INVESTORS' LETTER 1 MANAGER'S REPORT 2-6

Transcription

1 CONTENTS PAGE(S) INVESTORS' LETTER 1 MANAGER'S REPORT 2-6 Fund Objective and Policy Performance Data Market Review Fund Performance Portfolio Structure Market Outlook Investment Strategy Unit Holdings Statistics Soft Commissions and Rebates STATEMENT BY MANAGER 7 TRUSTEE'S REPORT 8 SHARIAH ADVISER S REPORT 9 UNAUDITED STATEMENT OF COMPREHENSIVE INCOME 10 UNAUDITED STATEMENT OF FINANCIAL POSITION 11 UNAUDITED STATEMENT OF CHANGES IN EQUITY 12 UNAUDITED STATEMENT OF CASH FLOWS 13 NOTES TO THE FINANCIAL STATEMENTS DIRECTORY 37 LIST OF CWA (an Agency force of CIMB-Principal) OFFICES 38-42

2 INVESTORS' LETTER Dear Valued Investors, Thank you for investing in CIMB Islamic Equity Aggressive Fund. We are pleased to let you know that we have been recently named the Best Asset & Fund Manager ( ) in Malaysia by Alpha Southeast Asia for its Southeast Asia's 10th Annual Best Financial Institutions Awards The award came at the right time, proving that CIMB-Principal Asset Management Berhad ( CIMB-Principal ) is a consistent performer beyond the industry benchmarks even in a challenging market environment. Please be informed that with effect from 30 June 2016, the following sentence under the "Processing a withdrawal in the Fund's prospectus has been removed: "If you request a specific amount in Ringgit Malaysia ( RM ), the number of units will be calculated by dividing the requested amount in RM by the unit pricing, and the number of units will be rounded to the second decimal place." Nevertheless, you are able to withdraw the desired amount from the CIMB Islamic Equity Aggressive Fund, where the amount will be derived by multiplying the units of the Fund with the Net Asset Value ( NAV ) per unit of the Fund, subject to the minimum withdrawal unit. Please refer to the Master Prospectus (Shariah-compliant Funds) Issue No. 9 dated 30 June 2016 for further details. Moving forward, we are committed to deliver a better customer experience to you. For your information, we have started a customer information update exercise through s, phone and registered mail so that we can interact better with you in the future. For those who have not updated their information, you are strongly encouraged to contact our Customer Care Centre directly at or your Consultant to update your latest information. We would like to take this opportunity to thank you for your continuous support and confidence in our services. CIMB-Principal remains committed in helping you to grow your investment. Yours faithfully, for CIMB-Principal Asset Management Berhad Munirah Khairuddin Chief Executive Officer/Executive Director 1

3 MANAGER S REPORT FUND OBJECTIVE AND POLICY What is the investment objective of the Fund? The Fund aims to earn reasonable returns for investors by investing in approved equities listed on Bursa Malaysia as well as unlisted securities and other non-interest bearing assets acceptable under Shariah principles. Has the Fund achieved its objective? The Fund has achieved its objective of providing long-term capital growth. What are the Fund investment policy and principal investment strategy? The Fund may invest a minimum of 70% and up to a maximum of 98% of its NAV in local Shariahcompliant equities. As an aggressive Fund, the Fund will be managed with higher beta and tracking error. The investment policy and strategy of the Fund is to invest in Shariah-compliant stocks which are selected based on their future growth prospects with benchmarking of the Fund being a secondary consideration. As such, the Fund may hold a larger percentage of its NAV (may exceed 10%) in Shariah-compliant stocks of companies with small capitalisation. In addition, Shariah-compliant liquid assets with at least 2% of its NAV may also be strategically used if the Manager feels that the market downside risk is high in the short-term. Fund category/type Equity (Shariah-compliant)/Growth How long should you invest for? Recommended five (5) years or more Indication of short-term risk (low, moderate, high) High When was the Fund launched? 15 June 1995 What was the size of the Fund as at 30 June 2016? RM million ( million units) What is the Fund s benchmark? Financial Times Stock Exchange ( FTSE ) Bursa Malaysia ( FBM ) EMAS Shariah ( FBMS ) Index What is the Fund distribution policy? Distribution (if any) is expected to be distributed every January at the Manager s discretion. What was the net income distribution for the six months financial period ended 30 June 2016? The Fund distributed a total net income of RM5.79 million to unit holders for the six months financial period ended 30 June As a result, the NAV per unit dropped from RM to RM on 26 January

