KENANGA SHARIAH ONEPRS MODERATE FUND ANNUAL REPORT

Transcription

1 KENANGA SHARIAH ONEPRS MODERATE FUND ANNUAL REPORT For the First Financial Period from 18 August 2016 (date of commencement) to 31 May 2017

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3 KENANGA SHARIAH ONEPRS MODERATE FUND Contents Page Corporate Directory ii - iii Directory of PRS Provider s Offices iv Fund Information 1 PRS Provider s Report 2-7 Fund Performance 8-10 Trustee s Report 11 Shariah Adviser s Report 12 Independent Auditors Report Statement by the PRS Provider 16 Financial Statements 17-35

4 CORPORATE DIRECTORY PRS Provider: Kenanga Investors Berhad (Company No P) Registered Office Level 17, Kenanga Tower, 237, Jalan Tun Razak, Kuala Lumpur, Malaysia. Tel: Fax: Board Of Directors Datuk Syed Ahmad Alwee Alsree (Chairman) Syed Zafilen Syed Alwee (Independent Director) Peter John Rayner (Independent Director) Imran Devindran bin Abdullah (Independent Director) Dato Bruce Kho Yaw Huat Ismitz Matthew De Alwis Business Office Level 14, Kenanga Tower, 237, Jalan Tun Razak, Kuala Lumpur, Malaysia. Tel: Fax: Website: Investment Committee Dato Bruce Kho Yaw Huat (Chairman) Syed Zafilen Syed Alwee (Independent Member) Peter John Rayner (Independent Member) Imran Devindran bin Abdullah (Independent Member) Ismitz Matthew De Alwis Company Secretary: Norliza Abd Samad (MAICSA ) 9th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur, Malaysia. Tel: Fax: Scheme Trustee ( Trustee ): CIMB Islamic Trustee Berhad (Company No M) Registered Office Level 13, Menara CIMB Jalan Stesen Sentral 2 Kuala Lumpur Sentral Kuala Lumpur. Tel: Fax: Website: Shariah Adviser: IBFIM (Company No W) Business Office Level 21, Menara CIMB Jalan Stesen Sentral 2 Kuala Lumpur Sentral Kuala Lumpur. Tel: Fax: Registered Office No. 149A, 149B, 151B Persiaran Raja Muda Musa Port Klang Selangor Darul Ehsan, Malaysia. Business Office 3rd Floor, Menara Takaful Malaysia Jalan Sultan Sulaiman Kuala Lumpur, Malaysia. Tel: Fax: Auditor: Ernst & Young (AF: 0039) Level 23A, Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara, Kuala Lumpur. Tel: Fax: Tax Adviser: Ernst & Young Tax Consultants Sdn Bhd (Company No K) Level 23A, Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara, Kuala Lumpur. Tel: Fax: ii Kenanga Shariah OnePRS Moderate Fund Annual Report

5 Administrator: Private Pension Administrator Malaysia (PPA) Level 6, Menara Mudajaya, Jalan PJU 7/3, Mutiara Damansara, Kuala Lumpur. Tel: Fax: Website: Membership: Federation Of Investment Managers Malaysia (FIMM) , 6th Floor, Wisma Tune, 19, Lorong Dungun, Damansara Heights,50490 Kuala Lumpur, Malaysia. Tel: Fax: Website: Kenanga Shariah OnePRS Moderate Fund Annual Report iii

6 DIRECTORY OF PRS PROVIDER S OFFICES Regional Branch Offices : Kuala Lumpur Level 13, Kenanga Tower, 237, Jalan Tun Razak, Kuala Lumpur, Malaysia. Tel: Fax: Melaka No. 25-1, Jalan Kota Laksamana 2/17 Taman Kota Laksamana, Seksyen Melaka Tel: / Fax: Klang No. 12, Jalan Batai Laut 3, Taman Intan Klang, Selangor Darul Ehsan Tel: / Fax: Penang 5.04, 5th Floor, Menara Boustead Penang No. 39, Jalan Sultan Ahmad Shah Penang. Tel : Fax : Miri 2nd Floor, Lot 1264, Centre Point Commercial Centre, Jalan Melayu, Miri, Sarawak Tel: Fax: Seremban 2nd Floor, No. 1D-2, Jalan Tuanku Munawir Seremban, Negeri Sembilan Tel: Fax: Johor Bahru Lot 11.03, 11th Floor, Menara MSC Cyberport No. 5, Jalan Bukit Meldrum Johor Bahru, Johor Tel: / 4798 Fax: Kuching 1st Floor, No 71 Lot 10900, Jalan Tun Jugah Kuching, Sarawak Tel: Fax: Kuantan No. B8, Ground Floor, Jalan Tun Ismail Kuantan Pahang. Tel : Fax : Ipoh Suite 1, 2nd Floor, No. 63, Persiaran Greenhill, Ipoh, Perak, Malaysia Tel: / 7570 / 7575 Fax: Kota Kinabalu A-03-11, 3rd Floor Block A, Warisan Square Jalan Tun Fuad Stephens Kota Kinabalu, Sabah Tel: / Fax: Petaling Jaya 44B, Jalan SS21/35, Damansara Utama Petaling Jaya, Selangor Tel: Fax: iv Kenanga Shariah OnePRS Moderate Fund Annual Report

