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Annual Report June 2020

For the Year Ended 30 June 2020

Areca enhancedINCOME Fund

A NN UA L REPORT J UN E 2020

ARECA enhancedINCOME FUND

Contents

CORPORATE DIRECTORY 2

MANAGER’S REPORT

Fund Information, Performance & Review 3 Market Review & Outlook 8

TRUSTEE’S REPORT 12

AUDITED FINANCIAL STATEMENTS FOR Areca enhancedINCOME Fund

Statement by The Manager

Auditors’ Report

13

33

34

ANNUAL REPORT JUNE 2020


2

C O R P O R A T E D I R E C T O R Y

MANAGER

Areca Capital Sdn Bhd

Company No: 200601021087 (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 (Chief Executive Officer Non-Independent)

Edward Iskandar Toh Bin Abdullah

(Executive Non-Independent)

Raja Datuk Zaharaton Bt Raja Dato’ Zainal Abidin

(Independent Non-Executive Chairman)

Dr. Junid Saham

(Independent Non-Executive)

INVESTMENT COMMITTEE MEMBERS

Dato’ Seri Lee Kah Choon

(Independent Non-Executive) Raja Datuk Zaharaton Bt Raja Dato’ Zainal Abidin

(Independent Non-Executive Chairman)

Dr. Junid Saham

(Independent Non-Executive)

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 PERAK 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



3

F U N D I N F O R M A T I O N

Name of the

Fund

Areca enhancedINCOME Fund

Fund Category/

Type

Fixed Income/Income & Growth

Objective of the

Fund

To provide long term investors with high level of income (income could be in

the form of Units or cash) stream and an opportunity for capital appreciation

Benchmark Maybank’s 12-month fixed deposit rate

Distribution

Policy of the

Fund

Incidental. In the absence of written instructions 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.

Profile of

unitholdings

* excluding units held

by the Manager

As at 30 June 2020

Size of Holding

(Units)

No. of

accounts %

No. of

units

held

(million)

%

Up to 5,000 2 4.44 0.01 0.03

5,001 to 10,000 - - - -

10,001 to 50,000 10 22.22 0.29 0.95

50,001 to 500,000 25 55.56 4.63 15.22

500,001 and above 8 17.78 25.50 83.80

Total* 45 100.00 30.43 100.00

Rebates & Soft

Commissions

The Manager retains soft commissions received from stockbrokers, provided

these are of demonstrable benefit to unitholders. The soft commissions may

take the form of goods and services such as, data and quotation services,

computer software incidental to the management of the Fund and investment

related publications. Cash rebates (if any) are directed to the account of the

Fund. During the year under review, the Manager had not received soft

commissions in the form of data and quotation services which are incidental to

the investment management and performance tracking of the Fund.

Launch Date

30 July 2007

Initial Offer

Price

RM0.5000 per unit during the initial offer period of 10 days ended 8 August

2007.

Pricing Policy

Single Pricing – Selling and repurchase of units by Manager are at Net Asset

Value per unit

Financial Year

End

30 June



4

F U N D P E R F O R M A N C E

2020 2019 2018

Net Asset Value (“NAV”) as at 30 June

Total Net Asset Value (RM million) 16.41 16.02 22.60

Units in circulation (million units) 32.17 33.74 47.46

NAV per unit (RM) 0.5018 0.4748 0.4761

2020 2019 2018

HIGHEST & LOWEST NAV per unit for the financial year ended 30 June Please refer to Note 1 for further information on NAV and pricing policy

Highest NAV per unit (RM) 0.5019 0.4846 0.5014

Lowest NAV per unit (RM) 0.4495 0.4648 0.4719

2020 2019 2018

ASSET ALLOCATION % of NAV as at 30 June

Quoted Securities

Ace Market

Technology 4.67 - -

Main Board

Construction - 3.45 1.39

Consumer products - 4.05 -

Finance 2.97 - 2.55

Healthcare 2.25

Industrial products 4.51 1.79 -

Properties - 2.89 4.26

Technology 9.42

Trading/Services - - 4.66

Preference shares 9.29 9.36 -

Collective Investment Scheme - - -

Unquoted Fixed Income Securities

Corporate bonds 46.20 69.16 76.21

Cash & cash equivalents including placement & repo 20.69 9.30 10.93

DISTRIBUTION

There was no unit distribution for the financial period under review.

UNIT SPLITS

There was no unit split exercise for the financial period under review.

2020 2019 2018

EXPENSE/ TURNOVER for the financial year ended 30 June

Management expense ratio (MER) (%)

Please refer to Note 2 for further information

Portfolio turnover ratio (PTR) (times)


1.94 1.56 1.57

1.00 0.39 0.51

2020 2019 2018

TOTAL RETURN for the financial year ended 30 June


Total Return (%) 5.69 (0.29) (4.49)

- Capital Return (%) 5.69 (0.29) (4.49)

- Income Return (%) - - -



5

2020 2019 2018 2017 2016

Annual Total Return (%) 5.69 (0.29) (4.49) 3.57 1.81

Benchmark: Average Maybank’s 12-

month fixed deposit rate (%) 2.84 3.32 3.20 3.11 3.30

1-yr 3-yrs 5-yrs

Average Total Return per annum

(%) 5.69 (0.21) 1.22

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.

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 the benchmark data 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.



6

F U N D R E V I E W

For the 12 months ended 30 June 2020, the Fund registered a return of 5.69%p.a. It outperformed

the benchmark of 2.84% p.a. for Maybank’s 12-month fixed deposit rate. The Fund has achieved

its objective to providing investors with high level of income stream and opportunity for capital

appreciation.

The portfolio benefited from the 1% reduction in Overnight Policy Rate (OPR) from the start of this

calendar year and the eventual easing in trading yields. In addition, deposit rates were lowered in

response as well. Despite the challenging environment due to movement restrictions and limitations

to commercial activities, equity market provided opportunities for us to pick and benefit from

pockets of industries, particularly from the healthcare and technology industries. The healthcare

sector, led by the glove makers, are reaping windfall profits resulted from strong pandemic driven

demand and limited supply. The technology industry is also benefiting significantly from the health

crisis as businesses are accelerating their investments in automation and digitalisation to enable uninterrupted business operation under lockdown or movement control circumstances.

As at close of period, the Fund holds 56.2% in corporate bonds with the largest sector of the fixed

income portion in the property sector constituting 21.9% of our funds followed by Malaysian

Government (19.7%) through their issuances and guarantees. We also hold 23.6% in equities.

Moving forward, the Fund will maintain corporate bonds as a base while adopting a duration

shortening strategy and looking forward to continue to reap alpha performance from the equity

market. Though we expect the local bourse performance over the next 12 months to be dictated by

the developments related to government action, the COVID-19 pandemic, and renewed US-China tension, we would focus on stock selection to generate outperformance. We remain vigilant to

downside risk.

Investment Policy and Strategy

The Fund invests in fixed income securities including redeemable preference shares with relatively

high level of yield. The Fund may also invest in listed equities and equity-related securities to take

advantage of the both fixed income and equity markets climate.

