corporate vision best and most sought financial services

Corporate Vision

“To be the BEST AND MOST SOUGHTAFTER financial services provider in theregion.”

Corporate Missions

• We will be a leading enabler of financial and investment services forour customers.

• We will exceed the expectations of our stakeholders by committingto our shared values.

• We will form alliances with our stakeholders.

• We will be creative, provide quality services and consistently improveour productivity.

• We will aspire to be a responsible corporate citizen.

Core Beliefs and Values

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• Accountability

• Achievement

• Action

• Attitude

• Challenge

• Commitment

• Consistency

• Community

• Integrity

• Productivity

• Partnership

• Professionalism

AVENUE CAPITAL RESOURCES BERHAD

AVENUE annual report 2005

1

ContentsCorporate Information 2

The Board of Directors 3

Group Structure 4

Five-Year Financial Highlights 5

Directors’ Profile 6

Chairman’s Statement 9

Statement on Corporate Governance 12

Audit Committee Report 17

Statement of Internal Control 20

Statement of the Directors’ Responsibilities 22

Corporate Calendar 23

Financial Statements 25

List of Properties 58

Analysis of Shareholdings 59

Analysis of ICULS Holdings 61

Analysis of Warrant Holdings 63

Notice of Annual General Meeting 65

Statement Accompanying Notice of AGM 68

Proxy Form

Corporate Information

2

Annual Report 2005

BOARD OF DIRECTORS

Tan Sri Samshuri bin Arshad – Independent Non-Executive ChairmanMr Gooi Hoe Soon – Non-Executive Deputy ChairmanDatuk Siti Maslamah binti Osman – Non-Executive DirectorEncik Mohd Ariffin bin Marzuki – Non-Executive DirectorDato’ Lim Tong Yong @ Lim Tong Yaim – Non-Executive DirectorDatuk Dr. Baharun Azhar bin Raffiai – Independent Non-Executive DirectorMr Ooi Giap Ch’ng – Independent Non-Executive DirectorTengku Zafrul bin Tengku Abdul Aziz – Group Managing DirectorMr Lim Poh Seong – Non-Executive Director

(Alternate to Dato’ Lim Tong Yong)

REGISTERED OFFICE

Level 1, Bangunan AvenueNo. 8, Jalan Damansara EndahDamansara Heights50490 Kuala Lumpur, MalaysiaTel: 603 - 2089 1800 Fax: 603 - 2089 2910Website: www.avenuegroup.com.my

REGISTRAR

PFA Registration Services Sdn Bhd1301, Level 13 Uptown 1No. 1, Jalan SS21/58Damansara Uptown 47400 Petaling JayaTel: 603 - 7725 4888Fax: 603 - 7722 2311

COMPANY SECRETARIES

Miss Wong Wei Fong (MAICSA 7006751)

Miss Kuan Hui Fang (MIA 16876)

PRINCIPAL BANKERS

Malayan Banking BerhadRHB Bank BerhadSouthern Bank Berhad

SOLICITORS

Mazlan & AssociatesA. Zahari & Rakan-rakanHo, Loke & KohLee Hishammuddin Allen & Gledhill

STOCK EXCHANGE LISTING

Main BoardBursa Malaysia Securities Berhad

Board of Directors

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Tan Sri Samshuri bin Arshad(Independent Non-Executive Chairman)

Mr Gooi Hoe Soon(Non-Executive Deputy Chairman)

Datuk Siti Maslamah binti Osman(Non-Executive Director)

Encik Mohd Ariffin bin Marzuki(Non-Executive Director)

Dato’ Lim Tong Yong @ Lim Tong Yaim(Non-Executive Director)

Datuk Dr. Baharun Azhar bin Raffiai(Independent Non-Executive Director)

Mr Ooi Giap Ch’ng(Independent Non-Executive Director)

Tengku Zafrul bin Tengku Abdul Aziz(Group Managing Director)

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2

3

4

5

6

7

8

Group Structure

4

Annual Report 2005


as at 31 January 2005

Wholly-Owned Subsidiary Associated Company

Avenue Securities Sdn Bhd

Avenue Options &Futures Services Sdn Bhd

Avenue Asset ManagementServices Sdn Bhd

Avenue Unit Trust Management Berhad(now known as Avenue Invest Berhad)

ACRB Capital Sdn Bhd

PentavilleInvestments Ltd

Ultimate AcresSdn Bhd

DCA (M) PemajuCorp. Sdn Bhd

FlyingvestSdn Bhd

Piuco EntertainmentVenture (M) Sdn Bhd

Gain SynergySdn Bhd

Affluent DevelopmentSdn Bhd

50%

Pos Malaysia & ServicesHoldings Berhad

17%

A.A.Assets Nominees(Tempatan) Sdn Bhd

AAB DamansaraSdn Bhd

PLB PropertyManagement Sdn Bhd

Affinity LandSdn Bhd

Affluent AcresSdn Bhd

AAB Avenue ISdn Bhd

Gombak EquipmentSdn Bhd

AAB Avenue IISdn Bhd

A.A.Assets Nominees(Asing) Sdn Bhd

Soon Theam SecuritiesSdn Bhd

Kestrel SecuritiesSdn Bhd

Avenue Asset ManagementServices (Labuan) Ltd

Five-Year Financial Highlights

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Turnover (RM’ million)

Basic earnings/(loss)per share (sen)

Shareholders’ fund (RM’ million)

Total assets(RM’ million)

Net tangible assets per share (RM)

Profit/(loss) before taxation (RM’ million)

Directors’ Profile

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Annual Report 2005

Tan Sri Samshuri bin Arshad

Tan Sri Samshuri bin Arshad, aged 63, a Malaysian, was appointed to the Board on 20 October 1999 as an Independent Non-Executive Director and as the Chairman of the Board on 19 November 2001. He is also the Chairman of the NominatingCommittee and a member of the Audit Committee.

