets. Considering the cumulative net selling by foreign funds of MYR29.8bn during , foreign funds still have some way to go just to achieve a NEUTRAL-weight position, spurred by the weak MYR, low foreign ownership (end-apr 2017: 22.7%) in addition to improving macroeconomic indicators and corporate earnings The rising investor risk appetite for emerging market equities stems largely from the improving global macroeconomic environment, helped by President Donald Trump s progrowth strategies to cut taxes, boost infrastructure and military spending as well as slash regulations. Despite concerns on US political risks, our base case expectation is for the Trump administration to at least partially deliver on some elements of his commitments that can help to lift global growth in Despite some possible headwinds, we do not expect any potential corrections in the market to be very significant due to the supportive news flows on corporate actions, a likely peoplefriendly 2018 Budget to be announced on 27 Oct 2017, and job flows for contractors, ahead of the 14th general election which is due on or before 24 Aug The 13th Parliament of Malaysia will automatically dissolve on 24 Jun To recap, the last general election was held on 5 May The positive corporate news flows that we are anticipating include the completion of Sime s plan to separately list its plantation and property divisions, the merger of SP Setia and Island and Peninsular and Geely s acquisition of a 49.9% stake in Proton. 7

11 2.5 BREAKDOWN OF UNIT HOLDINGS BY SIZE AS AT 31 JULY 2017 The following table presents the distribution of the Fund s unit holders according to size of unit holdings: Size of Holdings No. of Unit Holders % No. of Units Held ( 000) % 5,000 and below , ,001 to 10, , ,001 to 50,000 2, , ,001 to 500,000 1, , Above 500, , Manager s stock - - 1, Total 4, ,

12 3 POLICY ON STOCKBROKING REBATES AND SOFT COMMISSIONS The Management Company did not retain any rebates. Goods and services (soft commissions) may be retained by the Manager or its delegates if the goods and services are of demonstrable benefits to unit holders, and dealings with the brokers/dealers are executed on terms which are the best available to the Fund. The Manager and its delegates have subscribed but are not limited to the following goods and services which are demonstrably beneficial to unit holders such as Bloomberg, Bond web, and independent research publications and tools such as ISI and Valutrac. The Manager and its delegate did not receive any soft commission. 9

13 4 STATEMENT BY THE MANAGER We, Chong Soon Min and Edmond Cheah Swee Leng, being two of the Directors of Manulife Asset Management Services Berhad, do hereby state that, in the opinion of the Manager, the unaudited financial statements comprising the statement of comprehensive income, statement of financial position, statement of changes in equity, statement of cash flows, summary of significant accounting policies and notes to the financial statements, 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 July 2017 and of its financial performance, changes in equity and cash flows of the Fund for the six months financial period ended 31 July 2017 in accordance with the Malaysian Financial Reporting Standards ( MFRS ) and the International Financial Reporting Standards ( IFRS ). For and on behalf of the Manager MANULIFE ASSET MANAGEMENT SERVICES BERHAD CHONG SOON MIN Director EDMOND CHEAH SWEE LENG Director Kuala Lumpur 21 September

14 5 TRUSTEE S REPORT MANULIFE INVESTMENT- TO THE UNIT HOLDERS OF MANULIFE INVESTMENT- We have acted as Trustee of Manulife Investment-HW Shariah Flexi Fund ( the Fund ) for the six months financial period ended 31 July In our opinion and to the best of our knowledge, Manulife Asset Management Services Berhad ( the Manager ), has operated and managed the Fund in accordance with the following: a) Limitations imposed on the investment powers of the Manager and the Trustee under the Deeds, the Securities Commission s Guidelines on Unit Trust Funds, the Capital Markets and Services Act 2007 and other applicable laws; b) Valuation/pricing is carried out in accordance with the Deeds and any regulatory requirements; and c) Creation and cancellation of units is carried out in accordance with the Deeds and any regulatory requirement. For and on behalf of RHB Trustees Berhad (Company No.: U) LEE YIT CHENG Head, Group Int Ops Support & Trustees Ops MOHD SOFIAN BIN KAMARUDDIN Vice President Kuala Lumpur, Malaysia 21 September