NAV per unit as at 30 June 2020 RM0.5018

Asset Allocation/ Portfolio Composition as at 30 June

2020 2019 2018

Equities and equity-related

securities

23.82% 12.18% 12.86%

Preference shares 9.29% 9.36% -

Collective investment

scheme

- - -

Unquoted fixed income

securities

46.20% 69.16% 76.21%

Cash & cash equivalents 20.69% 9.30% 10.93%

46.20%

9.29%

23.82%

20.69%



7

Top 5 Holdings by Issuers:

As at 30 Sep 2019 (%)

As at 31 Dec 2019 (%)

1) Alpha Circle Sdn Bhd (AA-IS) 19.84

1) Eastern & Oriental Berhad (NR) 15.54

2) Eastern & Oriental Berhad (NR) 16.26

2) DRB-HICOM Berhad (A) 12.64


3) Nova Mulia Development Sdn Bhd

(NR) 9.39

4) Nova Mulia Development Sdn Bhd (NR) 9.91

4) Genting Malaysia Berhad (NR) 7.82

5) Genting Malaysia Berhad (NR) 7.60

5) Lebuhraya DUKE Fasa 3 Sdn Bhd

(AA-IS) 3.63

As at 31 Mar 2020 (%)

As at 30 Jun 2020 (%)


1) Malaysia Government Securities

(NR) 13.16

2) Nova Mulia Development Sdn Bhd (NR)

10.07

2) Perbadanan Kemajuan Negeri Selangor (AA3)

12.45

3) Prasarana Malaysia Berhad (NR) 6.24

3) Affin Islamic Bank Berhad (A1/A3) 9.69

4) Yinson Holdings Berhad (Equity) 5.45

4) Nova Mulia Development Sdn Bhd

(NR) 9.29

5) Lebuhraya DUKE Fasa 3 Sdn Bhd

(AA-IS) 3.66

5) Prasarana Malaysia Berhad (NR) 6.13

Performance of Areca enhancedINCOME Fund

for the financial period since inception to 30 June 2020

Maybank 12 Months Fixed Deposit Rate

Areca enhancedINCOME



8

MARKET REVIEW & OUTLOOK

The expected significant impact of the COVID-19 epidemic has caused the Federal Reserve (Fed) to

slash its Federal Funds Rate (FFR) by a whopping 225 basis points (bps) to a range of between 0.00%

and 0.25% during the year under review and indicated its commitment to keep the FFR near zero

through 2022. However, it gave no hints on whether it will adopt a negative interest rate policy in the

future despite projecting the US economy to contract by 6.5% in 2020. As at end June 2020, US

Treasury (UST) yields slumped to record lows amid fears of a global recession and the Fed’s aggressive

monetary easing policies. Yield on the 10y UST settled 134 bps lower at 0.66% from 2.00% as at end

June 2019. The 10y UST yield is expected to remain below 1% for the rest of the year.

Across the pond, the European Central Bank (ECB) maintained its interest rates on main refinancing

operations and marginal lending facility at 0.00% and 0.25% throughout the period but reduced its

deposit facility by 10 bps to -0.50% in September. In response to the COVID-19 pandemic, the ECB

had launched massive bond-buying programmes worth EUR1.5 trillion which helped to compress

sovereign yields in the Euro area. Meanwhile in the United Kingdom (UK), the Bank of England (BoE)

slashed its key interest rate twice in March to an all-time low of 0.1%. The BoE also pursued its own

bond buying programme worth GBP745 billion to combat the pandemic-induced economic slowdown.

As such, we expect rates in both the Euro zone and the UK to remain unchanged or lower, supporting

the current compressed yield levels.

Meanwhile, Malaysia’s GDP growth which tumbled to 0.7% y-o-y in 1Q2020 is expected to decelerate

further in 2Q2020 as the full impact of the Movement Control Order (MCO) is reflected in weaker private

consumption on top of the lackluster pace of investments.

On the fiscal side, the decline in government revenue amid weaker growth prospects is exacerbated by

a significant drop in global crude oil prices since late February this year. Given that oil-related revenue

accounts for roughly 20% of government receipts over the past five years, we anticipate the decline in

overall government revenue and the increase in expenditures to lead to a budget deficit of 6.0% to

6.5% of GDP in 2020.

Despite the sharp increase in budget deficits, we believe that extraordinary times call for extraordinary

measures and larger budget deficits are justified to ensure businesses and consumers are well

supported. The critical question, however, is whether the deficits and debt can be pared down within

the targeted time frame.

Increasing budget deficits and government debt will weigh on Malaysia’s sovereign credit rating. This

is evidenced from the recent adjustments of Malaysia’s sovereign credit rating outlook from “stable” to

“negative” by two international credit rating agencies. Going forward, we believe that a quick and

sustainable recovery in global crude oil prices and credible medium-term revenue-enhancing measures will relieve some of the pressure.

With headline inflation already in negative territory, real interest rates remain higher than historical

norms. Therefore, we foresee a possibility of further Overnight Policy Rate (OPR) cuts in 2020 and Bank

Negara Malaysia (BNM) reducing it further in July.

FIXED INCOME MARKET REVIEW

During the annual review period, total gross issuance of Malaysian Government Securities (MGS) and

Government Investment Issues (GII) surged to RM155.0 billion (2019: RM132.1 billion). The bulk of

the issuance were MGS papers (RM63.7 billion). However, demand for MGS/GII at public auctions fell,

registering an average bid-to-cover (BTC) ratio of 2.4x (2019: 2.7x) amid declining foreign investors’

interest due to the pandemic.

MGS yields bull-steepened during the year after surging in March during the height of the COVID-19

pandemic. Yields on MGS began to ease in 2Q2020 following BNM aggressive OPR cut and liquidity

enhancing measures announced in May. Yield on the 3y MGS dipped by 105 bps to 2.27% (end June

2019: 3.32%) while yield on the 10y MGS fell by 69 bps to 2.94% (end June 2019: 3.63%). Moving into 2H2020, MGS yields are expected to remain at the current supportive levels amid the low global



9

interest rate environment. During the review period, BNM had cut the OPR by 125 bps to 1.75%, the

lowest in history.

Corporate bond issuance fell to RM145.9 billion during the annual review period (2019: RM164.8 billion).

All segments – except for Cagamas and Corporate Guaranteed – experienced a drop in their issuances

due to the worsening economic sentiment following the COVID-19 pandemic. The expected contraction in real GDP and private investments in 2020 is the primary reason behind the corporates’ waning

appetite to raise funds.

Total net foreign inflows during the review period from local bonds amounted to RM16.3 billion

compared with net foreign outflows of RM3.2 billion recorded in the year. Outflows were mostly

concentrated in 1Q2020 amid the relentless global spread of COVID-19. Foreign selling pressure on

local bonds eased in 2Q2020 as global central banks deployed massive monetary policies. We expect

foreign holdings of the local bonds to gradually increase in 2H2020 as global interest rates remain low

throughout the year. This increases the appeal of local bonds to foreign investors who are seeking higher yields.

