Final Results

9 April 2008 Africa Opportunity Fund Limited (AOF.L) Announcement of Annual Results for the year to 31 December 2007 Africa Opportunity Fund Limited ("AOF" or the "Company"), the closed-ended investment company which aims to achieve consistent capital growth and income through investments in value, arbitrage., and special opportunities derived from the continent of Africa announces its results for the year to 31 December 2007. The Company was formed in June 2007 and admitted to the AIM market of the London Stock Exchange on 24th July 2007. The Company was subsequently also admitted to the Channel Islands Stock Exchange ("CISX") on 30 November 2007. The results therefore are for the period from inception to year end and will not have comparator prior year figures. Highlights of the year include: * Total Net Asset Value ("NAV") of the Company of US$120.6 million as at 31 December 2007 * NAV per share of US$0.962 as at the31 December 2007, largely unchanged from the US$0.961 per share at listing * Cash and cash equivalents of US$61.8 million, representing 52% of the portfolio as at 31 December 2007 * The Company expects to become fully invested during 2008 * The first investments have been in oil and gas exploration and development; goods and services suppliers to the African oil and gas industries; electricity generation and transmission; and telephony * The country risk spread for investments includes Angola, Ghana, Nigeria, Senegal, Tanzania, Uganda, and Zambia * A cautious approach to investments has been taken in view of the recent turbulence in worldwide stock markets Commenting Chairman, Robert Knapp, said: " We have made a creditable start in building a respectable portfolio of investments given the turbulence caused by the recent credit troubles in developed markets. The investment manager's focus on building the portfolio with patient selection should deliver consistent capital growth and income to our shareholders. Despite these difficult conditions we are almost 50% invested and hope to be fully invested during the course of 2008. The net asset value per share has been maintained at a steady level since listing. We look forward to continuing to build a strong portfolio and to delivering value and income to our shareholders." Notes to Editors: Africa Opportunity Fund Limited ("AOF") is a Cayman Islands incorporated closed-end investment company traded on the AIM market of the London Stock Exchange and is also listed and traded on the Channel Islands Stock Exchange ("CISX"). The investment policy of AOF and its subsidiaries (together the "Group") is to achieve consistent capital growth and income through investments in value, arbitrage, and special situations opportunities derived from the continent of Africa. The Group may invest in securities issued by, or economic interests created by, companies domiciled in Africa or outside Africa or, if listed, listed either on an African stock exchange or a non-African stock exchange. The Group may invest in equity, quasi-equity or debt instruments, debt issued by African sovereign states and government entities, and real estate interests. For further information please contact: Africa Opportunity Fund Limited Francis Daniels Tel: +2711 684 1528 Robert Knapp Tel: +1 617 449 3125 Grant Thornton Corporate Finance (Nominated Adviser) Philip Secrett/Cha Patel Tel: +44 207 383 5100 LCF Edmond de Rothschild Securities Limited (Broker) Claire Heathfield/Hiroshi Funaki Tel: +44 (0)20 7845 5960 Chairman's statement AOF was admitted to trading on the AIM market of the London Stock Exchange on July 24, 2007. The objective of AOF is to earn consistent capital growth and income through value, arbitrage, and special situations in the continent of Africa. A range of institutions and individuals subscribed for ordinary shares, investing a total of $125 million. A primary listing was obtained subsequently on the CISX on November 30, 2007. The CISX listing makes AOF share purchases in the secondary market a qualifying investment for UK ISAs. The Directors hope that the CISX listing will assist in diversifying AOF's shareholder base. African capital markets enjoyed buoyant returns in 2007, but most of those returns were gained during the first half of the year. During the second half of 2007, whilst world markets experienced turbulence, the Manager adopted a cautious stance and invested only on a selective basis. Consequently, AOF showed little correlation to the returns of many African markets. AOF's net asset value per share of US$0.961 per share upon listing was essentially unchanged at US$0.962 per share on December 31, 2007. However difficulties in world credit markets did allow AOF to acquire several high yielding debt securities in a variety of currencies in 2007. Simultaneously, AOF started to build its equity portfolio in the mobile telephony, oil and gas exploration, electricity transmission and oil exploration infrastructure industries. By December 31, 2007, 52% of its portfolio was in cash or cash equivalents, 33% in debt instruments, 14% in listed equity instruments, and 1% in unlisted equity instruments. AOF expects to become fully invested during 2008. Although, it is prudent to assume that Africa will not escape the effects of the current credit troubles in developed markets, the board of AOF believes Africa's prospects remain attractive. On behalf of the directors and the Manager, I want to thank our shareholders for their support in 2007. Robert C. Knapp Chairman 8 April, 2008 Manager's report At the same time that AOF was launched, markets were struck by turbulence originating with the collapse of residential real estate and leveraged buyout-related debt in the United States. This also led to weakness in equity