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Annual Report June 2017

For the Year Ended 30 June 2017

Areca Flexi fixedINCOME Fund

A NN UA L REPORT J UN E 2017

ARECA Flexi fixedINCOME FUND

Contents

CORPORATE DIRECTORY 2

MANAGER’S REPORT

Fund Information, Performance & Review 3

Market Review & Outlook 8

TRUSTEE’S REPORT 11

STATEMENT BY THE MANAGER 11

AUDITORS’ REPORT 12

AUDITED FINANCIAL STATEMENTS FOR

ARECA Flexi fixedINCOME Fund 15

ANNUAL REPORT JUNE 2017


2

C O R P O R A T E D I R E C T O R Y

MANAGER

Areca Capital Sdn Bhd (740840-D)

107, Blok B, Pusat Dagangan Phileo Damansara 1,

No. 9, Jalan 16/11, Off Jalan Damansara,

46350 Petaling Jaya, Selangor.

Tel: 603-7956 3111, Fax: 603-7955 4111

website: www.arecacapital.com

e-mail: [email protected]

BOARD OF DIRECTORS

Dato' Wee Hoe Soon @ Gooi Hoe Soon

(Independent, Chairman)

Wong Teck Meng (Executive)

Raja Datuk Zaharaton Bt Raja Dato’ Zainal Abidin

(Non-Executive Non-Independent)

Dr. Junid Saham (Independent)

INVESTMENT COMMITTEE MEMBERS

Dato' Wee Hoe Soon @ Gooi Hoe Soon

(Independent, Chairman)

Raja Datuk Zaharaton Bt Raja Dato’ Zainal Abidin

(Non-Independent)

Dr. Junid Saham (Independent)

TRUSTEE

RHB Trustees Berhad (573019-U)

Level 11, Tower 1, RHB Centre

Jalan Tun Razak

50400 Kuala Lumpur

Tel: 03-9280 8799 Fax: 03-9280 8796

AUDITOR

PricewaterhouseCoopers (AF1146)

Level 10, 1 Sentral, Jalan Rakyat

Kuala Lumpur, Sentral, P O Box 10192

Tel: 03-2173 1188, Fax: 03-2173 1288

TAX ADVISER

PricewaterhouseCoopers Taxation Services

Sdn Bhd (464731-M) Level 10, 1 Sentral, Jalan Rakyat Kuala Lumpur, Sentral, P O Box 10192

Tel: 03-2173 1188, Fax: 03-2173 1288

M A N A G E R ’ S O F F I C E A N D B R A N C H E S

HEAD OFFICE

107, Blok B, Pusat Dagangan Phileo Damansara 1, No. 9, Jalan 16/11, Off Jalan Damansara,

46350 Petaling Jaya, Selangor

Tel: 603-7956 3111, Fax: 603-7955 4111

website: www.arecacapital.com

e-mail: [email protected]

PENANG – PULAU TIKUS PERAK – IPOH MALACCA

368-2-02 Belissa Row

Jalan Burma, Georgetown

10350 Pulau Pinang

Tel : 604-210 2011

Fax: 604-210 2013

11A, (First Floor)

Persiaran Greentown 5

Greentown Business Centre

30450 Ipoh, Perak

Tel : 605-249 6697/6698

Fax: 605-249 6696

95A, Jalan Melaka Raya 24

Taman Melaka Raya

75000 Melaka

Tel : 606-282 9111

Fax: 604-283 9112

mailto:[email protected]

mailto:[email protected]



3

F U N D I N F O R M A T I O N

Name of the Fund Areca Flexi fixedINCOME Fund

Fund Category/

Type

Fixed Income (Wholesale Fund)/Income & Growth

Objective of the

Fund

To provide qualified investors with relatively steady income and moderate

capital appreciation over a short to medium-term by investing in fixed

income investments.

Benchmark Maybank’s 6-month fixed deposit rate

Distribution Policy

of the Fund

Yearly or more frequent, subject to availability of the distributable income.

Profile of

unitholdings

* excluding units held

by the Manager

As at 30 June 2017

Size of Holding

(Units)

No. of

accounts %

No. of

units held

‘million

%

Up to 5,000 - - - -

5,001 to 10,000 - - - -

10,001 to 50,000 1 3.12 0.01 0.09

50,001 to 500,000 21 65.63 4.49 35.67

500,001 and above 10 31.25 8.10 64.24

Total* 32 100.00 12.60 100.00

Rebates & Soft

Commissions

The Manager retains soft commissions received from stockbrokers, provided

these are of demonstrable benefit to unitholders. The soft commissions may

take the form of goods and services such as data and quotation services,

computer software incidental to the management of the Fund and

investment related publications. Cash rebates, if any, are directed to the

account of the Fund. During the year under review, the Manager had not

received any soft commissions.

Inception Date 3 January 2012

Initial Offer Price RM1.0000 per unit during the initial offer period of 21 days ended 23

January 2012

Pricing Policy

Single Pricing – Selling and repurchase of units by Manager are at Net Asset

Value per unit

Financial year end 30 June



4

F U N D P E R F O M A N C E

2017 2016 2015

Net Asset Value (“NAV”) as at 30 June

Total Net Asset Value (RM million) 13.02* 7.79* 7.19*

Units in circulation (million units) 12.60* 7.78* 6.64*

NAV per unit (RM) 1.0333* 1.0019* 1.0828*

* Ex-Distribution

HIGHEST & LOWEST NAV for the year ended 30 June

Please refer to Note 1 for further information on NAV

and pricing policy

Highest NAV per unit (RM) 1.0631* 1.1634* 1.1334*

Lowest NAV per unit (RM) 1.0021* 1.0018* 1.0204*

* Ex-Distribution

ASSET ALLOCATION % of NAV as at 30 June

Fixed Income Securities

Collective investment scheme 39.15 55.85 -

Unquoted bonds-local 48.57 17.07 17.89

Unquoted bonds-foreign - - 78.37

Cash & cash equivalents including

placements and repo 12.28 27.08 3.74

DISTRIBUTION

Please refer to Note 2 for further information

Distribution date -

30 June 2017

31 Dec 2015

29 Jun 2016

30 Dec 2014

29 Jun 2015

Gross distribution (sen per unit) -

3.00 (30 Jun)

15.00 (31 Dec)

3.00 (29 Jun)

1.00 (30 Dec)

5.00 (29 Jun)

Net distribution (sen per unit) -

3.00 (30 Jun)

15.00 (31 Dec)

3.00 (29 Jun)

1.00 (30 Dec)

5.00 (29 Jun)

NAV before distribution (sen per unit) -

1.0631 (29 Jun)

1.1634 (30 Dec)

1.0316 (28 Jun)

1.0615 (29 Dec)

1.1334 (26 Jun)

NAV after distribution (sen per unit) -

1.0333 (30 Jun)

1.0135 (31 Dec)

1.0018 (29 Jun)

1.0520 (30 Dec)

1.0837 (29 Jun)

UNIT SPLIT EXERCISE

There was no unit split exercise for the financial year under review.

EXPENSE/ TURNOVER for the year ended 30 June

Management expense ratio (MER) (%)

Please refer to Note 3 for further information 0.82 1.36 1.50

Portfolio turnover ratio (PTR) (times)

Please refer to Note 4 for further

information

0.64 2.50 0.09



5

F U N D P E R F O M A N C E

2017 2016 2015

TOTAL RETURN for the year ended 30 June Please refer to Note 5 for further information

Total Return (%) 6.13 9.40 10.44

- Capital Return (%) 3.13 (7.47) 4.58

- Income Return (%) 3.00 16.87 55.86

2017 2016 2015 2014

Annual Total Return (%) 6.13 9.40 10.44 7.02

Benchmark: Average Maybank's 12-month

fixed deposit rate 3.09 3.28 3.25 3.12

1-yr 3-yrs 5-yrs

Average Total Return per annum (%) 6.13 9.41 N/A

NOTES:

Note 1: Selling of units by the Management Company (i.e. when you purchase units and invests in the Fund)

and redemption of units by the Management Company (i.e. when you redeem your units and liquidate your

investments) will be carried out at NAV per unit (the actual value of a unit). The entry/ exit fee (if any) would

be computed separately based on your net investment/ liquidation amount.

