CIMB-PRINCIPAL MONEY MARKET INCOME FUND CIMB-PRINCIPAL MONEY MARKET INCOME FUND FINANCIAL STATEMENT FOR THE FINANCIAL PERIOD ENDED 30 JUNE 2011

Transcription

1 CIMB-PRINCIPAL MONEY MARKET INCOME FUND FINANCIAL STATEMENT FOR THE FINANCIAL PERIOD ENDED 30 JUNE 2011

2 CONTENTS PAGE INVESTOR LETTER 1-2 MANAGER'S REPORTS 3 9 Fund objective and policy Performance data Market review Fund performance Portfolio structure Market outlook Investment strategy Soft commission and rebates Spread of unitholdings STATEMENT BY MANAGER 10 TRUSTEE'S REPORT 11 UNAUDITED INCOME STATEMENT 12 UNAUDITED STATEMENT OF ASSETS AND LIABILITIES 13 UNAUDITED STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 14 UNAUDITED CASH FLOW STATEMENT 15 UNAUDITED NOTES TO THE FINANCIAL STATEMENTS DIRECTORY 41-44

3 INVESTOR LETTER Dear valued investors, 2011 was ushered in with a lot of optimism. Most analysts, if not all, were positive that the 2010 market rally would have spilt over into this year. However, it seems like the year may not be as predictable as we thought. Nevertheless, as we all know the market is always cyclical. It goes up and comes down based on the current uncertainties. Ultimately, if you are a long-term investor, the best thing to do is to stay invested and not react emotionally by panic selling. What investors should do is to try to think forward with a plan and have a preferred asset allocation based on their risk tolerance. A well diversified portfolio is also important to mitigate risks in the long-term. Usually, the source of market volatility is a mix of short and long-term causes. One of several immediate short-term causes has of course been the Standard and Poor s (S&P) ratings downgrade of long-term U.S. Government debt from AAA to AA+. The S&P downgrade had caused a massive downshift of investor s risk appetite that has been underway for several weeks. We believe that once the current market turmoil subsides, we expect repercussions from the U.S. downgrade to be limited. Some fears that investors have, while certainly understandable in situation like this, are unsupported. To be fair, here are some positive facts for the US:- US treasuries remain one of the safest investments even at AA+ rating; Over 60% of global allocated foreign exchange reserves are in USD and they are still highly in demand; US Treasuries are the most liquid securities traded in the world and it is hard to find alternatives or substitutes. Huge amounts of forced selling of US Treasures have yet to be seen Overall, given the uncertainty in the markets, we still hold on to our view that the US will not go into a double dip recession. We will continue to remain positive on Asian Equities for second half of 2011 as we believe that strong fund flows into Asian fixed income markets may eventually have a positive spill over effect into the regional equity markets. On another note, we are happy to announce that CIMB-Principal has garnered a total of 8 awards this year and will maintain our momentum of achievements in the industry for the best interest of our investors. We are also happy to announce that CIMB-Principal Asset Management Berhad ( CIMB-Principal ) is now GIPS-compliant. GIPS or Global Investment Performance Standards are a set of standardized principles that provide guidance on how investment firms should calculate and report their investment results to prospective and current clients. 1

4 INVESTOR LETTER (CONTINUED) By being GIPS-compliant, investors can now have a greater level of confidence in the integrity of performance presentations as well as our general practices. We trust this will provide further assurance that the performance and reporting figures we cite are prepared to the highest standards. With this, we at CIMB-Principal will strive to consistently provide investors with potential capital gains over the long-term and at the same time become the most reliable and trusted fund house in the industry. We look forward to supporting your journey through the interesting financial markets to come. Yours sincerely Campbell Tupling Chief Executive CIMB-Principal Asset Management Berhad 2

5 MANAGER S REPORT What is the investment objective of the Fund? To provide a low risk investment option that normally earn higher interest than traditional bank account. Has the Fund achieved its objective? For the period under review, the Fund is in line with its stated objectives as stated under the fund performance review. What are the Fund investment policy and its strategy? The Fund may place at least 90% of its NAV in deposits as well as invest in money market instruments and short-term debentures with a minimum credit rating of "BBB3" or "P2" by RAM or equivalent rating by MARC, Moody's, S&P or Fitch, all of which have a remaining maturity period of less than 365 days. Up to 10% of the Fund s NAV may be invested in short term debentures which have a remaining maturity period of more than 365 days but less than 732 days. The Fund will be actively managed. The investment policy and strategy is to invest in liquid and low risk short term investments with a high degree of capital preservation. The Fund s policies on investments were carried out in accordance with the Deed and it will continue its operations until terminated in accordance with the provisions of the Deed. Fund category / type Money market/ income. How long should you invest for? Recommended up to 1 year. Indication of short-term risk (low, moderate, high) Low. When was the Fund launched? 18 February What was the size of the Fund as at 30 June 2011? million ( million units). What is the Fund s benchmark? CIMB Bank overnight rate. What is the Fund distribution policy? The Fund distributes income quarterly, if any, within 14 days after the last day of each quarter. What was the net income distribution for the financial period ended 30 June 2011? The Fund distributes income quarterly and 2.32sen per unit for the financial period ended 30 June The Fund s NAV per unit before and after the latest distribution was and per unit respectively. 3

