AFFIN HWANG SELECT OPPORTUNITY FUND

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2 AFFIN HWANG SELECT OPPORTUNITY FUND Annual Report and Audited Financial Statements For the Financial Year Ended 31 July 2018 Contents Page FUND INFORMATION... 2 FUND PERFORMANCE DATA... 3 MANAGER S REPORT... 6 TRUSTEE S REPORT STATEMENT OF COMPREHENSIVE INCOME STATEMENT OF FINANCIAL POSITION STATEMENT OF CHANGES IN EQUITY STATEMENT OF CASH FLOWS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NOTES TO THE FINANCIAL STATEMENTS STATEMENT BY THE MANAGER AUDITORS REPORT DIRECTORY OF SALES OFFICE

3 FUND INFORMATION Fund Name Affin Hwang Select Opportunity Fund Fund Type Growth Fund Category Equity Investment Objective Benchmark Distribution Policy To achieve consistent capital appreciation over the medium to long-term by investing mainly in listed Malaysian companies with good growth prospects. The benchmark to be used by the Manager in measuring the performance of the Fund will be the FTSE Bursa Malaysian Top 100 Index ( FBM 100 ). The Fund endeavours to distribute income, if any, on an annual basis. However, the amount of income available for distribution may fluctuate from year to year. BREAKDOWN OF UNITHOLDERS BY SIZE AS AT 31 JULY 2018 Size of holdings (units) No. of unitholders No. of units held * ( 000) 5,000 and below 3,243 8,804 5,001 to 10,000 2,569 19,017 10,001 to 50,000 5, ,507 50,001 to 500,000 1, , ,001 and above ,389 Total 12,884 1,013,144 * Note: Excluding Manager s stock 2

4 FUND PERFORMANCE DATA Category As at 31 Jul 2018 (%) As at 31 Jul 2017 (%) As at 31 Jul 2016 (%) Portfolio composition Quoted equities local - Construction Consumer goods Financials Industrials Infrastructure Plantation Preference Shares Properties REITs Technology Trading / services Total quoted equities local Quoted equities foreign - Consumer goods Consumer services Financials Healthcare Industrials Oil & Gas Preference share Real estate REITs Technology Telecommunications Utilities Total quoted equities foreign Exchange-traded fund foreign Cash & cash equivalent Total Total NAV (RM million) 1, , NAV per Unit (RM) Unit in Circulation (million) 1, , Highest NAV Lowest NAV Return of the Fund (%) iii Capital Growth (%) i Income Distribution (%) ii Gross Distribution per Unit (sen) Net Distribution per Unit (sen) Management Expense Ratio (%) Portfolio Turnover Ratio (times) T The higher MER of the Fund was due higher expenses incurred by the Fund during the period under review. 2 The higher PTR of the Fund was due to higher average sum of total acquisition and disposal over the period under review. 3

5 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 Capital Return i = {NAV per 31/07/18 NAV per 31/07/17* 1} x 100 = ( ) x 100 = -7.55% Income ex-date = {Income distribution per Unit NAV per Unit on ex- date} + 1 = { /06/18} + 1 = Total Income Return ii = {Income distribution per Unit NAV per Unit on ex-date} x 100 = {1.0483} 1 x 100 = 4.83% Return of the Fund iii = {(1 + Capital Return x (1 + Income Return)} 1] x 100 = {(1 + (-7.55%)) x ( %)} 1] x 100 = -3.08% * Source HSBC Trustee Table 1: Performance of the Fund 1 Year (1/8/17-31/7/18) 3 Years (1/8/15-31/7/18) 5 Years (1/8/13-31/7/18) Since Commencement (28/9/01-31/7/18) Fund (3.08%) 27.84% 37.67% % Benchmark 1.84% 7.35% 2.77% % Outperformance / (Underperformance) (4.92%) 20.49% 34.90% % Source of Benchmark: Bursa Malaysia Table 2: Average Total Return 1 Year (1/8/17-31/7/18) 3 Years (1/8/15-31/7/18) 5 Years (1/8/13-31/7/18) Since Commencement (28/9/01-31/7/18) Fund (3.08%) 8.52% 6.60% 13.73% Benchmark 1.84% 2.39% 0.55% 6.94% Outperformance / (Underperformance) (4.92%) 6.13% 6.05% 6.79% Source of Benchmark: Bursa Malaysia 4

6 Table 3: Annual Total Return FYE 2018 (1/8/17-31/7/18) FYE 2017 (1/8/16-31/7/17) FYE 2016 (1/8/15-31/7/16) FYE 2015 (1/8/14-31/7/15) FYE 2014 (1/8/13-31/7/14) Fund (3.08%) 23.13% 7.13% (4.49%) 12.75% Benchmark 1.84% 8.08% (2.47%) (8.55%) 4.69% Outperformance / (Underperformance) (4.92%) 15.05% 9.60% 4.06% 8.06% Source of Benchmark: Bursa Malaysia Past performance is not necessarily indicative of future performance and that Unit prices and investment returns may go down, as well as up. 5

7 MANAGER S REPORT Performance Review For the period 1 August 2017 to 31 July 2018, the Fund registered a return of -3.08% underperforming the Benchmark return of 1.84% by 4.92 percentage points. The Net Asset Value (NAV) per unit of the Fund 31 July 2018 was RM while the NAV per unit as at 31 July 2017 was RM The Fund has declared a total gross income distribution of RM0.05 per unit to date (See Table 1 for performance of the Fund and Figure 1 for the movement of the Fund versus the Benchmark). During the period under review, the Fund recorded a negative return based on the change on its NAV per Unit. Nevertheless, the Fund has gained 773.9% since commencement, outperforming its Benchmark of % by percentage points. As such, we believe that the Fund s objective of achieving consistent capital appreciation over the medium to long-term period has been met. Figure 1: Movement of Fund versus Benchmark Affin Hwang Select Opportunity Fund Benchmark Sep-01 Jun-03 Feb-05 Oct-06 Jun-08 Feb-10 Nov-11 Jul-13 Mar-15 Nov-16 Jul-18 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. Source of benchmark is from Bursa Malaysia. Benchmark: FTSE Bursa Malaysia Top 100 Index Income Distribution / Unit Split Affin Hwang Asset Management Berhad recently declared a gross distribution of RM per Unit for investors of the Affin Hwang Select Opportunity Fund over the period under review. The Net Asset Value per unit prior and subsequent to the distribution was as follows:- Cum Date Ex-Date Cum-distribution (RM) Distribution per Unit (RM) Ex-distribution (RM) 12 June June No unit split were declared for the financial year ended 31 July

8 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 31 Jul Jul Jul 2016 (%) (%) (%) Quoted equities local Quoted equities foreign Exchange-traded fund foreign Cash & Cash equivalent Total As at 31 July 2018, the Fund s equity exposure stood at 77.22% of the Fund s NAV, 1.09% in exchangedtraded fund (ETF) while the balance was held in cash and cash equivalent. During the period under review, the Manager had reduced the Fund s equity exposure by percentage points to the current level from 92.72% a year ago. Within the domestic space, the Fund has ceased exposure into the infrastructure, plantation sector whereas within the foreign space, healthcare, technology, and telecommunications were stripped off from the Fund s portfolio. Meanwhile, the Manager had added allocation into foreign ETF over the same period. Strategies Employed With the return of volatility in markets, we are gradually raising our cash holdings and will stay more defensive in our allocation, deploying into domestic-driven sectors that are less directly impacted from trade tariffs. Market Review Global markets enjoyed a strong run up to the tail-end of 2017, where an economic upswing buoyed regional markets particularly in Asia in terms of asset returns and earnings recovery. Accelerated growth, but benign inflation kept policy tightening at bay, creating the right conditions for risk-assets to perform well under a Goldilocks environment. The strong market rally subsequently took a breather in early-february 18, as markets entered correction territory as strong inflation & labour data prompted concerns that the US Federal Reserve would accelerate the pace of interest rate hikes. Global equities were broadly down as a bond rout deepened which lifted US Treasury Yields to near 3%. Regionally, the MSCI Asia ex-japan Index was weighed down by external risk closing just 2.81% higher in the period under 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. Rising trade tensions between the US and China which threatens to escalate further also sent jitters across markets. US President Donald Trump announced a slew of protectionist measures including steel and aluminium tariff imports before scoping its aim to target China directly by proposing tariff imports in key strategic sectors identified by Beijing in its Made in China 2025 plan. China sought to retaliate with its own tit-for-tat measure by imposing tariffs on US imports. 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. 7

