SHARIAH PROGRESS FUND

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

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4 MANULIFE INVESTMENT SHARIAH PROGRESS FUND 1 GENERAL INFORMATION 1.1 THE TRUST The Fund commenced operations on 20 April 2011 and will continue its operations until terminated as provided under Clause 12 of the Deed. 1.2 FUND TYPE / CATEGORY Small-cap /Islamic Equity 1.3 OBJECTIVE OF THE FUND To provide Unit Holders with steady long-term capital growth at a reasonable level of risk by investing in a diversified portfolio of small- to medium-capitalised Shariah-compliant equities and equity-related instruments. 1.4 DISTRIBUTION POLICY Incidental 1.5 PERFORMANCE BENCHMARK The performance of the Fund is measured against the Manulife Investment Shariah Progress Index (MSPI) comprising 50% FTSE Bursa Malaysia Small Cap Index + 50% FTSE Bursa Malaysia Mid 70 Index. 1.6 INVESTMENT STYLE AND STRATEGY Identifying Malaysian companies with strong growth potential The fundamental investment process is geared towards identifying and investing mainly in Shariah-compliant companies with growth potential listed on Bursa Malaysia which are not part of the FTSE Bursa Malaysia KLCI Index (FBM KLCI) constituents (at the point of purchase). This strategy focuses the Fund Manager s investable universe to those Shariah-compliant stocks which are not part of the largest 30 companies by market capitalisation in the FTSE Bursa Malaysia Emas Index. The Fund Manager believes that such companies would have the potential to achieve strong rates of growth, as well as having key investment and sectorial themes prevailing in the market at any period in time. While such companies are normally associated with higher risks, the potential returns could also be very rewarding, if the right companies are selected. The Fund Manager believes that there are companies in Malaysia that are not well followed by the investment community, but have the potential to develop into future industry leaders. Such companies could be involved in manufacturing, services or trading businesses that have not just Malaysia, but the whole world as their marketplace. These companies could also be providing supporting roles to multinationals and larger companies domestically and globally. The Fund Manager believes that these companies if in the right businesses and managed by competent management, generally have higher earnings potential that may translate to better returns for investors. The better returns could also come from higher valuations being accorded to these companies as they start gaining attention from the broader investment community both domestically and foreign. 1

5 The Fund Manager dedicates resources through primary research including company visits and developing earnings models in search of these companies. Fundamental analysis is conducted to determine the attractiveness of specific Shariah-compliant stock ideas and/ or sectorial themes. This analysis takes into account information gathered during company visits, key earnings drivers and earnings revision trends for the individual company, valuation relative to the Fund Manager s estimates of intrinsic value as well as the competency of its management. Various tools are used to facilitate the valuation process, including price over earnings ratio, the discounted cash flow model and enterprise value over earnings before interest, depreciation and taxation. The Fund also favours companies that practise good corporate governance as they generally command higher market valuations and potentially better returns for investors over a medium investment horizon. While the investment process is driven by key investment and sectorial themes prevailing in the market at any period of time, the guiding principle to the selection of investments is premised on compliance with the Shariah requirements. In addition, any active and frequent trading strategy will depend on investment opportunities or valuations. Temporary defensive strategy Under adverse market conditions (due to economic, political or any other negative conditions for investments), the Fund Manager may take temporary defensive positions that may be inconsistent with the Fund s principal strategy in attempting to respond to such conditions. Under such situations, a large proportion of the Fund may be temporarily invested in Islamic deposits and Islamic money market instruments. During the six months financial period under review, the Manager was focused on bottoms up Shariah-compliant stock selection. The Shariah-compliant stocks were chosen based on a set of important criteria: firstly quality management with a clear and established track record. Secondly, the Manager was looking for a sustainable business model that would be able to deliver growth even in a volatile macroeconomic environment. Thirdly, the Manager paid close attention to the individual company s financials, in particular its balance sheet and cash flow. Highly leveraged companies with poor cash flows were quickly discarded. Fourthly, the Manager considered the valuation of the company. At all times, the Manager favoured companies which practised good corporate governance, with a high degree of transparency and disclosure In keeping with the mandate of the Fund, the Manager was highly flexible in terms of its asset allocation. May 2017 Oct 2017 was both challenging as well as fruitful period in particular during May Oct 2017, due to a couple of factors, 1) Stable oil prices at USD 50 per barrel, 2) A flush of foreign funds entering the Malaysian market both on Morgan Stanley and Credit Suisse upgrading Malaysia. All this prompted the Manager to maintain cash levels to 15%- 20%. The Manager remained alert to not chasing all Shariah-compliant stocks and selectively placing higher weightage on Shariah-compliant stocks that would give higher returns which led to increased Shariah-compliant equity weighting from May onwards. The asset allocation flexibility remains one of the key strengths of the Fund. 2