4 PERFORMANCE DATA Details of portfolio composition of the Fund for the last three unaudited financial periods are as follows: % % % Shariah-compliant quoted securities - Construction Consumer Products Finance Industrials Infrastructure Project Companies ( IPC ) Plantation Properties Technology Trading/Services Cash and other net assets Performance details of the Fund for the last three unaudited financial periods are as follows: NAV (RM Million) Units in circulation (Million) NAV per unit (RM) to to to Highest NAV per unit (RM) Lowest NAV per unit (RM) Total return (%) (0.88) Capital growth (%) (6.49) (4.05) Income distribution (%) Management Expense Ratio ("MER") (%) ^ Portfolio Turnover Ratio ("PTR") (times) # ^ The Fund's MER increased from 0.84% to 0.87% mainly due to increase in other expenses pursuant to the implementation of Goods and Services ("GST") effective from 1 April # The Fund s PTR decreased from 0.92 times to 0.58 times in the previous corresponding financial period due to lower frequency of repositioning of the Fund. Date of distribution Gross distribution per unit (sen) Net distribution per unit (sen) % % % % % Annual total return 5.55 (6.21) (0.93) (Launch date: 15 June 1995) Past performance is not necessarily indicative of future performance and that unit prices and investment returns may go down, as well as up. All performance figures for the financial period have been extracted from Lipper. 3

5 MARKET REVIEW (1 JANUARY 2016 TO 30 JUNE 2016) For the financial period under review, the FBMS Index was down by 5.45%, falling from 12, points to 12, points. Equities had a rocky start in The Index fell sharply earlier in the January 2016 before rebounding towards the end. The sharp selloff globally spooked traders and Malaysia was not spared. The recovery was helped by the recalibrated Budget 2016 as well as the rebound in crude oil prices and a stronger Malaysian Ringgit ( MYR ). The key global events in January 2016 were: 1) Discussion about recession risk; 2) Bank of Japan s ( BOJ ) negative interest rates stance; 3) Oil prices dipping below USD30 per barrel; 4) Russia floating proposals for joint oil production cuts with the Organisation of the Petroleum Exporting Countries ( OPEC ); and 5) the US Federal Reserve (the Fed ) interest rates path may be less steep. In February 2016, the Index continued its downtrend. The key global events in February 2016 were: 1) the US and Chinese growth worries; 2) possibility of the Fed s rate hike mistake; 3) Britain exit ( Brexit ) from European Union ( EU ) risk; and 4) widening credit spreads. In Malaysia, companies reported weak earnings in fourth quarter of The MYR weakened slightly from RM4.148 to RM4.203 against USD. The fourth quarter of 2015 the Consumer Sentiment Index ( CSI ) touched a new low of In March 2016 however, the downtrend reversed on the back of higher oil prices, stronger MYR and increasing investor optimism that the Fed may delay its future Fed Funds rate hike. The confluence of these positive macro factors led to a RM6.1 billion net foreign equity inflow into the Malaysian market. But the Index gave up its gains in March 2016, fell by 2.31% month-of-month ( m-o-m ) to points in the following month of April Investors were rattled by news of 1Malaysia Development Berhad s ( 1MDB ) bond default, which triggered a cross default on two other notes. Bank Negara Malaysia s ( BNM ) new internally sourced governor failed to lift the market. Net foreign equity inflows slowed to RM427 million, bringing year-to-date ( YTD ) net foreign equity inflows to RM6 billion. 10-year Malaysia Government Bond ( MGS ) closed at 3.87%, while the MYR was weaker at RM3.90 against USD, down by 0.78% m-o-m. In May 2016, the Index continued to fall by 2.35% m-o-m to 11, points. The Morgan Stanley Capital International ( MSCI ) rebalancing subjected the Malaysian market to repositioning and short-selling activities, resulting in net foreign equity outflows of RM4.3 billion in May In June 2016, the Index shrugged off the Brexit vote, rising by 1.51% m-o-m to 12, points, partly due to mid-year window dressing activities. YTD, the Index is still down by 5.45%. Post- Brexit, the resulting flight to safety has caused global government bond yields to collapse, signalling deflationary growth concerns. In the US, the likelihood of a rate hike this year has fallen significantly. On the local front, Barisan Nasional s two by-election victories fuelled speculation of early elections. FUND PERFORMANCE 6 months to year to years to years to Since inception to % % % % % Income Capital (6.49) (0.42) (2.04) 7.59 (18.51) Total Return (0.88) Benchmark (5.45) (0.87) (1.56) Average Total Return N/A The Fund recorded a total return of -0.88% for the financial period under review, which outperformed the benchmark by 4.57%. The Fund has also outperformed the benchmark by 17.28% over 3-years and 18.11% over 5-years. For both the six-month and one-year financial period ended 30 June 2016, the Fund ranked 5 th and 2 nd respectively in the 1 st Quartile of the Lipper rankings table under Islamic Equity Malaysia category. 4

