Annual Report September 2017

Transcription

1 Annual Report September 2017 For the Period Ended 30 September 2017

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3 A N N U A L R E P O R T S E P T E M B E R 2017 Contents CORPORATE DIRECTORY 2 MANAGER S REPORT Fund Information, Performance & Review 3 Market Review & Outlook 7 TRUSTEE S REPORT 9 STATEMENT BY THE MANAGER 9 SHARIAH ADVISER'S REPORT 10 AUDITORS' REPORT 11 AUDITED FINANCIAL STATEMENTS FOR 14

4 C O R P O R A T E D I R E C T O R Y MANAGER Areca Capital Sdn Bhd ( D) 107, Blok B, Pusat Dagangan Phileo Damansara 1 No. 9, Jalan 16/11, Off Jalan Damansara Petaling Jaya, Selangor Tel: , Fax: website: invest@arecacapital.com BOARD OF DIRECTORS Dato Wee Hoe 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 Gooi Hoe Soon (Independent, Chairman) Raja Datuk Zaharaton Bt Raja Dato Zainal Abidin (Non-Independent) Dr. Junid Saham (Independent) AUDITOR PricewaterhouseCoopers (AF1146) Level 10, 1 Sentral, Jalan Travers Kuala Lumpur Sentral, P O Box Kuala Lumpur Tel: Fax: TAX ADVISER PricewaterhouseCoopers Taxation Services Sdn Bhd ( M) Level 10, 1 Sentral, Jalan Rakyat Kuala Lumpur Sentral, P O Box Kuala Lumpur Tel: , Fax: SHARIAH ADVISER ZICO Shariah Advisory Services Sdn Bhd ( D) Level 7-6 Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara Kuala Lumpur Tel: Fax: TRUSTEE RHB Trustees Berhad ( U) Level 1, Tower One, RHB Centre Jalan Tun Razak Kuala Lumpur Tel: Fax: 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, Petaling Jaya, Selangor Tel: , Fax: website: invest@arecacapital.com PENANG PULAU TIKUS Belissa Row Jalan Burma, Georgetown Pulau Pinang Tel : Fax: PERAK IPOH 11A, (First Floor) Persiaran Greentown 5 Greentown Business Centre Ipoh, Perak Tel : Fax: MALACCA 95A, Jalan Melaka Raya 24 Taman Melaka Raya Melaka Tel : Fax:

5 F U N D I N F O R M A T I O N Name of the Fund Fund Category/ Type Investment Objective Performance Benchmark Distribution Policy of the Fund Profile of unitholdings * excluding units held by the Manager Rebates & Soft Commissions Islamic Fixed Income (Wholesale)/Income Seek to offer investors regular income Maybank Islamic 1-month REPO rate At least twice a year, subject to the availability of distributable income. In the absence of instructions to the contrary from 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 (at exdistribution price) with no entry fee. As at 30 September 2017 No. of Size of Holding No. of % units held % (Units) accounts million Up to 5, ,001 to 10, ,001 to 50, ,001 to 500, ,001 and above Total* 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 18 June 2015 Initial Offer Price RM per unit during the initial offer period of 1 day Pricing Policy Single Pricing Selling and repurchase of units by Manager are at Net Asset Value per unit Financial year end 30 September 3

6 F U N D P E R F O M A N C E (date of launch) to Net Asset Value ( NAV ) Total Net Asset Value (RM million) 43.34* Units in circulation (million units) 42.92* NAV per unit (RM) * *Ex-Distribution HIGHEST & LOWEST NAV Please refer to Note 1 for further information on NAV and pricing policy Highest NAV per unit (RM) * Lowest NAV per unit (RM) * *Ex-Distribution ASSET ALLOCATION % of NAV Short-term Shariah-based deposits Cash & cash equivalents (0.08) 5.62 DISTRIBUTION Please refer to Note 2 for further information Distribution date Gross distribution (sen per unit) Net distribution (sen per unit) NAV before distribution (RM per unit) NAV after distribution (RM per unit) 31 Oct Sep (31 Oct) 3.00 (29 Sep) 3.00 (31 Oct) 3.00 (29 Sep) (28 Oct) (28 Sep) (31 Oct) (29 Sep) UNIT SPLITS There was no unit split exercise for the financial year under review. EXPENSE/ TURNOVER for the period ended Management expense ratio (MER) (%) Please refer to Note 3 for further information Portfolio turnover ratio (PTR) (times) Please refer to Note 4 for further information

