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Interim Report Dec 2019

For the Period Ended 31 December 2019

Areca enhancedINCOME Fund

I NTERIM REPORT DECEM BER 2019

ARECA enhancedINCOME 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 12

UNAUDITED FINANCIAL STATEMENTS FOR

Areca enhancedINCOME Fund 13

INTERIM REPORT DECEMBER 2019


2

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

MANAGER

Areca Capital Sdn Bhd

Company No: 200601021087 (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

Wong Teck Meng

(Chief Executive Officer Non-Independent) Edward Iskandar Toh Bin Abdullah

(Executive Non-Independent)

Raja Datuk Zaharaton Bt Raja Dato’ Zainal Abidin

(Independent Non-Executive Chairman)

Dr. Junid Saham

(Independent Non-Executive)

INVESTMENT COMMITTEE MEMBERS

Dato’ Seri Lee Kah Choon


Raja Datuk Zaharaton Bt Raja Dato’ Zainal Abidin (Independent Non-Executive Chairman)

Dr. Junid Saham


TRUSTEE

Maybank Trustees Berhad

[Co No.: 1963001000109 (5004-P)]

8th Floor, Menara Maybank

100 Jalan Tun Perak

50050 Kuala Lumpur

Tel: 03-2078 8363, Fax: 03-2070 9387

AUDITOR

Deloitte PLT (LLP0010145-LCA)

Level 16, Menara LGB

1 Jalan Wan Kadir, Taman Tun Dr. Ismail 60000 Kuala Lumpur

Tel: 03-7610 8888, Fax: 03-7726 8986

TAX ADVISER

Deloitte Tax Services Sdn Bhd (36421-T) Level 16, Menara LGB

1 Jalan Wan Kadir, Taman Tun Dr. Ismail

60000 Kuala Lumpur

Tel: 03-7610 8888, Fax: 03-7726 8986

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 BRANCH IPOH BRANCH MALACCA BRANCH

368-2-02 Belissa Row 11A, (First Floor) 95A, Jalan Melaka Raya 24

Jalan Burma, Georgetown Persiaran Greentown 5 Taman Melaka Raya

10350 Pulau Pinang Greentown Business Centre 75000 Melaka

Tel : 604-210 2011 30450 Ipoh, Perak Tel : 606-282 9111

Fax: 604-210 2013 Tel : 605-249 6697 Fax: 606-283 9112

Fax: 605-249 6696

KUCHING BRANCH 1st Floor, Sublot 3

Lot 7998, Block16

KCLD, Cha Yi Goldland Jalan Tun Jugah / Stutong

93350 Kuching, Sarawak

Tel : 6082-572 472



3

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

Name of the Fund Areca enhancedINCOME Fund

Fund Category/

Type

Fixed Income/Income & Growth

Objective of the

Fund

To provide long term investors with high level of income (income could be in

the form of units or cash) stream and an opportunity for capital appreciation

Benchmark Maybank’s 12-month fixed deposit rate

Distribution Policy

of the Fund

Twice a year, subject to availability of distribution income. In the absence of

written instructions from a Unit Holder, the Manager is entitled to reinvest the

income distributed from the Fund in additional units of that Fund at the NAV

per unit at the end of the distribution day with no entry fee.

Profile of

unitholdings

* excluding units held

by the Manager

As at 31 December 2019

Size of Holding

(Units)

No. of

accounts %

No. of

units held

(million)

%

Up to 5,000 3 6.00 0.01 0.03

5,001 to 10,000 - - - -

10,001 to 50,000 10 20.00 0.28 0.89

50,001 to 500,000 29 58.00 4.92 15.92

500,001 and above 8 16.00 25.73 83.16

Total* 50 100.00 30.94 100.00

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 period under review, the Manager had not received soft

commissions in the form of data and quotation services which are incidental

to the investment management and performance tracking of the Fund.

Inception Date

30 July 2007

Initial Offer Price

RM0.5000 per unit during the initial offer period of 10 days ended 8 August

2007.

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 R M A N C E

2019 2018 2017

NET ASSET VALUE (“NAV”) as at 31 December

Total Net Asset Value (RM million) 15.98 19.41 36.76

Units in circulation (million units) 33.02 41.48 74.56

NAV per unit (RM) 0.4839 0.4679 0.4930

2019 2018 2017

HIGHEST & LOWEST NAV PER UNIT for the period ended 31 December Please refer to Note 1 for further information on NAV and pricing policy

Highest NAV per unit (RM) 0.4867 0.4846 0.5014

Lowest NAV per unit (RM) 0.4719 0.4648 0.4910

2019 2018 2017

ASSET ALLOCATION % of NAV as at 31 December

Quoted Securities

Main Board

Construction 3.08 3.13 3.10

Consumer Products 10.46 5.13 0.40

Finance Services 5.77 2.62 0.09

Industrial Products & Services 2.74 1.10 -

Properties - 2.63 2.93

Technology 3.79 - -

Trading/Services - - 7.92

Preference shares 9.39 - -

Collective Investment Scheme - - 5.70

Unquoted Fixed Income Securities

Corporate bonds 31.82 79.77 71.47

Cash & Cash Equivalents Including Placement &

Repo 32.95 5.62 8.39

DISTRIBUTION

There was no distribution for the financial period under review.

UNIT SPLITS

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

2019 2018 2017

EXPENSE/ TURNOVER for the period ended 31 December

Management expense ratio (MER) (%)

Please refer to Note 2 for further information

Portfolio turnover ratio (PTR) (times)


0.76 0.75 0.77

0.18 0.19 0.23

2019 2018 2017

TOTAL RETURN for the period ended 31 December


Total Return (%) 1.92 -1.74 -1.22

- Capital Return (%) 1.92 -1.74 -1.22

- Income Return (%) - - -

2019 2018 2017 2016 2015

Annual Total Return (%) 3.82 -3.43 -2.22 2.82 2.12

Benchmark: Average Maybank’s 12-month

fixed deposit rate (%) 3.12 3.38 3.15 3.15 3.32

1-yr 3-yrs 5-yrs

Average Total Return (%) 3.42 -0.29 1.31



5

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: 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.

Note 3: 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.

Note 4: Fund performance figures are calculated based on NAV to NAV and assume reinvestment of

distributions (if any) at NAV. The total return and the benchmark data are sourced from Lipper.

Unit prices and distributions payable, if any, may go down as well as up. Past performance of the

Fund is not an indication of its future performance.



6

F U N D R E V I E W

For the half year ending 31 December 2019, the Fund returned 3.82% p.a. It outperformed the

benchmark (Maybank’s 12-month fixed deposit rate) of 3.12% p.a. Profits from the fixed income

portion was sufficient enough to offset the continued equity diminution this half.

As at end December 2019, the Fund holds 42.20% in fixed income instruments. It also currently

holds 26.20% Malaysian equities in the portfolio.

Looking ahead, we believe our fixed income portfolio will be able to provide some foundation

contributing basic returns in order for the outperformance generated from the equity exposure.

For the period, the Fund has achieved its objective in providing high level of income stream and

opportunity for capital appreciation.

Performance of Areca enhancedINCOME Fund

for the financial period since inception to 31 December 2019

Investment Policy and Strategy

The Fund invests primarily in fixed income securities and long term bonds with relatively high level of

yield. The Fund may also invest tactically a small portion in equity and equities-related securities to

take advantage of fixed income and equity markets climate.