6 FUND PERFORMANCE (CONTINUED) Changes in NAV Changes % NAV (RM Million) NAV/unit (RM) (0.40) The size of the Fund increased from RM99.67 million as of 30 June 2015 to RM million as of 30 June 2016 partly due to unit creations over the financial period. Meanwhile, NAV per unit eased 0.40% from RM per unit to RM per unit. Performance data represents the combined income and capital return as a result of holding units in the fund for the specified length of time, based on NAV to NAV price. The performance data assumes that all earnings from the fund are reinvested and are net of management and trustee fees. Past performance is not reflective of future performance and income distributions are not guaranteed. Unit prices and income distributions, if any, may fall and rise. All performance figures for the financial period have been extracted from Lipper. PORTFOLIO STRUCTURE Asset allocation (% of NAV) Shariah-compliant quoted securities Cash and other net assets TOTAL Equity exposure was slightly lower in the financial period under review. The Fund was 85.06% invested in Shariah-compliant equities as of 30 June 2016, which was a slight drop from 86.09% a year ago. The cash and other net assets portion increased from 13.91% to 14.94%. 5

7 MARKET OUTLOOK * Post-Brexit, we make no change to our cautious stance as we brace for more volatility from Developed Markets. We believe that the Index will continue to trade range-bound with key catalysts being the upcoming second quarter of 2016 results. The positive from this is that global central bankers will remain accommodative. * This market outlook does not constitute an offer, invitation, commitment, advice or recommendation to make a purchase of any investment. The information given in this article represents the views of CIMB-Principal or based on data obtained from sources believed to be reliable by CIMB-Principal. Whilst every care has been taken in preparing this, CIMB-Principal makes no guarantee, representation or warranty and is under no circumstances liable for any loss or damage caused by reliance on, any opinion, advice or statement made in this market outlook. INVESTMENT STRATEGY In a slow growth environment, we favour high dividend yielders. We also continue to maintain our overweight in the construction sector as positive newsflow from more fiscal expansion from the Government will continue this year. From a research perspective, we seek new ideas in the e- commerce/logistics space. UNIT HOLDINGS STATISTICS Breakdown of unit holdings by size as at 30 June 2016 are as follows: Size of unit holdings (units) No. of unit holders No. of units held (million) % of units held 5,000 and below 3, ,001 to 10,000 1, ,001 to 50,000 2, ,001 to 500, ,001 and above Total 7, SOFT COMMISSIONS AND REBATES CIMB-Principal Asset Management Berhad (the "Manager") and the Trustee (including their officers) will not retain any form of rebate or soft commission from, or otherwise share in any commission with, any broker in consideration for directing dealings in the investments of the Funds unless the soft commission received is retained in the form of goods and services such as financial wire services and stock quotations system incidental to investment management of the Funds. All dealings with brokers are executed on best available terms. During the financial period under review, the Manager and the Trustee did not receive any rebates from the brokers or dealers but have retained soft commission in the form of goods and services such as financial wire services and stock quotations system incidental to investment management of the Funds. 6

8 STATEMENT BY MANAGER TO THE UNIT HOLDERS OF We, being the Directors of CIMB-Principal Asset Management Berhad (the Manager ), do hereby state that, in the opinion of the Manager, the accompanying unaudited financial statements set out on pages 10 to 36 are drawn up in accordance with the provisions of the Deeds and give a true and fair view of the financial position of the Fund as at 30 June 2016 and of its financial performance, changes in equity and cash flows for the financial period then ended in accordance with Malaysian Financial Reporting Standards ( MFRS ) Interim Financial Reporting and International Accounting Standards ("IAS") 34 - Interim Financial Reporting. For and on behalf of the Manager CIMB-Principal Asset Management Berhad (Company No.: K) MUNIRAH KHAIRUDDIN Chief Executive Officer/Executive Director ALEJANDRO ECHEGORRI Executive Director Kuala Lumpur 30 August

9 TRUSTEE S REPORT TO THE UNIT HOLDERS OF We, AmanahRaya Trustees Bhd, have acted as Trustee of CIMB Islamic Equity Aggressive Fund for the financial year ended 30 June In our opinion, CIMB-Principal Asset Management Berhad, (the "Manager"), has managed CIMB Islamic Equity Aggressive Fund in accordance with the limitations imposed on the investment powers of the management company and the Trustee under the Deeds, other provisions of the Deeds, the applicable Guidelines on Unit Trust Funds, the Capital Markets and Services Act 2007 and other applicable laws during the financial period ended. We are of the opinion that: (a) (b) (c) The procedures and processes employed by the Manager to value and/or price the units of CIMB Islamic Equity Aggressive Fund are adequate and that such valuation/pricing is carried out in accordance with the Deeds and relevant regulatory requirement; Creation and cancellation of units are carried out in accordance with the Deeds and relevant regulatory requirement; and the distribution of returns made by CIMB Islamic Equity Aggressive Fund as declared by Manager is in accordance with the investment objective of CIMB-Principal Equity Growth & Income Fund. Your faithfully AMANAHRAYA TRUSTEES BERHAD HABSAH BINTI BAKAR Chief Executive Officer Kuala Lumpur, Malaysia 30 August

