Hong Leong Islamic Income Management Fund

Transcription

1 Reaching out to you Hong Leong Islamic Income Management Fund Interim Report 2017/ April 2018 Unaudited

2 Hong Leong Islamic Income Management Fund Contents Page Manager s Review and Report Statement by the Manager Trustee s Report Shariah Adviser's Report Condensed Statement of Comprehensive Income Condensed Statement of Financial Position Condensed Statement of Changes in Equity Condensed Statement of Cash Flows Notes to the Condensed Financial Statements Performance Data Corporate Information Corporate Directory

3 Manager s Review and Report I. FUND INFOATION Fund Name Hong Leong Islamic Income Management Fund Fund Category Fixed Income (Islamic) Fund Type Income Investment Objective To provide investors with a low risk investment portfolio offering a stable and regular stream of income* and stability in capital** while adhering to Shariah requirements. Benchmark Malayan Banking Berhad 1Month General Investment Account (GIA) Rate Distribution Policy The Fund aims to provide monthly cash distributions on a best effort basis. The rate of the cash distribution will be determined at every month end in order to bring the NAV of the Fund to the proposed range of per unit. The distribution will be subject to availability of sufficient reserves for cash distribution. Breakdown of Unitholdings By Size Size of Holdings 5,000 and below 5,001 to 10,000 10,001 to 50,000 50,001 to 500, ,001 and above No. of Accounts No. of Units Held 12, , , ,384, ,121, Notes: * Income may be distributed in the form of cash and/or Units. ** Please take note that this Fund is not a capital guaranteed fund or a capital protected fund and the returns are not guaranteed. 1

4 II. FUND PERFOANCE Chart 1: Performance of the Fund versus the benchmark covering the last fiveyear financial period Percentage Growth /4/ /4/ /4/2015 From 30/04/2013 to 30/04/2018 Hong Leong Islamic Income Management (HLIIMF) : Maybank 1 Month GIAi Tier Rate : /4/ /4/ /4/2018 Source: Lipper For Investment Management, In Malaysian Ringgit terms, exdistribution, NAV Per UnittoNAV Per Unit basis with gross income (if any) from HLIIMF reinvested. Past performance is not necessarily indicative of future performance and unit prices and investment returns may go down, as well as up. Performance Review This Interim Report covers the sixmonth financial period from 1 November 2017 to 30 April The Fund posted a return of 1.43% in the past six months while its benchmark the Maybank 1Month GIAI registered a return of 1.53%. During the financial period under review, the Fund had distributed income distributions of 0.10 sen per unit, 0.15 sen per unit, 0.15 sen per unit, 0.15 sen per unit, 0.15 sen per unit and 0.15 sen per unit to its Unitholders on 24 November 2017, 22 December 2017, 25 January 2018, 23 February 2018, 23 March 2018 and 25 April 2018, respectively. The cumdistribution net asset values (NAVs) per unit for the income distributions were , , , , and while the exdistribution NAVs per unit were 2

5 0.5154, , , , and , respectively. Unitholders should note that income distributions have the effect of reducing the NAV per unit of the Fund after distributions. For the fiveyear financial period ended 30 April 2018, the Fund posted a return of 15.39% compared to the benchmark s return of 17.61% while distributing a total income of 6.34 sen per unit. Table 1: Performance of the Fund for the following periods as at 30 April 2018 (Source: Lipper For Investment Management) 26/04/07 31/01/18 31/10/17 30/04/17 30/04/16 30/04/15 30/04/13 30/04/08 30/04/18 30/04/18 30/04/18 30/04/18 30/04/18 30/04/18 30/04/18 30/04/18 Since 3 Months 6 Months 1 Year 2 Years 3 Years 5 Years 10 Years launch HLIIMF(%) Benchmark (%) Table 2: Return of the Fund based on NAV Per UnittoNAV Per Unit basis for the period 31 October 2017 to 30 April 2018 (Source: Lipper For Investment Management) 30Apr18 31Oct17 Return (%) NAV Per Unit Benchmark vs Benchmark (%) % % 1.43# # Return is calculated after adjusting for income distributions during the financial period under review. Table 3: Financial Highlights The Net Asset Value attributable to Unitholders is represented by: 30Apr18 () 31Oct17 () Change (%) Unitholders Capital Retained Earnings Net Asset Value 11,360,026 2,427,724 13,787,750 16,692,702 2,457,955 19,150, Units in Circulation 26,808,966 37,149,

