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KENANGA BOND FUND

INTERIM REPORT

For the Financial Period Ended 30 June 2013

KENANGA BOND FUND (KBNF)

Report to Unit Holders for the 6-Month Financial Period Ended 30 June 2013

Contents Page

CORPORATE DIRECTORY ii

DIRECTORY OF MANAGER’S OFFICES iii

MANAGER’S REPORT

1.0 FUND INFORMATION 1

2.0 FUND REVIEW 2

3.0 MARKET REVIEW & OUTLOOK 4

4.0 PERFORMANCE DATA 6

5.0 PORTFOLIO COMPOSITION 8

TRUSTEE’S REPORT 9

STATEMENT BY THE MANAGER 10

STATEMENT OF COMPREHENSIVE INCOME 11

STATEMENT OF FINANCIAL POSITION 12

STATEMENT OF CHANGES IN EQUITY 13

STATEMENT OF CASH FLOWS 14

NOTES TO THE FINANCIAL STATEMENTS 15 - 48

i

CORPORATE DIRECTORY

MANAGER: KENANGA INVESTORS BERHAD (Company No. 353563-P)

REGISTERED OFFICEKenanga Investors Berhad (KIB)8th Floor, Kenanga International,Jalan Sultan Ismail,50250 Kuala Lumpur, Malaysia.Tel: 03-2162 1490Fax: 03-2161 4990

BUSINESS OFFICESuite 12.02, 12th Floor, Kenanga International,Jalan Sultan Ismail,50250 Kuala Lumpur, Malaysia.Tel: 03-2057 3688 / 03-2713 3188Fax: 03-2161 8807 / 03-2713 5868E-mail: [email protected]: www.KenangaInvestors.com.my

BOARD OF DIRECTORSDatuk 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 HuatAbdul Razak bin AhmadPeter John Rayner

COMPANY SECRETARY: Norliza Abd Samad, (MAICSA 7011089)9th Floor, Kenanga International, Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia.

TRUSTEE: UNIVERSAL TRUSTEE (MALAYSIA) BERHAD (Company No. 17540-D)

REGISTERED AND BUSINESS OFFICE1 Jalan Ampang, 3rd Floor, 50450 Kuala Lumpur, Malaysia.Tel: 03-2070 8050 Fax: 03-2031 8715, 2032 3194, 2070 1296

EXTERNAL FUND MANAGER: OPUS ASSET MANAGEMENT SDN BHD (Company No. 414625-T)

REGISTERED OFFICE2nd Floor, No.2-4, Jalan Manau,50460 Kuala Lumpur(P.O.Box 11379, 50744 Kuala Lumpur),Malaysia.Tel: 03-2273 1221 Fax: 03-2273 1220

BUSINESS OFFICEB-19-2, Northpoint Offices, Mid Valley City,No.1, Medan Syed Putra Utara,59200 Kuala Lumpur, Malaysia.Tel: 03-2288 8882 Fax: 03-2288 8889

AUDITOR: ERNST & YOUNG

Room 300-303, 3rd Floor, Wisma Bukit Mata Kuching, Jalan Tunku Abdul Rahman, 93100 Kuching, Sarawak, Malaysia.

ii

DIRECTORY OF MANAGER’S OFFICES

REGIONAL BRANCH OFFICES:

Kuala LumpurSuite 12.02, 12th Floor, Kenanga InternationalJalan Sultan Ismail,50250 Kuala Lumpur, MalaysiaTel: 03-2057 3688 / 03-2713 3188Fax: 03-2161 8807 / 03-2713 5868

Johor BahruLot 11.03, 11th Floor, Menara MSC Cyberport5 Jalan Bukit Meldrum80300 Johor Bahru, JohorTel: 07-223 7505/4798 Fax: 07-223 4802

Petaling JayaUnit B-6-2, Sunway Giza MallDataran Sunway, PJU 5/14Kota Damansara47810 Petaling Jaya, SelangorTel: 03-6148 1871, 6150 3983 Fax: 03-6148 1872

Kuching1st Floor, No 71, Lot 7Lot 10900, Jalan Tun Jugah93350 Kuching, SarawakTel: 082-572 228 Fax: 082-572 229

KlangNo. 12 Jalan Batai Laut 3, Taman Intan41300 Klang, Selangor Darul EhsanTel:03-3341 8818, 3348 7889 Fax:03-3341 8816

Kota KinabaluA-03-11, 3rd FloorBlock A Warisan SquareJalan Tun Fuad Stephens88000 Kota Kinabalu, SabahTel: 088-447 089/448 106 Fax: 088-447 039

PenangBlok A, Aras 3,Wisma PerkesoNo. 269, Jalan Burma10538 George Town, PenangTel: 04-226 4880 Fax: 04-226 5120

IpohNo. 5A, Persiaran Greentown 9Greentown Business Centre30450 Ipoh,Perak Darul RidzuanTel: 05-254 7573/7570 Fax: 05-254 7606

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

SerembanSuite 08-3, Seremban City CentreJalan Pasar70000 SerembanTel: 06-761 5678 Fax: 06-761 2243

Agency OfficeMiri (Sarawak)c/o Lot 1084, 2nd Floor,Jalan Merpati98000 MiriSarawak, MalaysiaTel: 085-427 782

iii

MANAGER’S REPORT

Dear Unit Holders,

We are pleased to present the Manager’s interim report and the financial statements of the KENANGA BOND FUND for the 6-month financial period ended 30 June 2013.

1.0 FUND INFORMATION

1.1 Fund Name

KENANGA BOND FUND (KBNF or the Fund)

1.2 Fund Category / Type

Fixed Income / Income

1.3 Investment Objective

The Fund aims to provide investors with a steady income stream over the medium to long-term period through investments primarily in fixed income instruments.

1.4 Investment Strategy

The Fund will invest in a portfolio of fixed income securities and other permissible investments.

1.5 Asset Allocation

70% to 95% in fixed income instruments and minimum 5% in liquid assets.

1.6 Duration

The Fund was launched on 15 August 2002 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

Maybank 12-months fixed deposit rate.

1.8 Distribution Policy

The Fund aims to pay a regular distribution annually, where possible.

1

KENANGA BOND FUNDReport to Unit Holders for the 6-Month Financial Period Ended 30 June 2013

2.0 FUND REVIEW

2.1 Fund performance vs Benchmark Performance

NAV per unit (RM) 1 Fund Return 3

(%)Benchmark Return 3

(%)30/6/2013 31/12/20122

0.7271 0.7390 1.64 1.56

1 Published NAV per unit based on last done price.

2 On 31 December 2012, the Manager declared gross dividend of 2.36 sen per unit.

3 Source: Lipper. Performance returns are adjusted for all distributions (on a reinvested basis) and unit splits.

For the 6-month period ended 30 June 2013, the Fund appreciated 1.64%, outperforming the 1.56% return of the Maybank 12-month fixed deposit rate. This is mainly due to the positive bond market performance over the period, and the Fund’s active duration management strategy.

2.2 Has the Fund achieved its objective?

Since inception, the Fund has appreciated by 62.3%* (in Net Asset Value terms) while its benchmark rose 43.90%*. In this regard, the Fund achieved its stated objective of medium to long-term capital appreciation.

* Source: Lipper

2.3 Strategies & policies employed

For the financial period under review, the Fund invested primarily in local corporate bonds. The portfolio duration was actively managed pursuant to the manager’s view on the prevailing market outlook. Overall, during the period under review, the portfolio was managed on a neutral to overweight duration basis, pursuant to a positive market outlook, to increase capital gains.

The Manager adopts both “top-down” and “bottom up” investment techniques to determine the overall portfolio investment strategy and its appropriate credit selection. Asset allocations and stock selections constantly monitored and rebalanced to reflect the outlook over any given ensuing 1 year period.

The Fund is positioned to enhance capital gains from corporate bonds while constantly taking considerations to mitigate duration and credit risk.

2.4 State of Affairs of the Fund

There were no other significant changes to the state of affairs of the Fund and no circumstances that materially affect the interests of Unit Holders up to the date of this Manager’s report.

