Aberdeen Standard Islamic World Equity Fund. Annual Report 30 June 2020

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Full text

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Equity Fund

Annual Report

30 June 2020

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TABLE OF CONTENTS

FUND INFORMATION 2

FUND PERFORMANCE DATA 3 - 5

MANAGER’S REPORT 6 - 8

STATEMENT OF COMPREHENSIVE INCOME 9

STATEMENT OF FINANCIAL POSITION 10 - 11

STATEMENT OF CHANGES IN NET ASSET ATTRIBUTABLE TO UNIT HOLDERS 12

STATEMENT OF CASH FLOWS 13

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 14 - 19

NOTES TO THE FINANCIAL STATEMENTS 20 - 43

STATEMENT BY THE MANAGER 44

TRUSTEE’S REPORT 45

SHARIAH ADVISER’S REPORT 46

AUDITORS’ REPORT 47 – 49

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FUND INFORMATION

Name of Fund Aberdeen Standard Islamic World Equity Fund Fund Category /

Type Equity (Islamic) / Growth

Fund Objective The Fund seeks to achieve capital appreciation in the long term through investments in Shariah-compliant equities and equity-related securities.

Fund Benchmark MSCI ACWI Islamic (Shariah) Index Fund Income

Distribution Policy As the investment objective of the Fund is to provide capital appreciation, distribution of income, if any, is incidental. Breakdown of Unit

holdings by Size As at 30 June 2020, the size of the Fund stood at 114.025 million units. BREAKDOWN OF UNITHOLDINGS BY SIZE – CLASS A- MYR !"#$%&'%(&)*"+,-%

./+"0-1% %% 2&3%&'%/+"0%(&)*$4-% %% 2&3%&'%/+"0-%($)*%.56661% %%

% % % % % % 78666%9+*%:$)&;% % <% % =% % 7866>%0&%>68666% % ?% % ?% % >6866>%0&%768666% % >% % <7% % 76866>%0&%7668666% % >% % @66% % 766866>%9+*%9:&A$% % >@% % >>@8=BC% % !"#$%& %% >D% %% >>C86<7% %% % % % % % %

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FUND PERFORMANCE DATA

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020

Sector Allocation 30.06.2020 % 30.06.2019 % 30.06.2018 % Shariah-Compliant Equities Consumer Discretionary 1.31 0.00 2.17 Consumer Products 18.46 24.21 18.84 Consumer Staples 0.00 2.25 6.25 Energy 5.73 12.41 11.16 Healthcare 25.12 24.87 23.45 Industrials 7.55 7.59 2.69 Industrials products 2.98 5.03 8.89 Information Technology 26.73 12.44 9.52 Materials 4.44 6.96 12.24 Telecommunication Services 0.00 1.06 1.82 Real Estate 5.33 1.07 1.44 Others 0.00 0.00 0.49 Cash 2.35 2.11 1.04 Total 100.0 100.0 100.0 Country Allocation 30.06.2020 % 30.06.2019 % 30.06.2018 % Australia 8.72 4.46 2.33 Brazil 0.00 2.25 1.17 Canada 0.00 2.24 1.57 Denmark 0.00 0.00 1.08 France 7.26 8.75 2.56 Germany 4.83 2.84 13.18 Hong Kong 1.85 5.15 4.93 Indonesia 2.35 0.00 2.16 India 1.84 0.00 1.28 Italy 2.24 2.38 0.00 Japan 2.38 6.67 11.62 Korea 1.52 0.00 0.56 Netherlands 3.36 0.00 1.88 New Zealand 5.30 0.00 0.00 Mexico 0.96 0.00 0.00 Singapore 0.00 1.15 3.56 South Africa 0.00 0.00 1.92 Spain 1.31 0.00 0.00 Sweden 2.98 2.12 3.67 Switzerland 11.90 11.99 9.22 Taiwan 3.50 0.00 0.00 Turkey 0.00 0.00 1.23 United Kingdom 7.85 6.67 12.28 United States 27.50 41.22 22.76 Cash 2.35 2.11 1.04 Total 100.0 100.0 100.0

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FUND PERFORMANCE DATA (CONTINUED)

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020

2020 2019 2018

Class

A-MYR Class A-MYR Class A-MYR

Total NAV (RM million) 201.340 204.319 257.094

NAV per Unit (RM) 1.7658 1.6377 1.5592

Units in Circulation (million) 114.025 124.760 164.885

Highest NAV per Unit (RM) 1.8255 1.6402 1.6245

Lowest NAV per Unit (RM) 1.3337 1.4017 1.4689

Return of the Fund (%) 7.8219 5.0346 0.8473

• Capital Return (%) 7.8219 5.0346 0.8473

• Income Return (%) Nil Nil Nil

Gross Distribution per Unit (sen) Nil Nil Nil

Net Distribution per Unit (sen) Nil Nil Nil

Management Expense Ratio (MER)

(%) 1.91 1.94 2.05

Portfolio Turnover Ratio (PTR)

(times) 0.75 0.51 0.32

Source: Deutsche Bank (Malaysia) Berhad

Class A- MYR

Average Total Return 30.06.2019 to 1 year 30.06.2020 (%) 3 years 30.06.2017 to 30.06.2020 (%) 5 years 30.06.2015 to 30.06.2020 (%) Fund 7.82 4.53 5.61

Source: Lipper for Investment Management as at 30 June 2020

Annual Total Return 1 year 30.06.2019 to 30.06.2020 (%) 1 year 30.06.2018 to 30.06.2019 (%) 1 year 30.06.2017 to 30.06.2018 (%) 1 year 30.06.2016 to 30.06.2017 (%) 1 year 30.06.2015 to 30.06.2016 (%) Fund 7.82 5.04 0.85 14.17 0.79

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FUND PERFORMANCE DATA (CONTINUED)

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020

Basis of calculation and assumption made in calculating the returns

The performance figures are a comparison of the growth/decline in NAV for the stipulated period, taking into account all the distributions payable (if any) during the stipulated period.

