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Annual Report Mar 2019For the Year Ended 31 March 2019
Areca Situational Income Fund
A NN UA L REPORT MA RCH 2019
ARECA SITUATIONAL INCOME FUND
Contents
CORPORATE DIRECTORY 2
MANAGER’S REPORT
Fund Information, Performance & Review 3 Market Review & Outlook 7
TRUSTEE’S REPORT 9
STATEMENT BY THE MANAGER 9
AUDITED FINANCIAL STATEMENTS FOR
Areca Situational Income Fund
Auditor’s Report
10
26
ANNUAL REPORT MARCH 2019
ARECA SITUATIONAL INCOME FUND
2
C O R P O R A T E D I R E C T O R Y
MANAGER
Areca Capital Sdn Bhd (740840-D)
107, Blok B, Pusat Dagangan Phileo Damansara 1
No. 9, Jalan 16/11, Off Jalan Damansara
46350 Petaling Jaya, Selangor
Tel: 603-7956 3111, Fax: 603-7955 4111
website: www.arecacapital.com
e-mail: [email protected]
BOARD OF DIRECTORS
Wong Teck Meng (Executive) Edward Iskandar Toh Bin Abdullah (Executive)
Raja Datuk Zaharaton Bt Raja Dato’ Zainal Abidin
(Independent)
Dr. Junid Saham (Independent)
INVESTMENT COMMITTEE MEMBERS
Dato’ Seri Lee Kah Choon (Independent)
Raja Datuk Zaharaton Bt Raja Dato’ Zainal Abidin
(Independent)
Dr. Junid Saham (Independent)
TRUSTEE
Maybank Trustees Berhad (5004-P)
8th Floor, Menara Maybank
100 Jalan Tun Perak
50050 Kuala Lumpur
Tel: 03-2078 8363, Fax: 03-2070 9387
AUDITOR
Deloitte PLT (LLP0010145-LCA) Level 16, Menara LGB
1 Jalan Wan Kadir, Taman Tun Dr. Ismail
60000 Kuala Lumpur
Tel: 03-7610 8888, Fax: 03-7726 8986
TAX ADVISER
Deloitte Tax Services Sdn Bhd (36421-T) Level 16, Menara LGB
1 Jalan Wan Kadir, Taman Tun Dr. Ismail
60000 Kuala Lumpur
Tel: 03-7610 8888, Fax: 03-7726 8986
M A N A G E R ’ S O F F I C E A N D B R A N C H E S
HEAD OFFICE
107, Blok B, Pusat Dagangan Phileo Damansara 1, No. 9, Jalan 16/11, Off Jalan Damansara,
46350 Petaling Jaya, Selangor.
Tel: 603-7956 3111, Fax: 603-7955 4111
website: www.arecacapital.com
e-mail: [email protected]
PENANG BRANCH IPOH BRANCH MALACCA BRANCH
368-2-02 Belissa Row 11A, (First Floor) 95A, Jalan Melaka Raya 24
Jalan Burma, Georgetown Persiaran Greentown 5 Taman Melaka Raya
10350 Pulau Pinang Greentown Business Centre 75000 Melaka
Tel : 604-210 2011 30450 Ipoh, Perak Tel : 606-282 9111
Fax: 604-210 2013 Tel : 605-249 6697 Fax: 606-283 9112
Fax: 605-249 6696
KUCHING BRANCH
1st Floor, Sublot 3 Lot 7998, Block16
KCLD, Cha Yi Goldland
Jalan Tun Jugah / Stutong
93350 Kuching, Sarawak
Tel : 6082-572 472
ANNUAL REPORT MARCH 2019
ARECA SITUATIONAL INCOME FUND
3
F U N D I N F O R M A T I O N
Name of the Fund Areca Situational Income Fund
Fund Category/
Type
Wholesale Fixed Income Fund/ Income and Growth
Objective of the
Fund
Seek to offer investors regular income* and incidental capital appreciation
based on current market investment opportunities
* income could be in the form of Units or Cash
Performance
Benchmark
Maybank’s 12-month fixed deposit rate
Distribution
Policy of the Fund
Subject to the availability of income, the Fund will distribute income at least
once a year. In the absence of any instructions, we will, at our discretion, pay
any income distributed by the Fund to you, or reinvest the income in
additional units at the NAV per unit of the distribution day without any entry
fee.
Profile of
unitholdings
* excluding units held
by the Manager (please
refer to Notes to
Financial Statement –
Note 17)
As at 31 March 2019
Size of Holding
(Units)
No. of
accounts %
No. of unit
held
(million)
%
Up to 5,000 - - - -
5,001 to 10,000 - - - -
10,001 to 50,000 45 40.18 2.21 7.59
50,001 to 500,000 61 54.46 10.67 36.59
500,001 and above 6 5.36 16.29 55.82
Total* 112 100.00 29.17 100.00
Rebates & Soft
Commissions
The Manager retains soft commissions received from stockbrokers, provided
these are of demonstrable benefit to unitholders. The soft commissions may
take the form of goods and services such as, data and quotation services,
computer software incidental to the management of the Fund and investment
related publications. Cash rebates (if any) are directed to the account of the
Fund. During the period under review, the Manager had not received any soft
commissions.
Inception Date 01 March 2016
Initial Offer Price RM1.0000 per unit during the initial offer period of 15 days ended 15 March
2016
Pricing Policy Single Pricing – Selling and repurchase of units by Manager are at Net Asset
Value per unit
Financial Year
End
31 March
ANNUAL REPORT MARCH 2019
ARECA SITUATIONAL INCOME FUND
4
F U N D P E R F O R M A N C E
2019 2018 2017
Total Net Asset Value (“NAV”)
Total Net Asset Value (RM million) 32.65 32.69 25.15
Units in circulation (million units) 29.95 29.95 22.98
NAV per unit (RM) 1.0902 1.0918 1.0944
HIGHEST & LOWEST NAV per unit Please refer to Note 1 for further information on NAV and pricing policy
Highest NAV per unit (RM) 1.0972 1.0995 1.0944
Lowest NAV per unit (RM) 1.0024 1.0048 1.0000
ASSET ALLOCATION % of NAV
Fixed Income Securities
Corporate bonds 91.88 91.73 91.42 Cash & cash equivalent including
placements & repo 8.12 8.27 8.58
DISTRIBUTION
Please refer to Note 2 for further information
Distribution date 20 April 2018 20 Apr 2017 -
Gross distribution (sen per unit) 9.50 11.77 -
Net distribution (RM per unit) 9.50 9.50 -
NAV before distribution (RM per unit) 1.0972 (19 Apr) 1.0995 (19 Apr) -
NAV after distribution (RM per unit) 1.0024 (20 Apr) 1.0048 (20 Apr) -
UNIT SPLITS
There was no unit split exercise for the financial period under review.
