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

Transcription

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

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3 KENANGA EKUITI ISLAM FUND (FORMERLY KNOWN AS ING EKUITI ISLAM) 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 S 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 40

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 EKUITI ISLAM FUND for the Financial Year Ended 30 June FUND INFORMATION 1.1 Fund Name KENANGA EKUITI ISLAM FUND (KEIF or the Fund) 1.2 Fund Category / Type Islamic Equity / Growth 1.3 Investment Objective The Fund aims to achieve long-term capital growth through investments in Shariahcompliant securities. 1.4 Investment Strategy Investments are on Shariah-compliant securities i.e. equities that offer medium-term^ earnings growth and that are inexpensively priced¹. Firstly, the strategy begins with a thorough macroeconomic analysis and determining the investable universe of stocks for the Fund. ^ Medium-term refers to a period of between 5-7 years. 1 Inexpensively priced refers to equities that have a lower price earnings ratio compared with the industry average. 1.5 Asset Allocation Shariah compliant equities : 50% 98% of the Fund s NAV. Sukuk / 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 FTSE Bursa Malaysia Emas Shariah Index (FBMS). 1.8 Distribution Policy The Fund may distribute Income (if any) annually 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 For the period under review to 30th June 2013, the Fund appreciated by 11.6%, slightly underperforming the benchmark return of 11.7%. The underperformance was mainly due to the stock selection. 2.2 Has the Fund achieved its objective? For the periods of 1-year and 3-years, the Fund has underperformed the benchmark index. Since inception, however, the Fund has outperformed the benchmark index with a total return of 132.6%* against the benchmark s 96.6%. The Fund achieved its stated objective to provide long-term capital growth. * Source : Lipper 2.3 Strategies & policies employed For the period under review, the Fund continued with its strategy of investing in Shariahcompliant securities of companies with sustainable business models and competent management, whilst trading at a discount to their intrinsic / fair value. The Fund focused on companies whose top line / revenue should prove to be relatively more resilient to a global economic slowdown and have the ability to maintain their profit margins. We also focused on companies likely to benefit from Malaysia s on-going Economic Transformation Program. 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 17,351,516 (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 ,238, ,001-10, ,728, ,001-50, ,850, , , ,533, ,001 and above Total 1, ,351, 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 The Manager from time to time may receive rebates which are then paid to the Fund. During the financial period under review, no rebates were received by virtue of transactions conducted by the Fund. The Manager received soft commission from its brokers by virtue of transactions conducted by the Fund in the form of research and advisory services. These services assist in the decision-making process relating to the investments of the Fund and are of a demonstrable benefit to the Unit Holders. 3

9 3.0 MARKET REVIEW & OUTLOOK 3.1 Market Review Equities market in the region performance can be broken up into three parts for the period under review. The Nikkei had a fantastic year (+31.8% yoy) following the government s surprise decision to follow the US quantitative easing programme with a potential value of US$1.5 trillion in an effort to inflate the long stagnant economy. The emerging countries of ASEAN were clear outperformers led by Indonesia and Philippines which rose by 11.6% and 11.2% respectively as investors react positively to the underlying domestic economic growth of these economies. The strong inflow of funds into these countries was also helped by US s QE3 programme. Governments around the world were generally adopting a loose monetary policy to help economic recovery. The major underperforming countries were China, Hong Kong and Korea as the benchmark indices of these countries fell by 13%, 8% and 7% respectively. Investors were worried the Chinese government might tighten further to rein in inflation especially for property and non-productive sectors. Malaysia on the other hand, lagged regional market especially in the 1Q 13 due to uncertainty over the timing and result of the 13th Malaysia General Election. The FBMS index soared to record level, especially after results of the 13th General Election is known helped by the strong inflows of foreign funds as well as participation from cashed up domestic funds. The KLCI Index rose by 5% whilst the broader FBM Shariah Index grew by 6.7%. The market reacted positively after Barisan National retained power albeit with a slightly lesser majority. The KLCI index rose by 4.8% on the first day after the announcement of the election result. This could be attributed to the removal of risk premium associated with the uncertainty over the general election. On the economic side, the 1Q 13 GDP growth of 4.1% fell short of expectation. This was attributed to weaker exports and slower growth in private investments due to uncertainty from the election outcome. The 1Q reporting season in Malaysia came in within analysts expectation with 60% of the results met consensus expectation whilst around 17% was above expectation. The disappointment came mostly from the oil & gas, plantation, and gaming related companies. Equities market reacted strongly on the negative in June after the Fed s chairman, Ben Bernanke commented that it would be appropriate to moderate the monthly pace of purchases later this year. It sparked investors fear that US QE3 will be tapering off earlier than expected. The situation was made worse when the PBoC initially refused to ease a liquidity squeeze in the interbank market which caused a sharp spike in SHIBOR rate to peak at 13.4%. The decline was led by China SHComp (-14%), Philippines (-7.9%) and Hong Kong (- 7.1%). Malaysia was the only market that managed to stay flat as domestic funds managed to absorb the foreigners selling. The Ringgit weakened from RM2.96/US$ to RM3.22/US$ as a result of the outflow 4