15 6 SHARIAH ADVISER S REPORT TO THE UNIT HOLDERS OF MANULIFE INVESTMENT- We have acted as the Shariah Adviser of Manulife Investment-HW Shariah Flexi Fund. Our responsibility is to ensure that the procedures and processes employed by Manulife Asset Management Services Berhad are in accordance with Shariah principles. In our opinion, Manulife Asset Management Services Berhad has managed and administered Manulife Investment-HW Shariah Flexi Fund in accordance with Shariah principles and complied with applicable guidelines, rulings and decisions issued by the Securities Commission pertaining to Shariah matters for the six months financial period ended 31 July In addition, we also confirm that the investment portfolio of Manulife Investment-HW Shariah Flexi Fund comprises securities which have been classified as Shariah-compliant by the Shariah Advisory Council of the Securities Commission ( SACSC ). As for the securities which are not certified by the SACSC, we have reviewed the said securities and opined that these securities are designated as Shariah-compliant. For and on behalf of the Shariah Adviser IBFIM AHMAD ZAKIRULLAH BIN MOHAMED SHAARANI Managing Advisor (Shariah)/Designated Person Responsible for Shariah Advisory Kuala Lumpur 21 September

16 7 STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 31 JULY 2017 INVESTMENT INCOME Note Profit income 101, ,817 Gross dividend income 680, ,351 Net gain on financial assets at fair value through profit or loss 6 7,218,255 1,426,887 RM RM 7,999,973 2,168,055 EXPENSES Manager s fee 3 446, ,000 Trustee s fee 4 20,859 16,753 Auditors remuneration 3,794 3,804 Tax agent s fee 1,339 1,343 Other expenses 54,217 53,254 Transaction costs 178, , , ,540 PROFIT BEFORE TAXATION 7,293,843 1,590,515 TAXATION 5 (4,463) - PROFIT AFTER TAXATION AND TOTAL COMPREHENSIVE INCOME 7,289,380 1,590,515 Profit after taxation is made up as follows: Realised 870,508 (1,086,796) Unrealised 6,418,872 2,677,311 7,289,380 1,590,515 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 13

17 8 STATEMENT OF FINANCIAL POSITION AS AT 31 JULY 2017 Note RM RM ASSETS Financial assets at fair value through profit or loss 6 71,113,664 35,088,113 Amount due from Manager 534, ,400 Amount due from stockbrokers 607,425 1,320,565 Dividends receivable 27,470 56,055 Tax recoverable 7,451 30,148 Cash and cash equivalents 7 8,414,659 8,879,765 TOTAL ASSETS 80,705,043 45,511,046 LIABILITIES Amount due to Manager - Manager s fee 98,310 57,563 - Cancellation of units 53, ,886 Amount due to Trustee 4,588 2,686 Amount due to stockbrokers 473,350 82,091 Other payables 8 50,350 47,810 TOTAL LIABILITIES 680, ,036 NET ASSETS VALUE ( NAV ) OF THE FUND 80,024,759 45,018,010 EQUITY Unit holders capital 69,142,263 41,913,485 Retained earnings 10,882,496 3,104,525 80,024,759 45,018,010 NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 2 80,024,759 45,018,010 NUMBER OF UNITS IN CIRCULATION ,973, ,493,000 NAV PER UNIT The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 14

18 9 STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 31 JULY 2017 Unit holders Retained capital earnings Total RM RM RM BALANCE AS AT 1 FEBRUARY ,703,205 3,593,116 40,296,321 Movement in unit holders contribution: Creation of units 37,632,095-37,632,095 Cancellation of units (5,193,037) - (5,193,037) Total comprehensive income - 7,289,380 7,289,380 BALANCE AS AT 31 JULY ,142,263 10,882,496 80,024,759 Unit holders Retained capital earnings Total RM RM RM BALANCE AS AT 1 FEBRUARY ,024,212 1,514,010 52,538,222 Movement in unit holders contribution: Creation of units 3,059,498-3,059,498 Cancellation of units (12,170,225) - (12,170,225) Total comprehensive income - 1,590,515 1,590,515 BALANCE AS AT 31 JULY ,913,485 3,104,525 45,018,010 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 15

19 10 STATEMENT OF CASH FLOWS FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 31 JULY 2017 CASH FLOWS FROM OPERATING ACTIVITIES Note Purchase of Shariah-compliant investments (38,892,965) (16,759,303) Sale of Shariah-compliant investments 11,815,451 25,529,980 Dividends received 706, ,517 Profit income received 101, ,817 Manager s fee paid (399,624) (393,647) Trustee s fee paid (18,649) (18,370) Audit fee paid - (8,077) Payment for other fees and expenses (33,708) (19,917) Net cash (used in)/generated from operating activities (26,722,307) 9,044,000 RM RM CASH FLOWS FROM FINANCING ACTIVITIES Distribution paid - (3,533,487) Proceeds from creation of units 37,194,076 6,445,128 Payments for cancellation of units (5,153,046) (12,301,859) Net cash generated from/(used in) financing activities 32,041,030 (9,390,218) Net increase/(decrease) in cash and cash equivalents 5,318,723 (346,218) Cash and cash equivalents at beginning of the financial period 3,095,936 9,225,983 Cash and cash equivalents at end of the financial period 7 8,414,659 8,879,765 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 16

