CIMB ISLAMIC BALANCED FUND FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017

Transcription

1 FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017

2 CONTENTS PAGE(S) INVESTORS' LETTER 1-2 MANAGER'S REPORT 3-11 Fund Objective and Policy Performance Data Market Review Fund Performance Portfolio Structure Market Outlook Investment Strategy Unit Holdings Statistics Soft Commissions and Rebates STATEMENT BY MANAGER 12 TRUSTEE S REPORT 13 SHARIAH ADVISER'S REPORT 14 INDEPENDENT AUDITORS' REPORT STATEMENT OF COMPREHENSIVE INCOME 19 STATEMENT OF FINANCIAL POSITION 20 STATEMENT OF CHANGES IN EQUITY 21 STATEMENT OF CASH FLOWS 22 NOTES TO THE FINANCIAL STATEMENTS DIRECTORY 75 LIST OF CWA (an Agency force of CIMB-Principal) OFFICES 76-80

3 INVESTORS' LETTER Dear Valued Investors, Thank you for your continued support and for the confidence that you have placed in us. We are pleased to share that CIMB-Principal Asset Management Berhad ( CIMB-Principal ) Malaysia concluded the first half of 2017 with RM48 billion in Asset Under Management ( AUM ) and CIMB- Principal s Group AUM has increased by 14% to RM63 billion, for 1-year period ending 30 June Our AUM for Private Retirement Schemes ( PRS ) business has increased by 25% year-on-year ( y-o-y ) to RM388 million as at 30 June We continue to achieve prestigious recognitions from The Edge Thomson Reuters Lipper Fund Awards: The Edge Thomson Reuters Lipper Malaysia Fund Awards 2017 Best Equity Global, 3 years & 5 years : CIMB-Principal Global Titans Fund Best Equity Asia Pacific Ex-Japan, 5 years : CIMB-Principal Asian Equity Fund Best Equity Asia Pacific Ex-Japan - Malaysia Islamic, 5 years : CIMB Islamic Asia Pacific Equity Fund Thomson Reuters Lipper Fund Award Global Islamic 2017 Best Equity Asia Pacific Ex-Japan (Islamic), Best Fund over 5 years : CIMB Islamic Asia Pacific Equity Fund These awards reflect our consistent fund performance, in tandem with our commitment to provide the best customer experience to you. CIMB-Principal was also awarded Fund House of the Year in Malaysia by AsianInvestor for the Asset Management Awards 2017, its second consecutive win and The Employees' Provident Fund ( EPF ) External Portfolio Managers Awards 2017 for the Best Global Bond Portfolio Manager. These industry recognitions reflect our success in scaling up our investment capabilities while building a solid track record and earning the trust of our clients over time. With effect from 30 June 2017, the Fund may opt to seek investment exposure via Shariah-compliant collective investment schemes that is in line with the Fund s objective, subject to the requirements of the Securities Commission Malaysia ( SC ) Guidelines. As for the Fund s investment in Shariahcompliant fixed income securities, the minimum credit rating (by Standard & Poor s ( S&P ) or equivalent rating by Moody's or Fitch) has been changed from BBB to BBB-. With effect from 1 January 2018, the investment limit in Unrated Shariah-compliant fixed income securities will be changed from 25% to 40%. Pursuant to the revised Guidelines on Unit Trust Funds dated 24 May 2017, we now have the right to withdraw all units held by you in the event we are of the opinion that such withdrawal is necessary to ensure that we comply with any relevant laws, regulations and guidelines. We will first notify you before making any such compulsory withdrawal of your units. 1

4 INVESTORS' LETTER (CONTINUED) Please refer to the Master Prospectus (Shariah-compliant Funds) dated 30 June 2017 for further details. Thank you. Yours faithfully, for CIMB-Principal Asset Management Berhad Munirah Khairuddin Chief Executive Officer/Executive Director 2

