KENANGA BON ISLAM FUND (FORMERLY KNOWN AS ING BON ISLAM)

Transcription

1 KENANGA BON ISLAM FUND (FORMERLY KNOWN AS ING BON ISLAM) ANNUAL REPORT & AUDITED FINANCIAL STATEMENTS For the Financial Year Ended 30 June 2013

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3 Annual Report and Audited Financial statements to Unit Holders for the Financial Year Ended 30 June 2013 Contents CORPORATE DIRECTORY DIRECTORY OF MANAGER S OFFICES Page i ii MANAGER S REPORT FUND INFORMATION FUND REVIEW MARKET REVIEW & OUTLOOK PERFORMANCE DATA PORTFOLIO COMPOSITION 8 TRUSTEE S REPORT 10 SHARIAH ADVISER REPORT 11 STATEMENT BY THE MANAGER 12 INDEPENDENT AUDITORS REPORT 13 STATEMENT OF COMPREHENSIVE INCOME 15 STATEMENT OF FINANCIAL POSITION 16 STATEMENT OF CHANGES IN EQUITY 17 STATEMENT OF CASH FLOWS 18 NOTES TO THE FINANCIAL STATEMENTS 19 39

4 CORPORATE DIRECTORY MANAGER: KENANGA INVESTORS BERHAD (Company No P) REGISTERED OFFICE Kenanga Investors Berhad (KIB) 8 th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur, Malaysia. Tel: Fax: BUSINESS OFFICE Suite 12.02, 12 th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur, Malaysia. Tel: / Fax: / InvestorServices@kenanga.com.my 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) Bruce Kho Yaw Huat Abdul Razak bin Ahmad Peter John Rayner COMPANY SECRETARY: Norliza Abd Samad, (MAICSA ) 9 th Floor, Kenanga International, Jalan Sultan Ismail, Kuala Lumpur, Malaysia. TRUSTEE: CIMB COMMERCE TRUSTEE BERHAD (Company No A) REGISTERED AND BUSINESS OFFICE 5 th Floor, Bangunan CIMB, Jalan Semantan, Damansara Heights, 50490, Kuala Lumpur. Tel: Fax: SHARIAH ADVISER: IBFIM (Company No W) 3 rd Floor, Menara Takaful Malaysia, Jalan Sultan Sulaiman, Kuala Lumpur, Malaysia. Tel: Fax: Website: AUDITOR: ERNST & YOUNG Room , 3 rd Floor, Wisma Bukit Mata Kuching, Jalan Tunku Abdul Rahman, Kuching, Sarawak, Malaysia. i

5 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: / Petaling Jaya Unit B-6-2, Sunway Giza Mall Dataran Sunway, PJU 5/14 Kota Damansara Petaling Jaya, Selangor Tel: , Fax: Klang No. 12 Jalan Batai Laut 3, Taman Intan Klang, Selangor Darul Ehsan Tel: , Fax: Penang Blok A, Aras 3, Wisma Perkeso No. 269, Jalan Burma George Town, Penang Tel: Fax: Melaka No Jalan Kota Laksamana 2/17 Taman Kota Laksamana Seksyen Melaka Tel: , Fax: Johor Bahru Lot 11.03, 11th Floor, Menara MSC Cyberport 5 Jalan Bukit Meldrum Johor Bahru, Johor Tel: /4798 Fax: Kuching 1st Floor, No 71, Lot 7 Lot 10900, Jalan Tun Jugah Kuching, Sarawak Tel: Fax: Kota Kinabalu A-03-11, 3rd Floor Block A Warisan Square Jalan Tun Fuad Stephens Kota Kinabalu, Sabah Tel: / Fax: Ipoh No. 5A, Persiaran Greentown 9 Greentown Business Centre Ipoh, Perak Darul Ridzuan Tel: /7570 Fax: Seremban Suite 08-3, Seremban City Centre Jalan Pasar Seremban Tel: Fax: Agency Office Miri (Sarawak) c/o Lot 1084, 2nd Floor, Jalan Merpati Miri Sarawak, Malaysia Tel: ii

6 MANAGER S REPORT Dear Unit Holders, We are pleased to present the Manager s annual report and the financial statements of the KENANGA BON ISLAM FUND for the Financial Year Ended 30 June FUND INFORMATION 1.1 Fund Name KENANGA BON ISLAM FUND (KBIF or the Fund) 1.2 Fund Category / Type Islamic Bond / Income 1.3 Investment Objective The Fund aims to provide investors with a regular income stream through investments in Islamic bonds and Islamic money market instruments. 1.4 Investment Strategy The Fund invests in a diversified portfolio of sukuk and Islamic money market instruments. The Fund invests in sukuk that have a minimum rating of investment grade i.e. rated at least BBB by RAM or equivalent rating by MARC or other rating agencies. 1.5 Asset Allocation Sukuk: 50% - 98% of the Fund s NAV. Cash: 2% - 50%% of the Fund s NAV. 1.6 Duration The Fund was launched on 23 April 2004 and 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. 1.7 Performance Benchmark All Malaysian Government Investment Issue. 1.8 Distribution Policy The Fund may distribute Income (if any) twice a year on a best effort basis. 1

7 2.0 FUND REVIEW 2.1 Fund performance vs benchmark performance NAV per unit (RM) Fund Return Benchmark Return 30/6/ /6/2012 (%) (%) Source : Lipper During the period under review to 30 June 2013, the Fund appreciated 2.13%, underperforming the 2.72% returns of the All Malaysian Government Investment Issue Index. The underperformance was mainly due to its small fund size which incurred a higher management expense ratio and a challenge to implement an effective strategy to improve the performance of the Fund. 2.2 Has the Fund achieved its objective? During the period under review, the Fund fulfilled its investment objective, having invested in a diversified portfolio of Sukuk and Islamic money market instruments. 2.3 Strategies & policies employed For the period under review, the Fund invested primarily in a diversified portfolio of high grade corporate Sukuk and Islamic money market instruments. Given the small fund size however, it remained a challenge to fully undertake meaningful sukuk strategy to improve the performance of the Fund. 2.4 State of Affairs of the Fund Pursuant to the acquisition of ING Funds Berhad by Kenanga Investors Berhad on 19 th April 2013, Kenanga Investors Berhad had written to the Securities Commission to seek the Securities Commission s approval to become the Management Company of the Fund. The Securities Commission had approved the application. With effect from 8 th June 2013, Kenanga Investors Berhad has become the Management Company of the Fund. There are no other circumstances that materially affect any interest of the unitholders during the financial year. 2

