Affin Hwang Aiiman Select Income Fund

Transcription

1 Affin Hwang Aiiman Select Income Fund Annual Report 31 March 2016 MANAGER Affin Hwang Asset Management Berhad ( T) TRUSTEE HSBC (Malaysia) Trustee Berhad (1281-T)

2 AFFIN HWANG AIIMAN SELECT INCOME FUND Annual Report and Audited Financial Statements For The Financial Year Ended 31 March 2016 Content Page MANAGER S REPORT... 2 FUND PEFORMANCE DATA... 8 TRUSTEE S REPORT... 9 SHARIAH ADVISER 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 MANAGER S REPORT (1) MANAGER S VIEW ON PORTFOLIO AND MARKET Fund Type, Category, Objective and Distribution Policy Affin Hwang Aiiman Select Income Fund, (ASIF or the Fund ) is an income fund categorized under mixed asset (conservative) fund that seeks to provide investors with regular income stream through Shariahcompliant investments. The Fund will distribute income on a semi-annual basis (subject to income availability), after the end of its first financial year. Distribution which is less than or equal to the amount of RM would be automatically reinvested on behalf of the Unit Holders based on NAV of the Fund. Any cash distribution amounting to more than RM will be paid by cheque or reinvested according to the Unit Holder s choice. Benchmark The performance benchmark to be used by the Manager in measuring the performance of the Fund is the 12-month Maybank General Investment Account (GIA) weighing at 70% and FTSE Bursa Malaysia EMAS Shariah Index performance (FBMSHA) weighing at 30%. Performance of the Fund (1 April 2015 to 31 March 2016) For the period 1 April 2015 to 31 March 2016, the Fund has registered a 0.56% return as compared to the benchmark return of 1.29%. The Fund thus underperformed the benchmark by 0.73%. The Net Asset Value (NAV) per unit of the Fund as at 31 March 2015 was RM while the NAV per unit as at 31 March 2016 was RM During the same period under review, the Fund has declared a total income distribution of RM0.025 per unit by way of reinvestment in the form of additional units. Given the performance during the period under review, we believe the Fund s objective is being met to provide investors with a regular income stream through Shariah-compliant investments. Table 1: Performance of the Fund 1 Year (1/4/15-31/3/16) Since Commencement (22/3/13-31/3/16) Fund 0.56% 13.08% Benchmark 1.29% 11.38% Outperformance (0.73%) 1.07% Source of Benchmark: Bursa Malaysia & Maybank Table 2: Average Total Return 1 Year (1/4/15-31/3/16) Since Commencement (22/3/13-31/3/16) Fund 0.56% 4.14% Benchmark 1.29% 3.62% Outperformance (0.73%) 0.52% Source of Benchmark: Bursa Malaysia & Maybank 2

4 Table 3: Annual Total Return Fund Benchmark Outperformance / (Underperformance) Source of Benchmark: Bursa Malaysia & Maybank FYE 2016 (1/4/15 31/3/16) 0.56% 1.29% (0.73%) FYE 2015 (1/4/14-31/3/15) FYE 2014 (22/3/13-31/3/14) 3.56% 8.58% 2.31% 7.48% 1.25% 1.10% Figure 1: Movement of the Fund versus the Benchmark This information is prepared by Affin Hwang Asset Management Berhad 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 Bloomberg. Benchmark:70% 12-month Maybank General Investment Account (GIA) rate + 30% FBMSHA Strategies Employed (1 April 2015 to 31 March 2016) The Manager continued to focus on Shariah-compliant investment opportunities to provide the Fund s investors with a regular income stream. The Manager had remained cautious on the market given uncertainties that have continued to mount against global financial markets. Cash levels for the Fund have been maintained at moderate levels as the Manager looked towards managing the volatility of the Fund. 3

