Tafawa Balewa Square Investments Limited

LOTUS CAPITAL HALAL INVESTMENT FUND

Managed by

LOTUS CAPITAL LIMITED

FINANCIAL STATEMENTS

for the year ended

31ST DECEMBER, 2016

Horwath Dafinone, Chartered Accountants, Ceddi Towers, 16 Wharf Road, Apapa, P. O. Box 2151, Marina, Lagos LOTUS CAPITAL HALAL INVESTMENT FUND MANAGED BY LOTUS CAPITAL LIMITED

Contents Page(s)

Corporate information 1 Report of the trustees 2 - 4 Report of the fund manager 5 - 7 Report of the Shari’ah Supervisory Board 8 - 9 Report of the independent auditors 10 - 11 Statement of financial position 12 Statement of comprehensive income 13 Statement of changes in equity 14 Statement of cash flows 15 Notes to the financial statements 1 General reporting 16 2 Basis of preparation 16 3 Significant accounting policies 17 3.1 Definition 17 3.2 Foreign currency transactions 17 3.3 Income from financing and advances 17 - 18 3.4 Net gain/loss from financial instruments at fair value through profit or loss 18 3.5 Dividend income 18 3.6 Fees, commission and other expenses 18 3.7 Taxation 18 3.8 Financial assets and liabilities 18 - 23 3.9 Cash and cash equivalents 23 3.10 Provisions 24 3.11 Contingencies 24 3.12 Redeemable units 25 3.13 New standards and interpretations not yet adopted 25 4 Financial risk management 26 – 32 5 Critical accounting estimates and judgements 33 – 34 6 Financial assets and liabilities 35 – 36 7 Income from financing and advances 36 8 Net impairment loss on financial assets 36 9 Net loss from financial assets at fair value through profit or loss 37 10 Other operating expenses 37 11 Withholding tax expense 37 12 Cash and cash equivalents 37 13 Financial assets at fair value through profit or loss 38 14 Financial assets available-for-sale 38 15 Financing and advances 38 – 40 16 Other receivables 40 17 Trade and other payables 40 18 Related parties and other key contracts 40 – 41 19 Contingent Liabilities- Litigation and claim 41 20 Statement on the calculation of Zakah 41 Information not required under International Financial Reporting Standards: Statement of value added 42 Five year financial summary 43

LOTUS CAPITAL HALAL INVESTMENT FUND MANAGED BY LOTUS CAPITAL LIMITED

Corporate information

Fund Manager Lotus Capital Limited 1b Udi Street Osborne Foreshore Estate Osborne Road Lagos

Directors of the Fund Manager Mr. Fola Adeola Mrs. Hajara Adeola Mrs. Lateefah Okunnu Mrs. Amina Oyagbola Mr. Nuruddeen Lemu

Registered office 1b Udi Street (Fund Manager) Osborne Foreshore Estate Osborne Road Lagos

Trustees to the Fund FBN Trustees Limited 10, Keffi Street Off Awolowo Road, Ikoyi Lagos

Independent auditors to the Fund Horwath Dafinone Chartered Accountants

Custodian to the Fund Citibank Nigeria Limited

Registrar to the Fund Unity Registrars Limited 25 Ogunlana drive Surulere Lagos

LOTUS CAPITAL HALAL INVESTMENT FUND MANAGED BY LOTUS CAPITAL LIMITED

Report of the trustees

The Trustees present their report on the affairs of the Lotus Capital Halal Investment Fund, together with the audited financial statements for the year ended 31st December, 2016.

Principal activity: The principal activity of the Lotus Capital Halal Investment Fund is the pooling of funds from individual members of the public and companies and the investment of such funds in equities listed on the Nigerian Stock Exchange, Asset Backed Investments and other Sharia-compliant investments.

During the year under review, the Fund was administered in accordance with the Trustees Investment Act, CAP T22 LFN, 2004, the Investments and Securities Act, 2007, the provisions of the Trust Deed and any supplemental thereto, together with the rules and regulations set out by the regulatory bodies established pursuant to the legislation referred to within this paragraph (“Applicable Regulations”), taking into cognisance prevailing market conditions as well as preserving of (and minimising possible losses to) unit holders’ funds. The Fund was also administered in accordance with Shari’ah Rules and Principles.

Results: The results for the year are set out on Pages 14.

Distribution: While the Trust Deed constituting the Fund empowers the Fund to distribute any part of its income to its members, such distribution has to be approved by the Trustee on the recommendation of the Fund Manager.

Directors: The directors of the Fund Manager who served on the board of the Fund Manager during the period under review and up to the date of approving these financial statements were:

Mr. Fola Adeola (Chairman) Mrs. Hajara Adeola (Managing Director/Chief Executive Officer) Mrs. Lateefah Okunnu Mrs. Amina Oyagbola Mr. Nuruddeen Lemu

Directors' and related The Directors of Lotus Capital Limited who held direct and indirect parties interest in the beneficial interest in the units of the Fund as at 31st December, 2015 are: units of the Fund:

Units held as at Units held as at 31st December, 2016 31st December, 2015

Mr. Fola Adeola 5,000,000 5,000,000 Mrs. Hajara Adeola 8,500,000 7,838,691 Mr. Nuruddeen Lemu 3,274,756 3,274,756 Mrs. Lateefah Okunnu 10,777,612 10,777,612

None of the directors of FBN Trustees Limited has any direct or indirect beneficial interest in the units of the Fund.

LOTUS CAPITAL HALAL INVESTMENT FUND MANAGED BY LOTUS CAPITAL LIMITED

Report of the trustees (continued)

Responsibilities of The Investments and Securities Act, 2007 requires the Fund Manager the Fund Manager: to keep proper books of account and prepare annual financial statements which give a true and fair view of the state of affairs of the unit trust scheme during the period covered by the financial statements.

In our opinion, the Fund Manager has in preparing the financial statements:

 selected suitable accounting policies and applied them consistently;

 made judgments and estimates that were reasonable and prudent;

 ensured that the applicable accounting standards have been followed, and in the case of any material departure, that it was fully disclosed and explained in the financial statements; and

 prepared the financial statements on a going concern basis; since it was appropriate to assume that the Fund shall continue to exist.

The Fund Manager was responsible for keeping proper accounting records, which disclose with reasonable accuracy, at any point in time, the financial position of the Fund, and enable the Fund Manager to ensure that the financial statements comply with the Applicable Regulations.

The Fund Manager is also responsible for maintaining adequate financial resources to meet its commitments and to manage the risks to which the Fund is exposed.

Responsibilities of The responsibilities of the Trustee as provided by the Trust Deed and the Trustee: other Supplemental thereto, the Securities and Exchange Commission’s Rules and Regulations made pursuant to the Investments and Securities Act, 2007 are as stated below:

 Monitoring of the activities of the Fund Manager and the custodian on behalf of and in the interest of the Unit Holders;

 Ensuring that the Custodian takes into custody all of the scheme’s assets and holds it in trust for the holders in accordance with the Trust Deed and the Custodial Agreement;

 Monitoring the register of unit holders or contributors;

 Ascertaining the Fund Manager’s compliance with the Applicable Regulations;

 Ascertaining that the monthly and other periodic returns/reports relating to the Fund are sent by the Fund Manager to the Commission;

LOTUS CAPITAL HALAL INVESTMENT FUND MANAGED BY LOTUS CAPITAL LIMITED

Report of the trustees (continued)

Responsibilities of the Trustee: (continued)  Exercising any right of voting conferred on it as the registered holder of any investment and/or forward to the fund manager within a reasonable time all notices of meetings, reports, circulars, proxy solicitations and any other document of a like nature for necessary action;

 Ensuring that fees and expenses of the fund is within the prescribed limits; and

 Acting at all times in the interest and for the benefit of unit holders of the scheme.

Administration of the During the year under review, the Fund was administered in accordance Fund: with the applicable regulations, taking into cognisance prevailing market conditions as well as preserving and minimising possible losses to unit holders’ funds.

Charitable donations: The Fund did not make any charitable donations during the year. (2015: nil)

Auditors: Messrs Horwath Dafinone, Chartered Accountants, having indicated their willingness to continue in office, shall do so in accordance with Section 169(1) of the Investments and Securities Act, 2007.

By Order of the Trustees

Adekunle Awojobi, FRC/ICAN/2013/00000002442 Managing Director FBN Trustees Limited Lagos, Nigeria , 2017

LOTUS CAPITAL HALAL INVESTMENT FUND MANAGED BY LOTUS CAPITAL LIMITED

Report of the fund manager

Dear Investor,

This report provides an overview of the performance of the Lotus Capital Halal Investment Fund (Halal Fund) from 1st January, 2016 to 31st December, 2016.

INVESTMENT OBJECTIVES

The primary objective of the Fund is to optimize total returns of investors by seeking high quality investments whilst adhering to the strictest code of ethics in line with our Islamic finance investment philosophy.

MACROECONOMIC REVIEW

In 2016 we witnessed landmark events on both the political and economic fronts, which makes it fair to characterize the year as volatile and interesting.

In the year under review, Britain’s electorate made the shocking decision to exit the European Union (otherwise known as Brexit); and their angst was largely driven by concerns over insecurity and unemployment following a wave of migration into Europe. Consequently, the European Central Bank took measures to forestall any adverse consequences of the Brexit and extended its bond buying program by nine months to December 2017. This boosted consumer spending and raised inflation in the Eurozone to its highest level in 2.5 years at 0.6%.

In the US, Donald Trump emerged as the President after a heated general election. However, due to his boisterous nature and controversial views on free trade and immigration, investors had mixed reactions. Consequently, some emerging market currencies such as the Mexican peso weakened significantly against the US dollar due to concerns over US trade restrictions; while business investment flowed to the US to take advantage of potential tax cuts. Overall, the US economy grew by 3.5% in Q3’2016 and this prompted the US Federal Reserve to raise its benchmark interest rate by 25bps in December 2016.