EXPENSE/ TURNOVER
Management expense ratio (MER) (%) 1.59 1.68 1.26
Please refer to Note 3 for further information
Portfolio turnover ratio (PTR) (times) - 0.11 0.52 Please refer to Note 4 for further information
TOTAL RETURN
Please refer to Note 5 for further information
Total Return (%) 9.33 9.19 9.44
- Capital Return (%) -0.14 -0.24 9.44
- Income Return (%) 9.47 9.43 -
Performance Benchmark: Average Maybank’s
12-month fixed deposit rate (%) 3.35* 3.14* 3.17*
*Annualised for comparison purpose only
ANNUAL REPORT MARCH 2019
ARECA SITUATIONAL INCOME FUND
5
Total Return since launch (%) 30.65 9.19 9.44
1-yr 3-yrs 5-yrs
Average Total Return per annum (%) 9.33 10.18 N/A
NOTES:
Note 1: Selling of units by the Management Company (i.e. when you purchase units and invests in the Fund)
and redemption of units by the Management Company (i.e. when you redeem your units and liquidate your
investments) will be carried out at NAV per unit (the actual value of a unit). The entry/ exit fee (if any) would
be computed separately based on your net investment/ liquidation amount.
Note 2: Net distribution of 9.50 sen per unit was declared on 20 April 2018 and was automatically reinvested
into additional units on the same day at NAV per unit after distribution at no entry fee.
Note 3: MER is calculated based on the total fees and expenses incurred by the Fund, divided by the average
net asset value calculated on a daily basis.
Note 4: PTR is computed based on the average of the total acquisitions and total disposals of the investment
securities of the Fund, divided by the average net asset value calculated on a daily basis.
Note 5: Fund performance figures are calculated based on NAV to NAV and assume reinvestment of
distributions (if any) at NAV. The total return and the performance benchmark are sourced from Lipper.
Unit prices and distributions payable, if any, may go down as well as up. Past performance of the
Fund is not an indication of its future performance.
ANNUAL REPORT MARCH 2019
ARECA SITUATIONAL INCOME FUND
6
F U N D R E V I E W
For the period in review (01/04/2018-31/03/2019), the Fund posted a return of 9.33% against the
benchmark Maybank 12 mths FD of 3.35%. The portfolio is highly concentrated with limited liquidity
and is solely invested in one bond issue. At the time of this report, security coverage is deemed superior
as it has a cash backing in excess of 100%. Together with the properties charged, coverage stands at
148%. To date the issuer has fulfilled all its financial obligations in a timely and complete manner. We
are confident of the issuer’s continued ability to meet them for the duration of the bond. We remain
vigilant to their credit quality.
The Fund has achieved its objective to offer investor regular income and incidental capital appreciation
based on current market investment opportunities for the period under review.
The Fund has invested as the sole investor in Iconic Vacation Club Berhad’s (IVCB) Medium Term Note
(MTN) programme. Areca Capital Sdn Bhd, the Manager of the Fund, was appointed by IVCB as the fund
manager to manage the redemption account under the IVCB MTN programme. As at the date of the
report, the Manager was not aware of any conflict of interest arising from the above.
Investment Policy and Strategy
The Fund invests wholly in a single fixed income investment.
NAV per unit as at 31 March 2019 RM1.0902
Asset Allocation / Portfolio Composition 2019 2018 2017
Fixed income securities 91.88% 91.73% 91.42%
Cash & cash equivalents 8.12% 8.27% 8.58%
Performance of Areca Situational Income Fund for the financial period since inception to 31 March 2019
91.88%
8.12%
Areca Situational Income Fund
Maybank 12 Months Fixed Deposit
ANNUAL REPORT MARCH 2019
MANAGER’S REPORT
7
MARKET REVIEW & OUTLOOK
ECONOMIC REVIEW&OUTLOOK
The wheels of US economic growth gained momentum in the 2nd half of 2018 and into the 1st quarter
of 2019. Labour data remain strong with unemployment at 3.8% in March against a 49 year low of
3.7% in September. Wage growth was encouraging with hourly wages rising 3.3% from a year ago.
Inflation however tapered down from a 6½ year high of 2.9% in June and July to 1.9% in January
due to declining gasoline prices. Significantly, core inflation was sustained above 2% throughout the
year in review with 12-mth moving average rising to 2.18%. Meanwhile US 1QGDP grew at 3.2% y-o-
y, highest since 2Q2015. The Federal Reserve as expected and justifiably raised Fed Funds rates
three times in the last 12 months from 1.75 to 2.50%. However, the Federal Reserve turned dovish
this year as if in compliance with US President Trump’s wish with an about turn in interest rates
outlook from last year’s bullish stance as trade war with China ramped up. The US yield curve
inverted at the end of March further cementing doubts of global economy.
The US-China trade war materially took effect in the 3rd quarter with an initial US$34 bil of China
imports imposed with tariffs. A 10% tax was then put on another US$200 bill worth of China imports
in September. China retaliated with their list of equivalent value initially but they have a shorter stick
to match. However, interestingly, trade imbalance has not improved and has in fact widened to -
US$419.2 bil for the year 2018; 11.6% higher than the previous year; which explains the
unconventional public rebuke of Federal Reserve Chairman by President Trump for predictably raising
rates thus increasing attractiveness of US$ through favourable interest rates differential. This partially
negates the effect of tariffs.
Meantime growth in China continue to decline registering 6.7%, 6.5%, 6.4% and 6.4% in the last
four quarters. For the year 2018, their economy expanded 6.6%, the lowest level since 1990.
Focused on domestic issues, China introduced fiscal tools by widening tax deductions and increasing
infrastructure spending. It was further supported with a 1% cut to Reserve Ratio in October (the 4th
cut this year), releasing almost US$110 billion into their system, while directing banks to grow SME
loans as they steer their economy towards a larger proportion of domestic consumption amidst rising
concerns with higher off-balance sheet borrowings and the imposing US-China trade rift.
With the US economy growing under healthy environment of full employment and manageable
inflation, it is believed that Trump assumes the US has the upper hand in trade negotiations.
Extrapolated charts show a path of sustained growth but pitfalls come in the form of failed trade talks
as they attempt to stem the advancing Chinese economic juggernaut. Meanwhile their trump card last
year; tax cut benefit; begin to wear off as many are discovering the benefits weigh in favour of the
upper earning brackets.
Malaysia’s economy
Malaysia’s economy expanded 4.5%, 4.4%, 4.7% and 4.5% in this same year in review. For the year
2018 the economy grew 4.7% vs 5.9% in previous year. Inflation dipped into deflation for the first
two months of 2019 but picked up to record 0.2% in March while registering 1% for the whole year
due to lower petrol prices and effect of 3 months ‘tax holiday’ when phasing out GST for SST between
July till August. Foreign Reserves declined to USD103.0 billion (or RM420.2 billion) at the end of
March against last year March’s USD107.8 billion (or RM416.4 bil).
Challenges are aplenty, as goodwill towards the new government begin to thin. True character and
policies will have to surface to show their ability to resuscitate our economy that has been weighed
down by the ignominy of 1MDB debts. The bigger picture is how to reposition our economy to face the
challenges of a new world and move up the value chain. A paradigm shift is necessary.