6 Table 4: The Highest and Lowest NAV Per Unit, Total Return of the Fund and the breakdown into Capital Growth and Income Distribution for the financial period/years Financial Period 31/10/17 30/04/18 Financial Year 31/10/16 31/10/17 Financial Year 31/10/15 31/10/16 Financial Year 31/10/14 31/10/15 Highest NAV Per Unit () Lowest NAV Per Unit () Capital Growth (%) Income Distribution (%) Total Return (%) Source: Lipper For Investment Management, In Malaysian Ringgit terms, exdistribution, NAV Per UnittoNAV Per Unit basis with gross income (if any) from HLIIMF reinvested. Table 5: Average Total Return of the Fund 30/04/17 30/04/18 1 Year 30/04/15 30/04/18 3 Years 30/04/13 30/04/18 5 Years Average Total Return (%) Source: Lipper For Investment Management, In Malaysian Ringgit terms, exdistribution, NAV Per UnittoNAV Per Unit basis with gross income (if any) from HLIIMF reinvested. Table 6: Annual Total Return of the Fund Financial Year 31/10/16 31/10/17 31/10/15 31/10/16 31/10/13 31/10/14 31/10/14 31/10/15 31/10/12 31/10/13 Annual Total Return (%) Source: Lipper For Investment Management, In Malaysian Ringgit terms, exdistribution, NAV Per UnittoNAV Per Unit basis with gross income (if any) from HLIIMF reinvested. 4

7 III. INVESTMENT PORTFOLIO Chart 2: Asset Allocation November 2017 to April % 80% 60% 40% 20% 0% Nov17 Dec17 Jan18 Feb18 Mar18 Apr18 Sukuk Shariahcompliant Collective Investment Schemes Chart 3: Sector Allocation as at 30 April 2018 Islamic Deposits & Cash Equivalents 37.77% Private Sukuk 47.63% Shariahcompliant Collective Investment Schemes 14.60% Chart 4: Portfolio Composition by Ratings Islamic Deposits & Cash Equivalents 37.77% AA2 3.62% AA % Shariahcompliant Collective Investment Schemes 14.60% AAA 29.12% 5

8 Strategies employed during the period under review During the financial period under review, the Fund maintained a short duration, consistent with its objective as an Islamic cashenhanced fund. The cash buffer was maintained to address liquidity requirements. As of endapril 2018, the Fund s duration is approximately 1.14 years. The topthree holdings of the Fund are RHB Islamic Bank BehadPrivate Sukuk (14.89%), Hong Leong Islamic Institutional Income Management Fund II (14.60%) and Sarawak Hidro Sendirian Berhad Private Sukuk (14.56%). Please be informed that Hong Leong Asset Management (HLAM) is no longer offering Hong Leong Islamic Income Management Fund under the EPF Members Investment Scheme with effect from 1 March Please be informed that the Shariah Advisor s profile has been updated. For further information please refer to Please be informed that the Goods and Services Tax (GST) on all fees and charges incurred by our products and services will be zerorated effective 1 June For the financial period under review, there were no significant changes in the state of affairs of the Fund or circumstances that would materially affect the interest of Unitholders up to the date of this Manager s report. IV. MARKET REVIEW During the review period, the local sovereign sukuk market saw some volatility where the 10year benchmark sukuk yields rose as high as 4.31% in April 2018 from 4.15% in November The sovereign sukuk market traded weaker in early November due to the impending borrowing cost hike by the US Federal Reserve (Fed) in view of higher inflation expectations and the hawkish monetary policy outlook 6

9 by the new Fed chair Jerome Powell. The sovereign sukuk market traded weaker as risk assets globally continued to remain volatile in March as the US government exchanged trade war threats with China. The Government Investment Issue (GII) curve shifted higher during the period where the 3year benchmark yield rose by 24 basis points (bps) to 3.74% whilst the 10year benchmark rose by 16bps to 4.31%. During the November Monetary Policy Committee (MPC) meeting, Bank Negara Malaysia (BNM) left its borrowing cost unchanged but unexpectedly shifted its stance to a more hawkish outlook as it signalled its readiness to review its current degree of monetary accommodation. In January, the central bank raised the borrowing cost by 25bps as a preemptive measure, citing robust domestic demand and healthy global growth environment. The Fed raised its borrowing cost by 25bps during the December and March Federal Open Market Committee (FOMC) meetings. The central bank maintained its positive outlook on growth for 2018 and guided for three hikes in V. FUTURE PROSPECTS AND PROPOSED STRATEGIES Malaysia s gross domestic product (GDP) growth gained strong momentum at 6.20% in the third quarter of 2017, underpinned by private sector spending and continued strength in exports. However, GDP growth moderated in fourth quarter of 2017 but remained strong at 5.90% due to destocking activity and slower growth in the domestic sector. While investors may be initially anxious of the policy uncertainties, investors confidence should return once when the new government is seen delivering its manifesto. The setting up of the Council of Elders is also expected to infuse greater confidence into the markets. Whilst the abolishment of the Goods & Services Tax (GST) is a credit negative, we expect the new government to announce measures to offset the GST shortfall such as optimisation or reduction of expenditures. Therefore, we do not expect a significant deterioration in credit metrics. 7

10 With the new government, we reaffirm our view for the borrowing cost to remain stable for the rest of 2018 due to the moderate inflation outlook with strong liquidity support; and to provide a supportive environment for fiscal policy changes. VI. SOFT COMMISSIONS The Manager has received soft commissions from brokers/dealers in the form of goods and services such as research materials, data and quotation services incidental to investment management of the Fund and investment related publications. Such soft commissions received are of demonstrable benefit to Unitholders. VII. CROSSTRADE TRANSACTIONS There were crosstrade transactions undertaken by the Fund during the financial period under review. The transactions were executed through brokers/dealers on an arm s length and fair value basis and in the best interest of Unitholders. 8

