PHEIM 31 DECEMBER Your Need is our Focus. Pheim Asia Ex-Japan Fund Pheim Asia Ex-Japan Islamic Fund

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1 A N N U A L 31 DECEMBER 2013 R E P O R T PHEIM Pheim Asia Ex-Japan Fund Pheim Asia Ex-Japan Islamic Fund PHEIM UNIT TRUSTS BERHAD ( A) 7 th Floor, Menara Hap Seng (Letter Box 12) Jalan P.Ramlee, Kuala Lumpur, Malaysia. Tel No: (603) Fax No:(603) Your Need is our Focus

2 PHEIM Asia Ex-Japan Fund & PHEIM Asia Ex-Japan Islamic Fund Annual Report TRUST DIRECTORY MANAGER Pheim Unit Trusts Berhad ( A) Registered Office and Head Office: 7th Floor, Menara Hap Seng (Letter Box 12) Jalan P. Ramlee, Kuala Lumpur Tel:(603) Fax:(603) BOARD OF DIRECTORS Dr. Tan Chong Koay (Non-independent) Azmi Malek Merican (Non-independent) Wong Cheng Leong (Independent) Hoi Weng Kong (Independent) INVESTMENT COMMITTEE Ong Kheng Liat (Non-independent) Foong Mei Phong (Non-independent) Zarina Omar (Independent - PAXJI only) Rostam Effendi Abdul Rahim (Independent) Pee Ban Hock (Independent) Ho Sen Feek (Independent) EXTERNAL INVESTMENT MANAGER Pheim Asset Management Sdn Bhd ( A) SHARIAH ADVISER Amanie Advisors Sdn Bhd ( H) TRUSTEE Maybank Trustees Berhad (5004-P) AUDITORS Folks DFK & Co TAXATION CONSULTANT Folks Taxation Sdn Bhd ( M)

3 PHEIM Asia Ex-Japan Fund & PHEIM Asia Ex-Japan Islamic Fund Annual Report CONTENTS Page No 1. Funds Information 2. Funds Performance 3. Manager s Report Trustee s Report, Statement by the Manager, Shariah Adviser s Report and audited Financial Statements: Pheim Asia Ex-Japan Fund Pheim Asia Ex-Japan Islamic Fund

4 PHEIM Asia Ex-Japan Fund & PHEIM Asia Ex-Japan Islamic Fund Annual Report Fund Information Dear Valued Unit Holders We are pleased to present the Manager s Report and the audited financial statements for the financial period from 1 January 2013 to 31 December 2013 for the following funds: i. Pheim Asia Ex-Japan Fund (PAXJ) ii. Pheim Asia Ex-Japan Islamic Fund (PAXJI) 1 FUND INFORMATION 1.1 Fund Category and Type Fund PAXJ PAXJI Category and type PAXJ is an equity growth fund that aims to achieve capital appreciation in the long term by investing primarily in Asian markets excluding Japan. PAXJI is an equity growth fund that aims to achieve capital appreciation in the long term by investing primarily in Asian markets excluding Japan through investments that comply with Shariah requirements. 1.2 Fund s Investment Objective and Strategy Fund PAXJ Investment objective and strategy PAXJ aims to achieve capital appreciation in the long term by investing primarily in Asian markets excluding Japan. PAXJ will invest, without restraint, in securities listed on the stock exchanges of the Asia Pacific region excluding Japan with initial focus in ASEAN countries, Hong Kong SAR, China, Taiwan, Korea, Australia, New Zealand and India. PAXJI PAXJI aims to achieve capital appreciation in the long term by investing primarily in Asian markets excluding Japan through investments that comply with Shariah requirements. PAXJI will invest in securities listed on the stock exchanges of the Asia Pacific region excluding Japan with initial focus in ASEAN countries, Hong Kong SAR, China, Taiwan, Korea, Australia, New Zealand and India that comply with Shariah requirements. support@pheimunittrusts.com 1 Your Need is our Focus

5 PHEIM Asia Ex-Japan Fund & PHEIM Asia Ex-Japan Islamic Fund Annual Report Fund Information 1.3 Duration of the Funds Fund PAXJ Duration of the Funds PAXJ was launched on 30 June 2006 and its offer period ended on 20 July It shall exist for as long as it appears to the Manager and the Trustee that it is in the interest of the Unit Holders for it to continue. PAXJI PAXJI was launched on 1 November 2006 and its offer period ended on 21 November It shall exist for as long as it appears to the Manager and the Trustee that it is in the interest of the Unit Holders for it to continue. 1.4 Funds Performance Benchmark The performance benchmark of the PAXJ and PAXJI is 7% growth in NAV per annum over the long term. This is not a guaranteed return and is only a measurement of fund performance. The PAXJ and PAXJI may or may not achieve the 7% per annum growth rate in any particular financial year but targets to achieve this growth over the long term. 1.5 Funds Distribution Policy Fund PAXJ & PAXJI Distribution Policy Distribution by the Funds is incidental. support@pheimunittrusts.com 2 Your Need is our Focus

6 PHEIM Asia Ex-Japan Fund & PHEIM Asia Ex-Japan Islamic Fund Annual Report Fund Information 1.6 Breakdown Of Unit Holdings By Size As At PAXJ No. of units held Unitholders Size of holding ( 000) % 5,000 and below 5,001-10,000 10,001-50,000 50, , ,001 and above No. of Accounts % No. of Unitholders % 155, , ,500, ,609, ,555, Total 33,120, PAXJI No. of units held Unitholders Size of holding ( 000) % 5,000 and below 5,001-10,000 10,001-50,000 50, , ,001 and above No. of Accounts % No. of Unitholders % 271, , ,458, ,803, ,519, Total 8,595, support@pheimunittrusts.com 3 Your Need is our Focus

