annual REPORT For the Financial Year Ended 31 October 2017

Transcription

1 KENANGA CASH fund annual REPORT For the Financial Year Ended 31 October 2017

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3 KENANGA CASH FUND Contents Page Corporate Directory ii Directory of Manager s Offices iii Fund Information 1 Manager s Report 2-3 Fund Performance 4-5 Trustee s Report 6 Independent Auditors Report 7-9 Statement by the Manager 10 Financial Statements 11-28

4 CORPORATE DIRECTORY Manager: 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 ) Level 17, Kenanga Tower, 237, Jalan Tun Razak, Kuala Lumpur, Malaysia Trustee: CIMB Commerce Trustee Berhad (Company No A) Registered Office Level 13, Menara CIMB Jalan Stesen Sentral 2 Kuala Lumpur Sentral Kuala Lumpur. Tel: Fax: Website: Business Office Level 21, Menara CIMB Jalan Stesen Sentral 2 Kuala Lumpur Sentral Kuala Lumpur. 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: Membership: Federation Of Investment Managers Malaysia (FIMM) , 6th Floor, Wisma Tune, 19, Lorong Dungun, Damansara Heights, Kuala Lumpur, Malaysia. Tel: Fax: Website: ii Kenanga Cash Fund Annual Report

5 DIRECTORY OF MANAGER 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: Kenanga Cash Fund Annual Report iii

6 1. FUND INFOATION 1.1 Fund Name Kenanga Cash Fund (KCF or the Fund) 1.2 Fund Type / Category Income / Money Market 1.3 Investment Objective The Fund seeks to provide investors with a regular income stream while maintaining capital stability. 1.4 Investment Strategy The Fund seeks to achieve its objective by investing in deposits and money market instruments. The investment strategy will involve actively managing the maturities of each investment to the extent possible to enhance the returns of the Fund. The Fund will also be actively managed to meet potential liquidity requirements of the Fund. 1.5 Asset Allocation The Fund will invest up to 100% of the Fund s NAV in deposits and money market instruments, with at least 70% of the NAV placed in deposits and/or money market instruments that have a remaining maturity of 365 days or less. 1.6 Duration The Fund was launched on 22 March 2013 and shall exist as long as it appears to the Manager and the Trustee that it is in the interests of the unitholders for it to continue. 1.7 Performance Benchmark Maybank Overnight Repo Rate. 1.8 Distribution Policy Subject to the availability of income, distribution of income will be done on a monthly basis. 1 Kenanga Cash Fund Annual Report

7 2. MANAGER S REPORT 2.1 Fund performance vs benchmark performance 1 month (30 Sept Oct 2017) 3 months (31 July Oct 2017) 6 months (30 Apr Oct 2017) 1 year (31 Oct Oct 2017) 3 years (31 Oct Oct 2017) Since Launch (22 March Oct 2017)) Kenanga Cash Fund 0.25% 0.74% 1.33% 1.82% 9.70% 14.35% Maybank Overnight Rate 0.15% 0.44% 0.89% 1.77% 5.85% 9.02% Source: Lipper For the financial period under review, the Fund registered a return of 1.82% against its benchmark return of 1.77%, outperforming its benchmark return by 5 bps. The outperformance was mainly due to better money market placement rates obtained during the period. 2.2 The Fund s asset allocation as at 31 October 2017 and comparison with the previous financial year Asset 31 Oct Oct 16 Short term deposits and cash 100.0% 100.0% 2.3 Market Review and Strategy Bank Negara Malaysia (BNM) decided to maintain its key policy rate the Overnight Policy Rate (OPR) at 3% during its meeting on November 9, In its statement, BNM said that the current policy stance remains accommodative but added that it may reconsider reviewing the current degree of monetary accommodation. The Fund will continue to seek to achieve its objective by investing in deposits and money market instruments. The investment strategy will also continue to involve actively managing the maturities of each investment to the extent possible to enhance the returns of the Fund. The Fund will also continue to be actively managed to meet potential liquidity requirements of the Fund. Kenanga Cash Fund Annual Report 2