An illustration of the above would be as follows:

Capital Return = NAV per Unit End / NAV per Unit Beginning – 1 Income Return = Income Distribution per Unit / NAV per Unit Ex-Distribution Total Return = Capital Return x Income Return – 1

Class A- MYR

Capital Return = {NAV per Unit @ 30.6.2020 ÷ NAV per Unit @ 30.06.2019 – 1} x 100

= {1.7658 ÷ 1.6377 – 1} x 100

= 7.8219%

Income Return = {Income Distribution per Unit ÷ NAV per Unit Ex-Distribution} x 100

= Nil

Total Return = [{(1+Capital Return) x (1+Income Return)} – 1] x 100

= [{(1 + 7.8219%) x (1 + 0%)} – 1] x 100 = 7.8219%

Past performance is not necessarily indicative of future performance and that unit prices and investment returns may go down, as well as up.

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MANAGER’S REPORT

Fund

Performance The Aberdeen Standard Islamic World Equity Fund rose by 7.82% in ringgit terms over the period, outperforming the benchmark, the MSCI AC World Islamic Index, which gained 2.28%. Given the performance during the period under review, we believe the Fund’s objective is being met to provide investors with capital appreciation through long term investments in Shariah-compliant equities. Class A- MYR Income Return % Capital Return %

Total Return of Fund % Total Return of Benchmark % 0.00 7.82 7.82 2.28 Fund Performance (Continued)

FUND RETURN (LAST 5 FINANCIAL YEARS) VS BENCHMARK

Benchmark: MSCI ACWI Islamic (Shariah) Index

Source: Lipper for Investment Management as at 30 June 2020 Note:

This information is prepared by Aberdeen Standard Islamic Investments (Malaysia) Sdn Bhd for information purposes only. Past performance of the Fund is not necessarily indicative of future performance and unit prices and investment returns may go down, as well as up.

Jun 150 20 40 60 80 100 120 140

Nov 15 Apr 16 Sep 16 Feb 17 Jul 17 Dec 17 May 18 Oct 18 Mar 19 Aug 19 Jan 20 Jun 20

MSCI AC World Islamic Index Aberdeen Islamic World Equity A Fund

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MANAGER’S REPORT (CONTINUED)

Analysis of

Fund Performance

Our stock picks in the United States (‘US”) and Japan drove most of the portfolio’s relative outperformance during the period. In particular, Japanese drugmaker Chugai Pharmaceutical rose on a rich pipeline of medicines and clarity in future earnings. Our holdings in medical-device makers, Resmed in Australia and Fisher & Paykel Healthcare in New Zealand, also boosted returns, amid healthy earnings. In the US, not holding energy giant ExxonMobil benefited the fund, while software providers Adobe Systems and Paylocity Holdings fared well amid the broad advance seen in tech stocks.

Conversely, our underweight to China and negative stock selection there weighed on performance. Specifically, not holding Alibaba hurt returns as the index heavyweight surged on heightened interest in its cloud infrastructure business. The e-commerce giant is an impressive business in many respects. We are monitoring its corporate governance practices and seeking more meaningful access to its senior management. Elsewhere, among US holdings, oil services provider Schlumberger and oil producer EOG Resources hampered performance as they fell in tandem with weaker oil prices. We exited Schlumberger as likely cuts in industry capital expenditure dims its outlook. Conversely, we took advantage of share-price weakness to top up EOG Resources to our preferred exposure level, as it remains the premier shale producer and is well-positioned to weather the current turmoil. Meanwhile, Indonesian developer Pakuwon Jati declined on concerns that its shopping malls business would be affected by the pandemic. However, we believe its fundamentals remain unchanged in the longer term.

Market Review

Global equities inched higher in the 12 months ended 30 June 2020. Stocks gained steadily in the first half of the period as tensions between the US and China eased and both countries signed a partial trade deal. However, optimism stemming from the event was soon overshadowed by pandemic fears shortly after the start of the new year. The spread of Covid-19 from China to other parts of the world prompted many countries to close their borders and impose lockdowns. In response, the US government unveiled US$2 trillion in stimulus and the Federal Reserve made emergency interest-rate cuts, which provided some respite for investors. Other central banks, from Canada and Australia to Singapore and South Korea, followed suit. The unprecedented monetary and fiscal stimulus, as well as hopes of economic recovery with the subsequent easing of social-distancing measures, boosted sentiment in the final few months. Stocks on Wall Street recorded their best quarter in two decades, even as geopolitical tensions ratcheted higher across the globe.

By sector, technology shares were the biggest gainers in the period, benefiting from expectations of their resilience in the face of Covid-19. Conversely, energy stocks fell the most, as oil prices slumped on concerns over weaker demand stemming from the pandemic.

Market Outlook

The recent resurgence in infections in the US and other parts of the world was a stark reminder that the global fight against Covid-19 wasn’t yet over. In particular, fresh outbreaks in Beijing and certain US states illustrate that any recovery would remain uneven, with the re-imposition of containment measures correspondingly hurting consumption and business sentiment. A growing number of bankruptcies and defaults in the US and Europe demonstrates that the pandemic’s economic impact is just becoming evident, while many countries in Asia and South America continue the difficult balancing act between taming the outbreak and normalising economic activity. Elsewhere, worsening geopolitical tensions between China and various countries bear watching. Thus, we remain cautious, even as sustained stimulus from governments and central banks provide support.

From a portfolio perspective, we are giving serious consideration to two key aspects. Firstly, whether the businesses in our portfolios are positioned to weather this Covid-19 storm. Secondly, how normalised earnings will look like as we move forward in this crisis. In such times of uncertainty, sound bottom-up analysis and stock-picking strategies are even more crucial. We have the advantage of a world-class proprietary research platform, and an exceptionally well-resourced and experienced team that has navigated many past crises. We stay disciplined in putting capital to work on our best ideas: ensuring the fund’s largest weights are in quality companies with the highest potential returns.

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MANAGER’S REPORT (CONTINUED)

Investment

Strategy Our asset allocation is, by default, from the bottom-up and the sum of the individual companies, as opposed to a top-down strategy. We are looking to manage portfolios that are concentrated, yet sufficiently diversified in terms of our holdings’ underlying businesses. As such, the top-down views from a geographical and sector perspective do not provide a true visibility of the diversification of the portfolio.

