cover annualreport flexi fixedincome-faarecacapital.com/file/areca_annualreportjun17_flexi...
TRANSCRIPT
Annual Report June 2017
For the Year Ended 30 June 2017
Areca Flexi fixedINCOME Fund
A NN UA L REPORT J UN E 2017
ARECA Flexi fixedINCOME FUND
Contents
CORPORATE DIRECTORY 2
MANAGER’S REPORT
Fund Information, Performance & Review 3
Market Review & Outlook 8
TRUSTEE’S REPORT 11
STATEMENT BY THE MANAGER 11
AUDITORS’ REPORT 12
AUDITED FINANCIAL STATEMENTS FOR
ARECA Flexi fixedINCOME Fund 15
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME 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
RHB Trustees Berhad (573019-U)
Level 11, Tower 1, RHB Centre
Jalan Tun Razak
50400 Kuala Lumpur
Tel: 03-9280 8799 Fax: 03-9280 8796
AUDITOR
PricewaterhouseCoopers (AF1146)
Level 10, 1 Sentral, Jalan Rakyat
Kuala Lumpur, Sentral, P O Box 10192
Tel: 03-2173 1188, Fax: 03-2173 1288
TAX ADVISER
PricewaterhouseCoopers Taxation Services
Sdn Bhd (464731-M) Level 10, 1 Sentral, Jalan Rakyat Kuala Lumpur, Sentral, P O Box 10192
Tel: 03-2173 1188, Fax: 03-2173 1288
M A N A G E R ’ S O F F I C E A N D B R A N C H E S
HEAD OFFICE
107, Blok B, Pusat Dagangan Phileo Damansara 1, No. 9, Jalan 16/11, Off Jalan Damansara,
46350 Petaling Jaya, Selangor
Tel: 603-7956 3111, Fax: 603-7955 4111
website: www.arecacapital.com
e-mail: [email protected]
PENANG – PULAU TIKUS PERAK – IPOH MALACCA
368-2-02 Belissa Row
Jalan Burma, Georgetown
10350 Pulau Pinang
Tel : 604-210 2011
Fax: 604-210 2013
11A, (First Floor)
Persiaran Greentown 5
Greentown Business Centre
30450 Ipoh, Perak
Tel : 605-249 6697/6698
Fax: 605-249 6696
95A, Jalan Melaka Raya 24
Taman Melaka Raya
75000 Melaka
Tel : 606-282 9111
Fax: 604-283 9112
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
3
F U N D I N F O R M A T I O N
Name of the Fund Areca Flexi fixedINCOME Fund
Fund Category/
Type
Fixed Income (Wholesale Fund)/Income & Growth
Objective of the
Fund
To provide qualified investors with relatively steady income and moderate
capital appreciation over a short to medium-term by investing in fixed
income investments.
Benchmark Maybank’s 6-month fixed deposit rate
Distribution Policy
of the Fund
Yearly or more frequent, subject to availability of the distributable income.
Profile of
unitholdings
* excluding units held
by the Manager
As at 30 June 2017
Size of Holding
(Units)
No. of
accounts %
No. of
units held
‘million
%
Up to 5,000 - - - -
5,001 to 10,000 - - - -
10,001 to 50,000 1 3.12 0.01 0.09
50,001 to 500,000 21 65.63 4.49 35.67
500,001 and above 10 31.25 8.10 64.24
Total* 32 100.00 12.60 100.00
Rebates & Soft
Commissions
The Manager retains soft commissions received from stockbrokers, provided
these are of demonstrable benefit to unitholders. The soft commissions may
take the form of goods and services such as data and quotation services,
computer software incidental to the management of the Fund and
investment related publications. Cash rebates, if any, are directed to the
account of the Fund. During the year under review, the Manager had not
received any soft commissions.
Inception Date 3 January 2012
Initial Offer Price RM1.0000 per unit during the initial offer period of 21 days ended 23
January 2012
Pricing Policy
Single Pricing – Selling and repurchase of units by Manager are at Net Asset
Value per unit
Financial year end 30 June
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
4
F U N D P E R F O M A N C E
2017 2016 2015
Net Asset Value (“NAV”) as at 30 June
Total Net Asset Value (RM million) 13.02* 7.79* 7.19*
Units in circulation (million units) 12.60* 7.78* 6.64*
NAV per unit (RM) 1.0333* 1.0019* 1.0828*
* Ex-Distribution
HIGHEST & LOWEST NAV for the year ended 30 June
Please refer to Note 1 for further information on NAV
and pricing policy
Highest NAV per unit (RM) 1.0631* 1.1634* 1.1334*
Lowest NAV per unit (RM) 1.0021* 1.0018* 1.0204*
* Ex-Distribution
ASSET ALLOCATION % of NAV as at 30 June
Fixed Income Securities
Collective investment scheme 39.15 55.85 -
Unquoted bonds-local 48.57 17.07 17.89
Unquoted bonds-foreign - - 78.37
Cash & cash equivalents including
placements and repo 12.28 27.08 3.74
DISTRIBUTION
Please refer to Note 2 for further information
Distribution date -
30 June 2017
31 Dec 2015
29 Jun 2016
30 Dec 2014
29 Jun 2015
Gross distribution (sen per unit) -
3.00 (30 Jun)
15.00 (31 Dec)
3.00 (29 Jun)
1.00 (30 Dec)
5.00 (29 Jun)
Net distribution (sen per unit) -
3.00 (30 Jun)
15.00 (31 Dec)
3.00 (29 Jun)
1.00 (30 Dec)
5.00 (29 Jun)
NAV before distribution (sen per unit) -
1.0631 (29 Jun)
1.1634 (30 Dec)
1.0316 (28 Jun)
1.0615 (29 Dec)
1.1334 (26 Jun)
NAV after distribution (sen per unit) -
1.0333 (30 Jun)
1.0135 (31 Dec)
1.0018 (29 Jun)
1.0520 (30 Dec)
1.0837 (29 Jun)
UNIT SPLIT EXERCISE
There was no unit split exercise for the financial year under review.
EXPENSE/ TURNOVER for the year ended 30 June
Management expense ratio (MER) (%)
Please refer to Note 3 for further information 0.82 1.36 1.50
Portfolio turnover ratio (PTR) (times)
Please refer to Note 4 for further
information
0.64 2.50 0.09
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
5
F U N D P E R F O M A N C E
2017 2016 2015
TOTAL RETURN for the year ended 30 June Please refer to Note 5 for further information
Total Return (%) 6.13 9.40 10.44
- Capital Return (%) 3.13 (7.47) 4.58
- Income Return (%) 3.00 16.87 55.86
2017 2016 2015 2014
Annual Total Return (%) 6.13 9.40 10.44 7.02
Benchmark: Average Maybank's 12-month
fixed deposit rate 3.09 3.28 3.25 3.12
1-yr 3-yrs 5-yrs
Average Total Return per annum (%) 6.13 9.41 N/A
NOTES:
Note 1: Selling of units by the Management Company (i.e. when you purchase units and invests in the Fund)
and redemption of units by the Management Company (i.e. when you redeem your units and liquidate your
investments) will be carried out at NAV per unit (the actual value of a unit). The entry/ exit fee (if any) would
be computed separately based on your net investment/ liquidation amount.
Note 2: Distribution of 3.00 sen per unit was declared on 30 June 2017, and were automatically reinvested
into additional units on the same day at NAV per unit after distribution at no entry fee.
Note 3: MER is calculated based on the total fees and expenses incurred by the Fund, divided by the average net asset value calculated on a daily basis.
The average NAV has increased by RM1.4mil compared to last financial year giving rise to a lower MER%.
Note 4: PTR is computed based on the average of the total acquisitions and total disposals of the investment
securities of the Fund, divided by the average net asset value calculated on a daily basis.
The decreased in ratio is due to high liquidation of selective stocks on strong market performance. The total
disposal has increased by RM17mil as compared to 2016.
Note 5: Fund performance figures are calculated based on NAV to NAV and assume reinvestment of
distributions (if any) at NAV. The total return is sourced from Lipper. Benchmark data is sourced from
Malayan Banking Berhad.
Past performance is not necessarily indicative of future performance. Unit prices and investment
returns may go down, as well as up.
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
6
F U N D R E V I E W
The Fund’s NAV per unit increased from RM1.0019 as at 30 June 2016 to RM1.0333 as at 30 June 2017, after a total net distribution of 3.00 sen per unit during the year. For the year ended 30 June
2017, the Fund posted a return of 6.13% against the benchmark Maybank's 6-month fixed deposit
rate of 3.09% p.a. The return of the portfolio beat the benchmark due to portfolio’s exposure to a
combination of high grade corporate bonds, carefully analysed unrated bond and investment in a high
yield bond collective investment scheme.