EQUITY MARKET REVIEW AND OUTLOOK

During the period under review, the FBM KLCI which is the barometer of the Malaysian equity market

declined 10.2% to close at 1,501 points. The broader market FBM Emas Index shed 10.5% to 10,492

points, while the FBM Small Cap Index dropped 8.8% to 11,859 points.

In the second half of 2019, the FBM KLCI was on a downtrend despite positive global market sentiment

buoyed by progress in the US-China trade deal negotiation which culminated in a ‘phase one’ deal signed in 2020. The underperformance of the FBMKLCI index was mainly due to net selling by foreigners

and uninspiring corporate earnings. Small cap stocks generally performed better with the FBM Small

Cap index outperforming the FBM KLCI. The FBM Small Cap index benefited from an improved

performance from sectors such as technology and oil and gas.

Market jitters started to emerge around end January 2020 as the COVID-19 outbreak, which started in

China, worsened. The outbreak spread globally and WHO declared COVID-19 a pandemic. Countries

were taking drastic measures such as a lockdown to contain the spread. Global markets tumbled on

fears that the outbreak would lead to a recession. The local bourse was not spared as the FBM KLCI fell to multi-year lows. Local market sentiment was further dampened by the decline in prices of

commodities especially crude oil.

Global markets bottomed in March 2020 as investors reacted positively to aggressive fiscal and

monetary response by governments globally led by the US. In a bold move, the US government

approved a US$2 trillion stimulus package while the Fed reduced its benchmark interest rate to 0-0.25%

and committed to unlimited quantitative easing. Locally, the Malaysian government announced RM295

billion of stimulus packages to support the economy. Additionally, positive results from containment

measures and re-opening of economies by governments also helped calm global markets.

As global markets sentiment improved on the unprecedented monetary and fiscal packages by

governments globally, the FBM KLCI recovered most of its year-to-date losses towards the end of June

2020. In addition, the recovery in the local bourse was helped by the outperformance of glove

manufacturer component stocks. Share price of glove manufacturers rallied on strong earnings growth

expectation as the pandemic resulted in increased demand and selling prices for gloves. Besides that,

local market sentiment was further lifted by the return of retail participation which resulted in an

increase in average trading volumes.

The IMF expects a recession in 2020 with the global economy forecast to contract by 4.9%. This is due to the economic disruption caused by COVID-19. However, IMF expects a recovery in economic activity

in 2021.

Malaysia would not be spared and we expect the country’s economic growth to take a hit in the near

term due to external headwinds as a result of COVID-19 and the implementation of Movement Control

Order (MCO) by the government. Additionally, the decline in prices of commodities especially crude oil



10

would put further pressure on the country's economy. With many business activities coming to a

standstill during MCO, corporate earnings are likely to be negatively affected. However, the impact

could be mitigated by the PRIHATIN and PENJANA economic measures announced by the Malaysian

government.

At this juncture, the COVID-19 pandemic is not showing signs of slowing as new cases globally continue to remain high amid the re-opening of economies by many countries. Several countries are experiencing

subsequent waves after appearing to control the outbreak. Hence, there is risk that the pandemic could

cause more damage to the global economy. Additionally, the escalation of tensions between the US and

China could pose a threat to the global economic recovery.

As global equities have recovered strongly from the lows in March 2020, market sentiment could be

dampened by these headwinds in the near term. Sizeable monetary and fiscal stimulus packages by

governments globally could mitigate equities downside risk. Positive news from the vaccine

development front could also help calm equity markets.

Changes in Fund Information During the Year

No. Original Statement Revised Statement Remarks Effective

Date

1 Investment Policies and

Strategies of the Fund

The Fund will invest a

minimum of 70% of its NAV

in Money Market Instruments

and Fixed Income Securities

including collective

investment schemes that

invest in Fixed Income

Securities with a minimum of

2% of its NAV in Liquid

Assets. The Fund may also

invest up to 25% of its NAV

(at time of purchase) in listed

equities and equity-related

securities including initial

public offerings, warrants and

collective investment

schemes that invest primarily

in equities at any time to

enhance income and returns

to the Fund. However, the

Fund may continue to hold its

investment in equities even if

the Fund’s holding exceeds

25% of its NAV due to

appreciation or depreciation

of the NAV of the Fund,

whether as a result of an

appreciation or depreciation

in value of the investment, or

as a result of repurchase of

Investment

Policies/Strategies of the

Fund

The Fund will invest a

minimum of 70% of its NAV in

Money Market Instruments

and Fixed Income Securities

including Redeemable

Preference Shares and

collective investment schemes

that invest in Fixed Income

Securities with a minimum of

2% of its NAV in Liquid Assets.

The Fund may also invest up

to 25% of its NAV (at time of

purchase) in listed equities

and equity-related securities

including initial public

offerings, warrants and

collective investment schemes

that invest primarily in

equities at any time to

enhance income and returns

to the Fund. However, the

Fund may continue to hold its

investment in equities even if

the Fund’s holding exceeds

25% of its NAV due to

appreciation or depreciation of

the NAV of the Fund, whether

as a result of an appreciation

or depreciation in value of the

Additional

disclosure

was made

for clarity

purposes.

13 August

2020



11

Units or payments made by

the Fund.

investment, or as a result of

repurchase of Units or

payments made by the Fund.

2 Exit Fee

Direct

Investment through

the

Manager.

Third party

distributors including

IUTA.

Up to 0.50% of the

amount redeemed if

redemption is made on

Units invested for a

duration of less than 6

months**.

Exit Fee

Direct

Investment through

the

Manager.

Third party

distributors including

IUTA.

Nil

Removal of

Exit Fee

13 August

2020



12

T R U S T E E ’ S R E P O R T

For The Financial Year Ended 30 June 2020

To the Unitholders of Areca enhancedINCOME Fund

We have acted as Trustee for Areca enhancedINCOME Fund (“the Fund”) for the financial year ended

30 June 2020. 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 under the Deeds, securities laws

and Guidelines on Unit Trust Funds;

2. Valuation and pricing of the Fund are carried out in accordance with the Deeds and any regulatory

requirement; and

3. Creation and cancellation of units are carried out in accordance with the Deeds and any regulatory

requirement.