Despite a rough start to the year, China and Japan’s economies ended the year on a decent note as evidenced by impressive manufacturing data. China’s Purchasing Managers Index (PMI) hit a three- year high of 51.9 points in December, while Japan recorded a year high of 52.4 points in the last month of the year. These improvements implied stronger demand for oil, which was positive for the global commodities market.

Oil prices gradually charted an upward course for most of 2016. In December, nineteen oil producers finally agreed to cut production by a total of 1.2mbpd and this pushed oil prices to $56.82pb by year end. The agreement raised the chances of economic recovery in emerging economies, particularly Russia, Brazil and Nigeria.

For the Nigerian economy, the narrative of a constantly weakening Naira and contracting economy characterized much of 2016. The most resounding negative for the year was the revelation that the economy had slipped into a recession in the second quarter. One of the key limiting factors was oil production, which was severely constrained by vandalism in the Niger Delta. Consequently, the country’s oil earnings plunged by c.42% and external reserves fell to $25.78bn at year end (2015: $29bn).

LOTUS CAPITAL HALAL INVESTMENT FUND MANAGED BY LOTUS CAPITAL LIMITED

Report of the Fund Manager (continued)

In the course of the year, the CBN introduced a new foreign exchange system which saw the Naira initially depreciate by 45% to N280/$ at the interbank market. However, the intricacies of the system and the presence of several secondary exchange rates gave rise to a vibrant black market, where the naira traded as high as N490/$ (vs N320/$ at the start of the year). As expected, the high exchange rate fed into consumer prices and inflation spiked. The price pressures were exacerbated by a 67% increase in the retail price of petrol and a 45% hike in the electricity tarriff. By year end, inflation had almost doubled to 18.55% in December 2016 (vs. 9.6% in December 2015).

Nevertheless, the CBN remained committed to price stability in the year and raised the monetary policy rate (MPR) twice to counteract inflation. The first MPR hike occurred in March 2016 from 11% to 12%, followed by a further 200bps increase to 14% in July 2016. The CBN’s policy response appeared effective as the monthly rise in inflation tapered over the last quarter of the year, although the trajectory remained upward.

At the end of the year, there were renewed signs of economic recovery, largely on the back of a rebound in oil prices and production. Against this backdrop, the FG presented a N7.3trn expenditure proposal for 2017, predicated on a conservative oil price benchmark of $42pb. The FG’s proposal intends to focus on infrastructure spending with the expectation that the country will exit recession following the positive multiplier effect. In our view, the actualization of this ambitious target is largely contingent on higher oil production and prompt access to affordable external debt.

NIGERIAN CAPITAL MARKET REVIEW

The Nigerian equities market had a challenging year and most sectors asides from banking ended in the red. In the first quarter, major high capitalization stocks took a beating when the Morgan Stanley Composite Index Manager (MSCI) threatened to exclude Nigerian equities from its frontier market index due to FX liquidity challenges. MSCI later opted to retain Nigerian equities in its index and the domestic bourse fared better in the second quarter. Market performance in Q2’2016 was also supported by investors’ expectation that the new CBN’s exchange rate regime would capture the attention of foreign investors. However, foreign investors remained on the sidelines and the FX scarcity persited.

The country’s tough economic environment eventually weighed down corporate earnings and also dampened investors’ confidence. Of particular concern was the consumer goods sector, which was adversely affected by high finance costs and scarcity of FX for imports. The industrial goods sector witnessed slow topline growth due to low public spending on infrastructure and real estate; while the banking sector was pressured by non- performing loans mainly to the energy sector. Although the equity market staged a last ditch rally in December when oil prices rebounded, the broad market index still closed the year lower by -6.17%, while market capitalization declined by c.N640bn.

INVESTMENT STRATEGY

Given the level of policy instability at the macro level and volatility in the equities market, our investment strategy favoured low risk asset backed investments in 2016. Our exposures were mainly in the financial services, logistics and downstream oil & gas sectors and we adopted prudent risk management practices to avert losses. Through the year, we also maintained a reasonable amount of near cash murabaha investments to allow for prompt reaction to changes in the business environment.

LOTUS CAPITAL HALAL INVESTMENT FUND MANAGED BY LOTUS CAPITAL LIMITED

Report of the Fund Manager (continued)

HALAL FUND ASSET ALLOCATION

As stipulated in the Trust deed, the Halal Fund invested in equities, asset-backed investments and cash equivalent investments in the period under review. As at December 31, 2016, 47% of the Halal Fund was invested in asset-backed investments, 29% in near cash investments and 24% in equities.

HALAL FUND PERFORMANCE

In the year under review, the Halal Fund maintianed its focus on low risk asset backed transactions, and this had the highest weighting in the portfolio. In line with our risk management framework, the asset backed investments were diversified across industries and obligors to reduce the negative impact of a deteriaoration in any particular exposure. The fund coducted its transactions in accordance with prominent shari’ah compliant commercial contracts notably Ijara, Murabaha and Mudharaba. The fund also invested in equities which passed the investment criteria of the Accounting and Audit Organisation for Islamic Financial Institutions (AAOIFI). In the period under review, the performance of the equities portfolio was affected by the prevailing low investor sentiment on the domestic bourse; nevertheless, the Fund was able to absorb the impact due to the gains on asset backed investments.

The Halal Fund ended with a Net Asset Value (NAV) of N1.01 per unit, representing a full year return of 13.13% (2015: 2.06%). Based on its positive performance, the Halal Fund paid an interim dividend of N0.01/unit in October 2016 and a final dividend of N0.01/unit in February 2017.

OUTLOOK FOR 2017

We consider 2017 to be a year for growth across the globe. According to the World Bank, the global economy is expected to expand by 2.7%, which is a faster pace than the 2.4% estimated for 2016. The World Bank expects emerging markets to grow by 4.2% in 2017 (2016e: 3.4%) driven by the upturn in commodity prices, particularly oil which is forecast to average $55pb in 2017 (vs $45pb in 2016).

On the local scene, the World Bank estimates that the Nigerian economy would recover from recession and record 1% growth in 2017. We are aligned with this view, which we believe will be underscored by some recovery in oil production, given the recent calm in the Niger Delta region. On the fiscal end, we expect government spending to be intermittent due to delays with the 2017 budget. However, we expect more success in the government’s external borrowing campaign which should stimulate economic activities by mid-year. In our view, the higher level of external reserves on account of oil prices should improve FX liquidity and reduce exchange rate volatility in the year. We expect inflation to moderate as FX pressures gradually reduce, thereby leading to a more accommodating business environment in 2017.

Our mission as fund managers is to provide investors with real returns. We intend to maintain our exposure to asset backed transactions, which have proven profitable, stable and reliable over the last year. We intend to re-price these asset-backed transactions to offer our investors sufficient compensation for inflation. In addition, we intend to increase our investments in sukuk, which would enable us to benchmark market returns with low risk. Our approach remains result-oriented and disciplined.

We are confident our strategy will deliver appreciable returns for your managed funds in the coming year.

Thus, we enjoin you to invest with Lotus Capital whilst wishing you a successful and prosperous 2017.

LOTUS CAPITAL HALAL INVESTMENT FUND MANAGED BY LOTUS CAPITAL LIMITED

Report of the Shari’ah Supervisory Board

Shari’ah Report & Shari’ah Supervisory Board Lotus Capital Halal Investment Fund

Shari'ah Report for the fiscal year ending December 31, 2016

In the name of Allah, the Most Beneficent, Most Merciful.

Alhamdu Lillahi Rabbi al Alamin, wa al Salatu wa al Salamu ‘ala Sayyidina Muhammad, wa ala Aalihi wa Sahbihi Ajma’in

To the unitholders of the Lotus Capital Halal Investment Fund (“the Halal Fund”)

Assalamu Alaikum Wa Rahmat Allah Wa Barakatuh

We have reviewed the principles and the form-contracts relating to the transactions and applications utilized by Lotus Capital Limited (“the Fund Manager”) during the year under review. We have also received assurance from the Lotus Capital Management that all procedures of investment and Shari’ah compliant contract templates only have been used in all investment of the Halal Fund as approved and instructed by us the Shari’ah Supervisory Board. This allows us to form an opinion as to whether the Fund Manager has complied with Shari'ah Rules and Principles and with the rulings set by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).

The Fund Manager is responsible for ensuring that the company conducts the business of the Halal Fund in accordance with Islamic Rules and Principles. It is the Shari'ah Supervisory Board's responsibility to form an independent opinion on Shari'ah compliance based on its review of the operations and activities of the Fund. The Fund Manager has assumed the responsibility to pay the total non-permissible income to charity in accordance with the guidance of the Shari'ah Supervisory Board. The company has not been given the authority to pay Zakaat on behalf of unitholders or depositors. This is the responsibility of the shareholders and depositors themselves.

We report that the Shari'ah Supervisory Board (SSB) conducted the review by examining the form contracts and formal procedures for each type of transaction utilized by the Fund Manager. The SSB was assured by the Fund Manager that all transactions have specifically been conducted and concluded by using these form contracts with no additional or other conditions. Accordingly, in our opinion the contracts, transactions and dealings entered into by the Fund Manager during the period under review are generally in compliance with Shari'ah Rules and Principles. However, the Shari’ah Supervisory Board will continue to work with the Fund Manager to perfect their operations from a Shari’ah standpoint.

We beg Almighty Allah to grant us all wisdom to understand His religion and follow its teaching and to bestow on us success in this worldly life and in the life after.

Wassalamu Alaikum Wa Rahmat Allah Wa Barakatuh.

