CIMB ISLAMIC SMALL CAP FUND FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 MAY 2018

Transcription

1 FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 MAY 2018

2 CONTENTS PAGE(S) INVESTORS LETTER 1 MANAGER S REPORT 2-8 Fund Objective and Policy Performance Data Market Review Fund Performance Portfolio Structure Market Outlook Investment Strategy Unit Holdings Statistics Soft Commissions and Rebates STATEMENT BY MANAGER 9 TRUSTEE S REPORT 10 SHARIAH ADVISER S REPORT 11 INDEPENDENT AUDITORS REPORT STATEMENT OF COMPREHENSIVE INCOME 16 STATEMENT OF FINANCIAL POSITION 17 STATEMENT OF CHANGES IN EQUITY 18 STATEMENT OF CASH FLOWS 19 NOTES TO THE FINANCIAL STATEMENTS DIRECTORY 46

3 INVESTORS' LETTER Dear Valued Investor, Thank you for your continued support and for the confidence that you have placed in us. We are pleased to share that CIMB-Principal Asset Management Berhad ( CIMB-Principal ) Malaysia concluded the 1 st Quarter of 2018 with RM52.06 billion in Asset under Management ( AUM ). We continue to achieve prestigious recognitions from The Edge Thomson Reuters Lipper Fund Awards as follows: The Edge Thomson Reuters Lipper Malaysia Fund Awards 2018 Best Fund Over 5 Years, Equity Global - Malaysia : CIMB-Principal Global Titans Fund Best Fund Over 5 Years, Equity Asia Pacific ex Japan - Malaysia : CIMB-Principal Asian Equity Fund Best Fund Over 5 Years, Equity Asia Pacific ex Japan - Malaysia : CIMB Islamic Asia Pacific Equity Fund Best Fund Over 5 Years, Equity Malaysia Diversified - Malaysia : CIMB-Principal Equity Growth & Income Fund Best Fund Over 5 Years, Mixed Asset MYR Bal - Malaysia : CIMB-Principal Income Plus Balanced Fund Best Fund Over 3 Years, Equity Global - Malaysia : CIMB-Principal Global Titans Fund In addition, we received recognition from Fundsupermart.com for Fund House of the Year award and Recommended Unit Trust 2018/2019 awards for the following funds: CIMB-Principal Global Titans Fund CIMB-Principal Asia Pacific Dynamic Income Fund CIMB Islamic Asia Pacific Equity Fund CIMB-Principal Greater China Equity Fund CIMB-Principal PRS Plus Conservative CIMB-Principal PRS Plus Growth These prestigious awards are a celebration of the trust that you have placed in us and testament to our capability in bringing potential value to your financial goals and needs. We look forward to serving you for many years to come and to the best of our ability. Thank you. Yours faithfully, for CIMB-Principal Asset Management Berhad Munirah Khairuddin Chief Executive Officer 1

4 MANAGER S REPORT FUND OBJECTIVE AND POLICY What is the investment objective of the Fund? The objective of the Fund is to seek medium to long-term growth in capital by investing principally in emerging companies listed on Bursa Malaysia and this must be in accordance with the Shariah principles. Has the Fund achieved its objective? The Fund has achieved its objective of providing long-term capital growth. What are the Fund investment policy and principal investment strategy? The Fund may invest a minimum of 70% and up to a maximum of 98% of its NAV in Shariah-compliant stocks of emerging companies*. The investment policy and strategy of the Fund will therefore focus on investments in Shariah-compliant securities of such emerging companies* with potential growth and hands-on management policies but may be lacking in track records. The Fund may also invest up to 28% of its NAV in other permissible investments such as Shariah-compliant fixed income securities for the purpose of cash management. The Fund may also opt to seek investment exposure via Shariahcompliant CIS that is in line with the Fund s objective, subject to the requirements of the SC Guidelines. In addition, Shariah-compliant liquid assets may be strategically used if we feel that the market downside risk is high in the short-term. Between 70% to 98% (both inclusive) of the Fund s NAV will be invested in Shariah-compliant equities and/or other Shariah-compliant investments, with at least 2% of the Fund s NAV in Shariah-compliant liquid assets. Note: * Emerging companies in this context refers to companies that are listed on Bursa Malaysia with market capitalisation of up to three (3) billion Ringgit Malaysia at the point of purchase. However, should there be lack of liquidity or when we deem necessary to reduce volatility of the Fund, the Fund may invest up to 20% of its NAV in companies with market capitalization above three (3) billion Malaysian Ringgit but not more than five (5) billion Malaysian Ringgit at the point of purchase # # With effective 1st September 2017, the Fund may invest up to 20% of its NAV in companies with market capitalization above three (3) billion Malaysian Ringgit but not more than five (5) billion Malaysian Ringgit at the point of purchase. Fund category/type Equity (small cap) (Shariah-compliant)/Growth How long should you invest for? Recommended three (3) years or more Indication of short-term risk (low, moderate, high) High When was the Fund launched? 30 April 2003 What was the size of the Fund as at 31 May 2018? RM million ( million units) What is the Fund s benchmark? Financial Times Stock Exchange ("FTSE") Bursa Malaysia ( FBM ) Small Cap ( FBMSCAP ) Index What is the Fund distribution policy? The Manager has the discretion to distribute part or all of the Fund s distributable income. The distribution (if any) may vary from period to period depending on the investment objective and the performance of the Fund. 2