8 2.4 Market Outlook We think that the above statement by BNM may lead to an interest rate hike by 25 basis points (bps) as early as in the first quarter of In elaborating on its decision, BNM viewed the global economy favourably, stressing that it foresees sustained growth in Another factor that supports the possible increase in the OPR in 2018 is the continuing rise in the United States (US) Fed Funds rate following the further strengthening of its economy. With rising interest rates in the US and possibly in Europe, some capital may start to flow out from Asia, favouring Dollar-denominated assets. In addition, further improvements in wages and a stable labour market as well as the increasing strength in consumer spending may prevent inflation from moderating substantially in the near term. The consumer sentiment is now turning around, as reflected by the Malaysian Institute of Economic Research (MIER) consumer sentiment index which has generally been trending upward since 4Q2015. Against such a backdrop, higher interest rates in the domestic economy will, to some extent, prevent significant outflows of capital from Malaysian shores in 2018 and keep inflation in check. It will also have a positive impact on the Ringgit. 2.5 Distribution For the financial year under review, the Fund has declared the following income distributions: Gross/Net distribution () Ex-NAV per unit () 30 November ,126, February , April , May , June , July , August , September , October , ,273, Rebates & Soft commission Any rebates received are channeled back to the Fund. On the other hand, 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 Manager. For the financial year under review, the Manager did not receive any rebates or commissions from stockbrokers 3 Kenanga Cash Fund Annual Report

9 3. FUND PERFOANCE 3.1 Details of portfolio composition of Kenanga Cash Fund ( the Fund ) for the last three financial years as at 31 October are as follow: a. Distribution among industry sectors and category of investments: FY FY FY % % % Short term deposits and cash Note: The above mentioned percentages are based on total investment market value plus cash. b. Distribution among markets The Fund invests in short term deposits and cash only. Kenanga Cash Fund Annual Report 4

10 3.2 Performance details of the Fund for the last three financial years ended 31 October are as follows: FY FY FY Net asset value ( NAV ) ( Million) Units in circulation (Million) NAV per unit () Highest NAV per unit () Lowest NAV per unit () Total return (%) Capital growth (%) Income growth (%) Gross distribution () Net distribution () Management expense ratio ( MER ) (%) Portfolio turnover ratio ( PTR ) (times) Note: Total return is the actual return of the Fund for the respective financial years, 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 investment securities of the Fund divided by the average fund size calculated on a daily basis. Above NAV and NAV per unit are shown as ex-distribution. For details of income distribution, kindly refer to Note 2.5 in manager s report. 1 MER is higher against previous financial year mainly due to increase of management fee rate charged during the financial year under review. 2 PTR is higher against previous financial year due to more active money market placements undertaken during the financial year under review. * Date of distribution is shown in Part Distribution 5 Kenanga Cash Fund Annual Report

11 4. TRUSTEE S REPORT TO THE UNITHOLDERS OF KENANGA CASH FUND We, CIMB Commerce Trustee Berhad being the trustee for Kenanga Cash Fund ( the Fund ), are of the opinion that Kenanga Investors Berhad ( the Manager ), acting in the capacity as Manager of the Fund, has fulfilled its duties in the following manner for the financial year ended 31 October a) The Fund has been managed in accordance with the limitations imposed on the investment powers of the Manager under the Deed, the Securities Commission Malaysia s Guidelines on Unlisted Capital Market Products Under The Lodge and Launch Framework, the Capital Markets and Services Act 2007 (as amended from time to time) and other applicable laws; b) Valuation and pricing for the Fund has been carried out in accordance with the Deed and relevant regulatory requirements; c) Creation and cancellation of units have been carried out in accordance with the Deed and relevant regulatory requirements; and d) The distributions of returns by the Fund are relevant and reflect the investment objectives of the Fund. For and on behalf of CIMB Commerce Trustee Berhad Lee Kooi Yoke Chief Operating Officer Kuala Lumpur, Malaysia 28 December 2017 Kenanga Cash Fund Annual Report 6

