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FRANKLIN MALAYSIA SUKUK FUND
Audited Annual Report 30 September 2017
FRANKLIN MALAYSIA SUKUK FUND
AUDITED ANNUAL REPORT FOR THE FINANCIAL PERIOD FROM 1 OCTOBER 2016 TO 30 SEPTEMBER 2017
I. GENERAL INFORMATION ABOUT THE FUND
II. MANAGER’S REPORT
III. FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017
FRANKLIN MALAYSIA SUKUK FUND
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I. GENERAL INFORMATION ABOUT THE FUND
Launch and Commencement Date The Franklin Malaysia Sukuk Fund (the “Fund”) was launched on 18 November 2015 and commenced its operations on 9 December 2015.
Fund Name, Category, Type
Fund Name Franklin Malaysia Sukuk Fund
Fund Category Sukuk
Fund Type Growth and income
Share Classes Class A (MYR) and Class I (MYR)
Performance Benchmark
Thomson Reuters Bond Pricing Agency Malaysia (BPAM) 3-7 year Sukuk Index
Please note that the risk profile of the Fund may be higher than the risk profile of the benchmark
Distribution Policy
Class A (MYR) – Subject to the availability of income, distribution is atleast on a yearly basis. However, the Manager currently intends todistribute on a quarterly basis.
Class I (MYR) – Subject to the availability of income, distribution is atleast on a yearly basis.
*Distributions (if any) may be paid by cash or reinvested as additionalUnits of the Fund
Investment Objective The Fund is a retail unit trust fund that seeks to maximise total investment return consisting of profit income* and capital gains in the long term through investments primarily in RM-denominated sukuk.
Investment Policy and Strategy The Fund seeks to achieve its objective by investing a minimum of 70% of its NAV in RM-denominated sukuk which are issued or guaranteed by governments, quasi-government entities and/or government related entities, or issued by corporate entities which are incorporated or domiciled anywhere in the world.
The Fund may also invest up to 20% of its NAV in non RM-denominated Islamic Instruments such as non RM-denominated sukuk, Islamic commercial papers, Islamic negotiable instruments, short term Islamic money market instruments, Islamic deposits and/or any other fixed income investments which comply with the Shariah Principles which are issued or guaranteed by governments, quasi-government entities and/or government related entities, or issued by corporate entities incorporated or domiciled in the Asian region (which includes, without limitation, Singapore, Indonesia, China, Hong Kong, Japan and Brunei). The fund manager may also invest the NAV of the Fund in any other countries worldwide (where the regulatory authority of the countries in which the Fund invests is an ordinary or associate member of the IOSCO) if the fund manager sees a potential in the Islamic fixed income market in those countries. The Fund’s maximum exposure to any single country other than Malaysia shall not exceed 15% of the Fund’s NAV at the time of purchase. In addition, the Fund’s investment in non RM-denominated Islamic Instruments may include non RM-denominated units of Shariah-compliant fixed-income collective investment schemes (including ETFs).
The balance of the Fund’s NAV not invested in RM-denominated sukuk and non RM-denominated Islamic Instruments will be invested in Other RM-denominated Islamic Instruments such as RM-denominated Islamic commercial papers, RM-denominated Islamic negotiable instruments issued or guaranteed by governments, quasi-government entities and/or government related entities, or issued by corporate entities which are incorporated or domiciled anywhere in the world and RM-denominated Islamic Liquid Assets such as short term Islamic money market instruments, Islamic deposits and/or cash. At least 2% of the Fund’s NAV will comprise of RM-denominated Islamic Liquid Assets, for purposes of (including but are not limited to) meeting redemption requests, meeting liquidity needs and/or defraying Fund expenses. The Manager may adopt temporary defensive strategies by lowering the Fund’s exposure to RM-denominated sukuk below the stated
FRANKLIN MALAYSIA SUKUK FUND
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defensive strategies by lowering the Fund’s exposure to RM-denominated sukuk below the stated minimum 70% of its NAV and by increasing the Fund’s exposure to RM-denominated Islamic Liquid Assets in adverse market conditions or if the fund manager is of the view that investments in RM-denominated Islamic Liquid Assets during such period may offer more attractive investment opportunities compared to investments in sukuk.
The fund manager targets to build a portfolio of RM-denominated and non RM-denominated instruments which, at the time of purchase, have a minimum credit rating of BBB3 by RAM or have an equivalent credit rating by MARC or any other recognised credit rating agency. If an instrument is not rated, it may be added to the portfolio of the Fund if, at the time of purchase, the issuer of the instrument has a minimum credit rating of BBB3 by RAM or has an equivalent credit rating by MARC or any other recognised credit rating agency. If an instrument and its issuer are both unrated, the instrument may be added to the portfolio of the Fund if, at the time of purchase, the instrument is assigned an internal rating which in the opinion of the Manager is the equivalent of (or higher than) BBB3 by RAM or an equivalent credit rating by MARC or any other recognised credit rating agency in accordance with its internal guidelines.
If an instrument that the Fund invests in falls below the minimum credit rating stated above or goes into default, the Manager may either dispose of the instrument if the Manager is of the opinion that it is in the best interest of Unit Holders, or continue to hold on to the downgraded or defaulted instrument if the Manager is of the opinion that the immediate disposal of the instrument would not be in the best interest of Unit Holders.
While foreign exchange is not expected to be a primary source of returns for the Fund, it may potentially generate some returns as the Fund may invest up to 20% of its NAV in non RM-denominated Islamic Instruments. On the other hand, the value of the Fund’s investments in non RM-denominated Islamic Instruments may depreciate due to movements in the exchange rate between Ringgit Malaysia and the currency of the foreign countries that the Fund invests in. The performance and the NAV of the Fund may be adversely affected as a result of such currency loss. The Manager may also employ Shariah-compliant hedging instruments to reduce the Fund’s exposure to foreign exchange fluctuations and for efficient portfolio management from time to time. The hedging tools that the Manager may utilise include, but are not limited to, Islamic foreign exchange forwards and profit rate swaps.
The Manager’s investment process uses a mix of bottom up, top down and quantitative approaches.
ASSET ALLOCATION
A minimum of 70% of its NAV in RM-denominated sukuk
Up to 20% of its NAV in non RM-denominated Islamic Instruments
At least 2% of its NAV in RM-denominated Islamic Liquid Assets; and
The balance of its NAV, not invested in RM-denominated sukuk, non RM-denominatedIslamic Instruments or RM-denominated Islamic Liquid Assets, in Other RM-denominatedIslamic Instruments;
where:
a. “non RM-denominated Islamic Instruments” include:i) non RM-denominated sukuk;ii) non RM-denominated Islamic commercial papers;iii) non RM-denominated Islamic negotiable instruments;iv) non RM-denominated short term Islamic money market instruments;v) non RM-denominated Islamic deposits;vi) non RM-denominated units of Shariah-compliant fixed-income collective investment
schemes including ETFs); and/orvii) any other non RM-denominated fixed income investments which comply with the
Shariah Principles which are issued or guaranteed by governments, quasi-government entities and/or government related entities, or issued by corporateentities which are incorporated or domiciled in the Asian region (which includes,without limitation, Singapore, Indonesia, China, Hong Kong, Japan and Brunei), or
FRANKLIN MALAYSIA SUKUK FUND
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in any other countries worldwide (where the regulatory authority of the countries in which the Fund invests is an ordinary or associate member of the IOSCO) if the fund manager sees a potential in the Islamic fixed income market in those countries.
b. “RM-denominated Islamic Liquid Assets” include RM-denominated short term Islamicmoney market instruments, Islamic deposits and/or cash; and
c. “Other RM-denominated Islamic Instruments” include:i) RM-denominated Islamic commercial papers;ii) RM-denominated Islamic negotiable instruments; and/oriii) any other RM-denominated fixed income investments which comply with the
Shariah Principles.
FRANKLIN MALAYSIA SUKUK FUND
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II. MANAGER’S REPORT
MARKET REVIEW
While the fund experienced a rough first quarter (October–December 2016 or Q1), the Malaysia bond market stabilised for most parts in 2017. Malaysia’s sovereign bond and domestic sukuk markets were not spared from external volatility, especially in the first quarter of 2017, following Donald Trump’s victory in the United States (US) Presidential election in November 2016. The initial knee-jerk reaction pushed Malaysia’s sovereign bond yields up by as much as 80-100 basis points (bps) in November 2016, mirroring the spike in US Treasury yields following the US electoral result. The Malaysian Ringgit (MYR) also depreciated by 6.9% to MYR4.49 per US Dollar (USD) from MYR4.20 per USD over the November-December 2016 period, as did other Emerging Market (EM) currencies on concerns that the Trump administration may pursue protectionist trade policies, although the weakening in the MYR was exacerbated by Bank Negara Malaysia (BNM)’s announcement on the foreign exchange market to remove the influence of offshore US Dollar-Malaysian Ringgit (USDMYR) non-deliverable forward towards an onshore spot USDMYR rate, a move to stabilise the MYR and boost external reserves. However, this sparked further selling by foreign investors in the Malaysian Government Securities (MGS) segment as they found it difficult to hedge their currency positions.
While performance in the Malaysian conventional bond and sukuk markets was negatively skewed in Q1, bond yields improved in the later parts of 2017. The sovereign yield curve steepened initially with the 10-year MGS above 4.40% in November from a low range of 3.54% in October. However, the MGS recovered soon after, averaging at 4.20% by December and has not seen huge spikes since.
