Affin Hwang Select Asia (ex Japan) Quantum Fund Interim Report 31 August 2015 MANAGER Affin Hwang Asset Management Berhad (429786-T) TRUSTEE HSBC (Malaysia) Trustee Berhad (1281-T)
AFFIN HWANG SELECT ASIA (EX JAPAN) QUANTUM FUND Interim Report and Unaudited Financial Statements For the 8 Months Financial Period Ended 31 August 2015 Content Page MANAGER S REPORT... 2 FUND PERFORMANCE DATA... 8 TRUSTEE S REPORT... 9 STATEMENT OF COMPREHENSIVE INCOME... 10 STATEMENT OF FINANCIAL POSITION... 11 STATEMENT OF CHANGES IN EQUITY... 12 CASH FLOWS STATEMENT... 13 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES... 14 NOTES TO THE FINANCIAL STATEMENTS... 22 STATEMENT BY THE MANAGER... 46 DIRECTORY OF SALES OFFICE... 47 1
MANAGER S REPORT (1) MANAGER S VIEW ON PORTFOLIO AND MARKET Fund Type, Category, Objective and Distribution Policy Affin Hwang Select Asia (Ex Japan) Quantum Fund ( the Fund ) is a growth fund categorised as equity with an objective to achieve consistent capital appreciation over medium-to-long term by investing mainly in growth companies in Asia (ex Japan) with market capitalisation of not more than USD1.5billion at the time of acquisition, subject to the flexibility of investing up to 25% of the NAV of the Fund in companies in Asia (ex Japan) with market capitalisation of not more than USD3.0 billion at the time of acquisition. The Fund is not expected to make any distribution. However, incidental distribution may be declared whenever is appropriate. Benchmark The benchmark used by the Manager in measuring the performance of the Fund is the MSCI AC ASIA (Ex- Japan) Small Cap Index ( the Benchmark ). Performance of the Fund (1 January 2015 to 31 August 2015) For the period 1 January 2015 to 31 August 2015, the Fund registered a return of 1.81%. It underperformed the Benchmark return of 7.86% by -6.05%. The Net Asset Value (NAV) per unit of the Fund on 31 August 2015 was RM1.2895 while the NAV per unit on 31 December 2014 was RM1.2666. (See Table 1 for the performance of the Fund and Figure 1 for movement of the Fund versus the Benchmark respectively). Since commencement until 31 August 2015, the Fund registered a return of 209.13%. Compared to the Benchmark return of 74.97% for the same period, the Fund outperformed the Benchmark by 134.16%. The fund has declared a total gross income distribution of RM0.150 per unit to-date. As the objective of the fund is to seek consistent capital appreciation over the medium to long term horizon, we believe the Fund has met its objective for the period. Table 1: Performance of the Fund For the Period (1/1/15-31/8/15) 1 Year (1/9/14-31/8/15) 3 Years (1/9/12-31/8/15) 5 Years (1/9/10-31/8/15) Since Commencement (6/5/04-31/8/15) Fund 1.81% (1.38%) 47.53% 117.48% 209.13% Benchmark 7.86% 8.70% 41.67% 27.03% 74.97% Outperformance / (Underperformance) -6.05% (10.08%) 5.86% 90.45% 134.16% Source of Benchmark: Bursa Malaysia Berhad / Bloomberg Table 2: Average Total Return 1 Year (1/9/14-31/8/15) 3 Years (1/9/12-31/8/15) 5 Years (1/9/10-31/8/15) Since Commencement (6/5/04-31/8/15) Fund (1.38%) 13.84% 16.80% 10.48% Benchmark 8.70% 12.31% 4.90% 5.06% Outperformance / (Underperformance) (10.08%) 1.53% 11.90% 5.42% Source of Benchmark: Bursa Malaysia Berhad / Bloomberg 2
Table 3: Annual Total Return FYE 2014 (01/1/14-31/12/14) FYE 2013 (01/1/13-31/12/13) FYE 2012 (01/1/12-31/12/12) FYE 2011 (01/1/11-31/12/11) FYE 2010 (01/1/10-31/12/10) Fund 8.85% 21.49% 27.42% 6.15% 27.76% Benchmark 6.60% 12.34% 15.09% (26.08%) 8.32% Outperformance / (Underperformance) 2.25% 9.15% 12.33% 32.23% 19.44% Source of Benchmark: Bursa Malaysia Berhad / Bloomberg Figure 1: Movement of the Fund versus the Benchmark 230 190 Affin Hwang Select Asia (ex Japan) Quantum Fund 150 110 70 30 Benchmark -10-50 May-04 Aug-05 Nov-06 Feb-08 May-09 Aug-10 Nov-11 Feb-13 May-14 Aug-15 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: MSCI AC ASIA (Ex-Japan) Small Cap Index Strategies Employed (1 January 2015 to 31 August 2015) The Manager continued to employ an active asset allocation, country selection and stock picking strategy for the Fund. Broadly however, the Manager took a conservative view of the markets given the continued strengthening of the USD (that historically acts as a headwind for Emerging Market assets) and the continued economic weakness globally (ex-us). The sharp rise in yields in the US and Emerging Market High Yield sector was also a factor in contributing to the Manager s cautiousness. This is reflected in the increase in cash levels. During the period under review, the Manager decided to further pare down exposure to the Indonesia market given the strong share price performance of some of the Fund s holdings. We shall revisit Indonesian ideas again should share prices consolidate. The Manager also reduced severely the oil and gas sector due to the sharp deterioration in oil prices. During the period under review, the Fund s exposure to China and Hong Kong was increased as China performed very strongly up till June. The Manager then trimmed exposure to China and Hong Kong towards the end of the period under review amidst global concerns on China s growth sustainability. At the end of the period under review, the Fund s equity exposure stood at 62.03%, whilst the remainder of the 37.97% was held in cash as a defensive measure in light of the volatile market conditions. 3
Asset Allocation As at 31 August 2015, the asset allocation of the Fund stood at 62.03% in equities and the balance in cash. For a snapshot of the Fund s asset mix and equity sector allocation during the period under review, please refer to Figure 2. Figure 2: Summary of Asset Allocation Asset Allocation 31 Aug 2015 % FYE 2014 % FYE 2013 % Equities - local Consumer Products - 9.13 1.13 Consumer Services 5.22 - - Industrial Products 3.81 - - Construction - - 1.77 Finance 13.30 9.61 8.16 Infrastructure Project Co - - 2.10 Oil & Gas - 2.60 - Technology - - - Plantation - - - Properties - 2.99 6.07 REITs - - - Trading & Services - 3.86 4.42 Warrants 1.32 - - Equities foreign Consumer Goods 8.05 12.67 9.95 Basic Materials - 1.61 4.40 Consumer Products 2.46 2.16 - Oil & Gas 2.22 2.54 - Agriculture - 1.70 4.05 Services - 4.59 18.39 Technology 3.07 3.67 - REITS 7.94 7.28 5.13 Energy - - 1.56 Materials - - 3.00 Finance - - 1.40 Trade Services & Investment - - 4.27 Manufacturing - - 2.72 Consumer Services 3.76-5.53 Construction - - 2.65 Financials 1.06-2.23 Properties & Constructions - - - Minings - - - Industrial 2.60 - - Healthcare 7.22 - - Equity 62.03 64.41 88.93 Cash 37.97 35.59 11.07 Total 100.00 100.00 100.00 The Manager continued to take defensive measures and has increased the cash allocation to 37.97% from 35.59% previously. Global markets were unstable and highly volatile due to weak demand and slowing growth globally. Review of Market (1 January 2015 to 31 August 2015) During the period under review, the Asian regional markets were volatile and remained challenging for investors. Oil prices stayed weak, global growth was benign, and the USD strength was not favourable for many Asian and emerging market currencies. The China market continued to ride on its strong momentum from last year, with the CSI 300 index rising by 150% over a 12-month period to 5,353.75 points (which was a 7-year high) in mid-june before undergoing a huge correction in early July, with the index falling to 3,663.04 points. The index then ended the period under review lower at 3,366.54 points. During the entirety of the period under review, the A-share market was 4