10 3.2 Market Outlook After the sterling performance in 2Q2013 amidst the positive reception to the outcome of the 13th General Election wherein the benchmark FBMKLCI chalked up 6.1% q-o-q, we expect 3Q2013 to be in consolidative mode given the prospects of the US QE being tapered off and the Chinese government higher tolerance for lower economic growth in an effort to regulate sector such as property. We believe the market will experience heightened volatility in view of potential portfolio outflows to developed markets in view of improvement in the underlying economy which in turn fuels corporate earnings. Having said that, this may just be a temporary phase of adjustment due to the reversal of short term capital, which incidentally will coincide with the lull month of Ramadan. The Malaysian equity market remains supported by strong fundamentals underpinned by its sustainable GDP growth of 5.1% in 2013 and 5.4% in 2014 which is driven by private consumption growth and the new investment cycle; and strong domestic liquidity. Valuations remain elevated at long term mean of 15-16x CY2013EPS, but justified by the 5-10% EPS growth in CY13/14; not to mention its underperformance vis-à-vis the region since September Sector wise, we remain positive on key domestic sectors such as oil and gas, construction and banks, which will continued newsflow from the government s ETP in the various sectors/projects such as the MRT2 and MRT3, High Speed Rail, Petronascapex plan, although we remain cautious on the property sectors following murmurs of possible tightening by Bank Negara to prevent speculation; and have turned mildly positive on the plantation sector following the bottoming out of CPO prices after the sizeable drawdown in inventory 3.3 Strategy We maintain our barbell strategy of holding a good balance of high yielding/defensive stocks and beta stocks. We will continue to deploy the excess funds on dips, as we believe market will fare better in the later part of the year due to improving economic conditions. Our stock selection will move towards sectors that will benefit from being the main drivers of the economy such as the oil & gas, construction and plantation sector. This will be balanced out with having a significant portion of your portfolio invested in high yielding stocks to ensure stability. Sectors that we favour include REITs, consumer staples and FMCG, healthcare, O&G and plantations on a longer term. For the period under review, the Fund s investment strategy and policy was to invest in a portfolio of Ringgit-denominated Islamic financial instruments from financial institutions governed by relevant legislation which is on track to provide the expected return. The strategy employed was in line with that disclosed in the prospectus. 5

11 4.0 PERFORMANCE DATA 4.1 Performance Chart PERFORMANCE CHART SINCE LAUNCH (23/04/ /06/2013) KENANGA EKUITI 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 KEIF (%) 5.12% 5.60% -8.18% Benchmark (%) 11.85% 6.07% -8.70% 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 KEIF (%) 5.12% 6.02% 16.80% 26.60% % % Benchmark (%) 11.85% 2.41% 18.20% 43.03% % 96.63% 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 FY FY Net asset value (RM Million) 11.36* 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 (sen) Net distribution per unit (sen) Management expense ratio (%) Portfolio turnover ratio (times) Note: Total return is the actual return of the Fund for the financial year, computed based on net asset value per unit and net of all fees. 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. The increase in MER is due to decrease in fund size during the year under review. 2 PTR is computed based on the average of the total acquisitions and total disposals of Shariah-compliant investment securities of the Fund divided by the average fund size calculated on a daily basis. The portfolio turnover ratio decreased from 5.30x in FY2012 to 4.11x in FY2013, mainly due to lower trading activities for the fund. Above prices and NAV are not shown as ex-distribution as there were no distribution declared by the Fund in the current year under review. * 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 RM11.29 million and RM respectively. (As disclosed under note 13 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 performance is not necessarily indicative of future performance and that unit prices and investment returns may fluctuate. 7