FIXED INCOME MARKET REVIEW & OUTLOOK
The 10-year US Treasury benchmark hit a more than 7-years high at 3.22% at the start of October
2018 as outlook in the US economy was bullish supported by the 4 rate hikes in 2018. However, the
imposition of trade tariffs on Chinese imports began to disrupt global economy. Concerns with slowing
ANNUAL REPORT MARCH 2019
MANAGER’S REPORT
8
aggregate global growth began to spread guiding investors to turn dovish at year end pushing
benchmark yield to close lower at 2.69% and even lower at end March to 2.42%. Market was
confounded when 2/10 spreads (difference between 10 and 2 years US Treasury yields) narrowed to
just 11 basis points in December, a level last seen in mid-2007. For a week at the end of March, 10
years over 3 months spread dipped into negative territory. In the last cycle, the 10yr/3mth spread
registered negative in early 2006, almost 2 years before recession hit. Yields inversions have
preceded all except one US recession in the last 50 years. The last 3 US recessions were preceded by
inverted yield curve by an average of 17 months.
In Malaysia, Overnight Policy Rates were left unchanged at 3.25% throughout this 12 months in
review. A gradual increase in concern over the impact of trade rift on external demand was noted
while acknowledging robustness in Malaysia’s fundamentals in weathering the challenges ahead.
Meantime MYR weakened considerably against USD from 3.86 to 4.20 before finding strength in later
months to close this period at 4.08. There was a net outflow of offshore funds from our sovereign
debt markets of RM17.7bil compared to a net inflow of RM31.9 bil in the same period a year ago. This
is largely due to ‘risk off’ mode towards emerging markets as well as risk premium attached to
uncertainty on new government’s policies. Foreign debt holdings stand at RM176.5 bil at end March
2019 or 23.1% of outstanding. Yield curve flattened this period with short end (up to 5 years) rising
between 3 and 20 bps while longer end fell as much as 25 basis points.
For the second half of 2018, the government raised RM44.8 bil through 15 MGS/GII issues with
tenures ranging from 3 to 30 years. In addition, a total of RM6.5 bil was raised through private
placements bringing the total issued for the year to RM112.8 bil.
Constant Maturity Conventional Yield-To-Maturity: March 2019 vs March 2018
Tenure 1Y 3Y 5Y 7Y 10Y
Mar’18 Mar’19 Mar’18 Mar’19 Mar’18 Mar’19 Mar’18 Mar’19 Mar’18 Mar’19
MGS 3.184 3.348 3.365 3.388 3.603 3.586 3.837 3.711 3.979 3.763
AAA 4.080 3.970 4.330 4.130 4.510 4.220 4.640 4.290 4.820 4.370
AA2 4.290 4.150 4.530 4.340 4.700 4.440 4.840 4.510 5.030 4.590
A2 5.470 5.380 6.140 6.000 6.730 6.540 7.160 6.920 7.800 7.450
Source: Bond Pricing Agency Malaysia Sdn Bhd (BPA)
The Federal Reserve has switched turned dovish this year. The uncertainties of the developing trade
negotiations have cast an overbearing gloom on global economy prompting the World Bank to
downgrade growth. Event risk is high. A positive outcome will help both China and US project an
optimistic position towards long term sustained growth and in turn global growth. A negative outcome
can trigger a recession as their economies constitute a substantial 40% of the world’s GDP. It is likely
that the Fed ‘plays ball’ and stand pat until a positive resolution is found. Latest indicators suggest
the market does not expect any hikes in 2019 with the next move a potential cut instead.
An open economy like Malaysia that depend on trade will definitely be impacted by the rift. However,
there are opportunities in some industries which can benefit. That said, there is a strong likelihood
that domestic interest rates will not rise this year as broad numbers are downwardly affected, In
addition, the low inflation environment allows for a possibility of a rate cut if the authorities find it
necessary to stimulate the economy. Hence, fixed income markets will benefit from the stable and
easy interest rates outlook.
ANNUAL REPORT MARCH 2019
ARECA SITUATIONAL INCOME FUND
9
T R U S T E E ’ S R E P O R T
For The Financial Year Ended 31 March 2019
To the Unitholders of Areca Situational Income Fund
We have acted as Trustee for Areca Situational Income Fund ("the Fund") for the financial year ended
31 March 2019. To the best of our knowledge, Areca Capital Sdn Bhd ("the Manager") has managed
the Fund in the financial year under review in accordance with the following: -
1. Limitations imposed on the investment powers of the Manager and the Trustee under the
Deeds, securities laws and the Securities Commission Malaysia’s Guidelines on Unlisted Capital
Market Products under the Lodge and Launch Framework;
2. Valuation and pricing of the Fund are carried out in accordance with the deed and any
regulatory requirement; and
3. Creation and cancellation of units are carried out in accordance with the deed and any
regulatory requirement.
An income distribution of 9.50 sen per unit (gross) was declared to the unitholders of the Fund for the
financial year under review.
We are of the view that the distribution is consistent with the investment objective and distribution
policy of the Fund.
For Maybank Trustees Berhad
(Company No: 5004-P)
BERNICE K M LAU
Head, Operations
Kuala Lumpur, Malaysia
21 May 2019
STATEMENT BY THE MANAGER
To the Unitholders of Areca Situational Income Fund
We, WONG TECK MENG and EDWARD ISKANDAR TOH BIN ABDULLAH, two of the Directors of
the Manager, Areca Capital Sdn Bhd, do hereby state that in the opinion of the Manager, the financial
statements give a true and fair view of the financial position of the Fund as of 31 March 2019, and of
its financial performance and cash flows for the year then ended in accordance with Malaysian
Financial Reporting Standards, International Financial Reporting Standards and the relevant Securities
Commission Malaysia’s Guidelines in Malaysia.