6 MANAGER S REPORT (CONTINUED) Performance Data Details of portfolio composition of the Fund for the three financial years are as follows: (%) (%) (%) Sector Fixed Income Securities Liquid Assets and Others Performance details of the Fund for the three financial years are as follows: Net Asset Value ( million) Units in Circulation (million) Published Net Asset Value per unit ()* Highest published price ()* Lowest published price ()* Total return (%) Capital (%) Income (%) Date of distribution Quarterly Distribution on 31 March 2011 Gross Distribution Per Unit (sen) Net Distribution Per Unit (sen) Quarterly Distribution on 30 June 2011 Gross Distribution Per Unit (sen) Net Distribution Per Unit (sen) Management Expenses Ratio (%) Portfolio Turnover Ratio (times) # *Above figures are ex-distribution # The Portfolio Turnover Ratio dipped to 0.42 times from 0.92 times a year earlier due to less transactions recorded during the period. Total Return Annualised (%) (%) Period 1 year years years Since inception (launch date : 18 February 2004) 4

7 PERFOANCE DATA (CONTINUED) CIMB-PRINCIPAL MONEY MARKET INCOME FUND Since Inception Annual total return (%) 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 have been verified by Mercer (Malaysia) Sdn Bhd ( U). MARKET REVIEW (1 JANUARY 2011 TO 30 JUNE 2011) For the 6-month period under review, the MGS yield curve bull flattened with benchmark 3, 5 and 10 year yields changing by +3 bps to 3.20%, +4 bps to 3.48% and -21bps to 3.94% respectively. The notable weakening of the short end of the curve was primarily due to a combination of rising inflationary concerns as well as the prospect of rate hikes resuming in May 2011, while the mid to long end of the sovereign yield curve saw support from both local and foreign investors. Most notably, foreign ownership of MGS has been on an uptrend since the beginning of As at end of May 2011, foreign holdings of local MGS reached a record high of 87.9 billion which represents approximately 30% of total MGS outstanding. In a preemptive move to avoid financial imbalances, BNM was ahead of the pack in interest rate normalization. In 2010, the OPR was raised by a total of 75 bps over 3 consecutive hikes of 25 bps during the March, May and July 2010 Monetary Policy Committee (MPC) meetings to rest at 2.75% The first rate hike of 2011 occurred at the May MPC meeting. The OPR was raised by 25bps to 3.00% and the statutory reserve ratio (SRR) was raised by 1% to 3.00% as well. On the PDS front, corporate bond yields enjoyed a bullish run for the mid-to-long tenured papers for the period under review. The 3, 5 and 10 year AAA yields changed by +10 bps, +8 bps and -7 bps respectively. The rally at the long end was fuelled by increasing investor risk appetite as well as too much demand chasing too little supply. Malaysia s inflation rate quickened to 3.50% year-on-year in June 2011, up from 3.3% in May. This was the seventh consecutive monthly increase and the highest level in 26 months, mainly due to acceleration in the core inflation rate. In June 2011, Malaysia successfully concluded the sale of USD2 billion sukuk wakala in two tranches (the 5-yr USD1.2 billion tranche and 10-yr USD800 million tranche), both of which were nearly 5x oversubscribed, with subscriptions of well over USD9 billion. The 5- and 10-yr tranches coupon rates are 2.991% and 4.646%, where they yielded 145 bps and 165 bps above US Treasuries respectively. 5

8 FUND PERFOANCE CIMB-PRINCIPAL MONEY MARKET INCOME FUND 6 months to 30/06/11 1 Year to 30/06/11 3 years to 30/06/11 5 years to 30/06/11 Since Inception Income (%) Capital (%) Total Return (%) Benchmark (%) Average Total Return (%) N/A As at 30 June 2011, the Fund gave a 3 and 5 year return of 10.03% and 16.87% respectively. Since inception, the Fund has delivered a return of 23.11% to unit holders. 6