20 11 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 31 JULY 2017 The following accounting policies have been used consistently in dealing with items which are considered material in relation to the financial statements. The policies have been consistently applied to all the financial years presented, unless otherwise stated. A BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS The unaudited financial statements of the Fund have been prepared in accordance with the Malaysian Financial Reporting Standards ( MFRS ) and the International Financial Reporting Standards ( IFRS ). The financial statements have been prepared under the historical cost convention, as modified by financial assets at fair value through profit or loss. The preparation of financial statements in conformity with MFRS and IFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. It also requires the Manager to exercise judgement in the process of applying the Fund s accounting policies. Although these estimates and judgement are based on the Manager s best knowledge of current events and actions, actual results may differ. There are no significant areas of judgement or complexity that have significant effect on the amounts recognised in the financial statements. There are no critical accounting estimates and assumptions used in the preparation of the financial statements of the Fund for the six months financial period ended 31 July The Fund has applied the following amendments for the first time for the financial period beginning 1 August 2016: Amendments to MFRS 101 "Presentation of financial statements" - Disclosure initiative Amendments to MFRS 10, 12 & 128 "Investment entities - Applying the consolidation exception Annual improvements to MFRSs Cycle There were no significant impact to other accounting policies of the Fund as a result of the above mentioned. The following are standards, amendments to published standards and interpretations to the existing standards that are applicable to the Fund but not yet effective and have not been early adopted by the Fund. Financial period beginning on/after 1 August 2017 Amendments to MFRS 107 "Statement of Cash Flows - Disclosure Initiatives" (effective from 1 January 2017) introduce an additional disclosure in 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. Financial period beginning on/after 1 August 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. 17

21 Revenue is recognised when a customer obtains control of goods or services, i.e. when the customer has the ability or direct the use of and obtain the benefit 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 transactions 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 standards 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 considerations vary (such as 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 licences, warranties, non-refundable up-front fees, and consignment arrangements, to name a few. As with any new standard, there are increased disclosures. 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 other comprehensive income ( OCI ). The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset. Investment in equity¹ instruments is always measured at fair value through profit or loss with a irrevocable option at inception to present changes in fair value in OCI (provided the instrument is not held for trading). A debt instrument² is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest³. For liabilities, the standard retains most of the MFRS 139 requirements. These include amortised cost accounting for most financial liabilities, with bifurcation of embedded Shariahcompliant derivatives. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in OCI rather than the income statement, unless this creates an accounting mismatch. MFRS 9 introduces an expected credit losses model on impairment that replaces the incurred loss impairment model used in MFRS 139. The expected credit losses model is forward-looking and eliminates the need for a trigger event to have occurred before credit losses are recognised. The Fund will apply the standards when effective. These standards are not expected to have a significant impact on the Fund s financial statements. 1. For the purposes of the investments made by the Fund, equity instruments and derivatives refers to Shariah-compliant equity instruments and Shariah-compliant derivatives 2. For the purposes of the investments made by the Fund, debt instruments refers to sukuk. 3. For the purposes of this Fund, interest refers to profits earned from Shariah-compliant investments. 18

22 B (i) FINANCIAL ASSETS AND FINANCIAL LIABILITIES Classification The Fund classifies its financial assets in the following categories: at fair value through profit or loss and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification at initial recognition. Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. Financial assets at fair value through profit or loss Financial assets are designated at fair value through profit or loss when they are managed principally for the purpose of selling or replacing in the near term and their peformance evaluated on a fair value basis. The Fund designates its investment in Shariah-compliant investments as financial assets at fair value through profit or loss at inception. Receivables Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as noncurrent assets. The Fund s receivables comprise amount due from Manager, amount due from stockbrokers, dividends receivable, tax recoverable and cash and cash equivalents in the statement of financial position. Other financial liabilities The Fund classifies amount due to Manager, amount due to Trustee, amount due to stockbrokers and other payables as other financial liabilities. (ii) Recognition and initial 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. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in profit or loss. Receivables are initially recognised at fair value plus transaction costs. 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. (iii) Subsequent measurement - gains and losses Financial assets at fair value through profit or loss are subsequently carried at fair value. Gains and losses arising from changes in the fair value of the financial assets at fair value through profit or loss are included in the profit or loss in the period which they arise. Receivables and financial liabilities are subsequently carried at amortised cost using the effective profit rate method. 19