Currently, the Fund has 48.5% invested in MYR denominated corporate bonds while 39.1% in a high
yield bond collective investment scheme.
The Fund achieved its objective in providing qualified investors with relatively steady income and moderate capital appreciation over a short to medium-term by investing in fixed income investments.
We continue to seek opportunities to enhance its returns while diversifying its risk.
Investment policy and strategy
The Fund primarily invests in a diversified portfolio of fixed income investments consisting of
debentures, money market instruments and deposits with licensed institutions and any other fixed
income related instruments that are in lines with the Fund's objective.
NAV per unit as at 30 June 2017 RM1.0333
Movement of asset allocation as a percentage of Net Asset Value
for the year ended 30 June 201
Asset Allocation / Portfolio Composition as at 30 June 2017 2016 2015
Collective investment scheme 39.15% 55.85% -
Unquoted bonds-local 48.57% 17.07% 17.89%
Unquoted bonds-foreign - - 78.37%
Cash & cash equivalents 12.28% 27.08% 3.74%
47.26% 45.16% 38.53%
87.72%
0%
20%
40%
60%
80%
100%
30-Sep-16 31-Dec-16 31-Mar-17 30-Jun-17
Bonds & other fixed income instruments
Cash and cash equivalents
* as a % of net asset value
48.57%
39.15%
12.28%
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
7
F U N D R E V I E W
Top Holdings by Issuers:
As At 30 Sep 2016 % As at 31 Dec 2016 %
1) Areca Situational Income Fund
(CIS)
50.30
1) Areca Situational Income Fund
(CIS)
49.70
2) Eastern & Oriental Berhad (Not Rated)
16.20
2) Eastern & Oriental Berhad (Not Rated)
15.40
3) Perbadanan Tabung Pendidikan
Tinggi Nasional (PTPTN) (NR (GG))
12.10
3) Perbadanan Tabung Pendidikan
Tinggi Nasional (PTPTN) (NR (GG))
11.50
4) Lembaga Pembiayaan Perumahan
Sektor Awam (AAA (GG))
12.10
4) Lembaga Pembiayaan Perumahan
Sektor Awam (AAA (GG))
11.40
5) Lebuhraya DUKE Fasa 3 Sdn Bhd
(AA-IS)
6.70
5) Lebuhraya DUKE Fasa 3 Sdn Bhd
(AA-IS)
6.30
As At 31 March 2017 % As at 30 June 2017 %
1) Areca Situational Income Fund (CIS)
43.80
1) Areca Situational Income Fund (CIS)
39.15
2) Eastern & Oriental Berhad (Not
Rated)
13.40
2) Eastern & Oriental Berhad (Not
Rated)
17.45
3) Perbadanan Tabung Pendidikan
Tinggi Nasional (PTPTN) (NR (GG))
9.90
3) Perbadanan Tabung Pendidikan
Tinggi Nasional (PTPTN) (NR (GG))
7.76
4) Lembaga Pembiayaan Perumahan
Sektor Awam (AAA (GG))
9.70
4) Lembaga Pembiayaan Perumahan
Sektor Awam (AAA (GG))
7.75
5) Lebuhraya DUKE Fasa 3 Sdn Bhd
(AA-IS)
5.50
5) Lebuhraya DUKE Fasa 3 Sdn Bhd
(AA-IS)
7.39
Performance of Areca Flexi fixedINCOME Fund
for the financial period since commencement to 30 June 2017
Areca Flexi fixeINCOME
Maybank 6 Months Fixed Deposit Rate
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
8
MARKET REVIEW & OUTLOOK
ECONOMIC REVIEW
Following the British referendum to exit the European Union (EU), rating agencies downgraded the UK.
The GB£ plunged from 1.49 just before the referendum to a level last seen in the mid 80’s at 1.21 in
October before revisiting the level in January this year against the US$. Against the MYR, it fell from
5.9790 the night before ‘Brexit’ to a low of 5.0580 in mid-October before recovering to 5.59 at end
June 2017. The UK then cut benchmark rates to a historic low of 0.25%, broaden bond buying
program to include corporate bonds and deepen the size of Quantitative Easing to £435 billion from
£60 billion in a bid to mitigate the impact. Meantime, the European Central Bank kept rates
unchanged throughout this twelve months while announcing the extension of Quantitative Easing
program to beyond March 2017 (end of 2017) albeit a reduced size of €60 billion from €80 billion
monthly.
With the inauguration of President Donald Trump in January a new era of uncertainty ensues.
Economically, the United States (US) have continued to show signs of repair. Unemployment rate
dropped to a sixteen year low of 4.3% in May while housing and consumption data have been
encouraging. The Dow Jones breached 20000 at the end of January and surged past 21000 mark
early March hitting an all-time high of 21528.99 on June 19. It continues to ride on the prospects of a
Trump inspired expansionary fiscal plan and anticipated tax reforms. Inflation hit a five year high of
2.7% in February but have since eased into a downward trajectory. Inevitably, the hawks came out
and the Federal Fund Rate was raised in March and June by a ¼% each to 1.25%. This followed
December’s much expected ¼% hike. The Federal Reserve has since expressed their readiness to
trim the Federal Reserve’s asset portfolio of US$4.5 trillion in a gradual, non-disruptive and orderly
manner.
Geopolitical risk has ratcheted up several notches since Trump’s ascension following the retaliatory
bombing of Syria for alleged usage of chemical weapons, dropping the ‘mother of all bombs’ in
Afghanistan targeting ISIS and their underground tunnels and ‘sabre-rattling’ with North Korea. By
pulling out of the Trans-Pacific Partnership (TPP) and Paris Climate Agreement, antagonising Mexico,
Australia, Canada and NATO, Trump is isolating the US expeditiously.
China’s 4 quarters of Gross Domestic Product (GDP) grew 6.7%, 6.8% and 6.9% for the first two
quarters this year but have kept full year (2017) projection at 6.5% ahead of their National People’s
Congress in October. For a moment, China’s reserves fell below US$3 trillion mark (lowest since 2011)
in January defending the Yuan from sliding, as it lost the top US debt holder position to Japan since
October 2016. It has since reclaimed that top spot as of June 2017, following imposition of capital
controls on outflows and a series of US Treasuries’ buying sprees. Reserves have also turned around
totaling slightly below USD3.06 trillion. It is no surprise then that President Trump did not carry out
his threat of branding China a currency manipulator during their first four-eyed meeting in March.
In Malaysia, with little good news in the National Budget announced in October, the Malaysian Ringgit
suffered from the anticipated declining interest rates differential, the negative effect of the reduction
of the Morgan Stanley Capital International (MSCI) Emerging Market Index weight for Malaysia from
3.25% to 2.92% in early June 2016 and bad press on issues surrounding 1MDB. The MYR depreciated
to its weakest close since the end of 1998 Asian Financial Crisis early January at 4.49 to USD.
Fortunately, trade data remained strong. Exports and imports data picked up since November
providing support for Q4’s 4.5% GDP growth, bringing the full calendar year 2016 to an expansion of
4.2%. It improved further to 5.6% reading for 1Q 2017. Meantime, inflation surged to 5.1% in March,
highest since November 2008 mainly due to higher fuel and transport cost as RON95 at the pump
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
9
stood at RM2.30 per liter compared to RM1.60 a year ago. It tapered off at the end of June to 3.6%
as oil prices eased. Foreign Reserves increased to USD99.8 billion (or RM424.9 bil from RM390.4 bil).
FIXED INCOME MARKET REVIEW
The period under review saw the issuance of RM84.2 bil Malaysian Government Securities/
Government Investment Issue (MGS/GII) through 29 tenders vs RM94.0 bil in the previous period
(July ’15 – June ’16). However there were also 9 issues privately placed raising another RM8 bil. Due
to negative vibes from 3Q 2016, capital flowed out of our system to the tune of RM20.2 billion during
the second half of 2016. This continued throughout the first three months of the year for a further
outflow of RM37.6 billion hitting the lowest level of debts held by foreigners since January 2012 at
RM162.3 billion in March. Sentiment turned for the better since 2Q 2017. The level of our sovereign
debt held by offshore investors stands at RM178.0 billion (26.6% of total issued) at the end of June
2017 compared to RM162.3 billion last June.
During this period, there were 6 Overnight Policy Rate (OPR) meetings where the benchmark rate
was reduced by 0.25% to 3.00% in July 2016 in an unexpected preemptive move by the then newly
minted Bank Negara Governor.
