KENANGA BLUE CHIP FUND

Transcription

1 KENANGA BLUE CHIP FUND (FORMERLY KNOWN AS ING BLUE CHIP) ANNUAL REPORT For the Financial Year Ended 30 September 2013

2 KENANGA BLUE CHIP FUND (FORMERLY KNOWN AS ING BLUE CHIP) Contents Page Corporate Directory ii Directory of Manager s Offices iii Fund Information 1 Manager s Report 2-5 Fund Performance 6-8 Trustee s Report 9 Independent Auditor s Report Statement by the Manager 12 Financial Statement 13-37

3 CORPORATE DIRECTORY MANAGER: KENANGA INVESTORS BERHAD (Company No P) REGISTERED OFFICE Kenanga Investors Berhad (KIB) 8 th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur, Malaysia. Tel: Fax: BOARD OF DIRECTORS Datuk Syed Ahmad Alwee Alsree (Chairman) Syed Zafi len Syed Alwee (Independent Director) YM Raja Dato Seri Abdul Aziz bin Raja Salim (Independent Director) Vivek Sharma (Independent Director) Bruce Kho Yaw Huat Abdul Razak bin Ahmad Peter John Rayner ii Kenanga Blue Chip Fund Annual Report BUSINESS OFFICE Suite 12.02, 12 th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur, Malaysia. Tel: Fax: InvestorServices@kenanga.com.my Website: INVESTMENT COMMITTEE Bruce Kho Yaw Huat (Chairman) Syed Zafi len Syed Alwee (Independent Member) Vivek Sharma (Independent Member) Abdul Razak bin Ahmad Peter John Rayner COMPANY SECRETARY: NORLIZA ABD SAMAD (MAICSA ) 9th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur, Malaysia. Tel: Fax: 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 ( K) Level 23A, Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara, Kuala Lumpur. Tel: Fax: MEMBERSHIP: FEDERATION OF INVESTMENT MANAGERS MALAYSIA (FIMM) , 7th Floor, PNB Damansara, 19, Lorong Dungun, Damansara Heights, Kuala Lumpur, Malaysia. Tel: Fax: Website: mm.com.my

4 DIRECTORY OF MANAGER S OFFICES REGIONAL BRANCH OFFICES: Kuala Lumpur Suite 12.02, 12th Floor, Kenanga International Jalan Sultan Ismail, Kuala Lumpur, Malaysia Tel: Fax: Melaka No 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 Blok A, Aras 3, Wisma Perkeso No. 269, Jalan Burma George Town, Penang Tel: Fax: Johor Bahru Lot 11.03, 11th Floor, Menara MSC Cyberport 5 Jalan Bukit Meldrum Johor Bahru, Johor Tel: /4798 Fax: Kuching 1st Floor, No 71, Lot 7 Lot 10900, Jalan Tun Jugah Kuching, Sarawak Tel: Fax: Kota Kinabalu A-03-11, 3rd Floor Block A Warisan Square Jalan Tun Fuad Stephens Kota Kinabalu, Sabah Tel: / Fax: Ipoh No. 5A, Persiaran Greentown 9 Greentown Business Centre Ipoh, Perak Darul Ridzuan Tel: /7570 Fax: Agency Office Miri (Sarawak) c/o Lot 1084, 2nd Floor, Jalan Merpati Miri Sarawak, Malaysia Tel: Kenanga Blue Chip Fund Annual Report iii

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6 1. FUND INFORMATION 1.1 Fund Name Kenanga Blue Chip Fund (KBCF or the Fund) (Formerly known as ING Blue Chip) 1.2 Fund Type / Category Equity / Income & Growth 1.3 Investment Objective The Fund aims to achieve long-term capital growth through investments in companies that have relatively larger market capitalization. 1.4 Investment Strategy The Fund will construct a diversifi ed investment portfolio that consists of fundamentally sound companies that have large market capitalization and are dividends paying. The Fund may invest up to 98% of its Net Asset Value (NAV) in such companies. These companies are generally referred to as blue chip companies. 1.5 Duration The Fund was launched on 23 April 2004 and it shall exist as long as it appears to the Manager and the Trustee that it is in the interests of the unit holders for it to continue. 1.6 Performance Benchmark FTSE Bursa Malaysia 100 Index (FBM 100) 1.7 Distribution Policy Income (if any) will be distributed annually on a best effort basis. 1.8 Breakdown of unit holdings of KBCF as at 30 September 2013 Size of holdings No. of unitholders No. of units held 5,000 and below 4,251 6,153,788 5,001-10, ,063,186 10,001-50, ,657,569 50, , ,348, ,001 and above 1 607,708 Total 5,558 33,830,966 Kenanga Blue Chip Fund Annual Report 1