Regarding our country exposures, we have a substantial overweight to Australia. This is due to our significant positions in electronics-design software provider Altium, vehicle-accessories maker ARB, medical-device manufacturer Cochlear and real estate firm Goodman Group.

Against this, we are underweight to the US as we continue to find more attractive opportunities in companies listed elsewhere. Having said that, we do hold several US stocks, including consumer goods giant Procter & Gamble as well as software provider Adobe Systems.

By sector, we like companies in the technology segment, particularly those in software and services. We have significant holdings across a diverse range of companies, including chipmaker Taiwan Semiconductor Manufacturing Co. In the software segment, we hold Adobe Systems and Paylocity, among others. Conversely, the fund is underweight in the materials sector compared to the benchmark. Nevertheless we have invested in a few quality materials holdings, such as India’s Asian Paints and industrial gas producer Linde.

Analysis of fund

Performance Share Class A - MYR 30.06.2020 % 30.06.2019 % Change %

NAV (RM Million) 201.34 204.32 -1.46

NAV/Unit (RM) 1.7658 1.6377 7.82

The fund’s NAV dropped by 1.46% to 201.34 million as at 30 Jun 2020. Likewise, the NAV per unit rose by 7.82% during the period.

Asset Allocation As at 30.06.2020 % As at 30.06.2019 % As at 30.06.2018 % Shariah-Compliant Equities 97.65 97.89 98.96 Cash 2.35 2.11 1.04 Total 100.00 100.00 100.00 Distribution/

Unit Split No distribution or unit split was declared for the financial period ended 30 June 2020. State of Affairs

of the Fund There has been no significant change to the state of affairs of the Fund, nor any circumstances that materially affected any interests of the unitholders during the period under review.

Soft

Commissions Soft commissions received from brokers or dealers are retained by the management company only if the goods and services provided are of demonstrable benefit to unit holders of the Fund as per requirements of Clause 11.33 and 11.34 of the Guidelines on Unit Trust Funds. During the period under review, the Manager and its delegates (if any) did not receive any soft commissions from stockbrokers or dealers.

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STATEMENT OF COMPREHENSIVE INCOME

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020

Note 2020 2019

RM RM

SHARIAH-COMPLIANT NET INVESTMENT INCOME

Dividend income 3,474,893 5,053,013

Other income 94,387 -

Net gain on financial assets at fair value

through profit or loss (Shariah-compliant) 6 16,087,156 11,303,730

Net foreign currency exchange loss (666,597) (496,941)

18,989,839 15,859,802

EXPENSES

Management fee 3 3,376,182 4,009,965

Trustee’s and custodian fees 4 236,458 261,826

Audit fee 7,900 8,504

Tax agent’s fee 22,110 15,000

Transaction costs 214,827 135,764

Payment to charitable bodies - 115,038

Other expenses 720,301 956,461

4,577,778 5,502,558

NET PROFIT BEFORE TAXATION 14,412,061 10,357,244

Taxation 5 - -

INCREASE IN NET ASSETS ATTRIBUTABLE 14,412,061 10,357,244

TO UNIT HOLDERS

Increase in net assets attributable to unit holders

comprises the following:

Realised amount 19,473,854 9,132,769

Unrealised amount (5,061,793) 1,224,475

14,412,061 10,357,244

The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements.

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STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2020 Note 2020 2019 RM RM CURRENT ASSETS

Cash and cash equivalents 7 5,790,154 10,298,813

Financial assets at fair value through profit or

loss (Shariah-compliant) 6 196,614,311 199,971,737

Amount due from stockbrokers 5,412,432 390,535

Amount due from Manager

- Creation of units 873,073 353,426

Dividends receivable 273,025 277,139

TOTAL ASSETS 208,962,995 211,291,650

CURRENT LIABILITIES

Amount due to stockbrokers 6,081,808 1,655,615

Amount due to Manager

- Management fee 288,501 613,795

- Cancellation of units 1,221,493 4,554,274

Amount due to Trustee 13,188 13,737

Other payables and accruals 17,602 135,589

TOTAL LIABILITIES (EXCLUDING NET ASSETS 7,622,592 6,973,010 ATTRIBUTABLE TO UNIT HOLDERS)

NET ASSET VALUE OF THE FUND 201,340,403 204,318,640 NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 201,340,403 204,318,640

REPRESENTED BY:

FAIR VALUE OF OUTSTANDING UNITS

– CLASS A - MYR 201,340,403 204,318,640 – CLASS A – USD - - – CLASS A – SGD - - – CLASS A - AUD - - – CLASS I – MYR - - 201,340,403 204,318,640

NUMBER OF UNITS IN CIRCULATION

– CLASS A - MYR 9 (a) 114,024,865 124,759,626 – CLASS A – USD 9 (b) - - – CLASS A – SGD 9 (c) - - – CLASS A - AUD 9 (d) - - – CLASS I – MYR 9 (e) - -

The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements.

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STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2020 (CONTINUED)

Note 2020 2019

RM RM

NAV PER UNIT (RM)

– CLASS A - MYR 1.7658 1.6377 – CLASS A – USD - - – CLASS A – SGD - - – CLASS A - AUD - - – CLASS I – MYR - -

NAV PER UNIT (IN RESPECTIVE CURRENCIES)

– CLASS A - MYR MYR 1.7658 MYR 1.6377

– CLASS A – USD - - – CLASS A – SGD - - – CLASS A - AUD - - – CLASS I – MYR - -

The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements.

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STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO UNIT

HOLDERS

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020

2020 2019

RM RM

NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS

AT THE BEGINNING OF THE FINANCIAL YEAR 204,318,640 257,093,563

Movement due to units created and cancelled during the financial year:

- Creation of units arising from applications 62,060,603 38,108,489

- Cancellation of units (79,450,901) (101,240,656)

186,928,342 193,961,396

Increase in net assets attributable to unit holders during the financial year 14,412,061 10,357,244

NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS AT THE END OF THE FINANCIAL

YEAR 201,340,403 204,318,640

The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements.

