A N N U A L R E P O R T S E P T E M B E R 2014

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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 2014 ARECA growthtrust FUND Contents CORPORATE DIRECTORY 2 MANAGER S REPORT Fund Information, Performance & Review 3 Market Review & Outlook 8 TRUSTEE S REPORT 10 STATEMENT BY THE MANAGER 11 AUDITORS REPORT 12 AUDITED FINANCIAL STATEMENTS FOR 13

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) Tam Chiew Lin (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) Teoh Boon Kiaw (Non-Independent) Dr. Junid Saham (Independent) AUDIT COMMITTEE MEMBERS Dato Wee Hoe Gooi Hoe Soon Wong Teck Meng Dr. Junid Saham TRUSTEE Deutsche Trustees Malaysia Berhad ( H) Level 20, Menara IMC 8, Jalan Sultan Ismail Kuala Lumpur Tel: Fax: 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 Travers Kuala Lumpur Sentral, P O Box 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 : /6698 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 Objective of the Fund Benchmark Distribution Policy of the Fund Profile of Unit Holdings * excluding units held by the Manager Equity / Growth To provide investors with an opportunity for capital growth. MSCI AC Asia Ex Japan Index (obtainable from Bloomberg) Incidental. In the absence of instruction to the contrary from a Unit Holder, the Manager is entitled to reinvest the income distributed from the Fund in additional Units of that Fund at the NAV per Unit at the end of the distribution day with no entry fee. Size of Holding (Units) No. of accounts As at 30 September 2014 % No. of units held million Up to 5, ,001 to 10, ,001 to 50, ,001 to 500, ,001 and above Total* % Rebates & Soft Commissions The Management Company retains soft commissions received from stockbrokers, provided these are of demonstrable benefit to the Unit Holders. The soft commissions may take the form of goods and services provided such as data and quotation services, computer software and investment related publications incidental to the management of the Fund. Cash rebates, if any, are directed to the account of the Fund. During the year under review, the Manager had not received any soft commissions. Inception Date 12 March 2010 Commencement Date Initial Offer Price 12 April 2010 RM per unit during the initial offer period of 21 days ended 1 April 2010 Pricing Policy Single Pricing Selling and repurchase of units by Manager are at Net Asset Value per unit 3

6 F U N D I N F O R M A T I O N Total Net Asset Value ( NAV ) as at 30 September Total Net Asset Value (RM million) Units in circulation (million units) NAV per unit (RM) HIGHEST & LOWEST NAV for the year ended 30 September Please refer to Note 1 for further information on NAV and pricing policy Highest NAV per unit (RM) Lowest NAV per unit (RM) ASSET ALLOCATION % of NAV as at 30 September Quoted equities & equity-related securities (Local) Main Market Construction Consumer Products Finance Industrial Products Properties Trading / Services Warrants Quoted equities & equity-related securities (Foreign) Agriculture Consumer Goods Industry Finance Food & Beverage Holdings Firm Industrial Infrastructure, Utilities And Transportation Information Technology-Software & Services Manufacturing Media & Publishing Oil & Gas Property, Real Estate And Building Construction Trade, Services & Investment Cash & cash equivalents including placements and repo DISTRIBUTION & UNIT SPLITS There was no distribution or unit splits exercise since the launch of the Fund on 12 March

7 F U N D I N F O R M A T I O N EXPENSE/ TURNOVER for the year ended 30 September Management expenses ratio (MER) (%) Please refer to Note 2 for further information Portfolio turnover ratio (PTR) (times) Please refer to Note 3 for further information TOTAL RETURN for the year ended 30 September Please refer to Note 4 for further information Total Return (%) Capital Return (%) Income Return (%) Annual Total Return (%) Benchmark: MSCI Asia Ex Japan Index (%) yr 3-yrs 5-yrs Average Total Return per annum (%) 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: 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 3: PTR is computed based on the average of the total acquisitions and total disposals of the investment securities of the Fund, divided by the average net asset value calculated on a daily basis. The PTR for 2014 decreased due to lower exposure in equity and reduction in shares acquired during the year as a result of fund size reduction. Note 4: Fund performance figures are calculated based on NAV to NAV and assume reinvestment of distributions (if any) at NAV. The total return and benchmark data are sourced from Lipper. Past performance is not necessarily indicative of future performance. Unit prices and investment returns may go down, as well as up. 5