8 2.5 Unit Holders Profile As at 30 June 2013, the number of units of the Fund in circulation stood at 5,661,981 (includes Manager Stock) units out of an approved Fund size of 500 million units. Breakdown of Unit Holdings by Size Unit Holders Unit Holdings Size of holdings Number % Units % 5,000 and below 1, ,369, ,001-10, , ,001-50, ,544, , , ,540, ,001 and above , Total 1, ,661, Manager and Related Party Holdings Breakdown of holdings by the Manager and related parties as at 30 June 2013 is as follows:- No. of Units Held Manager # - Director of the Manager - Other related parties - Total - # excludes normal & EPF bookings 2.6 Rebates & Soft Commission Any rebates received are channeled back to the Fund. On the other hand, 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 period under review, the Manager did not received soft commissions from stockbrokers. 3

9 3.0 MARKET REVIEW & OUTLOOK 3.1 Market Review The local bond/sukuk market were generally steady during the first 4 months of the financial year 2013, but start to rally upon the notice of dissolution of the Malaysian parliament to make way for the 13th general election. The results that maintained Barisan Nasional to lead the Federal government provided further impetus for yields to rally further. However, this was short-lived as The Fed chairman Ben Bernanke initially testified to the US Congress on 22 May 2013 that the central bank will mull the scale back of QE going forward if the US economy shows signs of stable improvements, which caused the US Treasuries and global emerging bond markets succumbing to selling pressure. Bank Negara Malaysia held three Monetary Policy Committee (MPC) meetings in January, March and in May 2013, held the Overnight Policy Rate (OPR) at 3.00% each time. At the latest MPC meeting in May 2013, as it held the OPR as expected, Bank Negara weighed global and domestic economic conditions. It said the current OPR of 3.00% is deemed appropriate to keep domestic demand going whilst inflation expectations are modest. The MPC decisions were well within expectations and had muted impact to the bond/sukuk market. Following the persistent selling pressure, local MGS yields were higher by 10-24bps over the 6-month period. Corporate bond/sukuk yield on the hand, were steadily declining driven mostly by local demand and the shortage of new primary bond/sukuk issuance during the period under review. There was an increase in activity, especially during 2Q2013, of about RM 12 billion monthly. The steady volume traded was buoyed by firm net buying interest, as the prior rally along the MGS segment in late 2012-early 2013 drove investors into the credit segment in search for yield pickup. Total corporate bond/sukuk issuance was RM13.9 billion in 1Q2013, aided by a number of large offerings by government linked companies such as DanaInfra Nasional and Turus Pesawat. Total issuance fell to around RM11.1 billion in 2Q2013. The lower issuance total in the second quarter was partly due to inherent political risks (ahead of the 13th general election) and as government bond/sukuk yields surged in May and June 2013 which could have delayed some potential offerings. 4

10 3.2 Market Outlook After June 2013, the selling pressure in the bond/sukuk market continued to be volatile. While yields are now range bound at higher levels, the immediate direction of the MGS may depend on the US Treasuries, which appeared to be torn between the perception that the selldowns in the emerging market bonds and UST are overdone as the pace of US economic recovery does not warrant for a QE tapering yet, against the perception that yields have more upside in the short term on the back of optimistic hint from the US central bank. We expect yields to be subjected to more volatility in the immediate term, which may depend largely on incoming economic data. The local sovereign bond/sukuk market, similar to its emerging market regional peers, are subject to risk of portfolio outflows from MGS / government sukuk as foreign holdings in MGS / government sukuk remains high at above 42%. However, we do not expect exodus of outflow from MYR, as carry trades are still positive. Furthermore, the excess liquidity of local funds is expected to continue supporting the market. The local corporate bond / sukuk market may more price stability than the sovereign markets, as most investors in the asset class are long term domestic investors. Separately, we expect Malaysia s healthy fundamentals to remain intact. The official 2013 GDP target of 5%-6% are still confidently achievable, together with a target inflation of less than 3%. In light of this, the coming monetary policy committee (MPC) meeting on 11 July is expected to maintain the overnight policy rate (OPR) at 3.00%. 3.3 Strategy In light of the short term uncertainties in the sovereign bond/sukuk market, we target to focus on the corporate sukuk. We prefer lower rated credit for yield enhancement as strength of the local credit environment remains intact. We are also targeting to rebalance the portfolio to a neutral duration to mitigate potential volatility in the short term 5

11 4.0 PERFORMANCE DATA 4.1 Performance Chart PERFORMANCE CHART SINCE LAUNCH (23/04/ /06/2013) KENANGA BON ISLAM FUND vs. BENCHMARK Source : Lipper 4.2 Average Total Returns 1 year 3 years 5 years 30/6/12-30/6/13 30/6/10-30/6/13 30/6/08-30/6/13 KBIF (%) 3.35% 1.06% 0.48% Benchmark (%) 3.96% 1.69% 1.76% Source: Lipper 4.3 Annual Total Returns /6/12 30/6/13 30/6/11 30/6/12 30/6/10 30/6/11 30/6/09 30/6/10 30/6/08 30/6/09 Since Inception 23/04/04 30/6/13 KBIF (%) 3.35% 1.97% 3.17% 3.84% 2.41% 40.09% Benchmark (%) 3.96% 4.91% 5.06% 0.15% 8.81% 51.56% Source: Lipper Investors are reminded that past performance is not necessarily indicative of future performance and that unit prices and investment returns may fluctuate. 6