markets. From late July, when AOF was launched, to mid-August, when the US Federal Reserve made its first addition of temporary funds to the banking system and reduced US interest rates, the S&P 500 index declined nearly 9%. The effects were felt globally. For example, during this same period, the JSE Africa All-Share index in South Africa fell 23% in US Dollar terms. Africa Opportunity Partners Ltd. (the "Manager") concluded that a dramatic contraction of credit is reaching the furthest corners of the global economy. The Manager focused upon finding opportunities that were emanating from this credit contraction and also focused on diversifying AOF's US dollar risk. During the period, approximately $40 million was invested in debt securities denominated in currencies such as the Tanzanian Shilling, Ghanaian Cedi, and Norwegian Kroner, with an average weighted yield of approximately 12%. The Manager believes that valuations are quite high in several African domestic markets, and could not find equity investment opportunities meeting its valuation criteria in the South Africa, Botswana, Nigeria, and Kenya stock markets. Nevertheless, AOF did find opportunities to build its equity portfolio. Selections totaling $18 million were made in industries which the Manager believes should expand rapidly in Africa over the next decade: oil and gas exploration and development; goods and services suppliers to the African oil and gas industries; electricity generation or transmission; and telephony. By the end of 2007 AOF had investment exposure, directly or indirectly, to Angola, Ghana, Nigeria, Senegal, Tanzania, Uganda, and Zambia. Some comments on particular AOF investments are as follows: Sonatel is the largest single equity investment made by AOF in 2007. It is a Senegalese integrated telephone operator listed on the Bourse Regionale de Valuers Mobiliers in Cote d'Ivoire. Sonatel has one of the highest earnings yields among emerging markets telephone operators and is experiencing rapid subscriber growth in markets with low mobile penetration rates. Artumas Group has made a substantial natural gas discovery in Tanzania. It has built a small natural gas power station at Mtwara in south east Tanzania which uses gas from its discovery as feedstock. It is working to further commercialize its discovery by building a 300 megawatt power station to serve the Tanzanian power grid. Artumas also holds substantial exploration acreage in Mozambique, in partnership with Anadarko Petroleum. Mart Resources has made an oil discovery in Nigeria, and is implementing a development plant to produce over 5,000 barrels of oil per day by the middle of 2008. MarineSubsea (formerly known as Africa Offshore Services) has a long term contract with Sonangol, the Angola state oil company, and has recently taken delivery of the African Caribe, a construction barge equipped with a 150 metric ton crane and accommodations for 350 personnel. Copperbelt Energy is a company which listed on the Lusaka Stock Exchange in January 2008. AOF subscribed for shares before December 31, 2007 but closed the investment after year end. Copperbelt Energy is a fast growing electricity transmission company which services mining companies on the Zambian and Congolese sides of the famous Copperbelt. It is worthwhile to restate the Manager's investment approach. The key elements of the investment strategy for AOF are: Material discounts to intrinsic value: AOF invests primarily where and when an investment can be made at a material discount to the Manager's estimate of that investment's intrinsic value. Company preference: AOF has a preference for companies which the Manager believes can demonstrate both high real returns on assets and an earnings yield higher than the yield to maturity of local currency denominated government debt of the country in which the assets of a business are located. Industry focus rather than country focus: AOF seeks to invest in industries it finds attractive without regard to national borders, even where a country in which that industry is operating is potentially not as stable as other countries in which the industry operates. National resource discounts: AOF seeks to invest in natural resource companies whose market valuations reflect a discount to the spot and future world market prices for those natural resources. "Turnaround" countries: The African continent is home to a large number of reforming or "turnaround" countries. "Turnaround" countries combine secular political reform with the opening of industries to private sector participation. Balkanized investment landscape: AOF seeks to invest in companies with low valuations in relation to peers across the continent and uses an arbitrage approach to provide attractive investment returns. Point of entry: AOF seeks the most favorable risk adjusted point of entry into a capital structure, whether through financing the establishment of a new company or acquiring the debt or listed equity of an established company. It is encouraging, in a time of declining global economic growth, that AOF's net asset value per share has risen from US$0.962 per share on December 31, 2007 to US$0.987 per share on March 31, 2008. The Manager remains focused on building the portfolio with patient selection, hoping to deliver consistent capital growth and income to its shareholders. Africa Opportunity Partners April 2008 Portfolio review As at December 31, 2007 Market Value Issuer % of NAV US$ Cash 61,827,336 51.28 Africa Offshore Services 13,558,500 11.24 African Development Bank 8,707,433 7.22 Sonatel 7,502,304 6.22 Artumus Group 5,459,860 4.53 Marine Subsea 5,311,126 4.40 Africa Offshore Services 4,600,000 3.82 Ghana Government 4,112,420 3.41 Mart Resources 3,380,409 2.80 Blue Financial