highly volatile, showing a promising rise from February to June before correcting sharply in July. We observed a period of equity bulls and economic bears where the stock market rose rapidly despite weak data, with the GDP slowing to 7% year-on-year. Rapid increases in margin debt helped fuel the rally; while the Chinese government also intervened heavily, in their effort to support investment into the stock market amidst a slowing economy. Alarmed by margin excesses, the China Securities Regulatory Commission (CSRC) tightened margin requirements, which led to a violent sell-off. The Chinese government subsequently reacted to the correction by cutting rates further, and flooding the market with further liquidity in order to support the stock market. Hong Kong s Hang Seng China Enterprise index reacted similarly, rising about from 11,720.10 points at 30 January 2015 to a high of 14,801.94 points on 26 May 2015 before ending the period under review lower at 9,741.41 points. Elsewhere in the Asia (ex Japan) region, Korean equities ended lower as concerns rose amidst the outbreak of MERS virus. ASEAN markets posted losses over the period under review, due to weak economic data, as seen in the TIP markets (Thailand, Indonesia and Philippines). Indonesian stocks were the biggest losers due to weak corporate earnings and slowing growth as plans by the Jokowi Administration to revitalize the economy struggled to deliver. Overall, in Asian markets, we observed some revived concerns over reversal of fund flows on the back of potential rate hikes by the US Fed, and also amidst concerns over slowing growth in the Asian (ex Japan) region. Also not helping was the situation at Greece as investors braced themselves for a potential Greek debt default after a collapse in negotiations forced the nation to impose capital controls and kept its banks shut. Better-than-expected fourth quarter of 2014 (4Q14) Gross Domestic Product (GDP) data helped to lift the FBM KLCI index to a first quarter of 2015 (1Q15) high of 1,825.54 points on 4 March 2015, although it then corrected to 1,778.16 points as the market digested the implications of another lackluster December 2014 earnings quarter. Subsequently, the market recovered to a year to date (YTD) high of 1,862.80 points on 21 April 2015 helped by the stabilisation of crude oil prices. Thereafter, the FBM KLCI index began to slide as the market continued to be broadsided by negative news flow. Political concerns, coupled with sliding oil prices and lackluster data did nothing to help the domestic market. The domestic FBM KLCI index, which ended the period under review at 1,609.21 points, closed 8.6% lower than the 1,761.25 points as registered at 1 January 2015. On the currency front, the USD has been strengthening against all Asian currencies as the end of Quantitative Easing (QE) and divergence in monetary policies amongst major central banks make the USD the preferred currency. Similarly, the domestic Ringgit has weakened against the USD during the period under review, and has been seeing some volatility since then, which was not helped by the weak oil price environment. The MYR fell to 4.1925 MYR per USD at 31 August 2015, as compared to 3.4965 MYR per USD as at 1 January 2015. Investment Outlook It is a challenging environment we face given the heightened concerns surrounding the health of emerging market economies in general and China in particular, the looming US interest rate hike and the implications for emerging markets and currencies, as well as questions surrounding the availability of policy options to central banks and governments to stabilize the global economy. As such, we will maintain an active investment strategy aimed at achieving a reasonable rate of return for the Fund without taking excessive risks. Asia (and Emerging Markets) is at the epicenter of the current volatility. We think growth would be below trend for most countries. The north Asian export oriented countries will face headwinds to growth due to a soft global growth environment. The commodities exporters too are saddled with low commodities prices. Such is being reflected in the persistent earnings downgrades we see across most markets. Asian stock markets will unlikely outperform as we head into September which is when the US Federal Reserve is expected to hike policy rates for the first time post global financial crisis. At the moment, our primary concern revolves around China. The slowdown in growth, government intervention in the stock market, uncertainties surrounding the Yuan will have far reaching implications on the region in terms of currencies and asset prices 5
As for the US, her economy continues to grow but at a less than robust pace. Coupled with a sluggish European recovery, this ought to lead to a much slower pace of interest rate increases. We have seen the members of the Federal Reserve committee already revise downwards their forecasts of future interest rates. In summary, this is the new normal that we face. It is one where volatility across all major asset classes is high. It is one where growth is slow and where rates should stay low. It is one where pockets of fragility will lead to the occasional risk-off events. It is one where active asset and country allocation strategies, and diligent stock picking are best suited for. (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 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 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. 6
(3) BREAKDOWN OF UNITHOLDERS BY SIZE AS AT 31 AUGUST 2015 Size of holdings (units) No. of unitholders No. of units held * ( 000) 5,000 and below 490 1,280 5,001 to 10,000 214 1,587 10,001 to 50,000 436 9,328 50,001 to 500,000 162 23,290 500,001 and above 22 80,149 Total 1,324 115,634 * Note: Excluding Manager s Stock 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. 7
FUND PERFORMANCE DATA As at 31 Aug 2015 As at 31 Dec 2014 As at 31 Dec 2013 Source: HSBC Trustee Total NAV (RM million) 149.121 160.526 170.960 NAV per Unit (RM) 1.2895 1.2666 1.2099 Units in Circulation (million) 115.642 126.742 141.297 Highest NAV 1.4079 1.3917 1.3357 Lowest NAV 1.2542 1.1671 1.0376 Return of the Fund (%) iii 1.81 8.85 21.49 - Capital Growth (%) i 1.81 4.69 16.61 - Total Income Return (%) ii Nil 3.976 4.184 Gross Distribution per Unit (sen) Nil 5.0 5.0 Net Distribution per Unit (sen) Nil 5.0 5.0 Management Expense Ratio (%) 1 1.14 1.68 1.67 Portfolio Turnover Ratio (times) 2 0.90 1.49 1.45 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 i Capital Growth = {NAV per Unit @ 31/08/15 NAV per Unit @ 31/12/14* - 1} x 100 = {1.2895 1.2666 1} x 100 = 1.81% ii Total Income Return = {Income Return @ex-date x Income Return @ex-date}-1x100 = Nil iii Return of the = [{(1 + Capital Growth) x (1 + Total Income Return)} 1] x 100 Fund = [{(1 + 1.81%) x (1 + 0.00%)} 1] x 100 = 1.81% * 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 fell slightly during the period under review due to the Fund holding higher cash levels, and holding less in equities. 2 The PTR of the Fund decreased slightly given the decrease in trading, and holding of higher cash levels amidst volatile market conditions. 8