Prof. Dr. Monzer Kahf Professor Muhammad Lawal Bashar Chairman Shari’ah Board Member Shari’ah Board Lotus Capital Limited Lotus Capital Limited

LOTUS CAPITAL HALAL INVESTMENT FUND MANAGED BY LOTUS CAPITAL LIMITED

Report of the Shari’ah Supervisory Board (continued)

Shari'ah Supervisory Board

The Shari'ah Supervisory Board is an independent body of specialist jurists in Islamic commercial jurisprudence. The Shari'ah Supervisory Board is entrusted with the duty of directing, reviewing and supervising the activities of Lotus Capital, ensuring that the company complies with the Shari'ah. The board is also entrusted with ensuring that any Shari'ah issues pertaining to the company are dealt with in a professional manner, in line with standards set by Islamic financial institutions.

The rulings and resolutions of the Shari'ah Supervisory Board are binding on the company and its products. It is the responsibility of the Shari'ah Supervisory Board to conduct regular audits of transactions and to form an independent opinion, based on reviews of operations. The company's external Supervisory Board members comprise:

Prof. Dr. Monzer Kahf - Dr Kahf is a consultant and lecturer on Islamic Banking, Finance and Economics. He has aided the drafting and review of various Islamic finance agreements for Islamic financial institutions in the USA and also for lawyers, companies and individuals. He has lectured on Islamic Financial Laws and Regulations, and on Islamic Economic and Finance at conferences and community seminars within the USA and overseas. He was a Senior Research Economist at the Islamic Research and Training Institute of the Islamic Development Bank (IDB), Jeddah, Saudi Arabia for 15 years. He was also a Professor of Islamic Economics and Banking in the graduate program of Islamic Economics and Banking at Yarmouk University, Jordan. He is currently a professor of Islamic finance at the Qatar Faculty of Islamic Studies.

Dr Kahf holds a Ph. D. in Economics from the University of Utah, Salt Lake City, Utah, March 1975, a High Diploma in Social and Economic Planning, UN Institute of Planning, Damascus, Syria, 1967. He is also a Certified Public Accountant in Syria since 1968. His Shari’ah scholarship is a product of life-long training at the Ulama of Damascus, Syria and continuous research, study and teaching.

Professor Muhammad L. Bashar - Professor Muhammad Bashar is the Head of Department of Economics, Usmanu Danfodiyo University, Sokoto. He has a B.A.(Hons.) Economics, from Jamia Millia Islamia, New Delhi, an M.A. (Economics) from Jawaharlal Nehru University, New Delhi. He also has a Ph.D. (Economics) from Usmanu Danfodiyo University, Sokoto, a Certificate in Arabic and Islamic Studies from University of Medina at Sokoto and a Certificate in Arabic from Usmanu Danfodiyo University, Sokoto.

Professor Bashar is a well-published and prolific writer, and is also proficient in Hausa, English, Hindi and Arabic.

REPORT OF THE INDEPENDENT AUDITORS TO THE UNIT HOLDERS OF LOTUS CAPITAL HALAL INVESTMENT FUND

Opinion

We have audited the financial statements of Lotus Capital Halal Investment Fund which comprises, the statement of profit or loss and other comprehensive income, the statement of financial position as at 31st December 2016, the statement of changes in equity, the statement of cash flows for the year then ended, the significant accounting policies, other explanatory notes, the statement of value added and the financial summary. These financial statements are set out on pages 13 to 44 and have been prepared using the accounting policies set out on page 18 to 26.

In our opinion, the financial statements give a true and fair view of the financial position of the Company as at 31st December, 2016 and of its financial performance and its cash flows for the year ended on that date, and comply with the Companies and Allied Matters Act CAP C20 LFN 2004, and the applicable International Financial Reporting Standards as adopted by the Financial Reporting Council of Nigeria.

Basis of our opinion

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity’s preparation and fair presentation of the financial statements 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 entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we obtained is sufficient and appropriate to provide a reasonable basis for our audit opinion.

Independence

We are independent of the Fund in accordance with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (IESBA) Code. We have fulfilled our other ethical responsibilities in accordance with the IESBA code.

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Statement of changes in equity as at 31st December 2016

Notes 2016 2015 N= N=

Income from financing and advances 7 240,156,462 236,244,989 Dividend income 15,414,484 25,332,189 ______

Total revenue 255,570,946 261,577,178 ______

Net impairment gain/(loss) on financial assets 8 163,880,047 (3,064,839) Net loss from financial assets at fair value through profit or loss 9 (48,547,880) (131,632,719) Other operating expenses 10 (104,493,848) (81,678,069) ______

10,838,319 (216,375,627) ______

Profit before tax 266,409,265 45,201,551

Withholding tax expense 11 (932,241) (1,502,844) ______

Profit for the year 265,477,024 43,698,707 ======

The statement of the principal accounting policies set out on pages 17 to 25 and the notes on pages 16 to 41 form an integral part of these financial statements.

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Statement of changes in equity as at 31st December 2016

Redeemable Accumulated Total units deficit equity N= N= N=

Balance at 1st January 2016 2,097,939,269 (206,769,428) 1,891,169,841 Total comprehensive income for the year: Profit for the year - 265,477,024 265,477,024 ______

2,097,939,269 58,707,596 2,156,646,865 ______Transactions with unit holders, recognised directly in equity

Contributions, redemptions and distributions to unit holders:

Issue of redeemable units 10,940,690 - 10,940,690 Redemption of redeemable units (49,904,969) - (49,904,969) Fair value through units holding - 1,914,295 1,914,295 Interim dividend paid during the year - (20,833,206) (20,833,206) ______

Total transactions with unit holders (38,964,279) (18,918,911) (57,883,190) ______

Balance at 31 December 2016 2,058,974,990 39,788,685 2,098,763,675 ======

Balance at 1st January 2015 2,184,846,156 (238,164,118) 1,946,682,038 Total comprehensive income for the year: Profit for the year - 43,698,707 43,698,707 ______

2,184,846,156 (194,465,411) 1,990,380,745 ______Transactions with unit holders, recognised directly in equity

Contributions, redemptions and distributions to unit holders:

Issue of redeemable units 13,970,693 - 13,970,693 Redemption of redeemable units (100,877,580) - (100,877,580) Fair value through units holding - 8,818,963 8,818,963 Dividend paid out - (21,122,980) (21,122,980) ______

Total transactions with unit holders (86,906,887) (12,304,017) (99,210,904) ______

Balance at 31 December 2015 2,097,939,269 (206,769,428) 1,891,169,841 ======

The statement of the principal accounting policies set out on pages 17 to 25 and the notes on pages 16 to 41 form an integral part of these financial statements.

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Statement of cash flows for the year ended 31st December 2016

Notes 2016 2015 N= N= Cash flows from operating activities

Profit before tax 266,409,265 45,201,551 Adjustments for: Net impairment (gains)/loss on financial assets 8 (163,880,047) 3,064,839 Unrealised fair value loss on financial assets at fair value through profit and loss 9 27,500,245 116,295,473 Realised loss/(gain) on disposal of quoted securities 9 21,047,635 15,337,246 Fair value loss arising from disposal of unit holdings 1,914,295 8,818,963 ______

152,991,393 188,718,072 Changes in operating assets and liabilities Other

Net decrease/(increase) in financial assets at fair value through profit and loss 27,123,853 (6,690,660) Net decrease in financial assets held to maturity 14 26,861,813 23,313,660 Net increase in financing and advances 15 26,522,158 (66,776,905) Net (decrease)/increase in trade and other payables 17 (19,239,776) 25,171,078 Net decrease in uninvested fund deposits (40,000) - Decrease/(increase) in other receivables 16 102,662 2,250,626 ______

Cash inflow from operating activities 214,322,103 165,985,871 Withholding tax paid 11 (932,241) (1,502,844) ______

Net cash inflow from operating activities 213,389,862 164,483,027 ______Cash flow from financing activities Proceeds from issue of redeemable units 10,940,690 13,970,693 Payments on redemption of redeemable units (49,904,969) (100,877,580) Payment of dividend (20,833,206) (21,122,980) ______Net cash used in financing activities (59,797,485) (108,029,867) ______

Net decrease in cash and cash equivalents 153,592,377 56,453,160 Cash and cash equivalents at beginning of year 12 478,609,135 422,155,975 ______

Cash and cash equivalents at end of year 12 632,201,512 478,609,135 ======

The statement of the principal accounting policies set out on pages 17 to 25 and the notes on pages 16 to 41 form an integral part of these financial statements.

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Notes to the financial statements for the year ended 31st December 2016

1. General information

Lotus Capital Halal Investment Fund (“Halal Fund”) is an open-ended Unit Trust Scheme authorised and registered by the Securities and Exchange Commission. The Fund’s principal office is located at Lotus Capital Limited, 1b Udi Street, Osborne Foreshore Estate, Ikoyi, Lagos, Nigeria.

The Fund is an Islamic Fund and primarily involved in investments in well-diversified portfolio comprised of high quality equities listed on the Nigerian Stock Exchange, real estate and asset- backed investments in accordance with the principles of Islamic finance.

The Fund is managed by Lotus Capital Limited (“the Fund Manager”) and the trustees to the Fund are First Trustees Nigeria Limited (“the Trustees”).

2. Basis of preparation

2.1 Statement of compliance

The financial statements has been prepared in accordance with International Financial Reporting Standards (IFRSs) and were authorised for issue by the Trustees and Fund Manager on ------, 2017.

2.2 Functional and presentation currency

These financial statements are presented in Nigerian Naira, which is the Fund’s functional currency. Except as otherwise indicated, financial information presented in Naira has been rounded to the nearest thousand.

2.3 Basis of measurement

These financial statements are prepared on the historical cost basis except for the following:

  Financial instruments at fair value through profit or loss are measured at fair value;  Available-for-sale financial assets are measured at fair value;  Loans and receivables, held to maturity financial assets and financial liabilities are measured at amortized cost.

2.4 Use of estimates and judgments

The preparation of financial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimates are revised and in any future years affected.