Malaysian sovereign yield curve shifted up between 20 and 43 bps reflecting pressure from the 3 US
rate hikes in this period. Pressure also came in the form of rising domestic inflation although it has
been frequently debunked as cost push rather than demand driven. These are balanced by local
factors like narrowing disposable income as well as the impending general elections and the need to
maintain a ‘feel good’ atmosphere. Investors were also observed to have gone the credit path to pick
up yields as evident in the narrowing spreads.
Constant Maturity Conventional Yield-To-Maturity: June 2017 vs June 2016
Tenure 1Y 3Y 5Y 7Y 10Y
Jun’16 Jun’17 Jun’16 Jun’17 Jun’16 Jun'17 Jun’16 Jun’17 Jun’16 Jun’17
MGS 2.774 3.188 3.173 3.482 3.317 3.678 3.593 3.891 3.726 3.923
AAA 3.930 4.060 4.100 4.240 4.230 4.330 4.380 4.470 4.580 4.680
AA2 4.200 4.280 4.470 4.490 4.620 4.610 4.620 4.740 4.950 4.930
A2 5.580 5.460 6.330 6.150 6.800 6.690 7.240 7.110 7.860 7.790
Source: Bond Pricing Agency Sdn Bhd (BPA)
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
10
ECONOMIC OUTLOOK
Economically the US appear to have made milestones turnarounds with critical data like
unemployment and inflation on the right path while housing and consumption showing encouraging
signs. The EU have also in recent months appear to have put the worst behind them to emerge from
economic doldrums. Growth is on an uptrend while unemployment on a slow but favourable reverse.
China is constantly fixing their identified niggling problems of rising debt, property inflation and
capital outflows. If they can manoeuvre around these issues by altering her economy to be one that
is consumption based and continue on a watered down growth path of 6%; simple arithmetic will
prove that they will surpass the US to become the largest economy by 2032 even if the US grows at
an optimistic 2.5% rate.
All these augur well for Malaysia and our fledgling economy. China is hungry to spread its influence
and trade while we need new capital inputs and have goods to export. If China grows, we benefit. We
can look forward to a favourable trade data. Our government’s swift response to China’s ‘one belt one
road’ (now called Belt and Road Initiative) aspirations by opening up ‘high speed rail’ construction to
the Chinese and recent developments on the East Coast Rail Link and ports on both sides of our
peninsula amongst many others is seen as a masterful stroke by our leaders. Compared to lukewarm
reception of our southern neighbours, Malaysia appear to have seized the upper hand in being
involved in the next fifty years (at least) of Asian (China-India-Russia) upswing if not China itself. It
is important thence to pursue the appropriate funding structure for these long term mammoth
projects to ensure an advantageous future.
Crude oil price is expected to be range bound between US$50-60 as Organization of the Petroleum
Exporting Countries (OPEC) and non-OPEC producers agree to an extension of the production cut in
May till end 1Q 2018 in a continued effort to reduce excess supply.
FIXED INCOME MARKET OUTLOOK
As the economies of major countries turn for the better, it is envisaged that ultra-easy interest rates
environment may be nearing its end. The process of rates normalisation in the US while the market
expects EU to scale back stimulus will point towards an increase in global yields. The notion of a new
norm of low interest rates may still mitigate as base effects have grown larger while new engine of
growths remain elusive.
For Malaysia, interest rates differential has narrowed over the year. Coupled with rising domestic cost,
there are substantial reasons for tightening rates. However, authorities have to balance with diminishing disposable incomes and are correct in holding back any urgencies to raise rates as that
will not be able to address rising cost. It is therefore likely that interest rates remain very
accommodative for the next half of the year.
Fixed income markets is expected to remain buoyant and liquid for now.
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
11
T R U S T E E ’ S R E P O R T
For The Financial Year Ended 30 June 2017
To the Unit holders of Areca Flexi fixedINCOME Fund
We have acted as Trustee of Areca Flexi fixedINCOME Fund (the “Fund”) for the financial year
ended 30 June 2017. In our opinion and to the best of our knowledge, Areca Capital Sdn Bhd, the
Manager, has operated and managed the Fund in accordance with the following:-
(a) limitations imposed on the investment powers of the Manager and the Trustee under the
Deed, the Securities Commission Malaysia’s Guidelines on Unlisted Capital Market Products
under the Lodge and Launch Framework, the Capital Markets and Services Act 2007 and
other applicable laws;
(b) valuation/pricing is carried out in accordance with the Deed and any regulatory
requirements;
(c) creation and cancellation of units are carried out in accordance with the Deed and other
regulatory requirements; and
(d) the distribution of 3.00 sen (gross) per unit to the unitholders during the financial year
ended 30 June 2017 is consistent with the objectives of the Fund.
For and on behalf of the Trustee
RHB TRUSTEES BERHAD (Company No: 573019-U)
TONY CHIENG SIONG UNG
DIRECTOR
Kuala Lumpur
21 August 2017
S T A T E M E N T B Y T H E M A N A G E R
To the Unit holders of Areca Flexi fixedINCOME Fund
We, Wong Teck Meng and Dato’ Wee Hoe Soon @ Gooi Hoe Soon, two of the Directors of Areca
Capital Sdn Bhd, do hereby state that in our opinion as the Manager, the financial statements set
out on pages 15 to 36 are drawn up in accordance with the provisions of the Deed and give a true
and fair view of the financial position of the Fund as at 30 June 2017 and of its results, changes in
net assets attributable to unitholders and cash flows of the Fund for the financial year ended 30
June 2017 in accordance with the Malaysian Financial Reporting Standards and International
Financial Reporting Standards.
For and on behalf of the Manager,
ARECA CAPITAL SDN BHD
WONG TECK MENG
EXECUTIVE DIRECTOR
DATO’ WEE HOE SOON @ GOOI HOE SOON
INDEPENDENT DIRECTOR
Kuala Lumpur
21 August 2017
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
12
INDEPENDENT AUDITORS’ REPORT
TO THE UNITHOLDERS OF ARECA FLEXI FIXEDINCOME FUND
REPORT ON THE AUDIT OF FINANCIAL STATEMENTS
Our Opinion
In our opinion, the financial statements of Areca Flexi fixedINCOME Fund (the “Fund”) give a true
and fair view of the financial position of the Fund as at 30 June 2017, and of its financial
performance and its cash flows for the year then ended in accordance with Malaysian Financial
Reporting Standards and International Financial Reporting Standards.
What we have audited
We have audited the financial statements of the Fund, which comprise the statement of financial
position as at 30 June 2017, and the statement of comprehensive income, statement of changes in
equity and statement of cash flows for the year then ended, and notes to the financial statements,
including a summary of significant accounting policies, as set out on pages 15 to 36.
Basis for opinion
We conducted our audit in accordance with approved standards on auditing in Malaysia and
International Standards on Auditing. Our responsibilities under those standards are further
described in the “Auditors’ responsibilities for the audit of the financial statements” section of our
report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
Independence and other ethical responsibilities
We are independent of the Fund in accordance with the By-Laws (on Professional Ethics, Conduct
and Practice) of the Malaysian Institute of Accountants ("By-Laws") and the International Ethics
Standards Board for Accountants' Code of Ethics for Professional Accountants ("IESBA Code"), and
we have fulfilled our other ethical responsibilities in accordance with the By-Laws and the IESBA
Code.
Information other than the financial statements and auditors’ report thereon
The Manager of the Fund is responsible for the other information. The other information comprises
Manager’s report but does not include the financial statements of the Fund and our auditors’ report
thereon.
Our opinion on the financial statements of the Fund does not cover the other information and we
do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements of the Fund, our responsibility is to read the other information and, in doing so, consider whether the other information is materially
inconsistent with the financial statements of the Fund or our knowledge obtained in the audit or
otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of
this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the Manager for the financial statements
The Manager of the Fund is responsible for the preparation of the financial statements of the Fund
that give a true and fair view in accordance with Malaysian Financial Reporting Standards and
International Financial Reporting Standards. The Manager is also responsible for such internal
control as the Manager determine is necessary to enable the preparation of financial statements of
the Fund that are free from material misstatement, whether due to fraud or error.
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
13
In preparing the financial statements of the Fund, the Manager is responsible for assessing the
Fund’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the Manager either intend to
liquidate the Fund or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements of the
Fund as a whole are free from material misstatement, whether due to fraud or error, and to issue
an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with approved standards on auditing
in Malaysia and International Standards on Auditing will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with approved standards on auditing in Malaysia and
International Standards on Auditing, we exercise professional judgment and maintain professional
scepticism throughout the audit. We also:
(a) Identify and assess the risks of material misstatement of the financial statements of the
Fund, whether due to fraud or error, design and perform audit procedures responsive to
those risks, and obtain audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material misstatement resulting from
fraud is higher than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal control.