Tan Sri Samshuri was attached to the Royal Malaysian Police Force where he served for more than 34 years before retiring in1997 upon reaching the compulsory retirement age of 55 years. His last appointment with the Royal Malaysian Police Forceprior to his retirement was as the Deputy Inspector General of Police, a position which he held for 31/2 years. He had wideregional and international exposures and networking, serving as Head of Missions for the International Police Association,Association of Asean Police Forces and United Nations Crime Prevention Commission (Vienna). Tan Sri Samshuri is also theChairman of Comintel Corporation Berhad and a director of Unisem (M) Bhd.

Tan Sri Samshuri does not have any family relationship with any Directors and/or substantial shareholders of the Company orany personal interest in any business arrangement involving the Company. He has had no convictions for any offences withinthe past 10 years.

Mr Gooi Hoe Soon

Mr Gooi Hoe Soon, aged 45, a Malaysian was appointed to the Board as a Non-Executive Director on 20 October 1999 andas the Group Managing Director on 18 March 2001. He is now the Non-Executive Deputy Chairman and a member of theAudit Committee.

Mr Gooi is a member of the Malaysian Institute of Certified Public Accountants and the Malaysian Institute of Accountants.He has more than 20 years of experience in the fields of accounting and corporate finance and was a finance director ofseveral private and public listed companies on the Bursa Malaysia Securities Berhad (“Bursa Securities”). He has beeninstrumental in the successful implementation of several corporate exercises, which include the merger and acquisition andcorporate debt restructuring exercises undertaken by public listed companies.

Mr Gooi is the Executive Director Dealing of Avenue Securities Sdn Bhd, a member company of the Bursa Securities. He alsosits on the boards of Hup Seng Industries Bhd, Pos Malaysia & Services Holdings Berhad and Paos Holdings Berhad.

Mr Gooi does not have any family relationship with any Directors and/or substantial shareholders of the Company or any personalinterest in any business arrangement involving the Company. He has had no convictions for any offences within the past 10 years.

Datuk Siti Maslamah binti Osman

Datuk Siti Maslamah binti Osman, aged 58, a Malaysian, was appointed to the Board on 12 October 2001 as a Non-ExecutiveDirector. She is the Chairperson of the Remuneration Committee.

Datuk Siti is a Fellow of the Chartered Institute of Management Accountants, United Kingdom and a member of the MalaysianInstitute of Accountants. She was the Accountant General of Malaysia, a position she held since October 2000, before her retirementin 2003. She has more than 31 years of experience in the field of accounting in various Government Agencies, holding variousappointments including as Treasury Accountant in Telecommunication Department, Finance Manager in Bank Simpanan Nasionaland Senior Accountant in various divisions of the Accountant General’s Department. She also sits on the boards of Malaysia AirportHoldings Berhad, Island & Peninsular Berhad, BIMB Holdings Berhad, Bank Islam Malaysia Berhad and Takaful Malaysia Berhad.

Datuk Siti does not have any family relationship with any Directors and/or substantial shareholders of the Company or anypersonal interest in any business arrangement involving the Company. She has had no convictions for any offences within thepast 10 years.

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Encik Mohd Ariffin bin Marzuki

Encik Mohd Ariffin bin Marzuki, aged 55, a Malaysian, was appointed to the Board on 12 October 2001 as a Non-ExecutiveDirector. He is also a member of the Remuneration Committee.

Encik Mohd Ariffin is a Fellow Member of the Association of Chartered Certified Accountants, United Kingdom. He began hiscareer with Bank Pembangunan dan Infrastuktur (M) Bhd as an Assistant Finance Manager. He subsequently joined BankSimpanan Nasional in 1986 as Giro Manager and was promoted to Director of Risk Management in 2001. Currently he is theDirector of Finance Department. He is also a director of Permodalan BSN Berhad.

Encik Mohd Ariffin does not have any family relationship with any Directors and/or substantial shareholders of the Companyor any personal interest in any business arrangement involving the Company. He has had no convictions for any offenceswithin the past 10 years.

Dato’ Lim Tong Yong @ Lim Tong Yaim

Dato’ Lim Tong Yong, aged 55, a Malaysian, was appointed to the Board on 26 April 2001 as a Non-Executive Director. He isalso a member of the Nominating Committee.

Dato’ Lim obtained his Bachelors Degree in Malay Studies from Nanyang University, Singapore in 1971. Thereafter, he workedas a lecturer in Taylor’s College from 1972 to 1973, Nanyang University from 1973 to 1974 and Culin College in Singaporefrom 1974 to 1978. From 1979 to 1984, he served as the Marketing Manager of Maran Edible Oil Sdn Bhd, a companyinvolved in palm kernel crushing. Later in 1987, he established Paos Industries Sdn Bhd, a company producing value addedproducts from oil palm, such as finished soap, animal feed, cocoa butter substitute and soap chips.

Dato’ Lim is the founder and a director of Paos Holdings Berhad and the Group Chief Executive Officer of Pantai Holdings Berhad.

Dato’ Lim does not have any family relationship with any Directors and/or substantial shareholders of the Company or anypersonal interest in any business arrangement involving the Company other than his direct interest in Pantai Holdings Berhad,a substantial shareholder of the Company. He has had no convictions for any offences within the past 10 years.

Datuk Dr. Baharun Azhar bin Raffiai

Datuk Dr. Baharun Azhar bin Raffiai, aged 66, a Malaysian, was appointed to the Board on 12 October 2001 as anIndependent Non-Executive Director. He is also the Chairman of the Audit Committee and a member of the Nominating andRemuneration Committees.

Datuk Dr. Baharun holds a Ph.D from King’s College, University of Cambridge, United Kingdom and a BA(Hons) from King’sCollege, University of Durham, United Kingdom. He was attached to Malaysian Government for more than 34 years beforeretiring in 1998. His last appointment prior to his retirement was as the Director General, Research Division of the PrimeMinister’s Department, a position which he held for 6 years. During his career, he has been assigned to various governmentpositions including Commissioner for Orang Asli Affairs and Secretary of National Security Council, Prime Minister’sDepartment. He is also a director of Chase Perdana Berhad.

