KENANGA i-enhanced CASH FUND

Transcription

1 Kenanga Investors Berhad ( P) KENANGA i-enhanced CASH FUND ANNUAL REPORT For the Financial Year Ended 31 October 2014

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3 KENANGA i-enhanced CASH FUND Contents Page Corporate Directory ii-iii Directory of Manager s Offices iv Fund Information 1 Manager s Report 2-4 Fund Performance 5-7 Trustee s Report 8 Shariah Adviser s Report 9 Independent Auditor s Report Statement by the Manager 12 Financial Statement 13-34

4 CORPORATE DIRECTORY Manager: Kenanga Investors Berhad (Company No P) Registered Office Kenanga Investors Berhad (KIB) 8th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur, Malaysia. Tel: Fax: Business Office Suite 12.02, 12th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur, Malaysia. Tel: Fax: Website: Board Of Directors Datuk Syed Ahmad Alwee Alsree (Chairman) Syed Zafilen Syed Alwee (Independent Director) YM Raja Dato Seri Abdul Aziz bin Raja Salim (Independent Director) Vivek Sharma (Independent Director) Peter John Rayner (Independent Director) Bruce Kho Yaw Huat Ismitz Matthew De Alwis Investment Committee Bruce Kho Yaw Huat (Chairman) Syed Zafilen Syed Alwee (Independent Member) Vivek Sharma (Independent Member) Peter John Rayner (Independent Member) Ismitz Matthew De Alwis Company Secretary: Norliza Abd Samad (MAICSA ) 9th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur, Malaysia. Tel: Fax: External Fund Manager: Kenanga Islamic Investors Berhad (Company No D) Registered Office Business Office Kenanga Islamic Investors Berhad (KIIB) Suite 12.03, 12th Floor, Kenanga International, 8th Floor, Kenanga International, Jalan Sultan Ismail, Jalan Sultan Ismail, Kuala Lumpur, Malaysia Kuala Lumpur, Malaysia. Tel: Tel: Fax: 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: Shariah Adviser: IBFIM (Company No W) Registered Office Level 149A, 149B, 151B Persiaran Raja Muda Musa Port Klang Selangor Darul Ehsan, Malaysia Business Office Level 21, Menara CIMB Jalan Stesen Sentral 2 Kuala Lumpur Sentral Kuala Lumpur. Tel: Fax: Business Office 3rd Floor, Menara Takaful Malaysia Jalan Sultan Sulaiman Kuala Lumpur, Malaysia. Tel: Fax: Kenanga i-enhanced Cash Fund Annual Report ii

5 Auditor: Ernst & Young (AF: 0039) Level 23A, Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara, Kuala Lumpur. Tel: Fax: Tax Adviser: Ernst & Young Tax Consultants Sdn Bhd (Company No K) Level 23A, Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara, Kuala Lumpur. Tel: Fax: Membership: Federation Of Investment Managers Malaysia (FIMM) , 6th Floor, PNB Damansara, 19, Lorong Dungun, Damansara Heights, Kuala Lumpur, Malaysia. Tel: Fax: Website: Kenanga i-enhanced Cash Fund Annual Report iii

6 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 16th Floor, Menara Boustead Penang 39, Jalan Sultan Ahmad Shah 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 Suite 1, 2nd Floor, 63 Persiaran Greenhill, Ipoh, Perak, Malaysia Tel: / 7570 Fax: Seremban 2nd Floor, No. 1D-2 Jalan Tuanku Munawir Seremban, Negeri Sembilan. Tel : Fax : Kenanga i-enhanced Cash Fund Annual Report iv

7 1. FUND INFORMATION 1.1 Fund Name Kenanga i-enhanced Cash Fund (KiECF or the Fund) 1.2 Fund Category / Type Islamic Fixed Income / Income 1.3 Investment Objective The Fund aims to provide investors a regular stream of income and high level of liquidity to meet cash flow requirement while maintaining capital preservation. 1.4 Investment Strategy To achieve the objective of the Fund, it will invest in high quality short to medium-term sukuk with minimum credit ratings of A3 or P2 (by RAM) or equivalent rating by MARC. 1.5 Duration The Fund was launched on 2 August 2007 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 Maybank 1-month GIA rate 1.7 Distribution Policy Income (if any) will be distributed monthly on a best effort basis. 1.8 External Fund Manager Kenanga Islamic Investors Berhad 1.9 Breakdown of unit holdings of KiECF as at 31 October 2014 Size of holdings No. of unitholders No. of units held 5,000 and below 0 0 5,001-10, ,001-50, , , , ,001 and above 3 56,583,613 Total 4 56,675,959 Kenanga i-enhanced Cash Fund Annual Report 1