2


2.5 Unit Holders’ Profile

As at 30 June 2013, the number of units of the Fund in circulation stood at 9,308,140 (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 62 22.96 172,118.36 1.85

5,001 - 10,000 50 18.52 373,708.87 4.01

10,001-50,000 120 44.44 2,852,738.41 30.65

50,001-500,000 37 13.70 4,453,642.86 47.85

500,001 and above 1 0.37 1,455,931.53 15.64

Total 270 100.00 9,308,140.03 100.00

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


3.0 MARKET REVIEW & OUTLOOK

3.1 Market Review

The local bond market were generally steady during the first 4 months of the financial year 2013, but start to rally upon the notice of dissolution of the Malaysian parliament to make way for the 13th general election. The results that maintained Barisan Nasional to lead the Federal government provided further impetus for yields to rally further. However, this was short-lived as The Fed chairman Ben Bernanke initially testified to the US Congress on 22 May 2013 that the central bank will mull the scale back of QE going forward if the US economy shows signs of stable improvements, which caused the US Treasuries and global emerging bond markets succumbing to selling pressure.

Bank Negara Malaysia held three Monetary Policy Committee (MPC) meetings in January, March and in May 2013, held the Overnight Policy Rate (OPR) at 3.00% each time. At the latest MPC meeting in May 2013, as it held the OPR as expected, Bank Negara weighed global and domestic economic conditions. It said the current OPR of 3.00% is deemed appropriate to keep domestic demand going whilst inflation expectations are modest. The MPC decisions were well within expectations and had muted impact to the bond market.

Following the persistent selling pressure, local MGS yields were higher by 10-24bps over the 6-month period.

Corporate bond yield on the hand, were steadily declining driven mostly by local demand and the shortage of new primary bond issuance during the period under review. There was an increase in activity, especially during 2Q2013, of about RM 12 billion monthly. The steady volume traded was buoyed by firm net buying interest, as the prior rally along the MGS segment in late 2012-early 2013 drove investors into the credit segment in search for yield pickup.

Total corporate bond issuance was RM13.9 billion in 1Q2013, aided by a number of large offerings by government linked companies such as DanaInfra Nasional and Turus Pesawat. Total issuance fell to around RM11.1 billion in 2Q2013. The lower issuance total in the second quarter was partly due to inherent political risks (ahead of the 13th general election) and as government bond yields surged in May and June 2013 which could have delayed some potential offerings.

3.2 Market Outlook

After June 2013, the selling pressure in the bond market continued to be volatile. While yields are now range bound at higher levels, the immediate direction of the MGS may depend on the US Treasuries, which appeared to be torn between the perception that the selldowns in the emerging market bonds and UST are overdone as the pace of US economic recovery does not warrant for a QE tapering yet, against the perception that yields have more upside in the short term on the back of optimistic hint from the US central bank. We expect yields to be subjected to more volatility in the immediate term, which may depend largely on incoming economic data.

4


The local sovereign bond market, similar to its emerging market regional peers, are subject to risk of portfolio outflows from the sovereign bond market as foreign holdings in sovereign bonds (MGS and GII) high at above 42%. However, we do not expect exodus of outflow from MYR, as carry trades are still positive. Furthermore, the excess liquidity of local funds is expected to continue supporting the market. The local corporate bond market may more price stability than the sovereign markets, as most investors in the asset class are long term domestic investors.

Separately, we expect Malaysia’s healthy fundamentals to remain intact. The official 2013 GDP target of 5%-6% are still confidently achievable, together with a target inflation of less than 3%. In light of this, the coming monetary policy committee (MPC) meeting on 11 July is expected to maintain the overnight policy rate (OPR) at 3.00%.

Strategy

In light of the short term uncertainties in the sovereign bond market, we target to focus on the corporate bond. We prefer lower rated credit for yield enhancement as strength of the local credit environment remains intact. We are also targeting to rebalance the portfolio to a neutral duration to mitigate potential volatility in the short term.

5


4.0 PERFORMANCE DATA

4.1 Performance Chart

PERFORMANCE CHART SINCE LAUNCH (15/08/2002 – 30/6/2013)KENANGA BOND FUND vs. BENCHMARK

% Growth, Cum, TR, ExD, MYR, Launch to 30/06/2013

0.00

-10.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

31/1

2/20

02

31/1

2/20

03

31/1

2/20

04

31/1

2/20

05

31/1

2/20

06

31/1

2/20

07

31/1

2/20

08

31/1

2/20

09

31/1

2/20

12

31/1

2/20

11

31/1

2/20

12

30/0

6/20

13

15/0

8/20

02

Kenanga Bond* : 62.33 Maybank 12 Months Fixed Deposit Rate : 43.90

43.90

62.33

* Contains estimated data.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

KBNF (%) 3.13% 4.79% 5.42%

Benchmark (%) 3.17% 3.16% 3.18%

Source: Lipper

4.3 Annual Total Returns

Period Under Review

31/12/12 – 30/6/13

201231/12/11 – 31/12/12

201131/12/11 – 31/12/12

201031/12/11 – 31/12/12

200931/12/11 – 31/12/12

200831/12/11 – 31/12/12

Since inception

09/11/07 – 30/6/13

KBNF (%) 1.64% 4.88% 4.86% 6.24% 6.32% 3.58% 62.33%

Benchmark (%) 1.56% 3.15% 3.03% 2.74% 2.62% 3.68% 43.90%

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


4.4 Other Performance Data

Performance details of the Fund as at 30 June 2013 and the two previous financial years are as follows:

6-months ended30/6/2013




Net Asset Value (RM’000) 1 6,768 8,289 5,548 3,314

Net Asset Value Per Unit (RM)

0.7271 0.7390 cd

0.7155 xd 0.7126 0.6796

Units In Circulation (’000 units)

9,308 11,584 7,785 4,877

Highest Net Asset Value Per Unit (RM)

0.7287 0.7390 0.7143 0.6796

Lowest Net Asset Value Per Unit (RM)

0.7154 0.7124 0.6787 0.6377

Total Return (%) 2 1.64 4.88 4.86 6.24

- Capital Growth (%)2 1.64 0.42 4.86 6.24

- Gross Income Distribution (%)

- 4.46 - -

Gross Distribution Per Unit (RM)

- 0.0236 - -

Net Distribution Per Unit (RM)

- 0.0236 - -

Unit Split (Ratio) - - - -

Management Expenses Ratio (%) 3

0.80 1.68 1.98 1.98

Portfolio Turnover (times) 4 0.56 0.88 0.51 0.55

1 NAV computed based on last done price.

2 Source: Lipper. Total return is the annualised return of the Fund for the respective financial period / years computed based on the net asset value per unit and net of all fees.

3 Management Expense Ratio (MER) is computed based on the total fees and expenses incurred by the Fund divided by the average fund size calculated on a daily basis. MER is lower against previous financial year as the computations are for 6 months only.

4 Portfolio Turnover Ratio (PTR) is computed based on the average of the total acquisitions and total disposals of investment securities of the Fund divided by the average fund size calculated on a daily basis. PTR is lower against previous year as the computations are for 6 months only.

4.5 Distribution / Unit Split for the Period under Review

No distribution / unit split was made during 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


5.0 PORTFOLIO COMPOSITION

5.1 Portfolio Composition

Based on the record as at 30 June 2013, the asset allocation of the Fund in bonds stood at 105.9%. This does not denote a leveraged position. This was a transitory position caused by some redemption from the Fund which exceeded the available cash in the Fund. Some disposal of securities was required to accommodate the redemption, and subsequently reduced the bond allocation to below 100%.

The following pie-chart shows the asset allocation of the Fund as at 30 June 2013:

KENANGA BOND FUND

Asset Allocation as at 30 June 2013

Liquidity- 5.90%

Bonds / Loan Stocks / Others

105.90%

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:

Sectors 30/6/13% of NAV

31/12/12% of NAV

31/12/11% of NAV

31/12/10% of NAV

Bonds 105.90 75.77 73.93 105.73

Liquidity (Cash at Banks / Receivables) -5.90 24.23 26.07 (5.73)

Total 100.00 100.00 100.00 100.00

8


TRUSTEE’S REPORT

To the Unit Holders ofKenanga Bond Fund

We, Universal Trustee (Malaysia) Berhad (“the Trustee”), being the Trustee of Kenanga Bond Fund (“the Fund”), are of the opinion that Kenanga Investors Berhad (“the Manager”), acting in the capacity of Manager of the Fund, have fulfilled their duties in the following manner for the financial period ended 30 June 2013.

(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, other provisions of the Deed, the Securities Commission’s Guidelines on Unit Trust Funds, the Securities Commission’s Act 1993, Capital Market and Services Act, 2007 and other applicable laws during the financial period ended 30 June 2013;

(a) Valuation/pricing has been carried out in accordance with the Deed and any regulatory requirements; and

(b) Creation and cancellation of units have been carried out in accordance with the Deed and any relevant regulatory requirements.