6 2 MANAGER S REPORT 2.1 FUND PERFORMANCE MANULIFE INVESTMENT For the six months financial period ended 31 October 2017, the Fund s return increased by 6.84%. The Fund outperformed its benchmark return, MSPI, which increased by 0.66%. The outperformance was due to the lower cash levels employed throughout the later 6 months of the period under review coupled with consistent injections in May 2017 October 2017 which forced the Manager to deploy cash to below 20%, The Fund was weighted in the Manufacturing, Technology and Construction sectors throughout the period, with the USD weakening early and subsequently regaining strong during the period, domestic focused companies started to perform on lower import costs. Winners for the portfolio during the period included SKP Resources (+43.3%), Dialog (+19%), AQRS (+36%), Pentamaster (+46.8%), Sunway (+15.6%), Uchi Tech (+64.7%), Top Glove (+22.7%) and Press Metal (+73%) Apart from Shariah-compliant stock selection, the Manager s agility in managing the asset allocation also helped to lift performance. The graph below compares the 6-month performance of the Fund against its benchmark return: 8% 6% 4% 2% 0% -2% -4% -6% -8% Apr 17 Source: Lipper Fund Size Fund Performance vs. Benchmark Index Return May 17 Jun 17 Jul 17 Aug 17 Sep 17 Manulife Investment Shariah Progress Fund Return Benchmark Index Return Oct 17 The Fund s total NAV increased to RM mil from RM mil during the financial period under review. The Fund has achieved its objective of outperforming the benchmark during the period under review. 3

7 Fund s Returns (a) The graph below compared the performance of the Fund against its benchmark return since the Fund s commencement: 130% 110% 90% 70% 50% 30% 10% -10% 0% -30% Apr 11 Source: Lipper Fund Performance vs. Benchmark Index Return Mar 12 Feb 13 Jan 14 Dec 14 Nov 15 Oct 16 Manulife Investment Shariah Progress Fund Return Benchmark Index Return Oct 17 (b) Average Total Return of the Fund: For the financial period ended 31 October 2017 Fund (% p.a.) MSPI (% p.a.) 1 year years years Commencement Date: 20 April 2011 Source: Lipper (c) Annual Total Return of the Fund: For the financial period ended: Fund (% p.a.) MSPI (% p.a.) 31 October October October 2015 (3.03) (10.43) 31 October October Commencement Date: 20 April 2011 Source: Lipper 4

8 BASES OF CALCULATION 1. Net Asset Value (NAV) Net Asset Value of the Fund is determined by deducting the value of all the Fund s liabilities from the value of all the Fund s assets, at the valuation point. 2. Net Asset Value per unit Net Asset Value per unit is the net asset value of the Fund divided by the total number of units in circulation, at the valuation point. 3. Fund s Return Fund s return can be calculated based on the computation methods as follows: Daily Total Fund s Return = {[End NAV (Ex-distribution) - Beginning NAV + Dividend Distribution] / Beginning NAV} x 100% Total Fund s Return Average Total Return = Total Fund s return for the period is derived from geometrically linking together the daily total fund s returns. The linking formula is = [(1+ R 1 ) x (1+ R 2 ) x (1+ R n )] -1 where: R 1 is the first daily return for the period, R 2 is the second daily return for the period, and R n is the last daily return for the period. = Annualised Total Return (Actual number of days in a year/ [(1+ Total fund s return for the period) number of days during the period) -1] x 100% The following table shows other financial and performance data of the Fund for the past three financial periods: Fund Data 31 October October October 2015 NAV (RM) 488,370, ,870, ,384,708 Units in Circulation ( 000) 1,188, , ,079 NAV (RM per unit RM) Highest / Lowest NAV (RM per unit) Total Fund Return (%) NAV Return (%) Income Return (%) / / / (6.86) (6.86) - Management Expenses Ratio (%) Portfolio Turnover Ratio (times)

9 NOTES (i) Management Expenses Ratio (MER) MER can be calculated based on the ratio of the sum of fees and the recovered expenses of the unit trust fund to the average value of the unit trust fund calculated on a daily basis. Fees of the unit trust fund + Recovered expenses of the unit trust fund Average value of the unit trust fund calculated on a daily basis x 100 Where: Fees Recovered expenses Average value of the unit trust fund = All ongoing fees deducted / deductible directly from the unit trust fund in respect of the period covered by the management expense ratio, expressed as a fixed amount, calculated on a daily basis. This would include the annual management fee, the annual trustee fee and any other fees deducted / deductible directly from the unit trust fund; = All expenses recovered from/ charged to the unit trust fund, as a result of the expenses incurred by the operation of the unit trust fund, expressed as a fixed amount. This should not include expenses that would otherwise be incurred by an individual investor (e.g. brokerage, taxes and levies); and = The NAV of the unit trust fund, including unit trust net income value of the fund, less expenses on an accrued basis, in respect of the period covered by the management expense ratio, calculated on a daily basis. The MER for the financial period is lower than the previous financial period mainly due to the increase in average NAV. (ii) Portfolio Turnover Ratio (PTR) PTR can be calculated based on the ratio of the average sum of acquisitions and disposals of the Shariah-compliant unit trust fund for the year to the average value of the unit trust fund for the year calculated on a daily basis [Total acquisitions of the fund for the year + Total disposals of the fund for the year]/2 Average value of the unit trust fund calculated on a daily basis The PTR for the financial period is lower than the previous financial period mainly due to the decrease in trading activities. The Manager wishes to highlight that past performance of the Fund is not an indication of future performance. The price of units and the investment returns may go down, as well as up. 6