Services 3,000,000 2.49 Blue Financial Services 1,500,000 1.24 AFRICAN DEVELOPMENT BANK Instrument: AAA Rated Fixed Rate Bond Coupon: 13.75% Currency: Tanzanian shilling Maturity: 5/9/2009 Website: www.afdb.org Cost of AOF's US$ 8,350,205 holding: Value of AOF's US$ 8,707,433 holding: GHANAGOVERNMENT Instrument: Fixed Rate Sphynx Capital Markets debt instrument collateralized by Ghana Government bond Coupon: 12.08% Currency: New Ghanaian Cedi Maturity: 7/6/2010 Websites: www.mofep.gov.gh; www.bog.gov.gh Cost of AOF's US$ 3,968,611 holding: Value of AOF's US$ 4,112,420 holding: MARINE SUBSEAAS Instrument: Convertible Bond Coupon: 7.5% Currency: Norwegian Kroner Maturity: 9/14/2012 Market 1.625 billion Norwegian Kroners capitalization: Website: www.marinesubsea.no Cost of AOF's US$5,252,026 holding: Value of AOF's US$5,311,126 holding: Principal Subsea well intervention services and construction support to activity: the offshore West African oil and gas industry, primarily in Angola. AFRICAOFFSHORE SERVICES AS Instrument: Senior Secured Floating Rate Note Currency of US Dollars bonds: Coupon: US Dollar 3 month Libor plus 6% Maturity: 6/29/2012 Website: www.marinesubsea.no Cost of AOF's US$13,639,750 holding: Value of AOF's US$13,558,500 holding: Principal Subsea well intervention services and construction support to activity: the offshore West African oil and gas industry, primarily in Angola. AFRICAOFFSHORE SERVICES AS Instrument: Senior Secured Floating Rate Note Currency of US Dollars bonds: Coupon: US Dollar 3 month Libor plus 6% Maturity: 2/15/2012 Website: www.marinesubsea.no Cost of AOF's US$4,577,000 holding: Value of AOF's US$4,600,000 holding: Principal Subsea well intervention services and construction support to activity: the offshore West African oil and gas industry, primarily in Angola. BLUE FINANCIAL SERVICES (UGANDA) Instrument: Secured Fixed Rate Note Currency of US Dollars notes: Coupon: 14.5% Maturity: 6/30/2008 Symbol of BFS SJ parent company: Website of www.blue.co.za parent company: Cost of AOF's US$1,500,000 holding: Value of AOF's US$1,500,000 holding: Principal Consumer finance services in Uganda. activity: BLUE FINANCIAL SERVICES (TANZANIA) Instrument: Secured Fixed Rate Note Currency of US Dollars notes: Coupon: 14.5% Maturity: 6/30/2008 Symbol of BFS SJ parent company: Website of www.blue.co.za parent company: Cost of AOF's US$3,000,000 holding: Value of AOF's US$3,000,000 holding: Principal Consumer finance services in Tanzania activity: THE ARTUMUS GROUP Instrument: Common stock Listing: Oslo Stock Exchange Symbol: AGI NO Shares 36,400,000 outstanding: Market 1.212 billion Norwegian Kroners capitalization: Website: www.artumus.com Cost of AOF's US$6,829,356 holding: Value of AOF's US$5,459,860 holding: Principal The company operates a natural gas power plant in southern activity: Tanzania, and explores for oil and gas in Tanzania and Mozambique. MART RESOURCES INC. Instrument: Common stock Listing: Venture Market of the Toronto Stock Exchange Symbol: MMT CN Shares 297,192,000 outstanding: Market 133.7 million Canadian Dollars capitalization: Website: www.martresources.com Cost of AOF's US$3,045,995 holding: Value of AOF's US$3,380,409 holding: Principal Oil exploration and production in marginal oil fields in the activity: Niger Delta. SONATEL Instrument: Ordinary Shares Listing: Bourse Regionale de Valuers Mobiliers, Cote d'Ivoire Symbol: SNTS BC Shares 10,000,000 outstanding: Market 1.75 trillion CFA Francs (or US$3.9 billion) capitalization: Website: www.sonatel.sn Cost of AOF's US$7,625,456 holding: Value of AOF's US$7,502,304 holding: Principal Fixed line and mobile telephony services in Senegal, Mali, and activity: neighboring countries. CONSOLIDATED INCOME STATEMENT FOR THE PERIOD FROM 21 JUNE 2006 (DATE OF INCORPORATION) TO 31 DECEMBER 2007 Note 2007 USD Bank interest 2,088,478 Interest on bonds 357,103 Interest on debentures 35,755 Revenue 2,481,336 EXPENSES Management fee 5 1,057,414 Custodian, secretarial and administration fees 616,912 Brokerage fees and commissions 45,028 Audit fees 34,500 Directors' fees 54,658 Other operating expenses 186,027 Changes in fair value of financial assets 7 310,828 Unrealised losses on exchange 7 345,519 2,650,886 Loss for the period (169,550) Attributable to: Equity holders of the Company (169,028) Minority interest (3,522) (169,550) Basic loss per share for loss attributable to the equity holders 13 (0.0013) of the Company during the period The notes form an integral part of these financial statements. CONSOLIDATED BALANCE SHEET AS AT 31 MARCH 2007 Notes 2007 USD ASSETS Current assets Held-to-maturity financial 6 assets 6 4,535,754 Financial assets at fair value through profit or 7 loss 7 52,632,051 Other 8 receivables 8 2,553,189 Cash and cash equivalents 9 61,827,336 Total current assets 121,548,330 Total assets 121,548,330 EQUITY AND LIABILITIES Equity attributable to equity holders of the parent Stated 10 120,739,981 capital 10 Retained losses (166,028) Shareholders' interests 120,573,953 Minority interest 746,478 Total equity 121,320,431 Current liabilities Other payables 227,899 Total current liabilities 227,899 Total equity and liabilities 121,548,330 The notes form an integral part of these financial statements. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE PERIOD FROM 21 JUNE 2006 (DATE OF INCORPORATION) TO 31 DECEMBER 2007 ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT Issued Share Retained Minority Total capital premium losses Total interest equity USD USD USD USD USD USD Issue of shares 1,250,000 123,750,000 - 125,000,000 - 125,000,000 Issue costs - 4,260,019) - (4,260,019) - (4,260,019) Minority share of net asset - - - - 750,000 750,000 Loss for the period - - (166,028) (166,028) (3,522) (169,550) At 31 December 2007 1,250,000 119,489,981 (166,028) 120,573,953 746,478 121,320,431 The notes form an integral part of these financial statements CONSOLIDATED CASH FLOW STATEMENT FOR THE PERIOD FROM 21 JUNE 2006 (DATE OF INCORPORATION) TO 31 DECEMBER 2007 Note 2007 USD Cash flows from operating activities Loss for the period (169,550) Adjustment for: Interest received (2,481,335) Changes in fair value on financial assets 310,828 Unrealised losses on exchange 345,519 Operating loss before working capital changes (1,994,538) Increase in other receivables and prepayments (2,215,921) Increase in other payables and accrued expenses 227,899 Interest income 2,108,313 Purchase of financial assets (57,788,398) Net cash used in operating activities (59,662,645) Cash flow from financing activities Proceeds from issue of shares 120,739,981 Capital contribution by minority shareholder 750,000 Net cash flow from financing activities 121,489,981 Net increase in cash and cash equivalents 9 61,827,336 The notes form an integral part of these financial statements NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD FROM 21 JUNE 2006 (DATE OF INCORPORATION) TO 31 DECEMBER 2007 1. GENERAL INFORMATION Africa Opportunity Fund Limited (the "Company") was admitted to trade on the AIM market in July 2007. A listing was obtained on the Channel Islands Stock Exchange ("CISX") in November 2007. Africa Opportunity Fund Limited is a closed-ended fund incorporated with limited liability and registered in Cayman Islands under the Companies Law on 21 June 2007 and with registered number MC-188243. The Fund aims to achieve capital growth and income through investment in value, arbitrage, and special situations investments in the continent of Africa. The Company therefore may invest in securities issued by companies domiciled outside Africa which conduct significant business activities within Africa. The Company will have the ability to invest in a wide range of asset classes including real estate interests, equity, quasi-equity or debt instruments and debt issued by African sovereign states and government entities. The Company's investment activities are managed by Africa Opportunity Partners Limited, a limited liability company incorporated in the Cayman Islands and acting as the investment manager pursuant to an Investment Management Agreement dated 18 July 2007. To ensure that investments to be made by the Compay, and the returns generated on the realisation of investments, are both effected in the most tax efficient manner, the Company has established Africa Opportunity Fund L.P as an exempted limited partnership in the Cayman Islands. All investments made by the Company will be made through the limited partnership. The limited partners of the limited partnership are the Company, AOF CarryCo Limited and Millenium Special Opportunities Holdings Ltd. The general partner of the limited partnership is Africa Opportunity Fund (GP) Limited. Presentation currency The consolidated financial statements are presented in the United States dollars (or "USD"). Comparatives There are no comparatives as these are the first set of financial statements prepared by the Company since its incorporation on 21 June 2007. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied in dealing with items which are considered material in relation to the consolidated financial statements. Statement of compliance The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS). Basis of preparation The financial statements have been prepared under the historical cost convention, as modified by the fair valuation of financial assets and financial liabilities at fair value through profit or loss. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires the Board of Directors to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 4. Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries (referred to as the "Group") as at 31 December 2007. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control and continued to be consolidated until the date that such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group transactions are eliminated in full. Minority interests represent the portion of profit or loss and net assets not held by the Group and are presented separately in the Income Statement and within equity in the Statement of Changes in Equity from parent shareholders' equity. Foreign currency translation (a) Functional and presentation currency Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The Board of Directors considers USD as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Financial assets The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables and held-to-maturity financial assets. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. (i) Financial assets at fair value through profit or loss Financial assets designated at fair value through profit or loss at inception are those that are managed and their performance evaluated on a fair value basis in accordance with the Group's documented investment strategy. The Group's policy is for the Investment Manager and the partners to evaluate the information about these financial assets on a fair value basis together with other related financial information. These financial assets are expected to be realised within 12 months of the balance sheet date and are therefore classified under current assets. The Group determines the classification of its financial assets on initial recognition and, where allowed and appropriate, re-evaluates this designation at each financial year end. (a) Recognition/ derecognition Regular-way purchases and sales of financial assets are recognised on the trade date which is the date on which