For and on behalf of the TrusteeUNIVERSAL TRUSTEE (MALAYSIA) BERHAD

LIEW KOK WAHChief Executive Officer

Kuala Lumpur, MalaysiaDate: 28 August 2013

9


STATEMENT BY THE MANAGER

To the Unit Holders ofKenanga Bond Fund

We, Abdul Razak Bin Ahmad and Bruce Kho Yaw Huat, being two of the directors of Kenanga Investors Berhad, the Manager, do hereby state that in the opinion of the Manager, the accompanying financial statements set out on pages 11 to 48 are drawn up in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and Securities Commission’s Guidelines on Unit Trust Funds in Malaysia so as to give a true and fair view of the financial position of Kenanga Bond Fund as at 30 June 2013 and of its financial performance and cash flows for the financial period then ended.

For and on behalf of the Manager,Kenanga Investors Berhad

Bruce Kho Yaw Huat Abdul Razak bin AhmadDirector Director

Kuala Lumpur, MalaysiaDate: 28 August 2013

10

Kenanga Bond Fund

Statement of Comprehensive IncomeFor the financial period ended 30 June 2013 (Unaudited)

Note1.1.2013 to

30.6.20131.1.2012 to

30.6.2012

RM RM

INCOME

Interest income 238,656 153,333

Amortisation of premium net of accretion of discount (39,347) (9,540)

Net gain from investments:

- financial assets at fair value through profit and loss (‘FVTPL”) 8 42,170 37,180

241,477 180,973

EXPENSES

Manager’s fee 5 49,347 29,322

Trustee’s fee 6 8,828 8,359

Auditors’ remuneration 6,621 5,476

Tax agent’s fee 1,471 1,660

Administrative expenses 4,775 2,525

71,042 47,342

Net income before tax 170,437 133,631

Income tax expense 7 - -

Net income after tax 170,437 133,631

Total comprehensive income for the period 170,437 133,631

Net income after tax is made up of the following:

Net realised income 173,264 128,836

Net unrealised gain (2,827) 4,795

170,437 133,631

The accompanying notes are an integral part of the financial statements.

11

Kenanga Bond Fund

Statement of Financial Position as at 30 June 2013 (Unaudited)

NoteAs at

30.6.2013As at

30.6.2012

RM RM

ASSETS

Unquoted investments 8 7,084,758 5,169,698

Deposits with licensed financial institutions 9 - 412,588

Interest receivable 78,468 52,681

Cash at banks 61,503 36,253

TOTAL ASSETS 7,224,729 5,671,220

LIABILITIES

Other payables and accruals 11 11,709 8,117

Amount due to Manager 10 451,742 266,884

TOTAL LIABILITIES 463,451 275,001

UNITHOLDERS’ EQUITY

Unitholders’ capital 3,917,743 2,637,555

Retained earnings 2,843,535 2,758,664

TOTAL EQUITY 12 6,761,278 5,396,219

TOTAL EQUITY AND LIABILITIES 7,224,729 5,671,220

UNITS IN CIRCULATION 13 9,308,140 7,407,840

NET ASSET VALUE (“NAV”) PER UNIT (RM) 14 0.7264 0.7284


12

Kenanga Bond Fund

Statement of Changes in EquityFor the financial period ended 30 June 2013 (Unaudited)

Unitholders’ Retained Total

capital earnings equity

(Note 13) (Note 12)

RM RM RM

At 1 January 2012 2,922,753 2,625,033 5,547,786

Total comprehensive income for the period - 133,631 133,631

Creation of units 2,821,251 - 2,821,251

Cancellation of units (3,020,348) - (3,020,348)

Distribution equalisation (86,101) - (86,101)

At 30 June 2012 2,637,555 2,758,664 5,396,219

At 1 January 2013 5,615,650 2,673,098 8,288,748

Total comprehensive income for the period - 170,435 170,435

Creation of units 3,640,303 - 3,640,303

Cancellation of units (5,159,585) - (5,159,585)

Distribution equalisation (178,625) - (178,625)

At 30 June 2013 3,917,743 2,843,533 6,761,276


13

Kenanga Bond Fund

Statement of Cash FlowsFor the financial period ended 30 June 2013 (Unaudited)

1.1.2013 to30.6.2013

1.1.2012 to30.6.2012

RM RM

CASH FLOWS FROM OPERATING AND

INVESTING ACTIVITIES

Proceeds from sale of investments 5,428,843 2,175,900

Purchase of investments (5,925,165) (3,216,710)

Interest received 237,266 148,455

Manager’s fee paid (49,693) (27,890)

Trustee’s fee paid (9,564) (22,065)

Auditors’ remuneration paid (13,500) (6,500)

Payment for other fees and expenses (7,039) (6,029)

Net cash flows used in operating and investing activities (338,852) (954,839)

CASH FLOWS FINANCING ACTIVITIES

Dividend paid (273,392) -

Cash received from units created 5,062,312 4,111,368

Cash paid on units cancelled (6,265,079) (4,013,959)

Net cash flows used in financing activities (1,476,159) 97,409

NET DECREASE IN CASH AND CASH EQUIVALENTS (1,815,011) (857,430)

CASH AND CASH EQUIVALENTS AT 1 JANUARY 1,876,514 1,306,271

CASH AND CASH EQUIVALENTS AT 30 JUNE 61,503 448,841

Cash and cash equivalents comprise:


Deposits with licensed financial institutions - 412,588

61,503 448,841


14

Kenanga Bond Fund

Notes to the Financial Statements for the financial period ended 30 June 2013

1. The Fund, the Manager and their principal activities

Kenanga Bond Fund (the “Fund”) was constituted pursuant to the execution of a Master Deed of Trust dated 29 July 2002, Master Supplemental Deed dated 1 June 2009 and Second Master Supplemental Deed dated 13 October 2010 made between the Manager, Kenanga Investors Berhad, the Trustee, Universal Trustee (Malaysia) Berhad and the registered Unitholders of the Fund.

The Fund’s registered office is at 8th Floor, Kenanga International, Jalan Sultan Ismail, 50250 Kuala Lumpur.

The objective of the Fund is to provide investors with a steady income stream over the medium to long-term period through investments primarily in fixed income instruments.

The principal activity of the Fund is to invest in “Authorised Investments” as defined under Article 7 of the Deed of Trust, which include primarily fixed income securities and short-term investments. The Fund commenced operations on 15 August 2002 and will continue its operations until terminated by the Trustee as provided under Article 13 of the Deed of Trust.

The Manager, a company incorporated and domiciled in Malaysia, is a wholly-owned subsidiary of Kenanga Investment Bank Berhad, a company incorporated and domiciled in Malaysia. The principal activities of the Manager are the promotion and management of unit trust funds and management of investment funds.

2. Summary of significant accounting policies

2.1 Basis of preparation

The financial statements of the Fund have been prepared on in accordance with the Malaysian Financial Reporting Standards (“MFRS”) and International Financial Reporting Standards.

The financial statements have been prepared on the historical cost basis, except for financial assets and financial liabilities held at fair value through profit or loss, that have been measured at fair value.

The financial statements are presented in Ringgit Malaysia (“RM”), being the Fund’s functional currency.

15

Kenanga Bond Fund


2. Summary of significant accounting policies (contd.)

2.2 Changes in accounting policies

The accounting policies adopted are consistent with those of the previous financial period except as follows:

On 1 January 2013, the Fund adopted the following new and amended MFRS and IC Interpretations mandatory for annual financial periods beginning on or after 1 January 2013.

