ANNUAL REPORT EASTSPRING INVESTMENTS MY FOCUS FUND

Transcription

1 ANNUAL REPORT EASTSPRING INVESTMENTS MY FOCUS FUND FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2013

2 Annual Report TABLE OF CONTENTS Fund Information 2 Key Performance Data 4 Manager s Report 6 Market Review 9 Rebates and Soft Commissions 10 Trustee s Report To The Unit Holders of Eastspring Investments MY Focus Fund 12 Independent Auditor s Report To The Unit Holders of Eastspring Investments MY Focus Fund 13 Statement of Comprehensive Income 15 Statement of Financial Position 16 Statement of Changes in Equity 17 Statement of Cash Flows 18 Summary of Significant Accounting Policies 19 Notes To The Financial Statements 29 Corporate Directory 53 1

3 Eastspring Investments MY Focus Fund Fund Information Name of Fund Eastspring Investments MY Focus Fund ( the Fund ) Fund Category / Type Equity / growth and income Fund Objective The Fund seeks to provide investors with capital appreciation in the medium to long-term with an opportunity for income*, if any. Note: The Fund s focus is on growth. * Income will be reinvested unless Unit Holder opts for the distribution to be paid out. Performance Benchmark FTSE Bursa Malaysia KLCI Index (FBMKLCI) Source: Note: The risk profile of the Fund is different from the risk profile of the performance benchmark. Fund Income Distribution Policy Incidental 2

4 Annual Report Fund Information (continued) Breakdown of Unit Holdings by Size As at 31 December 2013, the size of Eastspring Investments MY Focus Fund stood at million units. Fund Size Units (Million) Jan 2013 Feb 2013 Mar 2013 Apr 2013 May 2013 Jun 2013 Jul 2013 Aug 2013 Sep 2013 Oct 2013 Nov 2013 Dec 2013 Breakdown of unit holdings Unit Holdings No. of No. of unit units* holders % ( 000) % 5,000 units and below ,001 to 10,000 units ,001 to 50,000 units , ,001 to 500,000 units , ,001 units and above , Total , * excludes units held by the Manager 3

5 Eastspring Investments MY Focus Fund KEY PERFORMANCE DATA FOR THE FINANCIAL YEAR ENDED Category (%) (%) Launch date to (%) Quoted Securities Construction Consumer Product Finance Industrial Product Infrastructure Project Company Plantation Properties Special Purpose Acquisition Company Technology Trading / Services Trust Loan Stocks Cash And Other Assets Total Net Asset Value (NAV) (RM 000) Units In Circulation (Units 000) Net Asset Value Per Unit (RM) Highest Net Asset Value Per Unit (RM) Lowest Net Asset Value Per Unit (RM) Total Return (%) - Capital Growth - Income Distribution Total Return (%) Gross Distribution Per Unit (RM) Net Distribution Per Unit (RM) Management Expense Ratio (MER) (%)* Portfolio Turnover Ratio (PTR) (times) ^ 21,945 28, ,309 13, ,019 26, (7.76) - (7.76) * The higher MER was due to a higher number of transactions during the period under review. ^ The higher PTR was due to a higher number of transactions during the period under review. 4

6 Annual Report KEY PERFORMANCE DATA (continued) Average total return (%) 1 year to Since launch date to Since launch date Year ended Annual total return (%) to to to (7.76) Source: Lipper for Investment Management, as at 31 December Bases of calculation and assumptions made in calculating returns: Percentage growth = NAV t -1 NAV 0 NAV t = NAV at the end of the period NAV 0 = NAV at the beginning of the period Performance annualised = (1 + Percentage Growth) 1/n - 1 n = Number of years Past performance is not necessarily indicative of future performance and unit prices and investment returns may go down, as well as up. 5

7 Eastspring Investments MY Focus Fund Manager s Report Fund Performance Since inception, the Fund recorded a return of 53.73%, outperforming the benchmark return of 24.28% by 29.45%. For the period under review, the Fund registered a gain of 45.36%, outperforming the benchmark return of 10.54% by 34.82%. The outperformance was due good stock selection. The Fund met its investment objective of providing investors with capital appreciation for the period under review. 60% 50% 40% Eastspring Investments MY Focus Fund - Since Inception Vs Benchmark 60% 50% 40% % Change 30% 20% 10% 0% 30% 20% 10% 0% -10% -20% -10% -20% -30% -30% Mar- 11 Jun- 11 Sep- 11 Dec- 11 Feb- 12 May- 12 Aug- 12 Oct- 12 Jan- 13 Apr- 13 Jul- 13 Sep- 13 Dec- 13 Eastspring Investments MY Focus Fund Benchmark Benchmark: FBMKLCI Source: Lipper for Investment Management and as at 31 December Past performance of the Fund is not necessarily indicative of its future performance. 6