For and on behalf of the Manager
Areca Capital Sdn Bhd
WONG TECK MENG
EDWARD ISKANDAR TOH BIN ABDULLAH
CEO/ EXECUTIVE DIRECTOR
Kuala Lumpur
21 May 2019
CIO/ EXECUTIVE DIRECTOR
ANNUAL REPORT MARCH 2019
ARECA SITUATIONAL INCOME FUND
10
AUDITED STATEMENT OF FINANCIAL POSITION
As Of 31 March 2019
2019 2018
Note RM RM
Assets
Investment
Unquoted fixed income securities 5 30,000,000 29,990,520
Other Assets Other receivables 6 3,110,137 3,119,178
Cash at bank 28,634 17,740
3,138,771 3,136,918
Total Assets 33,138,771 33,127,438
Unitholders’Fund and Liability
Liability
Accrued expenses 7 491,744 432,668
Unitholders’ Fund
Unitholders’ capital 8 29,998,160 29,998,160
Unrealised reserve 9 - (9,480)
Realised reserve 10 2,648,867 (2,706,090)
Net Asset Value Attributable to Unitholders 32,647,027 32,694,770
Total Unitholders’ Fund and Liability 33,138,771 33,127,438
Number of Units in Circulation 8 29,947,106 29,947,106
Net Asset Value Per Unit (Ex-Distribution) 11 1.0902 1.0918
The accompanying Notes form an integral part of the Financial Statements
ANNUAL REPORT MARCH 2019
ARECA SITUATIONAL INCOME FUND
11
AUDITED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
For The Year Ended 31 March 2019
2019 2018
Note RM RM
Investment Income
Interest income 3,291,036 3,251,060
Net gain/ (loss) on investments at fair value
through profit or loss (“FVTPL”) 5 9,480 (2,534)
Total Investment Income 3,300,516 3,248,526
Expenditure
Management fee 12 471,328 465,586
Trustee’s fee 13 12,569 12,416
Audit Fee 11,000 8,500
Tax agent’s fee 3,650 3,650
Other expenses 4,737 31,437
Total Expenditure 503,284 521,589
Profit Before Tax 2,797,232 2,726,937
Income Tax Expense 14 - -
Profit After Tax And Total Comprehensive Income
For The Year 2,797,232 2,726,937
Profit After Tax Is Made Up Of:
Realised gain 2,787,752 2,729,471
Unrealised gain/ (loss) 9,480 (2,534)
2,797,232 2,726,937
Distribution for the year:
Net distribution 15 2,844,975 2,183,152
Gross distribution per unit (sen) 15 9.50 11.76
Net distribution per unit (sen) 15 9.50 9.50
The accompanying Notes form an integral part of the Financial Statements
ANNUAL REPORT MARCH 2019
ARECA SITUATIONAL INCOME FUND
12
AUDITED STATEMENT OF CHANGES IN NET ASSET VALUE
For The Year Ended 31 March 2019
Unitholders’
capital
Realised
reserve
Unrealised
reserve
Total net asset
value
RM RM RM RM
As of 31 March 2017/ 1 April 2017 22,998,160 2,159,771
(6,946)
25,150,985
Amount received from units
created
7,000,000 - - 7,000,000
Total comprehensive income for
the year 2,726,937
-
2,726,937
Net unrealised loss transferred to
unrealised reserve 2,534
(2,534)
-
Distribution to unitholders for the
year (Note 15) (2,183,152)
-
(2,183,152)
As of 31 March 2018/ 1 April 2018 22,998,160 2,706,090
(9,480)
32,694,770
Total comprehensive income for
the year 2,797,232
-
2,797,232
Net unrealised gain transferred
to unrealised reserve (9,480)
9,480
-
Distribution to unitholders for the
year (Note 15) (2,844,975)
-
(2,844,975)
As of 31 March 2019 29,998,160 2,648,867 - 32,647,027
The accompanying Notes form an integral part of the Financial Statements
ANNUAL REPORT MARCH 2019
ARECA SITUATIONAL INCOME FUND
13
AUDITED STATEMENT OF CASH FLOWS For The Year Ended 31 March 2019
2019 2018
RM RM
Cash Flows From/(Used In) Operating Activities
Interest received 3,300,077 2,530,183
Purchase of investment - (7,000,000)
Management fee paid (393,995) (293,504)
Trustee’s fee paid (12,570) (12,160)
Payment for other fees and expenses (37,643) (32,697)
Net Cash From/ (Used In) Operating Activities 2,855,869 (4,808,178)
Cash Flows (Used In)/ From Financing Activities
Cash proceeds from units created - 7,000,000
Distribution to unitholders (2,844,975) (2,183,152)
Net Cash (Used In)/ From Financing Activities (2,844,975) 4,816,848
Net Increase In Cash And Cash Equivalents 10,894 8,670
Cash And Cash Equivalents At Beginning Of Year 17,740 9,070
Cash And Cash Equivalents At End Of Year 28,634 17,740
The accompanying Notes form an integral part of the Financial Statements
ANNUAL REPORT MARCH 2019
ARECA SITUATIONAL INCOME FUND
14
NOTES TO THE FINANCIAL STATEMENTS
1 GENERAL INFORMATION
Areca Situational Income Fund (“Situational Income” or “the Fund”) was established pursuant to
the Trust Deed dated 25 February 2016 between Areca Capital Sdn. Bhd. as the Manager,
Maybank Trustees Berhad as the Trustee and all the registered unit holders of the Fund.
The principal activity of the Fund is to invest in investments as defined under Schedule 7 of the
Deed, which include unquoted fixed income securities and deposits with financial institutions. The
Fund commenced operations on 1 March 2016 and will continue its operations until terminated by
the Trustee in accordance with Part 11 of the Deed.
The objective of the Fund is to offer investors regular income and incidental capital appreciation
based on current market investment opportunities.
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.
The financial statements were authorized for issue by the Board of Directors of the Manager in
accordance with a resolution on directors on 21 May 2019.
2 BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS
The financial statements of the Fund have been prepared in accordance with Malaysian Financial
Reporting Standards (“MFRS”) as issued by the Malaysian Accounting Standards Board (“MASB”),
International Financial Reporting Standards and the Securities Commission Malaysia Guidelines on
Unit Trust Funds in Malaysia.
The financial statements of the Fund have been prepared under the historical cost convention,
unless otherwise stated in the accounting policies. Historical cost is generally based on the fair
value of the consideration given in exchange for assets.
Adoption of New and Revised Malaysian Financial Reporting Standards and
Amendments
The Fund has applied the following standards and amendments for the first time for the financial
period beginning on 1 April 2018:
MFRS 9 Financial Instruments
MFRS 9 ‘Financial Instruments’ became effective for annual periods beginning on or after 1
January 2018. It addresses the classification, measurement and derecognition of financial assets
and liabilities and replaces the multiple classification and measurement models in MFRS 139.
Classification and measurement of debt assets is driven by the entity’s business model for
managing the financial assets and the contractual cash flow characteristics of the financial assets.
A debt instrument is measured at amortised cost if the objective of the business model is to hold
the financial asset for the collection of the contractual cash flows and the contractual cash flows
under the instrument solely represent payments of principal and interest (SPPI).
A debt instrument is measured at fair value through other comprehensive income if the objective
of the business model is to hold the financial asset both to collect contractual cash flows from
SPPI and to sell. All other debt instruments must be recognised at fair value through profit or loss.
An entity may however, at initial recognition, irrevocably designate a financial asset as measured
at fair value through profit or loss if doing so eliminates or significantly reduces a measurement
or recognition inconsistency. Derivative and equity instruments are measured at fair value
MFRS 9 Financial Instruments (IFRS 9 issued by IASB in July 2014)
MFRS 15 Revenue from Contracts with Customers
Amendments to MFRSs Annual Improvements to MFRSs 2014-2016 Cycle
ANNUAL REPORT MARCH 2019
ARECA SITUATIONAL INCOME FUND
15
through profit or loss unless, for equity instruments not held for trading, an irrevocable option is
taken to measure at fair value through other comprehensive income. MFRS 9 also introduces a
new expected credit loss (ECL) impairment model.
MFRS 9 has been applied retrospectively by the Fund and did not result in a change to the
classification or measurement of financial instruments.