(b) Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control.
(c) Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by the Manager.
(d) Conclude on the appropriateness of the Manager’s use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant doubt on the Company’s
ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the
financial statements of the Fund or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditors’ report. However, future events or conditions may cause the Fund to cease to
continue as a going concern.
(e) Evaluate the overall presentation, structure and content of the financial statements of
the Fund, including the disclosures, and whether the financial statements represent the
underlying transactions and events in a manner that achieves fair presentation.
We communicate with the Manager regarding, among other matters, the planned scope and timing
of the audit and significant audit findings, including any significant deficiencies in internal control
that we identify during our audit.
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
14
OTHER MATTERS
This report is made solely to the unitholder of the Fund and for no other purpose. We do not
assume responsibility to any other person for the content of this report.
PRICEWATERHOUSECOOPERS
(No. AF: 1146)
Chartered Accountants
Kuala Lumpur
21 August 2017
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
15
STATEMENT OF FINANCIAL POSITION
As At 30 June 2017
Note
30.6.2017
RM
30.6.2016
RM
Current Assets
Cash & cash equivalents 9 1,620,149 2,124,484
Financial assets at fair value through profit or loss
8 11,423,974
5,681,698
Total Assets 13,044,123 7,806,182
Current Liabilities
Accrued management fee 7,264 3,523
Other payables and accruals 10 12,938 10,652
Total Liabilities 20,202 14,175
Net Asset Value of the Fund 13,023,921 7,792,007
Equity
Unit holders' capital 12,665,329 7,602,146
Retained earnings 358,592 189,861
Total Net Asset Attributable to
Unitholders 13,023,921
7,792,007
Number of Units in Circulation 11 12,604,373 7,777,154
Net Asset Value Per Unit (Ex-
Distribution) 1.0333
1.0019
The accompanying notes form an integral part of these financial statements.
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
16
STATEMENT OF COMPREHENSIVE INCOME
For The Financial Year Ended 30 June 2017
30.6.2017 30.6.2016
Note RM RM
Investment Income
Dividend income 379,279 -
Interest income 3 171,395 257,569
Net gain on financial assets at fair value
through profit or loss 8 65,289
540,779
615,963 798,348
Expenses
Management fee 4 57,694 82,315
Trustee's fee 5 - -
Audit fee 6,600 6,050
Tax agent’s fee 3,800 3,800
Other expenses 6,704 7,476
74,798 99,641
Net Profit Before Taxation 541,165 698,707
Taxation 6 4,971 4,957
Net Profit After Taxation And
Total Comprehensive Income For The
Financial Year
536,194
693,750
Net Income After Taxation Is Made Up As
Follows:
Realised amount 501,149 1,115,088
Unrealised amount 35,045 (421,338)
536,194 693,750
The accompanying notes form an integral part of these financial statements.
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
17
STATEMENT OF CHANGES IN EQUITY
For The Financial Year Ended 30 June 2017
Note Unit
holders’
capital
Retained
earnings
Total net
asset
value
RM RM RM
Balance as at 1 July 2016 7,602,146 189,861 7,792,007
Movement in unit holders’ capital:
Creation of units arising from
application
5,115,320
-
5,115,320
Creation of units from distribution 367,463 - 367,463
Cancellation of units (419,600) - (419,600)
Distribution 7 - (367,463) (367,463)
Total comprehensive income for the
financial year
- 536,194 536,194
Balance as at 30 June 2017
12,665,329 358,592 13,023,921
Balance as 1 July 2015 6,480,413 712,780 7,193,193
Movement in unit holders’ capital:
Creation of units arising from application
410,000
-
410,000
Creation of units from distribution 1,216,669 - 1,216,669
Cancellation of units (504,936) - (504,936)
Distribution 7 - (1,216,669) (1,216,669)
Total comprehensive income for the
financial year
- 693,750 693,750
Balance as at 30 June 2016
7,602,146 189,861 7,792,007
The accompanying notes form an integral part of these financial statements.
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
18
STATEMENT OF CASH FLOWS For The Financial Year Ended 30 June 2017
30.6.2017 30.6.2016
Note RM RM
Cash Flow From Investing And
Operating Activities
Proceeds from disposal of investments 3,197,073 20,034,800
Purchase of investments (8,443,385) (18,338,600)
Interest received from deposits with licensed financial institutions
22,774
104,770
Interest received from unquoted fixed
income securities
97,224
240,239
Management fee paid (53,592) (86,562)
Payment for other fees and expenses (14,818) (16,533)
Tax paid (4,971) (4,957)
Net cash flow (used in)/generated from
operating activities (5,200,055)
1,933,157
Cash Flow From Financing Activities
Cash proceeds from creation of units 5,482,783 1,626,669
Payment for cancellation of units (419,600) (504,936)
Distributions paid (367,463) (1,216,669)
Net cash flow generated from/(used in)
financing activities 4,695,720
(94,936)
Net (decrease)/increase in cash and
cash equivalents (504,335)
1,838,221
Cash and cash equivalents at the
beginning of financial year 2,124,484
286,263
Cash and cash equivalents at the end of
financial year 1,620,149
2,124,484
Cash & cash equivalents comprise:
Deposit with licensed financial institutions 9 1,619,810
2,116,066
Bank balance with a licensed bank 9 339 8,418
1,620,149 2,124,484
The accompanying notes form an integral part of these financial statements.
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
19
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FOR THE FINANCIAL YEAR ENDED 30 JUNE 2017
The following accounting policies have been used in dealing with items which are considered
material in relation to the financial statements.
A BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS
The financial statements have been prepared under the historical cost convention in accordance
with Malaysian Financial Reporting Standards (“MFRS”) and International Financial Reporting
Standards (“IFRS”), as modified by financial assets at fair value through profit or loss.
The preparation of financial statements in conformity with the MFRS and IFRS requires the use
of certain critical accounting estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the reported financial
year. It also requires the Manager to exercise their judgment in the process of applying the
Fund’s accounting policies. Although these estimates and judgment are based on the Manager’s
best knowledge of current events and actions, actual results may differ.
The areas involving a higher degree of judgment or complexity, or areas where assumptions and
estimates are significant to the financial statements are disclosed in Note L.
(a) Standards, amendments to published standards and interpretations that are effective
The Fund has applied the following amendments for the first time for the financial year
beginning on 1 July 2016:
• Amendments to MFRS 101 ‘Presentation of financial statements’ – Disclosure initiative
• Annual Improvements to MFRSs 2012 – 2014 Cycle
The adoption of these amendments did not have any impact on the current are not likely to
affect future periods.
(b) The new standards, amendments to published standards and interpretations to existing
standards that are applicable to the Fund but not yet effective and have not been early
adopted are as follows:
(i) Financial year beginning on/after 1 July 2017
Amendments to MFRS 107 ‘Statement of Cash Flows – Disclosure Initiative
(effective from 1 January 2017) introduce an additional disclosure on changes in
liabilities arising from financing activities.
The Fund will apply these amendments when effective. These amendments are
not expected to have a significant impact on the Fund’s financial statements.
(ii) Financial year beginning on/after 1 June 2018
MFRS 15 “Revenue from Contracts with Customers” (effective from 1 January
2018) replaces MFRS 118 “Revenue” and MFRS 111 “Construction contracts” and
related interpretations. The standard deals with revenue recognition and
establishes principles for reporting useful information to users of financial
statements about the nature, amount, timing and uncertainty of revenue and
cash flows arising from an entity’s contracts with customers.
Revenue is recognised when a customer obtains control of a good or service and
thus has the ability to direct the use and obtain the benefits from the good or
service. The core principle in MFRS 15 is that an entity recognises revenue to
depict the transfer of promised goods or services to the customer in an amount
that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services.
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
20
The Fund will apply this standard when effective. This standard is not
expected to have a significant impact on the Fund’s financial statements.
MFRS 9 “Financial Instruments” (effective from 1 January 2018) will
replace MFRS 139 “Financial Instruments: Recognition and Measurement”.
MFRS 9 retains but simplifies the mixed measurement model in MFRS 139 and establishes three primary measurement categories for financial assets:
amortised cost, fair value through profit or loss and fair value through
other comprehensive income (“OCI”). The basis of classification depends on
the entity’s business model and the cash flow characteristics of the
financial asset. Investments in equity instruments are always measured at
fair value through profit or loss with an irrevocable option at inception to
present changes in fair value in OCI (provided the instrument is not held
for trading).
A debt instrument is measured at amortised cost only if the entity is
holding it to collect contractual cash flows and the cash flows represent
principal and interest.
For liabilities, the standard retains most of the MFRS 139 requirements.
