AFFIN HWANG SELECT ASIA PACIFIC (EX JAPAN) DIVIDEND FUND

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2 AFFIN HWANG SELECT ASIA PACIFIC (EX JAPAN) DIVIDEND FUND Interim Report and Unaudited Financial Statements 6 Months Financial Period Ended 28 February 2018 Content Page FUND INFORMATION... 2 FUND PERFORMANCE DATA... 3 MANAGER S REPORT... 5 TRUSTEE S REPORT... 8 STATEMENT OF COMPREHENSIVE INCOME... 9 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 DIRECTORY OF SALES OFFICE

3 FUND INFORMATION Fund Name Affin Hwang Select Asia Pacific (ex Japan) Dividend Fund Fund Type Growth & Income Fund Category Equity Investment Objective The Fund endeavours to provide investors with regular income and capital growth over the medium to long-term period. Benchmark MSCI AC Asia Pacific ex Japan High Dividend Yield Index Distribution Policy The Fund will distribute income on a semi-annual basis (subject to income availability), after the end of its first financial year. BREAKDOWN OF UNITHOLDERS BY SIZE RM CLASS AS AT 28 FEBRUARY 2018 Size of holdings (units) No. of unitholders No. of units held * ( 000) 5,000 and below 82, ,049 5,001 to 10,000 11,482 78,633 10,001 to 50,000 1,572 23,338 50,001 to 500, , ,001 and above ,824 Total 96, ,347 * Note: Excluding Manager s stock 2

4 FUND PERFORMANCE DATA Category As at 28 Feb 2018 (%) As at 28 Feb 2017 (%) As at 29 Feb 2016 (%) Portfolio composition Quoted equities local - Finance Healthcare Industrials Trading / services Utilities Total quoted equities local Quoted equities foreign - Basic materials Communications Consumer products Energy Finance Healthcare Industrials Information Technology Oil & Gas REITs Rights Technology Utilities Total quoted equities foreign Cash & cash equivalent Total Total NAV (RM million) NAV per Unit (RM) Unit in Circulation (million) Highest NAV Lowest NAV Return of the Fund (%) iii Capital Growth (%) i Income Distribution (%) ii Nil Gross Distribution per Unit (sen) Nil Net Distribution per Unit (sen) Nil Management Expense Ratio (%) Portfolio Turnover Ratio (times) Basis of calculation and assumption made in calculating the returns:- The performance figures are a comparison of the growth/decline in NAV for the stipulated period taking into account all the distribution payable (if any) during the stipulated period. An illustration of the above would be as follow:- Capital return = NAV per Unit end / NAV per Unit begin 1 Income return = Income distribution per Unit / NAV per Unit ex-date Total return = (1+Capital return) x (1+Income return) 1 1 The MER of the Fund remained unchanged during the period under review. 2 The increase in the Fund s PTR was due to higher average sum of acquisition and disposal during the period under review. 3

5 Capital Return i = (NAV per 28/02/18 NAV per 31/8/17* - 1) x 100 = ( ) x 100 = 2.32% Income ex-date = {Income distribution per Unit NAV per Unit on ex-date} + 1 = { /01/18} + 1 = Total Income Return ii = [{Income ex-date x Income ex-date} 1] x 100 = [{1.0299} 1] x 100 = 2.99% Return of the Fund iii = [{(1 + Capital Return) x (1 + Income Return)} 1] x 100 = [{( %) x ( %)} 1] x 100 = 5.38% * Source Deutsche Trustees Malaysia Berhad Table 1: Performance of the Fund 6 Months (1/9/17-28/2/18) 1 Year (1/3/17-28/2/18) 3 Year (1/3/15-28/2/18) Since Commencement (29/12/14-28/2/18) Fund 5.38% 14.93% 37.06% 41.69% Benchmark (3.22%) 0.76% 7.87% 15.47% Outperformance / (Underperformance) 8.60% 14.17% 29.19% 26.22% Source of Benchmark: Bloomberg Table 2: Average Total Return 1 Year (1/3/17-28/2/18) 3 Year (1/3/15-28/2/18) Since Commencement (29/12/14-28/2/18) Fund 14.93% 11.07% 11.61% Benchmark 0.76% 2.56% 4.65% Outperformance / (Underperformance 14.17% 8.51% 6.96% Source of Benchmark: Bloomberg Table 3: Annual Total Return FYE 2017 (1/9/16-31/8/17) FYE 2016 (1/9/15-31/8/16) FYE 2015 (29/12/14-31/8/15) Fund 19.33% 8.45% 3.90% Benchmark 19.23% 2.33% (2.21%) Outperformance / (Underperformance 0.10% 6.12% 6.11% Source of Benchmark: Bloomberg Past performance is not necessarily indicative of future performance and that Unit prices and investment returns may go down, as well as up. 4