Description

Effective for annual periods beginning

on or after

MFRS 10 Consolidated Financial Statements 1 January 2013

MFRS 11 Joint Arrangements 1 January 2013

MFRS 12 Disclosure of Interests in Other Entities 1 January 2013

MFRS 13 Fair Value Measurement 1 January 2013

MFRS 119 Employee Benefits (IAS 19 as amended by IASB in June 2012) 1 January 2013

MFRS 127 Separate Financial Statements (IAS 27 as amended by IASB in May 2012) 1 January 2013

MFRS 128 Investments in Associates and Joint Ventures (IAS 28 as amended by IASB in May 2012) 1 January 2013

Amendment to MFRS 7 Disclosures: Offsetting Financial Assets and Financial Liabilities 1 January 2013

Amendment to MFRS 1 First-time Adoption of Malaysian Financial Reporting Standards - Government Loans 1 January 2013

IC Interpretation 20 Stripping Costs in the Production Phase of a Surface Mine 1 January 2013

Annual Improvements 2009-2012 Cycle 1 January 2013

Amendments to MFRS 10 Consolidated Financial Statements, MFRS 11 Joint Arrangements and MFRS 12 Disclosed of Interests in other Entities 1 January 2013

MFRS 3 Business combination (IFRS 3 Business Combinations issued by IASB in March 2004) 1 January 2013

MFRS 127 Consolidation and Separate Financial Statements (IAS 27 Consolidated and Separate Financial Statements revised by IASB in December 2003) 1 January 2013

Adoption of the above Standards and Interpretations did not have any significant effect on the financial performance and position of the Fund except for those discussed below:

MFRS 9 Financial Instruments: Classification and Measurement

MFRS 9 reflects the first phase of the work on the replacement of MFRS 139 Financial Instruments: Recognition and Measurement and applies to classification and measurement of financial assets and financial liabilities as defined in MFRS 139 Financial Instruments: Recognition and Measurement. The adoption of the first phase of MFRS 9 will have an effect on the classification and measurement of the Fund’s financial assets. The Fund will quantify the effect in conjunction with the other phases, when the final standard including all phases is issued.

16

Kenanga Bond Fund



2.3 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 and loans and receivables.

(i) Financial assets at FVTPL

Financial assets are classified as financial assets at FVTPL if they are held for trading or are designated as such upon initial recognition. Financial assets held for trading include equity securities, fixed income securities and collective investment schemes acquired principally for the purpose of selling in the near term. All transaction costs for such instruments upon initial recognition are recognised directly in profit or loss.

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’. Interest earned and dividend revenue elements of such instruments are recorded separately in ‘Interest income’ and ‘Gross dividend income’, respectively. Exchange differences on financial assets at FVTPL are not recognised separately in profit or loss but are included in net gains or net losses on changes in fair value of financial assets at FVTPL.

(ii) Loans and receivables

Non-derivative financial assets with fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. The Fund includes deposits with licensed financial institutions and short term receivables in this classification.

Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method less any allowance for impairment. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, and through the amortisation process.

The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Fund estimates cash flows considering all contractual terms of the financial instruments, but does not consider future credit losses. The calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

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Kenanga Bond Fund



2.3 Financial assets (contd.)

A financial asset is derecognised where the asset is disposed and the contractual right to receive cash flows from the asset has expired. On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of the consideration received and any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss.

Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace concerned. All regular way purchases and sales of financial assets are recognised or derecognised on the trade date i.e., the date that the Fund commit to purchase or sell the asset.

2.4 Financial Liabilities

Financial liabilities are classified according to the substance of the contractual 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. Financial liabilities are classified as other financial liabilities.

The Fund’s financial liabilities are recognised initially at fair value plus directly attributable transaction costs and subsequently measured at amortised cost using the effective interest method as described in Note 2.2 (ii).

A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expired. Gains and losses are recognised in profit or loss when the liabilities are derecognised, and through the amortisation process.

2.5 Determination of fair value

The fair value for financial instruments traded in active markets at the reporting date is based on their quoted price or binding dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs.

Where the Fund has assets and liabilities with offsetting market risks, it uses mid-market prices as a basis for establishing fair values for the offsetting risk positions and applies the bid or ask price to the net open position as appropriate.

For all other financial instruments not traded in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include: using recent arm’s length market transactions; reference to the current market value of another instrument that is substantially the same; discounted cash flow analysis and option pricing models making as much use of available and supportable market data as possible. An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 20 (b).

18

Kenanga Bond Fund



2.6 Impairment of financial assets

The Fund assesses at each reporting date whether a financial asset or group of financial assets classified as loans and receivables is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is an objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtor, or a group of debtors, is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and, where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred) discounted using the asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in profit or loss as ’Credit loss expense’.

Impaired debts, together with the associated allowance, are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Fund. If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a previous write-off is later recovered, the recovery is credited to the ’Credit loss expense’.

Interest revenue on impaired financial assets is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

2.7 Net gain or loss on financial assets and liabilities at FVTPL

This item includes changes in the fair value of financial assets and liabilities held for trading or designated upon initial recognition as ‘at fair value through profit or loss’ and excludes interest and dividend income and expenses.

Unrealised gains and losses comprise changes in the fair value of financial instruments for the period and from reversal of prior period’s unrealised gains and losses for financial instruments which were realised (i.e. sold, redeemed or matured) period the reporting period.

Realised gains and losses on disposals of financial instruments classified as part of ‘at FVTPL’ are calculated using weighted average method. They represent the difference between an instrument’s initial carrying amount and disposal amount, or cash payments or receipts made on derivative contracts (excluding payments or receipts on collateral margin accounts for such instruments).

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2.8 Offsetting financial instruments

Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously.

2.9 Functional and presentation currency

The Fund’s functional currency is RM, which is the currency of the primary economic environment in which it operates. The Fund’s performance is evaluated and its liquidity is managed in RM. Therefore, the RM is considered as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. The fund’s presentation currency is also the RM.

2.10 Due to and due from brokers

Amounts due to brokers are payables for securities purchased (in a regular way transaction) that have been contracted for but not yet delivered on the reporting date. Refer to the accounting policy for ‘financial liabilities, other than those classified as at fair value through profit or loss’ for recognition and measurement.

Amounts due from brokers include margin accounts and receivables for securities sold (in a regular way transaction) that have been contracted for but not yet delivered on the reporting date. Refer to accounting policy for ‘loans and receivables’ for recognition and measurement.

Margin accounts represent cash deposits held with brokers as collateral against open futures contracts.

2.11 Unitholders’ capital

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 Unithholders by way of distribution and/or adjusted accordingly when units are cancelled.

2.12 Distribution

Distributions are at the discretion of the Fund. A distribution to the Fund’s Unitholders is accounted for as a deduction from realised reserves except where the distribution is sourced out of distribution equalisation which is accounted for as a deduction from Unitholders’ capital. A proposed distribution is recognised as a liability in the period in which it is approved by the Manager. No income distribution was declared by the Fund for the financial period ended 30 June 2013.

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2.13 Cash and cash equivalents

Cash and cash equivalents in the financial statement comprise cash at bank and deposits with licensed financial institutions which are subject to an insignificant risk of changes in value, with original maturities of three months or less.

Short-term investments that are not held for the purpose of meeting short-term cash commitments and restricted margin accounts are not considered as ‘cash and cash equivalents’.

For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts when applicable.

2.14 Income Recognition

Income is recognised in the statement of comprehensive income to the extent that it is probable that the economic benefits will flow to the Fund and the income can be reliably measured. Income is measured at the fair value of consideration received or receivable.

Dividend income is recognised when the Fund’s right to receive payment is established which is presented gross of any non-recoverable income taxes, which are disclosed separately in the statement of comprehensive income.

Interest income, which includes the accretion of discount and amortisation of premium on fixed income securities, is recognised using the effective interest method.

2.15 Fees

Manager’s fee and Trustee’s fee are recognised on an accrual basis.

2.16 Income taxes

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the tax authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted as at reporting date.

The Fund is exempted from income taxes, except for certain investment income that are subject to tax deducted at the source of the income. The Fund presents the income tax separately from the gross investment income in the statement of comprehensive income. For the purpose of the statement of cash flows, cash inflows from investments are presented net of income taxes, when applicable.

No deferred tax is recognised as there are no material temporary differences.

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Kenanga Bond Fund



2.17 Segment Reporting

For management purposes, the Fund is managed by a single portfolio, debt instruments and cash instruments. The operating results are regularly reviewed by Investment Manager and the Investment Committee. The Investment Committee assumes the role of chief operating decision maker, for performance assessment purposes and to make decisions about resources allocated to the investment segment.

3. Significant accounting judgements, estimates and assumptions

The preparation of the Fund’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts recognised in the financial statements and disclosure of contingent liabilities. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in future periods.

Judgements

In the process of applying the Fund’s accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the financial statements:

Going Concern

The Fund’s management has made an assessment of the Fund’s ability to continue as a going concern and is satisfied that the Fund has the resources to continue in business for the foreseeable future. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the Fund’s ability to continue as a going concern. Therefore, the financial statements continue to be prepared on the going concern basis.

Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below. The Fund based its assumptions and estimates on parameters available when the financial statements were prepared. However, existing circumstances and assumptions about future developments may change due to market changes or circumstances arising beyond the control of the Fund. Such changes are reflected in the assumptions when they occur.