Note 2: Distribution of 3.00 sen per unit was declared on 30 June 2017, and were automatically reinvested

into additional units on the same day at NAV per unit after distribution at no entry fee.

Note 3: MER is calculated based on the total fees and expenses incurred by the Fund, divided by the average net asset value calculated on a daily basis.

The average NAV has increased by RM1.4mil compared to last financial year giving rise to a lower MER%.

Note 4: PTR is computed based on the average of the total acquisitions and total disposals of the investment

securities of the Fund, divided by the average net asset value calculated on a daily basis.

The decreased in ratio is due to high liquidation of selective stocks on strong market performance. The total

disposal has increased by RM17mil as compared to 2016.

Note 5: Fund performance figures are calculated based on NAV to NAV and assume reinvestment of

distributions (if any) at NAV. The total return is sourced from Lipper. Benchmark data is sourced from

Malayan Banking Berhad.

Past performance is not necessarily indicative of future performance. Unit prices and investment

returns may go down, as well as up.



6

F U N D R E V I E W

The Fund’s NAV per unit increased from RM1.0019 as at 30 June 2016 to RM1.0333 as at 30 June 2017, after a total net distribution of 3.00 sen per unit during the year. For the year ended 30 June

2017, the Fund posted a return of 6.13% against the benchmark Maybank's 6-month fixed deposit

rate of 3.09% p.a. The return of the portfolio beat the benchmark due to portfolio’s exposure to a

combination of high grade corporate bonds, carefully analysed unrated bond and investment in a high

yield bond collective investment scheme.

Currently, the Fund has 48.5% invested in MYR denominated corporate bonds while 39.1% in a high

yield bond collective investment scheme.

The Fund achieved its objective in providing qualified investors with relatively steady income and moderate capital appreciation over a short to medium-term by investing in fixed income investments.

We continue to seek opportunities to enhance its returns while diversifying its risk.

Investment policy and strategy

The Fund primarily invests in a diversified portfolio of fixed income investments consisting of

debentures, money market instruments and deposits with licensed institutions and any other fixed

income related instruments that are in lines with the Fund's objective.

NAV per unit as at 30 June 2017 RM1.0333

Movement of asset allocation as a percentage of Net Asset Value

for the year ended 30 June 201

Asset Allocation / Portfolio Composition as at 30 June 2017 2016 2015

Collective investment scheme 39.15% 55.85% -

Unquoted bonds-local 48.57% 17.07% 17.89%

Unquoted bonds-foreign - - 78.37%

Cash & cash equivalents 12.28% 27.08% 3.74%

47.26% 45.16% 38.53%

87.72%

0%

20%

40%

60%

80%

100%

30-Sep-16 31-Dec-16 31-Mar-17 30-Jun-17

Bonds & other fixed income instruments

Cash and cash equivalents

* as a % of net asset value

48.57%

39.15%

12.28%



7

F U N D R E V I E W

Top Holdings by Issuers:

As At 30 Sep 2016 % As at 31 Dec 2016 %

1) Areca Situational Income Fund

(CIS)

50.30

1) Areca Situational Income Fund

(CIS)

49.70

2) Eastern & Oriental Berhad (Not Rated)

16.20

2) Eastern & Oriental Berhad (Not Rated)

15.40

3) Perbadanan Tabung Pendidikan

Tinggi Nasional (PTPTN) (NR (GG))

12.10



11.50

4) Lembaga Pembiayaan Perumahan

Sektor Awam (AAA (GG))

12.10



11.40

5) Lebuhraya DUKE Fasa 3 Sdn Bhd

(AA-IS)

6.70


(AA-IS)

6.30

As At 31 March 2017 % As at 30 June 2017 %

1) Areca Situational Income Fund (CIS)

43.80

1) Areca Situational Income Fund (CIS)

39.15

2) Eastern & Oriental Berhad (Not

Rated)

13.40

2) Eastern & Oriental Berhad (Not

Rated)

17.45



9.90



7.76



9.70



7.75


(AA-IS)

5.50


(AA-IS)

7.39

Performance of Areca Flexi fixedINCOME Fund

for the financial period since commencement to 30 June 2017

Areca Flexi fixeINCOME

Maybank 6 Months Fixed Deposit Rate



8

MARKET REVIEW & OUTLOOK

ECONOMIC REVIEW

Following the British referendum to exit the European Union (EU), rating agencies downgraded the UK.

The GB£ plunged from 1.49 just before the referendum to a level last seen in the mid 80’s at 1.21 in

October before revisiting the level in January this year against the US$. Against the MYR, it fell from

5.9790 the night before ‘Brexit’ to a low of 5.0580 in mid-October before recovering to 5.59 at end

June 2017. The UK then cut benchmark rates to a historic low of 0.25%, broaden bond buying

program to include corporate bonds and deepen the size of Quantitative Easing to £435 billion from

£60 billion in a bid to mitigate the impact. Meantime, the European Central Bank kept rates

unchanged throughout this twelve months while announcing the extension of Quantitative Easing

program to beyond March 2017 (end of 2017) albeit a reduced size of €60 billion from €80 billion

monthly.

With the inauguration of President Donald Trump in January a new era of uncertainty ensues.

Economically, the United States (US) have continued to show signs of repair. Unemployment rate

dropped to a sixteen year low of 4.3% in May while housing and consumption data have been

encouraging. The Dow Jones breached 20000 at the end of January and surged past 21000 mark

early March hitting an all-time high of 21528.99 on June 19. It continues to ride on the prospects of a

Trump inspired expansionary fiscal plan and anticipated tax reforms. Inflation hit a five year high of

2.7% in February but have since eased into a downward trajectory. Inevitably, the hawks came out

and the Federal Fund Rate was raised in March and June by a ¼% each to 1.25%. This followed

December’s much expected ¼% hike. The Federal Reserve has since expressed their readiness to

trim the Federal Reserve’s asset portfolio of US$4.5 trillion in a gradual, non-disruptive and orderly

manner.

Geopolitical risk has ratcheted up several notches since Trump’s ascension following the retaliatory

bombing of Syria for alleged usage of chemical weapons, dropping the ‘mother of all bombs’ in

Afghanistan targeting ISIS and their underground tunnels and ‘sabre-rattling’ with North Korea. By

pulling out of the Trans-Pacific Partnership (TPP) and Paris Climate Agreement, antagonising Mexico,

Australia, Canada and NATO, Trump is isolating the US expeditiously.

China’s 4 quarters of Gross Domestic Product (GDP) grew 6.7%, 6.8% and 6.9% for the first two

quarters this year but have kept full year (2017) projection at 6.5% ahead of their National People’s

Congress in October. For a moment, China’s reserves fell below US$3 trillion mark (lowest since 2011)

in January defending the Yuan from sliding, as it lost the top US debt holder position to Japan since

October 2016. It has since reclaimed that top spot as of June 2017, following imposition of capital

controls on outflows and a series of US Treasuries’ buying sprees. Reserves have also turned around

totaling slightly below USD3.06 trillion. It is no surprise then that President Trump did not carry out

his threat of branding China a currency manipulator during their first four-eyed meeting in March.

In Malaysia, with little good news in the National Budget announced in October, the Malaysian Ringgit

suffered from the anticipated declining interest rates differential, the negative effect of the reduction

of the Morgan Stanley Capital International (MSCI) Emerging Market Index weight for Malaysia from

3.25% to 2.92% in early June 2016 and bad press on issues surrounding 1MDB. The MYR depreciated

to its weakest close since the end of 1998 Asian Financial Crisis early January at 4.49 to USD.