12 5. INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF KENANGA CASH FUND REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS Opinion We have audited the financial statements of Kenanga Cash Fund ( the Fund ), which comprise the statement of financial position as at 31 October 2017, and the statement of comprehensive income, statement of changes in net asset value and statement of cash flows of the Fund for the financial year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information, as set out on pages 11 to 28. In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Fund as at 31 October 2017 and of its financial performance and cash flows for the financial year then ended 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 Manager of the Fund ( the Manager ) 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. 7 Kenanga Cash Fund Annual Report

13 5. INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF KENANGA CASH FUND (CONTD.) Responsibilities of the Manager and Trustee for the financial statements The Manager is responsible for the preparation of financial statements of the Fund that give a true and fair view in accordance with Malaysia Financial Reporting Standards and International Financial Reporting Standards. The Manager is also responsible for such internal control as the Manager 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 Manager 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 Manager 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 Manager 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. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Manager. Kenanga Cash Fund Annual Report 8

14 5. INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF KENANGA CASH FUND (CONTD.) Auditors responsibility for the audit of the financial statements (contd.) Conclude on the appropriateness of the Manager 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 Manager 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 unitholders of the Fund, as a body, in accordance with the Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework issued by the 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 28 December Kenanga Cash Fund Annual Report

15 6. STATEMENT BY THE MANAGER I, Ismitz Matthew De Alwis, being a director of Kenanga Investors Berhad, do hereby state that, in the opinion of the Manager, the accompanying statement of financial position as at 31 October 2017 and the related statement of comprehensive income, statement of changes in net asset value and statement of cash flows for the financial year ended 31 October 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 Cash Fund as at 31 October 2017 and of its financial performance and cash flows for the financial year then ended and comply with the requirements of the Deed. For and on behalf of the Manager Kenanga Investors Berhad Ismitz Matthew De Alwis Executive Director/Chief Executive Officer Kuala Lumpur, Malaysia 28 December 2017 Kenanga Cash Fund Annual Report 10

16 7. FINANCIAL STATEMENTS 7.1 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 OCTOBER 2017 INVESTMENT INCOME Note Interest income 578,482 10,751,869 EXPENSES Manager s fee 4 94, ,766 Trustee s fee 5 9,643 54,461 Auditors remuneration 7,000 6,500 Tax agent s fee 4,000 3,800 Administration expenses 11,332 27, , ,877 NET INCOME BEFORE TAX 452,104 10,332,992 Income tax NET INCOME AFTER TAX, REPRESENTING TOTAL COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR 452,104 10,332,992 Net income after tax is made up as follows: Realised gain 452,104 10,332,992 Distributions for the financial year: Net distribution () 7 1,273,155 10,788,119 Gross/Net distribution per unit (sen) The accompanying notes form an integral part of the financial statements. 11 Kenanga Cash Fund Annual Report

17 7.2 STATEMENT OF FINANCIAL POSITION AS AT 31 OCTOBER 2017 Note ASSETS INVESTMENT Short term deposits 8 9,469, ,904,982 OTHER ASSETS Other receivable 9 32,582 3,734,857 Cash at bank 5,106 5,759 37,688 3,740,616 TOTAL ASSETS 9,507, ,645,598 LIABILITIES Amount due to Manager 2,113 1,034,358 Amount due to Trustee 141 5,727 Other payables 10 16,735 15,205 Distribution payable 24,579 1,166,154 TOTAL LIABILITIES 43,568 2,221,444 EQUITY Unit holders contribution 9,453, ,380,085 Retained earnings 10,064 2,044,069 NET ASSET VALUE ( NAV ) ATTRIBUTABLE TO UNIT HOLDERS 11 9,463, ,424,154 TOTAL LIABILITIES AND EQUITY 9,507, ,645,598 NUMBER OF UNITS IN CIRCULATION 11(a) 9,453, ,380,085 NET ASSET VALUE PER UNIT - EX DISTRIBUTION () The accompanying notes form an integral part of the financial statements. Kenanga Cash Fund Annual Report 12