Between May 2017 and the end of the fiscal year, the 10-year MGS were trending below 4.05%. Similarly in the sukuk market, the Malaysian Government Investment Issues (MGIIs) rallied as investors searched for attractive yield-duration arbitrage within the bond market. BNM kept both the Overnight Policy Rate (OPR) and Statutory Reserve Requirement (SRR) ratio unchanged in the last 12 months. This was supportive for the bond market, and the sovereign bond curve remained flattish with the 10-year/3-year hovering around 50-55bps for most of 2017. The MGS and MGII markets had traded range bound since the January-February rally, with healthy trading volumes throughout the first nine months of 2017.
While on the one hand, investors remained cautious of a new interest rate hiking cycle in the US, which, combined with robust domestic gross domestic product (GDP) growth added upward pressure on local bond yields. On the other hand, the declining inflation trend in Malaysia, coupled with stable OPR trend in 2017 has so far supported domestic bond prices. In addition, the widening of the current account surplus and strengthening of foreign reserves to surpass the USD100 billion (bn) in September 2017 were also conducive to more stable bond yields.
Additionally, this has spurred various corporate sukuk issuance in the primary market. Total corporate bonds issued in MYR was MYR102.4 bn for the 12-month period, the highest ever recorded since 2012. MYR corporate bond issuance was 27% higher year-on-year (YoY) for the first nine months of 2017 at MYR83.4 bn, driven by Government-guaranteed issuances (41% of total issuance). Infrastructure and utilities bonds issuance came second in terms of size, reflecting the government’s thrust on infrastructure spending to boost the economic activity. The secondary market liquidity in corporate bonds improved on a YoY basis as well, and high yielding bonds continue to be in high demand. Notably, total MYR sukuk accounted for 58% of total outstanding MYR bonds in Malaysia as at September 2017.
Foreign holdings of MGS begun to unwind from the highs in October 2016 at 52% (highest since 2010), mainly due to the thematic selloff across EM. At their lows, foreign holdings in MGS stood at 38.5%, recorded in March 2017. For the 6-month period from October to March 2017, total outflows in MGS alone stood at MYR49 bn. Similarly, the MYR remained weak in the 6-month period to March 2017, despite signs of improving economic fundamentals. In April, BNM announced a number of measures to improve liquidity in the bond market including relaxing the foreign exchange framework in April, which had a positive impact on the MYR and as such, MYR started to appreciate in a meaningful way, and foreign interest in the MGS begun to pick-up, albeit slowly. As at September 2017, foreign holdings in MGS stood at 42.3% or MYR156.71 bn. From April through September, the MGS and MGII segments experienced net inflows of almost MYR20 bn.
FRANKLIN MALAYSIA SUKUK FUND
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MANAGER’S REPORT (CONTINUED)
Economic growth was robust in first half of 2017, with the Malaysian economy expanding by 5.7% YoY compared to 4.1% in Q1 of 2016 and 4.0% in the second quarter (Q2) of 2016, thus surpassing consensus forecasts, including the World Bank’s, as exports picked up alongside a strong increase in domestic demand. GDP growth is expected to remain robust throughout 2017. Malaysia’s exports in nominal value have shown resilience this year, with the latest reading at 30.9% YoY in July, and growing by 22.3% year to date. This was driven by strong external demand and the weaker MYR, as well as recovering commodity prices. The current account surplus also rose to 3.0% of GDP, a significant improvement from 1.6% of GDP in Q1 of 2017.
REVIEW OF THE FUND PERFORMANCE DURING THE PERIOD
For the period under review, the Franklin Malaysia Sukuk Fund delivered a positive net return for both share classes; 3.88% for the Class I and 3.33% for the Class A, respectively, since its inception to 30 September 2017. Both Fund Classes outperformed its benchmark, the Thomson Reuters BPAM 3-7 Year Sukuk Index of 2.44% by 144bps and 89bps respectively, in net terms. Key contributors to relative performance included the Fund’s underweight allocation to government securities, as the asset class performed poorly during the period under review, as well as credit security selection.
During the period under review, the Fund also made four stable quarterly distributions of MYR0.0080 for the Class A, and one annual distribution of MYR0.0350 for the Class I, in net terms. Overall, the sukuk market performed well during the period under review.
MARKET OUTLOOK
While performance in the Malaysian conventional bond and sukuk markets has improved in the last 6 months, we expect some volatility as the world awaits the announcement of the next Fed Governor, which could stir US policy rate trends over the next four years. We are also cognisant of the potential worsening geopolitical unrest between North Korea and US and its allies. Oil price movements as well as China’s economic growth are also likely to continue to affect the global growth outlook.
Domestically, we expect growth to remain robust, with the Ministry of Finance (MOF) projecting a 5.0-5.5% GDP growth rate in 2018. As announced in the recent budget 2018, numerous initiatives have been planned to continue with infrastructure spending and spur consumer spending, which are expected to help boost domestic demand. With improved growth and potentially higher inflation trend, we expect the local markets to be more bullish in 2018, and the bond yields to be biased towards the upside. While policies should remain accommodative with a potential 25bps hike in 2018, we opine that yields are likely to move gradual. As GDP growth is likely to remain robust, we expect to continue to see healthy volumes of corporate issuances, in particular in infrastructure-related sectors.
PORTFOLIO POSITIONING
Our core strategy is to remain fully invested in Ringgit-denominated corporate sukuk as we find better opportunities to enhance the portfolio’s yield through credit exposure. We are currently neutral-to-underweight on duration, and bullish on attractive corporate credits likely to benefit from the recovering economic cycle, in our view.
FRANKLIN MALAYSIA SUKUK FUND
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MANAGER’S REPORT (CONTINUED)
RETURNS AS OF 30 SEPTEMBER 2017
Cumulative Performance
Since Inception (8 December 2015)
Franklin Malaysia Sukuk Fund – Class A (MYR) 8.03%
Franklin Malaysia Sukuk Fund – Class I (MYR) 9.07%
Thomson Reuters BPAM 3-7 year Sukuk Index (MYR) 8.91%
Annual Total Return
1 Year Since Inception
(8 December 2015)
Franklin Malaysia Sukuk Fund – Class A (MYR) 3.33% 4.35%
Franklin Malaysia Sukuk Fund – Class I (MYR) 3.88% 4.91%
Thomson Reuters BPAM 3-7 year Sukuk Index (MYR)
2.44% 4.82%
Average Total Returns
1 Year Since Inception
(8 December 2015)
Franklin Malaysia Sukuk Fund – Class A (MYR) 0.27% 0.35%
Franklin Malaysia Sukuk Fund – Class I (MYR) 0.32% 0.40%
Thomson Reuters BPAM 3-7 year Sukuk Index (MYR)
0.21% 0.39%
The average total returns of the Funds are calculated based on its average total returns per month since its inception.
All performance data shown is in the currency stated, include reinvested dividends and are net of management fees. Sales charges and other commissions, taxes and other relevant costs paid by the investor are not included in the calculations.
PAST PERFORMANCE OF THE FUND IS NOT AN INDICATION OF ITS FUTURE PERFORMANCE.
STATEMENT ON SOFT COMMISSION
The Manager did not receive any soft commission for the period under review from any broker or Dealer
FRANKLIN MALAYSIA SUKUK FUND
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MANAGER’S REPORT (CONTINUED)
Breakdown of Unitholdings by Size as of 30 September 2017
BREAKDOWN OF UNITHOLDINGS BY SIZE – CLASS A
Size of Unit Holdings (Units) No. of Unit Holders No. of Units Held (in Millions)
5,000 and below 0 0
5,001-10,000 0 0
10,001-50,000 1 0.04
50,001-500,000 1 0.06
500,001 and above 1 21.35
Total 3 21.45
BREAKDOWN OF UNITHOLDINGS BY SIZE – CLASS I
Size of Unit Holdings (Units) No. of Unit Holders No. of Units Held (in Millions)
5,000 and below 0 0
5,001-10,000 0 0
10,001-50,000 0 0
50,001-500,000 0 0
500,001 and above 1 1.03
Total 1 1.03
FUND PERFORMANCE DATA FOR THE FINANCIAL PERIOD FROM 1 OCTOBER 2016 TO 30 SEPTEMBER 2017
Portfolio composition of the fund
Details of portfolio composition of the Fund are as follows:
30 September 2017
30 September 2016
RM RM
Unquoted Sukuk 21,615,548 21,784,562
Cash and other net assets
1,586,452 706,048
23,202,000 22,490,610
As at 30 September 2017 As at 30 September 2016
Class A Class I Class A Class I
Total Net Asset Value (NAV) (RM)
22,111,234 1,090,766 21,440,668 1,049,942
NAV per Unit (RM) 1.0307 1.0544 1.0291 1.0499
Units in Circulation 21,453,105.42 1,034,509.96 20,834,367.92 1,000,000.00
Highest NAV per Unit (RM)
1.0307 1.0544 1.0291 1.0499
Lowest NAV per Unit (RM)
1.0103 1.0142 1.0000 1.0000
FRANKLIN MALAYSIA SUKUK FUND
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Total Return (%) 3.33 3.88 4.54 4.99
- Capital Return (%) 0.16 0.43 2.91 4.99
- Income Return (%) 3.17 3.45 1.63 0
30 September 2017 30 September 2016
Management Expense Ratio (MER) (%)
1.23 0.70 1.06 0.63
30 September 2017 30 September 2016
Portfolio Turnover Ratio (PTR) (times)
0.22 0.88
Distribution Record Date
30-Jun-17 31-Mar-17 30-Dec-16 30-Sep-16 30-Jun-16 31-Mar-16
Gross / Net Distribution per Unit (RM) - Class A
0.008 0.008 0.008 0.008 0.010 0.006
Gross / Net Distribution per Unit (RM) - Class I
- - 0.035 - - -
Cum-date 30-Jun-17 31-Mar-17 30-Dec-16 30-Sep-16 30-Jun-16 31-Mar-16
Cum-NAV (RM) -Class A
1.0287 1.0258 1.0185 1.0291 1.0213 1.0168
Cum-NAV (RM) -Class I
- - 1.0487 - - -
Ex-date 3-Jul-17 3-Apr-17 3-Jan-17 4-Oct-16 1-Jul-16 1-Apr-16
Ex-NAV (RM) -Class A
1.0207 1.0182 1.0109 1.0215 1.0121 1.0111
Ex-NAV (RM) -Class I - - 1.0142 - - -
FRANKLIN MALAYSIA SUKUK FUND
FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017
FRANKLIN MALAYSIA SUKUK FUND
FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017
CONTENTS PAGE(S)
STATEMENT BY MANAGER 1
TRUSTEE’S REPORT 2
SHARIAH ADVISER'S REPORT 3
INDEPENDENT AUDITORS' REPORT 4-7
STATEMENT OF FINANCIAL POSITION 8
STATEMENT OF COMPREHENSIVE INCOME 9
STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 10
STATEMENT OF CASH FLOWS 11
NOTES TO THE FINANCIAL STATEMENTS 12-36
STATEMENT BY THE MANAGER
TO THE UNIT HOLDERS OF FRANKLIN MALAYSIA SUKUK FUND
(a)
(b)
For and on behalf of the Manager
Franklin Templeton GSC Asset Management Sdn. Bhd.