8 2. MANAGER S REPORT 2.1 Explanation on whether the Fund has achieved its investment objective. For the financial year under review, the Fund fulfilled its investment objective, having invested in medium-term sukuk and Islamic money market deposits to provide investors with a regular income stream, high liquidity and capital preservation. 2.2 Comparison between the Fund s performance and performance of the benchmark Performance Chart Since Launch (02/08/ /10/2014) Kenanga i-enhanced Cash Fund vs Maybank 1-month GIA rate Source: Lipper 2.3 Investment strategies and policies employed during the period under review For the year under review, the Fund s investment strategy and policy were to invest in short term sukuk for yield enhancement and Islamic deposits for liquidity requirements. 2.4 The Fund s asset allocation as at 31 October 2014 and comparison with the previous financial year Asset 31 Oct Oct 2013 Unquoted sukuk 9.3% - Short term Islamic deposits and cash 90.7% 100.0% Reason for the differences in asset allocation The NAV of the Fund was zero (0) as at 30 October Towards middle of 2014, the Fund s size had increased and able to invest in unquoted sukuk and short term Islamic deposits. Kenanga i-enhanced Cash Fund Annual Report 2

9 2.5 Fund performance analysis based on NAV per unit (adjusted for income distribution; if any) since last review period Period under review Kenanga i-enhanced Cash Fund 1.34% Maybank 1-month GIA rate 2.85% Source: Lipper The Fund underperformed the benchmark as the units in circulation were zero during half of the year under review. 2.6 Review of the market Money Market Review During the year under review Bank Negara Malaysia (BNM) had raised the Overnight Policy Rate (OPR) by 25 basis points to 3.25 percent during the Monetary Policy Committee (MPC) meeting on 10th July According to BNM with the firm growth prospects and inflation remaining above its long-run average, the MPC decided to adjust the degree of monetary accommodation. At the new level of the OPR, the stance of monetary policy remains supportive of the economy. However at the September s MPC meeting BNM decided to leave the OPR unchanged at 3.25%. According to BNM the global economy continues to expand at a moderate pace and in the advanced economies, while growth performance has been uneven, a number of key economies have continued to show broader signs of improvement. For Malaysia, economic activity has been supported by the continued growth in domestic demand and exports. Malaysia continues on its strong growth trajectory, supported by robust domestic demand and recovering exports coupled with resilient investment growth and the ongoing implementation of Economic Transformation Programme (ETP) projects. Household consumption growth remains positive though it is likely to be slower as the cost of living rises with the ongoing subsidy rationalisation programme and GST implementation in Apr Although economic growth has probably peaked at 6.3% in 1st half 2014, the building blocks are in place to support real GDP growth of 6.0% in 2014 and 5.0% in Although the interest rates were hiked in July 2014, the softer data in the coming months may cap further upside for rates to safeguard the stability of household consumption and domestic growth. For the year under review, the Fund invested in Sukuk and short term Islamic deposits to provide a reasonable level of income while maintaining high liquidity to its investors. The strategy adopted by the Fund for the period is consistent with the investment guideline stated in the information memorandum. Money Market Outlook We believe BNM is taking a wait-and-see stance in order to assess the incoming data before deciding on whether to raise rates in the November s MPC meeting. The priority has shifted towards safeguarding the stability of household consumption and domestic growth. We believe the extent of the moderation would be a key factor in BNM's OPR decision in the coming meeting. If data points continue to soften situation, then the odds would favour a prolonged hold into The level of foreign reserves remains high at US$127.3bn at end-september 2014, despite a year-to-date decline of US$7.6bn. The current reserves level is sufficient to finance 8.7 months of retained imports. Meanwhile, the ample excess liquidity in the domestic banking system of RM237.8bn as at end-september 2014 should be able to mitigate the impact of volatile capital flows and external shocks to the economy. Kenanga i-enhanced Cash Fund Annual Report 3

10 2.6 Review of the market (Contd.) Money Market Outlook (Contd.) Moving forward, the MPC will continue to monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation. The MPC will also continue to assess risks of destabilising financial imbalances. Further adjustment to the degree of monetary accommodation may be taken depending on how new information will affect the assessment on the balance of risks. 2.7 Income Distribution For the financial year under review, the Fund has declared the following income distribution: Gross/Net distribution per unit Ex NAV per unit (sen) (RM) 27 May June July August September October Total Details of any unit split exercise The Fund did not carry out any unit split exercise during the financial year under review. 2.9 Significant changes in the state of affair of the Fund during the period There were no significant changes in the state of affair of the Fund during the financial year under review and up until the date of the manager s report, not otherwise disclosed in the financial statements Circumstances that materially affect any interests of the unitholders During the financial year under review, there were no circumstances that materially affected any interests of the unitholders 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, financial wire services, stock quotation system and portfolio management software incidental to investment management of the Fund shall be retained by the Manager. For the year under review, the Manager did not receive any rebates or soft commissions from stockbrokers. Kenanga i-enhanced Cash Fund Annual Report 4

11 3. FUND PERFORMANCE 3.1 Details of portfolio composition of Kenanga i-enhanced Cash Fund ( the Fund ) for the last 3 financial years as at 31 October are as follows: a. Distribution among industry sectors and category of Shariah-compliant investments: FY FY FY % % % Unquoted sukuk Short term Islamic deposits and cash Note: The above mentioned percentages are based on total Shariah-compliant investment market value plus cash. b. Distribution among markets The Fund invested in unquoted sukuk, short term Islamic deposits and cash instruments only. Kenanga i-enhanced Cash Fund Annual Report 5