18 7.3 STATEMENT OF CHANGES IN NET ASSET VALUE FOR THE FINANCIAL YEAR ENDED 31 OCTOBER 2017 Note Unit holders contribution Retained earnings Total NAV 2017 At beginning of the financial year 353,380,085 2,044, ,424,154 Total comprehensive income - 452, ,104 Creation of units 11(a) 64,245,719-64,245,719 Cancellation of units 11(a) (410,559,108) - (410,559,108) Distribution equalisation 11(a) (1,212,954) - (1,212,954) Distributions 7 1,212,954 (2,486,109) (1,273,155) Reinvestment of income distributed 11(a) 2,386,880-2,386,880 At end of the financial year 9,453,576 10,064 9,463, At beginning of the financial year 102,098, , ,652,296 Total comprehensive income - 10,332,992 10,332,992 Creation of units 11(a) 535,560, ,560,324 Cancellation of units 11(a) (294,010,659) - (294,010,659) Distribution equalisation 11(a) 1,945,817-1,945,817 Distributions 7 (1,945,817) (8,842,302) (10,788,119) Reinvestment of income distributed 11(a) 9,731,503-9,731,503 At end of the financial year 353,380,085 2,044, ,424,154 The accompanying notes form an integral part of the financial statements. 13 Kenanga Cash Fund Annual Report

19 7.4 STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 OCTOBER 2017 CASH FLOWS FROM OPERATING AND INVESTING ACTIVITIES Note Proceeds from the maturity of investments 420,661, ,059,433 Interest from deposits received 4,280,757 7,300,061 Tax agent s fee paid - (7,000) Auditors remuneration paid (6,500) (13,000) Payment for other fees and expenses (14,302) (26,649) Trustee s fee paid (15,229) (50,599) Manager s fee paid (126,648) (298,946) Placement of investments (102,909,708) (1,004,631,762) Net cash generated from/(used in) operating and investing activities 321,869,540 (234,668,462) CASH FLOWS FROM FINANCING ACTIVITIES Cash received from units created 64,648, ,296,796 Cash paid on units cancelled (413,188,357) (295,463,918) Distributions paid (14,534) (134,154) Net cash (used in)/generated from financing activities (348,554,193) 244,698,724 NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (26,684,653) 10,030,262 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE FINANCIAL YEAR 32,123,759 22,093,497 CASH AND CASH EQUIVALENTS AT END OF THE FINANCIAL YEAR 5,439,106 32,123,759 Cash and cash equivalents comprise: Cash at bank 5,106 5,759 Short term deposits 8 5,434,000 32,118,000 5,439,106 32,123,759 The accompanying notes form an integral part of the financial statements. Kenanga Cash Fund Annual Report 14

20 7.5 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 OCTOBER THE FUND, THE MANAGER AND THEIR PRINCIPAL ACTIVITIES Kenanga Cash Fund ( the Fund ) was constituted pursuant to the executed Deed dated 16 August 2012 (collectively, together with deeds supplemental thereto, referred to as the Deed ) between the Manager, Kenanga Investors Berhad, and CIMB Commerce Trustee Berhad ( the Trustee ). The Fund commenced operations on 22 March 2013 and will continue to be in operation until terminated as provided under Division 11 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 Manager is Level 14, Kenanga Tower, 237, Jalan Tun Razak, Kuala Lumpur. The Fund seeks to provide unit holders with regular income stream while maintaining capital stability. The financial statements were authorised for issue by the Chief Executive Officer of the Manager on 28 December FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Fund is exposed to a variety of risks including market risk (which includes interest rate risk), credit risk and liquidity risk. Whilst these are the most important types of financial risks inherent in each type of financial instruments, the Manager and the Trustee would like to highlight that this list does not purport to constitute an exhaustive list of all the risks inherent in an investment in the Fund. 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 unit holders, consistent with the long term objectives of the Fund. 15 Kenanga Cash Fund Annual Report