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STATEMENT OF CASH FLOWS

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020

Note 2020 2019

RM RM

CASH FLOWS FROM OPERATING ACTIVITIES

Proceeds from sale of quoted Shariah-compliant securities 148,568,966 149,446,007

Purchase of quoted Shariah-compliant securities (129,985,442) (84,752,005)

Dividend income received 2,803,261 5,049,755

Other income received 94,387 -

Management fee paid (3,701,476) (4,179,542)

Trustee's fee paid (154,888) (186,562)

Payment of other fees and expenses (279,303) (1,202,733)

Net realised foreign exchange loss (661,255) (507,601)

Proceeds from capital repayment 50,527 78,678

Net cash generated from operating activities 16,734,777 63,745,997

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from creation of units 61,540,956 37,794,593

Payments for cancellation of units (82,783,682) (96,992,813)

Net cash used in financing activities (21,242,726) (59,198,220)

NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (4,507,949) 4,547,777

Effect of foreign exchange differences (710) 402

CASH AND CASH EQUIVALENTS AT THE BEGINNING

OF THE FINANCIAL YEAR 10,298,813 5,750,634

CASH AND CASH EQUIVALENTS AT THE END OF

THE FINANCIAL YEAR 7 5,790,154 10,298,813

Cash and cash equivalent comprised of:

Bank balances 7 5,790,154 10,298,813

The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020

The following accounting policies have been used consistently in dealing with items which are considered material in relation to the financial statements.

A. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS

The financial statements of the Fund have been prepared in accordance with Malaysian Financial Reporting Standards (“MFRS”) and International Financial Reporting Standards (“IFRS”). The financial statements have been prepared under the historical cost conventions, as modified by the financial assets and financial liabilities at fair value through profit or loss (“FVTPL”).

The preparation of financial statements in conformity with MFRS and IFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reported financial period. It also requires the Manager to exercise their judgment in the process of applying the Fund’s accounting policies. The Manager believes that the underlying assumptions are appropriate and the Fund’s financial statements therefore present the financial position results fairly. Although these estimates and judgment are based on the Manager’s best knowledge of current events and actions, actual results may differ.

The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note L.

(a) Standards, amendments to published standards and interpretations that are effective and relevant

The Fund has applied the following amendments for the first time for the financial year beginning on 1 July 2019:

• Amendments to MFRS 112 ‘Income Taxes’ (effective from 1 January 2019) clarify that where income tax consequences of dividends on financial instruments classified as equity! is recognised (either in profit or loss, other comprehensive income or equity) depends on where the past transactions that generated distributable profits were recognised. Accordingly, the tax consequences are recognised in profit or loss when an entity determines payments on such instruments are distribution of profits (that is, dividends). Tax on dividends should not be recognised in equity merely on the basis that it is related to a distribution to owners.

There are no other standards, amendments to standards or interpretations that are effective for annual periods beginning on 1 July 2019 that have a material effect on the financial statements of the Fund.

(b) Amendments and interpretations which are relevant to the Fund but not yet effective and have not been early adopted are as follows:

(i) Financial year beginning on/after 1 July 2020

• The Conceptual Framework for Financial Reporting (''Framework'') (effective 1 January 2020). The Framework was revised with the primary purpose to assist the International Accounting

Standards Board (''IASB'') to develop IFRS that are based on consistent concepts and enable preparers to develop consistent accounting policies where an issue is not addressed by an IFRS.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 (CONTINUED)

A. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (CONTINUED)

(b) Amendments and interpretations which are relevant to the Fund but not yet effective and have not been early adopted are as follows: (continued)

(i) Financial year beginning on/after 1 July 2020 (continued)

• The Conceptual Framework for Financial Reporting (''Framework'') (effective 1 January 2020). (continued)

Key changes include:

- increasing the prominence of stewardship in the objective of financial reporting - reinstating prudence as a component of neutrality

- defining a reporting entity, which may be a legal entity, or a portion of an entity - revising the definitions of an asset and a liability

- removing the probability threshold for recognition and adding guidance on derecognition - adding guidance on different measurement basis, and

- stating that profit or loss is the primary performance indicator and that, in principle, income and expenses in other comprehensive income should be recycled where this enhances the relevance or faithful representation of the financial statements.

No changes will be made to any of the current accounting standards. However, entities that rely on the Framework in determining their accounting policies for transactions, events or conditions that are not otherwise dealt with under the accounting standards will need to apply the revised Framework from 1 July 2020.

B. INCOME RECOGNITION

Profit income from Islamic deposits placed with licensed financial institutions is recognised on a time proportionate basis using the effective profit rate method on an accrual basis.

Profit income is calculated by applying the effective profit rate to the gross carrying amount of a financial asset except for financial assets that subsequently become credit-impaired. For credit-impaired financial assets the effective profit rate is applied to the net carrying amount of the financial asset (after deduction of the loss allowance).

Dividend income is recognised on the ex-dividend date, when the right to receive the dividend has been established.

Realised gains and losses on sale of quoted Shariah-compliant investments are accounted for as the difference between the net disposal proceeds and the carrying amount of Shariah-compliant investments, determined on a weighted average cost basis.

Shariah non-compliant investments will be disposed-off the soonest practical. In the event the investment resulted in gain (through capital gain and/or dividend), the gain is to be channelled to baitulmal or any other charitable bodies as advised by the Shariah Adviser and approved by the Trustee. If the disposal of the investment resulted in losses to the Funds, the losses are to be borne by the Manager. The amount is recognised as an expense in the statement of comprehensive income.

C TRANSACTION COSTS

Transaction costs are costs incurred to acquire or dispose financial assets or liabilities at fair value through profit or loss. They include fees and commissions paid to agents, advisors, brokers and dealers. Transaction costs, when incurred, are immediately recognised in the statement of comprehensive income as expenses.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

FOR THE FINANCIAL YEAR ENDED 2020 (CONTINUED)

D. TAXATION

Current tax expense is determined according to the Malaysian tax laws at the current rate based on the taxable profit earned during the financial year.