9 Crude oil was also in focus where prices have rallied by over 13.8% YTD, as rising geopolitical tensions in the Middle East following a missile attack in Syria by US-allied forces raised concerns over potential disruptions in oil supply which led to a surge in prices. Even without the potential disruption and geopolitical noise from the Syria conflict, crude oil prices have been holding up well this year on the back of stronger demand outlook and a drawdown in crude stockpiles. 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. The benchmark KLCI edged up 1.38% in the period under review, whilst the small-cap rout deepened with the small-cap index down by % YTD. Construction stocks and politically-linked counters bore the brunt of the sell-off, as major infrastructure projects were reviewed and big-ticket items such as the Kuala Lumpur- Singapore High-Speed Rail (HSR) and the Mass Rapid Transit Line 3 (MRT3) project were scrapped. 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 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. Domestically, markets will look to further clarity from the new government on policy direction of its fiscal and debt management. This includes covering a revenue shortfall from GST collections that is slated to be zerorated effective June Nonetheless, proactive measures taken so far to cut operating expenditure including salary deduction of ministers, plugging of leakages and revamps across ministries could stem the bleeding. We expect reform policies to generate a return of monetary and human capital that would drive back capital flows. Whilst, markets could be volatile in the short-term as a result of regulatory uncertainty and kitchensinking exercises undertaken by the new government, we expect such concerns to ease as the government clarifies its position and sets policy direction. Nonetheless, a robust governance framework will eventually lend to business stability that would attract more sustainable forms of FDIs. This, coupled with fresh progrowth policies would provide the uplift of growth for the economy and increase wealth distribution. 8

10 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. Cross Trade Cross trade transactions have been carried out during the reported period and the Investment Committee of the Fund has reviewed that such transaction are in the best interest of the Fund, transacted in the normal course of business at agreed terms and on a fair value basis. 9

11 TRUSTEE S REPORT TO THE UNITHOLDERS OF AFFIN HWANG SELECT OPPORTUNITY FUND We have acted as Trustee of Affin Hwang Select Opportunity Fund ( the Fund ) for the financial year ended 31 July To the best of our knowledge, Affin Hwang Asset Management Berhad ( the Management Company ), has operated and managed the Fund in accordance with the following:- a) limitations imposed on the investment powers of the Management Company and the Trustee under the Deeds, the Securities Commission s Guidelines on Unit Trust Funds, the Capital Markets and Services Act 2007, and other applicable laws; b) valuation/pricing is carried out in accordance with the Deeds and any regulatory requirements; and c) creation and cancellation of units are carried out in accordance with the Deeds and any regulatory requirements. During this financial year, a total distribution of 5.00 sen per unit (gross) has been distributed to the unitholders of the Fund. We are of the view that the distribution is not inconsistent with the objective of the Fund. For HSBC (Malaysia) Trustee Berhad Tan Bee Nie Head, Trustee Operations Kuala Lumpur 13 September

12 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 INVESTMENT (LOSS)/INCOME Note RM RM Dividend income 30,369,859 19,158,263 Interest income 1,959, ,594 Net loss on foreign currency exchange (3,159,693) (418,712) Net gain on forward foreign currency contracts at fair value through profit or loss 12,558,102 1,282,117 Net (loss)/gain on financial assets at fair value through profit or loss 8 (42,167,615) 130,886,921 (440,189) 151,591,183 EXPENSES Management fee 4 (15,720,948) (10,118,374) Trustee fee 5 (745,797) (476,516) Auditors remuneration (7,500) (7,500) Tax agent's fee (19,522) (3,700) Transaction cost (8,651,204) (5,448,182) Other expenses (1,406,865) (1,095,209) (26,551,836) (17,149,481) NET (LOSS)/PROFIT BEFORE TAXATION (26,992,025) 134,441,702 TAXATION 6 (863,199) (408,453) NET (LOSS)/PROFIT AFTER TAXATION AND TOTAL COMPREHENSIVE (LOSS)/INCOME FOR THE FINANCIAL YEAR (27,855,224) 134,033,249 Net (loss)/profit after taxation is made up of the following: Realised amount 25,424,808 69,436,673 Unrealised amount (53,280,032) 64,596,576 (27,855,224) 134,033,249 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 11

13 STATEMENT OF FINANCIAL POSITION FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 Note RM RM ASSETS Cash and cash equivalents 9 240,372,934 63,943,704 Financial assets at fair value through profit or loss 8 805,324,120 1,035,681,058 Amount due from Manager - creation of units 3,392,028 12,819,736 Amount due from brokers 3,402,444 18,157,625 Dividend receivables 1,060, ,479 Forward foreign currency contracts at fair value through profit or loss ,886 TOTAL ASSETS 1,053,551,673 1,131,595,488 LIABILITIES Amount due to Manager - management fee 1,283,876 1,395,956 Amount due to Trustee 59,914 65,145 Amount due to brokers 23,698,957 12,975,132 Auditors remuneration 7,500 7,500 Tax agent s fee 7,300 7,100 Other payables and accruals 20, ,461 Forward foreign currency contracts at fair value through profit or loss 10 56, ,810 TOTAL LIABILITIES 25,134,786 14,776,104 NET ASSET VALUE OF THE FUND 1,028,416,887 1,116,819,384 EQUITY Unitholders capital 933,320, ,933,657 Retained earnings 95,096, ,885,727 NET ASSETS ATTRIBUTABLE TO UNITHOLDERS 1,028,416,887 1,116,819,384 NUMBER OF UNITS IN CIRCULATION 11 1,015,150,000 1,019,202,000 NET ASSET VALUE PER UNIT (RM) The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 12