13 5.0 PORTFOLIO COMPOSITION 5.1 Portfolio Composition As at 30th June 2013, the asset allocation of the Fund stood at 98% in Shariah-compliant equities and the balance of 2% in liquidity. The increase in Shariah-compliant equities in 1H 2013 was because the Manager was confident that there is more upside potential to the market. For a snapshot of the Fund s asset allocation as at 30th June 2013, please refer to the pie charts below. The following pie-chart shows the asset allocation of the Fund as at 30 June 2013: KENANGA EKUITI ISLAM FUND Asset Allocation as at 30 June 2013 Islamic Commercial Papers / Sukuk / Others 2% Shariahcompliant Equity 98% Detailed Breakdown of Equity by Sector as at 30 June 2013 Short-term Islamic Construction, deposits, 2.4% 1.6% Finance, 2.4% PN4, 4.3% Properties, 3.9% Consumer, 5.2% Trading and Services, 49.4% Plantations, 7.7% Infrastructure, 8.6% Industrial Products, 14.5% 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 % % % Trading / Services Industrial Product Infrastructure Plantation Shariah-compliant Warrants Consumer Product Properties Finance Construction Technology Shariah-compliant Collective Investment Scheme Cash and others b. Distribution among markets The Fund invested in local equities 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 EKUITI ISLAM FUND We, CIMB COMMERCE TRUSTEE BERHAD, being the Trustee of KENANGA EKUITI ISLAM FUND ( the Fund ) (formerly known as ING Ekuiti 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 S REPORT To the Unit Holders of KENANGA EKUITI ISLAM FUND (FORMERLY KNOWN AS ING EKUITI ISLAM) We have acted as the Shariah Adviser of KENANGA EKUITI ISLAM FUND (FORMERLY KNOWN AS ING EKUITI 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 EKUITI ISLAM FUND (FORMERLY KNOWN AS ING EKUITI 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 EKUITI ISLAM FUND (FORMERLY KNOWN AS ING EKUITI ISLAM) comprises securities which have been classified as Shariah-compliant by the Shariah Advisory Council of the Securities Commission. As for the securities which are not certified by the Shariah Advisory Council of the Securities Commission, we have reviewed the said securities and opine that these securities are designated as Shariah-compliant. For 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 EKUITI ISLAM FUND (FORMERLY KNOWN AS ING EKUITI 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 Standards and International Financial Reporting Standards so as to give a true and fair view of the financial position of Kenanga Ekuiti Islam Fund (Formerly Known As ING Ekuiti Islam) as at 30 June 2013 and of its financial performance and cash flows for the year then ended and comply with the requirements of the Deed. For and on behalf of the Manager, Kenanga Investors Berhad Abdul Razak Bin Ahmad Director Kuala Lumpur, Malaysia 28 August