12 4.4 Other Performance Data Performance details of the Fund as at 30 June 2013 and the two previous financial years are as follows: FY 2013 FY 2012 FY 2011 Net asset value (RM Million) 3.91* 9.85* 2.72* Units in circulation (Million) Net asset value per unit (RM) * * * Highest NAV price (RM/unit) Lowest NAV price (RM/unit) Total return (%) Capital growth (%) Income growth (%) Gross Distribution per unit (RM) Net Distribution per unit (RM) Unit Split (Ratio) Management expense ratio ( MER ) (%) Portfolio turnover ratio ( PTR ) (times) Note: Total return is the actual return of the Fund for the financial period, computed based on net asset value per unit and net of all fees. 1 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. MER decrease due to increase in the average fund size during the year under review. 2 PTR is computed based on the average of the total acquisitions and total disposals of Shariahcompliant investment securities of the Fund divided by the average fund size calculated on a daily basis. The FY 2013 PTR was lower at 0.53x compared to 0.94x in FY 2012 mainly due to its smaller fund size, which affected the portfolio liquidity. Above prices and NAV are not shown as ex-distribution as there were no distribution declared by the Fund in the current period under review. * Based on bid price fair valuation method on all investments held by the Fund as at 30 June 2013, the NAV and price would be RM3.92 million and RM respectively. (As disclosed under note 14 of the financial statements) 4.5 Distribution / Unit Split for the Period under Review The Fund did not declare any income distribution for the period under review. Investors are reminded that past performances is not necessary indicative of future performance and that unit prices and investments returns may fluctuate. 7

13 5.0 PORTFOLIO COMPOSITION 5.1 Portfolio Composition As at 30 June 2013, 79.1% of the Fund was invested in sukuk, of which 39.7% comprises sovereign and government sukuk, and 39.4% is in corporate sukuk. This is lower compared to 90.2% as at 30 June 2012, as the market outlook for the sukuk market outlook was less robust from a year earlier. The following pie-chart shows the asset allocation of the Fund as at 30 June 2013: KENANGA BON ISLAM FUND Asset Allocation as at 30 June 2013 Liquidity 20.9% Islamic Commercial Papers / Sukuk / Others 79.1% Detailed Breakdown by Sector as at 30 June 2013 Cash and others, 20.9% Corporate Sukuk, 39.4% Government Investment Issues, 39.7% 8

14 5.2 Portfolio Composition Comparative Table Details of portfolio composition of the Fund as at 30 June 2013 and the two previous financial years are as follows: a. Distribution among industry sectors and category of investments: FY 2013 FY 2012 FY 2011 % % % Corporate Sukuk Government Investment Issues Cash and others b. Distribution among markets The Fund invested in local corporate sukuk and cash instruments only. Note: The above mentioned percentages are based on total investment market value plus cash. 9

15 TRUSTEE S REPORT TO THE UNIT HOLDERS OF KENANGA BON ISLAM FUND We, CIMB COMMERCE TRUSTEE BERHAD, being the Trustee of KENANGA BON ISLAM FUND ( the Fund ) (formerly known as ING Bon Islam) 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 30 June a) The Fund has been managed in accordance with the limitations imposed on the investment powers of the Manager and the Trustee under the Deed, the Securities Commission s Guidelines on Unit Trust Funds, the Securities Capital Markets and Services Act 2007 and other applicable laws; b) Valuation/pricing of units of the Fund has been carried out in accordance with the Deed and relevant regulatory requirements; and c) Creation and cancellation of units have been carried out in accordance with the Deed and relevant regulatory requirements. For and on behalf of CIMB COMMERCE TRUSTEE BERHAD LIEW PIK YOONG Head/Director, Group Trustee Services Kuala Lumpur, Malaysia 28 August

16 SHARIAH ADVISER REPORT To the Unit Holders of KENANGA BON ISLAM FUND (FORMERLY KNOWN AS ING BON ISLAM) We have acted as the Shariah Adviser of KENANGA BON ISLAM FUND (FORMERLY KNOWN AS ING BON ISLAM). Our responsibility is to ensure that the procedures and processes employed by Kenanga Investors Bhd and that the provisions of the Deed dated 16 April 2004 and First Supplemental Deed dated 15 May 2013 are in accordance with Shariah principles. In our opinion, Kenanga Investors Bhd has managed and administered KENANGA BON ISLAM FUND (FORMERLY KNOWN AS ING BON ISLAM) 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 30 Jun In addition, we also confirm that the investment portfolio of KENANGA BON ISLAM FUND (FORMERLY KNOWN AS ING BON ISLAM) comprises securities which have been classified as Shariahcompliant 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 IBFIM MOHD NASIR ISMAIL Shariah Advisor/Designated Person Responsible for Shariah Advisory Kuala Lumpur 28 August

17 STATEMENT BY THE MANAGER To the Unit Holders of KENANGA BON ISLAM FUND (FORMERLY KNOWN AS ING BON ISLAM) I, Abdul Razak Bin Ahmad, being the director of Kenanga Investors Berhad, do hereby state that, in the opinion of the Manager, the accompanying statement of financial position as at 30 June 2013 and the related statement of comprehensive income, statement of changes in equity and statement of cash flows for the financial year ended 30 June 2013 together with notes thereto, are drawn up in accordance with Malaysian Financial Reporting Standard and International Financial Reporting Standards so as to give a true and fair view of the financial position of KENANGA BON ISLAM FUND (formerly known as ING BON ISLAM) as at 30 June 2013 and of it results, changes in equity 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 Abdul Razak Bin Ahmad Director Kuala Lumpur, Malaysia 28 August