These include amortised cost accounting for most financial liabilities, with
bifurcation of embedded derivatives. The main change is that, in cases
where the fair value option is taken for financial liabilities, the part of a fair
value change due to an entity’s own credit risk is recorded in other
comprehensive income rather than the income statement, unless this creates an accounting mismatch.
MFRS 9 introduces an expected credit loss model on impairment that
replaces the incurred loss impairment model used in MFRS 139. The
expected credit loss model is forward-looking and eliminates the need for a
trigger event to have occurred before credit losses are recognised.
The Fund will apply this standard when effective. This standard is not
expected to have a significant impact on the Fund’s financial statements.
B INCOME RECOGNITION
Dividend income is recognised on the ex-dividend date when the right to receive payment is
established.
Interest income from short-term deposits and unquoted fixed income securities are recognised
on an accrual basis using the effective interest method.
Realised gain or loss on disposal of collective investment scheme is accounted for as the
difference between the net disposal proceeds and the carrying amount of collective investment
scheme, determined on a weighted average cost basis.
Realised gains or losses on disposal of unquoted fixed income securities are accounted for as the
difference between the net disposal proceeds and the carrying amount of the investments,
determined on cost adjusted for accretion of discount or amortisation of premium.
C TAXATION
Current tax expense is determined according to the Malaysian tax laws and includes all taxes
based upon the taxable profits earned during the financial year.
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
21
D FUNCTIONAL CURRENCY AND PRESENTATION
Items included in the financial statements of the Fund are measured using the currency of the
primary economic environment in which the Fund operates (the “functional currency”). The
financial statements are presented in Ringgit Malaysia ("RM"), which is the Fund’s functional
and presentation currency.
E FOREIGN CURRENCY TRANSLATION
Foreign currency transactions in the Fund are accounted for at exchange rates prevailing at the
transaction dates. Foreign currency monetary assets and liabilities are translated at exchange
rates prevailing as at the date of the statement of financial position. Exchange differences arising
from the settlement of foreign currency transactions and from the translation of foreign currency
monetary assets and liabilities are included in the statement of comprehensive income.
Translation differences on non-monetary financial assets such as foreign collective investment schemes classified as financial assets at fair value through profit and loss are included in the
statement of comprehensive income as part of the fair value gain or loss.
F FINANCIAL ASSETS AND FINANCIAL LIABILITIES
(i) Classification
The Fund designates its investment in unquoted fixed income securities as financial assets
at fair value through profit or loss at inception.
Financial assets are designated at fair value through profit or loss when they are managed
and their performance evaluated on a fair value basis.
Loans and receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market and have been included in current
assets. The Fund’s loans and receivables comprise cash and cash equivalents.
Financial liabilities are classified according to the substance of the contractual
arrangements entered into and the definitions of a financial liability.
The Fund’s financial liabilities which include accrued management fee and other payables
and accruals.
(ii) Recognition and measurement
Regular purchases and sales of financial assets are recognised on the trade date which is
the date on which the Fund commits to purchase or sell the asset. Investments are initially
recognised at fair value. Transaction costs are expensed in the statement of comprehensive
income.
Financial assets are derecognised when the rights to receive cash flows from the
investments have expired or have been transferred and the Fund has transferred
substantially all risks and rewards of ownership.
Financial liabilities, within the scope of MFRS 139, are recognised in the statement of
financial position when, and only when, the Fund becomes a party to the contractual
provisions of the financial instrument.
Financial liability is derecognised when the obligation under the liability is extinguished.
Gain and losses are recognised in the statement of comprehensive income when the
liabilities are derecognised, and through the amortisation process.
Derivative investment consists currency forward contract. Foreign exchange gains and
losses on the derivative financial instrument are recognised in statement of comprehensive
income when settled or at date of the statement of financial position at which time they are
included in the measurement of the derivative financial instrument.
Gains or losses arising from changes in the fair value of the ‘financial assets at fair value
through profit of loss’ including the effects of foreign transactions are presented in the
statement of comprehensive income within ‘net gain/(loss) on financial assets at fair value
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
22
through profit and loss’ in the financial year in which they arise. Any unrealised gains
however are not distributable.
Collective investment scheme is valued based on the most recent published NAV per unit or
share of such collective investment scheme or, if unavailable, the last published price of
such unit or share (excluding any sales charge included in such selling price).
Dividend income from financial assets at fair value through profit or loss is recognised in
the statement of comprehensive income as part of gross dividend income when the Fund’s
right to receive payments is established.
Unquoted fixed income securities are revalued on a daily basis based on fair value prices
quoted by a bond pricing agency (“BPA”) registered with the Securities Commission as per
the Securities Commission Guidelines on Unlisted Capital Market Products Under the Lodge
and Launch Framework. Refer to Note L for further explanation.
Deposits with licensed financial institutions are stated at cost plus accrued interest
calculated on the effective interest method over the period from the date of placement to
the date of maturity of the respective deposits.
Loan and receivables and other financial liabilities are subsequently carried at amortised
cost using the effective interest method.
(iii) Impairment for assets carried at amortised cost
For assets carried at amortised cost, the Fund assesses at the end of the reporting period
whether there is objective evidence that a financial asset or group of financial assets is
impaired. A financial asset or a group of financial assets is impaired and impairment losses
are incurred only if there is objective evidence of impairment as a result of one or more
events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss
event (or events) has an impact on the estimated future cash flows of the financial asset or
group of financial assets that can be reliably estimated.
The amount of the loss is measured as the difference between the asset’s carrying amount
and the present value of estimated future cash flows (excluding future credit losses that
have not been incurred) discounted at the financial asset’s original effective interest rate.
The asset’s carrying amount is reduced and the amount of the loss is recognised in
statement of comprehensive income. If ‘loan and receivables’ or a ‘held-to-maturity
investment’ has a variable interest rate, the discount rate for measuring any impairment
loss is the current effective interest rate determined under the contract.
As a practical expedient, the Fund may measure impairment on the basis of an
instrument’s fair value using an observable market price.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease
can be related objectively to an event occurring after the impairment was recognised (such
as an improvement in the debtor’s credit rating), the reversal of the previously recognised
impairment loss is recognised in statement of comprehensive income.
When an asset is uncollectible, it is written off against the related allowance account. Such
assets are written off after all the necessary procedures have been completed and the
amount of the loss has been determined.
G CASH AND CASH EQUIVALENTS
For the purpose of statement of cash flows, cash and cash equivalents comprise cash and bank
balances and deposits held in highly liquid investments that are readily convertible to known
amounts of cash and which are subject to an insignificant risk of changes in value.
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
23
H UNITHOLDERS' CAPITAL
The unitholders’ contributions to the Fund meet the criteria to be classified as equity
instruments under MFRS 132 “Financial Instruments: Presentation”. Those criteria include:
• the units entitle the holder to a proportionate share of the Fund’s net asset value (“NAV”);
• the units are the most subordinated class and class features are identical;
• there is no contractual obligations to deliver cash or another financial asset other than the
obligation on the Fund to repurchase; and • the total expected cash flows from the units over its life are based substantially on the profit
or loss of the Fund.
The outstanding units are carried at the redemption amount that is payable at each financial
year if the unitholder exercises the right to put the unit back to the Fund.
Units are created and cancelled at prices based on the Fund’s NAV per unit at the time of
creation or cancellation. The Fund’s NAV per unit is calculated by dividing the net assets
attributable to unitholders with the total number of outstanding units.
I DISTRIBUTION
A distribution to the Fund’s unitholders is accounted for as a deduction from realised reserves.
A proposed distribution is recognised as a liability in the period in which it is approved by the
Trustee of the Fund.
J SEGMENTAL REPORTING
Operating segments are reported in a manner consistent with the internal reporting used by
chief operating decision-maker. The chief operating decision-maker, who is responsible for
allocating resources and assessing performance of the operating segments, has been identified
as the Investment Committee of the Fund’s Manager that undertakes strategic decisions for the
Fund.
K FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments comprise financial assets and financial liabilities. Fair value is the amount
at which a financial asset could be exchanged or a financial liability settled, between
knowledgeable and willing parties in an arm’s length transaction. The information presented
herein represents the estimates of fair values as at the statement of financial position date.
L CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES
The Fund makes estimates and assumptions concerning the future. The resulting accounting
estimates will, by definition, rarely equal the related actual results. To enhance the information
content of the estimates, certain key variables that are anticipated to have material impact to
the Funds’ results and financial position are tested for sensitivity to changes in the underlying
parameters.
Estimates and judgments are continually evaluated by the Manager and are based on historical
experience and other factors, including expectations of future events that are believed to be
reasonable under the circumstances.