10 2.2 Asset Allocation Asset allocation for the past three financial periods: Sector Allocation 31 October 2017 % of Net Asset Value 31 October October 2015 Trading / Services Properties Consumer Products Finance Industrial Products Islamic Real Estate Investment Trusts Plantation Infrastructure Project Companies Technology Construction Shariah-compliant warrants Total Shariah-compliant Investments Islamic deposits with Licensed Financial Institutions Other Assets & Liabilities 1.46 (0.19) 0.97 As at 31 October 2017, the Fund was 84.11% invested in Shariah-compliant equities, an increase from 73.81% at the end of October This was due to the steady injection during the month coupled with promising market outlook. The Fund has been deploying cash and adding positions in the sectors such as Manufacturers, Technology and Construction to take advantage of the appreciating USD and construction awards given out by the government on LRT3 and MRT2, as well as the continuous shift of asset allocation to the dividend-yielding Shariah-compliant stocks. The Manager notes that Malaysia is at risk both from domestic and external pressures and will redeploy cash in a gradual manner. 2.3 MARKET REVIEW During the financial period under review (1 st May st October 2017) the FBM Small cap Shariah Index declined 4.26%, underperforming the FBM KLCI which also declined by 1.72%. The underperformance of the Shariah Small Cap index vs. the FBM KLCI can be attributed to the former s higher weighting towards Oil & Gas companies, Manufacturers as well as smaller Construction companies which underperformed during the period. 2.4 MARKET OUTLOOK AND INVESTMENT STRATEGY The FBM KLCI declined from 1,778pts on 1st May 2017 to 1,747 pts as at 31 October 2017 (-1.72%). In 2H17, the Malaysian market traded rangebound on the back of poor earnings season and gradual foreign funds outflow. However, the improved global market sentiment helped in sustaining the market. So far, 2017 was a much better year than 2016 and broadly in line with expectations. Due to the stronger gross domestic product (GDP) growth, improving corporate earnings prospects, and positive sentiment in the global market. These more than offset concerns over uncertain global developments. External headwinds in the form of two US rate hikes are expected in 2H17. 7

11 We remain positive on the outlook for Malaysia equities on the back of the rosier outlook for global growth led by stronger growth in the US but cautious in the near term, as things have risen sharply over this past 6 months, which was helped by the pick-up in domestic growth and recovery in corporate earnings. 2Q17 GDP growth of 5.8% comprehensively beat market expectations. Improving investor risk appetite for emerging market equities would continue to attract higher foreign institutional participation. We expect the Trump administration to at least partially deliver on its reflationary policies of which one such move is his tax reforms. Malaysia s 2Q17 GDP grew at a faster-than-expected 5.8% pace (consensus: +5.5%), driven by the services, manufacturing and agriculture sectors. Private consumption is expected to remain resilient while exports are anticipated to rise 10% year-on-year (YoY) in 2017 (2016: +1.1%). Corporate earnings are still expected to grow 7-8% this year, with the broad-based recovery driven by a recovery in the oil & gas and plantation, technology and construction sectors earnings Net buying from foreign funds has continued unabated with year-to-date (YTD) net foreign flows into Malaysian equities reaching MYR 9 bn, outpacing flows into other ASEAN markets. Considering the cumulative net selling by foreign funds of MYR29.8bn during , foreign funds still have some way to go just to achieve a NEUTRAL-weight position, spurred by the weak MYR, low foreign ownership (end-oct 2017: 21%) in addition to improving macroeconomic indicators and corporate earnings The rising investor risk appetite for emerging market equities stems largely from the improving global macroeconomic environment, helped by President Donald Trump s pro-growth strategies to cut taxes, boost infrastructure and military spending as well as slash regulations. Despite concerns on US political risks, our base case expectation is for the Trump administration to at least partially deliver on some elements of his commitments that can help to lift global growth in Despite some possible headwinds, we do not expect any potential and significant corrections in the market due to the supportive news flows on corporate actions, the 2018-Budget which was announced on 27 Oct 2017 which was people-friendly and nothing out of the ordinary, job flows for contractors, ahead of the 14th general election which is due on or before 24 Aug The 13th Parliament of Malaysia will automatically be dissolved on 24 Jun To recap, the last general election was held on 5 May The positive corporate news flows that we are anticipating are more corporate restructuring to enhance balance sheets, more construction awards to be tendered out and better earnings season for 3Q BREAKDOWN OF UNIT HOLDINGS BY SIZE AS AT 31 OCTOBER 2017 The following table presents the distribution of the Fund s unit holders according to size of unit holdings: Size of Holdings No. of Unit Holders % No. of Units Held ( 000) % 5,000 and below 2, , ,001 to 10,000 2, , ,001 to 50,000 6, , ,001 to 500,000 4, , Above 500, , Manager s stock - - 4, Total 15, ,188,