9 FUND PERFOANCE (CONTINUED) CIMB-PRINCIPAL MONEY MARKET INCOME FUND Changes in Net Asset Value ( NAV ) Changes (%) Net Asset Value ( NAV ) ( million) (19.21) Published NAV / unit () (0.44) * NAV after distribution The fund s NAV decreased by about 19.21% from million on to million on 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. Performance figures have been verified by Mercer (Malaysia) Sdn Bhd ( U), a Consulting Actuaries. PORTFOLIO STRUCTURE Asset allocation (% of NAV) Fixed Income Securities Liquid Assets and Others TOTAL The Fund s holdings in cash increased from 5.63% a year ago to 11.59% for the period under review. Its investments in fixed income securities decreased to 88.41% as at 30 June 2010 from 94.37% a year earlier. 7

10 MARKET OUTLOOK CIMB-PRINCIPAL MONEY MARKET INCOME FUND There are only 2 more monetary policy committee (MPC) meetings before year-end, one slated for 8 September and the final one on 11 November. We believe 1 more rate hike of 25 bps is in the cards, bringing the OPR to rest at 3.25%. The timing of the hike is largely data dependent, as the slew of data is increasingly showing a gloomier growth outlook. Nonetheless, there are incipient signs of demand-led inflation seeping into the second half of 2011; hence we (and the market) believe that BNM will attempt 1 more rate hike before year-end. As the market by and large expects 1 more hike, we believe any adverse reaction to the sovereign yield curve will be muted if not negligible. We believe the sovereign yield curve will continue to bull flatten going into August. Although August is the month of Ramadan with traditionally lower trading volume recorded, foreign inflows positioning for a September rate hike will spark an active and buoyant govvies market, anchoring yields on the short end while key local players (pension and insurance funds) extend duration for much needed yield pickup. Total issuance of the MGS/GII as at end July stood at 61.5 billion, comprising 13 public auctions and six private placements. In view of the Ramadan month, there is only 1 public auction slated for the month with one private placement. This is the reopening of the 15 year benchmark MGS 4/26, and we expect the public auction size to be 3.5 billion and private placement to be around 2.0 billion. In the corporate bond market, we continue to expect the current trend of duration lengthening and lower yield to persist as end-investors move down the credit curve for yield pickup. Liquidity remains ample in the market, and unless supply of new issuances substantially improves in August, we continue to foresee spread compression for credit markets. Lower yields in the MGS market will provide an impetus for risk adverse players to participate in government-guaranteed (GG) rated PDS papers. New issuances for the month of July were well covered with bid-to-cover ratios averaging 3 times. Strong subscription for new issuances aids in price discovery and provides end-investors with an active secondary market with room for yields to rally further. We expected more issuances from the Economic Transformation Programme (ETP) to tap the debt capital markets; however thus far, only Syarikat Prasarana has tapped the market with a modest 2.0 billion raised in funding. Hence we still await more names benefitting from the ETP to seek funding from the debt capital markets. Sectors which we foresee issuances include transportation, infrastructure, construction and oil & gas. We believe the rally thus far has been liquidity driven, with both local and foreign players in the market, and unless new issuances substantially pick up the slack, there is further short-term upside to the rally. In the near term, we continue to lengthen duration although we will closely monitor the risk to this strategy as well. Key risks to our forecast remains higher-than-expected headline inflation or abrupt subsidy revisions. INVESTMENT STRATEGY We will continue to invest in high yielding commercial papers and bonds at the same time maintaining the highest credit quality for capital preservation. Given the current rising interest rates environment, our focus will be on investing in papers with maturities of less than 12 months. 8

11 SPREAD OF UNIT HOLDINGS AS AT 30 JUNE 2011 CIMB-PRINCIPAL MONEY MARKET INCOME FUND Size of holdings (units) No. of unit holders No. of units held % of units held 5,000 and below ,283-5,001 10, ,041-10,001 50, , , , ,458, Above 500, ,211, Total ,955, SOFT COMMISSION FROM BROKER / DEALERS Soft commission received for goods and services such as financial wire services and stock quotation system incidental to the investment management of the Fund are retained by the management company. During the period under review, the management company had received soft commissions in the form of financial wire and stock quotation system which are incidental to the investment management of the Fund. 9

12 STATEMENT BY MANAGER TO THE UNIT HOLDERS OF CIMB-PRINCIPAL MONEY MARKET INCOME FUND We, being the Directors of CIMB-Principal Asset Management Berhad, do hereby state that, in the opinion of the Manager, the accompanying unaudited financial statements set out on pages 12 to 40 are drawn up in accordance with the provisions of the Deed and give a true and fair view of the financial position of the Fund as at 30 June 2011 and of its financial performance, changes in equity and cash flows for the financial period ended on that date in accordance with Financial Reporting Standards in Malaysia and the Securities Commission s Guidelines on Unit Trust Funds. For and on behalf of the Manager CIMB-Principal Asset Management Berhad (Company No.: K) JOHN CAMPBELL TUPLING Chief Executive Officer/Director DATUK NORIPAH KAMSO Director Kuala Lumpur 26 August