12 3.2 Performance details of the Fund for the last 3 financial years ended 31 October are as follows: FY FY FY Net asset value ( NAV ) (RM Million) 61.91* Units in circulation (Million) NAV 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 respective financial years, computed based on NAV per unit and net of all fees. MER is computed based on the total fees and expenses incurred by the Fund divided by the average fund size calculated on a daily basis. PTR is computed based on the average of the total acquisitions and total disposals of Shariah-compliant investment securities of the Fund divided by the average fund size calculated on a daily basis. 1 MER is higher against previous financial years mainly due to increase in fees and expenses during the financial year under review. 2 PTR is higher for the current year under review due to increase in investing activities during the financial year under review. * Based on bid price fair valuation method on all Shariah-compliant investments held by the Fund as at 31 October 2014, the NAV and NAV per unit would be RM61.91 million and RM respectively. (As disclosed under Note 13 of the financial statements) Kenanga i-enhanced Cash Fund Annual Report 6

13 3.3 Average total return of the Fund 1 Year 3 Years 5 Years 31 Oct Oct Oct Oct Oct Oct 14 Kenanga i-enhanced Cash Fund 1.34% 0.64% 2.14% Maybank 1-month GIA rate 2.85% 2.93% 2.93% Source: Lipper 3.4 Annual total return of the Fund Kenanga i-enhanced Cash Fund Maybank 1-month GIA rate Source: Lipper Period under review 1 Year 1 Year 1 Year 1 Year 31 Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct % -0.58% 1.15% 6.64% 1.84% 2.85% 2.78% 2.92% 2.91% 2.39% Investors are reminded that past performance is not necessarily indicative of future performance. Unit prices and investment returns may fluctuate. Kenanga i-enhanced Cash Fund Annual Report 7

14 4 TRUSTEE S REPORT TO THE UNITHOLDERS OF KENANGA i-enhanced CASH FUND We, CIMB COMMERCE TRUSTEE BERHAD ( the Trustee ), being the Trustee of KENANGA i- ENHANCED CASH FUND ( the Fund ) are of the opinion that KENANGA INVESTORS BERHAD ( the Manager ), acting in the capacity of Manager of the Fund, has fulfilled its duties in the following manner for the financial year ended 31 October a) The Fund has been managed in accordance with the limitations imposed on the investment powers of the Manager and the Trustee under the Deeds, the Securities Commission Malaysia s Guidelines on Unit Trust Funds, the Capital Markets and Services Act 2007 (as amended from time to time) and other applicable laws; b) Valuation/pricing of units of the Fund has been carried out in accordance with the Deeds and relevant regulatory requirements; c) Creation and cancellation of units have been carried out in accordance with the Deeds and relevant regulatory requirements; and d) The distribution of returns by the Fund is tied to and reflects the investment objective of the Fund. For and on behalf of CIMB COMMERCE TRUSTEE BERHAD LEE KOOI YOKE Chief Operating Officer Kuala Lumpur, Malaysia 26 December 2014 Kenanga i-enhanced Cash Fund Annual Report 8

15 5. SHARIAH ADVISER S REPORT TO THE UNITHOLDERS OF KENANGA i-enhanced CASH FUND We have acted as the Shariah Adviser of Kenanga i-enhanced Cash Fund. Our responsibility is to ensure that the procedures and processes employed by Kenanga Investors Berhad are in accordance with Shariah principles. In our opinion, Kenanga Investors Berhad has managed and administered Kenanga i-enhanced Cash Fund in accordance with Shariah principles and complied with applicable guidelines, rulings and decisions issued by the Securities Commission pertaining to Shariah matters for the financial year ended 31 October In addition, we also confirm that the investment portfolio of Kenanga i-enhanced Cash Fund comprises securities which have been classified as Shariah-compliant by the Shariah Advisory Council of the Securities Commission. As for the securities which are not certified by the Shariah Advisory Council of the Securities Commission, we have reviewed the said securities and opine that these securities are designated as Shariah-compliant. For and on behalf of the Shariah Adviser IBFIM AHMAD ZAKIRULLAH BIN MOHAMED SHAARANI Senior Shariah Officer/Designated Person Responsible for Shariah Advisory Kuala Lumpur 26 December 2014 Kenanga i-enhanced Cash Fund Annual Report 9

16 6. INDEPENDENT AUDITORS REPORT TO THE UNITHOLDERS OF KENANGA i-enhanced CASH FUND Report on the financial statements We have audited the financial statements of Kenanga i-enhanced Cash Fund ( the Fund ), which comprise the statement of financial position as at 31 October 2014 and the statement of comprehensive income, statement of changes in net asset value and statement of cash flows for the financial year then ended, and a summary of significant accounting policies and other explanatory information, as set out on pages 13 to 34. Manager s and Trustee s responsibility for the financial statements and fair presentation The Manager of the Fund is responsible for the preparation of financial statements so as to 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 financial 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 financial statements. Auditors responsibility Our responsibility is to express an opinion on these financial 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 about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Fund s preparation of financial 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 financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Kenanga i-enhanced Cash Fund Annual Report 10