23 (iv) Subsequent measurement - impairment of financial assets The Fund assesses at the end of the reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The criteria that the Fund uses to determine that there is objective evidence of an impairment loss include indications that the obligor is experiencing significant financial difficulty, high probability that the obligor will enter bankruptcy or other distressed financial reorganisation and events that would adversely affect the financial capability of the obligor. 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 carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. If receivables has a variable profit rate, the discount rate for measuring any impairment loss is the current effective profit rate determined under the contract. As a practical expedient, the Fund may measure impairment on the basis of an instrument s fair value using an observable market price. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment is recognised (such as an improvement in the debtor s/issuer s credit rating), the reversal of the previously recognised impairment loss is recognised in profit or loss. When an asset is uncollectible, it is written off against the related allowance account. Such assets are written off after all the necessary procedures have been completed and the amount of the loss has been determined. (v) De-recognition Financial assets are de-recognised when the rights to receive cash flows from the Shariahcompliant investments have expired or have been transferred and the Fund has transferred substantially all risks and rewards of ownership. Financial liabilities are de-recognised when they are extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or has expired. C CREATION AND CANCELLATION OF UNITS The Fund issues cancellable units, which are cancelled at the unit holder s option and are classified as equity. Cancellable units can be put back to the Fund at any time for cash equal to a proportionate share of the Fund s net asset value. The outstanding unit is carried at the redemption amount that is payable at the date of the statement of financial position if the unit holder exercises the right to put the unit back to the Fund. Units are created and cancelled at the unit holder s option at prices based on the Fund s net asset value per unit at the time of creation and cancellation. The Fund s net asset value is calculated by dividing the net assets attributable to unit holders with the total number of outstanding units. The net asset value per unit is computed each dealing day. The price at which units are created or cancelled is calculated by reference to the net asset value per unit as at the close of business on the relevant dealing day. Units in the Fund are classified as equity in the statement of financial position and are stated at fair value representing the price at which unit holders can redeem the units from the Fund. 20

24 D INCOME RECOGNITION Profit income from Islamic deposits placed with licensed financial institutions is recognised on an accrual basis using the effective profit rate method. Dividend income on quoted Shariah-compliant investments is recognised on the ex-dividend date. Realised gains or losses on sale of quoted Shariah-compliant investments are accounted for as the difference between the net disposal proceeds and the carrying amount of quoted Shariah-compliant investments, determined on a weighted average cost basis. E EXPENSES Expenses are accounted for on an accrual basis and charged to the statement of comprehensive income. Expenses arising from net disposal of quoted Shariah-compliant investments are recognised as transaction costs (Note K to the financial statements). F AMOUNT DUE FROM/TO STOCKBROKERS Amounts due from and to stockbrokers represent receivables for Shairah-compliant securities sold and payables for Shariah-compliant securities purchased that have been contracted for but not yet settled or delivered on the statement of financial position date respectively. These amounts are recognised initially at fair value and subsequently measured at amortised cost using the effective profit rate method, less provision for impairment for amounts due from stockbrokers. A provision for impairment of amount due from a stockbroker is established when there is objective evidence that the Fund will not be able to collect the amount due from the relevant stockbroker. Significant financial difficulties of the stockbroker, probability that the stockbroker will enter bankruptcy or financial reorganisation, and default in payments are considered indicators that the amount due from the stockbroker is impaired. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, profit income is recognised using the rate of profit to discount the future cash flows for the purpose of measuring the impairment loss. The effective profit rate method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating the profit income or profit expense over the relevant period. The effective profit rate is the rate that exactly discounts estimated future cash payments or receipts throughout the expected life of the financial instrument, or, when appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. When calculating the effective profit rate, the Fund estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective profit rate, transaction costs and all other premiums or discounts. G CASH AND CASH EQUIVALENTS Cash and cash equivalents comprise cash at bank and Islamic 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. H FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value is price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The information presented herein represents the estimates of fair values as at the date of statement of financial position. 21