8 Annual Report Manager s Report (continued) Analysis of Fund Performance For the financial year ended 31 December 2013 Income Capital Total Total Return of Return return * Return Benchmark (%) (%) (%) (%) *Capital return components (NAV per unit to NAV per unit) 1) Quoted securities 2) Cash and other assets Distribution / Unit Split Investment Strategy During Period Under Review No distribution or unit split were declared for the financial year ended 31 December 2013 The Fund increased exposure into mid-to-small cap stocks before the 13th General Election. We continue to maintain the same strategy for the rest of the year. The Fund continues its strategy to identify undervalued stocks with good earnings sustainability for longer term outperformance. 7

9 Eastspring Investments MY Focus Fund Manager s Report (continued) Asset Allocation Asset Allocation 31 Dec 31 Dec Changes (%) (%) (%) Quoted securities Cash and other assets (1.68) Asset Allocation as at 31 December 2013 Cash and other assets 13.94% Quoted securities 86.06% There were no significant changes in asset allocation of the Fund for the period under review. State of Affairs of the Fund There have been neither significant change to the state of affairs of the Fund nor any circumstances that materially affect any interests of the unit holders during the period under review. 8

10 Annual Report Market Review Much of the 1Q2013 saw Malaysian investors preoccupied with the prospect of the general elections being called. Early in the quarter, the FBM KLCI peaked at 1694 points but consolidated soon after as concerns over the timing of the general elections continued to haunt the equity markets. Weak corporate results released in February did not help market sentiment, and investors remained jittery. By end of the quarter, expectations were high for the dissolution of Parliament to be called, but did not happen. The FBM KLCI corrected to as low as 1,613 points in February, before rebounding to close the quarter at 1,671.6 or -1.03% quarter-on-quarter. During the quarter, foreign investors continued to be net buyers of Malaysian equities and have been since December of 2012, whilst local investors were generally net sellers. The Malaysian equity market started the 2Q2013 as a laggard in terms of performance as regional markets did well, whilst the domestic market remained distracted with the 13th General Elections. Nevertheless, the FBM KLCI hit new highs during the quarter when the election overhang was removed with a comfortable win by the incumbent which would imply continuity of policies, particularly the implementation of Economic Transformation Programme. By mid 2Q2013, markets were surprised by the US Fed s Bernanke comments and the Federal Open Market Committee (FOMC) minutes released raised the risk of an earlier than expected Fed quantitative easing (QE) taper, and weaker than expected manufacturing numbers from China and growing concerns of a potential credit crunch in China spooked equity markets. Funds flowed out of emerging markets on fears of deteriorating current account and fiscal deficits, and Asian currencies depreciated sharply against the US Dollar. Malaysia was not spared from the correction, but managed to rebound towards the end of the 2Q2013 as global markets stabilized and recovered. The 3Q2013 started well for Malaysia, benefiting from the global rebound, and saw the KLCI scale new highs. However, selling pressure soon set in when Fitch Rating revised its outlook on Malaysia to negative from stable, on the back of worsening public finance outlook. Malaysia was not spared in the mid-3q2013 corrections experienced by most emerging markets, which fell on the back of macro concerns, and the currencies of Indonesia, India, Thailand and Malaysia depreciated against other major currencies. By end of 3Q2013, Malaysia rebounded briefly in tandem with most regional markets given the expectation of further delay in QE tapering. 9