7 PHEIM Asia Ex-Japan Fund & PHEIM Asia Ex-Japan Islamic Fund Annual Report Fund Performance 2 FUND PERFORMANCE 2.1 Pheim Asia Ex-Japan Fund Portfolio composition Industry Sector FYE (%) (Percentage of NAV) FYE (%) (Percentage of NAV) FYE (%) (Percentag e of NAV) Biochemical and Biotechnology Computer Construction Consumer Products Diversified Energy and Water Supply Finance Home Furniture Industrial Products Infrastructure Manufacturing Mining Oil & Gas related Pharmaceutical and Cosmetic Plantations Properties Technology Telecommunications Trading / Services Trusts Utilities Cash and cash equivalents Total support@pheimunittrusts.com 4 Your Need is our Focus

8 PHEIM Asia Ex-Japan Fund & PHEIM Asia Ex-Japan Islamic Fund Annual Report Fund Performance Other financial and performance data PAXJ FYE FYE FYE Net asset value (RM 000) 28, , , Units in circulation ( 000) 33, , , Net asset value per unit (RM) NAV/ unit (RM) ex-distribution NAV/ unit Highest NAV/ unit for the period NAV/ unit Lowest NAV/ unit for the period NAV/ unit Total returns for the period (RM 000) Capital growth 2, , (5,871.29) Income distribution (821.41) (1,062.61) (2,328.48) Income Distribution (Final) n.a. n.a. On Gross distribution per unit (sen) Net distribution per unit (sen) Management expense ratio (MER) (%) Portfolio turnover ratio (PTR) (time) Note: i) MER is calculated based on total fees and expenses incurred by the fund divided by average value of the fund calculated on a daily basis. The MER for the year decreased mainly due to the lower expenses incurred for the year. ii) PTR is calculated based on the average of the acquisitions and disposals of investments of the fund to the average value of the fund calculated on a daily basis. The higher PTR for the year was mainly due to the increasing investment trading for the year. support@pheimunittrusts.com 5 Your Need is our Focus

9 PHEIM Asia Ex-Japan Fund & PHEIM Asia Ex-Japan Islamic Fund Annual Report Fund Performance PAXJ Average total return ended 31 December 2013 (%) One Year Three Years Five Years Annual total return for each of the last five financial years Financial year ended 31 December : (%) Note : All returns above are calculated based on NAV per unit adjusted for income distribution Data source : Bloomberg Past performance is not necessarily indicative of future performance and unit prices and investment returns may go down, as well as up. support@pheimunittrusts.com 6 Your Need is our Focus

10 PHEIM Asia Ex-Japan Fund & PHEIM Asia Ex-Japan Islamic Fund Annual Report Fund Performance 1.12 Pheim Asia Ex-Japan Islamic Fund Portfolio composition Industry Sector FYE (%) (Percentage of NAV) FYE (%) (Percentage of NAV) FYE (%) (Percentage of NAV) Biochemical and Biotechnology Computer Construction Consumer Products Energy and Water Supply Industrial Products Manufacturing Mining Oil & Gas related Pharmacy and Cosmetics Plantations Properties Technology Telecommunications Trading / Services Cash and cash equivalents Total support@pheimunittrusts.com 7 Your Need is our Focus

11 PHEIM Asia Ex-Japan Fund & PHEIM Asia Ex-Japan Islamic Fund Annual Report Fund Performance Other financial and performance data PAXJI FYE FYE FYE Net asset value (RM 000) 8, , , Units in circulation ( 000) 8, , , Net asset value per unit (RM) NAV/ unit (RM) -- ex-distribution NAV/ unit Highest NAV/ unit for the period NAV/ unit Lowest NAV/ unit for the period NAV/ unit Total returns for the period (RM 000) Capital growth , Income distribution 1, (2,453.06) (1,756.49) Income Distribution (Final) n.a. n.a. On Gross distribution per unit (sen) Net distribution per unit (sen) Management expense ratio (MER) (%) Portfolio turnover ratio (PTR) (time) Note: i) MER is calculated based on total fees and expenses incurred by the fund divided by average value of the fund calculated on a daily basis. The MER for the year increased mainly due to the lower averaged NAV for the year. ii) PTR is calculated based on the average of the acquisitions and disposals of investments of the fund to the average value of the fund calculated on a daily basis. The decrease in PTR for the year was mainly due to the lower investment trading for the year. support@pheimunittrusts.com 8 Your Need is our Focus

12 PHEIM Asia Ex-Japan Fund & PHEIM Asia Ex-Japan Islamic Fund Annual Report Fund Performance PAXJI Average total return ended 31 December 2013 (%) One Year Three Years Five Years Annual total return for each of the last five financial years Financial year ended 31 December : (%) Note : All returns above are calculated based on NAV per unit adjusted for income distribution Data source : Bloomberg Past performance is not necessarily indicative of future performance and unit prices and investment returns may go down, as well as up. support@pheimunittrusts.com 9 Your Need is our Focus