TRUSTEE S REPORT TO THE UNITHOLDERS OF AFFIN HWANG SELECT ASIA (EX JAPAN) QUANTUM FUND We have acted as Trustee of Affin Hwang Select Asia (Ex Japan) Quantum Fund ( the Fund ) for the financial period ended 31 August 2015. 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) (b) (c) limitations imposed on the investment powers of the Management Company and the Trustee under the Deeds, the Securities Commission s Guidelines on Unit Trust Funds, the Capital Markets and Services Act 2007 and other applicable laws; valuation/pricing is carried out in accordance with the Deeds and any regulatory requirements; and creation and cancellation of units are carried out in accordance with the Deeds and any regulatory requirements. For HSBC (Malaysia) Trustee Berhad Tan Bee Nie Head, Trustee Operations Kuala Lumpur 22 October 2015 9
STATEMENT OF COMPREHENSIVE INCOME FOR THE 8 MONTHS FINANCIAL PERIOD ENDED 31 AUGUST 2015 INVESTMENT INCOME 8 months 6 months financial financial period ended period ended Note 31.08.2015 30.06.2014 RM RM Dividend income 1,595,387 1,541,289 Interest income from deposits with licensed financial institutions 332,978 41,501 Net gain/(loss) on foreign currency exchange 4,129,691 (478,383) Net (loss)/gain on forward foreign currency contracts at fair value through profit or loss (338,575) 772,695 Net gain on financial assets at fair value through profit or loss 7 408,828 29,851,373 6,128,309 31,728,475 EXPENSES Management fee 4 (1,639,880) (1,161,623) Trustee fee 5 (76,528) (54,209) Auditors' remuneration (4,327) (3,223) Tax agent's fee (2,364) (1,811) Transaction cost (1,109,614) (15,428,705) Other expenses (190,112) (57,785) (3,022,825) (16,707,356) NET PROFIT BEFORE TAXATION 3,105,484 15,021,119 TAXATION 6 (20,785) (47,596) NET PROFIT AFTER TAXATION AND TOTAL COMPREHENSIVE INCOME FOR THE FINANCIAL PERIOD 3,084,699 14,973,523 Net profit after taxation is made up of the following: Realised amount 11,365,563 (4,041,069) Unrealised amount (8,280,864) 19,014,592, 3,084,699 14,973,523 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 10
STATEMENT OF FINANCIAL POSITION AS AT 31 AUGUST 2015 ASSETS Note 31.08.2015 30.06.2014 RM RM Financial assets at fair value through profit or loss 7 92,504,432 141,703,869 Cash and cash equivalents 8 57,540,110 16,721,668 Dividend receivables 39,315 268,937 Amount due from Manager - creations of units - 215,557 Amount due from brokers 600,690 346,370 Forward foreign currency contracts at fair value through profit or loss 9-79,503 Tax recoverable - 70,024 TOTAL ASSETS 150,684,547 159,405,928 LIABILITIES Amount due to Manager - management fee 201,265 192,162 - cancellation of units 216,198 113,705 Amount due to Trustee 9,392 8,968 Amount due to brokers 1,104,899 - Auditors remuneration 4,328 3,223 Tax agent s fee 5,913 5,311 Other payables and accruals 21,808 5,250 TOTAL LIABILITIES 1,563,803 328,619 NET ASSET VALUE OF THE FUND 149,120,744 159,077,309 EQUITY Unitholders capital 108,324,038 112,571,178 Retained earnings 40,796,706 46,506,131 NET ASSETS ATTRIBUTABLE TO UNIT HOLDERS 149,120,744 159,077,309 NUMBER OF UNITS IN CIRCULATION 10 115,642,000 119,192,000 NET ASSET VALUE PER UNIT (RM) 1.2895 1.3346 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 11
STATEMENT OF CHANGES IN EQUITY FOR THE 8 MONTHS FINANCIAL PERIOD ENDED 31 AUGUST 2015 Unitholders Retained capital earnings Total RM RM RM Balance as at 1 January 2015 122,814,071 37,712,007 160,526,078 Total comprehensive income for the financial period - 3,084,699 3,084,699 Movement in unitholders capital: Creation of units 22,808,410-22,808,410 Cancellation of units (37,298,443) - (37,298,443) Balance as at 31 August 2015 108,324,038 40,796,706 149,120,744 Balance as at 1 January 2014 139,427,681 31,532,608 170,960,289 Total comprehensive income for the financial period - 14,973,523 14,973,523 Movement in unitholders capital: Creation of units 29,471,378-29,471,378 Cancellation of units (56,327,881) - (56,327,881) Balance as at 30 June 2014 112,571,178 46,506,131 159,077,309 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements 12
CASH FLOWS STATEMENT FOR THE 8 MONTHS FINANCIAL PERIOD ENDED 31 AUGUST 2015 CASH FLOWS FROM OPERATING ACIVITIES 8 months 6 months financial financial period ended period ended Note 31.08.2015 30.06.2014 RM RM Proceeds from sale of investments 161,345,106 124,788,225 Purchase of investments (147,087,398) (100,321,269) Dividends received 1,544,812 2,674,036 Interest received 332,978 41,501 Management fee paid (1,643,233) (1,183,125) Trustee fee paid (76,685) (55,212) Realised gains on forward foreign currency contracts (668,534) 633,828 Payment for other fees and expenses (177,804) (66,346) Net realised foreign currency exchange (loss)/gain 4,029,783 (445,438) Net cash generated from operating activities 17,599,025 26,066,200 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from creation of units 23,003,260 30,231,394 Payments for cancellation of units (37,178,457) (56,494,356) Net cash used in financing activities (14,175,197) (26,262,962) NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 3,423,828 (196,762) EFFECTS OF FOREIGN CURRENCY EXCHANGE 4,230,926 (36,437) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE FINANCIAL PERIOD 49,885,356 16,954,867 CASH AND CASH EQUIVALENTS AT THE END OF THE FINANCIAL PERIOD 8 57,540,110 16,721,668 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 13
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE 8 MONTHS FINANCIAL PERIOD ENDED 31 AUGUST 2015 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 provisions of the Malaysian Financial Reporting Standards ( MFRS ) and International Financial Reporting Standards ( IFRS ), as modified by financial assets 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) 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 March 2018 MFRS 15 Revenue from contracts with customers (effective from 1 January 2017) 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 standard replaces MFRS 118 Revenue and MFRS 111 Construction contracts and related interpretations. This standard is not expected to have a significant impact on the Fund s financial statements. 14
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (CONTINUED) (a) 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) (ii) Financial year beginning on/after 1 March 2018 MFRS 9 "Financial Instruments" (effective from 1 January 2018) will replace MFRS 139 "Financial Instruments: Recognition and Measurement". The complete version of MFRS 9 was issued in November 2014. 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 contractual 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. There is now a new expected credit losses model on impairment for all financial assets that replaces the incurred loss impairment model used in MFRS 139. The expected credit losses model is forward-looking and eliminates the need for a trigger event to have occurred before credit losses are recognised. This standard is not expected to have a significant impact on the Fund s financial statements. 15