E. FOREIGN CURRENCY

Functional and presentation currency

Items included in the financial statements of the Fund are measured using the currency of the primary economic environment in which the Fund operates (the “functional currency”). The financial statements are presented in Ringgit Malaysia (“RM”), which is the Fund’s functional and presentation currency. Due to mixed factors in determining the functional currency of the Fund, the Manager has used its judgement to determine the functional currency that most faithfully represents the economic effects of the underlying transactions, events and conditions and have determined the functional currency to be in RM primarily due to the following factors:

• Part of the Fund's cash is denominated in RM for the purpose of making settlement of the creation and cancellation.

• The Fund's units are denominated in RM.

• The Fund's significant expenses are denominated in RM.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in statement of comprehensive income, except when deferred in other comprehensive income as qualifying cash flow hedges.

F. FINANCIAL ASSETS AND FINANCIAL LIABILITES

(i) Classification

The Fund classifies its financial assets in the following measurement categories:

• those to be measured subsequently at fair value (either through other comprehensive income (‘OCI’) or through profit or loss), and

• those to be measured at amortised cost

The Fund classifies its investments based on both the Fund’s business model for managing those financial assets and the contractual cash flow characteristics of the financial assets. The portfolio of financial assets is managed and performance is evaluated on a fair value basis. The Fund is primarily focused on fair value information and uses that information to assess the assets’ performance and to make decisions. The Fund has not taken the option to irrevocably designate quoted Shariah-compliant equities as fair value through other comprehensive income. The contractual cash flows of the Fund’s sukuk are solely principal and profit. However, these quoted Shariah-compliant equities are neither held for the purpose of collecting contractual cash flows nor held both for collecting contractual cash flows and for sale. The collection of contractual cash flows is only incidental to achieving the Fund’s business model’s objective. Consequently, all investments are measured at fair value through profit or loss.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 (CONTINUED)

F. FINANCIAL ASSETS AND FINANCIAL LIABILITES (CONTINUED)

(i) Classification (continued)

The Fund classifies cash and cash equivalents, amount due from stockbrokers, amount due from Manager and dividends receivables as financial assets at amortised cost as these financial assets are held to collect contractual cash flows consisting of the amount outstanding.

The Fund classifies amount due to stockbrokers, amount due to Manager, amount due to Trustee and other payables and accruals as other financial liabilities measured at amortised cost.

(ii) Recognition and measurement

Regular purchases and sales of financial assets are recognised on the trade-dates, the date on which the Fund commits to purchase or sell the asset. Shariah-compliant investments are initially recognised at fair value. Transaction costs are expensed in the statement of comprehensive income.

Financial assets are derecognised when the rights to receive cash flows from the Shariah-compliant investments have expired or have been transferred and the Fund has transferred substantially all risks and rewards of ownership.

Financial liabilities are 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 derecognised when it is extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or expired.

Gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss category including the effects of foreign transactions are presented in the statement of comprehensive income within net gain or loss on financial assets at fair value through profit and loss in the period which they arise.

Dividend income from financial assets at fair value through profit or loss is recognised in the statement of comprehensive income as part of gross dividend income when the Fund’s right to receive payments is established.

Quoted Shariah-compliant securities are valued at the last done market price quoted on Bursa Malaysia Securities Bhd (“Bursa Securities”) at the date of the statement of financial position. Foreign quoted Shariah-compliant securities are valued at the last traded market price quoted on the respective foreign stock exchanges at the close of the business day of the respective foreign stock exchanges.

If a valuation based on the market price does not represent the fair value of the quoted Shariah-compliant securities, for example during abnormal market conditions or when no market price is available, including in the event of a suspension in the quotation of the quoted Shariah-compliant securities for a period exceeding 14 days, or such shorter period as agreed by the Trustee, then the quoted Shariah-compliant securities are valued as determined in good faith by the Manager, based on the methods or basis approved by the Trustee after appropriate technical consultation.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 (CONTINUED)

F. FINANCIAL ASSETS AND FINANCIAL LIABILITES (CONTINUED) (ii) Recognition and measurement (continued)

Islamic deposits with licensed Islamic financial institutions are stated at cost plus accrued profit calculated on the effective profit method over the period from the date of placement to the date of maturity of the respective Islamic deposits.

Financial assets at amortised cost and other financial liabilities are subsequently carried at amortised cost using the effective profit method.

(iii) Impairment

The Fund measures credit risk and expected credit losses using probability of default, exposure at default and loss given default. Management considers both historical analysis and forward looking information in determining any expected credit loss. Management consider the probability of default to be close to zero as these Shariah-compliant instruments have a low risk of default and the counterparties have a strong capacity to meet their contractual obligations in the near term. As a result, no loss allowance has been recognised based on 12 month expected credit losses as any such impairment would be wholly insignificant to the Fund.

(iv) Significant increase in credit risk

A significant increase in credit risk is defined by management as any contractual payment which is more than 30 days past due.

(v) Definition of default and credit-impaired financial assets

Any contractual payment which is more than 90 days past due is considered credit impaired. (vi) Write-off

The Fund write off financial assets, in whole or in part, when it has exhausted all practical recovery efforts and has concluded there is no reasonable expectation of recovery. The assessment of no reasonable expectation of recovery is based on unavailability of debtor’s sources of income or assets to generate sufficient future cash flows to repay the amount. The Fund may write-off financial assets that are still subject to enforcement activity. Subsequent recoveries of amounts previously written off will result in impairment gains. There are no write-offs/recoveries during the financial year. G. AMOUNT DUE FROM/TO STOCKBROKERS

Amount due from and amount due to stockbrokers represent receivables for Shariah-compliant securities sold and payables for Shariah-compliant securities purchased that have been contracted for but not yet settled or delivered on the statement of financial position date respectively.

These amounts are recognised initially at fair value and subsequently measured at amortised cost. At each reporting date, the Fund shall measure the loss allowance on amounts due from the stockbrokers at an amount equal to the lifetime expected credit losses if the credit risk has increased significantly since initial recognition. If, at the reporting date, the credit risk has not increased significantly since initial recognition, the Fund shall measure the loss allowance at an amount equal to 12-month expected credit losses. Significant financial difficulties of the broker, probability that the stockbrokers will enter bankruptcy or financial reorganisation, and default in payments are all considered indicators that a loss allowance may be required.

