KENANGA ISLAMIC FUND INTERIM REPORT

Transcription

1 INTERIM REPORT For the Financial Period Ended 30 June 2013

2 (KIF) Contents Page CORPORATE DIRECTORY ii DIRECTORY OF MANAGER S OFFICES iii MANAGER S REPORT 1.0 FUND INFOATION FUND REVIEW MARKET REVIEW & OUTLOOK PERFOANCE DATA PORTFOLIO COMPOSITION 8-9 TRUSTEE S REPORT 10 SHARIAH ADVISER S REPORT 11 STATEMENT BY THE MANAGER 12 STATEMENT OF COMPREHENSIVE INCOME 13 STATEMENT OF FINANCIAL POSITION 14 STATEMENT OF CHANGES IN EQUITY 15 STATEMENT OF CASH FLOWS 16 NOTES TO THE FINANCIAL STATEMENTS i

3 CORPORATE DIRECTORY MANAGER: KENANGA INVESTORS BERHAD (Company No P) REGISTERED OFFICE Kenanga Investors Berhad (KIB) 8 th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur, Malaysia. Tel: Fax: BOARD OF DIRECTORS Datuk Syed Ahmad Alwee Alsree (Chairman) Syed Zafilen Syed Alwee (Independent Director) YM Raja Dato Seri Abdul Aziz bin Raja Salim (Independent Director) Vivek Sharma (Independent Director) Bruce Kho Yaw Huat Abdul Razak bin Ahmad Peter John Rayner BUSINESS OFFICE Suite 12.02, 12 th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur, Malaysia. Tel: / Fax: / InvestorServices@kenanga.com.my Website: COMPANY SECRETARY: Norliza Abd Samad, (MAICSA ) 9 th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur, Malaysia. TRUSTEE: UNIVERSAL TRUSTEE (MALAYSIA) BERHAD (Company No D) REGISTERED AND BUSINESS OFFICE 1 Jalan Ampang, 3 rd Floor, Kuala Lumpur, Malaysia. Tel: Fax: , , EXTERNAL FUND MANAGER: KENANGA ISLAMIC INVESTORS BERHAD (Company No D) REGISTERED OFFICE 8th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur, Malaysia. Tel: Fax: BUSINESS OFFICE Suite 12.02, 12th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur, Malaysia. Tel: Fax: AUDITOR: ERNST & YOUNG Room , 3 rd Floor, Wisma Bukit Mata Kuching, Jalan Tunku Abdul Rahman, Kuching, Sarawak, Malaysia. SHARIAH ADVISER: IBFIM (Company No W) 3rd Floor, Menara Takaful Malaysia, Jalan Sultan Sulaiman, Kuala Lumpur, Malaysia. Tel: Fax: Website: ii

4 DIRECTORY OF MANAGER S OFFICES REGIONAL BRANCH OFFICES: Kuala Lumpur Suite 12.02, 12th Floor, Kenanga International Jalan Sultan Ismail, Kuala Lumpur, Malaysia Tel: / Fax: / Petaling Jaya Unit B-6-2, Sunway Giza Mall Dataran Sunway, PJU 5/14 Kota Damansara Petaling Jaya, Selangor Tel: , Fax: Klang No. 12 Jalan Batai Laut 3, Taman Intan Klang, Selangor Darul Ehsan Tel: , Fax: Penang Blok A, Aras 3, Wisma Perkeso No. 269, Jalan Burma George Town, Penang Tel: Fax: Melaka No Jalan Kota Laksamana 2/17 Taman Kota Laksamana Seksyen Melaka Tel: , Fax: Johor Bahru Lot 11.03, 11th Floor, Menara MSC Cyberport 5 Jalan Bukit Meldrum Johor Bahru, Johor Tel: /4798 Fax: Kuching 1st Floor, No 71, Lot 7 Lot 10900, Jalan Tun Jugah Kuching, Sarawak Tel: Fax: Kota Kinabalu A-03-11, 3rd Floor Block A Warisan Square Jalan Tun Fuad Stephens Kota Kinabalu, Sabah Tel: / Fax: Ipoh No. 5A, Persiaran Greentown 9 Greentown Business Centre Ipoh, Perak Darul Ridzuan Tel: /7570 Fax: Seremban Suite 08-3, Seremban City Centre Jalan Pasar Seremban Tel: Fax: Agency Office Miri (Sarawak) c/o Lot 1084, 2nd Floor, Jalan Merpati Miri Sarawak, Malaysia Tel: iii