7 2. MANAGER S REPORT 2.1 Explanation on whether the Fund has achieved its investment objective. For the period under review, the Fund has achieved its investment objective of aiming to achieve long-term capital growth, having invested in a diversifi ed pool of equity securities and short-term cash instruments. 2.2 Comparison between the Fund s performance during period under review and performance of the benchmark Performance Chart Since Launch (23/04/ /09/2013) Kenanga Blue Chip Fund vs FTSE Bursa Malaysia 100 Index % Growth, Cum, TR, ExD, MYR, Launch to 30/09/ /04/ /12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/ /12/ /09/2013 * Contains estimated data. Source: Lipper 2 Kenanga Blue Chip Fund Annual Report Kenanga OA Inv-Kenanga Blue Chip* : FTSE Bursa Malaysia Top 100 CR* : Investment strategies and policies employed during the period under review The Fund s main strategy involved investing in a dynamic mix of value and growth large market capitalisation that are unrecognized and values, which is reasonably priced relative to earnings growth coupled with consistent dividends payment. 2.4 The Fund s asset allocation (% of NAV) as at 30 September 2013 and comparison with the previous financial year Asset 30 Sept Sept 2012 Unquoted Investments 85.7% 91.4% Cash and Others 14.3% 8.6% Reason for the differences in asset allocation As at end 30 September 2013, the Fund s equity exposure was 85.7%. The equity exposure was lower compared with 30 September 2012 mainly due to some profi t taking activities to realized some gain.

8 2.5 Fund performance analysis based on NAV per unit (adjusted for income distribution; if any) since last review period Period under review Kenanga Blue Chip Fund 12.67% FTSE Bursa Malaysia 100 Index 9.86% Source: Lipper The Fund recorded a return of 12.67%, outperforming the benchmark FTSE Bursa Malaysia 100 Index return of 9.86%. The Fund s outperformance compared to the benchmark was attributed to its stock selection. 2.6 Review of the market Market Review Stock market performance in the region can be broken up into two parts for the period under review. The Nikkei had a fantastic year (+38.3% from October 2012 to March 2013) following the Japanese government s surprise decision to infl ate the long stagnant economy with a US-style quantitative easing programme, valued at US$1.5 trillion. The emerging countries of Association of South East Asian Nations (ASEAN) were clear outperformers, led by Philippines and Thailand which rose by 28.1% and 20.2% for the same period, respectively as investors reacted positively to the underlying domestic economic growth of these economies. The strong infl ow of funds into these countries was also helped by US s Quantitative Easing 3 (QE3) programme. Governments around the world were generally adopting a loose monetary policy to help economic recovery. Malaysia lagged regional markets especially in the fi rst half of the fund fi nancial year of 2013 (1HFY2013) due to uncertainty over the 13th Malaysia General Election. The FTSE Bursa Malaysia 100 (FBM100) Index was up by 2.8% between October 2012 to March However, the market reacted positively after Barisan National retained power albeit with a slightly lesser majority. The FBM100 index rose by 3.6% on the fi rst day after the announcement of the election result. This could be attributed to the removal of risk premium associated with the uncertainty over the general election. On the economic side, the second quarter of 2013 (2QFY2013) Gross Domestic Product (GDP) growth of 4.1% fell short of expectation. This was attributed to weaker exports and slower growth in private investments due to uncertainty from the election outcome. The second quarter (2QFY2013) reporting season in Malaysia came in within analysts expectation with 60% of the results met consensus expectation whilst around 17% was above expectation. The disappointment came mostly from the oil & gas, plantation, and construction related companies. The major downturn came in June when equity markets reacted strongly on the negative after the Fed s chairman, Ben Bernanke commented that it would be appropriate to moderate the monthly purchase of assets backed securities later this year. It sparked investors fear that US QE3 will be tapering off earlier than expected. The situation was made worse when the People s Bank of China (PBoC) initially refused to ease a liquidity squeeze in the interbank market which caused a sharp spike in Shanghai Interbank Offered Rate (SHIBOR) rate to peak at 13.4%. The decline was led by China Shanghai Stock Exchange Composite Index (SHComp) (-14%), Philippines Stock Exchange Ps Ei Index (PCOMP) (-7.9%) and Hong Kong Hang Seng Indexes (HSI) (-7.1%) in June The FBM100 Index held up relatively well as it was only down by 0.4% month-onmonth (MoM) in June Kenanga Blue Chip Fund Annual Report 3