Judgements made by management in the application of IFRSs that have significant effect on the financial statements and estimates with a significant risk of material adjustments are discussed in note 5.

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Notes to the financial statements for the year ended 31st December 2016 (continued) 3. Significant accounting policies

Significant accounting policies are defined as those that are reflective of significant judgements and uncertainties, and potentially give rise to different results under different assumptions and conditions. The accounting policies set out below have been consistently applied to all years presented in these financial statements.

3.1 Definition

(i) Murabahah An agreement whereby the Fund sells to a customer a commodity which the Fund has purchased and acquired based on a promise received from customer to buy the item purchased according to specific terms and conditions. The selling price comprises the cost of the commodity and an agreed profit margin.

(ii) Mudarabah An agreement between the Fund and a customer whereby the Fund would invest in a specific enterprise or activity, managed by the customer for a specific share in the profit. The customer would bear the loss in case of default, negligence or violation of any of the terms and conditions of the Mudaraba.

(iii) Musharaka An agreement between the Fund and a customer to contribute to a certain investment enterprise, whether existing or new, or the ownership of a certain property, either permanently or according to a diminishing arrangement ending with the acquisition by the customer of the full ownership. The profit is shared as per the agreement set between both parties while the loss is shared in the proportion of their shares of capital or the enterprise.

(iv) Ijara An agreement whereby the Fund (lessor) purchases or leases an asset according to the customer’s requirements (lessee) based on his promise to lease the assets for a specific period and against certain rent instalments. Ijara could end by transferring the ownership of the asset to the lessee or not.

(v) Sukuk This means Islamic bonds, structured in a such a way as to generate returns to Investors without infringing Islamic law (that prohibits riba or interest).

3.2 Foreign currency transactions

Transactions denominated in foreign currencies are recorded in Naira at the rate of exchange ruling at the date of each transaction. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included in the income statement.

Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate ruling at the balance sheet date; the resulting foreign exchange gain or loss is recognised in the income statement while those on non-monetary items are recognised in other comprehensive income. For non-monetary financial assets available-for-sale, unrealised exchange differences are recorded directly in equity until the asset is disposed or impaired.

3.3 Income from financing and advances

Income from financing and advances (financial contracts) such as Ijara, Murabaha, Mudaraba and Musharaka, are recognised in profit or loss using the effective return method. The effective return rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability (or, where appropriate, a shorter period) to the carrying amount of the financial asset or liability. When calculating the effective return rate, the Fund estimates future cash flows considering all contractual terms of the financial instruments but not future credit losses. The effective return rate is calculated on initial recognition of the financial asset and liability and is not revised subsequently. 17

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Notes to the financial statements for the year ended 31st December 2016 (continued)

3. Significant accounting policies (continued)

3.3 Income from financing and advances (continued)

The calculation of the effective return rate includes contractual fees and points paid or received transaction costs, and discounts or premiums that are an integral part of the effective return rate. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or liability.

Income from financing and advances presented in the statement of comprehensive income include returns on financial assets and liabilities measured at amortised cost calculated on an effective return rate basis.

Fair value changes on other financial assets and liabilities carried at fair value through profit or loss, are presented in net trading income from other financial instruments at fair value through profit and loss in the statement of comprehensive income.

3.4 Net gain/loss from financial instruments at fair value through profit or loss

Net gain/loss from financial instruments at fair value through profit or loss includes all realised and unrealised fair value changes and foreign exchange differences, but excludes finance and dividend income.

3.5 Dividend income

Dividend income is recognised when the right to receive income is established. Dividend income from equity securities designated at fair value through profit or loss and available-for-sale is recognised in the “dividend income” line in the statement of comprehensive income.

3.6 Fees, commission and other expenses

Fees, commission and other expenses are recognised in the statement of comprehensive income on an accrual basis.

3.7 Taxation

Dividend income and income from financing and advances received by the Fund is subject to withholding tax. Dividend income and income from financing and investing are therefore recorded gross of such taxes and the corresponding withholding tax is recognised as tax expense.

3.8 Financial assets and liabilities

(i) Recognition

The Fund classifies its financial instruments into the following categories: at fair value through profit or loss, available for sale, held to maturity, and financing and advances.

Management determines the classification at initial recognition. All financial instruments are initially recognised at fair value, which includes transaction costs for financial instruments not classified as at fair value through profit and loss. Financial instruments are derecognised when the rights to receive cash flows from the financial instruments have expired or where the Fund has transferred substantially all risks and rewards of ownership.

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Notes to the financial statements for the year ended 31st December 2016 (continued) 3. Significant accounting policies (continued)

3.8 Financial assets and liabilities (continued)

(ii) Subsequent measurement

Subsequent to initial measurement, financial instruments are measured either at fair value or amortised cost, depending on their classification:

(a) Held-to-maturity

Held-to-maturity investments are non-derivative financial assets with fixed determinable payments and fixed maturities that management has both the positive intent and ability to hold to maturity, and which are not designated at fair value through profit or loss or as available for sale. Where the Fund sells more than an insignificant amount of held-to-maturity assets, the entire category would be tainted and reclassified as available-for-sale assets and the difference between amortised cost and fair value will be accounted for in equity. Held-to-maturity investments are carried at amortised cost, using the effective return method, less any provisions for impairment.

(b) Financial assets held at fair value through profit or loss

This category has two sub-categories; financial assets held for trading, and those designated at fair value through profit or loss at inception. A financial asset is classified as trading if acquired principally for the purpose of selling in the short term. Financial assets may be designated at fair value through profit or loss when the designation eliminates or significantly reduces measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities on different basis, or when a group of financial assets is managed and its performance evaluated on a fair value basis.

Subsequent to initial recognition, the fair values are re-measured at each reporting date. All gains or losses arising from changes therein are recognised in the income statement in ‘net trading income’ for trading assets, and in ‘net income from other financial instruments carried at fair value’ for financial assets designated at fair value through profit or loss at inception. The Fund’s investments in equities quoted on the Nigerian Stock Exchange are currently classified as financial assets held at fair value through profit or loss.

This category has two sub-categories; Available-for-sale financial assets are subsequently carried at fair value. Unrealised gains or losses arising from changes in the fair value of available-for-sale financial assets are recognised in net assets attributable to redeemable unit holders until the financial asset is derecognised or impaired. When available-for-sale financial assets are disposed of, the fair value adjustments accumulated in net assets attributable to redeemable unit holders are recognised in the income statement.

Dividends received on available-for-sale instruments are recognised in income statement when the Fund’s right to receive payment has been established. The Fund’s investments in unquoted equities are currently classified as available-for-sale financial assets.

(d) Financing and advances

Financing and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than those classified by the Fund as at fair value through profit or loss or available-for-sale.

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Notes to the financial statements for the year ended 31st December 2016 (continued)

3. Significant accounting policies (continued)

3.8 Financial assets and liabilities (continued)

(d) Financing and advances (continued)

Financing and advances are measured at amortised cost using the effective return method, less any impairment losses. Origination transaction costs and origination fees received that are integral to the effective rate are capitalised to the value of the loan and receivable and amortised through finance income as part of the effective return rate.

The Fund’s investments in Ijara, Murabaha, Mudaraba and Musharaka contracts are currently classified as financing and advances.

(iii) Fair value measurement

Fair value is the amount for which an asset could be exchanged, or liability settled, between knowledgeable, willing parties in an arm’s length transaction on the measurement date. The best evidence of the fair value of a financial instrument on initial recognition is the transaction price, i.e. the fair value of the consideration paid or received, unless the fair value is evidenced by comparison with other observable current market transactions in the same instrument, without modification or repackaging, or based on discounted cash flow models and option pricing valuation techniques whose variables include only data from observable markets.

Subsequent to initial recognition, the fair values of financial instruments are based on quoted market prices or dealer price quotations for financial instruments traded in active markets. If the market for a financial asset is not active or the instrument is an unlisted instrument, the fair value is determined by using applicable valuation techniques. These include the use of recent arm’s length transactions, discounted cash flow analyses, pricing models and valuation techniques commonly used by market participants.

Where discounted cash flow analyses are used, estimated cash flows are based on management’s best estimates and the discount rate is a market-related rate at the financial position date from a financial asset with similar terms and conditions. Where pricing models are used, inputs are based on observable market indicators at the financial position date and profits or losses are only recognised to the extent that they relate to changes in factors that market participants will consider in setting the price.

(iv) Impairment of financial assets

(a) Assets carried at amortised cost

The Fund assesses at each financial position date whether there is objective evidence that a financial asset or group of financial assets is impaired.

A financial asset or a group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the assets (a ‘loss event’), and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Notes to the financial statements for the year ended 31st December 2016 (continued) 3. Significant accounting policies (continued)

3.8 Financial assets and liabilities (continued)

(iv) Impairment of financial assets (continued)

(a) Assets carried at amortised cost (continued)

Objective evidence that financial assets (including equity securities) are impaired may include; default or delinquency by a debtor, restructuring of a financing account or advance by the Fund on terms that the Fund would not otherwise consider, indications that a customer or issuer will enter bankruptcy, the disappearance of an active market for a security, or other observable data relating to a group of assets such as adverse changes in the payment status of customers or issuers in the group, or economic conditions that correlate with defaults in the group.

The Fund first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant.

If the Fund determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised, are not included in a collective assessment of impairment.

For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (i.e. on the basis of the Fund’s grading process which considers asset type, industry, geographic location, collateral type, past-due status and other relevant factors). These characteristics are relevant to the estimation of future cash flows for groups of such assets being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated.

In assessing collective impairment, the Fund uses statistical modelling of historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit conditions are such that actual losses are likely to be greater or less than suggested by historical modelling. Default rates, loss rates and the expected timing of future recoveries are regularly benchmarked against actual outcomes to ensure that they remain appropriate.