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6 MANAGER S REPORT Dear Unit Holders, We are pleased to present the Manager s interim report and the financial statements of the KENANGA ISLAMIC FUND for the 6-month financial period ended 30 June FUND INFOATION 1.1 Fund Name (KIF or the Fund) 1.2 Fund Category / Type Equity (Islamic) / Growth 1.3 Investment Objective The Fund aims to achieve steady capital growth and income distribution (incidental) over the medium to long-term period by investing in a diversified portfolio of authorized investments in accordance with accepted Shariah principles. 1.4 Investment Strategy The Fund will invest principally in a diversified portfolio of Shariah-compliant equity and equity-related securities. 1.5 Asset Allocation 70% to 98% in Shariah-compliant equities and minimum 2% in Islamic liquid assets. 1.6 Duration The Fund was launched on 15 August 2002 and shall exist as long as it appears to the Manager and the Trustee that it is in the interests of the unit holders for it to continue. 1.7 Performance Benchmark FTSE-Bursa Malaysia Emas Shariah Index (FBM Emas Shariah Index) 1.8 Distribution Policy The Fund intends to pay income by way of distributions or by the creation of additional units after the end of each Accrual Period (i.e. 12-month period ending on the last day of December of each year) or any specified period, where possible. 1

7 2.0 FUND REVIEW 2.1 Fund Performance vs Benchmark Performance NAV per unit () 1 Fund Return 3 30/6/ /12/ (%) Benchmark Return 3 (%) Published NAV per unit based on last done price. 2 On 31 December 2012, the Manager declared gross dividend of 4.23 sen per unit. 3 Source: Lipper. Performance returns are adjusted for all distributions (on a reinvested basis) and unit splits. For the period under review to 30th June 2013, the Fund has appreciated by 12.3%, and outperformed the FBMS benchmark return of 6.7%. The outperformance was mainly due to Shariah-compliant stock selection. The top 5 performers during the period were (1) Perisai Petroleum (+45.4%); (2) SapuraKencana Petroleum (+29.8%); (3) Tenaga (+19.5%); (4) KPJ Healthcare (+19.3%); and (5) Dialog Group (+17.5%). 2.2 Has the Fund Achieved its Objective? Since inception, the Fund has appreciated by 270.1%* in Net Asset Value terms (while its benchmark rose 134.0%*), thus achieving the Fund s stated objective of medium to long term capital appreciation. * Source: Lipper. 2.3 Strategies & Policies Employed For the period under review, the Fund continued with its strategy of investing in Shariah-compliant securities of companies with sustainable business models and competent management, whilst trading at a discount to their intrinsic / fair value. The Fund focused on companies whose top line / revenue should prove to be relatively more resilient to a global economic slowdown and have the ability to maintain their profit margins. We also focused on companies likely to benefit from Malaysia s on-going Economic Transformation Program. Sectors that we favor include: i) Islamic REITs, ii) Consumer staples and FMCG, iii) Healthcare, iv) Plantations on a longer term, and v) Oil & Gas. 2.4 State of Affairs of the Fund There were no other significant changes to the state of affairs of the Fund and no circumstances that materially affect the interests of Unit Holders up to the date of this Manager s report. 2

8 2.5 Unit Holders Profile As at 30 June 2013, the number of units of the Fund in circulation stood at 61,863,300 (includes Manager Stock) units out of an approved Fund size of 500 million units. Breakdown of Unit Holdings by Size Unit Holders Unit Holdings Size of holdings Number % Units % 5,000 and below , ,001 10, ,308, ,001-50, ,391, , , ,980, ,001 and above ,644, Total ,863, Manager and Related Party Holdings Breakdown of holdings by the Manager and related parties as at 30 June 2013 is as follows:- No. of Units Held Manager # - Director of the Manager - Other related parties - Total - # excludes normal & EPF bookings 2.6 Rebates & Soft Commission The Manager from time to time may receive rebates which are then paid to the Fund. During the financial period under review, no rebates were received by virtue of transactions conducted by the Fund. The Manager received soft commission from its brokers by virtue of transactions conducted by the Fund in the form of research and advisory services. These services assist in the decision-making process relating to the investments of the Fund and are of a demonstrable benefit to the Unit Holders. 3