5 MANAGER S REPORT FUND OBJECTIVE AND POLICY What is the investment objective of the Fund? The Fund aims to achieve medium to long-term growth in both capital and income by investing in permissible Shariah-compliant investments. Has the Fund achieved its objective? The Fund has achieved its objective of medium to long-term growth in both capital and income. What are the Fund investment policy and principal investment strategy? The Fund aims to invest in a diversified portfolio of Shariah-compliant equities and Shariah-compliant fixed income investments. In line with its objective, the investment policy and strategy will be to maintain a balanced portfolio between Shariah-compliant equities and Shariah-compliant fixed income investments in the ratio of 60:40. The fixed income portion of the Fund is to provide some capital stability to the Fund whilst the equity portion will provide the added return in a rising market. The investments by the Fund in Shariah-compliant equities shall not exceed 60% of the Net Asset Value ( NAV ) of the Fund and investments in Shariah-compliant fixed income securities and Shariahcompliant liquid assets shall not be less than 40% of the NAV of the Fund with a minimum credit rating of BBB3 or P2 by RAM Ratings ( RAM ) or equivalent rating by Malaysian Rating Corporation Berhad ( MARC ) or by local rating agency(ies) of the country of issuance; or BBB- by S&P or equivalent rating by Moody's or Fitch. The Fund may invest up to 40% of its NAV in Unrated Shariah-compliant fixed income securities*. The Fund may opt to invest in Shariah-compliant foreign equities up to a maximum of 30% of its NAV. Such foreign equities must be of equity securities of companies domiciled in, listed in, and/or have significant operations in countries in Asia Pacific ex Japan. 'Significant operations' means major businesses of the company. For example, the Fund can invest in a company with significant business and/or operations in Thailand but listed on the New York Stock Exchange ( NYSE ). The threshold for 'significant operations' would be if more than 30% of total group revenue derives from countries in Asia Pacific ex Japan. The calculation would be based on the most recent financial reports released by the companies (e.g. interim and annual reports). The Fund may also opt to seek investment exposure via Shariah-compliant collective investment schemes that is in line with the Fund s objective, subject to the requirements of the SC Guidelines. * With effective 1 st January 2018, the investment limit in Unrated Shariah-compliant fixed income securities will be changed from 25% to 40%. Fund category/type Balanced (Shariah-compliant)/Growth and Income How long should you invest for? Recommended three (3) years or more Indication of short-term risk (low, moderate, high) Moderate When was the Fund launched? 8 March 2001 What was the size of the Fund as at 30 September 2017? RM million ( million units) 3

6 FUND OBJECTIVE AND POLICY (CONTINUED) What is the Fund s benchmark? 30% Financial Times Stock Exchange ( FTSE ) Bursa Malaysia ( FBM ) EMAS Shariah ( FBMS ) Index + 30% Morgan Stanley Capital International All Country ( MSCI AC ) Asia ex Japan Islamic Index + 40% CIMB Islamic 1-month Fixed Return Income Account-i ( FRIA-i ) Note: The benchmark is for comparison purpose only. The benchmark is customised as such to align it closer to the structure of the portfolio and the objective of the Fund. Investors are cautioned that the risk profile of the Fund is higher than the benchmark. What is the Fund distribution policy? The Manager has the discretion to distribute part or all of the Fund s distributable income. The distribution (if any) may vary from period to period depending on the investment objective and the performance of the Fund. What was the net income distribution for the financial year ended 30 September 2017? The Fund distributed a total net income of RM17.70 million to unit holders for the financial year ended 30 September As a result, the NAV per unit dropped from RM to RM on 27 September PERFORMANCE DATA Details of portfolio composition of the Fund for the last three financial years are as follows: % % % Shariah-compliant collective investment scheme Shariah-compliant quoted securities - Basic Materials Construction Consumer Products Energy Finance Health Care Industrials Infrastructure Project Companies ( IPC ) Plantation Properties Real Estate Investment Trust ( REIT ) Technology Telecommunications Trading/Services Utilities Unquoted Sukuk Cash and other net assets

7 PERFORMANCE DATA (CONTINUED) Performance details of the Fund for the last three financial years are as follows: NAV (RM Million) Units in circulation (Million) NAV per unit (RM) Highest NAV per unit (RM) Lowest NAV per unit (RM) Total return (%) Capital growth (%) 4.66 (2.50) Income distribution (%) Management Expense Ratio ( MER ) (%) ^ Portfolio Turnover Ratio ( PTR ) (times) # ^ The Fund s MER decreased from 1.78% to 1.77% due to the increase of average NAV during the financial year under review. # The Fund s PTR has reduced from 1.08 times to 0.95 times due to less trading activities during the financial year under review. Date of distribution Gross/Net distribution per unit (sen) % % % % % Annual total return (Launch date: 8 March 2001) Past performance is not necessarily indicative of future performance and that unit prices and investment returns may go down, as well as up. All performance figures for the financial year have been extracted from Lipper. MARKET REVIEW (1 OCTOBER 2016 TO 30 SEPTEMBER 2017) Local Equity During the financial year under review, the FBMS Index (the Index ) rose by 3.6% from 12, points to 12, points. The Index fell by 2.7% in the last quarter of 2016, jolted by the surprising Trump victory in the US Presidential Elections held on 8 November All sectors were down month-on-month ( m-o-m ) in November 2016, with the exception of defensive health care. The Index started 2017 in positive territory, rising by 1.8% in January 2017 on the back of a mild rally in Government-Linked Companies ( GLCs ). Corporate news on GLCs reform particularly Permodalan Nasional Bhd ( PNB ) related companies increased optimism that the momentum on GLCs restructuring was gathering strength. The gain extended into February 2017 and March 2017 with the Index rising by 1.31% and 3.42% respectively, led by inflows from foreign funds. GLCs restructuring remained a key theme as UMW Holdings Bhd and Sime Darby Bhd-led gainers for the consumer discretionary and industrial sectors. The local market remained well bid with bullish undertones led by foreign flows that remained very underweight on Malaysia. Foreign inflows continued to trend higher with net inflows amounting to RM5.7 billion for first quarter of 2017 and RM4.4 billion in March 2017 itself. 5