Estimate of fair value of unquoted fixed income securities
In undertaking any of the Fund’s unquoted fixed income security, the Manager will ensure that
all assets of the Fund under management will be valued appropriately, that is at fair value and in
compliance with the Securities Commission valuation guidelines.
Unquoted fixed income security is valued using fair value prices quoted by the bond pricing
agency (“BPA”). Where the Manager is of the view that the price quoted by BPA for a specific
unquoted fixed income security differs from the market price by more than 20 basis points, the
Manager may use the market price, provided that the Manager records its basis for using a non-
BPA price, obtains necessary internal approvals to use the non-BPA price, and keeps an audit
trail of all decisions and basis for adopting the use of non-BPA price.
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
24
NOTES TO THE FINANCIAL STATEMENTS – 30 JUNE 2017
1 THE FUND, THE MANAGER AND THEIR PRINCIPAL ACTIVITIES
Areca Flexi FixedINCOME Fund (“the Fund”) is a wholesale fund that was formed under a trust
structure on 3 January 2012 pursuant to a Trust Deed dated 28 April 2011, as modified by
the First Supplemental Deed dated 15 August 2013 (“the Deed”) between Areca Capital Sdn
Bhd as the Manager, RHB Trustees Berhad as the Trustee and all the registered unitholders of
the Fund.
The principal activity of the Fund is to invest in investments as defined under Schedule 7 of
the Deed, which include money market instruments, fixed income securities and deposits with
financial institutions. The Fund commenced operations on 3 January 2012 and will continue its
operations until terminated by the Trustee in accordance with Part 11 of the Deed.
The objective of the Fund is to provide qualified investors with relatively steady income and
moderate capital appreciation over a short to medium-term by investing in fixed income
investments.
The Manager of the Fund is Areca Capital Sdn Bhd, a company incorporated in Malaysia. Its
principal activities are managing private and unit trust funds.
2 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT OBJECTIVES AND POLICIES
Financial instruments of the Fund are as follows:
Note
Loan and
receivables
RM
Financial
assets at fair
value through
profit or loss
RM
Total
RM
30 June 2017
Collective investment scheme 8 - 5,098,363 5,098,363
Unquoted fixed income
securities 8 - 6,325,611 6,325,611
Cash & cash equivalents 9 1,620,149 - 1,620,149
1,620,149 11,423,974 13,044,123
30 June 2016
Collective investment scheme 8 - 4,351,949 4,351,949
Unquoted fixed income
securities 8 - 1,329,749 1,329,749
Cash & cash equivalents 9 2,124,484 - 2,124,484
2,124,484 5,681,698 7,806,182
All current liabilities are financial liabilities which are carried at amortised cost.
The Fund seeks to provide sophisticated investors with a stable stream of consistent income
while maintaining capital stability by investing in fixed income investments with medium to
long term investment horizon. In order to meet its stated investment objectives, the Fund
utilises risk management for both defensive and proactive purposes. Rigorous analysis of
sources of risk in the portfolio is carried out and the following policies are implemented to
provide effective ways to reduce future risk and enhance future returns within the Fund’s
mandate.
The Fund is exposed to a variety of risks which include market risk (including price risk and
interest rate risk), credit risk, liquidity risk and capital risk.
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
25
Financial risk management is carried out through internal control processes adopted by the
Manager and adherence to the investment restrictions as stipulated in the Deed and
Securities Commission Guidelines on Unlisted Capital Market Products Under the Lodge and
Launch Framework.
Market risk
(a) Price risk
Price risk arises mainly for uncertainty about future prices of investments. It represents
the potential loss the Fund might suffer through holding market positions in the face of
price movements. The Manager manages the risk of unfavourable changes in prices by
continuous monitoring of the performance and risk profile of the investment portfolio.
The Fund’s overall exposure to price risk was as follows:
30.6.2017
RM
30.6.2016
RM
Financial asset at fair value through profit or loss* 11,423,974 5,681,698
*Include interest receivable RM67,316 (2016: RM9,543)
The following table summarises the sensitivity of the Fund’s net asset value and profit
after tax to movements in prices of unquoted fixed income securities at the end of the
reporting year. The analysis is based on the assumptions that the market price of the
unquoted fixed income securities increased by 5% and decreased by 5% with all other
variables held constant. This represents management’s best estimate of a reasonable
possible shift in the unquoted fixed income securities, having regard to the historical
volatility of the prices.
% Change in price of
financial assets at fair
value through profit &
loss
30.6.2017
Market
Value
30.6.2016
RM RM
+5% 11,924,491 5,965,306
-5% 10,788,825 5,398,090
Impact on profit after taxation/
net asset value
30.6.2016 30.6.2015
RM RM
+5% 567,833 283,608
-5% (567,833) (283,608)
(b) Interest rate risk
Cash flow interest rate risk is the risk that the future cash flows of a financial instrument
will fluctuate because of changes in market interest rates.
Fair value interest rate risk is the risk that the value of a financial instrument will
fluctuate due to changes in market interest rates.
In general, when interest rates rise, unquoted fixed income securities prices will tend to
fall and vice versa. Therefore, the NAV of the Fund may also tend to fall when interest
rates rise or are expected to rise. However, investors should be aware that should the
Fund holds an unquoted fixed income securities till maturity, such price fluctuations
would dissipate as it approaches maturity, and thus the growth of the NAV shall not be
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
26
affected at maturity. In order to mitigate interest rates exposure of the Fund, the
Manager will manage the duration of the portfolio via shorter or longer tenured assets
depending on the view of the future interest rate trend of the Manager, which is based
on its continuous fundamental research and analysis.
This risk is crucial in a bond fund since fixed income securities portfolio management
depends on forecasting interest rate movements. Valuation for unquoted fixed income
securities move inversely to interest rate movements, therefore as interest rate rise, the demand for unquoted fixed income securities decrease and vice versa. Furthermore,
unquoted fixed income securities with longer maturity and lower coupon rates are more
susceptible to interest rate movements.
Investors should note that fixed income securities (such as the bonds held by the Fund) and money market instruments are subject to interest rate fluctuations. Such
investments may be subject to unanticipated rise in interest rates which may impair the
ability of the issuers to make payments of interest and principal, especially if the issuers
are highly leveraged. An increase in interest rates may therefore increase the potential
for default by an issuer.
The Fund’s investments in deposits with licensed financial institutions are short term in
nature. Therefore, exposure to interest rate fluctuations is minimal.
The table below summarises the sensitivity of the Fund’s net asset value to movements
in interest rate of unquoted fixed income securities held by the Fund at the end of each
reporting period as a result of movement in interest rate. The analysis is based on the
assumptions that the interest rate increased and decreased by 5% with all other
variables held constant. This represents management’s best estimate of a reasonable
possible shift in the interest rate, having regard to the historical volatility of the interest
rate.
% Change in interest rate of unquoted fixed income securities
Impact on profit after taxation/change in net asset value
30.6.2017 30.6.2016
RM RM
+5% (95,494) (15,612)
-5% 98,960 15,843
Credit risk
Credit risk refers to the ability of an issuer or counterparty to make timely payments of
interest, principals and proceeds from realisation of investment. The Manager manages the
credit risk by undertaking credit evaluation to minimise such risk.
Credit risk arising from placements on deposits in licensed financial institutions is managed by
ensuring that the Fund will only place deposits in reputable licensed financial institutions.
The settlement terms of the proceeds from the creation of units’ receivable from the Manager
and redemption of units payable to the Manager are governed by the Securities Commission
Guidelines on Unlisted Capital Market Products Under the Lodge and Launch Framework.
The Fund seeks to mitigate credit/default risk by investing in high quality fixed income
securities.
Credit risk is a concern for unquoted fixed income securities. The risk arises when an issuer is
unable to service any profit/contractual coupon or repay the principal amount upon
redemption. In such cases, investors may suffer significant losses with respect to their capital
invested and income foregone. Management of the credit risk is largely accounted for by the
Fund’s management of issue-specific risk. This refers to the emphasis on credit analysis
conducted to determine issuers’ or guarantors’ ability to service promised payments.
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
27
The maximum exposure to credit risk before any credit enhancements is the carrying amount
of the financial assets is set out below:
Financial assets
at fair value
through profit or
loss
RM
Cash and
cash
equivalents
RM
Total
RM
As at 30 June 2017
Finance
AAA - 339 339
AA- - 1,619,810 1,619,810
Collective investment scheme Not rated 5,098,363 - 5,098,363
Unquoted fixed income securities
AAA 1,009,069 - 1,009,069
AA1 1,010,555 - 1,010,555
AA- 1,070,381 - 1,070,381
Not rated 3,235,606 - 3,235,606
11,423,974 1,620,149 13,044,123
As at 30 June 2016
Finance
AAA - 8,418 8,418
AA- - 2,116,066 2,116,066
Collective investment scheme
Not rated 4,351,949 - 4,351,949
Unquoted fixed income securities
Not rated 1,329,749 - 1,329,749
5,681,698 2,124,484 7,806,182
The Manager considers the risk of material loss in the event of non-performance by the
counterparties of the Fund to be unlikely. All financial assets of the Fund as at 30 June 2017
are neither past due nor impaired.