Nor Hanifah Binti Hashim
Director
Kuala Lumpur
21 November 2017
are drawn up in accordance with the provisions of the Deed, Malaysian Financial Reporting Standards
(“MFRS”) and the International Financial Reporting Standards (“IFRS”); and
give a true and fair view of the financial position of the Fund as at 30 September 2017 and of its financial
performance, changes in net assets attributable to unit holders and cash flows for the financial year then
ended.
I, Nor Hanifah Binti Hashim, being the Director of the Manager, Franklin Templeton GSC Asset Management
Sdn. Bhd., for Franklin Malaysia Sukuk Fund (“the Fund”) do hereby state that, in the opinion of the
Manager, the accompanying financial statements comprising the statement of financial position as at 30
September 2017 of the Fund, and the statements of comprehensive income, changes in net assets attributable to
unit holders and cash flows for the financial year then ended, and a summary of significant accounting policies
and other explanatory notes:
1
TRUSTEE’S REPORT
TO THE UNIT HOLDERS OF FRANKLIN MALAYSIA SUKUK FUND
(a)
(b)
(c)
For Deutsche Trustees Malaysia Berhad
Soon Lai Ching Richard Lim Hock Seng
Senior Manager, Trustee Operations Chief Executive Officer
Kuala Lumpur
21 November 2017
We are of the view that the distributions made during this financial year ended 30 September 2017 by the
Manager are not inconsistent with the objectives of the Fund.
limitations imposed on the investment powers of the Manager and the Trustee under the Deed(s), the
Securities Commission’s Guidelines on Unit Trust Funds, the Capital Markets and Services Act 2007 and
other applicable laws;
valuation and pricing for the Fund has been carried out in accordance with the Deed(s) of the Fund and
applicable regulatory requirements; and
creation and cancellation of units for the Fund have been carried out in accordance with the Deed(s) of the
Fund and applicable regulatory requirements.
We have acted as Trustee for Franklin Malaysia Sukuk Fund (the “Fund”) for the financial year ended 30
September 2017. To the best of our knowledge, for the financial year under review, Franklin Templeton GSC
Asset Management Sdn. Bhd. (the “Manager”) has operated and managed the Fund in accordance with the
following:
2
SHARIAH ADVISER’S REPORT
TO THE UNIT HOLDERS OF FRANKLIN MALAYSIA SUKUK FUND
For and on behalf of Shariah Adviser
AMANIE ADVISORS SDN BHD
Datuk Dr Mohd Daud Bakar
Executive Chairman
Kuala Lumpur
21 November 2017
In addition, we also confirm that the investment portfolio of Franklin Malaysia Sukuk Fund comprises
securities which have been classified as Shariah-compliant by the Shariah Advisory Council of the Securities
Commission Malaysia (“SACSC”). For investment other than the abovementioned, we have reviewed the same
and are of the opinion that these investments comply with the Shariah Investment Guidelines of the Fund.
In our opinion, Franklin Templeton GSC Asset Management Sdn. Bhd. has managed and administered
Franklin Malaysia Sukuk Fund in accordance with the Shariah Investment Guidelines of the Fund and complied
with applicable guidelines, rulings or decisions issued by the Securities Commission Malaysia pertaining to
Shariah matters for the financial year ended 30 September 2017.
We have acted as the Shariah Adviser of Franklin Malaysia Sukuk Fund for the financial year ended 30
September 2017.
3
INDEPENDENT AUDITORS’ REPORT TO THE UNIT HOLDERS OF FRANKLIN MALAYSIA SUKUK FUND
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
Our opinion
What we have audited
Basis for opinion
Independence and other ethical responsibilities
PricewaterhouseCoopers (AF 1146), Chartered Accountants,
Level 10, 1 Sentral, Jalan Rakyat, Kuala Lumpur Sentral, P.O. Box 10192, 50706 Kuala Lumpur, Malaysia
T: +60 (3) 2173 1188, F: +60 (3) 2173 1288, www.pwc.com/my
In our opinion, the financial statements of Franklin Malaysia Sukuk Fund (the “Fund”) give a true and fair
view of the financial position of the Fund as at 30 September 2017, and of its financial performance and its
cash flows for the year then ended in accordance with Malaysian Financial Reporting Standards and
International Financial Reporting Standards.
We have audited the financial statements of the Fund, which comprise the statement of financial position as at
30 September 2017, and the statement of comprehensive income, statement of changes in net asset
attributable to unit holders and statement of cash flows for the year then ended, and notes to the financial
statements, including a summary of significant accounting policies, as set out on pages 8 to 36.
We conducted our audit in accordance with approved standards on auditing in Malaysia and International
Standards on Auditing. Our responsibilities under those standards are further described in the “Auditors’
responsibilities for the audit of the financial statements” section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
We are independent of the Fund in accordance with the By-Laws (on Professional Ethics, Conduct and
Practice) of the Malaysian Institute of Accountants (“By-Laws”) and the International Ethics Standards Board
for Accountants’ Code of Ethics for Professional Accountants (“IESBA Code”), and we have fulfilled our other
ethical responsibilities in accordance with the By-Laws and the IESBA Code.
4
INDEPENDENT AUDITORS’ REPORT TO THE UNIT HOLDERS OF FRANKLIN MALAYSIA SUKUK FUND (CONTINUED)
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED)
Information other than the financial statements and auditors’ report thereon
Responsibilities of the Manager for the financial statements
In preparing the financial statements of the Fund, the Manager is responsible for assessing the Fund’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless the Manager either intend to liquidate the Fund or to cease operations, or
have no realistic alternative but to do so.
The Manager of the Fund is responsible for the other information. The other information comprises Manager’s
Report, but does not include the financial statements of the Fund and our auditors’ report thereon.
Our opinion on the financial statements of the Fund does not cover the other information and we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial statements of the Fund, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent with the
financial statements of the Fund or our knowledge obtained in the audit or otherwise appears to be materially
misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
The Manager of the Fund is responsible for the preparation of the financial statements of the Fund that give a
true and fair view in accordance with Malaysian Financial Reporting Standards and International Financial
Reporting Standard. The Manager is also responsible for such internal control as the Manager determines is
necessary to enable the preparation of financial statements of the Fund that are free from material
misstatement, whether due to fraud or error.
5
INDEPENDENT AUDITORS’ REPORT TO THE UNIT HOLDERS OF FRANKLIN MALAYSIA SUKUK FUND (CONTINUED)
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED)
Auditors’ responsibilities for the audit of the financial statements
(a)
(b)
(c)
(d)
(e) Evaluate the overall presentation, structure and content of the financial statements of the Fund, including
the disclosures, and whether the financial statements represent the underlying transactions and events in
a manner that achieves fair presentation.
Our objectives are to obtain reasonable assurance about whether the financial statements of the Fund as a
whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with approved standards on auditing in Malaysia and International Standards on
Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with approved standards on auditing in Malaysia and International
Standards on Auditing, we exercise professional judgement and maintain professional scepticism throughout
the audit. We also:
Identify and assess the risks of material misstatement of the financial statements of the Fund, whether
due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from error, as fraud may
involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the Fund’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates
and related disclosures made by the Manager.
Conclude on the appropriateness of the Manager’s use of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that
may cast significant doubt on the Fund’s ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in our auditors’ report to the related
disclosures in the financial statements of the Fund or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report.
However, future events or conditions may cause the Fund to cease to continue as a going concern.