8 F U N D R E V I E W During the year from 1 October 2013 to 30 September 2014, the Fund s NAV per unit increased by 13.7% as compared to its benchmark return, the MSCI AC Asia Ex Japan Index of 6.4%. The Fund achieved its objective of providing investors with an opportunity for capital growth for the year under review. The Fund out-performed its benchmark mainly due to stock selection. The Fund s top performing holdings were Pestech, Cahya Mata Sarawak and Brahim s while the underperformers were Tenwow, Shun Tak, and Emperor Watch & Jewellery. Investment Policy and Strategy The Fund invests primarily in domestic and Asian equities and equity-related securities with capital growth potential, including collective investment schemes with similar objective as the Fund. NAV per unit as at 30 September 2014 Movement of asset allocation as a percentage of Net Asset Value for the year ended 30 September 2014 RM % 80% 60% 40% 93.76% 94.49% 87.13% 75.22% Equities & equity-related securities Cash and cash equivalents 20% 0% 31-Dec Mar Jun Sep-14 * as a % of net asset value Asset Allocation/ Portfolio Composition as at 30 September % 14.71% 24.78% Equities and equity related Securities - local 60.51% 30.31% 29.22% - foreign 14.71% 58.27% 45.32% Cash & cash equivalents 24.78% 11.42% 25.46% Investment in foreign securities reduced from 58.27% to 14.71% as the Fund concentrated on few countries for investments to build up positions in selected high quality stocks in Asean markets. 6

9 F U N D R E V I E W Top 5 holdings (shares): As at 31 Dec 2013 (%) As at 31 Mar 2014 (%) 1) MELCO ) TENWOW INTERNATIONAL HOLDINGS ) CHINA MODERN DAIRY ) CHINA MODERN DAIRY ) TENWOW INTERNATIONAL HOLDINGS ) SHUN TAK HOLDINGS ) SHUN TAK HOLDINGS ) MELCO ) BUMITAMA AGRI LTD ) INTIME REATIL GROUP CO LTD 5.33 As at 30 Jun 2014 (%) As at 30 Sep 2014 (%) 1) KNM GROUP BHD ) HO HUP CONSTRUCTION COMPANY BHD ) PESTECH INTERNATIONAL BHD ) CHINA MODERN DAIRY ) FIRST RESOURCES LTD ) KNM GROUP BHD ) COASTAL CONTRACTS BHD ) MMC CORPORATION BHD ) ALLIANZ MALAYSIA BHD ) PANIN FINANCIAL TBK 3.24 Performance of for the financial period since inception to 30 September 2014 MSCI AC Asia Ex Japan Index Areca growthtrust Fund 7