14 STATEMENT OF CHANGES IN EQUITY FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 Unitholders Retained capital earnings Total RM RM RM Balance as at 1 August ,933, ,885,727 1,116,819,384 Total comprehensive loss for the financial year - (27,855,224) (27,855,224) Distribution (Note 7) - (46,934,350) (46,934,350) Movement in unitholders capital: Creation of units arising from applications 150,928, ,928,524 Creation of units arising from distribution 46,628,595-46,628,595 Cancellation of units (211,170,042) - (211,170,042) Balance as at 31 July ,320,734 95,096,153 1,028,416,887 Balance as at 1 August ,812,991 78,287, ,100,469 Total comprehensive income for the financial year - 134,033, ,033,249 Distribution (Note 7) - (42,435,000) (42,435,000) Movement in unitholders capital: Creation of units arising from applications 498,629, ,629,338 Creation of units arising from distribution 42,133,698-42,133,698 Cancellation of units (81,642,370) - (81,642,370) Balance as at 31 July ,933, ,885,727 1,116,819,384 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 CASH FLOWS FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 CASH FLOWS FROM OPERATING ACTIVITIES Note RM RM Proceeds from sale of investments 1,524,969, ,668,385 Purchase of investments (1,311,301,606) (1,039,816,937) Dividends received 29,292,992 18,174,993 Interest received 1,959, ,594 Management fee paid (15,833,028) (9,443,503) Trustee fee paid (751,028) (445,022) Payment for other fees and expenses (10,202,811) (1,044,395) Realised gain on forward foreign currency contracts 12,574,876 1,322,041 Realised (loss)/gain on foreign currency exchange (625,029) 6,615,250 Net cash generated from/(used in) operating activities 230,083,459 (353,286,594) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from creation of units 160,356, ,858,149 Payments for cancellation of units (211,170,042) (82,212,555) Payment for distribution (305,755) (301,302) Net cash (used in)/generated from financing activities (51,119,565) 403,344,292 NET INCREASE IN CASH AND CASH EQUIVALENTS 178,963,894 50,057,698 EFFECTS OF FOREIGN CURRENCY EXCHANGE (2,534,664) 450,776 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE FINANCIAL YEAR 63,943,704 13,435,230 CASH AND CASH EQUIVALENTS AT THE END OF THE FINANCIAL YEAR 9 240,372,934 63,943,704 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 14

16 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 31 JULY 2018 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 year. 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 N. (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 August 2017: Amendments to MFRS 107 Statement of Cash Flows Disclosure Initiative. The adoption of these amendments did not have any impact on the current year and is not likely to affect future years. (b) The new standard and amendments to the published standard that is applicable to the Fund but not yet effective and has not been early adopted is as follows: (i) Financial year beginning on/after 1 August 2018 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. 15

17 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (CONTINUED) (b) The new standard and amendments to the published standard that is applicable to the Fund but not yet effective and has not been early adopted is as follows: (continued) (i) Financial year beginning on/after 1 August 2018 (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 August There will be no impact on the Fund s accounting for financial assets as the Fund s equity 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 Fund s investments in forward foreign currency contracts will continue to be measured on the same basis under MFRS 9. 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. 16

18 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 licensed financial institutions is recognised based on effective interest rate method on an accrual basis. For quoted investments and exchange-traded funds ( ETF ), realised gain and losses on sale of investment is accounted for as the difference between the net disposal proceeds and the carrying amount of investments, determined on a weighted average cost basis. 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 year. 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 Ringgit Malaysia ( RM ), which is the Fund s functional and presentation currency. 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. 17

19 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES H FINANCIAL ASSETS AND FINANCIAL LIABILITIES (i) Classification The Fund designates its investment in quoted equities 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-fortrading unless they are designated hedges (Note M). 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, amount due from Manager, amount due from brokers and dividend receivables. Financial liabilities are classified according to the substance of the contractual arrangements extend into and the definitions of a financial liability. The Fund classifies amount due to Manager, amount due to Trustee, amount due to brokers, 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 derecognised when it is extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or expired. Gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss category including the effects of foreign transactions are presented in the statement of comprehensive income within net gain/(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. 18

20 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES H FINANCIAL ASSETS AND LIABILITIES (CONTINUED) (ii) Recognition and measurement (continued) 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. Derivative investment consists of forward foreign currency contract. Financial derivative position will be marked to market at the close of each valuation day. Foreign exchange gains and losses on the derivative financial instrument are recognised in profit or loss when settled or at the date of the statement of financial position at which time they are included in the measurement of the derivative financial instrument. Deposits with a licensed financial institution are 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. 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 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 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. 19

21 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES I 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. J AMOUNT DUE FROM/(TO) BROKERS Amounts due from and to brokers represent receivables for securities sold and payables for securities purchased that have been contracted for but not yet settled or delivered on the statement of financial position date respectively. These amounts are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment for amounts due from brokers. A provision for impairment of amount 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. K UNITHOLDERS CAPITAL The unitholders contributions to the Fund meet the criteria to be classified as equity instruments under MFRS 132 Financial Instruments: Presentation. Those criteria include: the units entitle the holder to a proportionate share of the Fund s net assets value; the units are the most subordinated class and class features are identical; there is no contractual obligations to deliver cash or another financial asset other than the obligation on the Fund to repurchase; and the total expected cash flows from the units over its life are based substantially on the profit or loss of the Fund. The outstanding units are carried at the redemption amount that is payable at each financial year if unitholder exercises the right to put the unit back to the Fund. Units are created and cancelled at the unitholder s option at prices based on the Fund s net asset value per unit at the time of creation or cancellation. The Fund s net asset value per unit is calculated by dividing the net assets attributable to unitholders with the total number of outstanding units. 20

22 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES L 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. M 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. The Fund s derivative financial instruments comprise forward foreign currency contracts. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured 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. N CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS 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. 21

23 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 JULY INFORMATION ON THE FUND The Unit Trust Fund was constituted under the name HwangDBS Select Opportunity Fund (the Fund ) pursuant to the execution of a Deed dated 13 August 2001, First Supplemental Deed dated 18 June 2007, Second Supplemental Deed dated 15 October 2008 and Fifth Supplemental Deed dated 28 April The Fund has changed its name from HwangDBS Select Opportunity Fund to Hwang Select Opportunity Fund as amended by the Third Supplemental Deed dated 18 January 2012 and from Hwang Select Opportunity Fund to Affin Hwang Select Opportunity Fund as amended by Fourth Supplemental Deed dated 27 June 2014 (the Deeds ) entered into between Affin Hwang Asset Management Berhad (the Manager ) and HSBC (Malaysia) Trustee Berhad (the Trustee ). The Fund commenced operations on 7 September 2001 and will continue its operations until terminated by the Trustee as provided under Clause 13.1 of the Deed. The Fund may invest in any of the following investments: a) Securities of companies listed on Bursa Malaysia and any other exchanges of countries who are members of International Organization of Securities Commissions b) Unlisted securities including, without limitation, securities that have been approved by the relevant regulatory authorities for the listing of and quotation for such securities; c) Debentures; d) Money market instruments; e) Deposits; f) Derivatives, for the purpose of hedging only; g) Warrants; h) Structured products; i) Units or shares in collective investment schemes; j) Any other form of investments permitted by the SC from time to time which are in line with the objective of the Fund The main objective of the Fund is to achieve consistent capital appreciation over the medium to long term through investing mainly in listed Malaysian companies with good growth prospects. 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 September

24 NOTES TO THE FINANCIAL STATEMENTS 2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVE AND POLICIES Financial instruments are as follows: 2018 Financial assets/ (liabilities) at fair Loans and value through Note receivables profit or loss Total RM RM RM Quoted equities 8-794,116, ,116,230 Exchange-traded funds 8-11,207,890 11,207,890 Cash and cash equivalents 9 240,372, ,372,934 Amount due from Manager - creation of units 3,392,028-3,392,028 Amount due from brokers 3,402,444-3,402,444 Dividend receivables 1,060,147-1,060,147 Forward foreign currency contracts 10 - (56,698) (56,698) Total 248,227, ,267,422 1,053,494, Quoted equities 8-1,035,681,058 1,035,681,058 Cash and cash equivalents 9 63,943,704-63,943,704 Amount due from Manager - creation of units 12,819,736-12,819,736 Amount due from brokers 18,157,625-18,157,625 Dividend receivables 846, ,479 Forward foreign currency contracts 10 - (39,924) (39,924) Total 95,767,544 1,035,641,134 1,131,408,678 All current liabilities except for forward foreign currency contracts 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, credit risk and capital risk. Financial risk management is carried out through internal control processes adopted by the Manager and adherence to the investment restrictions as stipulated by the SC s Guidelines on Unit Trust Funds. 23