NAV per unit as at 31 December 2019 RM0.4839

Areca Enhanced Income Fund

Maybank 12 Months

Fixed Deposit Rate



7

F U N D R E V I E W

Asset Allocation/ Portfolio Composition as at 31 December 2019 2018 2017

Equities and equity-

related securities

25.84% 14.61% 14.44%

Fixed income securities 31.82% 79.77% 71.47%

Collective investment

scheme

- - 5.70%

Preference shares 9.39% - -

Cash & cash equivalents 32.95% 5.62% 8.39%

25.84%

9.39%32.95%

31.82%



8

MARKET REVIEW & OUTLOOK

The weakening United States (US) economy turned-around in the fourth quarter of the year by

registering a Gross Domestic Product (GDP) expansion of 2.3% over the same quarter of the previous

year. The first three quarters had registered a weakening trend of 2.7%, 2.3% and 2.1% respectively

which resulted in US Treasuries (UST) yields easing sharply across the curve and the 10y2y curve

inverting during the period amid growing recessionary fears. The US Federal Reserve (Fed) had cut

the federal funds rate (FFR) by 25 basis points (bps) each in July, September and October to support

the slowing economic growth amid weak global developments and muted inflation. However at its

October meeting, the central bank hinted at a pause in its easing cycle as it considered the current

stance of monetary policy appropriate to support sustained growth, strong labour market conditions

and inflation near the 2% target. In December, US President Donald Trump was impeached by the

House of Representatives on charges of abuse of power and obstruction of justice and the trial will

begin in early 2020 on whether to acquit or to remove him from office.

The European Central Bank (ECB), by contrast, maintained their key rates but hinted at possible rate

cuts and monetary easing whilst revising down its GDP and inflation forecasts for the year. It

resumed its monthly 20 billion Euro asset purchase program in November whilst Its new president

Christine Lagarde has called for more public investments by European governments to respond to the

challenges presented by trade tensions and technological disruptions amidst continuing weak trade

growth in the region.

Meanwhile, the UK held its general election in December 2019 and the ruling Conservative Party led

by the Prime Minister Boris Johnson gained a “historic” win and promised to deliver Brexit by 31st

January. However, this resulted in continued losses for the local currency.

In China, trade surplus widened amid higher exports to ASEAN, South Korea and Japan. The People’s

Bank of China (PBoC) had devalued the Yuan in response to US tariffs and reformed its interest rate

to stimulate the economy. Credit growth rebounded by 10.7% although the central bank said it is not

looking to add any massive monetary stimulus. The economy slowed to its lowest level in nearly three

decades amid trade tensions, poor global economic growth and high off-balance sheet borrowings.

The PBoC entered a rate-cutting cycle to prop up a slowing economy. Meanwhile, the US and China

reached an agreement on a phase one trade deal that involves a rollback of some tariffs and

increased agricultural purchases.

Malaysia’s economy grew by 4.4% and 3.6% year-on-year (yoy) in the third and fourth quarter of

2019, easing from a 4.9% expansion in the second quarter. This was the weakest GDP growth rate

since the third quarter of 2009 due mainly to a contraction in palm oil, crude oil and natural gas

output, and a 3.1% fall in exports amid global trade tensions. Considering 2019 full year, the

economy grew by 4.3%, the softest pace since 2016 and below the government’s forecast of 4.7%.

Bank Negara Malaysia (BNM) held its overnight policy rate (OPR) at 3% during its November meeting

stating that growth will continue to be supported by resilient private spending.

FIXED INCOME MARKET REVIEW & OUTLOOK

In third quarter, demand for government bonds (govvies) at public auctions remained robust,

supported by lower global rates and a benign inflation outlook. However, fourth quarter saw demand

for local govvies at public auctions suffering as the bid-to-cover (BTC) ratio declined. The total

combined outstanding MGS/GII declined to RM759.7 billion in December (June 2019: RM762.4 billion)

as the volume of matured MGS rose. Meanwhile, MGS outperformed in the secondary market with

both the 3y and 10y yields reaching multi-year lows. MGS yields fell as expectations that the Fed

would start its easing cycle and foreign demand gained traction. However, secondary market

performance turned weaker in September, mainly by nervous sentiment ahead of FTSE Russell’s

review announcement. MGS yields surged, with its yield curve steepening amid numerous external

headwinds, especially long-running issues of the US-China trade war and Brexit. At end-2019, MGS

yields settled at their multi-year lows with the 10y MGS shedding 33 bps to 3.30% (June: 3.63%).

Secondary market performance of MGS was supported by the significant decrease in US-China trade

tensions throughout the month.



9

In the second half of 2019, foreign investors continued to flock into the local bond market, raising

their holdings of local bonds by RM22.1 billion (1H2019: RM2.2 billion). This brought the total foreign

holdings of local bonds by end-2019 to RM204.7 billion, the highest since April 2018. Foreign demand

for local bonds was fueled by the de-escalation of US-China trade tensions as both parties made

significant progress towards a phase one trade deal. Strong foreign demand for MGS was the main

contributor to the improvement in foreign holdings of local bonds in 2H2019 (41.58% of total MGS

outstanding).

Going forward, the prospects for the global economy look increasingly uncertain with the outbreak of

the novel coronavirus in China. This is not surprising given that the Chinese economy accounts for an

estimated one-third of global growth. Hence, we do not discount the possibility of another pre-

emptive rate cut by BNM within the first half of 2020, if the outbreak continues to worsen and a

vaccine is not yet found. We continue to be cautiously optimistic on fixed income in the medium term

and continue to be fully invested in good quality credits of mid duration bonds for our fixed income

funds.

MALAYSIAN EQUITY MARKET REVIEW

During the period under review, the FBM KLCI which is the barometer of the Malaysian equity market

declined 5.0% to close at 1589 points. The broader market FBM Emas Index shed 3.9% to 11,323

points while the FBM Small Cap Index rose 9.0% to 14,164 points.

In the second half of 2019, the FBM KLCI was generally on a downtrend despite positive global

market sentiment buoyed by progress in the US-China trade deal negotiation which culminated in a

phase one deal which was signed in early 2020. The underperformance of the FBMKLCI index was

mainly due to persistent net selling by foreigners and uninspiring corporate earnings.

There was some reprieve for the FBM KLCI towards the year end as plantation heavyweights in the

index rose on strong recovery in Crude Palm Oil (CPO) prices. The rally in CPO prices was driven by

concerns over a potential supply shortfall in the near to medium term.

Overall, 2019 marked the second consecutive year of negative returns for the FBM KLCI index. This

was despite generally favorable sentiment for global equities with most major global equity indices

delivering positive returns. The underperformance was mainly due to the heavyweight financial sector,

where share prices were under pressure amid a challenging operating environment.

There were policy news flows which affected selected index component stocks such as Tenaga

Nasional and Malaysia Airports. Tenaga Nasional fell after it was unexpectedly served with a hefty tax

bill by the Inland Revenue Board (IRB). Malaysia Airports declined on news of the delayed

implementation of the Regulated Asset Base (RAB) framework.

The performance of the FBM Small Cap index was better compared to the FBM KLCI in 2019. This

was partly due to a low base effect as the FBM Small Cap index decline was much sharper in 2018

compared to the FBM KLCI. The FBM Small Cap index also benefited from an improved performance

from sectors such as technology and oil and gas.

MALAYSIAN EQUITY MARKET OUTLOOK AND STRATEGY

Recent global PMI data has showed signs for bottoming after having poor readings for most of 2019.

With the signing of the 'phase one' US-China trade deal, the risk of US-China trade tensions posing a

drag to global growth has decreased. In addition, global growth is also expected to be supported by

accommodative monetary policy by the US Federal Reserve and other central banks.

The improvement in the external environment and the moderation in the US Dollar index is expected

to be positive for Emerging Markets including Malaysia. Besides reduced external headwinds, support

for the Malaysia market is expected to be underpinned by ramping up of mega infrastructure

spending, recovery in oil and CPO prices and interest rate cuts by BNM.