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES B INCOME RECOGNITION Interest income from short term deposits with licensed financial institutions is recognised based on effective interest rate method on an accrual basis. Dividend income is recognised on the ex-dividend date, when the right to receive the dividend has been established. For quoted investments, realised gains and losses on sale of investments is accounted for as the difference between the net disposal proceeds and the carrying amount of investments, determined on a weighted average cost basis. C 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 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 period. Tax on investment income from foreign investments is based on the tax regime of the respective countries that the Fund invests in. E 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. F 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. 16
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES G 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 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 expires. Gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss category including the effects of foreign transactions are presented in the statement of comprehensive income within net gain/(loss) on financial assets at fair value through profit and loss in the period which they arise. 17
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES G FINANCIAL ASSETS AND FINANCIAL LIABILITIES (CONTINUED) (ii) Recognition and measurement (continued) 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. 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 deposit. Loans and receivables and other financial liabilities are subsequently carried at amortised cost using the effective interest method. 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 financial year, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor s credit rating), the reversal of the previously recognised impairment loss is recognised in statement of comprehensive income. When an asset is uncollectible, it is written off against the related allowance account. Such assets are written off after all the necessary procedures have been completed and the amount of the loss has been determined. 18
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES H 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. 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 amounts due from brokers is established when there is objective evidence that the Fund will not be able to collect all amounts due from the relevant broker. Significant financial difficulties of the broker, probability that the broker will enter bankruptcy or financial reorganisation, and default in payments are considered indicators that the amount due from brokers is impaired. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating the interest income or loans expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts throughout the expected life of the financial instrument, or, when appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Fund estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. 19
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES J CREATION AND CANCELLATION OF UNITS The Fund issues cancellable units, which are cancelled at the unitholder s option and are classified as equity. Cancellable units can be put back to the Fund at any time for cash equal to a proportionate share of the Fund s Net Asset Value or NAV. The outstanding units are carried at the redemption amount that is payable at the date of the statement of financial position if the unitholder exercises the right to put the unit back to the Fund. Units are created and cancelled at the unitholder s option at prices based on the Fund s NAV per unit at the time of creation or cancellation. The Fund s NAV is calculated by dividing the net assets attributable to unitholders with the total number of outstanding units. K UNITHOLDERS CAPITAL The unitholders capital to the Fund meets the definition of puttable instruments classified as equity instruments under MFRS 132 Financial Instruments: Presentation. The units in the Fund are puttable instruments which entitle the unitholders to a pro-rata share of the net asset of the Fund. The units are subordinated and have identical features. There is no contractual obligation to deliver cash or another financial asset other than the obligation on the Fund to repurchase the units. The total expected cash flows from the units in the Fund over the life of the units are based on the change in the net asset of the Fund. 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. 20
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 currency contracts is determined using forward exchange rates at the date of statement of financial position, with the resulting value discounted back to present value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and the nature of the item being hedged. Derivatives that do not qualify for hedge accounting are classified as held for trading and accounted for in accordance with the accounting policy set out in Note G. N CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS 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 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 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. 21
NOTES TO THE FINANCIAL STATEMENTS FOR THE 8 MONTHS FINANCIAL PERIOD ENDED 31 AUGUST 2015 1 INFORMATION ON THE FUND The Unit Trust Fund was constituted under the name Hwang-DBS Select Small Caps Fund (the Fund ) pursuant to the execution of a Deed dated 22 March 2004. The Fund has changed its name from First Supplemental Deed dated 29 December 2005, Second Supplemental Deed dated 18 June 2007 and Fourth Supplemental Deed dated 15 October 2008. The Fund has changed its name from Hwang-DBS Select Small Caps Fund to HwangDBS Asia Quantum Fund as amended by the Third Supplemental Deed dated 7 December 2007, from HwangDBS Asia Quantum Fund to Hwang Asia Quantum Fund as amended by the Fifth Supplemental Deed dated 18 January 2012, from Hwang Asia Quantum Fund to Hwang Select Asia (Ex Japan) Quantum Fund as amended by the Sixth Supplemental Deed dated 10 December 2012 and from Hwang Select Asia (Ex Japan) Quantum Fund to Affin Hwang Select Asia (Ex Japan) Quantum Fund as amended by the Seventh Supplemental Deed dated 27 June 2014. (the Deeds ) entered into between Affin Hwang Asset Management Berhad (the Manager ), HSBC (Malaysia) Trustee Berhad (the Trustee ) and the registered unitholders of the Fund. The Fund commenced operations on 6 May 2004 and will continue its operations until being terminated by the Trustee as provided under Clause 3.2 of the Deed. The Fund may invest in securities traded on Bursa Malaysia and other markets considered as eligible markets, collective investment schemes, unlisted securities, futures contracts and any other investments approved by the SC from time to time. All investments will be subjected to the SC Guidelines on UTF, the Deeds and the objective of the Fund. The main objective of the Fund is to achieve consistent capital appreciation over medium to long-term by investing mainly in growth companies in Asia (ex-japan) with market capitalisation of not more than USD1.5 billion at the time of acquisition, subject to the flexibility of investing up to 25% of the NAV of the Fund in companies in Asia (ex-japan) with market capitalisation of not more than USD3.0 billion at the time of acquisition. 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 issued by the Manager on 22 October 2015. 22