13 PHEIM Asia Ex-Japan Fund & PHEIM Asia Ex-Japan Islamic Fund Annual Report Manager s Report 3 MANAGER S REPORT 3.1 Performance Review PAXJ The Fund has successfully met its investment objective of providing investors with capital appreciation in long term by investing primarily in Asian markets excluding Japan. For the year ended 31 December 2013, PAXJ, based on its net asset value (NAV) per unit, increased by 4.63%, under-performed the benchmark marginally by 2.37%. In the second half of 2013, PAXJ out-performed the benchmark by 6.48% due to the equity market increased. The total NAV stood at approximately RM28million as at 31 December The total NAV decreased from approximately RM30million to RM28million during the year mainly due to depreciation in value of investments. There is no income distribution for year Performance table since the last review period (6 months): As at Benchmark/ Fund As at Change % 7% per annum (pro-rated) 52.20% 48.67% NAV per unit (RM) Performance table for financial year 2013 (1 year): As at Benchmark/ Fund As at Change % 7% per annum (pro-rated) 52.20% 45.20% NAV per unit (RM) PAXJI The Fund has successfully met its investment objective of providing investors with capital appreciation in long term by investing primarily in Asian markets excluding Japan through investments that comply with Shariah requirements. For the year ended 31 December 2013, PAXJI, based on its net asset value (NAV) per unit, increased by 15.45%, out-performed the benchmark by 8.45%. In the second half of 2013, PAXJI out-performed the benchmark by 5.88% as the equity market increased. The total NAV stood at approximately RM8.2 million as at 31 December The total NAV decreased from approximately RM10million to RM8.2 million during the year mainly due to depreciation in value of investments. There is no income distribution for year support@pheimunittrusts.com 10 Your Need is our Focus

14 PHEIM Asia Ex-Japan Fund & PHEIM Asia Ex-Japan Islamic Fund Annual Report Manager s Report PAXJI (Contd.) Performance table since the last review period (6 months): As at Benchmark/ Fund As at Change % 7% per annum (pro-rated) 49.82% 46.30% NAV per unit (RM) Performance table for financial year 2013 (1 year): As at Benchmark/ Fund As at Change % 7% per annum (pro-rated) 49.82% 42.82% NAV per unit (RM) Performance Chart Since Inception PAXJ support@pheimunittrusts.com 11 Your Need is our Focus

15 PHEIM Asia Ex-Japan Fund & PHEIM Asia Ex-Japan Islamic Fund Annual Report Manager s Report PAXJI Note: The data source for all the above performance returns is Bloomberg. 3.3 Changes in Asset Allocation since the last review (in percentage) PAXJ Asset Class As at As at Change Equity Securities outside Malaysia Equity Securities in Malaysia Cash and cash equivalent Total PAXJI Asset Class Shariah-compliant equity securities outside Malaysia Shariah-compliant equity securities in Malaysia As at As at Change Cash and cash equivalent Total support@pheimunittrusts.com 12 Your Need is our Focus

16 PHEIM Asia Ex-Japan Fund & PHEIM Asia Ex-Japan Islamic Fund Annual Report Manager s Report 3.4 Funds Strategies and Policies Employed PAXJ During the year, the fund s total equity exposure slightly increased by 1.37% as the fund increased exposure in Malaysia equity more aggressively as we found values in sectors such as property, oil & gas and plantation. During the year, we took profit on certain foreign stocks that have outrun the fundamental. As at 31st December 2013, PAXJ s total equity exposure was 88.69% whereby 67.65% was invested in foreign equities and the remaining is in domestic equities. During the year, the PAXJ has invested in foreign equities listed in Hong Kong/China, Singapore, Indonesia, Taiwan, Thailand, the Philippines and Korea. For the year ended 31 December 2013, PAXJ recorded the following gains or losses in the various markets invested. Net realised and Market unrealised gain/ (loss) RM 000 Malaysia 1,071 Indonesia (289) Korea 233 Thailand (1,538) Singapore (1,154) Hong Kong (777) Philippines (158) Taiwan (1,196) PAXJI During the year, the fund s total equity exposure decreased by 16.16% as the fund decreased exposure in foreign equities as some foreign stocks have outrun the fundamental. As at 31st December 2013, PAXJI s total equity exposure was 78.05% whereby 53.15% was invested in Shariah-compliant foreign equities and the remaining in domestic Shariah-compliant equities. During the year, the PAXJI has invested in Shariah-compliant foreign equities listed in Hong Kong/China, Singapore, Korea, Indonesia, Taiwan and Thailand. The fund has not invested in any sukuk. support@pheimunittrusts.com 13 Your Need is our Focus

17 PHEIM Asia Ex-Japan Fund & PHEIM Asia Ex-Japan Islamic Fund Annual Report Manager s Report PAXJI (contd.) For the year ended 31 December 2013, PAXJI recorded the following gains or losses in the various markets invested. Net realised and Market unrealised gain/ (loss) RM 000 Malaysia 595 Indonesia (424) Korea 191 Thailand (354) Singapore 413 Hong Kong (95) Taiwan (351) 3.5 Market Review, Outlook and Strategy Malaysian Bond Market Bond Market Review The year 2013 was a relatively volatile year for the fixed income market. The Malaysian government securities started off on a firm note in the beginning of the year on the back of sustained buying interest. In the early month of May, the Malaysian Government Securities (MGS) garnered further buying interest following the return of power of the ruling coalition. It resulted in a surged in capital inflows which brought yields of short dated MGS to trade below 3.00%. However, bond prices slumped towards the end of May to August on concerns that the scaling back of the quantitative measures in the US may cause a hike in interest rates. Subsequently, bond prices recovered slightly in mid-september as the Federal Reserve indicated that it may delay tapering of bond purchases. Nevertheless, the recovery in bond prices was relatively short-lived, as the prices continued to decline towards end of December even before it was officially announced on the 18th of December that US Federal Reserve officials would reduce its monthly bond purchases to USD75 billion from USD85 billion from the beginning January of Throughout 2013, potential issuers were reluctant to issue new bonds due to the weak sentiment on the fixed income market. Demand for fixed income was relatively weak due to concerns over the 13th General Elections in the early part of the year. Towards the 2nd half of the year, investors interest was further dampened by the lingering concern over the tapering of the bond purchases by the US Federal Reserve. In addition, investors has also been relatively concerned over the Fitch Ratings Malaysia credit outlook downgrade to negative from stable, rising inflationary pressure and a weakening ringgit. In terms of fixed income issuance, the Malaysian bond/sukuk market made history by being the first country to issue retail sukuks. Two issues came onto the market: on the 8th February and 28th of November. However, the reception for the retail sukuk was relatively lukewarm which could partly be due to long period of maturity, relatively a new support@pheimunittrusts.com 14 Your Need is our Focus