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Kenanga Bond Fund


3. Significant accounting judgements, estimates and assumptions (contd.)

Fair value of financial instruments

When the fair value of financial assets and financial liabilities recorded in the statement of financial position cannot be derived from active markets, their fair value is determined using a variety of valuation techniques that include the use of mathematical models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, estimation is required in establishing fair values. The estimates include considerations of liquidity and model inputs such as credit risk (both own and counterparty’s), correlation and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments in the statement of financial position and the level where the instruments are disclosed in the fair value hierarchy. The models are calibrated regularly and tested for validity using prices from any observable current market transactions in the same instrument (without modification or repackaging) or based on any available observable market data. MFRS 7 requires disclosures relating to fair value measurements using a three-level fair value hierarchy. The level within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. Assessing the significance of a particular input requires judgement, considering factors specific to the asset or liability. To assess the significance of a particular input to the entire measurement, the Fund performs sensitivity analysis or stress testing techniques.

4. Standards issued but not yet effective

Standards issued but not yet effective up to the date of issuance of the Fund’s financial statements are listed below. The Fund intends to adopt applicable standards when they become effective.

Description

Effective for annual periods beginning

on or after

Amendment to MFRS 132 Offsetting Financial Assets and Financial Liabilities 1 January 2014

MFRS 9 Financial instruments (IFRS 9 issued by IASB in November 2009) 1 January 2015

MFRS 9 Financial instruments (IFRS 9 issued by IASB in October 2010) 1 January 2015

5. Manager’s fee

The Manager is currently charging Manager’s fee of 1.00% (30.6.2012: 1.00%) per annum of the NAV of the Fund. This is calculated on a daily basis by dividing the NAV of the Fund before deducting the Manager’s fee and Trustee’s fee for the particular day by the number of days in the period and multiplying the total with the rate of the annual fee disclosed in the current prospectus of the Fund. However, under Article 14.1.2 of the Deed of Trust, the Manager is entitled to a Manager’s fee not exceeding 2.00% (30.6.2012: 2.00%) per annum of the NAV of the Fund.

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Kenanga Bond Fund


6. Trustee’s fee

The Trustee’s fee is computed at 0.08% (30.6.2012: 0.08%) per annum of the NAV of the Fund where there are non-foreign and foreign investments, respectively. This is calculated on a daily basis by dividing the NAV of the Fund before deducting the Manager’s fee and Trustee’s fee for the particular day by the number of days in the period and multiplying the total with the rate of the annual fee disclosed in the current prospectus of the Fund. However, under Article 14.2.2 of the Deed of Trust, the Trustee is entitled to a fee not exceeding 0.10% (30.6.2012: 0.10%) of the NAV of the Fund, subject to a minimum of RM18,000 per annum.

7. Income tax expense

1.1.2013 to30.6.2013

1.1.2012 to30.6.2012

RM RM

Tax expense for the period - -

Income tax is calculated at the Malaysian statutory tax rate of 25% (30.6.2012: 25%) of the estimated assessable income for the financial period.

The Malaysian tax charge for the financial period is in relation to the taxable income earned by the Fund after deducting tax allowable expenses. In accordance with Schedule 6 of the Income Tax Act 1967, interest income earned by the Fund is exempted from tax.

A reconciliation of income tax expense applicable to net income before tax at the statutory income tax rate to income tax expense at the effective income tax rate of the Fund is as follows:

1.1.2013 to30.6.2013

1.1.2012 to30.6.2012

RM RM


Tax at Malaysian statutory rate of 25% (30.6.2012: 25%) 42,609 33,408

Effect of unrealised gain not allowable for tax 707 (1,199)

Effect of income not subject to tax (60,983) (44,045)

Restriction on tax deductible expenses for unit trust funds 17,667 11,836

Tax expense for the period - -

24

Kenanga Bond Fund


8. Unquoted investments

Financial assets at FVTPL

As at30.6.2013

As at30.6.2012

RM RM

Financial assets held for trading:

Islamic private debt securities 2,273,671 1,002,650

Other private debt securities 4,811,087 4,167,048

7,087,758 5,169,698

1.1.2013 to30.6.2013

1.1.2012 to30.6.2012

RM RM

Net gain on financial assets at FVTPL comprised:

Realised gain on disposal 44,997 32,385

Unrealised changes in fair value (2,827) 4,795

42,170 37,180

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Kenanga Bond Fund


8. Unquoted investments (contd.)

Financial assets held for trading as at 30 June 2013 are as detailed below:

Issuer Maturity Nominal Fair

date value Cost * value % of

RM RM RM NAV

Islamic private debt securities

Consumer Product

Padi Beras National Berhad - 5.05% 07.09.2015 100,000 101,698 102,102 1.51

Infrastructure and Utilities

Binariang GSM Sdn. Bhd. - 5.90% 28.12.2016 250,000 250,358 263,423 3.90

Cerah Sama Sdn. Bhd. - 5.31% 31.01.2029 300,000 307,621 311,645 4.61

Maju Expressway Sdn. Bhd. - 5.65% 15.06.2015 150,000 150,000 155,619 2.30

Project Lebuhraya Usahasama Berhad - 5.0% 11.01.2030 150,000 155,056 159,491 2.36

Malakoff Corporation Berhad - 6.382% 30.04.2019 250,000 267,437 274,220 4.06

Plantation and Agriculture

Golden Assets International Finance Ltd. - 4.35% 17.11.2017 500,000 501,416 502,669 7.43

Trading/Services

Edaran SWM Sdn. Bhd. - 4.90% 05.10.2016 500,000 504,335 504,502 7.46

Total Islamic private debt securities 2,237,921 2,273,671 33.63

Asset backed Securities

Tresor Asset Berhad - 7.5% 28.04.2016 425,000 447,516 458,630 6.78

Finance

ORIX Leasing Malaysia Berhad - 4.65% 30.04.2015 500,000 502,169 499,363 7.39

AmIslamic Bank Berhad - 4.40% 30.09.2021 350,000 351,237 352,466 5.21

CIMB Group Holdings Berhad - 5.30% 05.04.2060 100,000 103,460 102,428 1.51

Eon Bank Tier 1 - 8.25% 09.09.2039 550,000 666,365 656,804 9.71

Malayan Banking Berhad - 4.10% 15.08.2021 250,000 250,000 251,179 3.71

Sabah Development Bank Berhad - 4.30% 08.08.2019 500,000 498,124 496,636 7.35

26

Kenanga Bond Fund


8. Unquoted investments (contd.)

Financial assets held for trading as at 30 June 2013 are as detailed below:

Issuer Maturity Nominal Fair

date value Cost * value % of

RM RM RM NAV

Asset backed Securities (contd.)

RHB Bank Hybrid Tier Berhad - 8% 29.03.2019 250,000 250,000 294,881 4.36

RHB Bank Berhad - 4.4% 30.11.2022 275,000 275,539 276,876 4.10

CIMB Group Holdings Berhad - 5.30% 03.04.2015 250,000 250,000 256,071 3.79

Construction and Engineering

Konsortium ProHAWK Sdn. Bhd. - 5.24% 27.12.2030 250,000 258,627 258,725 3.83

Trading/Services

Genting Capital Berhad - 4.86% 08.06.2027 500,000 500,000 506,551 7.49

Hyundai Capital Service Inc - 4.20% 23.02.2017 400,000 400,000 400,477 5.92

Total other private debt securities 4,753,037 4,811,087 71.15

TOTAL FINANCIAL ASSETS AT FVTPL 6,990,958 7,084,758 104.78

EXCESS OF FAIR VALUE OVER COST 93,800

* Cost of fixed income securities includes accretion of discount and/or amortisation of premium.

9. Deposits with licensed financial institutions

As at30.6.2013

As at30.6.2012

RM RM

These are short-term placements with:

Commercial banks - 412,588

The weighted average rate of return of the Fund during the period is Nil (30.6.2012: 2.74%) per annum (30.6.2012: 1 to 7 days).

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Kenanga Bond Fund


10. Amount due to Manager

As at30.6.2013

As at30.6.2012

RM RM

Payable/(receivable) in relation to units cancelled/(created) 445,478 260,956

Management fee 6,264 5,928

451,742 266,884

Amount payable/(receivable) for units cancelled/(created) is payable/(receivable) within 10 days from the transaction date.