6
INDEPENDENT AUDITORS’ REPORT TO THE UNIT HOLDERS OF FRANKLIN MALAYSIA SUKUK FUND (CONTINUED)
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED)
Auditors’ responsibilities for the audit of the financial statements (continued)
OTHER MATTERS
PRICEWATERHOUSECOOPERS
(No. AF: 1146)
Chartered Accountants
Kuala Lumpur21 November 2017
We communicate with the Manager regarding, among other matters, the planned scope and timing of the audit
and significant audit findings, including any significant deficiencies in internal control that we identify during
our audit.
This report is made solely to the unit holders of the Fund and for no other purpose. We do not assume
responsibility to any other person for the content of this report.
7
FRANKLIN MALAYSIA SUKUK FUND
STATEMENT OF FINANCIAL POSITION
AS AT 30 SEPTEMBER 2017
2017 2016
Note RM RM
ASSETS
Cash and cash equivalents 3 1,628,155 748,679
Financial assets at fair value through
profit or loss 4 21,615,548 21,784,562
Due from Manager - 1,000
TOTAL ASSETS 23,243,703 22,534,241
LIABILITIES
Accrued management fee 5 18,703 18,060
Accrued trustee fee 5 1,568 1,564
Other payables and accruals 21,432 24,007
TOTAL LIABILITIES (EXCLUDING NET
ASSETS ATTRIBUTABLE TO UNIT
HOLDERS) 41,703 43,631
NET ASSETS ATTRIBUTABLE TO UNIT
HOLDERS 23,202,000 22,490,610
REPRESENTED BY:
NET ASSETS ATTRIBUTABLE TO UNIT
HOLDERS
– CLASS A 22,111,234 21,440,668
– CLASS I 1,090,766 1,049,942
23,202,000 22,490,610
NUMBER OF UNITS IN CIRCULATION
– CLASS A 6(a) 21,453,105.42 20,834,367.92
– CLASS I 6(b) 1,034,509.96 1,000,000.00
NET ASSET VALUE PER UNIT
– CLASS A RM1.0307 RM1.0291
– CLASS I RM1.0544 RM1.0499
The accompanying notes form an integral part of these audited financial statements.
8
FRANKLIN MALAYSIA SUKUK FUND
STATEMENT OF COMPREHENSIVE INCOME
FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017
18 Nov 2015
1 Oct 2016 (Date of
to Launch) to
30 Sep 2017 30 Sep 2016
Note RM RM
INVESTMENT INCOME
Profit income 4 1,105,691 800,938
Net (loss)/gain from financial assets at fair value
through profit or loss 4 (75,276) 403,556
1,030,415 1,204,494
EXPENSES
Management fee 5 223,712 174,164
Trustee fee 5 19,082 15,483
Audit fee 8,925 8,904
Professional fee 2,340 7,897
Custodian fee 398 342
Shariah adviser fee 19,133 15,516
Printing fee 18 6,000
273,608 228,306
NET INCOME BEFORE
FINANCE COST AND TAXATION 756,807 976,188
Finance cost 7 (710,016) (327,048)
NET INCOME BEFORE TAXATION 46,791 649,140
Taxation 8 - -
INCREASE IN NET ASSETS
ATTRIBUTABLE TO UNIT HOLDERS 46,791 649,140
Net income after taxation and total comprehensive
income comprises the following:
Realised amount 203,552 288,046
Unrealised amount (156,761) 361,094
46,791 649,140
The accompanying notes form an integral part of these audited financial statements.
9
FRANKLIN MALAYSIA SUKUK FUND
STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS
FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017
18 Nov 2015
1 Oct 2016 (Date of
to Launch) to
30 Sep 2017 30 Sep 2016
RM RM
NET ASSETS ATTRIBUTABLE TO UNIT
HOLDERS AT THE BEGINNING OF THE
FINANCIAL YEAR/PERIOD 22,490,610 -
Movement due to units created and cancelled during
the financial year/period:
Creation of units 111,804 21,575,667
Cancellation of units (157,221) (61,245)
Reinvestment of distributions 710,016 327,048
664,599 21,841,470
Increase in net assets attributable to unit
holders during the financial year/period 46,791 649,140
NET ASSETS ATTRIBUTABLE TO UNIT
HOLDERS AT THE END OF THE
FINANCIAL YEAR/PERIOD 23,202,000 22,490,610
The accompanying notes form an integral part of these audited financial statements.
10
FRANKLIN MALAYSIA SUKUK FUND
STATEMENT OF CASH FLOWS
FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017
18 Nov 2015
1 Oct 2016 (Date of
to Launch) to
30 Sep 2017 30 Sep 2016
Note RM RM
CASH FLOWS FROM OPERATING
ACTIVITIES
Proceeds from sales of investments 5,083,700 8,534,340
Purchase of investments (5,001,450) (29,590,850)
Profit income received 1,117,179 476,442
Management fee paid (223,069) (156,104)
Trustee fee paid (19,078) (13,919)
Audit fee paid (8,925) -
Profesional fee paid (4,672) -
Custodian fee paid (398) (342)
Shariah adviser fee paid (19,080) (14,310)
Payment of other expenses (314) -
Net cash generated from/(used in) operating activities 923,893 (20,764,743)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from creation of units 112,804 21,574,667
Payments for cancellation of units (157,221) (61,245)
Net cash (used in)/generated from financing activities (44,417) 21,513,422
NET INCREASE IN CASH AND CASH EQUIVALENTS 879,476 748,679
CASH AND CASH EQUIVALENTS AT
BEGINNING OF THE FINANCIAL YEAR/PERIOD 748,679 -
CASH AND CASH EQUIVALENTS AT
END OF THE FINANCIAL YEAR/PERIOD 3 1,628,155 748,679
The accompanying notes form an integral part of these audited financial statements.
11
FRANKLIN MALAYSIA SUKUK FUND
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017
1. THE FUND, THE MANAGER AND ITS PRINCIPAL ACTIVITIES
The financial statements have been approved for issue by the Manager on 21 November 2017.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1 Basis of preparation
The financial statements have been prepared in accordance with the provisions of the Malaysian
Financial Reporting Standards (“MFRS”) and International Financial Reporting Standards (“IFRS”).
The financial statements have been prepared under the historical cost convention, as modified by
revaluation of financial assets and liabilities (including derivative instruments) held at fair value
through profit or loss.
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 revenues and expenses during the reported financial year.
It also requires the Manager to exercise their judgment in the process of applying the Fund’s
accounting policies. Although these estimates and assumptions 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 2.13.
The Franklin Malaysia Sukuk Fund (the “Fund”) was constituted pursuant to a Deed dated 13 February
2015, between Franklin Templeton GSC Asset Management Sdn. Bhd. (the “Manager”) and Deutsche
Trustees Malaysia Berhad (the “Trustee”).
All investments will be subjected to the Securities Commission (“SC”) Guidelines on Unit Trust Funds, the
Deed and the objective of the Fund. The Fund commenced operations on 9 December 2015 and will
continue its operations until terminated as provided under Clause 12 of the Deed.
The Manager, a company incorporated in Malaysia, is a wholly owned subsidiary of Franklin Resources Inc.,
a global investment management organisation. Its principal activities are fund management and investment
advisory.
The principal accounting policies applied in the preparation of these financial statements are set out below.
These policies have been consistently applied to the items which are considered material to the financial
statements unless otherwise stated.
The principal objective of the Fund seeks to maximise total investment return consisting of profit income
and capital gains in the long term through investments primarily in Ringgit Malaysia-denominated sukuk.
The Fund is a multi-class Fund which offers two classes of units. They are class A, targeted at retail investors
and Class I, targeted at institutional investors. Both are denominated in Ringgit Malaysia.
12
FRANKLIN MALAYSIA SUKUK FUND
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017 (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.1 Basis of preparation (continued)
(a)
(b)
(i) Financial year beginning on/after 1 October 2017
Standards, amendments to published standards and interpretations that are
effective and applicable to the Fund:
The new standards, amendments to published standards and interpretations to
existing standards that are applicable to the Fund but not yet effective and have
not been early adopted are as follows:
Amendments to MFRS 107 “Statement of Cash Flows - Disclosure Initiative” (effective
from 1 January 2017) introduce an additional disclosure on changes in liabilities arising
from financing activities.
The Fund will apply this standard when effective. This standard is not expected to have a
significant impact on the Fund’s financial statements.
The Fund has applied the following amendments for the first time for the financial year
beginning 1 October 2016:
Amendments to MFRS 101 “Presentation of financial statements - Disclosure Initiative”
(effective from 1 January 2016) provide clarifications on a number of issues, including:
Materiality - an entity should not aggregate or disaggregate information in a manner
that obscures useful information. Where items are material, sufficient information must
be provided to explain the impact on the financial position or performance.
Disaggregation and subtotals – line items specified in MFRS 101 may need to be
disaggregated where this is relevant to an understanding of the entity’s financial
position or performance. There is also new guidance on the use of subtotals.
Notes - confirmation that the notes do not need to be presented in a particular order.
Other comprehensive income (“OCI”) arising from investments accounted for under the
equity method – the share of OCI arising from equity-accounted investments is grouped
based on whether the items will or will not subsequently be reclassified to profit or loss.
Each group should then be presented as a single line item in the statement of other
comprehensive income.
According to the transitional provisions, the disclosures in MFRS 108 regarding the
adoption of new standards/accounting policies are not required for these amendments.
Annual Improvements to MFRSs 2012 – 2014 Cycle
The adoption of these amendments did not have any impact on the current financial year or
any prior year and is not likely to affect future years.