7 1. FUND INFOATION 1.1 Fund Name Kenanga Shariah OnePRS Moderate Fund (the Fund) 1.2 Fund Category / Type Core (Moderate) 1.3 Investment Objective The Fund aims to provide income^ and capital growth over the long-term through investments in Shariah-compliant equities and sukuk. ^ Income distribution (if any) will be reinvested into the Fund. 1.4 Investment Strategy The Fund seeks to achieve its objective by investing a maximum of 60% of the Fund s NAV in Shariah-compliant equities and at least 40% of the Fund s NAV in sukuk and Islamic money market instruments, which include foreign exposure in Asia Pacific ex-japan. However, at the launch of the Fund, the Kenanga Shariah OnePRS Moderate Fund aims to meet its objective and asset allocation by investing up to 60% of the Fund s NAV in any one Shariah-compliant collective investment scheme(s) managed by the PRS Provider that is in line with the Fund s asset allocation. Such investment shall be for a period of five (5) years from the launch of the Fund or upon the Fund reaching 200 million NAV (whichever is earlier). 1.5 Performance Benchmark A composite of Maybank 1-Month GIA rate (40%), FBM EMAS Shariah Index (45%) and Dow Jones Islamic Market Asia Pacific ex-japan Index (15%). The risk profile of the Fund is not the same as the risk profile of the Performance benchmark. 1.6 Distribution Policy Distribution (if any) will be declared annually and reinvested into the Fund. Members who have reached their retirement age can opt to have the distribution paid to them by cheque or to their bank account. 1.7 Breakdown of unit holdings of the Fund as at 31 May 2017 Size of holdings No. of members No. of units held 5,000 and below 5 11,958 5,001-10, ,860 10,001-50, , , ,001 and above 0 0 Total 9 40,818 Kenanga Shariah OnePRS Moderate Fund Annual Report 1

8 2. PRS PROVIDER S REPORT 2.1 Explanation on whether the Fund has achieved its investment objective. During the financial period under review, the Fund fulfilled its investment objective, having invested in a Shariah-compliant balanced fund which has investments in sukuk, Islamic money market and Shariah-compliant equity securities. Currently, the Fund invests in Kenanga Bon Islam Fund (KBIF) which has the mandate to invest up to 60% of Net Asset Value (NAV) in Shariah-compliant equity and a minimum of 40% in sukuk and Islamic money market instruments. KBIF has track record to distribute its income annually. As such it meets the objective of the Fund to seek income whilst providing capital preservation (neither capital guaranteed nor capital protected). 2.2 Comparison between the Fund s performance and performance of the benchmark Performance Chart Since Launch (18/08/ /05/2017) Kenanga Shariah OnePRS Moderate Fund vs Benchmark* Source: Novagni Analytics and Advisory Sdn Bhd * A composite of All MGS Index (40%) and FBM 100 (60%). 2.3 Investment strategies and policies employed during the financial period under review As at 31 May 2017, the Fund had invested 58.9% of its NAV in KSGF, and 39.1% in KBIF. KBIF is a portfolio of investments, which gives a lower risk and a lower volatility for investors as compared to a pure equity fund. It provides to unit holders with long-term capital growth and income ranging from 3 to 5 years and has a moderate risk profile with tolerance for short term periods of volatility. The manager maintained a barbell strategy of holding a good balance of high yielding/ defensive Shariah-compliant stocks and beta Shariah-compliant stocks. The former allows them to reduce the portfolio volatility during the uncertain period, whilst the latter captures extra performance when risk appetite return. The manager likes names driven by resilient earnings with exposure to selective themes like USD beneficiaries (exporters), rising foreign direct investment, GLC reform/restructuring plays, domestic consumption and infrastructure. 2 Kenanga Shariah OnePRS Moderate Fund Annual Report

9 2.4 The Fund s asset allocation as at 31 May 2017 Asset 31 May 2017 Unlisted Shariah-compliant collective investment schemes 93.9% Cash 6.1% Reason for the differences in asset allocation The fund reduced asset allocation into Shariah-compliant collective investment schemes as the fund manager takes up a more defensive stance. 2.5 Fund performance analysis based on NAV per unit (adjusted for income distribution; if any) since last review period Period under review Kenanga Shariah OnePRS Moderate Fund 3.34% A composite of Maybank 1-Month GIA rate (40%), FBM EMAS Shariah Index (45%) and Dow Jones Islamic Market Asia Pacific ex-japan Index (15%). 5.49% Source: Lipper For the financial period under review, the Fund appreciated 3.34%, underperforming the 5.49% increase in its Benchmark (Maybank 1-Month GIA rate (40%), FBM EMAS Shariah Index (45%) and Dow Jones Islamic Market Asia Pacific ex-japan Index (15%) performance. This was mainly due to Shariah-compliant stock picking within KBF. 2.6 Review of the market Equity Market Review Asian markets continue to strengthen and outperformed the developed markets in August, thanks to the follow through buying post Brexit. As expected, the Bank of England cut rate and restarted QE while economic indicators in EU was resilient, allaying fear over the Brexit impact. The FBMS then began its continuous steady decline, on ongoing Fed rate hike concerns. October was a recovery month as FBMS rebounded driven partly by a mild pre-budget 2017 run-up. As expected, the announced Budget 2017 showcased government s commitment towards fiscal consolidation, rollout of infrastructure projects and promoting private consumption. The market then slid as Donald Trump won the US presidential election and even though Malaysia s 3Q16 GDP growth of 4.3% was higher than expected, the slide continued. BNM maintained its OPR unchanged 3% in November, as expected. For the first time in eight years, OPEC agreed to cut oil production in order to reduce the supply glut of global oil inventories. Brent crude oil prices soared to a 16-month high price above $55 on 5 Dec In addition to the geopolitics and external events affecting the local market, January was an active month on the mergers and acquisition front for Malaysia, led by PNB related companies such as the transactions involving demerger exercise of UMW Holdings with its oil & gas business and the split of Sime Darby into 3 different entities for its plantations, property and industrial divisions. Kenanga Shariah OnePRS Moderate Fund Annual Report 3