18 PHEIM Asia Ex-Japan Fund & PHEIM Asia Ex-Japan Islamic Fund Annual Report Manager s Report class of assets for most retailers and limited selection. We believe the participation rate may increase in the long run as investors become more knowledgeable about the advantages of diversification. It is a significant milestone for the Malaysian debt capital market as it allows both institutional and retail investors to participate in the fixed income market. Another significant development was the inaugural issuance of the 30-year Malaysian Government Securities (MGS) on the 27th of September The MGS which was expected to raise RM2.5 billion was relatively well received by investors. The issuance has received RM6.1 billion of orders or a bid-to-cover ratio of approximately 2.44 times Bond Market Outlook and Strategy Despite the assurance given by the US Federal Reserve that the tapering of the bond purchases beginning 2014 may not necessarily mean tightening of monetary policies and the Federal Reserve remains committed to keep short-term interest rates exceptionally low, it is a market belief that the interest rates have to increase eventually. On the local front, Bank Negara left the overnight policy rate (OPR) at 3.00% as at end Looking forward, we do not discount the possibility of a hike in the Malaysia s OPR in the 2nd half of Although inflation rate for the first 11 months 2013 remained low at 2.0%, there is a high possibility that inflation may edge up higher than 2% in the year It could be driven for example by another fuel hike, implementation of the minimum wage policy, electricity tariff increase, removal of sugar subsidy and introduction of goods and services tax (GST) in the April 2015.We expect a gradual hike in the OPR rate by 25 basis points initially. We are maintaining our stance of investing in fixed income securities which has a maturity of less than 3 years to mitigate interest rate risks. Moreover, we would continue to adopt a prudent credit assessment approach in any purchase of fixed income securities. Among the key assessment criteria includes the issuers credit profile, management, financial performance, asset quality, risk management and industry outlook. In addition, we would continue to focus on investment grade bonds/sukuks Stock Markets Review Malaysia Market Bursa Malaysia Securities The FBM KLCI registered a gain of 3.0% m.o.m in December or 10.5% y.o.y to close 2013 at a new record high of 1,867 points. FBM KLCI was the best performing ASEAN index in 2013 as the confidence returned after the 13th General Election in May that removed a major political overhang. 3Q13 GDP growth was recorded at 5.0% y.o.y, an improvement from 2Q13 s 4.3% y.o.y growth. The key driver was the recovery in exports amid firm domestic demand. Malaysia s economic is expected to grow at a faster pace of 5% to 5.5% in 2014, from an expected 4.5% to 5% in 2013, supported by favourable domestic demand and a gradual recovery in external demand for exports of goods and services. The investment growth momentum will be maintained, arising from the government s support@pheimunittrusts.com 15 Your Need is our Focus

19 PHEIM Asia Ex-Japan Fund & PHEIM Asia Ex-Japan Islamic Fund Annual Report Manager s Report efforts to transform the economy as well as investments in the various industries and oil & gas projects. Budget 2014 was tabled targeting further fiscal consolidation through prudent operating and development expenditure spending, subsidy reforms, and introduction of a broad-based goods and services tax (GST) effective April The introduction of a broad-based GST is at an initial 6% to replace the existing 6% to 10% of service tax with corresponding 1% to 3% reduction in income tax rates. The government targets to reduce its budget deficit of 3.5% of GDP in 2014 and 3% in 2015 from 4.0% in Following the pragmatic measures on the tax and expenditure programme to improve on the government s budgetary position going forward, Moody s Investors Service upgraded Malaysia s rating outlook from stable to positive in November 2013, The inflation in November rose 2.9% from a year earlier, reflecting higher petrol pump prices after the government cut subsidies in September. Due to the implementation of the GST as well as subsidy reductions, the inflation is expected to trend higher going forward. Bank Negara may raise interest rate by at least 50 basis points to curb the inflationary pressure on the economy. The Ringgit has weakened to RM as at end of December 2013 compared to RM from a year earlier. However, Malaysia is better prepared for potential capital outflow as Malaysian economy is now more balanced with diverse source of growth. The domestic demand has become one of the important drivers of growth. Malaysia is expected to benefit from the recovery of the global economy in 2014 while 2015 could be challenging with a potential increase in costs due to the 6% GST. The main concerns include faster inflation rate, slower than expected implementation of the public finances reform, slower global economic growth and foreign funds outflow due to the US Fed s QE tapering. Generally, despite having the status of defensive lowbeta market, we are cautiously positive on Malaysia due to the relatively less attractive valuation compared to the regional peers Singapore Market - Singapore Exchange (SGX) The FSSTI index increased 0.01% and closed at 3, points at end of December The flat performance of Singapore equities market was due to market concern of QE tapering and the outflows of funds in emerging markets. In 2013, the SGD depreciated by 3.37% against the USD to close at /USD. Singapore s December purchasing managers index (PMI) fell to 49.7 from November s 50.8, pointing to a contraction in manufacturing activity for the first time in 10 months. The declined in the PMI was attributed to slower growth in new orders and new export orders as well as a decline in production. As a result of weaker manufacturing and construction activities, Singapore's economy contracted 2.7% in the fourth quarter of 2013 on a seasonally adjusted and annualized basis as compared with a revised 2.2% increase in the third quarter, according to advance estimates by the Ministry of Trade and Industry. Overall, Singapore s gross domestic product grew 3.7% in 2013 and this is considered a good improvement support@pheimunittrusts.com 16 Your Need is our Focus