18 INDEPENDENT AUDITORS REPORT TO THE UNITHOLDERS OF KENANGA BON ISLAM FUND (FORMERLY KNOWN AS ING BON ISLAM) Report on the financial statements We have audited the financial statements of Kenanga Bon Islam Fund (Formerly known as ING Bon Islam) ( the Fund ), which comprise the statement of financial position as at 30 June 2013, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the financial year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 15 to 39. Manager s and Trustee s responsibility for the financial statements The Manager of the Fund is responsible for the preparation of financial statements that give a true and fair view in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards. The Manager is also responsible for such internal control as the Manager determines is necessary to enable the preparation of 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 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. 13

19 Independent auditors report to the unit holders of KENANGA BON ISLAM FUND (FORMERLY KNOWN AS ING BON ISLAM) (Contd.) Opinion In our opinion, the financial statements have been properly drawn up in accordance with Financial Reporting Standards in Malaysia so as to give a true and fair view of the financial position of the Fund as at 30 June 2013 and of its financial performance, the changes in equity and the cash flows of the Fund for the financial year then ended. Other matters 1. As stated in Note 3 to the financial statements, the Fund adopted Malaysian Financial Reporting Standards on 1 July 2012 with a transition date of 1 July These standards were applied retrospectively by directors to the comparative information in these financial statements, including the statements of financial position as at 30 June 2012 and 1 July 2011, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year ended 30 June 2012 and related disclosures. We were not engaged to report on the comparative information and it is unaudited. Our responsibilities as part of our audit of the financial statements of the Fund for the year ended 30 June 2013 have, in these circumstances, included obtaining sufficient appropriate audit evidence that the opening balances as at 1 July 2012 do not contain misstatements that materially affect the financial position as of 30 June 2013 and financial performance and cash flows for the year then ended. 2. This report is made solely to the unit holders of the Fund, as a body, and for no other purpose. We do not assume responsibility to any other person for the content of this report. Ernst & Young AF: 0039 Chartered Accountants Yeo Beng Yean No. 3013/10/14(J) Chartered Accountant Kuala Lumpur, Malaysia 14

20 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 30 JUNE 2013 INVESTMENT INCOME Note RM RM Profit income 286, ,564 Net gain from Shariah-compliant investments: - Financial assets at fair value through profit or loss ( FVTPL ) 7 9,954 55, , ,340 EXPENSES Manager s fee 4 67,306 70,402 Trustee s fee 5 17,927 17,976 Auditors remuneration 4,000 4,000 Tax agent s fee 2,841 3,059 Administration 27,091 29, , ,085 NET INCOME BEFORE TAX 177, ,255 Income tax expense NET INCOME AFTER TAX, REPRESENTING TOTAL COMPREHENSIVE INCOME FOR THE YEAR 177, ,255 Total comprehensive income is made up as follows: Realised gain 212, ,815 Unrealised (loss)/gain (34,404) 54, , ,255 The accompanying notes form an integral part of the financial statements. 15

21 STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2013 ASSETS Note RM RM RM Shariah-compliant investments 7 3,099,755 8,873,834 2,635,658 Short term Islamic deposits , , ,024 3,621,503 9,866,996 2,736,682 OTHER ASSETS Other receivables , Cash at bank 5,961 4,734 1, ,948 4,813 1,218 TOTAL ASSETS 3,940,451 9,871,809 2,737,900 LIABILITIES Amount due to Manager 7,435 19,692 1,873 Amount due to Trustee 1,381 1,426 1,480 Other payables 16,100 15,400 14,600 TOTAL LIABILITIES 24,916 36,518 17,953 EQUITY NET ASSET VALUE ATTRIBUTABLE TO UNITHOLDERS 13 3,915,535 9,835,291 2,719,947 TOTAL LIABILITIES AND EQUITY 3,940,451 9,871,809 2,737,900 NUMBER OF UNITS IN CIRCULATION 13(a) 5,661,981 14,570,731 4,157,140 NET ASSET VALUE PER UNIT The accompanying notes form an integral part of the financial statements. 16

22 STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 30 JUNE 2013 Note Unitholders Retained capital earnings Total equity RM RM RM 2013 At beginning of the year 8,843, ,960 9,835,291 Total comprehensive income - 177, ,776 Creation of units 13(a) 4,967,341-4,967,341 Cancellation of units 13(a) (10,972,354) - (10,972,354) Distribution equalisation 13(a) (92,519) - (92,519) At end of the year 2,745,799 1,169,736 3,915, At beginning of the year 1,969, ,705 2,719,947 Total comprehensive income - 241, ,255 Creation of units 13(a) 12,000,322-12,000,322 Cancellation of units 13(a) (5,725,103) - (5,725,103) Distribution equalisation 13(a) 598, ,870 At end of the year 8,843, ,960 9,835,291 The accompanying notes form an integral part of the financial statements. 17

23 STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 30 JUNE 2013 CASH FLOWS FROM OPERATING AND INVESTING ACTIVITIES RM RM Proceeds from sale of Shariah-compliant investments 6,120,905 3,578,950 Purchase of Shariah-compliant investments (702,170) (9,700,690) Profits received 339, ,833 Manager s fee paid (72,160) (64,742) Trustee s fee paid (17,972) (18,030) Auditors remuneration paid (4,000) (4,000) Tax agent s fee paid (2,441) (2,400) Payment for other fees and expenses (26,791) (29,507) Net cash generated from/(used in) operating and investing activities 5,634,748 (5,990,586) CASH FLOWS FROM FINANCING ACTIVITIES Cash received from units created 5,063,847 13,304,585 Cash paid on units cancelled (11,168,782) (6,418,337) Net cash (used in)/ generated from financing activities (6,104,935) 6,886,248 NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (470,187) 895,662 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 997, ,234 CASH AND CASH EQUIVALENTS AT END OF THE YEAR 527, ,896 Cash and cash equivalent comprise: Cash at bank 5,961 4,734 Short term Islamic deposits 521, , , ,896 The accompanying notes form an integral part of the financial statements. 18

