annual report - kenanga · ftse bursa malaysia emas shariah index (fbms) 1.7 distribution policy...

ANNUAL REPORT

For the Financial Year Ended 31 December 2018

KENANGA ISLAMIC FUND

KENANGA ISLAMIC FUND

Contents Page

Corporate Directory ii - iii

Directory of Manager’s Offi ces iv

Fund Information 1

Manager’s Report 2 - 5

Fund Performance 6 - 8

Trustee’s Report 9

Shariah Adviser’s Report 10

Independent Auditors’ Report 11 - 13

Statement by the Manager 14

Financial Statements 15 - 48

ii Kenanga Islamic Fund Annual Report

CORPORATE DIRECTORY

Manager: Kenanga Investors Berhad (Company No. 353563-P)

Registered Offi ce Business Offi ceLevel 17, Kenanga Tower Level 14, Kenanga Tower237, Jalan Tun Razak 237, Jalan Tun Razak50400 Kuala Lumpur, Malaysia 50400 Kuala Lumpur, MalaysiaTel: 03-2172 2888 Tel: 03-2172 3000Fax: 03-2172 2999 Tel: 03-2172 3080 E-mail: [email protected] Website: www.KenangaInvestors.com.my

Board of Directors Investment CommitteeDatuk Syed Ahmad Alwee Alsree (Chairman) Syed Zafi len Syed Alwee (IndependentSyed Zafi len Syed Alwee (Independent Member) Director) Peter John Rayner (IndependentPeter John Rayner (Independent Member) Director) Imran Devindran bin Abdullah (IndependentImran Devindran bin Abdullah (Independent Member) Director) Ismitz Matthew De AlwisIsmitz Matthew De Alwis

Company Secretary: Norliza Abd Samad (MAICSA 7011089)

Level 17, Kenanga Tower, 237, Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia.

External Fund Manager: Kenanga Islamic Investors Berhad (Company No. 451957-D)

Registered Offi ce Business Offi ceLevel 17, Kenanga Tower Level 14, Kenanga Tower237, Jalan Tun Razak 237, Jalan Tun Razak50400 Kuala Lumpur, Malaysia 50400 Kuala Lumpur, MalaysiaTel: 03-2172 2888 Tel: 03-2172 3000Fax: 03-2172 2999 Tel: 03-2172 3080

Trustee: Universal Trustee (Malaysia) Berhad (Company No. 17540-D)

No. 1 Jalan Ampang, 3rd Floor, 50450 Kuala Lumpur, Malaysia. Tel: 03-2070 8050 Fax: 03-2031 8715, 2032 3194, 2070 1296

Shariah Adviser: IBFIM (Company No. 763075-W)

Registered Offi ce Business Offi ceSuite 13.03, 13th Floor 3rd Floor, Menara Takaful MalaysiaMenara Tan & Tan Jalan Sultan Sulaiman207 Jalan Tun Razak 50000 Kuala Lumpur, Malaysia50400 Kuala Lumpur Tel: 03-2031 1010 Fax: 03-2078 5250

iiiKenanga Islamic Fund Annual Report

Auditor: Ernst & Young (AF: 0039)

Level 23A, Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara, 50490 Kuala Lumpur.Tel: 03-7495 8000 Fax: 03-2095 5332

Tax Adviser: Ernst & Young Tax Consultants Sdn Bhd (Company No. 179793-K)

Level 23A, Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara, 50490 Kuala Lumpur.Tel: 03-7495 8000 Fax: 03-2095 5332

Membership: Federation of Investment Managers Malaysia (FIMM)

19-06-1, 6th Floor, Wisma Tune, 19, Lorong Dungun, Damansara Heights, 50490 Kuala Lumpur, Malaysia.Tel: 03-2093 2600 Fax: 03-2093 2700 Website: www.fi mm.com.my

iv Kenanga Islamic Fund Annual Report

REGIONAL BRANCH OFFICES:

Kuala LumpurLevel 13, Kenanga Tower237, Jalan Tun Razak50400 Kuala Lumpur, MalaysiaTel : 03-2172 3123 Fax : 03-2172 3133

MelakaNo. 25-1, Jalan Kota Laksamana 2/17Taman Kota Laksamana, Seksyen 275200 MelakaTel : 06-281 8913 / 06-282 0518Fax : 06-281 4286

KlangNo. 12, Jalan Batai Laut 3Taman Intan, 41300 KlangSelangor Darul EhsanTel : 03-3341 8818 / 03-3348 7889 Fax : 03-3341 8816

Penang5.04, 5th Floor, Menara Boustead Penang No. 39, Jalan Sultan Ahmad Shah 10050 PenangTel : 04-210 6628Fax : 04-210 6644

Miri 2nd Floor, Lot 1264Centre Point Commercial CentreJalan Melayu98000 Miri, Sarawak Tel : 085-416 866 Fax : 085-322 340

Seremban 2nd Floor, No. 1D-2, Jalan Tuanku Munawir 70000 Seremban, Negeri Sembilan Tel : 06-761 5678 Fax : 06-761 2242

Johor BahruLot 11.03, 11th Floor, Menara MSC CyberportNo. 5, Jalan Bukit Meldrum80300 Johor Bahru, JohorTel : 07-223 7505 / 4798 Fax : 07-223 4802

Kuching1st Floor, No 71Lot 10900, Jalan Tun Jugah93350 Kuching, SarawakTel : 082-572 228 Fax : 082-572 229

KuantanGround Floor Shop,No. B8, Jalan Tun Ismail 1,25000 Kuantan, Pahang.Tel : 09-514 3688Fax : 09-514 3838

IpohSuite 1, 2nd Floor,No. 63, Persiaran Greenhill30450 Ipoh, Perak, MalaysiaTel : 05-254 7573 / 7570 / 7575Fax : 05-254 7606

Kota KinabaluLevel 8, Wisma Great EasternNo. 68, Jalan Gaya88000 Kota Kinabalu, SabahTel : 088-203 063 Fax : 088-203 062

Petaling Jaya44B, Jalan SS21/35, Damansara Utama47400 Petaling Jaya, Selangor Tel : 03-7710 8828 Fax : 03-7710 8830

DIRECTORY OF MANAGER’S OFFICES

1Kenanga Islamic Fund Annual Report

1. FUND INFORMATION

1.1 Fund Name

Kenanga Islamic Fund (KIF or the Fund)

1.2 Fund Category / Type

Equity (Islamic) / Growth

1.3 Investment Objective

The Fund aims to achieve steady capital growth and income distribution (incidental) over the medium to long-term period by investing in a diversifi ed portfolio of authorised investments in accordance with accepted Shariah principles.

1.4 Investment Strategy

The Fund seeks to maximise total returns by providing investors with a combination of capital appreciation and income distribution, if any, while reducing risk through diversifi ed investments in Shariah-compliant equities.

1.5 Duration

The Fund was launched on 15 August 2002 and it shall exist as long as it appears to the Manager and the Trustee that it is in the interests of the unit holders for it to continue.

1.6 Performance Benchmark

FTSE Bursa Malaysia Emas Shariah Index (FBMS)

1.7 Distribution Policy

The Fund intends to pay income by way of distributions or by the creation of additional units after the end of each Accrual Period (i.e. 12-month period ending on the last day of December of each year) or any specifi ed period, where possible.

1.8 External Fund Manager

Kenanga Islamic Investors Berhad

1.9 Breakdown of unit holdings of KIF as at 31 December 2018

Size of holdings No. of unit holders No. of units held 5,000 and below 2,124 4,719,803 5,001 - 10,000 1,216 8,880,249 10,001 - 50,000 3,047 72,281,078 50,001 - 500,000 1,059 112,357,580 500,001 and above 14 23,828,323 Total 7,460 222,067,033

2 Kenanga Islamic Fund Annual Report

2. MANAGER’S REPORT

2.1 Explanation on whether the Fund has achieved its investment objective

The Fund has underperformed the FBMS Index for the year under review but achieved its stated objective of medium to long term capital appreciation, having grown 249.93% since inception.

2.2 Comparison between the Fund’s performance and performance of the benchmark

Performance Chart Since Launch (15/08/2002 - 31/12/2018)Kenanga Islamic Fund vs FBMS

Source: Novagni Analytics and Advisory

2.3 Investment strategies and policies employed during the fi nancial year under review

The Fund is an Islamic equity growth fund that is actively managed to enhance capital growth. The fund continued to invest in Shariah-compliant securities that have good earnings growth, good management and good valuation.

2.4 The Fund’s asset allocation as at 31 December 2018 and comparison with the previous fi nancial year

Asset 31 Dec 2018 31 Dec 2017Listed Shariah-compliant investment securities 80.6% 85.1%Listed Shariah non-compliant investment securities (Note 14(a)(i)) 1.5% -Unlisted Shariah-compliant investment securities - -Short term Islamic deposits and cash 17.9% 14.9%

Reason for the differences in asset allocation

The fund reduced the Shariah-compliant equity allocation down to 74.2% for the year .The lower Shariah-compliant equities exposure for the fi nancial year under review was due to the defensive stance taken by the fund manager.


2.5 Fund performance analysis based on NAV per unit (adjusted for income distribution; if any) since last review year

Year under review Kenanga Islamic Fund -22.08% FTSE Bursa Malaysia Emas Shariah Index -13.52% Source: Lipper

For the fi nancial year under review, the fund was down by 22.08% for the period, underperforming the benchmark by 1.45% driven by Shariah-compliant security selection.

2.6 Review of the market

Market review

Key markets saw 2017 ended with mixed performance amid thin trading volume towards the end of the year. All three major US indices ended 2017 with the best annual gains since 2013. Nasdaq recorded the biggest yearly gain of 28.2% followed by Dow Jones and S&P500 which advanced by 25.1% and 19.4% each respectively. Fed then started to double the pace of its balance sheet reduction from USD10 billion to USD20 billion and will increase it by USD10 billion every three months. China’s December data were broadly within expectations but 4Q17 GDP growth was higher than expected and brought 2017 GDP growth to 6.9%, the fi rst pick-up since 2010. After the US Government shutdown ended, President Trump slapped steep tariffs of 20%-50% on imported washing machines and solar panels. Korea stock exchange announced KRX300 Index to be launched on February 5, another bright spot for small-mid caps.