The Fund’s investment portfolio continues to be classified as fair value through profit or loss and
other financial assets which are held for collection continue to be measured at amortised cost.
There was no material impact on adoption from the application of the new impairment model.
There are no other standards, amendments to standards or interpretations that are effective for
annual periods beginning on 1 January 2018 that have a material effect on the financial
statements of the Fund.
Standards, Issue Committee (“IC”) Interpretations and Amendments in Issue But Not
Yet Effective
At the date of authorisation for issue of these financial statements, the new and revised
Standards, IC Interpretations and Amendments which were in issue but not yet effective and not
early adopted by the Fund are listed below:
Description Effective for
annual periods
beginning on or
after
MFRS 16: Leases 1 January 2019
Amendments to MFRS 9: Prepayment Features with Negative
Compensation
1 January 2019
Amendments to MFRS 119: Plan Amendment, Curtailment or Settlement 1 January 2019
Amendments to MFRS 128: Long – term Interests in Associates and
Joint Ventures
1 January 2019
IC Interpretation 23: Uncertainty over Income Tax Treatments 1 January 2019
Amendments to MFRSs Annual Improvements to MFRSs 2015-2017
Cycle
1 January 2019
Amendments to MFRS 3: Definition of a Business 1 January 2020
Amendments to MFRS 101 and MFRS 108: Definition of Material 1 January 2020
Amendments to References to the Conceptual Framework in MFRS
Standards
1 January 2020
MFRS 17: Insurance Contracts 1 January 2021
The Manager of the Fund anticipates that the abovementioned Standards, IC Interpretations and
Amendments will be adopted in the annual financial statements of the Fund when they become
effective and the adoption of these Standards, IC Interpretations and Amendments will have no
material impact on the financial statements of the Fund in the period of initial application.
ANNUAL REPORT MARCH 2019
ARECA SITUATIONAL INCOME FUND
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3 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES AND JUDGEMENTS
SIGNIFICANT ACCOUNTING POLICIES
Income Recognition
Interest income from unquoted fixed income securities and short-term deposits is recognised on a
time proportion basis that reflects the effective yield on the asset.
Realised gain and loss on disposal of investments is arrived based on net sales proceeds less
carrying value from reversal of prior year’s unrealised gains and losses for financial instruments
which were realised (i.e. sold, redeemed or matured) during the reporting period.
Unrealised gains and losses comprise changes in the fair value of financial instruments for the
period.
Income Tax
Income tax comprises Malaysian corporate tax for the current financial period, which is measured
using the tax rates that have been enacted or substantively enacted at the end of each reporting
period.
No deferred tax is recognised as no temporary differences have been identified.
Statement of Cash Flows
The Fund adopts the direct method in the preparation of the statement of cash flows.
Cash equivalents are highly liquid investments with maturities of three months or less from the
date of acquisition and are readily convertible to cash with insignificant risk of changes in value.
Functional and Presentation Currency
The financial statements are measured using the currency of the primary economic environment
in which the Fund operates (“functional currency”). The financial statements are presented in
Ringgit Malaysia (“RM”), which is also the Fund’s functional currency.
Distribution
Distributions are made at the discretion of the Trustee. A distribution to the Fund’s Unitholders is
accounted for as a deduction from realised reserve. A proposed distribution is recognised as a
liability in the period in which it is approved by the Trustee.
Creation and Cancellation of Units
The Fund issues cancellable units, which are cancelled at the unitholder’s option and are classified
as equity. Cancellable units can be put back to the Fund at any time for cash equal to a
proportionate share of the Fund’s net asset value. The outstanding units are carried at the
redemption amount that is payable at the net asset value if the holder exercises the right to put
the units back to the Fund.
Units are created and cancelled at the holder’s option at prices based on the Fund’s net asset
value per unit at the time of creation or cancellation. The Fund’s net asset value per unit is
calculated by dividing the net assets attributable to unitholders with the total number of
outstanding units.
Unitholders’ Capital
The unitholders’ contributions to the Fund meet the definition of puttable instruments classified as
equity instruments.
The units in the Fund are puttable instruments which entitle the unitholders to a pro-rata share of
the net asset value of the Fund. The units are subordinated and have identical features. There is
no contractual obligation to deliver cash or another financial asset other than the obligation on
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.
ANNUAL REPORT MARCH 2019
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Financial Instruments
MFRS 9 replaces the provisions of MFRS 139 that relate to the recognition, classification and
measurement of the financial assets and financial liabilities, derecognition of the financial
instruments and impairment of financial assets. The adoption of MFRS 9 from 1 January 2018
resulted in changes in accounting policies.
Financial assets and financial liabilities are recognised in the statement of financial position when,
and only when, the Fund becomes a party to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that
are directly attributable to the acquisition or issue of financial assets and financial liabilities (other
than financial assets and financial liabilities at fair value through profit or loss) are added to or
deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial
recognition. Transaction costs directly attributable to the acquisition of financial assets and
financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.
Financial Assets
Classification of financial assets
The Fund determines the classification of its financial assets at initial recognition, and the
categories include:
Accounting policies applied from 1 April 2018
Amortisation cost and effective interest method
The amortised cost of a financial asset is the amount at which the financial asset is measured at
initial recognition minus the principal repayments, plus the cumulative amortisation using the
effective interest method of any difference between that initial amount and the maturity amount,
adjusted for any loss allowance. The gross carrying amount of a financial asset is the amortised
cost of a financial asset before adjusting for any loss allowance.
Financial assets at FVTPL
Financial assets that do not meet the criteria for being measured at amortised cost or FVTOCI are
measured at FVTPL.
Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any
fair value gains or losses recognised in profit or loss to the extent they are not part of a
designated hedging relationship.
Accounting policies applied until 31 March 2017
Loans and receivables
The Fund does not have any loans throughout the financial year. Financial assets with fixed or
determinable payments that are not quoted in an active market are classified as receivables.
Such receivables include cash at bank and profit income receivable. Subsequent to initial
recognition, receivables are measured at amortised cost.
Financial assets at FVTPL
The Fund classified financial assets at fair value through profit or loss if they are acquired
principally for the purpose of selling in the short term, i.e. are held for trading. They are
presented as current assets if they are expected to be sold within 12 months after the end of the
reporting period; otherwise they are presented as non-current assets.
Investments
The Fund’s investments which are classified under FVTPL include investment in unquoted fixed
income securities.
Gains or losses arising from the changes in the fair value of the investments is recognised as
gains or losses from investment in profit or loss and transferred to unrealised reserve.
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Impairment of financial assets
Credit losses are recognised based on the 'Expected Credit Loss' ("ECL") model. The Fund
recognises loss allowances for ECL on financial instruments that are not measured at FVTPL
(financial assets that are debt instruments). The impairment model does not apply to equity
investments. ECL are a probability-weighted estimate of credit losses. They are measured as
follows:
• Financial assets that are not credit – impaired at the end of the reporting period:
As the present value of all cash shortfalls (i.e. the difference between the cash flows due
to the entity in accordance with the contract and the cash flows that the Fund expects to
receive);
• Financial assets that are credit – impaired at the end of the reporting period:
As the difference between the gross carrying amount and the present value of estimated
future cash flows.