13 TRUSTEE S REPORT TO THE UNIT HOLDERS OF CIMB-PRINCIPAL MONEY MARKET INCOME FUND CIMB-PRINCIPAL MONEY MARKET INCOME FUND We have acted as Trustee of CIMB-Principal Money Market Income Fund for the financial period ended 30 June In our opinion, CIMB-Principal Asset Management Berhad ( the Manager or the Management Company ), has has operated and managed the Fund in accordance with the following:- a) 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) The valuation or pricing of the Fund is carried out in accordance with the Deed and any regulatory requirement; and c) The creation and cancellation of units of the Fund are carried out in accordance with the Deed and any regulatory requirement. Income distributions of 0.98 sen and 1.34 sen per unit were declared on 31 March 2011 and 30 June 2011 respectively with total income distribution of 2.32 sen to the unit holders of CIMB Principal Money Market Income Fund for the financial period ended 30 June We are of the view that the distributions are consistent with the objectives of the Fund. For and on behalf of the Trustee, Mayban Trustees Berhad JENNIFER WONG Head, Operations Kuala Lumpur 26 August

14 UNAUDITED STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL PERIOD ENDED 30 JUNE 2011 NET INVESTMENT INCOME CIMB-PRINCIPAL MONEY MARKET INCOME FUND Note Interest income 4 11,590,029 9,975,434 Net realised gain on sale of financial assets at fair value through profit or loss 10 1,693, ,985 Net unrealised loss on financial assets at fair value through profit or loss 10 (444,909) - Net accretion of (discount) /premiums 5 (1,462,420) 1,377,624 Other income EXPENSES 11,377,207 11,475,181 Management fee 6 2,215,064 2,446,288 Trustee s fee 7 158, ,735 Auditor s remuneration 9,900 Tax agent s fee 1,600 Other expenses 6,011 20,159 2,390,793 2,641,182 NET PROFIT BEFORE TAXATION 8,986,414 8,833,999 TAXATION NET PROFIT AFTER TAXATION REPRESENTING TOTAL COMPREHENSIVE INCOME FOR THE FINANCIAL PERIOD 8,986,414 8,833,999 Net profit after taxation is made up as follows: Realised amount 8,664,723 8,118,666 Unrealised amount 321, ,333 8,986,414 8,833,999 The accompanying notes to the financial statements form an integral part of the unaudited financial statements. 12

15 UNAUDITED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2011 CIMB-PRINCIPAL MONEY MARKET INCOME FUND Note INVESTMENTS Financial assets at fair value through profit or loss ,565, ,053,737 LIQUID ASSETS Deposits with licensed financial institutions Bank balance in a related licensed bank ,452,752 57,116, , ,330 53,712,624 57,376,262 OTHER ASSETS Amount due from Manager 26,307,000 2,012,300 26,307,000 2,012,300 TOTAL ASSETS 664,585, ,442,299 LIABILITIES Amount due to Manager 511,922 20,157 Accrued management fee 371, ,761 Amount due to Trustee 26,515 33,127 Distribution payable 2,454, ,690 Other payables and accruals 18,500 19,031 TOTAL LIABILITIES 3,383,059 1,029,766 NET ASSETS VALUE OF THE FUND ,202, ,412,533 EQUITY Unitholders capital ,574, ,123,526 Retained earnings 627,533 6,289,007 Fair value reserve ,202, ,412,533 NUMBER OF UNITS IN CIRCULATION ,955, ,231,913 NET ASSET VALUE PER UNIT ()

16 The accompanying notes to the financial statements form an integral part of the unaudited financial statements. 14

17 UNAUDITED STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL PERIOD ENDED 30 JUNE 2011 Note Unitholders' Retained Fair Value Capital Earnings Reserve Total Balance as at 1 January ,123,526 6,289, ,412,533 Movement in unitholders' contribution: Creation of units from distribution ,166, ,166,357 Creation of units from application 12 (414,319,145) (414,319,145) Cancellation of unit 12 10,604,252 10,604,252 Total comprehensive income for the financial period 8,986,414 8,986,414 Distribution for the financial year 8 (14,647,888) (14,647,888) Balance as at 30 June ,574, , ,202,523 Balance as at 1 January 2010, restated after adoption of FRS ,976,245 1,985, ,961,659 Movement in unitholders' contribution: Creation of units from distribution 12 12,748,347 12,748,347 Creation of units from application ,490, ,490,909 Cancellation of unit 12 (854,091,975) (854,091,975) Total comprehensive income for the financial year - 20,221,466-20,221,466 Distribution for the financial year 8 (15,917,873) (15,917,873) Balance as at 31 December ,123,526 6,289, ,412,533 The accompanying notes to the financial statements form an integral part of the unaudited financial statements. 15