If the credit risk increases to the point that it is considered to be credit impaired, profit income will be calculated based on the gross carrying amount adjusted for the loss allowance. A significant increase in credit risk is defined by management as any contractual payment which is more than 30 days past due.

(20)

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 (CONTINUED)

H. CASH AND CASH EQUIVALENTS

For the purpose of the statement of cash flows, cash and cash equivalents comprise cash and bank balances that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

I. CREATION AND CANCELLATION OF UNITS

The unit holders' capital of the Fund meet the definition of puttable instruments classified as financial liability under MFRS 132 "Financial Instruments: Presentation".

The Fund issues cancellable units, in two classes of units, known respectively as Class A, targeted at retail investors and Class I, targeted at institutional investors, which are cancelled at the unit holder’s option and do not have identical features. The units are classified as financial liabilities. Cancellable units can be put back to the Fund at any time for cash equal to a proportionate share of the Fund’s net asset value (“NAV”) of respective classes. The outstanding units are carried at the redemption amount that is payable at the statement of financial position if the unit holder exercises the right to put back the unit to the Fund. Each class of units are also offered in different currency denominations, i.e. Ringgit Malaysia, United States Dollars, Singapore Dollars and Australian Dollars. The United States Dollars, Singapore Dollars and Australian Dollars denominated classes are not offered for sale for the financial year ended 30 June 2020.

Units are created and cancelled at the unit holder’s option at prices based on the Fund’s NAV per unit of respective classes at the close of business on the relevant dealing day. The Fund’s NAV per unit of respective classes is calculated by dividing the net assets attributable to unit holders of respective classes with the total number of outstanding units of respective classes.

J. INCREASE/DECREASE IN NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS Profit not distributed is included in net assets attributable to unit holders.

K. FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial instruments comprise financial assets and financial liabilities. Fair value is the amount at which a financial asset could be exchanged or a financial liability settled, between knowledgeable and willing parties in an arm’s length transaction. The information presented herein represents the estimates of fair values as at the statement of financial position.

L. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES

The Fund makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. To enhance the information content of the estimates, certain key variables that are anticipated to have material impact to the Fund’s results and financial position are tested for sensitivity to changes in the underlying parameters.

Estimates and judgments are continually evaluated by the Manager and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

In undertaking any of the Fund’s investment, the Manager will ensure that all assets of the Fund under management will be valued appropriately, that is at fair value and in compliance with the Securities Commission (“SC”)’s Guidelines on Unit Trust Funds.

However, the Manager is of the opinion that there are no accounting policies which require significant judgement to be exercised.

(21)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE FINANCIAL YEAR ENDED 30 JUNE

1. INFORMATION ON THE FUND

The Fund was constituted under the name of Aberdeen Standard Islamic World Equity Fund (the “Fund”) pursuant to the execution of a Deed dated 10 September 2012 as amended by the Supplemental Deed dated 11 March 2013, Second Supplemental Deed dated 27 March 2015, Third Supplemental Deed dated 16 October 2015 and Fourth Supplemental Deed dated 13 November 2018 (collectively referred to as the “Deeds”) between Aberdeen Standard Islamic Investments (Malaysia) Sdn Bhd (the “Manager”) and Deutsche Trustees Malaysia Berhad (the “Trustee”).

The Fund seeks to achieve capital appreciation in the long term through investments in Shariah-compliant equities and equity related securities. The Fund is a multi-class Fund which offers Class A, targeted at retail investors and Class I, targeted at institutional investors. Each class of units are also offered in different currency denominations, i.e. Ringgit Malaysia, United States Dollars, Singapore Dollars and Australian Dollars. The United States Dollars, Singapore Dollars and Australian Dollars denominated classes are not offered for sale for the financial year ended 30 June 2020.

All investments will be subjected to the Securities Commission (“SC”)’s Guidelines on Unit Trust Funds, SC’s requirements, the Deeds approved and the objective of the Fund, except where exemptions or variations have been approved by SC, internal policies and procedures and the Fund’s objective. The Manager is a company incorporated in Malaysia. The principal activities of the Manager are establishment and management of Unit Trust Funds.

2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Fund is exposed to a variety of risks which include market risk (including price risk and currency risk), credit risk, liquidity risk, non-compliance risk, reclassification of Shariah status risk and capital risk. Financial risk management is carried out through internal control processes adopted by the Manager and adherence to the investment restrictions as stipulated by the prospectus and the SC’s Guidelines on Unit Trust Funds.

Financial instruments of the Fund are as follows:

Financial assets

Financial assets at fair value

at amortised through profit

Note cost or loss Total

As at 30 June 2020 RM RM RM

Cash and cash equivalents 7 5,790,154 - 5,790,154

Quoted Shariah-compliant

securities 6 - 196,614,311 196,614,311

Amount due from stockbrokers 5,412,432 - 5,412,432 Amount due from Manager 873,073 - 873,073 Dividends receivable 273,025 - 273,025

(22)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 (CONTINUED)

2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Financial instruments of the Fund are as follows (continued):

Financial assets

Financial assets at fair value

at amortised through profit

Note cost or loss Total

As at 30 June 2019 RM RM RM

Cash and cash equivalents 7 10,298,813 - 10,298,813

Quoted Shariah-compliant

securities 6 - 199,971,737 199,971,737

Amount due from stockbrokers 390,535 - 390,535 Amount due from Manager 353,426 - 353,426 Dividends receivable 277,139 - 277,139

Total 11,319,913 199,971,737 211,291,650

All current liabilities are financial liabilities which are carried at amortised cost. Market risk

(i) Price risk

Price risk arises mainly due to uncertainty on the future prices of Shariah-compliant investments. It represents the potential loss the Fund might suffer through holding market positions in the face of price movements. The Manager manages the risk of unfavourable changes in prices by continuous monitoring of the performance and risk profile of the Shariah-compliant investment portfolio. The table below shows the financial instruments of the Fund which are exposed to price risk.