10 SHARIAH ADVISER S REPORT TO THE UNIT HOLDERS OF We have acted as the Shariah Adviser of CIMB Islamic Equity Aggressive Fund (the Fund ) for the six months financial period ended 30 June Our responsibility is to ensure that the procedures and processes employed by CIMB-Principal Asset Management Berhad (the Manager ) are in accordance with Shariah and Shariah Investment Guidelines. In our opinion, the Manager has managed and administered the Fund in accordance with the Shariah Investment Guidelines of the Fund and complied with applicable guidelines, rulings or decisions issued by the Securities Commission Malaysia pertaining to Shariah matters for the six months financial period ended 30 June In addition, we also confirm that the investment portfolio of the Fund comprises securities which have been classified as Shariah-compliant by the Shariah Advisory Council of the Securities Commission Malaysia. For investments other than the abovementioned, we have reviewed the same and are of the opinion that these investments were in accordance with the Shariah Investment Guidelines of the Fund. This report is made solely to the unit holders of the Fund, as a body, and for no other purpose. We do not assume responsibility to any other person for the content of this report and we shall not be liable for any errors or non-disclosure on the part of the Manager. For and on-behalf of Shariah Adviser CIMB Islamic Bank Berhad ABDUL GHANI ENDUT Group Head, Shariah & Governance/Designated Person Responsible for Shariah Advisory Kuala Lumpur 30 August

11 UNAUDITED STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 30 JUNE to to Note RM RM INVESTMENT INCOME Dividend income 1,349,060 1,216,370 Profit income from Shariah-compliant deposits with licensed Islamic financial institutions and Hibah earned 183, ,815 Net (loss)/gain on financial assets at fair value through profit or loss 8 (1,159,152) 1,664, ,681 3,063,107 EXPENSES Management fee 4 768, ,024 Trustee s fee 5 46,097 46,201 Transaction costs 362, ,964 Audit fee 7,420 7,120 Tax agent s fee 500 1,550 Other expenses 95,491 69,089 1,280,520 1,472,948 (LOSS)/PROFIT BEFORE TAXATION (906,839) 1,590,159 Taxation (LOSS)/PROFIT AFTER TAXATION AND TOTAL COMPREHENSIVE (LOSS)/INCOME FOR THE FINANCIAL PERIOD (906,839) 1,590,159 (Loss)/Profit after taxation is made up as follows: Realised amount 2,015,354 2,290,193 Unrealised amount (2,922,193) (700,034) (906,839) 1,590,159 The accompanying notes to the financial statements form an integral part of the unaudited financial statements. 10

12 UNAUDITED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE Audited Note RM RM ASSETS Cash and cash equivalents (Shariah-compliant) 9 14,987,149 10,373,848 Financial assets at fair value through profit or loss (Shariah-compliant) 8 89,828,511 94,086,418 Amount due from stockbrokers 843,026 86,163 Amount due from Manager 79,702 77,382 Dividends receivable 97,926 97,363 Other receivable - 9,990 Tax recoverable 59,660 59,660 TOTAL ASSETS 105,895, ,790,824 LIABILITIES Amount due to stockbrokers - 70,568 Amount due to Manager 113, ,883 Accrued management fee 127, ,005 Amount due to Trustee 7,653 7,860 Other payables and accruals 29,521 35,302 TOTAL LIABILITIES 278, ,618 NET ASSET VALUE OF THE FUND 105,617, ,290,206 EQUITY Unit holders capital 86,969,216 78,947,161 Retained earnings 18,648,721 25,343,045 NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 105,617, ,290,206 NUMBER OF UNITS IN CIRCULATION (UNITS) ,403, ,944,050 NET ASSET VALUE PER UNIT (RM) The accompanying notes to the financial statements form an integral part of the unaudited financial statements. 11

13 UNAUDITED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 30 JUNE 2016 Unit holders Retained capital earnings Total Note RM RM RM Balance as at 1 January ,947,161 25,343, ,290,206 Movement in unit holders contributions: - Creation of units from applications 9,161,126-9,161,126 - Creation of units from distribution 5,517,702-5,517,702 - Cancellation of units (6,656,773) - (6,656,773) Total comprehensive loss for the financial period - (906,839) (906,839) Distribution 6 - (5,787,485) (5,787,485) Balance as at 30 June ,969,216 18,648, ,617,937 Balance as at 1 January ,386,420 22,989, ,376,400 Movement in unit holders contributions: - Creation of units from applications 10,058,483-10,058,483 - Creation of units from distribution 5,239,338-5,239,338 - Cancellation of units (15,036,430) - (15,036,430) Total comprehensive income for the financial period - 1,590,159 1,590,159 Distribution 6 - (5,555,363) (5,555,363) Balance as at 30 June ,647,811 19,024,776 99,672,587 The accompanying notes to the financial statements form an integral part of the unaudited financial statements. 12