18 Independent auditors report to the unit holders of Kenanga Ekuiti Islam Fund (Formerly Known As ING Ekuiti Islam) Report on the financial statements We have audited the financial statements of Kenanga Ekuiti Islam Fund (Formerly Known As ING Ekuiti 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 40. 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 Ekuiti Islam Fund (Formerly Known As ING Ekuiti Islam) (Contd.) Opinion In our opinion, the financial statements have been properly drawn up in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards so as to give a true and fair view of the financial position of the Fund as at 30 June 2013 and of its financial performance 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 2013 and 1 July 2012, 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 Dividend income 399, ,245 Profit income 46,604 76,509 Net gain from Shariah-compliant investments: -Financial assets at fair value through profit or loss ( FVTPL ) 7 1,241, ,301 1,687, ,055 EXPENSES Manager s fee 4 241, ,665 Trustee s fee 5 17,927 18,123 Auditors remuneration 5,000 5,500 Tax agent s fee 4,054 5,434 Administration 46,199 49, , ,187 NET INCOME BEFORE TAX 1,372, ,868 Income tax expense 6-6,048 NET INCOME AFTER TAX, REPRESENTING TOTAL COMPREHENSIVE INCOME FOR THE YEAR 1,372, ,916 Total comprehensive income is made up as follows: Realised gain 1,058,362 1,330,269 Unrealised gain/(loss) 314,049 (927,353) 1,372, ,916 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 Quoted Shariah-compliant equity securities 7 11,017,023 22,585,980 27,463,858 Short term Islamic deposits 9 253,747 1,658,937 1,518,586 11,270,770 24,244,917 28,982,444 OTHER ASSETS Other receivables 11 57,529 1,661, ,870 Tax recoverable 53,461 49,368 53,068 Cash at bank 10,797 4,819 6, ,787 1,715, ,855 TOTAL ASSETS 11,392,557 25,960,562 29,237,299 LIABILITIES Amount due to Manager 71,403 49, ,393 Amount due to Trustee 1,381 1,426 1,675 Other payables 31,500 2,033, ,444 TOTAL LIABILITIES 104,284 2,084, ,512 EQUITY NET ASSET VALUE ATTRIBUTABLE TO UNITHOLDERS 12 11,288,273 23,875,700 28,402,787 TOTAL LIABILITIES AND EQUITY 11,392,557 25,960,562 29,237,299 NUMBER OF UNITS IN CIRCULATION 12(a) 17,351,517 40,853,797 49,822,005 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 16,526,553 7,349,147 23,875,700 Total comprehensive income 1,372,411 1,372,411 Creation of units 12(a) 11,512,360-11,512,360 Cancellation of units 12(a) (25,006,559) - (25,006,559) Distribution equalisation 12(a) (465,639) - (465,639) At end of the year 2,566,715 8,721,558 11,288, At beginning of the year 21,456,556 6,946,231 28,402,787 Total comprehensive income - 402, ,916 Creation of units 12(a) 12,805,578-12,805,578 Cancellation of units 12(a) (16,702,354) - (16,702,354) Distribution equalisation 12(a) (1,033,227) - (1,033,227) At end of the year 16,526,553 7,349,147 23,875,700 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 71,944, ,531,858 Purchase of Shariah-compliant investments (59,557,776) (124,565,303) Net dividend received 407, ,392 Profit received 46,715 76,495 Manager s fee paid (251,759) (386,298) Trustee s fee paid (17,972) (18,372) Auditors remuneration paid (5,000) (7,400) Tax agent s fee paid (3,554) (4,734) Payment for other fees and expenses (34,199) (49,465) Income tax refunded - 14,314 Net cash generated from operating and investing activities 12,528,519 5,246,487 CASH FLOWS FROM FINANCING ACTIVITIES Cash received from units created 11,964,950 14,493,920 Cash paid on units cancelled (25,892,681) (19,602,154) Net cash used in financing activities (13,927,731) (5,108,234) NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (1,399,212) 138,253 CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR 1,663,756 1,525,503 CASH AND CASH EQUIVALENTS AT END OF THE YEAR 264,544 1,663,756 Cash and cash equivalent comprise: Cash at bank 10,797 4,819 Short term Islamic deposits 253,747 1,658, ,544 1,663,756 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 Ekuiti 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. 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 Ekuiti Islam to Kenanga Ekuiti Islam Fund. The principal activity of the Fund was to achieve long-term capital growth through investments in Shariah-compliant equity securities. The investment strategies are based on Shariah-compliant equity securities that offer good medium-term earnings growth and that are inexpensively priced. 2. FINANCIAL RISK AND MANAGEMENT OBJECTIVES AND POLICIES The Fund is exposed to a variety of risks including market risk (which includes interest rate risk and price risk), liquidity risk, single issuer risk and reclassification of Shariah status 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 and price risk. Market risk arises when the value of the quoted 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 value of the Fund. 19

25 2. FINANCIAL RISK AND MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk (Contd.) The Manager manages the risk of unfavourable changes in prices by cautious review of the Shariah-compliant investments and continuous monitoring of their performance and risk profiles. i. Interest rate risk The 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 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 financing 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) Effect on changes in fair value of financial assets Increase / (decrease) RM RM /(5) 127/(127) /(5) 829/(829) - 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. Up to 1 year Non-exposure to rate movement Total Effective rate of return* RM RM RM % 2013 Assets Shariah-compliant investments - 11,017,023 11,017,023 Short term Islamic deposits 253, ,

26 2. FINANCIAL RISK AND MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk (Contd.) i. Interest rate risk (Contd.) Interest rate risk exposure (Contd.) Up to 1 year Non exposure to interest rate movement Total Effective rate of return* RM RM RM % 2013 Assets Other assets - 68,326 68, ,747 11,085,349 11,339,096 Liabilities Other liabilities - 104, , , ,284 Total interest sensitivity gap 253,747 10,981,065 11,234, Assets Shariah-compliant investments - 22,585,980 22,585,980 Short term Islamic deposits 1,658,937-1,658, Other assets - 1,666,277 1,666,277 1,658,937 24,252,257 25,911,194 Liabilities Other liabilities - 2,084,862 2,084,862-2,084,862 2,084,862 Total interest sensitivity gap 1,658,937 22,167,395 23,826,332 * Computed based on profit -bearing assets only. ii. Price risk Price risk is the risk of unfavourable changes in the fair values of quoted Shariahcompliant equity securities. The Fund invests in quoted Shariah-compliant equity securities which are exposed to price fluctuations. This may then affect the unit price of Kenanga Ekuiti Islam Fund. 21