Fortunately, trade data remained strong. Exports and imports data picked up since November

providing support for Q4’s 4.5% GDP growth, bringing the full calendar year 2016 to an expansion of

4.2%. It improved further to 5.6% reading for 1Q 2017. Meantime, inflation surged to 5.1% in March,

highest since November 2008 mainly due to higher fuel and transport cost as RON95 at the pump



9

stood at RM2.30 per liter compared to RM1.60 a year ago. It tapered off at the end of June to 3.6%

as oil prices eased. Foreign Reserves increased to USD99.8 billion (or RM424.9 bil from RM390.4 bil).

FIXED INCOME MARKET REVIEW

The period under review saw the issuance of RM84.2 bil Malaysian Government Securities/

Government Investment Issue (MGS/GII) through 29 tenders vs RM94.0 bil in the previous period

(July ’15 – June ’16). However there were also 9 issues privately placed raising another RM8 bil. Due

to negative vibes from 3Q 2016, capital flowed out of our system to the tune of RM20.2 billion during

the second half of 2016. This continued throughout the first three months of the year for a further

outflow of RM37.6 billion hitting the lowest level of debts held by foreigners since January 2012 at

RM162.3 billion in March. Sentiment turned for the better since 2Q 2017. The level of our sovereign

debt held by offshore investors stands at RM178.0 billion (26.6% of total issued) at the end of June

2017 compared to RM162.3 billion last June.

During this period, there were 6 Overnight Policy Rate (OPR) meetings where the benchmark rate

was reduced by 0.25% to 3.00% in July 2016 in an unexpected preemptive move by the then newly

minted Bank Negara Governor.

Malaysian sovereign yield curve shifted up between 20 and 43 bps reflecting pressure from the 3 US

rate hikes in this period. Pressure also came in the form of rising domestic inflation although it has

been frequently debunked as cost push rather than demand driven. These are balanced by local

factors like narrowing disposable income as well as the impending general elections and the need to

maintain a ‘feel good’ atmosphere. Investors were also observed to have gone the credit path to pick

up yields as evident in the narrowing spreads.

Constant Maturity Conventional Yield-To-Maturity: June 2017 vs June 2016

Tenure 1Y 3Y 5Y 7Y 10Y

Jun’16 Jun’17 Jun’16 Jun’17 Jun’16 Jun'17 Jun’16 Jun’17 Jun’16 Jun’17

MGS 2.774 3.188 3.173 3.482 3.317 3.678 3.593 3.891 3.726 3.923

AAA 3.930 4.060 4.100 4.240 4.230 4.330 4.380 4.470 4.580 4.680

AA2 4.200 4.280 4.470 4.490 4.620 4.610 4.620 4.740 4.950 4.930

A2 5.580 5.460 6.330 6.150 6.800 6.690 7.240 7.110 7.860 7.790

Source: Bond Pricing Agency Sdn Bhd (BPA)



10

ECONOMIC OUTLOOK

Economically the US appear to have made milestones turnarounds with critical data like

unemployment and inflation on the right path while housing and consumption showing encouraging

signs. The EU have also in recent months appear to have put the worst behind them to emerge from

economic doldrums. Growth is on an uptrend while unemployment on a slow but favourable reverse.

China is constantly fixing their identified niggling problems of rising debt, property inflation and

capital outflows. If they can manoeuvre around these issues by altering her economy to be one that

is consumption based and continue on a watered down growth path of 6%; simple arithmetic will

prove that they will surpass the US to become the largest economy by 2032 even if the US grows at

an optimistic 2.5% rate.

All these augur well for Malaysia and our fledgling economy. China is hungry to spread its influence

and trade while we need new capital inputs and have goods to export. If China grows, we benefit. We

can look forward to a favourable trade data. Our government’s swift response to China’s ‘one belt one

road’ (now called Belt and Road Initiative) aspirations by opening up ‘high speed rail’ construction to

the Chinese and recent developments on the East Coast Rail Link and ports on both sides of our

peninsula amongst many others is seen as a masterful stroke by our leaders. Compared to lukewarm

reception of our southern neighbours, Malaysia appear to have seized the upper hand in being

involved in the next fifty years (at least) of Asian (China-India-Russia) upswing if not China itself. It

is important thence to pursue the appropriate funding structure for these long term mammoth

projects to ensure an advantageous future.

Crude oil price is expected to be range bound between US$50-60 as Organization of the Petroleum

Exporting Countries (OPEC) and non-OPEC producers agree to an extension of the production cut in

May till end 1Q 2018 in a continued effort to reduce excess supply.

FIXED INCOME MARKET OUTLOOK

As the economies of major countries turn for the better, it is envisaged that ultra-easy interest rates

environment may be nearing its end. The process of rates normalisation in the US while the market

expects EU to scale back stimulus will point towards an increase in global yields. The notion of a new

norm of low interest rates may still mitigate as base effects have grown larger while new engine of

growths remain elusive.

For Malaysia, interest rates differential has narrowed over the year. Coupled with rising domestic cost,

there are substantial reasons for tightening rates. However, authorities have to balance with diminishing disposable incomes and are correct in holding back any urgencies to raise rates as that

will not be able to address rising cost. It is therefore likely that interest rates remain very

accommodative for the next half of the year.

Fixed income markets is expected to remain buoyant and liquid for now.



11

T R U S T E E ’ S R E P O R T

For The Financial Year Ended 30 June 2017

To the Unit holders of Areca Flexi fixedINCOME Fund

We have acted as Trustee of Areca Flexi fixedINCOME Fund (the “Fund”) for the financial year

ended 30 June 2017. In our opinion and to the best of our knowledge, Areca Capital Sdn Bhd, the

Manager, has operated and managed the Fund in accordance with the following:-

(a) limitations imposed on the investment powers of the Manager and the Trustee under the

Deed, the Securities Commission Malaysia’s Guidelines on Unlisted Capital Market Products

under the Lodge and Launch Framework, the Capital Markets and Services Act 2007 and

other applicable laws;

(b) valuation/pricing is carried out in accordance with the Deed and any regulatory

requirements;

(c) creation and cancellation of units are carried out in accordance with the Deed and other

regulatory requirements; and

(d) the distribution of 3.00 sen (gross) per unit to the unitholders during the financial year

ended 30 June 2017 is consistent with the objectives of the Fund.

For and on behalf of the Trustee

RHB TRUSTEES BERHAD (Company No: 573019-U)

TONY CHIENG SIONG UNG

DIRECTOR

Kuala Lumpur

21 August 2017

S T A T E M E N T B Y T H E M A N A G E R

To the Unit holders of Areca Flexi fixedINCOME Fund

We, Wong Teck Meng and Dato’ Wee Hoe Soon @ Gooi Hoe Soon, two of the Directors of Areca

Capital Sdn Bhd, do hereby state that in our opinion as the Manager, the financial statements set

out on pages 15 to 36 are drawn up in accordance with the provisions of the Deed and give a true

and fair view of the financial position of the Fund as at 30 June 2017 and of its results, changes in

net assets attributable to unitholders and cash flows of the Fund for the financial year ended 30

June 2017 in accordance with the Malaysian Financial Reporting Standards and International

Financial Reporting Standards.

For and on behalf of the Manager,

ARECA CAPITAL SDN BHD

WONG TECK MENG

EXECUTIVE DIRECTOR

DATO’ WEE HOE SOON @ GOOI HOE SOON

INDEPENDENT DIRECTOR

Kuala Lumpur

21 August 2017



12

INDEPENDENT AUDITORS’ REPORT

TO THE UNITHOLDERS OF ARECA FLEXI FIXEDINCOME FUND

REPORT ON THE AUDIT OF FINANCIAL STATEMENTS

Our Opinion

In our opinion, the financial statements of Areca Flexi fixedINCOME Fund (the “Fund”) give a true

and fair view of the financial position of the Fund as at 30 June 2017, and of its financial

performance and its cash flows for the year then ended in accordance with Malaysian Financial

Reporting Standards and International Financial Reporting Standards.