11 Eastspring Investments MY Focus Fund Malaysia rebounded in the 4Q2013 on the back of the United Malays National Organisation (UMNO) elections securing an outcome that was as expected, and the announcement of what seemed like a fiscally responsible Budget 2014, which introduced the goods and services tax (GST) effective 1 April 2015, more subsidy rationalization measures, and measures to curb property speculation. Mid 4Q2013 saw some consolidation and profit taking, as corporate results announced were not inspiring, and foreign investors were net sellers for the month of November of RM3.1bn in equities. By the end of the 4Q2013, Malaysian equity indices scaled new all time highs as investors built positions ahead of The FBM KLCI closed the year under review at 1, points, up 10.54%. The broader FBM Emas Index closed the period under review higher by 12.38%. The MSCI Asia Pacific ex-japan Index rose by 0.46% in USD terms. 1 Rebates and Soft Commissions During the period under review, the Manager and its delegates (if any) received soft commission in the form of research and advisory services which directly assist the investments management of the Fund. The Manager and its delegates (if any) have not received any rebates or shared any commissions from any brokers during the same period under review. 1 Source: Bloomberg: World indices 10

12 Annual Report Eastspring Investments MY FOCUS FUND FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER

13 Eastspring Investments MY Focus Fund TRUSTEE S REPORT TO THE UNIT HOLDERS OF EASTSPRING INVESTMENTS MY FOCUS FUND We have acted as Trustee for Eastspring Investments MY Focus Fund (Fund) for financial year ended 31 December To the best of our knowledge, for the year under review, Eastspring Investments Berhad (Manager) has operated and managed the Fund in accordance with the following:- (a) limitations imposed on the investment powers of the Manager and Trustee under the Deed, the Securities Commission s Guidelines on Unit Trust Funds, the Capital Markets and Services Act 2007 and other applicable laws; (b) the valuation/pricing for the Fund has been carried out in accordance with the Deed of the Fund and applicable regulatory requirements; and (c) creation and cancellation of units for the Fund have been carried out in accordance with the Deed of the Fund and applicable regulatory requirements. For Deutsche Trustees Malaysia Berhad Wong Mun Loong Manager, Trustee Operations Soon Lai Ching Manager, Trustee Operations Kuala Lumpur Date: 14 February

14 Annual Report INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF EASTSPRING INVESTMENTS MY FOCUS FUND REPORT ON THE FINANCIAL STATEMENTS We have audited the financial statements of Eastspring Investments MY Focus Fund, which comprise the statement of financial position as at 31 December 2013 of the Fund, and statement of comprehensive income, statement of changes in equity and statement of cash flows of the Fund for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 19 to 52. Manager s Responsibility for the Financial Statements The Manager of the Fund is responsible for the preparation of financial statements that gives a true and fair view in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards. The Manager is also responsible for such internal control as the Manager determines are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Fund s preparation of financial statements that give a true and fair view 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 Manager s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Manager, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 13

15 Eastspring Investments MY Focus Fund Opinion In our opinion, the financial statements have been properly drawn up in accordance with Malaysian Financial Reporting Standards and International Reporting Standards so as to give a true and fair view of the financial position of the Fund as of 31 December 2013 and of its financial performance and cash flows for the financial year ended 31 December 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 Date: 14 February

16 Annual Report STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2013 Note rm rm INVESTMENT INCOME Gross dividend income 243, ,872 Interest income from deposits with licensed financial institutions 32,500 51,492 Net gain on financial assets at fair value through profit or loss 6 2,739,435 1,518,394 3,015,932 1,809,758 EXPENSES Management fee 3 (111,519) (153,554) Trustee fee 4 (18,000) (17,194) Audit fee (6,240) (6,000) Tax agent fee (3,400) (3,400) Other expenses (30,680) (13,324) Transaction costs (174,465) (198,851) (344,304) (392,323) PROFIT BEFORE TAXATION 2,671,628 1,417,435 TAXATION 5 (14,152) (7,338) PROFIT AFTER TAXATION AND TOTAL COMPREHENSIVE INCOME 2,657,476 1,410,097 Profit after taxation is made up of the following: Realised amount 1,535,937 1,075,816 Unrealised amount 1,121, ,281 2,657,476 1,410,097 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 15