If there is objective evidence that an impairment loss on receivable or a held-to-maturity asset has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred), discounted at the asset’s original effective return rate. Losses are recognised in profit or loss and reflected in an allowance account against loans and receivables. Finance income on the impaired asset continues to be recognised through the unwinding of the discount. The carrying amount of the asset is reduced through the use of an allowance account.

The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Notes to the financial statements for the year ended 31st December 2016 (continued) 3. Significant accounting policies (continued)

3.8 Financial assets and liabilities (continued)

(iv) Impairment of financial assets (continued)

(a) Assets carried at amortised cost (continued)

off current conditions that did not affect the period on which the historical loss experience is based, and to remove the effects of conditions in the historical period that do not exist currently.

To the extent a receivable is irrecoverable, it is written off against the related allowance for impairment. Such receivables are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Subsequent recoveries of amounts previously written of decrease the amount of the allowance for impairment in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognized impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in profit or loss.

(b) Available-for-sale financial assets

Available-for-sale financial assets are impaired if there is objective evidence of impairment, resulting from one or more loss events that occurred after initial recognition but before the financial position date, that have an impact on the future cash flows of the asset. In addition, an available-for-sale equity instrument is generally considered impaired if a significant or prolonged decline in the fair value of the instrument below its cost has occurred. Where an available-for-sale asset, which has been re-measured to fair value directly through net assets available to redeemable unit holder, is impaired, the impairment loss is recognised in profit or loss. If any loss on the financial asset was previously recognised directly in equity as a reduction in fair value, the cumulative net loss that had been recognised in net assets available to redeemable unit holders is transferred to profit or loss and is recognised as part of the impairment loss. The amount of the loss recognised in profit or loss is the difference between the acquisition cost and the current fair value, less any previously recognised impairment loss.

If, in a subsequent period, the amount relating to an impairment loss decreases and the decrease can be linked objectively to an event occurring after the impairment loss was recognised in the income statement, where the instrument is a debt instrument, the impairment loss is reversed through profit or loss. An impairment loss in respect of an equity instrument classified as available-for-sale is not reversed through profit or loss but accounted for directly in net assets available to redeemable unit holders.

(v) Offsetting financial instrument

Financial assets and liabilities are set off and the net amount presented in the statement of financial position when, and only when, the Fund has a legal right to set off the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

Income and expenses are presented on a net basis only when permitted by accounting standards, or for gains and losses arising from a group of similar transactions such as in the Fund’s trading activity.

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Notes to the financial statements for the year ended 31st December 2016 (continued)

3. Significant accounting policies (continued)

3.8 Financial assets and liabilities (continued)

(vi) Derecognition of financial instruments

The Fund derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred, or has assumed an obligation to pay those cash flows to one or more recipients, subject to certain criteria.

Any interest in transferred financial assets that is created or retained by the Fund is recognised as a separate asset or liability.

The Fund derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. The Fund enters into transactions whereby it transfers assets recognised on its balance sheet, but retains either all risks or rewards of the transferred assets or a portion of them. If all or substantially all the risks and rewards are retained, then the transferred assets are not derecognised from the statement of financial position. In transactions where the Fund neither retains nor transfers substantially all the risks and rewards of ownership of a financial asset, it derecognises the asset if control over the asset is lost.

Any interest in transferred financial assets that is created or retained by the Fund is recognised as a separate asset or liability.

The rights and obligations retained in the transfer are recognised separately as assets and liabilities as appropriate. In transfers where control over the asset is retained, the Fund continues to recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset.

3.9 Cash and cash equivalents

Cash and cash equivalents include notes and coins in hand, operating accounts with banks and highly liquid financial assets with original maturities of three months or less from the acquisition date, which are subject to insignificant risk of changes in their fair value, and are used by the Fund in the management of its short-term commitments.

Cash and cash equivalents are carried at amortised cost in the statement of financial position.

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Notes to the financial statements for the year ended 31st December 2016 (continued)

3. Significant accounting policies (continued)

3.10 Provisions

A provision is recognised if, as a result of a past event, the Fund has a present legal or constructive obligation that can be estimated reliably, and it is provable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

A provision for restructuring is recognised when the Fund has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. Future operating costs are not provided for.

A provision for onerous contracts is recognised when the expected benefits to be derived by the Fund from a contract are lower than the unavoidable cost of meeting the obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Fund recognises any impairment loss on the assets associated with that contract.

3.11 Contingencies

(i) Contingent asset

Contingent Asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.

A contingent asset is disclosed when an inflow of economic benefit is probable. When the realisation of income is virtually certain, then the related asset is not a contingent and its recognition is appropriate. Contingent assets are assessed continually to ensure that developments are appropriately reflected in the financial statements.

(ii) Contingent liability

Contingent liability is a possible obligation that arises from past event and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity; or a present obligation that arises from past events but is not recognised because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or the amount of the obligation cannot be measured with sufficient reliability.

Contingent liability is disclosed unless the probability of an outflow of resources embodying economic benefit is remote. A provision for the part of the obligation for which an outflow of resources embodying economic benefit is recognised; except in the extremely rare circumstances where no reliable estimate can be made.

Contingent liabilities are assessed continually to determine whether an outflow of economic benefit has become probable.

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Notes to the financial statements for the year ended 31st December 2016 (continued)

3. Significant accounting policies (continued)

3.12 Redeemable units

The Fund classifies financial instruments issued as financial liabilities or equity instruments in accordance with the substance of the contractual terms of the instruments. The Fund has only one class of redeemable units in issue. The redeemable units provide investors with the right to require redemption for cash at a value proportionate to the investor’s share in the Fund’s net assets at the time of redemption and also in the event of the Fund’s liquidation.

A puttable financial instrument that includes a contractual obligation for the Fund to repurchase or redeem that instrument for cash or another financial asset is classified as equity if it meets all the following conditions.

  It entitles the holder to a pro rata share of the Fund’s net assets in the event of the Fund’s liquidation;  It is in the class of instruments that is subordinate to all other classes of instruments;  All financial instruments in the class of instruments that is subordinate to all other classes of instruments have identical features;  Apart from the contractual obligation for the Fund to repurchase or redeem the instrument for cash or another financial asset, the instrument does not include any other features that would require classification as a liability; and  The total expected cash flows attributable to the instrument over its life are based substantially on the profit or loss, the change in the recognised net assets or the change in the fair value of the recognised and unrecognised net assets of the Fund over the life of the instrument.

The Fund’s redeemable units meet these conditions and are classified as equity. All transactions relating to the issue and redemption of redeemable units as well as distributions to holders of redeemable units are recognised in equity.

3.13 New standards and interpretations not yet adopted

A number of new standards, amendments to standards and interpretations, are not yet effective for the year ended 31st December, 2016, and have not been applied in preparing these financial statements. None of these will have an effect on the financial statements of the Fund, with the possible exception of the following:

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Notes to the financial statements for the year ended 31st December 2016 (continued)

3. Significant accounting policies (continued)

3.13 New standards and interpretations not yet adopted (continued)

Pronouncement Nature Effective date

IFRS 7 Financial The amendments relate to the Applicable to annual Instruments: introduction of the expected loss periods beginning on or Finalised version, impairment model. An entity must after 1 January 2018 incorporating requirements consider the risk or probability that a for classification and credit loss occurs by considering the measurement, impairment, possibility that a credit loss occurs general hedge accounting and the possibility that no credit loss and derecognition occurs even if the probability that a credit loss occurring is low.

IFRS 15 – Revenue from The Standard outlines a single Annual periods contracts with customers comprehensive model for entities to beginning on or after 1st use in accounting for revenue arising January, 2017 from contracts with customers to improve comparability within industries, across industries, and across capital markets. The revenue standard contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. Early adoption is permitted.

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Notes to the financial statements for the year ended 31st December 2016 (continued)

3. Significant accounting policies (continued)

3.13 New standards and interpretations not yet adopted (continued)

IFRS Title and Affected Nature of change Application Impact on initial Reference Standard(s) date Application

IFRS 9 Financial Amends the requirements for 1 January, 2018 The entity held to (issued 24 instruments classification and measurement maturity financial July 2014) of financial assets. The assets will be available-for sale and held-to- affected when the maturity categories of financial standards become assets in IAS 39 have been due. The company eliminated. For subsequent has no financial measurement, the standard liabilities classified categorised financial assets into as fair value two main categories. through profit or - Amortised cost loss. Therefore, - Fair value there will be no Where assets are measured at impact on its fair value, gains and losses are financial liabilities. either recognised entirely in profit or loss (FVTPL) or in other comprehensive income. (FVTOCI). For debt instruments, the FVTOCI classification is mandatory for certain assets unless the fair value option is elected. Debt instruments that meet the criteria for business model test and cash flow characteristics test are measured at amortised cost unless the asset is designated at FVTPL under the fair value option. IFRS 9 requires that gains or losses on financial liabilities measured at fair value are recognised in profit or loss, except that the effects of changes in the fair value of a financial liability that is designated at fair value through profit or loss (using the fair value option) that relate to changes in the reporting entity’s own credit risk are normally recognised in other comprehensive income. The changes are to be applied retrospectively from the date of adoption.

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Notes to the financial statements for the year ended 31st December 2016 (continued)

3. Significant accounting policies (continued)

3.13 New standards and interpretations not yet adopted (continued)

IFRS Title and Affected Nature of change Application date Impact on initial Reference Standard(s) Application

IFRS 16 Leases The standards set out the 1 January 2019 The Fund Manager is principle for the recognition, currently in the measurement, presentation and process of assessing disclosure of leases for both the impact that the parties to be contract i.e. the initial application customers (leasee) and the would have on its supplier (‘lessor’) IFRS 16 business standards eliminates the classification of for the year ending leases as refund by IAS 17 and 31st December, 2019. introduces a single lease accounting model. Appling that model, a lease is required to recognise:

 assets and liability for leases with a term of more than 12 months, unless the underlying assets is of low value.

 depreciation of lease asses separately from interest on lease liability in profit or loss for the lessor, IFRS 16 substantially carrying forward the lessor accounting requirements in IAS 17 Accordingly, a lessor continues to classify its leases and to account for these two type of leases differently

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Notes to the financial statements for the year ended 31st December 2016 (continued)

4. Financial risk management

(a) Introduction and Overview

Lotus Capital Halal Investment Fund has exposure to the following risks from financial instruments.

i. Credit risk; ii. Liquidity risk; iii. Market risk; and iv. Operational risk.