5 FUND OBJECTIVE AND POLICY (CONTINUED) What was the net income distribution for the financial year ended 31 May 2018? There was no distribution made for the financial year ended 31 May PERFORMANCE DATA Details of portfolio composition of the Fund for the last three financial years are as follows: % % % Shariah-compliant quoted securities - Construction Consumer Products Finance Industrial Products Infrastructure Project Companies ( IPC ) Plantation Properties Technology Trading/Services Cash and other net assets Performance details of the Fund for the last three financial years are as follows: NAV (RM Million) Units in circulation (Million) NAV per unit (RM) Highest NAV per unit (RM) Lowest NAV per unit (RM) Total return (%) (20.12) Capital growth (%) (20.12) Income distribution (%) Management Expense Ratio ( MER ) (%) * Portfolio Turnover Ratio ( PTR ) (times) # ^ The Fund's MER increased from 2.07% to 2.08% due to an decrease in average NAV of the Fund during the financial year under review. # The Fund s PTR increased from 0.90 times to 0.91 times as there was more trading activity during the financial year % % % % % Annual total return (20.12) (14.23) (Launch date: 30 April 2003) Performance data is not necessarily indicative of future performance and that unit prices and investment returns may go down, as well as up. All performance figures for the financial year have been extracted from Lipper. 3

6 MARKET REVIEW (1 JUNE 2017 TO 31 MAY 2018) For the financial year under review, the FBMSCAP Index decreased by 19.98% from 17, points to 13, points. The FBMSCAP Index continued to advance in June Notable events during the month include: 1) United Kingdom ( UK ) Election resulting in a minority Government; 2) Macron victory in French Election 3) Qatar being sanctioned by its neighbors for alleged terrorism funding; 4) Brent breaking below USD50 per barrel to a low of USD44.82 per barrel; 5) United States Federal Reserve (the Fed ) raising rates by 0.25 basis points ( bps ) and impending balance sheet normalisation; 6) China A-shares inclusion in Modern Index Strategy Indexes ( MSCI ) in 2018; 7) Speculation of European Central Bank ( ECB ) Quantitative Easing ( QE ) tapering by Meanwhile, the local market was negatively surprised by the suspension of Felda Global Ventures Holdings Bhd s ( FGV ) Chief Executive officer ( CEO ) and Chief Financial Officer ( CFO ). The Malaysian Ringgit ( MYR ) touched a low of RM against USD before closing the month at RM against USD (weakened 0.3% month-on-month ( m-o-m )). The FBMSCAP Index was lackluster in July 2017, falling by 0.97%. The key highlight during the month were the key measures announced by the government at this year s Invest Malaysia: 1) launch of the Leading Entrepreneur Accelerator Platform ( LEAP ) market; 2) plans to establish an integrity and governance unit at Government-linked Companies ( GLC s); and 3) greater gender diversity and corporate governance in Corporate Malaysia. Unlike the broader indices, the FBMSCAP Index fell by 3.05% during the month, in line with the risk-off sentiment which was primarily driven by the North Korean tensions. Malaysia s macroeconomic fundamentals remain strong as Gross Domestic Product ( GDP ) for the second quarter came in at 5.8%, following a 5.6% expansion in the first quarter. Consequently, various economists have upgraded their full year Gross Domestic Product ( GDP ) forecast for Malaysia to 5.2% to 5.5% (Government estimate 4.3% to 4.8%). Meanwhile, inflation continues to moderate to 3.2% in July 2017 after peaking at 5.1% in March Bank Negara Malaysia ( BNM ) is expected to keep the Overnight Policy Rate ( OPR ) unchanged at 3.00% for the rest of MYR has stabilised at 4.30 to the USD despite a sizeable Government bond maturity during the month. The FBMSCAP Index increased by 1.22% in September August 2017 inflation jumped to 3.7% from 3.2% in July 2017, pushed by the run-up in oil prices which saw the West Texas Intermediate ( WTI ) closing up 9.4% at USD51.67 per barrel from USD47.23 per barrel a month earlier. As the higher inflation is cost-pushed, BNM kept the OPR unchanged at 3.00%. MYR traded to a low of during the month before closing the month at RM per USD. The FBMSCAP Index increased by 2.85% in October We saw net foreign outflows of RM0.3 billion, the third consecutive month of outflows. Year-to-date ( Y-t-d ), net foreign inflows are RM9.8 billion, compared with RM3.2 billion outflows in Brent touched a high of USD61.37 per barrel on 31 October 2017, while the MYR closed at RM4.23 against USD. As expected, Budget 2018, tabled on 27 October 2017, was both expansionary and people-centric. Fiscal discipline was maintained as shown by a smaller deficit target of 2.8% for 2018 from 3.0% this year. In November 2017, the FBMSCAP Index fell by 3.71% to 16, points. The third quarter of 2017 result season failed to re-rate the market. In addition to this, the Sime Darby Berhad demerger exercise failed to lift sentiments in the market. We saw net foreign outflows of RM15 million, the fourth consecutive month of outflows. YTD, net foreign inflows are RM9.37 billion, compared with RM3.2 billion outflows in Malaysia s economy expanded 6.2% y-o-y in third quarter of 2017, the fifth straight quarter of improvement, as domestic demand strengthened. BNM kept the OPR at 3% during the Monetary Policy Committee ( MPC ) meeting, but indicated that the MPC may consider reviewing the current degree of monetary accommodation given the strength of global and domestic macroeconomic conditions. 4

