cover interim report income-fa - areca...

Interim Report Dec 2016

For the Period Ended 31 December 2016

Areca incomeTRUST Fund

IN TE RI M REP O RT D EC EM BE R 2 0 1 6

�� ARECA incomeTRUST FUND

Contents

CORPORATE DIRECTORY

2

MANAGER’S REPORT

Fund Information, Performance & Review 3 Market Review & Outlook 7

TRUSTEE’S REPORT 9

STATEMENT BY THE MANAGER 10

UNAUDITED FINANCIAL STATEMENTS FOR ARECA incomeTRUST FUND

11

INTERIM REPORT DECEMBER 2016

ARECA incomeTRUST FUND

2

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

MANAGER

Areca Capital Sdn Bhd (740840-D)

107, Blok B, Pusat Dagangan Phileo Damansara 1

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

46350 Petaling Jaya, Selangor

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

website: www.arecacapital.com

e-mail: [email protected]

BOARD OF DIRECTORS

Dato’ Wee Hoe Soon @ Gooi Hoe Soon (Independent, Chairman)

Wong Teck Meng (Executive) Raja Datuk Zaharaton Bt Raja Dato’ Zainal Abidin

(Non-Executive Non-Independent) Dr. Junid Saham (Independent)

INVESTMENT COMMITTEE MEMBERS

Dato’ Wee Hoe Soon @ Gooi Hoe Soon (Independent, Chairman)

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

Dr. Junid Saham (Independent)

TRUSTEE

Maybank Trustees Berhad (5004-P)

8th Floor, Menara Maybank

100 Jalan Tun Perak

50050 Kuala Lumpur

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

AUDITOR

Deloitte PLT (AF 0080) 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 – PULAU TIKUS PERAK - IPOH MALACCA

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



3

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

Name of the Fund Areca incomeTRUST Fund

Fund Category/

Type

Fixed Income/ Income

Objective of the

Fund

To provide investors with short to medium term capital preservation and a regular

income

Benchmark Maybank’s 6-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 2016

Size of Holding (Units) No. of

accounts %

No. of unit

held

(million)

%

Up to 5,000 3 1.71 0.01 -

5,001 to 10,000 5 2.86 0.04 0.02

10,001 to 50,000 38 21.71 1.04 0.45

50,001 to 500,000 67 38.29 13.60 5.88

500,001 and above 62 35.43 216.71 93.65

Total* 175 100.00 231.40 100.00

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 any soft commissions.

Inception Date 23 April 2007

Initial Offer Price RM0.5000 per unit during the initial offer period of 21 days ended 13 May 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

2016 2015 2014

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

Total Net Asset Value (RM million) 115.71* 108.33* 113.02*

Units in circulation (million units) 231.40* 216.04* 226.01*

NAV per unit (RM) 0.5000* 0.5014* 0.5001*

* Ex-Distribution

2016 2015 2014

HIHEST & 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) 0.5102* 0.5122* 0.5095*

Lowest NAV per unit (RM)

* Ex-Distribution

0.5000* 0.5003* 0.5000*

2016 2015 2014

ASSET ALLOCATION % of NAV as at 31 December

Fixed Income Securities

Corporate bonds 81.81 84.14 75.33

Fixed Income Collective Investment Scheme 3.00 3.30 3.01

Negotiable Instrument of Deposit 3.02 2.68 9.52

Cash & cash equivalent including placements & repo 12.17 9.88 12.14

DISTRIBUTION

Please refer to Note 2 for further information

2016 2015 2014

Distribution date 30 Dec 2016 30 Dec 2015 30 Dec 2014

Gross distribution (sen per unit) 0.91 0.50 0.96

Net distribution (sen per unit) 0.91 0.50 0.96

NAV before distribution (RM per unit) 0.5090 (29 Dec) 0.5063 (30 Dec) 0.5095 (29 Dec)

NAV after distribution (RM per unit) 0.5000 (30 Dec) 0.5014 (31 Dec) 0.5000 (30 Dec)

UNIT SPLITS

2016 2015 2014

Exercise date - 30 Jul 2015 -

Split ratio - 0.02:1 -

NAV before unit split (RM per unit) - 0.5122 (29 Jul) -

NAV after unit split(RM per unit) - 0.5023 (29 Jul) -

Market movement - 0.0002 (30 Jul) -

AVERAGE ENTRY FEE (SALES CHARGE) %

The average entry fee (sales charge) for the period is zero.

2016 2015 2014

EXPENSE/ TURNOVER for the period ended 31 December

Management expense ratio (MER) (%)


Portfolio turnover ratio (PTR) (times)


0.64 0.64 0.60

0.23 0.07 0.20

2016 2015 2014

TOTAL RETURN for the period ended 31 December


Total Return (%) 1.80 1.22 1.15

- Capital Return (%) -0.02 0.22 -0.40

- Income Return (%) 1.82 1.00 1.91



5

2016 2015 2014 2013 2012

Annual Total Return (%) 3.60 2.44 3.03 2.29 3.32

Benchmark: Average Maybank’s 6-month fixed

deposit rate (%) 3.10 3.27 3.22 3.12 3.12

1-yr 3-yrs 5-yrs

Average Total Return (%) 4.01 3.52 3.42

NOTES:

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

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

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

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

Note 2: Distribution of 0.91 sen per unit was declared on 30 December 2016 and was automatically

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

Note 3: MER is calculated based on the total fees and expenses incurred by the Fund, divided by the average

net asset value calculated on a daily basis.

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

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

PTR increased as total trade increased RM40.5mil as compared to 2015.

Note 5: 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 Lipper.

Unit prices and distributions payable, if any, may go down as well as up. Past performance is not

necessarily indicative of future performance.



6

F U N D R E V I E W

The Fund’s NAV per unit decreased from RM0.5001 as at 30 June 2016 to RM0.5000 as at 31

December 2016, after a total net distribution of 91 sen per unit during the period. For the period

ended 31 December 2016, the Fund posted an annualised return of 3.60% p.a. versus 3.10% p.a. of

its benchmark, Maybank’s 6-month fixed deposit rate. The Fund out-performed its benchmark for the

6-month period ended 31 December 2016 despite the challenging environment. Yields rose in

reaction to weaker MYR, exiting foreign investors and higher US interest rates.

The Fund enjoy a good spread of credit diversification with about 27 issues across various industries,

the largest being banking/finance constituting 35.2% of our holdings. 72.6% of the portfolio is in

Corporate Bonds that are rated AA or better (including Govt Guaranteed issues).The Fund has

achieved its objective in providing short to medium term capital preservation and a regular income for

the period under review.

Moving forward, we continue to focus on strong credit issues with good liquidity while managing the

duration risk in anticipation of interest rates shifts.

Performance of Areca incomeTRUST Fund

for the financial period since inception to 31 December 2016

Investment Policy and Strategy

The Fund invests primarily (at least two third of its assets) in fixed income securities and money

market instruments predominantly with a minimum credit rating of ‘A3’ by RAM or such equivalent

rating by other rating agencies.