In the near term, we expect weakness in the local bourse due to the COVID-19 outbreak. While it is

too early to assess the impact to Malaysia’s economy, it could be significant if the outbreak widens

and persists. Sectors which could be directly hit are tourism, retail, and transportation. Using the



10

2003 SARS outbreak as an experience, equities bottomed when the number of cases peaked and

started to decline while markets staged a V-shaped rebound.

Overall, after being one of the worst performing regional market in 2019, we expect a better

performance from FBM KLCI in 2020 underpinned by modest earnings growth after two consecutive

years of corporate earnings decline. We also believe that market earnings expectation for the FBM

KLCI is low after earnings disappointment in the past two years.

To generate outperformance in view of the uncertainties, we would be focusing on value stocks with

high dividend yield as well as themes such as upturn in the technology cycle and revival in mega

infrastructure projects to generate outperformance for the portfolio. Additionally, we plan to keep

some cash to take advantage of market volatility anticipated.



11

T R U S T E E ’ S R E P O R T

For The Financial Period Ended 31 December 2019

To the Unitholders of Areca enhancedINCOME Fund

We have acted as Trustee for Areca enhancedINCOME Fund (“the Fund”) for the financial period

ended 31 December 2019. To the best of our knowledge, Areca Capital Sdn Bhd (“the Manager”) has

managed the Fund in the financial period under review in accordance with the following:-

1. limitations imposed on the investment powers of the Manager under the Deeds, securities laws

and Guidelines on Unit Trust Funds;

2. valuation and pricing of the Fund are carried out in accordance with the Deeds and any

regulatory requirement; and

3. creation and cancellation of units are carried out in accordance with the Deeds and any

regulatory requirement.

For Maybank Trustees Berhad [Company No.: 196301000109 (5004-P)]

JULIA BINTI MUSTAFA

Chief Executive Officer

Kuala Lumpur, Malaysia

27 February 2020



12

STATEMENT BY THE MANAGER

To the Unitholders of Areca enhancedINCOME Fund

We, Wong Teck Meng and EDWARD ISKANDAR TOH BIN ABDULLAH, two of the Directors of the Manager, Areca Capital Sdn Bhd, do hereby state that in the opinion of the Manager, the

accompanying unaudited financial statements are drawn up in accordance with Malaysian Financial

Reporting Standards, International Financial Reporting Standards and the Securities Commission

Malaysia’s Guidelines on Unit Trust Funds in Malaysia so as to give a true and fair view of the financial

position of the Fund as of 31 December 2019 and the financial performance and the cash flow of the

Fund for the period ended on that date.

For and on behalf of the Manager,

Areca Capital Sdn Bhd

WONG TECK MENG

CEO/ EXECUTIVE DIRECTOR

EDWARD ISKANDAR TOH BIN ABDULLAH

CIO/ EXECUTIVE DIRECTOR

Kuala Lumpur 27 February 2020



13

UNAUDITED STATEMENT OF FINANCIAL POSITION

As Of 31 December 2019

31.12.2019 31.12.2018

Note RM RM

Assets

Investments

Unquoted fixed income securities 5 5,083,800 13,981,416

Preference shares 5 1,500,000 1,500,000

Quoted securities 5 4,128,260 2,836,222

Total Investments 10,712,060 18,317,638

Other Assets

Other receivables 6 340,022 388,150

Short-term deposits 7 4,983,871 763,536

Cash at bank 3,699 8,086

Total Other Assets 5,327,592 1,159,772

Total Assets 16,039,652 19,477,410

Unitholders’ Fund and Liabilities

Unitholders’ Fund

Unitholders’ capital 8 14,813,419 18,819,816

Unrealised reserve 9 252,697 352,929

Realised reserve 10 912,703 235,914

Net Asset Value Attributable to Unitholders 15,978,819 19,408,659

Liabilities Other payables and accrued expenses 11 60,833 66,333

Tax liabilities - 2,418

Total Liabilities 60,833 68,751

Total Unitholders’ Fund and Liabilities 16,039,652 19,477,410

Number of Units in Circulation 8

33,019,112

41,483,513

Net Asset Value Per Unit 12 0.4839 0.4679

The accompanying Notes form an integral part of the Financial Statements



14

UNAUDITED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME For 6-month Period Ended 31 December 2019

1.7.2019 to 1.7.2018 to

31.12.2019 31.12.2018

Note RM RM

Investment Income

Interest income 253,513 524,884

Dividend income 78,750 32,451

Investment income from preference shares 75,822 -

Other income - 40

Net gain/ (loss) on investments:

Investment at fair value through profit or loss (“FVTPL”) 5 8,863 (706,641)

Total Investment Loss 416,948 (149,266)

Expenditure

Management fee 13 108,405 146,592

Trustee’s fee 14 6,194 8,377

Transaction cost 10,314 12,066

Audit fee 627 -

Other expenses 1,213 592

Total Expenditure 126,755 167,627

Net Income/ (Loss) Before Tax 290,193 (316,893)

Income Tax Expense 15 (4,425) (7,679)

Net Income/ (Loss) After Tax/Total

Comprehensive Income/ (Loss) For The Period 285,768 (324,572)

Net Gain/ (Loss) After Tax Is Made Up Of:

Realised loss (26,987) (4,428,541)

Unrealised gain 312,755 4,103,969

285,768 (324,572)

The accompanying Notes form an integral part of the Financial Statements.



15

UNAUDITED STATEMENT OF CHANGES IN NET ASSET VALUE

For 6-month Period Ended 31 December 2019

Unitholders’

capital

Realised reserve Unrealised

reserve

Total net asset

value

RM RM RM RM

As of 1 July 2018 21,684,376 4,664,456 (3,751,041) 22,597,791

Amounts paid for units

cancelled

(2,864,560) - (2,864,560)

Total comprehensive loss for

the period

-

(324,572)

(324,572)

Unrealised gain transferred

to unrealised reserve

-

(4,103,970) 4,103,970

-

As of 31 December 2018 18,819,816 235,914 352,929 19,408,659

As of 1 July 2019

15,139,107

939,690 (60,058)

16,018,739

Amounts received from units

created

1,000,000 - 1,000,000

Amounts paid for units

cancelled

(1,325,688) - (1,325,688)

Total comprehensive income

for the period

-

285,768

285,768 Unrealised gain transferred

to unrealised reserve

-

(312,755) 312,755

-

As of 31 December 2019 14,813,419 912,703 252,697 15,978,819

The accompanying Notes form an integral part of the Financial Statements



16

UNAUDITED STATEMENT OF CASH FLOWS

For 6-month Period Ended 31 December 2019

1.7.2019 to 1.7.2018 to

31.12.2019 31.12.2018

Cash Flows From Operating And Investing Activities RM RM

Dividend income received 72,750 82,060

Proceeds from disposal of investments 8,507,430 4,668,861

Interest received 343,587 515,840

Investment income from preference shares 75,000 -

Other income - 40

Purchase of investments (4,922,305) (3,735,809)

Management fee paid (108,562) (149,664)

Trustee’s fee paid (6,204) (8,552)

Transaction cost paid (9,729) (11,551)

Tax paid (5,718) (5,261)

Payment for other fees and expenses (12,290) (12,164)

Net Cash From Financing Activities 3,933,959 1,343,800

Cash Flows Used In Financing Activities

Proceeds from units created 1,000,000 -

Payment for cancellation of units (1,325,688) (2,864,560)

Net Cash Used In Financing Activities (325,688) (2,864,560)

Net Increase/(Decrease) In Cash And Cash Equivalents 3,608,271 (1,520,760)

Cash And Cash Equivalents At Beginning Of Period 1,379,299 2,292,382

Cash And Cash Equivalents At End Of Period 4,987,570 771,622

Cash and cash equivalents consist of the following amounts: 2019 2018

RM RM

Short-term deposits 4,983,871 763,536


4,987,570 771,622

The accompanying Notes form an integral part of the Financial Statements.