The month of February began with three days of intense sell-offs. Fears of rising interest rates in the US, due to measures aimed at controlling infl ation, resulted in heightened volatility. Regional stock markets tumbled after Wall Street plummeted, as investors fl ed to safe havens in a highly volatile global market. Although the market did stage a mild rebound thereafter, it weakened again on news that the US would impose import tariffs on steel and aluminium, raising concern of higher prices and trade war. Asian equities dropped in line with global trend while the Federal Open Market Committee (FOMC) raised benchmark interest rate by 25 basis points (bps), marking the sixth increase since the start of monetary policy tightening. The People’s Republic of China (PBOC) also lifts short-term interest rates, following the Fed’s move of rate normalization. The national people’s congress approved merging China Insurance Regulatory Commission with the China Banking Regulatory Commission, while Yi Gang has been appointed as the new PBOC governor, as part of a sweeping reshuffl e of China’s cabinet cementing President Xi Jinping already strong infl uence.

Global equities were mixed in April as trade war rhetoric continued to dominate headlines despite US announcing its willingness to hold negotiations for a resolution on the escalating trade rift with China; whilst geopolitical advances were seen as North and South Korea pledged to bring a formal end to Korean War. Meanwhile, geopolitical tensions in the Middle East continued to weigh on global equity markets. Markets were then rattled by the return of US-China trade confl icts after President Donald Trump announced that a fi nal list involving USD50 billion in Chinese imports that would be subjected to 25% tariffs,


2.6 Review of the market (contd.)

Market review (contd.)

would be released in mid-June, with investment restrictions on Chinese acquisitions of U.S. technology to be announced shortly thereafter. At the close of the month, Trump administration also announced that it will place tariffs on steel and aluminium imports from the European Union, Mexico and Canada – a news that was immediately responded with threats of proportional reciprocal measures from all affected countries.

The FBMS started the month positive during the fi rst week of June. However, the positive momentum failed to sustain as foreigners continued to sell the market. The initial decline was dragged by fi nance related stocks which brought the index lower on 11 June; bucking regional trend which closed in the green on optimism that the U.S-North Korea summit in Singapore may lead to the denuclearization of the Korean peninsula. The downtrend for the index continued, in line with regional markets on trade-war fears after Donald Trump threatened to have additional tariffs on another USD200 billion of Chinese imports.

Despite concerns over elevated trade tensions, a strong round of US corporate earnings have helped pacify market jitters and lifted US stock indices in July before ending positively in August led by solid US corporate earnings and continued to hit a new high in September.

October was a brutal month for equity markets. Equities tumbled amidst escalated US-China trade tension, rising treasury yields, disappointment over apple suppliers’ profi ts and UK’s introduction of digital tax. The International Monetary Fund (IMF) cut 2018/19 global growth to 3.7% (previously 3.9%), the fi rst downgrade since July 2016. IMF highlighted that risks to global outlook have risen due to the trade tensions and sharper interest rate hikes. November ended with mixed performances across the globe. While US equity markets recorded monthly gains with Dow Jones up by 1.7% month-on-month (MoM), European markets were generally negative. Investors were generally cautious over Brexit-led turmoil, falling oil prices and the uncertain outcome between Trump and Xi’s trade talk in G20 meeting.

December was a rough month as markets have been battered by the trade confl ict between the United States and China, fears over rising interest rates, geopolitical snafus like Brexit and falling oil prices. During the month, the US Federal Reserve’s decision raised interest rates again by 25 bps, to a range of 2.25% to 2.5%, the ninth such move since late-2015. Foreigners were net sellers of RM1 billion net outfl ow in December, which brought cumulative net selling to RM11.7 billion, more than offsetting 2017’s net infl ows of RM10.8 billion.

Market outlook

A broad set of concerns remained, including a grim manufacturing report out of China, slowing global economic growth, rising U.S. interest rates and volatile oil prices. While China and the US agreed to a 90-day trade war truce window, but uncertainty over whether they can bridge massive differences over commercial practices and intellectual property rights remains very high. The Southeast Asian economy could be seen benefi ting from the US-China trade war as companies look to establish operations in the country to avoid the tariff crossfi re.


2.6 Review of the market (contd.)

Strategy

We remain defensive overall, while focusing on Shariah-compliant security picking for outperformance. We continue to focus on Shariah-compliant securities with sustained earnings growth, strong balance sheet and consistent dividend payment. We also see value opportunities in Shariah-compliant securities which were sold down excessively in sectors such as technology, oil and gas and construction.

2.7 Distributions

For the fi nancial year under review, the Fund did not declare any income distribution.

2.8 Details of any unit split exercise

The Fund did not carry out any unit split exercise during the fi nancial year under review.

2.9 Signifi cant changes in the state of affair of the Fund during the fi nancial year

There were no signifi cant changes in the state of affair of the Fund during the fi nancial year and up until the date of the manager’s report, not otherwise disclosed in the fi nancial statements.

2.10 Circumstances that materially affect any interests of the members

During the fi nancial year under review, there were no circumstances that materially affected any interests of the members.

2.11 Cross trade

During the fi nancial year under review, no cross-trade transaction was undertaken by investment manager for the fund.

2.12 Rebates and soft commissions

It is the policy of the Manager to credit any rebates received into the account of the Fund. Any soft commissions received by investment manager on behalf of the Fund are in the form of research and advisory services that assist in the decision making process relating to the investment of the Fund which are of demonstrable benefi t to unit holders of the Fund. For the fi nancial year under review, the Manager has received soft commissions from the stockbrokers.


3. FUND PERFORMANCE

3.1 Details of portfolio composition of the Fund for the last three fi nancial years as at 31 December are as follows:

a. Distribution among industry sectors and category of Shariah-compliant investments:

FY FY FY 2018 2017 2016 % % %

Industrial products 24.8 17.0 14.5Trading/Services 22.5 23.5 18.5Properties 8.1 7.4 7.0Consumer products 7.5 9.6 5.8Technology 6.5 4.4 2.1Constructions 4.4 15.2 13.6Finance 4.0 3.2 4.3Plantations 1.6 1.7 1.8Infrastructure - - 2.7Islamic Real Estate Investment Trusts 1.2 2.9 3.8Listed Shariah-compliant warrants - 0.2 0.1Listed Shariah non-compliant investment securities (Note 14(a)(i)) 1.5 - -Unlisted equity security* - - -Short term Islamic deposits and cash 17.9 14.9 25.8 100.0 100.0 100.0

* Unlisted equity security that has been approved for listing by relevant authority.

Note: The above mentioned percentages are based on total Shariah-compliant investment market value plus cash.

b. Distribution among markets

The Fund invests in local Shariah-compliant investment securities and cash instruments only.


3.2 Performance details of the Fund for the last three fi nancial years ended 30 November are as follows:

FY FY FY 2018 2017 2016

Net asset value (“NAV”) (RM Million) 106.67* 116.03 78.92Units in circulation (Million) 222.07 188.25 139.91NAV per unit (RM) 0.4803* 0.6164 0.5641Highest NAV per unit (RM) 0.6315 0.6164 0.6370Lowest NAV per unit (RM) 0.4672 0.5637 0.5580Total return (%) -22.08 9.27 -1.75- Capital growth (%) -22.08 9.27 -10.88- Income growth (%) - - 9.13Gross distribution per unit (sen) - - 5.93Net distribution per unit (sen) - - 5.93Management expense ratio (“MER”) (%) 1 2.13 2.20 2.19Portfolio turnover ratio (“PTR”) (times) 2 0.99 0.84 0.49

Note: Total return is the actual return of the Fund for the respective fi nancial years, computed based on NAV per unit and net of all fees.

MER is computed based on the total fees and expenses incurred by the Fund

divided by the average fund size calculated on a daily basis. PTR is computed based on the average of the total acquisitions and total disposals of Shariah-compliant investment securities of the Fund divided by the average fund size calculated on a daily basis.

Above NAV and NAV per unit are not shown as ex-distribution as there were no distribution declared by the Fund in the fi nancial year under review.

1 MER is lower against previous fi nancial year mainly due to increase in average fund size during the fi nancial year under review.

2 PTR is higher against previous fi nancial years mainly due to higher trading activities.

* Based on bid price fair valuation method on all Shariah-compliant investments held by the Fund as at 31 December 2018, the NAV and NAV per unit would be RM106.24 million and RM0.4784 respectively.

(As disclosed under Note 13 of the fi nancial statements)


3.3 Average total return of the Fund

1 Year 3 Years 5 Years 31 Dec 17 31 Dec 15 31 Dec 13 - 31 Dec 18 - 31 Dec 18 - 31 Dec 18

Kenanga Islamic Fund -22.08% 5.55% -2.01%

FTSE Bursa Malaysia Emas Shariah Index -13.52% -3.14% -2.09%

Source: Lipper

3.4 Annual total return of the Fund

Year under review 1 Year 1 Year 1 Year 1 Year 31 Dec 17 31 Dec 16 31 Dec 15 31 Dec 14 31 Dec 13 - 31 Dec 18 - 31 Dec 17 - 31 Dec 16 - 31 Dec 15 - 31 Dec 14

Kenanga Islamic Fund -22.08% 9.27% -1.75% 7.97% -1.84%

FTSE Bursa Malaysia Emas Shariah Index -13.52% 10.72% -6.14% 2.35% -4.17%

Source: Lipper

Investors are reminded that past performance is not necessarily indicative of future performance. Unit prices and investment returns may fl uctuate.