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

13 4 STATEMENT BY THE MANAGER We, Chong Soon Min and Wong Boon Choy, being two of the Directors of Manulife Asset Management Services Berhad ( the Manager ), do hereby state that, in the opinion of the Manager, the unaudited financial statements comprising the statement of comprehensive income, statement of financial position, statement of changes in equity, statement of cash flows, summary of significant accounting policies and notes to the financial statements, are drawn up in accordance with the provisions of the Deeds and give a true and fair view of the financial position of the Fund as at 31 October 2017 and of its financial performance, changes in equity and cash flows of the Fund for the six months financial period ended 31 October 2017 in accordance with the Malaysian Financial Reporting Standards ( MFRS ) and the International Financial Reporting Standards ( IFRS ). For and on behalf of the Manager MANULIFE ASSET MANAGEMENT SERVICES BERHAD CHONG SOON MIN Director WONG BOON CHOY Director Kuala Lumpur 18 December

14 5 TRUSTEE S REPORT MANULIFE INVESTMENT TO THE UNIT HOLDERS OF MANULIFE INVESTMENT We have acted as Trustee of Manulife Investment Shariah Progress Fund ( the Fund ) for the 6 months ended 31 October In our opinion and to the best of our knowledge, Manulife Asset Management Services Berhad ( the Manager ) has operated and managed the Fund in accordance with the following: a) Limitations imposed on the investment powers of the Manager and the Trustee under the deed, the Securities Commission s Guidelines on Unit Trust Funds, the Capital Markets and Services Act 2007 and other applicable laws; b) Valuation/pricing is carried out in accordance with the deed and any relevant regulatory requirements; and c) Creation and cancellation of units are carried out in accordance with the deed and any relevant regulatory requirements. For and on behalf of RHB Trustees Berhad (Company No.: U) LEE YIT CHENG Head, Group Int l Ops Support & Trustee Ops MOHD SOFIAN BIN KAMARUDDIN Vice President Kuala Lumpur, Malaysia 18 December

15 6 SHARIAH ADVISER S REPORT TO THE UNIT HOLDERS OF MANULIFE INVESTMENT We have acted as the Shariah Adviser of Manulife Investment Shariah Progress Fund. Our responsibility is to ensure that the procedures and processes employed by Manulife Asset Management Services Berhad are in accordance with Shariah principles. In our opinion, Manulife Asset Management Services Berhad has managed and administered Manulife Investment Shariah Progress Fund in accordance with Shariah principles and complied with applicable guidelines, rulings and decisions issued by the Securities Commission pertaining to Shariah matters for the six months financial period ended 31 October In addition, we also confirm that the investment portfolio of Manulife Investment Shariah Progress Fund comprises securities have been classified as Shariah-compliant by the Shariah Advisory Council of the Securities Commission ( SACSC ). As for the securities which are not certified by the SACSC, we have reviewed the said securities and opined that these securities are designated as Shariah-compliant. For and on behalf of the Shariah Adviser IBFIM MUHAMMAD KHAIRULNIZAM BIN ALIAS Consultant (Shariah)/Designated Person Responsible for Shariah Advisory Kuala Lumpur 18 December

16 7 STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 31 OCTOBER 2017 INVESTMENT INCOME Note Profit income 1,153,824 1,105,308 Gross dividend income 4,987,701 2,673,868 Net gain on financial assets at fair value through profit or loss 6 28,436,665 4,146,172 RM RM 34,578,190 7,925,348 EXPENSES Manager s fee 3 3,317,892 1,783,682 Trustee s fee 4 176,954 95,130 Auditors remuneration 2,773 2,828 Tax agent s fee 1,361 1,361 Other expenses 299, ,188 Transaction costs 701, ,786 4,500,165 2,667,975 PROFIT BEFORE TAXATION 30,078,025 5,257,373 TAXATION 5 (25,169) (3,712) PROFIT AFTER TAXATION AND TOTAL COMPREHENSIVE INCOME 30,052,856 5,253,661 Profit/(Loss) after taxation is made up as follows: Realised 4,860,052 (3,796,160) Unrealised 25,192,804 9,049,821 30,052,856 5,253,661 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 13