20 PHEIM Asia Ex-Japan Fund & PHEIM Asia Ex-Japan Islamic Fund Annual Report Manager s Report compared to the 1.3% growth in The economy is expected to grow at between 2% and 4% in 2014, driven by strong external economic environment. November inflation rose 2.6% y.o.y, which was higher than the 2.0% y.o.y in the previous month. The main driver for inflation was due to higher accommodation costs compared to the month of October when there was disbursement of the Service & Conservancy Charges rebates that helped to lower overall housing costs. Additionally, higher Certificate of Entitlement (COE) premiums caused private road transport costs to edge higher. Singapore s overall inflation is projected to come in at between 2.5% to 3% in 2013 and between 2% and 3% in 2014, according to Monetary Authority of Singapore. Singapore s economy is expected to be driven by external factors, which include US tapering, Europe economic recovery and China economic growth. However, domestic challenges of economic restructuring, tight labour market and elevated cost will remain key challenges for Singapore s economy growth Hong Kong/ China Market Hong Kong Exchanges (HKEx) The Hang Seng Index for 2013 closed at 23,306, up by 2.9% y.o.y. This was due to China s firmer macro figures and the recent government reforms announcement. Macau gaming counters post another strong annual gain. MGM China, Galaxy, Sands China and Wynn Macau were the main contributors to the improvement of the index. ASM Pacific, Li & Fung and Swire Properties were the worst performing MXHK constituents. In Hong Kong, travel services exports, supported by buoyant Chinese tourist arrivals, jumped 29.4% y.o.y (1Q: 19.5%; 4Q12: 13%). Other services sectors, for example, transportation and trade-related services continued to show weak growth given the soft re-export business. Hong Kong s growth pattern has been inwardly focused since Domestic demand has taken on a much greater share of the growth burden than external trade since the start of the Eurozone crisis. As 2014 approaches, the period of weak exports will be supplanted by that of rapid export expansion. Asian exporters will benefit most from a new investment cycle in Europe. Together with resilient domestic demand, export growth should achieve 11.5% y.o.y and translates into a full-year GDP forecast of 4.9%. The property tightening measures should remain in place in Hong Kong. Although house prices have proved to be much more resistant to policy measures, it is also increasingly clear that prices have begun to soften, with big developers offering discounts on newly launched flats. This will continue throughout the period and that prices will continue to correct from the current level. The China economy data has generally improved. The estimated of the real GDP growth for FY14 is at 7.5% to 7.7%. Inflation rate is rather mild forecasting at 3.8% next year. Current account balance expected to remain in the surplus territory at USD236.8 bil. Interest rate might creep up to 3.5% from 3.0% next year. RMB should remain stable against the USD. For the year 2013, the RMB has strengthened from RMB to RMB against the USD and that is equivalent to 2.85%. Market forecast that 4Q13 GDP growth to be around 7.25%. With the four quarters being 7.7%, 7.5%, 7.5% and 7.25% this implies CY2013 growth at 7.5%. The improvement was seen in the agricultural, services and industrial sectors. This is consistent with other indicators (PMI, support@pheimunittrusts.com 17 Your Need is our Focus