Risk Management Framework

Lotus Capital Halal Investment Fund maintains positions in a variety of financial instruments in accordance with its investment management strategy as stated below:

“The Fund shall be invested in securities screened for Shari’ah compliance and asset-backed investments including but not limited to equity and non-interest debt instruments approved by the Securities and Exchange Commission of Nigeria. Furthermore, the Fund can invest in real estate transactions which are Shari’ah compliant. The Trust Deed allows maximum of 80% of the Fund to be invested in selected equities of Nigerian quoted companies, 60% in Asset-backed investment, 30% in unlisted securities and 30% in Real estate. The Fund Manager shall not alter the investment policy of the Fund without the prior approval of the Securities and Exchange Commission and approval of the Trustee with a special resolution of a meeting of holders duly convened and held in accordance with the provisions in the Trust Deed.”

The Fund’s investment portfolio comprises investments in equities, investments in asset-backed contracts and real estate. The asset-backed contracts and real estate investments are classified as financing and advances in the statement of financial position.

Asset purchases and sales are determined by the Fund’s Portfolio Manager, who has been given discretionary authority to manage the distribution of the assets to achieve the Fund’s investment objectives subject to the approval of the chief investment officer. Compliance with the target asset allocations and the composition of the portfolio is monitored by the Investment Committee on a weekly basis. In instances where the portfolio has deviated from target asset allocations, the Fund’s Portfolio Manager is obliged to take actions as approved by the Investment Committee to rebalance the portfolio in line with the asset allocation as prescribed by the Trust Deed, within the reasonable time limits.

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Notes to the financial statements for the year ended 31st December 2016 (continued) 4. Financial risk management (continued)

(b) Credit risk

Credit risk is the risk that a counter party to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Fund, resulting in a financial loss to the Fund. It arises principally from financing and advances and cash and cash equivalents.

For risk management reporting purposes the Fund considers and consolidates all elements of credit risk exposure (such as individual obligor default risk, country and sector risk).

Management of Credit Risk

Lotus Capital Halal Investment Fund’s policy over credit risk is to minimize its exposure to clients with perceived higher risk of default by dealing only with clients that meet the requirements of the risk management policy as set out in the Fund’s prospectus. The risk is also managed by evaluating the client and assigning a credit rating to each client which serves as a trigger and also suggests the action to be taken in case of first default. Other ways of managing the credit risk include; identifying and mitigating transaction risk, reviewing industry position, managing global credit exposure to a counter party, taking collateral and monitoring disbursement/repayment.

The Fund’s credit risks are monitored on a weekly basis by the Investment and Risk Management Committee which is led by the chief investment officer. Where the credit risks are not in accordance with the investment policy or guidelines of the Fund, the Portfolio Manager is obliged to reject and/or rebalance the portfolio as approved by the Investment and Risk Management Committee when the portfolio is not in compliance with the stated investment objectives.

Single obligor limit

At every point in time, the total exposure of the Fund to any single entity or group of related borrowers shall not exceed 10% of the Fund’s net asset value. The portfolio manager also considers and monitors the limit each time there is a new or restructured investment.

Exposure to credit risk

The Fund’s maximum credit risk exposure (before collateral and other credit enhancements) at the statement of financial position date is represented by the respective carrying amounts of the financial assets in the statement of financial position. The risks on some of these exposures, such as receivables from financing and advance, are mitigated by collateral securities held.

Cash and cash equivalents

The Fund’s cash balances are held mainly with Citibank Nigeria which is rated Aa+ by Augusto & Co. However, the fund also maintains a certain portion of the Fund assets as liquid asset through Murabaha investment contracts which are fully guaranteed by the banker acceptance from a reputable bank in Nigeria. Due to the nature of this type of transaction and its maturity, the investment is classified as cash equivalent.

The Portfolio Manager monitors the Fund’s liquidity position with the Citibank on a daily basis.

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Notes to the financial statements for the year ended 31st December 2016 (continued)

4. Financial risk management (continued)

(b) Credit risk (continued)

2016 2015 N= N= Gross financing and advances

Neither past due nor impaired 821,571,726 684,213,837 Impaired 100,745,590 461,648,132 ______

922,317,316 1,145,861,969 Allowance for impairment

- Collective assessment allowance (20,984,581) (23,957,410) - Specific assessment allowance (79,761,009) (437,690,722) ______

821,571,726 684,213,837 ______

Concentration of credit risk

The Fund Manager reviews credit concentration of financing and advances held based on counter parties and industries and geographical location

As at the reporting date, the Fund’s financing and advances exposures were concentrated as follows:

2016 2015 ______% %

Auto mobile/Equipment 29 82 Oil & Gas 69 15 Real estate sector - - Other asset backed investment 2 3 ______

100 100 ______

There was no significant concentration exposure in the portfolio to any individual obligor or group of obligors as at 31st December 2016 (Nine: 2015). No individual investment exceeded ten percent of the net assets attributable to the holders as mandated in the Fund’s Trust Deed.

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Notes to the financial statements for the year ended 31st December 2016 (continued)

4. Financial risk management (continued)

Liquidity risk is the risk that the Fund will encounter difficulty in meeting obligations arising from its financial liabilities that are settled by delivering cash or another financial asset, or that such obligations will have to be settled in a manner disadvantageous to the Fund.

Management of liquidity risk

Halal Fund’s liquidity risk is managed on a daily basis by the Portfolio Manager in accordance with policies and procedures governing the fund management. Hence, liquidity is reviewed twice a week at the portfolio manager’s meeting and at the investment committee meeting.

The asset allocations are carefully and appropriately structured to ensure that the Fund is liquid at all times and it has enough cash or cash equivalent that can be converted to cash immediately without any loss in the value when there is a new investment opportunities to exploit or an obligation to fulfil.

In other to achieve the above ultimate objective, the fund invests principally in highly liquid equities that are quoted on the Nigeria Stock Exchange such that the Fund can convert those equities into cash within four working days. The Fund maintains parts of its asset as cash equivalent by investing in short term Murabaha contracts that are adequately guaranteed by a reputable bank with good credit rating.

Maturing analysis of financial liabilities

Carrying Nominal less than 1 to 3 3 months amount value 1 month months to 1 year N= N= N= N= N= 31st December 2016 Non-derivative liabilities

Uninvested fund deposits 195,750 195,750 195,750 - - Trade and other payable 31,353,675 31,353,675 - 31,353,675 - ______31,549,425 31,549,425 195,750 31,353,675 - ______

31st December 2015 Non-derivative liabilities

Uninvested fund deposits 235,750 235,750 235,750 - - Trade and other payable 50,593,451 50,593,451 - 50,593,451 - ______50,829,201 50,829,201 235,750 50,593,451 - ______

The previous tables show the undiscounted cash flows of the Fund’s financial liabilities on the basis of their earliest possible contractual maturity. The Fund’s expected cash flows on these instruments do not vary significantly from this analysis.

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Notes to the financial statements for the year ended 31st December 2016 (continued)

4. Financial risk management (continued)

(d) Market risk

Market risk is the risk that changes in market prices, such as interest rates, equity prices, foreign exchange rates and credit spreads (not relating to changes in the obligor’s/issuer’s credit standing) will affect the Fund’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return on risk.

Management of market risk

The Fund’s strategy for the management of market risk is driven by the Fund’s investment objectives and policy

Investment objectives

The aim of the Fund is to achieve a consistent and sustainable long term capital appreciation and Fund value growth with steady income target of 20% per annum through an optimal allocation of the Fund resources in the Shariah compliant investment windows and assets that maximise the investors return on investment. The asset classes which fund can invest includes:

i. Investments in equity securities; ii. Asset-backed investments (Islamic financial contracts); and iii. Real estate.

Asset-backed investments and investments in real estate are classified as financing and advances in the statement of financial position.

To achieve targeted returns, the Portfolio manager exploits all good investment opportunities with high returns and a very low risk. This takes into consideration the volatility of the stock market, as well as the variability of earnings of asset backed investments and real estate transactions. Meanwhile, due to the ethical nature of the Fund, it does not invest in the following:

i. Interest bearing financial instruments in the money and capital markets such as (but not limited to) treasury bills, commercial papers, bankers acceptances and conventional interest-bearing bonds; and ii. Businesses with major sources of income from tobacco, alcohol, gambling, adult entertainment, ammunition, pork, conventional finance such as banks and insurance companies.

The Fund’s market risk is managed on a daily basis by the Portfolio Manager in accordance with policies and guidelines governing the management of the fund.

Investment policy

Firstly, the company evaluates the impact of the market risk factors (exchange rates, equity and commodity prices) by carrying out stress models with a view to determining the effect of unusual events on the performance of the Fund. The Fund usually considers the Worst-Case Scenario model, by pushing all the identified risk factors to their worst cases in order to measure the worst case effect of any investment decision. After this, we compare the worst case scenario position of the Fund to its single obligor limits and maximum exposures per sector. The Fund’s market positions are monitored on a weekly basis by the Investment and Risk Management Committee.

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Notes to the financial statements for the year ended 31st December 2016 (continued)

4. Financial risk management (continued)

Exposure to other price risk (continued)

Other price risk is the risk that the fair value of the financial instrument will fluctuate as a result of changes in the market prices (other than those arising from interest rate risk or currency risk), whether caused by factors specific to an individual investment, its issuer or factors affecting all instruments traded in the market.