At the end of each reporting period, the Fund assesses whether financial assets carried at
amortised cost are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events
that have a detrimental impact on the estimated future cash flows of the financial asset have
occurred.
Evidence that a financial asset is credit-impaired includes the following observable data:
• Significant financial difficulty of the issuer or counterparty;
• Significant downgrade in credit rating of the instrument by a rating agency;
• A breach of contract such as a default or past due event; or
• The disappearance of an active market for a security because of financial difficulties.
For balances with short-term nature, full impairment will be recognised on uncollected balances
after the grace period.
Derecognition of financial assets
Financial assets are derecognised on the trade date when the rights to receive cash flows from
the asset have expired or the Fund has transferred substantially all risks and rewards of
ownership.
Classification of Realised and Unrealised Gains and Losses
Unrealised gains and losses comprise changes in the fair value of financial instruments for the
period and from reversal of prior period’s unrealised gains and losses for financial instruments
which were realised (i.e. sold, redeemed or matured) during the reporting period.
Equity Instruments
An equity instrument is any contract that evidences a residual interest in the assets of the Fund
after deducting all of its liabilities. Equity instruments issued by the Fund are recognised at the
proceeds received, net of direct issue costs.
Financial Liabilities
Financial liabilities, within the scope of MFRS 9, 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. The Fund’s financial liabilities are recognised initially at fair value plus
directly attributable transaction costs and subsequently measured at amortised cost using the
effective interest rate method.
The Fund includes in this category amounts due to the Manager and the Trustee and other
payables. A financial liability is derecognised when it is settled
ANNUAL REPORT MARCH 2019
ARECA SITUATIONAL INCOME FUND
19
4 CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION
UNCERTAINTY
(i) Critical judgements in applying accounting policies
In the process of applying the Fund’s accounting policies, which are described in Note 3
above, the Manager is of the opinion that there are no instances of application of judgement
which are expected to have a significant effect on the amounts recognised in the financial
statements.
(ii) Key sources of estimation uncertainty
The Manager believes that there are no key assumptions made concerning the future, and
other key sources of estimation uncertainty at the end of the reporting period, that have a
significant risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year.
5 INVESTMENT
Investment designated as FVTPL is as follows:
2019 2018
RM RM
At aggregate cost Unquoted fixed income securities 30,000,000 30,000,000
At fair value
Unquoted fixed income securities 30,000,000 29,990,520
Net gain/(loss) on investments at FVTPL comprised:
Net unrealised gain/(loss) on changes in fair value 9,480 (2,534)
Details of unquoted fixed income securities are as follows:
31.3.2019
Issuer (rating) maturity/ coupon
(%)
Nominal
Value
Valuation
Price
Aggregate
Cost
Carrying
Value
Fair
Value
Fair Value
as a % of Net Asset
Value
RM RM RM RM RM %
Bonds Iconic Vacation Club
Berhad (NR)
2021/11.00 30,000,000 100.00 30,000,000 30,000,000 30,000,000 91.88
31.3.2018 Issuer (rating)
maturity/ coupon
(%)
Nominal
Value
Valuation
Price
Aggregate
Cost
Carrying
Value
Fair
Value
Fair Value as a % of
Net Asset
Value
RM RM RM RM RM %
Bonds Iconic Vacation Club
Berhad (NR)
2021/11.00 30,000,000 99.9684 30,000,000 30,000,000 22,990,520 91.73
6 OTHER RECEIVABLE
Other receivable consist of interest receivable from unquoted fixed income securities.
ANNUAL REPORT MARCH 2019
ARECA SITUATIONAL INCOME FUND
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7 ACCRUED EXPENSES
2019 2018
RM RM
Accrued expenses consist of:
Management fee 471,328 393,995
Trustee’s fee 1,106 1,107
Audit fee 11,000 8,500
Tax agent’s fee 3,650 3,650
Others 4,660 25,416
491,744 432,668
8 UNITHOLDERS’ CAPITAL
------- 2019 -------- ------- 2018 -------
No. of units RM No. of units RM
At beginning of year 29,947,106 22,998,160 22,980,545 22,998,160
Created during the year - - 6,966,561 7,000,000
At end of year 29,947,106 29,998,160 29,947,106 29,998,160
9 UNREALISED RESERVE
2019 2018
RM RM
At beginning of year (9,480) (6,946)
Net unrealised gain/ (loss) attributable to investment held at
fair value through profit or loss 9,480 (2,534)
At end of year - (9,480)
Investment:
At fair value 30,000,000 29,990,520
At aggregate cost (30,000,000) (30,000,000)
Unrealised reserve - (9,480)
10 REALISED RESERVE
2019 2018
RM RM
At beginning of year 2,706,090 2,159,771
Total comprehensive income for the year 2,797,232 2,726,937
Net unrealised (gain)/ loss transferred to unrealised reserve (9,480) 2,534
Distribution for the year (2,844,975) (2,183,152)
At end of year 2,648,867 2,706,090
11 NET ASSET VALUE PER UNIT
The net asset value per unit is calculated by dividing the net asset value attributable to
unitholders as of 31 March 2019 of RM32,649,527 (2018: RM32,694,770) by units in issue as as
of 31 March 2019 of 29,947,106 units (2018: 29,947,106 units).
12 MANAGEMENT FEE
The Schedule 8 of the Deed provides that the Manager is entitled to an annual management fee
at a rate not exceeding 2.00% of the net asset value of the Fund. The management fee provided
for in the financial statements amounted to 1.50% (2018: 1.50%) per annum for the year.
The management fee is subject to 6% goods and services tax (“GST”) effective 1 April 2015 to
31 May 2018. The management fee is not subject to any taxes from 1 June 2018 until 31 March
2019.
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13 TRUSTEE’S FEE
The Schedule 9 of the Deed provides that the Trustee is entitled to an annual Trustee’s fee at
rate not exceeding 0.04% of the net asset value of the Fund, subject to a minimum fee of
RM6,000 per annum. The Trustee’s fee provided for in the financial statements amounted to
0.04% (2018: 0.04%) per annum for the year.
The Trustee’s fee is subject to 6% goods and services tax (“GST”) effective 1 April 2015 to 31
May 2018. The trustee fee is not subject to any taxes from 1 June 2018 to 31 March 2019.
14 INCOME TAX EXPENSE
There is no tax charge as interest income derived by the Fund is exempted pursuant to
Paragraph 35 and 35A, Schedule 6 of the Income Tax Act, 1967. Gains arising from realisation of
investments are not treated as income pursuant to Paragraph 61(1)(b) of the Income Tax Act,
1967.