7 TOTAL RETURN Please refer to Note 5 for further information (date of launch) to Total Return (%) Capital Return (%) (2.99) Income Return (%) Annual Total Return (%) 2.85* 3.17* Performance Benchmark: Average Maybank s 1-month REPO rate (%) * Annualised for comparison purpose only 2.38* 2.69* 1-yr 3-yrs 5-yrs Average Total Return per annum (%) 2.89 N/A 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: Net distribution of 3.00 sen per unit each were declared on 31 October 2016 and 29 September 2017 respectively 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. 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. Note 5: Fund performance figures are calculated based on NAV to NAV and assume reinvestment of distributions (if any) at NAV. The total return data 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. 5

8 Percentage Growth ANNUAL REPORT SEPTEMBER 2017 F U N D R E V I E W The NAV per unit of the Fund decreased from RM as at 30 September 2016 to RM as at 30 September 2017, after a total net distribution of 6.00 sen per unit during the year. For the year ended 30 September 2017, the Fund posted an annualized return of 2.85% against the benchmark, Maybank Islamic 1-month REPO rate of 2.38%. The portfolio remains highly liquid and is currently invested in Islamic GIA accounts and repos only. The Fund achieved its objective to offer investors regular income. Investment Policy and Strategy The Fund may invest up to 30% of its NAV in Islamic fixed income securities including Ringgit denominated Sukuk and invest the remaining NAV in short-term Islamic money market instruments, Islamic deposits and placement with Islamic investment account with different maturity periods. NAV per unit as at 30 September 2017 RM Asset Allocation/Portfolio Composition as at Cash & cash equivalents (0.08) 5.62% Short-term Shariah-based deposits % 94.38% Performance of for the financial period since commencement to 30 September % Total Return of vs Benchmark 7.00% 6.00% Areca Islamic Cash 5.00% 4.00% 3.00% Maybank Islamic 1-Month REPO Rate 2.00% 1.00% 0.00% Maybank Islamic 1 month REPO Rate 6

9 MARKET REVIEW & OUTLOOK E C O N O M I C R E V I E W & O U T L O O K The effect of UK s rating downgrade last year was most evident in the plunge of the GB against USD from 1.49 just before Brexit to a level last seen in the mid 80 s at 1.21 in October. It has since recovered to 1.34 on higher inflation (5-year high of 3% in September 17), low unemployment rate (42-year low of 4.3% in August) and anticipated higher interest rates ahead. Against the MYR, it fell to a low of 5.06 in October 16 before retracing back to 5.70 at end September 17. The Bank of England (BOE) hints of scaling back Quantitative Easing program quite like the European Central Bank (ECB). Economically, the US has continued to show signs of recovery. Unemployment rate dropped to a 16-year low of 4.2% in September this year while housing and consumption data have been encouraging. The Dow Jones surged past at the end of January and has frequently set new all-time highs. It reached yet another high at end of Q32017 at It continues to ride on the prospects of a Trump inspired expansionary fiscal plan and anticipated tax reforms. Inflation recorded a five year high of 2.7% in February but have since hit a soft patch. Inevitably, the hawks came out and the Federal Fund Rate was raised in March and June by a ¼% each to 1.25% following December s expected ¼% hike. The market remains expectant of one more hike by the end of The Federal Reserve has also 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 however ratcheted up several notches. The retaliatory bombing of Syria for alleged usage of chemical weapons, dropping the mother of all bombs in Afghanistan and sabrerattling with North Korea are a few nervous moments. 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 and possibly relinquishing world leader status. China s last 4 quarters Gross Domestic Product (GDP) grew 6.8% (4Q2016), 6.9%, 6.9% and 6.8% respectively. Significantly, they will hold their 19 th National People s Congress in October where President Xi Jin Ping is said to consolidate power. In January, China s reserves momentarily fell below US$3 trillion mark (lowest since 2011); a result of its strategy of defending the Yuan. It has since reclaimed the world s top spot as of June 2017, following imposition of capital controls on outflows and a series of US Treasuries buying sprees. At end of September their Reserves stands at USD3.1 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 2016, the Malaysian Ringgit suffered from the anticipated declining interest rates differential 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 this year with 5.6% and 5.8% growth for Q1 and Q2. Meantime, inflation surged to 5.1% in March, highest since November 2008 mainly due to higher fuel and transport cost. It has since eased to 4.3% at the end of Q3. Foreign Reserves has steadily increased to USD101.2 billion (or RM427.7 bil from RM404.9 bil a year ago). The upcoming General Elections will likely influence policies as a vibrant upbeat economy is essential to maintain the status quo. 7