17 8 STATEMENT OF FINANCIAL POSITION AS AT 31 OCTOBER 2017 ASSETS Note RM RM Financial assets at fair value through profit or loss 6 410,684, ,247,838 Amount due from Manager 6,887, ,221 Amount due from stockbrokers 3,011, ,922 Dividends receivable 1,608 41,301 Tax recoverable 30,303 57,065 Cash and cash equivalents 7 70,510,493 70,188,990 TOTAL ASSETS 491,125, ,378,337 LIABILITIES Amount due to Manager - Manager s fee 613, ,759 Amount due to Trustee 32,747 17,747 Amount due to stockbrokers 2,056,044 2,111,507 Other payables 8 52,306 46,096 TOTAL LIABILITIES 2,755,087 2,508,109 NET ASSET VALUE ( NAV ) OF THE FUND 488,370, ,870,228 EQUITY Unit holders capital 397,356, ,100,780 Retained earnings 91,014,431 24,769, ,370, ,870,228 NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 2 488,370, ,870,228 NUMBER OF UNITS IN CIRCULATION 10 1,188,579, ,709,000 NAV PER UNIT The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 14

18 9 STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 31 OCTOBER 2017 Unit holders Retained capital earnings Total RM RM RM BALANCE AS AT 1 MAY ,284,282 60,961, ,245,857 Movement in unit holders contribution: Creation of units 131,085, ,085,999 Cancellation of units (57,014,181) - (57,014,181) Total comprehensive income - 30,052,856 30,052,856 BALANCE AS AT 31 OCTOBER ,356,100 91,014, ,370,531 Unit holders Retained capital earnings Total RM RM RM BALANCE AS AT 1 MAY ,760,231 19,515, ,276,018 Movement in unit holders contribution: Creation of units 216,819, ,819,839 Cancellation of units (116,479,290) - (116,479,290) Total comprehensive income - 5,253,661 5,253,661 BALANCE AS AT 31 OCTOBER ,100,780 24,769, ,870,228 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 15

19 10 STATEMENT OF CASH FLOWS FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 31 OCTOBER 2017 Note RM RM CASH FLOWS FROM OPERATING ACTIVITIES Purchase of Shariah-compliant investments (164,859,738) (111,367,838) Sale of Shariah-compliant investments 69,150,549 97,104,938 Dividends received 5,079,163 2,682,683 Profit income received 1,153,824 1,105,308 Manager s fee paid (3,332,825) (1,745,988) Trustee s fee paid (177,751) (93,119) Audit fee paid (6,296) - Tax paid - 5,630 Payment for other fees and expenses (50,201) (205,533) Net cash used in operating activities (93,043,275) (12,513,919) CASH FLOWS FROM FINANCING ACTIVITIES Distribution paid (52,333,378) (13,075,692) Proceeds from creation of units 247,661, ,965,701 Payments for cancellation of units (116,479,290) (195,397,394) Net cash generated from financing activities 78,849,118 7,492,615 Net decrease in cash and cash equivalents (14,194,157) (5,021,304) Cash and cash equivalents at beginning of the financial period 84,704,650 75,210,294 Cash and cash equivalents at end of the financial period 7 70,510,493 70,188,990 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 16

20 11 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 31 OCTOBER 2017 The following accounting policies have been used consistently in dealing with items which are considered material in relation to the financial statements. The policies have been consistently applied to all the financial years presented, unless otherwise stated. A BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS The financial statements of the Fund have been prepared in accordance with the Malaysian Financial Reporting Standards ( MFRS ) and the International Financial Reporting Standards ( IFRS ). The financial statements have been prepared under the historical cost convention, as modified by financial assets at fair value through profit or loss. The preparation of financial statements in conformity with MFRS and IFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. It also requires the Manager to exercise judgement in the process of applying the Fund s accounting policies. Although these estimates and judgement are based on the Manager s best knowledge of current events and actions, actual results may differ. There are no significant areas of judgement or complexity that have significant effect on the amounts recognised in the financial statements. There are no critical accounting estimates and assumptions used in the preparation of the financial statements of the Fund for the 6 months financial period ended 31 October 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 Amendments to MFRS 10, 12 & 128 Investment entities - Applying the consolidation exception Annual improvements to MFRSs Cycle There were no significant impact to other accounting policies of the Fund as a result of the above mentioned. The following are standards, amendments to published standards and interpretations to the existing standards that are applicable to the Fund but not yet effective and have not been early adopted by the Fund. Financial year beginning on/after 1 November 2017 Amendments to MFRS 107 Statement of Cash Flows - Disclosure Initiatives (effective from 1 January 2017) introduce an additional disclosure in changes in liabilities arising from financing activities. The Fund will apply this standard when effective. This standard is not expected to have a significant impact on the Fund's financial statements. 17