10 2.6 Review of the market (Contd.) Equity Market Review (Contd.) February was packed with economic releases and corporate earnings reports. The month kicked off with three central banks meetings. The Federal Reserve, Bank of Japan and Bank of England maintained their interest rates, and the latter two also left their asset purchaseprogramme unchanged. Shortly after, China s central bank raised overnight SLF rates by 35bps to 3.1%, SLF for other durations by 10bps ad reverse repo rates by 10bps. Most Asian markets continue to rise in March, building on the positive momentum from January and February and continued into April, driven by US and European earnings results, fluctuating oil prices, an outline on US President Trump s tax reform proposal and geopolitical issues in Syria and North Korea. Investors grew cautious on the meeting between US and Chinese leaders, and the first round of the French presidential elections, which saw centrist candidate Emmanuel Macron making it through to the second round. Investor s sentiment was more subdued in May as markets had essentially priced in Macron s victory in the French election and attention shifting on Trump s administration ability to pass on its reform proposals. In an unexpected move, UK Prime Minister Theresa May annouced snap election in June to allow her more flexibility in Brexit negotiations. Fixed Income market review Donald Trump s stunning victory in the United States (US) presidential election in November 2016 shifted the sentiment in the US treasury (UST) market dramatically, as evidenced by a surge in the benchmark 10-year UST yield to a peak of 2.60% in December from a historical low of 1.36% recorded in July. It ended the year 2016 at 2.44%. As a result, the UST yield curve steepened with the 10/2 spread widening to 126 basis points (bps) at the end of 2016 from 75 bps in August. The shift in sentiment reflected mounting concerns over Trump s proposed policies that would stimulate growth and generate higher inflationary pressure, as well as the US Federal Reserve s (Fed) shift towards a more hawkish stance. In Europe, the bond rally in the first seven months of 2016 also reversed in the later part of the year after the European Central Bank (ECB) was initially reluctant to extend its Quantitative Easing (QE) programme in July. Yields spiked further in November after the US election. Although the ECB emphasized that its actions should not be regarded as equivalent to the US tapering, it failed to remove market concerns about the curtailment of the QE. Despite the fact that the ECB finally extended the programme in December, political uncertainties related to the Brexit and rising inflationary pressure limited the downside for the yields. In the Malaysian primary bond market, the government raised a total of 86.0 billion from 29 offerings in 2016, lower than the previous year s 92.5 billion. Overall, government bonds in the primary market continued to attract strong bidding interest in 2016 despite steepening yields after Trump s surprise victory which caused a massive sell-off in the local government bonds market. Subscription for local government bonds drew support from bargain hunting activities from local institutional funds as evidenced by the increasing bid-to-cover (BTC) trend despite declining foreign holdings. 4 Kenanga Shariah OnePRS Moderate Fund Annual Report

11 2.6 Review of the market (Contd.) Fixed Income market review (Contd.) Foreign holdings of local government bonds which were on the uptrend since the beginning of 2016 fell sharply after the US election as sentiment shifted. The possibility of a more aggressive rate hike by the Fed in 2017 on the back of rising inflationary pressure was the main concern among bond investors. Foreign ownership of Malaysian Governments Securities (MGS) was pared down to the lowest at 38.5% of total outstanding in March 2017 from 2016 s high of 51.9% of total outstanding in October The Malaysian bond market ended 2016 on a negative note with benchmark yields for local government bonds rising between 3 bps to 27 bps from 2015 across all maturities. As a result, yield curves for both local government bonds and corporate bonds steepened sharply. The corporate bond primary market remained commendable in 2016 with a total issuance of 84.8 billion (2015: 85.0 billion), in line with our forecast. Total issuances were bolstered by a higher amount of unrated government guaranteed (GG) issuances which climbed to 28.1 billion in 2016, up from an average of 19.3 billion per year in The GG segment was dominated by issuances from the infrastructure and utilities and financial services sectors with notable issuers such as Danainfra Nasional Berhad and Lembaga Pembiayaan Perumahan Sektor Awam (LPPSA). Equity market outlook Fed policymakers indicated that slower economic data in 1Q is transitory with activity picking up for the rest of the year in addition to the rate hike on June 14, Trump s unpredictability and protectionist leanings remains a key risk. While the Brexit process could also be a source of volatility, the political risks in EU appears to be eased and ECB is likely to wait for more compelling evidence before contemplating a change of stance in its monetary policy. Fixed Income market outlook Going forward, we do not expect the Fed to raise interest rates more than three times in 2017 as policy makers fully assess the impact of the new administration s policies. In addition, the possibility of tighter financial conditions attributed to the appreciation of the USD could also limit the number of rate hikes. Against this backdrop, we have a mildly bearish view on USTs. On one hand, the prospects of higher UST issuances on the back of an expansionary fiscal policy would continue to exert upward pressure on the yields, especially at the long end. On the other hand, a sharp increase in yields is unlikely due to the safe-haven status of the USTs, the threat of geopolitical instability and the divergence of the monetary policies between US and the rest of the world. Kenanga Shariah OnePRS Moderate Fund Annual Report 5