5 Asset Allocation As at 31 March 2016, the Shariah Equities sector exposure of the Fund in the portfolio stood at 25.40%, Sukuk exposure stood at 65.80% with the balance in cash and cash equivalents. For a snapshot of the Fund s asset allocation during the period under review as at 31 March 2016, refer to Figure 2. Figure 2: Summary of Asset Allocation Asset Mix of Funds 31 March March March 2014 Shariah Equities sector - local Construction 0.61% 1.45% 1.18% Consumer Goods 0.54% - - Finance 2.45% 2.67% - Industrial Products 5.22% 1.89% 1.16% Infrastructure Project Companies % 1.13% Oil & Gas % 3.56% Plantations 1.84% 1.34% 3.32% Properties % 3.18% REITS 1.20% - - Technology 2.37% 2.82% 0.55% Telecommunication 2.57% 6.06% 8.90% Trading/Services % 8.90% Utilities 1.54% - - Shariah Equities sector - foreign Information Technology 0.72% 0.77% 0.64% Properties & Construction % Industrial 1.77% 3.89% 1.60% Infrastructure, Utility, Transport 1.89% 1.01% Consumer Goods 0.71% 1.93% - Consumer Services 1.44% 0.55% - Telecommunications 1.32% 3.10% 1.49% Manufacturing % Transport/Storage/Communication % Trading & Services 1.10% 2.20% 2.20% Healthcare % Technology % Sukuk - local 65.80% 61.20% 59.20% Sukuk - foreign % 2.27% Cash 8.80% 2.54% 2.83% Total % % % The Fund s Shariah equity and Sukuk exposure remained largely unchanged on the back of stabilised market outlook. Review of Market (1 April 2015 to 31 March 2016) Global financial markets had remained turbulent over the period under review, taking lead from development in global economies. A decent rally for global markets was seen in October, allowing markets to recover from the heavy sell-down it saw in September which stemmed from the surprise devaluation of the Renminbi by the People s Bank of China. The improved sentiment was largely due to support by global central banks which indicated that it will continue to remain supportive toward the market. 4

6 The US Federal Reserve finally raised its interest rates with a 0.25% hike in December after a lengthy anticipation process. While the policy move had removed some market uncertainty, financial markets failed to lift off in a big way. This was largely due to the concerns surrounding the sustainability of China s economic growth, coupled with the prolonged low oil price environment. Investors expectations for an encouraging start to 2016 were crushed after January 2016 was dubbed to be one of the worst starts for equity markets. The Shanghai Composite Index tumbled 7% in a single trading day, leading to the trigger of the circuit breaker. The circuit breaker was triggered twice in a span of 1 week, and soon led to the People s Bank of China (PBoC) scrapping the initiative after it was seen to be triggering a panic in the market as opposed to maintaining stability. However, sentiment towards financial markets had improved going into the end of the 1 st quarter as risk appetite improved. Over the month of March, the European Central Bank reduced its rates into a deeper negative while expanding its bond buyback program and the US Feds slashed its rate hike expectations for the year. The Feds announcement had driven strong investment flows back into the Asian markets and pulled equity markets up with it. The broader Asian index ended the first quarter of 2016 with a gain of 1.53% gain in local currency terms. Yields for regional bonds had also continued its downward trend against this backdrop. The improvement in commodity prices had provided support for domestic market sentiment. As a major net oil exporter, Malaysia benefited from the rise in oil prices which saw the crude oil spot index rebound by 13.6% in March itself. While the rebound has not moved prices back to where it was 6-months ago, the March rebound, coupled with the easing concerns surrounding the 1MDB debt level had boosted investors confidence into the domestic market. After suffering from major outflows n 2015, the Malaysian ringgit has been steadily clawing back gains. Over the period under review, the Ringgit has appreciated 11.3% against the USD, rising 7.2% in March alone. The Ringgit ended the period under review at RM3.90 against the USD, compared to RM4.40 at the start of the period under review. Over the period under review, the FTSE Bursa Malaysia Emas Index recorded a loss of 4.75% in RM terms, outperforming the broader KLCI Index which slid 6.18% over the same period. The domestic market did however hold up better against the broader regional markets, which did not recover from the sell-down which took place over the course of 2015 despite the rally in March The MSCI AC Asia ex Japan Index tumbled 13.96% in local currency terms over the period under review. The Sukuk market continued to see support towards the end of the first quarter of 2016, in line with global financial markets. The lower supply of USD-denominated Sukuk in the market over the course of 2016 had also helped boost the performance of existing Sukuk papers. Khazanah made its inaugural launch of USD Sukuks worth USD750 million in February, and achieved its target size with a 178 basis point spread against the 5-year US Treasury at the point of issuance. February turned out to be an active month for Sukuk as Bank Negara had also auctioned a total of RM1 billion worth of Islamic T-bills, a move aimed at broadening liquidity within the domestic Islamic banking sector. Foreign holdings of Ringgit bonds saw a respectable positive net inflow in month of March 2016 of 5.4% month-on-month to RM226.6 billion, this highest jump in recent years. The spike in demand was primarily driven by strong demand for Malaysian Government Securities (MGS) and Government Investment Issuances (GII). Investment Outlook We expect central banks globally to maintain an accommodative monetary policy given the current economic landscape - thus providing some support for the financial markets. Nevertheless, we will be going into the second quarter with caution as 1Q2016 results had generally looked weak as a spill-over effect from 2015 weakness. We are however holding a more optimistic view that this will stabilise as we move into the second and thirds quarter of the year. The Manager remains sceptical on the sustainability of the recent rally, and believes that the recent spike in markets may be more technically led as opposed to fundamentally driven. As such, the Manager will take on a sell-on-strength strategy, and raise the Fund s cash levels as we wait for more apparent catalysts before increasing market exposure again. 5