NOTES TO THE FINANCIAL STATEMENTS 2 FINANCIAL RISK MANAGEMENT, OBJECTIVES AND POLICIES Financial instruments are as follows: 31.08.2015 Financial assets at fair Loans and value through Note receivables profit or loss Total RM RM RM Quoted equities 7-92,504,432 92,504,432 Cash and cash equivalents 8 57,540,110-57,540,110 Dividend receivables 39,315-39,315 Amount due from brokers 600,690-600,690 Total 58,180,115 92,504,432 150,684,547 30.06.2014 Quoted equities 7 141,703,869 141,703,869 Cash and cash equivalents 8 16,721,668-16,721,668 Dividend receivables 268,937-268,937 Amount due from Manager creation of units 215,557-215,557 Amount due from brokers 346,370-346,370 Forward foreign currency contracts - 79,503 79,503 Total 17,552,532 141,783,372 159,335,904 All current liabilities, except forward foreign currency contracts are financial liabilities which are carried at amortised cost. The Fund is exposed to a variety of risks which include market risk (including price risk, interest rate risk, 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. 23
NOTES TO THE FINANCIAL STATEMENTS 2 FINANCIAL 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: 31.08.2015 30.06.2014 RM RM Quoted Equities Quoted equities designated at fair value through profit or loss 92,504,432 141,703,869 The table below 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 % change in price of profit after quoted investments Market value tax/nav RM RM 31.08.2015-5% 87,879,210 (4,625,222) 0% 92,504,432 - +5% 97,129,654 4,625,222 30.06.2014-5% 134,618,676 (7,085,193) 0% 141,703,869 - +5% 148,789,062 7,085,193 24
NOTES TO THE FINANCIAL STATEMENTS 2 FINANCIAL RISK MANAGEMENT, OBJECTIVES AND POLICIES (CONTINUED) Market risk (continued) (b) Interest rate risk Interest rate risk arises from the effects of fluctuations in the prevailing levels of market interest rates on the fair value of financial assets and liabilities and future cash flows. The Fund s exposure to the interest rate is mainly confined to short term placement with a financial institution. The Manager overcomes this exposure by way of maintaining short term basis. The Fund s exposure to interest rate risk associated with deposit with a licensed financial institution is not material as the deposit is 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 movement against Ringgit Malaysia, the investments will face currency losses in addition to the capital gain/(loss). The Manager will evaluate the likely directions of a foreign currency versus Ringgit Malaysia based on considerations of economic fundamentals such as interest rate differentials, balance of payments position, debt levels, and technical chart considerations. The following table sets out the foreign currency risk concentrations and counterparties of the Fund: 31.08.2015 Forward Cash Other foreign Quoted and cash assets*/ currency Equities equivalents (payables)** contract Total RM RM RM RM RM Hong Kong Dollar 16,712,248 17,799,022 - - 34,511,270 Indonesia Rupiah 307,294 - - - 307,294 Philippines Peso 6,549,670-21,343-6,571,013 Singapore Dollar 24,156,122 5,321,134 (988,620) - 28,488,636 United States Dollar 9,508,001 19,919,725 - - 29,427,726 57,233,335 43,039,881 (967,277) - 99,305,939 30.06.2014 Hong Kong Dollar 11,828,798 5,499,271 - - 17,328,069 Indonesia Rupiah 14,650,138-101,500-14,751,638 Korea Won 6,552,304 - - - 6,552,304 Philippines Peso 7,382,263 892,065 263,688 (409,534) 8,128,482 Singapore Dollar 44,403,767 3,395,457 - (420,201) 47,379,023 United States Dollar - 1,453,136-909,238 2,362,374 84,817,270 11,239,929 365,188 79,503 96,501,890 25
NOTES TO THE FINANCIAL STATEMENTS 2 FINANCIAL RISK MANAGEMENT, OBJECTIVES AND POLICIES (CONTINUED) Market risk (continued) (c) Currency risk (continued) * Other assets consist of dividend receivables and amount due from brokers. ** Other payables 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. 31.08.2015 Impact on Change in profit after tax/ price NAV % RM Hong Kong Dollar 5 1,725,564 Indonesia Rupiah 5 15,364 Philippine Peso 5 328,551 Singapore Dollar 5 1,424,432 United States Dollar 5 1,471,386 4,965,297 30.06.2014 Hong Kong Dollar 5 866,403 Indonesia Rupiah 5 737,582 Korea Won 5 327,615 Philippine Peso 5 406,424 Singapore Dollar 5 2,368,951 United States Dollar 5 118,119 4,825,094 26
NOTES TO THE FINANCIAL STATEMENTS 2 FINANCIAL RISK MANAGEMENT, OBJECTIVES AND POLICIES (CONTINUED) Credit risk Credit risk refers to the ability of an issuer or counterparty to make timely payments of interest, principals and proceeds from realisation of investment. The Manager manages the credit risk by undertaking credit evaluation to minimise such risk. The settlement terms of amount due from/to stockbrokers are governed by the relevant rules and regulations as prescribed by the respective stock exchanges. Credit risk arising from placements on 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 and redemption of units payable to the Manager are governed by the Securities Commission's Guidelines on Unit Trust Funds. The following table set out the credit risk concentration of the Fund. 31.08.2015 Forward Cash foreign and currency cash Other contracts equivalent assets* Total AAA - 55,539,056-55,539,056 Others - 2,001,054 640,005 2,641,059-57,540,110 640,005 58,180,115 30.06.2014 AAA 79,503 16,721,668-16,801,171 Others - - 830,864 830,864 79,503 16,721,668 830,864 17,632,035 * Other assets consist of dividend receivables, amount due from Manager and amount due from brokers. The financial assets of the Fund are neither past due nor impaired. 27
NOTES TO THE FINANCIAL STATEMENTS 2 FINANCIAL RISK MANAGEMENT, OBJECTIVES AND POLICIES (CONTINUED) Liquidity risk Liquidity risk is the risk that the Fund will encounter difficulty in meeting its financial obligations. The Manager manages this risk by maintaining sufficient level of liquid assets to meet anticipated payments and cancellations of units by unitholders. The 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. 31.08.2015 Between Within one month one month and one year Total RM RM RM Amount due to Manager - management fee 201,265-201,265 - cancellation of units 216,198-216,198 Amount due to Trustee 9,392-9,392 Amount due to brokers 1,104,899-1,104,899 Auditors remuneration - 4,328 4,328 Tax agent s fee - 5,913 5,913 Other payables and accruals 17,484 4,324 21,808 1,549,238 14,565 1,563,803 30.06.2014 Amount due to Manager - management fee 192,162-192,162 - cancellation of units 113,705-113,705 Amount due to Trustee 8,968-8,968 Auditors remuneration - 3,223 3,223 Tax agent s fee - 5,311 5,311 Other payables and accruals - 5,250 5,250 314,835 13,784 328,619 Capital risk The capital of the Fund is represented by equity consisting of unitholders capital and retained earnings. The amount of equity can change significantly on a daily basis as the Fund is subject to daily subscriptions and redemptions at the discretion of unitholders. The Fund s objective when managing capital is to safeguard the Fund s ability to continue as a going concern in order to provide returns for shareholders and benefits for other unitholders and to maintain a strong capital base to support the development of the investment activities of the Fund. 28