For Maybank Trustees Berhad

[Company No: 196301000109 (5004-P)]

JULIA BINTI MUSTAFFA

Chief Executive Officer

Kuala Lumpur, Malaysia

27 August 2020

ANNUAL REPORT JUNE 2020 ARECA enhancedINCOME REPORT

13

STATEMENT OF FINANCIAL POSITION

As Of 30 June 2020

2020 2019

Note RM RM

Assets

Investments

Unquoted fixed income securities 5 7,459,429 11,078,555

Preference shares 5 1,500,000 1,500,000

Quoted securities 5 3,846,150 1,950,500

Total Investments 12,805,579 14,529,055

Other Assets

Other receivables 6 101,314 183,127

Short-term deposits 7 3,307,055 1,373,114

Cash at bank 434 6,185

Total Other Assets 3,408,803 1,562,426

Total Assets 16,214,382 16,091,481

Unitholders’ Fund and Liabilities

Unitholders’ Fund

Unitholders’ capital 8 14,427,313 15,139,107

Unrealised reserve 9 748,025 (60,058)

Realised reserve 10 967,379 939,690

Net Asset Value attributable to unitholders 16,142,717 16,018,739

Liabilities

Other payables and accrued expenses 11 71,665 71,449

Tax liabilities - 1,293

71,665 72,742

Total Unitholders’ Fund and Liabilities 16,214,382 16,091,481

Number of Units In Circulation 8 32,170,677 33,737,706

Net Asset Value Per Unit 12 0.5018 0.4748

The accompanying Notes form an integral part of the Financial Statements.



14

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME


2020 2019

Note RM RM

Investment Income

Interest income 435,744 817,526

Dividend income 93,000 87,390

Premium/Gains from realisation of preference

shares 150,822 134,692

Other income - 40

Net gain/(loss) on investments:

Investment at fair value through profit or loss

(“FVTPL”) 5 466,375 (733,785)

Total Investment Income 1,145,941 305,863

Expenditure

Management fee 13 216,899 271,179

Trustee’s fee 14 12,394 15,496

Transaction costs 54,357 22,094

Audit fee 11,077 10,450

Tax agent’s fee 4,228 3,800

Other expenses 1,479 1,177

Total Expenditure 300,434 324,196

Net Gain/(Loss) Before Tax 845,507 (18,333)

Income Tax Expense 15 (9,735) (13,032)

Net Gain/(Loss) After Tax/Total Comprehensive

Gain/(Loss) For The Financial Year 835,772 (31,365)

Net Gain/(Loss) After Tax Is Made Up Of:

Realised gain/(loss) 27,689 (3,722,348)

Unrealised gain 808,083 3,690,983

835,772 (31,365)




15

STATEMENT OF CHANGES IN NET ASSET VALUE


Unitholders’

capital

Realised

reserve

Unrealised

reserve

Total net

asset value

RM RM RM RM

As of 1 July 2018 21,684,376 4,662,038 (3,751,041) 22,595,373

Amounts paid/payable for units

cancelled (6,545,269) (6,545,269)

Total comprehensive loss for the

financial year (31,365) (31,365)

Net unrealised loss transferred to unrealised reserve (3,690,983) 3,690,983

As of 30 June 2019 15,139,107 939,690 (60,058) 16,018,739

As of 1 July 2019 15,139,107 939,690 (60,508) 16,018,739

Amounts paid for units created (2,531,294) (2,531,294)

Amounts paid for units cancelled 1,819,500 1,819,500

Total comprehensive gain for the

financial year 835,772 835,772 Net unrealised loss transferred to

unrealised reserve (808,083) 808,083

As of 30 June 2020 14,427,313 967,379 748,025 16,142,717




16

STATEMENT OF CASH FLOWS


2020 2019

RM RM

Cash Flows From Operating Activities

Dividend income received 94,000 126,998

Proceeds from disposal of investments 21,556,874 10,301,381

Interest received 537,709 877,162

Investment income from preference shares 150,001 112,500

Refund on stamp duty - 40

Purchase of investments (19,387,353) (5,437,840)

Management fee paid (216,884) (278,990)

Trustee’s fee paid (12,393) (15,942)

Transaction cost paid (54,357) (22,094)

Tax paid (11,028) (14,157)

Payment for other fees and expenses (16,584) (16,872)

Net Cash From Operating Activities 2,639,985 5,632,186

Cash Flows Used In Financing Activities

Proceeds from units created 1,819,500 -

Payment for cancellation of units (2,531,295) (6,545,269)

Net Cash Used In Financing Activities (711,795) (6,545,269)

Net Increase /(Decrease) In Cash And Cash

Equivalents 1,928,190 (913,083)

Cash And Cash Equivalents At Beginning Of Year 1,379,299 2,292,382

Cash And Cash Equivalents At End Of Year 3,307,489 1,379,299

Cash and cash equivalents consist of the following amounts: 2020 2019

RM RM

Short-term deposits 3,307,055 1,373,114

Cash at bank 434 6,185

3,307,489 1,379,299




17

NOTES TO THE FINANCIAL STATEMENTS

1. GENERAL INFORMATION

Areca enhancedINCOME Fund (“enhancedINCOME” or “the Fund”) was established pursuant to a

Trust Deed dated 12 March 2007 as modified by the First Supplemental Deed dated 27 June 2007,

Second Supplemental Deed dated 14 April 2008, Third Supplemental Deed dated 21 October 2008,

Fourth Supplemental Master Deed dated 10 April 2009, Fifth Supplemental Master Deed dated 12

March 2013 and Sixth Supplemental Master Deed dated 6 September 2013 between Areca Capital

Sdn Bhd as the Manager, the Trustee and all the registered unitholders of the Fund (“the Deed”).

The principal activity of the Fund is to invest in investments as defined under the Schedule 7 of the

First Supplemental Deed, which include stocks and shares of companies quoted in any recognised

Stock Exchange(s) in Malaysia, quoted and unquoted fixed income securities, collective investment

schemes and deposits with financial institutions. The Fund commenced operations on 30 July 2007

and will continue its operations until terminated by the Trustee in accordance with Part 12 of the

Master Deed.

The objective of the Fund is to provide long term investors with high level of income stream and an

opportunity for capital appreciation by investing in fixed income securities with relatively high level

of yield. The Fund may also invest in listed equities and equity-related securities to take advantage

of the both fixed income and equity markets climate.

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 authorised for issue by the Board of Directors of the Manager in

accordance with a resolution of directors on 28 August 2020.

2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS

The financial statements of the Fund have been prepared in accordance with Malaysian Financial

Reporting Standards (“MFRSs”) as issued by the Malaysian Accounting Standards Board (“MASB”)

and International Financial Reporting Standards (“IFRSs”).

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

MFRSs: Amendments to References to

the Conceptual Framework in MFRS

Standards

1 January 2020

Amendments to MFRS 3: Business

Combination-Definition of a Business

1 January 2020

Amendments to MFRS 7, MFRS 9 and

MFRS 139:Financial Instruments :

Interest Rate, Benchmark Reform

1 January 2020

Amendments to MFRS 101: Presentation

of Financial Statements-Definition of

Material

1 January 2020



18

Amendments to MFRS 108: Accounting

Policies, Changes in Accounting

Estimates and Errors-Definition of

Material

1 January 2020

Amendments to MFRS 10 and MFRS 128: Sales or

Contribution of Assets between an Investor and

its Associates or Joint Venture

Deferred

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.

3 SIGNIFICANT ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES AND JUDGEMENTS

SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting

The financial statements of the Fund have been prepared under the historical cost convention.