2020 2019

RM RM

Financial assets at fair value through profit or loss

196,614,311 199,971,737

- Quoted Shariah-compliant investments

The following table summarises the sensitivity of the Fund’s net asset value (NAV) and profit after taxation to movements in prices of investments at the end of the reporting period. The analysis is based on the assumptions that the market price of quoted Shariah-compliant investments fluctuates by 5% with all other variables held constant. This represents the Manager’s best estimate of a reasonable possible shift in quoted Shariah-compliant investments, having regard to the historical volatility of the prices.

(23)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 (CONTINUED)

2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Market risk (continued)

(i) Price risk (continued)

% change in price of quoted Shariah-compliant Impact on profit after

securities Market value taxation/NAV

As at 30 June 2020 RM RM

-5% 186,783,595 (9,830,716)

0% 196,614,311 -

+5% 206,445,027 9,830,716

% change in price of quoted Shariah-compliant Impact on profit after securities Market value taxation/NAV

As at 30 June 2019 RM RM

-5% 189,973,150 (9,998,587)

0% 199,971,737 -

+5% 209,970,324 9,998,587

(ii) Currency risk

Currency risk is associated with investments denominated in foreign currencies. When the foreign currencies fluctuate in an unfavourable movement against Ringgit Malaysia, the investments will face currency losses in addition to the capital gain/loss. The Manager will evaluate the likely directions of a foreign currency versus Ringgit Malaysia based on considerations of economic fundamentals such as profit rate differentials, balance of payments position, debt levels, and technical chart considerations.

Cash Quoted Shariah- Amount due

and cash compliant from Dividends

equivalents securities stockbrokers receivable Total

As at 30 June 2020 RM RM RM RM RM AUD - 28,237,070 - 43,334 28,280,404 CHF - 23,954,751 - - 23,954,751 EUR 95,957 38,256,335 - 43,902 38,396,194 HKD - 3,733,890 - 130,527 3,864,417 IDR - 4,742,001 460,945 - 5,202,946 INR - 3,702,951 - - 3,702,951 GBP - 15,808,331 - - 15,808,331 JPY - 4,800,647 - - 4,800,647 MXN 1,257,995 1,940,021 - - 3,198,016 SEK - 6,011,885 - - 6,011,885 USD - 65,426,429 4,951,487 55,262 70,433,178 1,353,952 196,614,311 5,412,432 273,025 203,653,720

(24)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 (CONTINUED)

2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Market risk (continued)

(ii) Currency risk (continued)

Cash Quoted Shariah- Amount due

and cash compliant from Dividends

equivalents securities stockbrokers receivable Total

As at 30 June 2019 RM RM RM RM RM AUD - 9,103,812 - - 9,103,812 BRL - 4,590,596 - 18,322 4,608,918 CAD - 4,573,835 - 27,663 4,601,498 CHF - 24,497,398 - - 24,497,398 EUR - 32,333,823 - - 32,333,823 HKD - 6,740,873 - 70,629 6,811,502 IDR - - 390,535 - 390,535 GBP - 9,372,445 - - 9,372,445 JPY - 13,625,684 - 53,287 13,678,971 SEK - 4,324,675 - - 4,324,675 SGD - 2,339,998 - 45,000 2,384,998 USD 5,458,541 88,468,598 - 62,238 93,989,377 5,458,541 199,971,737 390,535 277,139 206,097,952

(25)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 (CONTINUED)

2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Market risk (continued)

(ii) Currency risk (continued)

The table below summarises the sensitivity of the Fund's profit after tax and net asset value to changes in foreign exchange movements. The analysis is based on the assumption that the foreign exchange rate changes by 5%, with all other variables remain assumption that the foreign exchange rate changes by 5%, with all other variables remain constants. This represents management's best estimate of a reasonable possible shift in the foreign exchange rate, having regard to historical volatility of this rate. Any increase/decrease in foreign exchange rate will result in a corresponding increase/decrease in the net assets attributable to unit holders by approximately 5%. Disclosures below are shown in absolute terms, changes and impacts could be positive or negative.

Impact on

profit after

Change in price taxation/NAV

As at 30 June 2020 % RM AUD 5 1,414,020 CHF 5 1,197,738 EUR 5 1,919,810 HKD 5 193,221 IDR 5 260,147 INR 5 185,148 GBP 5 790,417 JPY 5 240,032 MXN 5 159,901 SEK 5 300,594 USD 5 3,521,659 profit after

Change in price taxation/NAV

As at 30 June 2019 % RM AUD 5 455,191 BRL 5 230,446 CAD 5 230,075 CHF 5 1,224,870 EUR 5 1,616,691 HKD 5 340,575 IDR 5 19,527 GBP 5 468,622 JPY 5 683,949 SEK 5 216,234 SGD 5 119,250 USD 5 4,699,469

(26)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 (CONTINUED)

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

Credit risk refers to the risk that an issuer or counterparty will default on its contractual obligation to make timely payments of profit, principals and proceeds resulting in financial loss to the Fund. The Manager manages the credit risk by undertaking credit evaluation to minimise such risk.

Credit risk arising from cash and cash equivalents is managed by ensuring that the Fund will only place Islamic deposits in reputable licensed financial institutions.

The settlement terms of the proceeds from the creation of units receivable from the Manager and redemption of units payable to the Manager are governed by the SC’s Guidelines on Unit Trust Funds.

For amount due from stockbrokers, the settlement terms are governed by the relevant rules and regulations as prescribed by respective stock exchange. The credit risk is minimal as all transactions in Shariah-compliant investments are settled/paid upon delivery using approved stockbrokers.