10 MARKET REVIEW & OUTLOOK E C O N O M I C R E V I E W & O U T L O O K Malaysia s Gross Domestic Product (GDP) growth came in at 5.0% in 3Q13 and 5.1% in 4Q13. However, growth began to accelerate in early 2014 with Malaysia s GDP growth coming in at 6.2% y-o-y in 1Q14 and 6.4% y-o-y in 2Q14. The economic expansion was mainly supported by resilient consumer spending, private investments and remarkable increase in exports. Private consumption grew at 6.5% y-o-y while private investments grew strongly at 12.1% y-o-y in 2Q14. Headline inflation rate was above market expectations and rose to 3.3% y-o-y in August 2014 from 1.9% y-o-y in August The increase was mainly due to higher food prices. Looking ahead, inflation is expected to increase at a quicker pace after the Government announced fuel price hike of 20 sen per litre in October 2014 and the upcoming implementation of the Goods and Service Tax (GST) in April Bank Negara Malaysia s (BNM) forecast inflation rate in 2015 to be in the range of 4-5%. Economic indicators seem to be pointing towards a continuing trend of robust investment activity and strong growth in export. However, private consumption is expected to be weak with a decrease in consumer confidence level due to the implementation of GST and fuel subsidy cut. The ongoing robust capital spending in domestic oriented industries and the implementation of infrastructure projects are expected to drive investments in the country. In the region, after a heated election, Joko Widodo won and become the Indonesia's seventh president in July The Indonesia Stock Exchange s JCI Index has run up steadily until the month of election but it started to falter subsequently due to the concerns on several policy challenges. The new Indonesian government is considering raising fuel price and this would add inflationary pressure in the near term. In Thailand, the military came into power after Prime Minister Yingluck Shinawatra was removed by a court ruling in May The Thailand Central Bank expects the economy to expand 2.7% this year and 4.8% in In China, GDP advanced 7.5 percent in the 2Q14, beating market forecast. HSBC China Composite PMI data signaled a further expansion of Chinese business activities at 52.3, up from 50.2 in September EQUITY MARKET REVIEW During the period under review, the MSCI AC Asia Ex-Japan Index (MXASJ) gained 6.4% (in Ringgit terms) whilst the FBM KLCI gained 4.4%. Among regional markets, India, China and Indonesia led the gainers while Hong Kong, Korea and Australia were the laggards. In the first six months of the period under review, Asian markets saw some selling pressure as expectations of the tapering of the United States (US) s Quantitative Easing (QE) precipitated an outflow of funds from Emerging Markets to Developed Markets. The U.S. Federal Reserve eventually announced QE tapering in December The outflows were exacerbated by weakening macro conditions in selected Emerging Markets like Argentina and Turkey, potential slowdown in China s economic growth and China s shadow banking industry. However, the fear of QE tapering eventually subsided and markets began to recover from March Towards the end of September 2014, Asian markets generally tumbled due to the increased volatility in the Forex market and sharp correction in commodities prices. All currencies in Asia Pacific, except for the Chinese Yuan, depreciated against the U.S. Dollar on expectations of a rate hike and weakness in the Eurozone. Commodities prices were generally down with the price of gold dropping 6.2% while oil dropped 5% to close at US$91.2/barrel. EQUITY MARKET OUTLOOK AND STRATEGY Expectations of rate hikes by the Federal Reserve have led to an outflow of funds from Emerging Markets to Developed Markets and we believe this trend is likely to continue in the medium term on a gradual basis. Malaysia would not be spared from the funds outflow. Nevertheless, even when 8

11 interest rates do move up, we believe that it would be done on a gradual basis. The low interest rate environment is expected to be conducive for asset prices. However, there are other concerns apart from the potential rate hikes, like divergence in economic growth between the U.S. and Europe and potential slowdown in momentum in global economy as a whole. These have been reflected in interest rate expectations which already had an impact on the USD, commodities prices especially oil price, and the recent volatile equity markets. Closer to home, investors would be focused on the impact from the upcoming implementation of GST and on-going subsidies rationalization. We expect consumer sentiment and business environment to be somewhat dampened in the near term. However, we see this as a short term pain for long term gain and we believe fiscal consolidation is necessary for the longer term. We believe that the momentum of the Economic Transformation Programme (ETP) will continue and this is expected to be positive for local bourse. In terms of equity investment opportunities in Malaysia, the Fund would focus on several investment themes including the ETP, capital management, regional/global leaders and mergers and acquisition. We believe that sectors such as construction and building materials, oil and gas, especially downstream players, financials and industrials would be direct beneficiaries from the ETP. In the region, we favour countries that are more exposed to a recovery in the external sector particularly the US. The tactical preference in the near term is for markets such as Hong Kong and China, Indonesia, Thailand and Singapore. 9

12 T R U S T E E S R E P O R T For The Year Ended 30 September 2014 To the Unit holders of We have acted as Trustee of (the Fund ) for the financial year ended 30 September To the best of our knowledge, for the year under review, Areca Capital Sdn Bhd ( the Manager ) has operated and managed the Fund in accordance with the following:- (a) (b) (c) limitations imposed on the investment powers of the Manager and Trustee under the Deed, the Securities Commission Malaysia s Guidelines on Unit Trust Funds, the Capital Markets and Services Act 2007 and other applicable laws; the valuation/pricing for the Fund has been carried out in accordance with the Deed of the Fund and applicable regulatory requirements; and creation and cancellation of units for the Fund have been carried out in accordance with the Deed of the Fund and applicable regulatory requirements. For Deutsche Trustees Malaysia Berhad (Company No: H) NADZATHUL SHERA JADLI HEAD, TRUSTEE OPERATIONS WONG MUN LOONG MANAGER, TRUSTEE OPERATIONS Kuala Lumpur 20 November

13 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, being 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 13 to 35 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 2014 and of its financial performance, changes in equity and cash flows of the financial year ended 30 September 2014 in accordance with 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 Kuala Lumpur 20 November November