14 UNAUDITED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 30 JUNE to RM to RM CASH FLOWS FROM OPERATING ACTIVITIES Proceeds from disposal of Shariah-compliant quoted securities 61,610,532 98,757,365 Purchase of Shariah-compliant quoted securities (59,701,941) (97,708,572) Profit income received from Shariah-compliant deposits with licensed Islamic financial institutions and Hibah earned 183, ,815 Dividend income received 1,348,497 1,204,307 Management fee paid (771,740) (775,141) Trustee s fee paid (46,304) (46,508) Payments for other fees and expenses (109,192) (54,462) Other income received 9,990 - Net cash generated from operating activities 2,523,615 1,558,804 CASH FLOWS FROM FINANCING ACTIVITIES Cash proceeds from units created 9,158,806 10,268,424 Payments for cancellation of units (6,799,337) (14,972,986) Distribution paid (269,783) (316,025) Net cash generated from/(used in) financing activities 2,089,686 (5,020,587) Net increase/(decrease) in cash and cash equivalents 4,613,301 (3,461,783) Cash and cash equivalents at the beginning of the financial period 10,373,848 16,298,584 Cash and cash equivalents at the end of the financial period 14,987,149 12,836,801 The accompanying notes to the financial statements form an integral part of the unaudited financial statements. 13

15 NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHS FINANCIAL PERIOD ENDED 30 JUNE THE FUND, THE MANAGER AND ITS PRINCIPAL ACTIVITY CIMB Islamic Equity Aggressive Fund (the Fund ) is governed by a Principal Master Deed dated 15 May 2008, a First Supplemental Deed dated 26 May 2008, a Third Supplemental Master Deed dated 25 June 2008, a Sixth Supplemental Master Deed dated 14 July 2008, a Seventh Supplemental Master Deed dated 19 November 2008, a Twelfth Supplemental Master Deed dated 14 June 2010, a Fourteenth Supplemental Master Deed dated 26 June 2012 and a Seventeenth Supplemental Master Deed dated 25 March 2015 (collectively referred to as the Deeds ), made between CIMB-Principal Asset Management Berhad (the Manager ) and AmanahRaya Trustee Berhad (the Trustee ). The Fund may invest a minimum of 70% and up to a maximum of 98% of its NAV in local Shariah-compliant equities. As an aggressive Fund, the Fund will be managed with higher beta and tracking error. The investment policy and strategy of the Fund is to invest in Shariahcompliant stocks which are selected based on their future growth prospects with benchmarking of the Fund being a secondary consideration. As such, the Fund may hold a larger percentage of its NAV (may exceed 10%) in Shariah-compliant stocks of companies with small capitalisation. In addition, Shariah-compliant liquid assets with at least 2% of its NAV may also be strategically used if the Manager feels that the market downside risk is high in the short-term. All investments will be subjected to the Securities Commission Malaysia ( SC ) Guidelines on Unit Trust Funds, SC requirements, the Deeds, except where exemptions or variations have been approved by the SC, internal policies and procedures and the Fund s objective. The Manager, a company incorporated in Malaysia, is a subsidiary of CIMB Group Sdn Bhd and regards CIMB Group Holdings Berhad as its ultimate holding company. The Manager is also an associate of Principal International (Asia) Limited, which is a subsidiary of Principal Financial Group Inc. The principal activities of the Manager are the establishment and management of unit trust funds and fund management activities. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following accounting policies have been used consistently in dealing with items which are considered material in relation to the financial statements: (a) Basis of preparation The financial statements have been prepared in accordance with the provisions of the MFRS and International Financial Reporting Standards ( IFRS ). The financial statements have been prepared under the historical cost convention, as modified by financial assets at fair value through profit or loss. The preparation of financial statements in conformity with MFRS and IFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reported period. 14

16 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (a) Basis of preparation (continued) It also requires the Manager to exercise their judgment in the process of applying the Fund s accounting policies. Although these estimates and judgment are based on the Manager s best knowledge of current events and actions, actual results may differ. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 2(l). Standards, amendments to published standards and interpretations to existing standards that are effective: The Fund has applied the following amendments for the first time for the financial year beginning 1 January 2016: Amendments to MFRS 101 Presentation of financial statements Disclosure Initiative Annual Improvements to MFRS Cycle The adoption of these amendments did not have any impact on the current financial period or any prior period and is not likely to affect future periods. The standards, amendments to published standards and interpretations to existing standards that are applicable to the Fund but not yet effective and have not been early adopted are as follows: (i) Financial year beginning on/after 1 January 2017 MFRS 15 Revenue from Contracts with Customers (effective from 1 January 2017) replaces MFRS 118 Revenue and MFRS 111 Construction contracts and related interpretations. The standard deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity s contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The core principle in MFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Fund will apply this standard when effective. This standard is not expected to have a significant impact on the Fund s financial statements. 15