17 6. INDEPENDENT AUDITORS REPORT TO THE UNITHOLDERS OF KENANGA i-enhanced CASH FUND (CONTD.) Opinion In our opinion, the financial statements give a true and fair view of the financial position of the Fund as at 31 October 2014 and of its financial performance, changes in net asset value and cash flows for the financial year then ended in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards. Other matters This report is made solely to the unitholders of the Fund, as a body, in accordance with the requirements of the Securities Commission Malaysia s Guidelines on Unit Trust Funds, and for no other purpose. We do not assume responsibility to any other person for the content of this report. Ernst & Young AF: 0039 Chartered Accountants Chan Hooi Lam No. 2844/02/16 (J) Chartered Accountant Kuala Lumpur, Malaysia 26 December 2014 Kenanga i-enhanced Cash Fund Annual Report 11

18 7. STATEMENT BY THE MANAGER I, Ismitz Matthew De Alwis, being the director of Kenanga Investors Berhad, do hereby state that, in the opinion of the Manager, the accompanying statement of financial position as at 31 October 2014 and the related statement of comprehensive income, statement of changes in net asset value and statement of cash flows for the financial year ended 31 October 2014 together with notes thereto, are drawn up in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards so as to give a true and fair view of the financial position of Kenanga i-enhanced Cash Fund as at 31 October 2014 and of its financial performance and cash flows for the year then ended and comply with the requirements of the Deed. For and on behalf of the Manager Kenanga Investors Berhad Ismitz Matthew De Alwis Kuala Lumpur, Malaysia 26 December 2014 Kenanga i-enhanced Cash Fund Annual Report 12

19 8. FINANCIAL STATEMENT 8.1 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 OCTOBER 2014 Note RM RM INVESTMENT INCOME Profit income 736,913 23,838 Net gain from Shariah-compliant investments: - Financial assets at fair value through profit or loss ("FVTPL") 7 1, ,670 23,838 EXPENSES Manager s fee 4 114,699 4,141 Trustee s fee 5 18, Administration expenses 1, ,943 5,194 NET INCOME BEFORE TAX 603,727 18,644 Income tax expense NET INCOME AFTER TAX, REPRESENTING TOTAL COMPREHENSIVE INCOME FOR THE YEAR 603,727 18,644 Net income after tax is made up as follows: Realised gain 599,241 18,644 Unrealised gain 4, ,727 18,644 Distribution during the year Net distribution ,800 - Net distribution per unit (sen) Gross distribution per unit (sen) The accompanying notes form an integral part of the financial statements. Kenanga i-enhanced Cash Fund Annual Report 13

20 8.2 STATEMENT OF FINANCIAL POSITION AS AT 31 OCTOBER 2014 Note RM RM INVESTMENTS Financial assets at FVTPL 7 5,768,597 - Short term Islamic deposits 8 56,166,293-61,934,890 - OTHER ASSETS Other receivables 10 4,880 - Cash at bank 4, , TOTAL ASSETS 61,944, LIABILITIES Amount due to Manager 26,258 - Amount due to Trustee 4,201 - Other payables 11 1, TOTAL LIABILITIES 31, EQUITY Unitholder s contribution 61,824,370 - Retained earnings 87,980 - NET ASSET VALUE ( NAV ) ATTRIBUTABLE TO UNITHOLDERS 12 61,912,350 - TOTAL EQUITY AND LIABILITIES 61,944, NUMBER OF UNITS IN CIRCULATION 12(a) 56,675,959 - NET ASSET VALUE PER UNIT (RM) The accompanying notes form an integral part of the financial statements. Kenanga i-enhanced Cash Fund Annual Report 14

21 8.3 STATEMENT OF CHANGES IN NET ASSET VALUE FOR THE FINANCIAL YEAR ENDED 31 OCTOBER 2014 Note Unitholders Retained contribution earnings Total NAV RM RM RM 2014 At beginning of the year Total comprehensive income - 603, ,727 Creation of units 12(a) 81,220,058-81,220,058 Cancellation of units 12(a) (19,975,334) - (19,975,334) Distribution equalisation 12(a) 63,899-63,899 Income distribution 14 (77,053) (515,747) (592,800) Reinvestment of income distributed 592, ,800 At end of the year 61,824,370 87,980 61,912, At beginning of the year 40,874 1,147 42,021 Total comprehensive income - 18,644 18,644 Creation of units 12(a) 5,001,283-5,001,283 Cancellation of units 12(a) (5,043,304) - (5,043,304) Distribution equalisation 12(a) (18,644) - (18,644) Reclassification of retained earnings to distribution equalisation 12(a) 19,791 (19,791) - At end of the year The accompanying notes form an integral part of the financial statements. Kenanga i-enhanced Cash Fund Annual Report 15