6 MANAGER S REPORT Performance Review For the period under review from 1 September 2017 to 28 February 2018, the Fund registered a 5.38% return compared to the benchmark return of -3.22%. The Fund thus outperformed the Benchmark by 8.60%. The Net Asset Value ( NAV ) per unit of the Fund as at 28 February 2018 was RM compared to its NAV per unit as at 31 August 2017 was RM Figure 1: Movement of the Fund versus the Benchmark 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 Bloomberg. Benchmark: MSCI AC Asia Pacific ex Japan High Dividend Yield 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 Asia Pacific (ex Japan) Dividend Fund during 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) 16 Jan Jan No unit split were declared for the financial year ended 28 February

7 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 28 Feb Feb Feb 2016 (%) (%) (%) Quoted equities local Quoted equities foreign Cash & cash equivalent Total As at 28 February 2018, the Funds equities weighting stood at 90.34% while the balance was held in cash and cash equivalent. During the period under review, the Manager had reduced its exposure by half within the domestic equities space from 10.73% a year ago to 5.65%. Allocations into the Finance sector had dropped to 2.06% from previous 8.00%. On the other hand, the asset allocation within the foreign equities space remained relatively unchanged with Financials being at the top of the list, followed by Industrials and Technology. Cash level of the Fund remained at a moderate level of 9.66% over the same period. Strategies Employed We are shifting the portfolio towards a rising inflation environment, which should mean stronger growth, higher rates and better commodity performance. We would express this view in our portfolios through the banks & insurance companies, which are geared towards economic growth and rising rates, large cap oil & gas stocks and net cash companies. With the return of volatility in markets, we are gradually raising our cash holdings but continue to remain invested to capture growth. As we approach the late stage of the cycle after a long economic run since 2009 with massive liquidity in the system, markets tend to give the sweetest performance at late stage rallies. We want to capture some of these returns but careful also not to overstay. Market Review With the return of growth, the year 2017 has seen an economic upswing that has lifted both global and regional markets in terms of asset returns and earnings recovery. Accelerating growth, but benign inflation has kept policy tightening at bay, creating the right conditions for risk-assets to perform well under a Goldilocks environment. Global benchmarks including the S&P 500 and the Dow Jones Industrial Index vaulted by over 13% (local currency terms) in the period under review. Supportive macroeconomic data, improving fundamentals and a positive earnings revision cycle have whet investors appetite leading to a boost in sentiment. In Europe, growth has become more entrenched as its economy expanded at its fastest pace in a decade, growing by 2.5% in Tightening labour conditions, a strong cyclical momentum and broad improvement in business sentiment indicators point to healthy expansion, despite uncertainties surrounding ongoing Brexit negotiations and political risks arising from elections in France, Germany and Netherlands. In China, an acceleration in public-private partnership (PPP) projects drove infrastructure spending demand, whilst supply-side and SOE capacity reforms helped reflate raw material and commodity prices which spurred restocking activities. Rising household consumption and increased urbanisation through strong wage increases will place the planks for a long growth runway for its new economy sectors. The MSCI China gained 14.2% in the period under review, whilst the Hang Seng Index returned 10.3% driven by performance from tech and strong earnings momentum from the sector. Post the 19 th National Party Congress in China, in which we saw President Xi Jinping consolidating his power over the party, we expect a rejuvenated and strengthened party leadership that would be able steer market reforms and maintain policy continuity including deleveraging efforts, as well as growth-oriented policies that would bode well for the Asian giant. We expect a long growth runway for the new economy sectors in China, given rising urbanisation, disposable incomes, increased consumption and growth of the services sector. 6