11 STATEMENT BY THE MANAGER I, Hoo See Kheng, as the Director of Hong Leong Asset Management Bhd, do hereby state that, in the opinion of the Manager, the accompanying unaudited condensed financial statements set out on pages 12 to 39 are drawn up in accordance with the provision of the Deeds and give a true and fair view of the financial position of the Fund as at 30 April 2018 and its of financial performance, changes in equity and cash flows for the financial period ended 30 April 2018 in accordance with the Malaysian Financial Reporting Standards ("MFRS") 134 Interim Financial Reporting and International Financial Reporting Standards ("IFRS") 34 "Interim Financial Reporting". For and on behalf of the Manager, Hong Leong Asset Management Bhd (Company No.: M) HOO SEE KHENG Chief Executive Officer/Executive Director Kuala Lumpur 19 June

12 TRUSTEE S REPORT TO THE UNITHOLDERS OF HONG LEONG ISLAMIC INCOME MANAGEMENT FUND We, CIMB Commerce Trustee Berhad ("the Trustee ), being the Trustee for Hong Leong Islamic Income Management Fund ( the Fund ), are of the opinion that Hong Leong Asset Management Bhd ("the Manager ), acting in the capacity as Manager of the Fund, has fulfilled its duties in the following manner for the financial period from 1 November 2017 to 30 April (a) The Fund has been managed in accordance with the limitations imposed on the investment powers of the Manager under the Deeds, the Securities Commission Malaysia's Guidelines on Unit Trust Funds, the Capital Markets and Services Act 2007 (as amended from time to time) and other applicable laws; (b) Valuation and pricing of the Fund has been carried out in accordance with the Deeds and relevant regulatory requirements; (c) Creation and cancellation of units have been carried out in accordance with the Deeds and relevant regulatory requirements; and (d) The distributions of returns by the Fund are relavant and reflects the investment objective of the Fund. For and on behalf of, CIMB Commerce Trustee Berhad LEE KOOI YOKE Chief Operating Officer Kuala Lumpur 19 June

13 SHARIAH ADVISER S REPORT TO THE UNITHOLDERS OF HONG LEONG ISLAMIC INCOME MANAGEMENT FUND We have acted as the Shariah Adviser of Hong Leong Islamic Income Management Fund. Our responsibility is to ensure that the procedures and processes employed by Hong Leong Asset Management Bhd are in accordance with Shariah principles. In our opinion, Hong Leong Asset Management Bhd has managed and administered Hong Leong Islamic Income Management Fund in accordance with Shariah principles and complied with applicable guidelines, rulings and decisions issued by the Securities Commission pertaining to Shariah matters for the financial period ended 30 April In addition, we also confirm that the investment portfolio of Hong Leong Islamic Income Management Fund comprises securities which have been classified as Shariahcompliant by the Shariah Advisory Council of the Securities Commission ("SACSC"). As for the securities which are not certified by the SACSC, we have reviewed the said securities and opine that these securities are designated as Shariahcompliant. For and on behalf of the Shariah Adviser IBFIM MUHAMMAD KHAIRULNIZAM BIN ALIAS Consultant (Shariah)/Designated Person Responsible for Shariah Advisory Kuala Lumpur 19 June

14 CONDENSED STATEMENT OF COMPREHENSIVE INCOME (Unaudited) FOR THE FINANCIAL PERIOD FROM 1 NOVEMBER 2017 TO 30 APRIL 2018 Note INVESTMENT INCOME Profit income Dividend income Net loss on financial assets at fair value through profit or loss ("FVTPL") Management fee rebate EXPENDITURE Management fee Trustee's fee Auditors' remuneration Tax agent's fee Other expenses ,883 48,045 (8,157) 4, ,446 (42,652) (6,824) (2,479) (1,300) (13,266) (66,521) 647,521 8,006 (247,283) ,004 (85,368) (13,659) (2,479) (1,300) (17,084) (119,890) PROFIT BEFORE TAXATION Taxation PROFIT AFTER TAXATION AND TOTAL COMPREHENSIVE INCOME FOR THE FINANCIAL PERIOD 7 243, , , ,114 Profit after taxation is made up as follows: Realised amount Unrealised amount 251,715 (7,790) 243, ,048 (244,934) 289,114 Distributions for the financial period: Net distributions Net distributions per unit (sen) Gross distributions per unit (sen) , , The accompanying notes to the financial statements form an integral part of these unaudited condensed financial statements. 12

15 CONDENSED STATEMENT OF FINANCIAL POSITION (Unaudited) AS AT 30 APRIL 2018 Note ASSETS Cash and cash equivalents Financial assets at fair value through profit or loss ("FVTPL") Amount due from the Manager management fee rebate Prepayment Dividend Receivable TOTAL ASSETS ,218,384 8,579, ,704 13,801,568 7,032,225 12,133, ,036 19,168,779 LIABILITIES Amount due to the Manager cancellation of units Amount due to the Manager management fee Amount due to the Trustee Amount due to the Managerexpenses Other payables and accruals TOTAL LIABILITIES 5, ,156 13, ,131 1,301 8,622 18,122 NET ASSET VALUE OF THE FUND 13,787,750 19,150,657 EQUITY Unitholders' capital Retained earnings NET ASSETS ATTRIBUTABLE TO UNITHOLDERS 11,360,026 2,427,724 13,787,750 16,692,702 2,457,955 19,150,657 UNITS IN CIRCULATION (UNITS) 12 26,808,966 37,149,866 NET ASSET VALUE PER UNIT () The accompanying notes to the financial statements form an integral part of these unaudited condensed financial statements. 13

