AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking...

50

Transcript of AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking...

Page 1: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split
Page 2: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

1

AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III Interim Report and Unaudited Financial Statements For The Financial Period Ended 30 November 2018

Contents 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 ................................................................................. 10

STATEMENT OF CHANGES IN EQUITY ................................................................................. 11

STATEMENT OF CASH FLOWS .............................................................................................. 12

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ........................................................ 13

NOTES TO THE FINANCIAL STATEMENTS ........................................................................... 20

STATEMENT BY THE MANAGER ........................................................................................... 46

DIRECTORY OF SALES OFFICE ............................................................................................ 47

Page 3: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

2

FUND INFORMATION

Fund Name Affin Hwang Flexible Maturity Income Fund III

Fund Type Income

Fund Category Fixed Income (close-ended)

Investment Objective The Fund aims to provide income through investments in fixed income instruments

Duration of the Fund Three (3) years close-ended Fund

Termination Date 3 June 2019

Benchmark 3‐years Malayan Banking Berhad fixed deposit rate as at Investment Date

Distribution Policy Depending on the level of income the Fund generates, the Fund will provide distribution on an annual basis

BREAKDOWN OF UNITHOLDERS BY SIZE AS AT 30 NOVEMBER 2018

Size of holdings (units)

No. of unitholders No. of units held * (‘000)

5,000 and below 21 78

5,001 to 10,000 33 307

10,001 to 50,000 88 2,756

50,001 to 500,000 49 8,203

500,001 and above 7 114,930

Total 198 126,274

* Note: Excluding Manager’s stock

Page 4: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

3

FUND PERFORMANCE DATA

Category As at

30 Nov 2018 (%)

As at 30 Nov 2017

(%)

As at 30 Nov 2016

(%)

Portfolio composition

Unquoted fixed income securities – local 54.76 28.46 25.71 Unquoted fixed income securities – foreign 20.70 65.23 66.72 Total unquoted fixed income securities 75.46 93.69 92.43 Cash & cash equivalent 24.54 6.31 7.57

Total 100.00 100.00 100.00

Total NAV (RM’million) 133.781 136.036 134.969 NAV per Unit (RM) 1.0594 1.0602 1.0224 Unit in Circulation (million) 126.276 128.315 132.016 Highest NAV 1.0594 1.0620 1.0340 Lowest NAV 1.0334 1.0281 1.0000 Return of the Fund (%)

iii 2.57 3.21 2.24

- Capital Growth (%)i -1.84 -1.25 2.24

- Income Distribution (%)ii 4.49 4.52 Nil

Gross Distribution per Unit (sen) 4.64 4.64 Nil Net Distribution per Unit (sen) 4.64 4.64 Nil Management Expense Ratio (%)

1 0.04 0.04 0.04

Portfolio Turnover Ratio (times)2

0.49 0.27 0.66

Basis of calculation and assumption made in calculating the returns:- The performance figures are a comparison of the growth/decline in NAV for the stipulated period taking into account all the distribution payable (if any) during the stipulated period. An illustration of the above would be as follow:- Capital return = NAV per Unit end / NAV per Unit begin – 1 Income return = Income distribution per Unit / NAV per Unit ex-date Total return = (1+Capital return) x (1+Income return) – 1 Capital Return

i = (NAV per Unit @ 30/11/18 ÷ NAV per Unit @ 31/5/18* - 1) x 100

= (1.0594 ÷ 1.0793 – 1) x 100 = -1.84% Income Return @ ex-date = {Income distribution per Unit ÷ NAV per Unit on ex- date} + 1 = {0.0464 ÷ 1.0334 @ 01/06/18} + 1 = 1.0449 Total Income Return

ii = {Income distribution per Unit ÷ NAV per Unit on ex-date} x 100

= {1.0449} – 1 x 100 = 4.49%

Return of the Fund

iii = [{(1 + Capital Return) x (1 + Income Return)} – 1] x 100

= [{(1 + (-1.84%)) x (1 + 4.49%)} – 1] x 100 = 2.57% * Source – TMF Trustees Malaysia Bhd

1The MER of the Fund remained unchanged during the period under review.

2The PTR of the Fund was higher than previous year due to higher average sum of total acquisition and disposal for the financial year.

Page 5: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

4

Table 1: Performance of the Fund

6 Months (1/6/18 - 30/11/18)

1 Year (1/12/17 - 30/11/18)

Since Commencement (1/6/16 - 30/11/18)

Fund 2.57% 4.41% 15.70%

Benchmark 1.64% 3.30% 8.46%

Outperformance / (Underperformance) 0.93% 1.11% 7.24%

Source of Benchmark: Maybank

Table 2: Average Total Return

1 Year (1/12/17 - 30/11/18)

Since Commencement (1/6/16 - 30/11/18)

Fund 4.41% 6.00%

Benchmark 3.30% 3.30%

Outperformance / (Underperformance) 1.11% 2.70%

Source of Benchmark: Maybank

Table 3: Annual Total Return

FYE 2018 (1/6/17 - 31/5/18)

FYE 2017 (1/6/16 - 31/5/17)

Fund 4.41% 6.00%

Benchmark 5.07% 7.36%

Outperformance / (Underperformance) 3.30% 3.30%

Source of Benchmark: Maybank

Past performance is not necessarily indicative of future performance and that Unit prices and investment returns may go down, as well as up.

Page 6: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

5

MANAGER’S REPORT Performance Review For the period 1 June 2018 to 30 November 2018, the Fund registered a return of 2.57%. The Fund outperformed the Benchmark by 1.64 percentage points compared to the Benchmark return of 1.64% for the same period. (See Table 1 for performance of the Fund and Figure 1 for movement of the Fund versus the Benchmark respectively). The Net Asset Value (NAV) per unit of the Fund as at 30 November 2018 was RM1.0594 while the NAV per unit as at 31 May 2018 was RM1.0793. 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 Maybank.” Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date

Income Distribution / Unit Split Affin Hwang Asset Management Berhad recently declared a gross distribution of RM0.0464 per Unit for investors of the Affin Hwang Flexible Maturity Income Fund III over the period under review. The Net Asset Value per unit prior and subsequent to the distribution was as follows:-

Cum Date Ex-Date Cum-distribution (RM)

Distribution per Unit (RM)

Ex-distribution (RM)

31 May 2018 01 Jun 2018 1.0793 0.0464 1.0334

No unit split were declared for the financial period ended 30 November 2018.

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

May-16 Sep-16 Jan-17 May-17 Aug-17 Dec-17 Apr-18 Jul-18 Nov-18

Affin Hwang Flexible Maturity Income Fund III

Benchmark

Page 7: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

6

Asset Allocation For a snapshot of the Fund’s asset mix during the period under review, please refer to Figure 2. Figure 2: Asset allocation of the Fund

30 Nov 2018 30 Nov 2017 30 Nov 2016

(%) (%) (%)

Unquoted fixed income securities – local 54.76 28.46 25.71

Unquoted fixed income securities – foreign 20.70 65.23 66.72

Cash & cash equivalent 24.54 6.31 7.57

Total 100.00 100.00 100.00

As at 30 November 2018, the Fund’s asset allocation stood at 75.46% in fixed income securities while the balance was held in cash and cash equivalent. During the period under review, the Manager had raised cash level significantly from mid single digit to double digits. The Fund’s local bonds’ exposure were increased by 26.30 percentage points to 54.76% compare to 28.46% a year ago, whereas foreign bonds’ exposure were substantially reduced to 20.70% from 65.23% a year ago. Strategies Employed Over the period under review, the Manager maintained a focus on high conviction credit names across both domestic and regional space. To date, the Fund’s bond holdings have continued to meet their respective financial obligations in respect of their outstanding debt. Cash buffer was kept at a relatively high level to better navigate through heightening market volatility. Market Review Global financial markets continued to trend higher on the back of encouraging economic data flowing out of global economies. The “Goldilocks” zone where the economy is seeing a steady growth rate, relatively benign inflation, and liquidity support by global central banks have continued to be supportive for financial markets. The improved optimism on the outlook for global growth has led to global bond yields inching higher over the period under review. A surprise debt ceiling deal between the US President and the Democrat leaders, as well as the Federal Reserve’s announcement on the beginning of its balance sheet normalisation program had also helped pushed yields higher. The US Treasury yields ended the period under review at 2.42%, leading most global bonds to take the same route. Investors were seen taking on a more cautious approach on the market ahead of the Federal Reserve chair appointment. The announcement of Jerome Powell as the next Fed chairperson was taken as a market positive as Jerome Powell was viewed to be similarly dovish as Janet Yellen. Malaysia Bond markets continued to see inflow, boosted by the hawkish MPC statement, with market players anticipating and positioning towards a stronger Ringgit. Total foreign holdings on MGS totalled to 44.3% in November after the MYR 6.7 billion flows into Malaysia bond market. On the domestic front, the Ringgit strengthened by 4.4% against the US Dollar, and ended the period under review at MYR 4.09 to a US Dollar. The strength of the Ringgit, coupled with the stability in oil prices had kept the domestic bourse well supported. Oil price closed the month at USD 57.40 per barrel, rising 18.8% in local currency terms over the period under review. Fundamentals for the economy had remained supportive for the domestic bourse, with a broad based recovery in imports leading to a narrowed surplus. Retail sales had also strengthened, recording a 4.9% year-on-year growth in the second quarter of 2017 against the -1.2% seen in the first quarter. Bank Negara had maintained its Overnight Policy Rate (OPR) at 3.0% - reiterating its view that the economy was on a firm growth path, and that inflation remained contained. Yields for the 10-year MGS closed the period under review at 3.90%, whilst the 3-year papers were at 3.40%. Foreign reserves for the country rose over the period under review, and stood at USD 101.5 billion as at mid-November. This was sufficient in financing 7.5 months of retained profit, and 1.1X short term external debts. Current account surplus also

Page 8: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

7

surged ahead to MYR 12.5 billion in the third quarter – a gradual improvement from the MYR 9.6 billion in the second quarter, and MYR 5.3 billion in the first quarter. Investment Outlook As markets look to unwind for the year in preparation for 2019, caution remains a key theme still especially in this environment of tighter liquidity. While the temporary trade truce between US and China may provide some comfort to markets for the near-term, there is still plenty of items to discuss and negotiate on before both powerhouses can engage in a healthier trade relationship. In addition, policy divergence between US and the rest of the remains a key headwind still. If prolonged, buying activities and currencies of emerging economies including Asia could be impacted; especially for nations with twin deficits and high external debts. And considering the heavy supply of new issuances that are expected to roll into the market in the coming months, we will refrain from redeploying too heavily as we await for better entry as yields correct further from here. Back home, the Malaysian market is likely to remain challenged amid the broader slow-down in growth, as well as the lack of expansionary stimulus. Understandably, “clean-up” efforts appear to be the main focus of the Pakatan Harapan government – where proactive measures have been taken to reduce operating expenditure including salary deduction for ministers, plugging of leakages and revamps across ministries could stem the bleeding. While change appears to be painful for the short-term, we are optimistic that a solid framework of governance – coupled with expansionary policies that would eventually fall in place – should bring back foreign interest to the local scene. In light of the challenging environment, the Manager will continue to employ a cautious stance and hold onto high cash levels to better navigate the roads ahead. The Fund will be maintaining a relatively short duration in light of the current rate-hiking cycle by the US Federal Reserve. In terms of placements, preference shall lean towards Investment Grade issuances. Nevertheless, the Manager remains comfortable with the Fund’s portfolio holdings, and will continue to keep a vigilant watch on market developments. 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) goods and services provided are of demonstrable benefit to Unit holders of the Fund; and (ii) goods and services are in the form of research and advisory services that assists in the decision making process. During the financial period under review, the management company had received on behalf of the Fund, soft commissions in the form of research materials, data and quotation services, investment-related publications, market data feed and industry benchmarking agencies which are of demonstrable benefit to Unitholders of the Fund.

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

Page 9: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

8

TRUSTEE’S REPORT TO THE UNITHOLDERS OF

AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III We have acted as Trustee of Affin Hwang Flexible Maturity Income Fund III (“the Fund”) for 6 months financial period ended 30 November 2018. To the best of our knowledge, Affin Hwang Asset Management Berhad, the Manager, has operated and managed the Fund in accordance with the limitations imposed on the investment powers of the management company and the trustee under the Deed, other provisions of the Deed, the Capital Markets and Services Act 2007, the Securities Commission’s Guidelines on Unit Trust Funds and other applicable laws during the period then ended. We have also ensured the following: (a) the procedures and processes employed by Affin Hwang Asset Management Berhad to value

and/or price the units of the Fund are adequate and that such valuation/pricing is carried out in accordance with the Deed of the Fund and other regulatory requirements; and

(b) the creation and cancellation of units have been carried out in accordance with the Deed and

relevant regulatory requirements. During this financial period, a distribution of 4.6431 sen per unit has been distributed to unit holders of the Fund. We are of the view that the distribution is not inconsistent with the objective of the Fund. For TMF Trustees Malaysia Berhad (Company No.: 610812-W) NORHAYATI AZIT DIRECTOR – FUND SERVICES Kuala Lumpur 15 January 2019

Page 10: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

9

STATEMENT OF COMPREHENSIVE INCOME FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 6 months 6 months financial financial period ended period ended Note 30.11.2018 30.11.2017 RM RM INVESTMENT INCOME Interest income 4 3,379,444 3,319,253 Exit fee income 10,620 65,072 Net gain on foreign currency exchanges 532,183 36,313 Net (loss)/gain on forward foreign currency contracts at fair value through profit or loss (3,729,130) 3,977,834 Net gain/(loss) on financial assets at fair value through profit or loss 9 3,235,371 (3,055,342) Other income - 748 ───────── ─────────

3,428,488 4,343,878 ───────── ─────────

EXPENSES Trustee fee 6 (26,690) (27,128) Auditors' remuneration (3,978) (4,011) Tax agent's fee (1,740) (1,780) Other expenses (18,990) (21,403) ───────── ─────────

(51,398) (54,322) ───────── ─────────

NET PROFIT BEFORE TAXATION 3,377,090 4,289,556 TAXATION 7 (2,382) (15,653) ───────── ─────────

NET PROFIT AFTER TAXATION AND TOTAL COMPREHENSIVE INCOME FOR THE FINANCIAL PERIOD 3,374,708 4,273,903 ═════════ ═════════

Net profit after taxation is made up of the following: Realised amount 2,344,496 4,099,007 Unrealised amount 1,030,212 174,896 ───────── ─────────

3,374,708 4,273,903 ═════════ ═════════

The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements.

Page 11: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

10

STATEMENT OF FINANCIAL POSITION AS AT 30 NOVEMBER 2018 Note 2018 2017 RM RM ASSETS Financial assets at fair value through profit or loss 9 100,944,424 127,460,271 Cash and cash equivalents 10 33,437,736 6,139,266 Tax recoverable 26,789 3,291 Amount due from dealers 4,109,696 - Exit fee income receivable 7,287 - Forward foreign currency contracts at fair value through profit or loss 11 26,219,152 2,455,097 ───────── ─────────

TOTAL ASSETS 164,745,084 136,057,925 ───────── ─────────

LIABILITIES Forward foreign currency contracts at fair value through profit or loss 11 26,156,757 - Amount due to Manager - cancellation of units 729,791 - Amount due to Trustee 4,414 4,473 Amount due to dealers 4,057,995 - Auditors’ remuneration 3,978 4,011 Tax agent’s fee 9,890 9,880 Other payables and accruals 1,458 2,608 ───────── ─────────

TOTAL LIABILITIES 30,964,283 20,972 ───────── ─────────

NET ASSET VALUE OF THE FUND 133,780,801 136,036,953 ═════════ ═════════

EQUITY Unitholders’ capital 125,993,018 128,158,835 Retained earnings 7,787,783 7,878,118 ───────── ─────────

NET ASSETS ATTRIBUTABLE TO UNITHOLDERS 133,780,801 136,036,953 ═════════ ═════════

NUMBER OF UNITS IN CIRCULATION 12 126,276,000 128,315,000 ═════════ ═════════

NET ASSET VALUE PER UNIT (RM) 1.0594 1.0602 ═════════ ═════════

The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements.

Page 12: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

11

STATEMENT OF CHANGES IN EQUITY FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 Unitholders’ Retained capital earnings Total RM RM RM Balance as at 1 June 2018 127,055,671 10,322,906 137,378,577 Total comprehensive income for the financial period - 3,374,708 3,374,708 Distribution (Note 8) - (5,909,831) (5,909,831) Movement in unitholders’ capital: Cancellation of units (1,062,653) - (1,062,653) ────────── ────────── ──────────

Balance as at 30 November 2018 125,993,018 7,787,783 133,780,801 ══════════ ══════════ ══════════

Balance as at 1 June 2017 131,411,834 9,707,384 141,119,218 Total comprehensive income for the financial period - 4,273,903 4,273,903 Distribution (Note 8) - (6,103,169) (6,103,169) Movement in unitholders’ capital: Cancellation of units (3,252,999) - (3,252,999) ────────── ────────── ──────────

Balance as at 30 November 2017 128,158,835 7,878,118 136,036,953 ══════════ ══════════ ══════════

The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements.

Page 13: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

12

STATEMENT OF CASH FLOWS FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 6 months 6 months financial financial period ended period ended Note 30.11.2018 30.11.2017 RM RM CASH FLOWS FROM OPERATING ACTIVITIES Proceeds from sale of investments 79,081,949 38,854,112 Purchase of investments (52,322,828) (43,717,749) Interest received 3,910,757 3,622,039 Exit fee income received 10,620 65,072 Other income received - 748 Trustee fee paid (26,946) (27,443) Payment for other fees and expenses (26,229) (34,969) Realised loss on forward foreign currency contracts (251,525) (93,772) Net realised foreign currency exchange (loss)/gain (842,198) 20,323 Tax refund/paid 1,445 (7,299) ───────── ─────────

Net cash generated from/(used in) operating activities 29,535,045 (1,318,938) ───────── ─────────

CASH FLOWS FROM FINANCING ACTIVITIES Payments for cancellation of units (340,149) (3,262,357) Payment for distributions (5,909,831) (6,103,169) ───────── ─────────

Net cash used in from financing activities (6,249,980) (9,365,526) ───────── ─────────

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 23,285,065 (10,684,464) EFFECTS OF FOREIGN CURRENCY EXCHANGE 51,701 6,300 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 10,100,970 16,817,430 ───────── ─────────

CASH AND CASH EQUIVALENTS AT THE END OF THE FINANCIAL PERIOD 10 33,437,736 6,139,266 ═════════ ═════════

The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements.

Page 14: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

13

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 The following accounting policies have been used in dealing with items which are considered material in relation to the financial statements.

A BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS The financial statements have been prepared under the historical cost convention, except as disclosed in the summary of significant accounting policies and comply with Malaysian Financial Reporting Standards (“MFRS”) and International Financial Reporting Standards (“IFRS”). The preparation of financial statements in conformity with MFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues 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 M. (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 June 2018: • Amendments to MFRS 107 ‘Statement of Cash Flows – Disclosure Initiative’. The adoption of these amendments did not have any impact on the current year or any prior period and is not likely to affect future periods.

(b) The new standards and amendments to published standards that are applicable to the Fund but not yet effective and have not been early adopted are as follows: (continued)

(i) Financial year beginning on/after 1 June 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).

Page 15: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

14

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 (CONTINUED)

A BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (CONTINUED) (b) The new standards and amendments to published standards that are applicable to the Fund but not

yet effective and have not been early adopted are as follows: (continued)

(i) Financial year beginning on/after 1 June 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 June 2018. There will be no impact on the Fund’s accounting for financial assets as the Fund’s fixed income investments currently measured at fair value through profit or loss will continue to be measured on the same basis under MFRS 9. There will be no impact on the Fund’s accounting for financial liabilities as the Fund’s investments in forward foreign currency contracts will continue to be measured on the same basis under MFRS9 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 Interest income from short term deposits with a licensed financial institution and unquoted fixed incoe securities are recognised based on effective interest rate method on an accrual basis. For unquoted fixed income securities, realised gains and losses on sale of investments are accounted for as the difference between the net disposal proceeds and the carrying amount of investments, determined on cost adjusted for accretion of discount or amortisation of premium on investments.

Page 16: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

15

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 (CONTINUED)

B INCOME RECOGNITION (CONTINUED)

Exit fee income is a redemption fee charged to unitholders on cancellation of units before the maturity date and is recognised upon cancellation of units.

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 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 interest income from foreign unquoted fixed income securities 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 the statement of comprehensive income, except when deferred in other comprehensive income as qualifying cash flow hedges.

G FINANCIAL ASSETS AND FINANCIAL LIABILITIES (i) Classification

The Fund designates its investment in unquoted fixed income securities as financial assets at fair value through profit or loss at inception. Financial assets are designated at fair value through profit or loss when they are managed and their performance evaluated on a fair value basis. Derivatives are financial assets/liabilities at fair value through profit or loss categorised as held-for-trading unless they are designated hedges (Note L).

Page 17: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

16

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 (CONTINUED)

G FINANCIAL ASSETS AND FINANCIAL LIABILITIES (CONTINUED) (i) Classification (continued)

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 and exit fee income receivable 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, 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. Financial liabilities, within the scope of MFRS 139, are recognised in the statement of financial position when, and only when, the Fund becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Fund has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognised when it is extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or expired. Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category including the effects of currency 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. Unquoted fixed income securities denominated in Ringgit Malaysia are revalued on a daily basis based on fair value prices quoted by a bond pricing agency (“BPA”) registered with the Securities Commission (“SC”) as per the SC’s Guidelines on Unit Trust Funds. Where such quotations are not available or where the Manager is of the view that the price quoted by the BPA for a specific unquoted fixed income security differs from the market price by more than 20 basis points, the Manager may use the market price, provided that the Manager: (i) records its basis for using a non-BPA price; (ii) obtains necessary internal approvals to use the non-BPA price; and (iii) keeps an audit trail of all decisions and basis for adopting the market yield. Unquoted fixed income securities denominated in foreign currencies are revalued at least twice a week by reference to the mid price quoted in Bloomberg. We use the Composite Bloomberg Bond Trader (CBBT) which is a weighted average bid and ask of price contributions submitted by Bloomberg Dealers.

Page 18: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

17

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 (CONTINUED)

G FINANCIAL ASSETS AND FINANCIAL LIABILITIES (CONTINUED) (ii) Recognition and measurement (continued)

However, if such quotations are not available, the fair value shall be determined by reference to the bid and offer prices quoted by independent and reputable financial institutions. Derivative investment consists of forward foreign currency contract. Financial derivative position will be “marked to market” at the close of each valuation day. Foreign exchange gains and losses on the derivative financial instrument are recognised in profit or loss when settled or at the date of the statement of financial position at which time they are included in the measurement of the derivative financial instrument.

Deposit 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.

(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 recognized 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.

Page 19: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

18

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 (CONTINUED)

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 AMOUNTS DUE FROM/(TO) DEALERS

Amounts due from and to dealers 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 dealers. A provision for impairment of amount due from dealers is established when there is objective evidence that the Fund will not be able to collect all amounts due from the relevant dealer. Significant financial difficulties of the dealer, probability that the dealer will enter bankruptcy or financial re-organisation, and default in payments are considered indicators that the amount due from dealers 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.

J 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.

Page 20: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

19

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 (CONTINUED)

K 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.

L DERIVATIVE FINANCIAL INSTRUMENTS A derivative financial instrument is any contract that gives rise to both a financial asset of one enterprise and a financial liability or equity instrument of another enterprise. A financial asset is any asset that is cash, a contractual right to receive cash or another financial asset from another enterprise, a contractual right to exchange financial instruments with another enterprise under conditions that are potentially favourable, or an equity instrument of another enterprise.

A financial liability is any liability that is a contractual obligation to deliver cash or another financial asset to another enterprise, or to exchange financial instruments with another enterprise under conditions that are potentially unfavourable. The Fund’s derivative financial instruments comprise forward foreign currency contracts. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently 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.

M CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS IN APPLYING ACCOUNTING POLICIES The Fund makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. To enhance the information content of the estimates, certain key variables that are anticipated to have material impact to the Fund’s results and financial position are tested for sensitivity to changes in the underlying parameters. Estimates and judgments are continually evaluated by the Manager and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 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’s Guidelines on Unit Trust Funds.

Page 21: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

20

NOTES TO THE FINANCIAL STATEMENTS FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018

1 INFORMATION ON THE FUND The Unit Trust Fund was constituted under the name Affin Hwang Flexible Maturity Income Fund III (the “Fund”) pursuant to the execution of a Deed dated 4 January 2016 (the “Deed”) entered into between Affin Hwang Asset Management Berhad (the “Manager”) and TMF Trustees Malaysia Berhad (the “Trustee”). The Fund commenced operations on 1 June 2016 and will continue its operations until terminated by the Trustee as provided under Clause 12.1 of the Deed or on maturity date of the Fund which falls on the third anniversary of the investment date or such earlier date in accordance with the provisions of the Deed or subject to the early maturity feature. The Fund may invest in any of the following investments: (a) Malaysian government securities, treasury bills, Bank Negara Malaysia monetary notes, investment

certificates and Cagamas notes and bonds; (b) Other fixed income securities issued or guaranteed by the Malaysian government, Bank Negara

Malaysia, Malaysian state governments or Malaysian government-related agencies; (c) Sovereign issued or sovereign backed bonds by foreign government; (d) Bonds; (e) Money market instruments; (f) Placement of fixed deposits with financial institutions; (g) Derivatives; and (h) Any other form of investments permitted by the SC from time to time. All investments will be subjected to the Securities Commission’s (“SC”) Guidelines on Unit Trust Funds, the Deed and the objective of the Fund. The main objective of the Fund is to provide income through investments in fixed income instruments. The Manager is a company incorporated in Malaysia. The principal activities of the Manager are establishment and management of unit trust funds and private retirement schemes as well as providing fund management services to private clients. The financial statements were authorised for issue by the Manager on 15 January 2019.

Page 22: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

21

NOTES TO THE FINANCIAL STATEMENTS FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 (CONTINUED)

2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES Financial instruments are as follows: Financial assets at fair value Loans and through Note receivables profit or loss Total RM RM RM 2018 Unquoted fixed income securities 9 - 100,944,424 100,944,424 Cash and cash equivalents 10 33,437,736 - 33,437,736 Amount due from dealers 4,109,696 - 4,109,696 Exit fee income receivable 7,287 - 7,287 Forward foreign currency contracts 11 - 62,395 62,395 ────────── ────────── ──────────

Total 37,554,719 101,006,819 138,561,538 ══════════ ══════════ ══════════

2017 Unquoted fixed income securities 9 - 127,460,271 127,460,271 Cash and cash equivalents 10 6,139,266 - 6,139,266 Forward foreign currency contracts 11 - 2,455,097 2,455,097 ────────── ────────── ──────────

Total 6,139,266 129,915,368 136,054,634 ══════════ ══════════ ══════════

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 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.

Page 23: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

22

NOTES TO THE FINANCIAL STATEMENTS FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 (CONTINUED)

2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

Market risk (a) Price risk Price risk arises mainly from the uncertainty about future prices of investments. It represents the

potential loss the Fund might suffer through holding market positions in the face of price movements. The Manager manages the risk of unfavourable changes in prices by continuous monitoring of the performance and risk profile of the investment portfolio.

The Fund’s overall exposure to price risk was as follows:

2018 2017 RM RM Unquoted Investment Unquoted fixed income securities designated at fair value through profit or loss* 100,944,424 127,460,271 ═════════ ═════════

* Include interest receivable of RM1,768,471 (2017: RM1,962,088). The following table summarises the sensitivity of the Fund’s profit after taxation and net asset value to price risk movements. The analysis is based on the assumptions that the market price increased by 5% and decreased by 5% with all other variables held constant. This represents management’s best estimate of a reasonable possible shift in the unquoted securities, having regard to the historical volatility of the prices.

Impact on profit after % Change in price Market value tax/NAV RM RM 2018 -5% 94,217,155 (4,958,798) 0% 99,175,953 - +5% 104,134,751 4,958,798 ═════════ ═════════

Page 24: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

23

NOTES TO THE FINANCIAL STATEMENTS FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 (CONTINUED)

2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

Market risk (continued) (a) Price risk (continued) Impact on profit after % Change in price Market value tax/NAV RM RM 2017 -5% 119,223,274 (6,274,909) 0% 125,498,183 - +5% 131,773,092 6,274,909 ═════════ ═════════

(b) Interest rate risk In general, when interest rates rise, prices of unquoted fixed income securities will tend to fall and

vice versa. Therefore, the NAV of the Fund may also tend to fall when interest rates rise or are expected to rise. However, investors should be aware that should the Fund hold an unquoted fixed income security until maturity, such price fluctuations would dissipate as it approaches maturity, and thus the growth of the NAV shall not be affected at maturity. In order to mitigate interest rates exposure of the Fund, the Manager will manage the duration of the portfolio via shorter or longer tenured assets depending on the view of the future interest rate trend of the Manager, which is based on its continuous fundamental research and analysis.

This risk is crucial in an unquoted fixed income securities fund since unquoted fixed income

securities portfolio management depends on forecasting interest rate movements. Prices of unquoted fixed income securities move inversely to interest rate movements, therefore as interest rates rise, the prices of unquoted fixed income securities decrease and vice versa. Furthermore, unquoted fixed income securities with longer maturity and lower yield coupon rates are more susceptible to interest rate movements.

Investors should note that unquoted fixed income securities and money market instruments are

subject to interest rate fluctuations. Such investments may be subject to unanticipated rise in interest rates which may impair the ability of the issuers to make payments of interest income and principal, especially if the issuers are highly leveraged. An increase in interest rates may therefore increase the potential for default by an issuer.

Page 25: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

24

NOTES TO THE FINANCIAL STATEMENTS FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 (CONTINUED)

2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

Market risk (continued) (b) Interest rate risk (continued) The table below summarises the sensitivity of the Fund’s profit after taxation and net asset value to

movements in prices of unquoted fixed income securities held by the Fund as a result of movement in interest rate. The analysis is based on the assumptions that the interest rate increased and decreased by 1% (100 basis points) with all other variables held constant.

% Change in interest rate Impact on profit after tax/NAV

2018 2017 RM RM

+ 1% (41,759) (654,872) - 1% 41,214 663,012

═════════ ═════════

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:

Forward Unquoted foreign Cash Other fixed income currency and cash assets*/ securities contracts equivalents (payables)** Total RM RM RM RM RM 2018 United States Dollar 27,689,107 62,395 4,121,787 51,701 31,924,990

═════════ ════════ ════════ ═════════ ═════════

* Other assets consist of amount due from dealers. ** Other payables consist of amount due to dealers.

Page 26: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

25

NOTES TO THE FINANCIAL STATEMENTS FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 (CONTINUED)

2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Market risk (continued) (c) Currency risk (continued) Forward Unquoted foreign Cash fixed income currency and cash

securities contracts equivalents Total RM RM RM RM 2017 Singapore Dollar 3,971,883 41,589 8,070 4,021,542 United States Dollar 74,386,417 2,237,714 271,337 76,895,468 British Pound Sterling 2,697,861 53,704 - 2,751,565 Euro 7,687,176 122,090 16,938 7,826,204

───────── ───────── ──────── ─────────

88,743,337 2,455,097 296,345 91,494,779 ═════════ ═════════ ════════ ═════════

The table below summarises the sensitivity of the Fund's profit after tax and net asset value to changes in foreign exchange movements. The analysis is based on the assumption that the foreign exchange rate changes by 5%, with all other variables held 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 profit after in price tax/NAV % RM 2018

United States Dollar +/-5 +/- 1,596,250 ═════════

2017 Singapore Dollar +/-5 +/- 201,077 United States Dollar +/-5 +/- 3,844,773 British Pound Sterling +/-5 +/- 137,578 Euro +/-5 +/- 391,310 ═════════

Page 27: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

26

NOTES TO THE FINANCIAL STATEMENTS FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 (CONTINUED)

2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Credit risk Credit risk refers to the ability of an issuer or counterparty to make timely payments of profit, principals and proceeds from realisation of investment. The Manager manages the credit risk by undertaking credit evaluation to minimise such risk. 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. For unquoted fixed income securities, the Manager regularly reviews the rating assigned to the issuer so that necessary steps can be taken if the rating falls below those described in the Deeds and SC’s Guidelines on Unit Trust Funds. 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 SC’s Guidelines on Unit Trust Funds. The following table sets out the credit risk concentration of the Fund:

Unquoted Forward fixed foreign Cash income currency and cash Other securities contracts equivalents assets* Total RM RM RM RM

2018 Consumer Services - AA3 4,051,659 - - - 4,051,659 - AA- 2,554,846 - - - 2,554,846 Industrials - AA- 20,414,271 - - - 20,414,271 - NR 21,185,941 - - - 21,185,941 Financials - AAA - 13,974,532 23,040,408 4,109,696 41,124,636 - AA1 - - 10,397,328 - 10,397,328 - AA2 19,498,286 - - - 19,498,286 - AA3 10,204,333 12,244,620 - 22,448,953 - A1 13,472,122 - - - 13,472,122 - B2 4,339,774 - - - 4,339,774 - NR 5,223,192 - - - 5,223,192 Others - NR - - - 7,287 7,287

───────── ───────── ───────── ──────── ─────────

100,944,424 26,219,152 33,437,736 4,116,983 164,718,295 ════════ ═════════ ═════════ ════════ ═════════

* Other assets consist of amount due from dealers and exit fee income receivable.

Page 28: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

27

NOTES TO THE FINANCIAL STATEMENTS FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 (CONTINUED)

2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Credit risk (continued) The following table sets out the credit risk concentration of the Fund (continued):

Unquoted Forward fixed foreign Cash income currency and cash securities contracts equivalents Total RM RM RM

2017 Basic Materials - Baa2 829,343 - - 829,343 - Ba3 896,296 - - 896,296 - B2 816,175 - - 816,175 Consumer Goods - Baa2 1,012,206 - - 1,012,206 - NR 767,143 - - 767,143 Consumer Consumers - AAA 5,109,965 - - 5,109,965 - AA- 2,564,816 - - 2,564,816 Financials - AAA - 1,144,209 652,521 1,796,730 - AA2 3,232,683 578,253 - 3,810,936 - AA3 - 732,635 - 732,635 - AA 4,318,729 - - 4,318,729 - AA1 - - 5,486,745 5,486,745 - A3 - A2 844,507 - - 844,507 - Baa1 6,278,047 - - 6,278,047 - Baa2 4,230,327 - - 4,230,327 - Baa3 11,723,067 - - 11,723,067 Financials - Ba1 4,383,335 - - 4,383,335 - Ba2 7,975,488 - - 7,975,488 - Ba3 839,779 - - 839,779 - BBB+ 5,860,136 - - 5,860,136 - BBB- 3,444,721 - - 3,444,721 - BB+ 2,117,407 - - 2,117,407 - BB 1,021,504 - - 1,021,504 - BB- 1,178,739 - - 1,178,739 - B2 5,142,925 - - 5,142,925 - NR 6,840,933 - - 6,840,933 Industrials - AA- 20,450,441 - - 20,450,441 - BBB 2,522,270 - - 2,522,270 - NR 17,396,324 - - 17,396,324

Page 29: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

28

NOTES TO THE FINANCIAL STATEMENTS FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 (CONTINUED)

2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Credit risk (continued) The following table sets out the credit risk concentration of the Fund (continued):

Unquoted Forward fixed foreign Cash income currency and cash securities contracts equivalents Total RM RM RM

2017 (continued) Utilities - A3 4,193,101 - - 4,193,101 - Baa3 1,469,864 - - 1,469,864

───────── ───────── ──────── ─────────

127,460,271 2,455,097 6,139,266 136,054,634 ═════════ ═════════ ════════ ═════════

The financial assets of the Fund are neither past due nor impaired.

Page 30: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

29

NOTES TO THE FINANCIAL STATEMENTS FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 (CONTINUED)

2 FINANCIAL INSTRUMENTS, RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) Liquidity risk Liquidity risk is the risk that the Fund will encounter difficulty in meeting its financial obligations. The Manager manages this risk by maintaining sufficient level of liquid assets to meet anticipated payments and cancellations of units by unitholders. Liquid assets comprise cash, deposits with a licensed financial institution 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 2018 Amount due to Manager - cancellation of units 729,791 - 729,791 Amount due to Trustee 4,414 - 4,414 Amount due to dealers 4,057,995 - 4,057,995 Auditors’ remuneration - 3,978 3,978 Tax agent’s fee - 9,890 9,890 Other payables and accruals - 1,458 1,458 Forward foreign currency contracts at fair value through profit or loss - 26,156,757 26,156,757 ───────── ───────── ─────────

4,792,200 26,172,083 30,964,283 ═════════ ═════════ ═════════

2017 Amount due to Trustee 4,473 - 4,473 Auditors’ remuneration - 4,011 4,011 Tax agent’s fee - 9,880 9,880 Other payables and accruals 268 2,340 2,608 ───────── ───────── ─────────

4,741 16,231 20,972 ═════════ ═════════ ═════════

Capital risk The capital of the Fund is represented by equity consisting of unitholders’ capital and retained earnings. The amount of equity can change significantly on a daily basis as the Fund is subject to daily subscriptions and redemptions at the discretion of unitholders. The Fund’s objective when managing capital is to safeguard the Fund’s ability to continue as a going concern in order to provide returns for unitholders and benefits for other stakeholders and to maintain a strong capital base to support the development of the investment activities of the Fund.

Page 31: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

30

NOTES TO THE FINANCIAL STATEMENTS FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 (CONTINUED)

3 FAIR VALUE ESTIMATION Financial instruments comprise financial assets and financial liabilities. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of financial assets traded in active markets (such as trading securities) is based on quoted market prices at the close of trading on the 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.

Page 32: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

31

NOTES TO THE FINANCIAL STATEMENTS FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 (CONTINUED)

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: Level 1 Level 2 Level 3 Total RM RM RM RM 2018 Financial assets at fair value through profit or loss - unquoted fixed income

securities - 100,944,424 - 100,944,424 - forward foreign currency

contracts - 26,219,152 - 26,219,152 ────────── ───────── ───────── ─────────

- 127,163,576 - 127,163,576 ══════════ ═════════ ═════════ ═════════

Financial liabilities at fair value through profit or loss - forward foreign currency

contracts - 26,156,757 - 26,156,757 ══════════ ═════════ ═════════ ═════════

2017 Financial assets at fair value through profit or loss - unquoted fixed income

securities - 127,460,271 - 127,460,271 - forward foreign currency

contracts - 2,455,097 - 2,455,097 ────────── ───────── ───────── ─────────

- 129,915,368 - 129,915,368 ══════════ ═════════ ═════════ ═════════

Financial instruments that trade in markets that are not considered to be active but are not valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. These include unquoted fixed income securities and 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 and all current liabilities, except for forward foreign

currency contracts are a reasonable approximation of the fair values due to their short term nature.

Page 33: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

32

NOTES TO THE FINANCIAL STATEMENTS FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 (CONTINUED)

4 INTEREST INCOME 6 months 6 months financial financial period ended period ended 30.11.2018 30.11.2017 RM RM Interest income from: - short-term deposits 74,277 20,008 - unquoted fixed income securities 3,305,167 3,299,245 ───────── ─────────

3,379,444 3,319,253 ═════════ ═════════

5 MANAGEMENT FEE In accordance with the Deeds, the Manager is entitled to a management fee at a rate not exceeding 3.00% per annum on the NAV of the Fund calculated on a daily basis. The Manager does not intend to impose any management fee in respect of this Fund.

6 TRUSTEE FEE In accordance with the Deeds, the Trustee is entitled to an annual fee at a rate not exceeding 0.10% per annum on the NAV of the Fund, exclusive of foreign custodian fees. For the financial period ended 30 November 2018, the Trustee fee is recognised at a rate of 0.04% (2017: 0.04%) per annum on the NAV of the Fund calculated on a daily basis, exclusive of foreign custodian fees. There will be no further liability to the Trustee in respect of Trustee fee other than the amounts recognised above.

7 TAXATION 6 months 6 months financial financial period ended period ended 30.11.2018 30.11.2017 RM RM Current taxation – local 2,382 15,653 ═════════ ═════════

Page 34: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

33

NOTES TO THE FINANCIAL STATEMENTS FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 (CONTINUED)

7 TAXATION (CONTINUED) The numerical reconciliation between net profit before taxation multiplied by the Malaysian statutory tax rate and tax expense of the Fund is as follows: 6 months 6 months financial financial period ended period ended 30.11.2018 30.11.2017 RM RM Net profit before taxation 3,377,090 4,289,556 ───────── ─────────

Tax at Malaysian statutory rate of 24% (2017: 24%) 810,502 1,029,493 Tax effects of: Investment income not subject to tax (820,289) (1,026,734) Expenses not deductible for tax purposes 10,665 11,522 Restriction on tax deductible expenses for Unit Trust Funds 1,504 1,372 ───────── ─────────

Tax expense 2,382 15,653 ═════════ ═════════

8 DISTRIBUTION 6 months 6 months financial financial period ended period ended 30.11.2018 30.11.2017 RM RM Distribution to unitholders is from the following sources: Previous year's realised income 5,909,831 6,103,169 ───────── ─────────

Net distribution amount 5,909,831 6,103,169 ═════════ ═════════

Gross/net distribution per unit (sen) 4.6431 4.6431 ═════════ ═════════

Ex date 1.6.2018 1.6.2017 ═════════ ═════════

Page 35: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

34

NOTES TO THE FINANCIAL STATEMENTS FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 (CONTINUED)

8 DISTRIBUTION (CONTINUED) Gross distribution per unit is derived from gross realised income less expenses divided by the number of units in circulation, while net distribution per unit is derived from gross realised income less expenses and taxation divided by the number of units in circulation. Included in distributions for the financial year is an amount of RM5,909,831 (2017: RM6,103,169) made from previous year’s realised income.

9 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS 2018 2017 RM RM Designated at fair value through profit or loss at inception: - unquoted fixed income securities – local 73,255,317 38,716,934 - unquoted fixed income securities – foreign 27,689,107 88,743,337 ───────── ─────────

100,944,424 127,460,271 ═════════ ═════════

Net gain/(loss) on financial assets at fair value through profit or loss: - realised (loss)/gain on sale of investments (1,727,619) 423,756 - unrealised gain/(loss) on changes in fair value 4,962,990 (3,479,098) ───────── ─────────

3,235,371 (3,055,342) ═════════ ═════════

Page 36: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

35

NOTES TO THE FINANCIAL STATEMENTS FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 (CONTINUED)

9 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) (a) Unquoted fixed income securities – local (i) Unquoted fixed income securities – local as at 30 November 2018 are as follows:

Nominal Adjusted Fair Percentage Name of issuer value cost value of NAV

RM RM RM % Bonds 5.05% AmIslamic Bank Bhd 25.03.2019 (AA3) 5,000,000 5,058,498 5,059,950 3.78 4.30% Ambank (M) Bhd 25.03.2019 (AA2) 5,000,000 5,040,292 5,044,666 3.77 5.60% CIMB Thai Bank PCL 08.07.2019 (AA3) 5,000,000 5,141,642 5,144,383 3.85 6.90% Mah Sing Group Bhd 04.04.2022 (NR) 3,000,000 3,033,460 3,059,800 2.29 4.80% Media Chinese Intl Ltd 25.02.2019 (AA3) 4,000,000 4,048,969 4,051,659 3.03 6.75% OCBC M Bhd 15.04.2019 (AA2) 8,000,000 8,137,384 8,138,015 6.08 7.50% Public Finance Berhad 05.06.2019 (AA2) 6,000,000 6,313,660 6,315,605 4.72 6.75% RHB Bank Bhd 17.12.2019 (A1) 5,000,000 5,262,096 5,266,943 3.94 8.00% RHB Bank Bhd 31.03.2019 (A1) 8,000,000 8,198,716 8,205,179 6.13 4.82% Sports Toto Malaysia Sdn Bhd 28.06.2019 (AA-) 2,500,000 2,555,137 2,554,846 1.91 4.80% WCT Holdings Bhd 28.12.2018 (AA-) 20,000,000 20,406,217 20,414,271 15.26 ───────── ───────── ───────── ─────────

Total unquoted fixed income securities – local 71,500,000 73,196,071 73,255,317 54.76 ═════════ ═════════ ═════════

Accumulated unrealised gain on unquoted fixed income securities – local 59,246 ─────────

Total unquoted fixed income securities – local 73,255,317

═════════

Page 37: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

36

NOTES TO THE FINANCIAL STATEMENTS FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 (CONTINUED)

9 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)

(a) Unquoted fixed income securities – local (continued) (ii) Unquoted fixed income securities – local as at 30 November 2017 are as follows:

Nominal Adjusted Fair Percentage Name of issuer value cost value of NAV

RM RM RM % Bonds 4.75% Berjaya Land Berhad 15.12.2017 (AAA) 5000000 5,109,435 5,109,965 3.76 6.70% CIMB Bank Bhd Call 05.10.2018 (AA) 4200000 4,315,312 4,318,729 3.17 6.9% Mah Sing Group Bhd Call 04.04.2022 (NR) 3000000 3,033,460 3,040,300 2.23 7.50% Public Finance Berhad Call 05.06.2019 (AA2) 3000000 3,237,108 3,232,683 2.38 4.82% Sports Toto Malaysia Sdn Bhd 28.06.2019 (AA-) 2,500,000 2,561,607 2,564,816 1.89 4.80% WCT Holdings Bhd 28.12.2018 (AA-) 20,000,000 20,404,741 20,450,441 15.03 ───────── ───────── ───────── ─────────

Total unquoted fixed income securities – local 37,700,000 38,661,663 38,716,934 28.46 ═════════ ═════════ ═════════

Accumulated unrealised gain on unquoted fixed income securities – local 55,271 ─────────

Total unquoted fixed income securities – local 38,716,934

═════════

Page 38: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

37

NOTES TO THE FINANCIAL STATEMENTS FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 (CONTINUED)

9 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)

(b) Unquoted fixed income securities – foreign (i) Unquoted fixed income securities – foreign as at 30 November 2018 are as follows:

Nominal Adjusted Fair Percentage Name of issuer value cost value of NAV

RM RM RM % Bonds 8.975% KWG Property Holding Ltd 14.01.2019 (B2) 4,183,500 4,479,172 4,339,774 3.24 9.00% Moon Wise Global Ltd 28.01.2019 (NR) 2,091,750 2,143,969 2,163,392 1.62 7.00% Yinson TMC Sdn Bhd 25.09.2020 (NR) 20,917,500 21,034,659 21,185,941 15.84 ───────── ───────── ───────── ─────────

Total unquoted fixed income securities – foreign 27,192,750 27,657,800 27,689,107 20.70 ═════════ ═════════ ═════════

Accumulated unrealised gain on unquoted fixed income securities – foreign 31,307 ─────────

Total unquoted fixed income securities – foreign 27,689,107

═════════

Page 39: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

38

NOTES TO THE FINANCIAL STATEMENTS FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 (CONTINUED)

9 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) (b) Unquoted fixed income securities – foreign (continued) (ii) Unquoted fixed income securities – foreign as at 30 November 2017 are as follows:

Nominal Adjusted Fair Percentage Name of issuer value cost value of NAV

RM RM RM % Bonds 7% Banco Bilbao Vizcaya Arg SA Call 19.02.2019 (BB) 967,900 974,729 1,021,504 0.75 6% HSBC Holdings PLC Call 29.09.2023 (Baa3) 3,871,600 4,061,873 4,579,104 3.37 5.5% Cooperatieve Rabobank UA Call 29.06.2020 (Baa3) 967,900 1,030,222 1,074,362 0.79 2.7% Volkswagen Intl Fin NV Call 14.12.2022 (Baa2) 967,900 967,862 1,012,206 0.74 7.25% Barclays PLC Call 15.03.2023 (Ba2) 1,374,975 1,402,681 1,519,122 1.12 7% Lloyds Banking Group PLC Call 27.06.2019 (BB-) 1,099,980 1,169,352 1,178,739 0.87 4.875% Commerzbank AG Call 01.03.2022 (BBB-) 1,514,300 1,591,955 1,610,389 1.18 4.7% HSBC Holdings PLC Call 08.06.2022 (Baa3) 1,514,300 1,582,469 1,594,351 1.17 4.35% Wing Tai Properties Fin Ltd Call 24.08.2020 (NR) 757,150 787,205 767,143 0.56 5.5000% Allianz SE Call 26.09.2018 (A2) 817,900 839,780 844,507 0.62 6.463% AXA SA Call 14.12.2018 (Baa1) 2,044,750 2,271,207 2,152,674 1.58 3.375% Commonwealth Bank of Australia Call 20.10.2021 (Baa1) 2,044,750 2,216,630 2,047,089 1.50 4.25% CLP Power HK Financing Ltd Call 07.11.2019 (A3) 4,089,500 4,547,092 4,193,101 3.08 4.05% Dianjian Haixing Ltd Call 21.10.2019 (Baa1) 2,044,750 2,269,454 2,078,284 1.53 6.25% Dubai Islamic Bank Call 20.03.2019 (NR) 3,680,550 3,961,973 3,800,633 2.79 7.75% Bukit Makmur Mandiri Utama Call 13.02.2020 (Ba3) 817,900 897,676 896,296 0.66 4.625% Demeter Invt BV for Swiss Re Call 15.08.2022 (BBB+) 1,635,800 1,748,872 1,705,204 1.25 5.25% Wisdom Glory Group Ltd Call 19.07.2020 (Ba3) 817,900 874,245 839,779 0.62 6.875% HSBC Holdings PLC Call 01.06.2021 (Baa3) 3,271,600 3,372,143 3,665,419 2.69

Page 40: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

39

NOTES TO THE FINANCIAL STATEMENTS FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 (CONTINUED)

9 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) (b) Unquoted fixed income securities – foreign (continued)

(i) Unquoted fixed income securities – foreign as at 30 November 2017 are as follows (continued):

Nominal Adjusted Fair Percentage

Name of issuer value cost value of NAV RM RM RM %

Bonds (continued) 4.475% Heungkuk Life Insurance Co Ltd Call 09.11.2022 (Baa3) 817,900 849,437 809,831 0.60 4.25% Indust & Comm Bank of China Asia Call 21.07.2021 (Ba1) 1,022,375 1,106,785 1,024,468 0.75 5.875% Indika Energy Capital III Pte Call 09.11.2021 (B2) 817,900 839,583 816,175 0.60 4.50% Korean Reinsurance Co Call 21.10.2019 (BBB+) 4,089,500 4,328,386 4,154,932 3.05 8.975% KWG Property Holding Ltd Call 11.12.2017 (B2) 4,089,500 4,573,357 4,341,637 3.19 3.876% Chong Hing Bank Ltd Call 26.07.2022 (BBB-) 1,022,375 1,084,759 1,032,249 0.76 6.50% Chong Hing Bank Ltd Call 25.09.2019 (Ba2) 2,044,750 2,114,259 2,143,341 1.58 7.125% Majid Al Futtaim Holding LLC Call 29.10.2018 (BB+) 2,044,750 2,120,150 2,117,407 1.56 4.875% PTTEP Treasury Center Co Ltd Call 18.06.2019 (Baa3) 1,423,146 1,515,093 1,469,864 1.08 3.375% HK Red Star Macalline Uni Home 21.09.2022 (BBB-) 817,900 841,919 802,083 0.59 3.9% CNRC Capital Ltd Call 02.06.2022 (Baa2) 817,900 871,460 829,343 0.62 8.25% Societe Generale SA Call 29.11.2018 (Ba2) 4,089,500 4,059,851 4,313,025 3.17 6.50% Standard Chartered PLC Call 02.04.2020 (Ba1) 1,022,375 1,100,728 1,061,893 0.78 5.75% Times Property Holdings Ltd Call 26.04.2020 (B2) 817,900 883,872 801,288 0.59 4.5% Tewoo Group Finance No 2 Ltd 16.12.2019 (BBB) 1,226,850 1,327,911 1,268,226 0.93 4.625% Tewoo Group Finance No 3 Ltd 06.04.2020 (BBB) 1,226,850 1,329,057 1,254,044 0.92 6.875% UBS Group AG Call 16.03.2021 (Ba1) 2,044,750 2,084,661 2,296,974 1.69 3.95% Vanke Real Estate HK Co Ltd 23.12.2019 (Baa2) 4,089,500 4,533,652 4,230,327 3.11

Page 41: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

40

NOTES TO THE FINANCIAL STATEMENTS FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 (CONTINUED)

9 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) (b) Unquoted fixed income securities – foreign (continued) (ii) Unquoted fixed income securities – foreign as at 30 November 2017 are as follows

(continued):

Nominal Adjusted Fair Percentage Name of issuer value cost value of NAV

RM RM RM % Bonds (continued) 7.00% Yinson TMC Sdn Bhd Call 25.09.2020 (NR) 17,175,900 17,891,639 17,396,324 12.79 ───────── ───────── ───────── ─────────

Total unquoted fixed income securities – foreign 85,003,026 90,023,979 88,743,337 65.23 ═════════ ═════════ ═════════

Accumulated unrealised loss on unquoted fixed income securities – foreign (1,280,642) ─────────

Total unquoted fixed income securities – foreign 88,743,337

═════════

10 CASH AND CASH EQUIVALENTS 2018 2017 RM RM Cash and bank balances 4,196,224 5,486,745 Deposits with licensed financial institutions 29,241,512 652,521 ───────── ─────────

33,437,736 6,139,266 ═════════ ═════════

Weighted average effective interest rates per annum of deposits with licensed financial institutions is as follows: 2018 2017 % % Deposits with licensed financial institutions 3.88 3.05 ═════════ ═════════

The deposits with licensed financial institutions have an average maturity of 113 days (2017: 4 days).