18 UNAUDITED STATEMENT OF CASH FLOWS FOR THE FINANCIAL PERIOD ENDED 30 JUNE 2011 CIMB-PRINCIPAL MONEY MARKET INCOME FUND Note CASH FLOW FROM OPERATING ACTIVITIES Proceeds from sale of unquoted fixed income securities 145,424, ,468,351 Proceeds from redemption of unquoted fixed income securities 273,800,000 1,516,950,000 Purchase of unquoted fixed income securities (385,693,592) (1,805,073,399) Interest income received from deposits with licensed financial institutions 1,246,640 3,067,545 Interest income received from unquoted fixed income securities 13,086,111 19,265,408 Management fees paid (2,307,609) (5,182,223) Trustee s fees paid (164,829) (370,158) Payment for other fees and expenses (18,040) (40,124) Other income received 884 1,453 Net cash inflow/(outflow) from operating activities 45,374,508 (125,913,147) CASH FLOW FROM FINANCING ACTIVITIES Cash proceeds from units created 366,871, ,200,109 Payments for cancellation of units (413,827,380) (864,855,303) Distributions paid (2,082,422) (3,404,571) Net cash (outflow)/inflow from financing activities (49,038,146) 56,940,235 Net (decrease) in cash and cash equivalents (3,663,638) (68,972,912) Cash and cash equivalents at the beginning of the financial period/year 57,376, ,349,174 Cash and cash equivalents at the end of the financial period/year 11 53,712,624 57,376,262 The accompanying notes to the financial statements form an integral part of the unaudited financial statements. 16

19 NOTES TO THE UNAUDITED FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 30 JUNE THE FUND, THE MANAGER AND ITS PRINCIPAL ACTIVITY CIMB-Principal Money Market Income Fund (the "Fund") is governed by a Principal Master Deed dated 15 May 2008 and a Fifth Supplemental Master Deed dated 16 July 2009 (referred to as the Deed ) between CIMB-Principal Asset Management Berhad ( the Manager ), Mayban Trustee Berhad (the Trustee ) and the registered unitholders of the Fund. The principal activity of the Fund is to invest in Authorised Investments, as defined under Clause 17 of the Master Deed which include fixed income securities and money market instruments. The Fund commenced operations on 18 February 2004 and will continue its operations until terminated by the Trustee as provided under Clause 25 of the Master Deed. The Fund aims to provide a low risk investment option that normally earns higher interest than traditional bank accounts. The Manager, a company incorporated in Malaysia, is subsidiary of CIMB Group Sdn. Bhd. and regards CIMB Group Holding Berhad as its ultimate holding company. Its principal activities are the management of unit trusts 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 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 under the historical cost convention in accordance with Financial Reporting Standards ( FRS ) in Malaysia. The preparation of financial statements in conformity with the FRS 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 revenues and expenses during the reported financial year. It also requires the Manager to exercise their judgement in the process of applying the Fund s accounting policies. Although these estimates and judgement are based on the Manager s best knowledge of current events and actions, actual results may differ. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 2(m). 17

20 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (a) (i) Basis of preparation (continued) Standards and amendments to published standards and interpretations that are applicable and are effective : FRS 8 "Operating Segments" (effective from 1 July 2009) replaces FRS 114 Segment Reporting. The new standard requires a management approach, under which segment information is reported in a manner that is consistent with the internal reporting provided to the chief operating decision-maker. The improvement to FRS 8 (effective from 1 January 2010) clarifies that entities that do not provide information about segment assets to the chief operating decisionmaker will no longer need to report this information. Prior year comparatives must be restated. FRS 7 Financial instruments: Disclosures (effective from 1 January 2010) provides information to users of financial statements about an entity s exposure to risks and how the entity manages those risks. The improvement to FRS 7 clarifies that entities must not present total interest income and expense as a net amount within finance costs on the face of the Income Statement. This standard does not have any impact on the classification and valuation of the Fund's financial statements. The revised FRS 101 Presentation of financial statements (effective from 1 January 2010) prohibits the presentation of items of income and expenses (that is, 'non-owner changes in equity') in the statement of changes in equity. 'Non-owner changes in equity' are to be presented separately from owner changes in equity. All non-owner changes in equity will be required to be shown in a performance statement, but entities can choose whether to present one performance statement (the statement of comprehensive income) or two statements (the income statement and statement of comprehensive income). Where entities restate or reclassify comparative information, they will be required to present a restated balance sheet as at the beginning comparative period in addition to the current requirement to present balance sheets at the end of the current period and comparative period. FRS 107 Statement of cash flows (effective from 1 January 2010) clarifies that only expenditure resulting in a recognised asset can be categorised as a cash flow from investing activities. FRS 110 Events after the balance sheet date (effective from 1 January 2010) reinforces existing guidance that a dividend declared after the reporting date is not a liability of an entity at that date given that there is no obligation at that time. FRS 118 Revenue (effective from 1 January 2010) provides more guidance when determining whether an entity is acting as a principal or as an agent. This standard does not have material impact on the classification and valuation of the Fund's financial statements. 18