21 MFRS 9 Financial Instruments (effective from 1 January 2018) will replace MFRS 139 Financial Instruments: Recognition and Measurement. MFRS 9 retains but simplifies the mixed measurement model in MFRS 139 and establishes three primary measurement categories for financial assets: amortised cost, fair value through profit or loss and fair value through other comprehensive income ( OCI ). The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset. Investment in equity¹ instruments is always measured at fair value through profit or loss with a irrevocable option at inception to present changes in fair value in OCI (provided the instrument is not held for trading). A debt instrument² is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest³. For liabilities, the standard retains most of the MFRS 139 requirements. These include amortised cost accounting for most financial liabilities, with bifurcation of embedded Shariah-compliant derivatives. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in OCI rather than the income statement, unless this creates an accounting mismatch. MFRS 9 introduces an expected credit losses model on impairment that replaces the incurred loss impairment model used in MFRS 139. The expected credit losses model is forward-looking and eliminates the need for a trigger event to have occurred before credit losses are recognised. The Fund will apply the standard when effective. This standard is not expected to have a significant impact on the Fund s financial statements. 1 For the purposes of the investments made by the Fund, equity instruments and derivatives refers to Shariah-compliant equity instruments and Shariah-compliant derivatives. 2 For the purposes of the investments made by the Fund, debt instruments refers to sukuk. 3 For the purposes of this Fund, interest refers to profits earned from Shariah-compliant investments. B (i) FINANCIAL ASSETS AND FINANCIAL LIABILITIES Classification The Fund classifies its financial assets in the following categories: at fair value through profit or loss and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification at initial recognition. Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. Financial assets at fair value through profit or loss Financial assets are designated at fair value through profit or loss when they are managed principally for the purpose of selling or repurchasing in the near term and their peformance evaluated on a fair value basis. The Fund designates its investment in quoted Shariah-compliant investments as financial assets at fair value through profit or loss at inception. 18

22 Receivables Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as noncurrent assets. The Fund s receivables comprise amount due from Manager, amount due from stockbrokers, dividends receivable, cash and cash equivalents in the statement of financial position. Other financial liabilities The Fund classifies amount due to Manager, amount due to Trustee, amount due to stockbrokers and other payables as other financial liabilities. (ii) Recognition and initial measurement Regular purchases and sales of financial assets are recognised on the trade-date, the date on which the Fund commits to purchase or sell the assets. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in profit or loss. Receivables are initially recognised at fair value plus transaction costs. Financial liabilities, within the scope of MFRS 139, are recognised in the statement of financial position when, and only when, the Fund becomes a party to the contractual provisions of the financial instrument. (iii) Subsequent measurement - gains and losses Financial assets at fair value through profit or loss are subsequently carried at fair value. Gains and losses arising from changes in the fair value of the financial assets at fair value through profit or loss are included in the profit or loss in the period which they arise. Receivables are subsequently carried at amortised cost using the effective profit rate method. (iv) Subsequent measurement - impairment of financial assets The Fund assesses at the end of the reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The criteria that the Fund uses to determine that there is objective evidence of an impairment loss include indications that the obligor is experiencing significant financial difficulty, high probability that the obligor will enter bankruptcy or other distressed financial reorganisation and events that would adversely affect the financial capability of the obligor. The amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective profit rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. If receivables has a variable profit rate, the discount rate for measuring any impairment loss is the current effective profit rate determined under the contract. As a practical expedient, the Fund may measure impairment on the basis of an instrument s fair value using an observable market price. 19

23 If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment is recognised (such as an improvement in the debtor s/issuer s credit rating), the reversal of the previously recognised impairment loss is recognised in profit or loss. When an asset is uncollectible, it is written off against the related allowance account. Such assets are written off after all the necessary procedures have been completed and the amount of the loss has been determined. (v) De-recognition Financial assets are de-recognised when the rights to receive cash flows from the Shariahcompliant investments have expired or have been transferred and the Fund has transferred substantially all risks and rewards of ownership. Financial liabilities are de-recognised when they are extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or has expired. C CREATION AND CANCELLATION OF UNITS The Fund issues cancellable units, which are cancelled at the unit holder s option and are classified as equity. Cancellable units can be put back to the Fund at any time for cash equal to a proportionate share of the Fund s net asset value. The outstanding unit is carried at the redemption amount that is payable at the date of the statement of financial position if the unit holder exercises the right to put the unit back to the Fund. Units are created and cancelled at the unit holder s option at prices based on the Fund s net asset value per unit at the time of creation and cancellation. The Fund s net asset value is calculated by dividing the net assets attributable to unit holders with the total number of outstanding units. The net asset value per unit is computed each dealing day. The price at which units are created or cancelled is calculated by reference to the net asset value per unit as at the close of business on the relevant dealing day. Units in the Fund are classified as equity in the statement of financial position and are stated at fair value representing the price at which unit holders can redeem the units from the Fund. D INCOME RECOGNITION Profit income from Islamic deposits placed with licensed finnacial institutions is recognised on an accrual basis using the effective profit rate method. Dividend income on quoted Shariah-compliant investments is recognised on the ex-dividend date. Realised gains or losses on sale of quoted Shariah-compliant investments are accounted for as the difference between the net disposal proceeds and the carrying amount of the Shariahcompliant investments, determined on a weighted average cost basis. E EXPENSES Expenses are accounted for on an accrual basis and charged to the statement of comprehensive income. Expenses arising from the disposal of investments are recognised as transaction costs (Note K to the financial statements). 20