4. TRUSTEE’S REPORT TO THE UNIT HOLDERS OF KENANGA ISLAMIC FUND

We, Universal Trustee (Malaysia) Berhad (“the Trustee”) being the Trustee for Kenanga Islamic Fund (“the Fund”), are of the opinion that Kenanga Investors Berhad (“the Manager”), acting in the capacity as Manager of the Fund, has fulfi lled its duties in the following manner for the fi nancial year ended 31 December 2018.

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 Malaysia’s Guidelines on Unit Trust Funds, the Capital Markets and Services Act 2007 (as amended from time to time) and other applicable laws;

b) Valuation/pricing for 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 UNIVERSAL TRUSTEE (MALAYSIA) BERHAD ONG TEE VANN Chief Executive Offi cer

Kuala Lumpur, Malaysia

15 February 2019


5. SHARIAH ADVISER’S REPORT TO THE UNIT HOLDERS OF KENANGA ISLAMIC FUND

We have acted as the Shariah Adviser of Kenanga Islamic Fund. Our responsibility is to ensure that the procedures and processes employed by Kenanga Investors Berhad are in accordance with Shariah principles.

In our opinion, Kenanga Investors Berhad has managed and administered Kenanga Islamic Fund in accordance with Shariah principles and complied with applicable guidelines, rulings and decisions issued by the Securities Commission Malaysia pertaining to Shariah matters for the fi nancial year ended 31 December 2018.

In addition, we also confi rm that the investment portfolio of Kenanga Islamic Fund comprises instruments which have been classifi ed as Shariah-compliant by the Shariah Advisory Council of the Securities Commission Malaysia and the Shariah Advisory Council of Bank Negara Malaysia. As for the instruments which are not classifi ed as Shariah-compliant by the Shariah Advisory Council of the Securities Commission Malaysia and the Shariah Advisory Council of Bank Negara Malaysia, we have reviewed the said instruments and opine that these instruments are designated as Shariah-compliant.

For and on behalf of the Shariah Adviser IBFIM Nazmi Ashraf Bin Mohd Nazim Consultant (Shariah)/Designated Person Responsible for Shariah Advisory


15 February 2019


6. INDEPENDENT AUDITORS’ REPORT TO THE UNIT HOLDERS OF KENANGA ISLAMIC FUND

REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS

Opinion

We have audited the fi nancial statements of Kenanga Islamic Fund (“the Fund”), which comprise the statement of fi nancial position as at 31 December 2018, and the statement of comprehensive income, statement of changes in net asset value and statement of cash fl ows of the Fund for the fi nancial year then ended, and notes to the fi nancial statements, including a summary of signifi cant accounting policies and other explanatory information, as set out on pages 15 to 48.

In our opinion, the accompanying fi nancial statements give a true and fair view of the fi nancial position of the Fund as at 31 December 2018 and of its fi nancial performance and cash fl ows for the fi nancial year then ended in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards.

Basis for opinion

We conducted our audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditors’ responsibilities for the audit of the fi nancial statements section of our report. We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion.

Independence and other ethical responsibilities

We are independent of the Fund in accordance with the By-Laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants (“By-Laws”) and the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (“IESBA Code”), and we have fulfi lled our other ethical responsibilities in accordance with the By-Laws and the IESBA Code.

Information other than the fi nancial statements and auditors’ report thereon

The Manager of the Fund (“the Manager”) is responsible for the other information. The other information comprises the information included in the annual report of the Fund, but does not include the fi nancial statements of the Fund and our auditors’ report thereon.

Our opinion on the fi nancial statements of the Fund does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the fi nancial statements of the Fund, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the fi nancial statements of the Fund or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.


6. INDEPENDENT AUDITORS’ REPORT TO THE UNIT HOLDERS OF KENANGA ISLAMIC FUND (CONTD.)

Responsibilities of the Manager and the Trustee for the fi nancial statements

The Manager is responsible for the preparation of fi nancial statements of the Fund 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 fi nancial statements of the Fund that are free from material misstatement, whether due to fraud or error.

In preparing the fi nancial statements of the Fund, the Manager is responsible for assessing the Fund’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Manager either intends to liquidate the Fund or to cease operations, or has no realistic alternative but to do so.

The Trustee is responsible for overseeing the Fund’s fi nancial reporting process. The Trustee is also responsible for ensuring that the Manager maintains proper accounting and other records as are necessary to enable true and fair presentation of these fi nancial statements.

Auditors’ responsibilities for the audit of the fi nancial statements

Our objectives are to obtain reasonable assurance about whether the fi nancial statements of the Fund as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with approved standards on auditing in Malaysia and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to infl uence the economic decisions of users taken on the basis of these fi nancial statements.

As part of an audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the fi nancial statements of the Fund, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is suffi cient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control.


6. INDEPENDENT AUDITORS’ REPORT TO THE UNIT HOLDERS OF KENANGA ISLAMIC FUND (CONTD.)

Auditors’ responsibilities for the audit of the fi nancial statements (contd.)

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Manager.

• Conclude on the appropriateness of the Manager’s use of the going concern basis of

accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast signifi cant doubt on the Fund’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the fi nancial statements of the Fund or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Fund to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the fi nancial statements of the Fund, including the disclosures, and whether the fi nancial statements of the Fund represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with the Manager regarding, among other matters, the planned scope

and timing of the audit and signifi cant audit fi ndings, including any signifi cant defi ciencies in internal control that we identify during our audit.

Other matters

This report is made solely to the unit holders of the Fund, as a body, in accordance with the Guidelines on Unit Trust Funds issued by the Securities Commission Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report.

Ernst & Young Chan Hooi LamAF: 0039 No.2844/02/2020 JChartered Accountants Chartered Accountant


15 February 2019


7. STATEMENT BY THE MANAGER

I, Ismitz Matthew De Alwis, being a director of Kenanga Investors Berhad, do hereby state that, in the opinion of the Manager, the accompanying statement of fi nancial position as at 31 December 2018 and the related statement of comprehensive income, statement of changes in net asset value and statement of cash fl ows for the fi nancial year ended 31 December 2018 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 fi nancial position of Kenanga Islamic Fund as at 31 December 2018 and of its fi nancial performance and cash fl ows for the fi nancial year then ended and comply with the requirements of the Deed.

For and on behalf of the Manager KENANGA INVESTORS BERHAD

ISMITZ MATTHEW DE ALWIS Executive Director/Chief Executive Offi cer


15 February 2019


The accompanying notes form an integral part of the fi nancial statements.

8. FINANCIAL STATEMENTS

8.1 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2018

Note 2018 2017 RM RM

INVESTMENT INCOME

Dividend income 2,510,529 2,583,393Profi t income 711,416 545,566Net (loss)/gain from Shariah-compliant investments: - Financial assets at fair value through profi t or loss (“FVTPL”) 4 (26,166,308) 7,496,223 (22,944,363) 10,625,182

EXPENSES

Manager’s fee 5 2,107,409 1,940,741 Trustee’s fee 6 88,733 81,715 Auditors’ remuneration 10,000 10,000 Tax agent’s fee 4,000 4,000 Administration expenses 143,083 209,949 Brokerage and other transaction costs 854,363 651,257 3,207,588 2,897,662

NET (LOSS)/INCOME BEFORE TAX (26,151,951) 7,727,520

Income tax 7 - -

NET (LOSS)/INCOME AFTER TAX, REPRESENTING TOTAL COMPREHENSIVE (LOSS)/INCOME FOR THE FINANCIAL YEAR (26,151,951) 7,727,520

Net (loss)/income after tax is made up as follows: Realised (loss)/gain (8,314,769) 2,175,029 Unrealised (loss)/gain 4 (17,837,182) 5,552,491 (26,151,951) 7,727,520


Kenanga Islamic Fund Annual Report16

8.2 STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2018


ASSETS

INVESTMENTS

Financial assets at FVTPL 4 85,347,432 93,866,714 Short term Islamic deposits 8 18,542,000 16,047,513 103,889,432 109,914,227

OTHER ASSETS

Amount due from licensed fi nancial institutions 9 2,838,796 5,246,501Other receivables 10 346,581 338,490 Cash at bank 48,003 350,170 3,233,380 5,935,161

TOTAL ASSETS 107,122,812 115,849,388

LIABILITIES

Amount due to Manager 661,985 254,124 Amount due to Trustee 7,339 7,186 Amount due to licensed fi nancial institutions 9 171,748 688,622 Other payables 11 43,294 43,464 TOTAL LIABILITIES 884,366 993,396

EQUITY

Unit holders’ contribution 110,092,900 92,558,495 (Accumulated loss)/retained earning (3,854,454) 22,297,497 NET ASSET VALUE (“NAV”) ATTRIBUTABLE TO UNIT HOLDERS 12 106,238,446 114,855,992

TOTAL LIABILITIES AND EQUITY 107,122,812 115,849,388

NUMBER OF UNITS IN CIRCULATION 12(a) 222,067,033 188,251,458

NET ASSET VALUE PER UNIT (RM) 13 0.4784 0.6101


Kenanga Islamic Fund Annual Report 17

8.3 STATEMENT OF CHANGES IN NET ASSET VALUE FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2018

(Accumulated loss)/ Unit holders’ Retained Total Note contribution earning NAV RM RM RM

2018At beginning of the fi nancial year 92,558,495 22,297,497 114,855,992 Total comprehensive loss - (26,151,951) (26,151,951)Creation of units 12(a) 32,967,645 - 32,967,645 Cancellation of units 12(a) (15,433,907) - (15,433,907)Distribution equalisation 12(a) 667 - 667 At end of the fi nancial year 110,092,900 (3,854,454) 106,238,446

2017At beginning of the fi nancial year 64,046,885 14,569,977 78,616,862 Total comprehensive income - 7,727,520 7,727,520 Creation of units 12(a) 35,088,731 - 35,088,731 Cancellation of units 12(a) (6,689,184) - (6,689,184)Distribution equalisation 12(a) 112,063 - 112,063 At end of the fi nancial year 92,558,495 22,297,497 114,855,992