17 Eastspring Investments MY Focus Fund STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2013 Note rm rm ASSETS CURRENT ASSETS Financial assets at fair value through profit or loss 6 18,886,887 6,166,304 Amount due from Manager 2,179,757 3,862 Amount due from stockbrokers 896,113 - Dividends receivable 25,134 1,200 Tax recoverable 5,593 6,020 Cash and cash equivalents 7 3,259,238 1,177,660 TOTAL ASSETS 25,252,722 7,355,046 LIABILITIES CURRENT LIABILITIES Amount due to Manager 59,467 20,118 Amount due to stockbrokers 3,204,429 - Accrued management fee 22,832 9,171 Amount due to Trustee 1,522 1,522 Other payables and accruals 18,991 15,394 TOTAL LIABILITIES 3,307,241 46,205 NET ASSETS VALUE OF THE FUND 8 21,945,481 7,308,841 EQUITY Unit holders capital 18,637,157 6,657,993 Retained earnings 3,308, ,848 NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 8 21,945,481 7,308,841 NUMBER OF UNITS IN CIRCULATION 8 28,545,651 13,818,794 NET ASSET VALUE PER UNIT (RM) The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 16

18 Annual Report STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2013 unit holders Retained Note capital earnings Total rm rm RM Balance as at 1 January ,657, ,848 7,308,841 Movement in unit holders contribution: Creation of units from applications 8 19,936,952-19,936,952 Cancellation of units 8 (7,957,788) - (7,957,788) Total comprehensive income for the financial year - 2,657,476 2,657,476 Balance as at 31 December ,637,157 3,308,324 21,945,481 Balance as at 1 January ,778,522 (759,249) 12,019,273 Movement in unit holders contribution: Creation of units from applications 8 891, ,094 Cancellation of units 8 (7,011,623) - (7,011,623) Total comprehensive income for the financial year - 1,410,097 1,410,097 Balance as at 31 December ,657, ,848 7,308,841 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 17

19 Eastspring Investments MY Focus Fund STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2013 Note rm rm CASH FLOWS FROM OPERATING ACTIVITIES Proceeds from sale of investments 17,689,805 28,546,923 Purchase of investments (25,537,103) (24,160,307) Dividends received 206, ,116 Interest income received 32,500 51,492 Management fee paid (97,857) (159,495) Trustee fee paid (18,000) (25,937) Payment for other fees and expenses (36,723) (24,829) Net cash (used in)/generated from operating activities (7,761,040) 4,461,963 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from units created 17,761, ,189 Payments for cancellation of units (7,918,439) (6,991,697) Net cash generated from/(used in) financing activities 9,842,618 (6,100,508) NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 2,081,578 (1,638,545) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE FINANCIAL YEAR 1,177,660 2,816,205 CASH AND CASH EQUIVALENTS AT THE END OF THE FINANCIAL YEAR 7 3,259,238 1,177,660 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 18

20 Annual Report SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2013 The following accounting policies have been used in dealing with items which are considered material in relation to the financial statements. A BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS The financial statements have been prepared in accordance with Malaysian Financial Reporting Standards ( MFRS ) in Malaysia and International Financial Reporting Standards ( IFRS ). The financial statements have been prepared under the historical cost convention as modified by the financial assets at fair value through profit or loss. The preparation of financial statements in conformity with the 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 financial 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. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note L. (i) The new amendment to published standards that is applicable and effective to the Fund s financial year beginning on or after 1 January 2013 is as follow: Amendment to MFRS 7 Financial instruments: Disclosures requires more extensive disclosures focusing on quantitative information about recognised financial instruments that are offset in the statement of financial position and those that are subject to master netting or similar arrangements irrespective of whether they are offset. This amendment does not have any impact on the classification and valuation of the Fund s financial statements. MFRS 13 Fair value measurement aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across MFRSs. The requirements do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is 19

21 Eastspring Investments MY Focus Fund already required or permitted by other standards. The enhanced disclosure requirements are similar to those in MFRS 7 Financial instruments: Disclosures, but apply to all assets and liabilities measured at fair value, not just financial ones. This standard does not have any impact on the Fund s financial position or performance, however, has resulted in additional disclosure in the notes to the financial statements. (ii) The new standards and amendments to published standards which are relevant to the Fund but not yet effective and have not been early adopted are: (a) Financial year beginning on/after 1 January 2014 Amendment to MFRS 132 Financial instruments: Presentation (effective from 1 January 2014) does not change the current offsetting model in MFRS 132. It clarifies the meaning of currently has a legally enforceable right of set-off that the right of set-off must be available today (not contingent on a future event) and legally enforceable for all counterparties in the normal course of business. It clarifies that some gross settlement mechanisms with features that are effectively equivalent to net settlement will satisfy the MFRS 132 offsetting criteria. This amendment does not have any impact on the classification and valuation of the Fund s financial statements. (b) Financial year beginning on/after 1 January 2017 MFRS 9, Financial Instruments - Classification and Measurement of Financial Assets and Financial Liabilities (effective no earlier than annual periods beginning on or after 1 January 2017) replaces the parts of MFRS 139 that relate to the classification and measurement of financial instruments. MFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the MFRS 139 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. The Fund is yet to assess MFRS 9 s full impact. The Fund will also consider the impact of the remaining phases of MFRS 9 when completed by the Board. 20