21 PHEIM Asia Ex-Japan Fund & PHEIM Asia Ex-Japan Islamic Fund Annual Report Manager s Report industrial production, commodity imports, retail and vehicle sales) that point to solid private spending momentum. More recently exports in China have started to improve and this time for more genuine reasons. August exports beat expectations and across the Asian region electronics exports are firming up. This is the leading edge of the acceleration in global trade that Eurozone growth is expected to accelerates in With the Fed tapering in mind, the government will allow a gradual RMB appreciation over the medium term, supported by healthy external surpluses, record foreign reserves accumulation (USD3.7 tril as at Sep 13), and stabilized growth momentum and capital inflows. A further forex reform and financial deregulation is expected to fortify the financial system. There is a positive development China which is the gradual move toward interest rate liberalization (i.e. the removal of floor for borrowing costs and the trading of deposit certificates) to create a liberalized financial system. The positive outlook for China's politics and growth over the medium term given the sweeping reforms:1) expanding farmers' land rights to strengthen rural income support via equitable income distribution, 2) loosening the one-child policy to offset the decline in the workforce while spurring demand for housing, and 3) encouraging private investment in SOE to remove market distortions. These reforms, if implemented, will cement China's economic growth by strengthening private consumption and making it the prime driver of growth Indonesia Market Jakarta Stock Exchange (JSE) The Indonesian stock market registered a decline of 1.0% y.o.y in local currency terms by the end of 2013 to close the year at 4,274 points after rising 11.6% in the first half of The Rupiah depreciated by 24.3% y.o.y against the USD, breaching the 12,000 level, to close the year 2013 at IDR12,171/USD. Bank Indonesia (BI) increased its benchmark rate (BI rate) five times since early June by a cumulative 175bps to 7.5%, the highest level since 2009 with the aim to reduce the current account deficit that has weighed on the rupiah and to tackle the rising inflation rate after the government had cut the subsidies for fuel, increasing the subsidized fuel prices by 33% on average. The inflation rate jumped from 5.9% in June to 8.61% in July after the government cut the subsidies for fuel for the first time since December saw the annual inflation rate in 2013 cooled down to 8.38% from the July s level but it is still almost double the 2012 figure of 4.3%. Bank Indonesia is aiming to steer the inflation rate towards the range of 3.5% to 5.5% in The GDP grew by 2.96% q.o.q in 3Q13, the highest growth rate in the previous four quarters. It left the annual growth at 5.62% y.o.y, the lowest growth rate in nearly four years and slower than 2Q13 s 5.81% y.o.y. In its December Monetary Policy Report, Bank Indonesia expected domestic economic growth in 2013 to remain in line with previous growth projections of 5.5% to 5.9%. Bank Indonesia forecasted slower economic growth than previously projected at the lower end of the range of 5.8% to 6.2% for Indonesia's current account deficit was narrowed to 3.8% of gross domestic product in the 3Q from 4.4% of GDP in the previous quarter. The current account deficit is expected support@pheimunittrusts.com 18 Your Need is our Focus

22 PHEIM Asia Ex-Japan Fund & PHEIM Asia Ex-Japan Islamic Fund Annual Report Manager s Report to improve going forward as the November s trade surplus of USD777 mil was Indonesia's highest in almost two years, marking progress in authorities' struggle to tackle the issue. Volatility in the market is expected in the near term due to the concerns on the macro issues especially the current account deficit. Besides the concerns on QE tapering, the political uncertainties are also expected to cloud investors sentiment. However, Indonesia has a huge population and with the Central Bank s proactive moves to tackle the economic issues, we are cautiously optimistic on the country and we shall continue our search for both value and growth in the equity market. The year 2014 which will also see Indonesians welcome their new President, will be a political year for Indonesia and it is expected to improve the political landscape and the country s economy as a whole Thailand Market Stock Exchange of Thailand (SET) The SET index wrapped with a total fall of 6.7% for the year 2013 to end at points. The fall in index was triggered by foreign selling from the emerging markets on the back of the QE tapering in the US which started in May, followed by political stalemate which started in October. Total foreign fund outflow resulted to USD6.3 bil in CPI tumbled 54.0% and core inflation plunged 48.6% during the year. Headline CPI stood at 1.67% and inflation remained benign at 2.25% at end December. The Bath depreciated by 6.9% against US Dollar as the currency closed at Baht32.71 compared to US Dollar to Baht30.59 in Strong index gain was contributed by mixed sector performances by various domestic and external sectors in the beginning of the year. Thailand remained strong regionally, but began battling turbulences leading into March on post rapid appreciation of baht and the rice pledging scheme. The index started to plunge beginning May but recovered slightly in October before it was clouded by rising political turmoil in November. The Monetary Policy Committee decided to bring the policy rate down by another 25bp to 2.25% in November from 2.5% in May which was previously 2.75%, citing weaker economy both externally and domestically. The Bank of Thailand has also revised its GDP forecast for 2013 from 4.2% in July to 3.7% in October and then to 3% by November on the back of weaker-than-expected GDP outlook and significant foreign fund outflows and selloffs. In December 2013, MPs from the opposition Democrat party resigned en masse and PM Yingluck eventually dissolved the house and will head as caretaker government until the general election takes place on the 2nd of February Thailand s benchmark stock index has fallen drastically from being the best performer among Asia s major equity markets in 2012 to the worst index performer in Following the recent share price declines since the political tension surfaced towards the year end of 2013, short term volatility for 1H14 remains high with downside earnings risks from a moderating growth outlook where both industrial production and exports remain weak. We remain cautiously optimistic as we might see a mild recovery stepping into 2H14. support@pheimunittrusts.com 19 Your Need is our Focus