9 3.0 MARKET REVIEW & OUTLOOK 3.1 Market Review Equities market in the region performance can be broken up into three parts for the period under review. The Nikkei had a fantastic year (+31.8% yoy) following the government s surprise decision to follow the US quantitative easing programme with a potential value of US$1.5 trillion in an effort to inflate the long stagnant economy. The emerging countries of ASEAN were clear outperformers led by Indonesia and Philippines which rose by 11.6% and 11.2% respectively as investors react positively to the underlying domestic economic growth of these economies. The strong inflow of funds into these countries was also helped by US s QE3 programme. Governments around the world were generally adopting a loose monetary policy to help economic recovery. The major underperforming countries were China, Hong Kong and Korea as the benchmark indices of these countries fell by 13%, 8% and 7% respectively. Investors were worried the Chinese government might tighten further to rein in inflation especially for property and non-productive sectors. Malaysia on the other hand, lagged regional market especially in the 1Q 13 due to uncertainty over the timing and result of the 13th Malaysia General Election. The FBMS index soared to record level, especially after results of the 13th General Election is known helped by the strong inflows of foreign funds as well as participation from cashed up domestic funds. The KLCI Index rose by 5% whilst the broader FBM Shariah Index grew by 6.7%. The market reacted positively after Barisan National retained power albeit with a slightly lesser majority. The KLCI index rose by 4.8% on the first day after the announcement of the election result. This could be attributed to the removal of risk premium associated with the uncertainty over the general election. On the economic side, the 1Q 13 GDP growth of 4.1% fell short of expectation. This was attributed to weaker exports and slower growth in private investments due to uncertainty from the election outcome. The 1Q reporting season in Malaysia came in within analysts expectation with 60% of the results met consensus expectation whilst around 17% was above expectation. The disappointment came mostly from the oil & gas, plantation, and gaming related companies. Equities market reacted strongly on the negative in June after the Fed s chairman, Ben Bernanke commented that it would be appropriate to moderate the monthly pace of purchases later this year. It sparked investors fear that US QE3 will be tapering off earlier than expected. The situation was made worse when the PBoC initially refused to ease a liquidity squeeze in the interbank market which caused a sharp spike in SHIBOR rate to peak at 13.4%. The decline was led by China SHComp (-14%), Philippines (-7.9%) and Hong Kong (-7.1%). Malaysia was the only market that managed to stay flat as domestic funds managed to absorb the foreigners selling. The Ringgit weakened from 2.96/US$ to 3.22/US$ as a result of the outflow. 4

10 3.2 Market Outlook After the sterling performance in 2Q2013 amidst the positive reception to the outcome of the 13th General Election wherein the benchmark FBMKLCI chalked up 6.1% q-o-q, we expect 3Q2013 to be in consolidative mode given the prospects of the US QE being tapered off and the Chinese government higher tolerance for lower economic growth in an effort to regulate sector such as property. We believe the market will experience heightened volatility in view of potential portfolio outflows to developed markets in view of improvement in the underlying economy which in turn fuels corporate earnings. Having said that, this may just be a temporary phase of adjustment due to the reversal of short term capital, which incidentally will coincide with the lull month of Ramadan. The Malaysian equity market remains supported by strong fundamentals underpinned by its sustainable GDP growth of 5.1% in 2013 and 5.4% in 2014 which is driven by private consumption growth and the new investment cycle; and strong domestic liquidity. Valuations remain elevated at long term mean of 15-16x CY2013EPS, but justified by the 5-10% EPS growth in CY13/14; not to mention its underperformance vis-àvis the region since September Sector wise, we remain positive on key domestic sectors such as oil and gas, construction and banks, which will continued newsflow from the government s ETP in the various sectors/projects such as the MRT2 and MRT3, High Speed Rail, Petronas capex plan, although we remain cautious on the property sectors following murmurs of possible tightening by Bank Negara to prevent speculation; and have turned mildly positive on the plantation sector following the bottoming out of CPO prices after the sizeable drawdown in inventory. Strategy We maintain our barbell strategy of holding a good balance of high yielding/defensive Shariah-compliant stocks and beta Shariah-compliant stocks. We will continue to deploy the excess funds on dips, as we believe market will fare better in the later part of the year due to improving economic conditions. Our Shariah-compliant stock selection will move towards sectors that will benefit from being the main drivers of the economy such as the oil & gas, construction and plantation sector. This will be balanced out with having a significant portion of your portfolio invested in high yielding Shariah-compliant stocks to ensure stability. Sectors that we favour include Islamic REITs, consumer staples and FMCG, healthcare, O&G and plantations on a longer term. 5

11 4.0 PERFOANCE DATA 4.1 Performance Chart PERFOANCE CHART SINCE LAUNCH (15/08/ /6/2013) vs. BENCHMARK % Growth, Cum, TR, ExD, MYR, Launch to 30/06/ /08/ /12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/ /06/2003 Kenanga Islamic* : FTSE Bursa Malaysia Emas Shariah CR* : * Contains estimated data. Source: Lipper 4.2 Average Total Returns 1 year 3 years 5 years 30/6/12 30/6/13 30/6/10 30/6/13 30/6/08 30/6/13 KIF (%) 17.90% 20.60% 10.52% Benchmark (%) 11.74% 13.43% 8.64% Source: Lipper 4.3 Annual Total Returns Period Under Review 31/12/12 30/6/ /12/11 31/12/ /12/11 31/12/ /12/11 31/12/ /12/11 31/12/ /12/11 31/12/12 Since inception 09/11/07 30/6/13 KIF (%) 12.33% 10.61% 13.01% 18.50% 33.59% % % Benchmark (%) 6.72% 11.85% 2.41% 18.20% 43.03% % % Source: Lipper Investors are reminded that past performance is not necessarily indicative of future performance and that unit prices and investment returns may fluctuate. 6