14 INDEPENDENT AUDITORS REPORT To the Unit Unitholders of REPORT ON THE FINANCIAL STATEMENTS We have audited the financial statements of (the Fund ), which comprise the statement of financial position as at 30 September 2014 of the Fund, and the statement of comprehensive income, statement of changes in equity and statement of cash flow for the financial year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 13 to 35. Manager s Responsibility for the Financial Statements The Manager of the Fund is responsible for the preparation of financial statements that gives 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 determines are necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Fund s preparation of financial statements that give a true and fair view 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 Manager s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Manager as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements give a true and fair view of the financial position of the Fund as of 30 September 2014 and of their financial performance and cash flows for the year then ended in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards. Other Matter 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

15 STATEMENT OF FINANCIAL POSITION As At 30 September 2014 ASSETS CURRENT ASSETS Note Financial assets at fair value through profit or loss 6 1,908,039 3,151,544 Cash and cash equivalents 7 606, ,340 Amount due from stockbrokers 121, ,542 Dividends receivable 1,815 6,292 Tax recoverable - 4,944 TOTAL ASSETS 2,638,362 3,590,662 LIABILITIES CURRENT LIABILITIES Amount due to Manager Accrued management fee 3,364 4,722 Accrued Trustee fee 15,968 15,363 Amount due to stockbrokers 71,718 - Other payables and accruals 10,900 11,727 Total Liabilities 101,950 32,800 Net Assets Value of the Fund 2,536,412 3,557,862 EQUITY Unit holders capital 2,438,373 3,820,057 Retained earnings/ (accumulated losses) 98,039 (262,195) Total Net Assets Attributable to Unit Holders 2,536,412 3,557,862 Number of Units in Circulation 8 4,568,817 7,283,582 Net Asset Value Per Unit (RM) RM RM The accompanying notes form an integral part of these financial statements. 13

16 STATEMENT OF COMPREHENSIVE INCOME For The Financial Year Ended 30 September 2014 INVESTMENT INCOME Note Gross dividend income 31,410 59,986 Interest income from deposits with licensed financial institutions 7,173 11,158 Net gain on financial assets at fair value through profit or loss 6 453, ,922 EXPENSES RM RM 491, ,066 Management fee 3 (44,006) (57,459) Trustee fee 4 (18,000) (18,000) Audit fee (7,100) (7,100) Tax agent fee (3,800) (3,800) Transaction cost (41,453) (72,704) Other expenses (17,403) (31,707) (131,762) (190,770) Net income before taxation 360, ,296 Taxation (346) Net Income After Taxation And Total Comprehensive Income For The Financial year Net Income After Taxation Is Made Up Of The Following: 360, ,950 Realised amount 48, ,591 Unrealised amount 311,374 (306,641) 360, ,950 The accompanying notes form an integral part of these financial statements. 14

17 STATEMENT OF CHANGES IN EQUITY For The Financial Year Ended 30 September 2014 Unit holders capital Retained earnings/ (accumulated losses) Total RM RM RM Balance as at 1 October ,820,057 (262,195) 3,557,862 Movement in unit holders capital: Creation of units from applications 33,125-33,125 Cancellation of units (1,414,809) - (1,414,809) Total comprehensive income for the financial year - 360, ,234 Balance as at 30 September ,438,373 98,309 2,536,412 Balance as at 1 October ,561,707 (585,145) 2,976,562 Movement in unit holders capital: Creation of units from applications 1,806,638-1,806,638 Cancellation of units (1,548,288) - (1,548,288) Total comprehensive income for the financial year - 322, ,950 Balance as at 30 September ,820,057 (262,195) 3,557,862 The accompanying notes form an integral part of these financial statements. 15

18 STATEMENT OF CASH FLOWS For The Financial Year Ended 30 September 2014 Cash Flows From Operating Activities Note Proceeds from sale of investments 6,389,537 8,760,863 Purchase of investments (4,145,888) (9,065,781) Subscription for initial public offering/ right issue RM RM (384,810) - Dividend income received 34,550 50,449 Tax refund 6,553 - Interest income received from deposits with licensed financial institutions 7,173 11,158 Management fee paid (45,364) (56,711) Trustee s fee paid (17,395) (17,762) Payment for other fees and expenses (29,130) (42,913) Net Cash Generated From/ (Used In) Operating Activities Cash Flows From Financing Activities 1,815,227 (360,697) Cash proceeds from units created 33,125 1,806,638 Payment for cancellation of units (1,415,797) (1,547,300) Net Cash (Used In)/ Generated From Financing Activities Net Increase/ (Decrease) In Cash And Cash Equivalents Cash And Cash Equivalents At The Beginning of The Financial Year Cash And Cash Equivalents At The End Of The Financial Year (1,382,673) 259, ,554 (101,359) 174, , , ,340 The accompanying notes form an integral part of these financial statements. 16