NAV per unit as at 31 December 2016 RM0.5000

Asset Allocation / Portfolio Composition as at 31 December 2016 2015 2014

Fixed income securities 81.81% 84.14% 75.33%

Fixed income collective

investment scheme 3.00% 3.30% 3.01%

Floating rate negotiable

instrument of deposit 3.02% 2.68% 9.52%

Cash & cash equivalents 12.17% 9.88% 12.14%

81.81%

12.17%

3.02% 3.00%

Areca incomeTRUST

Maybank 6 Months Fixed Deposit


MANAGER’S REPORT

7

MARKET REVIEW & OUTLOOK

ECONOMIC RE VIEW

In the aftermath of the surprise decision to leave the European Union, Theresa May became only the

second female Prime Minister of the United Kingdom. She is to lead the UK in the process of ‘Brexit’

which some estimate will take more than two years. Inevitably, rating agencies downgraded the UK

and the GB£ plunged from 1.49 just before the referendum to a low of 1.21 before ending the year

just above 1.23 against US$. Against the MYR, it fell from 5.9790 the night before ‘Brexit’ to a low of

5.0580 in mid October before recovering to 5.5350 at year close. To mitigate the ‘Brexit’ impact, the

UK cut benchmark rates to a historic low of 0.25%, broaden bond buying program to include

corporate bonds and deepen the size of Quantitative Easing to £435 billion from £60 billion. Meantime,

the European Central Bank kept rates unchanged throughout the year while extending their

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

from €80 billion monthly. Japan followed with introduction of additional fiscal budget of ¥4.6 trillion

for welfare, infrastructure and SME businesses while adjusting their monetary policy to ‘yield curve’

focused; vague as it may appear at this point.

China on the other hand stayed relatively quiet compared to the start of the year with their economy

recording a full year growth of 6.7%, lowest since 1990 but within their government’s and market’s

expectation.

The OPEC finally agreed to cut production late November in an effort to drain global glut helping to

prop oil price up. Non-OPEC members were also coaxed to comply.

Then came the US elections results that perplexed many and put the world on a tentative pause. With

most of his campaign sound bites controversial and provocative to the world at large, Donald Trump’s

presidency promises to be anything but conventional. The Federal Reserve then followed up with a

widely expected rate hike in December.

Malaysia’s economy

The National Budget announced in October had fiscal discipline but little goodies to the ‘man on the

street’. It did little to pacify the MYR doubters as anticipated declining interest rates differential added

to the negative effect of the reduction of the Morgan Stanley Capital International (MSCI) Emerging

Market Index weight for Malaysia from 3.25% to 2.92% in early June. MYR slid 11.3% to 4.4860 from

4.0275 against US$, 7.9% against AUD$ from 3.00 to 3.2371 and 3.6% against SGD$ from 2.99 to

3.0975 in the second half of 2016 alone. The ignominy that surrounds 1MDB did not help as it

resurfaced in the mainstream media again.

However, GDP held up to record 4.3% annual growth for Q3 with private consumption making up for

slowdown in exports. Exports did pick up in the last two months of 2016 with 7.8% and 10.7%

higher than a year ago but accompanied by imports growth of 11.2% and 11.5% respectively as well.

Trade Balance continues to register monthly surplus since the Asian Financial crisis. As a result,

External Reserves remained healthy at MYR424.2 billion or US$94.6 billion and sufficient to finance

8.8 months of retained imports. It is 1.3 times the short term external debt. Inflation remains

muted for the year at 2.1% despite petrol prices at the pump rising 13.5% from RM1.85 to RM2.10

for the year.

FIXED INCOME MARKET REVIEW

Benchmark 10 years US Treasury traded to a historical low in July at 1.375%. Trump’s victory

sparked a turnaround with yields surging to a 26 months high of 2.606% in December as it coincided

with the FOMC’s rate hike. It closed the year at 2.45%.

In Malaysia, the Overnight Policy Rate was surprisingly cut by 25bps to 3.00% in what seemed to be

a pre-emptive move in July. However, with Trump’s win, interest rates differential is expected to

narrow quicker, compounding MYR weakness with reversal of ‘carry-trades’ and the sell-down of

Malaysian bonds by foreign investor that totaled MYR24 billion in the last two months of 2016. This


MANAGER’S REPORT

8

reversed all that we gained in the year with a MYR1 billion net negative at the year close. MGS yields

rose almost 1 percent before recovering to a net rise of 50 bps against half a year ago while

corporate bonds rose about 50 bps before ending the year with a net 20 bps higher.

For the second half of 2016, the government raised RM35.0 bil through 13 MGS/GII issues with

tenures ranging from 3 to 20 years bringing the total issued for the year to RM86.0 bil. As of end

December 2016, foreigners held RM190.0 bil MGS/GII or 30.6% of outstanding. Corporate Bonds

issued for the period July to December was RM46.8 bil. Outstanding issued Corporate Bonds

excluding quasi-government stood at RM374.0 bil at end of 2016 of which foreign participation was

only RM14.8bil or 3.96%.

Constant Maturity Conventional Yield-To-Maturity: December 2016 vs December 2015

Tenure 1Y 3Y 5Y 7Y 10Y

Dec’15 Dec’16 Dec’15 Dec’16 Dec’15 Dec’16 Dec’15 Dec’16 Dec’15 Dec’16

MGS 2.611 3.235 3.236 3.549 3.482 3.674 4.085 4.131 4.206 4.206

AAA 3.980 4.140 4.320 4.310 4.510 4.490 4.760 4.590 4.880 4.730

AA2 4.200 4.410 4.630 4.660 4.840 4.820 5.110 4.910 5.230 5.030

A2 5.550 5.580 6.340 6.320 6.850 6.860 7.310 7.260 7.950 7.900

Source: Bond Pricing Agency Malaysia Sdn Bhd

ECONOMIC OUTLOOK

The US economy appears to be turning the corner. Unemployment rate reached a nine year low at

4.6% while housing and consumption data is on the general uptrend. Inflation has picked up in this

half rising to 2.1% year on year in December. Trump is definitely inheriting a healthier economy than

his predecessor. Trump’s promised fiscal expansion will likely entail infrastructure rebuilding funded

by possible corporate tax cuts. This will be favourable to the US economy and global growth. It is

likely therefore that the Federal Reserve may bow to hawkish pressures and raise interest rates at

least twice in 2017. Barring trade or economic war with China or even Europe, the other major

economies will benefit from the normalization of US rates and economy. However, despite this;

internal factors like stubborn inflation and lack of economic reaction to stimulus in these countries will

likely peg Europe’s and Japan’s interest rates low. As for China, currency peg/control may come into

question with Trump taking an abrasive stance. Interest rates will also likely remain low in China as

its economy continues to shift to one that is consumption based.

Crude oil price is expected to be range bound between US$45-60 supported by the OPEC production

cut agreement but limited by re-introduction of other sources like shale oil.

FIXED INCOME MARKET OUTLOOK

In Malaysia, a higher anticipated supply of MGS may instigate a rise in yields coupled with expected

higher US interest rates. Mitigating this is the possibility of early General Election this year as well as

the tightening disposable income level of the population at large as the effects of subsidy removal

from most items continue to reverberate.

There also remains the possibility of Statutory Rate cut as an option if liquidity tightens as a result of

withdrawal of funds from the system as experienced in November/December.