12 4.4 Other Performance Data Performance details of the Fund as at 30 June 2013 and the two previous financial years are as follows: 6-months ended 30/6/ months ended 31/12/ months ended 31/12/ months ended 31/12/2010 Net Asset Value ( 000) 1 40,506 42,380 32,476 33,119 Net Asset Value Per Unit () cd cd cd xd xd xd Units In Circulation ( ,863 67,808 56,460 59,603 units) Highest Net Asset Value Per Unit () Lowest Net Asset Value Per Unit () Total Return (%) Capital Growth (%) Gross Income Distribution (%) Gross Distribution Per Unit () Net Distribution Per Unit () Unit Split (Ratio) Management Expenses Ratio (%) 3 Portfolio Turnover (times) NAV computed based on last done price. 2 Source: Lipper. Total return is the annualised return of the Fund for the respective financial period / years computed based on the net asset value per unit and net of all fees. 3 Management Expense Ratio (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. MER is lower against previous financial year as the computations are for 6 months only. 4 Portfolio Turnover Ratio (PTR) is computed based on the average of the total acquisitions and total disposals of investment securities of the Fund divided by the average fund size calculated on a daily basis. PTR is lower against previous year as the computations are for 6 months only. 4.5 Distribution / Unit Split for the Period under Review No distribution / unit split was made during the period under review. Investors are reminded that past performance is not necessarily indicative of future performance and that unit prices and investment returns may fluctuate. 7

13 5.0 PORTFOLIO COMPOSITION 5.1 Portfolio Composition As at 30th June 2013, the asset allocation of the Fund stood at 88.2% in Shariah-compliant equities and the balance of 11.8% in liquidity. The increase in Shariah-compliant equities in 1H 2013 is due to the fund manager adopting a more aggressive stance for the portfolio. For a snapshot of the Fund s asset allocation as at 30th June 2013, please refer to the pie charts below. The following pie-chart shows the asset allocation of the Fund as at 30 June 2013: Asset Allocation as at 30 June 2013 Liquidity 11.80% Shariah-compliant Equity 88.20% Detailed Breakdown of Shariah-compliant Equity by Sector as at 30 June 2013 Planta on 6.40% Proper es 6.20% Construc on 4.50% Finance 2.90% Infrastructure 2.20% Trading/Services 35.50% Industrial Products 8.80% Islamic Real Estate Investment Trusts 9.30% Liquidity 11.80% Consumer Products 12.40% 8

14 5.2 Portfolio Composition Comparative Table Details of portfolio composition of the Fund as at 30 June 2013 and the two previous financial years are as follows: Sectors 30/6/2013 % of NAV Based on last done price 31/12/2012 % of NAV Based on last done price 31/12/2011 % of NAV Based on last done price 31/12/2010 % of NAV Based on last done price Main Board Construction Consumer Products Industrial Products Infrastructure Project Companies Plantation Properties Trading / Services Finance Technology ACE Market Shariah-compliant Derivative Securities Shariah-compliant Warrants Islamic REIT Shariah-compliant Preference Shares Total quoted/ unquote Shariahcompliant investment Sukuk Shariah-compliant Collective Investment Scheme Liquidity (Cash at Banks / Receivables) Total

15 TRUSTEE S REPORT To the Unit Holders of Kenanga Islamic Fund We, Universal Trustee (Malaysia) Berhad ( the Trustee ) being the Trustee of Kenanga Islamic Fund ( the Fund ) are of the opinion that Kenanga Investors Berhad ( the Manager ), acting in the capacity of Manager of the Fund, have fulfilled their duties in the following manner for the financial period ended 30 June (a) (b) (c) The Fund has been managed in accordance with the limitations imposed on the investment powers of the Manager and the Trustee under the Deed, other provisions of the Deed, the Securities Commission s Guidelines on Unit Trust Funds in Malaysia, the Securities Commission Act 1993, Capital Market & Services Act 2007 and other applicable laws during the financial period ended 30 June 2013; Valuation/pricing has been carried out in accordance with the Deed and any regulatory requirements; and Creation and cancellation of units have been carried out in accordance with the Deed and any relevant regulatory requirements. For and on behalf of the Trustee UNIVERSAL TRUSTEE (MALAYSIA) BERHAD Liew Kok Wah Chief Executive Officer Kuala Lumpur, Malaysia Date: 28 August

16 SHARIAH ADVISER S REPORT To the Unit Holders of Kenanga Islamic Fund We have acted as the Shariah Adviser of Kenanga Islamic Fund. Our responsibility is to ensure that the procedures and processes employed by Kenanga Investors Berhad and that the provisions of a Master Deed of Trust dated 29 July 2002, Master Supplemental Deed dated 1 June 2009 and Second Master Supplemental Deed dated 13 October 2010 are in accordance with Shariah principles. In our opinion, Kenanga Investors Berhad has managed and administered Kenanga Islamic Fund in accordance with Shariah principles and complied with applicable guidelines, rulings and decisions issued by the Securities Commission pertaining to Shariah matters for the financial period ended 30 June In addition, we also confirm that the investment portfolio of Kenanga Islamic Fund comprises securities which have been classified as Shariah-compliant by the Shariah Advisory Council of the Securities Commission. As for the securities which are not certified by the Shariah Advisory Council of the Securities Commission, we have reviewed the said securities and opine that these securities are designated as Shariah-compliant. For IBFIM Mohd Nasir Ismail Shariah Advisor/Designated Person Responsible for Shariah Advisory Kuala Lumpur, Malaysia Date: 28 August