19 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2014 The following accounting policies have been used consistently in dealing with items which are considered material in relation to the financial statements. A (i) BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS The financial statements have been prepared under the historical cost convention in accordance with Malaysian Financial Reporting Standards ( MFRS ) and International Financial Reporting Standards ( IFRS ). The preparation of financial statements in conformity with the MFRS and IFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported financial year. It also requires the Manager to exercise their judgment in the process of applying the Fund s accounting policies. Although these estimates and judgment are based on the Manager s best knowledge of current events and actions, actual results may differ. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note L. The new standards, amendments to published standards and interpretations to existing standards that are applicable to the Fund but not yet effective and have not been early adopted are as follows: (a) Financial year beginning on/after 1 October 2014 Amendment to MFRS 132 Financial instruments: Presentation (effective from 1 January 2014) does not change the current offsetting model in MFRS 132. It clarifies the meaning of currently has a legally enforceable right of set-off that the right of set-off must be available today (not contingent on a future event) and legally enforceable for all counterparties in the normal course of business. It clarifies that some gross settlement mechanisms with features that are effectively equivalent to net settlement will satisfy the MFRS 132 offsetting criteria. This amendment is not expected to have a significant impact on the Fund s financial statements. (b) Effective date yet to be determined by Malaysian Accounting Standards Board MFRS 9, Financial Instruments: Classification and Measurement of Financial Assets and Financial Liabilities replaces the parts of MFRS 139 that relate to the classification and measurement of financial instruments. MFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the MFRS 139 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. MFRS 9, Financial Instruments Hedge Accounting brings into effect substantial overhaul of hedge accounting that will allow entities to better reflect their risk management activities in the financial statements. The revised standard establishes a more principle-based approach to hedge accounting and addresses inconsistencies and weaknesses in the current model in MFRS 139. The Fund will apply this standard when effective. This standard is not expected to have a significant impact on the Fund s financial statements. 17

20 B INCOME RECOGNITION Interest income from short term deposits is recognised on an accrual basis using the effective interest method. Dividend income is recognised on the ex-dividend date, when the right to receive the dividend has been established. Realised gain or loss on sale of investments is accounted for as the difference between the net disposal proceeds and the carrying amount of the investments, determined on a weighted average cost basis. C TAXATION Current tax expense is determined according to the Malaysian tax laws at the current based upon the taxable profits earned during the financial year. Tax on dividend income from foreign quoted investments is based on the tax regime of the respective countries that the Fund invests in. D PRESENTATION AND FUNCTIONAL 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 ( RM ), which is the Fund s presentation and functional currency. E FOREIGN CURRENCY TRANSLATION Foreign currency transactions in the Fund are translated into the functional currency using the exchange rates prevailing at the transaction dates. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income. F FINANCIAL ASSETS AND LIABILITIES (i) Classification The Fund designates its investment in quoted investments as financial assets at fair value through profit or loss at inception. Financial assets are designated at fair value through profit or loss when they are managed and their performance evaluated on a fair value basis. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and have been included in current assets. The Fund s loans and receivables comprise cash and cash equivalents, amount due from stockbrokers and dividend receivables which are all due within 12 months. Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability. The Fund s financial liabilities include amount due to Manager, accrued management fees, accrued Trustee fee, amount due to stockbrokers and other payables and accruals. (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. Quoted investments are initially 18