Datuk Dr. Baharun does not have any family relationship with any Directors and/or substantial shareholders of the Companyor any personal interest in any business arrangement involving the Company. He has had no convictions for any offenceswithin the past 10 years.

Directors’ Profile (cont’d)

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Annual Report 2005

Mr Ooi Giap Ch’ng

Mr Ooi Giap Ch’ng, aged 46, a Malaysian, was appointed to the Board on 30 November 2000 as an Independent Non-Executive Director.

Mr Ooi graduated with a Bachelor of Law Degree and a Bachelor of Economics Degree from the Australian National Universityand was called to the Malaysian Bar in 1987. He has more than 17 years of experience in law practice, mainly in the area ofcommercial and corporate law. He is currently a partner of a legal firm in Kuala Lumpur. He is also a director of MulphaInternational Bhd, Meda Inc. Berhad and CME Group Berhad.

Mr Ooi does not have any family relationship with any Directors and/or substantial shareholders of the Company or anypersonal interest in any business arrangement involving the Company. He has had no convictions for any offences within thepast 10 years.

Tengku Zafrul bin Tengku Abdul Aziz

Tengku Zafrul bin Tengku Abdul Aziz, aged 32, a Malaysian, was appointed to the Board on 7 April 2003 as an ExecutiveDirector and was subsequently appointed as the Group Managing Director on 5 April 2004.

Tengku Zafrul Aziz graduated with a Bsc (Hons) Economics and Accounting from University of Bristol, United Kingdom andlater completed his Master of Art in Finance and Investment from University of Exeter, United Kingdom. He began his careeras a corporate finance executive in a merchant bank and subsequently left to join a foreign research house as an investmentanalyst and rose to be the director. He then became the advisor to the President for Tenaga Nasional Berhad prior to joiningthe investment banking department of a leading merchant bank. He is also the treasurer of Young Professionals Chamber ofMalaysia (PROMUDA), Deputy President of University of Bristol Alumni Association and the executive secretary of the KualaLumpur Business Club.

Tengku Zafrul Aziz does not have any family relationship with any Directors and/or substantial shareholders of the Companyor any personal interest in any business arrangement involving the Company. He has had no convictions for any offenceswithin the past 10 years.

Mr Lim Poh Seong

Mr Lim Poh Seong, aged 39, a Malaysian, was appointed to the Board on 18 May 2005 as the alternate director to Dato’ LimTong Yong.

Mr Lim is a qualified accountant by profession and a Fellow of the Association of Chartered Certified Accountants. He startedhis career as an auditor with a major public accounting firm in Kuala Lumpur in 1989. He then progressed to be the assistantgeneral manager and senior corporate finance manager of two Malaysia public listed companies respectively. He joined PantaiHoldings Berhad as financial controller in 1998. He is now the executive director in Pantai Holdings Berhad.

Mr Lim does not have any family relationship with any Directors and/or substantial shareholders of the Company or anypersonal interest in any business arrangement involving the Company. He has had no convictions for any offences within thepast 10 years.

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Chairman’s Statement

DEAR SHAREHOLDERS,

Financial Year 2005 was a remarkable year for Avenue Group, both in the financial andnon-financial aspects. I am delighted to report that we have demonstrated our abilityto deliver robust profits on the back of strong revenue growth. During the year we haveachieved several milestones and we have adopted several strategies that will enable usto expand in key market areas and introduce new product offerings.

Our financial year 2005 results have indicated that we have had a successful year. The year also saw the successful transitionof the new leadership to Tengku Zafrul Aziz, who took over the reins from Mr Gooi Hoe Soon as the Group Managing Director,on 5 April 2004.

Today, Avenue Group is financially strong and has built a strong brand-name. More importantly, it has a group of motivated people.

BUSINESS OVERVIEW

The Group recorded a significant improvement in performance for the financial year ended 31 January 2005, with a profitafter tax of RM24.38 million and earnings per share of 3.16 sen. This is a significant turnaround from the previous year’s lossof RM252.83 million. Revenue grew by 26% to RM88.57 million as compared to the previous year. The significantimprovement is mainly attributed to organic growth across all the business units.

Net brokerage income rose by 17% to RM51.34 million while fees contribution from corporate finance and advisory divisiongrew by more than 14 times.

As at January 2005, the Group’s assets under management stood at RM2.45 billion, 18% higher as compared to January2004. The unit trust division also generated encouraging results. As at January 2005, total funds under management wasRM1.07 billion, up 15% from the previous year. Both businesses experienced continued strength in fixed-income products, asequity market remained volatile throughout the year.

Our research team created a historical first for the Group by achieving several accolades last year. The Edge’s Analyst All StarsPoll voted us “the most improved local research house” and the “second best local research house” while the Asiamoney’spoll named us the “second best local brokerage house”. In my last statement, I mentioned that research would be one of thekey focus areas for that year. These accolades have proved that we have achieved our deliverables.

We are also the proud owner of Bangunan Avenue, an office building located in Damansara Heights, Kuala Lumpur, whichwas acquired by Avenue Group in 2004. Bangunan Avenue is now the corporate office for almost the entire Group’s businessoperations. With the Group together under one roof, I am confident that we can improve the way we conduct our businessby developing more economies of scale, improving cost effectiveness and strengthening teamwork.

ECONOMIC AND BUSINESS OUTLOOK

The overall outlook for 2005 is still positive but some moderation in growth is to be expected. The pace of slowdown in Chinaand India is expected to be modest. In order to prevent its economy from overheating, China has implemented several policymeasures to engineer a “soft landing” while in the United States, a series of interest rate hikes by the Federal Reserve to pre-empt inflation may crimp growth.