7 MARKET REVIEW (1 JUNE 2017 TO 31 MAY 2018) (CONTINUED) December 2017 was a good month as the FBMSCAP Index rose by points or 1.6% to 17, points. For the year, the FBMSCAP Index rose by 2, points or 15.9%. Foreign investors were net buyers of RM10.3 billion in 2017 versus net sellers of RM3.2 billion in Brent crude oil price rose by 5.2% m-o-m or 17.7% y-o-y to USD67 per barrel, while the MYR closed the year stronger at RM against USD, up 10% y-o-y. The FBMSCAP Index had a mild start in January 2018, increasing 0.20% on the back of a stronger MYR, higher oil prices, net foreign inflows, hike in OPR and overall stronger global economies. In January, foreign investors were net buyers of RM3.4 billion against RM10.3 billion in the whole of Brent crude oil price closed at USD69.05 per barrel, while the MYR appreciated 3.8% to close at RM against USD. February 2018 was a volatile month as investors began re-pricing more interest rate hikes in the United States ( US ), earlier than expected, on the back of higher inflation expectations. In line with the global rout, the FBMSCAP corrected by points or 2.13% to 16, points. The FBMSCAP Index had fallen sharply from a high of 17, points (2 February 2018) to a low of 16, points (9 February 2018), before recouping part its losses by month end. In February 2018, foreign investors net sold circa RM1.1 billion bringing YTD net inflows to RM2.2 billion. March 2018 was a negative month as the FBMSCAP Index fell by 11.15% to 14, points with the rising concerns of escalating US-China trade disputes. Large caps continued to outperform the broader market and small caps. At the time of writing in early April 2018, mounting US-China trade tensions have unnerved equity markets as evidenced by the global selldown. Is this Trump s posturing for better negotiation power to open markets in China, or is this the start of a trade war which could derail the synchronised global economic recovery trend seen so far. In our opinion, a full-blown trade war will be avoided as it is detrimental to all. Instead, we expect resolution via bilateral negotiations and dialogue on strategic economic sectors. Locally, market to re-focus on earnings delivery and policy continuity, amidst a mainly externally-driven volatile macro environment. However, until we get a firm resolution on the US-China trade war and the final outcome of the 14 th General Election, volatility in the equity markets is expected to remain high. In May 2018, the FBMSCAP Index fell by 5.34%. The bulk of the selling came after the GE14. In May 2018, foreigners net sold RM5.6 billion, reversing YTD net foreign flows to RM1.9 billion. During the month, the MYR depreciated 1.4%, the 10-year Malaysian Government Securities ( MGS ) rose by 5 bps to 4.18%, while Brent crude oil gained 3% to USD77 per barrel. The market sold off in May 2018, rattled by headline news of a higher RM1 trillion national debt burden, concerns about the fiscal position and sovereign credit rating following the zero-rating of the Good and Services Tax ( GST ), cancellation of mega infrastructure projects and the sanctity of toll roads concession agreements. Sentiment was further dampened by the weak first quarter corporate earnings season. Meanwhile, global trade tensions were back in focus, and there was fear of contagion from Italian politics. These were happening against a backdrop of Central Banks plans to normalise monetary policies, leading to worries of possible policy missteps. 5

8 FUND PERFORMANCE 1 year to years to years to Since inception to % % % % Income Capital (20.12) (5.44) (1.12) Total Return (20.12) (5.44) (1.12) Benchmark (19.98) (13.97) (7.82) Average Total Return (20.12) (1.85) (0.23) 5.06 For the financial year under review, the Fund decreased by 20.12%, while the benchmark decreased by 19.98%. As such, the Fund underperformed its benchmark by 0.14%. 260% 240% CIMB Islamic Small Cap Fund FBMSCAP Index 220% 200% 180% 160% 140% 120% 100% Changes in NAV Changes % NAV (RM Million) (37.19) NAV/Unit (RM) (20.09) The NAV per unit decreased by 20.09% due to unit redemptions of funds and negative investment performance during the financial year. Performance data represents the combined income and capital return as a result of holding units in the Fund for the specified length of time, based on NAV to NAV price. The performance data assumes that all earnings from the Fund are reinvested and are net of management and trustee fees. Past performance is not reflective of future performance and income distributions are not guaranteed. Unit prices and income distributions, if any, may fall and rise. All performance figures for the financial year have been extracted from Lipper. 6