27 2. FINANCIAL RISK AND MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk (Contd.) ii. Price risk (Contd.) Price Risk Sensitivity Manager s best estimate of the effect on the profit for the year and other comprehensive income due to a reasonably possible change in investments in quoted Shariah-compliant equity securities, with all other variables held constant is indicated in the table below: Changes in price Increase/ (decrease) Effects on profit for the year Increase/ (decrease) Effects on other comprehensive income Increase/ (decrease) Basis points RM RM 2013 Quoted Shariahcompliant equity securities 5/(5) 5,509/(5,509) Quoted Shariahcompliant equity securities 5/(5) 11,293/(11,293) - In practice, the actual trading results may differ from the sensitivity analysis above and the difference could be material. Price risk concentration The following table set out the Fund s exposure and concentration to price risk based on its portfolio of financial instruments as at the reporting date. Fair value Percentage of NAV RM RM % % Quoted Shariahcompliant equity securities 11,017,023 22,585, The Fund s concentration of Shariah-compliant equity price risk analysed by the Fund s Shariah-compliant equity instruments by sector is as follows:- 22

28 2. FINANCIAL RISK AND MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market Risk (Contd.) ii. Price risk (Contd.) Price risk concentration (Contd.) Fair value Percentage of NAV RM RM % % Trading/Services 5,580,150 9,866, Industrial product 1,630,483 2,931, Infrastructure 966, , Plantation 874,358 6,160, Shariah-compliant Warrants 672, Consumer products 586, , Properties 437, , Finance 269, Construction - 2,219, Technology - 243, ,017,023 22,585, b. 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. 23

29 2. FINANCIAL RISK AND MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) b. Liquidity Risk (Contd.) Up to 1 month RM 2013 Assets Quoted Shariah-compliant equity securities 11,017,023 Short term Islamic deposits 253,747 Other assets 68,326 11,339,096 Liabilities Other liabilities 104, ,284 Net asset value 11,234,812 Liquidity gap 11,234, Assets Quoted Shariah-compliant equity securities 22,585,980 Short term Islamic deposits 1,658,937 Other assets 1,666,277 25,911,194 Liabilities Other liabilities 2,084,862 2,084,862 Net asset value 23,826,332 Liquidity gap 23,826,332 c. 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. 24

30 2. FINANCIAL RISK AND MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) d. Reclassification of Shariah Status Risk The risk that the currently held Shariah-compliant securities in the portfolio of Shariahcompliant funds may be reclassified to be Shariah non-compliant upon review of the securities by the Shariah Advisory Council of the Securities Commission performed twice yearly. If this occurs, the value of the fund may be adversely affected where the Manager will take the necessary steps to dispose of such securities. 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. 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 period 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. Standard and interpretations issued but not yet effecitve 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. 25

31 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) 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 includes quoted Shariah-compliant equity securities, unquoted sukuk, government investments issues, and Shariah-compliant collective investment schemes 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 and dividend revenue elements of such instruments are recorded separately in profit income and gross dividend income respectively. 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. 26

32 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) e. Impairment of Financial Assets (Contd.) 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. f. Income Recognition Profit income is recognised using effective profit method on an accrual basis. Dividend income is recognised on a declared basis, when the right to receive the dividend is established. 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 financial institution. 27

33 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) 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 liabilities 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. 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. Unitholders 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. 28

34 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.) m. Significant Accounting Judgments and Estimates The preparation of financial statements requires the use of certain accounting estimates and exercise of judgment. Estimates and judgments are continually evaluated and are based on past experience, reasonable expectations of future events and other factors. i. Critical judgments made in applying accounting policies There are no major judgments made by the Manager in applying the Fund's accounting policies. ii. Key sources of estimation uncertainty 4. MANAGER S FEE There are no key assumptions concerning the future and other key sources of estimation uncertainty at the 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 period. The Manager s fee is computed based on 1.55% per annum of the net asset value of the Fund, calculated on a daily basis, as provided under Clause 13(2) of the Deed. 5. TRUSTEE S FEE Trustee s fee is 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. 6. INCOME TAX EXPENSE RM RM Current year tax - - Over provision of tax in prior year - (6,048) Tax expense for the year - (6,048) 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. 29