In Malaysia, the real GDP is expected to expand by 5% - 6% in 2005 – lower than 2004 but still commendable. The focuspolicies in 2005 is on sustaining the momentum of economic growth and improving the long-term competitiveness andresilience of the Malaysian economy.

On the industry front, Y.A.B. Dato’ Seri Abdullah Ahmad Badawi, Malaysia’s Prime Minister and the Finance Minister, proposedseveral measures in his maiden Budget 2005 to help strengthen Malaysia’s capital market. One of them was to allow five majorforeign stockbrokers and up to five leading global fund managers to operate in Malaysia. Their presence will hopefully helpincrease liquidity, improve the distribution network and promote Malaysia’s investment instruments globally.

Chairman’s Statement (cont’d)

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Annual Report 2005

Looking at the year ahead, our industry faces a number of challenges:regionalisation of local investment banks, new entrants of foreignplayers, continued poor market sentiment which sees low tradingvolume and the already low commission rates. Our challenge toincrease value for our shareholders and grow earnings per share, willrequire greater effort from all of us.

We have identified several strategies to enable us to lay the foundationfor a more profitable growth for this financial year, and for the yearsahead.

Reaching into new markets

We will continue to focus on organic growth - focusing on new customers and expanding into the regional market.

In April 2005, our unit trust division launched three new funds, Avenue TacticalEXTRA, Avenue DividendEXTRA and AvenueAsnitaBond to further expand our market share, product choice and introduce more value added services. There are more newfunds in the pipeline and we hope to be able to launch them within the year.

We have also recently announced our intention to merge our unit trust and asset management businesses. The aim is to createa pool of operating synergies. We believe that it will result in better products and services for our investors and not forgettingthe administrative savings, which will be passed on to our investors.

Islamic market

We note that the Islamic capital market is increasingly commanding global attention, as a vehicle for adding quality optionsto financial products and services. On the back of this recognition and the potential of Syariah products in today’s markets,we had in April 2005, announced that we would be entering into a joint venture with Bank Muamalat Malaysia Berhad toinitiate the first Malaysian Islamic asset management company. This partnership will be a good platform for Avenue to tapinto the regional Islamic markets.

Research

The research team will continue to focus on the big and medium-cap stocks. In tandem with increased talents joining theteam, we have been producing more research reports in anticipation of more foreign research in the market. Despite theforeign research and competition, we believe, research will be the area where we can differentiate ourselves to the clients.Hopefully, with this, we can attract their business. In addition, we would also use this to penetrate the foreign-end clients’business in the regional market.

The Board is delighted that Avenue Group has a strong management team to take the Group forward and who, will no doubt,will ensure that we meet all the key performance indicators that we have set for the Group for this year ahead.

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DIVIDEND

The Directors have recommended the payment of a final gross dividend of 1% per ordinary share, less income tax of 28%.The proposed dividend is subject to the approval by the shareholders at the forthcoming Annual General Meeting of theCompany and is payable in respect of all ordinary shares in issue.

The proposed dividend, although small, is nevertheless significant for the Company as this will be the first dividend to bedeclared since the last dividend in financial year 1998.

CORPORATE RESPONSIBILITY

Despite facing the challenges in the industry, we do try to make a difference in the community. It was very unfortunate thatwe started Year 2005 with the news of the Asian Tsunami disaster, which claimed thousands of innocent lives in this region.To support the disaster relief efforts, the management, staff and remisiers of Avenue Group donated monetary assistancetowards this cause.

We are also one of the co-sponsors for the Golden Bull Award 2005, which is organised by Nanyang Siang Pau. It is aimed togive due recognition to all outstanding small and medium sized entrepreneurs (SME) in Malaysia. We hope that we can partlycontribute in terms of instilling the entrepreneurial spirit for emerging SMEs, and encourage more SMEs to excel in theirrespective industries to help accelerate Malaysia’s economic performance.

Our contributions, so far, have been quite limited but we do intend to work more towards creating good values for bothshareholders and the community.

ACKNOWLEDGEMENTS

On behalf of the Board of Directors, I would like to express our heartfelt gratitude to the management and staff of AvenueGroup for their tremendous efforts, strong commitment and continued dedication over the past 3 years. As a result of theseefforts, Avenue Group is turning to be a remarkable and profitable organisation.

We wish to express our deepest appreciation to all our valued clients and business partners for their continued support andfaith in us. We would also like to extend our gratitude to the Ministry of Finance, Securities Commission, Bursa MalaysiaSecurities Berhad, and all other relevant authorities for their guidance and assistance throughout the year.

Finally, we would like to thank our shareholders, who have been supporting and believing in us and who have continued tohave confidence in us.

TAN SRI SAMSHURI BIN ARSHADChairman18 May 2005

S t a t e m e n tC h a i r m a n ’s

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Annual Report 2005

Statement on Corporate Governance

The Board is responsible in ensuring high standards of corporate governance are maintained in all activities undertaken by theGroup, which are essential to protect and enhance the shareholders’ value. This report has been prepared in accordance tothe principles and best practices as set out in the Malaysian Code on Corporate Governance.

1. THE BOARD OF DIRECTORS

The Group operates under the overall control of the Board, which is ultimately accountable for the strategic directions ofthe Group’s activities and competent management of the Group’s business operations and performance, as well asenhancing its risk management processes and structures.

The Directors possess a mix of skills and experiences ranging from business and finance, corporate and legal to generaldisciplines. Their diverse backgrounds and experience add value and provide invaluable inputs from different perspectives.A profile of each Director is presented on pages 6 to 8.

1.1 Board Balance

The Board is made up of the Chairman, who is independent and non-executive, the Deputy Chairman, who is non-executive and non-independent, the Group Managing Director and five other non-executive Directors, of which twoof them of independent.