8 MARKET REVIEW (1 OCTOBER 2016 TO 30 SEPTEMBER 2017) (CONTINUED) Local Equity (continued) CIMB ISLAMIC BALANCED FUND April 2017 rose by another 1.3% on the back of a stronger Malaysian Ringgit ( MYR ), recovering corporate earnings prospects and foreign funds inflow. Buoyant regional markets and corporate exercise (proposed merger of I&P Group Sdn Bhd and SP Setia Bhd) also helped boost interest in the market. But the Index saw a reversal in May 2017, falling by 1.30% despite a strong first quarter of 2017 Gross Domestic Product ( GDP ) growth of 5.6% y-o-y. The Index stayed rather flat in June 2017 (+0.14%) before it fell in July 2017 (-0.82%) to close at 12,717 points. The key highlight in July 2017 was the listing of Lotte Chemical Titan Holding Bhd ( Lotte ), the largest Initial Public Offering ( IPO ) since The stock fell at debut due to weak investor demand and suffered another sharp drop after it announced a 72% decline in its second quarter of 2017 net profit. On 31 July 2017, Lotte closed at RM4.70 or 27% below its IPO price of RM6.50. The Index rose by 32 points or 0.25% in August 2017 despite the geopolitical tension in Korea. Malaysia s macroeconomic fundamentals remained strong as GDP for the second quarter of 2017 came in at 5.8%, following a 5.6% expansion in the first quarter of Consequently, various economists upgraded their full year GDP forecast for Malaysia between 5.2% to 5.5% (Government estimate between 4.3% to 4.8%). Meanwhile, inflation continued to moderate to 3.2% in July 2017 after peaking at 5.1% in March MYR stabilised at RM4.30 to the US Dollar ( USD ) despite a sizeable government bond maturity during the month. The gains extended into September 2017 with the Index rising by points or 0.38%. The Index continued to prove resilient in absorbing negative shocks despite the rise of external uncertainties. Foreign Equity During the financial year under review, Asian equities rose by 25.8% in MYR and 23% in USD terms. Asian equities started in October 2016 with concerns on falling oil price, China s restrictions on residential property transactions and rising US bond yields and USD. President Trump s victory further led to questions as to how will the US fiscal policy transition from announcement to detailed design and implementation, potential trade war with China, will the USD continue to strengthen substantially in 2017 and will stronger US growth lead to higher than expected inflation. Investor sentiment quickly changed in January 2017 as global and Asian Purchasing Managers Index ( PMI ) rose while other indicators such as US 10-year yields were stable, USD has not strengthened significantly and Central Banks balance sheets continued to expand. Growth stocks started to perform better vis-à-vis value. North Asia performed better than India or Association of Southeast Asian Nations ( ASEAN ) given their technology sector s heavy exposure, with expectations of an Apple iphone super-cycle benefiting the supply chain. Initial concerns regarding a potential US trade war with China dissipated, with threats turning to rhetoric. The US confrontation with North Korea regarding nuclear arms remains an ongoing development. Asian equities trended upwards mostly throughout 2017, with investors optimism on capital markets continue building up. However, it was notable that the combined size of the top Central Banks balance sheets peaked in September 2017, which could suggest less monetary policy support for asset prices. 6

9 MARKET REVIEW (1 OCTOBER 2016 TO 30 SEPTEMBER 2017) (CONTINUED) Unquoted Sukuk CIMB ISLAMIC BALANCED FUND The local sovereign yield curve moved higher in the fourth quarter of 2016 following the surprise win by Donald Trump in the US Presidential Elections in November 2016 which triggered heavy selling in the Malaysian Government Securities ( MGS ) and Government Investment Issues ( GII ). As expected, the US Federal Reserve (the Fed ) hiked the Fed Funds Rate by 25 basis points ( bps ) from a range of 0.25% to 0.50% to 0.50% to 0.75% in December According to the dot plot, the median Federal Open Market Committee ( FOMC ) member saw rates between 1.25% to 1.75% at the end of 2017, suggesting three 25 bps rate hikes instead of two in 2017 and continue to project three quarter point hike in The Fed hiked the Fed Fund Rate by another 25 bps to a range of 0.75% to 1.00% in the March 2017 FOMC meeting. The Fed s Chief Janet Yellen said the move signaled her view the economy is doing well started with the GII yield curve bull steepened which was driven by local buying as investors took up position for the New Year. Yields for the longer end of the curve moved higher due to the expected large supply of long-tenor issuances in the government securities 2017 auction calendar. For the financial year under review, the GII yield curve shifted higher in tandem with the MGS curve driven by the hawkish comments by few Central Bankers which caused massive selling pressure in the global bond markets. Market players were cautious with the potential tightening of monetary policy by the developed markets as well as the combination of the balance sheet reduction in the US and Europe. Meanwhile, total foreign ownership in Malaysian securities saw an increase of RM9.3 billion in September 2017 following three consecutive months of net outflow. Total foreign holdings were lifted back to RM200.1 billion from RM190.8 billion August Net increase was seen across MGS, GII and discount instruments in September Percentage wise, foreign ownership of MGS and GII stood at 42.8% and 7.0% in September Malaysia's economy recorded a stronger growth of 5.8% y-o-y in second quarter of 2017 from 5.6% in the first quarter of 2017 on the back of stronger external activities and private consumption. During the financial year under review, Bank Negara Malaysia ( BNM ) kept Overnight Policy Rate ( OPR ) stable at 3.00%. In its recent September 2017 meeting, BNM kept its OPR unchanged for the seventh consecutive time with the monetary stance viewed as remaining accommodative. 7