Fixed income markets is expected to be buoyant but challenged. The possible tail end of low interest

rates regime is balanced out by the new norm of low interest rates for a very long time as global

growth remains low and lumpy at best.

INTERIM REPORT DECEMBER 2016 STATEMENT BY THE MANAGER

9

T R U S T E E ’ S R E P O R T

For The Period Ended 31 December 2016

To the Unitholders of Areca incomeTRUST Fund

We have acted as Trustee of Areca incomeTRUST Fund, (“the Fund”) for the financial period ended 31

December 2016. In our opinion, Areca Capital Sdn Bhd (“the Manager”) has managed the Fund in the financial period under review in accordance with the following:-

1. The limitations imposed on the investment powers of the Manager and the Trustee under the

Deeds, Securities laws and the Securities Commission Malaysia’s Guidelines on Unit Trust Funds,

2. The valuation or pricing of the Fund is carried out in accordance with the Deeds and any regulatory requirements; and

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

and any regulatory requirements.

An income distribution of 0.91 sen per unit (gross) was declared on 30 December 2016 to the unitholders of the Fund for the financial period ended 31 December 2016.

We are of the view that the distribution is consistent with the investment objectives and distribution policy of the Fund.

For Maybank Trustees Berhad

(Company No: 5004-P)

BERNICE KM LAU Head, Operations

Kuala Lumpur

21 February 2017

INTERIM REPORT DECEMBER 2016 STATEMENT BY THE MANAGER

10

STATEMENT BY THE MANAGER

To the Unitholders of Areca incomeTRUST Fund

We, Wong Teck Meng and Dato’ Wee Hoe Soon @ Gooi Hoe Soon, 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 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 31st December, 2016 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

DATO’ WEE HOE SOON @ GOOI HOE SOON INDEPENDENT DIRECTOR

Kuala Lumpur 21 February 2017

INTERIM REPORT DECEMBER 2016 ARECA incomeTRUST FUND

11

UNAUDITED STATEMENT OF FINANCIAL POSITION

As Of 31st December, 2016 31.12.2016 31.12.2015 Note RM RM

Assets Investments

Collective investment scheme 4 3,474,975 3,578,907 Unquoted fixed income securities 4 98,158,670 94,050,782

Total Investments 101,633,645 97,629,689

Other Assets

Amount due from Manager 5 - 2,697,921 Other receivables 6 1,268,029 1,061,612

Short-term deposits 7 13,084,791 7,053,788 Cash at bank 6,001 6,693

Total Other Assets 14,358,821 10,820,014

Total Assets 115,992,466 108,449,703

Unitholder’s Fund and Liabilities

Liabilities

Amount due to Manager 5 148,315 - Accruals 8 136,901 117,589

Total Liabilities 285,216 117,589

Unitholders’ Fund

Unitholders’ capital 9 106,771,951 98,923,903 Unrealised reserve 10 1,141,049 759,056

Realised reserve 11 7,794,250 8,649,155

Net Asset Value attributable to unitholders 115,707,250 108,332,114

Total Unitholders’ Fund and Liabilities 115,992,466 108,449,703

Number of Units in Circulation 9 231,401,920 216,042,011

Net Asset Value Per Unit (Ex-Distribution) 12 0.5000 0.5014

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


12

UNAUDITED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

For 6-month Period Ended 31st December, 2016

1.7.2016 to 1.7.2015 to

31.12.2016 31.12.2015

Note RM RM

Investment Income

Interest income 2,906,492 2,709,859

Net loss from investments:

Investments at fair value through profit or loss (“FVTPL”) 4 (84,798) (699,294)

Total Investment Income 2,821,694 2,010,565

Expenditure

Management fee 13 667,593 612,683

Trustee’s fee 14 48,162 44,027

Other expenses 49,624 41,898

Total Expenditure 765,379 698,608

Net Income Before Tax 2,056,315 1,311,957

Income Tax Expense 15 - -

Net Income After Tax/Total Comprehensive Income For The Period 2,056,315 1,311,957

Net Income After Tax Is Made Up Of:

Realised gain 2,171,714 1,974,966

Unrealised loss (115,399) (663,009)

2,056,315 1,311,957

Distribution for the period:

Net distribution 16 2,070,119 1,042,906 Gross distribution per unit (sen)

Net distribution per unit (sen)

0.91

0.91

0.50

0.50



13

UNAUDITED STATEMENT OF CHANGES IN NET ASSET VALUE


Unitholders’ capital

Realised reserve

Unrealised reserve

Total net asset value

RM RM RM RM

As of 1st July, 2015 109,929,410 7,717,095 1,422,065 119,068,570Amounts received/receivable from

units created 15,991,813 - - 15,991,813Amounts paid for units cancelled (26,997,320) - - (26,997,320)

Total comprehensive income for the period - 1,311,957 - 1,311,957

Net unrealised loss transferred to unrealised reserve - 663,009 (663,009) -

Distribution to unitholders for the

period (Note 16) - (1,042,906) - (1,042,906)

As of 31st December, 2015 98,923,903 8,649,155 759,056 108,332,114

As of 1st July, 2016 106,019,450 7,692,655 1,256,448 114,968,553Amounts received from units created 20,600,728 - - 20,600,728

Amounts paid/payable for units cancelled (19,848,227) - - (19,848,227)

Total comprehensive income for the period - 2,056,315 - 2,056,315

Net unrealised loss transferred to unrealised reserve - 115,399 (115,399) -

Distribution to unitholders for the period (Note 16) - (2,070,119) - (2,070,119)

As of 31st December, 2016 106,771,951 7,794,250 1,141,049 115,707,250



14

UNAUDITED STATEMENT OF CASH FLOWS


1.7.2016 to 31.12.2016

1.7.2015 to 31.12.2015

Cash Flows From/(Used In) Operating Activities RM RM

Proceeds from disposal of investments 33,524,200 17,426,400

Interest received 2,697,700 2,929,426

Dividend received 99,220 66,129

Purchase of investments (30,803,320) (11,348,422)

Management fee paid (659,834) (628,525)

Trustee’s fee paid (47,646) (45,131)

Payment for other fees and expenses (59,966) (50,292)

Reinvestment of dividend received (99,220) (66,129)

Net Cash From Operating Activities 4,651,134 8,283,456

Cash Flows From/(Used In) Financing Activities

Cash proceeds from units created 20,611,961 16,013,590

Payment for cancellation of units (19,701,912) (26,997,320)

Distribution to unitholders (2,070,119) (1,042,906)

Net Cash Used In Financing Activities (1,160,070) (12,026,636)

Net Increase/ (Decrease) In Cash And Cash Equivalents 3,491,064 (3,743,180)

Cash And Cash Equivalents At Beginning Of Period 9,599,728 10,803,661

Cash And Cash Equivalents At End Of Period 13,090,792 7,060,481

Cash and cash equivalents consist of the following amounts: 2016 2015

RM RM

Short-term deposits 13,0841,791 7,053,788

Cash at bank 6,001 6,693

13,090,792 7,060,481



15

NOTES TO THE FINANCIAL STATEMENTS

1 GENERAL INFORMATION

Areca incomeTRUST Fund (“incomeTRUST” or “the Fund”) was established pursuant to the Trust

Deed dated 12th March, 2007 as modified by the First Supplemental Deed dated 27th June 2007,

Second Supplemental Deed dated 14th April 2008, Third Supplemental Deed dated 21st October

2008, Fourth Supplemental Master Deed dated 10th April 2009, Fifth Supplemental Master Deed

dated 12th March 2013 and Sixth Supplemental Master Deed dated 6th 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 Schedule 7 of the

Deed, which include quoted and unquoted fixed income securities and deposits with financial

institutions. The Fund commenced operations on 23rd April, 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 investors with short to medium term capital preservation

and a regular income by investing primarily (at least two third of its assets) in fixed income

securities and money market instruments predominantly with a minimum credit rating of “A3” by

RAM or such equivalent rating by other rating agencies.