21 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) 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. Market risk arises when the value of the 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 investments prices caused by uncertainties in the economic, political and social environment will affect the NAV of the Fund. The Manager manages the risk of unfavourable changes in prices by cautious review of the 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 performance of Fund s investments. Rate offered by the financial institutions will fluctuate according to the Overnight Policy Rate determined by Bank Negara Malaysia and this has direct correlation with the Fund s investments in deposits. The Fund is not exposed to significant interest rate risk as its deposits are short term in nature and have fixed interest rates. Interest rate risk exposure The following table analyses the Fund s interest rate risk exposure. The Fund s financial assets and financial liabilities are disclosed at fair value and categorised by the earlier of contractual re-pricing or maturity dates. Up to 1 year Nonexposure to interest rate movement Total Weighted average effective interest rate* % 2017 Assets Short term deposits 9,469,520-9,469, Other assets - 37,688 37,688 9,469,520 37,688 9,507,208 Kenanga Cash Fund Annual Report 16

22 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market risk (contd.) i. Interest rate risk (contd.) Interest rate risk exposure (contd.) Up to 1 year Nonexposure to interest rate movement Total Weighted average effective interest rate* % 2017 (contd.) Liabilities Other liabilities - 26,833 26,833 Total interest rate sensitivity gap 9,469,520 10,855 9,480, Assets Short term deposits 353,904, ,904, Other assets - 3,740,616 3,740, ,904,982 3,740, ,645,598 Liabilities Other liabilities - 2,206,239 2,206,239 b. Credit risk Total interest rate sensitivity gap 353,904,982 1,534, ,439,359 * Computed based on assets with exposure to interest rate movement only. 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 Manager 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. 17 Kenanga Cash Fund Annual Report

23 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) b. Credit risk (contd.) 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. iii. Credit quality of financial assets c. Liquidity risk The Fund invests in deposits with financial institutions licensed under the Financial Services Act 2013 and Islamic Financial Services Act The following table analyses the licensed financial institutions by rating category: Short term deposits Percentage of total short term deposits Percentage of NAV % % % % Rating P Government guaranteed WR 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 unit holders by the Manager are cancellable at the unit holders option based on the Fund s NAV per unit at the time of cancellation calculated in accordance with the Deed. The liquid assets comprise cash, short term deposits with licensed financial institutions and other instruments, which are capable of being converted into cash within 7 days. Kenanga Cash Fund Annual Report 18

24 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) c. Liquidity risk (contd.) 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. Up to 1 year Note Assets Short term deposits 9,469, ,904,982 Other assets 37,688 3,740,616 i. 9,507, ,645,598 Liabilities Other liabilities ii. 26,833 2,206,239 Equity iii. 9,463, ,424,154 Liquidity gap 16,735 15,205 i. Financial assets For Fund s investment and 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. 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 liabilities will be settled. When the 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 the unitholders can request for redemption of their units, they have been categorised as having a maturity of up to 1 year. d. Regulatory reportings It is the Manager s responsibility to ensure full compliance of all requirements under the Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework issued by Securities Commission Malaysia. Any breach of any such requirement will be reported in the mandatory reporting to Securities Commission Malaysia on a monthly basis. 19 Kenanga Cash Fund Annual Report