To better manage the Group, the Board members have separate roles. The day-to-day management of the Group’sbusiness falls under the responsibility of Group Managing Director who is also responsible to implement the strategiesand policies approved by the Board.

The presence of majority of non-executive Directors and the independent non-executive Directors who are influentialin the Board’s decision making process ensures the balance of power in the exercise of objective and independentjudgement on corporate issues dealt with at the Board. It also ensures that the interests of the major stakeholdersand the minority shareholders are effectively promoted and represented through the Board.

1.2 Supply of Information

The Directors are provided with timely and relevant information, which includes quarterly and annual financialstatements, board papers recommending business and operational proposals and decisions, corporate and businessdevelopment plans, status reports and minutes of meetings so that they can maintain full and effective control overthe strategic, financial, operational and compliance issues.

All Directors have access to the Group’s senior management and the advice and services of the company secretariesand legal advisors. If required, the Directors, whether as a full Board or in their individual capacity may takeindependent professional advice in the furtherance of their duties at the Company’s expense.

1.3 Appointments to the Board

The Nomination Committee established by the Board will oversee the selection process and to consider theappointment of new directors, before seeking the final approval of the Board. It will also carry out a review andassessment on the effectiveness of the Board as a whole and on the contribution of individual Directors.

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1.4 Meeting and Procedures

The Board of Directors meets regularly and has a formal schedule of matters specifically reserved for its decision.These matters include determining and reviewing strategies of the Group, overseeing the compliance and statutoryobligations, operational issues and financial review and reporting. The Board has met five times during the financialyear under review and the following shows the attendance of the Directors:

Director Attendance Director Attendance

Tan Sri Samshuri bin Arshad 5/5 Dato’ Lim Tong Yong @ Lim Tong Yaim 5/5Mr Gooi Hoe Soon 5/5 Datuk Dr. Baharun Azhar bin Raffiai 5/5Datuk Siti Maslamah binti Osman 5/5 Mr Ooi Giap Ch’ng 5/5Encik Mohd Ariffin bin Marzuki 4/5 Tengku Zafrul bin Tengku Abdul Aziz 5/5

1.5 Retirement and Re-election

In accordance with the Company’s Articles of Association (“Articles”), all Directors who are appointed by the Boardshall retire and are subject to re-election by the shareholders at the first annual general meeting (“AGM”) after theirappointment. The Articles also provide that one-third of the Directors for the time being, shall retire from office byrotation at each AGM and be eligible for re-election.

1.6 Directors’ Training

All Directors have attended the Mandatory Accreditation Programme. The Directors have also attended variouscourses accredited to the Continuing Education Programme during the year. The Board will continue to attendselected courses and trainings from time to time to update and develop knowledge and capabilities relevant infulfilling their duties.

1.7 Directors’ Remuneration

The Remuneration Committee evaluates the annual performance of the executive Directors and recommends to theBoard their aggregate levels of bonus and incentive expenditures. The recommendation will reflect their contributionsfor the year, in tandem with the Group’s corporate objectives, culture and business strategies.

In the case of non-executive Directors, the remuneration reflects the level of responsibilities undertaken by the non-executive Directors concerned. They received an annual fee, which are subjected to the shareholders’ approval, and are reimbursed for attendance allowances for each meeting they attend. The determination of the remuneration for non-executive Directors is a matter for the Board as a whole.

All Directors are also eligible to participate in the Company’s Employees’ Share Option Scheme.

Details of the Directors’ remuneration for the financial year ended 31 January 2005 are as follows:

Salaries & OtherEmoluments Fees Total

RM RM RM

Executive Directors 488,320 - 488,320

Non-executive Directors - 168,000 168,000

o n C o r p o r a t e G o v e r n a n c eS t a t e m e n t

Statement on Corporate Governance (cont’d)

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Annual Report 2005

The number of Directors whose total remuneration for the financial year fall within the respective band is as follows:

Executive Non-executive

RM50,000 and below - 7RM450,001 - RM500,000 1 -

2. COMMITTEES OF THE BOARD

The Board has delegated specific task of monitoring executive actions and determining the rewards of executive Directorsto the Board committees, which have all been established with formal terms of reference.

2.1 Audit Committee

The Audit Committee assist the Board to meet its responsibilities regarding financial reporting and strengthens theindependence of external auditors through the ability to communicate with non-executive Directors. It also monitorsthe work of the internal audit functions and also assesses the effectiveness of the Group’s system of internal control.

The Audit Committee meets the external auditors annually to discuss the annual financial statements and their auditfindings, including where necessary, the audit plan and any other matters arising on the annual reporting.

The report of the Audit Committee is set out on pages 17 to 19.

2.2 Remuneration Committee

The Committee members are:

• Datuk Siti Maslamah binti Osman - Chairperson• Encik Mohd Ariffin bin Marzuki• Datuk Dr. Baharun Azhar bin Raffiai

The Committee shall recommend to the Board the remuneration packages of managing directors, executive directorsand senior management of the Company in all its forms, drawing outside advice as necessary. The determination ofremuneration packages of non-executive Directors is a matter for the Board as a whole.

2.3 Nominating Committee

The Committee members are:

• Tan Sri Samshuri bin Arshad - Chairman• Datuk Dr. Baharun Azhar bin Raffiai• Dato’ Lim Tong Yong

The Committee shall recommend to the Board on the following:

• Candidates for all directorships to be filled by the shareholders or the Board; and• Directors to fill the seats on Board Committee

The Committee shall assess annually the effectiveness of the Board as a whole, the Board Committees andcontribution of each individual Director. The Committee will also review the required mix of skills, experience andother qualities including core competencies, which non-executive Directors should bring to the Board.

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2.4 Options Committee

The Options Committee was established by the Board to administer the Company’s Employee Share Option Scheme(“ESOS”), which was implemented on 10 June 2003. The Option Committee ensures that the scheme is administeredin accordance with the ESOS bye-laws which has been approved by shareholders of the Company.