9 2.6 Review of the market (Contd.) Market Review (Contd.) The regional markets rebounded signifi cantly in September 2013 to help close the fi nancial year on a positive note when the threat of a US military strike against Syria was resolved and the US Federal Reserve unexpected decision to delay the start of QE3 tapering. The Fed cited the recent sharp rise in long-term interest rate could derail economic growth as the main reason for the delay. The signifi cant outperformers were Thailand and Hong Kong which rose by 6.9% and 5.2% MoM respectively. The FBM100 index improved by 2.5%, led by the banks, telecom and utilities sectors. Market Outlook We believe there is more room for the domestic market to appreciate in the longer term as it will be driven by good corporate earnings growth of between 8-9% in The major earnings drivers are the plantation sector and export driven manufacturers. The plantation sector has seen prolonged earning downgrades in 2013 due to lower Crude Palm Oil (CPO) prices. The CPO selling price is expected to improve due to rising demand from a recovering developed economies and Indonesia s plan to increase its biofuel content. We view the recent Budget 2014 as being stock-market neutral whilst delivering its main thrust of addressing the fi scal position over the medium term. The right signal came from subsidy rationalization and implementation of 6% Government Service Tax (GST) by 2015 (followed by a reciprocal reduction in personal and corporate income taxes), which in our view, addresses the concerns of external rating agency and in turn lends support to the Ringgit. This will help enable Malaysia to at least preserve its sovereign rating of A- and alleviate the negative outlook Our main concern in the next few months is the inevitable tapering of the US quantitative easing (QE) once the US economy shows more signs of recovering next year. Once the tapering is set in motion, this will result in a higher interest rate environment in US and will cause a shift of funds from emerging markets back to developed market. However, the fund shift is unlikely to depress emerging markets for long as the strong earnings base will reassert itself. Unfortunately, we are unable to ascertain the timing of the tapering of QE programme. Strategy We will generally adopt a high invested level in equities until we there is more clarity on the US tapering of its QE programme. We maintain our barbell strategy of holding a good balance of high yielding/defensive stocks and beta stocks. Our stock selection continues to favour sectors that will benefi t from being the main drivers of the economy such as the oil & gas, construction and plantation sector. This will be balanced out with having a signifi cant portion of the portfolio invested in high yielding stocks to ensure stability. Other sectors that we favour include consumer staples and Fast Moving Consumer Goods (FMCG), and healthcare and rubber glove. 2.7 Income Distribution For the fi nancial year under review, the Fund did not declare any income distribution. 2.8 Details of any unit split exercise The Fund did not carry out any unit split exercise during the fi nancial period under review. 4 Kenanga Blue Chip Fund Annual Report

10 2.9 Significant changes in the state of affair of the Fund during the period Pursuant to the acquisition of ING Funds Berhad by Kenanga Investors Berhad on 19th April 2013, Kenanga Investors Berhad had written to the Securities Commission to seek the Securities Commission s approval to become the Management Company of the Fund. The Securities Commission had approved the application. With effect from 8th June 2013, Kenanga Investors Berhad has become the Management Company of the Fund Circumstances that materially affect any interests of the unitholders During the period under review, there are no circumstances that materially affect any interests of the unitholders. However, there was a change in the Management Company of the Fund on 8th June 2013 as detailed in Rebates & Soft commissions Any rebates received are channeled back to the Fund. On the other hand, soft commissions received from the stockbrokers for goods and services such as technical analysis software, fundamental database, fi nancial wire services, stock quotation system and portfolio management software incidental to investment management of the Fund shall be retained by the Manager. For the period under review, the Manager has received soft commissions in the form of research and advisory services that assist in the decision-making process relating to the Fund s investments. Kenanga Blue Chip Fund Annual Report 5

11 3. FUND PERFORMANCE 3.1 Details of portfolio composition of Kenanga Blue Chip Fund ( the Fund ) for the last financial years as at 30 September are as follows: a. Distribution among industry sectors and category of investments: FY FY FY % % % Trading/Services Finance Consumer Products Infrastructure Project Companies Industrial Products Plantations Properties Construction REITs Collective investment scheme Cash and others Note: The above mentioned percentages are based on total investment market value plus cash. b. Distribution among markets The Fund invested in local equities and cash instruments only. 6 Kenanga Blue Chip Fund Annual Report

12 3.2 Performance details of the Fund for the last financial years ended 30 September are as follows: FY FY FY Net asset value (RM Million) 23.07* Units in circulation (Million) Net asset value per unit (RM) * Highest NAV per unit (RM) Lowest NAV per unit (RM) Total return (%) Capital growth (%) Income distribution (%) Gross distribution per unit (sen) Net distribution per unit (sen) Management expense ratio ( MER ) (%) Portfolio turnover ratio ( PTR ) (times) Note: Total return is the actual return of the Fund for the financial year, computed based on net asset value 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 prices and NAV are not shown as ex-distribution as there were no distribution declared by the Fund in the current year under review. 1 MER increased slightly due to a small increase in expenses. 2 The lower PTR was mainly due to lower trading activity. * Based on bid price fair valuation method on all investments held by the Fund as at 30 September 2013, the NAV and price would be RM23.02 million and RM respectively. (As disclosed under note 13 of the fi nancial statements) Kenanga Blue Chip Fund Annual Report 7

13 3.3 Average total return of the Fund 1 Year 30 Sept Sept 13 3 Years 30 Sept Sept 13 5 Years 30 Sept Sept 13 Kenanga Blue Chip Fund 12.67% 8.17% 12.85% FTSE Bursa Malaysia 100 Index 9.86% 8.44% 16.54% Source: Lipper 3.4 Annual total return of the Fund Kenanga Blue Chip Fund FTSE Bursa Malaysia 100 Index Period under review 30 Sept Sept 13 1 Year 30 Sept Sept 12 1 Year 30 Sept Sept 11 1 Year 30 Sept Sept 10 1 Year 30 Sept Sept % 13.40% -2.56% 19.40% 10.50% 9.86% 18.31% -3.57% 21.61% 19.86% Source: Lipper Investors are reminded that past performance is not necessarily indicative of future performance. Unit prices and investment returns may fluctuate. 8 Kenanga Blue Chip Fund Annual Report