8 South Korea s Kospi rallied by 21.8% in 2017, as prospects of improved capital repayment following chaebol reforms in the country could potentially unlock value for shareholders. Possibility of a long-drawn-out conflict with its belligerent northern neighbour, including outward displays of military force and continued sabrerattling did little to sour the market s rally, having little or any significant long-term impact. 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. After a strong start to the year, global equities were broadly down as a bond rout deepened which lifted US Treasury Yields to a 4-year high of 2.84%. Nonetheless, the current pullback is likely an overdue correction, as markets begin to reprice itself and settle to more healthy levels. The broad economic fundamentals has not shifted significantly, and a positive earnings revision cycle continue to underpin and provide support for valuations. Investment Outlook Volatility could 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, where markets are seen underpricing the impact of rate hikes by the US Federal Reserve, and tighter liquidity conditions. Inflation data may be a key-data point to monitor in coming quarters, especially if inflation picks up more than market s expectation, which would lead to an acceleration in rate hikes. We maintain an optimistic view on China given improving fundamentals and efforts by policy-makers to stay on financial reforms and ongoing deleveraging that would ensure a more sustainable and quality of growth. We continue to see opportunities within financials given improving asset qualities, improving margins, better NPL outlook and attractive dividend yields. 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. 7

9 TRUSTEE S REPORT TO THE UNITHOLDERS OF AFFIN HWANG SELECT ASIA PACIFIC (EX JAPAN) DIVIDEND FUND We have acted as Trustee for Affin Hwang Select Asia Pacific (ex Japan) Dividend Fund Dividend Fund ( the Fund ) for the financial period 28 February To the best of our knowledge, for the financial period under review, Affin Hwang Asset Management Berhad ( the Manager ), has operated and managed the Fund in accordance with the following:- (a) (b) (c) limitations imposed on the investment powers of the Manager and the Trustee under the Deeds, the Securities Commission s Guidelines on Unit Trust Funds, the Capital Markets and Services Act 2007 and other applicable laws; valuation and pricing for the Fund has been carried out in accordance with the Deeds of the Fund and applicable regulatory requirements; and creation and cancellation of units for the Fund have been carried out in accordance with the Deeds of the Fund and applicable regulatory requirements. We are of the view that the distributions made during this financial period ended 28 February 2018 by the Manager are not inconsistent with the objectives of the Fund. For Deutsche Trustees Malaysia Berhad Soon Lai Ching Senior Manager, Trustee Operations Richard Lim Hock Seng Chief Executive Officer Kuala Lumpur 18 April

10 STATEMENT OF COMPREHENSIVE INCOME INVESTMENT INCOME 6 months 6 month financial financial period ended period ended Note RM RM Dividend income 1,174,585 2,881,247 Interest income from deposits with licensed financial institutions 36,704 15,858 Net (loss)/gain on foreign currency exchange (853,217) 2,074,528 Net gain on forward foreign currency contracts at fair value through profit or loss 6,465,510 - Net gain on financial assets at fair value through profit or loss 8 9,660,128 16,183,917 16,483,710 21,155,550 EXPENSES Management fee 4 (2,207,300) (1,826,825) Trustee fee 5 (71,992) (59,406) Auditors remuneration (3,719) (3,719) Tax agent s fee (42,622) (15,258) Transaction costs (1,851,021) (938,890) Other expenses (300,134) (237,394) (4,476,788) (3,081,492) NET PROFIT BEFORE TAXATION 12,006,922 18,074,058 TAXATION 7 (291,806) (103,275) NET PROFIT AFTER TAXATION AND TOTAL COMPREHENSIVE INCOME FOR THE FINANCIAL PERIOD 11,715,116 17,970,783 Net profit after taxation is made up of the following: Realised amount 14,300,343 11,003,229 Unrealised amount (2,585,227) 6,967,554 11,715,116 17,970,783 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 9