22 8.4 STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 OCTOBER RM RM CASH FLOWS FROM OPERATING AND INVESTING ACTIVITIES Proceeds from sale of financial assets at FVTPL 1,999,690 - Purchase of financial assets at FVTPL (7,710,478) - Profit received 675,981 23,838 Manager s fee paid (88,441) (4,141) Trustee s fee paid (14,151) (663) Tax agent s fee paid - (2,800) Payment for other fees and expenses (871) (3,879) Net cash (used in)/generated from operating and investing activities (5,138,270) 12,355 CASH FLOWS FROM FINANCING ACTIVITIES Cash received from units created 81,308,623 5,001,321 Cash paid on units cancelled (20,000,000) (5,061,986) Net cash generated from/(used in) financing activities 61,308,623 (60,665) NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 56,170,353 (48,310) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR ,563 CASH AND CASH EQUIVALENTS AT END OF THE YEAR 56,170, Cash and cash equivalents comprise: Cash at bank 4, Short term Islamic deposits 56,166,293-56,170, The accompanying notes form an integral part of the financial statements. Kenanga i-enhanced Cash Fund Annual Report 16

23 8.5 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 OCTOBER THE FUND, THE MANAGER AND THEIR PRINCIPAL ACTIVITIES Kenanga i-enhanced Cash Fund ( the Fund ) was constituted pursuant to the executed Deed dated 4 July 2007 (collectively, together with deeds supplemental thereto, referred as the Deed ) between Kenanga Funds Berhad and CIMB Commerce Trustee Berhad ( the Trustee ). The Fund commenced operations on 2 August 2007 and will continue to be in operation until terminated as provided under Part 12 of the Deed. Pursuant to the executed First 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 Kenanga Investors Berhad is a wholly-owned subsidiary of Kenanga Investment Bank Berhad, which in turn is a wholly-owned subsidiary of K & N Kenanga Holdings Berhad, listed on the main board of the Bursa Malaysia Securities Berhad. All of these companies are incorporated in Malaysia. The principal place of business of the Manager is Suite 12.02, 12th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur. The Fund seeks to provide unitholders a regular stream of income and high level of liquidity to meet cash flow requirement while maintaining capital preservation. The financial statements were authorised for issue by the Interim Chief Executive Officer of the Manager on 26 December FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Fund is exposed to a variety of risks including market risk (which includes interest rate risk), credit risk and liquidity risk. Whilst these are the most important types of financial risks inherent in each type of financial instruments, the Manager and the Trustee would like to highlight that this list does not purport to constitute an exhaustive list of all the risks inherent in a Shariah-compliant 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 flows of a financial instrument will fluctuate because of changes in market prices. Market risk includes interest rate risk. Market risk arises when the value of the unquoted Shariah-compliant investments fluctuate in response to the activities of individual companies, general market or economic conditions. It stems from the fact that there are other economy-wide perils, which threaten all businesses. Hence, investors are exposed to market uncertainties. Fluctuation in the Shariah-compliant investments prices caused by uncertainties in the economy, political and social environment will affect the fair value of the Fund. Kenanga i-enhanced Cash Fund Annual Report 17

24 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk (Contd.) The Manager manages the risk of unfavorable changes in prices by cautious review of the Shariah-compliant investments and continuous monitoring of their performance and risk profiles. i. Interest rate risk The risk refers to how the changes in the interest rate environment would affect the valuation of Shariah-compliant instruments. In the event of a rising interest rate environment, the valuation of Shariah-compliant instruments may decrease, and vice versa. Interest rate, such as the Overnight Policy Rate set by Bank Negara Malaysia, will have an impact on the investment decisions of the Fund regardless of whether it is a Shariah-compliant fund or otherwise. It does not in any way suggest that the Fund will invest in conventional financial instruments. The Fund s exposure to the interest rate risk is mainly confined to unquoted sukuk. Interest rate risk sensitivity 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 repricing or maturity dates. Effect on profit for Change in rate the year Increase/(Decrease) Increase/(Decrease) Basis points RM 2014 Financial assets at FVTPL 5/(5) 2,856/(2,856) In practice, the actual trading results may differ from the sensitivity analysis above and the difference could be material. 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 repricing or maturity dates. Kenanga i-enhanced Cash Fund Annual Report 18

25 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk (Contd.) i. Interest rate risk (Contd.) Interest rate risk exposure (Contd.) Nonexposure to interest rate Weighted average effective rate of return* Above 1 Up to 1 year year - 5 years movement Total RM RM RM % 2014 Assets Financial assets at FVTPL 499,994 5,212,551 56,052 5,768, Short term Islamic deposits 56,166, ,166, Other assets 4,880-4,313 9,193 56,671,167 5,212,551 60,365 61,944,083 Liabilities Other liabilities ,733 31,733 Total interest rate sensitivity gap 56,671,167 5,212,551 28,632 61,912, Assets Other assets Liabilities Other liabilities Total interest rate sensitivity gap * Computed based on Shariah-compliant assets with exposure to interest rate movement only. b. Credit Risk Credit risk is the risk that the counterparty to a financial instrument will cause a financial loss to the Fund by failing to discharge an obligation. The Manager manages the credit risk by undertaking credit evaluation to minimise such risk. i. Credit risk exposure At the reporting date, the Fund s maximum exposure to credit risk is represented by the carrying amount of each class of financial assets recognised in the statement of financial position. Kenanga i-enhanced Cash Fund Annual Report 19