12 2.6 Review of the market (Contd.) Fixed Income market outlook (Contd.) In Europe, although we do not expect the ECB to remove its policy accommodation measures in the immediate term, we do not expect a significant reduction in interest rates in the near term as we view that the current interest rates are already too low (at -0.40%). We also expect United Kingdom (UK) yields to rise amid prospects of higher Gilts issuance following the government s expansionary fiscal plans. In the Malaysian primary bond market, we foresee gross MGS/GII issuance in 2017 to come in within the range of billion to billion with the MGS/GII ratio remaining at circa 55:45. This is premised on the amount of budget deficits of circa 40.3 billion as projected by the Ministry of Finance (MoF) and 66.8 billion worth of MGS/GII that will mature in Total issuance will be the highest since 2013 due to a large number of maturing issues and a higher projected budget deficit in We are also of the view that foreign holdings of local government bonds will decline further in the short term due to uncertainties over Trump s future policies as well as the prospects of further depreciation in the Ringgit against the USD. In the medium term, however, we expect foreign ownership of local government bonds to stabilize as a bigger chunk of the government bonds are in the hands of long-term investors such as central banks and pension funds. In the secondary market, we anticipate MGS and corporate bond yields to trend higher in 2017 as the Ringgit remains volatile due to, among other things, a stronger USD. Going forward, we are of the view that the 10-year MGS yield will remain on the uptrend, ranging between 4.0% and 4.5%, as the Malaysian bond market continues to be closely monitored due to a high proportion of foreign holdings in the region. However, some stabilization will emerge in the medium term after there is greater clarity over Trump s future economic plans. On the domestic front, Malaysian bond yields would also be pressured by higher inflation expectations and limited prospects of a rate cut by Bank Negara Malaysia (BNM). In its base case scenario, we expect the Overnight Policy Rate (OPR) to be left unchanged at the current level (3%). Should it be necessary for BNM to trim the policy rate, the rate cut would likely be limited to 25 bps, in our view. As for the Malaysian economy, we anticipate gross domestic product (GDP) growth to improve between 4.5% to 5.0% in 2017 in view of better near-term US economic prospects despite rising global political and economic uncertainties. Mitigating this is the risk of further moderation in China s economy which could hamper Asian trade and economic performance in Malaysia s domestic demand is also softening, with private consumption growth expected to moderate further amid a weaker job market and stringent credit assessments. Notwithstanding this, a stronger pace of private investment growth and improved global commodity prices could provide some support to the economy in the near term. 6 Kenanga Shariah OnePRS Moderate Fund Annual Report

13 2.6 Review of the market (Contd.) Fixed Income market outlook (Contd.) In the corporate bond primary market, we expect issuances from the GG segment to continue to grow on the back of ongoing large infrastructure projects such as Danainfra s 46.0 billion Islamic Commercial Paper/Islamic Medium Term (ICP/IMTN) programme which has yet to be fully utilised. We foresee corporate bond issuance to be relatively unchanged from the previous year s level of 75.0 billion 85.0 billion in While we foresee pressure on cash flow generation to persist in the near term, we do not see rising default risk as non-financial corporate leverage remains fairly stable and within reasonably prudent levels. Our assessment reinforces our view that credit spreads will remain stable throughout Fund Strategy We continue to advocate a defensive portfolio strategy, buying on weakness into names driven by resilient earnings with exposure to selective themes like USD beneficiaries (exporters), rising foreign direct investment, GLC reform/restructuring plays, domestic consumption and infrastructure. In view of our fixed income market outlook, we maintain positioning our sukuk to be in neutral duration against benchmark to mitigate continued market volatility while still maintaining our preference to invest in private sukuk of AAA rating for liquidity purposes and good quality AArating for yield enhancement. 2.7 Distribution For the financial period under review, the Fund did not declare any distribution. 2.8 Details of any unit split exercise The Fund did not carry out any unit split exercise during the financial period under review. 2.9 Significant changes in the state of affair of the Fund during the financial period There were no significant changes in the state of affair of the Fund during the period and up until the date of the PRS Provider s report, not otherwise disclosed in the financial statements Circumstances that materially affect any interests of the members During the financial period under review, there were no circumstances that materially affected any interests of the members Rebates & Soft commissions Any rebates received are channeled back to the Fund. On the other hand, soft commissions received from the stockbrokers for goods and services such as technical analysis software, fundamental database, financial wire services, stock quotation system and portfolio management software incidental to investment management of the Fund shall be retained by the PRS Provider. For the financial period under review, the PRS Provider did not receive any rebates or soft commissions from stockbrokers. Kenanga Shariah OnePRS Moderate Fund Annual Report 7

14 3. FUND PERFOANCE 3.1 Details of portfolio composition of Kenanga Shariah OnePRS Moderate Fund ( the Fund ) for the first financial period as at 31 May 2017 is as follows: a. Distribution among industry sectors and category of Shariah-Compliant investments: As at % Unlisted Shariah-compliant collective investment schemes 93.9 Cash Note: The above mentioned percentages are based on total Shariah-compliant investment market value plus cash. b. Distribution among markets The Fund invests in unlisted Shariah-compliant collective investment schemes and cash instruments only. 8 Kenanga Shariah OnePRS Moderate Fund Annual Report