16 CONDENSED STATEMENT OF CHANGES IN EQUITY (Unaudited) FOR THE FINANCIAL PERIOD FROM 1 NOVEMBER 2017 TO 30 APRIL 2018 Note Unitholders capital Retained earnings Total Balance as at 1 November 2017 Movement in net asset value: Creation of units from applications Creation of units from distributions Cancellation of units Total comprehensive income for the financial period Distributions for the financial period Balance as at 30 April ,692,702 61, ,156 (5,667,832) 11,360,026 2,457, ,925 (274,156) 2,427,724 19,150,657 61, ,156 (5,667,832) 243,925 (274,156) 13,787,750 Balance as at 1 November 2016 Movement in net asset value: Creation of units from applications Creation of units from distributions Cancellation of units Total comprehensive income for the financial period Distributions for the financial period Balance as at 30 April ,673,951 2,430, ,303 (29,911,471) 21,722,748 2,615, ,114 (529,448) 2,375,611 51,289,896 2,430, ,303 (29,911,471) 289,114 (529,448) 24,098,359 The accompanying notes to the financial statements form an integral part of these unaudited condensed financial statements. 14

17 CONDENSED STATEMENT OF CASH FLOWS (Unaudited) FOR THE FINANCIAL PERIOD FROM 1 NOVEMBER 2017 TO 30 APRIL 2018 CASH FLOWS FROM OPERATING ACTIVITIES Proceeds from sales of financial assets at FVTPL Purchase of financial assets at FVTPL Profit received Dividends received Management fee rebate received Management fee paid Trustee s fee paid Payment for other fees and expenses Net cash generated from operating activities CASH FLOWS FROM FINANCING ACTIVITIES Cash proceeds from units created Payments for cancellation of units Distributions paid Net cash used in financing activities NET DECREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE FINANCIAL PERIOD CASH AND CASH EQUIVALENTS AT END OF THE FINANCIAL PERIOD ,507, ,279 50,081 5,074 (45,119) (7,219) (20,537) 3,793,059 61,000 (5,667,900) (5,606,900) (1,813,841) 7,032,225 5,218, ,091,707 (1,032,888) 691,223 7, (96,553) (15,448) (25,533) 5,620,941 2,430,965 (29,911,511) (145) (27,480,691) (21,859,750) 32,508,735 10,648,985 The accompanying notes to the financial statements form an integral part of these unaudited condensed financial statements. 15

18 NOTES TO THE CONDENSED FINANCIAL STATEMENTS (Unaudited) FOR THE FINANCIAL PERIOD FROM 1 NOVEMBER 2017 TO 30 APRIL THE FUND, THE MANAGER AND THEIR PRINCIPAL ACTIVITIES Hong Leong Islamic Income Management Fund ( the Fund ) was constituted pursuant to the execution of a Deed dated 16 March 2007 and Supplemental Deeds dated 11 April 2007, 30 April 2010, 9 May 2013, 25 March 2015 and 4 August 2017 ( the Deeds ) between the Manager, Hong Leong Asset Management Bhd, the Trustee, CIMB Commerce Trustee Berhad and the registered unitholders of the Fund. The primary objective of the Fund is to provide investors with a low risk investment portfolio offering a stable and regular stream of income and stablility in capital while adhering to Shariah Requirements. The Fund intends to invest mainly in Islamic money market instruments and ShortToMedium Term sukuk. Islamic money market instruments include Islamic deposits, and other ShortTerm Islamic money market instruments such as Islamic negotiable instruments and Islamic repurchase agreements with licensed financial institutions. The Fund commenced operations on 26 April 2007 and will continue its operations until terminated as provided under Part 12 of the Deed. The Manager of the Fund is Hong Leong Asset Management Bhd, a company incorporated in Malaysia. The principal activity of the Manager is the management of unit trust funds and private investment mandates. Its holding company is Hong Leong Capital Berhad, a company incorporated in Malaysia and listed on the Main Market of Bursa Malaysia Securities Berhad. The financial statements were authorised for issue by the Manager on 19 June