21 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (a) (i) Basis of preparation (continued) Standards and amendments to published standards and interpretations that are applicable and are effective (continued): Amendment FRS 132 Financial Instruments: Presentation In the previous financial year, the Fund had classified its puttable instruments as liabilities in accordance with FRS 132, 'Financial instruments: Presentation'. However, the FRS 132 (amendment), 'Financial instruments: Presentation', and FRS 101 (amendment), 'Presentation of financial statements' - 'Puttable financial instruments and obligations arising on liquidation' (effective from 1 January 2010) (the 'amendment') requires puttable financial instruments that meet the definition of a financial liability to be classified as equity where certain strict criteria are met. Those criteria include: (i) the puttable instruments must entitle the holder to a pro-rata share of net assets; (ii) the puttable instruments must be the most subordinated class and that class's features must be identical; (iii) there must be no contractual obligations to deliver cash or another financial asset other than the obligation on the issuer to repurchase; and (iv) the total expected cash flows from the puttable instrument over its life must be based substantially on the profit or loss of the issuer. As a result, the prior year financial statements are restated from amounts previously reported to conform with the amendment. The amendment has been applied retrospectively. FRS 139 Financial Instruments: Recognition and Measurement In the previous financial year, unrealised gains or losses from the derivative financial instrument are recognised in the statement of financial position as receivables and payables while the corresponding effect are transferred to the fair value reserve included in the capital and reserves attributable to equity holders of the fund. However, the FRS 139 (new standard) Financial Instruments: Recognition and Measurement (effective 1 January 2010) (the standard ) requires the Fund to recognise all investments in its balance sheet as assets and shall measure them at fair value (except for a derivative that is linked to and that must be settled by delivery of an unquoted equity instrument whose fair value cannot be measured reliably) at the beginning of the financial period in which this standard is initially applied. The unrealised gains or losses transferred to the fair value reserve in the previous financial period shall be recognised as an adjustment of the balance of retained earnings at the beginning of the financial period in which this Standard is initially applied (other than for a derivative that is a designated hedging instrument). In respect of FRS 7 and FRS 139, the Fund has applied the transitional provision in the respective standards which exempts entities from disclosing the possible impact arising from the initial application of the standards on the financial statements of the Fund. Comparative related to financial instruments have not been adjusted and therefore the corresponding balances are not comparable. 19

22 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (a) Basis of preparation (continued) (ii) The new standards, amendments and interpretations to published standards which are relevant to the Fund and have not been early adopted are: Amendments to FRS 7 "Financial instruments: Disclosures" and FRS 1 "First-time adoption of financial reporting standards" (effective from 1 January 2011) require enhanced disclosures about fair value measurement and liquidity risk. In particular, the amendment requires disclosure of fair value measurements by level of a fair value measurement hierarchy. The Fund will apply this standard when effective. The Fund has applied the transitional provision which exempts entities from disclosing the possible impact arising from the initial application of this amendment on the financial statements of the Fund. IC Interpretation 17 "Distribution of non-cash assets to owners" (effective from 1 July 2010) provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends. FRS 5 has also been amended to require that assets are classified as held for distribution only when they are available for distribution in their present condition and the distribution is highly probable. (a) Financial assets at fair value through profit or loss Classification The Fund designates its investment in unquoted fixed income 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 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. Investments are initially recognised at fair value. Transaction costs are expensed in the income statement. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Fund has transferred substantially all risks and rewards of ownership. Gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss category are presented in the statement of comprehensive income within net gain/(loss) on financial assets at fair value through profit and loss in the period in which they arise. 20