25 NOTES TO THE FINANCIAL STATEMENTS 2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Market risk (a) Price risk Price risk arises mainly from the uncertainty about future prices of investments. It represents the potential loss the Fund might suffer through holding market positions in the face of price movements. The Manager manages the risk of unfavourable changes in prices by continuous monitoring of the performance and risk profile of the investment portfolio. The Fund s overall exposure to price risk was as follows: Quoted investments Quoted equities designated at RM RM at fair value through profit or loss 794,116,230 1,035,681,058 Exchange-Traded Funds Exchange-traded funds securities designated at fair value through profit or loss 11,207,890 - The following table summarises the sensitivity of the Fund s profit after taxation and net asset value to price risk movements. The analysis is based on the assumptions that the market price increased by 5% and decreased by 5% with all other variables held constant. This represents management s best estimate of a reasonable possible shift in the quoted securities and forward foreign currency contracts, having regard to the historical volatility of the prices. Impact on profit after % Change in price Market value tax/nav RM RM % 765,057,914 (40,266,206) 0% 805,324, % 845,590,326 40,266, % 983,897,005 (51,784,053) 0% 1,035,681, % 1,087,465,111 51,784,053 24

26 NOTES TO THE FINANCIAL STATEMENTS 2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Market risk (continued) (b) Interest rate risk Interest rate risk arises from the effects of fluctuations in the prevailing levels of market interest rates on the fair value of financial assets and liabilities and future cash flows. The Fund s exposure to the interest rate risk is mainly confined to short term deposit placement with a financial institution. The Manager overcomes this exposure by way of maintaining deposits on short term basis. The Fund s exposure to interest rate risk associated with deposit with licensed financial institutions is not material as the deposits are held on a short term basis. (c) Currency risk Currency risk is associated with investments denominated in foreign currencies. When the foreign currencies fluctuate in unfavourable movement against Ringgit Malaysia, the investments will face currency losses in addition to the capital gain/(loss). The Manager will evaluate the likely directions of a foreign currency versus Ringgit Malaysia based on considerations of economic fundamentals such as interest rate differentials, balance of payments position, debt levels and technical chart considerations. The following table sets out the foreign currency risk concentrations and counterparties of the Fund: 2018 Forward foreign Cash Other Quoted Exchange- currency and cash assets*/ equities traded funds contracts equivalents (liabilities)** Total RM RM RM RM RM RM Chinese Yuan 10,729, ,050,507-19,779,909 Hong Kong Dollar 166,706,012 11,207,890-11,036,306 (14,022,001) 174,928,207 Indian Rupee 10,692, ,692,299 Korean Won 20,939, ,939,320 Singapore Dollar 36,116,361-1,711,041 (1,419,951) 36,407,451 United States Dollar 25,769,113 - (56,698) 374,704-26,087, ,952,507 11,207,890 (56,698) 22,172,558 (15,441,952) 288,834,305 25

27 NOTES TO THE FINANCIAL STATEMENTS 2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Market risk (continued) (c) Currency risk (continued) The following table sets out the foreign currency risk concentrations and counterparties of the Fund: (continued) 2017 Forward foreign Cash Other Quoted currency and cash assets*/ equities contracts equivalents (liabilities)** Total RM RM RM RM RM Hong Kong Dollar 143,932,200-7,891,686 1,471, ,294,912 Indonesian Rupiah 29,197, ,197,977 Korean Won 40,080,542 (186,810) - 13,070,657 52,964,389 Indian Rupee 64,275, ,275,032 Singapore Dollar 13,203,564-14,242, ,988 27,615,820 United States Dollar 18,374, ,886 8,099,227-26,620, ,063,461 (39,924) 30,233,181 14,711, ,968,389 * Other assets consist of amount due from manager, amount due from brokers and dividend receivable. ** Other liabilities consist of amount due to brokers. 26

28 NOTES TO THE FINANCIAL STATEMENTS 2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Market risk (continued) (c) Currency risk (continued) The table below summarises the sensitivity of the Fund's profit after tax and net asset value to changes in foreign exchange movements. The analysis is based on the assumption that the foreign exchange rate changes by 5%, with all other variables held constant. This represents management's best estimate of a reasonable possible shift in the foreign exchange rate, having regard to historical volatility of this rate. Any increase/decrease in foreign exchange rate will result in a corresponding decrease/increase in the net assets attributable to unitholders by approximately 5%. Disclosures below are shown in absolute terms, changes and impacts could be positive or negative. Impact on profit Change in after tax/ price NAV 2018 % RM Chinese Yuan +/- 5 +/- 988,995 Hong Kong Dollar +/- 5 +/- 8,746,410 Korea Won +/- 5 +/- 1,046,966 Indian Rupee +/- 5 +/- 534,615 Singapore Dollar +/- 5 +/- 1,820,373 United States Dollar +/- 5 +/- 1,304, Hong Kong Dollar +/- 5 +/- 7,664,746 Indonesia Rupiah +/- 5 +/- 1,459,899 Korea Won +/- 5 +/- 2,648,219 Indian Rupee +/- 5 +/- 3,213,752 Singapore Dollar +/- 5 +/- 1,380,791 United States Dollar +/- 5 +/- 1,331,013 27

29 NOTES TO THE FINANCIAL STATEMENTS 2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Liquidity risk Liquidity risk is the risk that the Fund will encounter difficulty in meeting its financial obligations. The Manager manages this risk by maintaining sufficient level of liquid assets to meet anticipated payments and cancellations of units by unitholders. Liquid assets comprise cash, deposits with licensed financial institutions and other instruments, which are capable of being converted into cash within 7 days. The table below analyses the Fund s financial liabilities into relevant maturity groupings based on the remaining period at the statement of financial position date to the contractual maturity date. The amounts in the table below are the contractual undiscounted cash flows Between Within one month one month to one year Total RM RM RM Amount due to Manager - management fee 1,283,876-1,283,876 Amount due to Trustee 59,914-59,914 Amount due to brokers 23,698,957-23,698,957 Auditors remuneration - 7,500 7,500 Tax agent s fee - 7,300 7,300 Forward foreign currency contracts at fair value through profit or loss 56,698-56,698 Other payables and accruals - 20,541 20,541 25,099,445 35,341 25,134, Amount due to Manager - management fee 1,395,956-1,395,956 Amount due to Trustee 65,145-65,145 Amount due to brokers 12,975,132-12,975,132 Auditors remuneration - 7,500 7,500 Tax agent s fee - 7,100 7,100 Forward foreign currency contracts at fair value through profit or loss 186, ,810 Other payables and accruals 120,564 17, ,461 14,743,607 32,497 14,776,104 28

30 NOTES TO THE FINANCIAL STATEMENTS 2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Credit risk Credit risk refers to the ability of an issuer or counterparty to make timely payments of interest, principals and proceeds from realisation of investments. The Manager manages the credit risk by undertaking credit evaluation to minimise such risk. Credit risk arising from placements of deposits in licensed financial institutions is managed by ensuring that the Fund will only place deposits in reputable licensed financial institutions. The settlement terms of amount due from brokers are governed by the relevant rules and regulations as prescribed by the respective stock exchanges. The settlement terms of the proceeds from the creation of units receivable from the Manager are governed by the Securities Commission s Guidelines on Unit Trust Funds. The following table sets out the credit risk concentration of the Fund: 2018 Cash and cash Other equivalents assets* Total RM RM RM Construction - NR - 95,562 95,562 Finance - AAA 171,392, ,392,715 - AA- 68,980,219-68,980,219 - NR - 3,837,624 3,837,624 Oil & Gas - NR - 221, ,159 Trading/services - NR - 124, ,702 REITs - NR - 183, ,544 Others - NR - 3,392,028 3,392, ,372,934 7,854, ,227,553 29