22 Annual Report B INCOME RECOGNITION Interest income earned from short-term deposits is recognised on an accrual basis using the effective interest method. Dividend income is recognised on the ex-dividend date, when the right to receive the dividend has been established. Realised gain or loss on sale of investments is accounted for as the difference between the net disposal proceeds and the carrying amount of the investments, determined on a weighted average cost basis. C TAXATION Current tax expense is determined according to the Malaysian tax laws at the current rate based upon the taxable income earned during the financial year. D PRESENTATION AND FUNCTIONAL CURRENCY Items included in the financial statements of the Fund are measured using the currency as the primary economic environment in which the Fund operates (the functional currency ). The financial statements are presented in Ringgit Malaysia, which is the Fund s presentation and functional currency. E FINANCIAL ASSETS AND FINANCIAL LIABILITIES (i) Classification The Fund designates its investment in quoted securities 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. 21

23 Eastspring Investments MY Focus Fund Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and have been included in current assets. The Fund s loans and receivables comprise cash and cash equivalents, amount due from Manager, amount due from stockbrokers and dividends receivable which are all due within 12 months. Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. The Fund s financial liabilities which include amount due to Manager, amount due to stockbrokers, accrued management fee, amount due to Trustee and other payables and accruals are recognised initially at fair value plus directly attributable transaction cost and subsequently measured at amortised cost using the effective interest method. (ii) Recognition and measurement Regular purchases and sales of financial assets are recognised on the trade-date, the date on which the Fund commits to purchase or sell the asset. Investments are initially recognised at fair value. Subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value with gain and loss recognised in the statement of comprehensive income. Transaction costs are expensed in the statement of comprehensive income. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Fund has transferred substantially all risks and rewards of ownership. 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 liabilities are derecognised when it is extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or expires. Unrealised gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss category are presented in the statement of comprehensive income within net gain/(loss) on financial assets at fair value through profit and loss in the period in which they arise. Any unrealised gains however are not distributable. 22

24 Annual Report Dividend income from financial assets at fair value through profit or loss is recognised in the statement of comprehensive income within dividend income when the Fund s right to receive payments is established. Quoted securities in Malaysia are valued at the last done market price quoted on the Bursa Malaysia Securities Berhad ( Bursa Securities ) at the date of the statement of financial position. If a valuation based on the market price does not represent the fair value of the securities, for example during abnormal market conditions or no market price is available, including in the event of a suspension in the quotation of the securities for a period exceeding 14 days, or such shorter period as agreed by the Trustee, then the securities are valued as determined in good faith by the Manager, based on the methods or bases approved by the Trustee after appropriate technical consultation. Deposits with licensed financial institutions are stated at cost plus accrued interest calculated on the effective interest method over the period from the date of placement to the date of maturity of the respective deposits. Loans and receivables and other financial liabilities are subsequently carried at amortised cost using the effective interest method. For assets carried at amortised cost, the Fund assesses at the end of the reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest rate. The asset s carrying amount of the asset is reduced and the amount of the loss is recognised in statement 23

25 Eastspring Investments MY Focus Fund of comprehensive income. If loans and receivables or a held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Fund may measure impairment on the basis of an instrument s fair value using an observable market price. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor s credit rating), the reversal of the previously recognised impairment loss is recognised in statement of comprehensive income. 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. F AMOUNT DUE FROM/(TO) STOCKBROKERS Amount due from and to brokers represent receivables for securities sold and payables for securities purchased that have been contracted for but not yet settled or delivered on the statement of financial position date respectively. These amounts are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment for amount due from stockbrokers. A provision for impairment of amount due from stockbrokers is established when there is objective evidence that the Fund will not be able to collect all amounts due from the relevant broker. Significant financial difficulties of the broker, probability that the broker will enter bankruptcy or financial reorganisation, and default in payments are considered indicators that the amount due from brokers is impaired. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. 24