17 STATEMENT BY THE MANAGER To the Unit Holders of Kenanga Islamic Fund We, Bruce Kho Yaw Huat and Abdul Razak Bin Ahmad, being two of the directors of Kenanga Investors Berhad, the Manager, do hereby state that in the opinion of the Manager, the accompanying financial statements set out on pages 13 to 50 are drawn up in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and Securities Commission s Guidelines on Unit Trust Funds in Malaysia so as to give a true and fair view of the financial position of Kenanga Islamic Fund as at 30 June 2013 and of its financial performance and cash flows for the period then ended. For and on behalf of the Manager, Kenanga Investors Berhad Bruce Kho Yaw Huat Director Abdul Razak Bin Ahmad Director Kuala Lumpur, Malaysia Date: 28 August

18 Statement of Comprehensive Income for the period ended 30 June 2013 (Unaudited) to to Note INCOME Gross dividend income 555, ,661 Profit from Islamic deposits 107,159 80,806 Net gain from Shariah-compliant investments: - financial assets at fair value through profit and loss ( FVTPL ) 8 4,132,502 1,108,506 4,794,925 1,645,973 EXPENSES Manager s fee 5 363, ,381 Trustee s fee 6 15,306 14,669 Auditors remuneration 8,093 5,979 Tax agent s fee 1,471 1,660 Administrative expenses 7,280 11,003 Brokerage and other transaction costs 23, , ,692 Net income before tax 4,375,423 1,264,281 Income tax expense 7 (2,452) (1,700) Net income after tax 4,372,971 1,262,581 Total comprehensive income for the period 4,372,971 1,262,581 Net income after tax is made up as follows: Net realised income 3,387,788 2,386,795 Net unrealised gain/(loss) 985,183 (1,124,214) 4,372,971 1,262,581 The accompanying notes are an integral part of the financial statements. 13

19 Statement of Financial Position as at 30 June 2013 (Unaudited) As at As at Note ASSETS Quoted Shariah-compliant investments 8 35,519,627 31,534,732 Islamic deposits with licensed financial institutions 9 4,821,660 6,759,460 Tax recoverable 64,723 95,760 Profit receivable from Islamic money market deposits 737 1,365 Dividends receivable 59,111 53,218 Cash at banks 42, ,362 TOTAL ASSETS 40,508,555 38,598,897 LIABILITIES Other payables and accruals 12 24,003 7,773 Amount due to Manager 11 59,960 59,239 Amount due to stockbrokers , ,145 TOTAL LIABILITIES 196, ,157 UNITHOLDERS EQUITY Unitholders capital 17,145,556 19,773,728 Retained earnings 23,166,176 18,480,012 TOTAL EQUITY 13 40,311,732 38,253,740 TOTAL EQUITY AND LIABILITIES 40,508,555 38,598,897 UNITS IN CIRCULATION 14 61,863,300 64,220,463 NET ASSET VALUE ( NAV ) PER UNIT () The accompanying notes are an integral part of the financial statements. 14

20 Statement of Changes in Equity for the period ended 30 June 2013 (Unaudited) Unitholders Retained Total capital earnings equity (Note 14) (Note 13) At 1 January ,258,363 17,217,431 32,475,794 Total comprehensive income for the period - 1,262,581 1,262,581 Creation of units 5,449,106-5,449,106 Cancellation of units (1,593,066) - (1,593,066) Distribution equalisation 659, ,325 At 30 June ,773,728 18,480,012 38,253,740 At 1 January ,571,568 18,793,205 39,364,773 Total comprehensive income for the period - 4,372,971 4,372,971 Creation of units 3,083,298-3,083,298 Cancellation of units (5,395,524) - (5,395,524) Distribution equalisation (1,113,786) - (1,113,786) At 30 June ,145,556 23,166,176 40,311,732 The accompanying notes are an integral part of the financial statements. 15

21 Statement of Cash Flows for the period ended 30 June 2013 (Unaudited) to to OPERATING AND INVESTING ACTIVITIES Proceeds from disposal of Shariah-compliant investments 22,916,712 15,320,776 Purchase of Shariah-compliant investments (23,815,244) (15,892,652) Net dividends received 470, ,271 Profit from Islamic deposits received 109,601 80,498 Manager s fee paid (370,793) (343,022) Trustee s fee paid (15,613) (14,443) Auditors remuneration paid (16,500) (7,000) Payment for other fees and expenses (4,337) (24,362) Tax refunds received 50,876 35,720 Net cash flows used in operating and investing activities (675,163) (459,214) FINANCING ACTIVITIES Cash received from units created 4,394,083 6,716,656 Cash paid on units cancelled (7,840,306) (2,176,130) Dividends to Unitholders (2,854,723) (2,280,968) Net cash flows (used in)/generated from financing activities (6,300,946) 2,259,558 NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (6,976,109) 1,800,344 CASH AND CASH EQUIVALENTS AT 1 JANUARY 11,840,466 5,113,478 CASH AND CASH EQUIVALENTS AT 30 JUNE 4,864,357 6,913,822 Cash and cash equivalents comprise: Cash at banks 42, ,362 Islamic deposits with licensed financial institutions 4,821,660 6,759,460 4,864,357 6,913,822 The accompanying notes are an integral part of the financial statements. 16