10 FUND PERFORMANCE 1 year to years to years to Since inception to % % % % Income Capital Total Return Benchmark Average Total Return The Fund achieved a total return of 8.91% on a 1-year basis, which outperformed the benchmark by 87 bps. On a 3-year and 5-year basis, the Fund achieved 21.85% and 39.54% returns respectively, which outperformed the benchmark by 483 bps and 855 bps respectively. 220% 200% 180% 160% 140% 120% 100% 80% 60% 40% 20% CIMB Islamic Balanced Fund 30% FBMS Index + 30% MSCI AC Asia ex Japan Islamic Index + 40% CIMB Islamic 1-month FRIA-i 0% Changes in NAV Changes % NAV (RM Million) (0.44) NAV/Unit (RM) The NAV per unit has increased by 4.09% during the financial year under review while the NAV of the Fund has decreased by 0.44% due to redemption activity. Performance data represents the combined income and capital return as a result of holding units in the Fund for the specified length of time, based on NAV to NAV price. The performance data assumes that all earnings from the Fund are reinvested and are net of management and trustee fees. Past performance is not reflective of future performance and income distributions are not guaranteed. Unit prices and income distributions, if any, may fall and rise. All performance figures for the financial year have been extracted from Lipper. 8

11 PORTFOLIO STRUCTURE Asset allocation (% of NAV) Shariah-compliant collective investment scheme Shariah-compliant quoted securities - local Shariah-compliant quoted securities - foreign Unquoted Sukuk Cash and other net assets TOTAL The Fund has increased its cash and other net assets level to 10.53%, with 24.44% invested in local Shariah-compliant quoted securities, 27.74% in foreign Shariah-compliant quoted securities and 36.69% in unquoted Sukuk. MARKET OUTLOOK* Local Equity For Malaysia, we anticipate stronger forthcoming quarters leading into the 14 th General Election, which we expect to occur in the first quarter of The market should also be supported by the recently tabled 2018 pre-election budget which is both expansionary and people-centric. Malaysia s fundamentals are still projected to be firm, with the Malaysian Government expecting the economy to grow between 5.0% to 5.5% in 2018, underpinned by robust domestic demand and sustained external demand. The Government has reiterated its commitment to fiscal prudence by setting a fiscal target deficit of -2.8% of GDP in 2018 (versus -3.0% of GDP in 2017). Foreign Equity We are positive on Asian equities, although outperformance is likely to be muted over the next 2 to 3 months given how well markets have performed this year. Equity fund flows have become more mixed recently with outflows from Korea, Taiwan and India while China continues to see inflows. For 2018, we expect earnings growth of ~12%, higher Return on Equity ( ROE ), reasonable valuations at 13 times financial year 2018 estimate and a predictable tightening path by major Central Banks. We see tighter monetary policy but equities should be supported by easier fiscal policy. The global economy is in synchronized expansion which will underpin corporate earnings. As a sign of confidence in the economic recovery, Central Banks appear increasingly comfortable to look through low inflation and continue raising rates, or at least not ease them. Earnings estimates in Asia have picked up recently and may continue due to operating leverage and better pricing power from key initiatives such as China s supply side reform and stable/rising commodity prices. 9

12 MARKET OUTLOOK* (CONTINUED) Unquoted Sukuk The odds for another Fed hike this year have increased with markets pricing in a 69.9% chance following the Fed Chair Yellen s reiteration that another hike in 2017 is not off the table during the FOMC meeting held at the end of September During the same meeting, it was also announced that they would start shrinking the balance sheet beginning in October The European Central Bank ( ECB ) is also expected to eventually announce the tapering of their Quantitative Easing ( QE ) program. The combination of the Fed s decision to reduce its USD4.5 trillion balance sheets and ECB tapering its QE program could limit flows into the Emerging Markets ( EM ) and is vulnerable to outflows. BNM projects headline inflation to moderate on expectations of a smaller effect from global cost factors. As such, with inflation to stay modest for the rest of the year we maintain our view that BNM will keep OPR unchanged in the November 2017 meeting. The tabling of the 2018 Budget on 27 October 2017 will be closely watched whereby a further fiscal consolidation is expected to have positive impact to the domestic fixed income market. *This market outlook does not constitute an offer, invitation, commitment, advice or recommendation to make a purchase of any investment. The information given in this article represents the views of CIMB-Principal or based on data obtained from sources believed to be reliable by CIMB-Principal. Whilst every care has been taken in preparing this, CIMB-Principal makes no guarantee, representation or warranty and is under no circumstances liable for any loss or damage caused by reliance on, any opinion, advice or statement made in this market outlook. INVESTMENT STRATEGY Local Equity For Malaysia, we continue to favour sectors like e-commerce/logistics, tourism, and construction. GLCs reforms remain a structural market theme. We also seek ideas in personal consumption plays. Foreign Equity The strategy is to position the Fund to take a long-term structural bets instead of timing the market. We manage a diversified portfolio with concentrated positions in high conviction ideas. For example, the top 10 holdings account for about 49% of the Equity allocation. We have been adding offbenchmark stocks to the portfolio where we have high conviction, which we think will provide superior returns. To manage portfolio risk, we are selective in our stock picks based on their fundamentals and valuations. Selected areas where we are positive include: 1) Beneficiaries of fiscal stimulus in India; 2) Selected industrial in ASEAN; and 3) Oligopolistic technology component names and internet platform companies with huge amount of customers. Unquoted Sukuk We maintain overweight on corporate Sukuk with focus on primary corporate issuances with higher yields for better yield pickup but remain selective on the credits as downgrades and defaults on credit market may be increasing in Meanwhile, we hold a tactical position in the government securities when the opportunity arises. 10