11. Other payables and accruals

As at30.6.2013

As at30.6.2012

RM RM

Accruals 11,709 8,117

12. Total equity

NoteAs at

30.6.2013As at

30.6.2012

RM RM

Unitholders’ capital 13 3,917,743 2,637,555

Retained earnings:

- Realised 2,749,735 2,615,457

- Unrealised 93,800 143,207

2,843,535 2,758,664

6,761,278 5,396,219

* The unrealised balance represents the net gain arising from stating investments at their fair values at the reporting date.

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Kenanga Bond Fund


13. Unitholders’ capital and units in circulation

2013 2012

No. of units RM No. of units RM

As at 1 January 11,584,435 5,615,650 7,785,225 2,922,753

Creation of units 6,951,847 3,640,303 5,515,706 2,821,251

18,536,282 9,255,953 13,300,931 5,744,004

Cancellation of units (9,228,142) (5,159,585) (5,893,091) (3,020,348)

Distribution equalisation - (178,625) - (86,101)

As at 30 June 9,308,140 3,917,743 7,407,840 2,637,555

The approved size of the Fund is 500,000,000 units. As at 30 June 2013, the number of units not in issue was 490,691,860 units (30.6.2012: 492,592,160 units).

14. Net assets value (“NAV”) per unit

The NAV per unit was calculated based on the Fund’s NAV of RM6,767,278 (30.6.2012: RM5,396,219) and on the number of units in circulation of 9,308,140 (30.6.2012: 7,407,840) at the date of the statement of financial position.

Net asset value attributable to unitholders is classified as equity in the statements of financial position. In line with the requirement of MFRS, unquoted financial assets have been valued at the bid price at the close of business. In accordance with the Deed, the calculation of net asset value attributable to unitholders per unit for the issuance and cancellation of units is computed based on unquoted financial assets valued at the last done market price.

A reconciliation of net asset attributable to unitholders for issuing/redeeming of units and the net asset value attributable to unitholders per the financial statements is as follows:

RM RM/Unit

Net asset value attributable to unitholders for

issuing/redeeming of units 6,767,950 0.7271

Effect from adopting bid prices as fair value (6,672) (0.0007)

Net asset value attributable to unitholders per statement of financial position 6,761,278 0.7264

15. Units held by related parties

There were no units held by related parties as at 30 June 2013 (30.6.2012: Nil).

29

Kenanga Bond Fund


16. Transactions with Top 10 Bond Dealers and Financial Institutions

Details of transactions with bond dealers/financial institutions for the financial period ended 30 June 2013 are as follows:

Value ofTrade

% ofTotal Trade

BrokerageFees

% of TotalBrokerage Fees

RM % RM %

CIMB BANK BERHAD 67,846,617 50.92 - -

HONG LEONG BANK BERHAD 53,039,186 39.80 -

RHB INVESTMENT BANK BERHAD 4,274,729 3.21 - -

AMBANK (M) BHD 2,495,113 1.87 - -

OSK INVESTMENT BANK BERHAD 2,223,585 1.67 - -

MALAYAN BANKING BERHAD 855,585 0.64 - -

BANK ISLAM MALAYSIA BERHAD 762,700 0.57 - -

OCBC BANK (MALAYSIA) BERHAD 672,700 0.50 - -

MAYBANK INVESTMENT BANK BERHAD 579,150 0.43 - -

Others 524,100 0.39 - -

133,273,465 100.00 - -

No brokerage fees are charged for transactions relating to bond.

30

Kenanga Bond Fund


17. Management expense ratio (“MER”)

The MER of the Fund is the ratio of the sum of the fees and expenses incurred by the Fund to the average NAV of the Fund calculated on a daily basis. The fees and expenses include Manager’s fee, Trustee’s fee, auditors’ remuneration, tax agent’s fee and administrative expenses. For the financial period ended 30 June 2013, the MER of the Fund stood at 0.71% (30.6.2012: 1.10%) and was calculated as follows:

RM

A = Manager’s fee 49,347

B = Trustee’s fee 8,828

C = Auditors’ remuneration 6,621

D = Tax agent’s fee 1,471

E = Administrative expenses 4,775

F = Average NAV of the Fund 9,950,934

MER = (A + B + C + D + E) x 100

F

= RM71,042x 100

RM 9,950,934

= 0.71%

The average NAV of the Fund for the period ended 30 June 2013 was RM9,950,934 (30.6.2012: RM5,897,794).

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Kenanga Bond Fund


18. Portfolio turnover ratio (“PTR”)

The PTR of the Fund is the ratio of the average of the acquisitions and disposals of the Fund for the financial period to the average NAV of the Fund calculated on a daily basis. For the financial period ended 30 June 2013, the PTR of the Fund stood at 0.56 times (30.6.2012: 0.62 times).

The PTR of the Fund is calculated as follows:

RM

Total acquisitions of the Fund 5,986,747

Total disposals of the Fund 5,250,399

Average NAV of the Fund 9,950,934

PTR = (Total acquisitions + Total disposals) / 2

Average NAV of the Fund

= RM5,618,573

RM9,950,934

= 0.56 times

The average NAV of the Fund for the period ended 30 June 2013 was RM 9,950,934 (30.6.2012: RM5,897,794).

19. Segment information

The Manager and Investment Committee of the Fund are responsible for allocating resources available to the fund in accordance with the overall investment strategies as set out in the Investments Guidelines of the Fund. The Fund is managed by one single segment: A portfolio of fixed income instruments, including debts securities and deposits with financial institutions.

The investment objective of this segment is to achieve consistent returns from the investments in this segment while safeguarding capital by investing in diversified portfolios. There have been no changes in reportable segment in the current financial period. The segment information provided is presented to the Manager and Investment Committee of the Fund.

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Kenanga Bond Fund


19. Segment information (contd.)

30 June 2013Debt portfolio

30 June 2012Debt portfolio

RM RM

Interest income 238,656 153,333

Amortisation of premium net of accretion of discount (39,347) (9,540)

Net gain from investments:

- financial assets at FVTPL 42,170 37,180

Total segment operating income for the period 241,479 180,973

Financial assets at FVTPL 7,084,758 5,169,698


Other assets 78,468 52,681

Total segment assets 7,163,226 5,634,967

Other liabilities - -

Total segment liabilities - -

During the financial period, there were no transactions between operating segments.

Expenses of the Fund are not considered part of the performance of any operating segment. The following table provides reconciliation between the net reportable segment income and operating profits:

1.1.2013 to30.6.2013

1.1.2012 to30.6.2012

RM RM

Net reportable segment operating income 241,479 180,973

Expenses (71,042) (47,342)


Income tax expense - -

Net income after tax 170,437 133,631

In addition, certain assets and liabilities are not considered to be part of the net assets or liabilities of an individual segment. The following table provides reconciliation between the net reportable segment assets and liabilities and total assets and liabilities of the Fund.

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Kenanga Bond Fund


19. Segment information (contd.)

As at30.6.2013

As at30.6.2012

RM RM

Total segment assets 7,163,224 5,222,379



Total assets of the Fund 7,224,727 5,671,220

Total segment liabilities - -

Other payables and accruals 11,709 8,117

Amount due to Manager 451,742 266,884

Total liabilities of the Fund 463,451 275,001

20. Financial instruments

(a) Classification of financial instruments

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

Financialassets

at FVTPLLoans and

receivables

Financialliabilities at

amortised cost Total

RM RM RM RM

As at 30 June 2013

Assets

Unquoted investments 7,084,758 - - 7,084,758

Deposits with licensed

financial institutions - - - -

Interest receivable - 78,468 - 78,468

Cash at banks - 61,503 - 61,503

Amount due from

Manager - - - -

Total financial assets 7,084,758 139,971 - 7,224,729

Total non-financial assets -

7,224,729

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Kenanga Bond Fund


20. Financial instruments (contd.)

(a) Classification of financial instruments (contd.)

Financialassets at

FVTPL

Loansand

receivables



RM RM RM RM

As at 30 June 2013 (contd.)

Liabilities

Other payable and accruals - - 11,709 11,709

Amount due to Manager - - 451,742 451,742

Total financial liabilities - - 463,451 463,451

Income, expense, gains and losses

Net gains 42,170 - -

Interest income - 238,281 -

Amortisation of premium

net of accretion of discount (39,347) - -

As at 30 June 2012

Assets

Unquoted investments 5,169,698 - - 5,169,698

Deposits with licensed financial institutions - 412,588 - 412,588

Interest receivable - 52,681 - 52,681

Cash at banks - 36,253 - 36,253

Amount due from Manager - - - -

Total financial assets 5,169,698 501,522 - 5,671,220

Total non-financial assets -

5,671,220

35

Kenanga Bond Fund



(a) Classification of financial instruments (contd.)