the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the market place. A financial asset (or, where a part of a financial asset or part of a group of similar financial assets) is derecognised when: The rights to receive cash flows from the asset have expired; The Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a 'pass through' arrangement; or The Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group's continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. (b) Measurement When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss directly attributable transactions costs. Gains and losses arising from changes in the fair value of the 'financial assets at fair value through profit or loss' category are presented in the income statement in the period in which they arise. Interest income from financial assets at fair value through profit or loss is recognised in the income statement within interest income using the effective interest method. Dividend income from financial assets at fair value through profit or loss is recognised in the income statement within dividend income when the Group's right to receive payments is established. (ii) Held-to-maturity financial assets Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity when the Group has the positive intention and ability to hold to maturity. After initial measurement held-to-maturity investments are measured at amortised cost using the effective interest method less allowance for impairment. Gains and losses are recognised in profit or loss when the investments are derecognised or impaired, as well as through the amortisation process. (iii) Loans and receivables Loans and receivables are non-derivatives financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. Theses are classified as non-current assets. The Group's loans and receivables comprise 'trade and other receivables' and cash and cash equivalents in the balance sheet. Fair value estimation The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm's length transactions; reference to the current market value of another instrument which is substantially the same; discounted cash flow analysis or other valuation models. Impairment of financial assets The Group assesses at each balance sheet date whether a financial asset is impaired. Assets carried at amortised cost If there is objective evidence that an impairment loss on assets carried at amortised cost 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 expected credit losses that have not been incurred) discounted at the financial asset's original effective interest rate (ie the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced through use of an allowance account. The amount of the loss is recognised in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases can be related objectively to an event occurring after the impairment was recognised, the previously recognized impairment loss is reversed, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date. Any subsequent reversal of an impairment loss is recognised in profit or loss. Share capital Ordinary shares are classified as equity. Revenue recognition Interest income is recognised using the effective interest method. Interest on bonds and debentures are recorded when right to receive payment is establised. Other payables Other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. Provision A provision is recognised when and only when there is a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow embodying economic benefits will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Cash and cash equivalents Cash and cash equivalents comprise cash at bank. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value. Related parties For the purposes of these financial statements, parties are considered to be related to the Group if they have the ability, directly or indirectly, to control the Group or exercise significant influence over the Group in making financial and operating decisions, or vice versa, or where the Fund is subject to common control or common significant influence. Related parties may be individuals or other entities. 3. STANDARDS AND INTERPRETATIONS NOT YET EFFECTIVE At date of authorisation of the financial statements, the following standards and interpretation were in issue, but not yet effective. The impact of these statements on the Group's financial statements in the period of initial application is not known at this stage. These statements, where applicable, will be applied in the year when they are effective. IFRIC 12 - Service Concession Arrangements Effective January 1, 2008. This interpretation gives guidance on the accounting by operators for public to private service concession arrangements. However this interpretation is not applicable to the Group. IFRIC 13 - Customer Loyalty Programmes Effective July 1, 2008. This interpretation addresses accounting by the entity that grants award credits to its customers. However this interpretation is not applicable to the Group. IFRIC 14 - IAS 19 - The Limit on a Defined Benefit Asset Effective January 1, 2008. This interpretation applies to all post-employment defined benefits and other long term employee defined benefits. However this interpretation is not applicable to the Group. IFRS 8 - Operating segments Effective January 1, 2009. IFRS 8 replaces IAS 14 and aligns segment reporting with the requirements of the US standard SFAS 131, 'Disclosures about segments of an enterprise and related information'. The new standard requires a 'management approach', under which segment information is presented on the same basis as that used for internal reporting purposes. However this standard is not applicable to the Group. IAS 23 (revised) - Borrowing costs Effective January 1, 2009. The amendment to the standard is still subject to endorsement by the European Union. It requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. The option of immediately expensing those borrowing costs will be removed. The Group will apply IAS 23 (revised) from 1 January 2009 but is currently not applicable to the Group as there are no qualifying assets. 