21 recognised at fair value. Transaction costs are expensed in the statement of comprehensive income. Financial assets are derecognised when the rights to receive cash flows from the quoted investments have expired or have been transferred and the Fund has transferred substantially all risks and rewards of ownership. Financial liabilities, within the scope of MFRS 139, are recognised in the statement of financial position when, and only when, the Fund becomes a party to the contractual provisions of the financial instrument. Financial liabilities are derecognised when it is extinguished, i.e. when the obligation specified in the contract is discharged or cancelled or expires. Gain and losses are recognised in the statement of comprehensive income when the liabilities are derecognised, and through the amortisation process. Unrealised gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss category are presented in the statement of comprehensive income within net gain/(loss) on financial assets at fair value through profit and loss in the period in which they arise. Any unrealised gains however are not distributable. Dividend income from financial assets at fair value through profit or loss is recognised in the statement of comprehensive income as part of gross dividend income when the Fund s right to receive payments is established. Quoted investments outside Malaysia are valued at the market bid prices quoted of the respective foreign stock exchanges as at the date of the statement of financial position. If a valuation based on the market price does not represent the fair value of the securities, for example during abnormal market conditions or no market price is available, including in the event of a suspension in the quotation of the securities for a period exceeding 14 days, or such shorter period as agreed by the Trustee, then the securities are valued as determined in good faith by the Manager, based on the methods or bases approved by the Trustee after appropriate technical consultation. Deposits with licensed financial institutions are stated at cost plus accrued interest calculated on the effective interest method over the period from the date of placement to the date of maturity of the respective financial institutions deposits. Loans and receivables and other financial liabilities are subsequently carried at amortised cost using the effective interest method. For assets carried at amortised cost, the Fund assesses at the end of the reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset s original effective interest rate. The asset s carrying amount of the asset is reduced and the amount of the loss is recognised in statement of comprehensive income. If financing and receivables or a held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Fund may measure impairment on the basis of an instrument s fair value using an observable market price. 19

22 If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor s credit rating), the reversal of the previously recognised impairment loss is recognised in statement of comprehensive income. When an asset is uncollectible, it is written off against the related allowance account. Such assets are written off after all the necessary procedures have been completed and the amount of the loss has been determined. G AMOUNT DUE FROM/(TO) STOCKBROKERS Amounts due from and to stockbrokers represent receivables for securities sold and payables for securities purchased that have been contracted for but not yet settled or delivered on the statement of financial position date respectively. These amounts are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment for amounts due from brokers. A provision for impairment of amounts due from stockbrokers is established when there is objective evidence that the Fund will not be able to collect all amounts due from the relevant stockbroker. Significant financial difficulties of the stockbroker, probability that the stockbroker will enter bankruptcy or financial reorganisation, and default in payments are considered indicators that the amount due from stockbrokers is impaired. Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts throughout the expected life of the financial instrument, or, when appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Fund estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. H CASH AND CASH EQUIVALENTS For the purpose of statement of cash flows, cash and cash equivalents comprise deposits with a licensed financial institution and bank balance with a licensed bank that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. I CREATION AND CANCELLATION OF UNITS The Fund issues cancellable units, which are cancelled at the unit holder s option and are classified as equity. Cancellable units can be returned to the Fund at any time for cash equal to a proportionate share of the Fund s net asset value ( NAV ). The outstanding units are carried at the redemption amount that is payable at the statement of financial position date if the unit holder exercises the right to return the unit to the Fund. Units are created and cancelled at the unit holder s option at prices based on the Fund s NAV per unit at the time of creation or cancellation. The Fund s NAV per unit is calculated by dividing the net assets attributable to unit holders with the total number of outstanding units. 20

23 J UNIT HOLDER S CAPITAL The unit holders contributions to the Fund meet the definition of puttable instruments classified as equity instruments under the revised MFRS 132 Financial Instruments: Presentation. The units in the Fund are puttable instruments which entitle the unit holders to a pro-rata share of the net asset value of the Fund. The units are subordinated and have identical features. There is no contractual obligation to deliver cash or another financial asset other than the obligation on the Fund to repurchase the units. The total expected cash flows from the units in the Fund over the life of the units are based on the change in the net asset value of the Fund. K SEGMENTAL INFORMATION Operating segments are reported in a manner consistent with the internal reporting used by chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Investment Committee of the Fund s manager that undertakes strategic decisions for the Fund. L CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES The Fund makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. To enhance the information content of the estimates, certain key variables that are anticipated to have material impact to the 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 the Trustee and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 21