What we have audited

We have audited the financial statements of the Fund, which comprise the statement of financial

position as at 30 June 2017, and the statement of comprehensive income, statement of changes in

equity and statement of cash flows for the year then ended, and notes to the financial statements,

including a summary of significant accounting policies, as set out on pages 15 to 36.

Basis for opinion

We conducted our audit in accordance with approved standards on auditing in Malaysia and

International Standards on Auditing. Our responsibilities under those standards are further

described in the “Auditors’ responsibilities for the audit of the financial statements” section of our

report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a

basis for our opinion.

Independence and other ethical responsibilities

We are independent of the Fund in accordance with the By-Laws (on Professional Ethics, Conduct

and Practice) of the Malaysian Institute of Accountants ("By-Laws") and the International Ethics

Standards Board for Accountants' Code of Ethics for Professional Accountants ("IESBA Code"), and

we have fulfilled our other ethical responsibilities in accordance with the By-Laws and the IESBA

Code.

Information other than the financial statements and auditors’ report thereon

The Manager of the Fund is responsible for the other information. The other information comprises

Manager’s report but does not include the financial statements of the Fund and our auditors’ report

thereon.

Our opinion on the financial statements of the Fund does not cover the other information and we

do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements of the Fund, our responsibility is to read the other information and, in doing so, consider whether the other information is materially

inconsistent with the financial statements of the Fund or our knowledge obtained in the audit or

otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of

this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Manager for the financial statements

The Manager of the Fund is responsible for the preparation of the financial statements of the Fund

that give a true and fair view in accordance with Malaysian Financial Reporting Standards and

International Financial Reporting Standards. The Manager is also responsible for such internal

control as the Manager determine is necessary to enable the preparation of financial statements of

the Fund that are free from material misstatement, whether due to fraud or error.



13

In preparing the financial statements of the Fund, the Manager is responsible for assessing the

Fund’s ability to continue as a going concern, disclosing, as applicable, matters related to going

concern and using the going concern basis of accounting unless the Manager either intend to

liquidate the Fund or have no realistic alternative but to do so.

Auditors’ responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements of the

Fund as a whole are free from material misstatement, whether due to fraud or error, and to issue

an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with approved standards on auditing

in Malaysia and International Standards on Auditing will always detect a material misstatement

when it exists. Misstatements can arise from fraud or error and are considered material if,

individually or in the aggregate, they could reasonably be expected to influence the economic

decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with approved standards on auditing in Malaysia and

International Standards on Auditing, we exercise professional judgment and maintain professional

scepticism throughout the audit. We also:

(a) Identify and assess the risks of material misstatement of the financial statements of the

Fund, whether due to fraud or error, design and perform audit procedures responsive to

those risks, and obtain audit evidence that is sufficient and appropriate to provide a

basis for our opinion. The risk of not detecting a material misstatement resulting from

fraud is higher than for one resulting from error, as fraud may involve collusion, forgery,

intentional omissions, misrepresentations, or the override of internal control.

(b) Obtain an understanding of internal control relevant to the audit in order to design audit

procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control.

(c) Evaluate the appropriateness of accounting policies used and the reasonableness of

accounting estimates and related disclosures made by the Manager.

(d) Conclude on the appropriateness of the Manager’s use of the going concern basis of

accounting and, based on the audit evidence obtained, whether a material uncertainty

exists related to events or conditions that may cast significant doubt on the Company’s

ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the

financial statements of the Fund or, if such disclosures are inadequate, to modify our

opinion. Our conclusions are based on the audit evidence obtained up to the date of our

auditors’ report. However, future events or conditions may cause the Fund to cease to

continue as a going concern.

(e) Evaluate the overall presentation, structure and content of the financial statements of

the Fund, including the disclosures, and whether the financial statements represent the

underlying transactions and events in a manner that achieves fair presentation.

We communicate with the Manager regarding, among other matters, the planned scope and timing

of the audit and significant audit findings, including any significant deficiencies in internal control

that we identify during our audit.



14

OTHER MATTERS

This report is made solely to the unitholder of the Fund and for no other purpose. We do not

assume responsibility to any other person for the content of this report.

PRICEWATERHOUSECOOPERS

(No. AF: 1146)

Chartered Accountants

Kuala Lumpur

21 August 2017



15

STATEMENT OF FINANCIAL POSITION

As At 30 June 2017

Note

30.6.2017

RM

30.6.2016

RM

Current Assets

Cash & cash equivalents 9 1,620,149 2,124,484

Financial assets at fair value through profit or loss

8 11,423,974

5,681,698

Total Assets 13,044,123 7,806,182

Current Liabilities

Accrued management fee 7,264 3,523

Other payables and accruals 10 12,938 10,652

Total Liabilities 20,202 14,175

Net Asset Value of the Fund 13,023,921 7,792,007

Equity

Unit holders' capital 12,665,329 7,602,146

Retained earnings 358,592 189,861

Total Net Asset Attributable to

Unitholders 13,023,921

7,792,007

Number of Units in Circulation 11 12,604,373 7,777,154

Net Asset Value Per Unit (Ex-

Distribution) 1.0333

1.0019

The accompanying notes form an integral part of these financial statements.



16

STATEMENT OF COMPREHENSIVE INCOME


30.6.2017 30.6.2016

Note RM RM

Investment Income

Dividend income 379,279 -

Interest income 3 171,395 257,569

Net gain on financial assets at fair value

through profit or loss 8 65,289

540,779

615,963 798,348

Expenses

Management fee 4 57,694 82,315

Trustee's fee 5 - -

Audit fee 6,600 6,050

Tax agent’s fee 3,800 3,800

Other expenses 6,704 7,476

74,798 99,641

Net Profit Before Taxation 541,165 698,707

Taxation 6 4,971 4,957

Net Profit After Taxation And

Total Comprehensive Income For The

Financial Year

536,194

693,750

Net Income After Taxation Is Made Up As

Follows:

Realised amount 501,149 1,115,088

Unrealised amount 35,045 (421,338)

536,194 693,750




17

STATEMENT OF CHANGES IN EQUITY


Note Unit

holders’

capital

Retained

earnings

Total net

asset

value

RM RM RM

Balance as at 1 July 2016 7,602,146 189,861 7,792,007

Movement in unit holders’ capital:

Creation of units arising from

application

5,115,320

-

5,115,320

Creation of units from distribution 367,463 - 367,463

Cancellation of units (419,600) - (419,600)

Distribution 7 - (367,463) (367,463)

Total comprehensive income for the

financial year

- 536,194 536,194

Balance as at 30 June 2017

12,665,329 358,592 13,023,921

Balance as 1 July 2015 6,480,413 712,780 7,193,193

Movement in unit holders’ capital:

Creation of units arising from application

410,000

-

410,000

Creation of units from distribution 1,216,669 - 1,216,669

Cancellation of units (504,936) - (504,936)

Distribution 7 - (1,216,669) (1,216,669)

Total comprehensive income for the

financial year

- 693,750 693,750

Balance as at 30 June 2016

7,602,146 189,861 7,792,007




18

STATEMENT OF CASH FLOWS For The Financial Year Ended 30 June 2017

30.6.2017 30.6.2016

Note RM RM

Cash Flow From Investing And

Operating Activities

Proceeds from disposal of investments 3,197,073 20,034,800

Purchase of investments (8,443,385) (18,338,600)

Interest received from deposits with licensed financial institutions

22,774

104,770

Interest received from unquoted fixed

income securities

97,224

240,239

Management fee paid (53,592) (86,562)

Payment for other fees and expenses (14,818) (16,533)

Tax paid (4,971) (4,957)

Net cash flow (used in)/generated from

operating activities (5,200,055)

1,933,157

Cash Flow From Financing Activities

Cash proceeds from creation of units 5,482,783 1,626,669

Payment for cancellation of units (419,600) (504,936)

Distributions paid (367,463) (1,216,669)

Net cash flow generated from/(used in)

financing activities 4,695,720

(94,936)

Net (decrease)/increase in cash and

cash equivalents (504,335)

1,838,221

Cash and cash equivalents at the

beginning of financial year 2,124,484

286,263

Cash and cash equivalents at the end of

financial year 1,620,149

2,124,484

Cash & cash equivalents comprise:

Deposit with licensed financial institutions 9 1,619,810

2,116,066

Bank balance with a licensed bank 9 339 8,418

1,620,149 2,124,484




19

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

FOR THE FINANCIAL YEAR ENDED 30 JUNE 2017

The following accounting policies have been used in dealing with items which are considered

material in relation to the financial statements.

A BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS

The financial statements have been prepared under the historical cost convention in accordance

with Malaysian Financial Reporting Standards (“MFRS”) and International Financial Reporting

Standards (“IFRS”), as modified by financial assets at fair value through profit or loss.

The preparation of financial statements in conformity with the MFRS and IFRS 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

year. It also requires the Manager to exercise their judgment in the process of applying the

Fund’s accounting policies. Although these estimates and judgment are based on the Manager’s

best knowledge of current events and actions, actual results may differ.

The areas involving a higher degree of judgment or complexity, or areas where assumptions and

estimates are significant to the financial statements are disclosed in Note L.

(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 July 2016:

• Amendments to MFRS 101 ‘Presentation of financial statements’ – Disclosure initiative

• Annual Improvements to MFRSs 2012 – 2014 Cycle

The adoption of these amendments did not have any impact on the current are not likely to

affect future periods.

(b) The new standards, amendments to published standards and interpretations to existing

standards that are applicable to the Fund but not yet effective and have not been early

adopted are as follows:

(i) Financial year beginning on/after 1 July 2017

Amendments to MFRS 107 ‘Statement of Cash Flows – Disclosure Initiative

(effective from 1 January 2017) introduce an additional disclosure on changes in

liabilities arising from financing activities.

The Fund will apply these amendments when effective. These amendments are

not expected to have a significant impact on the Fund’s financial statements.

(ii) Financial year beginning on/after 1 June 2018

MFRS 15 “Revenue from Contracts with Customers” (effective from 1 January

2018) replaces MFRS 118 “Revenue” and MFRS 111 “Construction contracts” and

related interpretations. The standard deals with revenue recognition and

establishes principles for reporting useful information to users of financial

statements about the nature, amount, timing and uncertainty of revenue and

cash flows arising from an entity’s contracts with customers.

Revenue is recognised when a customer obtains control of a good or service and

thus has the ability to direct the use and obtain the benefits from the good or

service. The core principle in MFRS 15 is that an entity recognises revenue to

depict the transfer of promised goods or services to the customer in an amount

that reflects the consideration to which the entity expects to be entitled in

exchange for those goods or services.



20

The Fund will apply this standard when effective. This standard is not

expected to have a significant impact on the Fund’s financial statements.

MFRS 9 “Financial Instruments” (effective from 1 January 2018) will

replace MFRS 139 “Financial Instruments: Recognition and Measurement”.

MFRS 9 retains but simplifies the mixed measurement model in MFRS 139 and establishes three primary measurement categories for financial assets:

amortised cost, fair value through profit or loss and fair value through

other comprehensive income (“OCI”). The basis of classification depends on

the entity’s business model and the cash flow characteristics of the

financial asset. Investments in equity instruments are always measured at

fair value through profit or loss with an irrevocable option at inception to

present changes in fair value in OCI (provided the instrument is not held

for trading).

A debt instrument is measured at amortised cost only if the entity is

holding it to collect contractual cash flows and the cash flows represent

principal and interest.

For liabilities, the standard retains most of the MFRS 139 requirements.

These include amortised cost accounting for most financial liabilities, with

bifurcation of embedded derivatives. The main change is that, in cases

where the fair value option is taken for financial liabilities, the part of a fair

value change due to an entity’s own credit risk is recorded in other

comprehensive income rather than the income statement, unless this creates an accounting mismatch.

MFRS 9 introduces an expected credit loss model on impairment that

replaces the incurred loss impairment model used in MFRS 139. The

expected credit loss model is forward-looking and eliminates the need for a

trigger event to have occurred before credit losses are recognised.

The Fund will apply this standard when effective. This standard is not

expected to have a significant impact on the Fund’s financial statements.

B INCOME RECOGNITION

Dividend income is recognised on the ex-dividend date when the right to receive payment is

established.

Interest income from short-term deposits and unquoted fixed income securities are recognised

on an accrual basis using the effective interest method.

Realised gain or loss on disposal of collective investment scheme is accounted for as the

difference between the net disposal proceeds and the carrying amount of collective investment

scheme, determined on a weighted average cost basis.

Realised gains or losses on disposal of unquoted fixed income securities are accounted for as the

difference between the net disposal proceeds and the carrying amount of the investments,

determined on cost adjusted for accretion of discount or amortisation of premium.

C TAXATION

Current tax expense is determined according to the Malaysian tax laws and includes all taxes

based upon the taxable profits earned during the financial year.



21

D FUNCTIONAL CURRENCY AND PRESENTATION

Items included in the financial statements of the Fund are measured using the currency of the

primary economic environment in which the Fund operates (the “functional currency”). The

financial statements are presented in Ringgit Malaysia ("RM"), which is the Fund’s functional

and presentation currency.

E FOREIGN CURRENCY TRANSLATION

Foreign currency transactions in the Fund are accounted for at exchange rates prevailing at the

transaction dates. Foreign currency monetary assets and liabilities are translated at exchange

rates prevailing as at the date of the statement of financial position. Exchange differences arising

from the settlement of foreign currency transactions and from the translation of foreign currency

monetary assets and liabilities are included in the statement of comprehensive income.

Translation differences on non-monetary financial assets such as foreign collective investment schemes classified as financial assets at fair value through profit and loss are included in the

statement of comprehensive income as part of the fair value gain or loss.

F 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.

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.

Financial liabilities are classified according to the substance of the contractual

arrangements entered into and the definitions of a financial liability.

The Fund’s financial liabilities which include accrued management fee and other payables

and accruals.

(ii) Recognition and measurement

Regular purchases and sales of financial assets are recognised on the trade date which is

the date on which the Fund commits to purchase or sell the asset. Investments are initially

recognised at fair value. Transaction costs are expensed in the statement of comprehensive

income.

Financial 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, 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 liability is derecognised when the obligation under the liability is extinguished.

Gain and losses are recognised in the statement of comprehensive income when the

liabilities are derecognised, and through the amortisation process.

Derivative investment consists currency forward contract. Foreign exchange gains and

losses on the derivative financial instrument are recognised in statement of comprehensive

income when settled or at date of the statement of financial position at which time they are

included in the measurement of the derivative financial instrument.

Gains or losses arising from changes in the fair value of the ‘financial assets at fair value

through profit of loss’ including the effects of foreign transactions are presented in the

statement of comprehensive income within ‘net gain/(loss) on financial assets at fair value



22

through profit and loss’ in the financial year in which they arise. Any unrealised gains

however are not distributable.

Collective investment scheme is valued based on the most recent published NAV per unit or

share of such collective investment scheme or, if unavailable, the last published price of

such unit or share (excluding any sales charge included in such selling price).

Dividend income from financial assets at fair value through profit or loss is recognised in

the statement of comprehensive income as part of gross dividend income when the Fund’s

right to receive payments is established.

Unquoted fixed income securities are revalued on a daily basis based on fair value prices

quoted by a bond pricing agency (“BPA”) registered with the Securities Commission as per

the Securities Commission Guidelines on Unlisted Capital Market Products Under the Lodge

and Launch Framework. Refer to Note L for further explanation.

Deposits with licensed financial institutions are stated at cost plus accrued interest

calculated on the effective interest method over the period from the date of placement to

the date of maturity of the respective deposits.

Loan 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

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 is reduced and the amount of the loss is recognised in

statement of comprehensive income. If ‘loan 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 period, 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.

G 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.



23

H UNITHOLDERS' CAPITAL

The unitholders’ contributions to the Fund meet the criteria to be classified as equity

instruments under MFRS 132 “Financial Instruments: Presentation”. Those criteria include:

• the units entitle the holder to a proportionate share of the Fund’s net asset value (“NAV”);

• 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 the unitholder exercises the right to put the unit back to the Fund.