10 FIXED INCOME REVIEW AND OUTLOOK The period under review (Oct 16 to Sep 17) saw the issuance of RM88.0 bil Malaysian Government Securities/Government Investment Issue (MGS/GII) through 30 tender offerings vs RM93.0 bil in the previous period (Oct 15 Sep 16). In addition, there were also 13 issues privately placed raising another RM11.5 bil. Due to negative vibes spilling over from 3Q 2016, foreign funds left our system. 4Q 2016 saw an outflow of RM21.3 bil. Another RM37.6 bil followed suit in Q The trend finally reversed recording a net outflow of RM37.6 bil for this period explaining in part the decline in MYR. Our sovereign debt held by offshore investors stands at RM183.2 billion (27.3% of total issued) at the end of September 2017 compared to RM221.1 billion (35.0%) last September. During this period, there were 6 Overnight Policy Rate (OPR) meetings where the benchmark rate was left unchanged at 3.00% throughout. Malaysian sovereign yield curve shifted up between 37 and 51 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. Fixed income markets are expected to remain buoyant and liquid for now. Constant Maturity Conventional Yield-To-Maturity: September 2017 vs September 2016 Tenure 1Y 3Y 5Y 7Y 10Y Sep 16 Sep 17 Sep 16 Sep 17 Sep 16 Sep 17 Sep 16 Sep 17 Sep 16 Sep 17 MGS AAA AA A Source: Bond Pricing Agency Sdn Bhd (BPA) 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 European Union (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. 8

11 T R U S T E E S R E P O R T For The Financial Year Ended 30 September 2017 To the Unit holders of We have acted as Trustee of (the Fund ) for the financial year ended 30 September 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) (b) (c) (d) 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; valuation or pricing is carried out in accordance with the Deed and any regulatory requirements; creation and cancellation of units are carried out in accordance with the Deed and other regulatory requirements; and the distributions of 6.00 sen (gross) per unit to the unitholders during the financial year ended 30 September 2017 are consistent with the objectives of the Fund. For and on behalf of the Trustee RHB TRUSTEES BERHAD (Company No: U) TONY CHIENG SIONG UNG DIRECTOR LEE YIT CHENG HEAD, TRUSTEES OPERATIONS Kuala Lumpur 20 November 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 We, Wong Teck Meng and Dato Wee Hoe 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 14 to 30 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 September 2017 and of its results, changes in equity and cash flows of the Fund for the financial year ended 30 September 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 GOOI HOE SOON INDEPENDENT DIRECTOR Kuala Lumpur 20 November

12 S H A R I A H A D V I S E R ' S R E P O R T To the Unit holders of We have acted as the Shariah Adviser of. Our responsibility is to ensure that the procedures and processes employed by Areca Capital Sdn Bhd and that provisions Trust Deed dated 3 June 2015 is in accordance with Shariah principles. In our opinion, Areca Capital Sdn Bhd has managed and administered in accordance with Shariah principles and complied with applicable guidelines, rulings and decision issued by the Securities Commission Malaysia pertaining to Shariah matters for the financial year ended 30 September In addition, we also confirm that the investment portfolio of comprises instruments which have been classified as Shariah-compliant by the Shariah Advisory Council ( SAC ) of the Securities Commission Malaysia and the SAC of Bank Negara Malaysia. For and on behalf of the Shariah Adviser ZICO Shariah Advisory Services Sdn Bhd DR AIDA OTHMAN DIRECTOR Kuala Lumpur 20 November

13 INDEPENDENT AUDITORS REPORT ANNUAL REPORT SEPTEMBER 2017 TO THE UNITHOLDERS OF ARECA ISLAMIC CASH FUND REPORT ON THE FINANCIAL STATEMENTS Our Opinion In our opinion, the financial statements of ("the Fund") give a true and fair view of the financial position of the Fund as at 30 September 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 September 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 14 to 30. 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. 11

14 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. 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 judgement 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. 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 Fund 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. d. 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. 12