7 In the interim, we will be looking out for equity opportunities in export oriented companies that have seen its prices get beaten down due to the recent strong appreciation of the Ringgit. We are optimistic that the stabilisation of the Ringgit will provide a better outlook for these companies. The portfolio will also be tilted towards income yielding opportunities given the current low growth and low interest rate environment, which we expect to continue in the near term. For the Sukuk portion of the Fund, the Manager will continue to seek out quality issuances that are able to continue to provide the Fund with strong liquidity, and intends to maintain the current portfolio duration for the Fund. (2) 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 are 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 decisionmaking process. During the financial year 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. (3) BREAKDOWN OF UNITHOLDERS BY SIZE AS AT 31 MARCH 2016 Size of holdings (Units) No. of Unitholders No. of Units held* ( 000) 5,000 and below ,001 to 10, ,001 to 50, ,001 to 500, , ,001 and above ,483 Total ,982 *Note: Excluding Manager s Stock There is neither any significant change to the state of affairs of the Fund nor any circumstances that materially affect any interests of the unit holders during the period under review. 6

8 INCOME DISTRIBUTION Affin Hwang Asset Management Berhad declared a net distribution of RM0.025 sen per unit for investor of Affin Hwang Aiiman Select Income Fund during the period under review. The NAV per unit prior and subsequent to the distribution was as follows:- Cum Date Ex-Date Cum-distribution Distribution per Unit Ex-distribution (RM) 11 June June Dec Dec June June Dec Dec

9 FUND PEFORMANCE DATA Source: HSBC Trustee As at 31 March 2016 As at 31 March 2015 As at 31 March 2014 Total NAV (RM million) NAV per Unit (RM) Units in Circulation (million) Highest NAV Lowest NAV Return of the Fund (%) iii Capital Return (%) i Income Return(%) ii Nil Gross Distribution per Unit (sen) Nil Net Distribution per Unit (sen) Nil 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 Capital Return i = {NAV per 31/03/16 NAV per 31/03/15)*-1} x 100 = { } x 100 = -4.16% Income Return = [{Income distribution per unit NAV per unit on ex- date}] x ex-date = { /06/15} + 1= = { /12/15} + 1= Total Income = {Income x Income Return ii = ( x ) 1 x 100 = 4.927% Return of the Fund iii = [{(1 + Capital Return) x (1 + Total Income Return)} 1] x 100 = [{(1 + (-4.16%)) x ( %)} 1] x 100 = 0.56% *Source: HSBC Trustee Past performance is not necessarily indicative of future performance and that Unit prices and investment returns may go down, as well as up. 1 The MER was slightly increased over the period under review because of higher portfolio activity and GST compliance costs. 2 The PTR was significantly increased due to the decline in total net asset value 8