13
FRANKLIN MALAYSIA SUKUK FUND
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017 (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.1 Basis of preparation (continued)
(b)
(ii) Financial year beginning on/after 1 October 2018
___________________________
[2] For the purposes of the investments made by the Fund, debt instruments refers to Sukuk.
[3] For the purposes of this Fund, profit refers to profits earned from Shariah-compliant investments.
The new standards, amendments to published standards and interpretations to
existing standards that are applicable to the Fund but not yet effective and have
not been early adopted are as follows (continued):
A debt instrument[2]
is measured at amortised cost only if the entity is holding it to
collect contractual cash flows and the cash flows represent principal and profit[3]
.
MFRS 9 “Financial Instruments” (effective from 1 January 2018) will replace MFRS 139
“Financial Instruments: Recognition and Measurement”.
MFRS 9 retains but simplifies the mixed measurement model in MFRS 139 and
establishes three primary measurement categories for financial assets: amortised cost,
fair value through profit or loss and fair value through OCI. The basis of classification
depends on the entity's business model and the contractual cash flow characteristics of
the financial asset. Investments in equity instruments[1]
are always measured at fair
value through profit or loss with an irrevocable option at inception to present changes
in fair value in OCI (provided the instrument is not held for trading).
For liabilities, the standard retains most of the MFRS 139 requirements. These include
amortised cost accounting for most financial liabilities, with bifurcation of embedded
derivatives. The main change is that, in cases where the fair value option is taken for
financial liabilities, the part of a fair value change due to an entity’s own credit risk is
recorded in OCI rather than the income statement, unless this creates an accounting
mismatch.
MFRS 9 introduces an expected credit loss model on impairment that replaces the
incurred loss impairment model used in MFRS 139. The expected credit loss model is
forward-looking and eliminates the need for a trigger event to have occurred before
credit losses are recognised.
The Fund will apply this standard when effective. This standard is not expected to have a
significant impact on the Fund’s financial statements.
[1]For the purposes of the investments made by the Fund, equity instruments and derivatives refers to Shariah-
compliant equity instruments and Shariah-compliant derivatives.
14
FRANKLIN MALAYSIA SUKUK FUND
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017 (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.2 Financial assets and financial liabilities
2.2.1 Classification
(a) Financial assets and liabilities at fair value through profit or loss
(b) Financing and receivables
(c) Other financial liabilities
2.2.2 Recognition, de-recognition and measurement
Financing and receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. If collection amount is expected in one year
or less, they are classified as current assets. If not, they are classified as non-current assets.
The Fund’s financing and receivables comprise “Cash and cash equivalents” and “Due from
Manager” in the statement of financial position.
Financial liabilities are classified according to the substance of the contractual arrangements
entered into and the definitions of a financial liability. The Fund classifies “Due to Manager”,
“Accrued management fee”, “Accrued trustee fee” and “Other payables and accruals” as other
financial liabilities.
Financial assets are derecognised when the rights to receive cash flows from the investments have
expired or have been transferred and the Fund has transferred substantially all risks and rewards of
ownership.
Financial liabilities are derecognised when it is extinguished, i.e. when the obligation specified in
the contract is discharged or cancelled or expired.
Regular purchases and sales of financial assets are recognised on the trade-date, the date on which
the Fund commits to purchase or sell the investment. Financial assets and financial liabilities at fair
value through profit or loss are initially recognised at fair value and transaction costs are expensed
in the statement of comprehensive income.
Subsequent to initial recognition, all financial assets at fair value through profit or loss are measured
at fair value. Financing and receivables are carried at amortised cost using the effective profit
method. Gains or losses arising from changes in the “fair value of the financial assets at fair value
through profit or loss” category are presented in the statement of comprehensive income within “net
gain/loss on financial assets at fair value through profit or loss” in the period in which they arise.
Unquoted Sukuk are revalued on a daily basis based on fair value prices quoted by a Bond Pricing
Agency ("BPA") registered with SC as per the SC Guidelines on Unit Trust Funds.
A financial asset is designated at fair value through profit or loss when they are managed and
their performance evaluated on their fair value basis. The fund designates its investment in
unquoted Sukuk as financial assets at fair value through profit or loss at inception. A financial
asset is designated at fair value through profit or loss when they are managed and their
performance evaluated on a fair value basis. A financial asset is classified as held for trading if
it is acquired or incurred principally for the purpose of selling or repurchasing in the near
terms or if on initial recognition is part of a portfolio of identifiable financial investments that
are managed together and for which there is evidence of a recent actual pattern of short-term
profit taking, or if it is a derivative. Investment in derivatives are categorised as held for
trading.
15
FRANKLIN MALAYSIA SUKUK FUND
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017 (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.2.2 Recognition, de-recognition and measurement (continued)
2.3 Income and expenses recognition
(a) Profit income
(b) Realised gain or loss on sale
(c) Expenses
Expenses are recognised in the statement of comprehensive income on an accrual basis.
2.4 Foreign currencies translation
(a) Functional and presentation currency
(b) Transactions and balances
2.5 Creation and cancellation of units
Shariah-compliant 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 deposits.
Foreign currency transactions are translated into the functional currency using 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 period-end exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognised in statement of comprehensive income.
The Fund assesses at each year end date whether there is objective evidence that a financial asset or
a group of financial assets is impaired. Impairment loss, if any, will be recognised in the statement
of comprehensive income in the year which the arise.
Profit income from Shariah-compliant deposits with licensed Islamic financial institutions
and unquoted Sukuk are recognised in the statement of comprehensive income on a time-
proportion basis using the effective profit rate method on an accrual basis.
Realised gain or loss on sale of unquoted Sukuk is accounted for as the difference between the
net disposal proceeds and the carrying amount of investments, determined on cost adjusted
for accretion of discount or amortisation of premium.
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.
The Fund issued cancellable units, in two different classes of units, known respectively as the A class
and I class which are cancellable at the unit holder’s option and do not have identical features. In
accordance with MFRS 132 (Amendment) “Financial Instruments: Presentation", such units, by
virtue of not having identical features, are classified as financial liabilities. The 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”) attributable to the 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.
16
FRANKLIN MALAYSIA SUKUK FUND
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017 (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.5 Creation and cancellation of units (continued)
2.6 Due from and due to Manager
2.7 Cash and cash equivalents
2.8 Other payables and accruals
Taxation
Increase/decrease in net assets attributable to unit holders
“Due from Manager” is recognised initially at fair value and subsequently measured at amortised
cost using the effective profit method, less an allowance for doubtful debts. The allowance is
established when there is objective evidence that the Fund will not be able to collect all amounts due
according to the original terms of receivables. Bad debts are written off when identified.
For the purpose of the statement of cash flow, cash equivalents are held for the purpose of meeting
short term cash commitment rather than for investment or other purposes. Cash and cash
equivalents comprise Shariah-compliant bank balances and deposits with licensed Islamic financial
institutions, other short term, highly liquid investments with original maturities of 3 months or less
that are readily convertible to known amounts of cash and which are subject to an insignificant risk
changes in value.
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.
“Due to Manager” is recognised initially at fair value and subsequently measured at amortised cost
using the effective profit method.
“Due from Manager” and “Due to Manager” represents receivable from and payable to the Manager
for units created and cancelled.
2.9
Current tax expense is determined according to Malaysian tax laws at the current rate based upon
the taxable profit earned during the financial year/period.
2.10
Income not distributed is included in net assets attributable to unit holders. Movements in net
assets attributable to unit holders are recognised in the statement of comprehensive income as
finance costs.
Other payables and accruals are obligations to pay for expenses incurred by the Fund. Other
payables and accruals are classified as current liabilities as payment is due within the normal
operating cycle of the Fund.
Other payables and accruals are recognised initially at fair value and subsequently measured at
amortised cost using the effective profit method.
17
FRANKLIN MALAYSIA SUKUK FUND
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017 (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Finance cost
Segmental information
Critical accounting estimates and judgments in applying accounting policies
3. CASH AND CASH EQUIVALENTS
2017 2016
RM RM
Islamic deposits with licensed Islamic financial institutions 1,562,265 717,286
Bank balance in a licensed financial institution 65,890 31,393
1,628,155 748,679
2.12
Operating segments are reported in a manner consistent with the internal reporting used by the
chief operating decision-maker. The chief operating decision-maker, is responsible for allocating
resources, assessing performance of the operating segments, and undertaking strategic decisions for
the Fund.
2.11
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 judgment 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.
Ringgit Malaysia-denominated unquoted Sukuk are valued using fair value prices quoted by BPA.
Investment in foreign unquoted Sukuk will be valued by using Reuters. Where BPA and Reuters
price are not available, these Sukuk will be valued by reference to the average indicative yield quoted
by three independent and reputable institutions provider by the Manager. Where the price quoted
by BPA for a specific Sukuk differs from the market price by more than 20 basis points, the Manager
may use market price.
A distribution to the Fund’s unit holders is recognised as a deduction from realised profit when they
are appropriately approved by the Board of Directors of the Manager. A proposed distribution is
recognised as a finance cost in the period in which it is approved by the Trustee.
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 SC
Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework.