15 NET DISTRIBUTION
2019 2018
RM RM
Distribution to unitholders is from the following sources:
Interest income 3,291,036 3,251,060
Net realised gain:
Previous year’s realised gains 2,706,090 2,159,771
Current year’s realised gains (2,648,867) (2,706,090)
3,348,259 2,704,741
Less: Expenses (503,284) (521,589)
Net distribution 2,844,975 2,183,152
The distributions above have been made as follow:-
2019 2018
Distribution on 20 April 2018
Gross distribution per unit (sen) 9.50 - Net distribution per unit (sen) 9.50 -
Distribution on 20 April 2017
Gross distribution per unit (sen) - 11.76
Net distribution per unit (sen) - 9.50
Total Distribution
Gross distribution per unit (sen) 9.50 11.76
Net distribution per unit (sen) 9.50 9.50
16 MANAGEMENT EXPENSE RATIO AND PORTFOLIO TURNOVER
Management Expense Ratio (MER)
Management expense ratio for the Fund is 1.59% (2018: 1.68%) for the year ended 31 March
2019. The management expense ratio which includes management fee, Trustee’s fee, audit fee,
tax agent’s fee and other expenses, is calculated as follows:
MER = (A + B + C + D + E) ÷ F x 100
A = Management fee D = Tax agent’s fee
B = Trustee’s fee E = Other expenses
C = Audit fee F = Average net asset value of Fund
The average net asset value of the Fund for the year is RM31,420,518 (2018: RM31,037,684).
ANNUAL REPORT MARCH 2019
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Portfolio Turnover Ratio (PTR)
The portfolio turnover ratio for the Fund is NIL times (2018: 0.11 times) for the year ended 31
March 2019. The portfolio turnover ratio is derived from the following calculation:
(Total acquisition for the year + total disposal for the year) ÷ 2
Average net asset value of the Fund for the year calculated on a daily basis
Where: total acquisition for the year = NIL (2018: RM7,000,000)
total disposal for the year = NIL (2018: NIL)
17 UNITS HELD BY MANAGER AND RELATED PARTY
As at end of the year, the total number and value of units held by the Manager and related
parties are as follows:
2019 No. of units RM
The Manager 775,349 845,286 Wong Teck Meng, an Executive Director of the Manager 289,015 315,084
Edward Iskandar Toh Bin Abdullah 90,967 99,172
1,155,331 1,259,542
2018
No. of units RM
The Manager 1,041,196 1,136,778 Wong Teck Meng, an Executive Director of the Manager 192,200 209,844
1,233,396 1,346,622
18 TRADE WITH BROKERS/DEALERS
Details of transactions with brokers/dealers are as follows:
Brokers/Dealers
Value of
Trades
% of
Total
Trades
2019
RM %
CIMB Bank Berhad 470,000 100.00
2018
Public Investment Bank Berhad 7,000,000 98.45
CIMB Bank Berhad 110,000 1.55
7,110,000 100.00
Included in transactions with brokers/dealers are trades conducted on normal terms in relation
to investment in unquoted fixed income securities and money market instruments.
19 RISK MANAGEMENT POLICIES
Financial Risk Management Objectives and Policies
The Fund seeks to preserve capital as well as to provide regular income over the short to
medium term period by investing in fixed income instruments. In order to meet its stated
investment objectives, the Fund utilises risk management for both defensive and proactive
purposes. Rigorous analysis of sources of risk in the portfolio is carried out and the following
policies are implemented to provide effective ways to reduce future risk and enhance future
returns within the Fund’s mandate.
The key risks faced by the Fund are credit risk, liquidity risk, market risk (including interest rate
risk and price risk) on its investments and capital risk.
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Categories of Financial Instruments 2019 2018
RM RM
Financial assets
Carried at FVTPL:
Unquoted fixed income securities 30,000,000 29,990,520
Amortised costs:
Other receivables 3,110,137 3,119,178
Cash at bank 28,635 17,740
Financial liability
Amortised cost: Accrued expenses 491,744 432,668
Credit risk management
Credit risk is the risk that the counterparty to a financial instrument will cause a financial loss for
the Fund by failing to discharge an obligation. The Fund is exposed to the risk of credit-related
losses that can occur as a result of a counterparty or issuer being unable or unwilling to honour
its contractual obligations to make timely repayments of interest, principal and proceeds from
realisation of investments.
The Manager manages the Fund’s credit risk by undertaking credit evaluation and close
monitoring of any changes to the issuer/counterparty’s credit profile to minimise such risk. It is
the Fund’s policy to enter into financial instruments with reputable counterparties.
The Fund’s maximum exposure to credit risk is represented by the carrying amount of each class
of financial assets recognised in the statement of financial position. None of the Fund’s financial
assets were past due or impaired as of 31 March 2019.
The Fund invests only in unquoted investments of at least investment grade as rated by a credit
rating agency. The following table set out the Fund’s portfolio of unquoted investments by rating
categories:
Fair Value
RM
As a % of
unquoted
investments
As a % of
NAV 2019
Credit rating
Bonds
No Rating 30,000,000 100.00 91.88
2018
Credit rating
Bonds
No Rating 29,990,520 100.00 91.73
The following table set out the Fund’s portfolio of unquoted investment by industry:
2019
Unquoted
fixed income
securities
Industry RM
Hospitality 30,000,000
2018
Industry
Hospitality 29,990,520
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Liquidity risk management
This risk is defined as the ease with which a security can be sold at or near its fair value
depending on the volume traded on the market. The Fund manages its liquidity risk by investing
predominantly in securities that it expects to be able of being converted into cash within 7 days.
Market risk management
This is a class of risk that inherently exists in an economy and cannot be avoided by any
business or fund. It is usually due to changes in market variables such as interest rates and
markets prices. This risk cannot be removed from an investment portfolio, which is solely
invested within that particular market, by diversification.
Therefore, as the Fund presently invests only in Malaysian fixed income securities, the
performance of the Fund might go up or down in accordance with the prevailing market risk of
Malaysia.
Interest rate risk management
This risk related to movements in the direction of the interest rates that will cause the value of
the securities to fluctuate. The Fund seeks to manage this risk by constructing a fixed income
portfolio with sufficient diverse range of maturities in accordance to the interest rate strategies
developed after thorough evaluation of macroeconomic variables. As interest rates and yield
curves change over time, the Fund may be exposed to a loss in earnings due to the effects of
interest rates on the structure of the statement of financial position.
Interest rate risk sensitivity
Cash and fixed income securities are particularly sensitive to movements in interest rates.
When interest rates rise, the returns on cash will rise while the value of fixed income securities
will fall and vice versa, thus affecting the NAV of the Fund. When the interest rate trend is
anticipated to rise, the exposure to fixed income securities will be reduced to an acceptable
level.
The Fund does not have any significant interest rate risk exposure as at the end of the financial
reporting period.
Price risk management
Price risk is the risk of unfavourable changes in the fair value of unquoted fixed income
securities as the result of changes in the levels of the equity indices and the value of individual
securities. The price risk exposure arises from the Fund’s investment in unquoted securities.