15 3.2 Performance details of the Fund for the first financial period ended 31 May 2017 are as follows: Period from (date commencement) to Net asset value ( NAV ) ( 000) Units in circulation ( 000) NAV per unit () Highest NAV per unit () Lowest NAV per unit () Total return (%) 3.34 Capital growth (%) 3.34 Income growth (%) - Gross distribution per unit (sen) - Net distribution per unit (sen) - Management expense ratio ( MER ) (%) 1 - Portfolio turnover ratio ( PTR ) (times) 1.50 Note: Total return is the actual return of the Fund for the financial period, computed based on NAV per unit and net of all fees. MER is computed based on the total fees and expenses incurred by the Fund divided by the average fund size calculated on a daily basis. PTR is computed based on the average of the total acquisitions and total disposals of Shariah-compliant investment securities of the Fund divided by the average fund size calculated on a daily basis. Above NAV and NAV per unit are not shown as ex-distribution as there were no distribution declared by the Fund in the current financial period under review. 1. MER for the financial period under review is nil as the expenses of the Fund is borne by the PRS Provider. Kenanga Shariah OnePRS Moderate Fund Annual Report 9

16 3.3 Average total return of the Fund Since inception 18 Aug 16 (date of commencement) - 31 May 17 Kenanga Shariah OnePRS Moderate Fund 3.34% A composite of Maybank 1-Month GIA rate (40%), FBM EMAS Shariah Index (45%) and Dow Jones Islamic Market Asia Pacific ex-japan Index (15%). 5.49% Source: Lipper 3.4 Annual total return of the Fund Period under review 18 Aug 16 (date of commencement) - 31 May 17 Kenanga Shariah OnePRS Moderate Fund 3.34% A composite of Maybank 1-Month GIA rate (40%), FBM EMAS Shariah Index (45%) and Dow Jones Islamic Market Asia Pacific ex-japan Index (15%) 5.49% Source: Lipper Investors are reminded that past performance is not necessarily indicative of future performance. Unit prices and investment returns may fluctuate. 10 Kenanga Shariah OnePRS Moderate Fund Annual Report

17 4 TRUSTEE S REPORT TO THE MEMBERS OF KENANGA SHARIAH ONEPRS MODERATE FUND We, CIMB Islamic Trustee Berhad ( the Scheme Trustee ), being the Scheme Trustee of Kenanga Shariah OnePRS Moderate Fund ( the Fund ), are of the opinion that Kenanga Investors Berhad ( PRS Provider ), acting in the capacity of PRS Provider of the Fund, has fulfilled its duties in the following manner for the first financial period from 18 August 2016 (date of commencement) to 31 May a) The Fund has been managed in accordance with the limitations imposed on the investment powers of the PRS Provider and the Scheme Trustee under the Deed, the Securities Commission Malaysia s Guidelines on Private Retirement Schemes, the Capital Markets and Services Act 2007 (as amended from time to time) and other applicable laws; b) Valuation/pricing of units of the Fund has been carried out in accordance with the Deed and relevant regulatory requirements; and c) Creation and cancellation of units have been carried out in accordance with the Deed and relevant regulatory requirements. For and on behalf of CIMB Islamic Trustee Berhad Liew Pik Yoong Chief Executive Officer Kuala Lumpur, Malaysia 26 July 2017 Kenanga Shariah OnePRS Moderate Fund Annual Report 11

18 5. SHARIAH ADVISER S REPORT TO THE MEMBERS OF KENANGA SHARIAH ONEPRS MODERATE FUND We have acted as the Shariah Adviser of Kenanga Shariah OnePRS Moderate Fund. Our responsibility is to ensure that the procedures and processes employed by Kenanga Investors Berhad are in accordance with Shariah principles. In our opinion, Kenanga Investors Berhad has managed and administered Kenanga Shariah OnePRS Moderate 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 31 May In addition, we also confirm that the investment portfolio of Kenanga Shariah OnePRS Moderate Fund comprises securities which have been classified as Shariah-compliant by the Shariah Advisory Council of the Securities Commission Malaysia. As for the securities which are not certified by the Shariah Advisory Council of the Securities Commission Malaysia, we have reviewed the said securities and opine that these securities are designated as Shariahcompliant. For and on behalf of the Shariah Adviser IBFIM AHMAD ZAKIRULLAH BIN MOHAMED SHAARANI Managing Advisor (Shariah)/ Designated Person Responsible for Shariah Advisory Kuala Lumpur, Malaysia 26 July Kenanga Shariah OnePRS Moderate Fund Annual Report

19 6. INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF KENANGA SHARIAH ONEPRS MODERATE FUND REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS Opinion We have audited the financial statements of Kenanga Shariah OnePRS Moderate Fund ( the Fund ), which comprise the statement of financial position as at 31 May 2017, and the statement of comprehensive income, statement of changes in net asset value and statement of cash flows of the Fund for the first financial period from 18 August 2016 (date of commencement) to 31 May 2017, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information, as set out on pages 17 to 35. In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Fund as at 31 May 2017 and of its financial performance and cash flows for the first financial period from 18 August 2016 (date of commencement) to 31 May in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards. Basis for opinion We conducted our audit in accordance with approved standards of auditing in Malaysia and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditors responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence and other ethical responsibilities We are independent of the Fund in accordance with the By-Laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants ( By-Laws ) and the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants ( IESBA Code ), and we have fulfilled our other ethical responsibilities in accordance with the By-Laws and the IESBA Code. Information other than the financial statements and auditors report thereon The PRS Provider of the Fund ( PRS Provider ) is responsible for the other information. The other information comprises the information included in the annual report of the Fund, but does not include the financial statements of the Fund and our auditors report thereon. Our opinion on the financial statements of the Fund does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements of the Fund, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements of the Fund or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Kenanga Shariah OnePRS Moderate Fund Annual Report 13