Units are created and cancelled at prices based on the Fund’s NAV per unit at the time of

creation or cancellation. The Fund’s NAV per unit is calculated by dividing the net assets

attributable to unitholders with the total number of outstanding units.

I DISTRIBUTION

A distribution to the Fund’s unitholders is accounted for as a deduction from realised reserves.

A proposed distribution is recognised as a liability in the period in which it is approved by the

Trustee of the Fund.

J SEGMENTAL REPORTING

Operating segments are reported in a manner consistent with the internal reporting used by

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 Investment Committee of the Fund’s Manager that undertakes strategic decisions for the

Fund.

K FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial instruments comprise financial assets and financial liabilities. Fair value is the amount

at which a financial asset could be exchanged or a financial liability settled, between

knowledgeable and willing parties in an arm’s length transaction. The information presented

herein represents the estimates of fair values as at the statement of financial position date.

L CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES

The Fund makes estimates and assumptions concerning the future. The resulting accounting

estimates will, by definition, rarely equal the related actual results. To enhance the information

content of the estimates, certain key variables that are anticipated to have material impact to

the Funds’ 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.

Estimate of fair value of unquoted fixed income securities

In undertaking any of the Fund’s unquoted fixed income security, 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 Securities Commission valuation guidelines.

Unquoted fixed income security is valued using fair value prices quoted by the bond pricing

agency (“BPA”). Where the Manager is of the view that the price quoted by 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 records its basis for using a non-

BPA price, obtains necessary internal approvals to use the non-BPA price, and keeps an audit

trail of all decisions and basis for adopting the use of non-BPA price.



24

NOTES TO THE FINANCIAL STATEMENTS – 30 JUNE 2017

1 THE FUND, THE MANAGER AND THEIR PRINCIPAL ACTIVITIES

Areca Flexi FixedINCOME Fund (“the Fund”) is a wholesale fund that was formed under a trust

structure on 3 January 2012 pursuant to a Trust Deed dated 28 April 2011, as modified by

the First Supplemental Deed dated 15 August 2013 (“the Deed”) between Areca Capital Sdn

Bhd as the Manager, RHB Trustees Berhad as the Trustee and all the registered unitholders of

the Fund.

The principal activity of the Fund is to invest in investments as defined under Schedule 7 of

the Deed, which include money market instruments, fixed income securities and deposits with

financial institutions. The Fund commenced operations on 3 January 2012 and will continue its

operations until terminated by the Trustee in accordance with Part 11 of the Deed.

The objective of the Fund is to provide qualified investors with relatively steady income and

moderate capital appreciation over a short to medium-term by investing in fixed income

investments.

The Manager of the Fund is Areca Capital Sdn Bhd, a company incorporated in Malaysia. Its

principal activities are managing private and unit trust funds.

2 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT OBJECTIVES AND POLICIES

Financial instruments of the Fund are as follows:

Note

Loan and

receivables

RM

Financial

assets at fair

value through

profit or loss

RM

Total

RM

30 June 2017

Collective investment scheme 8 - 5,098,363 5,098,363

Unquoted fixed income

securities 8 - 6,325,611 6,325,611

Cash & cash equivalents 9 1,620,149 - 1,620,149

1,620,149 11,423,974 13,044,123

30 June 2016

Collective investment scheme 8 - 4,351,949 4,351,949

Unquoted fixed income

securities 8 - 1,329,749 1,329,749

Cash & cash equivalents 9 2,124,484 - 2,124,484

2,124,484 5,681,698 7,806,182

All current liabilities are financial liabilities which are carried at amortised cost.

The Fund seeks to provide sophisticated investors with a stable stream of consistent income

while maintaining capital stability by investing in fixed income investments with medium to

long term investment horizon. In order to meet its stated investment objectives, the Fund

utilises risk management for both defensive and proactive purposes. Rigorous analysis of

sources of risk in the portfolio is carried out and the following policies are implemented to

provide effective ways to reduce future risk and enhance future returns within the Fund’s

mandate.

The Fund is exposed to a variety of risks which include market risk (including price risk and

interest rate risk), credit risk, liquidity risk and capital risk.



25

Financial risk management is carried out through internal control processes adopted by the

Manager and adherence to the investment restrictions as stipulated in the Deed and

Securities Commission Guidelines on Unlisted Capital Market Products Under the Lodge and

Launch Framework.

Market risk

(a) Price risk

Price risk arises mainly for 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:

30.6.2017

RM

30.6.2016

RM

Financial asset at fair value through profit or loss* 11,423,974 5,681,698

*Include interest receivable RM67,316 (2016: RM9,543)

The following table summarises the sensitivity of the Fund’s net asset value and profit

after tax to movements in prices of unquoted fixed income securities at the end of the

reporting year. The analysis is based on the assumptions that the market price of the

unquoted fixed income securities 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 fixed income securities, having regard to the historical

volatility of the prices.

% Change in price of

financial assets at fair

value through profit &

loss

30.6.2017

Market

Value

30.6.2016

RM RM

+5% 11,924,491 5,965,306

-5% 10,788,825 5,398,090

Impact on profit after taxation/

net asset value

30.6.2016 30.6.2015

RM RM

+5% 567,833 283,608

-5% (567,833) (283,608)

(b) Interest rate risk

Cash flow interest rate risk is the risk that the future cash flows of a financial instrument

will fluctuate because of changes in market interest rates.

Fair value interest rate risk is the risk that the value of a financial instrument will

fluctuate due to changes in market interest rates.

In general, when interest rates rise, unquoted fixed income securities prices will tend to

fall and vice versa. Therefore, the NAV of the Fund may also tend to fall when interest

rates rise or are expected to rise. However, investors should be aware that should the

Fund holds an unquoted fixed income securities till maturity, such price fluctuations

would dissipate as it approaches maturity, and thus the growth of the NAV shall not be



26

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 a bond fund since fixed income securities portfolio management

depends on forecasting interest rate movements. Valuation for unquoted fixed income

securities move inversely to interest rate movements, therefore as interest rate rise, the demand for unquoted fixed income securities decrease and vice versa. Furthermore,

unquoted fixed income securities with longer maturity and lower coupon rates are more

susceptible to interest rate movements.

Investors should note that fixed income securities (such as the bonds held by the Fund) 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 and principal, especially if the issuers

are highly leveraged. An increase in interest rates may therefore increase the potential

for default by an issuer.

The Fund’s investments in deposits with licensed financial institutions are short term in

nature. Therefore, exposure to interest rate fluctuations is minimal.

The table below summarises the sensitivity of the Fund’s net asset value to movements

in interest rate of unquoted fixed income securities held by the Fund at the end of each

reporting period as a result of movement in interest rate. The analysis is based on the

assumptions that the interest rate increased and decreased by 5% with all other

variables held constant. This represents management’s best estimate of a reasonable

possible shift in the interest rate, having regard to the historical volatility of the interest

rate.

% Change in interest rate of unquoted fixed income securities

Impact on profit after taxation/change in net asset value

30.6.2017 30.6.2016

RM RM

+5% (95,494) (15,612)

-5% 98,960 15,843

Credit risk

Credit risk refers to the ability of an issuer or counterparty to make timely payments of

interest, principals and proceeds from realisation of investment. The Manager manages the

credit risk by undertaking credit evaluation to minimise such risk.

Credit risk arising from placements on deposits in licensed financial institutions is managed by

ensuring that the Fund will only place deposits in reputable licensed financial institutions.

The settlement terms of the proceeds from the creation of units’ receivable from the Manager

and redemption of units payable to the Manager are governed by the Securities Commission

Guidelines on Unlisted Capital Market Products Under the Lodge and Launch Framework.

The Fund seeks to mitigate credit/default risk by investing in high quality fixed income

securities.