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”), International Financial Reporting Standards and the Securities

Commission Malaysia’s Guidelines on Unit Trust Funds in Malaysia.

Adoption of New and Revised Malaysian Financial Reporting Standards

In the current financial year, the Fund has applied a number of new and revised MFRSs and

Amendments to MFRSs issued by MASB that are effective for annual financial periods beginning

on or after 1st July, 2015.

MFRS 119 Employees Benefits: Defined Benefit Plans (Amendments relating to

Employee Contributions)

Annual Improvements to MFRSs 2010 - 2012 cycle

Annual Improvements to MFRSs 2011 - 2013 cycle

The adoption of these new and revised MFRSs did not result in significant changes in the

accounting policies of the Fund and had no significant effect on the financial performance or

position of the Fund.

Standards and Amendments in Issue But Not Yet Effective

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

Standards and Amendments which were in issue but not yet effective and not early adopted by

the Fund are as listed below:

MFRS 9 Financial Instruments3

MFRS 14 Regulatory Deferral Accounts1

MFRS 15 Revenue from Contracts with Customers3

Clarifications to MFRS 15 Revenue from Contracts with Customers3


16

MFRS 16 Leases5

Amendments to MFRS 10,

MFRS 12 and MFRS 128

Investment Entities: Applying the Consolidation Exception1

Amendments to MFRS 10

and MFRS 128

Sale or Contribution of Assets between an Investor and its Associate

or Joint Venture4

Amendments to MFRS 11 Accounting for Acquisitions of Interests in Joint Operations1

Amendments to MFRS 101 Disclosure Initiative1

Amendments to MFRS 107 Disclosure Initiative2

Amendments to MFRS 112 Recognition of Deferred Tax Assets for Unrealised Losses2

Amendments to MFRS 116

and MFRS 138

Clarification of Acceptable Methods of Depreciation and

Amortisation1

Amendments to MFRS 127 Equity Method in Separate Financial Statements1

Annual Improvements to MFRSs 2012 - 2014 cycle1

1 Effective for annual periods beginning on or after 1st January, 2016, with earlier

application permitted.





4 Effective date deferred to a date to be determined and announced, with earlier

application still permitted.

5 Effective for annual periods beginning on or after 1st January, 2019. Earlier application

is permitted provided MFRS 15 is also applied.

The Manager of the Fund anticipates the abovementioned Standards and Amendments will be

adopted in the annual financial statements of the Fund when they become effective and that the

adoption of these Standards and Amendments will have no material impact on the financial

statements of the Fund in the period of initial application except as disclosed below:

MFRS 9 Financial Instruments

In November, 2014, Malaysian Accounting Standards Board (“MASB”) issued the final version of

MFRS 9 Financial Instruments which reflects all phases of the financial instruments project and

replaces MFRS 139 Financial Instruments: Recognition and Measurement and all previous

versions of MFRS 9. MFRS 9 is effective for annual periods beginning on or after 1st January,

2018, with early application permitted. Retrospective application is required, but comparative

information is not compulsory.

Key requirements of MFRS 9:

(a) All recognised financial assets that are within the scope of MFRS 139 Financial

Instruments: Recognition and Measurement are required to be subsequently measured at

amortised cost or fair value. Specifically, debt investments that are held within a business

model whose objective is to collect the contractual cash flows, and that have contractual

cash flows that are solely payments of principal and interest on the principal outstanding

are generally measured at amortised cost at the end of subsequent accounting periods.

Debt instruments that are held within a business model whose objective is achieved both

by collecting contractual cash flows and selling financial assets, and that have contractual


17

terms of the financial asset give rise on specified dates to cash flows that are solely

payments of principal and interest on the principal amount outstanding, are measured at

FVTOCI. All other debt investments and equity investments are measured at their fair

value at the end of subsequent accounting periods. In addition, under MFRS 9, entities

may make an irrevocable election to present subsequent changes in the fair value of an

equity investment (that is not held for trading) in other comprehensive income, with only

dividend income generally recognised in profit or loss.

(b) With regards to the measurement of financial liabilities designated as at fair value

through profit or loss, MFRS 9 requires that the amount of change in the fair value of the

financial liability that is attributable to changes in the credit risk of that liability be

presented in other comprehensive income, unless the recognition of the effects of

changes in the liability’s credit risk in other comprehensive income would create or

enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a

financial liability’s credit risk are not subsequently reclassified to profit or loss. Under

MFRS 139, the entire amount of the change in the fair value of the financial liability

designated as fair value through profit or loss is presented in profit or loss.

(c) In relation to the impairment of financial assets, MFRS 9 requires an expected credit loss

model, as opposed to an incurred credit loss model under MFRS 139. The expected credit

loss model requires an entity to account for expected credit losses and changes in those

expected credit losses at each reporting date to reflect changes in credit risk since initial

recognition. In other words, it is no longer necessary for a credit event to have occurred

before credit losses are recognised.

(d) The new general hedge accounting requirements retain the three types of hedge

accounting mechanisms currently available in MFRS 139. Under MFRS 9, greater flexibility

has been introduced to the types of transactions eligible for hedge accounting, specifically

broadening the types of instruments that qualify for hedging instruments and the types of

risk components of non-financial items that are eligible for hedge accounting. In addition,

the effectiveness test has been overhauled and replaced with the principle of an

‘economic relationship’. Retrospective assessment of hedge effectiveness is also no longer

required. Enhanced disclosure requirements about an entity’s risk management activities

have also been introduced.

The Manager of the Fund anticipates that the application of MFRS 9 in the future may have an

impact on the amounts reported and disclosures made in the Fund’s financial statements.

However, it is not practicable to provide a reasonable estimate of the effect of MFRS 9 until the

Manager completes a detailed review.

MFRS 15 Revenue from Contracts with Customers

In September, 2014, MFRS 15 was issued which establishes a single comprehensive model for

entities to use in accounting for revenue arising from contracts with customers. Subsequently,

amendments to MFRS 15 were issued in June, 2016 which provide clarifications on certain

requirements of MFRS 15 and provide additional transitional relief upon implementing MFRS 15.

MFRS 15 will supersede the current revenue recognition guidance including MFRS 118 Revenue,

MFRS 111 Construction Contracts and the related Interpretations when it becomes effective.