11 STATEMENT OF FINANCIAL POSITION ASSETS Note RM RM Financial assets at fair value through profit or loss 8 252,130, ,178,349 Cash and cash equivalents 9 28,300,255 10,524,279 Dividend receivables 362, ,073 Amount due from Manager - creation of units 827, ,839 Amount due from brokers 6,091,436 1,425,790 Forward foreign currency contract at fair value through profit or loss ,010 - TOTAL ASSETS 287,924, ,826,330 LIABILITIES Forward foreign currency contract at fair value through profit or loss ,941 - Amount due to Manager - management fee 369, ,792 - cancellation of units 51, ,641 Amount due to Trustee 11,975 9,334 Amount due to brokers 7,979,502 63,087 Auditors remuneration 3,719 3,719 Tax agent s fee 6,885 6,885 Other payables and accruals 53,952 39,093 TOTAL LIABILITIES 8,811, ,551 NET ASSET VALUE OF THE FUND 279,112, ,914,779 EQUITY Unitholders capital 233,436, ,582,096 Retained earnings 45,676,376 26,332,683 NET ASSETS ATTRIBUTABLE TO UNITHOLDERS 279,112, ,914,779 NUMBER OF UNITS IN CIRCULATION ,351, ,890,000 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. 10

12 STATEMENT OF CHANGES IN EQUITY Unitholders Retained capital earnings Total RM RM RM Balance as at 1 September ,996,670 41,260, ,256,810 Total comprehensive income for the financial period - 11,715,116 11,715,116 Distribution (Note 6) - (7,298,880) (7,298,880) Movement in unitholders capital: Creation of units arising from applications 48,742,377-48,742,377 Creation of units arising from distributions 7,226,519-7,226,519 Cancellation of units (8,529,337) - (8,529,337) Balance as at 28 February ,436,229 45,676, ,112,605 Balance as at 1 September ,231,149 15,143, ,375,069 Total comprehensive income for the financial period - 17,970,783 17,970,783 Distributions (Note 6) - (6,782,020) (6,782,020) Movement in unitholders capital: Creation of units arising from applications 524, ,604 Creation of units arising from distributions 6,774,914-6,774,914 Cancellation of units (19,948,571) - (19,948,571) Balance as at 28 February ,582,096 26,332, ,914,779 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 CASH FLOWS 6 months 6 month financial financial period ended period ended Note RM RM CASH FLOWS FROM OPERATING ACTIVITIES Proceeds from sale of investments 253,085, ,213,963 Purchase of investments (283,258,318) (128,031,392) Dividends received 768,894 2,631,624 Interest received from deposits with licensed Financial institutions 36,704 15,858 Management fee paid (2,187,210) (1,862,938) Trustee fee paid (71,341) (60,577) Realised gain on forward foreign currency contract 6,425,763 - Payment for other fees and expenses (347,871) (263,714) Net realised foreign currency exchange (loss)/gain (5,596,000) 7,913,518 Net cash (used in)/generated from operating activities (31,144,186) 12,556,342 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from creation of units 49,102, ,765 Payments for cancellation of units (8,974,980) (20,073,758) Payment for distribution (72,361) (7,106) Net cash generated from/(used in) financing activities 40,055,598 (19,717,099) NET INCREASE/DECREASE IN CASH AND CASH EQUIVALENTS 8,911,411 (7,160,757) EFFECTS OF FOREIGN CURRENCY EXCHANGE 3,583 2,798 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE FINANCIAL PERIOD 19,385,261 17,682,238 CASH AND CASH EQUIVALENTS AT THE END OF THE FINANCIAL PERIOD 9 28,300,255 10,524,279 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 12