4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY Critical accounting judgements in applying the Group's accounting policies In the process of applying the Group's accounting policies, which are described in Note 2, the directors have made the following judgements that have the most effect on the amounts recognised in the financial statements:- (i) Determination of functional currency The determination of the functional currency of the Group is critical since recording of transactions and exchange differences arising thereon are dependent on the functional currency selected. As described in Note 2, the directors have considered those factors therein and have determined that the functional currency of the Company is the United States Dollar. (ii) Fair value of other financial instruments The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Group uses its judgement to select a variety of methods and make assumptions that are mainly based on market conditions existing at each balance sheet date. (iii) Impairment of financial assets The Group follows the guidance of IAS 39 to determine when held-to-maturity financial assets and receivables are impaired. 5. AGREEMENTS Investment Management Agreement Under the Investment Management Agreement, the Company appointed Africa Opportunity Partners Limited (the "Investment Manager"), an investment management company incorporated in the Cayman Islands, to manage the operations of the Company subject to the overall supervision of the Company's board as specified in the AIM Admission Document of the Company. Under the Investment Management Agreement, the Manager is paid a management fee which is equal to one quarter of 2 percent of the quarterly NAV which is payable in US Dollars quarterly in advance on the first Business Day of each Quarter. The management fee for the period under review amounts to USD 1,057,414. Administrative Agreement International Proximity had been appointed to provide various administrative and secretarial services to the Company and is entitled to receive an initial aggregate fee of USD 96,000 payable by the Company for administrative and certain secretarial services for the Group. Custodian Agreement A Custodian Agreement had been entered into by the Company and Barclays Bank PLC (Mauritius), whereby Barclays Bank PLC would provide custodian services to the Company and would be entitled to a custody fee of between 25-18 basis points per annum of the value of the assets held by the customer and a tariff of between 10 and 45 basis points per annum of the value of assets held by the custodian. Broker agreement Under the Broker Agreement, the Company appointed LCF Edmond Rothschild Securities Limited ("LCFR"), a company incorporated in England and Wales to act as Broker to the Company. Under the Broker Agreement, the Company is to pay to LCFR an annual retainer fee of USD 39,946 (£20,000) plus VAT where applicable, payable in advance at six monthly intervals, the first such installment being due and payable on 1st January 2008. Nominated Advisor Under the engagement letter, Grant Thornton UK LLP is engaged to act as Nominated Advisor to the Company. As nominated advisor an ongoing retainer fee of USD 49,933 (£25,000) per annum will be payable quarterly in advance commencing on the first quarter day following Admission. 6. HELD-TO-MATURITY FINANCIAL ASSETS 2007 USD Held-to-maturity: At 31 December 4,535,754 Held-to-maturity financial assets comprise amounts invested by Africa Opportunity Fund L.P in unsecured guaranteed debentures under the Debenture Subscription Agreement dated 11 December 2007 between: (i) Blue Financial Services Limited ("Issuer") and Blue Employee Benefits (Proprietary) Limited ("Guarantor") and Africa Opportunity Fund L.P. (ii) Blue Employee Benefits Limited ("Issuer") and Blue Employee Benefits (Proprietary) Limited (Guarantor) and Africa Opportunity Fund L.P. Interest Balance at Maturity Cost Interest receivable 31 December Name of issuer date Number USD rate USD 2007 Blue Financial Services Limited (Tanzania) 30 June 2008 100 3,000,000 14.5% p.a 23,836 3,023,836 Blue Employee Benefits Limited (Uganda) 30 June 2008 100 1,500,000 14.5% p.a 11,918 1,511,918 4,535,754 7. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS 2007 USD Designated at fair value through profit or loss: At start of period - Addition 53,288,398 Disposal - At 31 December (at cost) 53,288,398 Changes in fair value of financial assets (310,828) Unrealised losses on exchange (345,519) At 31 December (at fair value) 52,632,051 Analysed as follows: - Listed equity securities 16,342,572 - Listed debt securities 36,289,479 52,632,051 Geography % of NAV at 31 December 2007 Fair value Debt securities USD Angola 20% 23,469,626 Tanzania 7% 8,707,433 Ghana 3% 4,112,420 Equity securities Tanzania 5% 5,459,860 Senegal 6% 7,502,303 Nigeria 3% 3,380,409 52,632,051 8. OTHER RECEIVABLES The Group USD Interest income receivable on bonds 520,321 Subscription monies 1,800,000 Due from broker 232,868 2,553,189 On 13 December 2007, Africa Opportunity Fund L.P made a payment amounting to USD 1,800,000 through Stock Brokers Zambia to purchase shares of Copperbelt Energy Plc which were allotted to Africa Opportunity Fund L.P in January 2008. 