14 4. TRUSTEE S REPORT We, CIMB COMMERCE TRUSTEE BERHAD, being the Trustee of KENANGA BLUE CHIP FUND ( the Fund ) (formerly known as ING Blue Chip) are of the opinion that KENANGA INVESTORS BERHAD ( the Manager ), acting in the capacity of Manager of the Fund, have fulfi lled their duties in the following manner for the fi nancial year ended 30 September a) The Fund has been managed in accordance with the limitations imposed on the investment powers of the Manager and the Trustee under the Deed, the Securities Commission s Guidelines on Unit Trust Funds, the Capital Markets and Services Act 2007 and other applicable laws; b) Valuation/pricing of units of the Fund has been carried out in accordance with the Deed and relevant regulatory requirements; and c) Creation and cancellation of units have been carried out in accordance with the Deed and relevant regulatory requirements. For and on behalf of CIMB COMMERCE TRUSTEE BERHAD LIEW PIK YOONG Head/Director, Group Trustee Services 28 November 2013 Kenanga Blue Chip Fund Annual Report 9

15 5. INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF KENANGA BLUE CHIP FUND (FORMERLY KNOWN AS ING BLUE CHIP) Report on the financial statement We have audited the fi nancial statements of Kenanga Blue Chip Fund (formerly known as ING Blue Chip) ( the Fund ), which comprise the statement of fi nancial position as at 30 September 2013 and the statement of comprehensive income, statement of changes in equity and statement of cash fl ows for the fi nancial year then ended, and a summary of signifi cant accounting policies and other explanatory notes, as set out on pages 13 to 37. Manager s and Trustee s responsibility for the fi nancial statements The Manager of the Fund is responsible for the preparation of fi nancial statements that give a true and fair view in accordance with Malaysian 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 fi nancial statements that are free from material misstatement, whether due to fraud or error. The Trustee is responsible for ensuring that the Manager maintains proper accounting and other records as are necessary to enable true and fair presentation of these fi nancial statements. Auditors responsibility Our responsibility is to express an opinion on these fi nancial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the fi nancial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fi nancial statements. The procedures selected depend on our judgment, including the assessment of risks of material misstatement of the fi nancial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Fund s preparation of fi nancial statements that give a true and fair view 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. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made by the Manager, as well as evaluating the overall presentation of the fi nancial statements. We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion. 10 Kenanga Blue Chip Fund Annual Report

16 5. INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF KENANGA BLUE CHIP FUND (FORMERLY KNOWN AS ING BLUE CHIP) (CONTD.) Opinion In our opinion, the fi nancial statements have been properly 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 fi nancial position of the Fund as at 30 September 2013 and of its fi nancial performance, the changes in equity and the cash fl ows of the Fund for the fi nancial year then ended. Other matters 1. As stated in Note 3 to the fi nancial statements, the Fund adopted Malaysian Financial Reporting Standards on 1 October 2012 with a transition date of 1 October These standards were applied retrospectively by directors to the comparative information in these fi nancial statements, including the statements of fi nancial position as at 30 September 2012 and 1 October 2011, and the statement of comprehensive income, statement of changes in equity and statement of cash fl ows for the year ended 30 September 2012 and related disclosures. We were not engaged to report on the comparative information and it is unaudited. Our responsibilities as part of our audit of the fi nancial statements of the Fund for the year ended 30 September 2013 have, in these circumstances, included obtaining suffi cient appropriate audit evidence that the opening balances as at 1 October 2012 do not contain misstatements that materially affect the fi nancial position as of 30 September 2013 and fi nancial performance and cash fl ows for the year then ended. 2. 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. Ernst & Young AF: 0039 Chartered Accountants Gloria Goh Ewe Gim No. 1685/04/15(J) Chartered Accountant Kuala Lumpur, Malaysia 28 November 2013 Kenanga Blue Chip Fund Annual Report 11

17 6. STATEMENT BY THE MANAGER I, Abdul Razak Bin Ahmad, being the director of Kenanga Investors Berhad, do hereby state that, in the opinion of the Manager, the accompanying statement of fi nancial position as at 30 September 2013 and the related statement of comprehensive income, statement of changes in equity and statement of cash fl ows for the fi nancial year ended 30 September 2013 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 fi nancial position of Kenanga Blue Chip Fund (formerly known as ING Blue Chip) as at 30 September 2013 and of its fi nancial performance and cash fl ows for the year then ended and comply with the requirements of the Deed. For and on behalf of the Manager Kenanga Investors Berhad Abdul Razak Bin Ahmad Kuala Lumpur 28 November Kenanga Blue Chip Fund Annual Report