26 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) b. Credit Risk (Contd.) ii. Financial assets that are either past due or impaired As at reporting date, there are no financial assets that are either past due or impaired. iii. Credit quality of financial assets The Fund invests only in unquoted sukuk with at least investment grade credit rating by a credit rating agency. The following table analyses the Fund s portfolio of unquoted sukuk by rating category: Financial assets at FVTPL Percentage of total unquoted sukuk Percentage of NAV % % % % Rating AA AAA AA AA AA The Fund invests in Islamic deposits only with reputable financial institutions. The following table analyses the financial institutions by rating category: Short term Islamic deposits Percentage of total short term Islamic deposit Percentage of NAV % % % % Rating P iv. Credit risk concentration Concentration risk is monitored and managed based on sectorial distribution. The table below analyses the Fund s portfolio of unquoted sukuk by sectorial distribution: Percentage of total unquoted sukuk Percentage of NAV % % % % Finance Utilities Consumer Kenanga i-enhanced Cash Fund Annual Report 20

27 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) c. Liquidity Risk Liquidity risk is defined as the risk that the Fund will encounter difficulty in meeting obligations associated with financial liabilities that are to be settled by delivering cash or another financial asset. Exposure to liquidity risk arises because of the possibility that the Fund could be required to pay its liabilities or cancel its units earlier than expected. The Fund is exposed to cancellation of its units on a regular basis. Units sold to unitholders by the Manager are cancellable at the unitholder s option based on the Fund s NAV per unit at the time of cancellation calculated in accordance with the Deed. The Islamic liquid assets comprise cash, Islamic deposits with licensed financial institutions and other Shariah-compliant instruments, which are capable of being converted into cash within 7 days. The following table analyses the maturity profile of the Fund s financial assets and financial liabilities in order to provide a complete view of the Fund s contractual commitments and liquidity. Note Above1 Up to 1 year year - 5 years Total RM RM RM 2014 Assets Financial assets at FVTPL 556,046 5,212,551 5,768,597 Short term Islamic deposits 56,166,293-56,166,293 Other assets 9,193-9,193 (i) 56,731,532 5,212,551 61,944,083 Liabilities Other liabilities (ii) 31,733-31,733 Equity (iii) 61,912,350-61,912,350 Liquidity gap (5,212,551) 5,212, Assets Other assets (i) Liabilities Other liabilities (ii) Equity (iii) Liquidity gap Kenanga i-enhanced Cash Fund Annual Report 21

28 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) c. Liquidity Risk (Contd.) (i) Financial assets Analysis of financial assets at FVTPL into maturity groupings is based on the expected date on which these assets will be realised. For other assets, the analysis into maturity groupings is based on the remaining period from the end of the reporting period to the contractual maturity date or if earlier, the expected date on which the assets will be realised. (ii) Financial liabilities The maturity grouping is based on the remaining period from the end of the reporting period to the contractual maturity date. When the counterparty has a choice of when the amount is paid, the liability is allocated to the earliest period in which the Fund can be required to pay. (iii) Equity As unitholders can request for redemption of their units, they have been categorised as having a maturity of up to 1 year. As a result, it appears that the Fund has a liquidity gap within up to one year. However, the Fund believes that it would be able to liquidate its investments should the need arises to satisfy all the redemption requirements. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Basis of Accounting The financial statements of the Fund have been prepared in accordance with Malaysian Financial Reporting Standards ( MFRS ) as issued by Malaysian Accounting Standards Board ( MASB ) and International Financial Reporting Standards ( IFRS ) issued by International Accounting Standards Board ( IASB ). The accounting policies adopted are consistent with those of the previous financial year except for the adoption of the new and amended MFRS and IC interpretations which became effective for the Fund on 1 November The adoption of the new and amended MFRS and IC interpretations did not have any significant impact on the financial position or performance of the Fund. The financial statements have been prepared on the historical cost basis except as disclosed in the accounting policies below. Kenanga i-enhanced Cash Fund Annual Report 22