13 UNIT HOLDINGS STATISTICS Breakdown of unit holdings by size as at 30 September 2017 are as follows: Size of holdings (units) No. of unit holders No. of units held % of units held (million) 5,000 and below 58, ,001-10,000 5, ,001-50,000 12, , ,000 3, ,001 and above Total 78, SOFT COMMISSIONS AND REBATES CIMB-Principal Asset Management Berhad (the Manager ) and the Trustee (including their officers) will not retain any form of rebate or soft commission from, or otherwise share in any commission with, any broker in consideration for directing dealings in the investments of the Funds unless the soft commission received is retained in the form of goods and services such as financial wire services and stock quotations system incidental to investment management of the Funds. All dealings with brokers are executed on best available terms. During the financial year under review, the Manager and the Trustee did not receive any rebates from the brokers or dealers but have retained soft commission in the form of goods and services such as financial wire services and stock quotations system incidental to investment management of the Funds. 11

14 STATEMENT BY MANAGER TO THE UNIT HOLDERS OF CIMB ISLAMIC BALANCED FUND We, being the Directors of CIMB-Principal Asset Management Berhad (the Manager ), do hereby state that, in the opinion of the Manager, the accompanying audited financial statements set out on pages 19 to 74 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 30 September 2017 and of its financial performance, changes in equity and cash flows for the financial year then ended in accordance with the provisions of the Malaysian Financial Reporting Standards ( MFRS ) and International Financial Reporting Standards ( IFRS ). For and on behalf of the Manager CIMB-Principal Asset Management Berhad (Company No.: K) MUNIRAH KHAIRUDDIN Chief Executive Officer/Executive Director ALEJANDRO ECHEGORRI Executive Director Kuala Lumpur 16 November

15 TRUSTEE S REPORT TO THE UNIT HOLDERS OF CIMB ISLAMIC BALANCED FUND We, Universal Trustee (Malaysia) Berhad, being the Trustee for CIMB Islamic Balanced Fund (the Fund ), are of the opinion that CIMB-Principal Asset Management Berhad (the Manager ), acting in the capacity of the Manager of the Fund, have fulfilled their duties in the following manner for the financial year ended 30 September 2017: (a) (b) (c) the Fund is being managed in accordance with the 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; valuation/pricing is carried out in accordance with the Deeds and relevant regulatory requirements; and creation and cancellation of units is carried out in accordance with the Deeds and relevant regulatory requirements. During the financial year, a total distribution of 2.35 sen per unit (gross) has been distributed to the unit holders of the Fund. We are of the view that the distribution is consistent with the objective of the Fund. For and on behalf of the Trustee UNIVERSAL TRUSTEE (MALAYSIA) BERHAD ONG TEE VANN Chief Executive Officer Kuala Lumpur 16 November

16 SHARIAH ADVISER S REPORT TO THE UNIT HOLDERS OF CIMB ISLAMIC BALANCED FUND We have acted as the Shariah Adviser of CIMB Islamic Balanced Fund (the Fund ) for the financial year ended 30 September Our responsibility is to ensure that the procedures and processes employed by CIMB-Principal Asset Management Berhad (the Manager ) are in accordance with Shariah and Shariah Investment Guidelines. In our opinion, the Manager has managed and administered the Fund in accordance with the Shariah Investment Guidelines of the Fund and complied with applicable guidelines, rulings or decisions issued by the Securities Commission Malaysia pertaining to Shariah matters for the financial year ended 30 September In addition, we confirm that the investment portfolio of the Fund comprises securities which have been classified as Shariah-compliant by the Shariah Advisory Council of the Securities Commission Malaysia and, where applicable the Shariah Advisory Council of Bank Negara Malaysia. For investments other than the abovementioned, we have reviewed the same and are of the opinion that these investments were in accordance with the rulings of the Shariah Adviser and the Shariah Investment Guidelines of the Fund. This report is made solely to the unit holders of the Fund, as a body, and for no other purpose. We do not assume responsibility to any other person for the content of this report and we shall not be liable for any errors or non-disclosure on the part of the Manager. For and on behalf of Shariah Adviser CIMB Islamic Bank Berhad ASHRAF GOMMA ALI Director/Regional Head, Shariah & Governance/Designated Person Responsible for Shariah Advisory Kuala Lumpur 16 November