NOTES TO THE FINANCIAL STATEMENTS 3 FAIR VALUE ESTIMATION The fair value of financial assets and liabilities that are not traded in an active market is determined by using valuation techniques. The Fund uses a variety of methods and makes assumptions that are based on market conditions existing at each year end date. Valuation techniques used for non-standardised financial instruments such as options, currency swaps and other over-the-counter derivatives, include the use of comparable recent arm s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entityspecific inputs. Financial instruments comprise financial assets and financial liabilities. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of financial assets traded in active markets (such as trading securities) is based on quoted market prices at the close of trading on the year end date. An active market is a market in which transactions for the asset take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The fair value of financial assets that are not traded in an active market is determined by using valuation techniques. (i) Fair value hierarchy The table below analyses financial instruments carried at fair value. The different levels have been defined as follows: Quoted prices (unadjusted) in active market for identical assets or liabilities (Level 1) Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2) Inputs for the asset and liability that are not based on observable market data (that is, unobservable inputs) (Level 3) The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability. The determination of what constitutes observable requires significant judgment by the Fund. The Fund considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary and provided by independent sources that are actively involved in the relevant market. 29
NOTES TO THE FINANCIAL STATEMENTS 3 FAIR VALUE ESTIMATION (CONTINUED) (i) Fair value hierarchy (continued) The following table analyses within the fair value hierarchy the Fund s financial assets (by class) measured at fair value. 31.08.2015 Level 1 Level 2 Level 3 Total RM RM RM RM Financial assets at fair value through profit or loss at inception - quoted equities 92,504,432 - - 92,504,432 30.06.2014 Financial assets at fair value through profit or loss at inception - quoted equities 141,703,869 - - 141,703,869 - forward foreign currency contracts - 79,503-79,503 141,703,869 79,503-141,783,372 Investments whose values are based on quoted market prices in active markets, and are therefore classified within Level 1, include active listed equities. The Fund does not adjust the quoted prices for these instruments. Financial instruments that trade in markets that are considered to be active but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. These include forward foreign currency contracts. As Level 2 instruments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information. (ii) The carrying values of cash and cash equivalents, amount due from Manager, amount due from brokers, dividend receivables and all current liabilities are a reasonable approximation of the fair values due their short term nature. 30
NOTES TO THE FINANCIAL STATEMENTS 4 MANAGEMENT FEE In accordance with the Deed, the Manager is entitled to a management fee at a rate not exceeding 3.00% per annum on the NAV of the Fund calculated on daily basis. For the financial period ended 31 August 2015 the management fee is recognised at a rate of 1.50% (2014: 1.50%) per annum on the NAV of the Fund calculated on daily basis. There will be no further liability to the Manager in respect of management fee other than the amounts recognised above. 5 TRUSTEE S FEE In accordance with the Deed, the Trustee is entitled to an annual fee at a rate not exceeding 0.3% per annum on the NAV of the Fund, subject to a minimum fee of RM18,000 per annum. For the financial period ended 31 August 2015, the Trustee s fee is recognised at a rate of 0.07% (2014: 0.07%) per annum, inclusive of local custodian fee but exclusive of foreign sub-custodian fee, on the NAV of the Fund, subject to a minimum fee of RM18,000 per annum, calculated on daily basis. There will be no further liability to the Trustee in respect of trustee fee other than the amount recognised above. 31
NOTES TO THE FINANCIAL STATEMENTS 6 TAXATION 8 months 6 months financial financial period ended period ended 31.08.2015 30.6.2014 RM RM Current tax - Foreign 20,785 47,596 The numerical reconciliation between net profit before taxation multiplied by the Malaysian statutory tax rate and tax expense of the Fund is as follows: 8 months 6 months financial financial period ended period ended 31.08.2015 30.6.2014 RM RM Net profit before taxation 3,105,568 15,021,119 Tax at Malaysian statutory rate of 25% (2014: 25%) 776,392 3,755,280 Tax effects of: Income not subject to tax (1,532,079) (7,932,119) Expenses not deductible for tax purposes 344,633 3,885,255 Restrictions on tax deductible expenses for unit trust funds 411,054 291,584 Foreign income subject to foreign tax 20,785 47,596 Tax expense 20,785 47,596 7 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS 31.08.2015 30.06.2014 RM RM Designated at fair value through profit or loss at inception - quoted equities local 35,271,097 56,886,599 - quoted equities - foreign 57,233,335 84,817,270 92,504,432 141,703,869 Net gain on assets at fair value through profit or loss - realised gain on sale of investments 9,119,559 10,939,211 - change in unrealised (loss)/gain (8,710,731) 18,912,162 408,828 29,851,373 32
NOTES TO THE FINANCIAL STATEMENTS 7 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) (a) Quoted equities - local (i) Quoted equities - local as at 31 August 2015 are as follows: Aggregate Fair Percentage Quantity cost value of NAV RM RM % CONSUMER SERVICES 7-Eleven Malaysia Holdings Bhd 2,506,200 3,983,954 3,659,052 2.45 Berjaya Food Bhd 1,983,000 5,298,548 4,124,640 2.77 4,489,200 9,282,502 7,783,692 5.22 FINANCE Aeon Credit Service Malaysia Bhd 280,360 2,870,732 3,414,785 2.29 Allianz Malaysia Berhad 471,850 2,581,884 4,878,929 3.27 Eco World Development Group Bhd 726,600 1,177,092 930,048 0.62 Eastern & Oriental Bhd 679,750 1,225,077 1,019,625 0.68 PJ Development Holdings Bhd 2,736,100 4,112,660 4,240,955 2.85 Sona Petroleum Bhd 6,411,600 2,740,366 2,724,930 1.83 Tune Insurance Holdings Bhd 2,020,782 3,405,607 2,627,016 1.76 13,327,042 18,113,418 19,836,288 13.30 INDUSTRIAL PRODUCTS DKSH Holdings Malaysia Bhd 583,400 2,647,201 2,263,592 1.52 Jaks Resources Bhd 2,790,600 1,941,172 2,204,574 1.48 WCT Holdings Bhd 1,054,339 1,584,485 1,212,490 0.81 4,428,339 6,172,858 5,680,656 3.81 WARRANTS PJ Development Holdings Bhd - Warrants (5.12.2020) 3,311,700 1,894,053 1,970,461 1.32 WCT Holdings Bhd - Warrants (31.12.2099) 210,867 - - 0.00 3,522,567 1,894,053 1,970,461 1.32 Total quoted equities - local 25,767,148 35,462,831 35,271,097 23.65 Accumulated unrealised loss on quoted equities - local (191,734) Total quoted equities - local 35,271,097 33