29 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) b. Standards, Amendments and Interpretations Issued But Not Yet Effective As at the date of authorisation of these financial statements, the following Standards, Amendments and Interpretations have been issued by MASB but are not yet effective and have not been adopted by the Fund: Description Effective for financial year beginning on or after Amendments to MFRS 132: Offsetting Financial Assets and Financial Liabilities 1 January 2014 Amendments to MFRS 10, MFRS 12, and MFRS 127: Investment Entities 1 January 2014 Amendments to MFRS 136: Recoverable Amount Disclosure for Non-Financial Assets 1 January 2014 Amendments to MFRS 139: Novation of Derivatives and Continuation of Hedge Accounting 1 January 2014 IC Interpretation 21 Levies 1 January 2014 Amendments to MFRSs contained in the documents entitled Annual Improvements cycle 1 July 2014 Amendments to MFRSs contained in the documents entitled Annual Improvements cycle 1 July 2014 Amendments to MFRS 119: Defined Benefit Plans: Employee Contributions 1 July 2014 MFRS 14: Regulatory Deferral Accounts 1 January 2016 Amendments to MFRS 116 and MFRS 138: Clarification of Acceptable Methods of Depreciation and Amortisation 1 January 2016 Amendments to MFRS 11: Accounting for Acquisitions of Interests in Joint Operations 1 January 2016 Amendments to MFRS 116 and MFRS 141: Agriculture: Bearer Plants 1 January 2016 Amendments to MFRS 127: Equity Method in Separate Financial Statements 1 January 2016 Amendments to MFRS 10 and MFRS 128: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture 1 January 2016 Amendments to MFRSs contained in the document entitled Annual Improvements to MFRSs Cycle 1 January 2016 MFRS 15 Revenue from Contracts with Customers 1 January 2017 MFRS 9 Financial Instruments (IFRS 9 Financial Instruments as issued by IASB in July 2014) 1 January 2018 The Fund will adopt the above pronouncements when they become effective in the respective financial years. These pronouncements are not expected to have any significant impact to the financial statements of the Fund upon their initial application, other than MFRS 9. Kenanga i-enhanced Cash Fund Annual Report 23

30 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) b. Standards, Amendments and Interpretations Issued But Not Yet Effective (Contd.) MFRS 9 replaces MFRS 139 on the following requirements: classification and measurement of financial assets and financial liabilities as defined in MFRS 139, impairment methodology and hedge accounting. The Fund is in the process of making an assessment of the impact of this Standard. c. Financial Assets Financial assets are recognised in the statement of financial position when, and only when, the Fund becomes a party to the contractual provisions of the financial instrument. When financial assets are recognised initially, they are measured at fair value, plus, in the case of financial assets not at FVTPL, directly attributable transaction costs. The Fund determines the classification of its financial assets at initial recognition. i. Financial assets at FVTPL Shariah-compliant financial assets are classified as financial assets at FVTPL if they are held for trading or are designated as such upon initial recognition. Financial assets held for trading include unquoted sukuk acquired principally for the purpose of selling in the near term. Subsequent to initial recognition, financial assets at FVTPL are measured at fair value. Changes in the fair value of those Shariah-compliant financial instruments are recorded in profit or loss. Profit earned elements of such instruments are recorded in profit income. ii. Receivables Financial assets with fixed or determinable payment that are not quoted in an active market are classified as receivables. Subsequent to initial recognition, receivables are measured at amortised cost using the effective profit method. Gain or loss is recognised in profit or loss when the receivables are derecognised or impaired, and through the amortisation process. A financial asset is derecognised when the contractual right to receive cash flows from the asset has expired. On derecognition of a financial asset, the difference between the carrying amount and the sum of the consideration received is recognised in profit or loss. Kenanga i-enhanced Cash Fund Annual Report 24

31 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) d. Impairment of Financial Assets The Fund assesses at each reporting date whether there is any objective evidence that a financial asset is impaired. To determine whether there is objective evidence that an impairment loss on financial assets has been incurred, the Fund considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments. If any such evidence exists, the amount of impairment loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the financial asset s original effective rate of return. The impairment loss is recognised in profit or loss. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets, with the exception of receivables, where the carrying amount is reduced through the use of an allowance account. When a receivable becomes uncollectible, it is written off against the allowance account. If in a subsequent year, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed to the extent that the carrying amount of the assets does not exceed its amortised cost at the reversal date. The amount of reversal is recognised in profit or loss. e. Income Income is recognised to the extent that it is probable that the economic benefits will flow to the Fund and the income can be reliably measured. Income is measured at the fair value of consideration received or receivable. Profit income, which includes the accretion of discount and amortisation of premium on unquoted sukuk, is recognised using the effective rate method. f. Cash and Cash Equivalents For the purposes of the statement of cash flows, cash and cash equivalents include cash at bank and short term Islamic deposits with financial institutions. g. Income Tax Income tax on the profit or loss for the year comprises current tax. Current tax is the expected amount of income taxes payable in respect of the taxable profit for the year. h. Unrealised Reserves Unrealised reserves represent the net gain or loss arising from carrying Shariah-compliant investments at their fair values at reporting date. This reserve is not distributable. i. Financial Liabilities Financial liabilities are classified according to the substance of the collateral arrangements entered into and the definitions of a financial liability. Kenanga i-enhanced Cash Fund Annual Report 25