17 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF CIMB ISLAMIC BALANCED FUND REPORT ON THE AUDIT OF FINANCIAL STATEMENTS Our opinion CIMB ISLAMIC BALANCED FUND In our opinion, the financial statements of CIMB Islamic Balanced Fund (the Fund ) give a true and fair view of the financial position of the Fund as at 30 September 2017, and of its financial performance and its cash flows for the year then ended in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards. What we have audited We have audited the financial statements of the Fund, which comprise the statement of financial position as at 30 September 2017, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, as set out on pages 19 to 74. Basis for opinion We conducted our audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditors responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence and other ethical responsibilities We are independent of the Fund in accordance with the By-Laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants ( By-Laws ) and the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants ( IESBA Code ), and we have fulfilled our other ethical responsibilities in accordance with the By-Laws and the IESBA Code. 15

18 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF CIMB ISLAMIC BALANCED FUND (CONTINUED) REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED) Information other than the financial statements and auditors report thereon CIMB ISLAMIC BALANCED FUND The Manager of the Fund is responsible for the other information. The other information comprises Manager s report but does not include the financial statements of the Fund and our auditors report thereon. Our opinion on the financial statements of the Fund does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements of the Fund, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements of the Fund or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Manager for the financial statements The Manager of the Fund is responsible for the preparation of the financial statements of the Fund that give a true and fair view in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards in Malaysia. The Manager is also responsible for such internal control as the Manager determine is necessary to enable the preparation of financial statements of the Fund that are free from material misstatement, whether due to fraud or error. In preparing the financial statements of the Fund, the Manager is responsible for assessing the Fund s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Manager either intend to liquidate the Fund or to cease operations, or have no realistic alternative but to do so. Our objectives are to obtain reasonable assurance about whether the financial statements of the Fund as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with approved standards on auditing in Malaysia and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. 16

19 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF CIMB ISLAMIC BALANCED FUND (CONTINUED) REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED) Responsibilities of the Manager for the financial statements (continued) CIMB ISLAMIC BALANCED FUND As part of an audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: (a) (b) (c) (d) (e) Identify and assess the risks of material misstatement of the financial statements of the Fund, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Manager. Conclude on the appropriateness of the Manager s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Fund s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the financial statements of the Fund or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Fund to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements of the Fund, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 17

20 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF CIMB ISLAMIC BALANCED FUND (CONTINUED) REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED) CIMB ISLAMIC BALANCED FUND We communicate with the Manager regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. OTHER MATTERS This report is made solely to the unit holders of the Fund and for no other purpose. We do not assume responsibility to any other person for the content of this report. PRICEWATERHOUSECOOPERS (No. AF: 1146) Chartered Accountants Kuala Lumpur 16 November

21 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER Note RM RM INVESTMENT INCOME Dividend income 5,776,352 4,853,529 Profit income 4 6,463,150 6,396,240 Net gain on financial assets at fair value through profit or loss 11 29,903,793 7,827,159 Other income 5 77,897 - Net foreign exchange loss (392,300) (2,610,322) 41,828,892 16,466,606 EXPENSES Management fee 6 5,814,925 5,662,418 Trustee's and custodian fees 7 590, ,018 Audit fee 14,170 12,515 Tax agent's fee 34,216 39,257 Transaction costs 1,487,848 1,207,658 Donation to charitable bodies - 1,663 Other expenses 525, ,607 8,467,412 8,014,136 PROFIT BEFORE TAXATION 33,361,480 8,452,470 Taxation 10 (242,373) (119,934) PROFIT AFTER TAXATION AND TOTAL COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR 33,119,107 8,332,536 Profit after taxation is made up as follows: Realised amount 25,059,496 4,774,940 Unrealised amount 8,059,611 3,557,596 33,119,107 8,332,536 The accompanying notes to the financial statements form an integral part of the audited financial statements. 19

22 STATEMENT OF FINANCIAL POSITION AS AT 30 SEPTEMBER Note RM RM ASSETS Cash and cash equivalents (Shariah-compliant) 12 41,770,605 49,213,680 Financial assets at fair value through profit or loss (Shariah-compliant) ,123, ,696,215 Amount due from stockbrokers - 6,295,753 Amount due from Manager 3,251,819 2,824,144 Amount due from Manager of collective investment scheme - Management fee rebate 37,723 - Dividends receivable 247, ,496 Tax recoverable 37,813 61,077 TOTAL ASSETS 402,469, ,376,365 LIABILITIES Amount due to stockbrokers - 21,298,136 Amount due to Manager 2,699,672 3,465,737 Accrued management fee 487, ,488 Amount due to Trustee 32,901 32,577 Distribution payable 81, ,210 Provision for donation to charitable bodies 8 16,753 26,529 Other payables and accruals 87, ,517 TOTAL LIABILITIES 3,405,730 25,549,194 NET ASSET VALUE OF THE FUND 399,063, ,827,171 EQUITY Unit holders capital 310,570, ,755,441 Retained earnings 88,493,014 73,071,730 NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 399,063, ,827,171 NUMBER OF UNITS IN CIRCULATION (UNITS) ,308, ,156,681 NET ASSET VALUE PER UNIT (RM) The accompanying notes to the financial statements form an integral part of the audited financial statements. 20