18 7. FINANCIAL STATEMENT 7.1 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2013 Note RM RM INVESTMENT INCOME Interest income 110, ,747 Dividend income 923,774 2,262,331 Net gain from investments: - Financial assets at fair value through profi t or loss ( FVTPL ) 7 2,562,092 11,331,270 3,596,245 13,791,348 EXPENSES Manager s fee 4 498,134 1,285,841 Trustee s fee 5 23,159 58,140 Auditors remuneration 6,000 6,000 Tax agent s fee 4,556 4,155 Administration 42,557 61, ,406 1,415,605 NET INCOME BEFORE TAX 3,021,839 12,375,743 Income tax expense 6 (6,700) (203,600) NET INCOME AFTER TAX, REPRESENTING TOTAL COMPREHENSIVE INCOME FOR THE YEAR 3,015,139 12,172,143 Total comprehensive income is made up as follows: Realised gain 1,908,399 6,707,588 Unrealised gain 1,106,740 5,464,555 3,015,139 12,172,143 The accompanying notes form an integral part of the fi nancial statements. Kenanga Blue Chip Fund Annual Report 13

19 7.2 STATEMENT OF FINANCIAL POSITION AS AT 30 SEPTEMBER 2013 Note RM RM RM INVESTMENTS Investments 7 19,736,993 51,267,600 55,689,708 Short term deposits 10 3,114,778 14,817,265 17,885,894 22,851,771 66,084,865 73,575,602 OTHER ASSETS Amount due from Manager ,956 Other receivables , ,605 18,958,070 Cash at bank 9,913 3,668 4,432 Tax recoverable 109,548 96,249 62, , ,522 19,341,100 TOTAL ASSETS 23,099,569 66,434,387 92,916,702 LIABILITIES Amount due to Manager 42, ,654 - Amount due to Trustee 1,480 3,159 6,034 Other payables 32,100 9,415,472 7,511,700 TOTAL LIABILITIES 76,444 10,363,285 7,517,734 EQUITY Unitholders contribution 16,915,483 32,239,691 73,739,700 Retained earnings 6,107,642 23,831,411 11,659,268 NET ASSET VALUE ATTRIBUTABLE TO UNITHOLDERS 12 23,023,125 56,071,102 85,398,968 TOTAL EQUITY AND LIABILITIES 23,099,569 66,434,387 92,916,702 NUMBER OF UNITS IN CIRCULATION 12(a) 33,830,966 92,940, ,724,967 NET ASSET VALUE PER UNIT (RM) The accompanying notes form an integral part of the fi nancial statements. 14 Kenanga Blue Chip Fund Annual Report

20 7.3 STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2013 Note Unitholders contribution Retained earnings Total equity RM RM RM At beginning of the year 32,239,691 23,831,411 56,071,102 Total comprehensive income - 3,015,139 3,015,139 Creation of units 12(a) 11,388,645-11,388,645 Cancellation of units 12(a) (47,031,553) - (47,031,553) Distribution equalisation 12(a) 20,318,700 (20,738,908) (420,208) At end of the year 16,915,483 6,107,642 23,023, At beginning of the year 73,739,700 11,659,268 85,398,968 Total comprehensive income - 12,172,143 12,172,143 Creation of units 12(a) 60,351,455-60,351,455 Cancellation of units 12(a) (99,042,680) - (99,042,680) Distribution equalisation 12(a) (2,808,784) - (2,808,784) At end of the year 32,239,691 23,831,411 56,071,102 The accompanying notes form an integral part of the fi nancial statements. Kenanga Blue Chip Fund Annual Report 15

21 7.4 STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER RM RM CASH FLOWS FROM OPERATING AND INVESTING ACTIVITIES Proceeds from sale of investments 139,388, ,256,732 Purchase of investments (114,680,462) (496,045,655) Net dividends received 1,024,094 2,175,933 Interest received 111, ,976 Manager s fee paid (536,176) (1,353,446) Trustee s fee paid (24,838) (61,014) Auditors remuneration paid (6,000) (12,000) Tax agent s fee paid (7,856) (4,155) Payment for other fees and expenses (37,559) (51,969) Rebate from management fee 1,018 1,033 Net cash generated from operating and investing activities 25,231,640 37,103,435 CASH FLOWS FROM FINANCING ACTIVITIES Cash received from units created 11,764,971 63,596,122 Cash paid on units cancelled (48,692,853) (103,768,950) Net cash used in fi nancing activities (36,927,882) (40,172,828) NET DECREASE IN CASH AND CASH EQUIVALENTS (11,696,242) (3,069,393) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 14,820,933 17,890,326 CASH AND CASH EQUIVALENTS AT END OF THE YEAR 3,124,691 14,820,933 Cash and cash equivalents comprise: Cash at bank 9,913 3,668 Short term deposits 3,114,778 14,817,265 3,124,691 14,820,933 The accompanying notes form an integral part of the fi nancial statements. 16 Kenanga Blue Chip Fund Annual Report