The core principle of MFRS 15 is that an entity should recognise revenue to depict the transfer of

promised goods or services to customers in an amount that reflects the consideration to which

the entity expects to be entitled in exchange for those goods or services. Specifically, the

Standard introduces a 5-step approach to revenue recognition:

(a) Step 1: Identify the contract(s) with a customer

(b) Step 2: Identify the performance obligations in the contract

(c) Step 3: Determine the transaction price


18

(d) Step 4: Allocate the transaction price to the performance obligations in the contract

(e) Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation

Under MFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied,

i.e. when ‘control’ of the goods or services underlying the particular performance obligation is

transferred to the customer. Far more prescriptive guidance has been added in MFRS 15 to deal

with specific scenarios. Furthermore, extensive disclosures are required by MFRS 15.

The Manager of the Fund anticipates that the application of MFRS 15 in the future may have an

impact on the amounts reported and disclosures made in the Fund’s financial statements.

However, it is not practicable to provide a reasonable estimate of the effect of MFRS 15 until the

Manager completes a detailed review.

3 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES AND JUDGEMENTS

A. SIGINIFICANT ACCOUNTING POLICIES

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

right to receive the dividend has been established.

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

carrying value 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

year.

Income Tax

Income tax comprises Malaysian corporate tax for the current financial year, 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.

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.

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.

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.

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. The units are subordinated and have identical features. There is

no contractual obligation to deliver cash or another financial asset other than the obligation on


19

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.

Financial Instruments

Financial instruments are recognised in the statement of financial position when, and only when

the Fund has become a party to the contractual provisions of the instruments. Financial assets

and liabilities include short-term deposits, cash at bank, quoted securities, receivables and

payables. The accounting policies on recognition and measurement of these items are disclosed in

their respective accounting policies.

Financial instruments are classified as assets or liabilities in accordance with the substance of the

contractual arrangements. Interest, dividends, gains and losses relating to financial instruments

classified as assets, are reported as investment income.

(a) Financial Assets

Financial assets are classified into the following specified categories: financial assets at ‘fair

value through profit or loss’ (FVTPL), ‘held-to-maturity’ investments, ‘available-for-sale’

financial assets and ‘loans and receivables’. The classification depends on the nature and

purpose of the financial assets and is determined at the time of initial recognition.

(i) Effective Interest Method

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

financial asset and of allocating interest income over the relevant period. The

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

(including all transaction costs and other premiums or discounts) through the

expected life of the financial asset, or (where appropriate) a shorter period, to the net

carrying amount on initial recognition.

(ii) FVTPL

Financial assets are classified as at FVTPL when the financial asset is either held for

trading or it is designated as at FVTPL.

A financial assets are classified as held for trading if:

• it has been acquired principally for the purpose of selling it in the near term; or

• on initial recognition it is part of a portfolio of identified financial instruments

that the Fund manages together and has a recent actual pattern of short-term

profit-taking; or

• it is a derivative that is not designated and effective as a hedging instrument.

A financial asset other than a financial asset held for trading may be designated as at

FVTPL upon initial recognition if:

• such designation eliminates or significantly reduces a measurement or

recognition inconsistency that would otherwise arise; or

• the financial asset forms a part of a group of financial assets or financial

liabilities or both, which is managed and its performance is evaluated on a fair

value basis, in accordance with the Fund’s documented risk management or

investment strategy, and information about the grouping is provided internally

on that basis; or

• it forms part of a contract containing one or more embedded derivatives, and

MFRS 139 Financial Instruments: Recognitions and Measurement permits the

entire combined contract (asset of liability) to be designated as at FVTPL.

Financial assets at FVTPL are stated at fair value, with any gains or losses arising on

remeasurement recognised in profit or loss under ‘Net gain or loss’ on financial assets

at FVTPL accounts.


20

(iii) Investments

The Fund’s investments which are classified under FVTPL include investment

in unquoted fixed income securities and unlisted collective investment

scheme.

Unquoted fixed income securities are generally valued at least once a day

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 units in unlisted collective investment scheme is valued based

on the net asset value per unit of such collective investment scheme as at

the end of reporting date.

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

is recognised as gains or losses from investment in profit or loss and

transferred to unrealised reserve.

(iv) Receivables

Receivables that have fixed or determinable payments that are not quoted in

an active market are classified as ‘loan and receivables’. Loans and

receivables are measured at amortised cost using the effective interest

method, less any impairment. Interest income is recognised by applying the

effective interest rate, except for short-term receivables when the recognition

of interest would be immaterial.

(iv) Impairment of Financial Assets

Financial assets, other than those at FVTPL, are assessed for indicators of

impairment at the end of each reporting period. Financial assets are

considered to be impaired when there is objective evidence that, as a result

of one or more events that occurred after the initial recognition of the

financial asset, the estimated future cash flows of the financial asset have

been affected. Receivables assessed not to be impaired individually are, in

addition, assessed for impairment on a collective basis. Objective evidence of

impairment for a portfolio of receivables could include the Fund’s past

experience of collecting payments, an increase in the number of delayed

payments in the portfolio past the average credit period, as well as

observable changes in the national or global economic conditions that

correlate with default on receivables.

In respect of receivables carried at amortised cost, the amount of impairment

loss recognised is the difference between the asset’s carrying amount and the

present value of estimated future cash flows, discounted at the financial

asset’s original effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss

directly for all financial assets with the exception of trade receivables, where

the carrying amount is reduced through the use of an allowance account.

When a trade receivable is considered uncollectible, it is written off against

the allowance account. Subsequent recoveries of amounts previously written

off are credited against the allowance account. Changes in the carrying

amount of the allowance account are recognised in profit or loss.

(vi) Classification of Realised and Unrealised Gains and Losses

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

instruments for the year and from reversal of prior year’s unrealised gains


21

and losses for financial instruments which were realised (sold) during the

reporting period.

Realised gains and losses on disposals of financial instruments classified as

FVTPL are accounted for as the difference between the net disposal proceeds

and the carrying amount of the financial instruments.

(vii) 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 transfers nor retains 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

continues to recognise the financial asset and also recognises a collateralised

borrowing for the proceeds received.

(b) Financial Liabilities and Equity Instruments

Debt and equity instruments are classified as either financial liabilities or as equity in

accordance with the substance of the contractual arrangement.

(i) 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.

(ii) Financial Liabilities

Financial liabilities are initially measured at fair value, net of transaction cost

and subsequently measured 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 through the expected life of the financial liability, or (where

appropriate) a shorter period, to the net carrying amount on initial

recognition.

(iii) Derecognition of Financial Liabilities

The Fund derecognises financial liabilities when, and only when, the Fund’s obligations are discharged, cancelled or they expire.

B. ACCOUNTING ESTIMATES AND JUDGEMENTS

(i) Critical judgements in applying accounting policies

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

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 financial year.