31 NOTES TO THE FINANCIAL STATEMENTS 2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Credit risk (continued) The following table sets out the credit risk concentration of the Fund: (continued) 2017 Forward foreign Cash currency and cash Other contracts equivalents assets* Total RM RM RM RM Finance - AA1-10,023,266-10,023,266 - AAA 146,886 53,920,438-54,067,324 - NR , ,546 Industrials - NR , ,918 Infrastructure - NR - - 1,121,224 1,121,224 Technology - NR ,994,515 12,994,515 Telecommunications - NR , ,704 Trading/services - NR - - 3,171,209 3,171,209 REITs - NR , ,988 Others - NR ,819,736 12,819, ,886 63,943,704 31,823,840 95,914,430 * Other assets consist of amount due from Manager, amount due from brokers and dividend receivables. The financial assets of the Fund are neither past due nor impaired. Capital risk The capital of the Fund is represented by equity consisting of unitholders capital and retained earnings. The amount of equity can change significantly on a daily basis as the Fund is subject to daily subscriptions and redemptions at the discretion of unitholders. The Fund s objective when managing capital is to safeguard the Fund s ability to continue as a going concern in order to provide returns for unitholders and benefits for other stakeholders and to maintain a strong capital base to support the development of the investment activities of the Fund. 30

32 NOTES TO THE FINANCIAL STATEMENTS 3 FAIR VALUE ESTIMATION Financial instruments comprise financial assets and financial liabilities. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of financial assets traded in active markets (such as trading securities) is based on quoted market prices at the close of trading on the period end date. The Fund utilizes the current bid price for financial assets which fall within the bid-ask spread. An active market is a market in which transactions for the asset take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The fair value of financial assets that are not traded in an active market is determined by using valuation techniques. (i) Fair value hierarchy The table below analyses financial instruments carried at fair value. The different levels have been defined as follows: Quoted prices (unadjusted) in active market for identical assets or liabilities (Level 1) 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 and liability that are not based on observable market data (that is, unobservable inputs) (Level 3) The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability. The determination of what constitutes observable requires significant judgment by the Fund. The Fund considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary and provided by independent sources that are actively involved in the relevant market. 31

33 NOTES TO THE FINANCIAL STATEMENTS 3 FAIR VALUE ESTIMATION (CONTINUED) (i) Fair value hierarchy (continued) The following table analyses within the fair value hierarchy the Fund s financial assets (by class) measured at fair value: 2018 Level 1 Level 2 Level 3 Total RM RM RM RM Financial assets at fair value through profit or loss - quoted equities 794,116, ,116,230 - exchange-traded funds 11,207, ,207, ,324, ,324,120 Financial liabilities at fair value through profit or loss - forward foreign currency contracts - (56,698) - (56,698) 2017 Financial assets at fair value through profit or loss - quoted equities 1,035,681, ,035,681,058 - forward foreign currency contracts - 146, ,886 1,035,681, ,886-1,035,827,944 Financial liabilities at fair value through profit or loss - forward foreign currency contracts - (186,810) - (186,810) Investments whose values are based on quoted market prices in active markets, and are therefore classified within Level 1, include active listed equities and exchange-traded funds. The Fund does not adjust the quoted prices for these instruments. Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. These include forward foreign currency contracts. As Level 2 instruments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information. 32

34 NOTES TO THE FINANCIAL STATEMENTS 3 FAIR VALUE ESTIMATION (CONTINUED) (ii) The carrying values of cash and cash equivalents, amount due from Manager, amount due from brokers, dividend receivables and all current liabilities except for forward foreign currency contracts are a reasonable approximation of the fair values due to their short term nature. 4 MANAGEMENT FEE In accordance with the Deed, the Manager is entitled to a management fee at a rate not exceeding 3.00% per annum on the NAV of the Fund calculated on a daily basis. For the financial year ended 31 July 2018, the management fee is recognised at a rate of 1.50% (2017: 1.50%) per annum on the NAV of the Fund calculated on a daily basis as stated in the Prospectus. There will be no further liability to the Manager in respect of management fee other than the amounts recognised above. 5 TRUSTEE FEE In accordance with the Deed, the Trustee is entitled to an annual fee at a rate not exceeding 0.3% per annum on the NAV of the Fund. For the financial year ended 31 July 2018, the Trustee fee is recognised at a rate of 0.07% (2017: 0.07%) per annum on the NAV of the Fund, subject to a minimum fee of RM18,000 per annum calculated and accrued daily, exclusive of foreign sub-custodian fee as stated in the Prospectus. There will be no further liability to the Trustee in respect of Trustee fee other than the amount recognised above. 33

35 NOTES TO THE FINANCIAL STATEMENTS 6 TAXATION RM RM Current taxation - local 231, ,820 - foreign 631, , , ,453 The numerical reconciliation between net (loss)/profit before taxation multiplied by the Malaysian statutory tax rate and tax expense of the Fund is as follows: RM RM Net (loss)/profit before taxation (26,992,025) 134,441,702 Tax at Malaysian statutory rate of 24% (2017: 24%) (6,478,086) 32,266,008 Tax effects of: Investment income/(losses) not subject to tax 105,645 (36,381,884) Expenses not deductible for tax purposes 2,593,773 1,681,826 Restrictions on tax deductible expenses for Unit Trust Fund 3,778,668 2,434,050 Foreign investment income subject to foreign tax rate 631, ,633 Income subject to different tax rate 231, ,820 Tax expense 863, ,453 34

36 NOTES TO THE FINANCIAL STATEMENTS 7 DISTRIBUTION Distribution to unitholders is from the following sources: RM RM Dividend income 21,465,828 15,158,263 Realised gains on sale of investments - 16,701,197 Previous year's realised income 25,468,522 10,575,540 Gross realised income 46,934,350 42,435,000 Less: Expenses ,934,350 42,435,000 Gross/net distribution per unit (sen) Ex-date Gross distribution per unit is derived from gross realised income less expenses divided by the number of units in circulation, while net distribution per unit is derived from gross realised income less expenses and taxation divided by the number of units in circulation. Included in distributions for the financial year is an amount of RM25,468,522 (2017:RM10,575,540) made from previous year s realised income. During the financial year ended 31 July 2018, the fund incurred unrealised losses of RM53,280,032 (2017: RM Nil). 8 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS RM RM Designated at fair value through profit or loss - quoted equities local 523,163, ,617,597 - quoted equities foreign 270,952, ,063,461 - exchange-traded funds foreign 11,207, ,324,120 1,035,681,058 Net (loss)/gain on financial assets at fair value through profit or loss - realised gain on sale of investments 8,596,422 66,701,197 - unrealised (loss)/gain on changes in fair value (50,764,037) 64,185,724 (42,167,615) 130,886,921 35