14 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following accounting policies have been used in dealing with items which are considered material in relation to the financial statements. A BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS The financial statements have been prepared under the historical cost convention, except as disclosed in the summary of significant accounting policies and comply with Malaysian Financial Reporting Standards ( MFRS ) and International Financial Reporting Standards ( IFRS ). The preparation of financial statements in conformity with MFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reported financial period. It also requires the Manager to exercise their judgment in the process of applying the Fund s accounting policies. Although these estimates and judgment are based on the Manager s best knowledge of current events and actions, actual results may differ. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 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 September 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 September 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). 13

15 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (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 September 2018 (continued) 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 has reviewed its financial assets and liabilities and does not expect any impact from the adoption of the new standard on 1 September 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 new requirements only affect the accounting for financial liabilities that are designated at fair value through profit or loss and the Fund does not have any such liabilities. The new impairment model requires the recognition of impairment provisions based on expected credit losses (ECL) rather than only incurred credit losses as is the case under MFRS 139. It applies to financial assets classified at amortised cost. Based on the assessments undertaken to date, the Fund does not expect any loss allowance to be recognised upon adoption of MFRS 9. 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 deposit with licensed financial institutions is recognised based on effective interest rate method on an accrual basis. For quoted investments, realised gains and losses on sale of investments are accounted for as the difference between the net disposal proceeds and the carrying amount of investments, determined on a weighted average cost basis. 14

16 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES C DISTRIBUTION A distribution to the Fund s unitholders is accounted for as a deduction from realised reserve. A proposed distribution is recognised as a liability in the period in which it is approved by the Trustee of the Fund D TRANSACTION COSTS Transaction costs are costs incurred to acquire financial assets or liabilities at fair value through profit or loss. They include the bid-ask spread, fees and commissions paid to agents, advisors, brokers and dealers. Transaction costs, when incurred, are immediately recognised in the statement of comprehensive income as expenses. E TAXATION Current tax expense is determined according to the Malaysian tax laws at the current rate based upon the taxable profits earned during the financial period. Tax on investment income from foreign investments is based on the tax regime of the respective countries that the Fund invests in. F FUNCTIONAL AND PRESENTATION CURRENCY Items included in the financial statements of the Fund are measured using the currency of the primary economic environment in which the Fund operates (the functional currency ). The financial statements are presented in Ringgit Malaysia, which is the Fund s functional and presentation currency. 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 remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in statement of comprehensive income, except when deferred in other comprehensive income as qualifying cash flow hedges. 15

17 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES H FINANCIAL ASSETS AND FINANCIAL LIABILITIES (i) Classification The Fund designates its investment in quoted securities as financial assets at fair value through profit or loss at inception. Financial assets are designated at fair value through profit or loss when they are managed and their performance evaluated on a fair value basis. Derivatives are financial assets/liabilities at fair value through profit or loss categorised as held for trading unless they are designated hedges (Note 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, 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. 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. 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 currency 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. 16

18 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES H FINANCIAL ASSETS AND FINANCIAL LIABILITIES (ii) Recognition and measurement (continued) Deposits with licensed financial institutions 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 deposits. Derivative investments consist of forward foreign currency contracts. 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. 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 or a held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Fund may measure impairment on the basis of an instrument s fair value using an observable market price. If, in a subsequent 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. 17

19 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES I 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. J CASH AND CASH EQUIVALENTS For the purpose of statement of cash flows, cash and cash equivalents comprise cash and bank balances and deposits held in highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. K UNITHOLDERS CAPITAL The unit holders 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 unit holders with the total number of outstanding units. 18

20 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 foreign forward 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 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. N CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES The Fund makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. To enhance the information contents on the estimates, certain key variables that are anticipated to have material impacts to the Fund s results and financial position are tested for sensitivity to changes in the underlying parameters. Estimates and judgements 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. 19