25 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 accounting policies adopted are consistent with those of the previous financial year except for the adoption of the new and amended MFRS which became effective for the Fund on 1 November The adoption of the new and amended MFRS did not have any significant impact on the financial position or performance of the Fund. 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. Description Effective for financial period beginning on or after Amendments to MFRS contained in the documents entitled Annual improvements to MFRS Standards Cycle 1 January 2017 Amendments to MFRS 107: Disclosure Initiative 1 January 2017 Amendments to MFRS 112: Recognition of Deferred Tax Assets for Unrealised Losses 1 January 2017 Amendments to MFRS contained in the documents entitled Annual improvements to MFRS Standards Cycle 1 January 2018 Amendments to MFRS 2: Classification and Measurement of Shared-based Payment Transactions 1 January 2018 Amendments to MFRS 4: Applying MFRS 9 Financial Instruments with MFRS 4 Insurance Contracts 1 January 2018 Amendments to MFRS 140: Transfers of Investment Property 1 January 2018 MFRS 9: Financial Instruments 1 January 2018 MFRS 15: Revenue from Contracts with Customers 1 January 2018 MFRS 15: Clarifications to MFRS 15 1 January 2018 IC Interpretation 22: Foreign Currency Transactions and Advance Consideration 1 January 2018 Kenanga Cash Fund Annual Report 20

26 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) b. Standards, amendments and interpretation issued but not yet effective (contd.) Description Effective for financial period beginning on or after MFRS 16: Leases 1 January 2019 MFRS 17: Insurance Contracts 1 January 2021 Amendments to MFRS 10 and MFRS 128: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture To be announced by MASB The Fund will adopt the above pronouncements when they become effective in the respective financial periods. These pronouncements are not expected to have any significant impact to the financial statements of the Fund upon their initial application, other than MFRS 9. MFRS 9 replaces MFRS 139 on the following requirements: classification and measurement of financial assets and financial liabilities as defined in MFRS 139, impairment methodology and hedge accounting. The Fund is in the process of making an assessment of the impact of this Standard. c. 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 instruments. 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 ( FVTPL ), directly attributable transaction costs. The Fund determines the classification of its financial assets at initial recognition. i. Receivables Financial assets with fixed or determinable payments that are not quoted in an active market are classified as receivables. Subsequent to initial recognition, receivables are measured at amortised cost using the effective interest method. Gain or loss is recognised in profit or loss when the receivable is derecognised or impaired, and through the amortisation process. A financial asset is derecognised when the contractual right to receive cash flows from the asset has expired. On derecognition of a financial asset, the difference between the carrying amount and the sum of the consideration received is recognised in profit or loss. 21 Kenanga Cash Fund Annual Report

27 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) d. Impairment of financial assets The Fund assesses at each reporting date whether there is any objective evidence that a financial asset is impaired. To determine whether there is objective evidence that an impairment loss on financial assets has been incurred, the Fund considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments. If any such evidence exists, the amount of impairment loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the financial asset s original effective interest rate. The impairment loss is recognised in profit or loss. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets, with the exception of receivables, where the carrying amount is reduced through the use of an allowance account. When a receivable becomes uncollectible, it is written off against the allowance account. If, in a subsequent year, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed to the extent that the carrying amount of the assets does not exceed its amortised cost at the reversal date. The amount of reversal is recognised in profit or loss. e. Income 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. Interest income is recognised using the effective interest method. f. Cash and cash equivalents For the purposes of the statement of cash flows, cash and cash equivalents include cash at bank and short term deposits with licensed financial institutions with insignificant risk of changes in value. g. Income tax Income tax on the profit or loss for the financial year comprises current tax. Current tax is the expected amount of income taxes payable in respect of the taxable profit for the financial year. As no temporary differences have been identified, no deferred tax has been recognised. Kenanga Cash Fund Annual Report 22