24 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 JUNE THE FUND, THE MANAGER AND THEIR PRINCIPAL ACTIVITIES Kenanga Bon Islam Fund (hereinafter referred to as The Fund ) was constituted pursuant to the executed Deed dated 16 April 2004 between ING Funds Berhad and CIMB Commerce Trustee Berhad as the Trustee. The Fund commenced operation on 23 April 2004 and will continue to be in operation until terminated by the Trustee as provided under Clause 38 of the Deed. As provided in the Deed, the accrual period or financial year shall end on 30 June. 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 2013 and the name of the Fund was changed from ING Bon Islam to Kenanga Bon Islam Fund. The objective of the Fund is to provide investors with a regular income stream through investments in sukuk and Islamic money market instruments. The Fund s strategy is based on the belief that active management of credit risk can produce consistently superior results than those produced through passive management. 2. 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, liquidity risk and single issuer 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 set 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 securities prices caused by uncertainties in the economy, political and social environment will affect the fair price of the Fund. 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. 19

25 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Contd.) a. Market Risk (Contd.) i. Interest rate risk The Fund s exposure to the interest rate risk is mainly confined to short term placement with Islamic financial institutions. The Manager overcomes this exposure by way of maintaining Islamic deposits on short term basis. The interest rate is a general economic indicator that will have an impact on management of fund or otherwise. It does not any way suggest that this Fund will invest in conventional financial instruments. Interest rate risk sensitivity The following table demonstrates the sensitivity of the Fund s profit for the year to a reasonably possible change in rate of return, with all other variables held constant. Changes in rate Basis points Increase/(decrease) Effect on profit for the year Increase/(decrease) RM Effect on changes in fair value of financial assets Increase/(decrease) RM /(5) 1,811/(1,811) 1,550/(1,550) /(5) 4,933/(4,933) 4,437/(4,437) Interest rate risk exposure The following table analyses the Fund s interest rate risk exposure. The Fund s assets and liabilities are disclosed at fair value and categorised by the earlier of contractual re-pricing or maturity dates. 20

26 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk (Contd.) i. Interest rate risk (Contd.) Interest rate risk exposure (Contd.) Up to 1 year Above 1 year 5 years Above 5 years 15 years Non exposure to interest rate movement Total Effective rate of return* RM RM RM RM RM % 2013 Assets: Shariah-compliant Investments - 1,402,943 1,696,812-3,099, Short term Islamic deposits 521, , Other assets , , ,748 1,402,943 1,696, ,948 3,940,451 Liabilities: Other liabilities ,916 24, ,916 24,916 Total interest rate sensitivity gap 521,748 1,402,943 1,696, ,032 3,915, Assets: Shariah-compliant Investments 185,940 4,417,414 4,270,480-8,873, Short term Islamic deposits 993, , Other assets ,813 4,813 1,179,102 4,417,414 4,270,480 4,813 9,871,809 Liabilities: Other liabilities ,518 36, ,518 36,518 Total interest rate sensitivity gap 1,179,102 4,417,414 4,270,480 (31,705) 9,835,291 * Computed based on interest-bearing assets only. 21

27 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) b. Credit Risk Credit risk is the risk that the counterparty to a financial instrument will cause a financial loss for the Fund by failing to discharge an obligation. The Manager manages the credit risk by undertaking credit evaluation to minimise such risk. i. Credit risk exposure At the reporting date, the Fund s maximum exposure to credit risk is represented by the carrying amount of each class of financial assets recognised in the statement of financial position. 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: Percentage of total Percentage of NAV % % % % AAA AA AA AA AA 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 Percentage of NAV % % % % Utilities Construction Transportation Finance Plantation

28 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) b. Credit Risk (Contd.) iv. Credit risk concentration (Contd.) Percentage of total Percentage of NAV % % % % Property Trading/Services MBS Infrastructure Government Agency 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 net asset value per unit at the time of cancellation calculated in accordance with the Fund s Trust 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 (undiscounted where appropriate) and financial liabilities in order to provide a complete view of the Fund s contractual commitments and liquidity. Up to 1 Above 1 year Above 5 years year 5 years 15 years Total RM RM RM RM 2013 Assets: Shariah-compliant Investments - 1,402,943 1,696,812 3,099,755 Short term Islamic deposits 521, ,748 Other assets 318, , ,696 1,402,943 1,696,812 3,940,451 23

29 2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) c. Liquidity Risk (Contd.) Up to 1 year Above 1 year 5 years Above 5 years 15 years Total RM RM RM RM 2013 Liabilities: Other liabilities 24, ,916 24, ,916 Net asset value 3,915, ,915,535 Liquidity gap (3,099,755) 1,402,943 1,696, Assets: Shariah-compliant Investments 185,940 4,417,414 4,270,480 8,873,834 Short term Islamic deposits 993, ,162 Other assets 4, ,813 1,183,915 4,417,414 4,270,480 9,871,809 Liabilities: Other liabilities 36, ,518 36, ,518 Net asset value 9,835, ,835,291 Liquidity gap (8,687,894) 4,417,414 4,270,480 - d. Single Issuer Risk The Fund is restricted to invest in Shariah-compliant securities issued by any issuer of not more than a certain percentage of its net asset value. Under such restriction, the exposure risk to the Shariah-compliant securities of any issuer is minimised. 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 financial statements have been prepared on the historical cost basis except as disclosed in the accounting policies below. 24

30 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) b. First-time adoption of MFRS These are the Fund s financial statements prepared in accordance with MFRS. For the periods up to and including the financial period ended 30 June 2012, the financial statements of the Fund were prepared in accordance with Financial Reporting Standards ( FRS ) in Malaysia. The accounting policies set out in Note 3 have been applied in preparing the financial statements of the Fund for the financial period ended 30 June 2013, the comparative information presented in these financial statements for the financial year ended 30 June 2012 and in the preparation of the opening statement of financial position at 1 July 2011 (which is the Fund s date of transition to MFRS). The transition to MFRS did not give rise to any significant effects on the financial statements of the Fund. c. Standards and interpretations issued but not yet effective The Manager expect that the new MFRSs, Amendments to MFRSs and Interpretations which are issued but not yet effective for the financial period ended 30 June 2013 will not have a material impact on the financial statements of the Fund in the period of initial application. d. 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 fair value through profit or loss, directly attributable transaction costs. The Fund determines the classification of its financial assets at initial recognition, and the categories include financial assets at fair value through profit or loss, ( FVTPL ) and receivables. i. Financial assets at FVTPL 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 and government investment issues 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 financial instruments are recorded in Net gain or loss on financial assets at fair value through profit or loss. Profit earned elements of such instruments are recorded separately in profit income. 25