8.4 STATEMENT OF CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2018


CASH FLOWS FROM OPERATING AND INVESTING ACTIVITIES

Proceeds from sale of fi nancial assets at FVTPL 101,869,318 66,399,895 Dividends received 2,529,659 2,439,825 Profi t from Islamic deposits received 684,195 550,097 Payment to charitable bodies 14(b) - (61,974)Tax agent’s fee paid (7,500) (1,000)Auditors’ remuneration paid (10,000) (9,500)Trustee’s fee paid (88,580) (79,612)Payment for other fees and expenses (124,130) (180,407)Manager’s fee paid (2,103,778) (1,890,774)Purchase of fi nancial assets at FVTPL (118,495,499) (99,796,599)Cash used in operating and investing activities (15,746,315) (32,630,049)Income tax refunded - 19,713 Net cash used in operating and investing activities (15,746,315) (32,610,336)

CASH FLOWS FROM FINANCING ACTIVITIES

Cash received from units created 32,969,225 35,413,923 Cash paid on units cancelled (15,030,590) (6,673,585)Net cash generated from fi nancing activities 17,938,635 28,740,338

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 2,192,320 (3,869,998)CASH AND CASH EQUIVALENTS AT BEGINNING OF THE FINANCIAL YEAR 16,397,683 20,267,681 CASH AND CASH EQUIVALENTS AT END OF THE FINANCIAL YEAR 18,590,003 16,397,683

Cash and cash equivalents comprise: Cash at bank 48,003 350,170 Short term Islamic deposits 18,542,000 16,047,513 18,590,003 16,397,683


8.5 NOTES TO THE FINANCIAL STATEMENTS FOR FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2018

1. THE FUND, THE MANAGER AND THEIR PRINCIPAL ACTIVITIES

Kenanga Islamic Fund (“the Fund”) was constituted pursuant to the executed Deed dated 29 July 2002 (collectively, together with deeds supplemental thereto, referred to as “the Deed”) between the Manager, Kenanga Investors Berhad and Universal Trustee (Malaysia) Berhad (“the Trustee”). The Fund commenced operations on 15 August 2002 and will continue to be in operation until terminated as provided under Part 12 of the Deed.

Kenanga Investors Berhad is a wholly-owned subsidiary of Kenanga Investment Bank Berhad that is listed on the Main Market of Bursa Malaysia Securities Berhad. All of these companies are incorporated in Malaysia.

The principal place of business of the Manager is Level 14, Kenanga Tower, 237, Jalan Tun Razak, 50400 Kuala Lumpur.

The Fund seeks to achieve steady capital growth and income distribution (incidental) over the medium to long term period by investing in a diversifi ed portfolio of authorised investments in accordance with accepted Shariah principles.

The fi nancial statements were authorised for issue by the Chief Executive Offi cer of the Manager on 15 February 2019.

2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Fund is exposed to a variety of risks including market risk (which includes interest rate risk and price risk), credit risk, liquidity risk and reclassifi cation of Shariah status risk. Whilst these are the most important types of fi nancial risks inherent in each type of fi nancial instruments, the Manager and the Trustee would like to highlight that this list does not purport to constitute an exhaustive list of all the risks inherent in a Shariah-compliant investment in the Fund.

The Fund has an approved set of investment guidelines and policies as well as internal controls which sets out its overall business strategies to manage these risks to optimise returns and preserve capital for the unit holders, consistent with the long term objectives of the Fund.

a. Market risk

Market risk is the risk that the fair value or future cash fl ows of a fi nancial instrument will fl uctuate because of changes in market prices. Market risk includes interest rate risk and price risk.


2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) a. Market risk (contd.)

Market risk arises when the value of the Shariah-compliant investments fl uctuates in response to the activities of individual companies, general market or economic conditions. It stems from the fact that there are economy-wide perils, which threaten all businesses. Hence, investors are exposed to market uncertainties. Fluctuation in the Shariah-compliant investments’ prices caused by uncertainties in the economic, political and social environment will affect the NAV of the Fund.

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 profi les.

i. Interest rate risk

Interest rate risk refers to how the changes in the interest rate environment would affect the valuation of Shariah-compliant instruments. In the event of a rising interest rate environment, the performance of Shariah-compliant instruments may decrease, and vice versa. Interest rate, such as the Overnight Policy Rate set by Bank Negara Malaysia, will have an impact on the investment decisions of the Fund regardless of whether it is an Islamic fund or otherwise. It does not in any way suggest that the Fund will invest in conventional fi nancial instruments.

The Fund is not exposed to signifi cant interest rate risk as its Islamic deposits are short term in nature and have fi xed profi t rates.

Interest rate risk exposure

The following table analyses the Fund’s interest rate risk exposure. The Fund’s fi nancial assets and fi nancial liabilities are disclosed at fair value and categorised by the earlier of contractual re-pricing or maturity dates.

Weighted Non- average exposure to effective Up to interest rate rate of 1 year movement Total return* RM RM RM %

2018AssetsFinancial assets at FVTPL - 85,347,432 85,347,432Short term Islamic deposits 18,542,000 - 18,542,000 3.7Other assets - 3,233,380 3,233,380 18,542,000 88,580,812 107,122,812

LiabilitiesOther liabilities - 841,072 841,072

Total interest rate sensitivity gap 18,542,000 87,739,740 106,281,740



i. Interest rate risk (contd.)

Interest rate risk exposure (contd.)

Weighted Non- average exposure to effective Up to interest rate rate of 1 year movement Total return* RM RM RM %

2017AssetsFinancial assets at FVTPL - 93,866,714 93,866,714Short term Islamic deposits 16,047,513 - 16,047,513 3.3Other assets - 5,935,161 5,935,161 16,047,513 99,801,875 115,849,388

LiabilitiesOther liabilities - 949,932 949,932

Total interest rate sensitivity gap 16,047,513 98,851,943 114,899,456

* Computed based on Shariah-compliant assets with exposure to interest rate movement only.

ii. Price risk

Price risk is the risk of unfavourable changes in the fair values of listed Shariah-compliant equity securities and listed Shariah non-compliant equity security. The Fund invests in listed Shariah-compliant equity securities and listed Shariah non-compliant equity security which are exposed to price fl uctuations. This may then affect the NAV of the Fund.

Price risk sensitivity

The Manager’s best estimate of the effect on the profi t for the fi nancial year due to a reasonably possible change in investments in listed Shariah-compliant equity securities and listed Shariah non-compliant equity security with all other variables held constant is indicated in the table below:

Effects on profi t for Changes in price the fi nancial year Increase/(Decrease) Increase/(Decrease) Basis points RM

2018 Financial assets at FVTPL 5/(5) 42,674/(42,674)

2017Financial assets at FVTPL 5/(5) 46,933/(46,933)



ii. Price risk (contd.)

Price risk sensitivity (contd.)

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 sets out the Fund’s exposure and concentration to price risk based on its portfolio of Shariah-compliant fi nancial instruments as at the reporting date.

Fair value Percentage of NAV 2018 2017 2018 2017 RM RM % %

Financial assets at FVTPL 85,347,432 93,866,714 80.3 81.7

The Fund’s concentration of Shariah-compliant investment security price risk from the Fund’s listed Shariah-compliant equity securities analysed by sector is as follows:

Fair value Percentage of NAV 2018 2017 2018 2017 RM RM % %

Industrial products 25,773,364 18,767,082 24.3 16.3Trading/Services 23,436,406 25,867,691 22.1 22.5Properties 8,429,389 8,203,212 7.9 7.1Consumer products 7,797,499 10,630,041 7.3 9.3Technology 6,763,402 4,789,875 6.4 4.2Constructions 4,618,207 16,739,458 4.3 14.6Finance 4,134,244 3,560,064 3.9 3.1Plantations 1,654,508 1,887,930 1.6 1.6Islamic Real Estate Investment Trust 1,213,994 3,169,602 1.1 2.8Listed Shariah-compliant warrants - 251,759 - 0.2Listed Shariah non-compliant investment securities (Note 14(a)(i)) 1,526,419 - 1.4 - 85,347,432 93,866,714 80.3 81.7


2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) b. Credit risk

Credit risk is the risk that the counterparty to a fi nancial instrument will cause a fi nancial loss to the Fund by failing to discharge an obligation. The Manager manages the credit risk by undertaking credit evaluation to minimise such risk.

i. Credit risk exposure

As at the reporting date, the Fund’s maximum exposure to credit risk is represented by the carrying amount of each class of fi nancial asset recognised in the statement of fi nancial position.

ii. Financial assets that are either past due or impaired

As at the reporting date, there are no fi nancial assets that are either past due or impaired.

iii. Credit quality of fi nancial assets

The Fund invests in Islamic deposits with fi nancial institutions licensed under the Islamic Financial Services Act 2013. The following table analyses the licensed fi nancial institutions by rating category:

Short term Islamic deposits

Percentage of total short term Islamic deposits Percentage of NAV 2018 2017 2018 2017 % % % %

RatingP1 88.1 - 15.4 -WR 11.9 100.0 2.1 14.0 100.0 100.0 17.5 14.0


2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) c. Liquidity risk

Liquidity risk is defi ned as the risk that the Fund will encounter diffi culty in meeting obligations associated with fi nancial liabilities that are to be settled by delivering cash or another fi nancial 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 unit holders by the Manager are cancellable at the unit holders’ option based on the Fund’s NAV per unit at the time of cancellation calculated in accordance with the Deed.

The Islamic liquid assets comprise cash, short term Islamic deposits with licensed fi nancial institutions and other Shariah-compliant instruments, which are capable of being converted into cash within 7 days.

The following table analyses the maturity profi le of the Fund’s fi nancial assets and fi nancial liabilities in order to provide a complete view of the Fund’s contractual commitments and liquidity.