32 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) i. Financial Liabilities (Contd.) Financial liabilities are recognised in the statement of financial position when, and only when, the Fund becomes a party to the contractual provisions of the financial instrument. The Fund s financial liabilities are classified as other financial liabilities. The Fund s financial liabilities are recognised initially at fair value and subsequently measured at amortised cost using the effective rate method. A financial liability is derecognised when the obligation under the liability is extinguished. Gains and losses are recognised in profit or loss when the liabilities are derecognised, and through the amortisation process. j. Unitholders Contribution NAV Attributable to Unitholders The unitholders contribution to the Fund is classified as equity instruments. Distribution equalisation represents the average amount of undistributed net income included in the creation or cancellation price of units. This amount is either refunded to unitholders by way of distribution and/or adjusted accordingly when units are released back to the Trustee. k. Functional and Presentation Currency The financial statements of the Fund are measured using the currency of the primary economic environment in which the Fund operates ( the functional currency ). The financial statements are presented in Ringgit Malaysia ( RM ), which is also the Fund s functional currency. l. Distribution Distributions are at the discretion of the Manager. A distribution to the Fund s unitholders is accounted for as a deduction from retained earnings. m. Significant Accounting Judgments and Estimates The preparation of financial statements requires the use of certain accounting estimates and exercise of judgment. Estimates and judgments are continually evaluated and are based on past experience, reasonable expectations of future events and other factors. i. Critical judgments made in applying accounting policies There are no other major judgments made by Manager in applying the Fund's accounting policies. ii. Key sources of estimation uncertainty There are no key assumptions concerning the future and other key sources of estimation uncertainty at the financial reporting date that has a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. Kenanga i-enhanced Cash Fund Annual Report 26

33 4. MANAGER S FEE The Manager s fee is computed on a daily basis at a rate not less than 0.5% per annum and not exceeding 3.0% per annum of the NAV of the Fund as provided under Division 13.1 of the Deed. The Manager is currently charging Manager s fee of 0.50% per annum of the NAV of the Fund. 5. TRUSTEE S FEE Pursuant to the second supplemental deed dated 25 July 2014, the Trustee s fee is computed on a daily basis at a rate not exceeding 0.08% per annum of the NAV of the Fund and subject to a minimum fee of RM9,000 effective from 1 August Prior to 1 August 2014, the Trustee s fee was computed on a daily basis at a rate not exceeding 0.20% per annum and subject to a minimum fee of RM18,000. The Trustee s fee is currently computed at 0.08% per annum of the NAV of the Fund. 6. INCOME TAX Income tax is calculated at the Malaysian statutory tax rate of 25% of the estimated assessable income for the financial year. The statutory tax rate will be reduced to 24% effective from year of assessment Income tax is calculated on investment income less partial deduction for permitted expenses as provided for under Section 63B of the Income Tax Act, A reconciliation of income tax expense applicable to net income before tax at the statutory income tax rate to income tax expense at the effective income tax rate of the Fund is as follows: RM RM Net income before tax 603,727 18,644 Tax at Malaysian statutory tax rate of 25% (2013: 25%) 150,932 4,661 Tax effect of: Income not subject to tax (185,350) (5,960) Loss not deductible for tax purposes Expenses not deductible for tax purposes 5, Restriction on tax deductible expenses for unit trust fund 28,675 1,036 Income tax for the year FINANCIAL ASSETS AT FVTPL RM RM Financial assets held for trading, at FVTPL: Unquoted corporate sukuk 5,768,597 - Net gain on financial assets at FVTPL comprised: Realised loss on disposals (2,729) - Unrealised changes in fair values 4,486-1,757 - Kenanga i-enhanced Cash Fund Annual Report 27

34 7. FINANCIAL ASSETS AT FVTPL (CONTD.) Details of financial assets at FVTPL as at 31 October 2014: Unquoted corporate sukuk Quantity Amortised Percentage Cost Fair value of NAV RM RM % Alpha Circle Sdn Bhd maturing on , , , Bright Focus Bhd maturing on , , , Cagamas Berhad maturing on , , , Cagamas MBS Berhad maturing on , , , First Resources Ltd maturing on , , , Maybank Islamic Berhad maturing on ,750,000 1,762,054 1,765, Sarawak Energy Berhad maturing on ,200,000 1,225,325 1,225, Total unquoted corporate sukuk 5,650,000 5,764,111 5,768, Total financial assets at FVTPL 5,764,111 5,768, Unrealised gain on financial assets at FVTPL 4, SHORT TERM ISLAMIC DEPOSITS Short term Islamic deposits are held with licensed financial institutions in Malaysia, on a daily renewal basis at the prevailing profit rate. 9. SHARIAH INFORMATION OF THE FUND The Shariah Adviser confirmed that the investment portfolio of the Fund is Shariah-compliant, which comprises the following: a. Unquoted sukuk as per list of unquoted sukuk available at Bond Info Hub and Fully Automated System For Issuing/Tendering of Bank Negara Malaysia; and b. Liquid assets in the local market, which are placed in Shariah-compliant investments and/or instruments. 10. OTHER RECEIVABLES RM RM Profit income from short term Islamic deposits 4,880 - Kenanga i-enhanced Cash Fund Annual Report 28