Liquidity risk
Liquidity risk is the risk that investments cannot be readily sold at or near its actual value
without taking a significant discount. This will result in lower NAV of the Fund. The Manager
manages this risk by maintaining sufficient level of liquid assets to meet anticipated payment
and cancellations of unit by unit holders. Liquid assets comprise bank balance, deposit with a
licensed financial institution and other instruments, which are capable of being converted into
cash within 7 days.
The table below analyses the Fund's financial liabilities into relevant maturity groupings based
on the remaining period at the statement of financial position date to the contractual maturity
date. The amounts in the table below are the contractual undiscounted cash flows.
Less than
one
month
Between
one
month to
one year Total
RM RM RM
As at 30 June 2017
Accrued management fee 7,264 - 7,264
Other payables and accruals 436 12,502 12,938
Contractual cash outflows 7,700 12,502 20,202
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
28
Less than
one
month
Between
one
month to
one year Total
RM RM RM
As at 30 June 2016
Accrued management fee 3,523 - 3,523
Other payables and accruals 211 10,441 10,652
Contractual cash outflows 3,734 10,441 14,175
Capital risk
The capital of the Fund is represented by equity consisting of unit holders’ capital and
retained earnings. The amount of equity can change significantly on a daily basis as the Fund
is subject to daily subscriptions and redemptions at the discretion of unit holders. The Fund’s
objective when managing capital is to safeguard the Fund’s ability to continue as a going
concern in order to provide returns for unit holders and benefits for other stakeholders and to
maintain a strong capital base to support the development of the investment activities of the
Fund.
Fair value estimation
Fair value is defined as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date (i.e.
an exit price).
The fair value of financial assets traded in active market (such as publicly traded derivatives
and trading securities) are based on quoted market prices at the close of trading on the year
end date. The Fund utilises the last traded market price for financial assets where the last
traded price falls within the bid-ask spread. In circumstances where the last traded price is
not within the bid-ask spread, the Fund Manager will determine the point within the bid-ask
spread that is representative of the fair value.
An active market is a market in which transactions for the asset take place with sufficient
frequency and volume to provide pricing information on an ongoing basis.
The fair value of financial assets that are not traded in an active market is determined by
using valuation techniques
Fair value hierarchy
(i) The table below analyses financial instruments carried at fair value by valuation method.
The different levels have been defined as follows:
• Level 1: Quoted prices (unadjusted) in active market for identical assets or
liabilities.
• Level 2: Inputs other than quoted prices included within level 1 that are
observable for the asset or liability, either directly (that is, as prices) or
indirectly (that is, derived from prices).
• Level 3: Inputs for the asset and liability that are not based on observable market
data (that is, unobservable inputs).
The level in the fair value hierarchy within which the fair value measurement is
categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the
significance of an input is assessed against the fair value measurement in its entirety. If
a fair value measurement uses observable inputs that require significant adjustment
based on unobservable inputs, that measurement is a Level 3 measurement.
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
29
Assessing the significance of a particular input to the fair value measurement in its
entirety requires judgment, considering factors specific to the asset or liability.
The determination of what constitutes ‘observable’ requires significant judgment by the
Fund. The Fund considers observable data to be that market data that is readily available,
regularly distributed or updated, reliable and verifiable, not proprietary, and provided by
independent sources that are actively involved in the relevant market.
The following table analyses within the fair value hierarchy the Fund’s financial assets
(by class) measured at fair value:
30 June 2017 Level 1
RM
Level 2
RM
Level 3
RM
Total
RM
Financial assets at fair value
through profit or loss at
inception:
- collective investment
scheme 5,098,363 - - 5,098,363 -unquoted fixed income
securities - 6,325,611 - 6,325,611
5,098,363 6,325,611 - 11,423,974
30 June 2016
Financial assets at fair value
through profit or loss at
inception:
- collective investment
scheme 4,351,949 - - 4,351,949
-unquoted fixed income
securities - 1,329,749 - 1,329,749
4,351,949 1,329,749 - 5,681,698
Investments whose values are based on quoted market prices in active markets, and are
therefore classified within Level 1, include active quoted securities. The Fund does not
adjust the quoted prices for these instruments. The Fund’s policies on valuation of these
financial assets are stated in Note F.
Financial instruments that trade in markets that are considered to be active but are
valued based on quoted market prices, dealer quotations or alternative pricing sources
supported by observable inputs are classified within Level 2 these include unquoted fixed
income securities. As Level 2 instruments include positions that are not traded in active
markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect
illiquidity and/or non-transferability, which are generally based on available market
information. The Fund’s policies on valuation of these financial assets are stated in Note
L.
(ii) The carrying value of cash and cash equivalents and all current liabilities are a
reasonable approximation of their fair values due to their short term nature
3 INTEREST INCOME
30.6.2017 30.6.2016
RM RM
Interest income from:
- deposits with licensed financial institutions 22,774 104,770
- unquoted fixed income securities 148,621 152,799
171,395 257,569
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
30
4 MANAGEMENT FEE AND MANAGEMENT FEE REBATE
The 8th Schedule of the Deed provides that the Manager is entitled to an annual management
fee at a rate not exceeding 2.50% per annum computed daily on the net asset value of the
Fund before the deduction of the management fee and Trustee’s fee for the relevant day.
The management fee provided for in the financial statements amounted to 1.25% (2016:
1.25%) per annum for the year.
Management fee rebate represents the Fund’s entitlement to management fee rebate from the
Manager and Manager of collective investment schemes the Fund invests in.
For the financial year ended 30 June 2017, the management fee rebate is recognized at a rate
of 1.25% per annum (2016: 1.25%) and calculated and accrued daily based on the NAV of the
collective investment schemes.
There will be no further liability to the Manager in respect of the management fee other than
the amounts recognised above.
5 TRUSTEE’S FEE
The 9th Schedule of the Deed provides that the Trustee is entitled to an annual Trustee’s fee at
a rate not exceeding 0.25% per annum computed daily on the net asset value of the Fund
before the deduction of the management fee and Trustee’s fee for the relevant day.
There is no Trustee’s fee provided for in the financial statements for the financial year as the
fee was borne by the Manager (2016: Nil).
There will be no further liability to the Trustee in respect of the trustee fee other than the
amounts recognised above.
6 TAXATION
(a) Tax charge for the financial year
2017 2016
RM RM
Tax charged for the financial year:
-Current taxation 4,843 4,957
- Prior year under provision taxation 128 -
4,971 4,957
(b) Numerical reconciliation of income tax expense
The numerical reconciliation between the net income before finance cost and taxation
multiplied by the Malaysian statutory income tax rate and the tax expense of the Fund is
as follows:
2017
RM
2016
RM
Profit before taxation 541,165 698,707
Tax calculated at a tax rate of 24% (2016: 24%) 129,880 167,690
Tax effects of:
- Income not subjected to tax (142,987) (184,526)
- Expenses not deductible for tax expenses 1,610 2,706
- Restriction on tax deductible expenses 16,340 19,087
- Prior year under provision of taxation 128 -
Tax expense 4,971 4,957
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
31
7 DISTRIBUTION
Distribution to unitholders is from the following sources:
30.6.2017
RM
30.6.2016
RM
Interest income from deposits with licensed financial
institutions
22,774
104,187 Interest income from unquoted fixed income securities 148,621 143,265
Net realised gains on sale of investments 30,244 962,117
Previous year’s realised gains 245,593 111,698
447,232 1,321,267
Less: Expenses (74,798) (99,641)
Taxation (4,971) (4,957)
Net distribution amount 367,463 1,216,669
Distribution on 30 June 2017
Gross distribution per unit (cents) 3.00 -
Net distribution per unit (cents) 3.00 -
Distribution on 29 June 2016 Gross distribution per unit (cents) - 3.00
Net distribution per unit (cents) - 3.00
Distribution on 31 December 2015
Gross distribution per unit (cents) - 15.00
Net distribution per unit (cents) - 15.00
Gross distribution is derived using total income less total expenses.
Gross distribution per unit is derived from gross realised income less expenses divided by the
number of units in circulation, while net distribution per unit is derived from gross realised
income less expenses and taxation divided by the number of units in circulation.