19 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the financial statements: (a) Basis of preparation The condensed financial statements are unaudited and have been prepared in accordance with the provisions of the Malaysian Financial Reporting Standards ("MFRS") 134 "Interim Financial Reporting" and International Financial Reporting Standards ("IFRS") 34 "Interim Financial Reporting". The condensed financial statements should be read in conjuction with the audited financial statements of the Fund for the financial year ended 31 October 2017 which have been prepared in accordance with the provisions of the Malaysian Financial Reporting Standards ("MFRS") and International Financial Reporting Standards ("IFRS"). (b) Financial assets and financial liabilities Classification Financial assets are designated at fair value through profit or loss when their performance are managed and evaluated on a fair value basis. The Fund designates its investments in unquoted sukuk and unquoted Shariahcompliant collective investment scheme as financial assets at fair value through profit or loss at inception. Receivables are nonderivative financial assets with fixed or determinable payments that are not quoted in an active market and have been included in assets. The Fund s receivables comprise cash and cash equivalents, amount due from the Managermanagement fee rebate and dividends receivable. 17

20 Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. The Fund classifies amount due to the Managercancellation of units, amount due to the Managermanagement fee, amount due to the Trustee, amount due to the Managerexpenses and other payables and accruals as other financial liabilities. Recognition and measurement Regular purchases and sales of financial assets are recognised on the tradedate the date on which the Fund commits to purchase or sell the asset. Shariahcompliant investments are initially recognised at fair value. Financial liabilities, within the scope of MFRS 139, are recognised in the statement of financial position when, and only when, the Fund becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognised when the rights to receive cash flows from the Shariahcompliant investments have expired or have been transferred and the Fund has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognised when it is extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or expired. Unrealised gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss are presented in the statement of comprehensive income within net gain or loss on financial assets at fair value through profit or loss in the period which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the statement of comprehensive income as part of dividend income when the Fund's right to receive payments is established. 18

21 Unquoted sukuk are revalued on a daily basis based on fair value prices quoted by a bond pricing agency ("BPA") registered with the Securities Commission Malaysia as per the Securities Commission Malaysia's Guidelines on Unit Trust Funds. Where such quotation are not available or where the Manager is of the view that the price quoted by the BPA for a specific unquoted sukuk differs from the market price by more than 20 basis points, the Manager may use the market price, provided that the Manager: (i) records its basis for using nonbpa price; (ii) obtains necessary internal approvals to use the nonbpa price; and (iii) keeps an audit trail of all decisions and basis for adopting the market yield. Unquoted Shariahcompliant collective investment scheme is valued at the last published NAV per unit at the date of the statement of financial position. Islamic deposits with licensed financial institutions are stated at cost plus accrued profit calculated on the effective profit method over the period from the date of placement to the date of maturity of the respective Islamic deposits, which is a close estimate of their fair value due to the short term nature of the Islamic deposits. Receivables and other financial liabilities are subsequently carried at amortised cost using the effective profit method. Impairment 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 19

22 impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective profit rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in the statement of comprehensive income. If receivables has a variable profit rate, the discount rate for measuring any impairment loss is the current effective profit rate determined under the contract. As a practical expedient, the Fund may measure impairment on the basis of an instrument s fair value using an observable market price. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor s credit rating), the reversal of the previously recognised impairment loss is recognised in the statement of comprehensive income. When an asset is uncollectible, it is written off against the related allowance account. Such assets are written off after all the necessary procedures have been completed and the amount of the loss has been determined. (c) Functional and presentation currency Items included in the financial statements of the Fund are measured using the currency of the primary economic environment in which the Fund operates (the "functional currency"). The financial statements are presented in Ringgit Malaysia (""), which is the Fund's functional and presentation currency. 20

23 (d) Income recognition Dividend income is recognised on the exdividend date when the Fund's right to receive payment is established. Profit income from cash at bank, Islamic deposits with licensed financial institutions and unquoted sukuk are recognised on the effective profit method on an accrual basis. Realised gain or loss on disposal of unquoted Shariahcompliant collective investment scheme is accounted for as the difference between the net disposal proceeds and the carrying amount of unquoted Shariahcompliant collective investment scheme, determined on a weighted average cost basis. Realised gain or loss on disposal of unquoted sukuk is accounted for as the difference between the net disposal proceeds and the carrying amount of unquoted sukuk, determined on cost adjusted for accretion of discount or amortisation of premium. (e) Cash and cash equivalents For the purpose of statement of cash flows, cash and cash equivalents comprise cash at banks and Islamic deposits held in highly liquid Shariahcompliant investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. (f) Taxation Current tax expense is determined according to Malaysian tax laws at the prevailing tax rate based on the taxable profit earned during the financial period. 21

24 (g) Distributions A distribution to the Fund s unitholders is accounted for as a deduction from realised reserve. A proposed distribution is recognised as a liability in the period in which it is approved by the Board of Directors of the Manager. (h) Unitholders capital The unitholders' contributions to the Fund meet the criteria to be classified as equity instruments under MFRS 132 "Financial Instruments: Presentation". Those criteria include: the units entitle the unitholder to a proportionate share of the Fund's net asset value; the units are the most subordinated class and class features are identical; there is no contractual obligations to deliver cash or another financial asset other than the obligation on the Fund to repurchase the units; and the total expected cash flows from the units over its life are based substantially on the profit or loss and change in the net asset value of the Fund. The outstanding units are carried at the redemption amount that is payable at the date of the statement of financial position if unitholder exercises the right to put the unit back to the Fund. Units are created and cancelled at prices based on the Fund's net asset value per unit at the time of creation and cancellation. The Fund's net asset value per unit is calculated by dividing the net assets attributable to unitholders with the total number of outstanding units. (i) Segmental information Operating segments are reported in a manner consistent with the internal reporting used by the chief operating decisionmaker. The chief operating decisionmaker, who is responsible for allocating 22