The following table sets out the credit risk concentration of the Fund:

Cash and cash equivalents Amount due from stockbrokers Amount due from

Manager Dividends receivable Total

As at 30 June 2020 RM RM RM RM RM Consumer Products - Not Rated - - - 9,106 9,106 Finance - AA1 5,790,154 - - - 5,790,154 - Aa3 - 2,052,192 - - 2,052,192 - A1 - 3,360,240 - - 3,360,240 - Not Rated - - 873,073 - 873,073 Energy - Not Rated - - - 43,902 43,902 Healthcare -Not Rated - - - 5,449 5,449 Information Technology - Not Rated - - - 40,707 40,707 Real Estate - Not Rated - - - 173,861 173,861 5,790,154 5,412,432 873,073 273,025 12,348,684

(27)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 (CONTINUED)

2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Credit risk (continued)

The following table sets out the credit risk concentration of the Fund:

Cash and Cash equivalents

Amount due from stockbroker Amount due from Manager Dividends receivable Total As at 30 June 2019 RM RM RM RM RM Consumer Staples - Not Rated - - - 18,322 18,322 Finance - AA1 10,298,813 - - - 10,298,813 - Not Rated - 390,535 353,426 - 743,961 Energy - Not Rated - - - 46,545 46,545 Healthcare -Not Rated - - - 91,812 91,812 Industrial Products - Not Rated - - - 22,167 22,167 Materials - Not Rated - - - 27,663 27,663 Real Estate - Not Rated - - - 70,630 70,630 10,298,813 390,535 353,426 277,139 11,319,913 All financial assets of the Fund as at the end of each financial year are neither past due nor impaired.

(28)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 (CONTINUED)

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

Liquidity risk is the risk that the Fund will encounter difficulty in meeting its financial obligations. The Manager manages this risk by maintaining sufficient level of Islamic liquid assets to meet anticipated payment and cancellations of units by unit holders. Islamic liquid assets comprise cash, Islamic deposits with licensed financial institutions and other instruments, which are capable of being converted into cash within 7 days. The table below analyses the Fund's financial liabilities into relevant maturity groupings based on the remaining period at the statement of financial position date to the contractual maturity date. The amounts in the table below are the contractual undiscounted cash flows.

Between

Less than 1 month to

1 month 1 year Total

As at 30 June 2020 RM RM RM

Amount due to stockbroker 6,081,808 - 6,081,808

Amount due to the Manager

- Management fee 288,501 - 288,501 - Cancellation of units 1,221,493 - 1,221,493 Amount due to Trustee 13,188 - 13,188 Other payables and accruals - 17,602 17,602 Net assets attributable to unit holders* 201,340,403 - 201,340,403 Contractual undiscounted cash flows 208,945,393 17,602 208,962,995

Between

Less than 1 month to

1 month 1 year Total

As at 30 June 2019 RM RM RM

Amount due to stockbroker 1,655,615 - 1,655,615

Amount due to the Manager

- Management fee 613,795 - 613,795 - Cancellation of units 4,554,274 - 4,554,274 Amount due to Trustee 13,737 - 13,737 Other payables and accruals - 135,589 135,589 Net assets attributable to unit holders* 204,318,640 - 204,318,640 Contractual undiscounted cash flows 211,156,061 135,589 211,291,650

* Units are deemed on demand at the unit holder's option. However, the Manager does not envisage that the contractual maturity disclosed in the table above will be representative of the actual cash outflows, as unit holders of these instruments typically retain them for the medium to long term.

(29)

28

NOTES TO THE FINANCIAL STATEMENTS

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 (CONTINUED)

2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Non-compliance risk

Non-compliance risk arises when the Manager and others associated with the Fund are not in compliance with the rules set out in the Fund’s constitution or the law that governs the Fund, applicable internal control procedures, or act fraudulently or dishonestly. It also includes the risk of the Manager not complying with internal control procedures.

The non-compliance may expose the Fund to higher risks which may result in a fall in the value of the Fund which in turn may affect its investment goals. However, the risk can be mitigated by the internal controls and compliance monitoring undertaken by the Manager.

Reclassification of Shariah status risk

This risk refers to the risk that the currently held compliant securities in the portfolio of Shariah-compliant funds may be reclassified to be Shariah non-Shariah-compliant in the periodic review of the securities by the Shariah Adviser or the Shariah Boards of the relevant Islamic indices. 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. Capital risk management

The capital of the Fund is represented by equity consisting of unit holders’ capital and retained earnings. The amount of equity can change significantly on a daily basis as the Fund is subject to daily subscriptions and redemptions at the discretion of unit holders. The Fund’s objective when managing capital is to safeguard the Fund’s ability to continue as a going concern in order to provide returns for unit holders and benefits for other stakeholders and to maintain a strong capital base to support the development of the investment activities of the Fund.

Fair value estimation

Financial instruments comprise financial assets and financial liabilities. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. an exit price). The fair value of financial assets traded in active markets (such as trading Shariah-compliant securities) are based on quoted market prices at the close of trading on the financial year end date.

An active market is a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

The fair value of financial assets that are not traded in an active market is determined by using valuation techniques.

(30)

NOTES TO THE FINANCIAL STATEMENTS

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2020 (CONTINUED)

2. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Fair value hierarchy

(i) The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:

• Level 1 : Quoted prices (unadjusted) in active market for identical assets or liabilities.

• Level 2 : Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). • Level 3 : Inputs for the asset and liability that are not based on observable market data (that is,

inputs).

The level in the fair value hierarchy 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. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement.

Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability.

The determination of what constitutes ‘observable’ requires significant judgment by the Fund. The Fund considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.

Level 1 Level 2 Level 3 Total

As at 30 June 2020 Financial assets at fair value RM RM RM RM

through profit or loss

- Quoted Shariah-compliant

securities 196,614,311 - - 196,614,311

As at 30 June 2019 Financial assets at fair value

through profit or loss

- Quoted Shariah-compliant

securities 199,971,737 - - 199,971,737 Shariah-compliant investments whose values are based on quoted market prices in active markets, and are therefore classified within Level 1, include active listed Shariah-compliant equities. The Fund does not adjust the quoted prices for these instruments. The Fund’s policies on valuation of these financial assets are stated in Note F.

(ii) The carrying values of cash and cash equivalents, amount due from stockbrokers, amount due from Manager, dividends receivable and all current liabilities are a reasonable approximation of their fair values due to their short term nature.

Figure

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References

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