9 PORTFOLIO STRUCTURE Asset allocation (% of NAV) Shariah-compliant quoted securities Cash and other net assets TOTAL Asset allocation increased from 89.03% as at 31 May 2017 to 90.33% as at 31 May 2018 as we became slightly aggressive of the market during that financial year. MARKET OUTLOOK* The market sold off in May 2018 and June 2018, rattled by headline news of a higher RM1 trillion national debt burden, concerns about the fiscal position and sovereign credit rating following the zerorating of the GST, cancellation of mega infrastructure projects and the sanctity of toll roads concession agreements. Sentiment was further dampened by the weak first quarter corporate earnings season. Meanwhile, global trade tensions were back in focus, and there was fear of contagion from Italian politics. These were happening against a backdrop of Central Banks plans to normalise monetary policies, leading to worries of possible policy missteps. We take a more defensive view for capital protection until we see more clarity in the government s austerity measures. * This market outlook does not constitute an offer, invitation, commitment, advice or recommendation to make a purchase of any investment. The information given in this article represents the views of CIMB-Principal or based on data obtained from sources believed to be reliable by CIMB-Principal. Whilst every care has been taken in preparing this, CIMB-Principal makes no guarantee, representation or warranty and is under no circumstances liable for any loss or damage caused by reliance on, any opinion, advice or statement made in this market outlook. INVESTMENT STRATEGY In this risk-off period, we take a more defensive view for capital protection until we see more clarity in the Government s austerity measures. We have sold into strength to raise cash for future deployment into quality names with reasonable risk/reward profiles during market retracements. We continue to prefer companies with strong fundamentals in sectors such as Consumer, Technology and Industrials. We maintain our view that, despite the short term volatility, investors should position for the longer term, where risk premiums may potentially reduce as a result of better governance. 7

10 UNIT HOLDINGS STATISTICS Breakdown of unit holdings by size as at 31 May 2018 are as follows: Size of unit holdings (units) No. of unit holders No. of units held (million) % of units held 5,000 and below 38, ,001 to 10,000 2, ,001 to 50,000 3, ,001 to 500, ,001 and above Total 45, SOFT COMMISSIONS AND REBATES CIMB-Principal Asset Management Berhad (the "Manager") and the Trustee (including their officers) will not retain any form of rebate or soft commission from, or otherwise share in any commission with, any broker in consideration for directing dealings in the investments of the Funds unless the soft commission received is retained in the form of goods and services such as financial wire services and stock quotations system incidental to investment management of the Funds. All dealings with brokers are executed on best available terms. During the financial year under review, the Manager and the Trustee did not receive any rebates from the brokers or dealers but have retained soft commission in the form of goods and services such as financial wire services and stock quotations system incidental to investment management of the Funds. 8

11 STATEMENT BY MANAGER TO THE UNIT HOLDERS OF CIMB ISLAMIC SMALL CAP FUND We, being the Directors of CIMB-Principal Asset Management Berhad (the Manager ), do hereby state that, in the opinion of the Manager, the accompanying audited financial statements set out on pages 16 to 45 are drawn up in accordance with the provisions of the Deeds and give a true and fair view of the financial position of the Fund as at 31 May 2018 and of its financial performance, changes in equity and cash flows for the financial year then ended in accordance with the provisions of the Malaysian Financial Reporting Standards ( MFRS ) and International Financial Reporting Standards ( IFRS ). For and on behalf of the Manager CIMB-Principal Asset Management Berhad (Company No.: K) MUNIRAH KHAIRUDDIN Chief Executive Officer/Executive Director ALEJANDRO ECHEGORRI Executive Director Kuala Lumpur 18 July

12 TRUSTEE S REPORT TO THE UNIT HOLDERS OF CIMB ISLAMIC SMALL CAP FUND We, Universal Trustee (Malaysia) Berhad, being the Trustee of CIMB Islamic Small Cap Fund (the Fund ), are of the opinion that CIMB-Principal Asset Management Berhad (the Manager ), acting in the capacity of Manager of the Fund, have fulfilled their duties in the following manner for the financial year ended 31 May 2018: (a) (b) (c) the Fund is being managed in accordance with the limitations imposed on the investment powers of the Manager and the Trustee under the Deeds, the Securities Commission s Guidelines on the Unit Trust Funds, the Capital Markets and Services Act 2007 and other applicable laws; valuation/pricing is carried out in accordance with the Deeds and relevant regulatory requirements; and creation and cancellation of units are carried out in accordance with the Deeds and relevant regulatory requirements. For and on behalf of the Trustee Universal Trustee (Malaysia) Berhad ONG TEE VANN Chief Executive Officer Kuala Lumpur 18 July