Credit risk is a concern for unquoted fixed income securities. The risk arises when an issuer is

unable to service any profit/contractual coupon or repay the principal amount upon

redemption. In such cases, investors may suffer significant losses with respect to their capital

invested and income foregone. Management of the credit risk is largely accounted for by the

Fund’s management of issue-specific risk. This refers to the emphasis on credit analysis

conducted to determine issuers’ or guarantors’ ability to service promised payments.



27

The maximum exposure to credit risk before any credit enhancements is the carrying amount

of the financial assets is set out below:

Financial assets

at fair value

through profit or

loss

RM

Cash and

cash

equivalents

RM

Total

RM

As at 30 June 2017

Finance

AAA - 339 339

AA- - 1,619,810 1,619,810

Collective investment scheme Not rated 5,098,363 - 5,098,363

Unquoted fixed income securities

AAA 1,009,069 - 1,009,069

AA1 1,010,555 - 1,010,555

AA- 1,070,381 - 1,070,381

Not rated 3,235,606 - 3,235,606

11,423,974 1,620,149 13,044,123

As at 30 June 2016

Finance

AAA - 8,418 8,418

AA- - 2,116,066 2,116,066

Collective investment scheme

Not rated 4,351,949 - 4,351,949

Unquoted fixed income securities

Not rated 1,329,749 - 1,329,749

5,681,698 2,124,484 7,806,182

The Manager considers the risk of material loss in the event of non-performance by the

counterparties of the Fund to be unlikely. All financial assets of the Fund as at 30 June 2017

are neither past due nor impaired.

Liquidity risk

Liquidity risk is the risk that investments cannot be readily sold at or near its actual value

without taking a significant discount. This will result in lower NAV of the Fund. The Manager

manages this risk by maintaining sufficient level of liquid assets to meet anticipated payment

and cancellations of unit by unit holders. Liquid assets comprise bank balance, deposit 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.

Less than

one

month

Between

one

month to

one year Total

RM RM RM

As at 30 June 2017

Accrued management fee 7,264 - 7,264


Contractual cash outflows 7,700 12,502 20,202



28

Less than

one

month

Between

one

month to

one year Total

RM RM RM

As at 30 June 2016

Accrued management fee 3,523 - 3,523


Contractual cash outflows 3,734 10,441 14,175

Capital risk

The capital of the Fund is represented by equity consisting of unit holders’ 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 unit holders. 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 unit holders and benefits for other stakeholders and to

maintain a strong capital base to support the development of the investment activities of the

Fund.

Fair value estimation

Fair value is defined as 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 (i.e.

an exit price).

The fair value of financial assets traded in active market (such as publicly traded derivatives

and trading securities) are based on quoted market prices at the close of trading on the year

end date. The Fund utilises the last traded market price for financial assets where the last

traded price falls within the bid-ask spread. In circumstances where the last traded price is

not within the bid-ask spread, the Fund Manager will determine the point within the bid-ask

spread that is representative of the fair value.

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

Fair value hierarchy

(i) The table below analyses financial instruments carried at fair value by valuation method.

The different levels have been defined as follows:

• Level 1: Quoted prices (unadjusted) in active market for identical assets or

liabilities.

• Level 2: 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 3: Inputs for the asset and liability that are not based on observable market

data (that is, unobservable inputs).

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.



29

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.

The following table analyses within the fair value hierarchy the Fund’s financial assets

(by class) measured at fair value:

30 June 2017 Level 1

RM

Level 2

RM

Level 3

RM

Total

RM

Financial assets at fair value

through profit or loss at

inception:

- collective investment

scheme 5,098,363 - - 5,098,363 -unquoted fixed income

securities - 6,325,611 - 6,325,611

5,098,363 6,325,611 - 11,423,974

30 June 2016

Financial assets at fair value

through profit or loss at

inception:

- collective investment

scheme 4,351,949 - - 4,351,949

-unquoted fixed income

securities - 1,329,749 - 1,329,749

4,351,949 1,329,749 - 5,681,698

Investments whose values are based on quoted market prices in active markets, and are

therefore classified within Level 1, include active quoted securities. The Fund does not

adjust the quoted prices for these instruments. The Fund’s policies on valuation of these

financial assets are stated in Note F.

Financial instruments that trade in markets that are considered to be active but are

valued based on quoted market prices, dealer quotations or alternative pricing sources

supported by observable inputs are classified within Level 2 these include unquoted fixed

income securities. 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. The Fund’s policies on valuation of these financial assets are stated in Note

L.

(ii) The carrying value of cash and cash equivalents and all current liabilities are a

reasonable approximation of their fair values due to their short term nature

3 INTEREST INCOME

30.6.2017 30.6.2016

RM RM

Interest income from:

- deposits with licensed financial institutions 22,774 104,770

- unquoted fixed income securities 148,621 152,799

171,395 257,569



30

4 MANAGEMENT FEE AND MANAGEMENT FEE REBATE

The 8th Schedule of the Deed provides that the Manager is entitled to an annual management

fee at a rate not exceeding 2.50% per annum computed daily on the net asset value of the

Fund before the deduction of the management fee and Trustee’s fee for the relevant day.

The management fee provided for in the financial statements amounted to 1.25% (2016:

1.25%) per annum for the year.

Management fee rebate represents the Fund’s entitlement to management fee rebate from the

Manager and Manager of collective investment schemes the Fund invests in.

For the financial year ended 30 June 2017, the management fee rebate is recognized at a rate

of 1.25% per annum (2016: 1.25%) and calculated and accrued daily based on the NAV of the

collective investment schemes.

There will be no further liability to the Manager in respect of the management fee other than

the amounts recognised above.

5 TRUSTEE’S FEE

The 9th Schedule of the Deed provides that the Trustee is entitled to an annual Trustee’s fee at

a rate not exceeding 0.25% per annum computed daily on the net asset value of the Fund

before the deduction of the management fee and Trustee’s fee for the relevant day.

There is no Trustee’s fee provided for in the financial statements for the financial year as the

fee was borne by the Manager (2016: Nil).

There will be no further liability to the Trustee in respect of the trustee fee other than the

amounts recognised above.

6 TAXATION

(a) Tax charge for the financial year

2017 2016

RM RM

Tax charged for the financial year:

-Current taxation 4,843 4,957

- Prior year under provision taxation 128 -

4,971 4,957

(b) Numerical reconciliation of income tax expense

The numerical reconciliation between the net income before finance cost and taxation

multiplied by the Malaysian statutory income tax rate and the tax expense of the Fund is

as follows:

2017

RM

2016

RM

Profit before taxation 541,165 698,707

Tax calculated at a tax rate of 24% (2016: 24%) 129,880 167,690

Tax effects of:

- Income not subjected to tax (142,987) (184,526)

- Expenses not deductible for tax expenses 1,610 2,706

- Restriction on tax deductible expenses 16,340 19,087

- Prior year under provision of taxation 128 -

Tax expense 4,971 4,957



31

7 DISTRIBUTION

Distribution to unitholders is from the following sources:

30.6.2017

RM

30.6.2016

RM

Interest income from deposits with licensed financial

institutions

22,774

104,187 Interest income from unquoted fixed income securities 148,621 143,265

Net realised gains on sale of investments 30,244 962,117

Previous year’s realised gains 245,593 111,698

447,232 1,321,267

Less: Expenses (74,798) (99,641)

Taxation (4,971) (4,957)

Net distribution amount 367,463 1,216,669

Distribution on 30 June 2017

Gross distribution per unit (cents) 3.00 -

Net distribution per unit (cents) 3.00 -

Distribution on 29 June 2016 Gross distribution per unit (cents) - 3.00

Net distribution per unit (cents) - 3.00

Distribution on 31 December 2015

Gross distribution per unit (cents) - 15.00

Net distribution per unit (cents) - 15.00

Gross distribution is derived using total income less total expenses.

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.