17 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (a) Basis of preparation (continued) (ii) Financial year beginning on/after 1 January 2018 MFRS 9 Financial Instruments (effective from 1 January 2018) will replace MFRS 139 Financial Instruments: Recognition and Measurement. The complete version of MFRS 9 was issued in November MFRS 9 retains but simplifies the mixed measurement model in MFRS 139 and establishes three primary measurement categories for financial assets: amortised cost, fair value through profit or loss and fair value through other comprehensive income ( OCI ). The basis of classification depends on the entity s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments¹ are always measured at fair value through profit or loss with an irrevocable option at inception to present changes in fair value in OCI (provided the instrument is not held for trading). A debt instrument² is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest³. For liabilities, the standard retains most of the MFRS 139 requirements. These include amortised cost accounting for most financial liabilities, with bifurcation of embedded derivatives¹. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in OCI rather than the income statement, unless this creates an accounting mismatch. MFRS 9 introduces an expected credit loss model on impairment that replaces the incurred loss impairment model used in MFRS 139. The expected credit loss model is forward-looking and eliminates the need for a trigger event to have occurred before credit losses are recognised. The Fund will apply this standard when effective. This standard is not expected to have a significant impact on the Fund s financial statements. ¹ For the purposes of the investments made by the Fund, equity instruments and derivatives refers to Shariahcompliant equity instruments and Shariah-compliant derivatives. ² For the purposes of the investments made by the Fund, debt instruments refers to Sukuk. ³ For the purposes of this Fund, interest refers to profits earned from Shariah-compliant investments. 16

18 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) Financial assets and financial liabilities Classification The Fund designates its Shariah-compliant quoted securities as financial assets at fair value through profit or loss at inception. Financial assets are designated at fair value through profit or loss when they are managed and their performance evaluated on a fair value basis. Financing and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and have been included in current assets. The Fund s financing and receivables comprise cash and cash equivalents, amount due from stockbrokers, amount due from Manager, and dividends receivable. The Fund classifies amount due to stockbrokers, amount due to Manager, accrued management fee, amount due to Trustee, and other payables and accruals as other financial liabilities. Recognition and measurement Regular purchases and sales of financial assets are recognised on the trade-date, the date on which the Fund commits to purchase or sell the asset. Shariah-compliant investments are initially recognised at fair value. Transaction costs are expensed in the statement of comprehensive income. 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 assets are derecognised when the rights to receive cash flows from the Shariah-compliant investments have expired or have been transferred and the Fund has transferred substantially all risks and rewards of ownership. Unrealised gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss are presented in the statement of comprehensive income within net gain or loss on financial assets at fair value through profit or loss in the financial period which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the statement of comprehensive income as part of gross dividend income when the Fund s right to receive payments is established. Shariah-compliant quoted securities in Malaysia are valued at the last done market price quoted on Bursa Malaysia Securities Bhd ( Bursa Securities ) at the date of the statement of financial position. If a valuation based on the market price does not represent the fair value of the Shariahcompliant quoted securities, for example during abnormal market conditions or when no market price is available, including in the event of a suspension in the quotation of the Shariah-compliant quoted securities for a period exceeding 14 days, or such shorter period as agreed by the Trustee, then the Shariah-compliant quoted securities are valued as determined in good faith by the Manager, based on the methods or bases approved by the Trustee after appropriate technical consultation. 17

19 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) Financial assets and financial liabilities (continued) Recognition and measurement (continued) Shariah-compliant deposits with licensed Islamic financial institutions are stated at cost plus accrued profit calculated on the effective profit method over the period from the date of placement to the date of maturity of the respective deposits. Financing and receivables and other financial liabilities are subsequently carried at amortised cost using the effective profit method. Impairment for assets carried at amortised costs For assets carried at amortised cost, the Fund assesses at the end of the reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. For assets carried at amortised cost, the Fund assesses at the end of the reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective profit rate. The asset s carrying amount is reduced and the amount of the loss is recognised in statement of comprehensive income. If financing and receivables has a variable profit rate, the discount rate for measuring any impairment loss is the current effective profit rate determined under the contract. As a practical expedient, the Fund may measure impairment on the basis of an instrument s fair value using an observable market price. If, in a subsequent financial period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor s credit rating), the reversal of the previously recognised impairment loss is recognised in statement of comprehensive income. When an asset is uncollectible, it is written off against the related allowance account. Such assets are written off after all the necessary procedures have been completed and the amount of the loss has been determined. 18