17

NOTES TO THE FINANCIAL STATEMENTS

1 GENERAL INFORMATION

Areca enhancedINCOME Fund (“the Fund”) was established pursuant to a Trust Deed dated 12

March 2007 as modified by the First Supplemental Deed dated 27 June 2007, Second

Supplemental Deed dated 14 April 2008, Third Supplemental Deed dated 21 October 2008,

Fourth Supplemental Master Deed dated 10 April 2009, Fifth Supplemental Master Deed dated

12 March 2013 and Sixth Supplemental Master Deed dated 6 September 2013 between Areca

Capital Sdn Bhd as the Manager, the Trustee and all the registered unitholders of the Fund (“the

Deed”).

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

the Deed, which include stocks securities of Malaysian companies listed on permitted Stock

Exchange(s), fixed income securities and deposits with bank or financial institutions. The Fund

commenced operations on 30 July 2007 and will continue its operations until terminated by the

Trustee in accordance with Part 12 of the Deed.

The objective of the Fund is to provide long term investors with high level of income stream and

an opportunity for capital appreciation. Any material change to the investment objective of the

Fund would require unit holders’ approval.

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 BASIS OF PREPARATION OF FINANCIAL STATEMENTS

The financial statements of the Fund have been prepared in accordance with Malaysian Financial

Reporting Standards (“MFRSs”) and International Financial Reporting Standards(''IFRSs'').

Adoption of New Standards, Amendments to MFRSs and Issues Committee

Interpretation (“IC Interpretation”)

The Fund has applied the following Standards and Amendments for the first time for the financial

period beginning on 1 July 2018:

The adoption of these relevant new MFRSs, Amendments to MFRSs and IC Interpretation did not

result in significant changes in the accounting policies of the Fund and has no significant effect on

the financial performance or position of the Fund except for the adoption of MFRS 9 as stated

below.

MFRS 9 Financial Instruments

MFRS 9 replaces MFRS 139, Financial Instruments: Recognition and Measurement (“MFRS 139”)

and introduces new requirements for classification and measurement of financial instruments, impairment and disclosure requirements. Retrospective application is required, but restatement of

comparative information is not compulsory.

(i) Classification and measurement of financial instruments:

From 1 July 2018, the Fund applied the following MFRS 9 classification approach to all types

of financial assets:

• Investments in debt instruments: There are 3 subsequent measurement categories:

amortised cost, fair value with changes either recognised through other

comprehensive income (“FVTOCI”) or through profit or loss (“FVTPL”).

• Investments in equity instruments: These instruments are always measured at fair

value with changes in fair value presented in profit or loss unless the Fund has made

an irrevocable choice to present changes in fair value in other comprehensive income

for investments that are not held for trading.

MFRS 9 Financial Instruments (IFRS 9 issued by IASB in July 2014)

MFRS 15 Revenue from Contracts with Customers

Amendments to MFRSs Annual Improvements to MFRSs 2014-2016 Cycle



18

• The new accounting policies for classification and measurement of financial

instruments under MFRS 9 are set out in Note 3.

The table below illustrates the classification and measurement of financial assets and

financial liabilities under MFRS 139 and MFRS 9 at the date of initial application, 1

July 2018.

Original measurement

category under MFRS

139

New measurement

category under MFRS 9

Finance assts

Other receivables Loan and receivables At amortised cost

Short-term deposits Loan and receivables At amortised cost

Cash at bank Loan and receivables At amortised cost

Financial liabilities

Other payables and accrued

expenses

Other financial liabilities At amortised cost

(ii) Impairment of financial assets

From 1 July 2018, the Fund applied the expected credit losses (“ECL”) model to determine

impairment on financial assets at amortised cost. The new accounting policies for

impairment under MFRS 9 are set out in Note 3. There is no impact on impairment upon the

adoption of MFRS 9.

Standards, Issue Committee (“IC”) Interpretation and Amendments in Issue But Not

Yet Effective

At the date of authorisation for issue of these financial statements, the new and revised

Standards, IC Interpretation and Amendments which were in issue but not yet effective and not

early adopted by the Fund are as listed below:

MFRS 16 Leases1

Amendments to:

MFRS 3 Business Combinations – Definition of Business2

MFRS 9 Prepayment Features with Negative Compensation1

MFRS 17 Insurance Contracts3

MFRS 10 and MFRS 128 Sale or Contribution of Assets between an Investor and its

Associate or Joint Venture4

MFRS 101 and MFRS 108 Definition of Material2

MFRS 128 Long-term Interests in Associates and Joint Ventures1

MFRS 119 Plan Amendment, Curtailment or Settlement1

IC interpretation 23 Uncertainty over Income Tax Treatments1

References to the Conceptual Framework in MFRS Standards2

Annual Improvements to MFRSs 2015 - 2017 Cycle 1 1 Effective for annual periods beginning on or after 1st January 2019 2 Effective for annual periods beginning on or after 1st January 2020 3 Effective for annual periods beginning on or after 1st January 2021 4 Effective date deferred to a date to be announced by MASB

The Manager of the Fund anticipates that the abovementioned Standards, IC Interpretations

and Amendments will be adopted in the annual financial statements of the Fund when they

become effective and that the adoption of these Standards, IC Interpretations and Amendments

will have no material impact on the financial statements of the Fund in the period of initial

application.



19

3 SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting

The financial statements of the Fund have been prepared under the historical cost convention.

Historical cost is generally based on the fair value of the consideration given in exchange for

assets.

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, regardless of whether

that price is directly observable or estimated using another valuation technique. In estimating the

fair value of an asset or a liability, the Fund takes into account the characteristics of the asset or

liability if market participants would take those characteristics into account when pricing the asset

or liability at the measurement date. Fair value for measurement and/or disclosure purposes in

these financial statements is determined on such a basis, except for share-based payment

transactions that are within the scope of MFRS 2, leasing transactions that are within the scope of

MFRS 117, and measurements that have some similarities to fair value but are not fair value,

such as net realisable value in MFRS 102 or value in use in MFRS 136.

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1,

2 or 3 based on the degree to which the inputs to the fair value measurements are observable

and the significance of the inputs to the fair value measurement in its entirety, which are

described as follows:

• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or

liabilities that the entity can access at the measurement date;

• Level 2 inputs are inputs, other than quoted prices included within Level 1, that are

observable for the asset or liability, either directly or indirectly; and

• Level 3 inputs are unobservable inputs for the asset or liability.

The principal accounting policies adopted are set out below.

Income Recognition

Interest income from unquoted fixed income securities and short-term deposits is recognised on a

time proportion basis that reflects the effective yield on the asset.

Dividend income from collective investment scheme is recognised based on the date when the

rights to receive the dividend has been established.

Realised gain and loss on disposal of investments is arrived at based on net sales proceeds less

carrying value and from reversal of prior year’s unrealised gains and losses for financial

instruments which were realised (i.e. sold, redeemed or matured) during the reporting period.

Unrealised gains and losses comprise changes in the fair value of financial instruments for the

reporting period.

Transaction Costs

Transaction costs are costs incurred to acquire or dispose financial assets or liabilities at fair value

through profit or loss. They include fees and commissions paid to agents, advisors, brokers and

dealers. Transaction costs, when incurred, are immediately recognised in the profit or loss.

Income Tax

Income tax comprises Malaysian corporate tax for the reporting period, which is measured using

the tax rates that have been enacted or substantively enacted at the end of the reporting period.