10 TRUSTEE S REPORT TO THE UNITHOLDERS OF AFFIN HWANG AIIMAN SELECT INCOME FUND We have acted as Trustee of Affin Hwang Aiiman Select Income Fund ( the Fund ) for the financial year ended 31 March 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 Deed, 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 Deed and any regulatory requirements; and c) creation and cancellation of units are carried out in accordance with the Deed and any regulatory requirements. During this financial period, a total distribution of 2.50 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 Date: 20 May

11 SHARIAH ADVISER S REPORT TO THE UNITHOLDERS OF AFFIN HWANG AIIMAN SELECT INCOME FUND We have acted as the Shariah Adviser of Affin Hwang Aiiman Select Income Fund. Our responsibility is to ensure that the procedures and processes employed by Affin Hwang Asset Management Berhad and the provisions of the Master Deed dated 24 April 2012 and First Supplemental Deed dated 27 June 2014 are in accordance with Shariah principles. In our opinion, Affin Hwang Asset Management Berhad, has managed and administered the Fund in accordance with Shariah principles and complied with applicable guidelines, rulings and decisions issued by the Securities Commission pertaining to Shariah matters for the financial period ended 31 March In addition, we also confirm that the investment portfolio of the Fund comprises securities which have been classified as Shariah-compliant by the Shariah Advisory Council of the Securities Commission ( SACSC ). As for the securities which are not certified by the SACSC, we have reviewed the said securities and opine that these securities are designated as Shariah-compliant. For Amanie Advisors Sdn Bhd DATUK DR MOHD DAUD BAKAR Group Chairman Kuala Lumpur 17 May