3. ACCOUNTABILITY AND AUDIT

3.1 Financial Reporting

It is the commitment of the Board to provide a balanced, clear and meaningful assessment of the Group’s financialperformance and prospects. As such, the Board ensures that the quarterly result announcements are made on atimely basis and that the annual financial statements of the Group are made out in accordance with the applicableapproved accounting standards and the provisions of the Companies Act, 1965.

The Statement of Directors’ Responsibilities is set out on page 22.

3.2 Internal Control

The Board has overall responsibility for maintaining a sound system of internal control to provide reasonableassurance of the effectiveness of the Group’s business operations and risk management. The Board is assisted by theAudit Committee and the internal audit function.

The Statement of Internal Control is set out on pages 20 and 21.

3.3 Relations with the Auditors

The Audit Committee meets with the external and internal auditors at least twice a year to discuss on audit plans,findings and the financial statements. This is further described in the Audit Committee Report as set out on pages 17to 19.

The audit fees paid or payable to the external auditors, Messrs. Deloitte KassimChan, by the Group during the financialyear are disclosed in the financial statements. There are no non-audit fees paid or payable during the financial year.

4. SHAREHOLDERS’ COMMUNICATION AND INVESTOR RELATION

The Board acknowledges the need of its shareholders and potential investors to be informed of the Group’s performanceand major developments. As such, the Company ensures that the quarterly announcements of the Group’s financial aremade on a timely basis to provide its shareholders with an overview of the Group’s performance and operations. Inaddition, numerous general announcements and press releases were made to update the shareholders on the status ofthe entire Group’s restructuring exercise and other significant developments.

General meetings convened by the Company remains the principal avenue for the opportunity to communicate with allshareholders and provide forums for discussion between the Directors and shareholders. Shareholders are encouraged toparticipate, seek clarification and make suggestions during the annual general meetings.

Information on the Company and the Group’s products and services is also available at the Company’s website atwww.avenuegroup.com.my

o n C o r p o r a t e G o v e r n a n c eS t a t e m e n t

Statement on Corporate Governance (cont’d)

16

Annual Report 2005

5. ADDITIONAL COMPLIANCE INFORMATION

5.1 Material Contracts

There were no material contracts (not being contracts entered into in the ordinary course of business) entered intoby the Company and its subsidiary companies involving Directors and major shareholders, either still subsisting at theend of the financial year ended 31 January 2005 or entered since the end of the previous financial year.

5.2 Recurrent Related Party Transactions

At the Extraordinary General Meeting (“EGM”) held on 21 July 2004, the Company has obtained a mandate fromits shareholders for Avenue Group to enter into recurrent related party transactions involving the interest of Ministerof Finance, Incorporated (“MOF”) and/or persons connected with MOF.

Details of the related party transactions which amounted to a total of RM1,353,000 in gross income during thefinancial year ended 31 January 2005 pursuant to the said shareholders’ mandate are as follows:

Contracting Nature of Name of Nature of InterestedParty of the Group Transaction Related Party Relationship Related Parties

Avenue Asset Fund Management Pos Malaysia & MOF, being a major MOFManagement Services Holdings shareholder of Avenue,Services Sdn Bhd Berhad (“PSH”) has 26% effective

shareholdings in PSH

Avenue Securities Placement of shares Tenaga Nasional MOF, being a major MOFSdn Bhd Berhad (“TNB”) shareholder of Avenue

has a deemed interestof 37% in TNB via Khazanah Nasional Berhad

5.3 Share Buy-Back

At the EGM held on 21 July 2004, the Company has obtained shareholders’ approval pertaining to the renewal ofauthority to purchase its own shares of up to 10% of its issued and paid-up share capital. Details of the share buy-back during the financial year are as follows:

Date No of Shares Bought Back Total and Held as Treasury Shares Consideration

21 July 2004 100 RM62.5215 December 2004 100 RM65.53

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Audit Committee Report

The Audit Committee was established to assist the Board in ensuring the effectiveness of the Group’s system of internalcontrol.

MEMBERS AND ATTENDANCE

The members of the Audit Committee, appointed by the Board, and the details of their attendance of meetings during theyear are as follows:

• Datuk Dr. Baharun Azhar bin Raffiai 5/5(Chairman/Independent Non-Executive Director)

• Tan Sri Samshuri bin Arshad 5/5(Independent Non-Executive Director)

• Mr Gooi Hoe Soon 4/5(Non-Independent Non-Executive Director)

There were five meetings held during the financial year. The group managing director, head of internal audit andrepresentatives of the external auditors attended some of the meetings by invitation to brief the Committee on specific issues.

TERMS OF REFERENCE

1. Membership

The Committee shall be appointed by the Board and shall consist of not less than three members, the majority of whomshall be independent non-executive directors and at least one member shall be a member of the Malaysian Institute ofAccountants or one of the associations of accountants specified in Part II of the 1st Schedule of the Accountants Act,1967. The Committee shall not consist of any alternate directors of the Company.

In the event of any vacancy in the Committee resulting in the non-compliance of the above, the Board must fill the vacancywithin 3 months.

The Chairman shall be elected by the Committee from among their members and who shall be an independent non-executive director.

2. Meetings

The Committee must ensure that other directors and senior management attend any particular meeting only at theCommittee’s invitation, specific to the relevant meeting. The Company Secretary shall act as the secretary of theCommittee.

Meetings shall be held at least four times a year. The quorum for any meeting shall be two members who shall beindependent non-executive directors.

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Annual Report 2005

3. Authority

The Committee is authorised by the Board and shall:

a) have authority to investigate any matter within its terms of reference;

b) have the resources which are required to perform its duties;

c) have full and unrestricted access to any information pertaining to the Group;

d) have direct communication channels with the external auditors and the internal auditors;

e) be able to obtain independent professional or other advice as necessary; and

f) be able to convene meetings with the external auditors, excluding the attendance of the executive members of theCommittee, whenever deemed necessary.