31 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) d. Financial Assets (Contd.) ii. Receivables Financial assets with fixed or determinable payment that are not quoted in an active market are classified as receivables. The Fund includes Islamic deposits in Islamic financial institutions and short term receivable in this classification. 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 receivable 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. e. Impairment of Financial Assets The Fund assesses at each reporting date whether there is any objective evidence that a financial assets is impaired. Trade and other receivables and other financial assets carried at amortised cost 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 assets is reduced by the impairment loss directly for all financial assets. 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. 26

32 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) f. Income Recognition Profit income is recognised using effective profit method on an accrual basis. The realised gain or loss on sale of Shariah-compliant investment is measured as the difference between the net disposal proceeds and the carrying amount of the Shariahcompliant investment, calculated on a daily basis. The unrealised gain or loss on change in value of Shariah-compliant investments is measured as the difference between the fair value and the carrying amount of the Shariah-compliant investment, calculated on a daily basis. g. Cash and Cash Equivalent For the purposes of the statement of cash flows, cash and cash equivalent include cash at bank and short term Islamic deposits with Islamic financial institutions. h. Income Tax Expense 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. Income tax is calculated on investment income less partial deduction for permitted expenses as provided for under Section 63B of the Income Tax Act, i. 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 in nature. j. Financial Liabilities Financial liabilities are classified according to the substance of the collateral arrangements entered into and the definitions of a financial liability. 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. The Fund s liability which include amount due to Manager, amount due to Trustee and other payables are recognised initially at fair value plus directly attributable transaction costs and subsequently measured at amortised cost using the effective profit method. A financial liability is derecognised when the obligation under the liability is extinguished. Gain and loss is recognised in profit or loss when the liabilities are derecognised, and through amortisation process. 27

33 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) 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. Unitholder s Capital NAV Attributable to Unitholders The unitholders contributions to the Fund meet the definition of puttable instruments classified as equity instruments. Distribution equalisation represents the average distributable amount included in the creation and cancellation prices of units. This amount is either refunded to unitholders by way of distribution and/or adjusted accordingly when units are cancelled. m. Significant Accounting Judgements and Estimates The preparation of financial statements requires the use of certain accounting estimates and exercise of judgement. Estimates and judgements are continually evaluated and are based on past experience, reasonable expectations of future events and other factors. i. Critical judgements made in applying accounting policies There are no other major judgements made by the Manager in applying the Fund's accounting policies. ii. Key sources of estimation uncertainty 4. MANAGER S FEE There are no key assumptions concerning the future and other key sources of estimation uncertainty at the financial position date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. The Manager s fee is computed based on 1.00% per annum of the net asset value of the Fund, calculated on a daily basis, as provided under Clause 13(2) of the Deed. 5. TRUSTEE S FEE Trustee s fee is calculated on a daily basis at 0.07% per annum of the net asset value of the Fund, as provided under Clause 13(8) and subject to a minimum fee of RM18,000 per annum as provided under Clause 13(7) of the Deed. 28

34 6. INCOME TAX EXPENSE Income tax is calculated at the Malaysian statutory tax rate of 25% of the estimated assessable income for the financial year. Income tax is calculated on investment income less partial deduction for permitted expenses as provided for under Section 63B of the Income Tax Act, The effective rate does not approximate the statutory tax rate mainly due to profit income exempted from tax in accordance with Schedule 6 of the Income Tax Act, 1967 and gains on disposal of quoted Shariah-compliant investments are treated as capital in nature for tax purposes. 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 177, ,255 Tax at Malaysian statutory tax rate of 25% (2012: 25%) 44,444 60,314 Income not subject to tax (74,235) (91,585) Expenses not deductible for tax purposes (under Section 63B of the Income Tax Act, 1967) 29,791 31,271 Tax expense for the year SHARIAH-COMPLIANT INVESTMENTS Note RM RM RM Financial assets at FVTPL: Unquoted sukuk 8 1,543,612 6,798,260 2,126,329 Government investment issues 9 1,556,143 2,075, ,329 3,099,755 8,873,834 2,635,658 Total gain on financial assets at FVTPL from: Unquoted sukuk 8 6,911 33,720 Government investment issues 9 3,043 22,056 9,954 55,776 29

35 8. UNQUOTED SUKUK RM RM RM Financial assets held for trading, at FVTPL: Unquoted sukuk 1,543,612 6,798,260 2,126,329 Net gain on financial assets at FVTPL comprised: Realised gain on disposals 38,126 2,437 Unrealised changes in fair values (31,215) 31,283 6,911 33,720 Details of unquoted sukuk as at 30 June 2013: Nominal Value RM Carrying Amount RM Fair Value RM Percentage of NAV % Sukuk - Discounted Danga Capital Bhd maturing on 24/04/ , , , , , Sukuk - Premium Aman Sukuk Bhd maturing on 21/10/ , , , Sime Darby Bhd maturing on 14/11/ , , , Maju Expressway Bhd maturing on 15/06/ , , , Kapar Energy Venture Sdn Bhd maturing on 08/01/ , , , Cagamas MBS Bhd maturing on 08/08/ , , , Cagamas Bhd maturing on 29/03/ , , , ,308,129 1,340, Total unquoted sukuk 1,509,566 1,543, Excess of fair value over cost 34,046 As at 30 June 2013, the long term and short term ratings by Rating Agency Malaysia Berhad (RAM) and Malaysian Rating Corporation Berhad (MARC) for the respective sukuks which indicate strong ability for timely payment of obligations are as follows: Ratings Danga Capital Bhd AAA Aman Sukuk Bhd AAA Cagamas MBS Bhd AAA Kapar Energy Venture Sdn Bhd AA+ Sime Darby Bhd AAA Cagamas Bhd AAA Maju Expressway Bhd AA- The weighted average rate of return and average remaining maturities of the unquoted sukuk are 2.75% (2012: 4.83%) and 1,611 days (2012: 2,436 days) respectively. 30