21 1 INFORMATION ON THE FUND The Unit Trust Fund was constituted under the name Hwang Select Asia Pacific (ex Japan) Dividend Fund (the Fund ) pursuant to the execution of a Deed dated 1 July The Fund has changed its name from Hwang Select Asia Pacific (ex Japan) Dividend Fund to Affin Hwang Select Asia Pacific (ex Japan) Dividend Fund as amended by the Supplemental Deed dated 5 November 2014 (the Deeds ) entered into between Affin Hwang Asset Management Berhad (the Manager ), Deutsche Trustees Malaysia Berhad (the Trustee ) and the registered unitholders of the Fund. The Fund commenced operations on 29 December 2014 and will continue its operations until terminated by the Trustee as provided under Clause 12.2 of the Deeds. The Fund may invest in any of the following investments: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) Listed securities Unlisted securities including, without limitation, securities that have been approved by the relevant regulatory authorities for the listing of the quotation for such securities; Government bonds, treasury bills and other government approved or guaranteed bonds; Debentures including private debt securities and bonds; Money market instruments; Deposits with financial institutions; Structured products such as credit linked-notes; Derivatives instruments, including but not limited to option, futures contracts, forward contracts and swaps; Warrants; Units/ shares in local and foreign collective investment schemes which are in line with the objective of the Fund; Any other form of investments permitted by the SC from time to time which are in line with the objective of the Fund. All investments will be subjected to the SC s Guidelines on Unit Trust Funds, the Deeds and the objective of the Fund. The main objective of the Fund endeavours to provide investors with regular income and capital growth over the medium to long-term period. 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 series to private clients. The financial statements were authorised for issue by the Manager on 18 April

22 2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES Financial instruments are as follows: 2018 Financial assets/ (liabilities) at fair value Loans and through Note receivables profit or loss Total RM RM RM Quoted investments 8-252,130, ,130,028 Cash and cash equivalents 9 28,300,255-28,300,255 Dividend receivables 362, ,744 Amount due from Manager - creation of units 827, ,673 Amount due from brokers 6,091,436-6,091,436 Forward foreign currency contracts at fair value through profit or loss 10 - (122,931) (122,931) Total 35,582, ,007, ,589, Quoted investments 8-192,178, ,178,349 Cash and cash equivalents 9 10,524,279-10,524,279 Dividend receivable 537, ,073 Amount due from Manager - creation of units 160, ,839 Amount due from brokers 1,425,790-1,425,790 Total 12,647, ,178, ,826,330 All current liabilities, except foreign forward 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), credit risk, liquidity 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. 21

23 2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES 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 Quoted investments Quoted equities designated at fair value through profit or loss 252,130, ,178,349 The following table summarises the sensitivity of the Fund s profit after taxation and net asset value to price risk movement. 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 % 239,523,527 (12,606,501) 0% 252,130, % 264,736,529 12,606, % 182,569,432 (9,608,917) 0% 192,178, % 201,787,266 9,608,917 22

24 2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES 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 an unfavourable movements against Ringgit Malaysia, the investments will face currency losses in addition to the capital gain/(loss). The Manager will evaluate the likely directions of the 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 currency and cash assets*/ equities contracts equivalents (liabilities)** Total RM RM RM RM RM Australian Dollar ,249-45,249 Chinese Yuan 11,544,875-2,901,981-14,446,856 Indian Rupee 13,576, ,576,206 Hong Kong Dollar 101,599,779-2,360,508 2,877, ,838,254 Indonesian Rupiah 7,229, (3,071,960) 4,157,183 Korean Won 35,583, , ,744 36,158,357 Singapore Dollar 37,347,988-50,329-37,398,317 Thailand Bath 5,051, ,051,007 Taiwan Dollar 17,959, ,959,781 United States Dollar 6,478,406 (334,941) 11,248,870-17,392, ,370,788 (122,931) 16,606, , ,023,545 23