22 1. The Fund, the Manager and their principal activities Kenanga Islamic Fund (the Fund ) was constituted pursuant to the execution of a Master Deed of Trust dated 29 July 2002, Master Supplemental Deed dated 1 June 2009 and Second Master Supplemental Deed dated 13 October 2010 made between the Manager, Kenanga Investors Berhad, the Trustee, Universal Trustee (Malaysia) Berhad and the registered Unitholders of the Fund. The Fund s registered office is at 8th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur. The objective of the Fund is to achieve steady capital growth and income distribution (incidental) over the medium to long-term year by investing in a diversified portfolio of authorised investments in accordance with accepted Shariah principles. The principal activity of the Fund is to invest in Authorised Investments as defined under Article 7 of the Deed of Trust, which include Shariah-compliant securities quoted on Bursa Malaysia Securities Berhad and short-term Shariah-compliant investments. The Fund commenced operations on 15 August 2002 and will continue its operations until terminated by the Trustee as provided under Article 13 of the Deed of Trust. The Manager, a company incorporated and domiciled in Malaysia, is a wholly - owned subsidiary of Kenanga Investment Bank Berhad, a company incorporated and domiciled in Malaysia. The principal activities of the Manager are the promotion and management of unit trust funds and management of investment funds. 2. Summary of significant accounting policies 2.1 Basis of preparation The financial statements of the Fund have been prepared on in accordance with the Malaysian Financial Reporting Standards ( MFRS ) and International Financial Reporting Standards. The financial statements have been prepared on the historical cost basis, except for financial assets and financial liabilities held at fair value through profit or loss, that have been measured at fair value. The financial statements are presented in Ringgit Malaysia ( ), being the Fund s functional currency. 17

23 2. Summary of significant accounting policies (contd.) 2.2 Changes in accounting policies The accounting policies adopted are consistent with those of the previous financial period except as follows: On 1 January 2013, the Fund adopted the following new and amended MFRS and IC Interpretations mandatory for annual financial periods beginning on or after 1 January Description Effective for annual periods beginning on or after MFRS 10 Consolidated Financial Statements 1 January 2013 MFRS 11 Joint Arrangements 1 January 2013 MFRS 12 Disclosure of Interests in Other Entities 1 January 2013 MFRS 13 Fair Value Measurement 1 January 2013 MFRS 119 Employee Benefits (IAS 19 as amended by IASB in June 2012) 1 January 2013 MFRS 127 Separate Financial Statements (IAS 27 as amended by IASB 1 January 2013 in May 2012) MFRS 128 Investments in Associates and Joint Ventures (IAS 28 as 1 January 2013 amended by IASB in May 2012) Amendment to MFRS 7 Disclosures: Offsetting Financial Assets and 1 January 2013 Financial Liabilities Amendment to MFRS 1 First-time Adoption of Malaysian Financial 1 January 2013 Reporting Standards - Government Loans IC Interpretation 20 Stripping Costs in the Production Phase of a Surface Mine 1 January 2013 Annual Improvements Cycle 1 January 2013 Amendments to MFRS 10 Consolidated Financial Statements, MFRS 11 Joint Arrangements and MFRS 12 Disclosed of Interests in other Entities 1 January 2013 MFRS 3 Business combination (IFRS 3 Business Combinations issued 1 January 2013 by IASB in March 2004) MFRS 127 Consolidation and Separate Financial Statements (IAS 27 1 January 2013 Consolidated and Separate Financial Statements revised by IASB in December 2003) Adoption of the above Standards and Interpretations did not have any significant effect on the financial performance and position of the Fund except for those discussed below: 18