25 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. (j) Fair value of financial instruments Financial instruments comprise financial assets and financial liabilities. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The information presented herein represents the estimates of fair values as at the date of the statement of financial position. The Fund's financial assets and financial liabilities are measured on an ongoing basis at either fair value or at amortised cost based on the respective classification. The following table analyses the financial assets and financial liabilities of the Fund in the statement of financial position as at the reporting date: Financial assets at FVTPL Receivables/ other financial liabilities Total Financial assets Cash and cash equivalents (Note 9) Financial assets at FVTPL (Note 10) Amount due from the Manager management fee rebate 8,579,984 8,579,984 5,218, ,218,880 5,218,384 8,579, ,798,864 Financial liabilities Amount due to the Manager management fee Amount due to the Trustee Amount due to the Manager expenses Other payables and accruals 5, ,156 13,818 5, ,156 13,818 23

26 Financial assets at FVTPL Receivables/ other financial liabilities Total Financial assets Cash and cash equivalents (Note 9) Financial assets at FVTPL (Note 10) Amount due from the Manager management fee rebate Dividends receivable 12,133,037 12,133,037 7,032, ,036 7,035,156 7,032,225 12,133, ,036 19,168,193 Financial liabilities Amount due to the Manager cancellation of units Amount due to the Manager management fee Amount due to the Trustee Other payables and accruals 68 8,131 1,301 8,622 18, ,131 1,301 8,622 18,122 All liabilities are financial liabilities which are carried at amortised cost. (k) Critical accounting estimates and judgments 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. 24

27 In undertaking any of the Fund s investment, the Manager will ensure that all assets of the Fund under management will be valued appropriately, that is at fair value and in compliance with the Securities Commission Malaysia's Guidelines on Unit Trust Funds. However, the Manager is of the opinion that there are no accounting policies which require significant judgment to be exercised. 3. FAIR VALUE ESTIMATION The fair value of financial assets traded in active market (such as trading Shariahcompliant securities) are based on quoted market prices at the close of trading on the reporting date. The Fund utilises the last traded market price for financial assets where the last traded price falls within the bidask spread. In circumstances where the last traded price is not within the bidask spread, the Manager will determine the point within the bidask spread that is most representative of the fair value. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly availabe from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occuring market transactions on an arm's length basis. The fair value of financial assets 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 period end date. Valuation techniques used for nonstandardised financial instruments such as Islamic options, currency swaps and other overthecounter Shariahcompliant 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 25

28 commonly used by market participants making the maximum use of market inputs and relying as little as possible on entityspecific 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 Shariahcompliant equity and sukuk instruments for which market were or have been inactive during the financial period. 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. Valuations are therefore adjusted, where appropriate to allow for additional factors including model risk, liquidity risk and counter party risk. An active market is a market in which transactions for the asset take place with sufficient frequency and volume to provide pricing information on an ongoing basis. (i) Fair value hierarchy The table below analyses financial instruments carried at fair value. The different levels have been defined as follows: Quoted prices (unadjusted) in active market for identical assets or liabilities (Level 1); 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 2); and Inputs for the asset and liability that are not based on observable market data (that is, unobservable inputs) (Level 3). 26

29 The level in the fair value hierarchy within which the fair value measurement is categorised in its entirely is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirely. For this purpose, the significance of an input is assessed against the fair value measurement in its entirely. If a fair value measurement uses observable inputs that requires 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 entirely requires judgment, considering factors specific to the asset or liability. The determination of what constitutes observable requires significant judgment 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. The following table analyses within the fair value hierarchy the Fund's financial assets (by class) measured at fair value: Level 1 Level 2 Level 3 Total Financial assets at FVTPL: Unquoted sukuk Unquoted Shariah compliant collective investment scheme 6,567,528 2,012,456 8,579,984 6,567,528 2,012,456 8,579, Financial assets at FVTPL: Unquoted sukuk Unquoted Shariah compliant collective investment scheme 8,621,437 3,511,600 12,133,037 8,621,437 3,511,600 12,133,037 27

30 Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. These include unquoted sukuk and unquoted Shariahcompliant collective investment scheme. As Level 2 instruments include positions that are not traded in active markets and/ or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or nontransferability, which are generally based on available market information. The Fund's policies on valuation of these financial assets are stated in Note 2(b). (ii) The carrying values of financial assets (other than financial assets at FVTPL) and financial liabilities are a reasonable approximation of their fair values due to their short term nature. 4. PROFIT INCOME Profit income from: Islamic deposits with licensed financial institutions Unquoted sukuk Cash at bank , , , , , , MANAGEMENT FEE AND MANAGEMENT FEE REBATE In accordance with Division 13.1 of the Deed, the Manager is entitled to a management fee of up to 2.00% per annum calculated daily based on the net asset value of the Fund. For the financial period from 1 November 2017 to 30 April 2018, the management fee is recognised at a rate of 0.50% ( to : 0.50%) per annum. 28