13 SHARIAH ADVISER S REPORT TO THE UNIT HOLDERS OF CIMB ISLAMIC SMALL CAP FUND We have acted as the Shariah Adviser of CIMB Islamic Small Cap Fund (the Fund ) for the financial year ended 31 May Our responsibility is to ensure that the procedures and processes employed by CIMB-Principal Asset Management Berhad (the Manager ) are in accordance with Shariah and Shariah Investment Guidelines. In our opinion, the Manager has managed and administered the Fund in accordance with the Shariah Investment Guidelines of the Fund and complied with applicable guidelines, rulings or decisions issued by the Securities Commission Malaysia pertaining to Shariah matters for the financial year ended 31 May In addition, we confirm that the investment portfolio of the Fund comprises securities which have been classified as Shariah-compliant by the Shariah Advisory Council of the Securities Commission Malaysia and, where applicable the Shariah Advisory Council of Bank Negara Malaysia with exception to United Li-Corp Bhd and Prolexus Bhd. However, United Li-Corp Bhd has been disposed on 13 November 2017 whereas Prolexus Bhd has been relisted to SC SAC list as at 24 November For investments other than the abovementioned, we have reviewed the same and are of the opinion that these investments were in accordance with the Shariah Investment Guidelines of the Fund. This report is made solely to the unit holders of the Fund, as a body, and for no other purpose. We do not assume responsibility to any other person for the content of this report and we shall not be liable for any errors or non-disclosure on the part of the Manager. For and on behalf of Shariah Adviser CIMB Islamic Bank Berhad ASHRAF GOMMA ALI Director/Regional Head, Shariah& Governance/Designated Person Responsible for Shariah Advisory Kuala Lumpur 18 July

14 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF CIMB ISLAMICSMALL CAP FUND REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS Our opinion In our opinion, the financial statements of CIMB Islamic Small Cap Fund (the Fund ) give a true and fair view of the financial position of the Fund as at 31 May 2018, and of its financial performance and its cash flows for the year then ended in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards. What we have audited We have audited the financial statements of the Fund, which comprise the statement of financial position as at 31 May 2018, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, as set out on pages 16 to 45. Basis for opinion We conducted our audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditors responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence and other ethical responsibilities We are independent of the Fund in accordance with the By-Laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants ( By-Laws ) and the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants ( IESBA Code ), and we have fulfilled our other ethical responsibilities in accordance with the By-Laws and the IESBA Code. 12

15 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF CIMB ISLAMIC SMALL CAP FUND (CONTINUED) REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED) Information other than the financial statements and auditors report thereon The Manager of the Fund is responsible for the other information. The other information comprises Manager s report but does not include the financial statements of the Fund and our auditors report thereon. Our opinion on the financial statements of the Fund does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements of the Fund, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements of the Fund or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Manager for the financial statements The Manager of the Fund is responsible for the preparation of the financial statements of the Fund that give a true and fair view in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards in Malaysia. The Manager is also responsible for such internal control as the Manager determine is necessary to enable the preparation of financial statements of the Fund that are free from material misstatement, whether due to fraud or error. In preparing the financial statements of the Fund, the Manager is responsible for assessing the Fund s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Manager either intend to liquidate the Fund or to cease operations, or have no realistic alternative but to do so. 13

16 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF CIMB ISLAMIC SMALL CAP FUND (CONTINUED) REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED) Auditors responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements of the Fund as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with approved standards on auditing in Malaysia and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: (a) (b) (c) (d) (e) Identify and assess the risks of material misstatement of the financial statements of the Fund, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Manager. Conclude on the appropriateness of the Manager s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Fund s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the financial statements of the Fund or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Fund to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements of the Fund, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 14

17 INDEPENDENT AUDITORS REPORT TO THE UNIT HOLDERS OF CIMB ISLAMIC SMALL CAP FUND (CONTINUED) REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED) Auditors responsibilities for the audit of the financial statements (continued) We communicate with the Manager regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. OTHER MATTERS This report is made solely to the unit holders of the Fund and for no other purpose. We do not assume responsibility to any other person for the content of this report. PRICEWATERHOUSECOOPERS PLT LLP LCA & AF 1146 Chartered Accountants Kuala Lumpur 18 July