37 NOTES TO THE FINANCIAL STATEMENTS 8 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) (a) Quoted equities local (i) Quoted equities local as at 31 July 2018 are as follows: Aggregate Fair Percentage Quantity cost value of NAV RM RM % CONSTRUCTION Gamuda Bhd 512,800 2,638,295 1,984, CONSUMER Fraser & Neave Holdings Bhd 273,800 6,681,576 10,223, FINANCE Hong Leong Bank Bhd 1,167,300 16,401,641 22,225, CIMB Group Holdings Bhd 8,797,193 56,108,898 51,375, Malayan Banking Bhd 4,216,486 38,772,590 41,363, Allianz Malaysia Bhd 1,053,900 11,405,643 13,173, ,234, ,688, ,138, INDUSTRIAL PRODUCTS ATA IMS Bhd 13,972,000 21,814,410 21,097, V.S. Industry Bhd 11,875,000 22,443,651 19,831, Petronas Chemicals Group Bhd 5,302,500 43,819,403 47,192, ,149,500 88,077,464 88,121, PROPERTIES SP Setia Bhd Group 1,393,800 4,289,297 4,139, IOI Properties Group Bhd 578, ,857 1,075, ,971,800 5,234,154 5,214,

38 NOTES TO THE FINANCIAL STATEMENTS 8 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) (a) Quoted equities local (continued) (i) Quoted equities local as at 31 July 2018 are as follows: (continued) Aggregate Fair Percentage Quantity cost value of NAV RM RM % REITS MRCB-QUILL REIT 4,226,800 5,072,160 4,691, YTL Hospitality REIT 7,301,600 7,751,971 8,615, IGB REIT 9,519,900 13,213,586 15,993, Sunway REIT 5,880,500 9,530,077 10,114, ,928,800 35,567,794 39,415, TECHNOLOGY Malaysian Pac Industries Bhd 773,400 10,044,339 8,306, TRADING/SERVICES Tenaga Nasional Bhd 2,787,900 41,658,583 43,658, Mynews Holdings Bhd 12,470,200 8,812,419 18,580, KPJ Healthcare Bhd 21,000,000 21,168,481 21,840, Aeon Company (M) Bhd 12,921,900 28,434,595 29,461, Petronas Dagangan Bhd 1,393,300 35,223,094 37,535, Astro Malaysia Holdings Bhd 10,658,600 17,983,693 19,185, Sunway Bhd 23,277,200 36,678,902 35,614, Westports Holdings Bhd 136, , , Sime Darby Bhd 5,766,693 12,310,408 14,416, ,412, ,714, ,798, PREFERENCE SHARES Allianz Malaysia Bhd -PA 1,556,458 6,898,365 18,086, SP Setia Bhd Group - RCPS-i B 3,382,600 2,976,688 2,875, ,939,058 9,875,053 20,961, Total quoted equities local 172,196, ,522, ,163, Accumulated unrealised gain on quoted equities local 39,641,368 Total quoted equities local 523,163,723 37

39 NOTES TO THE FINANCIAL STATEMENTS 8 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) (a) Quoted equities local (continued) (ii) Quoted equities local as at 31 July 2017 are as follows: (continued) Aggregate Fair Percentage Quantity cost value of NAV RM RM % CONSTRUCTION Ekovest Bhd 19,770,450 13,067,962 22,340, WCT Holdings Bhd 13,789,420 26,396,520 26,062, Gamuda Bhd 7,370,100 37,636,068 39,061, IJM Corporation Bhd 9,445,600 32,906,626 32,681, ,375, ,007, ,145, CONSUMER Fraser & Neave Holdings Bhd 424,400 8,144,806 10,567, QL Resources Bhd 2,199,120 7,844,410 10,753, ,623,520 15,989,216 21,321, FINANCE Allianz Malaysia Bhd 977,700 10,438,609 14,078, CIMB Group Holdings Bhd 7,710,810 42,353,096 50,428, Malayan Banking Bhd 4,071,481 34,199,122 38,841, Bursa Malaysia Bhd 2,585,700 22,514,807 26,787, Hong Leong Bank Bhd 2,473,100 34,152,345 38,827, Public Bank Bhd 2,080,000 41,888,758 42,182, ,898, ,546, ,147, INDUSTRIAL PRODUCTS Lotte Chemical Titan Holdings Bhd 2,300,000 14,950,000 10,787, INFRASTRUCTURE YTL Power International Bhd 8,353,400 12,731,427 11,611, PLANTATION Genting Plantations Bhd 1,810,200 19,709,655 19,296,

40 NOTES TO THE FINANCIAL STATEMENTS 8 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) (a) Quoted equities local (continued) (ii) Quoted equities local as at 31 July 2017 are as follows: (continued) Aggregate Fair Percentage Quantity cost value of NAV RM RM % PROPERTIES Sunway Bhd 7,904,500 28,706,339 33,831, IGB Corporation Bhd 3,944,100 11,647,581 11,161, IOI Properties Group Bhd 2,423,500 5,122,703 5,089, SP Setia Bhd 8,348,432 31,651,512 27,466, ,620,532 77,128,135 77,548, REITS MRCB-QUILL REIT 4,226,800 5,072,160 5,452, YTL Hospitality REIT 7,301,600 7,751,971 8,761, IGB REIT 6,519,900 8,655,122 11,149, Sunway REIT 6,047,900 9,801,369 10,281, ,096,200 31,280,622 35,644, TECHNOLOGY Malaysian Pac Industries Bhd 541,000 7,311,321 7,660, TRADING/SERVICES Genting Malaysia Bhd 6,065,700 33,991,178 36,394, Tenaga Nasional Bhd 4,914,500 67,579,556 69,392, Sime Darby Bhd 3,810,393 32,212,656 36,008, Dialog Group Bhd 11,613,800 18,209,365 22,298, Bison Consolidated Bhd 7,427,200 10,497,281 19,013, YTL Corp Bhd 7,130,700 10,689,709 9,982, Barakah Offshore Petroleum Bhd 2,678,900 1,843,769 1,553, ,641, ,023, ,644, PREFERENCE SHARES Allianz Malaysia Bhd 1,556,458 6,898,365 16,809, Total quoted equities local 177,816, ,576, ,617, Accumulated unrealised gain on quoted equities local 70,041,429 Total quoted equities local 726,617,597 39

41 NOTES TO THE FINANCIAL STATEMENTS 8 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) (b) Quoted equities foreign (i) Quoted equities foreign as at 31 July 2018 are as follows: Aggregate Fair Percentage Quantity cost value of NAV RM RM % CHINA CONSUMER GOODS Midea Group Co Ltd 378,900 11,171,217 10,729, HONG KONG CONSUMER GOODS China Mengniu Dairy Co Ltd 1,226,000 16,384,319 15,429, CONSUMER SERVICES China Xinhua Education Group 2,526,000 4,113,263 4,892, FINANCIALS China Construction Bank Corp 4,279,000 16,152,660 15,734, Ping An Insurance Grp Co China 670,000 24,317,632 25,243, ,949,000 40,470,292 40,978, INDUSTRIALS China Resources Cement Holding 2,560,000 10,477,994 11,852, OIL & GAS PetroChina Company Ltd 10,416,000 31,802,298 32,258, REAL ESTATE Shimao Property Holdings Ltd 1,803,500 20,104,156 20,782, Longfor Group Holdings Ltd 1,076,500 13,214,384 12,293, ,880,000 33,318,540 33,075, TECHNOLOGY Tencent Holdings Ltd 95,200 13,534,535 17,502, Chinasoft International Ltd 3,392,000 10,899,299 10,715, ,487,200 24,433,834 28,218,

42 NOTES TO THE FINANCIAL STATEMENTS 8 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) (b) Quoted equities foreign (continued) (i) Quoted equities foreign as at 31 July 2018 are as follows: (continued) Aggregate Fair Percentage Quantity cost value of NAV RM RM % INDIA FINANCE ICICI Prudential Life Insurance 432,291 10,535,499 10,692, KOREA PREFERRED SHARES Samsung Electronics Co Ltd 150,725 21,489,906 20,939, SINGAPORE FINANCE DBS Group Holdings Ltd 325,500 24,341,431 25,987, OIL & GAS Keppel Corporation Ltd 494,000 11,519,360 10,129, UNITED STATES CONSUMER SERVICES Alibaba Group Holding Ltd 33,875 18,046,411 25,769, Total quoted equities foreign 29,859, ,104, ,952, Accumulated unrealised gain on quoted equities foreign 12,848,143 Total quoted equities foreign 270,952,507 41