31 Management fee rebate relates to the rebate received from the Manager for investing in Hong Leong Islamic Institutional Income Management Fund II ( to : Hong Leong Islamic Institutional Income Management Fund II). The rebate was 0.30% ( to : 0.30%) per annum calculated on the net asset value of Hong Leong Islamic Institutional Income Management Fund II on a daily basis. There will be no further liability to the Manager in respect of management fee other than the amount recognised above. 6. TRUSTEE S FEE In accordance with Division 13.2 of the Deed, the Trustee is entitled to a fee not exceeding 0.20% subject to a minimum of 18,000 per annum calculated daily based on the net asset value of the Fund. For the financial period from 1 November 2017 to 30 April 2018, the trustee's fee is recognised at a rate of 0.08% ( to : 0.08%) per annum. There will be no further liability to the Trustee in respect of trustee's fee other than the amount recognised above. 7. TAXATION Tax charge for the financial period: Current taxation

32 The numerical reconciliation between profit before taxation multiplied by the Malaysian statutory income tax rate and tax expense of the Fund is as follows: Profit before taxation Taxation at Malaysian statutory rate of 24% (2017: 24%) Tax effects of: Shariahcompliant investment income not subject to tax Expenses not deductible for tax purposes Restriction on tax deductible expenses for unit trust fund Taxation ,925 58,542 (73,385) 3,117 11, ,114 69,387 (97,978) 5,014 23, DISTRIBUTIONS Prior financial years' realised income Net distributions amount Net distributions per unit (sen) Gross distributions per unit (sen) Date of Declaration Distribution on 24/25 November Gross/net distribution per unit (sen) Distribution on 22/23 December Gross/net distribution per unit (sen) Distribution on 25/19 January Gross/net distribution per unit (sen) Distribution on 23/24 February Gross/net distribution per unit (sen) Distribution on 23/24 March Gross/net distribution per unit (sen) Distribution on 25 April Gross/net distribution per unit (sen) , , , ,

33 Net distributions above are sourced from prior financial years' realised income. Gross distributions are derived using total income less total expenses. Gross distribution per unit is derived from net realised income less expenses divided by units in circulation, while net distribution per unit is derived from net realised income less expenses and taxation divided by units in circulation. The above distributions have been proposed before taking into account the unrealised loss of 7,790 ( to : unrealised loss of 244,934) which is carried forward to the next financial period. 9. CASH AND CASH EQUIVALENTS Islamic deposits with licensed financial institutions Cash at bank ,198,095 20,289 5,218, ,011,855 20,370 7,032,225 The weighted average effective rate of return per annum are as follows: Islamic deposits with licensed financial institution % % 3.13 Islamic deposits with licensed financial institutions have an average maturity of 4 days ( : 5 days). 31

34 10. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS ("FVTPL") Financial assets at FVTPL: Unquoted sukuk Unquoted Shariahcompliant collective investment scheme ,567,528 2,012,456 8,579, ,621,437 3,511,600 12,133,037 Net loss on financial assets at FVTPL: Realised loss on disposals Changes in unrealised fair values 2018 (367) (7,790) (8,157) 2017 (2,349) (244,934) (247,283) Financial assets at FVTPL as at 30 April 2018 are as detailed below: Nominal value Aggregate cost Fair value Percentage of net asset value % UNQUOTED SUKUK Sukuk 4.24% HSBC Amanah Malaysia Berhad (AAA) 27/03/2020 IMTN 4.57% Imtiaz Sukuk II Berhad (AA2) 17/10/2022 IMTN 4.95% RHB Islamic Bank Berhad (AA3) 15/05/2019* Series % Sarawak Hidro Sdn Bhd (AAA) 11/08/2022 IMTN 2,000, ,000 2,000,000 2,000,000 2,008, ,876 2,058,754 2,022,284 2,007, ,836 2,053,756 2,007, TOTAL UNQUOTED SUKUK 6,500,000 6,590,046 6,567,

35 Quantity units Aggregate cost Fair value Percentage of net asset value % UNQUOTED SHARIAH COMPLIANT COLLECTIVE INVESTMENT SCHEME Hong Leong Islamic Institutional Income Management Fund II 2,011,249 2,011,508 2,012, TOTAL UNQUOTED SHARIAH COMPLIANT COLLECTIVE INVESTMENT SCHEME 2,011,249 2,011,508 2,012, TOTAL INVESTMENTS 8,601,554 8,579, UNREALISED LOSS ON FINANCIAL ASSESTS AT FVTPL (21,570) TOTAL FAIR VALUE OF FINANCIAL ASSETS AT FVTPL 8,579,984 Financial assets at FVTPL as at 31 October 2017 are as detailed below: Nominal value Aggregate cost Fair value Percentage of net asset value % UNQUOTED SUKUK Sukuk 4.24% HSBC Amanah Malaysia Berhad (AAA) 27/03/2020 IMTN 4.57% Imtiaz Sukuk II Berhad (AA2) 17/10/2022 IMTN 4.95% RHB Islamic Bank Berhad (AA3) 15/05/2019* Series % Sarawak Hidro Sdn Bhd (AAA) 11/08/2022 IMTN 3,000, ,000 3,000,000 2,000,000 3,012, ,939 3,098,705 2,023,275 3,014, ,949 3,093,345 2,012, TOTAL UNQUOTED SUKUK 8,500,000 8,635,116 8,621,