24 F AMOUNT DUE FROM/TO STOCKBROKERS Amounts due from and to stockbrokers represent receivables for Shariah-compliant securities sold and payables for Shariah-compliant securities purchased that have been contracted for but not yet settled or delivered on the statement of financial position date respectively. These amounts are recognised initially at fair value and subsequently measured at amortised cost using the effective profit rate method, less provision for impairment for amounts due from stockbrokers. A provision for impairment of amount due from a stockbroker is established when there is objective evidence that the Fund will not be able to collect the amount due from the relevant stockbroker. Significant financial difficulties of the stockbroker, probability that the stockbroker will enter bankruptcy or financial reorganisation, and default in payments are considered indicators that the amount due from the stockbroker is impaired. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, profit income is recognised using the rate of profit to discount the future cash flows for the purpose of measuring the impairment loss. The effective profit rate method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating the profit income or profit expense over the relevant period. The effective profit rate is the rate that exactly discounts estimated future cash payments or receipts throughout the expected life of the financial instrument, or, when appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. When calculating the effective profit rate, the Fund estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective profit rate, transaction costs and all other premiums or discounts. G CASH AND CASH EQUIVALENTS For the purpose of statement of cash flow, cash and cash equivalents comprise cash at bank and Islamic deposits held in highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. H FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value is price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The information presented herein represents the estimates of fair values as at the date of statement of financial position. Where available, quoted and observable market prices are used as the measure of fair values. Where such quoted and observable market prices are not available, fair values are estimated based on a range of methodologies and assumptions regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows and other factors. Changes in the uncertainties and assumptions could materially affect these estimates and the resulting fair value estimates. A range of methodologies and assumptions has been used in deriving the fair values of the Fund s financial instruments as at the date of statement of financial position. The total fair value of each financial instrument is not materially different from the total carrying value. 21

25 The fair values are based on the following methodologies and assumptions: (a) Short-term Islamic deposits with licensed financial institutions For Islamic deposits and placements with licensed financial institutions with maturities of less than three months, the carrying value is a reasonable estimate of fair value. For Islamic deposits and placements with maturities of three months and above, the estimated fair value is based on discounted cash flows using prevailing Islamic interbank money market rates at which similar Islamic deposits and placements would be made with financial institutions of similar credit risk and remaining period to maturity. (b) Quoted Shariah-compliant investments The estimated fair value is based on quoted and observable market prices. (c) Other short-term financial instruments Other short-term financial instruments comprise amount due from/to Manager, amount due from/ to stockbrokers, dividends receivable, amount due to Trustee and other payables. The carrying values of the assets and liabilities are assumed to approximate their fair values due to the short tenure of less than one year. I TAXATION Current tax expense is determined according to the tax laws in the jurisdictions of the taxable profit earned during the period from the financial assets in which the Fund invests and includes all taxes based upon the taxable profit. J SEGMENT REPORTING Operating segments are reported in a manner consistent with the internal reporting used by the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the strategic asset allocation committee of the Manager that makes the strategic decisions. K TRANSACTION COSTS Transaction costs are costs incurred to acquire or dispose of financial assets or liabilities at fair value through profit or loss. They include fees and commissions paid to agents, advisors, brokers and dealers. Transaction costs, when incurred, are immediately recognised in the statement of comprehensive income as expenses. 22