12 STATEMENT OF COMPREHENSIVE INCOME FOR THE FINANCIAL YEAR ENDED 31 MARCH 2016 INVESTMENT INCOME Note RM RM Dividend income 1,078,960 1,839,172 Profit income 4 2,894,679 5,368,235 Net losses on forward foreign currency contracts at fair value through profit or loss (564,294) (869,663) Net gain on foreign currency exchange 449, ,487 Net (loss)/gain on financial assets at fair value through profit or loss 9 (1,991,981) 4,085,006 1,867,272 10,523,237 EXPENSES Management fee 5 (1,203,168) (2,341,074) Trustee fee 6 (70,185) (141,303) Auditors remuneration (8,000) (7,500) Tax agent s fee (15,381) (4,090) Transaction costs (461,916) (485,031) Other expenses (141,398) (39,044) (1,900,048) (3,018,042) NET (LOSS)/PROFIT BEFORE TAXATION (32,776) 7,505,195 TAXATION 7 (55,501) (59,424) NET (LOSS)/PROFIT AFTER TAXATION AND TOTAL COMPREHENSIVE(LOSS)/ INCOME FOR THE FINANCIAL YEAR (88,277) 7,445,771 Net (loss)/profit after taxation is made up of the following: Realised amount (519,478) 9,012,790 Unrealised amount 431,201 (1,567,019) (88,277) 7,445,771 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 AS AT 31 MARCH 2016 ASSETS Note RM RM Financial assets at fair value through profit or loss 9 70,365, ,722,639 Cash and cash equivalents 10 7,488,295 2,184,375 Dividend receivable 50, ,327 Amount due from brokers 173,880 11,048,536 Amount due from Manager - creation of units 1,030 - Tax recoverable - 33,304 TOTAL ASSETS 78,078, ,090,181 LIABILITIES Forward foreign currency contract at fair value through profit or loss 11-8,635 Amount due to Manager - management fee 79, ,973 - cancellation of units 168,334 7,705,090 Amount due to Trustee 4,650 8,982 Amount due to brokers 630,574 1,933,776 Auditors remuneration 8,000 7,500 Tax agent s fee 7,100 7,050 Other payables and accruals 21,646 6,500 TOTAL LIABILITIES 920,011 9,831,506 NET ASSET VALUE OF THE FUND 77,158, ,258,675 EQUITY Unitholders capital 73,073, ,398,995 Retained earnings 4,085,488 8,859,680 NET ASSETS ATTRIBUTABLE TO UNITHOLDERS 77,158, ,258,675 NUMBER OF UNITS IN CIRCULATION ,985, ,483,000 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 MARCH 2016 Unitholders Retained capital earnings Total RM RM RM Balance as at 1 April ,398,995 8,859, ,258,675 Total comprehensive loss for the financial year - (88,277) (88,277) Distributions (Note 8) - (4,685,915) (4,685,915) Movement in unitholders capital: Creation of units arising from applications 429, ,821 Creation of units arising from distribution 4,676,969-4,676,969 Cancellation of units (62,432,336) - (62,432,336) Balance as at 31 March ,073,449 4,085,488 77,158,937 Balance as at 1 April ,785,055 10,419, ,204,399 Total comprehensive income for the financial year - 7,445,771 7,445,771 Distributions (Note 8) - (9,005,435) (9,005,435) Movement in unitholders capital: Creation of units arising from applications 13,089,916-13,089,916 Creation of units arising from distribution 8,977,428-8,977,428 Cancellation of units (120,453,404) - (120,453,404) Balance as at 31 March ,398,995 8,859, ,258,675 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 MARCH 2016 CASH FLOWS FROM OPERATING ACTIVITIES Note RM RM Proceeds from sale of Shariah-compliant investments 131,745, ,696,956 Purchase of Shariah-compliant investments (61,596,850) (67,557,017) Dividends received 1,163,474 1,999,327 Profit from short term Shariah-based deposits and unquoted sukuk 3,380,416 6,242,399 Management fee paid (1,277,434) (2,430,725) Trustee fee paid (74,517) (148,563) Payment for other fees and expenses (149,083) (49,984) Net realised foreign currency exchange gains 1,802,497 1,052,073 Realised loss on forward foreign currency contracts (572,929) (798,928) Tax paid (55,501) (59,424) Net cash generated from operating activities 74,385,856 97,946,114 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from creation of units 428,791 17,539,248 Payments for cancellation of units (69,969,092) (113,718,034) Payment for distribution (8,946) (28,007) Net cash used in financing activities (69,549,247) (96,206,793) NET INCREASE IN CASH AND CASH EQUIVALENTS 4,836,609 1,739,321 EFFECTS OF FOREIGN CURRENCY EXCHANGE 467, ,281 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 2,184, ,773 CASH AND CASH EQUIVALENTS AT THE END OF THE FINANCIAL YEAR 10 7,488,295 2,184,375 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 MARCH 2016 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 in accordance with the Malaysian Financial Reporting Standards ( MFRS ) and International Financial Reporting Standards ( IFRS ), as modified by financial assets and liabilities (including derivatives) at fair value through profit or loss. 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 January 2015: Annual Improvements to MFRSs Cycle Annual Improvements to MFRSs Cycle The adoption of these amendments did not have any impact on the current or any prior year and are not likely to affect future periods. (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: (i) Financial year beginning on/after 1 April 2018 MFRS 15 Revenue from Contracts with Customers (effective from 1 January 2018) replaces MFRS 118 Revenue and MFRS 111 Construction contracts and related interpretations. The standard deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity s contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The core principle in MFRS 15 is that an entity recognises revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This standard is not expected to have a significant impact on the Fund s financial statements. 15

17 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (CONTINUED) (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 2018 (continued) 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. 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 will apply the standards when effective. The standards are not expected to have a significant impact on the Fund s financial statements. 16

18 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES B INCOME RECOGNITION Profit from short term Shariah-based deposits and unquoted sukuk are recognised based on effective profit rate method on an accruals basis. Dividend income from Shariah-compliant quoted investments are recognised on the ex-dividend date, when the right to receive the dividend has been established. For Shariah-compliant quoted investments, realised gains and losses on sale of Shariah-compliant 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 Shariah-compliant investments. For unquoted sukuk, realised gains and losses are accounted as the difference between the net disposal proceeds and the carrying amount of Shariah-compliant investments, determined on a weighted average cost basis for Shariah-compliant investments and on cost adjusted for accretion of discount or amortisation of premium on investments for unquoted sukuk. C 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. D 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. E TAXATION Current tax expense is determined according to the Malaysian tax laws at the current rate based upon the taxable profit earned during the financial year. Tax on investment income from Shariah-compliant 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, which is the Fund s functional and presentation currency. 17