22 7.5 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER THE FUND, THE MANAGER AND THEIR PRINCIPAL ACTIVITIES Kenanga Blue Chip Fund (formerly known as ING Blue Chip) (hereinafter referred to as The Fund ) was constituted pursuant to the executed Deed dated 16 April 2004 between ING Funds Berhad (currently known as Kenanga Funds Berhad) and CIMB Commerce Trustee Berhad. The Fund commenced operations on 23 April 2004 and will continue to be in operation until terminated by the Trustee as provided under Clause 38 of the Deed. Pursuant to the executed Seventh Supplemental Deed dated 15 May 2013 between Kenanga Investors Berhad and CIMB Commerce Trustee Berhad, Kenanga Investors Berhad was appointed as the Manager of the Fund with effect from 8 June 2013 and the name of the Fund was changed from ING Blue Chip to Kenanga Blue Chip Fund. The principal activity of the Fund is to achieve long term capital growth through investments in companies that have relatively larger market capitalisation. Such companies are characterised by large-scale operations, strong fi nancial and business track records and are leaders in their respective fi elds that generally referred to as blue chip companies. 2. FINANCIAL RISK AND MANAGEMENT OBJECTIVES AND POLICIES The Fund is exposed to a variety of risks including market risk (which includes interest rate risk and price risk), credit risk and liquidity risk. Whilst these are the most important types of fi nancial risks inherent in each type of fi nancial 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 unitholders, consistent with the long term objectives of the Fund. a. Market Risk Market risk is the risk that the fair value or future cash fl ows of a fi nancial instrument will fl uctuate because of changes in market prices. Market risk includes interest rate risk and price risk. Market risk arises when the value of the investments fl uctuate 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 fair value of the Fund. The Manager manages the risk of unfavorable changes in prices by cautious review of the investments and continuous monitoring of their performance and risk profi les. Kenanga Blue Chip Fund Annual Report 17

23 2. FINANCIAL RISK AND MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk (Contd.) i. Interest rate risk The Fund is not exposed to signifi cant interest rate risk as its placements with fi nancial institutions are for periods less than a month. Interest rate risk exposure The following table analyses the Fund s interest rate risk exposure. The Fund s assets and liabilities are disclosed at fair value and categorised by the earlier of contractual re-pricing or maturity dates. Weighted Non exposure to 0-3 interest rate average effective interest months movement Total rate* RM RM RM % 2013 Asset Investments - 19,736,993 19,736,993 Short term deposits 3,114,778-3,114, Other assets - 138, ,250 3,114,778 19,875,243 22,990,021 Liabilities Other liabilities - 76,444 76,444-76,444 76,444 Total interest sensitivity gap 3,114,778 19,908,347 23,023, Asset Investments - 51,267,600 51,267,600 Short term deposits 14,817,265-14,817, Other assets - 253, ,273 14,817,265 51,520,873 66,338, Kenanga Blue Chip Fund Annual Report Liabilities Other liabilities - 10,363,285 10,363,285-10,363,285 10,363,285 Total interest sensitivity gap 14,817,265 41,253,837 56,071,102 * Computed based on interest-bearing assets only.

24 2. FINANCIAL RISK AND MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk (Contd.) ii. Price risk Price risk is the risk of unfavourable changes in the fair values of quoted equity investment. The Fund invests in quoted equity investments which are exposed to price fl uctuations. This may then affect the unit price of the Fund. Price risk sensitivity Manager s best estimate of the effect on the profi t for the year due to a reasonably possible change in investments in quoted equity securities and collective investment scheme, with all other variables held constant is indicated in the table below: Changes in price Increase/ (decrease) Basis points Effects on profit for the year Increase/ (decrease) RM 2013 Quoted equity securities 5/(5) 9,868/(9,868) 2012 Quoted equity securities 5/(5) 25,634/(25,634) In practice, the actual trading results may differ from the sensitivity analysis above and the difference could be material. Price risk concentration The following table set out the Fund s exposure and concentration to price risk based on its portfolio of fi nancial instruments as at the reporting date. Fair value Percentage of NAV RM RM % % Quoted equity securities 19,736,993 51,267, Kenanga Blue Chip Fund Annual Report 19

25 2. FINANCIAL RISK AND MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk (Contd.) ii. Price risk (Contd.) Price risk concentration (Contd.) The Fund s concentration of equity price risk analysed by the Fund s equity instruments by sector is as following: Fair value Percentage of NAV RM RM % % Trading/Services 7,655,359 23,708, Finance 5,560,862 12,218, Consumer Products 1,851, , Infrastructure 1,386, , Industrial Products 1,114,580 3,763, Plantations 821,384 5,821, Properties 812,635 2,078, Construction 323, , REITs 210,996 1,352, ,736,993 51,267, b. Credit Risk Credit risk is the risk that the counterparty to a fi nancial instrument will cause a fi nancial loss for 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 At the reporting date, the Fund s maximum exposure to credit risk is represented by the carrying amount of each class of fi nancial assets recognised in the statement of fi nancial position. ii. Financial assets that are either past due or impaired As at reporting date, there are no fi nancial assets that are either past due or impaired. iii. Credit quality of financial institutions The Fund deposits only with reputable fi nancial institutions. The following table analyses the fi nancial institutions by rating category: 20 Kenanga Blue Chip Fund Annual Report