23 STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017 Unit holders capital Retained earnings Total Note RM RM RM Balance as at 1 October ,755,441 73,071, ,827,171 Movement in unit holders' contributions: - Creation of units from applications 78,398,392-78,398,392 - Creation of units from distribution 17,611,531-17,611,531 - Cancellation of units (113,194,729) - (113,194,729) Total comprehensive income for the financial year - 33,119,107 33,119,107 Distribution 9 - (17,697,823) (17,697,823) Balance as at 30 September ,570,635 88,493, ,063,649 Balance as at 1 October ,474,312 82,756, ,230,576 Movement in unit holders' contributions: - Creation of units from applications 108,823, ,823,842 - Creation of units from distribution 17,888,861-17,888,861 - Cancellation of units (77,431,574) - (77,431,574) Total comprehensive income for the financial year - 8,332,536 8,332,536 Distribution 9 - (18,017,070) (18,017,070) Balance as at 30 September ,755,441 73,071, ,827,171 The accompanying notes to the financial statements form an integral part of the audited financial statements. 21

24 STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER Note RM RM CASH FLOWS FROM OPERATING ACTIVITIES Proceeds from disposal of Shariah-compliant quoted securities 271,602, ,800,396 Proceeds from disposal of unquoted Sukuk 121,489, ,619,947 Proceeds from the redemption of unquoted Sukuk 6,526,076 29,516,713 Purchase of Shariah-compliant quoted securities (234,185,518) (208,115,057) Purchase of unquoted Sukuk (141,518,518) (250,683,569) Purchase of Shariah-compliant collective investment scheme - (2,251,775) Dividend income received 5,593,143 4,642,876 Profit income received from Shariah-compliant deposits with licensed Islamic financial institutions and Hibah earned 435, ,574 Profit income received from unquoted Sukuk 6,011,023 5,895,124 Management fee paid (5,812,866) (5,616,517) Management fee rebate received 40,174 - Trustee's and custodian fees paid (590,590) (517,747) Donation to charitable bodies (9,776) - Payments for other fees and expenses (598,913) (591,241) Net realised foreign exchange loss (437,122) (297,415) Tax refunded 23,264 12,943 Net cash generated from/(used in) operating activities 28,567,894 (62,011,748) CASH FLOWS FROM FINANCING ACTIVITIES Cash proceeds from units created 77,970, ,249,118 Payments for cancellation of units (113,960,794) (74,220,382) Distribution paid (132,974) (30,009) Net cash (used in)/generated from financing activities (36,123,051) 32,998,727 Net decrease in cash and cash equivalents (7,555,157) (29,013,021) Effects of foreign exchange differences 112,082 (2,459,431) Cash and cash equivalents at the beginning of the financial year 49,213,680 80,686,132 Cash and cash equivalents at the end of the financial year 12 41,770,605 49,213,680 Cash and cash equivalents comprised of: Shariah-compliant deposits with licensed Islamic financial institutions 5,632,387 26,898,178 Bank balances 36,138,218 22,315,502 Cash and cash equivalents at the end of the financial year 12 41,770,605 49,213,680 The accompanying notes to the financial statements form an integral part of the audited financial statements. 22