23 PHEIM Asia Ex-Japan Fund & PHEIM Asia Ex-Japan Islamic Fund Annual Report Manager s Report Taiwan Stock Market Taiwan Stock Exchange (TSE) In 2013, the TWSE Index rose 11.85% y.o.y to close at 8, index points as at end of December, mainly due new technology products launches, strong economic data from the US and expectations of higher iphone shipments in 1Q14. The TWD depreciated against the USD by 2.67% y.o.y for the year to close at TWD29.807/USD at the end of December. Taiwan registered GDP growth of 1.44%, 2.69% and 1.66% respectively in 1Q, 2Q and preliminary GDP of 3Q13 due soft demand from domestic as well as international market. According to Directorate General of Budget, Accounting & Statistics (DGBAS), GDP growth rate of 2013 and 2014 are revised downward to 1.74% and 2.59% respectively. This is mainly due to the intense competition from the manufacturing sector from abroad that could weaken Taiwan s export growth. Data published by Markit Economics shows the HSBC Taiwan PMI recorded 55.2 in December, higher than the recorded 53.4 in November, signalling the sharpest expansion of output in 32 months. The solid improvement in the PMI figure was bolstered by healthy demand from overseas market namely China, Japan and the US. Taiwan s consumer price index (CPI) rose to 0.33% in December, compared to the rise of 0.67% in November. The rise in CPI was mainly due to higher prices of fruits, fish and seafood, meats, and electricity. Full year inflation recorded a rise of 0.79%, the lowest growth in four years. It was largely dampened by a significant drop in prices of consumer electronics. For technology sector, the smart phone supply chain is expected to benefit from the increasing demand in emerging market, especially the low-end smart phone segments. Being an export oriented country, Taiwan s economy recovery is likely to be gradual but bumpy. The country is benefiting from a slew of positive developments such as new technology product cycle and economic recovery in the US, Eurozone and China, but also facing hurdles from the US QE tapering and debt ceiling issues that dampen consumer s sentiment. We are cautiously optimistic in Taiwan market and looking forward to buying opportunities in undervalued high growth companies Philippine Market The Philippines Stock Exchange (PSE) The Philippine equity market gained 1.33% y.o.y in 2013 to settle at points. The rise was backed by robust GDP growth rate, reduction in Special Deposit Account (SDA) rates and upgrade of Philippines credit rating to investment grade. However, the market has lost momentum towards second half of the year due to super typhoon Yolanda that hit the Central Philippines in early November and QE tapering. The Peso depreciated 8.3% y.o.y to PHP44.395/USD at the end of December. The Philippines registered strong GDP growth of 7.7%, 7.5% and 7.0% respectively in 1Q, 2Q and 3Q13 due to healthy private consumption and investment. However, growth is expected to be slower in 4Q13 as the government forecasted that typhoon Yolanda could hit 0.8% of 2013 GDP. support@pheimunittrusts.com 20 Your Need is our Focus

24 PHEIM Asia Ex-Japan Fund & PHEIM Asia Ex-Japan Islamic Fund Annual Report Manager s Report The Monetary Board of Bangko Sentral ng Pilipinas (BSP) maintained the benchmark borrowing and lending rates unchanged at 3.5% and 5.5% respectively. BSP cut the interest on special deposit account (SDA) three times to 2% and allows only unit investment trust funds (UITFs) to invest in SDA starting The Philippines obtained its investment grade rating from the three major rating agencies namely Fitch Ratings, S&P and Moody s Investor Service due to the country s robust economic performance and improved governance. This would lift investors confidence and encourage even greater interest and investments in the Philippines. Super typhoon Yolanda hit Central Philippines in early November, causing massive destruction in the Visayas region particularly the Island of Leyte. The official total death toll has risen above 5,000 and the government expects that it will shave off 0.8% of 2013 GDP. Overseas foreign worker (OFW) remittances rose 7% y.o.y in October to USD2.06 bil. YTD cash remittances recorded at USD18.5 bil, up 6% y.o.y, well above government s full year target of 5% growth. The Philippines market is vulnerable to sell-offs due to its high valuations and negative sentiment on the slow progress of government s PPP projects. Nevertheless, Philippine economy remains healthy due to high growth in domestic demand, high current account surplus, and the potential rolling out of PPP project to improve infrastructure in the country. We remain watchful on the market volatility, yet eyeing on undervalued growth companies to tap into the growth story of the Philippines Korea Market Korean Stock Exchanges (KSE) During the year ended 2013, the KOSPI index only registered a marginal gain of 0.72% due to economic uncertainty and a sharp depreciation of the Japanese yen against the Korean Won. The KRW appreciated by 1.37% against the USD on the back of foreign capital inflow. The South Korea s GDP grew by 3.3% y.o.y in 3Q13. On a q.o.q basis, the economy expanded only by 1.1%. Due to the challenging economic outlook, the Bank of Korea lowered its 2014 economic growth forecast to 3.8% from 4.0%. In line with the slow pace of economic growth, the South Korea s inflation growth eased to 1.1% in December from 1.2% in November. Due to the persistently stable prices of farming goods and oil products, we expect inflationary pressure to remain low in the near term. The unemployment rate in South Korea inched marginally higher to 3.0% in December 2013 from 2.9% in the previous month. Meanwhile, job creation remains strong. In December, the number of employed people was million, an increase of 560,000 from a year earlier. Despite the challenging economic outlook, we expect further upside potential on the KOSPI index on the back of foreign buying interest, low valuation and supportive economic policies. Key issues facing South Korea such as its ageing population, slow support@pheimunittrusts.com 21 Your Need is our Focus