15 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. OTHER MATTERS This report is made solely to the unit holders 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 20 November

16 STATEMENT OF FINANCIAL POSITION As At 30 September 2017 ASSETS Financial assets at fair value through profit or loss ANNUAL REPORT SEPTEMBER Note RM RM 9 43,375,802 44,658,775 Cash and cash equivalents 7,247 1,358 Amount due from Manager - 2,700,000 Total Assets 43,383,049 47,360,133 LIABILITIES Accrued management fee 27,052 27,408 Accrued trustee's fee 1,803 1,844 Audit fee 6,600 6,000 Tax agent's fee 4,913 5,000 Other payables and accruals 2,771 2,414 Total Liabilities 43,139 42,666 Net Asset Value of the Fund 43,339,910 47,317,467 EQUITY Unit holders capital 43,041,274 45,703,080 Retained earnings 298,636 1,614,387 Net Assets Attributable to Unitholders 43,339,910 47,317,467 Number of Units in Circulation (Unit) 10 42,918,307 45,457,483 Net Asset Value Per Unit (RM) The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 14

17 STATEMENT OF COMPREHENSIVE INCOME ANNUAL REPORT SEPTEMBER 2017 For The Financial Year Ended 30 September 2017 Financial period from (date of launch to Note RM RM INVESTMENT INCOME Profit income 4 1,738,182 1,987,487 Net gain on financial assets at fair value through profit or loss 9 12,988-1,751,170 1,987,487 EXPENSES Management fee Trustee's fee , ,329 23,653 24,473 Audit fee 6,600 6,000 Tax agent's fee 3,800 6,860 Other expenses 24,663 21, , ,100 NET PROFIT BEFORE TAXATION 1,337,660 1,614,387 Taxation NET PROFIT AFTER TAXATION AND TOTAL COMPREHENSIVE INCOME FOR THE FINANCIAL PERIOD Net Profit After Taxation Is Made Up As Follows: ,337,660 1,614,387 Realised amount 1,337,660 1,614,387 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 15

18 STATEMENT OF CHANGES IN EQUITY ANNUAL REPORT SEPTEMBER 2017 For The Financial Year Ended 30 September 2017 Unit holders capital Retained earnings Total RM RM RM Balance as at 1 October ,703,080 1,614,387 47,317,467 Total comprehensive income for the financial period - 1,337,660 1,337,660 Movement in unit holder s capital: Creation of units arising from applications 44,545,000-44,545,000 Creation of units arising from distributions 2,653,411-2,653,411 Cancellation of units (49,860,217) - (49,860,217) Distributions (Note 8) (2,653,411) (2,653,411) Balance as at 30 September ,041, ,636 43,339,910 Balance as at 18 June 2015 (date of launch) Total comprehensive income for the financial period - 1,614,387 1,614,387 Movement in unit holder s capital: Creation of units arising from applications 76,110,856-76,110,856 Cancellation of units (30,407,776) - (30,407,776) Balance as at 30 September ,703,080 1,614,387 47,317,467 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 16

19 STATEMENT OF CASH FLOWS ANNUAL REPORT SEPTEMBER 2017 For The Financial Year Ended 30 September 2017 Financial period from (date of launch) to RM RM Cash Flows From Operating Activities Placement of short-term Shariah-based deposits with licensed financial institutions (292,869,565) (211,901,001) Proceed from disposal/maturity of short-term Shariah-based deposits with licensed financial institutions 294,155, ,296,822 Profit income 1,748,286 1,932,891 Management fee paid (355,150) (286,921) Trustee s fee paid (23,694) (22,629) Payment for other fees and expenses (34,194) (20,884) Net Cash Generated From/(Used in) Operating Activities 2,621,106 (43,001,722) Cash Flows From Financing Activities Proceeds from creation of units 49,898,411 73,410,856 Payment for cancellation of units (49,860,217) (30,407,776) Distributions paid (2,653,411) - Net Cash (Used In)/Generated From Financing Activities (2,615,217) 43,003,080 Net Increase In Cash And Cash Equivalents 5,889 1,358 Cash And Cash Equivalents At The Beginning of The Financial Year/Period Cash And Cash Equivalents At The End Of The Financial Year/Period 1,358-7,247 1,358 The accompanying summary of significant accounting policies and notes to the financial statements form an integral part of these financial statements. 17