NOTES TO THE FINANCIAL STATEMENTS 7 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) (a) Quoted equities - local (continued) (ii) Quoted equities - local as at 30 June 2014 are as follows Aggregate Fair Percentage Quantity cost value of NAV RM RM % CONSUMER SERVICES 7-Eleven Malaysia Holdings Bhd 1,183,900 1,677,738 1,977,113 1.24 CONSTRUCTION Kumpulan Europlus Bhd 1,700,000 2,074,000 2,142,000 1.35 Titijaya Land Bhd 1,617,800 2,404,332 3,947,432 2.48 3,317,800 4,478,332 6,089,432 3.83 FINANCE Aeon Credit Service (M) Bhd 357,160 3,623,197 5,507,407 3.46 Allianz Malaysia Bhd 433,450 2,109,637 5,504,815 3.46 Tune Insurance Holdings Bhd 1,533,982 2,463,022 3,466,799 2.18 2,324,592 8,195,856 14,479,021 9.10 INDUSTRIAL PRODUCTS APM Automotive Holdings Bhd 728,200 4,360,372 4,354,636 2.74 PROPERTIES Eastern & Oriental Bhd 3,684,100 6,840,771 10,131,275 6.37 TRADING/SERVICES DKSH Holdings Malaysia Bhd 614,300 2,536,802 5,086,404 3.20 Berjaya Auto Bhd 2,198,700 4,138,632 5,013,036 3.15 Faber Group Bhd 1,465,900 3,872,942 5,130,650 3.22 Icon Offshore Bhd 424,400 785,140 785,140 0.49 Jobstreet Corp Bhd 1,613,400 3,872,160 3,839,892 2.41 6,316,700 15,205,676 19,855,122 12.47 Total quoted equities - local 17,555,292 40,758,745 56,886,599 35.75 Accumulated unrealised gain on quoted equities - local 16,127,854 Total quoted equities - local 56,886,599 34
NOTES TO THE FINANCIAL STATEMENTS 7 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) (b) Quoted equities - foreign (i) HONG KONG Quoted equities - foreign as at 31 August 2015 are as follows: Aggregate Fair Percentage Quantity cost value of NAV RM RM % CONSUMER PRODUCTS Asiaray Media Group Ltd 130,000 335,316 273,988 0.18 EGL Holdings Co Ltd 1,171,000 1,307,571 1,383,096 0.93 Nirvana Asia Ltd 1,910,700 2,007,094 2,018,674 1.35 3,211,700 3,649,981 3,675,758 2.46 INFORMATION TECHNOLOGY HKBN Ltd 1,057,300 4,829,639 4,571,304 3.07 INDUSTRIAL Greatview Aseptic Packaging Co 2,017,000 3,930,763 3,879,478 2.60 HEALTHCARE Phoenix Healthcare Grp Co Ltd 755,700 5,523,023 4,585,708 3.07 INDONESIA CONSUMER GOODS Nippon Indosari Corpindo Tbk 910,500 310,499 307,294 0.21 PHILIPPINES CONSUMER SERVICE Robinsons Retail Holdings Inc 408,460 2,706,381 2,533,718 1.70 CONSUMER GOODS Del Monte Pacific Ltd 4,174,890 4,678,346 4,015,952 2.69 35
NOTES TO THE FINANCIAL STATEMENTS 7 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) (b) Quoted equities - foreign (continued) (i) SINGAPORE Quoted equities - foreign as at 31 August 2015 are as follows (continued): Aggregate Fair Percentage Quantity cost value of NAV RM RM % CONSUMER GOODS Del Monte Pacific Ltd 4,200,000 3,650,965 4,079,848 2.74 Bumitama Agri Ltd 1,670,700 4,437,851 3,595,360 2.41 5,870,700 8,088,816 7,675,208 5.15 CONSUMER SERVICE ifast Corp Ltd 814,700 2,146,590 3,068,172 2.06 FINANCIAL Wing Tai Holdings Limited 320,900 1,382,291 1,577,782 1.06 REITS Mapletree Greater China 850,000 2,341,666 2,350,023 1.58 CapitaLand Retail China Trust 924,462 3,383,498 3,854,559 2.58 Religare Health Trust 2,036,500 4,430,120 5,630,378 3.78 3,810,962 10,155,284 11,834,960 7.94 UNITED STATES HEALTHCARE IKang Healthcare Group Inc 94,000 5,720,884 6,192,937 4.15 OIL AND GAS China Aviation Oil Sg Corp Ltd 1,774,600 3,949,483 3,315,064 2.22 Total quoted equities - foreign 25,221,412 57,071,980 57,233,335 38.38 Accumulated unrealised gain on Quoted equities - foreign 161,355 Total quoted equities - foreign 57,233,335 36
NOTES TO THE FINANCIAL STATEMENTS 7 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) (b) Quoted equities - foreign (continued) (ii) HONG KONG Quoted equities - foreign as at 30 June 2014 are as follows (continued): Aggregate Fair Percentage Quantity cost value of NAV RM RM % CONSUMER PRODUCTS Greatview Aseptic Packaging Co. Ltd 1,829,000 3,238,421 3,984,828 2.50 INFORMATION TECHNOLOGY Ourgame International Holdings Ltd 2,300,000 4,052,343 3,572,475 2.25 SERVICES Pacific Basin Shipping Ltd 2,144,000 4,295,296 4,271,495 2.68 INDONESIA INFRASTRUCTURE, UTILITY, TRANSPORT Logindo Samudramakmur Tbk 1,437,900 1,678,101 1,625,357 1.02 MINING Elnusa 30,000,000 4,780,060 5,104,890 3.21 PROPERTY & REAL ESTATE Ciputra Development Tbk 10,000,000 2,732,566 2,498,425 1.57 TRADE, SERVICES & INVESTMENT MNC Sky Vision Tbk 7,185,900 4,257,402 4,075,914 2.56 Electronis Cit Indonesia Tbk 2,930,400 3,563,922 1,345,552 0.85 10,116,300 7,821,324 5,421,466 3.41 37
NOTES TO THE FINANCIAL STATEMENTS 7 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) (b) Quoted equities - foreign (continued) (ii) Quoted equities - foreign as at 30 June 2014 are as follows (continued): KOREA Aggregate Fair Percentage Quantity cost value of NAV RM RM % CHEM,PETROL,COAL,RUB PLAST MFG BGF Retail Co Ltd 33,000 5,643,401 6,552,304 4.12 PHILIPPINES BANKS D&L Industries Incorporation 6,750,000 3,238,109 4,891,793 3.07 CONSTRCUTIONS Megawide Construction Corporation 2,659,650 3,185,637 2,490,470 1.57 SINGAPORE AGRICULTURE Bumitama Agriculture Ltd 3,039,000 7,520,680 9,375,923 5.89 REITS Capitalretail China Trust 1,300,000 4,972,977 4,946,604 3.11 Religare Health Trust Unit 2,337,000 5,041,205 5,557,795 3.49 3,637,000 10,014,182 10,504,399 6.60 SERVICES Keppel Telecom & Transport Ltd 1,606,000 6,405,148 7,349,666 4.62 Pacific Radiance Ltd 2,150,000 5,459,423 7,296,498 4.59 Silverlake Axis Ltd 1,851,000 3,388,792 5,686,911 3.57 5,607,000 15,253,363 20,333,075 12.78 TRANSPORTATION/ STORAGE/COMMUNICATION Pacc Offshore Services Holdings Pte Ltd 1,436,000 4,236,219 4,190,370 2.63 38
NOTES TO THE FINANCIAL STATEMENTS 7 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) (b) Quoted equities - foreign (continued) (ii) Quoted equities - foreign as at 30 June 2014 are as follows (continued): Aggregate Fair Percentage Quantity cost value of NAV RM RM % Total quoted equities - foreign 80,988,850 77,689,702 84,817,270 53.30 Unrealised gain on quoted equities - foreign 7,127,568 Total quoted equities - foreign 84,817,270 39
NOTES TO THE FINANCIAL STATEMENTS 8 CASH AND CASH EQUIVALENTS 31.08.2015 30.06.2014 RM RM Cash and bank balances 43,053,514 11,336,840 Deposits with a licensed financial institution 14,486,596 5,384,828 57,540,110 16,721,668 Weighted average effective interest rates per annum and weighted average maturity of deposits with licensed financial institution are as follows: 31.08.2015 30.06.2014 % % Deposits with licensed a financial institutions 3.81 3.00 Deposits with licensed financial institutions of the Fund have an average of 1 day (2014: 1 day). 9 FORWARD FOREIGN CURRENCY CONTRACT As at the date of statement of financial position, there is NIL (2014: 3) forward currency contracts outstanding. The notional principal amount of the outstanding forward currency contracts on 30 June 2014 was amounted to RM62,059,737. The forward currency contracts entered into during the financial period are for hedging against the currency exposure arising from the investment in the foreign equities denominated in Philippines Peso, Singapore Dollar and United States Dollar. As the Fund has not designated the forward contracts as part of a hedging relationship for hedge accounting purpose, the change in the fair value of the forward currency contract is recognised immediately in the statement of comprehensive income. 40
NOTES TO THE FINANCIAL STATEMENTS 10 NUMBER OF UNITS IN CIRCULATION 31.08.2015 30.06.2014 No. of units No. of units At the beginning of the financial period 126,742,000 141,297,000 Creation of units arising from applications 16,948,000 23,315,000 Cancellation of units during the financial period (28,048,000) (45,420,000) At the end of the financial period 115,642,000 119,192,000 11 TRANSACTIONS WITH BROKERS AND DEALERS (i) Details of transactions with the top 10 brokers and dealer for the 8 months financial period ended 31 August 2015 is as follows: Name of brokers/dealers Value Percentage Brokerage Percentage of of trade of total trade fees total brokerage RM % RM % Public Bank Bhd 144,070,000 29.70 - - Bank Islam Malaysia Bhd 35,000,000 7.22 - - Affin Hwang Investment Bank Bhd 30,067,072 6.20 70,240 8.68 CCB International Group* 23,943,534 4.94 67,151 8.30 UOB Kay Hian Group* 21,699,667 4.47 92,443 11.43 CLSA Group* 21,360,207 4.40 61,441 7.60 DBS Securities (S) Pte Ltd 19,616,135 4.04 49,040 6.06 Kenanga Investment Bank Bhd 19,246,063 3.97 48,115 5.95 Credit Suisse Group* 17,539,193 3.62 43,914 5.43 Daiwa Securities Co Ltd 17,280,572 3.56 43,201 5.34 Others 135,244,504 27.88 333,312 41.21 485,066,947 100.00 808,857 100.00 41
NOTES TO THE FINANCIAL STATEMENTS 11 TRANSACTIONS WITH BROKERS AND DEALERS (CONTINUED) (ii) Details of transactions with the top 10 brokers and dealers for the 6 months financial period ended 30 June 2014 is as follows: Name of brokers/dealers Value Percentage Brokerage Percentage of of trade of total trade fees total brokerage RM % RM % DBS Securities (S) Pte Ltd 28,705,851 11.91 103,857 15.13 CIMB Group* 17,948,546 7.44 46,770 6.81 Public Bank Bhd 17,220,000 7.14 - - Maybank Bhd 16,545,281 6.86 58,627 8.54 Merrill Lynch International Ltd 16,354,135 6.78 45,216 6.59 China International Capital Corporation (HK) Securities Ltd 15,482,692 6.42 69,100 10.07 UOB Group* 13,178,570 5.47 41,138 5.99 CLSA Group* 12,632,381 5.24 35,228 5.13 Mandiri Securities 12,346,248 5.12 37,039 5.40 Deutsche Bank AG 10,277,020 4.26 21,945 3.20 Others 80,451,641 33.36 227,465 33.14 241,142,365 100.00 686,385 100.00 Note: *Group Wide. Included in transactions with brokers are trades conducted with Affin Hwang Investment Bank Bhd the holding company of the Manager accounting RM30,067,072 (2014: RM7,129,389). The Manager is of the opinion that all transactions with the holding company have been entered into in the normal course of business at agreed terms between the related parties. 42
NOTES TO THE FINANCIAL STATEMENTS 12 UNITS HELD BY THE MANAGER AND PARTIES RELATED TO THE MANAGER The related parties of and their relationship with the Fund are as follows: Related parties Relationships Affin Hwang Asset Management Berhad Affin Hwang Investment Bank Berhad Affin Holdings Berhad ( AHB ) Subsidiaries and associates of AHB as disclosed in its financial statements Director of Affin Hwang Asset Management Berhad Non-Executive Chairman of AHB The Manager Holding company of the Manager Ultimate holding company of the Manager Subsidiary and associated companies of the ultimate holding company of the Manager Director of the Manager Non-Executive Chairman of the ultimate holding company of the Manager The Manager: 31.08.2015 30.06.2014 No. of units RM No. of units RM Affin Hwang Asset Management Berhad 7,297 9,409 6,033 8,052 43
NOTES TO THE FINANCIAL STATEMENTS 13 MANAGEMENT EXPENSE RATIO ( MER ) 31.08.2015 30.06.2014 % % MER 1.14 0.82 MER is derived from the following calculation: MER = (A + B + C + D + E) x 100 F A = Management fee B = Trustee fees C = Auditors remuneration D = Tax agent s fee E = Other expenses, excluding goods and service tax on transaction costs F = Average NAV of the Fund calculated on a daily basis The average NAV of the Fund for the financial period calculated on a daily basis is RM164,329,268 (2014: RM156,242,805) 14 PORTFOLIO TURNOVER RATIO ( PTR ) 31.08.2015 30.06.2014 PTR (times) 0.90 0.69 PTR is derived from the following calculation: (Total acquisition for the financial period + total disposal for the financial period) 2 Average NAV of the Fund for the financial period calculated on a daily basis where: total acquisition for the financial period = RM145,485,520 (2014: RM100,321,269) total disposal for the financial period = RM148,784,790 (2014: RM114,142,061) 44
NOTES TO THE FINANCIAL STATEMENTS 15 SEGMENT INFORMATION The strategic asset allocation committee of the Investment Manager makes the strategic resource allocations on behalf of the fund. The Fund has determined the operating segments based on the reports reviewed by this committee that are used to make strategic decisions. The committee is responsible for the Fund s entire portfolio and considers the business to have a single operating segment. The committee s asset allocation decisions are based on a single, integrated investment strategy and the Fund s performance is evaluated on an overall basis. The reportable operating segments derive their income by seeking investments to achieve targeted returns consummate with an acceptable level of risk within each portfolio. These returns consist of interest, dividends and gains on the appreciation in the value of investments. There were no changes in the reportable segments during the financial period. The internal reporting provided to the committee for the fund s assets, liabilities and performance is prepared on a consistent basis with the measurement and recognition principles of MFRS. 16 CHANGE FINANCIAL YEAR END OF THE FUND The Fund has changed its financial year end from 31 December 2015 to 29 February 2016. 45
AFFIN HWANG SELECT ASIA (EX JAPAN) QUANTUM FUND STATEMENT BY THE MANAGER We, Maimoonah Binti Mohamed Hussain and Teng Chee Wai, as the Directors of Affin Hwang Asset Management Berhad, do hereby state that in our opinion as the Manager, the financial statements set out on pages 10 to 45 are drawn up in accordance with the provisions of the Deeds and give a true and fair view of the financial position of the Fund as at 31 August 2015 and of its financial performance, changes in equity and cash flows for the financial period ended 31 August 2015 in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards. For and on behalf of the Manager, AFFIN HWANG ASSET MANAGEMENT BERHAD MAIMOONAH BINTI MOHAMED HUSSAIN DIRECTOR TENG CHEE WAI EXECUTIVE DIRECTOR Kuala Lumpur 22 October 2015 46
DIRECTORY OF SALES OFFICE HEAD OFFICE Affin Hwang Asset Management Berhad Suite 11-01, 11 th Floor Tel : 03 2116 6000 Menara Keck Seng Fax : 03 2116 6100 203, Jalan Bukit Bintang Toll free no : 1-800-88-7080 55100 Kuala Lumpur Email:customercare@affinhwangam.com SELANGOR Affin Hwang Asset Management Berhad A-7-G Jaya One No. 72A, Jalan Universiti 46200 Petaling Jaya Tel: 03-7620 1290 Selangor Fax: 03-7620 1298 PENANG Affin Hwang Asset Management Berhad No. 10-C-24 Precinct 10 Jalan Tanjung Tokong Tel : 04 899 8022 10470 Penang Fax : 04 899 1916 PERAK Affin Hwang Asset Management Berhad 13A Persiaran Greentown 7 Greentown Business Centre Tel : 05 241 0668 30450 Ipoh Perak Fax : 05 255 9696 MELAKA Affin Hwang Asset Management Berhad Ground Floor, No. 584, Jalan Merdeka Taman Melaka Raya Tel : 06 281 2890 / 3269 75000 Melaka Fax : 06 281 2937 JOHOR Affin Hwang Asset Management Berhad 1 st Floor, Lot 93 Jalan Molek 1/29, Taman Molek 81100 Johor Bahru Tel : 07 351 5977 Johor Fax : 07 351 5377 SABAH Affin Hwang Asset Management Berhad Lot No. B-2-09, 2 nd Floor Block B, Warisan Square Jalan Tun Fuad Stephens 88000 Kota Kinabalu Tel : 088 252 881 Sabah Fax : 088 288 803 47
DIRECTORY OF SALES OFFICE (Continued) SARAWAK Affin Hwang Asset Management Berhad Ground Floor, No. 69 Block 10, Jalan Laksamana Cheng Ho 93200 Kuching Tel : 082 233 320 Sarawak Fax : 082 233 663 Affin Hwang Asset Management Berhad 1 st Floor, Lot 1291 Jalan Melayu, MCLD 98000 Miri Tel : 085 418 403 Sarawak Fax : 085 418 372 48
www.affinhwangam.com Affin Hwang Asset Management Berhad (429786-T) Suite 11-01, 11th Floor, Menara Keck Seng, 203 Jalan Bukit Bintang, 55100 Kuala Lumpur, Malaysia