Up to 1 year Note 2018 2017 RM RM

AssetsFinancial assets at FVTPL 85,347,432 93,866,714 Short term Islamic deposits 18,542,000 16,047,513 Other assets 3,233,380 5,935,161 i. 107,122,812 115,849,388

LiabilitiesOther liabilities ii. 841,072 949,932

Equity iii. 106,238,446 114,855,992

Liquidity gap 43,294 43,464

i. Financial assets

Analysis of fi nancial assets at FVTPL into maturity groupings is based on the expected date on which these assets will be realised. The Fund’s investments in listed Shariah-compliant equity securities and listed Shariah non-compliant equity security have been included in the “up to 1 year” category on the assumption that these are highly liquid Shariah-compliant investments which can be realised should all of the Fund’s unit holders’ equity be required to be redeemed. For other assets, the analysis into maturity groupings is based on the remaining period from the end of the reporting period to the contractual maturity date or if earlier, the expected date on which the assets will be realised.


2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTD.) c. Liquidity risk (contd.)

ii. Financial liabilities

The maturity grouping is based on the remaining period from the end of the reporting period to the contractual maturity date or if earlier, the date on which liabilities will be settled. When the counterparty has a choice of when the amount is paid, the liability is allocated to the earliest period in which the Fund can be required to pay.

iii. Equity

As the unit holders can request for redemption of their units, they have been categorised as having a maturity of “up to 1 year”.

d. Reclassifi cation of Shariah status risk

The risk that the currently held Shariah-compliant securities in the portfolio of Islamic funds may be reclassifi ed to be Shariah non-compliant upon review of the securities by the Shariah Advisory Council of the Securities Commission Malaysia (“SACSC”) performed twice yearly. If this occurs, the Manager will take the necessary steps to dispose of such securities.

There may be opportunity loss to the Fund due to the Fund not being allowed to retain the excess capital gains derived from the disposal of the Shariah non-compliant equities. The value of the Fund may also be adversely affected in the event of a disposal of Shariah non-compliant equities at a price lower than the investment cost.

e. Regulatory reportings

It is the Manager’s responsibility to ensure full compliance of all requirements under the Guidelines on Unit Trust Funds issued by Securities Commission Malaysia. Any breach of any such requirement has been reported in the mandatory reporting to Securities Commission Malaysia on a monthly basis.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Basis of accounting

The fi nancial statements of the Fund have been prepared in accordance with Malaysian Financial Reporting Standards (“MFRS”) as issued by the Malaysian Accounting Standards Board (“MASB”) and International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

The accounting policies adopted are consistent with those of the previous fi nancial year except for the adoption of the new and amended MFRSs and IC interpretation, which became effective for the Fund on 1 January 2018.


3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

a. Basis of accounting (contd.)

The fi nancial statements have been prepared on the historical cost basis except as disclosed in the accounting policies below.

Effective for fi nancial period beginning onDescription or after

Amendments to MFRS contained in the document entitled “Annual Improvements to MFRS Standards 2014 - 2016 Cycle” 1 January 2018 Amendments to MFRS 1: First-time Adoption of Malaysian Financial Reporting Standards contained in the document entitled “Annual Improvements to MFRS Standards 2014 - 2016 Cycle” 1 January 2018 Amendments to MFRS 128: Investments in Associates and Joint Ventures contained in the document entitled “Annual Improvements to MFRS Standards 2014 - 2016 Cycle” 1 January 2018 MFRS 9: Financial Instruments 1 January 2018 MFRS 15: Revenue from Contracts with Customers 1 January 2018 Clarifi cations to MFRS 15: Revenue from Contracts with Customers 1 January 2018 Amendments to MFRS 2: Classifi cation and Measurement of Shared-Based Payment Transactions 1 January 2018

Temporary exemption from MFRS 9 subject to certain criteria being met for annual periods beginning

Amendments to MFRS 4: Applying MFRS 9 Financial on or after Instruments with MFRS 4 Insurance Contracts 1 January 2018 Amendments to MFRS 140: Transfers of Investment Property 1 January 2018 IC Interpretation 22: Foreign Currency Transactions and Advance Consideration 1 January 2018

The adoption of the new and amended MFRS and IC interpretation did not have any signifi cant impact on the fi nancial position or performance of the Fund other than the impacts as discussed below:

MFRS 9 Financial Instruments

MFRS 9 Financial Instruments replaces MFRS 139 Financial Instruments: Recognition and Measurement and all previous versions of MFRS 9 for annual periods on or after 1 January 2018. MFRS 9 requires fi nancial assets to be classifi ed on the basis of the business model within which they are held and their contractual cash fl ow characteristics. The requirements related to the fair value option for fi nancial liabilities were also changed to address own credit risk. The adoption of MFRS 9 has no effect on the classifi cation and measurement of the Fund’s fi nancial assets and fi nancial liabilities.



a. Basis of accounting (contd.)

MFRS 9 Financial Instruments (contd.)

MFRS 9 also requires impairment assessments to be based on an expected credit loss model, replacing the MFRS 139 incurred loss model. Finally, MFRS 9 aligns hedge accounting more closely with risk management, establish a more principle-based approach to hedge accounting and address inconsistencies and weaknesses in the previous model.

The Fund does not have any change in classifi cation nor any material fi nancial impact arising from the adoption of this standard.

b. Standards, amendments and interpretations issued but not yet effective

As at the reporting date, the following Standards, Amendments and Interpretation Committee’s (“IC”) Interpretations that have been issued by MASB will be effective for the Fund in future fi nancial periods. The Fund intends to adopt the relevant standards and interpretations when they become effective.


Amendments to MFRS contained in the document entitled “Annual Improvements to MFRS Standards document 2015 - 2017 Cycle” 1 January 2019 Amendments to MFRS 3 and MFRS 11: Previously Held Interest in a Joint Operation contained in the document entitled “Annual Improvements to MFRS Standards 2015 - 2017 Cycle” 1 January 2019 Amendments to MFRS 112: Income Tax Consequences of Payments on Financial Instruments Classifi ed as Equity contained in the document entitled “Annual Improvements to MFRS Standards 2015 - 2017 Cycle” 1 January 2019 Amendments to MFRS 123: Borrowing Costs Eligible for Capitalisation contained in the document entitled “Annual Improvements to MFRS Standards 2015 - 2017 Cycle” 1 January 2019 MFRS 16: Leases 1 January 2019 Amendments to MFRS 9: Prepayment Features with Negative Compensation 1 January 2019 Amendments to MFRS 119: Plan Amendment, Curtailment or Settlement 1 January 2019 Amendments to MFRS 128: Long-term Interests in Associates and Joint Ventures 1 January 2019 IC Interpretation 23: Uncertainty over Income Tax Treatments 1 January 2019 Amendments to MFRS 2: Share-Based Payment 1 January 2020 Amendments to MFRS 3: Business Combinations 1 January 2020 Amendments to MFRS 3: Defi nition of a Business 1 January 2020 Amendments to MFRS 6: Exploration for and Evaluation of Mineral Resources 1 January 2020



b. Standards, amendments and interpretations issued but not yet effective (contd.)

As at the reporting date, the following Standards, Amendments and Interpretation Committee’s (“IC”) Interpretations that have been issued by MASB will be effective for the Fund in future fi nancial periods. The Fund intends to adopt the relevant standards and interpretations when they become effective.


Amendments to MFRS 14: Regulatory Deferral Accounts 1 January 2020 Amendments to MFRS 101: Presentation of Financial Statements 1 January 2020 Amendments to MFRS 108: Accounting Policies, Changes in Accounting Estimates and Errors 1 January 2020 Amendments to MFRS 101 & MFRS 108: Defi nition of Material 1 January 2020 Amendments to MFRS 134: Interim Financial Reporting 1 January 2020 Amendment to MFRS 137: Provisions, Contingent Liabilities and Contingent Assets 1 January 2020 Amendment to MFRS 138: Intangible Assets 1 January 2020 Amendments to IC Interpretation 12: Service Concession Arrangements 1 January 2020 Amendments to IC Interpretation 19: Extinguishing Financial Liabilities with Equity Instruments 1 January 2020 Amendment to IC Interpretation 20: Stripping Costs in the Production Phase of a Surface Mine 1 January 2020 Amendments to IC Interpretation 22: Foreign Currency Transactions and Advance Consideration 1 January 2020 Amendments to IC Interpretation 132: Intangible Assets - Web Site Costs 1 January 2020 MFRS 17: Insurance Contracts 1 January 2022

Amendments to MFRS 10 and MFRS 128: Sale or Contribution To be announced of Assets between an Investor and its Associate or Joint Venture by MASB

The Fund will adopt the above pronouncements when they become effective in the respective fi nancial periods. These pronouncements are not expected to have any signifi cant impact to the fi nancial statements of the Fund upon their initial application.



c. Financial instruments

Financial assets are recognised in the statement of fi nancial position when, and only when, the Fund becomes a party to the contractual provisions of the fi nancial instrument.

i. Initial recognition and subsequent measurement

The classifi cation of fi nancial assets at initial recognition depends on their contractual terms and the business model for managing the instruments, as described in Note 3(d)(i). Financial assets are initially measured at their fair value, except in the case of fi nancial assets recorded at FVTPL, transaction costs are added to, or subtracted from, this amount. Trade receivables are measured at the transaction price. When the fair value of fi nancial instruments at initial recognition differs from the transaction price, the Fund accounts for the Day 1 profi t or loss, as described below.

ii. Measurement categories of fi nancial assets and liabilities

From 1 January 2018, the Fund classifi es all of its fi nancial assets based on the business model for managing the assets and the asset’s contractual terms, measured at either:

• Amortised cost • Fair value through other comprehensive income • Fair value through profi t or loss

The Fund may designate fi nancial instruments at FVTPL, if so doing eliminates or signifi cantly reduces measurement or recognition inconsistencies.

The Fund’s fi nancial assets include cash and bank balances and other receivables. Prior to 1 January 2018, the Fund classifi ed its fi nancial assets as receivables (amortised cost), as explained in Note 3(d)(i).