26 Annual Report The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts throughout the expected life of the financial instrument, or, when appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Fund estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. G CASH AND CASH EQUIVALENTS For the purpose of the statement of cash flows, cash and cash equivalents comprise bank balance and deposit with a licensed financial institution that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. H 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 returned to the Fund at any time for cash equal to a proportionate share of the Fund s net asset value ( NAV ). The outstanding units are carried at the redemption amount that is payable at the statements of financial position date if the unit holder exercises the right to return the unit to the Fund. Units are created and cancelled at the unit holder s option at prices based on the Fund s NAV per unit at the time of creation or cancellation. The Fund s NAV per unit is calculated by dividing the net assets attributable to unit holders with the total number of outstanding units. I UNIT HOLDERS CAPITAL The unit holders contributions to the Fund meet the definition of puttable instruments classified as equity instruments under the revised MFRS 132 Financial Instruments: Presentation. 25

27 Eastspring Investments MY Focus Fund The units in the Fund are puttable instruments which entitle the unit holders to a pro-rata share of the net asset 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 asset of the Fund. J SEGMENTAL INFORMATION A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments. Operating segments are reported in a manner consistent with the internal reporting used by chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Investment Committee of the Fund s manager that undertakes strategic decisions for the Fund. K FAIR VALUE OF FINANCIAL INSTRUMENTS Financial instruments comprise financial assets and financial liabilities. Fair value is the amount at which a financial asset could be exchanged or a financial liability settled, between knowledgeable and willing parties in an arm s length transaction. The information presented herein represents the estimates of fair values as at the date of the statement of financial position. 26

28 Annual Report Financial instruments of the Fund are as follows: Financial assets at fair loans and value through Note receivables profit or loss Total rm rm RM 31 December 2013 Financial assets at fair value through profit or loss 6-18,886,887 18,886,887 Amount due from Manager 2,179,757-2,179,757 Amount due from stockbrokers 896, ,113 Dividends receivable 25,134-25,134 Cash and cash equivalents 7 3,259,238-3,259,238 6,360,242 18,886,887 25,247, December 2012 Financial assets at fair value through profit or loss 6-6,166,304 6,166,304 Amount due from Manager 3,862-3,862 Dividends receivable 1,200-1,200 Cash and cash equivalents 7 1,177,660-1,177,660 1,182,722 6,166,304 7,349,026 All current liabilities are financial liabilities which are carried at amortised cost. 27

29 Eastspring Investments MY Focus Fund L CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES The Fund makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. To enhance the information content of the estimates, certain key variables that are anticipated to have material impact to the Funds results and financial position are tested for sensitivity to changes in the underlying parameters. Estimates and judgments are continually evaluated by the Manager and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 28

30 Annual Report NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER INFORMATION ON THE FUND Eastspring Investments MY Focus Fund (the Fund ) was constituted pursuant to the execution of a Deed dated 25 November 2008 (the Deed ), as amended by Supplemental Deed dated 11 May 2009 entered into between Eastspring Investments Berhad (the Manager ) and OSK Trustees Berhad ( Trustee ). The Fund replaced OSK Trustees with Deutsche Trustees Malaysia Berhad (the Trustee ) effective 1 October A Supplemental Master Deed was entered into between Eastspring Investments Berhad (the Manager ) and Deutsche Trustees Malaysia Berhad (the Trustee ) on 30 July 2010 to effect the change of trustee from OSK Trustees to the Trustee, followed by Second Supplemental Master Deed dated 28 January 2011, Third Supplemental Master Deed dated 9 March 2011 and Fourth Supplemental Master Deed dated 20 January 2012 (collectively referred to as the Deed ). The Fund was launched on 1 March 2011 and will continue its operations until terminated by the Trustee or the Manager as provided under Part 12 of the Deed. The Fund seeks to provide investors with capital appreciation in the medium to long term with an opportunity for income, if any. The Fund targets to invest up to but not limited to 30 Malaysian securities that are expected to provide medium to long-term capital appreciation and income* potential. All investments will be subjected to the SC Guidelines on Unit Trust Funds, the Deed and the objective of the Fund. The main objective of the Fund seeks to provide investors with capital appreciation in the medium to long term with an opportunity for income, if any. The Manager is a company incorporated in Malaysia and is related to Prudential Plc., a public listed company in the United Kingdom. The principal activity of the Manager is the establishment and management of unit trust funds and asset management. 2 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Fund is exposed to market risk inclusive of price risk and interest rate risk, stock/issuer risk, fund management risk, liquidity risk, non-compliance risk, capital risk and credit/default risk. Financial risk management is carried out through internal control processes adopted by the Manager and adherence to the investment restrictions as stipulated in the Deed. 29