2.13
18
FRANKLIN MALAYSIA SUKUK FUND
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017 (CONTINUED)
4. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
2017 2016
RM RM
4.1 Designated at fair value through profit or loss
at inception:- Unquoted Sukuk 21,615,548 21,784,562
18 Nov 2015
(Date of
1 Oct 2016 to Launch) to
30 Sep 2017 30 Sep 2016
RM RM
Net (loss)/gain on financial assets at fair value through
profit or loss:
- Realised gain on disposals 81,485 42,462
- Unrealised (loss)/gain on changes in fair values (156,761) 361,094
(75,276) 403,556
4.2 Profit Income
2017 2016
RM RM
Profit income from unquoted Sukuk 1,068,841 693,373
Profit income from Islamic money market instruments 36,850 107,565 1,105,691 800,938
5. TRANSACTIONS AND BALANCES WITH RELATED PARTIES
The related parties and their relationships with the Fund are as follows:
Related parties Relationship
Franklin Templeton GSC Asset
Management Sdn. Bhd. The Manager
Templeton Global Advisors Limited Affiliated company of the Manager
Deutsche Trustees (Malaysia) Berhad The Trustee
Deutsche Bank (Malaysia) Berhad Associate company of the Trustee
Other than disclosed elsewhere in the financial statements, the following related party transactions took
place during the financial year. The Manager is of the opinion that all transactions with the related company
have been entered into in the normal course of business at agreed terms between the related parties.
The detailed portfolio of investment is disclosed in note 15 to the financial statements.
19
FRANKLIN MALAYSIA SUKUK FUND
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017 (CONTINUED)
5. TRANSACTIONS AND BALANCES WITH RELATED PARTIES (CONTINUED)
5.1 Units held by the Manager and parties related to Manager
No. of No. of
units RM units RM
Affiliated company of the
Manager
- Templeton Global
Advisors Limited
- Class A 21,346,408.20 22,001,743 20,688,257.92 21,290,286 - Class I 1,034,509.96 1,090,766 1,000,000.00 1,049,900
The above units are legally held and were transacted at the prevailing market price.
5.2 Fees and charges
18 Nov 2015
(Date of
1 Oct 2016 to Launch) to
30 Sep 2017 30 Sep 2016 2017 2016
RM RM RM RM
(a) Management fee 223,712 174,164 18,703 18,060
(b) Trustee fee 19,082 15,483 1,568 1,564
Total 242,794 189,647 20,271 19,624
(a) Management fee
Class A
Class I
Expense Accrual
For the financial year/period ended 30 September 2017 and 30 September 2016, the Manager is
entitled to receive a fee of 0.45% per annum of the NAV of the Fund attributable to this class of units.
20162017
In accordance with Clause 13.1 of the Deed, management fee can be charged at a maximum of 3.00%
per annum, calculated based on the net asset value of the Fund.
For the financial year/period ended 30 September 2017 and 30 September 2016, the Manager is
entitled to receive a fee of 0.95% per annum of the NAV of the Fund attributable to this class of units.
Other than the above, there were no units held by directors or parties related to the Manager.
20
FRANKLIN MALAYSIA SUKUK FUND
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017 (CONTINUED)
5. TRANSACTIONS AND BALANCES WITH RELATED PARTIES (CONTINUED)
5.2 Fees and charges (continued)
(b) Trustee fee
6. NUMBER OF UNITS IN CIRCULATION
(a) CLASS A
2017 2016
No. of units No. of units
Beginning balance 20,834,367.92 -
Creation of units 109,655.05 20,571,135.42
Cancellation of units (154,122.51) (60,025.42)
Reinvestment of distributions 663,204.96 323,257.92
Closing balance 21,453,105.42 20,834,367.92
(b) CLASS I
2017 2016
No. of units No. of units
Beginning balance 1,000,000.00 -
Creation of units - -
Reinvestment of distributions 34,509.96 1,000,000.00
Closing balance 1,034,509.96 1,000,000.00
7. FINANCE COST
18 Nov 2015
(Date of
1 Oct 2016 to Launch) to
30 Sep 2017 30 Sep 2016
RM RM
Distribution to unit holders is derived
from the following sources:
Profit income from Shariah-compliant deposits with
licensed Islamic financial institutions 36,850 107,565
Profit income from unquoted Sukuk 879,070 419,663
67,704 28,126
983,624 555,354
Less: Expenses (273,608) (228,306)
Net distribution amount 710,016 327,048
Net realised gain on sale of investment
In accordance with Clause 13.2 of the Deed, trustee fee can be charged at a maximum of 0.20%
per annum, calculated based on the net asset value of the Fund, subject to a minimum fee of
RM18,000 per annum (excluding foreign custodian fees and charges).
For the financial year/period ended 30 September 2017 and 30 September 2016, the Trustee is
entitled to receive a fee of 0.06% per annum of the net asset value of the Fund, subject to a
minimum fee of RM18,000 per annum.
21
FRANKLIN MALAYSIA SUKUK FUND
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017 (CONTINUED)
7. FINANCE COST (CONTINUED)
2017 2016
Gross/Net distribution per unit (RM) - Class A
March 0.008 0.006
June 0.008 0.010
September - 0.008December - 0.008
Gross/Net distribution per unit (RM) - Class IDecember - 0.035
Distribution is based on cumulative net income since inception.
8. TAXATION
18 Nov 2015
(Date of
1 Oct 2016 to Launch) to
30 Sep 2017 30 Sep 2016
RM RM
Current taxation - -
18 Nov 2015
(Date of
1 Oct 2016 to Launch) to
30 Sep 2017 30 Sep 2016
RM RM
Income before taxation 46,791 649,140
Taxation at Malaysian statutory rate of 24% (2016: 24%) 11,230 155,794
Tax effects of:
Investment income not subject to tax (247,300) (289,079)
Restriction on tax deductible expenses 55,837 45,376
Expenses not deductible for tax purposes 180,233 87,909
Taxation - -
The numerical reconciliation between net income before taxation multiplied by the Malaysian statutory tax
rate and tax expense of the Fund is as follows:
Gross distribution is derived using total income less total expenses. Gross distribution per unit is derived
from gross realised income less expenses, divided by the number of units in circulation. Net distribution
per unit is derived from gross realised income less expenses and taxation, divided by the number of units in
circulation.
During the financial year ended 30 September 2017, the Fund incurred unrealised losses on changes in fair
values of RM156,761. For the prior period, there is unrealised gain of RM361,094.
22
FRANKLIN MALAYSIA SUKUK FUND
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017 (CONTINUED)
9. TRANSACTIONS WITH BROKERS / DEALERS
Percentage Percentage
Value of of total of total
trades trades Brokerage brokerage
2017 RM % RM %
Maybank Islamic
Berhad 29,523,000 74.04 - -
RHB Investment Bank - -
Berhad 3,029,388 7.60 - -
CIMB Islamic Bank - -
Berhad 4,764,000 11.95 - -
Bank Islam Malaysia
Berhad 2,059,060 5.16 - -
Standard Chartered bank
Malaysia Berhad 500,000 1.25 - -
Total 39,875,448 100.00 - -
Percentage Percentage
Value of of total of total
trades trades Brokerage brokerage
2016 RM % RM %
CIMB Islamic Bank
Berhad 66,491,000 38.50 - -
Maybank Islamic Berhad 37,192,000 21.54 - -
RHB Islamic Bank Berhad 30,530,000 17.68 - -
Bank Islam Malaysia
Berhad 14,476,031 8.38 - -
Hong Leong Bank Berhad 10,194,879 5.90 - -
AmBank (M) Berhad 7,783,041 4.51 - -
RHB Investment Bank
Berhad 2,521,497 1.46 - -
RHB Bank Berhad 2,000,000 1.16 - -
JP Morgan Chase Bank
Berhad 1,495,522 0.87 - -
Total 172,683,970 100.00 - -
Details of transactions with the top 10 brokers / dealers for the financial period from 18 November 2015
(date of launch) to 30 September 2016 are as follows:
Details of transactions with the top 10 brokers / dealers for the financial year ended 30 September 2017 are
as follows:
23
FRANKLIN MALAYSIA SUKUK FUND
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017 (CONTINUED)
10. MANAGEMENT EXPENSE RATIO (“MER”)
18 Nov 2015
(Date of
1 Oct 2016 to Launch) to
30 Sep 2017 30 Sep 2016 % %
MER
– CLASS A 1.23 1.06 – CLASS I 0.70 0.63
MER is derived based on the following calculation:
MER= (A + B + C + D + E + F + G) x 100
H
A = Management fee
B = Trustee fee
C = Audit fee
D = Professional fee
E = Custodian fee
F = Printing fee
G = Shariah adviser fee
H = Average daily net asset value of the share class
11. PORTFOLIO TURNOVER RATIO (“PTR”)
18 Nov 2015
(Date of
1 Oct 2016 to Launch) to
30 Sep 2017 30 Sep 2016
PTR (times) 0.22 0.88
Total acquisition for the financial year/period amounted to RM5,001,450 (2016: RM29,835,333).
Total disposal for the financial year/period amounted to RM5,083,700 (2016: RM8,635,638).
Average daily net asset value is RM22,775,231 (2016: RM21,851,054).
12. FINANCIAL RISK MANAGEMENT
The average daily net asset value of Class A and I for the financial year/period is RM21,709,557 (2016:
RM20,827,243) and RM1,065,674 (2016: RM1,023,811) respectively.
PTR represents the average of total acquisitions and disposals of investments in the Fund for the financial
year/period over the Fund’s average daily net asset value where:
The Fund seeks to maximise total investment return consisting of profit income and capital gains in the
long term through investments primarily in RM-denominated Sukuk.
The Fund is involved in investment trading and its activities expose it to a variety of financial risks: market
risk (including market price risk and interest rate risk), credit and counterparty risk and liquidity risk.