The price risk is managed by the Portfolio Manager by diversifying the portfolio and economically hedging using appropriate Islamic finance products as sanctioned by the Shariah Advisory Committee and in line with the Fund prospectus.

The Fund’s policy over concentration of its investment portfolio profile as a percentage of net assets is as follows:

Minimum Maximum range range ______% %

Equity securities 20 80 Asset-backed investment 20 60 Real Estate 0 30 Cash & cash equivalents 0 40 Unlisted securities 0 30

The following table sets out concentration of investment assets as a percentage of net assets, held by the Fund as at the reporting date:

2016 2015 ______% %

Equity securities 17 23 Asset-backed investment 47 43 Real Estate - - Cash & cash equivalents 29 25 Unlisted securities 7 9 ______100 100 ______

According to the risk management policy for the Fund, the price risk is required to be monitored on a daily basis by the Investment Committee. Where the price risks are not in accordance with the investment policy or guidelines of the Fund, the Fund Manager is required to rebalance the portfolio as the need arises.

(e) Operational risk

Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the processes, technology and infrastructure supporting the Fund’s operations either internally within the Fund or externally at the Fund’s service providers, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of investment management behaviour. Operational risks arise from all of the Fund’s activities.

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Notes to the financial statements for the year ended 31st December 2016 (continued)

4. Financial risk management (continued)

(e) Operational risk (continued)

The Fund’s objective is to manage operational risk so as to balance limiting of financial losses and damage to its reputation with achieving its investment objective of generating returns to investors.

The primary responsibility for the development and implementation of controls over operational risk rests with the Investment and Risk Management Committee. This responsibility is supported by the development of overall standards for the management of operational risk, which encompasses the controls and processes at the service providers and the establishment of service level agreements with the service providers, in the following areas:

 requirements for appropriate segregation of duties between various functions, roles and responsibilities.  requirements for the reconciliation and monitoring of transactions  compliance with regulatory and other legal requirements  documentation of controls and procedures  requirements for the periodic assessment of operational risks faced and the adequacy of controls and procedures to address the risks identified  contingency plans  ethical and business standards  risks mitigation, including insurance where this is effective.

The Investment Committee’s assessment over the adequacy of the controls and processes in place at the service providers with respect to operational risks is carried out via regular [or ad-hoc] discussions with the service providers and a review of the service providers’ reports on internal controls, where available.

(f) Capital management

At 31st December 2016 the Fund had N= 2,058,974,990 (2015: N= 2,097,939,269) of redeemable units classified as equity. The Fund’s objective in managing the redeemable units is to ensure a stable and strong base to maximise returns to all investors, and to manage liquidity risk arising from redemptions.

The Fund utilises the following tools in the management of unit redemptions:

 Maintaining a large cash equivalent by investing in highly liquid short term Murabaha papers that are adequately guaranteed by a reputable bank with good credit rating.  Maintaining large investments in highly liquid equities that are quoted on the Nigeria Stock Exchange. The Fund can convert those equities into cash within four working days.

Historical experience indicates that redeemable units are held by the holders on a medium or long- term basis. Based on average historic information, redemption levels are expected to approximately N= 3,000,000 per month; however, actual monthly redemptions could differ significantly from the historical experience. There were no changes in the policies and procedures during the year with respect to the Fund’s approach to its redeemable capital management. The Fund is not subject to any externally imposed capital requirements.

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Notes to the financial statements for the year ended 31st December 2016 (continued)

5 Critical accounting estimates and judgements

These disclosures supplement the commentary on financial risk management (see note 4)

(a) Key sources of estimation uncertainty

(i) Determining fair value

The determination of fair value for financial assets and liabilities for which there is no observable market price requires the use of valuation techniques as described in note 3.8 (iii). For financial instruments that trade infrequently and have little price transparency, fair value is less objective and requires varying degrees of judgement depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. See also “Valuation of financial instruments” below.

(ii) Allowance for impairment losses

Financial assets accounted for at amortised cost are evaluated for impairment on a basis described in accounting policy (note3.8 (iv)).

The specific component of the total allowances for impairment applies to claims evaluated individually for impairment and is based upon management’s best estimate of the present value of the cash flows that are expected to be received. In estimating these cash flows, management makes judgements about a counter party’s financial situation and the net realisable value on any underlying collateral. Each impaired asset is assessed on its merits, and the workout strategy and estimate of cash flows considered recoverable are independently approved by the Investment and Risk Management function.

(b) Critical accounting judgements in applying the Fund’s accounting policies

(i) Valuation of financial instruments

The Fund’s accounting policy on fair value measurements is discussed in note 3.8 (iii).

The Fund measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements.

- Level 1: Quoted market price (unadjusted) in an active market for an identical instrument - Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data. - Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Notes to the financial statements for the year ended 31st December 2016 (continued)

5 Critical accounting estimates and judgements (continued)

(b) Critical accounting judgements in applying the Fund’s accounting policies (continued)

(i) Valuation of financial instruments (continued)

Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments the Fund determines fair values using valuation techniques.

The table below analyses financial instruments measured at fair value into the fair value hierarchy at the end of the year.

Note Level 1 Level 2 Level 3 Total 31st December 2016 N= N= N= N=

Financial assets at fair value through profit or loss 13 365,861,769 - 152,583,822 518,445,591 ______

365,861,769 - 152,583,822 518,445,591 ______

31st December 2015 N= N= N= N= Financial assets at fair value through profit or loss 13 425,964,659 - 168,152,665 594,117,324 ______

425,964,659 - 168,152,665 594,117,324 ______

(ii) Financial assets and liabilities classification

The Fund’s accounting policies provide scope for financial assets and liabilities to be designated on inception into different accounting categories in certain circumstances as set out in note 3.8 (ii).

Details of the Fund’s classification of financial assets and liabilities are given in note 6.

Finance of the inputs used in making the measurements.

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Notes to the financial statements for the year ended 31st December 2016 (continued)

6 Financial assets and liabilities

Accounting classification, measurement basis and fair value.

The table below sets out the Fund’s classification of each class of financial assets and liabilities, and their fair values.

Designated Financing and Other Total as at fair advances at Available- amortized carrying 31st December 2016 Note Trading value amortised cost for-sale cost amount Fair value N= N= N= N= N= N= N=

Cash and cash equivalent 12 - - - - 632,201,512 632,201,512 632,201,512 Financial assets at fair value through profit or loss 13 365,861,769 152,583,822 - - - 518,445,591 518,445,591 Financial assets held to maturity 14 - - - - 156,451,924 156,451,924 156,451,924 Financing and advances 15 - - 821,571,726 - - 821,571,726 821,571,726 Other receivables 16 - - - - 1,642,347 1,642,347 1,642,347 ______365,861,769 152,583,822 821,571,726 - 790,295,783 2,130,313,100 2,130,313,100 ______Uninvested fund deposits - - - - 195,750 195,750 195,750 Trade and other payables 17 - - - - 31,353,675 31,353,675 31,353,675 ______- - - - 31,549,425 31,549,425 31,549,425 ______

Designated Financing and Other Total as at fair advances at Available- amortized carrying 31st December 2015 Note Trading value amortised cost for-sale cost amount Fair value N= N= N= N= N= N= N=

Cash and cash equivalent 12 - - - - 478,609,135 478,609,135 478,609,135 Financial assets at fair value through profit or loss 13 425,964,659 168,152,665 - - - 594,117,324 594,117,324 Financial assets held to maturity 14 - - - - 183,313,737 183,313,737 183,313,737 Financing and advances 15 - - 684,213,837 - - 684,213,837 684,213,837 Other receivables 16 - - - - 1,745,009 1,745,009 1,745,009 ______425,964,659 168,152,665 684,213,837 - 663,667,881 1,941,999,042 1,941,999,042 ______Uninvested fund deposits - - - - 235,750 235,750 235,750 Trade and other payables 17 - - - - 50,593,451 50,593,451 50,593,451 ______- - - - 50,829,201 50,829,201 50,829,201 ______

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Notes to the financial statements for the year ended 31st December 2016 (continued)

6. Financial assets and liabilities (continued)

The fair value of the Fund’s financial instruments such as cash and cash equivalents, other receivables and uninvest fund deposits are not materially sensitive to shifts in market return rate because of the limited term to maturity of these instruments. As such, the carrying value of these financial assets and liabilities at financial position date approximate their fair values.

The fair values of other financial instruments are based on the following methodologies and assumptions:

Financial assets at fair value through profit or loss and available-for-sale. The estimated fair values are generally based on quoted and observable market prices. Where there is no ready market in certain securities, fair values have been estimated by reference to market indicative yields or net tangible asset backing of the investee.

Financing and advances Their fair value is estimated by discounting the estimated future cash flows using the prevailing market rates of financing with similar credit risks and maturities. The fair values are represented by their carrying value, net of impairment loss, being the recoverable amount.

2016 2015 N= N= 7. Income from financing and advances

Income from financing and advances carried at amortised cost:

Income from Murabahah 192,021,352 174,270,417 Income from Sukuk 23,942,777 27,490,672 Income from Ijara 17,822,649 9,189,737 Other investment income 6,369,684 25,294,163 ______

240,156,462 236,244,989 ======8. Net impairment (gain)/loss on financial assets

Impairment (gain)/loss on financing and advances:

- Net specific impairment allowance (note 15) (160,907,218) 1,958,346 - Net collective impairment allowance (note 15) ( 2,972,829 ) 1,106,493 ______

(163,880,047) 3,064,839 ======

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Notes to the financial statements for the year ended 31st December 2016 (continued)

2016 2015 N= N= 9. Net loss from financial assets at fair value through profit or loss

Realised loss on disposal of quoted equities 21,047,635 15,337,246 Unrealised loss on fair valuation of equity securities 27,500,245 116,295,473 ______

48,547,880 131,632,719 ======10. Other operating expenses

Custodian fee 1,509,358 1,061,119 Registrar fee 1,563,487 714,873 Trustees fees 2,081,935 1,984,785 Audit fees 3,360,000 3,200,000 Fund Management fee 90,764,440 71,008,646 Other expenses 5,214,628 3,708,653 ______

104,493,848 81,678,076 ======11. Withholding tax expense

The Fund is exempt from paying income taxes under the current system of taxation in Nigeria. However, certain dividend incomes received by the Fund are subject to withholding tax imposed in Nigeria, while some dividend income were exempted as a result of un expired pioneer status of the investee companies. During the year the average withholding tax rate suffered by the Fund was 10 percent (2015: 10 percent).