20 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 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 FINANCIAL STATEMENTS The financial statements have been prepared under the historical cost convention in accordance with the provisions of the 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 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 period. 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 I. (a) The new standards and amendments to published 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 October 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. This Fund will apply this standard when effective. This standard is not expected to have a significant impact on the Fund s financial statements. (ii) Financial year beginning on/after 1 October 2018 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 18

21 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 C D E INCOME RECOGNITION Profits from short-term Shariah-based deposits with licensed financial institutions are recognised based on effective profit rate method on an accrual basis. TAXATION Current tax expense is determined according to the Malaysian tax laws at the current rate based upon the taxable profits earned during the financial period. FUNCTIONAL AND PRESENTATION CURRENCY 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, which is the Fund s functional and presentation currency. FINANCIAL ASSETS AND LIABILITIES (i) Classification The Fund designates its investment in Shariah-based deposits with licensed financial institutions 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. Financing 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 financing 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 classifies amount due to Manager, amount due to Trustee, auditors remuneration, tax agent s fee and other payables and accruals as other financial liabilities. (ii) Recognition and measurement Regular purchases and sales of financial assets are recognised on the trade-date, the date on which the Fund commits to purchase or sell the asset. Investments in Shariahbased deposits with licensed financial institutions are initially recognised at fair value. 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 assets are de-recognised 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 are de-recognised when it is extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or expired. 19

22 Shariah-based deposits with licensed financial institutions are stated at cost plus accrued profit calculated on the effective profit method over the year from the date of placement to the date of maturity of the Shariah-based deposits which is a reasonable estimate of fair value due to their short term nature. F G Financing and receivables and other liabilities are subsequently carried at amortised cost using the effective profit method. (iii) Impairment of assets carried at amortised costs For assets carried at amortised cost, the Fund assesses at the end of the reporting year 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 profit rate. The asset s carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. If financing and receivables or a held to maturity investment has a variable profit rate, the discount rate for measuring any impairment loss is the current effective profit 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 year, 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. CASH AND CASH EQUIVALENTS For the purpose of statement of cash flows, cash and cash equivalents comprise cash at bank which is subject to an insignificant risk of changes in value. UNITHOLDER S 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 assets value; 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 unitholder exercises the right to put the unit back to the Fund. Units are created and cancelled at prices based on the Fund s net asset value per unit at the time of creation or cancellation. The Fund s net asset value per unit is calculated by dividing the net assets attributable to unitholders with the total number of outstanding units. 20

23 H I SEGMENT REPORTING Operating segments are reported in a manner consistent with the internal reporting used by the 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 strategic asset allocation committee of the Manager that makes strategic decisions. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS IN APPLYING ACCOUNTING POLICIES The preparation of financial statements in conformity with the Malaysian Financial Reporting Standards requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities as at the date of the financial statements and the reported amounts of revenues and expenses during the financial period. Although these estimates are based on the Manager s best knowledge of current events and actions, actual results could differ from those estimates. 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 contents on the estimates, certain key variables that are anticipated to have material impacts to the Fund s 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. In undertaking any of the Fund s investment, 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 Malaysia s Guidelines on Unlisted Capital Markets Products under the Lodge and Launch Framework. 21

24 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER THE FUND, THE MANAGER AND THEIR PRINCIPAL ACTIVITIES ( the Fund ) is a Wholesale Fund was established pursuant to the Trust Deed dated 3 June 2015 between Areca Capital Sdn Bhd as the Manager, RHB Trustees Berhad as the Trustee and all the registered unit holders of the Fund. The principal activity of the Fund is to invest in investments as defined under Schedule 7 of the deed, which include Islamic fixed income securities including Ringgit denominated Sukuk, short-term Islamic money market instruments, Islamic deposits and placement with Islamic investment account. The Fund commenced operations on 18 June 2015 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 offer investors regular income. 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, RISK MANAGEMENT OBJECTIVES AND POLICIES Financial instruments of the Fund are as follows: Note Financing and receivables RM Financial assets at fair value through profit or loss RM Total RM 30 September 2017 Short-term Shariah-based deposits with licensed 9 financial institutions - 43,375,802 43,375,802 Cash at bank 7,247-7,247 7,247 43,375,802 43,383, September 2016 Short-term Shariah-based deposits with licensed 9 financial institutions - 44,658,775 44,658,775 Cash at bank 1,358-1,358 Amount due from Manager 2,700,000-2,700,000 2,701,358 44,658,775 47,360,133 All current liabilities are financial liabilities which are carried at amortised cost. The Fund is exposed to a variety of risks which include market risk (including interest rate risk), credit risk, liquidity risk, capital risk and reclassification of Shariah status risk. Financial risk management is carried out through internal control processes adopted by the Manager and adherence to the investment restrictions as stipulated by the Securities Commission Malaysia s Guidelines on Unlisted Capital Markets Products under the Lodge and Launch Framework. Market risk a) Interest rate risk Interest rate risk arises from the effects of fluctuations in the prevailing levels of market interest rates on the fair value of assets and liabilities and future cash flows. 22