Historical cost is generally based on the fair value of the consideration given in exchange for assets.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an

orderly transaction between market participants at the measurement date, regardless of whether

that price is directly observable or estimated using another valuation technique. In estimating the

fair value of an asset or a liability, the Fund takes into account the characteristics of the asset or

liability if market participants would take those characteristics into account when pricing the asset

or liability at the measurement date. Fair value for measurement and/or disclosure purposes in

these financial statements is determined on such a basis, except for share-based payment

transactions that are within the scope of MFRS 2, leasing transactions that are within the scope of

MFRS 16, and measurements that have some similarities to fair value but are not fair value, such

as net realisable value in MFRS 102 or value in use in MFRS 136.

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1,

2 or 3 based on the degree to which the inputs to the fair value measurements are observable and

the significance of the inputs to the fair value measurement in its entirety, which are described as

follows:

• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities

that the entity can access at the measurement date;

• Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable

for the asset or liability, either directly or indirectly; and

• Level 3 inputs are unobservable inputs for the asset or liability.

The principal accounting policies adopted are set out below.

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.

Dividend income is recognised based on the date when the right to receive the dividend has been

established.

Investment income from preference shares is recognised based on the ex-dividend date when the

right to receive payment is established.

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



19

which were realised (i.e. sold, redeemed or matured) during the reporting period. Realised gain

and loss on disposal of investments is derived based on net sales proceeds less carrying value.

Unrealised gains and losses comprise changes in the fair value of financial instruments for the

period.

Transaction Costs

Transaction costs are costs incurred to acquire or dispose financial assets or liabilities at fair value

through profit or loss. They include fees and commissions paid to agents, advisers, brokers and

dealers. Transaction costs, when incurred, are immediately recognised in the profit or loss as

expenses.

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.

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.

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.

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.

Financial Instruments

Categories of financial assets are determined on initial recognition and are not reclassified

subsequent to their initial recognition unless the Fund changes its business model for managing

financial assets in which case all affected financial assets are reclassified on the first day of the first

reporting period following the change of the business model.



20

Financial Assets

(i) Classification

The Fund classified its financial assets in the following measurement categories:

• those to be measured subsequently at fair value (either through other

comprehensive income or through profit or loss), and

• those to be measured at amortised cost

The classification depends on the entity’s business model for managing the financial

assets and the contractual terms of the cash flows.

For assets measured at fair value, gains and losses will either be recorded in profit

or loss or other comprehensive income. For investments in equity instruments that

are not held for trading, the Fund can make an irrevocable election at the time of

initial recognition to account for the equity investment either at fair value through

other comprehensive income (“FVTOCI”) or fair value through profit or loss

(“FVTPL”).

(ii) Recognition and derecognition

Regular way purchases and sales of financial assets are recognised on trade-date,

the date on which the Fund commits to purchase or sell the asset. Financial assets

are derecognised when the rights to receive cash flows from the financial assets

have expired or have been transferred and the Fund has transferred substantially

all the risks and rewards of ownership.

(iii) Measurement

At initial recognition, the Fund measures a financial asset at its fair value plus, in

the case of a financial asset not at FVTPL, transaction costs that are directly

attributable to the acquisition of the financial asset. Transaction costs of financial

assets carried at FVTPL are expenses in profit or loss.

Financial assets with embedded derivatives are considered in their entirety when

determining whether their cash flows are solely payments of principal and interest

(“SPPI”).

Impairment of financial assets

The Fund assesses at the end of each reporting period whether there is any objective evidence that

a financial asset is impaired.

The measurement of expected credit losses (“ECL”) is a function of the probability of default, loss

given default (i.e. the magnitude of the loss if there is a default) and the exposure at default. The

assessment of the probability of default and loss given default is based on historical data adjusted

by forward-looking information. As for the exposure at default, for financial assets, this is

represented by the financial assets’ gross carrying amount at the end of each reporting period. The

impairment methodology applied depends on whether there has been a significant increase in credit

risk.

The Fund applies the simplified approach under MFRS 9 which requires expected lifetime loss to be

recognised from initial recognition. The expected loss allowance is based on provisional matrix

Derecognition of Financial Assets

The Fund derecognises a financial asset only when the contractual rights to the cash flows from the

asset expire, or when it transfers the financial asset and substantially all the risks and rewards of

ownership of the asset to another entity. If the Fund neither transfer nor retain substantially all the

risks and rewards of ownership and continues to control the transferred asset, the Fund recognises

its retained interest in the asset and an associated liability for amounts it may have to pay. If the

Fund retains substantially all the risks and rewards of ownership of a transferred financial asset,



21

the Fund continue to recognise the financial asset and also recognises a collateralised borrowing

for the proceeds received.

Equity instruments

The Fund subsequently measures all equity investments at fair value. Where the Fund’s

management has elected to present fair value gains and losses on equity investments in other

comprehensive income, there is no subsequent reclassification of fair value gains and losses to

profit or loss following the derecognition of the investment. Dividends from such investments

continue to be recognised in profit or loss as other income when the Fund’s right to receive

payments is established.

Changes in the fair value of financial assets at FVTPL are recognised in other income/(losses) in

profit or loss as applicable. Impairment losses (and reversal of impairment losses) on equity

investments measured at FVTOCI are not reported separately from other changes in fair value.

Financial liabilities

Financial liabilities are classified as measured at amortised cost or FVTPL.

A financial liability is any liability with contractual obligation to deliver cash or another financial

asset to another enterprise, or to exchange financial instruments with another enterprise under

conditions that are potentially unfavourable.

(a) Financial liabilities at FVTPL

Financial liabilities are classified as at FVTPL when financial liabilities are either held

for trading or it is designated as at FVTPL. Financial liabilities 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.

For financial liabilities where it is designated as fair value through profit or loss

upon initial recognition, the Company recognises the amount of change in fair value

of the financial liability that is attributable to change in credit risk in the other

comprehensive income and remaining amount of the change in fair value in the

profit or loss, unless the treatment of the effects of changes in the liability’s credit

risk would create or enlarge an accounting mismatch.

(b) Financial liabilities measured subsequently at amortised cost

Financial liabilities that are not held for trading, or designated as at FVTPL, are

measured subsequently at amortised cost using the effective interest method.

The effective interest method is a method of calculating the amortised cost of a

financial liability and of allocating interest expense over the relevant period. The

effective interest rate is the rate that exactly discounts estimated future cash

payments (including all fees and points paid or received that form an integral part

of the effective interest rate, transaction costs and other premiums or discounts)

through the expected life of the financial liability, or (where appropriate) a shorter

period, to the amortised cost of a financial liability.

A financial liability is derecognised when the obligation under the liability is extinguished. When an

existing financial liability is replaced by another from the same lender on substantially difference

terms, or the terms of an existing liability are substantially modified, such an exchange or

modification is treated as derecognition of the original liability and the recognition of a new liability,

and the difference in the respective carrying amounts is recognised in profit or loss.



22

Investments

Investment in quoted securities are classified as FVTPL and valued at the last market price quoted on Bursa Malaysia at the end of the reporting period.