20 6. INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF KENANGA SHARIAH ONEPRS MODERATE FUND (CONTD.) Responsibilities of the PRS Provider and the Trustee for the financial statements The PRS Provider is responsible for the preparation of financial statements of the Fund that give a true and fair view in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards. The PRS Provider is also responsible for such internal control as the PRS Provider determines is necessary to enable the preparation of financial statements of the Fund that are free from material misstatement, whether due to fraud or error. In preparing the financial statements of the Fund, the PRS Provider is responsible for assessing the Fund s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the PRS Provider either intends to liquidate the Fund or to cease operations, or has no realistic alternative but to do so. The Trustee is responsible for overseeing the Fund s financial reporting process. The Trustee is also responsible for ensuring that the PRS Provider maintains proper accounting and other records as are necessary to enable true and fair presentation of these financial statements. Auditors responsibility for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements of the Fund as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with approved standards on auditing in Malaysia and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with approved standards of auditing in Malaysia and International Standards on Auditing, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial statements of the Fund, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund s internal control. 14 Kenanga Shariah OnePRS Moderate Fund Annual Report

21 6. INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF KENANGA SHARIAH ONEPRS MODERATE FUND (CONTD.) Auditors responsibility for the audit of the financial statements (Contd.) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the PRS Provider. Conclude on the appropriateness of the PRS Provider s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Fund s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the financial statements of the Fund or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Fund to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements of the Fund, including the disclosures, and whether the financial statements of the Fund represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with the PRS Provider regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Other matters This report is made solely to the members of the Fund, as a body, in accordance with the Guidelines on Private Retirement Schemes issued by Securities Commission Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report. Ernst & Young AF: 0039 Chartered Accountants Chan Hooi Lam No. 2844/02/18(J) Chartered Accountant Kuala Lumpur, Malaysia 26 July 2017 Kenanga Shariah OnePRS Moderate Fund Annual Report 15

22 7. STATEMENT BY THE PRS PROVIDER I, Ismitz Matthew De Alwis, being a director of Kenanga Investors Berhad, do hereby state that, in the opinion of the PRS Provider, the accompanying statement of financial position as at 31 May 2017 and the related statement of comprehensive income, statement of changes in net asset value and statement of cash flows for the first financial period from 18 August 2016 (date of commencement) to 31 May 2017 together with notes thereto, are drawn up in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards so as to give a true and fair view of the financial position of Kenanga Shariah OnePRS Moderate Fund as at 31 May 2017 and of its financial performance and cash flows for the first financial period from 18 August 2016 (date of commencement) to 31 May 2017 and comply with the requirements of the Deed. For and on behalf of the PRS Provider Kenanga Investors Berhad Ismitz Matthew De Alwis Executive Director/Chief Executive Officer Kuala Lumpur, Malaysia 26 July Kenanga Shariah OnePRS Moderate Fund Annual Report

23 8. FINANCIAL STATEMENTS 8.1 STATEMENT OF COMPREHENSIVE INCOME FOR THE FIRST FINANCIAL PERIOD FROM 18 AUGUST 2016 (DATE OF COMMENCEMENT) TO 31 MAY 2017 Note (date of commencement) to INVESTMENT INCOME Profit income 2 Net gain from Shariah-compliant investments: - Financial assets at fair value through profit or loss ( FVTPL ) NET INCOME BEFORE TAX 455 Income tax 8 - NET INCOME AFTER TAX, REPRESENTING TOTAL COMPREHENSIVE INCOME FOR THE FINANCIAL PERIOD 455 Net income after tax is made up as follows: Realised loss (12) Unrealised gain The accompanying notes form an integral part of the financial statements. Kenanga Shariah OnePRS Moderate Fund Annual Report 17

24 8.2 STATEMENT OF FINANCIAL POSITION AS AT 31 MAY 2017 Note ASSETS INVESTMENTS Financial assets at FVTPL 4 20,667 OTHER ASSET Cash at bank 1,345 TOTAL ASSETS 22,012 LIABILITY Amount due to PRS Provider 922 TOTAL LIABILITY 922 EQUITY Members contribution 20,635 Retained earning 455 NET ASSET VALUE ( NAV ) ATTRIBUTABLE TO MEMBERS 9 21,090 TOTAL LIABILITY AND EQUITY 22,012 NUMBER OF UNITS IN CIRCULATION 9(a) 40,818 NET ASSET VALUE PER UNIT () The accompanying notes form an integral part of the financial statements. 18 Kenanga Shariah OnePRS Moderate Fund Annual Report