25 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER THE FUND, THE MANAGER AND ITS PRINCIPAL ACTIVITY CIMB Islamic Balanced Fund (the Fund ) is governed by a Master Deed dated 15 May 2008, a Fourth Supplemental Master Deed dated 25 June 2008, a Sixth Supplemental Master Deed dated 14 July 2008, a Seventh Supplemental Master Deed dated 19 November 2008, a Fourteenth Supplemental Master Deed dated 26 June 2012 and a Seventeenth Supplemental Master Deed dated 25 March 2015 (collectively referred to as the Deeds"), between, CIMB- Principal Asset Management Berhad (the Manager ) and Universal Trustee (Malaysia) Berhad (the Trustee ). The Fund aims to invest in a diversified portfolio of Shariah-compliant equities and Shariahcompliant fixed income investments. In line with its objective, the investment policy and strategy will be to maintain a balanced portfolio between Shariah-compliant equities and Shariah-compliant fixed income investments in the ratio of 60:40. The fixed income portion of the Fund is to provide some capital stability to the Fund whilst the equity portion will provide the added return in a rising market. The investments by the Fund in Shariah-compliant equities shall not exceed 60% of the NAV of the Fund and investments in Shariah-compliant fixed income securities and Shariah-compliant liquid assets shall not be less than 40% of the NAV of the Fund with a minimum credit rating of BBB3 or P2 by RAM or equivalent rating by MARC or by local rating agency(ies) of the country of issuance; or BBB- by S&P or equivalent rating by Moody's or Fitch. The Fund may invest up to 40% of its NAV in Unrated Shariah-compliant fixed income securities. The Fund may opt to invest in Shariah-compliant foreign equities up to a maximum of 30% of its NAV. Such foreign equities must be of equity securities of companies domiciled in, listed in, and/or have significant operations in countries in Asia Pacific ex Japan. 'Significant operations' means major businesses of the company. For example, the Fund can invest in a company with significant business and/or operations in Thailand but listed on the NYSE. The threshold for 'significant operations' would be if more than 30% of total group revenue derives from countries in Asia Pacific ex Japan. The calculation would be based on the most recent financial reports released by the companies (e.g. interim and annual reports). The Fund may also opt to seek investment exposure via Shariah-compliant collective investment schemes that is in line with the Fund s objective, subject to the requirements of the SC Guidelines. All investments are subjected to the SC Guidelines on Unit Trust Funds, SC requirements, the Deeds, except where exemptions or variations have been approved by the SC, internal policies and procedures and the Fund s objective. The Manager, a company incorporated in Malaysia, is a subsidiary of CIMB Group Sdn Bhd and regards CIMB Group Holdings Berhad as its ultimate holding company. The Manager is also an associate of Principal International (Asia) Limited, which is a subsidiary of Principal Financial Group Inc. The principal activities of the Manager are the establishment and management of unit trust funds and fund management activities. 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following accounting policies have been used consistently in dealing with items which are considered material in relation to the financial statements: (a) Basis of preparation The financial statements have been prepared in accordance with the provisions of the MFRS and IFRS. The financial statements have been prepared under the historical cost convention, as modified by financial assets at fair value through profit or loss. 23

26 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CIMB ISLAMIC BALANCED FUND (a) Basis of preparation (continued) The preparation of financial statements in conformity with MFRS and IFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported year. It also requires the Manager to exercise their judgment in the process of applying the Fund s accounting policies. Although these estimates and assumptions 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 2(m). Standards, amendments to published standards and interpretations to existing standards that are effective: The Fund has applied the following amendments for the first time for the financial year beginning 1 October 2016: Amendments to MFRS 101 Presentation of Financial Statements - Disclosure Initiative provide clarifications on a number of issues, including: Materiality - an entity should not aggregate or disaggregate information in a manner that obscures useful information. Where items are material, sufficient information must be provided to explain the impact on the financial position or performance. Disaggregation and subtotals - line items specified in MFRS 101 may need to be disaggregated where this is relevant to an understanding of the entity s financial position or performance. There is also new guidance on the use of subtotals. Notes - confirmation that the notes do not need to be presented in a particular order. Other comprehensive income ( OCI ) arising from investments accounted for under the equity method - the share of OCI arising from equity-accounted investments is grouped based on whether the items will or will not subsequently be reclassified to profit or loss. Each group should then be presented as a single line item in the statement of other comprehensive income. According to the transitional provisions, the disclosures in MFRS 108 regarding the adoption of new standards/accounting policies are not required for these amendments. Annual Improvements to MFRSs Cycle The adoption of these amendments did not have any impact on the current financial year or any prior year and is not likely to affect future years. 24

27 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CIMB ISLAMIC BALANCED FUND (a) Basis of preparation (continued) The standards, amendments to published standards and interpretations to existing standards that are applicable to the Fund but not yet effective and have not been early adopted are as follows: (i) Financial year beginning on/after 1 October 2017 Amendments to MFRS 107 Statement of Cash Flows - Disclosure Initiative (effective from 1 January 2017) introduce an additional disclosure on changes in liabilities arising from financing activities. The Fund will apply this standard when effective. This standard is not expected to have a significant impact on the Fund s financial statements. (ii) Financial year beginning on/after 1 October 2018 MFRS 15 Revenue from Contracts with Customers (effective from 1 January 2018) replaces MFRS 118 Revenue and MFRS 111 Construction Contracts and related interpretations. The core principle in MFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Revenue is recognised when a customer obtains control of goods or services, i.e. when the customer has the ability to direct the use of and obtain the benefits from the goods or services. A new five-step process is applied before revenue can be recognised: Identify contracts with customers; Identify the separate performance obligations; Determine the transaction price of the contract; Allocate the transaction price to each of the separate performance obligations; and Recognise the revenue as each performance obligation is satisfied. Key provisions of the new standard are as follows: Any bundled goods or services that are distinct must be separately recognised, and any discounts or rebates on the contract price must generally be allocated to the separate elements. If the consideration varies (such as for incentives, rebates, performance fees, royalties, success of an outcome etc), minimum amounts of revenue must be recognised if they are not at significant risk of reversal. The point at which revenue is able to be recognised may shift: some revenue which is currently recognised at a point in time at the end of a contract may have to be recognised over the contract term and vice versa. There are new specific rules on licenses, warranties, non-refundable upfront fees, and consignment arrangements, to name a few. As with any new standard, there are also increased disclosures. 25