Unquoted fixed income securities are classified as FVTPL and are generally valued on a daily basis

with the appropriate prices by reference to quotes published by an approved bond-pricing agency

(“BPA”). When no market prices are available or during abnormal market or when the Manager is

of view that the quotes by the BPA differ from the ‘market price’ by 20 basis points, such securities

will be valued at ‘fair values’ in accordance with the requirements stipulated in the Guidance Note

issued by the Securities Commission Malaysia.

Investment in preference shares are classified as FVTPL and are valued at the latest market price

per unit of such preference shares.

Gains or losses arising from the changes in the fair value of the investment is recognised as gains

or losses from investments in the profit or loss and transferred to unrealised reserved.

Classification of Realised and Unrealised Gains and Losses

Unrealised gains and losses comprise in the fair value of financial instrument 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

Provisions

The Fund recognises a liability as a provision if the outflows required to settle the liability are

uncertain in timing or amount.

A provision for onerous contracts is recognised when the Fund has a present legal or constructive

obligation as a result of a past event, and of which the outflows of resources on settlement are

probable and a reliable estimate of the amount can be made. No provision is recognised if these

conditions are not met.

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.

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.



23

5. INVESTMENTS

Investments designated as FVTPL are as follows:

2020 2019

At aggregate cost Note RM RM

Quoted securities 5(a) 3,174,044 2,476,733

Preference shares 5(b) 1,500,000 1,500,000

Unquoted fixed income securities 5(c) 7,383,510 10,612,380

12,057,554 14,589,113

2020 2019

Note RM RM

At fair value

Quoted securities 5(a) 3,846,150 1,950,500

Preference shares 5(b) 1,500,000 1,500,000

Unquoted fixed income securities 5(c) 7,459,429 11,078,555

12,805,579 14,529,055

2020 2019

RM RM

Net gain/(loss) on investments at FVTPL comprised:

Realised loss on disposals (341,708) (4,424,768)

Net unrealised gain on changes in fair values 808,083 3,690,983

466,375 (733,785)

5(a) Details of quoted securities as are as follows:

2020

Shares quoted in Malaysia

No. of Shares

Market Price

Aggregate Cost

Carrying Value

Fair Value

Fair Value

as a % of

Net Asset Value

Units RM RM RM RM %

Ace Market

Technology

Greatech Technology 195,500 3.870 682,612 682,612 754,650 4.67

Berhad

Main Market

Financial Services

Bursa Malaysia Bhd 50,000 7.280 372,000 372,000 364,000 2.25

Healthcare

Supermax

Corporation Bhd 60,000 8.000 428,604 428,604 480,000 2.97

Industrial Products

& Services

Dufu Technology

Corp Bhd 150,000 4.850 469,430 469,430 727,500 4.51

Techology

JF Technology Bhd 30,000 2.420 44,028 44,028 72,600 0.45

MI Technovation

Berhad 80,000 2.480 147,227 147,227 198,400 1.23

UWC Berhad 20,000 3.670 646,940 646,940 734,000 4.55



24

Pentamaster

Corporation Bhd 100,000 5.150 383,203 383,203 515,000 3.19

1,221,398 1,221,398 1,520,000 9.42

Total quoted

securities 3,174,044 3,174,044 3,846,150 23.82

2019

Shares quoted in

Malaysia

No. of

Shares

Market

Price

Aggregate

Cost

Carrying

Value

Fair

Value

Fair Value as a % of

Net Asset

Value

Units RM RM RM RM %

Main Market

Construction

Muhibbah

Engineering (M)

Berhad 200,000 2.760 555,605 594,805 552,000 3.45

Consumer

Products

Genting Malaysia

Berhad 200,000 3.240 608,040 608,040 648,000 4.05

Industrial Products

& Services

Scicom (MSC) Bhd 350,000 0.820 549,130 577,217 287,000 1.79

Properties

LBS Bina Group Bhd 900,000 0.515 763,958 767,727 463,500 2.89

Total quoted

securities 2,476,733 2,547,789 1,950,500 12.18

5(b) Details of preference shares are as follows:

2020

Preference shares

Quantity

Units

Valuation

Price

Aggregate

Cost

Carrying

Value

Fair

Value

Fair Value as

a % of

Net

Asset

Value RM RM RM RM RM %

Nova Mulia Development Sdn

Bhd (NR) 2020/10.00 1,500,00 1.00 1,500,000 1,500,000 1,500,000 9.29

2019

Preference shares

Quantity

Units

Valuation

Price

Aggregate

Cost

Carrying

Value

Fair

Value

Fair

Value as a % of

Net

Asset

Value RM RM RM RM RM %

Nova Mulia Development Sdn

Bhd (NR) 2020/10.00 1,500,00 1.00 1,500,000 1,500,000 1,500,000 9.36



25

5(c) Details of unquoted fixed income securities are as follows:

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 % 2020 Bonds Malaysian Government

Securities (NR) 2022/3.882 2,000,000 106.19 2,113,000 2,113,000 2,123,820 13.16

Perbadanan Kemajuan

N.Selangor (AA3) 2021/3.50 2,000,000 100.52 2,001,960 2,001,960 2,010,380 12.45 Affin Islamic Perpetual Tier 2

(A1) 2023/5.05 1,000,000 104.33 1,036,000 1,036,000 1,043,310 6.46

Prasarana Malaysia Berhad (NR)

2040/3.75 1,000,000 99.00 1,000,000 1,000,000 990,040 6.13 Lebuhraya DUKE Fasa 3 Sdn

Berhad (AA-) 2037/6.23 500,000 113.47 511,800 573,470 567,345 3.51

Affin Islamic Perpetual Tier 2

(A3) 2023/ 5.65 500,000 104.15 520,750 520,750 520,730 3.23

TGE Excellence Berhad (IS) 2020/3.95 200,000 101.90 200,000 200,000 203,804 1.26

Total unquoted fixed income securities 7,383,510 7,445,180 7,459,429 46.20

Total investments 12,057,554 12,119,224 12,805,579 79.31

2019 Bonds

Alpha Circle Sdn Berhad (AA-)

2019/5.15 3,000,000 100.24 3,000,000 2,996,400 3,007,170 18.77

Hong Leong Bank Berhad (AA2)

2039/8.25 2,500,000 100.85 2,475,000 2,603,250 2,521,325 15.74 Eastern & Oriental Berhad (NR)

2020/2.00 2,500,000 97.45 2,108,700 2,345,690 2,436,150 15.21

DRB-Hicom Berhad (A-)

2114/7.50 2,000,000 102.02 2,016,400 1,995,120 2,040,440 12.74 Lebuhraya DUKE Fasa 3 Sdn

Berhad (AA-) 2037/6.23 500,000 114.69 511,800 541,095 573,470 3.58

DRB-Hicom Berhad (A+)

2019/5.90 500,000 100.00 500,480 500,615 500,000 3.12

Total unquoted fixed income securities 10,612,380 10,982,170 11,078,555 69.16

Total investments 14,589,113 15,029,959 14,529,055 90.70

6. OTHER RECEIVABLES

2020 2019

RM RM

Other receivables from:

Unquoted fixed income securities 68,352 150,371

Preference shares 23,013 22,192 Dividend Receivable 9,000 10,000

Short-term deposits 949 564

101,314 183,127

7. SHORT-TERM DEPOSITS

Short-term deposits represent deposits placed with local licensed financial institutions.

