Prudential Asia Pacific Shariah Equity Fund

Transcription

1 Prudential Asia Pacific Shariah Equity Fund ANNUAL REPORT For the financial year ended 30 September 2011 Annual Report

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3 TABLE OF CONTENTS Fund Information... 2 Fund Performance... 4 Manager s Report... 7 Market Review Rebates and Soft Commissions Trustee s Report To The Unitholders of Prudential Asia Pacific Shariah Equity Fund Shariah Adviser s Report To The Unitholders of Prudential Asia Pacific Shariah Equity Fund Independent Auditor s Report To The Unitholders of Prudential Asia Pacific Shariah Equity Fund Statement of Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Summary of Significant Accounting Policies Notes To The Financial Statements Corporate Directory... 77

4 FUND INFORMATION Name of Fund Prudential Asia Pacific Shariah Equity Fund (PRUasia pacific Shariah equity fund) Fund Category/ Type Shariah Equity / Growth Fund Objective Seeks medium-to-long-term capital appreciation by investing primarily in Shariah-compliant undervalued companies with potential re-rating in the Asia Pacific ex-japan region. Fund Benchmark Dow Jones Islamic Market Asia Pacific ex-japan Index ( DJIM APxJ Index ) Source: Fund Income Distribution Policy Incidental Breakdown of Unit Holding by Size As at 30 September 2011, the size of PRUasia pacific Shariah equity fund stood at million units. Units (Million) Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 FUND SIZE Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 2 Customer Service:

5 FUND INFORMATION (CONTINUED) Breakdown of Unit Holding by Size Unitholdings BREAKDOWN OF UNITHOLDINGS No. of Unit Holders % No. of Units* ('000) % 5,000 units and below ,001 to 10,000 units , ,001 to 50,000 units , ,001 to 500,000 units , ,001 units and above , Total , * exclude units held by the Manager. Customer Service:

6 FUND PERFORMANCE For the financial year ended 30 September Category Quoted Shariah-Compliant Investements (%) (%) (%) Airlines industries Agriculture Chemical Communication networks Computers Construction Consumer products Diversified Electronics Energy Engineering Finance Healthcare Industrial products Information technology Infrastructure project company Iron & steels Manufacturing Materials Mining Miscellaneous Multi Industry Oil Drilling Optoelectronics Other electronics Others Plantations Refineries Resources Semiconductors & Semiconductor equipment Services Customer Service:

7 FUND PERFORMANCE For the financial year ended 30 September (continued) Category Quoted Shariah-Compliant Investements (%) (%) (%) Technology Telecommunication services Textiles, wearing apparel & leathers Trade, Services & investment Trading / services Transportations Utilities Unquoted Fixed Income Securities Cash and cash equivalents Total Net Asset Value (RM'000) 30,017 55,601 63,655 Units In Circulation (Units '000) 125, , ,236 Net Asset Value Per Unit (RM) Highest Net Asset Value (RM) Lowest Net Asset Value (RM) Total Return (%) - Capital Growth (5.81) Income Return Total Return (%) (5.81) 1.04 Gross Distribution Per Unit (Sen) Net Distribution Per Unit (Sen) Management Expense Ratio (%)* Portfolio Turnover Ratio (times)^ * There were no significant changes to the MER during the period under review. ^ There were no significant changes to the PTR during the period under review. Customer Service:

8 FUND PERFORMANCE For the financial year ended (continued) 1 Year to Years to Annualised average total return (5.81) 6.46 Year ended to to to (since commencement) to Annual total return (5.81) (23.49) Source: Lipper Hindsight 5 as at 30 September 2011 Bases of calculation and assumptions made in calculating returns: Percentage growth = NAV t -1 NAV 0 NAV t = NAV at the end of the period NAV 0 = NAV at the beginning of the period Performance annualized = (1+Percentage Growth) 1/n - 1 n = Number of years The unit price of the Fund may go down as well as up and the past performance figures shown are not indicative of future performance. 6 Customer Service:

9 MANAGER S REPORT Fund Performance Since inception, the Fund recorded a return of -4.68%, outperforming the benchmark return of % by 19.17%. During the 1-year period under review, the Fund registered a return of -5.81%. Despite the negative return, the Fund outperforming the benchmark return of % by 5.05%. The Fund met the investment objective of seeking medium-tolong-term capital appreciation by investing primarily in Shariahcompliant undervalued companies with potential re-rating in the Asia Pacific ex-japan region. PRUAsia Pacific Shariah Equity Fund - Since Inception Return Vs Benchmark 20% 20% 10% 10% 0% 0% % Return -10% -20% -30% -10% -20% -30% -40% -40% -50% -50% -60% Dec- 07 Apr- 08 Aug- 08 Jan- 09 May- 09 Sep- 09 Jan- 10 May- 10 Sep- 10 Jan- 11 May- 11 Sep % Date PruAsia Pacific Shariah Equity Fund Benchmark Benchmark for PRUAsia Pacific Shariah Equity Fund : DJIM APxJ Index Source: Lipper Hindsight 5 as at 30 September 2011 Past performance is no indication of future performance of the Fund. Customer Service:

10 MANAGER S REPORT (CONTINUED) Analysis of Fund Performance For the financial year ended 30 September 2011 Income Return Capital Return* Total Return Total return of benchmark (%) (%) (%) (%) 0.00 (5.81) (5.81) (10.86) *Capital return components (NAV per unit to NAV per unit) 1) Quoted Shariah-Compliant Investment 2) Cash and cash equivalents Distribution/ Unit Splits No distribution or unit splits were declared for the financial year ended 30 September Investment Strategy During Period Under Review The Fund s defensive strategy and good stock selection had contributed positively towards fund performance in the period under review. The Eurozone debt crisis and fears of US recession prompted the Fund Manager to adopt a more defensive strategy for the fund. The Fund Manager continues to focus on stock selection and favours companies with healthy balance sheets, good market positioning, decent earnings growth and trading at attractive valuations. 8 Customer Service:

11 MANAGER S REPORT (CONTINUED) Asset Allocation Asset Allocation Quoted Shariah-Compliant Investment 30 Sept Sept 2010 Changes (%) (%) (%) (19.83) Cash and cash equivalents The changes in asset allocation due to defensive strategy taken by the Fund Manager due to the Eurozone debt crisis and fears of US recession. State of Affairs of the Fund Switching Fee A switching fee of up to 0.5% on the amount switched within 6 months from the date of investment or date of switching into the Fund has been imposed effective 15 July For avoidance of doubt, Investor is required to pay Sales Charge where applicable when switching into a Fund. That investor will be charged the difference between the Sales Charge of these two (2) funds. No Sales Charge will be charged if the Fund to be switched into has a lower Sales Charge. Customer Service:

12 MARKET REVIEW In 4Q10, Sentiment was boosted by the announcement of 2011 Budget announced mid month, where beneficiaries were the construction, property and consumer sectors. During the 4Q, Petronas related company, Malaysia Marine and Heavy Engineering Holdings Berhad, and Petronas Chemicals Berhad went for IPO, listing on Bursa Malaysia. Global and regional equity markets, including Malaysia, corrected in November on fears of the Euro debt crisis spreading to Portugal and Spain along with North Korea s attacks on South Korea, and China further policy tightening coupled with rising inflation in emerging economies particularly China. US on the other hand announced their second round of Quantitative Easing (QE2) in November to spur their slow economic recovery resulting in increased liquidity flows into Asia. Improved trade and unemployment data in the US brought back confidence in the US equity markets. For 1Q11, Asian markets generally saw profit taking activities in January. Markets in Indonesia, Thailand and India corrected sharply on the back of inflation fears as commodity prices rallied. Investors were also disappointed with policy makers response (or lack of) in the respective countries. The FBM KLCI on the other hand had a short rally in the first two weeks to reach a new high of 1,574.49, before succumbing to profit taking, ahead of Chinese New Year. Asia Pacific ex-japan equities began the period well rising in April as they extending gains from the previous month after the U.S. Federal Reserve renewed its pledge to stimulate growth in the U.S. with low interest rates. Inflation continued to be a concern to the region as China and Thailand raised interest rates in April. China s central bank also increased its reserve requirement ratio in April, the fourth time this year. Markets began to deteriorate in May on the back of rising risk aversion and weaker economic data. Investors continued to focus on quarterly earnings results, the imminent end to quantitative easing measures (QE2) and China s weaker-than-expected April economic numbers. The Euro zone sovereign debt concerns resurfaced and weighed on sentiment with anti-austerity riots seen in Spain and Greece and the potential of a second financial aid package for Greece. Asia Pacific equity markets continued to fall in June weighed down by worries over the impact of anti-inflation policies in the region, weakness in U.S. economic data and renewed concern over the Euro zone debt crisis. Financial markets in June were affected by events in Greece as PM Papandreou narrowly secured a confidence vote in Parliament. Market concerns eased at the end of the month as the Greek Parliament passed a fiveyear plan for austerity measures, a move deemed as necessary to avoid default. In the U.S., manufacturing expanded at the slowest pace in over a year and the jobless rate unexpectedly climbed to its highest level this year. The International Monetary Fund cut its forecast for U.S. growth in 2011 for the second time in two months. 10 Customer Service:

13 A short respite in July was led by ASEAN markets as a new aid plan for Greece assuaged concerns Europe s debt crisis will spread. The equity markets in the region were captive to the U.S. debt ceiling debate as Congress and US President Barack Obama waged a political battle over a proposed increase in the federal government s debt ceiling. The impasse over increasing the debt ceiling, given that the US government was scheduled to run out of cash by early August, raised the spectre of a possible default by the US government for the first time in its history. Aside from the EU debt issue and the US debt ceiling, investors were struggling to retain their balance amid the slowing of the Chinese economy and the release of quarterly/half-year earnings. Asia Pacific ex-japan equity markets saw an across-the-board sell-off in August, triggered by Standard & Poor's downgrade of its U.S. sovereign credit rating. Rising fears of recession in the U.S. and continued concern that the euro zone debt crisis will spread contributed to the rout in the region's markets. Economic data released in August showed growth in Asian nations in April to June eased, adding to concerns that the global rebound from the financial crisis is losing steam. Sector-wise, defensives outperformed cyclicals in August. Telecoms, consumer staples and utilities were among the best performers while industrials, information technology and materials were the worst performers. Asia Pacific ex-japan equity markets retreated for a second consecutive month in September sending the regional benchmarks to their biggest loss since October 2008, the height of the credit crunch. Worries over global growth came to the fore due to the deepening debt crisis in Europe and the renewed threat of recession in the U.S. Asian shares in September bore the brunt of risk aversion on concern that the U.S. may be heading for a recession after the Federal Reserve warned of ``significant downside risks to the world s largest economy. The U.S. Fed s attempts to lift markets via manipulating the bond market had little effect on investor sentiment. Concern for a hard landing in China also troubled investors. The FBM KLCI closed the year under review at 1, points. It declined 5.22% during the period under review, lagging behind Indonesia which rose 1.36%. In tandem with regional markets and FBM KLCI, FBM Shariah Emas Index closed the period under review lower by 3.64% while the MSCI Asia Pacific ex-japan Index retreated 15.47% in USD terms. 1 1 Source: Bloomberg: World indices Customer Service:

14 REBATES AND SOFT COMMISSIONS The Manager and its delegates (if any) are not entitled to any rebates or to share in any commission from any broker in consideration for direct dealings in the investments of the Funds. Accordingly, any rebates and shared commissions are directed to the account of the relevant Funds. Notwithstanding the aforesaid, the Manager may receive goods or services by way of soft commissions provided always that the goods or services are of demonstrable benefit to the Funds and that the execution of a transaction is consistent with the best execution standards. During the period under review (1 October September 2011), the Manager and its delegates (if any) received goods and services which directly assist the investment management of the Fund, including research and advisory services, market analyses, data and quotation services, and computer hardware and software used for and/or in support of the investment process of fund managers. The Manager and its delegates (if any) have not received any rebates or shared any commissions from any brokers during the same period under review. 12 Customer Service:

15 Prudential Asia Pacific Shariah Equity Fund FINANCIAL STATEMENTS for the financial year ended 30 September 2011 Customer Service:

16 TRUSTEE S REPORT TO THE UNITHOLDERS OF PRUDENTIAL ASIA PACIFIC SHARIAH EQUITY FUND We have acted as Trustee for Prudential Asia Pacific Shariah Equity Fund (Fund) for the financial year ended 30 September To the best of our knowledge, for the year under review, Prudential Fund Management Berhad (Manager) has operated and managed the Fund in accordance with the following:- a) limitations imposed on the investment powers of the Manager and Trustee under the Deed, the Securities Commission s Guidelines on Unit Trust Funds, the Capital Markets and Services Act 2007 and other applicable laws; b) the valuation/pricing for the Fund has been carried out in accordance with the deed of the Fund and applicable regulatory requirements; and c) creation and cancellation of units for the Fund have been carried out in accordance with the deed of the Fund and applicable regulatory requirements. For Deutsche Trustees Malaysia Berhad JACQUELINE WILLIAM Chief Executive Officer KONG SEAH YEN Senior Trust Officer Kuala Lumpur Date: 22 November Customer Service:

17 SHARIAH ADVISER S REPORT TO THE UNITHOLDERS OF PRUDENTIAL ASIA PACIFIC SHARIAH EQUITY FUND We have acted as the Shariah Adviser of Prudential Asia Pacific Shariah Equity Fund. Our responsibility is to ensure that the procedures and processes employed by Prudential Fund Management Berhad and the provisions of the Deed dated 17 September 2007 are in accordance with Shariah principles. In our opinion, Prudential Fund Management Berhad has managed and administered Prudential Asia Pacific Shariah Equity Fund in accordance with Shariah principles and complied with applicable guidelines, rulings and decisions issued by the Securities Commission Malaysia pertaining to Shariah matters for the financial year ended 30 September In addition, we also confirm that the investment portfolio of Prudential Asia Pacific Shariah Equity Fund comprises securities which have been classified as Shariah-compliant by the Shariah Advisory Council of the Securities Commission ( SACSC ). As for the securities which are not certified by the SACSC, we have reviewed the said securities and opine that these securities are designated as Shariah-compliant. For Amanie Advisors Sdn Bhd [Formerly known as Amanie Business Solutions Sdn Bhd] DR MOHD DAUD BAKAR President/CEO Kuala Lumpur Date: 22 November 2011 Customer Service:

18 INDEPENDENT AUDITORS REPORT TO THE UNITHOLDERS OF PRUDENTIAL ASIA PACIFIC SHARIAH EQUITY FUND REPORT ON THE FINANCIAL STATEMENTS We have audited the financial statements of Prudential Asia Pacific Shariah Equity Fund, which comprise the statement of financial position as at 30 September 2011, statement of comprehensive income, statement of changes in equity and statement of cash flows for the financial year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 18 to 76. Manager s Responsibility for the Financial Statements The Manager is responsible for the preparation of financial statements that gives true and fair view in accordance with Financial Reporting Standards in Malaysia, and for such internal control as the Manager determines are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Fund s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Manager s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Manager, as well as evaluating the overall presentation of the financial statements. 16 Customer Service:

19 INDEPENDENT AUDITORS REPORT TO THE UNITHOLDERS OF PRUDENTIAL ASIA PACIFIC SHARIAH EQUITY FUND (CONTINUED) REPORT ON THE FINANCIAL STATEMENTS (CONTINUED) Auditors Responsibility (continued) We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements have been properly drawn up in accordance with Financial Reporting Standards in Malaysia so as to give a true and fair view of the financial position of the Fund as of 30 September 2011 and of its financial performance and cash flows for the financial year then ended. OTHER MATTERS This report is made solely to the unitholders of the Fund and for no other purpose. We do not assume responsibility to any other person for the content of this report. PRICEWATERHOUSECOOPERS (No. AF: 1146) Chartered Accountants Kuala Lumpur Date: 22 November 2011 Customer Service:

20 STATEMENT OF COMPREHENSIVE INCOME for the financial year ended 30 September 2011 INVESTMENT INCOME Note (RM) (RM) Profit income from Shariah-based deposits with licensed financial institutions 12,860 15,261 Gross dividend income 1,047,803 1,508,404 Net realised gain on sale of Shariah-compliant investments 3-3,348,369 Net foreign exchange loss - (3,908,837) Net loss on financial assets at fair value through profit or loss (318,464) - Net foreign currency loss on cash and cash equivalents (36,157) - 706, ,197 EXPENSES Management fee 4 (752,225) (1,090,655) Trustee s fee 5 (33,432) (48,474) Auditors remuneration (5,670) (5,400) Tax agent s fee (12,378) (6,291) Other expenses (102,787) (186,933) Transaction cost (255,188) - (1,161,680) (1,337,753) NET LOSS BEFORE TAXATION (455,638) (374,556) TAXATION 6 (94,363) (128,033) NET LOSS AFTER TAX AND TOTAL COMPREHENSIVE LOSS (550,001) (502,589) Net loss after taxation is made up of the following: Realised amount 2,603,549 2,084,802 Unrealised amount (3153,551) (2,587,391) (550,001) (502,589) The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 18 Customer Service:

21 STATEMENT OF FINANCIAL POSITION as at 30 September 2011 ASSETS Note As restated 2009 As restated (RM) (RM) (RM) CURRENT ASSETS Financial assets at fair value through profit or loss 7 22,713, Quoted Shariah-compliant investments 8-53,103,968 56,358,535 Shariah-based deposits with a licensed financial institutions 9 1,840, ,000 Bank balances with licensed banks 9 5,171,542 3,003,412 8,373,187 Amount due from stockbrokers 483, ,835 Amount due from Manager 30,220 26, ,300 Tax recoverable - 18,988 18,988 Dividends receivable 69,295 96,368 43,721 Profit income receivable Other receivables 12, TOTAL ASSETS 30,320,842 56,248,893 66,032,607 LIABILITIES CURRENT LIABILITIES Amount due to Manager 49, ,502 83,198 Amount due to stockbrokers - - 2,043,366 Accrued management fee 45,638 79,890 92,262 Amount due to Trustee 2,028 3,551 4,101 Auditors remuneration 5,670 5,400 5,400 Other payables and accrued expenses 200, , ,491 TOTAL LIABILITIES 303, ,480 2,377,818 NET ASSET VALUE OF THE FUND 10 30,017,356 55,601,413 63,654,789 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. Customer Service:

22 STATEMENT OF FINANCIAL POSITION as at 30 September 2011 (continued) Note As restated 2009 As restated (RM) (RM) (RM) EQUITY Unitholders capital 33,509,170 58,543,226 67,119,316 Retained earnings (3,491,814) (7,594,608) (7,092,019) Fair value reserve - 4,652,795 3,627,492 NET ASSETS ATTRIBUTABLE TO UNITHOLDERS 10 30,017,356 55,601,413 63,654,789 NUMBER OF UNITS IN CIRCULATION ,950, ,789, ,236,185 NET ASSET VALUE PER UNIT The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 20 Customer Service:

23 STATEMENT OF CHANGES IN EQUITY for the financial year ended 30 September 2011 Note Unitholders capital Retained earnings Fair value reserve Total (RM) (RM) (RM) (RM) Balance as at 1 October 2010, as previously stated Prior year adjustment for adoption of amendments to FRS (a) 58,543,226 (7,594,608) 4,652,795 55,601,413 Balance as at 1 October 2010, restated after adoption of amendments to FRS ,543,226 (7,594,608) 4,652,795 55,601,413 Adjustment for adoption of FRS (b) - 4,652,795 (4,652,795) - Balance as at 1 October 2010, restated after adoption of FRS ,543,226 (2,941,813) - 55,601,413 Movement in unitholders contribution: Creation of units arising from application 2,277, ,277,307 Cancellation of units (27,311,363) - - (27,311,363) Total comprehensive loss for the financial year - (550,001) - (550,001) Balance as at 30 September 2011, restated 33,509,170 (3,491,814) - 30,017,356 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. Customer Service:

24 STATEMENT OF CHANGES IN EQUITY Note Unitholders capital Retained earnings Fair value reserve Total (RM) (RM) (RM) (RM) Balance as at 1 October 2009, as previously stated Prior year adjustment for adoption of amendments to FRS (a) 67,119,316 (7,092,019) 3,627,492 63,654,789 Balance as at 1 October 2009, restated after adoption of amendments to FRS ,119,316 (7,092,019) 3,627,492 63,654,789 Movement in unitholders contribution: Creation of units arising from application 10,116, ,116,775 Cancellation of units (18,692,865) - - (18,692,865) Total comprehensive loss for the financial period - (502,589) - (502,589) Change in fair value reserve - - 1,025,303 1,025,303 Balance as at 30 September 2010, restated 58,543,226 (7,594,608) 4,652,795 55,601,413 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 22 Customer Service:

25 STATEMENT OF CASH FLOWS for the financial year ended 30 September 2011 Note (RM) (RM) CASH FLOWS FROM OPERATING ACTIVITIES Proceeds from sale of Shariah-compliant investments 53,970,600 48,046,009 Purchase of Shariah-compliant investments (24,649,918) (45,367,052) Profit income received from Shariah-based deposits with licensed financial institutions 12,860 15,302 Dividends received 1,074,876 1,384,771 Management fee paid (786,477) (1,103,027) Trustee s fee paid (34,955) (49,024) Payment for other fees and expenses (114,991) (201,924) Tax paid (75,375) - Net cash inflow from operating activities 29,396,620 2,725,055 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from units created 2,273,244 10,283,918 Payments for cancellation of units (27,625,426) (18,412,561) Net cash outflow from financing activities (25,352,182) (8,128,643) NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 4,044,438 (5,403,588) EFFECT OF FOREIGN CURRENCY TRANSLATION (36,157) (756,187) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE FINANCIAL YEAR 3,003,412 9,163,187 CASH AND CASH EQUIVALENTS AT THE END OF THE FINANCIAL YEAR 9 7,011,693 3,003,412 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. Customer Service:

26 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES for the financial year ended 30 September 2011 The following accounting policies have been used consistently in dealing with items which are considered material in relation to the financial statements: A BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS The financial statements have been prepared under the historical cost convention in accordance with Financial Reporting Standards ( FRS ) in Malaysia. The preparation of financial statements in conformity with the FRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported financial year. It also requires the Manager to exercise their judgment in the process of applying the Fund s accounting policies. Although these estimates and judgment are based on the Manager s best knowledge of current events and actions, actual results may differ. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note M. (i) Standards, amendments and interpretations to published standards that are applicable and effective: FRS 8 "Operating Segments" (effective from 1 July 2009) replaces FRS Segment Reporting. The new standard requires a management approach, under which segment information is reported in a manner that is consistent with the internal reporting provided to the chief operating decision-maker. The improvement to FRS 8 (effective from 1 January 2010) clarifies that entities that do not provide information about segment assets to the chief operating decision-maker will no longer need to report this information. Prior year comparatives must be restated. 24 Customer Service:

27 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (CONTINUED) (i) Standards, amendments and interpretations to published standards that are applicable and effective: (continued) FRS 7 Financial instruments: Disclosures (effective 1 January 2010) provides information to users of financial statements about an entity s exposure to risks and how the entity manages those risks. The improvement to FRS 7 clarifies that entities must not present total interest income and expense as a net amount within finance costs on the face of the statement of comprehensive income. This standard does not have any impact on the classification and valuation of the Fund's financial statements. The revised FRS 101 Presentation of financial statements (effective 1 January 2010) prohibits the presentation of items of income and expenses (that is, 'non-owner changes in equity') in the statement of changes in equity. 'Non-owner changes in equity' are to be presented separately from owner changes in equity. All non-owner changes in equity will be required to be shown in a performance statement, but entities can choose whether to present one performance statement (the statement of comprehensive income) or two statements (the income statement and statement of comprehensive income). Where entities restate or reclassify comparative information, they will be required to present a restated balance sheet as at the beginning comparative period in addition to the current requirement to present balance sheets at the end of the current period and comparative period. FRS 107 Statement of cash flows (effective 1 January 2010) clarifies that only expenditure resulting in a recognised asset can be categorised as a cash flow from investing activities. FRS 110 Events after the balance sheet date (effective 1 January 2010) reinforces existing guidance that a dividend declared after the reporting date is not a liability of an entity at that date given that there is no obligation at that time. Customer Service:

28 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (CONTINUED) (i) Standards, amendments and interpretations to published standards that are applicable and effective: (continued) FRS 118 Revenue (effective 1 January 2010) provides more guidance when determining whether an entity is acting as a principal or as an agent. This standard does not have material impact on the classification and valuation of the Fund's financial statements. Amendment FRS 132 Financial Instruments: Presentation In the previous financial year, the Fund had classified its puttable instruments as liabilities in accordance with FRS 132, 'Financial instruments: Presentation'. However, the FRS 132 (amendment), 'Financial instruments: Presentation', and FRS 101 (amendment), 'Presentation of financial statements' - 'Puttable financial instruments and obligations arising on liquidation' (effective from 1 January 2010) (the 'amendment') requires puttable financial instruments that meet the definition of a financial liability to be classified as equity where certain strict criteria are met. Those criteria include: (i) the puttable instruments must entitle the holder to a pro-rata share of net assets; (ii) the puttable instruments must be the most subordinated class and that class's features must be identical; (iii) there must be no contractual obligations to deliver cash or another financial asset other than the obligation on the issuer to repurchase; and (iv) the total expected cash flows from the puttable instrument over its life must be based substantially on the profit or loss of the issuer. As a result, the prior year financial statements are restated from amounts previously reported to conform with the amendment. The amendment has been applied retrospectively. The effects as a result of adoption of the amendment on the statement of financial position for the prior periods are set out in Note 16 (a). 26 Customer Service:

29 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (CONTINUED) (i) Standards, amendments and interpretations to published standards that are applicable and effective: (continued) FRS 139 Financial Instruments: Recognition and Measurement In the previous financial year, unrealised gains or losses from the derivative financial instrument are recognised in the statement of financial position as receivables and payables while the corresponding effect are transferred to the fair value reserve included in the capital and reserves attributable to equity holders of the fund. However, the FRS 139 (new standard) Financial Instruments: Recognition and Measurement (effective 1 January 2010) (the standard ) requires the Fund to recognise all derivatives in its balance sheet as either assets or liabilities and shall measure them at fair value (except for a derivative that is linked to and that must be settled by delivery of an unquoted equity instrument whose fair value cannot be measured reliably) at the beginning of the financial period in which this standard is initially applied. Because all derivatives, other than those that are designated hedging instruments, are considered held for trading, the unrealised gains or losses transferred to the fair value reserve in the previous financial period shall be recognised as an adjustment of the balance of retained earnings at the beginning of the financial period in which this Standard is initially applied (other than for a derivative that is a designated hedging instrument). The effects as a result of adoption of the new standard on the opening balances of the statement of financial position at the beginning of the financial year are set out in Note 16(b). In respect of FRS 7 and FRS 139, the Fund has applied the transitional provision in the respective standards which exempts entities from disclosing the possible impact arising from the initial application of the standards on the financial statements of the Fund. Comparative related to financial instruments have not been adjusted and therefore the corresponding balances are not comparable. Customer Service:

30 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (CONTINUED) (ii) The new standards, amendments and interpretations to published standards which are relevant to the Fund and have not been early adopted are: Amendments to FRS 7 "Financial instruments: Disclosures" and FRS 1 "First-time adoption of financial reporting standards" (effective from 1 January 2011) require enhanced disclosures about fair value measurement and liquidity risk. In particular, the amendment requires disclosure of fair value measurements by level of a fair value measurement hierarchy. The Fund will apply this standard when effective. The Fund has applied the transitional provision which exempts entities from disclosing the possible impact arising from the initial application of this amendment on the financial statements of the Fund. IC Interpretation 17 "Distribution of non-cash assets to owners" (effective from 1 July 2010) provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends. FRS 5 has also been amended to require that assets are classified as held for distribution only when they are available for distribution in their present condition and the distribution is highly probable. B INCOME RECOGNITION Profit income from short-term Shariah-based deposits is recognised on an accrual basis using the effective interest method. Dividend income is recognised on the ex-dividend date, when the right to receive the dividend has been established. Realised gain or loss on disposal of Shariah-compliant investments are accounted for as the difference between the net disposal proceeds and the carrying amount of Shariah-compliant investments, determined on a weighted average cost basis. 28 Customer Service:

31 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES C TAXATION Current tax expense is determined according to the Malaysian tax laws at the current rate based on the foreign countries tax regimes that the Fund invests in. Dividend income from foreign quoted Shariah-compliant investments is based on the tax regime of the respective countries that the Fund invested in. D FUNCTIONAL AND PRESENTATION CURRENCY Items included in the financial statements of the Fund are measured using the currency as the primary economic environment in which the Fund operates (the functional currency ).The financial statements are presented in Ringgit Malaysia, which is the Fund s presentation and functional currency. E CASH AND CASH EQUIVALENTS For the purpose of the cash flow statement, cash and cash equivalents comprise Shariah-based deposits with a licensed financial institution and bank balance with a licensed bank that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. F FINANCIAL ASSETS AND LIABILITIES (i) Classification The Fund designates its investment in quoted Shariah-compliant securities as financial assets at fair value through profit or loss at inception. Financial assets are designated at fair value through profit or loss when they are managed and their performance evaluated on a fair value basis. Customer Service:

32 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES F FINANCIAL ASSETS AND LIABILITIES (CONTINUED) (i) Classification (continued) Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and have been included in current assets. The Fund s loans and receivables comprise cash and cash equivalents, amount due from Manager, amount due from brokers, and dividend receivables which are all due within 12 months. The Fund classifies amount due to Manager, accrued management fees, amount due to Trustee, auditors remunerations and other payables and accrued expenses as other financial liabilities. (ii) 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. Shariah-compliant investments are initially recognised at fair value. Transaction costs are expensed in the statement of comprehensive income. Financial assets are derecognised when the rights to receive cash flows from the Shariah-compliant investments have expired or have been transferred and the Fund has transferred substantially all risks and rewards of ownership. Gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss category are presented in the statement of comprehensive income within net gain/(loss) on financial assets at fair value through profit and loss in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the statement of comprehensive income as part of gross dividend income when the Fund s right to receive payments is established. 30 Customer Service:

33 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES F FINANCIAL ASSETS AND LIABILITIES (CONTINUED) (ii) Recognition and measurement (continued) In accordance with the Deed, quoted Shariah-compliant investments in Malaysia are valued at the last done market price quoted on the Bursa Malaysia Securities Berhad ( Bursa Securities ) at the date of the statement of financial position. Quoted Shariah-compliant investments outside Malaysia are valued at the market bid prices quoted of the respective foreign stock exchanges as at the date of the statement of financial position. If a valuation based on the market price does not represent the fair value of the securities, for example during abnormal market conditions or no market price is available, including in the event of a suspension in the quotation of the securities for a period exceeding 14 days, or such shorter period as agreed by the Trustee, then the securities are valued as determined in good faith by the Manager, based on the methods or bases approved by the Trustee after appropriate technical consultation. G AMOUNT DUE FROM/(TO) STOCKBROKERS Amounts due from and to brokers represent receivables for securities sold and payables for securities purchased that have been contracted for but not yet settled or delivered on the statement of financial position date respectively. These amounts are recognised initially at fair value and subsequently measured at amortised cost using the effective profit method, less provision for impairment for amounts due from brokers. A provision for impairment of amounts due from brokers is established when there is objective evidence that the Fund will not be able to collect all amounts due from the relevant broker. Significant financial difficulties of the broker, probability that the broker will enter bankruptcy or financial reorganisation, and default in payments are considered indicators that the amount due from brokers is impaired. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, profit income is recognised using the rate of profit used to discount the future cash flows for the purpose of measuring the impairment loss. Customer Service:

34 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES G AMOUNT DUE FROM/(TO) STOCKBROKERS (CONTINUED) The effective profit 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. H FOREIGN CURRENCY TRANSLATION Foreign currency transactions in the Fund are translated into the functional currency using the exchange rates prevailing at the transaction dates. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translations at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income. The principal closing rates used in the translation of foreign currency amount are as follows: Foreign currency (RM) (RM) 1 Singapore Dollar US Dollar Hong Kong Dollar Australian Dollar New Taiwan Dollar South Korean Won Indonesian Rupiah Indian Rupee Customer Service:

35 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES I CREATION AND CANCELLATION OF UNITS The Fund issues cancellable units, which are cancelled at the unit holder s option and are classified as equity. Cancellable units can be returned to the Fund at any time for cash equal to a proportionate share of the Fund s net asset value ( NAV ). The outstanding units are carried at the redemption amount that is payable at the statements of financial position date if the unit holder exercises the right to return the unit to the Fund. Units are created and cancelled at the unit holder s option at prices based on the Fund s NAV per unit at the time of creation or cancellation. The Fund s NAV per unit is calculated by dividing the net assets attributable to unit holder with the total number of outstanding units. J PROCEEDS AND PAYMENTS ON CREATION AND CANCELLATION OF UNITS The NAV per unit is computed for 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. K SEGMENTAL INFORMATION A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments. Operating segments are reported in a manner consistent with the internal reporting used by chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Investment Committee of the Fund s manager that undertakes strategic decisions for the Fund. Customer Service:

36 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES L FINANCIAL INSTRUMENTS Islamic financial instruments comprise financial assets and financial liabilities. Fair value is the amount at which a financial asset could be exchanged or a financial liability settled, between knowledgeable and willing parties in an arm s length transaction. The information presented herein represents the estimates of fair values as on the statement of financial position date. 30 September 2011 Note Loans and receivables Financial assets at fair value through profit or loss Total (RM) (RM) (RM) Financial assets at fair value through profit or loss 7-22,713,180 22,713,180 Receivables 595, ,969 Cash and cash equivalents 9 7,011,693-7,011,693 7,607,662 22,713,180 30,320,842 All current liabilities are financial liabilities which are carried at amortised cost. M CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS The preparation of financial statements in conformity with the Financial Reporting Standards requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the statements of financial position date and the reported amounts of income and expenses during the report financial year. Although these estimates are based on the Manager s best knowledge of current events and actions, actual results may differ from those estimates. 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. The resulting accounting estimates will, by definition, seldom equal the related actual results. 34 Customer Service:

37 NOTES TO THE FINANCIAL STATEMENTS for the financial year ended 30 September INFORMATION ON THE FUND Prudential Asia Pacific Shariah Equity Fund was constituted pursuant to the execution of a deed dated 17 September 2007 between HSBC (Malaysia) Trustee Bhd ( HSBC Trustee ) and Prudential Fund Management Berhad ( the Manager ). The Fund replaced HSBC Trustee with Deutsche Trustees Malaysia Berhad (the Trustee ) effective 1 October A Supplemental Master Deed ( Deed ) was entered into between the Manager and the Trustee on 30 July 2010 to effect the change of trustee from HSBC Trustee to the Trustee. The Fund was launched on 22 November 2007 and will continue its operations until terminated by the Trustee or the Manager as provided under Clause 12 of the Deed. The Fund may invest into Shariah-compliant Asia Pacific equity quoted on recognised Asia Pacific ex-japan Exchanges and equity related securities and Islamic fixed income securities. All investments will be subjected to the SC Guidelines on Unit Trust Funds, the Deed and the objective of the Fund. The main objective of the Fund is to seek medium to long-term capital appreciation by investing primarily in Shariah-compliant undervalued companies with potential for re-rating in the Asia Pacific ex-japan region. The Manager is a company incorporated in Malaysia and is related to Prudential Plc., a public listed company in the United Kingdom. The principal activity of the Manager is the establishment and management of unit trust funds and asset management. Customer Service:

38 NOTES TO THE FINANCIAL STATEMENTS 2 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Fund is exposed to a variety of risks which include market risk inclusive of price risk, interest rate risk and foreign exchange/currency risk, stock/issuer risk, country risk, liquidity risk, credit/default risk, fund management risk, non-compliance risk, capital risk and reclassification of Shariah status risk. Financial risk management is carried out through internal control processes adopted by the Manager and adherence to the investment restrictions as stipulated by the SC s Guidelines on Unit Trust Funds. (a) Market risk (i) Price risk This risk refers to changes and developments in regulations, politics and the economy of the country. The very nature of a Shariah-based unit trust fund, however, helps mitigate this risk because a fund would generally hold a welldiversified portfolio of Shariah-compliant securities from different market sectors so that the collapse of any one security or any one market sector would not impact too greatly on the value of the fund. The table below shows assets of the Fund as at 30 September 2011 which are exposed to price risk (RM) Quoted Shariah-compliant securities designated at fair value through profit or loss 22,713, Customer Service: