AFFIN HWANG SELECT SGD INCOME FUND

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2 AFFIN HWANG SELECT SGD INCOME FUND Interim Report and Unaudited Financial Statements For the 6 Months Financial Period Ended 30 September 2018 Contents Page FUND INFORMATION... 2 FUND PERFORMANCE DATA... 3 MANAGER S REPORT... 7 TRUSTEE S REPORT STATEMENT OF COMPREHENSIVE INCOME STATEMENT OF FINANCIAL POSITION STATEMENT OF CHANGES IN NET ASSETS STATEMENT OF CASH FLOWS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NOTES TO THE FINANCIAL STATEMENTS STATEMENT BY THE MANAGER DIRECTORY OF SALES OFFICE

3 FUND INFORMATION Fund Name Affin Hwang Select SGD Income Fund Fund Type Income Fund Category Mixed Assets Investment Objective Benchmark Distribution Policy The Fund endeavours to provide steady income distribution through investments primarily in SGD-denominated assets The benchmark will be a combination of the twelve (12) month Singapore Banks Average Fixed Deposit Rate weighing at 70% and Singapore s FTSE Straits Times Index (FSSTI) weighing at 30% The Fund will distribute income (subject to income availability) on a semi-annual basis after the end of its first financial year BREAKDOWN OF UNITHOLDERS BY SIZE RM CLASS AS AT 30 SEPTEMBER 2018 Size of holdings (units) No. of unitholders No. of units held * ( 000) 5,000 and below ,001 to 10, ,001 to 50, ,346 50,001 to 500, , ,001 and above ,523 Total ,269 * Note: Excluding Manager s stock BREAKDOWN OF UNITHOLDERS BY SIZE SGD CLASS AS AT 30 SEPTEMBER 2018 Size of holdings (units) No. of unitholders No. of units held * ( 000) 5,000 and below 0 0 5,001 to 10, ,001 to 50, ,001 to 500, , ,001 and above ,727 Total ,939 * Note: Excluding Manager s stock 2

4 FUND PERFORMANCE DATA Category As at 30 Sep 2018 (%) As at 30 Sep 2017 (%) As at 30 Sep 2016 (%) Portfolio composition Quoted equities - Consumer goods Consumer services Financial Healthcre Industrials Telecommunications Total quoted equities Unquoted fixed income securities Cash & cash equivalent Total Currency class RM Class SGD Class RM Class SGD Class RM Class SGD Class Total NAV (RM million) NAV per unit (RM) Unit in Circulation (million) Highest NAV Lowest NAV Return of the Fund (%) iii Capital Return (%) i Income Return (%) ii Gross Distribution per Unit (sen) Net Distribution per Unit (sen) Management Expenses Ratio (%) Portfolio Turnover Ratio (times) 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 distribution payable (if any) during the stipulated period. An illustration of the above would be as follow:- Capital return = NAV per Unit end / NAV per Unit begin 1 Income return = Income distribution per Unit / NAV per Unit ex-date Total return = (1+Capital return) x (1+Income return) 1 1 The Fund s MER remained relatively unchanged, albeit marginally lower than previous period under review. 2 The Fund s PTR was higher than previous year due to higher average sum of total acquisition and disposal for the financial period. 3

5 RM Class Capital Return i = {NAV per 30/09/18 NAV per 31/03/18* 1} x 100 = ( ) x 100 = -0.23% Income ex-date = {Income distribution per Unit NAV per Unit on ex- date} + 1 = { /06/18} + 1 = = { /09/18} + 1 = Total Income Return ii = {Income distribution per Unit NAV per Unit on ex-date} x 100 = { x } 1 x 100 = 0.77% Return of the Fund iii = {(1 + Capital Return x (1 + Income Return)} 1] x 100 = {(1 + (-0.23%)) x ( %)} 1] x 100 = 0.54% SGD Class Capital Return i = {NAV per 30/09/18 NAV per 31/03/18* 1} x 100 = ( ) x 100 = -2.86% Income ex-date = {Income distribution per Unit NAV per Unit on ex- date} + 1 = { /06/18} + 1 = = { /09/18} + 1 = Total Income Return ii = {Income distribution per Unit NAV per Unit on ex-date} x 100 = { x } 1 x 100 = 0.90% Return of the Fund iii = {(1 + Capital Return x (1 + Income Return)} 1] x 100 = {(1 + (-2.86%)) x ( %)} 1] x 100 = -1.98% * Source Deutsche Trustees Malaysia Berhad 4

6 Table 1: Performance of the Fund RM Class 6 Months (1/4/18-30/9/18) 1 Year (1/10/17-30/9/18) 3 Years (1/10/15-30/9/18) 5 Years (1/10/13-30/9/18) Since Commencement (20/8/12-30/9/18) Fund 0.54% (2.44%) 13.97% 40.37% 51.28% Benchmark 1.19% (1.95%) 3.97% 19.98% 26.27% Outperformance / (Underperformance) (0.65%) (0.49%) 10.00% 20.39% 25.01% Source of Benchmark: Bloomberg SGD Class 6 Months (1/4/18-30/9/18) 1 Year (1/10/17-30/9/18) 3 Years (1/10/15-30/9/18) 5 Years (1/10/13-30/9/18) Since Commencement (20/8/12-30/9/18) Fund (1.98%) 0.95% 17.21% 21.32% 26.04% Benchmark (1.32%) 0.74% 5.99% 2.71% 4.15% Outperformance / (Underperformance) (0.66%) 0.21% 11.22% 18.61% 21.89% Source of Benchmark: Bloomberg Table 2: Average Total Return RM Class 1 Year (1/10/17-30/9/18) 3 Years (1/10/15-30/9/18) 5 Years (1/10/13-30/9/18) Since Commencement (20/8/12-30/9/18) Fund (2.44%) 4.45% 7.01% 7.00% Benchmark (1.95%) 1.30% 3.71% 3.89% Outperformance / (Underperformance) (0.49%) 3.15% 3.30% 3.11% Source of Benchmark: Bloomberg SGD Class 1 Year (1/10/17-30/9/18) 3 Years (1/10/15-30/9/18) 5 Years (1/10/13-30/9/18) Since Commencement (20/8/12-30/9/18) Fund 0.95% 5.43% 3.94% 3.86% Benchmark 0.74% 1.96% 0.54% 0.67% Outperformance / (Underperformance) 0.21% 3.47% 3.40% 3.19% Source of Benchmark: Bloomberg 5

7 Table 3: Annual Total Return RM Class FYE 2018 (01/4/17-31/3/18) FYE 2017 (01/4/16-31/3/17) FYE 2016 (01/4/15-31/3/16) FYE 2015 (01/4/14-31/3/15) FYE 2014 (01/4/13-31/3/14) Fund 1.50% 16.01% 4.74% 9.71% 5.34% Benchmark (4.30%) 13.50% 2.08% 6.80% 3.00% Outperformance / (Underperformance) 5.80% 2.51% 2.66% 2.91% 2.34% Source of Benchmark: Bloomberg SGD Class FYE 2018 (01/4/17-31/3/18) FYE 2017 (01/4/16-31/3/17) FYE 2016 (01/4/15-31/3/16) FYE 2015 (01/4/14-31/3/15) FYE 2014 (01/4/13-31/3/14) Fund 9.69% 6.12% (2.53%) 5.51% 1.51% Benchmark 2.67% 3.77% (5.17%) 2.67% (0.76%) Outperformance / (Underperformance) 7.02% 2.35% 2.64% 2.84% 2.27% Source of Benchmark: Bloomberg Past performance is not necessarily indicative of future performance and that Unit prices and investment returns may go down, as well as up. 6

8 MANAGER S REPORT Performance Review RM Class For the period under review from 1 April 2018 to 30 September 2018, the Fund RM class registered a return of 0.54% compared to the benchmark return of 1.19%. The Fund thus underperformed the Benchmark by 0.65%. The Net Asset Value ( NAV ) per unit as at 30 September 2018 was RM compared to the NAV per unit of RM as at 31 March During the same period under review, the Fund has declared a total income distribution of RM0.005 per unit by way of reinvestment in the form of additional units. SGD Class As for the SGD class, the Fund registered a return of -1.98% compared to the benchmark of -1.32% during the performance under review. The Fund thus underperformed the Benchmark by 0.66%. The Net Asset Value ( NAV ) per unit as at 30 September 2018 was SGD compared to the NAV per unit of SGD as at 31 March During the same period under review, the Fund has declared a total income distribution of SGD0.005 per unit by way of reinvestment in the form of additional units. Figure 1: Movement of the Fund versus the Benchmark 7

9 This information is prepared by Affin Hwang Asset Management Berhad (AFFINHWANGAM) for information purposes only. Past earnings or the fund s distribution record is not a guarantee or reflection of the fund s future earnings/future distributions. Investors are advised that unit prices, distributions payable and investment returns may go down as well as up. Benchmark: 12 months Singapore Banks Average Fixed Deposit Rate, weighing at 70% and FTSE Singapore s Straits Times Index (FSSTI) weighing at 30% Income Distribution / Unit Split Affin Hwang Asset Management Berhad recently declared a gross distribution of RM per Unit (for RM Class) and SGD (for SGD Class) to investors of the Affin Hwang Select SGD Income Fund over the period under review. The Net Asset Value per unit prior and subsequent to the distribution was as follows:- RM Class Cum Date Ex-Date Cum-distribution (RM) Distribution per Unit (RM) Ex-distribution (RM) 12 Jun Jun Sep Sep USD Class Cum Date Ex-Date Cum-distribution (RM) Distribution per Unit (RM) Ex-distribution (RM) 12 Jun Jun Sep Sep No unit split were declared for the financial year ended 30 September

10 Asset Allocation For a snapshot of the Fund s asset mix during the period under review, please refer to Figure 2. Figure 2: Asset allocation of the Fund 30 Sep Sep Sep 2016 (%) (%) (%) Quoted equities Unquoted fixed income securities Cash & cash equivalent Total As at 30 September 2018, the asset alloction of the Fund stood at 24.98% in equities, 68.06% in fixed income securities while the balance was held in cash and cash equivalent. During the period under review, the Manager had trimmed its portfolio and only invest into sectors llike financials and industrials. Within the fixed income space, the Manager also added some exposures into Government bonds. Meanwhile, cash level of the Fund was kept at a moderate level of 6.96% over the same period. Strategies Employed The Fund remained focus on providing investors with a steady income stream through a portfolio of Singapore Dollar-denominated assets. With the return of volatility in markets, we are gradually raising our cash holdings and will stay more defensive in our allocation with capital protection taking precedence. We maintain a short duration bias for the fund and invest in companies with better corporate financial discipline, where leverage is manageable in a rising rate environment. Market Review Emerging markets are seeing a tantrum-like sell-off, where investors appetite for risk-assets have tapered off significantly on the back of fractious developments within Turkey and Argentina that have sent both their currencies into free fall. Investors are ploughing back money into the US on signs of quicker growth, rising interest rates and a stronger greenback that has undermined the attraction of riskier EM assets. Regionally, the MSCI Asia ex-japan Index was weighed down by external risk plunging 8.54% in the period under review. Risk of a contagion effect to the rest of EMs have investors treading cautiously even though economic linkages between the two countries and the rest of Asia isn t apparent. The market sell-off was exacerbated further by outflows from global EM funds who were de-risking portfolios. Global fund managers have posited similar characteristics from Turkey & Argentina to other economies that might share some of these symptoms such as a high current account deficit and reliance on foreign debt. Trade remained a key overhang of markets following a fresh round of tariffs, where the Trump administration announced 10.0% duties on USD200 billion worth of Chinese imports which took effect on 24 September Washington had previously toyed with imposing a 25.0% tariff rate that was subsequently postponed to next year. China swiftly retaliated by imposing tariffs of their own on USD60 billion worth of US goods ranging between %. The two global powerhouses have already slapped tariffs on USD50 billion worth of goods throughout its trade skirmish, before the new wave of tariffs in September. Reeling from this contagion effect and risk-off environment, the Singapore market was buffeted from these developments with the FTSE Straits Times Index losing 4.99% in the period under review. The Monetary Authority of Singapore (MAS) tightened monetary policy for the first time in 6 years, where the central stated it would slightly increase the slope of the Singapore dollar s policy band from zero percent previously, while keeping the width and mid-point of the band unchanged. It added that Singapore s economy should continue on a steady expansion path in 2018, but also pointed to potential risks from a U.S.-China trade rift. The tightening move led the SGD to appreciate against the Ringgit by 2.55%, as slower growth weighed down on the local currency in the 2Q. 9

11 A sharp depreciation of the Chinese yuan also dragged down the rest of EMs, as a high correlation between markets led to further pain within other Asian currencies. The yuan has shed over 5% of its value YTD, when trade tensions started to brew. Due to concerns over trade-frictions with the US and possible second-order impacts on the Chinese economy that could manifest into slower investment and softer consumption, Beijing has shifted slightly towards a more neutral tone that leaves more room for China to loosen its grip on deleveraging and policy easing. Fed minutes from the recent August FOMC gathering showed US central bankers confident of strong economic growth where a 25bps rate hike in September has been widely priced-in by markets. If the Fed raises rates at its September policy meeting, that would lift the fed funds rate to a range of 2.00% -2.25%. However, the Fed cautioned against downside risks including escalating trade tensions that could dampen growth and curb investment spending. Fed officials sounded a dovish stance against the need to raise rates aggressively especially with no strong signal of inflation accelerating and signs of yield curve inversion. Treasury yields would likely be capped from rising further in the longer term, as we may see investors reallocate back to safe haven instruments should the US-China dispute worsen. Regionally, with more new fixed income issuances rolling in, there may be repricing opportunities which could push yield spreads wider. Technical support for recent supply of bonds haven t been too strong, in which we believe that most managers and investors are awaiting for valuations to correct further from here. On the local front, the 14th General Election (GE14) concluded with jaw-dropping results that stunned political pundits and pollsters. In a watershed election, the opposition won GE14 by wrestling traditionally held strongholds from the incumbent by taking over states such as Johor, Kedah, and Melaka. Tun Dr. Mahathir aged 93 returns to parliament with a second stint as Prime Minister pledging institutional and fiscal reforms for the country. Investment Outlook The recent market correction will likely presage a new era of higher volatility in markets. We expect volatility to pick-up in the year, as markets adjust to a reversal of a rate-cut cycle, with global central banks expected to gradually lift interest rates and embark on their balance-sheet unwinding. The gradual withdrawal of monetary stimulus would be a key focal point in markets, as markets adjust to tighter liquidity conditions. Inflation data may be a key-data point to monitor in coming quarters, especially if inflation picks up more than market s expectation, which would lead to an acceleration in rate hikes. We expect a ramping-up of trade protectionist rhetoric and politicking in the lead up to the US midterm elections in November, as President Trump attempts to rile up support for his presidency and protectionist agenda. Nonetheless, our base case is that the outcome will be more modest than the intended threats or rhetoric used, as both parties will have to bring all their bargaining chips onto the negotiation table before eventually arriving at a middle ground. Having said that, we are not dismissing the risk especially due to the severity of the sell-down. 10

12 State of Affairs of the Fund There is neither any significant change to the state affairs of the Fund nor any circumstances that materially affect any interests of the unit holders during the period under review. Soft Commissions received from Brokers As per the requirements of the Securities Commission s Guidelines on Unit Trust Funds and Guidelines on Compliance Function for Fund Management Companies, soft commissions received from brokers/dealers may be retained by the management company only if the (i) (ii) goods and services provided are of demonstrable benefit to Unit holders of the Fund; and goods and services are in the form of research and advisory services that assists in the decision making process. During the financial period under review, the management company had received on behalf of the Fund, soft commissions in the form of research materials, data and quotation services, investment-related publications, market data feed and industry benchmarking agencies which are of demonstrable benefit to Unitholders of the Fund. 11

13 TRUSTEE S REPORT TO THE UNITHOLDERS OF AFFIN HWANG SELECT SGD INCOME FUND We have acted as Trustee for Affin Hwang Select SGD Income Fund ( the Fund ) for the financial period ended 30 September To the best of our knowledge, for the financial period under review, Affin Hwang Asset Management Berhad (the Manager ), has operated and managed the Fund in accordance with the following:- (a) (b) (c) 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 are of the view that the distributions made during this financial period ended 30 September 2018 by the Manager are not inconsistent with the objectives of the Fund. For Deutsche Trustees Malaysia Berhad Soon Lai Ching Senior Manager, Trustee Operations Ng Hon Leong Head, Trustee Operations Kuala Lumpur 13 November

14 STATEMENT OF COMPREHENSIVE INCOME INVESTMENT (LOSS)/INCOME 6 months 6 months financial financial period ended period ended Note SGD SGD Dividend income 2,516,026 1,838,977 Interest income 4 2,758,086 2,202,342 Net gain on foreign currency exchange 19,386 38,302 Net (loss)/gain on forward foreign currency contract at fair value through profit or loss (879,782) 308,394 Net (loss)/gain on financial assets at fair value through profit or loss 9 (6,622,190) 8,406,368 (2,208,474) 12,794,383 EXPENSES Management fee 5 (1,672,352) (1,306,695) Trustee fee 6 (89,449) (69,895) Auditors' remuneration (1,530) (1,266) Tax agent's fee (595) (617) Transactions costs (362,651) (298,915) Other expenses (77,423) (129,865) (2,204,000) (1,807,253) NET (LOSS)/PROFIT BEFORE FINANCE COST AND TAXATION (4,412,474) 10,987,130 FINANCE COST Distributions 8 (1,885,452) (1,464,965) NET (LOSS)/PROFIT BEFORE TAXATION (6,297,926) 9,522,165 TAXATION 7 (18,125) (25,239) (DECREASE)/INCREASE IN NET ASSSTS ATTRIBUTABLE TO UNITHOLDERS (6,316,051) 9,496,926 (Decrease)/Increase of net asset attributable to unitholders is made up of the following: Realised amount 1,722,596 3,379,009 Unrealised amount (8,038,647) 6,117,917 (6,316,051) 9,496,926 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 13

15 STATEMENT OF FINANCIAL POSITION AS AT 30 SEPTEMBER 2018 ASSETS Note SGD SGD Financial assets at fair value through profit or loss 9 202,734, ,447,615 Cash and cash equivalents 10 14,348,514 8,428,585 Dividend receivables 157, ,623 Amount due from Manager - creation of units 1,075,260 6,608,692 Amount due from brokers - 829,046 TOTAL ASSETS 218,315, ,415,561 LIABILITIES Forward foreign currency contract at fair value through profit or loss 11 33,665 87,532 Amount due to Manager - management fee 267, ,519 - cancellation of units 49,536 21,782 Amount due to Trustee 14,654 12,342 Amount due to brokers - 4,131,707 Auditors remuneration 3,529 2,453 Tax agent s fee 3,219 2,853 Other payables and accruals 10,259 21,585 TOTAL LIABILITIES (EXCLUDING NET ASSET ATTRIBUTABLE TO UNITHOLDERS) 382,111 4,502,773 NET ASSET VALUE OF THE FUND 217,933, ,912,788 NET ASSETS ATTRIBUTABLE TO UNITHOLDERS 217,933, ,912,788 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 14

16 STATEMENT OF FINANCIAL POSITION AS AT 30 SEPTEMBER 2018 REPRESENTED BY Note SGD SGD FAIR VALUE OF OUTSTANDING UNITS - RM Class 73,554,774 72,920,045 - SGD Class 144,378, ,992, ,933, ,912,788 NUMBER OF UNITS IN CIRCULATION - RM Class 12 (a) 343,272, ,085,000 - SGD Class 12 (b) 261,941, ,755, ,213, ,840,000 NET ASSET VALUE PER UNIT (SGD) - RM Class SGD Class NET ASSET VALUE PER UNIT IN RESPECTIVE CURRENCIES - RM Class RM RM SGD Class SGD SGD The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 15

17 STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO UNITHOLDERS 6 months 6 months financial financial period ended period ended SGD SGD NET ASSETS ATTRIBUTABLE TO UNITHOLDERS AT THE BEGINNING OF THE FINANCIAL PERIOD 225,959, ,828,878 Movement due to units created and cancelled during the financial period: Creation of units arising from applications 13,701,039 28,175,004 - RM Class 6,414,235 3,123,433 - SGD Class 7,286,804 25,051,571 Creation of units arising from distribution 1,605,753 1,280,061 - RM Class 521, ,470 - SGD Class 1,084, ,591 Cancellation of units (17,017,356) (15,868,081) - RM Class (7,319,334) (7,157,823) - SGD Class (9,698,022) (8,710,258) Net (decrease)/increase in net assets attributable to unitholders during the financial period (6,316,051) 9,496,926 - RM Class (2,079,183) (4,012,896) - SGD Class (4,236,868) (5,484,030) NET ASSETS ATTRIBUTABLE TO UNITHOLDERS AT THE END OF THE FINANCIAL PERIOD 217,933, ,912,788 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 16