25 2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES Market risk (continued) (c) Currency risk (continued) The following table sets out the foreign currency risk concentrations and counterparties of the Fund (continued): 2017 Cash Other Quoted and cash assets*/ equities equivalents (liabilities)** Total RM RM RM RM Australian Dollar - 190, ,836 Hong Kong Dollar 73,249,875 2,413,863 1,146,048 76,809,786 Indian Rupee 10,631,181 2,055,705-12,686,886 Indonesian Rupiah 12,223, ,223,929 Korean Won 18,701, ,533 18,958,592 Philippines Peso , ,742 Singapore Dollar 38,331,951 3,229, ,646 41,743,735 Taiwan Dollar 10,822,254 - (63,087) 10,759,167 United States Dollar 6,345,404 1,349,647 96,894 7,791, ,305,653 9,239,189 1,899, ,444,618 *Other assets consist of amount due from brokers and dividend receivables. **Other liabilities consist of amount due to brokers. The table below summarises the sensitivity of the Fund's profit after tax and net asset value to changes in foreign exchange movements. The analysis is based on the assumption that the foreign exchange rate changes by 5%, with all other variables remain constants. This represents management's best estimate of a reasonable possible shift in the foreign exchange rate, having regard to historical volatility of this rate. Any increase/(decrease) in foreign exchange rate will result in a corresponding (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 Change in profit after tax/ price NAV % RM Australian Dollar +/- 5 +/- 2,262 Chinese Yuan +/- 5 +/- 722,343 Indian Rupee +/- 5 +/- 678,810 Hong Kong Dollar +/- 5 +/- 5,341,913 24

26 2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES Market risk (continued) (c) Currency risk (continued) 2018 (continued) Impact on Change in profit after tax/ price NAV % RM Credit risk Indonesian Rupiah +/- 5 +/- 207,859 Korean Won +/- 5 +/- 1,807,918 Singapore Dollar +/- 5 +/- 1,869,916 Thailand Bath +/- 5 +/- 252,550 Taiwan Dollar +/- 5 +/- 897,989 United States Dollar +/- 5 +/- 869, Australian Dollar +/- 5 +/- 9,542 Hong Kong Dollar +/- 5 +/- 3,840,489 Indian Rupee +/- 5 +/- 634,344 Indonesian Rupiah +/- 5 +/- 611,196 Korean Won +/- 5 +/- 947,930 Philippines Peso +/- 5 +/- 13,987 Singapore Dollar +/- 5 +/- 2,087,187 Taiwan Dollar +/- 5 +/- 537,958 United States Dollar +/- 5 +/- 389,597 Credit risk refers to the ability of an issuer or counterparty to make timely payments of interest, principals and proceeds from realisation of investment. The Manager manages the credit risk by undertaking credit evaluation to minimise such risk. The settlement terms of amount due from brokers are governed by the relevant rules and regulations as prescribed by the respective stock exchanges. 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 the proceeds from the creation of units receivable from the Manager are governed by the SC's Guidelines on Unit Trust Funds. 25

27 2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES Credit risk (continued) The following table sets out the credit risk concentrations and counterparties of the Fund: 2018 Forward foreign Cash and currency cash Other contracts equivalents assets* Total RM RM RM RM Basic materials - NR ,941 28,941 Consumer goods - NR ,782 81,782 Finance - AAA (42,628) 11,669,592-11,626,954 - AA1-16,630,663-16,630,663 - AA3 (21,208) - - (21,208) - A3 (59,095) - - (59,095) - NR - - 6,091,436 6,091,436 Industrial - NR , ,324 Oil & Gas - NR ,697 60,697 Other - NR , ,673 (122,931) 28,300,255 7,281,853 35,459, Finance - AAA 1,266,752-1,266,752 - AA1 9,257,527-9,257,527 - NR - 173, ,900 Consumer product - NR - 124, ,979 Industrial product - NR - 1,531,430 1,531,430 Information technology - NR - 132, ,554 Other - NR - 160, ,839 10,524,279 2,123,702 12,647,981 26

28 2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES Credit risk (continued) * Other assets consist of amount due from brokers, dividend receivables and amount due from Manager. The financial assets of the Fund are neither past due nor impaired. 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 cancellation 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 369, ,241 - cancellation of units 51,326-51,326 Amount due to Trustee 11,975-11,975 Amount due to brokers 7,979,502-7,979,502 Auditor s remuneration - 3,719 3,719 Tax agent s fee - 6,885 6,885 Other payables and accruals 39,505 14,447 53,952 Forward foreign currency contracts at fair value through profit or loss 334, ,941 8,786,490 25,051 8,811,541 27