The effective average interest rate for short-term deposits is 2.02% (2019: 3.04%) per annum

and the average maturity period is 8 days (2019: 6 days).



26

8. UNITHOLDERS’ CAPITAL

------- 2020 -------- ------- 2019 -------

No. of units RM No. of units RM

At beginning of year 33,737,706 15,139,107 47,458,971 21,684,376

Created during the year 3,819,878 1,819,500 - -

Cancelled during the year (5,386,907) (2,531,294) (13,721,265) (6,545,269)

At end of the year 32,170,677 14,427,313 33,737,706 15,139,107

9. UNREALISED RESERVE

2020 2019

RM RM

At beginning of year (60,058) (3,751,041)

Net unrealised gain attributable to investments held at fair value through profit or loss 808,083 3,690,983

At end of the year 748,025 (60,058)

Investments:

At market value 12,805,579 14,529,055

At aggregate cost (12,057,554) (14,589,113)

Unrealised reserve 748,025 (60,058)

10. REALISED RESERVE

2020 2019

RM RM

At beginning of year 939,690 4,662,038

Total comprehensive gain/( loss) for the year 835,772 (31,365)

Net unrealised loss transferred to unrealised reserve (808,083) (3,690,983)

At end of the year 967,379 939,690

11. OTHER PAYABLES AND ACCRUED EXPENSES

2020 2019

RM RM

Management fee 18,460 18,445 Trustee’s fee 1,055 1,054

Audit fee 10,450 10,450

Tax agent’s fee 4,200 4,000

Advance coupon 37,500 37,500

71,665 71,449

12. NET ASSET VALUE PER UNIT

The net asset value per unit is calculated by dividing the net asset value attributable to unitholders

of RM16,412,717 (2019: 16,018,739 as of 30 June 2019 by 32,170,677 units (2019: 33,737,706

units) in issue as of 30 June 2020.

13. MANAGEMENT FEE

The Schedule 8 of the Master Deed provides that the Manager is entitled to an annual management

fee at a rate not exceeding 2.50% per annum computed daily on the net asset value of the Fund

before the deduction of the management fee and Trustee’s fee for the relevant day. The

management fee provided for in the financial statements amounted to 1.40% (2019: 1.40%) per

annum for the year, net of the management fee rebate on the collective investment scheme.

14. TRUSTEE’S FEE

The Schedule 9 of the Master Deed provides that the Trustee is entitled to an annual trustee fee

at rate not exceeding 0.50% per annum computed daily on the net asset value of the Fund before

the deduction of the management fee and Trustee’s fee for the relevant day. The Trustee’s fee



27

provided for in the financial statements amounted to 0.08% (2019: 0.08%) per annum for the

year

15. INCOME TAX EXPENSES

2020 2019

RM RM

Estimated tax payable:

Current year 9,735 12,500 Underprovision in prior year - 532

9,735 13,032

In accordance with Schedule 6 of the Income Tax Act, 1967, interest income earned by the Fund

(apart from interest income due from medium term notes) is exempted from tax. Gains arising

from realisation of investments are not treated as income pursuant to Paragraph 61(1)(b) of the

Income Tax Act, 1967.

Pursuant to Public Ruling No. 7/2013 in Unit Trust Funds and Paragraph 12B, Schedule 6 of the

Income Tax Act, 1967, single-tier dividends distributed by a resident company will be exempted

from tax in Malaysia.

A reconciliation of income tax expense applicable to net loss before tax at the applicable statutory

income tax rate to income tax expense at the effective income tax rate of the Fund is as follows:

2020 2019

RM RM

Net loss before tax 845,507 (18,333)

Tax at statutory tax rate of 24% 202,922 (4,400)

Tax effects of:

Income not subject to tax

(421,163)

(249,515)

Expenses not deductible for tax 227,976 266,415

Underprovision of tax expense in prior year - 532

Tax expense for the year 9,735 13,032

16. MANAGEMENT EXPENSE RATIO AND PORTFOLIO TURNOVER

Management Expense Ratio (MER)

Management expense ratio for the Fund is 1.94% (2019: 1.56%) for the financial year ended 30

June 2020. 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 financial year is RM15,449,820 (2019:

RM19,369,147).

Portfolio Turnover Ratio (PTR)

The portfolio turnover ratio for the Fund is 1.00 times (2019: 0.39 times) for the financial year

ended 30 June 2020. The portfolio turnover is derived from the following calculation:

(Total acquisition for the financial year + total disposal for financial the year) ÷ 2

Average net asset value of the Fund for the year calculated on a daily basis

Where: total acquisition for the financial year = RM19,387,353 (2019: RM5,448,433)

total disposal for the financial year = RM11,556,874 (2019: RM9,554,231)



28

17. UNITS HELD BY THE MANAGER AND RELATED PARTIES

As of end of the financial year, the total number and value of units held by the Manager and related

parties are as follows:

No. of Units RM

2020

The Manager 1,746,358 876,322

No. of Units RM

2019

The Manager 2,101 998

The directors of the Manager are of the opinion that the transactions with the related parties have

been entered into in the normal course of business and have been established on terms and

conditions that are not materially different from that obtainable in transactions with unrelated

parties.

18. TRADE WITH BROKERS/DEALERS

Details of transactions with brokers/dealers are as follows:

Brokers/Dealers

2020

Value of

Trades

% of Total

Trades Fees

% of Total

Brokerage

Fee

RM RM RM RM

CIMB Investment Bank Berhad 18,441,088 30.59 21,517 39.58

Affin Hwang Investment Bank

Berhad

8,289,000

13.75

-

-

Maybank Investment Bank

Berhad

8,035,595

13.32

22,050

40.57

Hong Leong Bank Berhad 6,610,000 10.96 - -

KAF Investment Bank Berhad 5,633,000 - - - RHB Investment Bank Berhad 5,597,616 9.28 10,790 19.85

Hong Leong Investment Bank

Bhd

3,690,080

6.12

-

-

Kenanga Investment Bank

Berhad

2,998,849

4.97

-

-

CIMB Bank Berhad 750,000 1.24 - -

Malayan Banking Berhad 260,000 0.43 - -

60,305,228 100.00 54,357 100.00

2019

KAF Investment Bank Berhad 9,621,000 34.84 - -

Hong Leong Investment Bank

Bhd

9,497,193

34.39

-

-

Maybank Investment Bank

Berhad

3,986,497

14.43

12,142

54.95

RHB Investment Bank Berhad 1,509,211 5.46 5,181 23.45

CIMB Investment Bank Berhad 1,429,420 5.18 4,617 20.90

Affin Hwang Investment Bank Berhad

1,575,000

5.70

154

0.70

27,618,321 100.00 22,094 100.00

Included in transactions with broker/dealers are trades conducted on normal terms in relation to

investment in collective investment scheme managed by Manager.