36 9. GOVERNMENT INVESTMENT ISSUES RM RM RM Financial assets at FVTPL: Government investment issues 1,556,143 2,075, ,329 Net gain on financial assets at FVTPL comprised: Realised loss on disposals 6,232 (1,101) Unrealised changes in fair values (3,189) 23,157 3,043 22,056 Details of government investment issues as at 30 June 2013: Nominal value RM Carrying amount RM Fair value RM Percentage of NAV % Pengurusan Air SPV Bhd maturing on 08/02/ , , , Syarikat Prasarana Negara Bhd maturing on 04/08/2021 1,000,000 1,027,596 1,042, ,536,043 1,556, Excess of fair value over cost 20,100 The weighted average effective yield profit rate and average remaining maturities of the government investment issues are 3.55% (2012: 4.09%) and 1,957 days (2012: 2,824 days) respectively. 10. SHORT TERM ISLAMIC DEPOSITS Short term Islamic deposits are held with licensed commercial banks in Malaysia, on a daily renewal basis at the prevailing profit rate. The weighted average rates of return and average remaining maturities of the short term Islamic deposits are as follows:- Weighted average rate of return Remaining maturity % % % Days Days Days Short term Islamic deposits

37 11. OTHER RECEIVABLES RM RM RM Profit income from short term Islamic deposits Amount due from stockbroker 312, , SHARIAH INFORMATION OF THE FUND The Shariah Adviser confirmed that the investments portfolio of the Fund is Shariahcompliant, which comprises: a. Unquoted sukuk and government investment issues as per list of approved unquoted sukuk and government investment issues issued by the Securities Commissions; and b. Cash placements and liquid assets in local market, which are placed in Shariah-compliant investments and/or instruments. 13. NET ASSET VALUE ATTRIBUTABLE TO UNITHOLDERS Net assets value attributed to unitholders is represented by: Note RM RM RM Unitholders contribution (a) 2,745,799 8,843,331 1,969,242 Retained earnings: Realised reserves (b) 1,115, , ,346 Unrealised reserves (c) 54,146 88,799 34,359 3,915,535 9,835,291 2,719,947 a. Unitholders contribution No. of units RM No. of units RM At beginning of the year 14,570,731 8,843,331 4,157,140 1,969,242 Distribution equalisation - (92,519) - 598,870 Add: Creation of units 7,366,670 4,967,341 20,068,962 12,000,322 Less: Cancellation of units (16,275,420) (10,972,354) (9,655,371) (5,725,103) At end of the year 5,661,981 2,745,799 14,570,731 8,843,331 32

38 13. NET ASSET VALUE ATTRIBUTABLE TO UNITHOLDERS (CONTD.) b. Realised reserves RM RM At beginning of year 903, ,346 Effect from reclassification of bid prices in prior years Net realised gain 212, ,815 At end of the year 1,115, ,161 c. Unrealised reserves RM RM At beginning of the year 88,799 34,359 Effect from reclassification of bid prices in prior years (249) - Net unrealised gain (34,404) 54,440 At end of the year 54,146 88,799 In accordance with the Deed and as disclosed in the prospectus, the maximum number of units that can be issued for circulation is 300,000,000 (2012: 300,000,000). The number of units legally or beneficially held by the Manager, Kenanga Investors Berhad, and parties related to the Manager as at 30 June 2013 were nil (2012: nil). Pursuant to Clause 25(1) of the Deed dated 16 April 2004, the Manager is entitled to a sales charge of not more than 8% of the net asset value of the Fund. The sales charge was 1.5% of the net asset value for the financial year ended 30 June NET ASSET VALUE PER UNIT Net asset value attributable to unitholders is classified as equity in the statement of financial position. In line with the adoption of MFRS 139, quoted financial assets have been valued at the bid prices at the close of business. In accordance with the Deed, the calculation of net asset value attributable to unitholders per unit for the creation and cancellation of units is computed based on quoted financial assets valued at the last done market price. A reconciliation of net asset attributable to unitholders for creating/cancelling of units and the net asset value attributable to unitholders per the financial statements is as follows: 33

39 14. NET ASSET VALUE PER UNIT (CONTD.) RM RM/Unit RM RM/Unit Net asset value attributable to unitholders for creating/cancelling of units 3,907, ,845, Effect from adopting bid prices as fair value 8,253 (0.0014) (10,520) (0.0007) Net asset value attributable to unitholders per statement of financial position 3,915, ,835, DISTRIBUTION EQUALISATION 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. 16. INCOME DISTRIBUTION No income distribution was declared by the Fund for the financial year ended 30 June 2013 (2012: nil). 17. PORTFOLIO TURNOVER RATIO The portfolio turnover ratio ( PTR ) for the current financial year is 0.53 times (2012: 0.94 times). PTR is the ratio of the average of the acquisitions and disposals of Shariah-compliant investments of the Fund for the year to the average net asset value of the Fund, calculated on a daily basis. 18. MANAGEMENT EXPENSE RATIO The management expense ratio ( MER ) for the current financial year is 1.77% (2012: 1.78%). MER is the ratio of total fees and recovered expenses of the Fund expressed as a percentage of the Fund s average net asset value, calculated on a daily basis. 34