43 NOTES TO THE FINANCIAL STATEMENTS 8 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) (b) Quoted equities foreign (continued) (ii) Quoted equities foreign as at 31 July 2017 are as follows: Aggregate Fair Percentage Quantity cost value of NAV RM RM % HONG KONG FINANCE China Overseas Land & Invest 850,000 12,143,359 12,322, Bank of China Ltd 8,087,000 16,687,440 17,020, Ping An Insurance Group Co 708,000 19,559,666 22,448, ,645,000 48,390,465 51,792, INDUSTRIAL PRODUCTS Beijing Capital International Airport 1,936,000 11,487,972 13,030, China State Construction International Holdings Ltd 2,048,000 15,056,131 14,098, ,984,000 26,544,103 27,129, OIL & GAS China Petroleum & Chemical 7,080,000 22,783,431 23,011, TECHNOLOGY Tencent Holdings Ltd 148,400 15,084,939 25,475, TELECOMMUNICATIONS China Telecom Co Ltd 8,126,000 16,687,440 16,523, INDONESIA INDUSTRIAL PRODUCTS Pembangunan Perumahan Persero 12,260,987 14,016,421 11,886, TELECOMMUNICATIONS Telekomunikasi Indonesia 11,499,200 14,567,568 17,311,

44 NOTES TO THE FINANCIAL STATEMENTS 8 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) (b) Quoted equities foreign (continued) (ii) Quoted equities foreign as at 31 July 2017 are as follows: (continued) Aggregate Fair Percentage Quantity cost value of NAV RM RM % INDIA FINANCE Yes Bank Ltd 107,479 11,041,132 12,988, ICICI Bank Ltd 1,444,840 25,520,039 29,060, ,552,319 36,561,171 42,048, HEALTH CARE Apollo Hospitals Ent Ltd 122,060 10,107,650 10,233, TECHNOLOGY Vakrangee Ltd 408,399 11,985,303 11,992, KOREA FINANCE Hana Financial Group Inc 85,115 13,866,469 16,595, TECHNOLOGY Samsung Electronics Co Ltd 3,183 21,890,191 23,485, SINGAPORE REITS Frasers Logistic & Indus Trust 3,841,000 10,372,346 13,203, UNITED STATES CONSUMER SERVICES Alibaba Group Holding Ltd 27,708 12,729,771 18,374,

45 NOTES TO THE FINANCIAL STATEMENTS 8 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) (b) Quoted equities foreign (continued) (ii) Quoted equities foreign as at 31 July 2017 are as follows: (continued) Aggregate Fair Percentage Quantity cost value of NAV RM RM % Total quoted equities foreign 58,783, ,587, ,063, Accumulated unrealised gain on quoted equities foreign 33,476,193 Total quoted equities foreign 309,063,461 (c) Exchange-traded funds foreign (i) Exchange-traded funds foreign as at 31 July 2018 are as follows: Aggregate Fair Percentage Quantity cost value of NAV RM RM % HONG KONG CSOP Hang Seng Index ETP 3,941,900 10,943,816 11,207, ,941,900 10,943,816 11,207, Accumulated unrealised gain on exchange-traded funds foreign 264,074 Total exchange-traded funds foreign 11,207,890 (ii) There is no investment in exchange-traded fund foreign as at 31 July

46 NOTES TO THE FINANCIAL STATEMENTS 9 CASH AND CASH EQUIVALENTS RM RM Cash and bank balances 22,290,139 30,250,778 Deposits with licensed financial institutions 218,082,795 33,692, ,372,934 63,943,704 Weighted average effective interest rates per annum with licensed financial institutions are as follows: % % Deposits with licensed financial institutions Deposits with licensed financial institutions have an average maturity of 14 days (2017: 2 days). 10 FORWARD FOREIGN CURRENCY CONTRACTS As at the date of statement of financial position, there is 1 (2017: 3) forward foreign currency contract outstanding. The notional principal amount of the outstanding forward foreign currency contract amounted to RM14,300,799 (2017: RM90,191,402). The forward foreign currency contract entered into during the financial year was for hedging against the currency exposure arising from the investment in the foreign equities denominated in Korean Won and United States Dollar. As the Fund has not adopted hedge accounting during the financial year, the change in the fair value of the forward foreign currency contract is recognised immediately in profit or loss. 11 NUMBER OF UNITS IN CIRCULATION No. of units No. of units At the beginning of the financial year 1,019,202, ,107,000 Creation of units arising from applications during the financial year 140,175, ,053,278 Creation of units arising from distribution during the financial year 45,633,779 38,608,722 Cancellation of units during the financial year (189,861,000) (83,567,000) At the end of the financial year 1,015,150,000 1,019,202,000 45

47 NOTES TO THE FINANCIAL STATEMENTS 12 TRANSACTIONS WITH BROKERS (a) (i) Details of transactions with the top 10 brokers for the financial year ended 31 July 2018 are as follows: Percentage Percentage Value of total Brokerage of total of trade trade fees brokerage Name of brokers RM % RM % Affin Hwang Investment Bank Bhd^# 458,961, ,098, CLSA Ltd 201,720, , JP Morgan Secs(Asia Pac) Ltd HK 168,174, , Citigroup Global Mkts Ltd 118,947, , Maybank Investment Bank Bhd 107,045, , CCB International Securities Ltd 106,049, , CLSA Sec Malaysia Sdn Bhd 101,267, , Macquarie Bank Ltd 97,480, , China Intl Capital Corp 92,022, , UOB Kay Hian Secs (M) Sdn Bhd 91,076, , Others 1,278,179, ,151, ,820,925, ,807, (b) (i) Details of transactions with the top 10 brokers for the financial year ended 31 July 2017 are as follows: Percentage Percentage Value of total Brokerage of total of trade trade fees brokerage Name of brokers RM % RM % Affin Hwang Investment Bank Bhd^# 347,967, , Maybank Investment Bank Bhd110,313, , JP Morgan Secs(Asia Pac) Ltd HK 94,813, , Instinet Pacific Ltd 73,285, , CIMB Investment Bank Bhd 68,251, , RHB Investment Bank Bhd 64,259, , PT CIMB Securities Indonesia 64,024, , Malayan Banking Bhd 62,180, , Credit Suisse Secs (M) Sdn Bhd 59,014, , Macquarie Bank Ltd HK 55,692, , Others 716,650, ,821, ,716,452, ,327,

48 NOTES TO THE FINANCIAL STATEMENTS 12 TRANSACTIONS WITH BROKERS (CONTINUED) ^ Included in transactions with brokers are trades in the stockbroking industry with Affin Hwang Investment Bank Berhad, a company related to the Manager amounting to RM458,961,896 (2017:RM347,967,534). The Manager is of the opinion that all transactions with the related company has been entered into in the normal course of business at agreed terms between the related parties. # Included in the transactions with brokers is cross trade conducted between the Fund and other fund; and private mandates managed by the Manager amounting to: Name of brokers RM RM Affin Hwang Investment Bank Berhad - 2,709,220 The cross trades are conducted between the Funds and other fund; and private mandates managed by the Manager as follows: RM RM Private mandates managed by the Manager - 2,709, UNITS HELD BY THE MANAGER AND PARTIES RELATED TO THE MANAGER The related parties of and their relationships with the Fund are as follows: Related parties Affin Hwang Asset Management Berhad Affin Hwang Investment Bank Berhad Affin Bank Berhad ( ABB ) Subsidiaries and associates of ABB as disclosed in its financial statements Directors of Affin Hwang Asset Management Berhad Relationships The Manager Holding company of the Manager Ultimate holding company of the Manager Subsidiary and associated companies of the ultimate holding company of the Manager Directors of the Manager 47