25 PHEIM Asia Ex-Japan Fund & PHEIM Asia Ex-Japan Islamic Fund Annual Report Manager s Report earnings growth and the sharp weakness in the yen may capp the upside potential of the KOSPI index. In addition, the KOSPI index may continue to see huge redemption at the key resistance of 2,000 levels as most retail investors in Korea adopt a short-term investment culture. As we expect the KOSPI Index to trade between 1,900 to 2,200 levels in the year 2014, we see buying opportunities whenever the index hits below 2,000 levels Australian Stock Market The ASX 200 index recorded a gain of 15.1% y.o.y to close the year of 2013 at 5352 points after gaining 3.3% in 1H13. The Aussie Dollar weakened against the US Dollar from AUD0.9620/USD by the end of 2012 to close 2013 at AUD1.1217/USD. Australia s GDP growth slowed down to 0.6% q.o.q in 3Q after expanding by a revised 0.7% q.o.q in 2Q. Year on year, it slowed down to 2.3% in 3Q from the revised 2.4% growth in 2Q. In its November Statement of Monetary Policy, The Reserve Bank of Australia maintained its GDP growth estimate for 2013 at 2.25% and for 2015 at 2.75% to 4.25%. However, it lowered its economic growth estimate for 2014 to 2% to 3% from an August forecast of 2.5% to 3.5% in the view that mining investment may drop off more sharply than expected and that an elevated local currency was likely to hurt sales of manufactured products. The Reserve Bank of Australia (RBA) cut the cash rate by 50bps cumulatively (in May and August), leaving it at a record low of 2.50%. Low inflation and slowing economic growth provided scope for easing. Australia s CPI rose 2.2% through the year to the September quarter 2013, compared with a rise of 2.4% in 2Q and 2.3% rise in 4Q12. Quarterly, prices quickened to 1.2% q.o.q in the 3Q, from 0.4% q.o.q in the 2Q, boosted by higher fuel prices. The unemployment rate edged higher over the year from 5.4% in December 2012 to 5.8% in November 2013 while the participation rate fell from 65.1% to 64.8% Market Outlook and Strategy The MSCI Far East ex-japan (USD) index ended 2013 up 1.3%, underperforming the MSCI World index which rose 24.1%. During the year, institutional funds were seen reducing their exposures in emerging markets in favour of the developed markets. Not surprising then that for the year the Dow Jones Industrial index posted a gain of 26.5% - recording a new high. On the other hand, Asia ex-japan equity markets such as Thailand and Indonesia saw huge redemption of foreign funds. Within the Asia ex-japan equity markets, the top three performing markets, in local currencies terms were Vietnam (+22.0%), Taiwan (+11.8%) and Malaysia (+10.5%). Meanwhile, the worst performing markets were Thailand (-6.7%), China (-5.4%) and Indonesia (-1.0%). Global equity markets rallied early in the year following a short-term deal that staved-off the US fiscal cliff. However, major pullbacks were seen towards the month of May 2013 when the US Federal Reserve chairman Ben Bernanke hinted that the central bank could begin tapering of its USD85 billion monthly bond purchases. support@pheimunittrusts.com 22 Your Need is our Focus

26 PHEIM Asia Ex-Japan Fund & PHEIM Asia Ex-Japan Islamic Fund Annual Report Manager s Report The quantum and timing of the tapering was finally announced on the 18th of December 2013 in which the US Federal Reserve would reduce its monthly bond purchases to USD75 billion from USD85 billion beginning January of The general view is that, notwithstanding the tapering, the Federal Reserve will maintain its ultra-loose monetary policies to sustain economic recovery. While we accept that tapering of bond purchases could be essentially means a reduction in the liquidity in the financial system, we see the need for the market to be weaned of such liquidity in view of improvements seen in the broad economic data. Janet Yellen, who would eventually become the first woman to lead the US central bank, has robustly defended the Federal Reserve s bold steps in maintaining ultra-loose monetary policies. According to her, the economy and labour market are still performing far short of their potential. Despite persistent global macroeconomic headwinds which are reflected in the choppiness in global equities market, we believe the economies in the Asia ex-japan region would remain robust backed by a combination of expansionary fiscal and monetary policies. Among the Asia ex-japan region, we are overweight on Hong Kong/China due to its undemanding valuation where both price to book and price to earnings ratios are trading below their long term historical averages. In addition, we are increasing our equity exposure in both Thailand and Indonesia as the valuations of these countries have returned to more attractive levels. We would continue to buy equities which are fundamentally undervalued and offer good upside potential. Apart from that, we would take profit on selective stocks which have rallied beyond their fundamentals. As we do not believe in fully invested at all times, we may seek to trim our equities exposure if we believe the equities market is near its peak. Alternatively, we would increase the equity exposure in the funds when we believe the equity market is relatively undervalued. 3.6 Policy On Rebates And Soft Commission It is our policy to pay all rebates from stockbrokers to the respective Funds. However, soft commissions from stockbrokers (if any) will be retained by the Manager only if the goods and services are demonstrable benefit to the unit holders such as research materials, quotation services and computer software incidental to the management of the Funds. During the year, the Manager has not received any soft commissions from stockbrokers. support@pheimunittrusts.com 23 Your Need is our Focus

27 PHEIM Asia Ex-Japan Fund & PHEIM Asia Ex-Japan Islamic Fund Annual Report PAXJ 21 February Your Need is our Focus

28 PHEIM Asia Ex-Japan Fund & PHEIM Asia Ex-Japan Islamic Fund Annual Report PAXJ STATEMENT BY MANAGER TO THE UNITHOLDERS OF PHEIM ASIA EX-JAPAN FUND We, Azmi Malek Merican and Hoi Weng Kong, being two of the directors of Pheim Unit Trusts Berhad, do hereby state that, in the opinion of the Manager, the accompanying financial statements of Pheim Asia Ex-Japan Fund are drawn up in accordance with the Deed, Malaysian Financial Reporting Standards, International Financial Reporting Standards and Securities Commission's Guidelines on Unit Trust Funds in Malaysia so as to give a true and fair view of the financial position of Pheim Asia Ex-Japan Fund as at 31 December 2013 and of its financial performance and cash flows for the financial year then ended. For and on behalf of the Manager, PHEIM UNIT TRUSTS BERHAD AZMI MALEK MERICAN Director HOI WENG KONG Director Kuala Lumpur, Malaysia 21 FEB support@pheimunittrusts.com 25 Your Need is our Focus