Price risk sensitivity
Management’s best estimate of the effect on the income for the year due to a reasonably
possible change in price, with all other variables held constant is indicated in the table below:
Investments
Changes in price
Effect on profit or loss
Increase/(Decrease)
% RM
2019
Investment +5/-5% 1,500,000/(1,500,000)
2018
Investment +5/-5% 1,499,526/(1,499,526)
Capital risk Management
The capital of the Fund is represented by equity consisting of unitholders’ capital and retained
earnings. The amount of equity can change significantly on a daily basis as the Fund is subject
to daily subscriptions and redemptions at the discretion of unitholders. The Fund’s objective
when managing capital is to safeguard the Fund’s ability to continue as a going concern in order
ANNUAL REPORT MARCH 2019
ARECA SITUATIONAL INCOME FUND
25
to provide returns for unitholders and benefits for other stakeholders and to maintain a strong
capital base to support the development of the investment activities of the Fund.
20 FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction in the principal (or most advantageous) market at the measurement date
under current market conditions.
The carrying amounts of other financial assets and financial liabilities approximate their fair
values due to short maturity of these instruments.
The following table provides an analysis of financial instruments that are measured subsequent
to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the
fair value is observable.
• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in
active markets for identical assets or liabilities.
• Level 2 fair value measurements are those derived from inputs other than quoted prices
included within Level 1 that are observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices).
• Level 3 fair value measurements are those derived from valuation techniques that include
inputs for the asset or liability that are not based on observable market data (unobservable
inputs).
Level 1 Level 2 Level 3 Total
RM RM RM RM
2019
Financial assets at FVTPL
Unquoted fixed income securities 30,000,000 - 30,000,000
2018
Financial assets at FVTPL
Unquoted fixed income securities 29,990,520 - 29,990,520
There were no transfer between Levels 1 and 2 during the financial year.
ANNUAL REPORT MARCH 2019
ARECA SITUATIONAL INCOME FUND
26
INDEPENDENT AUDITORS’ REPORT TO THE UNITHOLDERS OF
ARECA SITUATIONAL INCOME FUND
(Established under Trust Deed dated 25 February 2016)
Report on the Audit of the Financial Statements
Opinion
We have audited the financial statements of ARECA SITUATIONAL INCOME FUND, which comprise
the statement of financial position as of 31 March 2019, and the statement of profit or loss and other
comprehensive income, statement of changes in net asset value and statement of cash flows for the
year then ended, and notes to the financial statements including a summary of significant accounting
policies, as set out on pages 11 to 26.
In our opinion, the financial statements give a true and fair view of the financial position of the Fund
as of 31 March 2019, and of its financial performance and cash flows for the year then ended in
accordance with Malaysian Financial Reporting Standards and International Financial Reporting
Standards.
Basis for Opinion
We conducted our audit in accordance with approved standards on auditing in Malaysia and
International Standards on Auditing. Our responsibilities under those standards are further described
in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence and Other Ethical Responsibilities
We are independent of the Fund in accordance with the By-Laws (on Professional Ethics, Conduct and
Practice) of the Malaysian Institute of Accountants (“By-Laws”) and the International Ethics Standards
Board for Accountants’ Code of Ethics for Professional Accountants (“IESBA Code”), and we have
fulfilled our other ethical responsibilities in accordance with the By-Laws and the IESBA Code.
Information Other than the Financial Statements and Auditors’ Report Thereon
The Manager of the Fund is responsible for the other information. The other information comprises
Manager’s and Trustee’s reports, but does not include the financial statements of the Fund and our
auditors’ report thereon.
Our opinion on the financial statements of the Fund does not cover the other information and we do
not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements of the Fund, our responsibility is to read the
other information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements of the Fund or our knowledge obtained in the audit or otherwise appears
to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this
other information, we are required to report that fact. We have nothing to report in this regard.
ANNUAL REPORT MARCH 2019
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27
Responsibilities of the Manager and Trustee for the Financial Statements
The Manager of the Fund is responsible for the preparation of the financial statements of the Fund
that give a true and fair view in accordance with Malaysian Financial Reporting Standards,
International Financial Reporting Standards and the relevant Securities Commission Malaysia’s
Guidelines in Malaysia. The Manager is also responsible for such internal control as the Manager
determine is necessary to enable the preparation of financial statements of the Fund that are free
from material misstatement, whether due to fraud or error. The Trustee is responsible for ensuring
that the Manager maintains proper accounting and other records as are necessary to enable the fair
presentation of these financial statements.
In preparing the financial statements of the Fund, the Manager is responsible for assessing the Fund’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the Manager either intend to liquidate the Fund or
to cease operations, or have no realistic alternative but to do so.
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements of the Fund
as a whole are free from material misstatement, whether due to fraud or error, and to issue an
auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance with approved standards on auditing in
Malaysia and International Standards on Auditing will always detect a material misstatement when it
exists. Misstatements can arise from fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the economic decisions of users taken
on the basis of these financial statements.
As part of an audit in accordance with approved standards on auditing in Malaysia and International
Standards on Auditing, we exercise professional judgement and maintain professional scepticism
throughout the audit. We also:
• Identify and assess the risks of material misstatement of the financial statements of the Fund,
whether due to fraud or error, design and perform audit procedures responsive to those risks,
and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Fund’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by the Manager.
• Conclude on the appropriateness of the Manager’s use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to
events or conditions that may cast significant doubt on the Fund’s ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required to draw attention in
our auditors’ report to the related disclosures in the financial statements or, if such disclosures
are inadequate, to modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditors’ report. However, future events or conditions may cause
the Fund to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements of the Fund,
including the disclosures, and whether the financial statements of the Fund represent the
underlying transactions and events in a manner that achieves fair presentation.
We communicate with the Manager regarding, among other matters, the planned scope and timing of
the audit and significant audit findings, including any significant deficiencies in internal content that
we identify during our audit.
ANNUAL REPORT MARCH 2019
ARECA SITUATIONAL INCOME FUND
28
Other Matter
This report is made solely to the unitholders of the Fund, as a body, and for no other purpose. We do
not assume responsibility towards any other person for the contents of this report.
DELOITTE PLT (LLP0010145-LCA)
Chartered Accountants (AF 0080)
WONG YEW CHOONG
Partner - 03195/06/2019 J
Chartered Accountant
21 May 2019
Kuching Branch1st Floor, Sublot 3, Lot 7998, Block16 KCLD, Cha Yi Goldland, Jalan Tun Jugah / Stutong93350 Kuching, SarawakT 082 572 472
Pulau Pinang Branch368-2-02 Belisa Row, Jalan Burma Georgetown, 10350 Pulau PinangT 604 210 2011 F 604 210 2013· ·
Ipoh Branch11A, (First Floor), Persiaran Greentown 5Greentown Business Centre, 30450 Ipoh, PerakT 605 249 6697 F 605 249 6696·
Melaka Branch95-A, Jalan Melaka Raya 24Taman Melaka Raya, 75000 MelakaT 606 282 9111 F 606 283 9112· ·
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Cover_AnnualReport_SituationalIncome-FADoc1ASIF Annual Report March 2019Doc1Colour_BackC