31 Eastspring Investments MY Focus Fund Market risk (a) Price risk This risk refers to changes and developments in regulations, politics and the economy of the country. The very nature of a unit trust fund, however, helps mitigate this risk because a fund would generally hold a well-diversified portfolio of securities from different market sectors so that the collapse of any one security or any one market sector would not impact too greatly on the value of the fund. The table below shows assets of the Fund as at 31 December which are exposed to price risk: rm RM Quoted securities designated at fair value through profit or loss 18,886,887 6,166,304 The following table summarises the sensitivity of the Fund s net asset value to movements in prices of quoted securities at the end of the reporting year. The analysis is based on the assumptions that the market price of the quoted securities increased by 5% and decreased by 5% with all other variables held constant. This represents management s best estimate of a reasonable possible shift in the quoted securities, having regard to the historical volatility of the prices. 30

32 Annual Report Increase/ Increase/ (decrease) (decrease) % Change in in profit after in profit after price of quoted Market taxation and Market taxation and securities value net asset value value net asset value rm rm RM rm +5% 19,831, ,344 6,474, ,315-5% 17,942,543 (944,344) 5,857,989 (308,315) (b) Interest rate risk The Fund is exposed to interest rate risk. Changes in interest rates will affect the value of the investments and its returns. To manage the risk, investments will be concentrated in investment grade issues by financial institutions and companies determined by the Manager. Interest rate risk is a general economic indicator that will have an impact on the management of the fund regardless of whether it is a Shariah-based fund or otherwise. The reason for this is because a high level of interest rates will inevitably affect corporate profits and this will have an impact on the value of investments. The Fund s investments in deposit with a licensed financial institution are short-term in nature. Therefore, exposure to interest rate fluctuations is minimal. As at the end of the financial year, the Fund does not hold any other financial instruments that expose it to interest rate risk. 31

33 Eastspring Investments MY Focus Fund Stock/issuer risk This risk refers to the individual risk of the respective companies issuing the securities. Specific risk includes but is not limited to changes in consumer tastes and demand, legal suits, competitive operating environments, changing industry conditions and management omissions and errors. However, this risk is minimised through investing in a wide range of companies in difference sectors and thus function independently from one another. Fund management risk There is the risk that the management company may not adhere to the investment mandate of the respective fund. With close monitoring by the investment committee, back office system being incorporated with limits and controls, and regular reporting to the senior management team, the management company is able to manage such risk. The Trustee has an oversight function over management of the Fund by the management company to safeguard the interest of unit holders. Liquidity risk The Fund maintains sufficient level of liquid assets, after consultation with the Trustee, to meet anticipated payments and cancellations of units by unit holders. Liquid assets comprise cash, deposits with licensed financial institutions and other instruments which are capable of being converted into cash within 7 days. 32

34 Annual Report The table below summarises the Fund s financial liabilities into relevant maturity groupings based on the remaining period as at the statement of financial position date to the contractual maturity date. The amounts in the table are the contractual undiscounted cash flows. Between less than 1 month 1 month to 1 year Total rm RM RM At 31 December 2013 Amount due to stockbrokers 3,204,429-3,204,429 Amount due to Manager: - cancellation of units 59,467-59,467 - management fee 22,832-22,832 Amount due to Trustee 1,522-1,522 Other payables and accruals - 18,991 18,991 Contractual cash out flows 3,288,250 18,991 3,307,241 At 31 December 2012 Amount due to Manager: - cancellation of units 20,118-20,118 - management fee 9,171-9,171 Amount due to Trustee 1,522-1,522 Other payables and accruals - 15,394 15,394 Contractual cash out flows 30,811 15,394 46,205 33