49 NOTES TO THE FINANCIAL STATEMENTS 13 UNITS HELD BY THE MANAGER AND PARTIES RELATED TO THE MANAGER (CONTINUED) The units held by the Manager and party related to the Manager as at the end of the financial year are as follows: The Manager: No. of units RM No. of units RM Affin Hwang Asset Management Berhad (The units are held legally for booking purposes) 2,005,764 2,032,040 3,525,471 3,863,211 Party related to the Manager Directors of Affin Hwang Asset Management Berhad (The units are held beneficially) 398, , , , MANAGEMENT EXPENSE RATIO ( MER ) % % MER MER is derived from the following calculation: MER = (A + B + C + D + E) x 100 F A = Management fee B = Trustee fees C = Auditors remuneration D = Tax agent s fee E = Other expenses, excluding goods and service tax on transaction costs F = Average NAV of the Fund calculated on a daily basis The average NAV of the Fund for the financial year calculated on a daily basis is RM1,065,770,406 (2017: RM680,120,761). 48

50 NOTES TO THE FINANCIAL STATEMENTS 15 PORTFOLIO TURNOVER RATIO ( PTR ) PTR (times) PTR is derived from the following calculation: (Total acquisition for the financial year + total disposal for the financial year) 2 Average NAV of the Fund for the financial year calculated on a daily basis where: total acquisition for the financial year = RM1,322,083,767 (2017: RM1,048,090,347) total disposal for the financial year = RM1,493,021,910 (2017: RM672,392, SEGMENT INFORMATION The strategic asset allocation committee of the Investment Manager makes the strategic resource allocations on behalf of the Fund. The Fund has determined the operating segments based on the reports reviewed by the Manager that are used to make strategic decisions. The committee considers the business as two sub-portfolios, which are managed by separate specialist teams at the Investment Manager. These sub-portfolios consist of an equity portfolio, which focuses on equity securities; the second sub-portfolio consisting of debt and cash instruments. 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 dividends, income and gains on the appreciation in the value of investments and are derived from quoted equities in Malaysia, Indonesia, Thailand, India, Singapore, China, Hong Kong, South Korea, and United States. The Fund has a diversified unitholder population. However, as at 31 July 2018, there were 2 unitholders (2017: 2 unitholders) who held more than 10% of the Fund s NAV. The unitholders holdings were 16.20% and 11.00% (2017: 22.20% and 17.00%). There were no changes in the reportable segment during the financial year. The internal reporting provided to the committee for the Fund s assets, liabilities and performance is prepared on a consistent basis with the measurement and recognition principles of MFRS and IFRS. 49

51 AFFIN HWANG SELECT OPPORTUNITY FUND STATEMENT BY THE MANAGER I, Teng Chee Wai, as the Director of Affin Hwang Asset Management Berhad, do hereby state that in my opinion as the Manager, the financial statements set out on pages 11 to 49 are drawn up in accordance with the provisions of the Deeds and give a true and fair view of the financial position of the Fund as at 31 July 2018 and of its financial performance, changes in equity and cash flows for the financial year ended 31 July 2018 in accordance with the Malaysian Financial Reporting Standards and International Financial Reporting Standards For and on behalf of the Manager, AFFIN HWANG ASSET MANAGEMENT BERHAD TENG CHEE WAI EXECUTIVE DIRECTOR/ MANAGING DIRECTOR Kuala Lumpur 13 September

52 INDEPENDENT AUDITORS REPORT TO THE UNITHOLDERS OF AFFIN HWANG SELECT OPPORTUNITY FUND REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS Our opinion In our opinion, the financial statements of Affin Hwang Select Opportunity Fund ( the Fund ) give a true and fair view of the financial position of the Fund as at 31 July 2018, 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. What we have audited We have audited the financial statements of the Fund, which comprise the statement of financial position as at 31 July 2018, and the statement of comprehensive income, statement of changes in equity 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 11 to 49. Basis for opinion We conducted our audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditors responsibilities for the audit of the 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. Independence and other ethical responsibilities We are independent of the Fund in accordance with the By-Laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants ( By-Laws ) and the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants ( IESBA Code ), and we have fulfilled our other ethical responsibilities in accordance with the By-Laws and the IESBA Code. 51

53 INDEPENDENT AUDITORS REPORT TO THE UNITHOLDERS OF AFFIN HWANG SELECT OPPORTUNITY FUND (CONTINUED) REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED) Information other than the financial statements and auditors report thereon 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. Responsibilities of the Manager for the financial statements 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 Standards. 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. 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 intends to liquidate the Fund or has no realistic alternative but to do so. 52

54 INDEPENDENT AUDITORS REPORT TO THE UNITHOLDERS OF AFFIN HWANG SELECT OPPORTUNITY FUND (CONTINUED) REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED) Auditors responsibilities for the audit of the financial statements 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: (a) (b) (c) (d) (e) 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. 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. 53

55 INDEPENDENT AUDITORS REPORT TO THE UNITHOLDERS OF AFFIN HWANG SELECT OPPORTUNITY FUND (CONTINUED) REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS (CONTINUED) Auditors responsibilities for the audit of the financial statements (continued) 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. OTHER MATTERS This report is made solely to the unitholders of the Fund and for no other purpose. We do not assume responsibility to any other person for the content of this report. PRICEWATERHOUSECOOPERS PLT LLP LCA & AF 1146 Chartered Accountants Kuala Lumpur 13 September

56 DIRECTORY OF SALES OFFICE HEAD OFFICE Affin Hwang Asset Management Berhad Ground Floor Tel : Menara Boustead Fax : , Jalan Raja Chulan Toll free no : Kuala Lumpur customercare@affinhwangam.com SELANGOR Affin Hwang Asset Management Berhad A-7-G Jaya One No. 72A, Jalan Universiti Petaling Jaya Tel: Selangor Fax: PENANG Affin Hwang Asset Management Berhad No. 10-C-24 Precinct 10 Jalan Tanjung Tokong Tel : Penang Fax : PERAK Affin Hwang Asset Management Berhad 13A Persiaran Greentown 7 Greentown Business Centre Tel : Ipoh Perak Fax : MELAKA Affin Hwang Asset Management Berhad Ground Floor, No. 584, Jalan Merdeka Taman Melaka Raya Tel : / Melaka Fax : JOHOR Affin Hwang Asset Management Berhad 1 st Floor, Lot 93 Jalan Molek 1/29, Taman Molek Johor Bahru Tel : Johor Fax : SABAH Affin Hwang Asset Management Berhad Lot No. B-2-09, 2 nd Floor Block B, Warisan Square Jalan Tun Fuad Stephens Kota Kinabalu Tel : Sabah Fax :

57 DIRECTORY OF SALES OFFICE (CONTINUED) SARAWAK Affin Hwang Asset Management Berhad Ground Floor, No. 69 Block 10, Jalan Laksamana Cheng Ho Kuching Tel : Sarawak Fax : Affin Hwang Asset Management Berhad 1 st Floor, Lot 1291 Jalan Melayu, MCLD Miri Tel : Sarawak Fax :

58 57