18 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 MAY Note RM RM INVESTMENT INCOME Dividend income 4,198,657 5,852,004 Profit income from Shariah-compliant deposits with licensed Islamic financial institutions and Hibah earned 554, ,610 Net (loss)/gain on financial assets at fair value through profit or loss 7 (38,978,432) 36,647,234 (34,224,800) 43,455,848 EXPENSES Management fee 4 3,919,543 4,627,059 Trustee s fee 5 127, ,067 Transaction costs 1,144,232 1,414,016 Audit fee 13,473 12,220 Tax agent s fee 12,678 5,600 Other expenses 391, ,012 5,608,393 6,665,974 (LOSS)/PROFIT BEFORE TAXATION (39,833,193) 36,789,874 Taxation (LOSS)/PROFIT AFTER TAXATION AND TOTAL COMPREHENSIVE (LOSS)/INCOME FOR THE FINANCIAL YEAR (39,833,193) 36,789,874 (Loss)/Profit after taxation is made up as follows: Realised amount 9,452,119 24,761,382 Unrealised amount (49,285,312) 12,028,492 (39,833,193) 36,789,874 The accompanying notes to the financial statements form an integral part of the audited financial statements. 16

19 STATEMENT OF FINANCIAL POSITION AS AT 31 MAY Note RM RM ASSETS Cash and cash equivalents (Shariah-compliant) 8 15,895,280 32,017,377 Financial assets at fair value through profit or loss (Shariah-compliant) 7 142,525, ,662,448 Amount due from stockbrokers 2,486,660 2,238,387 Amount due from Manager 5, ,726 Dividends receivable 72,027 12,537 TOTAL ASSETS 160,985, ,621,475 LIABILITIES Amount due to stockbrokers 1,524,556 5,395,676 Amount due to Manager 1,372,563 1,533,726 Accrued management fee 260, ,840 Amount due to Trustee 8,462 13,065 Other payables and accruals 38,931 60,808 TOTAL LIABILITIES 3,205,438 7,406,115 NET ASSET VALUE OF THE FUND 157,779, ,215,360 EQUITY Unit holders capital 113,550, ,152,836 Retained earnings 44,229,331 84,062,524 NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 157,779, ,215,360 NUMBER OF UNITS IN CIRCULATION (UNITS) 9 175,398, ,159,558 NET ASSET VALUE PER UNIT (RM) The accompanying notes to the financial statements form an integral part of the audited financial statements. 17

20 STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 MAY 2018 Unit holders Retained capital earnings Total RM RM RM Balance as at 1 June 2017 Movement in unit holders contributions: 167,152,836 84,062, ,215,360 - Creation of units from applications 25,804,208-25,804,208 - Cancellation of units (79,406,774) - (79,406,774) Total comprehensive loss for the financial year - (39,833,193) (39,833,193) Balance as at 31 May ,550,270 44,229, ,779,601 Balance as at 1 June ,945,261 47,272, ,217,911 Movement in unit holders contributions: - Creation of units from applications 28,549,007-28,549,007 - Cancellation of units (69,341,432) - (69,341,432) Total comprehensive income for the financial year - 36,789,874 36,789,874 Balance as at 31 May ,152,836 84,062, ,215,360 The accompanying notes to the financial statements form an integral part of the audited financial statements. 18

21 STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 MAY Note RM RM CASH FLOWS FROM OPERATING ACTIVITIES Proceeds from disposal of Shariah-compliant quoted securities 212,552, ,331,196 Purchase of Shariah-compliant quoted securities (175,657,541) (209,887,777) Profit income received from Shariah-compliant deposits with licensed Islamic financial institutions and Hibah earned 554, ,610 Dividend income received 4,139,167 6,144,403 Management fee paid (4,061,458) (4,622,628) Trustee s fee paid (131,722) (149,923) Payments for other fees and expenses (439,374) (482,750) Net cash generated from operating activities 36,956,306 36,289,131 CASH FLOWS FROM FINANCING ACTIVITIES Cash proceeds from units created 26,489,534 28,252,109 Payments for cancellation of units (79,567,937) (68,275,400) Net cash used in financing activities (53,078,403) (40,023,291) Net decrease in cash and cash equivalents (16,122,097) (3,734,160) Cash and cash equivalents at the beginning of the financial year 32,017,377 35,751,537 Cash and cash equivalents at the end of the financial year 8 15,895,280 32,017,377 Cash and cash equivalents comprised of: Shariah-compliant deposits with licensed Islamic financial institutions 15,869,694 31,954,896 Bank balances 25,586 62,481 Cash and cash equivalents at the end of the financial year 8 15,895,280 32,017,377 The accompanying notes to the financial statements form an integral part of the audited financial statements. 19