26 12 NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 31 OCTOBER INFORMATION ON THE FUND Manulife Investment Shariah Progress Fund ( the Fund ) was established pursuant to a Master Deed dated 8 August 2008, as amended and supplemented by subsequent Supplemental Deeds (hereinafter referred to as the Deed ) between Manulife Asset Management Services Berhad ( the Manager ) and RHB Trustees Berhad ( the Trustee ). The principal activity of the Fund is to invest in Investments as defined under Clause 1 of the Deed, which includes Shariah-compliant stocks and securities of companies listed on Bursa Malaysia Berhad and Shariah-compliant foreign securities listed on any recognised Stock Exchange(s) subject to approval by Bank Negara Malaysia. The Fund commenced operations on 20 April 2011 and will continue its operations until terminated as provided under Clause 12 of the Deed. The main objective of the Fund is to provide unit holders with steady medium- to long-term capital growth at a reasonable level of risk by investing in a diversified portfolio of small- to medium-capitalised are Shariah-compliant equities and equity related instuments. The Manager of the Fund, a company incorporated in Malaysia, is a wholly-owned subsidiary of Manulife Holdings Berhad, a public limited liability company, incorporated and domiciled in Malaysia, and listed on the main market of Bursa Malaysia. Its principal activities are the management of unit trusts, private retirement schemes, fund management activities and financial planning. The financial statements were authorised for issue by the Board of Directors of the Manager in accordance with a resolution of the Directors on 18 December NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS The net assets attributable to unit holders meet the definition of puttable instruments classified as equity instruments under the revised MFRS 132, Financial Instruments: Presentation. The units in the Fund are puttable instruments which entitle the unit holders to a pro-rata share of the net assets of the Fund. The units are subordinated and have identical features. There is no contractual obligation to deliver cash or another financial asset other than the obligation on the Fund to repurchase the units. The total expected cash flows from the units in the Fund over the life of the units are based on the change in the net assets of the Fund. 3 MANAGER'S FEE In accordance with the Deed, the Manager is entitled to Manager s fee at a rate of 1.50% per annum of the net asset value of the Fund before deducting Trustee s fee and Manager s fee for the day, calculated on a daily basis. There will be no further liability to the Manager in respect of Manager s fee other than the amount recognised above. 4 TRUSTEE S FEE In accordance with the Deed, the Trustee is entitled to a fee of 0.08% per annum of the net asset value of the Fund before deducting Trustee s fee and Manager s fee for the day, calculated on a daily basis, subject to a minimum fee of RM18,000 per annum. There will be no further liability to the Trustee in respect of Trustee s fee other than the amount recognised above. 23

27 5 TAXATION RM RM Current taxation 25,169 3,712 Numerical reconciliation between profit before taxation multiplied by the Malaysian statutory tax rate and tax expenses of the Fund is as follows: RM RM Profit before taxation 30,078,025 5,257,373 Tax calculated at Malaysian tax rate of 24% (2016: 24%) 7,218,726 1,261,769 Tax effect in respect of: - Expenses not deductible for tax purposes 280, ,034 - Restriction on tax deductible expenses for unit trust funds 799, ,289 - Investment loss not subject to tax (35,238) (1,894,183) - Investment income subject to different tax rate (8,238,359) (5,197) Tax expenses 25,169 3,712 6 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS RM RM Designated at fair value through profit or loss - Quoted Shariah-compliant investments 410,684, ,247,838 Net gain/(loss) on financial assets at fair value through profit or loss Realised 3,243,861 (4,903,649) - Unrealised 25,192,804 9,049,821 RM RM 28,436,665 4,146,172 24

28 6 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) QUOTED SHARIAH- COMPLIANT INVESTMENTS Quantity ACE MARKET Cost of shares Fair value as at Fair value as at expressed as percentage of value of Fund units RM RM % TECHNOLOGY JHM Consolidation Berhad 2,830,000 8,694,096 8,433, MAIN MARKET CONSTRUCTION Ahmad Zaki Resources Berhad 9,499,900 9,491,573 10,924, Econpile Holdings Berhad 3,322,300 4,471,936 10,332, Ekovest Berhad 4,463,600 5,167,245 5,177, Gamuda Berhad 3,995,400 20,114,906 20,975, Gabungan AQRS Berhad 8,776,300 11,846,731 17,201, Kerjaya Prospek Group Berhad 3,198,000 6,492,251 12,536, WCT Holdings Berhad 3,148,787 5,572,990 5,226, ,404,287 63,157,632 82,375, CONSUMER PRODUCTS NTPM Holdings Berhad 3,083,900 2,403,688 2,297, Sasbadi Holdings Berhad 6,980,850 6,093,434 5,863, Spritzer Berhad 376, , , ,441,050 9,348,111 9,008, INDUSTRIAL PRODUCTS Heveaboard Berhad 4,805,000 6,795,256 8,024, Pecca Group Berhad 4,032,300 6,901,003 5,685, Press Metal Berhad 2,346,000 8,127,251 10,392, Scientex Berhad 1,676,100 9,324,650 14,917, SKP Resources Berhad 9,578,500 12,800,025 16,953, Top Glove Corporation Berhad 2,140,000 11,953,367 13,696, Uchi Technologies Berhad 4,121,000 7,583,724 12,033, V.S Industry Berhad 2,930,000 6,553,664 9,024, ,628,900 70,038,940 90,727, INFRASTRUCTURE PROJECT COMPANIES Lingkaran Trans Kota Holdings 1,470,100 8,627,742 8,658, PLANTATION Genting Plantations Berhad 489,900 5,245,124 5,232,