Financialassets at

FVTPL

Loansand

receivables



RM RM RM RM

As at 30 June 2012 (contd.)

Liabilities

Other payable and accruals - - 8,117 8,117

Amount due to Manager - - 266,884 266,884

Total financial liabilities - - 275,001 275,001

Income, expense, gains and losses

Net gains 37,180 - -

Interest income - 153,333 -

Amortisation of premium

net of accretion of discount (9,540) - -

(b) Financial instruments that are carried at fair value

The Fund’s financial assets at FVTPL are carried at fair value. The fair values of these financial assets were determined using quoted prices in active markets for identical assets.

Unquoted investments

Fair value is determined directly by reference to their published marked to market at the reporting date.

For fair value of unquoted investments, the published marked to marked to market prices for RM-denominated unquoted investments are based on information provided by Bond Pricing Agency Malaysia Sdn. Bhd.

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Kenanga Bond Fund



(b) Financial instruments that are carried at fair value (contd.)

The following table shows financial instruments recognised at fair value, analysed between those whose fair value is based on:

• Quoted prices in active markets for identical assets or liabilities (Level 1)• Those involving inputs other than quoted prices included in Level 1 that are observable for

the asset or liability, either directly (as prices) or indirectly (derived from prices) (Level 2)• Those with inputs for the asset or liability that are not based on observable market data

(unobservable inputs) (Level 3)

Level 1 Level 2 Level 3 Total

RM RM RM RM

As at 30 June 2013


Unquoted investments - 7,084,758 - 7,084,758

As at 30 June 2012


Unquoted investments - 5,169,698 - 5,169,698

No transfers between any levels of the fair value hierarchy took place during the current year and the comparative year. There were also no changes in the purpose of any financial asset that subsequently resulted in a different classification of that asset.

The determination of NAV based on last done prices of the fund differs from the determination of NAV in accordance with the requirement of MFRSs. A common difference is the measurement of NAV using last done prices as opposed to the FRS measurement basis (of using bid prices of investments).

The following table shows a reconciliation between NAV based on last prices and bid prices:

NAVcalculated in

accordance withlast done prices

Adjustmentarising from

last-done pricesto bid prices

NAVcalculated in

accordancewith MFRS

RM RM RM

Net Asset Value 6,767,950 (6,672) 6,761,278

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Kenanga Bond Fund



(c) Financial instruments that are not carried at fair value and whose carrying amounts are reasonable approximation of fair value

The following are classes of financial instruments that are not carried at fair value and whose carrying amounts are reasonable approximation of fair value:

• Deposits with licensed financial institutions• Dividends receivable• Other payables and accruals• Amounts due from/to Manager• Amount due from/to Stockbrokers• Amounts due from/to Trustees• Distribution payable

There were no financial instruments which are not carried at fair values and whose carrying amounts are not reasonable approximation of their respective fair values.

The methods and basis for the determination of fair value of the Fund’s financial instruments in the current financial period were consistent with that of the previous financial year ended 31 December 2012.

21. Financial risk and management objectives and policies

(a) Introduction

The Fund maintains investment portfolios in a variety of fixed income financial instruments as dictated by its Trust Deed and investment management strategy.

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

The Fund’s objective in managing risk is the creation and protection of Unitholders’ value. Risk is inherent in the Fund’s activities, but it is managed through a process of ongoing identification, measurement and monitoring of risks. Financial risk management is also carried out through sound internal control systems and adherence to the investment restrictions as stipulated in the Trust Deed, the Securities Commission’s Guidelines on Unit Trust Funds and the Capital Markets and Services Act, 2007.

(b) Risk management structure

The Fund’s Manager is responsible for identifying and controlling risks. The Board of Directors of the Manager is ultimately responsible for the overall risk management approach within the Fund.

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Kenanga Bond Fund


21. Financial risk and management objectives and policies (contd.)

(c) Risk measurement and reporting system

Monitoring and controlling risks is primarily set up to be performed based on limits established by the Manager. These limits reflect the investment strategy and market environment of the Fund as well as the level of the risk that Fund is willing to accept. In addition, the Fund monitors and measures the overall risk bearing capacity in relation to the aggregate risk exposure across all risks type and activities.

(d) Risk mitigation

The Fund has investment guidelines that set out its overall business strategies, its tolerance for risk and its general risk management philosophy. The Manager also has a Compliance Department to ensure that the Fund complies with the various regulations and guidelines as stipulated in its Trust Deed, the Securities Commission’s Guidelines on Unit Trust Funds and the Capital Markets and Services Act, 2007.

It is, and has been throughout the current and previous financial period, the Fund’s policy that no derivatives shall be undertaken for either investment risk management purposes.

(e) Excessive risk concentration

Concentration indicates the relative sensitivity of the Fund’s performance to developments affecting a particular industry or geographical location. Concentrations of risk arise when a number of financial instruments or contracts are entered into with the same counterparty, or where a number of counterparties are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations of foreign exchange risk may arise if the Fund has a significant net position in a single foreign currency, or aggregate net positions in several currencies that tend to move together.

In order to avoid excessive concentration of risk, the Fund’s policies and procedures include specific guidelines to focus on maintaining a diversified portfolio in accordance with the Fund’s Trust Deed, Investment Manager’s guidelines and the Securities Commission’s Guidelines on Unit Trust Funds. Portfolio diversification across a number of sectors and industries minimises the risk not only of any single company’s securities becoming worthless but also of all holdings suffering uniformly adverse business conditions. Specifically, the Fund’s Trust Deed and Securities Commission’s Guidelines on Unit Trust Funds limits the Fund’s exposure to a single entity/industry sector to a certain percentage of its NAV.

(f) Market risk

Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to changes in market variables such as interest rates, foreign exchange rates and equity prices. The maximum risk resulting from financial instruments equals their fair value.

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Kenanga Bond Fund



(f) Market risk (contd.)

(i) Interest rate risk

Cash and others fund income securities are particularly sensitive to movements in interest rates. When interest rates rise, the return on cash will rise while the value of bonds will fall and vice versa, thus affecting the NAV of the Fund. When the interest rate trend is anticipated to rise, the exposure to bonds will be reduced to an acceptable level.

The Fund’s investments in debt securities carry fixed interest rates and mature within ten years while deposits with financial institutions are usually rolled-over on a daily/month basis.

Interest rate risk sensitivity

The following table demonstrates the sensitivity of the Fund’s profit/(loss) for the period and other comprehensive income to a reasonably possible change in interest rates, with all other variables held constant.

The sensitivity is the effect of the assumed changes in interest rates on:

• the net interest income for the period, based on the floating rate financial assets held at the end of the reporting period; and

• changes in fair value of investments for the period, based on revaluing fixed rate financial assets at the end of the reporting period.

Changesin basispoints*

Sensitivity ofinterest incomecomprehensive

and profit(decrease)/

increase

Sensitivity ofother in fair

value ofincome

increase/(decrease)

Sensitivityof changes

investments(decrease)/

increase

RM RM RM

As at 30 June 2013 - - - -

As at 30 June 2012 + 25/- 25 (58,439)/61,109 - (58,439)/61,109

* The assumed movement in basis points for interest rate sensitivity analysis is based on the currently observable market environment.

In practice, the actual trading results may differ from the sensitivity analysis below and the difference could be material.

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Kenanga Bond Fund




(i) Interest rate risk (contd.)

Interest rate risk exposure

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

0-3months

3 months-5 years

5-10 years

Non-exposure

to interest rate

movement Total

Effectiveinterest

rate*

RM RM RM RM %

As at 30 June 2013

Assets:

Financial assets held at FVTPL - 3,142,856 3,941,902 - 7,084,758 5.31

Deposits with financial institutions - - - - -

Other assets - - - 139,971 139,971

Total assets - 3,142,856 3,941,902 139,971 7,224,729

Liabilities:

Other liabilities - - - 463,451 463,451

Total liabilities - - - 463,451 463,451

Total interest sensitivity gap - 3,142,856 3,941,902 (323,480) 6,761,278

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Kenanga Bond Fund




(i) Interest rate risk (contd.)