25 8.3 STATEMENT OF CHANGES IN NET ASSET VALUE FOR THE FIRST FINANCIAL PERIOD FROM 18 AUGUST 2016 (DATE OF COMMENCEMENT) TO 31 MAY 2017 Note Members contribution Retained earning Total NAV (date of commencement) to At date of commencement Total comprehensive income Creation of units 9(a) 24,624-24,624 Cancellation of units 9(a) (3,990) - (3,990) Distribution equalisation 9(a) 1-1 At end of the financial period 20, ,090 The accompanying notes form an integral part of the financial statements. Kenanga Shariah OnePRS Moderate Fund Annual Report 19

26 8.4 STATEMENT OF CASH FLOWS FOR THE FIRST FINANCIAL PERIOD FROM 18 AUGUST 2016 (DATE OF COMMENCEMENT) TO 31 MAY 2017 CASH FLOWS FROM OPERATING AND INVESTING ACTIVITIES (date of commencement) to Proceeds from sale of financial assets at FVTPL 3,912 Initial deposit received from the PRS Provider 1,000 Hibah from Islamic current account received 2 Payments for other fees and expenses (68) Purchase of financial assets at FVTPL (23,490) Net cash used in operating and investing activities (18,644) CASH FLOWS FROM FINANCING ACTIVITIES Cash received from units created 23,980 Cash paid on units cancelled (3,991) Net cash generated from financing activities 19,989 NET INCREASE IN CASH AND CASH EQUIVALENTS 1,345 CASH AND CASH EQUIVALENTS AT DATE OF COMMENCEMENT - CASH AND CASH EQUIVALENTS AT END OF THE FINANCIAL PERIOD 1,345 Cash and cash equivalents comprise: Cash at bank 1,345 The accompanying notes form an integral part of the financial statements. 20 Kenanga Shariah OnePRS Moderate Fund Annual Report

27 8.5 NOTES TO THE FINANCIAL STATEMENTS FOR THE FIRST FINANCIAL PERIOD FROM 18 AUGUST 2016 (DATE OF COMMENCEMENT) TO 31 MAY THE FUND, THE PRS PROVIDER AND THEIR PRINCIPAL ACTIVITIES Kenanga Shariah OnePRS Moderate Fund ( the Fund ) was constituted pursuant to the executed Deed dated 30 November 2015 ( the Deed ) between the Private Retirement Scheme Provider ( PRS Provider ), Kenanga Investors Berhad and CIMB Islamic Trustees Berhad ( the Trustee ). The Fund commenced operations on 18 August 2016 and will continue to be in operation until terminated as provided under Part 16 of the Deed. Kenanga Investors Berhad is a wholly-owned subsidiary of Kenanga Investment Bank Berhad. Prior to 1 November 2016, Kenanga Investment Bank Berhad was a wholly-owned subsidiary of K & N Kenanga Holdings Berhad that was listed on the Main Market of Bursa Malaysia Securities Berhad. Pursuant to an internal reorganisation exercise completed on 1 November 2016, Kenanga Investment Bank Berhad has become the holding company of K & N Kenanga Holdings Berhad. On 2 November 2016, Kenanga Investment Bank Berhad has assumed the listing status of K & N Kenanga Holdings Berhad. All of these companies are incorporated in Malaysia. The principal place of business of the PRS Provider is Level 14, Kenanga Tower, 237, Jalan Tun Razak, Kuala Lumpur. The Fund seeks to provide members returns over the long term through investments The Fund seeks to provide income and capital growth over the long-term through investments in Shariah-compliant equities and sukuk. The Fund seeks to achieve its objective by investing a maximum of 60% of the Fund s NAV in Shariah-compliant equities and at least 40% of the Fund s NAV in sukuk and Islamic money market instruments, which include foreign exposure in Asia Pacific ex-japan. However, at the launch of the Fund, the Fund aims to meet its objective and asset allocation by investing up to 60% of the Fund s NAV in any one Shariahcompliant collective investment scheme(s) managed by the PRS Provider that is in line with the Fund s asset allocation. Such investment shall be for a period of five (5) years from the launch of the Fund or upon the Fund reaching 200 million NAV (whichever is earlier). The financial statements were authorised for issue by the Chief Executive Officer of the PRS Provider on 26 July FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Fund is exposed to a variety of risks including market risk (which includes interest rate risk and price risk), credit risk, liquidity risk and reclassification Shariah status risk. Whilst these are the most important types of financial risks inherent in each type of financial instruments, the PRS Provider and the Trustee would like to highlight that this list does not purport to constitute an exhaustive list of all the risks inherent in a Shariah-compliant investment in the Fund. Kenanga Shariah OnePRS Moderate Fund Annual Report 21

28 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) The Fund has an approved set of investment guidelines and policies as well as internal controls which sets out its overall business strategies to manage these risks to optimise returns and preserve capital for the members, consistent with the long term objectives of the Fund. a. Market Risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk includes interest rate risk and price risk. Market risk arises when the value of the Shariah-compliant investments fluctuates in response to the activities of individual companies, general market or economic conditions. It stems from the fact that there are economy-wide perils, which threaten all businesses. Hence, investors are exposed to market uncertainties. Fluctuation in the Shariah-compliant investment s price caused by uncertainties in the economic, political and social environment will affect the NAV of the Fund. The PRS Provider manages the risk of unfavorable changes in prices by cautious review of the Shariah-compliant investments and continuous monitoring of their performance and risk profiles. i. Interest rate risk Interest rate risk refers to how the changes in the interest rate environment would affect the valuation of Shariah-compliant instruments. In the event of a rising interest rate environment, the valuation of Shariah-compliant instruments may decrease, and vice versa. Interest rate, such as the Overnight Policy Rate set by Bank Negara Malaysia, will have an impact on the investment decisions of the Fund regardless of whether it is a Shariah-compliant fund or otherwise. It does not in any way suggests that the Fund will invest in conventional financial instruments. The Fund is not exposed to interest rate risk as it does not hold any assets and liabilities that have exposure to interest rate movement. However, the Fund has indirect exposure to interest rate risk through its Shariah-compliant investments in the unlisted Shariah-compliant collective investment schemes. ii. Price risk Price risk is the risk of unfavorable changes in the NAV of unlisted Shariahcompliant collective investment schemes. The Fund invests in unlisted Shariah-compliant collective investment schemes which are exposed to price fluctuations. This may then affect the NAV per unit of the Fund. 22 Kenanga Shariah OnePRS Moderate Fund Annual Report