9. CASH AND CASH EQUIVALENTS The Group USD Fixed deposit account 60,562,888 Call deposit account 1,264,448 61,827,336 10. STATED CAPITAL Number USD Authorised share capital Ordinary shares with a par value of US$ 0.01 1,000,000,000 10,000,000 Stated capital 125,000,000 Ordinary shares at USD 0.01 1,250,000 Share premium 125,000,000 shares at premium of USD 0.99 net of issue costs for admission on markets 119,489,981 120,739,981 11. OTHER PAYABLES 2007 USD Accrued expenses 173,243 Other payables 54,656 227,899 Other payables are non-interest bearing and have an average term of six months. 12. LOSS PER SHARE Basis loss per share is calculated by dividing the loss attributable to equity holders of the Company by the number of ordinary shares in issue during the period excluding ordinary shares purchased by the Company and held as treasury shares. Loss attributable to equity holders of the Fund USD (166,028) Number of ordinary share in issue 125,000,000 Basic loss per share US cents (0.13) 13. RELATED PARTY DISCLOSURES The financial statements include the financial statements of Africa Opportunity Fund Limited and the subsidiaries in the following table: Country of % equity interest Name incorporation 2007 Africa Opportunity Fund (GP) Limited Cayman Islands 100 Africa Opportunity Fund L.P Cayman Islands 98.37 During the period ended 31 December 2007, the Company transacted with related entities. The nature, volume and type of transactions with the entities are as follows: Balance at Type of Nature of Volume 31 Dec 2007 Name of related parties relationship transaction USD USD Africa Opportunity Partners Limited Investment Management fee 1,057,414 - Manager expense Key Management Personnel (Directors' fees) Except for Francis Daniels and Robert Knapp who have waived their fees, each director has been paid a fee of USD 30,000 per annum plus reimbursement for out-of pocket expenses. Francis Daniels and Robert Knapp, who are directors of the Company, are also shareholders of the Investment Manager. Francis Daniels and Robert Knapp who are directors of the Fund also form part of the executive team of the Investment Manager. They have a beneficiary interest in AOF CarryCo Limited. The latter is entitled to carry interest computed in accordance with the rules set out in the Admission Document. The total carried interest is 20% shared as follows: 19% to AOF CarryCo Limited and 1% to Millennium Special Opportunities Holdings Ltd as set out in the side letter agreement to the Partnership Agreement entered into by Africa Opportunity Fund (GP) Limited, AOF CarryCo Limited, Africa Opportunity Partners Limited and Millennium Special Opportunities Holdings Ltd. 14. TAXATION Under the current laws of Cayman Islands, there is no income, estate, transfer sales or other Cayman Islands taxes payable by the Fund. As a result, no provision for income taxes has been made in the financial statements. 15. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Company's Consolidated Balance Sheet includes a substantial amount of assets and liabilities whose fair values are subject to market risks. The Company's material market risks are associated with interest rates, equity prices, and foreign currency exchange rates. The following sections address the material market risks associated with the investments of the Company. Fair value The carrying amount of financial assets at fair value through profit or loss, loans and receivables, other receivables, other payables and accrued expenses approximate their fair value. Market value has been used to determine the fair value of financial assets at fair value through profit or loss. The fair value of held-to-maturity financial assets has been calculated using the effective interest method. Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices and includes interest rate risk, foreign currency risk and equity price risk. The Group's financial assets are susceptible to market risk arising from uncertainties about future prices of the instruments. Since all securities investments present a risk of loss of capital, the Investment Manager moderates this risk through a careful selection of securities and other financial instruments. The Group's overall market positions are monitored on a daily basis by the Investment Manager. In determining the change in equity prices, currency rate and interest rate, directors have based themselves on past performance, current and future economic conditions. Equity Price Risk Equity price risk is the risk that the fair value of equities decrease as a result of changes in the levels of the equity indices and the values of individual stocks. The trading equity risk arises from the Company's investment portfolio. Change in Effect on equity price profit before Effect on Stock 2007 tax equity USD USD Artumus 30% 1,637,958 1,637,958 -30% (1,637,958) (1,637,958) Mart 30% 1,014,123 1,014,123 -30% (1,014,123) (1,014,123) Sonatel 30% 2,250,692 2,250,692 -30% (2,250,692) (2,250,692) Currency risk The Group's investments are denominated in various currencies as shown in the currency profile below. Consequently, the Group is exposed to the risk that the exchange rate of the United States Dollar (USD) relative to these various currencies may change in a manner, which has a material effect on the reported values of its assets denominated in those currencies. Currency risk The currency profile of the Group's financial assets and liabilities is summarised as follows: The Group Financial Financial assets liabilities USD USD Canadian dollar 3,380,409 - Norwegian Kroner 10,770,986 - Tanzanian Shilling 8,707,433 - Ghanain Cedi 4,112,420 - CFA Franc 7,502,304 - Euro - 16,147 Great Britain Pound - 102,086 United States Dollar 87,074,778 109,666 121,548,330 227,899 Currency Risk The sensitivity analysis shows how the value of a financial instrument will fluctuate due to changes in foreign exchange rates against the US