24 2. Summary of significant accounting policies (contd.) 2.2 Changes in accounting policies (contd.) MFRS 9 Financial Instruments: Classification and Measurement MFRS 9 reflects the first phase of the work on the replacement of MFRS 139 Financial Instruments: Recognition and Measurement and applies to classification and measurement of financial assets and financial liabilities as defined in MFRS 139 Financial Instruments: Recognition and Measurement. The adoption of the first phase of MFRS 9 will have an effect on the classification and measurement of the Fund s financial assets. The Fund will quantify the effect in conjunction with the other phases, when the final standard including all phases is issued. 2.3 Financial assets Financial assets are recognised in the statement of financial position when, and only when, the Fund becomes a party to the contractual provisions of the financial instrument. When financial assets are recognised initially, they are measured at fair value, plus, in the case of financial assets not at fair value through profit or loss, directly attributable transaction costs. The Fund determines the classification of its financial assets at initial recognition, and the categories include financial assets at fair value through profit or loss, and loans and receivables. (i) Financial assets at FVTPL Financial assets are classified as financial assets at FVTPL if they are held for trading or are designated as such upon initial recognition. Financial assets held for trading include Shariahcompliant equity securities, sukuk and Shariah-compliant collective investment schemes acquired principally for the purpose of selling in the near term. All transaction costs for such instruments upon initial recognition are recognised directly in profit or loss. Subsequent to initial recognition, financial assets at FVTPL are measured at fair value. Changes in the fair value of those financial instruments are recorded in Net gain or loss on financial assets at fair value through profit or loss. Profit from Islamic deposits and dividend revenue elements of such instruments are recorded separately in Profit from Islamic deposits and Gross dividend income, respectively. Exchange differences on financial assets at FVTPL are not recognised separately in profit or loss but are included in net gains or net losses on changes in fair value of financial assets at FVTPL. (ii) Loans and receivables Non-derivative financial assets with fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. The Fund includes Islamic deposits with licensed financial institutions and short term receivables in this classification. 19

25 2. Summary of significant accounting policies (contd.) 2.3 Financial assets (contd.) (ii) Loans and receivables (contd.) Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective profit method less any allowance for impairment. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, and through the amortisation process. The effective profit method is a method of calculating the amortised cost of a financial asset or a 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 through 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 instruments, but does not consider future credit losses. The calculation includes all fees 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. The Fund does not have any loans receivables as at the reporting date ( : Nil). A financial asset is derecognised where the asset is disposed and the contractual right to receive cash flows from the asset has expired. On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of the consideration received and any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace concerned. All regular way purchases and sales of financial assets are recognised or derecognised on the trade date i.e., the date that the Fund commits to purchase or sell the asset. 2.4 Financial liabilities Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. Financial liabilities, within the scope of MFRS 139, are recognised in the statement of financial position when, and only when, the Fund becomes a party to the contractual provisions of the financial instrument. Financial liabilities are classified as other financial liabilities. The Fund s financial liabilities are recognised initially at fair value plus directly attributable transaction costs and subsequently measured at amortised cost using the effective profit method as described in Note 2.3 (iii). A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expired. Gains and losses are recognised in profit or loss when the liabilities are derecognised, and through the amortisation process. 20

26 2. Summary of significant accounting policies (contd.) 2.5 Determination of fair value The fair value for financial instruments traded in active markets at the reporting date is based on their quoted price or binding dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. Where the Fund has assets and liabilities with offsetting market risks, it uses mid-market prices as a basis for establishing fair values for the offsetting risk positions and applies the bid or ask price to the net open position as appropriate. For all other financial instruments not traded in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include: using recent arm s length market transactions; reference to the current market value of another instrument that is substantially the same; discounted cash flow analysis and option pricing models making as much use of available and supportable market data as possible. An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 22 (b). 2.6 Impairment of financial assets The Fund assesses at each reporting date whether a financial asset or group of financial assets classified as loans and receivables is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is an objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (an incurred loss event ) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtor, or a group of debtors, is experiencing significant financial difficulty, default or delinquency in profit or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and, where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred) discounted using the asset s original effective profit rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in profit or loss as Credit loss expense. Impaired debts, together with the associated allowance, are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Fund. If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a previous write-off is later recovered, the recovery is credited to the Credit loss expense. Profit revenue on impaired financial assets is recognised using the rate of profit used to discount the future cash flows for the purpose of measuring the impairment loss. 21

27 2. Summary of significant accounting policies (contd.) 2.7 Net gain or loss on financial assets and liabilities at FVTPL This item includes changes in the fair value of financial assets and liabilities held for trading or designated upon initial recognition as at fair value through profit or loss and excludes profit and dividend income and expenses. Unrealised gains and losses comprise changes in the fair value of financial instruments for the period and from reversal of prior period s unrealised gains and losses for financial instruments which were realised (i.e. sold, redeemed or matured) in the reporting period. Realised gains and losses on disposals of financial instruments classified as part of at FVTPL are calculated using weighted average method. They represent the difference between an instrument s initial carrying amount and disposal amount, or cash payments or receipts made of Shariahcompliant derivative contracts (excluding payments or receipts on collateral margin accounts for such instruments). 2.8 Offsetting financial instruments Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. 2.9 Functional and presentation currency The Fund s functional currency is, which is the currency of the primary economic environment in which it operates. The Fund s performance is evaluated and its liquidity is managed in. Therefore, the is considered as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. The Fund s presentation currency is also the Due to and due from brokers Amounts due to brokers are payables for securities purchased (in a regular way transaction) that have been contracted for but not yet delivered on the reporting date. Refer to the accounting policy for financial liabilities, other than those classified as at fair value through profit or loss for recognition and measurement. Amounts due from brokers include margin accounts and receivables for securities sold (in a regular way transaction) that have been contracted for but not yet delivered on the reporting date. Refer to accounting policy for loans and receivables for recognition and measurement. Margin accounts represent Islamic deposits held with brokers as collateral against open Islamic futures contracts. 22