8 FINANCIAL ASSET AT FAIR VALUE THROUGH PROFIT OR LOSS
30.6.2017 30.6.2016
RM RM
Designated at fair value through profit or loss at
inception:
- Unquoted fixed income securities 6,325,611 1,329,749
- Collective investment scheme 5,098,363 4,351,949
11,423,974 5,681,698
Net gain on assets at fair value
through profit or loss:
-realised gain on disposal 30,244 962,117
-unrealised fair for value gain/(loss) 35,045 (421,338)
65,289 540,779
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
32
Financial assets at fair value through profit or loss as at 30 June 2017 are as follows:
Name of Issuer Nominal
value
Carrying
value
Fair value as at
30.6.2017
Fair value as at 30.6.2017
expressed as
a % of value
of the Fund
RM RM RM %
Bond in Malaysia
2.00% Eastern & Oriental
Berhad 06/03/2020 (Not
Rated) 2,500,000 2,159,927 2,272,703 17.45
5.30% Sabah Dvelopment Bank
Berhad 11/05/2022 (AA1) 1,000,000 1,008,305 1,010,555 7.76
4.34% Sarawak Hidro Sdn Bhd
09/08/2022 (AAA) 1,000,000 1,022,409 1,009,069 7.75
4.90% Lembaga Pembiayaan
Perumahan Sektor Awam 21/09/2046 (Not Rated) 1,000,000 1,013,693 962,903 7.39
6.23% Lebuhraya DUKE Fasa 3
Sdn Bhd 21/08/2037 (AA-) 500,000 522,724 566,699 4.35
4.85% Alpha Circle Sdn Bhd
17/11/2017 (AA-) 500,000 503,807 503,682 3.87
Total unquoted fixed income
securities in Malaysia 6,500,000 6,230,865 6,325,611 48.57
Accumulated unrealised gain on
financial assets at fair value
through profit or loss
94,746
Total unquoted fixed income
securities at fair value through
profit or loss
6,325,611
Name of Issuer Quantity
Aggregate
cost
Fair value
as at
30.6.2017
Fair value
as at 30.6.2017
expressed as
a % of value
of the Fund
Units RM RM %
Collective investment scheme
Areca Situational Income Fund 4,987,637 5,000,000 5,098,363 39.15
Total collective investment
scheme in Malaysia 4,987,637 5,000,000 5,098,363 39.15
Accumulated unrealised gain on
collective investment scheme
at fair value through profit or
loss
98,363
Total collective investment
scheme at fair value through
profit or loss
5,098,363
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
33
Financial assets at fair value through profit or loss as at 30 June 2016 are as follows:
Name of Issuer Nominal
value
Carrying
value
Fair value as at
30.6.2016
Fair value as at 30.6.2016
expressed as
a % of value
of the Fund
RM RM RM %
2.00% Eastern & Oriental
Berhad 06/03/2020 (Not Rated) 1,500,000 1,253,634 1,329,749 17.07
Total unquoted fixed income securities in Malaysia 1,500,000 1,253,634 1,329,749 17.07
Accumulated unrealised gain on
financial assets at fair value
through profit or loss
76,115
Total unquoted fixed income
securities at fair value through
profit or loss
1,329,749
Name of Issuer Quantity
Aggregate
cost
Fair value
as at
30.6.2016
Fair value
as at 30.6.2016
expressed as
a % of value
of the Fund Units RM RM %
Collective investment scheme
Areca Situational Income Fund 3,992,414 4,000,000 4,073,860 52.28
Areca Islamic Cash Fund 269,949 270,000 278,089 3.75
Total collective investment
scheme in Malaysia 4,262,063 4,270,000 4,351,949 55.85
Accumulated unrealised gain on
collective investment scheme
at fair value through profit or
loss 81,949
Total collective investment
scheme at fair value through
profit or loss 4,351,949
9 CASH AND CASH EQUIVALENTS
2017 2016
RM RM
Bank balance with a licensed bank 339 8,418
Deposit with licensed financial institutions 1,619,810 2,116,066
1,620,149 2,124,484
The effective weighted average interest rate of short-term deposit with a licensed financial
institution per annum as at the date of statement of financial position are as follows:
30.6.2017 30.6.2016
% %
Deposit with licensed financial institutions 3.20 3.35
The deposit have an average maturity of less than 5 days (30.6.2016: 4 days).
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
34
10 OTHER PAYABLES AND ACCRUALS
30.6.2017 30.6.2016 RM RM
Audit fee payable 6,600 6,050 Tax agent’s fee payable 3,800 3,800
Others 2,538 802
12,938 10,652
11 UNITS IN CIRCULATION
2017
Units
2016
Units
At beginning of the financial year 7,777,154 6,643,069
Creation arising from applications 4,873,310 385,090
Creation arising from distributions 355,620 1,203,074
Cancellation units (401,711) (454,079)
At end of the financial year 12,604,373 7,777,154
12 TRANSACTIONS BY THE FUND
Details of transactions with brokers and financial institutions by the Fund for the financial
period ended 30 June 2017 are as follows:
Broker/Dealers Value of
trades
RM
Percentage
of total
trades
%
KAF Investment Bank Berhad 7,495,000 34.47
CIMB Bank Bhd 6,138,700 28.23
Hong Leong Bank Bhd 3,050,550 14.03
Malayan Banking Berhad 2,009,800 9.24
Areca Capital Sdn Bhd# 1,649,279 7.58
Hong Leong Investment Bank Bhd 1,400,750 6.45
21,744,079 100.00
There is no brokerage fee charged by brokers/dealers.
Details of transactions with brokers and financial institutions by the Fund for the financial
period ended 30 June 2016 are as follows:
Broker/Dealers Value of
trades
RM
Percentage
of total
trades
%
KAF Investment Bank Berhad 22,633,000 39.35
Hong Leong Investment Bank Bhd 14,285,544 24.83
RHB Investment Bank Berhad 10,112,966 17.58
CIMB Bank Bhd 6,519,800 11.33
KAF Investment Bank Berhad 3,972,000 6.91
57,523,310 100.00
There is no brokerage fee charged by brokers/dealers.
# Included in the transactions are trades conducted with Areca Capital Sdn Bhd, the
Manager of the Fund amounting to RM1,649,279 (2016: Nil). The Manager is of the opinion
that all transactions with the related companies have been entered into in the normal
course of business at agreed terms between the related parties.
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
35
13 UNITS HELD BY THE MANAGER AND PARTIES RELATED TO THE MANAGER
The related parties and its relationship with the Fund is as follows:
Related party Relationship
Areca Capital Sdn Bhd The Manager
The number of units held by the Manager is as follows:
The units are held beneficially by the Manager for booking purposes. Other than the above,
there were no units held by other Directors or parties related to the Manager.
14 MANAGEMENT EXPENSE RATIO (“MER”)
2017 2016
% %
MER 0.82 1.36
Management expense ratio includes management fee, audit fee, tax agent's fee and other
administrative expenses which is calculated as follows:
MER = (A + B + C + D) x 100
E
A = Management fee
B = Audit fee
C = Tax agent's fee
D = Other expenses E = Average net asset value of the Fund, calculated on a daily basis
The average net asset value of the Fund for the financial year is RM9,091,624 (2016:
RM7,680,879).
15 PORTFOLIO TURNOVER
2017 2016
The portfolio turnover for the financial year (times) 0.64 2.50
The portfolio turnover is derived from the following calculation:
(Total acquisition for the financial year+ total disposal for the financial year 2
Average net asset value of the Fund for the financial year calculated on a daily basis
where:
total acquisition for the financial year= RM8,466,986 (2016: RM18,338,600)
total disposal for the financial year= RM3,197,073 (2016: RM20,034,800)
<------------ 2017 ---------- <----------- 2016 ----------
No. of units RM No. of units RM
Areca Capital Sdn Bhd 0.27 0.28 - -
ANNUAL REPORT JUNE 2017
ARECA Flexi fixedINCOME FUND
36
16 SEGMENT INFORMATION
The internal reporting provided to the CEO for the Fund’s assets, liabilities and performance is
prepared on a consistent basis with the measurement and recognition principles of MFRS and
IFRS. The CEO is responsible for the performance of the Fund and considers the business to
have a single operating segment.
The reportable operating segments derive their income by seeking investments to achieve
targeted returns consummate with an acceptable level of risk with each portfolio. These
returns consist of interest and gains on the appreciation in the value of investments.
There were no changes in the reportable operating segment during the financial year.
17 AUTHORISATION FOR ISSUE OF FINANCIAL STATEMENTS
The Financial Statements have been authorised for issue by the Manager on 21 August 2017.