22 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 MAY THE FUND, THE MANAGER AND ITS PRINCIPAL ACTIVITY CIMB Islamic Small Cap Fund (the Fund ) is governed by a Principal Master Deed dated 15 May 2008, a Fourth Supplemental Master Deed dated 25 June 2008, a Sixth Supplemental Master Deed dated 14 July 2008, a Seventh Supplemental Master Deed dated 19 November 2008, a Fourteenth Supplemental Master Deed dated 26 June 2012 and a Seventeenth Supplemental Master Deed dated 25 March 2015 (collectively referred to as the Deeds ), made between CIMB-Principal Asset Management Berhad (the Manager ) and Universal Trustee (Malaysia) Berhad (the Trustee ). The Fund may invest a minimum of 70% and up to a maximum of 98% of its NAV in Shariahcompliant stocks of emerging companies. The investment policy and strategy of the Fund will therefore focus on investments in Shariah-compliant securities of such emerging companies* with potential growth and hands-on management policies but may be lacking in track records. The Fund may also invest up to 28% of its NAV in other permissible investments such as Shariah-compliant fixed income securities for the purpose of cash management. The Fund may also opt to seek investment exposure via Shariah-compliant CIS that is in line with the Fund s objective, subject to the requirements of the SC Guidelines. In addition, Shariah-compliant liquid assets may be strategically used if we feel that the market downside risk is high in the shortterm. Between 70% to 98% (both inclusive) of the Fund s NAV will be invested in Shariah-compliant equities and/or other Shariah-compliant investments, with at least 2% of the Fund s NAV in Shariah-compliant liquid assets. All investments are subjected to the Securities Commission Malaysia ( SC ) Guidelines on Unit Trust Funds, SC requirements, the Deeds, except where exemptions or variations have been approved by the SC, internal policies and procedures and the Fund s objective. The Manager, a company incorporated in Malaysia, is jointly owned by CIMB Group and Principal International (Asia) Limited. The principal activities of the Manager are the establishment and management of unit trust funds and fund management activities. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following accounting policies have been used consistently in dealing with items which are considered material in relation to the financial statements: (a) Basis of preparation The financial statements have been prepared in accordance with the provisions of the MFRS and International IFRS. The financial statements have been prepared under the historical cost convention, as modified by financial assets at fair value through profit or loss. The preparation of financial statements in conformity with MFRS and IFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported year. 20

23 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (a) Basis of preparation (continued) It also requires the Manager to exercise their judgment in the process of applying the Fund s accounting policies. Although these estimates and assumptions are based on the Manager s best knowledge of current events and actions, actual results may differ. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 2(k). Standards, amendments to published standards and interpretations to existing standards that are effective: The Fund has applied the following amendments for the first time for the financial year beginning 1 June 2017: Amendments to MFRS 107 Statement of Cash Flows - Disclosure Initiative introduce an additional disclosure on changes in liabilities arising from financing activities. The adoption of these amendments did not have any impact on the current financial year or any prior financial year and is not likely to affect future financial years. The standards, amendments to published standards and interpretations to existing standards that are applicable to the Fund but not yet effective and have not been early adopted are as follows: (i) Financial year beginning on/after 1 June 2018 MFRS 9 Financial Instruments (effective from 1 January 2018) will replace MFRS 139 Financial Instruments: Recognition and Measurement. MFRS 9 retains but simplifies the mixed measurement model in MFRS 139 and establishes three primary measurement categories for financial assets: amortised cost, fair value through profit or loss and fair value through other comprehensive income ( OCI ). The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments 1 are always measured at fair value through profit or loss with an irrevocable option at inception to present changes in fair value in OCI (provided the instrument is not held for trading). A debt instrument 2 is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest 3. ¹ For the purposes of the investments made by the Fund, equity instruments and derivatives refers to Shariah-compliant equity instruments and Shariah-compliant derivatives. ² For the purposes of the investments made by the Fund, debt instruments refers to Sukuk. ³ For the purposes of this Fund, interest refers to profits earned from Shariah-compliant investments. 21

24 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (a) Basis of preparation (continued) (i) Financial year beginning on/after 1 June 2018 For liabilities, the standard retains most of the MFRS 139 requirements. These include amortised cost accounting for most financial liabilities, with bifurcation of embedded derivatives 1. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in OCI rather than the income statement, unless this creates an accounting mismatch. MFRS 9 introduces an expected credit loss ( ECL ) model on impairment that replaces the incurred loss impairment model used in MFRS 139. The expected credit loss model is forward-looking and eliminates the need for a trigger event to have occurred before credit losses are recognised. The Fund has reviewed its financial assets and liabilities and has assessed the following impacts from the adoption of the new standard on 1 January 2018: There will be no impact on the Fund's accounting for financial assets as the Fund's equity investments currently measured at fair value through profit or loss will continue to be measured on the same basis under MFRS 9. There will be no impact on the Fund's accounting for financial liabilities as the new requirements only affect the accounting for financial liabilities that are designated at fair value through profit or loss and the Fund does not have any such liabilities. The new impairment model requires the recognition of impairment provisions based on ECL rather than only incurred credit losses as is the case under MFRS 139. It applies to financial assets classified at amortised cost. Based on the assessments undertaken to date, the Fund does not expect any loss allowance to be recognised upon adoption of MFRS 9. ¹ For the purposes of the investments made by the Fund, equity instruments and derivatives refers to Shariah-compliant equity instruments and Shariah-compliant derivatives. ² For the purposes of the investments made by the Fund, debt instruments refers to Sukuk. ³ For the purposes of this Fund, interest refers to profits earned from Shariah-compliant investments. 22