Dollar, the functional currency of the Group. Change in Effect on currency profit before Effect on Currency 2007 tax equity USD USD Ghanaian Cedi +30% 1,233,726 1,233,726 -30% (1,233,726) (1,233,726) Tanzanian Shilling +30% 2,612,230 2,612,230 -30% (2,612,230) (2,612,230) West African Franc +10% 750,230 750,230 -10% (750,230) (750,230) Canadian Dollar +5% 169,020 169,020 -5% (169,020) (169,020) Norwegian Kroner +5% 538,549 538,549 -5% (538,549) (538,549) Great Britain Pound +5% 5,104 5,104 -5% (5,104) (5,104) Euro +5% 807 807 -5% (807) (807) Interest Rate Risk Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair values of financial instruments. The fair values of the Group's debt securities fluctuates in response to changes in market interest rates. Increases and decreases in prevailing interest rates generally translate into decreases and increases in fair values of those instruments. The following table summarizes the estimated effects of hypothetical increases and decreases in interest rates on assets and liabilities that are subject to interest rate risk. It is assumed that changes occur immediately and uniformly to each category of instrument containing interest rate risk. The hypothetical changes in market interest rates do not reflect what could be deemed best or worst case scenarios. Therefore, actual rates might differ from those reflected in the table. Change in Effect on profit Effect on Financial assets interest rate before tax equity 2007 2007 USD USD Africa Offshore Float 6/29/12 (US$ Libor, plus 600 bps) +100 bps 10,961 10,961 -100 bps (10,961) (10,961) Africa Offshore Float 2/15/12 (US$ Libor, plus 600 bps) +100 bps 511 511 -100 bps (511) (511) Marine Subsea Nok 7.5 Conv. 09/16/12 +100 bps 5,002 2,002 -100 bps (5,002) (2,002) Credit Risk Financial assets that potentially expose the Group to credit risk consist principally of investments in cash balances and interest receivable. The extent of the Group's exposure to credit risk in respect of these financial assets approximates their carrying values as recorded in the Fund's balance sheet. The Group takes on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. The Group's main credit risk concentration is its financial assets at fair value through profit or loss. With respect to credit risk arising from financial assets which comprise of held-to-maturity financial assets, financial assets at fair value through profit or loss, other receivables and cash and cash equivalents, the Group's exposure to credit risk arises from the default of the counterparty, with a maximum exposure equal to the carrying amount of these financial assets. The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the balance sheet date was: Carrying amount 31 December Note 2007 USD Held-to-maturity financial assets 6 4,535,754 Financial assets at fair value through profit or loss 7 52,632,051 Other receivables 8 2,553,189 Cash and cash equivalents 9 61,827,336 The financial assets are neither past due nor impaired at balance sheet date. The cash and cash equivalent assets of the Group are maintained with Barclays Bank PLC, Mauritius branch. Barclays Bank has an Aa2 issuer rating from Moodys rating agency, a P1 short term rating from Moodys rating agency, an AA- issuer rating from Standard and Poor's rating agency, and a A-1+short term rating from Standard and Poor's rating agency. Except for the African Development Bank, which has a AAA rating from both Moodys' and Standard and Poors rating agencies, all other issuers of debt instruments owned by the Group are unrated. Concentration risk At 31 December 2007, the Group held investments in Africa which involves certain considerations and risks not typically associated with investments in other developed countries. Future economic and political developments in Africa could affect the operations of the investee companies. Analysed by geographical distribution of underlying assets for Africa only: Bonds and notes 2007 USD Angola 23,469,626 Tanzania 11,707,433 Ghana 4,112,420 Uganda 1,500,000 Total 40,789,479 Analyzed by industry for Africa only: Oil services industry 23,469,626 Supranational development institution 8,707,433 Sovereign debt 4,112,420 Consumer finance 4,500,000 Total 40,789,479 Reconciliation with balance sheet Investments held in Africa 40,789,479 Bank deposit in Mauritius 61,827,336 Other financial assets in non African countries 18,931,515 Total 121,548,330 Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation. The Group manages liquidity risk by maintaining adequate reserves, by continuously monitoring forecast and actual cash flows and matching the maturity profiles of the financial assets and liabilities. The table below illustrates the aged analysis of the Group's financial liabilities. Due Due between Due on within 3 3 and 12 demand months months Total USD USD USD USD Liabilities Accrued expenses 227,899 - - 227,899 Total Liabilities 227,899 - - 227,899 Capital Management The primary objective of the Group's capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value. The Fund received money from institutional investors of USD 125,000,000 which will be used to invest in target companies in Africa. Total capital is treated as 'equity' as shown in the consolidated balance sheet. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders and return capital to shareholders. Availability of Report Copies of the annual report will be sent to shareholders shortly and will be available for a period of one month to the public at the offices of Africa Opportunity Fund, Ugland House, South Church Street, PO Box 309,m George Town, Grand Cayman, Cayman Islands, BWI and will be available at the Company's website www.aof.ky.

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