36 Quantity units Aggregate cost Fair value Percentage of net asset value % UNQUOTED SHARIAH COMPLIANT COLLECTIVE INVESTMENT SCHEME Hong Leong Islamic Institutional Income Management Fund II 3,511,249 3,511,701 3,511, TOTAL UNQUOTED SHARIAH COMPLIANT COLLECTIVE INVESTMENT SCHEME 3,511,249 3,511,701 3,511, TOTAL INVESTMENTS 12,146,817 12,133, UNREALISED LOSS ON FINANCIAL ASSESTS AT FVTPL (13,780) TOTAL FAIR VALUE OF FINANCIAL ASSETS AT FVTPL 12,133,037 * Representing call date, which is earlier than the maturity date on 15 May SHARIAH INFOATION OF THE FUND The Shariah Adviser confirmed that the investments portfolio of the Fund is Shariahcompliant, and comprises the following: (a) The investments in sukuk are as per the list of sukuk available at Bond Info Hub and Fully Automated System For Issuing/Tendering of Bank Negara Malaysia; (b) Investment in collective investment scheme was verified as Shariahcompliant by the Shariah Adviser; and (c) Liquid assets in local market, which are placed in Shariahcompliant investments and/or instruments. 34

37 12. UNITS IN CIRCULATION At the beginning of the financial period/year Add: Creation of units during the financial period/year Arising from applications Arising from distributions Less: Cancellation of units during the financial period/year At the end of the financial period/year to No. of units 37,149, , ,534 (10,991,720) 26,808, to No. of units 99,541,357 14,004,137 1,514,018 (77,909,646) 37,149, MANAGEMENT EXPENSE RATIO ( MER ) MER (annualised) 2018 % % 0.70 Management expense ratio includes management fee (net of management fee rebate), trustee s fee, auditors remuneration, tax agent s fee and other expenses for the financial period divided by the Fund s average net asset value calculated on a daily basis and is calculated as follows: MER = (A+B+C+D+E) X 100 F Where; A = Management fee, net of management fee rebate B = Trustee s fee C = Auditors remuneration D = Tax agent s fee E = Other expenses F = Average net asset value of the Fund calculated on a daily basis The average net asset value of the Fund for the financial period calculated on a daily basis is 17,174,361 ( to : 34,429,650). 35

38 14. PORTFOLIO TURNOVER RATIO ( PTR ) PTR 2018 Times Times 0.10 PTR is derived from the following calculation: (Total acquisitions for the financial period + total disposals for the financial period) / 2 Average net asset value of the Fund for the financial period calculated on a daily basis Where; total acquisitions for the financial period = NIL ( to : 1,017,260) total disposals for the financial period = 3,516,493 ( to : 6,024,060) 15. UNITS HELD BY THE MANAGER AND RELATED PARTIES TRANSACTIONS AND BALANCES The related parties and their relationships with the Fund are as follows: Related parties Hong Leong Asset Management Bhd Hong Leong Capital Berhad Hong Leong Financial Group Berhad ("HLFG") Subsidiaries and associates of HLFG as disclosed in its financial statements Relationships The Manager Holding company of the Manager Ultimate holding company of the Manager Subsidiaries and associate companies of the ultimate holding company of the Manager 36

39 Units Units HLG Capital Markets Sdn Bhd 391, , , ,372 The above units were transacted at the prevailing market price. No units were held by the Manager as at 30 April 2018 and 31 October In addition to related party disclosures mentioned elsewhere in the financial statements, set out below are other related party transactions and balances. The Manager is of the opinion that all transactions with the related companies have been entered into at agreed terms between the related parties. Related party balances Islamic deposits with licensed financial institution: Hong Leong Islamic Bank Berhad Cash at bank Hong Leong Islamic Bank Berhad ,008,819 20,289 2,029, ,009,370 20,370 1,029,740 Related party transactions Profit income from Islamic deposits with licensed financial institutions: Hong Leong Islamic Bank Berhad Profit income from cash at bank: Hong Leong Islamic Bank Berhad Dividend income from Shariahcompliant collective investment scheme managed by the Manager Disposal of sukuk: Hong Leong Bank Berhad , ,706 48, , ,517 8,006 6,071,440 37

40 16. TRANSACTIONS WITH BROKERS/DEALERS Detail of transactions with brokers/dealers are as follows: 2018 AMBank (M) Berhad RHB Investment Bank Berhad 2017 Hong Leong Bank Berhad* CIMB Bank Berhad Values of trade 1,021,089 1,020,019 2,041,108 6,071,440 1,032,887 7,104,327 Percentage of total trade % * Transactions with brokers/dealers related to the Manager. The Manager is of the opinion that all transactions with the related companies have been entered into at agreed terms between the related parties. 38