26 2. FINANCIAL RISK AND MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) b. Credit Risk (Contd.) iii. Credit quality of financial institutions (Contd.) Short term deposits Percentage of total short term deposits Percentage of NAV % % % % Rating AAA AA c. Liquidity Risk Liquidity risk is defi ned as the risk that the Fund will encounter diffi culty in meeting obligations associated with fi nancial liabilities that are to be settled by delivering cash or another fi nancial 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 unitholders by the Manager are cancellable at the unitholder s option based on the Fund s net asset value per unit at the time of cancellation calculated in accordance with the Fund s Trust Deed. The liquid assets comprise cash, deposits with licensed fi nancial institutions and other instruments, which are capable of being converted into cash within 7 days. The following table analyses the maturity profi le of the Fund s fi nancial assets (undiscounted where appropriate) and fi nancial liabilities in order to provide a complete view of the Fund s contractual commitments and liquidity. Less than 1 month RM 2013 Asset Investments 19,736,993 Short term deposits 3,114,778 Other assets 138,250 22,990,021 Kenanga Blue Chip Fund Annual Report 21

27 2. FINANCIAL RISK AND MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) c. Liquidity Risk (Contd.) Less than 1 month RM 2013 Liabilities Other liabilities 76,444 76,444 Net asset value 23,023,125 Liquidity gap 23,023, Asset Investments 51,267,600 Short term deposits 14,817,265 Other assets 253,273 66,338,138 Liabilities Other liabilities 10,363,285 10,363,285 Net asset value 56,071,102 Liquidity gap 56,071, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Basis of Accounting The fi nancial statements of the Fund have been prepared in accordance with Malaysian Financial Reporting Standards ( MFRS ) as issued by Malaysian Accounting Standards Board ( MASB ) and International Financial Reporting Standards ( IFRS ) issued by International Accounting Standards Board ( IASB ). The fi nancial statements have been prepared on the historical cost basis except as disclosed in the accounting policies below. b. First-time Adoption of MFRS This is the Fund s fi rst set of fi nancial statements prepared in accordance with MFRS. For the periods up to and including the fi nancial period ended 30 September 2012, the fi nancial statements of the Fund were prepared in accordance with Financial Reporting Standards ( FRS ) in Malaysia. 22 Kenanga Blue Chip Fund Annual Report

28 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) b. First-time Adoption of MFRS (Contd.) The accounting policies set out have been applied in preparing the fi nancial statements of the Fund for the fi nancial year ended 30 September 2013, the comparative information presented in these fi nancial statements for the fi nancial year ended 30 September 2012 and in the preparation of the opening statement of fi nancial position at 1 October 2011 (which is the Fund s date of transition to MFRS). The transition to MFRS did not give rise to any signifi cant effects on the fi nancial statements of the Fund. c. Standard and Interpretations Issued But Not Yet Effective As at the date of authorisation of these fi nancial statements, the following Standards and Amendments have been issued by MASB but are not yet effective and have not been adopted by the Fund. Effective for fi nancial periods beginning on or after 1 January 2013 MFRS 10 MFRS 11 MFRS 12 MFRS 13 MFRS 119 MFRS 127 MFRS 128 Amendments to MFRS 1 Amendments to MFRS 1 Amendments to MFRS 7 Amendments to MFRS 10 Amendments to MFRS 11 Amendments to MFRS 12 Amendments to MFRS 101 Amendments to MFRS 132 Amendments to MFRS 134 Consolidated Financial Statements Joint Arrangements Disclosure of Interests in Other Entities Fair Value Measurement Employee Benefi ts (revised) Consolidated and Separate Financial Statements (revised) Investments in Associates and Joint Ventures (revised) First-time Adoption of MFRS - Government Loans First-time Adoption of MFRS (Annual Improvement cycle) Financial Instruments: Disclosures - Offsetting Financial Assets and Financial Liabilities Consolidated Financial Statements: Transition Guidance Joint Arrangements: Transition Guidance Disclosure of Interests in Other Entities: Transition Guidance Presentation of Financial Statements (Annual improvement cycle) Financial Instruments: Presentation (Annual improvements cycle) Interim Financial Reporting (Annual Improvements cycle) Kenanga Blue Chip Fund Annual Report 23

29 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) c. Standard and Interpretations Issued But Not Yet Effective (Contd.) Effective for fi nancial periods beginning on or after 1 January 2014 Amendments to MFRS 132 Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities Effective for fi nancial periods beginning on or after 1 January 2015 MFRS 9 Amendments to MFRS 7 Financial Instruments Financial Instruments: Disclosures - Mandatory Date of MFRS 9 and Transition Disclosures i. MFRS 9 - Financial instruments MFRS 9, as issued, refl ects the fi rst phase of the IASB s work on the replacement of MFRS 139 Financial Instruments: Recognition and Measurement ( MFRS 139 ) and applies to classifi cation and measurement of fi nancial assets and fi nancial liabilities as defi ned in MFRS 139 and replaces the guidance in MFRS 139. In subsequent phases, the International Accounting Standard Board ( IASB ) will address hedge accounting and impairment of fi nancial assets. The adoption of the fi rst phase of MFRS 9 will have an effect on the classifi cation and measurement of the Fund s fi nancial assets but will not have an impact on the classifi cation and measurement of fi nancial liabilities. The Fund will quantify the effect in conjunction with the other phases when the fi nal standard including all phases is issued. ii. MFRS 13 - Fair value measurement MFRS 13 establishes a single source of guidance under MFRS for all fair value measurements. MFRS 13 does not change when an entity is required to use fair value but rather provides guidance on how to measure fair value under MFRS when fair value is required or permitted. The Fund is currently assesing the impact that this standard will have on the fi nancial position and performance of the Fund but based on preliminary analyses, no material impact is expected. d. Financial Assets Financial assets are recognised in the statement of fi nancial position when, and only when, the Fund becomes a party to the contractual provisions of the fi nancial instrument. When fi nancial assets are recognised initially, they are measured at fair value, plus, in the case of fi nancial assets not at fair value through profi t or loss, directly attributable transaction costs. The Fund determines the classifi cation of its fi nancial assets at initial recognition, which are receivables. 24 Kenanga Blue Chip Fund Annual Report