22

4 INVESTMENTS

Investments designated as FTVL are as follows:

2016 2015 At aggregate cost Note RM RM

Collective investment scheme 4(a) 3,403,771 3,800,908 Unquoted fixed income securities 4(b) 97,088,825 93,069,725

100,492,596 96,870,633

At fair value

2016 2015 Collective investment scheme 4(a) 3,474,975 3,578,907

Unquoted fixed income securities 4(b) 98,158,670 94,050,782

101,633,645 97,629,689

2016 2015

Net loss on investments at FVTPL comprised: RM RM Realised gain/ (loss) on disposals 30,601 (36,285)

Net unrealised loss on changes in fair value (115,399) (663,009)

(84,798) (699,294)

(a) Details of collective investment scheme as of 31st December, 2016 are as follows:

2016

Collective Investment

Scheme Quantity

Market

Price

Aggregate

Cost

Carrying

Value Fair Value

Fair

Value

as a %

of Net

Asset

Value

Units RM RM RM RM %

Areca Islamic Cash Fund 3,405,169

1.0205 3,403,771 3,410,867 3,474,975 3.00

Total collective investment scheme 3,403,771 3,410,867 3,474,975 3.00

2015

Areca Steady fixedINCOME

Fund 3,368,700 1.0624 3,800,908 3,511,786 3,578,907 3.30

Total collective investment scheme 3,800,908 3,511,786 3,578,907 3.30

(b) Details of unquoted fixed income securities as of 31st December, 2016 are as follows:

2016

Issuer (rating) maturity/ coupon (%)

Nominal Value

Valuation Price

Aggregate Cost

Carrying Value

Fair Value

Fair Value as a % of

Net Asset Value

RM RM RM RM RM %

Bonds Hong Leong Bank Berhad (AA3)

2039/8.25 9,500,000 108.160 9,405,000 10,422,640 10,275,200 8.88 Public Bank Berhad (AA1) 2022/4.28 9,500,000 99.995 9,519,800 9,517,480 9,499,525 8.21

Alpha Circle Sdn Bhd (AA-) 2017/4.85 6,000,000 100.094 6,000,000 6,021,960 6,005,640 5.19

Malakoff Power Berhad (AA-) 2018/4.90 5,000,000 100.558 5,011,000 5,052,400 5,027,900 4.34

Benih Restu Berhad (AA2)

2025/4.62 4,500,000 99.055 4,500,000 4,482,945 4,457,475 3.85 TRIplc Ventures Sdn Berhad (AAA) 2021/5.46 4,000,000 104.338 4,000,000 4,229,360 4,173,520 3.61


23

2016 Issuer (rating) maturity/

coupon (%) Nominal

Value Valuation

Price Aggregate

Cost Carrying

Value Fair

Value

Fair Value

as a % of Net Asset

Value

RM RM RM RM RM % Bonds

Golden Assets International Finance Limited (A1) 2019/5.35 4,000,000 97.926 4,000,000 3,823,760 3,917,040 3.39

CIMB Bank Berhad (AA) 2038/6.70 3,750,000 103.200 3,904,875 3,901,125 3,870,000 3.34

Lebuhraya DUKE Fasa 3 Sdn

Berhad (AA-) 2037/6.23 3,500,000 109.074 3,582,600 3,582,600 3,817,590 3.30 PBFIN Berhad (AA2) 2059/7.50 3,500,000 105.777 4,048,100 3,758,720 3,702,195 3.20

Al Dzahab Assets Berhad (AAA) 2021/5.50 3,500,000 104.027 3,500,000 3,530,345 3,640,945 3.15

CIMB Group Holdings Berhad

(A1) 2116/5.80 3,500,000 101.946 3,500,000 3,540,600 3,568,110 3.08 Pengurusan Air SPV Berhad (NR)

2026/4.40 3,500,000 99.646 3,500,000 3,525,515 3,487,610 3.01 Sarawak Hidro Sdn Berhad (AAA) 2024/4.34 3,500,000 98.869 3,521,000 3,521,000 3,460,415 2.99

AmBank (M) Berhad (A1) 2039/8.25 3,000,000 108.007 3,000,000 3,289,800 3,240,210 2.80

Alpha Circle Sdn Berhad (AA-)

2019/5.15 3,000,000 100.130 3,000,000 3,018,300 3,003,900 2.60 Jati Cakerawala Sdn Berhad

(AA3) 2018/4.66 3,000,000 99.703 2,995,800 2,997,990 2,991,090 2.58 Lembaga Pembiayaan Perumahan Sektor Awam

(NR) 2036/4.62 3,000,000 96.639 3,000,000 3,000,000 2,899,170 2.51 UEM Sunrise Berhad (AA-) 2022/4.80 2,500,000 99.328 2,500,000 2,494,100 2,483,200 2.15

Eastern & Oriental Berhad (NR) 2020/2.00 2,500,000 88.289 2,073,500 2,200,358 2,207,235 1.91

Sports Toto Malaysia Sdn Berhad (AA-) 2019/4.82 2,000,000 100.261 2,008,600 2,002,860 2,005,220 1.73

DRB-Hicom Berhad (A-)

2020/7.50 2,000,000 99.279 2,016,400 2,000,240 1,985,580 1.72 AMMB Holdings Berhad (AA3)

2019/4.50 2,000,000 98.972 1,999,400 1,990,400 1,979,440 1.71 Lembaga Pembiayaan Perumahan Sektor Awam

(NR) 2046/4.90 2,000,000 97.772 2,000,000 2,000,000 1,955,440 1.69 CIMB Thai Bank Public Company Limited (AA3) 2024/5.60 500,000 100.903 500,000 506,285 504,515 0.44

Berjaya Land Berhad (AAA) 2017/4.75 500,000 100.101 502,750 502,335 500,505 0.43

NID AmBank Islamic 5-Year Islamic

Callable Range Accrual NID 2021/5.44 3,500,000 100.00 3,500,000 3,500,000 3,500,000 3.02

Total unquoted fixed income securities 97,088,825 98,413,118 98,158,670 84.83

2015

Bonds Hong Leong Bank Berhad (AA3) 2039/8.25 9,500,000 110.680 9,405,000 10,678,855 10,514,600 9.71

Alpha Circle Sdn Bhd (AA-) 2017/4.85 6,000,000 100.207 6,000,000 5,999,400 6,012,420 5.55

Public Bank Berhad (AA1)

2022/4.28 5,500,000 99.959 5,513,000 5,495,325 5,497,745 5.07 Malakoff Power Berhad (AA-)

2018/4.90 5,000,000 100.658 5,011,000 5,063,200 5,032,900 4.65 HSBC Amanah Malaysia Berhad (AAA) 2019/4.22 5,000,000 99.784 4,992,200 5,000,820 4,989,200 4.61


24

2015 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 Malayan Banking Berhad (AA1) 2021/3.97 5,000,000 99.760 4,973,500 4,973,500 4,988,000 4.60

Benih Restu Berhad (AA2) 2025/4.62 4,500,000 98.059 4,500,000 4,471,200 4,412,655 4.07

TRIplc Ventures Sdn Berhad

(AAA) 2021/5.46 4,000,000 104.428 4,000,000 4,241,320 4,177,120 3.86 Public Bank Berhad (AA2)

2036/5.10 4,000,000 100.807 4,118,400 4,043,040 4,032,280 3.72 AmBank Islamic Berhad (fka AmIslamic Bank Berhad)

(AA3) 2021/4.40 4,000,000 100.217 4,000,000 4,019,280 4,008,680 3.70 CIMB Bank Berhad (AA)

2038/6.70 3,750,000 104.527 3,904,875 3,975,300 3,919,762 3.62 Golden Assets International Finance Limited (AA3)