Financial liabilities are classifi ed according to the substance of the contractual arrangements entered into and the defi nitions of a fi nancial liability. Financial liabilities are classifi ed as either fi nancial liabilities at FVTPL or other fi nancial liabilities.

The Fund’s other fi nancial liabilities include trade payables and other payables.

Other fi nancial liabilities are recognised initially at fair value plus directly attributable transaction costs and subsequently mesured at amortised cost using the effective profi t rate. Gains or losses are recognised in profi t or loss when the liabilities are derecognised, and through the amortisation process.



d. Financial assets and liabilities

i. Due from banks, trade and other receivables at amortised cost

Prior to 1 January 2018, included in the fi nancial assets are cash and bank balances, short-term Islamic deposits and other receivables including receivables which are those non–derivative fi nancial assets with fi xed or determinable payments that were not quoted in an active market.

From 1 January 2018, the Fund only measures the amount due from banks and other fi nancial investments at amortised cost if both of the following conditions are met:

• The fi nancial asset is held within a business model with the objective to hold fi nancial assets in order to collect contractual cash fl ows; and

• The contractual terms of the fi nancial asset give rise on specifi ed dates to cash fl ows that are solely payments of principal and profi t (“SPPP”) on the principal amount outstanding.

The details of these conditions are outlined below.

Business model assessment

The Fund determines its business model at the level that best refl ects how it manages groups of fi nancial assets to achieve its business objective.

The Fund’s business model is not assessed on an instrument-by-instrument basis, but at a higher level of aggregated portfolios and is based on observable factors such as:

• How the performance of the business model and the fi nancial assets held within that business model are evaluated and reported to the entity’s key management personnel;

• The risks that affect the performance of the business model (and the fi nancial assets held within that business model) and, in particular, the way those risks are managed;

• How managers of the business are compensated (for example, whether the compensation is based on the fair value of the assets managed or on the contractual cash fl ows collected); and

• The expected frequency, value and timing of sales are also important aspects of the Fund’s assessment.

The business model assessment is based on reasonably expected scenarios without taking ‘worst case’ or ‘stress case’ scenarios into account. If cash fl ows after initial recognition are realised in a way that is different from the Fund’s original expectations, the Fund does not change the classifi cation of the remaining fi nancial assets held in that business model, but incorporates such information when assessing newly originated or newly purchased fi nancial assets going forward, unless it has been determined that there has been a change in the original business model.



d. Financial assets and liabilities

i. Due from banks, trade and other receivables at amortised cost (contd.)

The SPPP test

As a second step of its classifi cation process the Fund assesses the contractual terms of fi nancial assets to identify whether they meet the SPPP test.

‘Principal’ for the purpose of this test is defi ned as the fair value of the fi nancial asset at initial recognition and may change over the life of the fi nancial asset (for example, if there are payments of principal or amortization/accretion of the premium/discount).

The most signifi cant elements of profi t within a credit facility arrangement are typically the consideration for the time value of money and credit risk. To make the SPPP assessment, the Fund applies judgement and considers relevant factors such as the currency in which the fi nancial asset is denominated, and the period for which the profi t rate is set.

In contrast, contractual terms that introduce a more than de minimis exposure to risks or volatility in the contractual cash fl ows that are unrelated to a basic credit facility arrangement do not give rise to contractual cash fl ows that are solely payments of principal and profi t on the amount outstanding. In such cases, the fi nancial asset is required to be measured at FVTPL.

e. Reclassifi cation of fi nancial assets and liabilities

From 1 January 2018, the Fund has not reclassifi ed its fi nancial assets and fi nancial liabilities subsequent to their initial recognition and upon adoption of MFRS 9.

f. Derecognition of fi nancial assets

A fi nancial asset (or, where applicable, a part of a fi nancial asset or part of a group of similar fi nancial assets) is derecognised when the rights to receive cash fl ows from the fi nancial asset have expired. The Fund also derecognises the fi nancial asset if it has both transferred the fi nancial asset and the transfer qualifi es for derecognition.

The Fund has transferred the fi nancial asset if, and only if, either:

• The Fund has transferred its contractual rights to receive cash fl ows from the fi nancial asset; or

• It retains the rights to the cash fl ows, but has assumed an obligation to pay the received cash fl ows in full without material delay to a third party under a ‘pass–through’ arrangement.

Pass-through arrangements are transactions whereby the Fund retains the contractual rights to receive the cash fl ows of a fi nancial asset (the ‘original asset’), but assumes a contractual obligation to pay those cash fl ows to one or more entities (the ‘eventual recipients’), when all of the following three conditions are met:



f. Derecognition of fi nancial assets (contd.)

• The Fund has no obligation to pay amounts to the eventual recipients unless it has collected equivalent amounts from the original asset, excluding short-term advances with the right to full recovery of the amount credited plus accrued profi t at market rates;

• The Fund cannot sell or pledge the original asset other than as security to the eventual recipients; and

• The Fund has to remit any cash fl ows it collects on behalf of the eventual recipients without material delay. In addition, the Fund is not entitled to reinvest such cash fl ows, except for investments in cash or cash equivalents including profi t earned, during the period between the collection date and the date of required remittance to the eventual recipients.

A transfer only qualifi es for derecognition if either:

• The Fund has transferred substantially all the risks and rewards of the asset; or• The Fund has neither transferred nor retained substantially all the risks and rewards

of the asset, but has transferred control of the asset.

The Fund considers control to be transferred if and only if, the transferee has the practical ability to sell the asset in its entirety to an unrelated third party and is able to exercise that ability unilaterally and without imposing additional restrictions on the transfer.

When the Fund has neither transferred nor retained substantially all the risks and rewards and has retained control of the asset, the asset continues to be recognised only to the extent of the Fund’s continuing involvement, in which case, the Fund also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that refl ects the rights and obligations that the Fund has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration the Fund could be required to pay.

If continuing involvement takes the form of a written or purchased option (or both) on the transferred asset, the continuing involvement is measured at the value the Fund would be required to pay upon repurchase. In the case of a written put option on an asset that is measured at fair value, the extent of the entity’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price.

g. Impairment of fi nancial assets (Policy applicable from 1 January 2018)

i. Overview of the expected credit loss (“ECL”) principles

As described in Note 3 (a), the adoption of MFRS 9 has not fundamentally changed the Fund’s receivable impairment method by replacing MFRS 139’s incurred loss approach with a forward-looking ECL approach.



g. Impairment of fi nancial assets (Policy applicable from 1 January 2018) (contd.)

ii. Write-offs

The Fund’s accounting policy under MFRS 9 remains the same as it was under MFRS 139. Financial assets are written off either partially or in their entirety only when the Fund has stopped pursuing the recovery. If the amount to be written off is greater than the accumulated loss allowance, the difference is fi rst treated as an addition to the allowance that is then applied against the gross carrying amount. Any subsequent recoveries are credited to credit loss expense.

h. Income

Income is recognised to the extent that it is probable that the economic benefi ts will fl ow to the Fund and the income can be reliably measured. Income is measured at the fair value of consideration received or receivable.

Profi t income is recognised using the effective yield method.

Dividend income is recognised on declared basis, when the right to receive the dividend is established.

The realised gain or loss on sale of Shariah-compliant investments is measured as the difference between the net disposal proceeds and the carrying amount of the Shariah-compliant investment.

i. Cash and cash equivalents

For the purpose of the statement of cash fl ows, cash and cash equivalents include cash at bank and short term Islamic deposits with licensed fi nancial institutions with insignifi cant risk of changes in value.

j. Income tax

Income tax on the profi t or loss for the fi nancial year comprises current tax. Current tax is the expected amount of income taxes payable in respect of the taxable profi t for the fi nancial year.

As no temporary differences have been identifi ed, no deferred tax has been recognised.

k. 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.



l. Unit holders’ contribution – NAV attributable to unit holders

The unit holders’ contribution to the Fund is classifi ed as equity instruments. Distribution equalisation represents the average amount of undistributed net income

included in the creation or cancellation price of units. This amount is either refunded to unit holders by way of distribution and/or adjusted accordingly when units are released back to the Trustee.

m. Functional and presentation currency The fi nancial statements of the Fund are measured using the currency of the primary

economic environment in which the Fund operates (“the functional currency”). The fi nancial statements are presented in Ringgit Malaysia (“RM”), which is also the Fund’s functional currency.

n. Distributions

Distributions are at the discretion of the Manager. A distribution to the Fund’s unit holders is accounted for as a deduction from retained earnings.

o. Signifi cant accounting judgments and estimates

The preparation of fi nancial 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

There are no key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a signifi cant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next fi nancial year.