29

19. RISK MANAGEMENT POLICIES

FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Fund seeks to provide high level of income stream and an opportunity for capital appreciation

by investing principally in fixed income securities and long term bonds and a small portion in equity

and equities-related securities. 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.

Categories of Financial Instruments 2020 2019

RM RM

Financial assets

Carried at FVTPL:

Unquoted fixed income securities 7,459,429 11,078,555

Preference shares 1,500,00 1,500,000

Quoted securities 3,846,150 1,950,500

Amortised costs:

Other receivables 101,314 183,128

Short-term deposits 3,307,055 1,373,114 Cash at bank 434 6,185

Financial liabilities

Amortised cost:

Other payables and accrued expenses 34,165 33,949

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 at 30 June 2020.

The Fund invests only in unquoted investments of at least investment grade as rated by a credit

rating agency. The Fund also invests in government backed/related securities which are not rated

by credit rating agency. The following table set out the Fund’s portfolio of unquoted investments

by rating categories:



30

Fair Value

RM

As a % of

unquoted

investments

As a % of

NAV

Credit rating

2020

Bonds

A3 520,730 6.98 3.23

AA3 2,010,380 26.95 12.45

AA-IS 771,149 10.34 4.78

A1 1,043,310 13.99 6.46

NR 3,113,860 41.74 19.29

7,459,429 100.00 46.21

AA2 2,521,325 22.76 15.74

AA- 3,580,640 32.32 22.35

A+ 500,000 4.51 3.12

A- 2,040,440 18.42 12.74

NR 2,436,150 21.99 15.21

11,078,555 100.00 69.16

The following table set out the Fund’s portfolio of investments by industry:

Industry

Short-term

deposits


securities

Quoted

securities

Preference

shares

RM RM RM RM

2020

Construction and property

development - 567,345

-

1,500,000

Finance, insurance and business

services 3,307,055 3,574,420

364,000

-

Healthcare - - 480,000 -

Industrial products and services - 203,804 727,500 - State government - 2,123,820 - -

Technology - - 2,274,650 -

Transport & logistics - 990,040 - -

3,307,055 7,459,429 3,846,150 1,500,000

2019

Construction and property

development - -

552,000

1,500,000

Consumer products - - 648,000 -

Diversifed holdings - 2,540,440 - -

Finance, insurance and business

services 1,373,114 4,957,475

-

- Industrial products and services - - 287,000 -

Infrastructures & Utilities - 573,470 - -

Property & real estate - - 463,500 -

Trading/Services - 3,007,170 - -

1,373,114 11,078,555 1,950,500 1,500,000



31

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.

Up to

1 month

1 - 3

months

3 months

to 1 year

Total

RM RM RM RM

2020

Financial liability Non-interest

bearing:

Other payables and

accrued expenses

19,515

14,650

-

34,165

2019

Financial liability

Non-interest

bearing:

Other payables and

accrued expenses

19,499

14.650

-

33,949

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 the economic outlook and affects broad market confidence.

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 in quoted shares, fixed income securities and preference

shares, 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

Sensitivity to interest rate arises from mismatches in the repricing dates, cash flows and other

characteristics of the assets and their corresponding liability funding. A 50 basis point increase or

decrease is used when reporting interest rate risk internally to key management personnel and

represents Fund Manager’s assessment of the reasonably possible change in interest rates.

The sensitivity is the effect if the assumed changes in interest rates on changes in fair value of

investments for the year, based on revaluing fixed rate financial assets at the end of the reporting

period.

The following table demonstrates the sensitivity of the Fund’s income for the year to a reasonably

possible change if interest rates had been 50 basis points higher/lower and all other variables were

held constant.



32

Changes in basis points Effect on profit or loss

Increase/(Decrease)

RM

2020

Interest rate +50/-50 61,332/(61,332)

2019

Interest rate +50/-50 69,758/(69,758)

Price Risk management

Price risk is the risk of unfavourable changes in the fair value of quoted and 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 quoted and

uquoted 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:

Changes in price

Effect on profit or loss

Increase/(Decrease)

% RM

2020

Investments +5/-5% 640,279/(640,279)

2019

Investments +5/-5% 726,453/(726,453)

Capital risk management

The capital of the Fund is represented by equity of unitholders’ capital and reserves. 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 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.

For deposits and placements with financial institutions with maturities of less than twelve months,

the carrying value is reasonable estimate of fair value.

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.



33

• 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

2020 RM RM RM RM

Financial assets at

FVTPL

Quoted securities 3,846,150 - - 3,846,150

Preference shares - - 1,500,000 1,500,000

Unquoted fixed income securities - 7,459,429 - 7,459,429

2019

Financial assets at

FVTPL

Quoted securities 1,950,500 - - 1,950,500

Preference shares - - 1,500,000 1,500,000


securities - 11,078,555 - 11,078,555

There were no transfer between Levels 1, 2 and 3 during the financial year.

The following table shows the valuation technique used in the determination of fair values within Level 3, as well as key observable input used in valuation model:

Instrument Description of valuation technique and inputs

used

Preference shares Discounted cash flows method on the contractual cash

flows of the securities using a rate based on the risk

premium of the investee, which approximates the

expected rate of return by the unitholders.



34

STATEMENT BY THE MANAGER

To the Unitholders of Areca enhancedINCOME 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 30 June 2020, 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

CEO/ EXECUTIVE DIRECTOR

EDWARD ISKANDAR TOH BIN ABDULLAH CIO/ EXECUTIVE DIRECTOR

Kuala Lumpur

28 August 2020



35

INDEPENDENT AUDITORS’ REPORT TO THE UNITHOLDERS OF ARECA ENHANCEDINCOME FUND (Established under the First Supplemental Deed dated 27 June 2007)

Report on the Audit of the Financial Statements Opinion

Opinion

We have audited the financial statements of ARECA ENHANCEDINCOME FUND, which comprise the

statement of financial position as at 30 June 2020, 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

financial year then ended, and notes to the financial statements including a summary of significant

accounting policies, as set out on pages 13 to 33.

In our opinion, the accompanying financial statements give a true and fair view of the financial position

of the Fund as at 30 June 2019, and of its financial performance and cash flows for the financial 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 (including International

Independence Standard) (“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.

Responsibilities of the Manager for the Financial Statements

The Manager of the Fund is responsible for the preparation of the financial statements of the Fund that

give a true and fair view in accordance with Malaysian Financial Reporting Standards, International



36

Financial Reporting Standards and the Securities Commission Malaysia’s Guidelines on Unit Trust Funds

in Malaysia. The Manager is also responsible for such internal control as the Manager determines 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 intends 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 skepticism

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 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.



37

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 - 03195/06/2021 J

Chartered Accountant

28 August 2020

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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