Interest rate risk exposure

0-3months

3 months-5 years

5-10 years

Non-exposure

to interest rate

movement Total

Effectiveinterest

rate*

RM RM RM RM %

As at 30 June 2012

Assets:

Financial assets held at FVTPL 100,030 2,911,313 2,158,355 - 5,169,698 5.92

Deposits with financial institutions 412,588 - - - 412,588 2.96

Other assets - - - 88,934 88,934

Total assets 512,618 2,911,313 2,158,355 88,934 5,671,220

Liabilities:

Other liabilities - - - 275,001 275,001

Total liabilities - - - 275,001 275,001

Total interest sensitivity gap 512,618 2,911,313 2,158,355 186,067 5,396,219

* Computed based on interest-bearing assets only

(g) Credit risk

Credit risk is the risk that the counterparty to a financial instrument will cause a financial loss for the Fund by failing to discharge an obligation. The Fund is exposed to the risk of credit-related losses that can occur as a result of a counterparty or issuer being unable or unwilling to honour its contractual obligations to make timely repayments of interest, principal and proceeds from realisation of investments. These credit exposures exist within financing relationships, derivatives and other transactions.

The Manager manages the Fund’s credit risk by undertaking credit evaluation and close monitoring of any changes to the issuer/counterparty’s credit profile to minimise such risk. It is the Fund’s policy to enter into financial instruments with reputable counterparties. The Manager also closely monitors the creditworthiness of the Fund’s counterparties (e.g., brokers, custodian, banks, etc.) by reviewing their credit ratings and credit profile on a regular basis.

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Kenanga Bond Fund



(g) Credit risk (contd.)

Credit risk exposure

At the reporting date, the Fund’s maximum exposure to credit risk is represented by the carrying amount of each class of financial assets recognised in the statement of financial position.

None of the Fund’s financial assets were past due or impaired as at 30 June 2013 and 30 June 2012.

Credit quality of financial assets

The Fund invests only in debt securities with at least investment grade credit rating by a credit rating agency. The following table analyses the Fund’s portfolio of debt securities by rating category:

As at 30 June 2013

As a % ofdebt securities

As a % ofNAV

Credit rating

AAA 21.53 22.56

AA 62.29 65.27

A 16.18 16.95

100.00 104.78

As at 30 June 2012


As a % ofNAV

Credit rating

AAA 23.57 22.58

AA 51.60 49.43

A 24.83 23.79

100.00 95.80

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Kenanga Bond Fund




Credit risk concentration

Concentration of risk is monitored and managed based on sectorial distribution and by geographical region.

The table below analyses the Fund’s portfolio of debt securities analysed by sectorial distribution:

As at 30 June 2013


As a % ofNAV

Sector

Asset-backed securities 6.47 6.78

Consumer products 1.44 1.51

Finance 44.98 47.13

Infrastructure and utilities 16.44 17.23

Properties 3.66 3.83

Trading and service 19.92 20.87

Plantation and agriculture 7.09 7.43

100.00 104.78

As at 30 June 2012


As a % ofNAV

Sector

Asset-backed securities 9.01 8.63

Consumer products 2.00 1.92

Finance 52.67 50.46

Infrastructure and utilities 17.40 16.66

Properties 1.93 1.85

Trading and service 16.99 16.28

100.00 95.80

44

Kenanga Bond Fund




Credit risk concentration (contd.)

The table below analyses the Fund’s portfolio of debt securities by geographical distribution:

As at 30 June 2013 As at 30 June 2012

As a % of As a % of As a % of As a % of

Debt Debt

securities NAV securities NAV

Geographical region

Malaysia 100 104.78 100 95.80

100 104.78 100 95.80

(h) Liquidity risk

Liquidity risk is defined as the risk that the Fund will encounter difficulty in meeting obligations associated with financial liabilities that are 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 redeem its units earlier than expected. The Fund is exposed to cash redemptions of its units on a regular basis. Units sold to unitholders by the Manager are redeemable at the unitholder’s option based on the Fund’s net asset value per unit at the time of redemption calculated in accordance with the Fund’s Trust Deed.

The Manager’s policy is to always maintain a prudent and sufficient level of liquid assets so as to meet normal operating requirements and expected redemption requests by unitholders. Liquid assets comprise cash, deposits with financial institutions and other instruments which are capable of being converted into cash within 7 days.

The following table summarises the maturity profile of the Fund’s units in issue (classified as equity instruments) and financial liabilities. Balances due within six months equal their carrying amounts, as the impact of discounting is insignificant. The table also analyses the maturity profile of the Fund’s financial assets (undiscounted where appropriate) and equity in order to provide a complete view of the Fund’s contractual commitments and liquidity.

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Kenanga Bond Fund



(h) Liquidity risk (contd.)

Less than1 month

1 month-3 months

3 months-1 year

1 year-5 years

5-10years Total

RM RM RM RM RM RM

As at 30 June 2013

Financial assets:

Financial assets held at FVTPL - - - 3,142,856 3,941,901 7,084,758

Deposits with financial institutions - - - - - -

Other assets 139,971 - - - - 139,971

Total undiscounted financial assets 139,971 - - 3,142,856 3,941,901 7,224,729

Financial liabilities:

Other liabilities 463,451 - - - - 463,451

Total undiscounted financial liabilities 463,451 - - - - 463,451

Unitholders’ capital 6,761,278 - - - - 6,761,278

Liquidity gap (6,621,307) - - 3,142,856 3,941,901 -

Less than1 month

1 month-3 months

3 months-1 year

1 year-5 years

5-10years Total

RM RM RM RM RM RM

As at 30 June 2012

Financial assets:

Financial assets held at FVTPL 100,030 - 530,113 2,381,200 2,158,355 5,169,698

Deposits with financial institutions 412,588 - - - - 412,588

Other assets 88,934 - - - - 88,934

Total undiscounted financial assets 601,552 - 530,113 2,381,200 2,158,355 5,671,220

Financial liabilities:

Other liabilities 275,001 - - - - 275,001

Total undiscounted financial liabilities 275,001 - - - - 275,001

Unitholders’ capital 5,396,219 - - - - 5,396,219

Liquidity gap (5,069,668) - 530,113 2,381,200 2,158,355 -

46

Kenanga Bond Fund



(h) Liquidity risk (contd.)

Notes:

(i) Financial assetsAnalysis of financial assets at fair value through profit or loss into maturity groupings is based on the expected date on which these assets will be realised. Quoted equity instruments have been included in the “Less than 1 month category” on the assumption that these are highly liquid investments which can be realised should all of the Fund’s Unitholders’ capital are 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/maturity dates of debt securities.

(ii) Financial liabilitiesThe maturity grouping is based on the remaining period from the end of the reporting period to the contractual maturity date. When 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) EquityAs unitholders can request for redemption on their units without giving the Manager any notice period and the redemptions are repayable within 10 days, they have been categorised as having a maturity of “Less than 1 month”. As a result, it appears that the Fund has a liquidity gap within “Less than 1 month”.

(i) Inflation risk

The Fund is subject to the risk of Unitholders’ investment not growing proportionately to the inflation rate thereby decreasing the Unitholders’ purchasing power even though the investment in monetary terms may have increased.

(j) Compliance risk

Non-compliance of regulations imposed by the Securities Commission Act 1993 and the Securities Commission’s Guidelines on Unit Trust Funds may affect the Unitholders’ investment.

(k) Single issuer risk

Internal policy restricts the Fund from investing in securities issued by any issuer of not more than a certain percentage of its net assets value. Under such restriction, the risk exposure to the securities of any issuer is managed based on internal/external ratings.

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Kenanga Bond Fund



(l) Regulatory risk

Any changes in national policies and regulations may have an effect on the capital market.

(m) Management risk

Poor management of a fund may cause considerable losses to the Fund that in turn will affect the capital invested by Unitholders.

22. Capital management

The capital of the Fund can vary depending on the demand for redemptions and subscriptions to the Fund. The Fund’s approved fund size and units in issue at the end of the financial period is disclosed in Note 13.

The Fund’s objectives for managing capital are:

(a) To invest in investments meeting the description, risk exposure and expected return indicated in its prospectus;

(b) To achieve consistent returns while safeguarding capital by using various investment strategies;

(c) To maintain sufficient liquidity to meet the expenses of the Fund, and to meet redemption requests as they arise; and

(d) To maintain sufficient fund size to make the operation of the Fund cost-efficient.

No changes were made to the capital management objectives, policies or processes during the current financial period.

23. Events after the reporting period

There were no events occurring since the last reporting date and before the completion of these financial statements.

48

KENANGA MONEY MARKET FUND

INTERIM REPORT

For the Financial Period Ended 30 June 2013

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