20 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (c) Functional and presentation currency Items included in 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 RM, which is the Fund s functional and presentation currency. (d) Income recognition Dividend income is recognised on the ex-dividend date when the right to receive payment is established. Profit income from Shariah-compliant deposits with licensed Islamic financial institutions is recognised on a time proportionate basis using the effective profit method on an accrual basis. Realised gain or loss on disposal of Shariah-compliant quoted securities is accounted for as the difference between the net disposal proceeds and the carrying amount of Shariahcompliant quoted securities, determined on a weighted average cost basis. (e) Cash and cash equivalents For the purpose of statement of cash flows, cash and cash equivalents comprise bank balances and Shariah-compliant deposits held in highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. (f) Taxation Current tax expense is determined according to Malaysian tax laws at the current rate based upon on taxable profit earned during the financial period. (g) Transactions costs Transaction costs are costs incurred to acquire or dispose financial assets or liabilities at fair value through profit or loss. They include fees and commissions paid to agents, advisers, brokers and dealers. Transaction costs, when incurred, are immediately recognised in the statement of comprehensive income as expenses. 19

21 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (h) Unit holders capital The unit holders contributions to the Fund meet the criteria to be classified as equity instruments under MFRS 132 Financial Instruments: Presentation. Those criteria include: the units entitle the holder to a proportionate share of the Fund s NAV; the units are the most subordinated class and class features are identical; there is no contractual obligations to deliver cash or another financial asset other than the obligation on the Fund to repurchase; and the total expected cash flows from the units over its life are based substantially on the profit or loss of the Fund. The outstanding units are carried at the redemption amount that is payable at each financial period if unit holder exercises the right to put the unit back to the Fund. Units are created and cancelled at prices based on the Fund s NAV per unit at the time of creation or cancellation. The Fund s NAV per unit is calculated by dividing the net assets attributable to unit holders with the total number of outstanding units. (i) Amount due from/to stockbrokers Amount due from and amount due to stockbrokers represent receivables for Shariahcompliant quoted securities sold and payables for Shariah-compliant quoted securities purchased that have been contracted for but not yet settled or delivered on the statement of financial position date respectively. These amounts are recognised initially at fair value and subsequently measured at amortised cost using the effective profit method, less provision for impairment for amount due from stockbrokers. A provision for impairment of amount due from stockbrokers is established when there is objective evidence that the Fund will not be able to collect all amounts due from the relevant stockbroker. Significant financial difficulties of the stockbroker, probability that the stockbroker will enter bankruptcy or financial reorganisation, and default in payments are considered indicators that the amount due from stockbrokers is impaired. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, profit income is recognised using the profit rate used to discount the future cash flows for the purpose of measuring the impairment loss. (j) Distribution A distribution to the Fund s unit holders is accounted for as a deduction from realised reserve. A proposed distribution is recognised as a liability in the financial year in which it is approved by the Trustee. (k) Segment information Operating segments are reported in a manner consistent with the internal reporting used by the chief operating decision-maker. The chief operating decision-maker is responsible for allocating resources and assessing performance of the operating segments. 20

22 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (l) Critical accounting estimates and judgments in applying accounting policies The Fund makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. To enhance the information content of the estimates, certain key variables that are anticipated to have material impact to the Fund s results and financial position are tested for sensitivity to changes in the underlying parameters. Estimates and judgment are continually evaluated by the Manager and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In undertaking any of the Fund s Shariah-compliant investment, the Manager will ensure that all assets of the Fund under management will be valued appropriately, that is at fair value and in compliance with the SC Guidelines on Unit Trust Funds. 21

23 3. RISK MANAGEMENT OBJECTIVES AND POLICIES The Fund aims to earn reasonable returns for investors by investing in approved equities listed on Bursa Malaysia as well as unlisted securities and other non-interest bearing assets acceptable under Shariah principles. The Fund is exposed to a variety of risks which include market risk (inclusive of price risk and interest rate risk), credit risk and liquidity risk. Financial risk management is carried out through internal control process adopted by the Manager and adherence to the investment restrictions as stipulated in the Deeds and SC Guidelines on Unit Trust Funds. (a) Market risk (i) Price risk This is the risk that the fair value of an investment in Shariah-compliant quoted securities will fluctuate because of changes in market prices (other than those arising from interest rate risk). The value of Shariah-compliant quoted securities may fluctuate according to the activities of individual companies, sector and overall political and economic conditions. Such fluctuation may cause the Fund s NAV and prices of units to fall as well as rise, and income produced by the Fund may also fluctuate. The price risk is managed through diversification and selection of Shariahcompliant quoted securities and other financial instruments within specified limits according to the Deeds. (ii) Interest rate risk Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. Interest rate is a general economic indicator that will have an impact on the management of the Fund. It does not in any way suggest that this Fund will invest in conventional financial instruments. All investments carried out for the Fund including placements and deposits are in accordance with Shariah. The Fund s exposure to fair value interest rate risk arises from Shariah-compliant deposits with licensed Islamic financial institutions. The interest rate risk is expected to be minimal as the Fund s investments comprise mainly Shariahcompliant short term deposits with approved licensed Islamic financial institutions. As at the end of each reporting period, the Fund is not exposed to a material level of interest rate risk. The Fund is not exposed to cash flow interest rate risk as the Fund does not hold any financial instruments at variable interest rate. 22