4. Duties of the Committee

The duties of the Committee are:

a) to review with the external auditors the audit plan, their evaluation of the system of internal controls and their audit reports;

b) to review the assistance given by the employees of the Company to the external auditors;

c) to review the adequacy of the scope, functions and resources of the internal audit department and that it has thenecessary authority to carry out its work;

d) to review the internal audit programme and processes, the results of the internal audit programme, processes orinvestigation undertaken and whether or not appropriate action is taken on the recommendations of the internal auditfunction;

e) to review reports prepared by the officers of a subsidiary company relating to compliance with statutory and regulatoryrequirements and the necessary remedial actions to be taken, if any;

f) to review the quarterly results and year end financial statements, prior to the approval by the Board, focusing particularly on:

• any changes in accounting policies and practices;• significant adjustments arising from the audit;• the going concern assumption; and• compliance with accounting standards and other legal requirements.

g) to monitor any related party transaction and conflict of interest situation that may arise within the Company or Groupincluding any transaction, procedure or course of conduct that raises questions of management integrity;

h) to consider and recommend the nomination and appointment of external auditors, the audit fees and any questionsof resignation, dismissal or re-appointment; and

i) to report promptly to the Bursa Malaysia Securities Berhad (“Bursa Securities”) where the Committee is of the viewthat a matter reported by it to the Board has not been satisfactorily resolved resulting in a breach of the ListingRequirements of Bursa Securities.

Audit Committee Report (cont’d)

19


SUMMARY OF ACTIVITIES

During the financial year under review, the Committee carried out the following activities:

• reviewed the quarterly and annual financial statements and ensured that the financial reporting and disclosure requirementshad been complied with before recommending them for the approval of the Board;

• reviewed the adequacy of the scope and the audit plans for the Group prepared by both the internal and external auditors;

• reviewed and discussed the audit reports for the Group prepared by the external auditors, their findings and managementresponses thereto;

• reviewed and discussed the internal audit reports prepared by the internal audit function, the findings, managementresponses and audit recommendations;

• reviewed the related party transactions entered into by the Group with its related corporations;

• reviewed the allocation of shares options during the year to ensure that this was in compliance with the allocation criteriadetermined by the ESOS Options Committee and ESOS Bye-Laws; and

• reviewed and approved the minutes of the Committee meetings.

INTERNAL AUDIT FUNCTION

The internal audit function was established to independently conduct regular and systematic reviews of the Group’s system ofinternal control so as to provide assurance that the system continues to operate satisfactorily and effectively and as such, assistthe Committee in discharging its duties and responsibilities. The internal audit function of the Group is carried out by theinternal audit division of Avenue Securities Sdn Bhd, a wholly-owned subsidiary of the Company.

The main roles of the function are as follows:

a) ascertaining the adequacy of its internal controls and procedures that are specifically designed to detect and/or preventviolations;

b) ascertaining the efficiency and effectiveness of policies and procedures in relation to credit control and risk management;

c) reviewing the relevance, reliability and integrity of financial and operational information generated and the means usedto identify, measure, classify and report such information;

d) ascertaining that the financial and accounting records and reports contain accurate, reliable, timely, complete and relevantinformation and are prepared in compliance with applicable approved accounting standards;

e) coordinating with the external auditors in planning of audit activities, developing common auditing techniques,exchanging work papers and participating in onsite reviews;

f) performing special reviews and/or investigations as requested by management or the Committee;

g) ascertaining the extent to which the Group’s assets are accounted for and safeguard from losses of all kinds; and

h) identifying opportunities to improve the operations of and processes in the Company and the Group.

During the financial year it has carried out 20 assignments and reviews. The audit findings were discussed with seniormanagement before they were tabled to the audit committees with recommendations made to the respective managements.

C o m m i t t e e R e p o r tA u d i t

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Annual Report 2005

Statement of Internal Control

The Malaysian Code on Corporate Governance requires listed companies to maintain a sound system of internal control tosafeguard shareholders’ investment and the Group’s assets. The Board is pleased to present below the internal controlstatement, which has been prepared in accordance with the Statement on Internal Control: Guidance for Directors of PublicListed Companies.

RESPONSIBILITY

The Board of Directors acknowledges its responsibility for the Group’s system of internal control, which is designed to identifyand manage the risks facing the business in pursuit of its objectives and for reviewing the adequacy and integrity of thissystem. The system of internal control covers risk management and financial, operational and compliance controls tosafeguard shareholders’ investments and the Group’s assets. This system is designed to manage, rather than to eliminate, therisk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against materialmisstatement or loss.

RISK MANAGEMENT FRAMEWORK

The Board reviews the financial statement and status reports of the Group on a quarterly basis, assessing the risk strategy andthe overall management of principal areas of risk. The operations of the Group are subject to a variety of financial risks,including credit risk, liquidity risk and cashflow risk. The Group has formulated a financial risk management framework whichprincipal objective is to minimise the Group’s exposure to risks and/or costs associated with its operating, financing andinvesting activities.

Management committees have been established at each business unit and at the Group level to monitor and manage suchrisks, including the control over capital expenditure and cashflow management.

The credit control of each business unit is entrusted with the responsibility of managing credit risk and monitoring creditratings. It is primarily involved in managing and enhancing asset quality, formulating and reviewing credit policies as well asdocumentation of credit policies and procedures for adherence by the business unit.

To assist the business units and support departments in managing operational risk in their respective functional areas on amore effective and efficient basis, the internal audit department has identified inherent risks of the various activitiesundertaken by each business unit by developing a template for each business function. This risk-based approach managesoperational risk by addressing the probability of an event occurring and identifying those activities which have the highestlevel of inherent risk.

The process of reviewing the adequacy and the integrity of internal control policies and practices is a continuous process andthe Board will from time to time reviews the monitoring and reporting process to ensure their effectiveness on the whole.