24 NOTES TO THE FINANCIAL STATEMENTS 30 SEPTEMBER INFORMATION ON THE FUND ( the Fund ) was established pursuant to a Trust Deed dated 12 November 2009 as modified by the First Supplemental Deed dated 17 December 2012 ( the Deed ) between Areca Capital Sdn Bhd as the Manager, Deutsche Trustees Malaysia Berhad as the Trustee and all the registered unit holders of the Fund. The First Supplemental Deed was executed to reflect the change to the Fund s name, to remove the Fund s maturity date, to change its objective and other consequential amendments of the Fund. The principal activity of the Fund is to invest in investments as defined under Schedule 6 of the Deed, which include stocks and shares of companies quoted on any recognised stock exchange(s) in Malaysia and permitted foreign stock exchanges, and deposits with financial institutions. The Fund commenced operations on 12 March 2010 and will continue its operations until terminated in accordance with Part 12 of the Deed. The objective of the Fund is to provide investors with an opportunity for capital growth. 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 RISK MANAGEMENT OBJECTIVES AND POLICIES The Fund is exposed to a variety of risks which include market risk (inclusive of price risk, exposure to interest rate risk and currency risk), business risk, capital risk and liquidity risk. Financial risk management is carried out through internal control processes adopted by the Manager and adherence to the investment restrictions as stipulated in the Securities Commission Malaysia s Guidelines on Unit Trust Funds. Financial instruments of the Fund are as follow: Financial Note Loans and receivables assets at fair value through profit or loss Total 30 September 2014 RM RM RM Financial assets at fair value through profit or loss 6-1,908,039 1,908,039 Amount due from stockbrokers 121, ,614 Dividends receivable 1,8155-1,815 Cash and cash equivalents 7 606, , ,323 1,908,039 2,638, September 2013 Financial assets at fair value through profit or loss 6-3,151,544 3,151,544 Amount due from stockbrokers 253, ,542 Dividends receivable 6,292-6,292 Cash and cash equivalents 7 174, , ,174 3,151,544 3,585,718 All current liabilities are financial liabilities which are carried at amortised cost. 22

25 Market risk (i) Price risk The risk refers to changes and developments in regulations, politics and economy of the country. The very nature of a unit trust fund, however, helps mitigate this risk because a fund would generally hold a well-diversified portfolio of securities from different market sectors that the collapse of any security or any one market sector would not impact too greatly on the value of the Fund. The table below show assets of the Fund as at 30 September which are exposed to price risk: RM RM Quoted securities designated at fair value through profit or loss 1,908,039 3,151,544 The following table summarises the sensitivity of the Fund s net asset value and income/(loss) after tax to movements in prices of quoted securities at the end of the reporting year. The analysis is based on the assumptions that the price of the quoted securities increased by 5% and decreased by 5% with all other variables held constant. This represents management s best estimate of a reasonable possible shift in the quoted securities, having regard to the historical volatility of the prices. Increase/(decrease) Change in price of financial assets at fair value through profit or loss Market value in income /(loss) after taxation and net asset value % RM RM % 2,003,441 95,402-5% 1,812,637 (95,402) % 3,309, ,577-5% 2,993,967 (157,577) (ii) Exposure to interest rate risk Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the value of financial instrument will fluctuate due to changes in market interest rates. As at the date of the statement of financial position, all the financial assets and financial liabilities have no exposure to interest rate movement except for deposits with licensed financial institutions of RM602,392 (2013: RM173,839) which have maturities of less than one year. The Fund s investments in deposits with licensed financial institutions are short term in nature. Therefore, exposure to interest rate fluctuations is minimal. 23

26 (iii) Currency risk As the Fund may invest its assets in securities denominated in a wide range of currencies other than Ringgit Malaysia, the net asset value of the fund expressed in Ringgit Malaysia may be affected favourably or unfavourably by exchange control regulations or changes in the exchange rates between Ringgit Malaysia and such other currencies. The risk is minimised through investing in a wide range of foreign currencies denominated assets and thus, diversifying the risk of single currency exposure. In the normal course of investment, the Fund Manager will usually not hedge foreign currency exposure. The Fund Manager may however depending on prevailing market circumstances at a particular point in time, choose to use forward or option contracts for hedging and risk reduction purposes. The following table sets out the foreign exchange/currency risk concentrations and counterparties of the Fund: Financial assets at fair 2014 value through profit or loss Dividends receivable Total RM RM RM HKD 218, ,085 IDR 155, , , , HKD 153,631 1, ,145 IDR 708, ,924 PHP 379, ,470 SGD 394, ,344 THB 436,790 2, ,261 2,073,313 4,831 2,078,144 The table below summarises the sensitivity of the Fund s financial assets to changes in foreign exchange movements at the end of the reporting year. The analysis is based on the assumption that the foreign exchange rate changes by 5% with all variables remain constants. This represents management s best estimate of a reasonable possible shift in the foreign exchange rate having regard to historical volatility of this rate. Disclosures below are shown in absolute terms, changes and impacts could be positive or negative. Change in foreign exchange rate Impact on income/(loss) after taxation Impact on net asset value 2014 % RM RM HDK 5 10,904 10,904 IDR 5 7,756 7, HDK 5 7,757 7,757 IDR 5 35,446 35,446 PHP 5 19,023 19,023 SGD 5 19,717 19,717 THB 5 21,963 21,963 24