23 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) Financial assets at fair value through profit or loss (continued) Unquoted fixed income securities denominated in Ringgit Malaysia are revalued on a daily basis based on fair value prices quoted by a bond pricing agency ( BPA ) registered with the SC as per the SC Guidelines on Unit Trust Funds. Where such quotation are not available or where the Manager is of the view that the price quoted by the BPA for a specific unquoted fixed income securities differs from the market price by more than 20 basis points, the Manager may use the market price, provided that the Manager: (i) (ii) (iii) records its basis for using non-bpa price; obtains necessary internal approvals to use the non-bpa price; and keeps an audit trail of all decisions and basis for adopting the market yield. Financing and receivables and other financial liabilities are subsequently carried at amortised cost using the effective interest method. 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 interest rate. The asset s carrying amount of the asset is reduced and the amount of the loss is recognised in interest or loss. If financing and receivables or a held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest 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 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 profit or loss. 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. (c) Income recognition Interest income earned from deposits and unquoted fixed income securities are recognised on the accrual basis (taking into account the effective yield of the asset). Realised gain or loss on disposal of investments is calculated based on difference between the net disposal proceeds and the carrying amount of investments, determined on cost adjusted for accretion of discount or amortisation of premium. 21

24 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (d) Creation and cancellations of units The Fund issues cancellable units, which are cancelled at the unitholder s option and are classified as equity. Cancellable units can be returned to the Fund at any time for cash equal to a proportionate share of the Fund s net asset value. The outstanding units are carried at the redemption amount that is payable at the statement of financial position date if the unitholder exercises the right to return the unit to the Fund. Units are created and cancelled at the unitholder s option at prices based on the Fund s net asset value per unit at the time of creation or cancellation. The Fund s net asset value per unit is calculated by dividing the net assets attributable to unitholders with the total number of outstanding units. (e) Cash and cash equivalents For the purpose of cash flow statement, cash and cash equivalent comprise cash and bank balances and 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 tax rate based on taxable profits earned during the financial period. (g) Distribution Proposed distributions to unitholders are recognised in the statement of changes in equity upon approval by the Board of Directors of the Manager. (h) Amount due from/to brokers Amounts due from and to brokers represent receivables for securities sold and payables for 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 interest method, less provision for impairment for amounts due from brokers. A provision for impairment of amounts due from brokers is established when there is objective evidence that the Fund will not be able to collect all amounts due from the relevant broker. Significant financial difficulties of the broker, probability that the broker will enter bankruptcy or financial reorganisation, and default in payments are considered indicators that the amount due from brokers is impaired. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the interest rate used to discount the future cash flows for the purpose of measuring the impairment loss. 22

25 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (h) Amount due from/to brokers (continued) The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts throughout the expected life of the financial instrument, or, when appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Fund estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts (i) 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 Ringgit Malaysia, which is the Fund s functional and presentation currency. (j) Proceeds and payments on creation and cancellation of units The net asset value per unit is computed for each dealing day. The price at which units are created or cancelled is calculated by reference to the net asset value per unit as at the close of business on the relevant dealing day. Units in the Fund are classified as equity in the statement of financial position and are stated at fair value representing the price at which unitholders can redeem the units from the Fund. (k) Segmental information A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments. Operating segments are reported in a manner consistent with the internal reporting used by the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Investment Committee of the Fund s manager that undertakes strategic decisions for the Fund. 23

26 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (l) Financial instruments Financial instruments comprise financial assets and financial liabilities. Fair value is the amount at which a financial asset could be exchanged or a financial liability settled, between knowledgeable and willing parties in an arm s length transaction. The information presented herein represents the estimates of fair values as at the date of the statement of financial position. Financial instruments as at 30 June 2011 are as follows: Financial assets Financing and at fair value through Receivables profit or loss Total Financial assets at fair - 584,565, ,565,958 value through profit or loss (Note 10) Cash and cash 53,712,624-53,712,624 equivalents (Note 11) Amount due from Manager 26,307,000-26,307, ,019, ,565, ,585, All current liabilities are financial liabilities which are carried at amortised cost. (m) Critical accounting estimates and judgements in applying accounting policies The preparation of financial statements in conformity with FRS and the SC Guidelines on Unit Trust Funds requires the use of estimates and assumptions that affect the reported amount of assets and liabilities at the statement of financial position date, and the reported amount of income and expenses during the reported financial year. Although these estimates are based on the Manager s best knowledge of current events and actions, actual results may differ from those estimates. Estimates and judgements 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. The resulting accounting estimates will, by definition, seldom equal the related actual results. 24