2019/5.35 4,000,000 96.028 4,000,000 3,978,600 3,841,120 3.55 PBFIN Berhad (AA2) 2059/7.50 3,500,000 108.110 4,048,100 3,838,870 3,783,850 3.49 AmBank (M) Berhad (A1)

2039/8.25 3,000,000 110.829 3,000,000 3,378,900 3,324,870 3.07 Alpha Circle Sdn Berhad (AA-)

2019/5.15 3,000,000 100.534 3,000,000 3,009,030 3,016,020 2.78 Noble Group Limited (AA3) 2016/4.30 3,000,000 99.995 3,000,000 3,001,350 2,982,900 2.77

CIMB Bank Berhad (AA+) 2022/4.15 3,000,000 99.190 3,000,000 2,992,200 2,975,700 2.75

UEM Sunrise Berhad (fka UEM

Land Holdings Berhad) (AA-) 2022/4.80 2,500,000 98.918 2,500,000 2,516,200 2,472,950 2.28

Eastern & Oriental Berhad (NR) 2020/2.00 2,500,000 86.569 2,073,500 2,129,067 2,164,215 2.00

YTL Power International Berhad

(AA1) 2021/4.70 2,000,000 100.269 2,002,400 2,019,480 2,005,380 1.85 DRB-Hicom Berhad (A)

2114/7.50 2,000,000 100.123 2,016,400 2,019,940 2,002,460 1.85 Sports Toto Malaysia Sdn Berhad (AA-) 2019/4.82 2,000,000 99.695 2,008,600 2,008,640 1,993,900 1.84

Jati Cakerawala Sdn Berhad (AA3) 2018/4.66 1,000,000 99.772 1,000,000 999,590 997,720 0.92

AMMB Holdings Berhad (AA3)

2019/4.50 1,000,000 98.519 1,000,000 991,100 985,190 0.91 Berjaya Land Berhad (AAA)

2017/4.75 500,000 100.423 502,750 501,185 502,115 0.46 CIMB Thai Bank Public Company Limited (AA3) 2024/5.60 500,000 100.416 500,000 511,190 502,080 0.46

FRNID

CIMB 5-Year Callable KLIBOR Range Accrual FRNID 2018/5.90 3,000,000 96.600 3,000,000 2,954,100 2,898,000 2.68

Total unquoted fixed income securities 93,069,725 94,801,382 94,050,782 86.82

5 AMOUNT DUE FROM/(TO) MANAGER

Amount due from/(to) Manager consists of amounts receivable from/(payable) to the Manager in

respect of creation/(cancellation) of units. Amount receivable/(payable) for units

created/(cancelled) is received/(paid) within 10 days of the transaction dates.


25

6 OTHER RECEIVABLES

Other receivables consist of interest receivable from unquoted fixed income securities,

negotiable instrument of deposits (“NID”) and short-term deposits.

7 SHORT-TERM DEPOSITS

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

The effective average interest rate for short-term deposits is 3.41% (2015: 3.47%) per annum

and the average maturity period is 14 days (2015: 7 days).

8 ACCRUALS

2016 2015

RM RM Accruals consist of:

Management fee 112,982 106,232 Trustee’s fee 8,095 7,647 Audit fee 4,849 -

Tax agent’s fee 3,500 3,710 Others 7,475 -

136,901 117,589

9 UNITHOLDERS’ CAPITAL

��--------2016---------�� -------2015-------��

No. of units RM No. of units RM At beginning of period 229,906,138 106,019,450 233,321,086 109,929,410 Created during the period 40,602,714 20,600,728 36,280,641 15,991,813

Cancelled during the period (39,106,932) (19,848,227) (53,559,716) (26,997,320)

At end of period 231,401,920 106,771,951 216,042,011 98,923,903

In accordance with Part 6.1 of the Deed and Securities Commission Malaysia’s approval letter

dated 3rd December 2010, the maximum number of units that can be issued is 750,000,000

(2015: 750,000,000). As of 31st December 2016, the number of units not yet issued is

518,598,080 (2015: 533,957,989 units).

Included in the units created during the period are 4,140,239 units (2015: 2,079,988 units)

from reinvestment of distribution on 30th December, 2016.

10 UNREALISED RESERVE

2016 2015 RM RM Balance at beginning of period 1,256,448 1,422,065

Net unrealised loss attributable to investment held at fair value through profit or loss

(115,399)

(663,009)

Balance at end of period 1,141,049 759,056

Investments: At fair value 101,633,645 97,629,689

At cost (100,492,596) (96,870,633)

Unrealised reserve 1,141,049 759,056

11 REALISED RESERVE 2016 2015 RM RM

Balance at beginning of period 7,692,655 7,717,095 Total comprehensive income for the period 2,056,315 1,311,957

Net unrealised loss transferred to unrealised reserve 115,399 663,009 Distribution for the period (2,070,119) (1,042,906)

Balance at end of period 7,794,250 8,649,155


26

12 NET ASSET VALUE PER UNIT

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

unitholders of RM115,707,250 (2015: RM108,332,114) as of 31st December 2016 by

231,401,920 units in issue as of 31st December 2016 (2015: 216,042,011 units).

13 MANAGEMENT FEE

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

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

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

management fee provided for in the financial statements amounted to 1.11% (2015: 1.11%) per

annum for the period, net of management fee rebate on the collective investment scheme.

14 TRUSTEE’S FEE

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

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% (2015: 0.08%) per annum for the

period.

15 INCOME TAX EXPENSE

There is no tax charge as interest income derived by the Fund is exempted pursuant to Schedule

6 of the Income Tax Act, 1967. Gains arising from realisation of investments are not treated as

income pursuant to Paragraph 61(1)(b) of the Income Tax Act, 1967.

16 NET DISTRIBUTION

2016 2015 RM RM

Distribution to unitholders is from the following sources: Interest income 1,695,496 1,648,246

Realised gain on sale of investments 30,601 - Previous year’s realised gains 1,109,401 93,268

Less:

2,835,498 1,741,514

Expenses (765,379) (698,608)

Net distribution 2,070,119 1,042,906

The distribution above has been made as follows:

Distribution on 30th December, 2016 Gross distribution per unit (sen) 0.91 -

Net distribution per unit (sen) 0.91 -

Distribution on 31st December, 2015

Gross distribution per unit (sen) - 0.50 Net distribution per unit (sen) - 0.50

The distribution above has been made before taking into account unrealised loss for the period

of RM115,399 (2015: unrealised loss of RM663,009) which is carried forward to next year.

17 MANAGEMENT EXPENSE RATIO & PORTFOLIO TURNOVER

Management Expense Ratio (MER)

Management expense ratio for the Fund is 0.64% (2015: 0.64%) for the period ended 31st

December 2016. 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


27

The average net asset value of the Fund for the period is RM119,419,162 (2015:

RM109,166,504).