24
FRANKLIN MALAYSIA SUKUK FUND
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017 (CONTINUED)
12. FINANCIAL RISK MANAGEMENT (CONTINUED)
12.1 Market risk
(a) Market price risk
(b) Value-at-risk (“VaR”)
The VaR is calculated using the Monte Carlo simulation. This approach estimates VaR by
generating risk factor scenarios and revaluing portfolio positions using a fundamental risk factor
model built up by identifying variables that can impact a security’s price and measuring
correlations those factors have to each other (derived by applying statistical analysis to historical
data). The approach applies random shocks to the factors expected to impact volatility, reprices
the portfolio at a point in time, repeats the process thousands of times, and creates a distribution
of returns from all the values. The VaR at a 99% confidence level represents the best possible
outcome for the worst 1% of returns from the resulting distribution. Both the size and probability
of actual portfolio losses can differ significantly from the losses predicted by VaR. In addition,
the use of historical data to derive correlations may not encompass all potential events,
particularly events which may be extreme in nature. As a result, VaR maybe under or
overestimated due to the assumptions placed on the risk factors and the relationship between
such factors.
VaR is used to monitor the market price risk exposure. VaR is a measure of the maximum
potential loss at a given confidence level over a specific time period under normal market
conditions. The VaR presented is calculated assuming a one-month (20-day) holding period at a
99% confidence level, expressed in percentage of negative return.
The Fund uses different methods to measure and manage the various types of risk to which it is
exposed. These methods are explained below.
The overall responsibility for the implementation of the Fund’s financial risk management policies lies with
the Investment Manager, who, among other things, focuses on the unpredictability of financial markets and
seeks to minimise potential adverse effects on the financial performance of the Fund. Information about
these risk exposures at the reporting date and risk management policies employed are disclosed in notes
12.1 to 12.5.
Market risk arises because of factors that affect the market overall, and particularly the market
where the Fund will be focusing its investments. Factors such as economic growth, financial
market conditions, political stability and the social environment are some examples of conditions
that have an impact on businesses, which in turn may impact the market value of the investment
of the Fund positively or negatively depending on how the market values of the underlying
investments held in the portfolio of the Fund are impacted. Investors who purchase units of the
Fund may not get back the full amount that they have invested if the NAV per Unit of the Fund
falls below the investors’ purchase price due to adverse price movements of the Fund’s
underlying investments.
The Fund is also exposed to operational risks such as custody risk. Custody risk is the risk of loss of
securities held in custody occasioned by the insolvency or negligence of the custodian. Although an
appropriate legal framework is in place that eliminates the risk of loss of value of the securities held by the
custodian, in the event of its failure, the ability of the Fund to transfer the securities might be temporarily
impaired. All securities investments present a risk of loss of capital.
25
FRANKLIN MALAYSIA SUKUK FUND
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017 (CONTINUED)
12. FINANCIAL RISK MANAGEMENT (CONTINUED)
12.1 Market risk (continued)
(b) Value-at-risk (“VaR”) (continued)
2017 2016
VaR (%) 5.50 4.05 VaR (RM amount) 1,278,404 882,275
(c) Currency risk
(d) Interest rate risk
Interest rate is a general economic indicator that will have impact on the management of the
Fund. It does not in any way suggest that this Fund will invest in conventional financial
instruments. All investments carried out for the Fund including placement and deposits are in
accordance with Shariah.
The Manager does not actively manage the foreign currency risk of non-RM denominated assets
as in their opinion the cost of such a process would result in an unacceptable reduction in the
potential for market growth.
The Fund may invest up to 20% of its net asset value in non-RM denominated Islamic
Instruments and will therefore be exposed to the exchange rate fluctuations of RM, the
functional currency, against foreign currencies.
The market risk of the Fund has been computed using a 20 day holding period at 99% confidence
level as follows:
As at 30 September 2017 and 30 September 2016, the effect of any reasonably possible
movement in interest rates would have an immaterial effect on the net assets attributable to unit
holders.
The Fund invests in sukuk and Islamic money market instruments and is exposed to risks
associated with the effects of fluctuations in the prevailing levels of market interest rates on its
financial position and cashflows. The Manager monitors the interest rate risk actively by
reviewing the profit rate duration of the portfolio in line with Fixed Income Policy Committee’s
recommendations.
The cash balance is held with Deutsche Bank (Malaysia) Berhad. Islamic money market
instruments are placed with licensed Islamic institutions.
26
FRANKLIN MALAYSIA SUKUK FUND
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017 (CONTINUED)
12. FINANCIAL RISK MANAGEMENT (CONTINUED)
12.1 Market risk (continued)
(d) Interest rate risk (continued)
Less than 1 month - 1 - 5 Non-profit
1 Month 1 year years > 5 years bearing Total
RM RM RM RM RM RM
2017
Assets
Cash and cash
equivalents 1,628,155 - - - - 1,628,155
Financial assets
at fair value
through
profit or loss - - 17,762,162 3,853,386 - 21,615,548
Total assets 1,628,155 - 17,762,162 3,853,386 - 23,243,703
Liabilities
Accrued
management
fee - - - - 18,703 18,703
Accrued trustee
fee - - - - 1,568 1,568
Other payables
and
accruals - - - - 21,432 21,432
Net assets
attributable
to unit
holders - - - - 23,202,000 23,202,000
- - - - 23,243,703 23,243,703
Total interest
sensitivity
gap 1,628,155 - 17,762,162 3,853,386
27
FRANKLIN MALAYSIA SUKUK FUND
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017 (CONTINUED)
12. FINANCIAL RISK MANAGEMENT (CONTINUED)
12.1 Market risk (continued)
(d) Interest rate risk (continued)
Less than 1 month - 1 - 5 Non-profit
1 Month 1 year years > 5 years bearing Total
RM RM RM RM RM RM
2016
Assets
Cash and cash
equivalents 748,679 - - - - 748,679
Financial assets
at fair value
through
profit or loss - - 10,904,396 10,880,166 - 21,784,562
Due from
Manager - - - - 1,000 1,000
Total assets 748,679 - 10,904,396 10,880,166 1,000 22,534,241
Liabilities
Accrued
management
fee - - - - 18,060 18,060
Accrued trustee
fee - - - - 1,564 1,564
Other payables
and
accruals - - - - 24,007 24,007
Net assets
attributable
to unit
holders - - - - 22,490,610 22,490,610
- - - - 22,534,241 22,534,241
Total interest
sensitivity
gap 748,679 - 10,904,396 10,880,166
28
FRANKLIN MALAYSIA SUKUK FUND
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017 (CONTINUED)
12. FINANCIAL RISK MANAGEMENT (CONTINUED)
12.2 Liquidity risk
Between
No Less than 1 month
maturity 1 month to 1 year Total
2017 RM RM RM RM
Assets
Cash and cash
equivalents 1,628,155 - - 1,628,155
Financial assets at fair
value through
profit or loss - 21,615,548 - 21,615,548
Total assets 1,628,155 21,615,548 - 23,243,703
Liabilities
Accrued
management fee - 18,703 - 18,703
Accrued trustee fee - 1,568 - 1,568
Other payables and
accruals - - 21,432 21,432
Net asset attributable
to unit holders - 23,202,000 - 23,202,000
Total liabilities - 23,222,271 21,432 23,243,703
Contractual cash
in/(out) flows 1,628,155 (1,606,723) (21,432) -
The liquidity risks associated with the need to satisfy shareholders requests for redemptions are
mitigated by maintaining a constant pool of cash to satisfy usual levels of demand. The Fund’s
investments are traded in an active market and are hence considered to be readily realisable. However,
the value of the portfolio may be negatively affected if the Fund needs to meet redemptions by selling
significant portions of the assets over a short period of time in times of market uncertainty.
The table below analyses the Fund’s financial assets and liabilities into relevant maturity groupings
based on the remaining period from the statement of financial position date to the contractual maturity
date. The amounts in the table are the contractual undiscounted cash flows. Balances due within 12
months equal their carrying balances, as the impact of discounting is not significant.
29
FRANKLIN MALAYSIA SUKUK FUND
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017 (CONTINUED)
12. FINANCIAL RISK MANAGEMENT (CONTINUED)
12.2 Liquidity risk (continued)
Between
No Less than 1 month
maturity 1 month to 1 year Total
2016 RM RM RM RM
Assets
Cash and cash
equivalents 748,679 - - 748,679
Financial assets at fair
value through
profit or loss - 21,784,562 - 21,784,562
Due from Manager - 1,000 - 1,000
Total assets 748,679 21,785,562 - 22,534,241
Liabilities
Accrued
management fee - 18,060 - 18,060
Accrued trustee fee - 1,564 - 1,564
Other payables and
accruals - - 24,007 24,007
Net asset attributable
to unit holders - 22,490,610 - 22,490,610
Total liabilities - 22,510,234 24,007 22,534,241
Contractual cash
in/(out) flows 748,679 (724,672) (24,007) -
12.3 Credit risk
The credit risk is mitigated by investing in securities which at the time of the purchase have a minimum
credit rating of BBB3 by RAM Rating Services Berhad (“RAM”) or an equivalent credit rating by
Malaysia Rating Corporation Berhad (“MARC”) or any recognised credit rating agency.
The Fund may employ Shariah-compliant hedging instruments which are traded over the counter. To
mitigate credit risk inherent to those instruments the Risk committee within the Manager will exercise
due diligence controls prior the fund investing in said instruments.