18 STATEMENT OF CASH FLOWS CASH FLOWS FROM OPERATING ACTIVITIES 6 months 6 months financial financial period ended period ended Note SGD SGD Proceeds from sale of investments 150,771,974 99,171,527 Purchase of investments (145,920,152) (101,626,477) Tax paid (18,125) - Dividends received 2,359,010 1,964,648 Interest received 3,078,543 2,188,064 Management fee paid (1,691,433) (1,298,246) Trustee fee paid (90,540) (69,444) Payment for other fees and expenses (458,891) (428,728) Net realised (loss)/gain on foreign currency exchange (49,712) 149 Net realised (loss)/gain on forward foreign currency contract (861,342) 399,951 Net cash generated from operating activities 7,119, ,444 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from creation of units 12,763,878 21,800,870 Payments for cancellation of units (17,374,279) (16,817,237) Payment for distributions (279,699) (184,904) Net cash (used in)/generated from financing activities (4,890,100) 4,798,729 NET INCREASE IN CASH AND CASH EQUIVALENTS 2,229,232 5,100,173 EFFECTS OF FOREIGN CURRENCY EXCHANGE (10,810) 2,535 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE FINANCIAL PERIOD 12,130,092 3,325,877 CASH AND CASH EQUIVALENTS AT THE END OF THE FINANCIAL PERIOD 10 14,348,514 8,428,585 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 17

19 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following accounting policies have been used 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 have been prepared under the historical cost convention, except as disclosed in the summary of significant accounting policies and comply with Malaysian Financial Reporting Standards ( MFRS ) and International Financial Reporting Standards ( IFRS ). The preparation of financial statements in conformity with MFRS 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. 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 O. (a) Standards, amendments to published standards and interpretations that are effective The Fund has applied the following amendments for the first time for the financial year beginning on 1 April 2018: Amendments to MFRS 107 Statement of Cash Flows Disclosure Initiative. The adoption of these amendments did not have any impact on the current period and is not likely to affect future periods. (b) The new standards and amendments to the published standards that are applicable to the Fund but not yet effective and have not been early adopted are as follows: (i) Financial year beginning on/after 1 April 2019 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 other comprehensive income ("OCI"). The basis of classification depends on the entity's business model and the cash flow characteristics of the financial asset. Investments in equity instruments 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). A debt instrument is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest. 18

20 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (b) The new standards and amendments to published standards that are applicable to the Fund but not yet effective and have not been early adopted are as follows: (continued) (i) Financial year beginning on/after 1 April 2019 (continued) 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 other comprehensive income 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 has reviewed its financial assets and liabilities and does not expect any impact from the adoption of the new standard on 1 April There will be no impact on the Fund s accounting for financial assets as the Fund s investments currently measured at fair value through profit or loss will continue to be measured on the same basis under MFRS 9. There will be no impact on the Fund s accounting for financial liabilities as the new requirements only affect the accounting for financial liabilities that are designated at fair value through profit or loss and the Fund does not have any such liabilities. The new impairment model requires the recognition of impairment provisions based on expected credit losses ( ECL ) rather than only incurred credit losses as is the case under MFRS 139. It applies to financial assets classified at amortised cost. Based on the assessments undertaken to date, the Fund does not expect any loss allowance to be recognised upon adoption of MFRS 9. 19

21 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES B INCOME RECOGNITION Dividend income is recognised on the ex-dividend date, when the right to receive the dividend has been established. Interest income from short term deposits with a licensed financial institution and unquoted fixed income securities are recognised based on effective interest rate method on an accruals basis. For quoted investments, realised gains and losses on sale of investments are accounted for as the difference between the net disposal proceeds and the carrying amount of investments, determined on a weighted average cost basis. For unquoted fixed income securities, realised gains and losses on sale of investments are 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 on investments. C DISTRIBUTION A distribution to the Fund s unitholders is accounted for as a deduction from realised reserve. A proposed distribution is recognised as a liability in the period in which it is approved by the Trustee of the Fund. D TRANSACTION COSTS Transaction costs are costs incurred to acquire financial assets or liabilities at fair value through profit or loss. They include the bid-ask spread, 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. E TAXATION Current tax expense is determined according to the Malaysian tax laws at the current rate based upon the taxable profits earned during the financial period. Tax on investment income from foreign investments is based on the tax regime of the respective countries that the Fund invests in. F 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 Singapore Dollar (SGD) which is the Fund s functional currency and presentation currency. 20