25 Where available, quoted and observable market prices are used as the measure of fair values. Where such quoted and observable market prices are not available, fair values are estimated based on a range of methodologies and assumptions regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows and other factors. Changes in the uncertainties and assumptions could materially affect these estimates and the resulting fair value estimates. A range of methodologies and assumptions has been used in deriving the fair values of the Fund s financial instruments as at the date of statement of financial position. The total fair value of each financial instrument is not materially different from the total carrying value. The fair values are based on the following methodologies and assumptions: (a) Short-term Islamic deposits with licensed financial institutions For Islamic deposits and placements with licensed financial institutions with maturities of less than three months, the carrying value is a reasonable estimate of fair value. For Islamic deposits and placements with maturities of three months and above, the estimated fair value is based on discounted cash flows using prevailing Islamic interbank money market rates at which similar Islamic deposits and placements would be made with financial institutions of similar credit risk and remaining period to maturity. (b) Quoted Shariah-compliant investments The estimated fair value is based on quoted and observable market prices. (c) Other short-term financial instruments Other short-term financial instruments comprise amount due from/to Manager, amount due to stockbrokers, dividends receivable, amount due to Trustee and other payables. The carrying values of the assets and liabilities are assumed to approximate their fair values due to the short tenure of less than one year. I TAXATION Current tax expense is determined according to the tax laws in the jurisdictions of the taxable profit earned during the period from the financial assets in which the Fund invests and includes all taxes based upon the taxable profit. J SEGMENT REPORTING Operating segments are reported in a manner consistent with the internal reporting used by the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the strategic asset allocation committee of the Manager that makes the strategic decisions. K TRANSACTION COSTS Transaction costs are costs incurred to acquire or dispose of financial assets or liabilities at fair value through profit or loss. They include fees and commissions paid to agents, advisors, brokers and dealers. Transaction costs, when incurred, are immediately recognised in the statement of comprehensive income as expenses. 22

26 12 NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 31 JULY INFORMATION ON THE FUND Manulife Investment-HW Shariah Flexi Fund ( the Fund ) was established pursuant to a Master Deed dated 08 August 2008, as amended and supplemented by subsequent Supplemental Deeds (hereinafter referred to as the Deed ) between Manulife Asset Management Services Berhad ( the Manager ) and RHB Trustees Berhad ( the Trustee ). The principal activity of the Fund is to invest in Investments as defined under Clause 1 of the Deed, which includes Shariah-compliant stocks and securities of companies listed on Bursa Malaysia Berhad, unlisted sukuk and short-term Islamic money market investments. The Fund commenced operations on 18 October 2012 and will continue its operations until terminated as provided under Clause 12 of the Deed. The main objective of the Fund is to provide unit holders with long-term capital appreciation. The Manager of the Fund, a company incorporated in Malaysia, is a wholly-owned subsidiary of Manulife Holdings Berhad, a public limited liability company, incorporated and domiciled in Malaysia, and listed on the main market of Bursa Malaysia. Its principal activities are the management of unit trusts, private retirement schemes, fund management activities and financial planning. The financial statements were authorised for issue by the Board of Directors of the Manager in accordance with a resolution of the Directors on 21 September NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS The net assets attributable to unit holders meet the definition of puttable instruments classified as Shariah-compliant equity instruments under the revised MFRS 132, Financial Instruments: Presentation. The units in the Fund are puttable instruments which entitle the unit holders to a pro-rata share of the net assets of the Fund. The units are subordinated and have identical features. There is no contractual obligation to deliver cash or another financial asset other than the obligation on the Fund to repurchase the units. The total expected cash flows from the units in the Fund over the life of the units are based on the change in the net assets of the Fund. 3 MANAGER'S FEE In accordance with the Deed, the Manager is entitled to Manager s fee at a rate of 1.50% per annum of the net asset value of the Fund before deducting Trustee s fee and Manager s fee for the day, calculated on a daily basis. There will be no further liability to the Manager in respect of Manager s fee other than the amount recognised above. 4 TRUSTEE S FEE In accordance with the Deed, the Trustee is entitled to a fee of 0.07% per annum of the net asset value of the Fund before deducting Trustee s fee and Manager s fee for the day, calculated on a daily basis, subject to a minimum fee of RM18,000 per annum. There will be no further liability to the Trustee in respect of Trustee s fee other than the amount recognised above. 23

27 5 TAXATION RM RM Current taxation 4,463 - Numerical reconciliation between profit before taxation multiplied by the Malaysian statutory tax rate and tax expenses of the Fund is as follows: RM RM Profit before taxation 7,293,843 1,590,515 Tax calculated at Malaysian tax rate of 24% (2016: 24%) 1,750, ,724 Tax effect in respect of: - Expenses not deductible for tax purposes 59,902 49,404 - Restriction on tax deductible expenses for unit trust funds 109,569 89,206 - Investment income not subject to tax (1,909,281) (520,334) - Investment income subject to different tax rate (6,249) - Tax expenses 4,463-6 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS RM RM Designated at fair value through profit or loss - Quoted Shariah-compliant investments 71,113,664 35,088,113 Net gain on financial assets at fair value through profit or loss Realised 781,399 (1,250,424) - Unrealised 6,436,856 2,677,311 RM RM 7,218,255 1,426,887 24