28 2. Summary of significant accounting policies (contd.) 2.11 Unitholders capital The Unitholders contributions to the Fund meet the definition of puttable instruments classified as Shariah-compliant equity instruments. Distribution equalisation represents the average distributable amount included in the creation and cancellation prices of units. This amount is either refunded to Unitholders by way of distribution and/ or adjusted accordingly when units are cancelled Distribution Distributions are at the discretion of the Fund. A distribution to the Fund s Unitholders is accounted for as a deduction from realised reserves except where the distribution is sourced out of distribution equalisation which is accounted for as a deduction from Unitholders capital. A proposed distribution is recognised as a liability in the period in which it is approved by the Manager. No income distribution was declared by the Fund for the financial period ended 30 June Cash and cash equivalents Cash and cash equivalents in the statement of financial position comprise cash at bank and Islamic deposits with licensed financial institutions which are subject to an insignificant risk of changes in value, with original maturities of three months or less. Short-term investments that are not held for the purpose of meeting short-term cash commitments and restricted margin accounts are not considered as cash and cash equivalents. For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts when applicable Income Recognition 2.15 Fees Income is recognised to the extent that it is probable that the economic benefits will flow to the Fund and the income can be reliably measured. Income is measured at the fair value of consideration received or receivable. Dividend income is recognised when the Fund s right to receive payment is established which is presented gross of any non-recoverable income taxes, which are disclosed separately in the statement of comprehensive income. Profit from Islamic deposits and Shariah-compliant investments, which includes the accretion of discount and amortisation of premium on sukuk, is recognised using the effective profit method. Manager s fee and Trustee s fee are recognised on an accrual basis. 23

29 2. Summary of significant accounting policies (contd.) 2.16 Income taxes Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the tax authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date. The Fund is exempted from income taxes, except for certain investment income that are subject to tax deducted at the source of the income. The Fund presents the income tax separately from the gross investment income in the statement of comprehensive income. For the purpose of the statement of cash flows, cash inflows from investments are presented net of income taxes, when applicable. No deferred tax is recognised as there are no material temporary differences Segment reporting For management purposes, the Fund is managed by two main portfolios, namely (1) Shariah-compliant equity securities and (2) cash instruments. Each segment engages in separate business activities and the operating results are regularly reviewed by Investment Manager and the Investment Committee. The Investment Committee assumes the role of chief operating decision maker, for performance assessment purposes and to make decisions about resources allocated to each investment segment. 3. Significant accounting judgements, estimates and assumptions The preparation of the Fund s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts recognised in the financial statements and disclosure of contingent liabilities. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in future periods. Judgements In the process of applying the Fund s accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the financial statements: Going Concern The Fund s management has made an assessment of the Fund s ability to continue as a going concern and is satisfied that the Fund has the resources to continue in business for the foreseeable future. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the Fund s ability to continue as a going concern. Therefore, the financial statements continue to be prepared on the going concern basis. 24

30 3. Significant accounting judgements, estimates and assumptions (contd.) Estimates and assumptions In the preparation of the financial statements in conformity with MFRS, the Fund is required to make estimates and assumptions that affect the application of accounting policies and the reported amount of assets, liabilities, income and expenses. Actual results may differ from these estimates. The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below. The Fund based its assumptions and estimates on parameters available when the financial statements were prepared. However, existing circumstances and assumptions about future developments may change due to market changes or circumstances arising beyond the control of the Fund. Such changes are reflected in the assumptions when they occur. Fair value of financial instruments When the fair value of financial assets and financial liabilities recorded in the statement of financial position cannot be derived from active markets, their fair value is determined using a variety of valuation techniques that include the use of mathematical models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, estimation is required in establishing fair values. The estimates include considerations of liquidity and model inputs such as credit risk (both own and counterparty s), correlation and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments in the statement of financial position and the level where the instruments are disclosed in the fair value hierarchy. The models are calibrated regularly and tested for validity using prices from any observable current market transactions in the same instrument (without modification or repackaging) or based on any available observable market data. MFRS 7 requires disclosures relating to fair value measurements using a three-level fair value hierarchy. The level within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. Assessing the significance of a particular input requires judgement, considering factors specific to the asset or liability. To assess the significance of a particular input to the entire measurement, the Fund performs sensitivity analysis or stress testing techniques. 4. Standards issued but not yet effective Standards issued but not yet effective up to the date of issuance of the Fund s financial statements are listed below. The Fund intends to adopt applicable standards when they become effective. Description Effective for annual periods beginning on or after Amendment to MFRS 132 Offsetting Financial Assets and Financial Liabilities 1 January 2014 MFRS 9 Financial instruments (IFRS 9 issued by IASB in November 2009) 1 January 2015 MFRS 9 Financial instruments (IFRS 9 issued by IASB in October 2010) 1 January