22 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES G FOREIGN CURRENCY TRANSLATIONS 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 re-measured. 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, except when deferred in other comprehensive income as qualifying cash flow hedges. H FINANCIAL ASSETS AND FINANCIAL LIABILITIES (i) Classification The Fund designates its investment in quoted equities and unquoted fixed income securities as financial assets at fair value through profit or loss at inception. Financial assets are designated at fair value through profit or loss when they are managed and their performance evaluated on a fair value basis. Derivatives are financial assets/liabilities at fair value through profit or loss categorised as held for trading unless they are designated hedges (Note N). Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and have been included in current assets. The Fund s loans and receivables comprise cash and cash equivalents, dividend receivables, amount due from Manager and amount due from brokers. Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. The Fund classifies amount due to brokers, amount due to Manager, amount due to Trustee, auditors remuneration, tax agent s fee and other payables and accruals as other financial liabilities. (ii) Recognition and measurement 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 asset. Investments are initially recognised at fair value. Transaction costs are expensed in the statement of comprehensive income. Financial liabilities, within the scope of MFRS 139, are recognised in the statement of financial position when, and only when, the Fund becomes a party to the contractual provisions of the financial instrument. Financial 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 de-recognised when it is extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or expires. 21

23 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES H FINANCIAL ASSETS AND FINANCIAL LIABILITIES (ii) Recognition and measurement (continued) 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/(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. If a valuation based on the market price does not represent the fair value of the 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 securities for a period exceeding 14 days, or such shorter period as agreed by the Trustee, then the 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. Unquoted fixed income securities denominated in foreign currencies are revalued at least twice a week by reference to the mid price quoted in Bloomberg. We use the Composite Bloomberg Bond Trader (CBBT) which is a weighted average bid and ask of price contributions submitted by Bloomberg Dealers. However if such quotations are not available, the fair value shall be determined by reference to the bid and offer prices quoted by independent and reputable financial institutions. Prior to 1 June 2018, the valuation of money market instruments are based on the amortisation cost. Effective 1 June 2018, the valuation of foreign money market instruments will be done using the average indicative yield quoted by 3 independent and reputable institutions. Deposits with licensed financial institution is stated at cost plus accrued interest calculated on the effective interest method over the period from the date of placement to the date of maturity of the deposit. Loans and receivables and other financial liabilities are subsequently carried at amortised cost using the effective interest method. (iii) Impairment For assets carried at amortised cost, the Fund assesses at the end of the reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. 22

24 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES H FINANCIAL ASSETS AND FINANCIAL LIABILITIES (iii) Impairment (continued) The amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest rate. The asset s carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. If loans and receivables or a held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Fund may measure impairment on the basis of an instrument s fair value using an observable market price. If, in a subsequent financial year, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor s credit rating), the reversal of the previously recognised impairment loss is recognised in statement of comprehensive income. When an asset is uncollectible, it is written off against the related allowance account. Such assets are written off after all the necessary procedures have been completed and the amount of the loss has been determined. I AMOUNT DUE FROM/(TO) BROKERS Amounts due from and to brokers represent receivables for securities sold that have been contracted for but not yet settled on the statement of financial position date respectively. This amount is recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment for amounts due from brokers. A provision for impairment of amounts due from brokers is established when there is objective evidence that the Fund will not be able to collect all amounts due from the relevant broker. Significant financial difficulties of the broker, probability that the broker will enter bankruptcy or financial reorganisation, and default in payments are considered indicators that the amount due from brokers is impaired. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating the interest income or loans expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts throughout the expected life of the financial instrument, or, when appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Fund estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. 23

25 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES J CASH AND CASH EQUIVALENTS For the purpose of statement of cash flows, cash and cash equivalents comprise cash and bank balances and deposits held in highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. K CREATION AND CANCELLATION OF UNITS The unit holders capital to the Fund meets 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 the RM class and SGD class, 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. 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. L INCREASE/DECREASE IN NET ASSTES ATTRIBUTABLE TO UNITHOLDERS Income not distributed is included in net assets attributable to unitholders. Movements in net assets attributable to unitholders are recognised in the statement of comprehensive income as finance costs. M SEGMENT REPORTING Operating segments are reported in a manner consistent with the internal reporting used by the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the strategic asset allocation committee of the Manager that makes strategic decisions. N DERIVATIVE FINANCIAL INSTRUMENTS A derivative financial instrument is any contract that gives rise to both a financial asset of one enterprise and a financial liability or equity instrument of another enterprise. A financial asset is any asset that is cash, a contractual right to receive cash or another financial asset from another enterprise, a contractual right to exchange financial instruments with another enterprise under conditions that are potentially favourable, or an equity instrument of another enterprise. A financial liability is any liability that is a contractual obligation to deliver cash or another financial asset to another enterprise, or to exchange financial instruments with another enterprise under conditions that are potentially unfavourable. 24