28 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) h. 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 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. The Fund s financial liabilities are classified as other financial liabilities. The Fund s financial liabilities are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. A financial liability is derecognised when the obligation under the liability is extinguished. Gains and losses are recognised in profit or loss when the liabilities are derecognised, and through the amortisation process. i. Unit holders contribution NAV attributable to unit holders The unit holders contribution to the Fund is classified as equity instruments. Distribution equalisation represents the average amount of undistributed net income included in the creation or cancellation price of units. This amount is either refunded to unit holders by way of distribution and/or adjusted accordingly when units are released back to the Trustee. j. Functional and presentation currency The financial statements of the Fund are measured using the currency of the primary economic environment in which the Fund operates ( the functional currency ). The financial statements are presented in Ringgit Malaysia ( ), which is also the Fund s functional currency. k. Distribution Distributions are at the discretion of the Manager. A distribution to the Fund s unit holders is accounted for as a deduction from retained earnings. l. Significant accounting judgments and estimates The preparation of financial statements requires the use of certain accounting estimates and exercise of judgment. Estimates and judgments are continually evaluated and are based on past experience, reasonable expectations of future events and other factors. i. Critical judgments made in applying accounting policies There are no major judgments made by the Manager in applying the Fund s accounting policies. ii. Key sources of estimation uncertainty There are no 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. 23 Kenanga Cash Fund Annual Report

29 4. MANAGER S FEE The Manager s fee is calculated on a daily basis at a rate not exceeding 1.0% per annum of the NAV of the Fund as provided under Division 12.1 of the Deed. The Manager is currently charging Manager s fee of 0.30% per annum of the NAV of the Fund with the effect from 29 November Prior to 29 November 2016, the Manager s fee was calculated at 0.12% per annum of the NAV of the Fund. 5. TRUSTEE S FEE Trustee s fee is calculated on a daily basis at a rate not exceeding 0.20% per annum of the NAV of the Fund as provided under Division 12.2 of the Deed. The Trustee s fee is calculated at 0.02% per annum of the NAV of the Fund for the current and previous financial years. 6. INCOME TAX Income tax is calculated at the Malaysian statutory tax rate of 24% of the estimated assessable income for the current and previous financial years. Income tax is calculated on investment income less partial deduction for permitted expenses as provided for under Section 63B of the Income Tax Act, A reconciliation of income tax expense applicable to net income before tax at the statutory income tax rate to income tax expense at the effective income tax rate of the Fund is as follows: Net income before tax 452,104 10,332,992 Tax at Malaysian statutory tax rate of 24% (2016: 24%) 108,505 2,479,918 Tax effect of: Income not subject to tax (138,836) (2,580,449) Expenses not deductible for tax purposes 5,061 20,085 Restriction on tax deductible expenses for unit trust fund 25,270 80,446 Income tax for the financial year - - Kenanga Cash Fund Annual Report 24

30 7. DISTRIBUTIONS Distributions to unit holders were made on the following dates: Distributions on: 30 November 2016/30 November ,126, , December , January , February 2017/29 February , , March , April 2017/29 April , , May 2017/31 May ,900 1,165, June 2017/30 June ,155 1,150, July 2017/29 July ,170 1,111, August 2017/30 August ,473 1,158, September 2017/30 September ,916 1,032, October 2017/31 October ,579 1,166,154 1,273,155 10,788,119 Distributions to unit holders were from the following sources: Interest income 568,418 8,707,800 Distribution out of distribution equalisation (Note 11(a)) (1,212,954) 1,945,817 Undistributed income brought forward 2,044, ,379 1,399,533 11,206,996 Less: Expenses (126,378) (418,877) Distributions for the financial year 1,273,155 10,788,119 Gross/Net distribution per unit (sen) SHORT TE DEPOSITS Short term deposits are held with licensed financial institutions in Malaysia at the prevailing interest rates Short term deposits (tenure: more than 7 days) 4,035, ,786,982 Short term deposits (tenure: 7 days or less) 5,434,000 32,118,000 9,469, ,904, Kenanga Cash Fund Annual Report