19 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES G FOREIGN CURRENCY TRANSLATION 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 the 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 Shariah-compliant quoted investments and unquoted sukuk 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). Financing 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 financing 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 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. Shariah-compliant 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. 18

20 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES H FINANCIAL ASSETS AND FINANCIAL LIABILITIES (CONTINUED) (ii) Recognition and measurement (continued) Financial liabilities are derecognised when it is extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or expired. Gain 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 transaction are presented in the statement of comprehensive income within net gain/(loss) on financial assets at fair value through profit or loss in the financial 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 sukuk securities denominated in Ringgit Malaysia are revalued on a daily basis based on fair value prices quoted by a bond pricing agency ( BPA ) registered with the SC as per the SC Guidelines on Unit Trust Funds. Where such quotation are not available or where the Manager is of the view that the price quoted by the BPA for a specific unquoted Sukuk securities differs from the market price by more than 20 basis points, the Manager may use the market price, provided that the Manager: (i) (ii) (iii) records its basis for using non-bpa price; obtains necessary internal approvals to use the non-bpa price; and keeps an audit trail of all decisions and basis for adopting the market yield. Unquoted sukuk 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. Shariah-based deposits with licensed financial institutions is stated at cost plus accrued profit calculated on the effective profit method over the period from the date of placement to the date of maturity of the deposits. Financing and receivables and other financial liabilities are subsequently carried at amortised cost using the effective profit method. 19

21 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES H FINANCIAL ASSETS AND FINANCIAL LIABILITIES (CONTINUED) (ii) 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 profit rate. The asset s carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. If financing and receivables has a variable profit rate, the discount rate for measuring any impairment loss is the current effective profit 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. I CASH AND CASH EQUIVALENTS For the purpose of statement of cash flows, cash and cash equivalents comprise cash and bank balances and short term Shariah-based 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. 20

22 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES J AMOUNTS 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 profit 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, profit income is recognised using the rate of profit used to discount the future cash flows for the purpose of measuring the impairment loss. The effective profit method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating the profit income or loans expense over the relevant period. The effective profit 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 profit 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 profit 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 unit holder exercises the right to put the unit back to the Fund. Units are created and cancelled 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. 21

23 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 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 exchange contracts is determined using forward exchange rates at the statements 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. 22

24 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES N CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS IN APPLYING ACCOUNTING POLICIES The preparation of financial statements in conformity with the Malaysian Financial Reporting Standards requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities as at the date of the financial statements and the reported amounts of revenues and expenses during the financial period. Although these estimates are based on the Manager s best knowledge of current events and actions, actual results could differ from those estimates. The Fund makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. To enhance the information content of the estimates, certain key variables that are anticipated to have material impact to the Fund s results and financial position are tested for sensitivity to changes in the underlying parameters. Estimates and judgments are continually evaluated by the Manager and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 23

25 FOR THE FINANCIAL YEAR ENDED 31 MARCH INFORMATION ON THE FUND The Unit Trust Fund was constituted under the name Hwang AIIMAN Select Income Fund (the Fund ) pursuant to the execution of a Deed dated 24 April The Fund changed its name from Hwang AIIMAN Select Income Fund to Affin Hwang Aiiman Select Income Fund as amended by 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 was launched on 1 March 2013 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 followings investment: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) Shariah-compliant securities of companies listed on the recognised Malaysian stock exchange or any other market where the regulatory authority is a member of the International Organisation of Securities Commission (IOSCO); Unlisted Shariah-compliant securities; Shariah-compliant warrants; Government investment issues (GII), Islamic accepted bills, Bank Negara Malaysia negotiable notes, negotiable Islamic debt certificate (NIDC), Islamic negotiable instrument of deposits (INID), Cagamas mudharabah bonds and any other government Islamic papers; Other Shariah-compliant obligations issued or guaranteed by the Malaysian government, Bank Negara Malaysia, state governments and government-related agencies; Sukuk; Shariah-based deposits with financial institutions, and placements of money with investment banks; Islamic money market instruments and Sukuks traded in the Islamic capital market; Other Shariah-based collective investment schemes; Shariah-compliant derivatives including but not limited to options, futures contracts, forward contracts and swaps for hedging purposes only; and Any other Shariah-compliant investment instruments permitted by the Shariah Advisory Council of the SC and/or the Shariah Adviser from time to time. All investment will be subjected to SC s Guidelines on Unit Trust Funds, the Deeds and the objective of the Fund. The main objective of the Fund is to seek regular income stream through Shariah-compliant investments. 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 20 May