40 19. TRANSACTIONS WITH FINANCIAL INSTITUTIONS Transaction value Percentage of total RM % OSK Investment Bank Bhd 5,714, RHB Bank Bhd 702, Hong Leong Investment Bank Bhd 312, RHB Investment Bank Bhd 306, ,037, The above transactions values were in respect of unquoted sukuk and government investment issues. Transactions in unquoted sukuk and government investment issues do not involve any commission or brokerage fees. None of the parties mentioned is related to the Manager. 20. SEGMENTAL REPORTING a. Business Segment In accordance with the objective of the Fund, the Fund can invest 50% to 95% in Sukuk and 5% to 50% in cash. The following table provides an analysis of the Fund s revenue, results, assets and liabilities by business segments: Sukuk Cash Total RM RM RM Revenue Segment income representing segment results 279,944 16, ,941 Unallocated expenditure (119,165) Income before tax 177,776 Tax - Net income after tax 177,776 Assets Shariah-compliant investments 3,099, ,748 3,621,503 Unallocated assets 318,948 3,940,451 35

41 20. SEGMENTAL REPORTING (CONTD.) a. Business Segment (contd.) Sukuk Cash Total RM RM RM Liabilities Unallocated liabilities 24,916 Net asset value attributable to unitholders 3,915,535 3,940, Revenue Segment income representing segment results 343,477 22, ,340 Unallocated expenditure (125,085) Income before tax 241,255 Tax - Net income after tax 241,255 Assets Shariah-compliant investments 8,873, ,162 9,866,996 Unallocated assets 4,813 9,871,809 Liabilities Unallocated liabilities 36,518 Net asset value attributable to unitholders 9,835,291 9,871,809 b. Geographical Segments As all of the Fund s investments are located in Malaysia, the Fund does not have separate identifiable geographical segments. 21. ISLAMIC FINANCIAL INSTRUMENTS a. Classification of financial instruments The Fund s financial assets and financial liabilities are measured on an ongoing basis at either fair value or at amortised cost based on their respective classification. The significant accounting policies in Note 3 describe how the classes of financial instruments are measured, and how income and expenses, including fair value gain and loss, are recognised. The following table analyses the financial assets and liabilities of the Fund in the statement of financial position as at 30 June 2013 by the class of financial instrument to which they are assigned and therefore by the measurement basis. 36

42 21. ISLAMIC FINANCIAL INSTRUMENTS (CONTD.) a. Classification of financial instruments (contd.) Financial assets at FVTPL Receivables Financial liabilities Total RM RM RM RM Assets Shariah-compliant investments 3,099, ,099,755 Short term Shariah-based deposit - 521, ,748 Other receivables - 312, ,987 Cash at bank - 5,961-5,961 3,099, ,696-3,940,451 Liabilities Amount due to Manager - - 7,435 7,435 Amount due to Trustee - - 1,381 1,381 Other payables ,100 16, ,916 24,916 Financial assets at FVTPL Receivables Financial liabilities Total RM RM RM RM Assets 8,873, ,873,834 Shariah-compliant investments - 993, ,162 Short term Shariah-based deposit Other receivables - 4,734-4,734 Cash at bank 8,873, ,975-9,871,809 Liabilities Amount due to Manager ,692 19,692 Amount due to Trustee - - 1,426 1,426 Other payables ,400 15, ,518 36,518 Financial assets at FVTPL Receivables Financial liabilities Total RM RM RM RM Assets Shariah-compliant investments 2,635, ,635,658 Short term Shariah-based deposit - 101, ,024 Other receivables Cash at bank - 1,210-1,210 2,635, ,242-2,635,658 Liabilities Amount due to Manager - - 1,873 1,873 Amount due to Trustee - - 1,480 1,480 Other payables ,600 14, ISLAMIC FINANCIAL INSTRUMENTS (CONTD.) 37

43 b. Financial instruments that are carried at fair value The Fund s financial assets at FVTPL are carried at fair value. The fair values of these financial assets were determined using prices in active markets. The following table shows the fair value measurements by level of the fair value measurement hierarchy: Level 1 Level 2 Level 3 Total RM RM RM RM Shariah-compliant Investments: - Unquoted Sukuks - 1,543,612-1,543,612 - Government investment issues - 1,556,143-1,556,143-3,099,755-3,099,755 Level 1 Level 2 Level 3 Total RM RM RM RM Shariah-compliant Investments: - Unquoted Sukuks - 6,798,260-6,798,260 - Government investment issues - 2,075,574-2,075,574-8,873,834-8,873,834 Level 1 Level 2 Level 3 Total RM RM RM RM Shariah-compliant Investments: - Unquoted Sukuks - 2,126,329-2,126,329 - Government investment issues - 509, ,329-2,635,658-2,635,658 Level 1: Quoted prices in active market Level 2: Model with all significant inputs which are observable market data Level 3: Model with inputs not based on observable market data The fair value of unquoted Sukuks and government investment issues is based on average of quoted bid price by respective bankers. c. Financial instruments not carried at fair value and whose carrying amounts are reasonable approximation of fair value Cash and cash equivalents, amount due to Manager/Trustee and other receivables/payables The carrying amounts approximate fair values due to the relatively short term maturity of these Islamic financial instruments. 38

44 22. CAPITAL MANAGEMENT The capital of the Fund can vary depending on the demand for creation and cancellation to the Fund. The Fund s approved fund size and units in issue at the end of the year is disclosed in Note 13. The Fund s objectives for managing capital are: a. To invest in investments meeting the description, risk exposure and expected return indicated in its prospectus; b. To achieve consistent returns while safeguarding capital by using various investment strategies; c. To maintain sufficient liquidity to meet the expenses of the Fund, and to meet cancellation requests as they arise; and d. To maintain sufficient fund size to make the operation of the Fund cost-efficient. No changes were made to the capital management objectives, policies or processes during the current financial year. 23. SIGNIFICANT EVENTS On 19 March 2013, IFB Management Holdings Sdn Bhd, the holding company of the Manager of the Fund has entered into a conditional Sales and Purchase agreement with Kenanga Investors Berhad on the disposal of ING Funds Berhad. The High Court of Malaya has granted the term of the vesting order on 25 April 2013 and the effective transfer date of the businesses will fall on 8 June

45