4. FINANCIAL ASSETS AT FVTPL

2018 2017 RM RM

Financial assets held for trading, at FVTPL: Listed Shariah-compliant equity securities 82,607,019 90,445,353 Listed Islamic collective investment scheme 1,213,994 3,169,602 Listed Shariah non-compliant equity securities (Note 14(a)(i)) 1,526,419 - Listed Shariah-compliant warrants - 251,759 85,347,432 93,866,714

Net (loss)/gain on fi nancial assets at FVTPL comprised: Realised (loss)/gain on disposals (8,329,126) 1,943,732 Unrealised changes in fair values (17,837,182) 5,552,491 (26,166,308) 7,496,223

Details of fi nancial assets at FVTPL as at 31 December 2018:

Aggregate Percentage Quantity cost Fair value of NAV RM RM %

Listed Shariah-compliant equity securities

Industrial productsATA IMS Berhad (formerly known as Denko Industrial Corporation Berhad) 925,600 1,640,022 1,527,240 1.4DRB-HICOM Berhad 999,000 2,136,281 1,698,300 1.6E.A. Technique (M) Berhad 1,144,900 519,050 429,337 0.4Hartalega Holdings Berhad 279,700 1,652,573 1,714,561 1.6Hiap Teck Venture Berhad 3,690,600 1,448,647 848,838 0.8Hibiscus Petroleum Berhad 2,896,100 2,743,869 2,432,724 2.3Kossan Rubber Industries Berhad 651,700 2,797,591 2,815,344 2.7Pentamaster Corporation Berhad 875,500 2,577,097 2,407,625 2.3PETRONAS Chemicals Group Berhad 536,200 4,388,571 4,981,298 4.7Scientex Berhad 168,100 1,519,422 1,482,642 1.4SKP Resources Bhd 1,039,100 1,452,738 1,080,664 1.0Top Glove Corporation Berhad 638,000 3,659,844 3,560,040 3.4V. S. Industry Berhad 1,088,700 1,758,911 794,751 0.7 28,294,616 25,773,364 24.3

Trading/ServicesAxiata Group Berhad 846,255 3,887,146 3,317,320 3.1Chin Hin Group Berhad 611,200 821,745 412,560 0.4Dialog Group Berhad 700,842 1,714,112 2,172,610 2.0Kelington Group Berhad 1,301,200 1,493,980 1,431,320 1.3KPJ Healthcare Berhad 1,205,500 1,274,080 1,241,665 1.2


4. FINANCIAL ASSETS AT FVTPL (CONTD.)

Details of fi nancial assets at FVTPL as at 31 December 2018:


Listed Shariah-compliant equity securities (contd.)

Trading/Services (contd.)MBM Resources Berhad 464,600 1,152,554 1,022,120 1.0PESTECH International Berhad 936,300 1,411,243 922,255 0.9PETRONAS Dagangan Berhad 71,300 1,859,207 1,872,338 1.8Sunway Berhad 1,698,071 2,546,665 2,479,184 2.3 Tenaga Nasional Berhad 290,300 3,857,907 3,942,274 3.7 TIME dotCom Berhad 209,200 1,747,435 1,694,520 1.6 Yinson Holdings Berhad 697,200 2,691,454 2,928,240 2.8 24,457,528 23,436,406 22.1

PropertiesLBS Bina Group Berhad - ordinary shares 4,015,720 3,554,336 2,549,982 2.4 LBS Bina Group Berhad - preference shares 234,920 258,412 234,920 0.2 S P Setia Berhad - preference shares B 165,747 145,857 112,708 0.1 Matrix Concepts Holdings Berhad 1,004,300 2,087,409 1,888,084 1.8Paramount Corporation Berhad 1,237,500 2,445,377 2,475,000 2.3 Sime Darby Property Bhd 1,180,500 1,507,140 1,168,695 1.1 9,998,531 8,429,389 7.9

Consumer productsAjinomoto (Malaysia) Berhad 66,900 1,461,256 1,272,438 1.2CCK Consolidated Holdings Berhad 1,560,700 1,301,256 608,673 0.6Lee Swee Kiat Group Berhad 1,354,000 1,395,728 1,144,130 1.1Nestlé (M) Berhad 8,800 602,097 1,296,240 1.2Power Root Berhad 1,039,700 1,635,939 1,434,786 1.3QL Resouces Berhad 234,645 952,031 1,593,239 1.5UMW Holdings Berhad 81,900 432,539 447,993 0.4 7,780,846 7,797,499 7.3

TechnologyD & O Green Technologies Berhad 1,702,000 1,437,248 1,216,930 1.2Frontken Corporation Berhad 3,458,600 2,722,572 2,438,313 2.3Globetronics Technology Bhd. 901,333 2,250,173 1,577,333 1.5Inari Amertron Berhad 1,027,400 1,906,842 1,530,826 1.4 8,316,835 6,763,402 6.4


4. FINANCIAL ASSETS AT FVTPL (CONTD.)

Details of fi nancial assets at FVTPL as at 31 December 2018: (contd.)


Listed Shariah-compliant equity securities (contd.)

ConstructionsGabungan AQRS Berhad 2,113,000 3,048,212 1,796,050 1.7Kerjaya Prospek Group Berhad 1,486,960 2,044,988 1,650,526 1.5MGB Berhad (formerly known as ML Global Berhad) 1,685,800 2,525,597 1,171,631 1.1 7,618,797 4,618,207 4.3

FinanceBIMB Holdings Berhad 869,900 3,430,999 3,096,844 2.9Syarikat Takaful Malaysia Berhad 273,000 856,562 1,037,400 1.0 4,287,561 4,134,244 3.9

PlantationsGenting Plantations Berhad 167,800 1,623,330 1,654,508 1.6

Total listed Shariah-compliant equity securities 92,378,044 82,607,019 77.8

Listed Islamic collective investment scheme

Islamic Real Estate Investment TrustAxis Real Estate Investment Trust 778,201 1,267,205 1,213,994 1.1

Total listed Islamic collective investment scheme 1,267,205 1,213,994 1.1

Listed Shariah non-compliant equity securities

Trading/ServicesQES Group Berhad 6,305,000 2,002,026 1,355,575 1.3

PropertiesSentoria Group Berhad 481,250 375,300 170,844 0.1

Total listed Shariah non-compliant equity securities (Note 14(a)(i)) 2,377,326 1,526,419 1.4

Total fi nancial assets at FVTPL 96,022,575 85,347,432 80.3

Unrealised loss on fi nancial assets at FVTPL (10,675,143)


5. MANAGER’S FEE

The Manager’s fee is calculated on a daily basis at a rate not exceeding 2.50% per annum of the NAV of the Fund as provided under Division 13.1 of the Deed.

The Manager is currently charging Manager’s fee of 1.90% per annum of the NAV of the Fund (2017: 1.90% per annum).

6. TRUSTEE’S FEE

The Trustee’s fee is calculated on a daily basis at a rate not exceeding 0.10% per annum of the NAV of the Fund and subject to a minimum fee of RM18,000 per annum as provided under Division 13.2 of the Deed.

The Trustee’s fee is currently calculated at 0.08% per annum of the NAV of the Fund (2017: 0.08% per annum).

7. INCOME TAX

Income tax is calculated at the Malaysian statutory tax rate of 24% of the estimated assessable income for the current and previous fi nancial years.

Income tax is calculated on investment income less partial deduction for permitted expenses as provided for under Section 63B of the Income Tax Act, 1967.

A reconciliation of income tax expense applicable to net (loss)/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:

2018 2017 RM RM

Net (loss)/income before tax (26,151,951) 7,727,520

Tax at Malaysian statutory tax rate of 24% (2017: 24%) (6,276,468) 1,854,605Tax effect of: Income not subject to tax (773,267) (2,550,044) Loss not deductible for tax purposes 6,279,914 - Expenses not deductible for tax purposes 246,041 213,684 Restriction on tax deductible expenses for unit trust fund 523,780 481,755Income tax for the fi nancial year - -

8. SHORT TERM ISLAMIC DEPOSITS

Short term Islamic deposits are held with licensed fi nancial institutions in Malaysia at the prevailing profi t rates.


9. AMOUNT DUE FROM/TO LICENSED FINANCIAL INSTITUTIONS

Amount due from/to licensed fi nancial institutions relates to the amount to be received from or paid to licensed fi nancial institutions arising from the sales and purchase of investments.

10. OTHER RECEIVABLES

2018 2017 RM RM

Dividend receivables 316,839 335,969Profi t receivable from short term Islamic deposits 29,742 2,521 346,581 338,490

11. OTHER PAYABLES

2018 2017 RM RM

Accrual for auditors’ remuneration 10,000 10,000 Accrual for tax agent’s fees 4,400 7,900 Provision for printing and other expenses 28,894 25,564 43,294 43,464

12. NET ASSET VALUE ATTRIBUTABLE TO UNIT HOLDERS

NAV attributed to unit holders is represented by:


Unit holders’ contribution (a) 110,092,900 92,558,495

(Accumulated loss)/Retained earning: Realised reserve 6,820,689 15,135,458 Unrealised reserve (10,675,143) 7,162,039 (3,854,454) 22,297,497

106,238,446 114,855,992


12. NET ASSET VALUE ATTRIBUTABLE TO UNIT HOLDERS (CONTD.)

(a) Unit holders’ contribution

2018 2017 No. of units RM No. of units RM

At beginning of the fi nancial year 188,251,458 92,558,495 139,907,012 64,046,885Add: Creation of units 60,863,439 32,967,645 59,653,102 35,088,731Less: Cancellation of units (27,047,864) (15,433,907) (11,308,656) (6,689,184)Distribution equalisation - 667 - 112,063At end of the fi nancial year 222,067,033 110,092,900 188,251,458 92,558,495

The number of units legally or benefi cially held by the Manager, Kenanga Investors Berhad, and parties related to the Manager as at 31 December 2018 were nil (2017: nil).

13. NET ASSET VALUE PER UNIT

In line with the requirements of MFRS 9 and MFRS 13, fi nancial assets at FVTPL have been valued at the bid prices at the close of business. In accordance with the Deed, the calculation of NAV attributable to unit holders per unit for the creation and cancellation of units is computed based on fi nancial assets at FVTPL valued at the last done market price.

A reconciliation of NAV attributable to unit holders for creation/cancellation of units and the NAV attributable to unit holders per the fi nancial statements is as follows:

2018 2017 RM RM/Unit RM RM/Unit

NAV attributable to unit holders for creation/cancellation of units 106,666,006 0.4803 116,034,777 0.6164Effects of adopting bid prices as fair value (427,560) (0.0019) (1,178,785) (0.0063)NAV attributable to unit holders per statement of fi nancial position 106,238,446 0.4784 114,855,992 0.6101


14. SHARIAH INFORMATION OF THE FUND

a. The Shariah Adviser confi rmed that the investment portfolio of the Fund is Shariah-compliant, which comprises the following:

i. The investment in equity securities listed on Bursa Malaysia Securities Berhad which have been classifi ed as Shariah-compliant by the SACSC for the fi nancial year under review except for Sentoria Group Berhad and QES Group Berhad. These securities have been reclassifi ed as Shariah non-compliant by SACSC on 25 May 2018 and 30 November 2018, respectively. As per the SACSC advice, these securities will be disposed soonest of practical, once the total amount of dividends received and the market values of the securities held equal the original investment costs;

ii. The investment in collective investment scheme listed on Bursa Malaysia Securities Berhad which was verifi ed as Shariah-compliant by the Shariah Adviser;

iii. The liquid assets that have been placed in the Shariah-compliant investments and/or instruments.

b. Payment to charitable bodies

Payment to charitable bodies comprises the net gain amounting to RM61,973.81 from disposal of Yinson Holdings Bhd and United U-Li Corporation Bhd, which were reclassifi ed as Shariah non-compliant securities by the SACSC on 25 November 2016 and subsequently disposed of in January 2017.