27 3. RISK MANAGEMENT OBJECTIVES AND POLICIES The investment objective of the Fund is to provide a low risk investment option that normally earns higher interest than traditional bank accounts. The Fund is exposed to a variety of risks which include market risk inclusive of price risk and interest rate risk, credit risk, liquidity risk, single issuer risk and non-compliance risk arising from the financial instruments it holds, and capital risk. Financial risk management is carried out through internal control process adopted by the Manager and adherence to the investment restrictions as stipulated by the SC Guidelines on Unit Trust Funds. (a) Market risk (i) Price risk This is the risk that the fair value of an investment in quoted security and unquoted fixed income security will fluctuate because of changes in market prices (other than those arising from interest rate risk and currency risk). The price risk is managed through diversification and selection of securities and other financial instruments within specified limits according to the Deed. At 30 June 2011, the Fund s overall exposure to price risk was as follows: 2011 Financial asset at fair value through at fair value through profit or loss 584,565, The table below summarises the sensitivity of the Fund s net asset value to movements in prices of unquoted fixed income securities as at 30 June The analysis is based on the assumptions that the price of the unquoted fixed income securities fluctuates by 5% with all other variables held constant. This represents management s best estimate of a reasonable possible shift in the unquoted fixed income securities, having regard to the historical volatility of the prices. % Change Market Change in net in price of value asset value quoted secutities - 5% 555,337,660 (29,228,298) 0% 584,565,958-5% 613,794,256 29,228,

28 3. RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) (a) Market risk (continued) (ii) Interest rate risk Interest rate risk is the risk that the value of the Fund s quoted security and unquoted fixed income securities investments and its return will fluctuate because of changes in market interest rates. Interest rate is a general economic indicator that will have an impact on the management of the Fund. This risk is crucial in an bond fund since bond portfolio management depends on forecasting interest rate movements. Prices of bonds move inversely to interest rate movements, therefore as interest rates rise, the prices of bond portfolio decrease and vice versa. Furthermore, bonds with longer maturity and lower yield coupon rates are more susceptible to interest rate movements. Investors should note that fixed income securities (such as the bonds held by the Fund) and money market instruments are subject to interest rate fluctuations. Such investments may be subject to unanticipated rise in interest rates which may impair the ability of the issuers to make payments of interest and principal, especially if the issuers are highly leveraged. An increase in interest rates may therefore increase the potential for default by an issuer. The Fund also holds a limited amount of cash and cash equivalents that expose the Fund to cash flow interest rate risk. The table below summarises the sensitivity of the Fund s net asset value to movements in prices of unquoted fixed income securities and interest income from deposits with licensed financial institutions held by the Fund as at 30 June 2011 as a result of movement in interest rate. The analysis is based on the assumptions that the interest rate fluctuates by 5% with all other variables held constant. This represents management s best estimate of a reasonable possible shift in the interest rate, having regard to the historical volatility of the interest rate. Impact on net asset value Unquoted fixed income securities designated Deposits at fair value through with licensed % Change in profit or loss financial insitutions interest rate - 5% (329,151) (1,638) 0% - - 5% 329,151 1, (iii) Currency risk The Fund is not exposed to any currency risk as the Fund has no investments overseas as at 30 June

29 3. RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) (b) Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Fund. The major classes of financial assets of the Fund are cash and cash equivalents, and other assets. The credit risk arising from placements of deposits in licensed financial institutions is managed by ensuring that the Fund will only place deposits in reputable licensed financial institutions. For amount due from stockbrokers, the settlement terms are governed by the relevant rules and regulations as prescribed by Bursa Securities. The settlement terms of the proceeds from the creation of units receivable from the Manager are governed by the Securities Commission s Guidelines on Unit Trust Funds. The credit/default risk is minimal as all transactions in unquoted fixed income investments are settled/paid upon delivery using approved brokers. The following table sets out the credit risk concentration of the Fund: Financial assets at fair value through profit and loss Cash balance and deposits Other assets Total As at Finance 53,712,624-53,712,624 Unquoted Sukuk - AAA 155,932, ,932,514 - AA1 128,167, ,167,613 - AA3 / AA- 22,837, ,837,664 - AA 109,298, ,298,450 - A1 / A+ 62,478, ,478,111 - A2 2,020, ,020,063 - A3 48,147, ,147,626 - A 10,350, ,350,082 - P1 45,333, ,333,635 Others ,307,000 26,307, ,565,958 53,712,624 26,307, ,585,582 All financial assets of the Fund as at 30 June 2011 are neither past due nor impaired. (c) Liquidity risk Liquidity risk is the risk that quoted securities and unquoted fixed income securities investments cannot be readily sold at or near its actual value without taking a significant discount. This will result in lower net asset value of the Fund. The Manager manages this risk by maintaining sufficient level of liquid assets to meet anticipated payments and cancellations of the units by unitholders. Liquid assets comprise cash, deposits with licensed financial institutions and other instruments, which are capable of being converted into cash within 7 days. The Fund has a policy of maintaining a minimum level of 2% of liquid assets at all times to reduce the liquidity risk. The table below summarises the Fund s financial liabilities into relevant maturity groupings based on the remaining period as at the statement of financial position date to the contractual maturity date. The amounts in the table are the contractual undiscounted cash flows. 27