8 FINANCIAL ASSET AT FAIR VALUE THROUGH PROFIT OR LOSS

30.6.2017 30.6.2016

RM RM

Designated at fair value through profit or loss at

inception:

- Unquoted fixed income securities 6,325,611 1,329,749

- Collective investment scheme 5,098,363 4,351,949

11,423,974 5,681,698

Net gain on assets at fair value

through profit or loss:

-realised gain on disposal 30,244 962,117

-unrealised fair for value gain/(loss) 35,045 (421,338)

65,289 540,779



32

Financial assets at fair value through profit or loss as at 30 June 2017 are as follows:

Name of Issuer Nominal

value

Carrying

value

Fair value as at

30.6.2017

Fair value as at 30.6.2017

expressed as

a % of value

of the Fund

RM RM RM %

Bond in Malaysia

2.00% Eastern & Oriental

Berhad 06/03/2020 (Not

Rated) 2,500,000 2,159,927 2,272,703 17.45

5.30% Sabah Dvelopment Bank

Berhad 11/05/2022 (AA1) 1,000,000 1,008,305 1,010,555 7.76

4.34% Sarawak Hidro Sdn Bhd

09/08/2022 (AAA) 1,000,000 1,022,409 1,009,069 7.75

4.90% Lembaga Pembiayaan

Perumahan Sektor Awam 21/09/2046 (Not Rated) 1,000,000 1,013,693 962,903 7.39

6.23% Lebuhraya DUKE Fasa 3

Sdn Bhd 21/08/2037 (AA-) 500,000 522,724 566,699 4.35

4.85% Alpha Circle Sdn Bhd

17/11/2017 (AA-) 500,000 503,807 503,682 3.87

Total unquoted fixed income

securities in Malaysia 6,500,000 6,230,865 6,325,611 48.57

Accumulated unrealised gain on

financial assets at fair value

through profit or loss

94,746


securities at fair value through

profit or loss

6,325,611

Name of Issuer Quantity

Aggregate

cost

Fair value

as at

30.6.2017

Fair value

as at 30.6.2017

expressed as

a % of value

of the Fund

Units RM RM %


Areca Situational Income Fund 4,987,637 5,000,000 5,098,363 39.15

Total collective investment

scheme in Malaysia 4,987,637 5,000,000 5,098,363 39.15


collective investment scheme

at fair value through profit or

loss

98,363


scheme at fair value through

profit or loss

5,098,363



33

Financial assets at fair value through profit or loss as at 30 June 2016 are as follows:

Name of Issuer Nominal

value

Carrying

value

Fair value as at

30.6.2016

Fair value as at 30.6.2016

expressed as

a % of value

of the Fund

RM RM RM %

2.00% Eastern & Oriental

Berhad 06/03/2020 (Not Rated) 1,500,000 1,253,634 1,329,749 17.07

Total unquoted fixed income securities in Malaysia 1,500,000 1,253,634 1,329,749 17.07


financial assets at fair value

through profit or loss

76,115


securities at fair value through

profit or loss

1,329,749

Name of Issuer Quantity

Aggregate

cost

Fair value

as at

30.6.2016

Fair value

as at 30.6.2016

expressed as

a % of value

of the Fund Units RM RM %


Areca Situational Income Fund 3,992,414 4,000,000 4,073,860 52.28

Areca Islamic Cash Fund 269,949 270,000 278,089 3.75


scheme in Malaysia 4,262,063 4,270,000 4,351,949 55.85


collective investment scheme

at fair value through profit or

loss 81,949


scheme at fair value through

profit or loss 4,351,949

9 CASH AND CASH EQUIVALENTS

2017 2016

RM RM

Bank balance with a licensed bank 339 8,418

Deposit with licensed financial institutions 1,619,810 2,116,066

1,620,149 2,124,484

The effective weighted average interest rate of short-term deposit with a licensed financial

institution per annum as at the date of statement of financial position are as follows:

30.6.2017 30.6.2016

% %

Deposit with licensed financial institutions 3.20 3.35

The deposit have an average maturity of less than 5 days (30.6.2016: 4 days).



34

10 OTHER PAYABLES AND ACCRUALS

30.6.2017 30.6.2016 RM RM

Audit fee payable 6,600 6,050 Tax agent’s fee payable 3,800 3,800

Others 2,538 802

12,938 10,652

11 UNITS IN CIRCULATION

2017

Units

2016

Units

At beginning of the financial year 7,777,154 6,643,069

Creation arising from applications 4,873,310 385,090

Creation arising from distributions 355,620 1,203,074

Cancellation units (401,711) (454,079)

At end of the financial year 12,604,373 7,777,154

12 TRANSACTIONS BY THE FUND

Details of transactions with brokers and financial institutions by the Fund for the financial

period ended 30 June 2017 are as follows:

Broker/Dealers Value of

trades

RM

Percentage

of total

trades

%

KAF Investment Bank Berhad 7,495,000 34.47

CIMB Bank Bhd 6,138,700 28.23

Hong Leong Bank Bhd 3,050,550 14.03

Malayan Banking Berhad 2,009,800 9.24

Areca Capital Sdn Bhd# 1,649,279 7.58

Hong Leong Investment Bank Bhd 1,400,750 6.45

21,744,079 100.00

There is no brokerage fee charged by brokers/dealers.

Details of transactions with brokers and financial institutions by the Fund for the financial

period ended 30 June 2016 are as follows:

Broker/Dealers Value of

trades

RM

Percentage

of total

trades

%


Hong Leong Investment Bank Bhd 14,285,544 24.83

RHB Investment Bank Berhad 10,112,966 17.58

CIMB Bank Bhd 6,519,800 11.33


57,523,310 100.00

There is no brokerage fee charged by brokers/dealers.

# Included in the transactions are trades conducted with Areca Capital Sdn Bhd, the

Manager of the Fund amounting to RM1,649,279 (2016: Nil). The Manager is of the opinion

that all transactions with the related companies have been entered into in the normal

course of business at agreed terms between the related parties.



35

13 UNITS HELD BY THE MANAGER AND PARTIES RELATED TO THE MANAGER

The related parties and its relationship with the Fund is as follows:

Related party Relationship

Areca Capital Sdn Bhd The Manager

The number of units held by the Manager is as follows:

The units are held beneficially by the Manager for booking purposes. Other than the above,

there were no units held by other Directors or parties related to the Manager.

14 MANAGEMENT EXPENSE RATIO (“MER”)

2017 2016

% %

MER 0.82 1.36

Management expense ratio includes management fee, audit fee, tax agent's fee and other

administrative expenses which is calculated as follows:

MER = (A + B + C + D) x 100

E

A = Management fee

B = Audit fee

C = Tax agent's fee

D = Other expenses E = Average net asset value of the Fund, calculated on a daily basis

The average net asset value of the Fund for the financial year is RM9,091,624 (2016:

RM7,680,879).

15 PORTFOLIO TURNOVER

2017 2016

The portfolio turnover for the financial year (times) 0.64 2.50

The portfolio turnover is derived from the following calculation:

(Total acquisition for the financial year+ total disposal for the financial year 2

Average net asset value of the Fund for the financial year calculated on a daily basis

where:

total acquisition for the financial year= RM8,466,986 (2016: RM18,338,600)

total disposal for the financial year= RM3,197,073 (2016: RM20,034,800)

<------------ 2017 ---------- <----------- 2016 ----------

No. of units RM No. of units RM

Areca Capital Sdn Bhd 0.27 0.28 - -



36

16 SEGMENT INFORMATION

The internal reporting provided to the CEO for the Fund’s assets, liabilities and performance is

prepared on a consistent basis with the measurement and recognition principles of MFRS and

IFRS. The CEO is responsible for the performance of the Fund and considers the business to

have a single operating segment.

The reportable operating segments derive their income by seeking investments to achieve

targeted returns consummate with an acceptable level of risk with each portfolio. These

returns consist of interest and gains on the appreciation in the value of investments.

There were no changes in the reportable operating segment during the financial year.

17 AUTHORISATION FOR ISSUE OF FINANCIAL STATEMENTS

The Financial Statements have been authorised for issue by the Manager on 21 August 2017.

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