25 The Fund s exposure to interest rate risk is mainly confined to short term Shariahbased deposit placements with licensed financial institutions. The Manager overcomes this exposure by way of maintaining short term Shariah-based deposits with licensed financial institutions. The Fund s exposure to interest rate risk associated with Shariah-based deposits with licensed financial institutions is not material as the carrying value of the deposits are held on a short term basis. Credit risk Credit risk refers to the ability of an issuer or counterparty to make timely payments of profit, principals and proceeds from realisation of Shariah-compliant investments. The Manager manages the credit risk by undertaking credit evaluation to minimise such risk. Credit risk arising from placements of Shariah-based 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 Malaysia s Guidelines on Unlisted Capital Markets Products under the Lodge and Launch Framework. The following table sets out the credit risk concentrations and counterparties ratings of the Fund: Cash and cash equivalents Financial assets at fair value through profit or loss Amount due from Manager Total RM RM RM RM 30 September 2017 Finance AAA 7,247 36,776,523-36,783,770 AA- - 6,599,279-6,599,279 7,247 43,375,802-43,383, September 2016 Finance AAA 1,358 44,658,775-44,660,133 Other Not Rated - - 2,700,000 2,700,000 1,358 44,658,775 2,700,000 47,360,133 All financial assets of the Fund are neither past due nor impaired. Liquidity risk Liquidity risk is the risk that the Fund will encounter difficulty in meeting its financial obligations. The Manager manages this risk by maintaining sufficient level of Shariah-based liquid assets to meet anticipated payment and cancellations of unit by unitholders. Shariahbased liquid assets comprise cash at bank, short term Islamic placements with licensed financial institutions and other Shariah-compliant 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. 23

26 The amounts in the table below are the contractual undiscounted cash flows. At 30 September 2017 Within one month Between one month to one year Total RM RM RM Accrued management fee 27,052-27,052 Accrued trustee's fee 1,803-1,803 Audit fee - 6,600 6,600 Tax agent's fee - 4,913 4,913 Other payables and accruals 1,731 1,040 2,771 30,586 12,553 43,139 At 30 September 2016 Accrued management fee 27,408-27,408 Accrued trustee's fee 1,844-1,844 Audit fee - 6,000 6,000 Tax agent's fee - 5,000 5,000 Other payables and accruals 1, ,414 31,006 11,660 42,666 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 unitholders and benefits for other stakeholders and to maintain a strong capital base to support the development of the Shariah-compliant investment activities of the Fund. 3 FAIR VALUE ESTIMATION Financial instruments comprise financial assets and financial liabilities. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of financial assets traded in active markets (such as trading securities) is based on quoted market prices at the close of trading on the period end date. 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. (i) Fair value hierarchy The table below analyses financial instruments carried at fair value. The different levels have been defined as follows: Quoted prices (unadjusted) in active market for identical assets or liabilities (Level 1) 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 2) Inputs for the asset and liability that are not based on observable market data (that is, unobservable inputs) (Level 3) 24

27 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. 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: As at 30 September 2017 Level 1 Level 2 Level 3 Total RM RM RM RM Financial assets at fair value through profit or loss: -Short-term Shariah-based deposits with licensed financial institutions - 43,375,802-43,375,802 As at 30 September 2016 Financial assets at fair value through profit or loss: -Short-term Shariah-based deposits with licensed financial institutions - 44,658,775-44,658,775 Financial instruments that trade in markets that are not 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. This includes short term Shariah-based deposits with licensed financial institutions. 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. (ii) The carrying values of cash equivalents and all current liabilities are a reasonable approximation of the fair values due to short term nature. 25