Page 42: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

41

NOTES TO THE FINANCIAL STATEMENTS FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 (CONTINUED)

11 FORWARD FOREIGN CURRENCY CONTRACTS As at the date of statement of financial position, there are 7 (2017: 20) forward currency contracts outstanding. The notional principal amount of the outstanding forward currency contracts amounted to RM26,219,152 (2017: RM90,733,785). The forward currency contracts entered into during the financial period were for hedging against the currency exposure arising from the investment in the foreign unquoted fixed income securities denominated in United States Dollar. As the Fund has not adopted hedge accounting during the financial period, the change in the fair value of the forward currency contract is recognised immediately in the statement of comprehensive income.

12 NUMBER OF UNITS IN CIRCULATION

2018 2017 No. of units No. of units

At the beginning of the financial period 127,282,000 131,446,000 Cancellation of units during the financial period (1,006,000) (3,131,000) ────────── ──────────

As at the end of the financial period 126,276,000 128,315,000 ══════════ ══════════

13 TRANSACTIONS WITH DEALERS

(a) Details of transactions with the top 10 dealers for the financial period ended 30 November 2018 are as follows:

Value Percentage of trade of total trade RM % Name of dealers Standard Chartered Bank Malaysia Bhd 29,622,294 24.94 Citic Securities Brokerage (HK) Ltd 8,854,524 7.45 RHB Bank Bhd 8,293,672 6.98 Hong Leong Bank Bhd 8,172,000 6.88 The Hong Kong and Shanghai Banking Corporation Ltd 7,120,304 5.99 MIZUHO 6,120,884 5.15 Affin Hwang Investment Bank Bhd 5,002,500 4.21 J.P. Morgan Securities (Malaysia) Sdn Bhd 4,985,760 4.20 OCBC Bank (Malaysia) Bhd 4,983,427 4.20 Citibank Bhd 4,846,251 4.08 Others 30,783,695 25.92 ─────────── ────────

118,785,311 100.00 ═══════════ ════════

Page 43: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

42

NOTES TO THE FINANCIAL STATEMENTS FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 (CONTINUED)

13 TRANSACTIONS WITH DEALERS (CONTINUED

(b) Details of transactions with the top 10 dealers for the financial period ended 30 November 2017 are as follows:

Value Percentage of trade of total trade RM % Name of dealers Standard Chartered Bank Malaysia Bhd 7,609,747 13.28 RHB Bank Bhd 6,796,927 11.86 Citibank,N.A 5,720,133 9.98 HSBC Bank Malaysia Bhd 4,558,511 7.95 Nomura Securities International Inc. 4,313,860 7.53 The Hong Kong and Shanghai Banking Corporation Ltd 3,863,779 6.74 Barclays Plc 3,539,218 6.17 UBS Warburg, Inc. 3,025,129 5.27 J.P. Morgan Securities (Malaysia) Sdn Bhd 2,915,498 5.09 J.P. Morgan Chase Bank Bhd 1,871,222 3.25 Others 13,104,119 22.88

─────────── ────────

57,318,143 100.00 ═══════════ ════════

There is no brokerage fees paid to the brokers.

# Included in the transactions with dealers are cross trades conducted between the Fund and other funds; and private mandates managed by the Manager amounting to: 2018 2017 RM RM Nomura Singapore Ltd - 4,313,861 RHB Bank Bhd 8,293,672 - ───────── ─────────

8,293,672 4,313,861 ═════════ ═════════

The cross trades are conducted between the Funds and other funds, and private mandates managed by the Manager as follows: 2018 2017 RM RM Affin Hwang Select Asia Pacific (ex Japan) Balanced Fund 830,106 - Affin Hwang Flexible Maturity Income Fund 9 6,633,460 - Affin Hwang Fixed Maturity Income Fund XII - 4,313,861 Private mandates managed by the Manager 830,106 - ───────── ─────────

8,293,672 4,313,861 ═════════ ═════════

Page 44: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

43

NOTES TO THE FINANCIAL STATEMENTS FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 (CONTINUED)

14 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 Relationship

Affin Hwang Asset Management Berhad The Manager

Affin Hwang Investment Bank Berhad Holding company of the Manager Affin Bank Berhad (“ABB”) Ultimate holding company of the Manager Subsidiaries and associates of ABB Subsidiary and associated companies disclosed in its financial statements of the ultimate holding company of

the Manager

The units held by Manager as at the end of the financial period are as follows.

2018 2017 No. of units RM No. of units RM

The Manager: Affin Hwang Asset Management Berhad (The units are held legally for booking purposes) 2,037 2,158 3,470 3,679 ═════════ ═════════ ═════════ ═════════

Page 45: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

44

NOTES TO THE FINANCIAL STATEMENTS FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 (CONTINUED)

15 MANAGEMENT EXPENSE RATIO (“MER”) 6 months 6 months financial financial period ended period ended 30.11.2018 30.11.2017 % % MER 0.04 0.04 ════════ ════════

MER is derived from the following calculation: MER = (A + B + C + D + E) x 100 F A = Management fee B = Trustee fee C = Auditors’ remuneration D = Tax agent’s fee E = Other expenses 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 RM133,337,259 (2017: RM135,270,972).

16 PORTFOLIO TURNOVER RATIO (“PTR”) 6 months 6 months financial financial period ended period ended 30.11.2018 30.11.2017 PTR (times) 0.49 0.27 ════════ ════════

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 = RM52,322,828 (2017: RM35,225,154) total disposal for the financial period = RM79,486,887 (2017: RM38,420,666)

Page 46: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

45

NOTES TO THE FINANCIAL STATEMENTS FOR THE 6 MONTHS FINANCIAL PERIOD ENDED 30 NOVEMBER 2018 (CONTINUED)

17 SEGMENT INFORMATION The strategic asset allocation committee of the Investment Manager makes the strategic resource allocations on behalf of the Fund. The Fund has determined the operating segments based on the reports reviewed by the Manager that are used to make strategic decisions. The committee 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 segment derives its income by seeking investments to achieve targeted returns consummate with an acceptable level of risk within each portfolio. These returns consist of interest and gains on the appreciation in the value of investments, and is derived from unquoted fixed income securities in Malaysia and United States. 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 and IFRS.

Page 47: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

46

AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III

STATEMENT BY THE MANAGER I, Teng Chee Wai, as the Director of Affin Hwang Asset Management Berhad, do hereby state that in my opinion as the Manager, the financial statements set out on pages 9 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 30 November 2018 and of its financial performance, changes in equity and cash flows for the financial period ended 30 November 2018 in accordance with the Malaysian Financial Reporting Standards and International Financial Reporting Standards. For and on behalf of the Manager, AFFIN HWANG ASSET MANAGEMENT BERHAD TENG CHEE WAI EXECUTIVE DIRECTOR/MANAGING DIRECTOR Kuala Lumpur 15 January 2019

Page 48: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

47

DIRECTORY OF SALES OFFICE HEAD OFFICE Affin Hwang Asset Management Berhad Ground Floor Tel : 03 – 2116 6000 Menara Boustead Fax : 03 – 2116 6100 69, Jalan Raja Chulan Toll free no : 1-800-88-7080 50200 Kuala Lumpur Email:[email protected] 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

Page 49: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split

48

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

Page 50: AFFIN HWANG FLEXIBLE MATURITY INCOME FUND III · 2019-01-22 · Benchmark: 3-years Malayan Banking Berhad fixed deposit rate as at Investment Date Income Distribution / Unit Split