21


INTERNAL CONTROL

The following are the key elements of the Group’s system of internal control:

• policies and procedures manuals clearly documented the policies, procedures and practices adopted by the Group to ensureclear accountabilities and control procedures as well as proper segregation of tasks among departments and staff are inplace for all business units;

• the compliance function, which include the Audit Committees and Internal Audit Functions, assist the Board to oversee themanagement of risks and review the efficiency and effectiveness of the internal controls of the Group;

• regular internal audits are carried out according to approved annual audit plan to review the adequacy and integrity of theinternal control systems of the business units. It acts as a service to the business by assisting with the continuousimprovement of controls and procedures. The reports are submitted to the Audit Committees, which review the findingswith the respective management at the Committee meetings. These, together with the external auditors’ reports, providereasonable assurance that control procedures are in place and are being followed;

• regular and comprehensive information covering financial and cashflow performance, operational status reports areprovided to the Board and senior management to facilitate the monitoring control process in ensuring that the businessoperates smoothly; and

• detailed annual budgeting process where each business units prepare budgets, business plans and other expenditurerequirements which are approved by the management committees of the respective business units and at the Group. Theactual results against these budgets are reviewed monthly by the management committees, with major variances beingfollowed up and management actions taken, where necessary.

This statement was made in accordance with the resolution of the Board dated 18 May 2005.

o f I n t e r n a l C o n t r o lS t a t e m e n t

22

Annual Report 2005

Statement of the Directors’ Responsibilities

The Directors are required by the Companies Act, 1965 of prepare financial statements for each financial year which give atrue and fair view of the state of affairs of the Group and of the Company as at the end of the financial year and of theirresults and cash flows for the financial year then ended.

In preparing the financial statements, the Directors have:

• ensured that all appropriate and applicable approved accounting standards have been consistently applied;

• made judgements and estimates that are reasonable and prudent; and

• prepared the financial statements on a going concern basis.

The Directors are responsible for ensuring that the Group and the Company maintain adequate accounting records whichdisclose with reasonable accuracy the financial position of the Group and the Company which enable them to ensure that thefinancial statements comply with the requirements of the Companies Act, 1965 and applicable approved accountingstandards in Malaysia.

The Directors are also responsible for taking such steps as are reasonably open to them to safeguard the assets of the Groupand the Company to prevent and detect fraud and other irregularities.

Corporate Calendar

23


25 March 2004 Avenue Unit Trust organised a 1-dayseminar on “Tax & Investment” forcorporate investors in Kuala Lumpur.

1 April 2004 Avenue Unit Trust's 10th sales centrewas officially opened in Kuching,Sarawak.

7-24 April 2004Avenue Unit Trust's annual investmentroadshows were held nationwidethroughout the month as a forum tomeet and update investors, bothexisting and potential investors.

30 June 2004 The Avenue website, showcasing theGroup's activities and services, waslaunched.

16 July 2004 Avenue Unit Trust jointly with The Sunand Nanyang Siang Pau organised a 20-weekly contest “Avenue CompositeIndex Challenge”.

21 July 2004 The 76th annual general meeting ofAvenue was held at Bangunan THB Satuin Damansara Heights. It was followedby an extraordinary general meeting.

3-4 August 2004Avenue co-sponsored a regionalconference in Kuala Lumpur organisedby Euromoney, aptly titled “RemakingMalaysia: Investing In the NewMalaysia”. As the co-sponsor, Avenuehosted a workshop session titled “ANew Investment Strategy for a NewMalaysia”.

17 August 2004 Avenue Securities organised its firsttelecommunications conference inKuala Lumpur titled “TechnologyDevelopment and Future StrategicDirection of Service Providers”.

9 September 2004 Avenue Securities officially opened its2nd electronic access facility in TelukIntan, Perak Darul Ridzuan.

20 September 2004The underwriting ceremony inconjunction with the listing of EkowoodInternational Berhad was held. AvenueSecurities was the adviser, joint leadplacement agent, managingunderwriter and underwriter.

28-29 September 2004 Avenue co-sponsored in the MalaysianMarket Summit 2004 with the theme,“Strengthening the Malaysian CapitalMarket Towards Global Compatibility”organised by The Asian Strategy &Leadership Institute. The summit isaimed at identifying the key challengesfaced by the industry and how best torespond to them.

Corporate Calendar (cont’d)

24

Annual Report 2005

18 October 2004The 3rd electronic access facility ofAvenue Securities was officially openedin Kluang, Johor Darul Takzim.

18, 23 & 25 November 2004Avenue Unit Trust organised a 1-dayinvestment talk for corporate and retailinvestors in Penang, Johor Bahru andKuala Lumpur.

29 November 2004Avenue hosted its Hari Raya OpenHouse at Kuala Lumpur Golf & CountryClub. A total of 400 staff, clients andguests attended the function.

4-5 December 2004 This year's Avenue Group's Get-Awayfor all staff was held at the A 'FamosaResort in Malacca. Staff members fromall branches and sales centres joined inthe 2-day trip.

17 December 2004“Avenue Composite Index GrandChallenge” held at Corus Hotel, KualaLumpur where the grand prize isRM100,000 in cash.

25 December 2004Avenue Securities made a significantachievement when it was voted “Themost improved local researchhouse”and “The second best localresearch house”.

5 January 2005Launch of Fotronics CorporationBerhad’s prospectus for its IPO exerciseof 50,745,000 of ordinary shares.Avenue Securities was the adviser,sponsor, placement agent andunderwriter.

7 January 2005The management, staff and remisiers ofAvenue Group donated monetaryassistance towards the “MalaysianTsunami Disaster Fund” to support thedisaster relief efforts.

7-9 January 2005Avenue Unit Trust was the main sponsorfor the inaugural money expo held atMid Valley Exhibition Centre. The expowas aimed at educating the public onthe latest personal financial productsand its benefits.

Picture courtesy of NST

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