35 Eastspring Investments MY Focus Fund Non-compliance risk Non-compliance risk arises when the Manager and others associated with the Fund do not compliant to the rules set out in the Fund s constitution or the law that governs the Fund or applicable internal control procedures, or act fraudulently or dishonestly. The non-compliance may expose the Fund to higher risks which may result in a fall in the value of the Fund which in turn may affect its investment goals. However, the risk can be mitigated by the internal controls and compliance monitoring undertaken by the Manager. Capital risk The capital of the Fund is represented by equity consisting of unit holders capital and retained earnings. The amount of equity can change significantly on a daily basis as the Fund is subject to daily subscriptions and redemptions at the discretion of unit holders. The Fund s objective when managing capital is to safeguard the Fund s ability to continue as a going concern in order to provide returns for unit holders and benefits for other stakeholders and to maintain a strong capital base to support the development of the investment activities of the Fund. Credit/default risk Credit risk refers to the ability of an issuer or a counter party to make timely payments of interest, principals and proceeds from realisation of investments. The credit risk arising from placements of deposits in licensed financial institutions is managed by ensuring that the Fund will only place deposits in reputable licensed financial institutions. For amount due from stockbrokers, the settlement terms are governed by the relevant rules and regulations as prescribed by Bursa Securities. The settlement terms of the proceeds from the creation of units receivable from the Manager are governed by the Securities Commission s Guidelines on Unit Trust Funds. Credit/default risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Fund. The credit/default risk is minimal as all transactions in quoted securities are settled/paid upon delivery using approved brokers. 34

36 Annual Report The following table sets out the credit risk concentrations and counterparties of the Fund. Cash and amount Amount cash Dividends due from due from equivalents receivable Manager stockbrokers Total rm RM RM rm RM At 31 December 2013 Finance - AAA 3,230, ,230,314 - AA1 28, ,924 Construction - Baa , ,018 Property - NR - 19, ,470 Technology - NR - 5, ,662 Trading / Services - A NR , ,095 Others - NR - - 2,179,757-2,179,757 3,259,238 25,134 2,179, ,113 6,360,242 At 31 December 2012 Finance - AAA 1,020, ,020,087 - AA1 157, ,573 Trading / Services - AAA - 1, ,200 Others - NR - - 3,862-3,862 1,177,660 1,200 3,862-1,182,722 None of these assets are past due or impaired. 35

37 Eastspring Investments MY Focus Fund Fair value estimation The fair value of financial assets and liabilities traded in active market (such as publicly traded derivatives and trading securities) are based on quoted market prices at the close of trading on the year end date. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm s length basis. The fair value of financial assets and liabilities that are not traded in an active market is determined by using valuation techniques. The Fund uses a variety of methods and makes assumptions that are based on market conditions existing at each year end date. Valuation techniques used for non-standardised financial instruments such as options, currency swaps and other over-the-counter derivatives, include the use of comparable recent arm s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity-specific inputs. For instruments for which there is no active market, the Fund may use internally developed models, which are usually based on valuation methods and techniques generally recognised as standard within the industry. Valuation models are used primarily to value unlisted equity, debt securities and other debt instruments for which market were or have been inactive during the financial year. Some of the inputs to these models may not be market observable and are therefore estimated based on assumptions. The output of a model is always an estimate or approximation of a value that cannot be determined with certainty, and valuation techniques employed may not fully reflect all factors relevant to the positions the Fund holds. The fair value are based on the following methodology and assumptions: (i) Bank balance and deposits with licensed financial institutions with maturities less than 1 year, the carrying value is a reasonable estimate of fair value. 36

38 Annual Report (ii) The carrying value less impairment provision of receivables and payables are assumed to approximate their fair values. The carrying value of the financial assets and financial liabilities approximate their fair value due to their short-term nature. Valuations are therefore adjusted, where appropriate, to allow for additional factors including model risk, liquidity risk and counterparty risk. Fair value hierarchy The table below analyses financial instruments carried at fair value by valuation method. The different levels have been defined as follows: Level 1: Quoted prices (unadjusted) in active market for identical assets or liabilities. Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). Level 3: Inputs for the asset and liability that are not based on observable market data (that is, unobservable inputs). The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability. The determination of what constitutes observable requires significant judgement by the Fund. The Fund considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. 37