25 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) Financial assets and financial liabilities Classification The Fund designates its Shariah-compliant quoted securities as financial assets at fair value through profit or loss at inception. Financial assets are designated at fair value through profit or loss when they are managed and their performance evaluated on a fair value basis. Financing and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and have been included in current assets. The Fund s financing and receivables comprise cash and cash equivalents, amount due from stockbrokers, amount due from Manager, and dividends receivable. Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. The Fund classifies amount due to stockbrokers, amount due to Manager, accrued management fee, amount due to Trustee, and other payables and accruals as other financial liabilities. Recognition and measurement Regular purchases and sales of financial assets are recognised on the trade date, the date on which the Fund commits to purchase or sell the asset. Shariah-compliant investments are initially recognised at fair value. Transaction costs are expensed in the statement of comprehensive income. Financial liabilities, within the scope of MFRS 139, are recognised in the statement of financial position when, and only when, the Fund becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognised when the rights to receive cash flows from the Shariah-compliant investments have expired or have been transferred and the Fund has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognised when it is extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or expired. Unrealised gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss are presented in the statement of comprehensive income within net gain or loss on financial assets at fair value through profit or loss in the financial year which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the statement of comprehensive income as part of gross dividend income when the Fund s right to receive payments is established. Shariah-compliant quoted securities in Malaysia are valued at the last done market price quoted on Bursa Malaysia Securities Bhd ( Bursa Securities ) at the date of the statement of financial position. 23

26 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) Financial assets and financial liabilities (continued) Recognition and measurement (continued) If a valuation based on the market price does not represent the fair value of the Shariahcompliant quoted securities, for example during abnormal market conditions or when no market price is available, including in the event of a suspension in the quotation of the Shariah-compliant quoted securities for a period exceeding 14 days, or such shorter period as agreed by the Trustee, then the Shariah-compliant quoted securities are valued as determined in good faith by the Manager, based on the methods or bases approved by the Trustee after appropriate technical consultation. Shariah-compliant deposits with licensed Islamic financial institutions are stated at cost plus accrued profit calculated on the effective interest method over the financial year from the date of placement to the date of maturity of the respective deposits. Financing and receivables and other financial liabilities are subsequently carried at amortised cost using the effective profit method. Impairment for assets carried at amortised costs For assets carried at amortised cost, the Fund assesses at the end of the reporting year whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective profit rate. The asset s carrying amount is reduced and the amount of the loss is recognised in statement of comprehensive income. If financing and receivables has a variable profit rate, the discount rate for measuring any impairment loss is the current effective profit rate determined under the contract. As a practical expedient, the Fund may measure impairment on the basis of an instrument s fair value using an observable market price. If, in a subsequent financial year, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor s credit rating), the reversal of the previously recognised impairment loss is recognised in statement of comprehensive income. When an asset is uncollectible, it is written off against the related allowance account. Such assets are written off after all the necessary procedures have been completed and the amount of the loss has been determined. 24

27 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (c) Functional and presentation currency Items included in the financial statements of the Fund are measured using the currency of the primary economic environment in which the Fund operates (the functional currency ). The financial statements are presented in Ringgit Malaysia ( RM ), which is the Fund s functional and presentation currency. (d) Income recognition Dividend income is recognised on the ex-dividend date when the right to receive payment is established. Profit income from Shariah-compliant deposits with licensed Islamic financial institutions is recognised on a time proportionate basis using the effective profit method on an accrual basis. Realised gain or loss on disposal of Shariah-compliant quoted securities is accounted for as the difference between the net disposal proceeds and the carrying amount of Shariahcompliant quoted securities, determined on a weighted average cost basis. (e) Cash and cash equivalents For the purpose of statement of cash flows, cash and cash equivalents comprise bank balances and Shariah-compliant deposits held in highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. (f) Taxation Current tax expense is determined according to Malaysian tax laws at the current rate based upon on taxable profit earned during the financial year. (g) Transactions costs Transaction costs are costs incurred to acquire or dispose financial assets or liabilities at fair value through profit or loss. They include fees and commissions paid to agents, advisers, brokers and dealers. Transaction costs, when incurred, are immediately recognised in the statement of comprehensive income as expenses. (h) Unit holders capital The unit holders contributions to the Fund meet the criteria to be classified as equity instruments under MFRS 132 Financial Instruments: Presentation. Those criteria include: the units entitle the holder to a proportionate share of the Fund s NAV; the units are the most subordinated class and class features are identical; there is no contractual obligations to deliver cash or another financial asset other than the obligation on the Fund to repurchase; and the total expected cash flows from the units over its life are based substantially on the profit or loss of the Fund. 25