31 9. OTHER RECEIVABLE Interest receivable from short term deposits 32,582 3,734, OTHER PAYABLES Accrual for auditors remuneration 7,000 6,500 Accrual for tax agent s fees 8,500 4,500 Provision for printing and other expenses 1,235 4,205 16,735 15, NET ASSET VALUE ATTRIBUTABLE TO UNIT HOLDERS NAV attributed to unit holders is represented by: Note Unit holders contribution (a) 9,453, ,380,085 Retained earnings: Realised reserves 10,064 2,044,069 9,463, ,424,154 (a) Unit holders contribution No. of units No. of units At beginning of the financial year 353,380, ,380, ,098, ,098,917 Add: Creation of units 64,245,719 64,245, ,560, ,560,324 Less: Cancellation of units (410,559,108) (410,559,108) (294,010,659) (294,010,659) Distribution equalisation - (1,212,954) - 1,945,817 Distributions (Note 7) - 1,212,954 - (1,945,817) Reinvestment of income distributed 2,386,880 2,386,880 9,731,503 9,731,503 At end of the financial year 9,453,576 9,453, ,380, ,380,085 The number of units legally or beneficially held by the Manager, Kenanga Investors Berhad, and parties related to the Manager as at 31 October 2017 were nil (2016: nil). Kenanga Cash Fund Annual Report 26

32 12. PORTFOLIO TURNOVER RATIO ( PTR ) PTR for the financial year is times (2016: times). PTR is the ratio of average sum of acquisitions and disposals of investments of the Fund for the financial year to the average NAV of the Fund, calculated on a daily basis. 13. MANAGEMENT EXPENSE RATIO ( MER ) MER for the financial year is 0.27% (2016: 0.15%). MER is the ratio of total fees and recovered expenses of the Fund expressed as a percentage of the Fund s average NAV, calculated on a daily basis. 14. SEGMENTAL REPORTING Business and geographical segments As the Fund invests only in short term deposits with licensed financial institutions in Malaysia, the Fund does not have separate identifiable business and geographical segments. 15. FINANCIAL INSTRUMENTS a. Classification of financial instruments The Fund s financial assets and financial liabilities are measured on an ongoing basis at either fair value or at amortised cost based on their respective classification. The significant accounting policies in Note 3 describe how the classes of financial instruments are measured, and how income and expenses, including fair value gains and losses, are recognised. The following table analyses the financial assets and financial liabilities of the Fund in the statement of financial position by the class of financial instruments to which they are assigned and therefore by the measurement basis. Financial Receivables liabilities Total 2017 Assets Short term deposits 9,469,520-9,469,520 Other receivable 32,582-32,582 Cash at bank 5,106-5,106 9,507,208-9,507,208 Liabilities Amount due to Manager - 2,113 2,113 Amount due to Trustee Distribution payable - 24,579 24,579-26,833 26, Kenanga Cash Fund Annual Report

33 15. FINANCIAL INSTRUMENTS (CONTD.) a. Classification of financial instruments (contd.) Financial Receivables liabilities Total 2016 Assets Short term deposits 353,904, ,904,982 Other receivable 3,734,857-3,734,857 Cash at bank 5,759-5, ,645, ,645,598 Liabilities Amount due to Manager - 1,034,358 1,034,358 Amount due to Trustee - 5,727 5,727 Distribution payable - 1,166,154 1,166,154-2,206,239 2,206,239 b. Financial instruments not carried at fair value and which their carrying amounts are reasonable approximations of fair value The carrying amounts of the Fund s other financial assets and financial liabilities are not carried at fair value but approximate fair values due to the relatively short term maturity of these financial instruments. 16. CAPITAL MANAGEMENT The capital of the Fund can vary depending on the demand for creation and cancellation of units to the Fund. The Fund s objectives for managing capital are: a. To invest in investments meeting the description, risk exposure and expected return indicated in its information memorandum; b. To maintain sufficient liquidity to meet the expenses of the Fund, and to meet cancellation requests as they arise; and c. To maintain sufficient fund size to make the operations of the Fund cost-efficient. No changes were made to the capital management objectives, policies or processes during the current and previous financial years. Kenanga Cash Fund Annual Report 28