29 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk (Contd.) ii. Price risk (Contd.) Price risk sensitivity The PRS Provider s best estimate of the effect on the profit for the financial period due to a reasonably possible change in investments in unlisted Shariahcompliant collective investment schemes with all other variables held constant is indicated in the table below: Changes in price Increase/ (Decrease) Basis points Effects on profit for the financial period Increase/ (Decrease) Financial assets at FVTPL 5/(5) 10/(10) In practice, the actual trading results may differ from the sensitivity analysis above and the difference could be material. Price risk concentration The following table sets out the Fund s exposure and concentration to price risk based on its portfolio of financial instruments as at the reporting date. Fair value Percentage of NAV % b. Credit Risk Financial assets at FVTPL 20, Credit risk is the risk that the counterparty to a financial instrument will cause a financial loss to the Fund by failing to discharge an obligation. The PRS Provider manages the credit risk by undertaking credit evaluation to minimise such risk. i. Credit risk exposure As at the reporting date, the Fund s maximum exposure to credit risk is represented by the carrying amount of each class of financial asset recognised in the statement of financial position. ii. Financial assets that are either past due or impaired As at the reporting date, there are no financial assets that are either past due or impaired Kenanga Shariah OnePRS Moderate Fund Annual Report 23

30 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) c. Liquidity Risk Liquidity risk is defined as the risk that the Fund will encounter difficulty in meeting obligations associated with financial liabilities that are to be settled by delivering cash or another financial asset. Exposure to liquidity risk arises because of the possibility that the Fund could be required to pay its liabilities or cancel its units earlier than expected. The Fund is exposed to cancellation of its units on a regular basis. Units sold to members by the PRS Provider are cancellable at the members option based on the Fund s NAV per unit at the time of cancellation calculated in accordance with the Deed. The Islamic liquid assets comprise cash, Islamic deposits with licensed financial institutions and other Shariah-compliant instruments, which are capable of being converted into cash within 7 days. The following table analyses the maturity profile of the Fund s financial assets and financial liabilities in order to provide a complete view of the Fund s contractual commitments and liquidity. Note Up to 1 year Assets Financial assets at FVTPL 20,667 Other assets 1,345 i. 22,012 Liability Other liability ii. 922 Equity iii. 21,090 Liquidity gap - i. Financial assets Analysis of financial assets at FVTPL into maturity groupings is based on the expected date on which these assets will be realised. The Fund s investments in unlisted Shariah-compliant collective investment schemes have been included in the up to 1 year category on the assumption that these are highly liquid Shariah-compliant investments which can be realised should all of the Fund s members equity be required to be redeemed. For other assets, the analysis into maturity groupings is based on the remaining period from the end of the reporting period to the contractual maturity date or if earlier, the expected date on which the assets will be realised. 24 Kenanga Shariah OnePRS Moderate Fund Annual Report

31 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) c. Liquidity Risk (Contd.) ii. Financial liabilities The maturity grouping is based on the remaining period from the end of the reporting period to the contractual maturity date or if earlier, the date on which the liabilities will be settled. When counterparty has a choice of when the amount is paid, the liability is allocated to the earliest period in which the Fund can be required to pay. iii. Equity As members can request for redemption of their units, they have been categorised as having a maturity of up to 1 year. d. Reclassification of Shariah Status Risk The risk that the currently held Shariah-compliant securities in the portfolio of Target Fund may be reclassified to be Shariah non-compliant upon review of the securities by the Shariah Advisory Council of the Securities Commission Malaysia performed twice yearly. If this occurs, the PRS Provider will take the necessary steps to dispose of such securities. There may be opportunity loss to the Target Fund due to the Target Fund not being allowed to retain the excess capital gains derived from the disposal of the Shariah non-compliant equities. The value of the Target Fund may also be adversely affected in the event of a disposal of Shariah non-compliant equities at a price lower than the investment cost. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Basis of Accounting The financial statements of the Fund have been prepared in accordance with Malaysian Financial Reporting Standards ( MFRS ) as issued by the Malaysian Accounting Standards Board ( MASB ) and International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ). The financial statements have been prepared on the historical cost basis except as disclosed in the accounting policies below. b. Standards, Amendments and Interpretation Issued But Not Yet Effective As at the reporting date, the following Standards, Amendments and Interpretation Committee s ( IC ) Interpretation that have been issued by MASB will be effective for the Fund in future periods. The Fund intends to adopt the relevant standards when they become effective. Kenanga Shariah OnePRS Moderate Fund Annual Report 25