No deferred tax is recognised as no temporary differences have been identified.

Distribution

Distributions are at the discretion of the Trustee. 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.



20

Functional and Presentation Currency

The financial statements are measured using the currency of the primary economic environment

in which the Fund operates (“functional currency”). The financial statements are presented in

Ringgit Malaysia (“RM”), which is also its functional currency.

Unitholders’ Capital

The unitholders’ contributions to the Fund meet the definition of puttable instruments classified as

equity instruments under the revised MFRS 132 “Financial Instruments: Presentation”.

The units in the Fund are puttable instruments which entitle the unitholders to a pro-rata share of

the net asset value of the Fund. There is no contractual obligation to deliver cash or another

financial asset other than the obligation on the Fund to repurchase the units. The total expected

cash flows from the units in the Fund over the life of the units are based on the change in the net

asset value of the Fund.

Creation and Cancellation of Units

The Fund issues cancellable units, which are cancelled at the unitholder’s option and are classified

as equity. Cancellable units can be put back to the Fund at any time for cash equal to a

proportionate share of the Fund’s net assets value. The outstanding units is carried at the

redemption amount that is payable at the net assets value if the holder exercises the right to put

the unit back to the Fund.

Units are created and cancelled at the holder’s option at prices based on the Fund’s net asset

value per unit at the time of creation or cancellation. The Fund’s net asset value per unit is

calculated by dividing the net assets attributable to unitholders with the total number of

outstanding units.

Financial Instruments

MFRS 9 replaces the provisions of MFRS 139 that relates to the recognition, classification and

measurement of the financial assets and financial liabilities, derecognition of the financial

instruments and impairment of financial assets. The adoption of MFRS 9 ‘Financial Instruments’

from 1 July 2018 resulted in changes in accounting policies and adjustments to the amounts

recognised in the financial statements. The Fund has elected to apply the limited exemption in

MFRS 9 relating to transition for classification and measurement and impairment, and accordingly

has not restated comparative periods in the year of initial application.

As a consequence:

(a) any adjustments to carrying amounts of financial assets or liabilities are recognised at

the beginning of the current reporting period, with the difference recognised in opening

retained earnings;

(b) financial assets are not reclassified in the statements of financial position for the

comparative period; and

(c) provisions for impairment have not been restated in the comparative period.

Financial Assets

Accounting policies applied from 1 July 2018

(i) Classification

From 1 July 2018, the Fund classified its financial assets in the following measurement

categories:

• those to be measured subsequently at fair value (either through other

comprehensive income or through profit or loss), and

• those to be measured at amortised cost

The classification depends on the entity’s business model for managing the financial

assets and the contractual terms of the cash flows.



21

For assets measured at fair value, gains and losses will either be recorded in profit or

loss or other comprehensive income. For investments in equity instruments that are not

held for trading, the Fund can make an irrevocable election at the time of initial

recognition to account for the equity investment either at fair value through other

comprehensive income (“FVTOCI”) or fair value through profit or loss (“FVTPL”).

(ii) Recognition and derecognition

Regular way purchases and sales of financial assets are recognised on trade-date, the

date on which the Fund commits to purchase or sell the asset. Financial assets are

derecognised when the rights to receive cash flows from the financial assets have

expired or have been transferred and the Fund has transferred substantially all the risks

and rewards of ownership.

(iii) Measurement

At initial recognition, the Fund measures a financial asset at its fair value plus, in the

case of a financial asset not at FVTPL, transaction costs that are directly attributable to

the acquisition of the financial asset. Transaction costs of financial assets carried at

FVTPL are expenses in profit or loss.

Financial assets with embedded derivatives are considered in their entirety when

determining whether their cash flows are solely payments of principal and interest

(“SPPI”).

Impairment of financial assets

Accounting policies applied from 1 July 2018

The Fund assesses at the end of each reporting period whether there is any objective evidence

that a financial asset is impaired.

The measurement of expected credit losses (“ECL”) is a function of the probability of default, loss

given default (i.e. the magnitude of the loss if there is a default) and the exposure at default. The

assessment of the probability of default and loss given default is based on historical data adjusted

by forward-looking information. As for the exposure at default, for financial assets, this is

represented by the financial assets’ gross carrying amount at the end of each reporting period.

The impairment methodology applied depends on whether there has been a significant increase in

credit risk.

The Fund applies the simplified approach under MFRS 9 which requires expected lifetime loss to

be recognised from initial recognition. The expected loss allowance is based on provisional matrix.

Derecognition of Financial Assets

The Fund derecognises a financial asset only when the contractual rights to the cash flows from

the asset expire, or when it transfers the financial asset and substantially all the risks and rewards

of ownership of the asset to another entity. If the Fund neither transfer nor retain substantially all

the risks and rewards of ownership and continues to control the transferred asset, the Fund

recognises its retained interest in the asset and an associated liability for amounts it may have to

pay. If the Fund retains substantially all the risks and rewards of ownership of a transferred

financial asset, the Fund continue to recognise the financial asset and also recognises a

collateralised borrowing for the proceeds received.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of the Fund

after deducting all of its liabilities. Equity instruments issued by the Fund are recognised at the

proceeds received, net of direct issue costs.


Financial liabilities are classified as measured at amortised cost or FVTPL.

A financial liability is any liability with 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.



22

(a) Financial liabilities at FVTPL

Financial liabilities are classified as at FVTPL when financial liabilities are either

held for trading or it is designated as at FVTPL. Financial liabilities at FVTPL are

measured at fair value at the end of each reporting period, with any fair value

gains or losses recognised in profit or loss.

For financial liabilities where it is designated as fair value through profit or loss

upon initial recognition, the Company recognises the amount of change in fair

value of the financial liability that is attributable to change in credit risk in the

other comprehensive income and remaining amount of the change in fair value in

the profit or loss, unless the treatment of the effects of changes in the liability’s

credit risk would create or enlarge an accounting mismatch.

(b) Financial liabilities measured subsequently at amortised cost

Financial liabilities that are not held for trading, or designated as at FVTPL, are

measured subsequently at amortised cost using the effective interest method.

The effective interest method is a method of calculating the amortised cost of a

financial liability and of allocating interest expense over the relevant period. The

effective interest rate is the rate that exactly discounts estimated future cash

payments (including all fees and points paid or received that form an integral

part of the effective interest rate, transaction costs and other premiums or

discounts) through the expected life of the financial liability, or (where

appropriate) a shorter period, to the amortised cost of a financial liability.

A financial liability is derecognised when the obligation under the liability is extinguished. When

an existing financial liability is replaced by another from the same lender on substantially

difference terms, or the terms of an existing liability are substantially modified, such an exchange

or modification is treated as derecognition of the original liability and the recognition of a new

liability, and the difference in the respective carrying amounts is recognised in profit or loss.

Investments

Investments in quoted securities are classified as at FVTPL and valued at the last market price

quoted on Bursa Malaysia at the end of the reporting period.

Unquoted fixed income securities are classified as FVTPL and are generally valued on a daily basis

with the appropriate prices by reference to quotes published by an approved bond pricing agency

(“BPA”). When no market prices are available or during abnormal market or when the Manager is

of the view that the quotes by the BPA differ from the ‘market price’ by 20 basis points, such

securities will be valued at ‘fair values’ in accordance with the requirements stipulated in the

Guidance Note issued by the Securities Commission Malaysia.

Investment in preference shares are classified as FVTPL and are valued at the latest market price

per unit of such preference shares.

Gains or losses arising from the changes in the fair value of the investments is recognised as

gains or losses from investments in profit or loss and transferred to unrealised reserve.