30
FRANKLIN MALAYSIA SUKUK FUND
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017 (CONTINUED)
12. FINANCIAL RISK MANAGEMENT (CONTINUED)
12.3 Credit risk (continued)
Financial a
sv
a Cash and Amount
cash through due fromp
r equivalents
from
Manager Total
RM RM RM RM
AAA 1,562,265 2,033,417 - 3,595,682
AA3 - 7,156,771 - 7,156,771
AA2 - 1,552,773 - 1,552,773
AA1 65,890 1,267,429 - 1,333,319
AA (IS) - 2,569,980 - 2,569,980
A1 - 4,220,242 - 4,220,242
A3 - 1,785,323 - 1,785,323
A (IS) - 1,029,613 - 1,029,613
1,628,155 21,615,548 - 23,243,703
AAA (S) - 2,101,605 - 2,101,605
AAA 717,286 - - 717,286
AA3 - 6,656,314 - 6,656,314
AA2 - 1,061,732 - 1,061,732
AA1 31,393 1,282,971 - 1,314,364
AA (IS) - 2,589,577 - 2,589,577
A1 - 4,248,082 - 4,248,082
A3 - 1,790,118 - 1,790,118
NR - 2,054,163 1,000 2,055,163
748,679 21,784,562 1,000 22,534,241
2016
2017
The following table sets out the credit risk concentration of the Fund:
asset at fair
value
profit or loss
31
FRANKLIN MALAYSIA SUKUK FUND
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017 (CONTINUED)
12. FINANCIAL RISK MANAGEMENT (CONTINUED)
12.4 Fair value estimation
• Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
•
•
Level 1 Level 2 Level 3 Total
RM RM RM RM
2017
Assets
Financial assets held for
trading
- Sukuk - 21,615,548 - 21,615,548
Level 1 Level 2 Level 3 Total
RM RM RM RM
2016
Assets
Financial assets held for
trading
- Sukuk - 21,784,562 - 21,784,562
The fair value of financial assets and liabilities traded in active markets (such as publicly traded trading
securities) is based on last traded prices at the close of trading on the period end date. If a significant
movement in fair value occurs subsequent to the close of trading up to midnight on the year end date,
valuation techniques will be applied to determine fair value. A financial instrument is regarded as
quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer,
broker, industry group, pricing service or regulatory agency and those prices represent actual and
regularly occurring market transactions on an arm’s length basis. The carrying value less impairment
provision of other receivables and payables are assumed to approximate their fair values. The fair value
of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash
flows at the current market interest rate that is available to the Fund for similar financial instruments.
The Company classifies fair value measurements using a fair value hierarchy that reflects the
significance of inputs used in making the measurements. The fair value hierarchy has the following
levels:
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
judgement, considering factors specific to the asset or liability. The determination of what constitutes
‘observable’ requires significant judgement. The Investment Manager 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.
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 2);
Inputs for the asset or liability that are not based on observable market data (that is unobservable
inputs) (Level 3).
32
FRANKLIN MALAYSIA SUKUK FUND
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017 (CONTINUED)
12. FINANCIAL RISK MANAGEMENT (CONTINUED)
12.5 Capital Risk Management
13. SEGMENT INFORMATION
14. SUBSEQUENT EVENTS
15. COMPARATIVE FINANCIAL INFORMATION
The comparatives are in respect of the financial period from 18 November 2015 (date of launch) to 30
September 2016 and hence, not comparable to the current financial year’s results.
The reportable operating segment derives its income by seeking investments to achieve targeted returns
consummate with an acceptable level of risk within the portfolio. These returns consist of profit income
earned from investments and gains on the appreciation in the value of Shariah-compliant investments and
from Shariah-compliant deposits placed with licensed financial institutions.
The capital of the Fund is represented by the net assets attributable to its unit holders. These amounts
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 objectives 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 to
maintain a strong capital base to support the development of the investment activities of the Fund. In
order to maintain or adjust the capital structure the Fund’s policy is to redeem and issue new units in
accordance with the prospectus which includes the ability to restrict redemptions and requires certain
minimum holdings and subscriptions.
The Manager proposed for the payment of a distribution of RM0.008 per unit for Class A in respect of the
financial quarter ended 30 September 2017, with the final distributable amount determined and approved on
2 October 2017. The distribution will be recognised as finance cost in the statement of comprehensive income
for the financial year ending 30 September 2018.
The internal reporting provided to the chief operating decision-maker for the Fund’s performance is prepared
on a consistent basis with the measurement and recognition principles of MFRS and IFRS. The chief
operating decision-maker is responsible for the performance of the Fund and considers the business to have a
single operating segment located in Malaysia. Asset allocation decisions are based on a single, integrated
investment strategy and the Fund’s performance is evaluated on an overall basis.
33
FRANKLIN MALAYSIA SUKUK FUND
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017 (CONTINUED)
15. PORTFOLIO OF INVESTMENTS
Fair value as
a percentage of
Nominal Aggregate Market net asset
value cost value value
30 Sep 2017 RM RM RM %
Name of issuer
SUKUK
AmBank Islamic Berhad 5.35%
due 21/12/2020 4,000,000 4,059,803 4,125,003 17.78
Bank Islam Malaysia Berhad
5.75 % due 22/4/2020 4,000,000 4,130,128 4,220,242 18.19
Bank Muamalat Malaysia Berhad
5.50% due 25/11/2021 1,000,000 1,019,203 1,029,613 4.44
Bank Muamalat Malaysia Berhad
5.80% due 15/06/2021 1,750,000 1,780,178 1,785,323 7.69
Bank Pembangunan Malaysia Berhad
4.28% due 02/03/2022 1,000,000 1,002,526 1,002,478 4.32
Digi telecommunications Sdn Bhd
4.53% due 12/04/2024 1,000,000 1,021,099 1,030,939 4.44
Gamuda Berhad 4.62%
due 13/03/2019 2,500,000 2,508,309 2,520,643 10.86
Konsortium Prohawk Sdn Bhd
5.14% due 20/12/2024 1,000,000 1,045,822 1,043,893 4.50
Kuala Lumpur Kepong Berhad 4.58%
due 12/08/2025 250,000 255,653 252,033 1.09
Lafarge Cement Sdn Bhd 4.80%
due 13/01/2020 500,000 505,260 508,880 2.19
Malaysia Building Society Berhad
4.80% due 09/12/2022 1,000,000 1,023,634 1,015,396 4.38
SPR Energy (M) Sdn Bhd
5.22% due 16/07/2027 500,000 507,313 511,125 2.20
34
FRANKLIN MALAYSIA SUKUK FUND
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017 (CONTINUED)
15. PORTFOLIO OF INVESTMENTS (CONTINUED)
Fair value as
a percentage of
Nominal Aggregate Market net asset
value cost value value
30 Sep 2017 RM RM RM %
Name of issuer (continued)
SUKUK (CONTINUED)
UEM Sunrise Berhad
4.80% due 08/04/2022 2,500,000 2,552,287 2,569,980 11.08
Total unquoted
Sukuk 21,000,000 21,411,215 21,615,548 93.16
Accumulated unrealised
gain on financial
assets at fair value
through profit or loss 204,333
Total financial assets at
fair value through
profit or loss 21,615,548
30 Sep 2016
AmBank Islamic Berhad 5.35%
due 21/12/2020 4,000,000 4,059,639 4,124,360 18.34
Bank Islam Malaysia Berhad
5.75 % due 22/4/2020 4,000,000 4,140,128 4,248,082 18.89
Bank Muamalat Malaysia Berhad
5.80% due 15/06/2026 1,750,000 1,780,213 1,790,118 7.96
35
FRANKLIN MALAYSIA SUKUK FUND
NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2017 (CONTINUED)
15. PORTFOLIO OF INVESTMENTS (CONTINUED)
Fair value as
a percentage of
Nominal Aggregate Market net asset
value cost value value
30 Sep 2016 RM RM RM %
Name of issuer (continued)
SUKUK (CONTINUED)
Gamuda Berhad 4.62%
due 13/03/2019 2,500,000 2,509,734 2,531,954 11.26
Malaysia Building Society Berhad
4.80% due 09/12/2022 1,000,000 1,025,565 1,025,230 4.56
Konsortium Prohawk Sdn Bhd
5.14% due 20/12/2024 1,000,000 1,049,298 1,061,732 4.72
Kuala Lumpur Kepong Berhad 4.58%
due 12/08/2025 250,000 256,149 257,741 1.15
Prasarana Malaysia Berhad
4.29% due 24/02/2023 2,000,000 2,008,463 2,054,163 9.13
Rantau Abang Capital Berhad 0%
due 19/10/2022 2,000,000 2,043,264 2,101,605 9.34
UEM Sunrise Berhad
4.80% due 08/04/2022 2,500,000 2,551,015 2,589,577 11.51
Total unquoted
Sukuk 21,000,000 21,423,468 21,784,562 96.86
Accumulated unrealised
gain on financial
assets at fair value
through profit or loss 361,094
Total financial assets at
fair value through
profit or loss 21,784,562
36
© 2017 Franklin Templeton Investments. All rights reserved. FTIFMY FMSAR 10/17
Franklin Templeton GSC Asset Management Sdn. Bhd.Suite 31-02, 31st Floor, Menara Keck Seng203, Jalan Bukit Bintang55100 Kuala Lumpur, Malaysiatel +60 (3) 2264 6699 fax +60 (3) 2145 9071www.franklintempleton.com.my