26 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES N DERIVATIVE FINANCIAL INSTRUMENTS The Fund s derivative financial instruments comprise forward currency contracts. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. The fair value of forward foreign currency contracts is determined using forward exchange rates at the date of statement of financial position, with the resulting value discounted back to present value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and the nature of the item being hedged. Derivatives that do not qualify for hedge accounting are classified as held for trading and accounted for in accordance with the accounting policy set out in Note H. O 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 contents on the estimates, certain key variables that are anticipated to have material impacts 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 SC Guidelines on Unit Trust Funds. Functional 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 SGD primarily due to the following factors: i) Significant portion of cash is denominated in SGD for the purpose of making settlement of the foreign trades. ii) Significant portion of the Fund s expenses are denominated in SGD. 25

27 1 INFORMATION ON THE FUND The Unit Trust Fund was constituted under the name Hwang SGD Income Fund (the Fund ) pursuant to the execution of a Deed dated 31 May The Fund has changed the base currency from Ringgit Malaysia (RM) to Singapore Dollar (SGD) as amended by Supplemental Deed dated 21 June 2013; changed its name from Hwang SGD Income Fund to Affin Hwang Select SGD Income Fund as amended by Second Supplement Deed dated 27 June 2014; as modified by Third Supplemental Deed dated 1 July 2015 and Fourth Supplemental Deed dated 25 April 2016 (the Deeds ) entered into between Affin Hwang Asset Management and Deutsche Trustees Malaysia Berhad (the Trustee ). The Fund commenced operations on 17 August 2012 and will continue its operations until terminated by the Trustee as provided under Clause 12.1 of the Deed. The Fund may invest in any of the following assets, subject to the Deed, the Fund s objective, the Guidelines, the requirements of the Securities Commission ( SC ) and all relevant laws: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) Listed equities; Unlisted equities including equities not listed or quoted on stock exchange but have been approved by the relevant regulatory authority for such listing or quotation and are offered directly to the Fund by the issuer; Bonds and other forms of securitised debt; Warrants; Fixed deposits; Money market instruments; Units or shares in collective investment schemes; Derivatives; Structured products; and Any other form of investments as may be permitted by the SC that is in line with the Fund s objective. All investments will be subjected to the SC s Guidelines on Unit Trust Funds, the Deeds and the objective of the Fund. The main objective of the Fund is to provide steady income distribution through investments primarily in SGDdenominated assets. This Fund offers the investors two (2) different classes of units known respectively as the RM Class and SGD Class. To achieve its objective, the Fund will invest into a diversified portfolio consisting of primarily SGDdenominated assets. The Fund s investments in fixed income instruments would consist of government and corporate bonds. For money market instruments, the Fund will invest in repo, deposits with financial institutions and commercial papers. It is envisaged that these investments would generate income to the Fund. In addition, the Fund will also invest in equities with the anticipation to gain income from dividends. The Manager is a company incorporated in Malaysia. The principal activities of the Manager are establishment and management of unit trust funds and private retirement schemes as well as providing fund management services to private clients. The financial statements were authorised for issue by the Manager on 13 November

28 2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES Financial instruments are as follows: 2018 Financial assets at fair value Loans and through Note receivables profit or loss Total SGD SGD SGD Quoted investments 9-54,427,938 54,427,938 Unquoted fixed income securities 9-148,306, ,306,740 Cash and cash equivalents 10 14,348,514-14,348,514 Dividends receivable 157, ,016 Amount due from Manager - creation of units 1,075,260-1,075,260 Forward foreign currency contracts 11 - (33,665) (33,665) Total 15,580, ,701, ,281, Quoted investments 9-64,890,409 64,890,409 Unquoted fixed income securities 9-113,557, ,557,206 Cash and cash equivalents 10 8,428,585-8,428,585 Dividends receivable 101, ,623 Amount due from Manager - creation of units 6,608,692-6,608,692 Amount due from brokers 829, ,046 Forward foreign currency contracts 11 - (87,532) (87,532) Total 15,967, ,360, ,328,029 All current liabilities except forward foreign currency contract are financial liabilities which are carried at amortised cost. The Fund is exposed to a variety of risks which include market risk (including price risk, interest rate risk and currency risk), liquidity risk, capital risk, and credit 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 SC s Guidelines on Unit Trust Funds. 27