Classification of Realised and Unrealised Gains and Losses

Unrealised gains and losses comprise changes in the fair value of financial instruments for the

period and from reversal of prior period’s unrealised gains and losses for financial instruments

which were realised (i.e. sold, redeemed or matured) during the reporting period.

Provisions

The Fund recognises a liability as a provision if the outflows required to settle the liability are

uncertain in timing or amount.

A provision for onerous contracts is recognised when the Fund has a present legal or constructive

obligation as a result of a past event, and of which the outflows of resources on settlement are

probable and a reliable estimate of the amount can be made. No provision is recognised if these

conditions are not met.



23

Statement of Cash Flows

The Fund adopts the direct method in the preparation of statement of cash flows.

Cash equivalents are highly liquid investments with maturities of three months or less from the

date of acquisition and are readily convertible to cash with insignificant risk of changes in value.

4 CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION

UNCERTAINTY

(i) Critical judgements in applying accounting policies

In the process of applying the Fund’s accounting policies, which are described in Note 3

above, the Manager is of the opinion that there are no instances of application of judgement

which are expected to have a significant effect on the amounts recognised in the financial

statements.

(ii) Key sources of estimation uncertainty

The Manager believes that there are no key assumptions made concerning the future, and

other key sources of estimation uncertainty at the end of the reporting period, that have a

significant risk of causing a material adjustment to the carrying amounts of assets and

liabilities within the next reporting period.

5 INVESTMENTS

Investments designated as FVTPL are as follows:

2019 2018

At aggregate cost Note RM RM

Quoted securities 5(a) 4,322,463 3,108,229 Preference shares 5(b) 1,500,000 1,500,000

Unquoted fixed income securities 5(c) 4,636,900 13,356,480

10,459,363 17,964,709

2019

2018

At fair value Note RM RM

Quoted securities 5(a) 4,128,260 2,836,222 Preference shares 5(b) 1,500,000 1,500,000

Unquoted fixed income securities 5(c) 5,083,800 13,981,416

10,712,060 18,317,638

Net gain/(loss) on investment at FVTPL comprised:

2019

RM

2018

RM Realised loss on disposals

Unrealised gain on changes in fair values

(303,893) (4,810,610)

312,756 4,103,969

8,863 (706,641)

5(a) Details of quoted securities are as follows:

2019

Shares quoted in Malaysia

No. of Shares

Market Price

Aggregate Cost

Carrying Value Fair Value

Fair

Value as

a % of

Net

Asset Value

Units RM RM RM RM %

Main Market

Construction

Muhibbah Engineering

(M) Berhad 200,000 2.460 555,605 552,000 492,000 3.08

Consumer Products

Genting Malaysia

Berhad 380,000 3.290 1,192,316 1,223,952 1,250,200 7.83



24

2019

Shares quoted in

Malaysia

No. of

Shares

Market

Price

Aggregate

Cost

Carrying

Value Fair Value

Fair Value as

a % of

Net

Asset

Value

Units RM RM RM RM %

Consumer Products

Impiana Hotels Berhad 21,000,000 0.020 575,000 575,000 420,000 2.63

Total 1,767,316 1,798,952 1,670,200 10.46

Financial Services

Malayan Banking

Berhad 54,000 8.640 463,504 463,504 466,560 2.92

Syarikat Takaful

Malaysia

Keluarga Berhad 80,000 5.700 456,208 456,208 456,000 2.85

Total 919,712 919,712 922,560 5.77

Industrial Products

& Services

Scicom (MSC) Bhd 350,000 1.250 549,130 287,000 437,500 2.74

Technology

JF Technology Bhd 100,000 1.520 129,540 129,540 152,000 0.95

Pentamaster

Corporation Bhd 100,000 4.540 401,160 401,160 454,000 2.84

Total 530,700 530,700 606,000 3.79

Total quoted securities 4,322,463 4,088,363 4,128,260 25.84

2018

Main Market

Construction

Gamuda Berhad 200,000 2.340 445,700 445,700 468,000 2.41

Muhibbah Engineering

(M) Berhad 50,000 2.790 101,000 150,000 139,500 0.72

Total 546,700 595,700 607,500 3.13

Consumer Products

Genting Malaysia

Berhad 330,000 3.020 1,003,266 1,003,266 996,600 5.13

Financial Services

Malayan Banking

Berhad 53,504 9.500 488,170 494,028 508,288 2.62

Industrial Products

& Services

Scicom (MSC) Bhd 202,600 1.050 375,087 403,174 212,730 1.10

Properties

LBS Bina Group Bhd 798,600 0.640 695,006 698,775 511,104 2.63

Total quoted securities 3,108,229 3,194,943 2,836,222 14.61



25

5(b) Details of preference shares are as follows:

2019

Preference shares

Quantity Units

Valuation Price

Aggregate Cost

Carrying Value

Fair Value

Fair Value as

a % of

Net

Asset Value

RM RM RM RM RM %

Nova Mulia Development Sdn

Bhd (NR) 2020/10.00 1,500,000 1.00 1,500,000 1,500,000 1,500,000 9.39

2018

Preference shares

Quantity Units

Valuation Price

Aggregate Cost

Carrying Value

Fair Value

Fair Value as

a % of

Net

Asset Value

RM RM RM RM RM %

Nova Mulia Development Sdn

Bhd (NR) 2020/10.00 1,500,000 1.00 1,500,000 1,500,000 1,500,000 7.73

5(c) Details of unquoted fixed income securities are as follows:

2019

Issuer (rating) maturity/ coupon (%)

Nominal Value

Valuation Price

Aggregate Cost

Carrying Value

Market Value

Market

Value as

a % of

Net Asset Value

RM RM RM RM RM %

Bonds

Eastern & Oriental Berhad (NR)

2020/2.00 2,500,000 99.359 2,108,700 2,436,150 2,483,975 15.55

DRB-Hicom Berhad (A) 2020/7.50 2,000,000 101.010 2,016,400 2,040,440 2,020,200 12.64

Lebuhraya DUKE Fasa 3 Sdn

Berhad (AA-) 2037/6.23 500,000 115.925 511,800 573,470 579,625 3.63

Total bonds 4,636,900 5,050,060 5,083,800 31.82

Total 2019 Investments

10,459,363 10,638,423 10,712,060 67.05

2018

Issuer (rating) maturity/ coupon (%)

Nominal Value

Valuation Price

Aggregate Cost

Carrying Value

Market Value

Market

Value as

a % of

Net Asset Value

RM RM RM RM RM %

Bonds

Eastern & Oriental Berhad (NR)

2020/2.00 4,000,000 95.6054 3,352,800 3,753,104 3,824,216 19.70 Alpha Circle Berhad (AA-)

2019/5.15 3,000,000 100.1680 3,000,000 2,996,400 3,005,040 15.48

Hong Leong Bank Berhad (AA2)

2039/8.25 2,500,000 102.5820 2,475,000 2,603,250 2,564,550 13.21 DRB-Hicom Berhad (A-)

2114/7.50 2,000,000 100.1310 2,016,400 1,995,120 2,002,620 10.32

AmBank (M) Berhad (A1)

2039/8.25 1,000,000 102.3750 1,000,000 1,038,490 1,023,750 5.28

Lebuhraya DUKE Fasa 3 Sdn Berhad (AA-) 2037/6.23 500,000 109.2950 511,800 541,095 546,475 2.82

Al Dzahab Assets Berhad (AAA)

2021/5.50 500,000 102.7770 500,000 513,705 513,885 2.65

DRB-Hicom Berhad (A+) 2019/5.90 500,000 100.1760 500,480 500,615 500,880 2.58

Total bonds 13,356,480 13,941,779 13,981,416 72.04

Total 2018 Investments

17,964,709 18,636,722 18,317,638 94.38



26

6 OTHER RECEIVABLES

2019 2018

RM RM

Amount due from a stockbroker 240,147 168,534

Other receivables from:

Unquoted fixed income securities 59,262 218,965 Preference shares 23,014 -

Dividend receivable 16,000 -

Short-term deposits 1,599 651

340,022 388,150

7 SHORT-TERM DEPOSITS

Short-term deposits represent deposits placed with local licensed financial institutions.