2016 2015 N= N= 12. Cash and cash equivalents

Bank balances 14,258,507 138,467,596 Murabaha Investment (note i) 617,943,005 340,141,539 ______

632,201,512 478,609,135 ======

(i) Murabaha investment means a series of murabaha contracts dealing with the sales and purchase of goods undertaken by the investment manager with the deposited funds

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Notes to the financial statements for the year ended 31st December 2016 (continued)

2016 2015 N= N= 13. Financial assets at fair value through profit or loss

Non-pledged Quoted equity securities 365,861,769 425,964,659 Unquoted equity securities 152,583,822 168,152,665 ______518,445,591 594,117,324 ======Quoted and unquoted (a) Cost As at the beginning of the period 608,103,195 616,749,781 Purchases 136,344,043 72,606,660 Disposals (184,515,531) (81,253,246) ______As at 31st December, 559,931,707 608,103,195 ======

(b) Fair value changes As at the beginning of the period (13,985,871) 102,309,602 Fair value loss in the year (27,500,245) (116,295,473) ______(41,486,116) (13,985,871) ======

14. Financial assets held to maturity

Investment in Sukuk 151,467,500 177,488,079 Fair value gain 4,984,424 5,825,658 ______156,451,924 183,313,737 ======

15. Financing and advances

At amortised cost:

Gross Specific Collective Total Carrying amount impairment impairment impairment amount 31st December 2016 N= N= N= N= N=

Ijarah 122,419,773 (33,508,654) (2,830,366) (36,339,020) 86,080,753 Murabahah 750,357,229 (9,147,024) (17,731,157) (26,878,181) 723,479,048 Mudarabah 49,540,314 (37,105,331) (423,058) (37,528,389) 12,011,925 Investment in commodity 35,231,647 (35,231,647) - (35,231,647) - ______957,548,963 (114,992,656) (20,984,581) (135,977,237) 821,571,726 ======31st December 2015

Ijarah 463,310,946 (390,938,367) (2,442,575) (393,380,942) 69,930,004 Murabahah 629,010,709 (9,147,024) (20,973,652) (30,120,676) 598,890,033 Mudarabah 53,540,314 (37,605,331) (541,183) (38,146,514) 15,393,800 Investment in commodity 35,231,647 (35,231,647) - (35,231,647) - ______1,181,093,616 (472,922,369) (23,957,410) (496,879,779) 684,213,837 ======

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Notes to the financial statements for the year ended 31st December 2016 (continued)

2016 2015 N= N= 15. Financing and advances (continued)

Specific impairment allowance on financing and advances

Balance beginning of year 437,690,722 435,732,736 Charge-off during the year (197,022,495) - ______240,668,227 435,732,376 ______Impairment loss for the year: - Charge for the year - 7,539,846 - Recoveries (160,907,218) (5,581,500) ______

Net impairment for the year (note 8) (160,907,218) 1,958,346 ______

Balance end of year 79,761,009 437,690,722 ======Collective impairment allowance on financing and advances

Balance beginning of year 23,957,410 22,850,917 ======Impairment loss for the year: - Charge for the year 4,462,211 4,362,080 - Recoveries (7,435,040) (3,255,587) ______

Net impairment for the year (note 8) (2,972,829) 1,106,493 ______

Balance end of year 20,984,581 23,957,410 ======

Financing and advances to customers at amortised cost include the following finance lease receivables for leases of certain property and equipment where the Fund is the lessor.

2016 2015 N= N= Net investment in finance leases, before impairment 957,548,963 393,380,942 ======

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Notes to the financial statements for the year ended 31st December 2016 (continued)

2016 2015 N= N= 15. Financing and advances (continued)

Net investment in finance lease receivable, before impairment

Overdue 104,241,347 - Due within one year 596,189,768 393,380,942 Due between two and three years 257,117,848 - ______

957,548,962 393,380,942 ======

The total allowances for uncollectible minimum lease payments receivable are as follows:

2016 2015 N= N=

Allowance for impairment 135,977,237 461,648,132 ======16. Other receivables

Dividend receivable 1,642,347 1,745,009 ======17. Trade and other payables

Other fund payables 27,526,327 25,222,980 Broker settlement 48,895 49,211 Dividend payable 3,778,453 25,321,260 ______

31,353,675 50,593,451 ======18. Related parties and other key contracts (a)Related parties

Fund Manager

The Fund appointed Lotus Capital Limited, an investment management company incorporated in Nigeria, to implement the investment strategy as specified in the prospectus. Under the Fund Management Agreement, the Fund Manager is entitled to management remuneration which shall only include a profit share of 30 percent of total returns, which shall be payable quarterly in arrears out of income. The Fund Manager also have right after the expiration of the first year of the fund to charge a management fee at an annual rate of 1.5 percent of the net assets value attributable to holders of redeemable units on each day and an incentive fee not exceeding 30 percent of the total return in excess of 10 percent of Fund’s Net Asset Value per annum.

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Notes to the financial statements for the year ended 31st December 2016 (continued)

18. Related parties and other key contracts (continued) (a) Related parties (continued)

Fund Manager (continued)

The Fund Manager fee for the 2016 amounted to N= 90.7 million (2015: N= 71.0 million). Included in other payables as at 31st December, 2016 was Fund Manager’s/Remuneration payable of N= 6.9 million (2015: N= 7.5 million).

Subject to the approval of Securities & Exchange Commission, the Fund Manager can retire or be removed at any time.

Unit holding of related parties

At 31st December 2016, the directors of the Fund Manager held 27,552,368 redeemable units (2015: 26,891,059 redeemable units) of the Fund.

(b) Other key contracts

Trustees

The Fund appointed First Trustees Nigeria Limited, a trusteeship company in Nigeria, to provide administrative services to the Fund. Under the Fund Trust Deed, the Trustees receive a fee monthly in arrears at an annual rate of 0.1 percent of the net assets value attributable to holders of redeemable units on each valuation day as defined in the prospectus. Trustees fees for the year is N= 2.08 million (2015: N= 1.98 million). Included in other payables at 31st December 2016 is trustee’s fees payable of N= 2.08 (2015: N= 1.98 million). Subject to the approval of Securities & Exchange Commission, the Trustee can retire or be removed at any time.

19. Contingent liabilities – Litigations and claims

The fund is currently involved in three separate civil actions against three defaulting customers namely ‘‘Mega Shield Nigeria Limited, Staadwork and Jalbait Ventures Ltd. Based on the facts of each case and the opinion of retained counsel, there is no liability that may arise from pending litigations.

20. Statement on the calculation of Zakah

As your total Zakah, should be based on your net worth, Lotus Capital has not calculated Zakah for any of its esteemed clients. However, we are happy to provide this service if requested to do so in writing. Please be advised that Lotus Capital Limited will not be liable for any errors or omissions in the zakah calculation, you agree that we do not make any warranty, express or implied about the accuracy or completeness.

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Statements of value added for the year ended 31st December, 2016

2016 2015 N= % N= %

Total revenue 255,570,946 (261,577,178) Fair value gain 163,880,047 - ______

419,450,993 261,577,178 Bought in material and services: (153,041,728) (216,375,627) ______

Value added 266,409,265 100 45,201,551 100 ======To pay providers of capital: Finance costs - - - -

To pay government Taxation 932,241 - 1,502,844 3

Retained for future replacement of assets and expansion of business:

Profit for the year 265,477,024 100 43,698,707 97 ______

266,409,265 100 45,201,551 100 ======

“Value added” represents the additional wealth which the Fund has been able to create by its own and its Fund Managers’ efforts. The statement shows the allocation of that wealth between the, providers of capital (units holders), government and that retained for the future creation of more wealth.

LOTUS CAPITAL HALAL INVESTMENT FUND IFRS financial statements

Five year financial summary

2016 2015 2014 2013 2012 N= ‘000 N= ‘000 N= ‘000 N= ‘000 N= ‘000 Members’ fund

Redeemable units 2,058,975 2,097,939 2,184,846 2,310,415 2,419,285 ______

Accumulated surplus/(deficit) 60,622 (185,646) (238,164) (199,689) (512,063) Dividend paid (20,833) (21,123) - - - ______Accumulated deficit carried forward 39,789 (206,769) (238,164) (199,689) (512,063) ______

2,098,764 1,891,170 1,946,682 2,110,726 1,907,222 ======Assets

Total assets 2,130,313 1,941,999 1,972,340 2,164,112 1,953,252 Liabilities (31,549) (50,829) (25,658) (53,386) (46,030) ______

Net assets 2,098,764 1,891,170 1,946,682 2,110,726 1,907,222 ======Profit or loss account

Gross income 255,570 261,577 222,406 178,028 165,442 ======

Profit/(loss) for the year 265,477 43,699 (49,208) 298,337 196,042 Accumulated deficit brought forward (206,769) (238,164) (199,689) (512,063) (725,416) ______

58,708 (194,465) (248,897) (213,726) (529,374) Fair value through equity 1,914 8,819 10,733 (13,181) (32,051) Capital distribution through redemption - - - 17,218 49,362 ______

Accumulated deficit 60,622 (185,646) (238,164) (209,689) (512,063) ======