27 Business risk Business risk of emerging companies with a short track record that tends to be higher than matured and well-established companies. The Fund gives preference to invest in companies with a reasonable track record compared to a new company. The Manager can manage the market cycles and short-term fluctuations by virtue of its experience, the analytical process adopted by its Fund Manager and by constructing a diversified investment portfolio. Redemption and subscription of units are important in the day-to-day management of the Fund. Liquidity is monitored everyday to ensure the Fund is not affected especially by unexpected redemption. The compliance unit is in place to ensure no breaches in investment limits. If there is any breach, the compliance unit can quickly notify the Fund Manager to take corrective action. In managing the Fund, the Manager has established policies and procedures outlining the internal control mechanism, reporting responsibilities and internal audit and compliance function. The performance and investment activities of the Fund are regularly reviewed by the Investment Committee and the Board of Directors of the Manager. Capital risk The capital of the Fund is represented by equity consisting of unit holders capital and retained earnings. The amount of equity can change significantly on a daily basis as the Fund is subject to daily subscriptions and redemptions at the discretion of unit holders. The Fund s objective when managing capital is to safeguard the Fund s ability to continue as a going concern in order to provide returns for unit holders and benefits for other stakeholders and to maintain a strong capital base to support the development of the investment activities of the Fund. Credit risk Credit risk refers to the ability of an issuer or a counter party to make timely payments of profit, principals and proceeds from realisation of investments. Credit risk arising from placements of deposits in licensed financial institutions is managed by ensuring that the Fund will only place deposits in reputable licensed financial institutions. For amount due from stockbrokers, the settlement terms are governed by the relevant rules and regulations as prescribed by Bursa Malaysia Securities Berhad ( Bursa Malaysia ). The credit risk is minimal as all transactions in quoted securities are settled/paid upon delivery using approved brokers. The following table set out the credit risk concentrations of the Fund: Cash and cash equivalents Amount due from stockbrokers Dividends 2014 receivable Total RM RM RM RM Finance AAA 102,303 72, ,734 AA1 4,502-1,815 6,317 AA2-49,183-49,183 AA- 500, , , ,614 1, ,323 25

28 Cash and cash equivalents Amount due from stockbrokers 2013 Dividends receivable Total RM RM RM RM Consumer Goods Industry NR - - 1,514 1,514 Finance AAA 173, ,839 AA ,461 1, ,340-1, ,801 Food & Beverage NR - - 2,471 2,471 Industrial NR Properties NR - 122, ,924 Trading/Services A3-130, ,618 Total 174, ,542 6, ,174 None of these assets are past due or impaired Liquidity risk Liquidity risk is the risk that the Fund will encounter difficulty in meetings its financial obligations. The Manager manages this risk by maintaining sufficient level of liquid assets, after consultation with the Trustee, to meet anticipated payments and cancellations of units by unit holders. Liquid assets comprise bank balance with a licensed bank, deposit with a licensed financial institution and other instruments which are capable of being converted into cash within 7 days. The table below summarises the Fund s financial liabilities into relevant maturity groupings based on the remaining period as at the statement of financial position date to the contractual maturity date. The amounts in the table are the contractual undiscounted cash flows. Less than 1 month More than 1 month Total 2014 RM RM RM Accrued management fee 3,364-3,364 Accrued Trustee fee 15,968-15,968 Amount due to stockbrokers 71,718-71,718 Others payables and accruals - 10,900 10,900 Contractual cash out flows 91,050 10, , Amount due to Manager Accrued management fee 4,722-4,722 Accrued Trustee fee 15,363-15,363 Other payables and accruals - 11,727 11,727 Contractual cash out flows 21,073 11,727 32,800 26