The effective average interest rate for short-term deposits is 3.05% per annum (2018: 3.27%

per annum) and the average maturity period is 10 days (2018: 9 days).

8 UNITHOLDERS’ CAPITAL

---------2019---------- --------2018----------

No. of units RM No. of units RM

At beginning of period 33,737,706 15,139,107 47,458,971 21,684,376

Created during the period 2,063,983 1,000,000 - -

Cancelled during the period (2,782,577) (1,325,688) (5,975,458) (2,864,560)

At end of period 33,019,112 14,813,419 41,483,513 18,819,816

9 UNREALISED RESERVE

2019 2018

RM RM

At beginning of period (60,058) (3,751,041)

Net unrealised gain attributable to investments held at fair

value through profit or loss 312,755 4,103,970

At end of period 252,697 352,929

Investments: At fair value 10,712,060 18,317,638

At cost (10,459,363) (17,964,709)

Unrealised reserve 252,697 352,929

10 REALISED RESERVE

2019 2018 RM RM

At beginning of the period 939,690 4,664,456

Total comprehensive income/(loss) for the period 285,768 (324,572)

Net unrealised gain transferred to unrealised reserve (312,755) (4,103,970)

At end of the period 912,703 235,914

11 OTHER PAYABLES AND ACCRUED EXPENSES

2019 2018

RM RM

Accruals consist of:

Management fee 18,288 23,185

Trustee’s fee 1,045 1,325

Tax agent’s fee 4,000 4,000

Advance coupon 37,500 37,500 Others - 323

60,833 66,333



27

12 NET ASSET VALUE PER UNIT

The net asset value per unit is calculated by dividing the net assets value attributable to

unitholders of RM15,978,819 (2018: RM19,408,659) as of 31 December 2019 by 33,019,112

units (2018: 41,483,513 units) in issue as of 31 December 2019.

13 MANAGEMENT FEE

The Schedule 8 of the Master 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 1.40% (2018:

1.40%) per annum for the period.

14 TRUSTEE’S FEE

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

fee at a rate not exceeding 0.50% 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

Trustee’s fee provided for in the financial statements amounted to 0.08% (2018: 0.08%) per

annum for the period.

15 INCOME TAX EXPENSES

2019 2018

RM RM

Estimated tax payable:

Current period 4,425 7,679

In accordance with Schedule 6 of the Income Tax Act, 1967, interest income earned by the

Fund is exempted from tax. Gains arising from realisation of investments and investment

income from preference shares are not treated as income pursuant to Paragraph 61(1)(b) of

the Income Tax Act, 1967.

Pursuant to Public Ruling No. 7/2013 in Unit Trust Funds and Paragraph 12B, Schedule 6 of the

Income Tax Act, 1967, single-tier dividends distributed by a resident company will be exempted

from tax in Malaysia.

A reconciliation of income tax expense applicable to net (loss)/income before tax at the

applicable statutory income tax rate to income tax expense at the effective income tax rate of

the Fund is as follows:

2019 2018

RM RM

Net income/(loss) before tax 290,193 (316,893)

Tax at statutory tax rate of 24% 69,646 (76,054) Tax effects of:

Income not subject to tax

(97,940)

(133,770)

Expenses non deductible for tax 32,719 217,503

Tax expenses for the period 4,425 7,679

16 MANAGEMENT EXPENSES RATIO AND PORTFOLIO TURNOVER

Management Expense Ratio (MER)

Management expense ratio for the Fund is 0.76% (2018: 0.75%) for the financial period ended

31 December 2019. The management expense ratio which includes management fee, Trustee’s

fee and other expenses, is calculated as follows:

MER = (A + B + C) ÷ D x 100

A = Management fee C = Other expenses

B = Trustee’s fee D = Average net asset value of Fund

The average net asset value of the Fund for the financial period is RM15,359,560 (2018:

RM20,770,189).



28

Portfolio Turnover Ratio (PTR)

The portfolio turnover ratio for the Fund is 0.18 times (2018: 0.19 times) for the financial period

ended 31 December 2019. The portfolio turnover is derived from the following calculation:

(Total acquisition for the financial period + total disposal for financial the period) ÷ 2

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

Where: total acquisition for the financial period = RM4,922,648 (2018: RM3,735,809)

total disposal for the financial period = RM748,163 (2018: RM4,087,911)

17 UNITS HELD BY THE MANAGER AND RELATED PARTIES

As of end of the financial period, the total number and value of units held by the Manager and

related parties are as follows:

2019 No. of units RM

The Manager 2,076,542 1,004,839

2018 No. of units RM

The Manager -

The directors of the Manager are of the opinion that the transactions with the related parties

have been entered into in the normal course of business and have been established on terms

and conditions that are not materially different from that obtainable in transactions with

unrelated parties.

18 TRADE WITH BROKERS/DEALERS

Details of transactions with brokers/dealers are as follows:

Brokers/Dealers

Value of Trades

% of

Total Trades Fees

% of Total

Brokerage Fee

RM % RM %

2019

Affin Hwang Investment Bank

Berhad

5,794,000

28.03

-

-

Hong Leong Investment Bank

Berhad

4,240,000

20.51

-

-

CIMB Bank Berhad 3,034,000 14.68 - -

Kenanga Investment Bank Berhad 1,998,849 9.67 - -

KAF Investment Bank Berhad 1,670,000 8.08 - -

RHB Investment Bank Berhad 1,496,334 7.24 4,517 43.80

Maybank Investment Bank Berhad 1,277,240 6.18 3,424 33.19

CGSCIMB Investment Bank Berhad 898,044 4.35 2,373 23.01

Malayan Banking Berhad 260,000 1.26 - -

20,668,467 100.00 10,314 100.00

2018

KAF Investment Bank Berhad 7,688,000 46.59 - -

Hong Leong Investment Bank

Berhad

3,665,700

22.22

-

-

Maybank Investment Bank Berhad 2,784,466 16.88 8,596 71.24

CIMB Bank Berhad 1,343,000 8.14 - -

RHB Investment Bank Berhad 963,211 5.84 3,316 27.48

Affin Hwang Investment Bank

Berhad

55,000

0.33

154

1.28

16,499,377 100.00 12,066 100.00



29

19 RISK MANAGEMENT POLICIES

FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Fund seeks to provide high level of income stream and an opportunity for capital

appreciation by investing principally in fixed income securities and long term bonds and a small

portion in equity and equities-related securities. 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 key risks faced by the Fund are credit risk, liquidity risk and market risk (including interest

rate risk and price risk) on its investments and capital risk.

Categories of Financial Instruments 2019 2018

Financial assets RM RM

Carried at FVTPL:

Unquoted fixed income securities 5,083,800 13,981,416

Preference shares 1,500,000 1,500,000

Quoted securities 4,128,260 2,836,222

Amortised cost:

Other receivables 340,022 388,150

Short-term deposits 4,983,871 763,536



Amortised cost

Other payables and accrued expenses 60,833 66,333

Tax liabilities - 2,418

Credit risk management

Credit risk is the risk that the counterparty to a financial instrument will cause a financial loss for

the Fund by failing to discharge an obligation. The Fund is exposed to the risk of credit-related

losses that can occur as a result of a counterparty or issuer being unable or unwilling to honour

its contractual obligations to make timely repayments of interest, principal and proceeds from

realisation of investments.