24 3. RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) (b) Credit risk Credit risk refers to the risk that counterparty will default on its contractual obligation resulting in financial loss to the Fund. The credit risk arising from placements of Shariah-compliant deposits in licensed financial Islamic institutions is managed by ensuring that the Fund will only place Shariahcompliant deposits in reputable licensed Islamic financial institutions. The settlement terms of the proceeds from the creation of units receivable from the Manager are governed by the SC Guidelines on Unit Trust Funds. For amount due from stockbrokers, the settlement terms are governed by the relevant rules and regulations as prescribed by respective stock exchange. The credit risk is minimal as all transactions in Shariah-compliant quoted securities are settled/paid upon delivery using approved stockbrokers. (c) Liquidity risk Liquidity risk is the risk that the Fund will encounter difficulty in meeting its financial obligations. The Manager manages this risk by maintaining sufficient level of liquid assets to meet anticipated payments and cancellations of the units by unit holders. Liquid assets comprise bank balances, Shariah-compliant deposits with licensed Islamic financial institutions and other instruments, which are capable of being converted into cash within 7 business days. This is expected to reduce the risks for the entire portfolio without limiting the Fund s growth potentials. (d) Fair value estimation Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. an exit price). The fair value of financial assets traded in active markets (such as trading securities) are based on quoted market prices at the close of trading on the financial period end date. The Fund utilises the last traded market price for financial assets where the last traded price falls within the bid-ask spread. In circumstances where the last traded price is not within the bid-ask spread, the Manager will determine the point within the bid-ask spread that is most representative of the fair value. An active market is a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The fair value of financial assets that are not traded in an active market is determined by using valuation techniques. 23

25 3. RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) (d) Fair value estimation (continued) Fair value hierarchy (i) The table below analyses financial instruments carried at fair value. The different levels have been defined as follows: Quoted prices (unadjusted) in active market for identical assets or liabilities (Level 1) Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2) Inputs for the asset and liability that are not based on observable market data (that is, unobservable inputs) (Level 3) The level in the fair value hierarchy 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. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability. The determination of what constitutes observable requires significant judgment by the Fund. The Fund considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. Level 1 Level 2 Level 3 Total RM RM RM RM Financial assets at fair value through profit or loss: - Shariah-compliant quoted securities 89,828, ,828, Audited Financial assets at fair value through profit or loss: - Shariah-compliant quoted securities 94,086, ,086,418 Shariah-compliant investments whose values are based on quoted market prices in active markets, and are therefore classified within Level 1, include active listed equities. The Fund does not adjust the quoted prices for these instruments. The Fund s policies on valuation of these financial assets are stated in Note 2(b). 24

26 3. RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) (d) Fair value estimation (continued) Fair value hierarchy (continued) (ii) The carrying values of cash and cash equivalents, amount due from stockbrokers, amount due from Manager, dividends receivable, and all current liabilities are a reasonable approximation of their fair values due to their short term nature. 4. MANAGEMENT FEE In accordance with the Deeds, the Manager is entitled to a maximum management fee of 1.50% per annum calculated daily based on the NAV of the Fund. For the six months financial period ended 30 June 2016, the Manager s fee is recognised at a rate of 1.50% per annum ( : 1.50% per annum). There will be no further liability to the Manager in respect of management fee other than the amount recognised above. 5. TRUSTEE S FEE In accordance with Deeds, the Trustee is entitled to a fee not exceeding 0.09% per annum calculated daily based on the NAV of the Fund. For the six months financial period ended 30 June 2016, the Trustee s fee is recognised at a rate of 0.09% per annum ( : 0.09% per annum). There will be no further liability to the Trustee in respect of Trustee s fee other than the amount recognised above. 6. DISTRIBUTION Distribution to unit holders is derived from the following sources: to RM to RM Dividend income 591, ,931 Profit income from Shariah-compliant deposits with licensed Islamic financial institutions 106,825 98,584 Net realised gain on disposal of financial assets at fair value through profit or loss 826,643 4,682,332 Prior financial period s realized income 4,302,661-5,827,745 5,592,847 Less: Expenses (40,260) (37,484) Net distribution amount 5,787,485 5,555,363 25