30 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) d. Financial Assets (Contd.) i. Financial assets at FVTPL Financial assets are classifi ed as fi nancial assets at FVTPL if they are held for trading or are designed as such upon initial recognition. Financial assets held for trading include quoted equity securities acquired principally for the purpose of selling in the near term. Subsequent to initial recognition, fi nancial assets at FVTPL are measured at fair value. Changes in the fair value of those fi nancial instruments are recorded in profi t or loss. Income earned and dividend revenue elements of such instruments are recorded separately in interest income and dividend income respectively. ii. Receivables Financial assets with fi xed or determinable payments that are not quoted in an active market are classifi ed as receivables. Subsequent to initial recognition, receivables are measured at amortised cost using the effective interest method. Gain or loss is recognised in profi t or loss when the receivable is derecognised or impaired, and through the amortisation process. A fi nancial asset is derecognised when the contractual right to receive cash fl ows from the asset has expired. On derecognition of a fi nancial asset, the difference between the carrying amount and the sum of the consideration received is recognised in profi t or loss. e. Impairment of Financial Assets The Fund assesses at each reporting date whether there is any objective evidence that a fi nancial asset is impaired. To determine whether there is objective evidence that an impairment loss on fi nancial assets has been incurred, the Fund considers factors such as the probability of insolvency or signifi cant fi nancial diffi culties of the debtor and default or signifi cant 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 fl ows discounted at the fi nancial asset s original effective rate of return. The impairment loss is recognised in profi t or loss. The carrying amount of the fi nancial asset is reduced by the impairment loss directly for all fi nancial 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. Kenanga Blue Chip Fund Annual Report 25

31 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) e. Impairment of Financial Assets (contd.) 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 asset does not exceed its amortised cost at the reversal date. The amount of reversal is recognised in profi t or loss. f. Income Income is recognised to the extent that it is probable that the economic benefi ts will fl ow 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 on an accrual basis. Dividend income is recognised on a declared basis, when the right to receive the dividend is established. g. Cash and Cash Equivalents For the purposes of the statement of cash fl ows, cash and cash equivalents include cash at bank and short term Islamic deposits with fi nancial institutions. h. Income Tax Expenses Income tax on the profi t or loss for the year comprises current tax. Current tax is the expected amount of income taxes payable in respect of the taxable profi t for the year. i. Unrealised Reserves Unrealised reserves represent the net gain or loss arising from carrying investments at their fair values at reporting date. This reserve is not distributable in nature. j. Financial Liabilities Financial liabilities are classifi ed according to the substance of the contractual arrangements entered into and the defi nitions of a fi nancial liability. Financial liabilities within the scope of MFRS 139 are recognised in the statement of fi nancial position when, and only when, the Fund becomes a party to the contractual provisions of the fi nancial instrument. The Fund s fi nancial liabilities are classifi ed as other fi nancial liabilities. The Fund s fi nancial liabilities are recognised initially at fair value and subsequently measured at amortised cost using the effective rate method. A fi nancial liability is derecognised when the obligation under the liability is extinguished. Gains and losses are recognised in profi t or loss when the liabilities are derecognised, and through the amortisation process. 26 Kenanga Blue Chip Fund Annual Report

32 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) k. Unitholders Contribution NAV Attributable to Unitholders The unitholders contribution to the Fund is classifi ed as equity instruments. l. Functional and Presentation Currency The fi nancial statements of the Fund are measured using the currency of the primary economic environment in which the Fund operates ( the functional currency ). The fi nancial statements are presented in Ringgit Malaysia ( RM ), which is also the Fund s functional currency. m. Distribution Distributions are at the discretion of the Fund. A distribution to the Fund s Unit Holders is accounted for as a deduction from retained earnings. n. Significant Accounting Judgments and Estimates The preparation of fi nancial 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 4. MANAGER S FEE There are no key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a signifi cant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next fi nancial year. The Manager s fee is computed based on 1.55% per annum of the net asset value of the Fund, calculated on a daily basis, as provided under Clause 13(2) of the Deed. 5. TRUSTEE S FEE Trustee s fee is computed on a daily basis at 0.07% per annum of the net asset value of the Fund, as provided under Clause 13(8) and subject to a minimum fee of RM18,000 per annum as provided under Clause 13(7) of the Deed. Kenanga Blue Chip Fund Annual Report 27