The Manager manages the Fund’s credit risk by undertaking credit evaluation and close

monitoring of any changes to the issuer/counterparty’s credit profile to minimise such risk. It is

the Fund’s policy to enter into financial instruments with reputable counterparties.

The Fund’s maximum exposure to credit risk is represented by the carrying amount of each class

of financial assets recognised in the statement of financial position. None of the Fund’s financial

assets were past due or impaired as at 31 December 2019.

The Fund invests only in unquoted investments of at least investment grade as rated by a credit

rating agency. The Fund also invests in government backed/related securities and preference

shares which are not rated by credit rating agency. The following table set out the Fund’s

portfolio of unquoted investments by rating categories:



30

Market Value RM

As a % of

unquoted investments

As a % of NAV

Credit rating

2019

Bonds

AA- 579,625 8.80 3.63

A 2,020,200 30.69 12.64

NR 3,983,975 60.51 24.93

6,583,800 100.00 41.20

Credit rating

2018

Bonds

AAA 513,885 3.32 2.65

AA2 2,564,550 16.56 13.21

AA- 3,551,515 22.94 18.30

A1 1,023,750 6.61 5.28

A+ 500,880 3.24 2.58

A- 2,002,620 12.94 10.32

NR 5,324,216 34.39 27.43

15,481,416 100.00 79.77

The following table set out the Fund’s portfolio of investments by industry:

Industry

Short-term

deposits

Unquoted

fixed income

securities

Quoted

securities

Preference

shares

RM RM RM RM

2019

Construction & property development - 579,625

492,000

1,500,000

Consumer Products - - 1,670,200 -

Diversified holdings - 2,020,200 - -

Finance, insurance and business

services 4,983,871 2,483,975

922,560

-

Industrial products & services - - 437,500 -

Technology - - 606,000 -

4,983,871 5,083,800 4,128,260 1,500,000

2018

Construction & property

development - -

607,500

1,500,000

Consumer Products - - 996,600 -

Diversified holdings - 2,503,500 - -

Finance, insurance and business services 763,536 7,926,401

508,288

-

Industrial products - - 212,730 -

Infrastructures & Utilities - 546,475 - -

Plantation & Agriculture - - - -

Property & real estate - - 511,104 -

Trading/Services - 3,005,040 - -

763,536 13,981,416 2,836,222 1,500,000



31

Liquidity risk management

This risk is defined as the ease with which a security can be sold at or near its fair value

depending on the volume traded on the market. The Fund manages its liquidity risk by investing

predominantly in securities that it expects to be able of being converted into cash within 7 days.

The table below summarises the maturity profile of the Fund’s liabilities at the reporting date based on contractual undiscounted repayment obligations:

Up to

1 month

1 - 3

month

3 months

to 1 year

Total

2019 RM RM RM RM

Financial Liabilities:

Non-interest

bearing

Other payables and accrued

expenses

19,333

41,500

-

60,833

2018

Financial Liabilities:

Non-interest

bearing:

Other payables and accruals 24,509 41,824 - 66,333

Tax liabilities - 2,418 - 2,418

Total 24,509 44,242 - 68,751

Market risk management

This is a class of risk that inherently exists in an economy and cannot be avoided by any

business or fund. It is usually due to changes in the economic outlook and affects broad market

confidence. This risk cannot be removed from an investment portfolio, which is solely invested

within that particular market, by diversification.

Therefore, as the Fund presently invests in Malaysian fixed income securities, the performance

of the Fund might go up or down in accordance with the prevailing market risk of Malaysia.

Interest rate risk management

This risk related to movements in the direction of the interest rates that will cause the value of

the securities to fluctuate. The Fund seeks to manage this risk by constructing a fixed income

portfolio with sufficient diverse range of maturities in accordance to the interest rate strategies

developed after thorough evaluation of macroeconomic variables. As interest rates and yield

curves change over time, the Fund may be exposed to a loss in earnings due to the effects of

interest rates on the structure of the statement of financial position.

Interest rate risk sensitivity

Sensitivity to interest rate arises from mismatches in the repricing dates, cash flows and other

characteristics of the assets and their corresponding liability funding. A 50 basis point increase

or decrease is used when reporting interest rate risk internally to key management personnel

and represents Fund Manager’s assessment of the reasonably possible change in interest rates.

The sensitivity is the effect if the assumed changes in interest rates on changes in fair value of

investments for the period, based on revaluing fixed rate financial assets at the end of the

reporting period.

The following table demonstrates the sensitivity of the Fund’s income for the period to a

reasonably possible change if interest rates had been 50 basis points higher/lower and all other

variables were held constant.

Changes in basis points Effect on profit or loss

Increase/(Decrease)

RM

2019

Interest rate +50/-50 57,838/(57,838)



32

Changes in basis points Effect on profit or loss

Increase/(Decrease) RM

2018

Interest rate +50/-50 81,225/(81,225)

Price Risk management

Price risk is the risk of unfavourable changes in the fair value of quoted and unquoted fixed

income securities as the result of changes in the levels of the equity indices and the value of

individual securities. The price risk exposure arises from the Fund’s investment in quoted and

unquoted securities.

Price risk sensitivity

Management’s best estimate of the effect on the income for the period due to a reasonably

possible change in price, with all other variables held constant is indicated in the table below:

Changes in price

Effect on profit or loss

Increase/(Decrease)

% RM

2019

Investments +5/-5% 535,603/(535,603)

2018

Investments +5/-5% 915,882/(915,882)

Capital Risk Management

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.

20 FAIR VALUE OF FINANCIAL INSTRUMENTS

For quoted securities in general, fair values have been estimated by last done market price

quoted in Bursa Malaysia at the end of the reporting period.

For unquoted fixed income securities, fair values have been estimated by a bond pricing agency

(“BPA”). Where the Manager is of the view that the price quoted by BPA for a specific bond differs

from 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.

For quoted securities in general, fair values have been estimated by last done market price

quoted in Bursa Malaysia at the end of the reporting period.

For deposits and placements with financial institutions with maturities of less than twelve months,

the carrying value is a reasonable estimate of fair value.

The carrying amounts of other financial assets and financial liabilities approximate their fair

values due to short maturity of these instruments.

The following table provides an analysis of financial instruments that are measured subsequent to

initial recognition at fair value, grouped into Level 1 to 3 based on the degree to which the fair

value is observable.



33

Level 1 Level 2 Level 3 Total

2019 RM RM RM RM

Financial assets at FVTPL

Quoted securities 4,128,260 - - 4,128,260

Preference shares - 1,500,000 - 1,500,000

Unquoted fixed income

securities 5,083,800 - 5,083,800

2018

Financial assets at FVTPL

Quoted securities 2,836,222 - - 2,836,222

Preference shares - 1,500,000 - 1,500,000 Unquoted fixed income

securities 13,981,416 - 13,981,416

There were no transfer between Levels 1 and 2 during the financial period.

21 INTERIM ACCOUNTS

The interim accounts for the 6-month period ended 31 December 2019 have not been audited.

Kuching Branch1st Floor, Sublot 3, Lot 7998, Block16 KCLD, Cha Yi Goldland, Jalan Tun Jugah / Stutong93350 Kuching, SarawakT 082 572 472

Pulau Pinang Branch368-2-02 Belisa Row, Jalan Burma Georgetown, 10350 Pulau PinangT 604 210 2011 F 604 210 2013· ·

Ipoh Branch11A, (First Floor), Persiaran Greentown 5Greentown Business Centre, 30450 Ipoh, PerakT 605 249 6697 F 605 249 6696·

Melaka Branch95-A, Jalan Melaka Raya 24Taman Melaka Raya, 75000 MelakaT 606 282 9111 F 606 283 9112· ·

·

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