26 2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES Financial instruments are as follows: Financial assets/ (liabilities) Financing at fair and value through Note receivables profit or loss Total RM RM RM Shariah-compliant quoted investments 9-19,598,308 19,598,308 Unquoted sukuk 9-50,767,317 50,767,317 Cash and cash equivalents 10 7,488,295-7,488,295 Dividend receivables 50,118-50,118 Amount due from Manager - creation of units 1,030-1,030 Amount due from brokers 173, ,880 Total 7,713,323 70,365,625 78,078, Shariah-compliant quoted investments 9-46,625,329 46,625,329 Unquoted sukuk 9-89,097,310 89,097,310 Cash and cash equivalents 10 2,184,375-2,184,375 Forward foreign currency contract 11 - (8,635) (8,635) Dividend receivable 101, ,327 Amount due from brokers 11,048,536-11,048,536 Total 13,334, ,714, ,048,242 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, credit risk, capital risk and reclassification of Shariah status 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 and the Deed. 25

27 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: RM RM Shariah-compliant quoted investments Quoted equities designated at fair value through profit or loss 19,598,308 46,625,329 Shariah-compliant unquoted investments Unquoted sukuk designated at fair value through profit or loss * 50,767,317 89,097,310 * Includes interest receivable RM535,951 (2015: RM934,680) 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 having regard to the historical volatility of the prices. Impact on profit after % Change in price Market value tax/nav RM RM RM % 66,338,190 (3,491,484) 0% 69,829, % 73,321,158 3,491, % 128,048,561 (6,739,398) 0% 134,787, % 141,527,357 6,739,398 26

28 2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Market risk (continued) (b) Interest rate risk In general, when interest rates rise, unquoted sukuk prices will tend to fall and vice versa. Therefore, the NAV of the Fund may also tend to fall when interest rates rise or are expected to rise. However, investors should be aware that should the Fund hold an unquoted sukuk till maturity, such price fluctuations would dissipate as it approaches maturity, and thus the growth of the NAV shall not be affected at maturity. In order to mitigate interest rates exposure of the Fund, the Manager will manage the duration of the portfolio via shorter or longer tenured assets depending on the view of the future interest rate trend of the Manager, which is based on its continuous fundamental research and analysis. This risk is crucial in an unquoted sukuk fund since unquoted sukuk portfolio management depends on forecasting interest rate movements. Prices of unquoted sukuk move inversely to interest rate movements, therefore as interest rates rise, the prices of unquoted sukuk decrease and vice versa. Furthermore, unquoted sukuk with longer maturity and lower profit coupon rates are more susceptible to interest rate movements. Investors should note that unquoted sukuk and money market instruments are subject to interest rate fluctuations. Such investments may be subject to unanticipated rise in interest rates which may impair the ability of the issuers to make payments of profit income and principal, especially if the issuers are highly leveraged. An increase in interest rates may therefore increase the potential for default by an issuer.. The table below summarises the sensitivity of the Fund s net asset value and profit after tax to movements in prices of unquoted sukuk held by the Fund as a result of movement in interest rate. The analysis is based on the assumptions that the interest rate increased and decreased by 1% (100 basis points) with all other variables held constant. % Change in interest rate Impact on profit after tax/ NAV RM RM + 1% (106,341) (125,070) - 1% 106, ,374 The Fund s exposure to interest rate risk associated with Shariah-based deposits with a licensed financial institution is not material as the carrying value of the deposits is a reasonable estimate of fair value as the deposits are held on a short term basis. 27