Portfolio Turnover Ratio (PTR)

The portfolio turnover ratio for the Fund is 0.23 times (2015: 0.07 times) for the period ended

31st December 2016. The portfolio turnover is derived from the following calculation:

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

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

Where: total acquisition for the period = RM30,934,252 (2015: RM11,505,165)

total disposal for the period = RM24,524,200 (2015: RM3,466,071)

18 UNITS HELD BY THE MANAGER AND RELATED PARTIES

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

related parties are as follows:

2016

No. of units RM The Manager 2,953 1,476

Dato’ Wee Hoe Soon @ Gooi Hoe Soon, a director of the Manager 16,110,058 8,055,029Kumpulan RZA Sdn Bhd * 1,306,919 653,460

17,419,930 8,709,965

2015 No. of units RM

The Manager 769 386Dato’ Wee Hoe Soon @ Gooi Hoe Soon, a director of the Manager 15,445,233 7,744,239Kumpulan RZA Sdn Bhd * 1,252,985 628,247

16,698,987 8,372,872

* shareholder of 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. These dealings with the related parties have been transacted at arm’s length

basis.

19 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 %

2016

KAF Investment Bank Berhad 37,920,000 38.58 - -

Hong Leong Investment Bank Bhd 18,874,602 19.20 - -

CIMB Bank Berhad 16,046,200 16.32 - -

Hong Leong Bank Berhad 14,316,077 14.56 - -

Malayan Banking Berhad 7,056,773 7.18 - -

RHB Investment Bank Berhad 4,084,800 4.16 - -

98,298,452 100.00 - -

2015

KAF Investment Bank Berhad 26,380,000 58.22 - -

Hong Leong Investment Bank Bhd 11,933,252 26.34 - -

Maybank Investment Bank Berhad 3,037,984 6.70 - -

RHB Investment Bank Berhad 2,590,000 5.72 - -


28

Brokers/ Dealers Value of

Trades

% of

Total Trades Fees

% of Total

Brokerage Fee

RM % RM %

CIMB Bank Berhad 1,370,000 3.02 - -

45,311,236 100.00 - -

Included in transactions with broker/dealers are trades conducted on normal term in relation to

investment in collective investment scheme managed by Manager.

20 RISK MANAGEMENT POLICIES

FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Fund seeks to preserve capital as well as to provide regular income over the short to

medium term period by investing in fixed income instruments. 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, market risk (including interest rate risk and price risk) on its investments.

Categories of Financial Instruments 2016 2015 RM RM

Financial assets Carried at FVTPL: Collective investment scheme 3,474,975 3,578,907

Unquoted fixed income securities 98,158,670 94,050,782 Loans and receivables:

Amount due from Manager - 2,697,921 Other receivables 1,268,029 1,061,612

Short-term deposits 13,084,791 7,053,788 Cash at bank 6,001 6,693

Financial liabilities Carried at amortised cost:

Amount due to Manager 148,315 - Accruals 136,901 117,589

Credit risk

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 31st December, 2016.

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 which are not

rated by credit rating agency. The following table set out the Fund’s portfolio of unquoted

investments by rating categories:


29

Credit rating

Market Value

As a % of

unquoted investments

As a % of NAV

2016 RM

Bonds

AAA 11,775,385 12.00 10.18

AA1 9,499,525 9.68 8.21

AA2 8,159,670 8.31 7.05

AA3 15,750,245 16.04 13.61

AA 3,870,000 3.94 3.34

AA- 22,343,450 22.76 19.31

A1 10,725,360 10.93 9.27

A- 1,985,580 2.02 1.72

NR (LT) 10,549,455 10.75 9.12

Others

NID 3,500,000 3.57 3.02

98,158,670 100.00 84.83

2015

Bonds

AAA 9,668,435 10.28 8.92

AA1 12,491,125 13.28 11.53

AA2 12,228,785 13.00 11.29

AA3 23,849,240 25.36 22.01

AA+ 2,975,700 3.16 2.75

AA 3,919,762 4.17 3.62

AA- 18,528,190 19.70 17.10

A1 3,324,870 3.54 3.07

A 2,002,460 2.13 1.85

NR (LT) 2,164,215 2.30 2.00

Others

FRNID 2,898,000 3.08 2.68

94,050,782 100.00 86.82

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

Industry

Short-term

deposits

Collective investment

scheme

Unquoted fixed income

securities

RM RM RM 2016

Construction & engineering - - 4,173,520 Diversified holdings - - 1,985,580

Finance, insurance and business services

13,084,791 3,474,975

50,841,985

Infrastructure and utilities - - 18,784,605 Plantation and agriculture - - 8,374,515 Property and real estate - - 2,983,705

Trading & Services - - 11,014,760

13,084,791 3,474,975 98,158,670

2015

Construction & engineering - - 4,177,120 Diversified holdings - - 5,002,310 Finance, insurance and

business services

7,053,788 3,578,907

54,584,172


30

Industry

Short-term deposits

Collective

investment scheme

Unquoted

fixed income securities

RM RM RM 2015 Infrastructure and utilities - - 8,036,000

Plantation and agriculture - - 8,253,775 Property and real estate - - 2,975,065

Trading & Services - - 11,022,340

7,053,788 3,578,907 94,050,782

Liquidity risk management

Liquidity 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 is 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 years

Total

RM RM RM RM

2016 Financial Liabilities

Non-interest bearing: Amount due to Manager 148,315 - - 148,315 Accrual 128,342 8,559 - 136,901

Total 276,657 8,559 - 285,216

2015

Financial Liability

Non-Interest bearing: Accruals 113,879 3,710 - 117,589

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 market variables such as interest rates and

markets prices. 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 only 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.

Price risk management

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

securities and collective investment scheme 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 unquoted securities and collective investment scheme.


31

Price risk sensitivity

Management’s best estimate of the effect on the income for the year 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 2016

Investments +5/-5% 5,081,682/(5,081,682)

2015 Investments +5/-5% 4,881,484/(4,881,484)

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.

21 FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an

orderly transaction in the principal (or most advantageous) market at the measurement date

under current market conditions.

The fair value of the collective investment scheme is determined based on the net asset value

per unit of such collective investment scheme as at the end of the reporting period.

For unquoted fixed income securities in general, fair values have been estimated by reference to

quotes published by BPA.

For deposits and placements with financial institutions with maturities of less than twelve, 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 Levels 1 to 3 based on the degree to which the

fair value is observable.

• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in

active markets for identical assets or liabilities.

• Level 2 fair value measurements are those derived from inputs other than quoted prices

included within Level 1 that are observable for the asset or liability, either directly (i.e. as

prices) or indirectly (i.e. derived from prices).

• Level 3 fair value measurements are those derived from valuation techniques that include

inputs for the asset or liability that are not based on observable market data (unobservable

inputs).

Level 1 Level 2 Level 3 Total RM RM RM RM

2016

Financial assets at FVTPL

Unquoted fixed income securities - 98,158,670 - 98,158,670


32

Level 1 Level 2 Level 3 Total

RM RM RM RM

2016

Financial assets at FVTPL Collective investment

scheme - 3,474,975 - 3,474,975

2015 Financial assets at FVTPL

Unquoted fixed income securities - 94,050,782 - 94,050,782

Collective investment scheme - 3,578,907 - 3,578,907

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

22 INTERIM ACCOUNTS

The interim accounts for the 6-month period ended 31st December, 2016 have not been audited.

cover interim report income-fa - areca...

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