15. PORTFOLIO TURNOVER RATIO (“PTR”)

PTR for the fi nancial year is 0.99 times (2017: 0.84 times).

PTR is the ratio of average sum of acquisitions and disposals of Shariah-compliant investments of the Fund for the fi nancial year to the average NAV of the Fund, calculated on a daily basis.

16. MANAGEMENT EXPENSE RATIO (“MER”)

MER for the fi nancial year is 2.13% per annum (2017: 2.20% per annum).

MER is the ratio of total fees and recovered expenses of the Fund expressed as a percentage of the Fund’s average NAV, calculated on a daily basis.


17. TRANSACTIONS WITH LICENSED FINANCIAL INSTITUTIONS

Brokerage, stamp duty Transaction Percentage and Percentage value of total clearing fee of total RM % RM %

Kenanga Investment Bank Berhad* 36,653,166 16.9 105,601 17.1RHB Investment Bank Berhad 26,721,116 12.3 83,038 13.4Affi n Hwang Investment Bank Berhad 26,405,646 12.2 75,922 12.3Maybank Investment Bank Berhad 24,144,613 11.1 70,265 11.3UOB Kay Hian Securities (M) Sdn Bhd 17,589,264 8.1 47,761 7.7Hong Leong Investment Bank Berhad 17,262,114 7.9 46,441 7.5CIMB Investment Bank Berhad 17,057,417 7.9 44,640 7.2Alliance Investment Bank Berhad 16,011,732 7.4 44,772 7.2KAF-Seagroatt & Campbell Securities Sdn Bhd 12,920,469 5.9 37,885 6.1TA Securities Holdings Berhad 12,880,499 5.9 37,367 6.0Others 9,481,161 4.4 26,126 4.2 217,127,197 100.0 618,818 100.0

* Kenanga Investment Bank Berhad is a related party of Kenanga Investors Berhad.

The above transaction values are in respect of of listed Shariah-compliant equity securities, listed Islamic collective investment scheme, listed Shariah-compliant warrants and listed Shariah non-compliant equity securities.

The directors of the Manager are of the opinion that the transactions with the related party have been entered into in the normal course of business and have been established on terms and conditions that are not materially different from that obtainable in transactions with unrelated parties. The Manager is of the opinion that the above dealings have been transacted on an arm’s length basis.


18. SEGMENTAL REPORTING

a. Business segments

In accordance with the objective of the Fund, the Fund can invest around 70% to 98% in listed Shariah-compliant investment securities. The following table provides an analysis of the Fund’s revenue, results, assets and liabilities by business segments:

Listed Listed Shariah non- Shariah- compliant Other compliant equity Shariah- investment security compliant securities (Note 14(a)(i)) investments Total RM RM RM RM

2018RevenueSegment (loss)/income (22,672,409) (983,370) 711,416 Segment expenses (844,577) (9,786) - Net segment (loss)/income representing segment results (23,516,986) (993,156) 711,416 (23,798,726)Unallocated expenditure (2,353,225)Loss before tax (26,151,951)Income tax -Net loss after tax (26,151,951)

Assets Financial assets at FVTPL 83,821,013 1,526,419 - Short term Islamic deposits - - 18,542,000 Other segment assets 3,155,635 - 29,742 Total segment assets 86,976,648 1,526,419 18,571,742 107,074,809 Unallocated assets 48,003 107,122,812

Liabilities Segment liabilities 171,748 - - 171,748 Unallocated liabilities 712,618 884,366


18. SEGMENTAL REPORTING (CONTD.)

a. Business segments (contd.)

Listed Listed Shariah non- Shariah- compliant Other compliant equity Shariah- investment security compliant securities (Note 14(a)(i)) investments Total RM RM RM RM

2017RevenueSegment income 10,079,616 - 545,566 Segment expenses (651,257) - - Net segment income representing segment results 9,428,359 - 545,566 9,973,925Unallocated expenditure (2,246,405)Income before tax 7,727,520 Income tax -Net income after tax 7,727,520 Assets Financial assets at FVTPL 93,866,714 - - Short term Islamic deposits - - 16,047,513 Other segment assets 5,582,470 - 2,521 Total segment assets 99,449,184 - 16,050,034 115,499,218 Unallocated assets 350,170 115,849,388 Liabilities Segment liabilities 688,622 - - 688,622 Unallocated liabilities 304,774 993,396

b. Geographical segments

As all of the Fund’s investments are located in Malaysia, disclosure by geographical segments is not relevant.


19. FINANCIAL INSTRUMENTS

a. Classifi cation of fi nancial instruments

The Fund’s fi nancial assets and fi nancial liabilities are measured on an ongoing basis at either fair value or at amortised cost based on their respective classifi cation. The signifi cant accounting policies in Note 3 describe how the classes of fi nancial instruments are measured, and how income and expenses, including fair value gains and losses, are recognised.

The following table analyses the fi nancial assets and fi nancial liabilities of the Fund in the statement of fi nancial position by the class of fi nancial instruments to which they are assigned and therefore by the measurement basis.

Financial Financial assets at Other assets amortised fi nancial at FVTPL cost liabilities Total RM RM RM RM

2018AssetsListed Shariah-compliant equity securities 82,607,019 - - 82,607,019 Listed Islamic collective investment scheme 1,213,994 - - 1,213,994 Listed Shariah non-compliant equity securities (Note 14(a)(i)) 1,526,419 1,526,419Short term Islamic deposits - 18,542,000 - 18,542,000 Amount due from licensed fi nancial institutions - 2,838,796 - 2,838,796 Other receivables - 346,581 - 346,581 Cash at bank - 48,003 - 48,003 85,347,432 21,775,380 - 107,122,812 Liabilities Amount due to Manager - - 661,985 661,985 Amount due to Trustee - - 7,339 7,339 Amount due to licensed fi nancial institutions - - 171,748 171,748 - - 841,072 841,072


19. FINANCIAL INSTRUMENTS (CONTD.)

a. Classifi cation of fi nancial instruments (contd.)

Financial Financial assets at Other assets amortised fi nancial at FVTPL cost liabilities Total RM RM RM RM

2017AssetsListed Shariah-compliant equity securities 90,445,353 - - 90,445,353 Listed Islamic collective investment scheme 3,169,602 - - 3,169,602 Listed Shariah-compliant warrants 251,759 - - 251,759 Unlisted Shariah-compliant warrants - - - -Short term Islamic deposits - 16,047,513 - 16,047,513 Amount due from licensed fi nancial institutions - 5,246,501 - 5,246,501 Other receivables - 338,490 - 338,490 Cash at bank - 350,170 - 350,170 93,866,714 21,982,674 - 115,849,388 Liabilities Amount due to Manager - - 254,124 254,124 Amount due to Trustee - - 7,186 7,186 Amount due to licensed fi nancial institutions - - 688,622 688,622 - - 949,932 949,932


19. FINANCIAL INSTRUMENTS (CONTD.)

b. Financial instruments that are carried at fair value

The Fund’s fi nancial assets at FVTPL are carried at fair value. The fair values of these fi nancial 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 RMInvestments:2018Listed Shariah-compliant equity securities 82,607,019 - - 82,607,019Listed Islamic collective investment scheme 1,213,994 - - 1,213,994Listed Shariah non-compliant equity securities (Note 14(a)(i)) 1,526,419 - - 1,526,419

2017 Listed Shariah-compliant equity securities 90,445,353 - - 90,445,353Listed Shariah-compliant collective investment schemes 3,169,602 - - 3,169,602Listed Shariah-compliant warrants 251,759 - - 251,759Unlisted Shariah-compliant warrants - - - -

Level 1: Listed prices in active marketLevel 2: Model with all signifi cant inputs which are observable market dataLevel 3: Model with inputs not based on observable market data

The fair values of listed Shariah-compliant equity securities, listed Islamic collective investment scheme and listed Shariah non-compliant equity securities are determined by reference to Bursa Malaysia Securities Berhad’s bid prices at reporting date.

c. Financial instruments not carried at fair value and which their carrying amounts are reasonable approximations of fair value

The carrying amounts of the Fund’s other fi nancial assets and fi nancial liabilities are not carried at fair value but approximate fair values due to the relatively short term maturity of these fi nancial instruments.


20. CAPITAL MANAGEMENT

The capital of the Fund can vary depending on the demand for creation and cancellation of units to the Fund.

The Fund’s objectives for managing capital are:

a. To invest in Shariah-compliant investments meeting the description, risk exposure and expected return indicated in its prospectus;

b. To maintain suffi cient liquidity to meet the expenses of the Fund, and to meet cancellation requests as they arise; and

c. To maintain suffi cient fund size to make the operations of the Fund cost-effi cient.

No changes were made to the capital management objectives, policies or processes during the current and previous fi nancial years.

Investor Services Center Head Offi ce, Kuala LumpurToll Free Line: 1 800 88 3737 Level 14, Kenanga Tower, 237, Jalan Tun RazakFax: +603 2172 3133 50400 Kuala Lumpur, MalaysiaEmail: [email protected] Tel: 03-2172 3000 Fax: 03-2172 3080

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