aig private equity 2007 annual report

ANNUAL REPORT 2007

FACTS AND FIGURES

Company profile

AIG Private Equity Ltd. is a Swiss investment com-

pany with an objective to achieve long-term capital

growth for shareholders by investing in a diversif ied

portfolio of private equity funds and privately held

operating companies. The same team that manages

private equity investments for American International

Group, Inc. acts as investment advisor for AIG Private

Equity Ltd. With eight years of operating history

in a variety of market conditions, AIG Private Equity

Ltd. has a solid track record and a mature portfolio

of funds and direct investments. AIG Private Equity

Ltd. is l isted on the SWX Swiss Exchange under the

ticker symbol “APEN”.

Valuation as of December 31, 2007

Closing price per share CHF 170.00

Net asset value per share CHF 182.13

(applying fair values)

Exchange rate USD/CHF 1.1329

Exchange rate EUR/CHF 1.6544

Number of shares outstanding 3 949 027

Market capitalization CHF 719 236 288

Swiss Security Number

915.331

ISIN: CH0009153310

Ticker: APEN

Trading Information

Reuters: APEZn.S

Bloomberg: APEN

Telekurs: APEN

www.aigprivateequity.com

CONTENTS

Chairman’s Statement 2

Management Report– Review 2007 and Outlook 4– Overview of 20 Largest Investments 8– Overview of 20 Largest Funds 18

Financial Report– AIG Private Equity Group 22

Consolidated Financial Statements 2007– Corporate Governance 51– AIG Private Equity Ltd. 60

Financial Statements 2007

Financia l Highl ights

100

110

120

130

140

150

90

160

170

180

190

0

15

30

60

75

90

120

135

45

105

Investment Income (CHF in mi l l ion)

Net Asset Value per Share and Share Pr ice (CHF)

Net Asset Value per Share

Share Price

2004 2005 2006 2007

2004 2005 2006 2007

+155%

+90%

–34%

+94%

2007 consisted of two distinct periods, with the summer’s

volati l i ty marking a dramatic transition between the two. After a

period of four years with strong growth, private equity activity

saw a sharp slowdown after credit markets suffered a severe

turmoil. In spite of the difficult environment in the latter par t of

2007, AIG Private Equity Ltd. (the “Company”) recorded good

results. Investment income and net income both reached their

highest values since inception of the Company eight years ago.

Investment income was in excess of CHF 125 mill ion and

significantly above prior year’s results. Net asset value per

share increased 13.4% despite the weak US dollar, which hurt

the per formance of the Company’s US assets. The Company’s

share price increased by 6.1% in the course of the year, which

compares favorably with the LPX50 Index and equity market

indices. At year-end 2007 the shares traded at a discount of

6.6%. We believe that the Company has a strong and diversif ied

portfolio with attractive perspectives.

At this year’s annual general meeting, Erich Hort stepped

down from the board of directors, after serving in that capacity

for eight years since the Company’s founding in 1999. We thank

Mr. Hort for his very strong support from early days and value

his contributions greatly. Win Neuger also stepped down from

the board of directors and returned to the Company’s invest-

ment committee. Rober t Thompson was elected to the board of

directors. Mr. Thompson is the Head of AIG Investment’s world-

DR. CHRISTIAN WENGER, Vice Chairman

2

CHAIRMAN’S STATEMENT

Dear Shareholders

EDUARDO LEEMANN, Chairman of the Board

the Company’s por tfolio for 2008 correspond to long term

volumes. Par ticularly large buyout opportunities will diminish

while operationally-focused managers may capture the oppor-

tunities available in periods of economic weakness. Despite the

difficult market conditions, 2008 will yield significant opportu-

nities. As outlined, we do anticipate a number of significant

exits. To all of our shareholders we extend our appreciation for

the confidence you have placed in us.

Eduardo Leemann

Chairman of the Board

wide Alternative Investments business. Mr. Thompson has over

15 years experience in all segments of the private equity busi-

ness including mezzanine, direct investments, joint ventures,

leveraged buyouts and fund investments and will be a valuable

addition to the board of directors.

Debt markets are sti l l in the process of recalibrating to the

new risk perceptions. Currently, banks are restrictive in lending

and debt for new transactions is only available for buyouts with

an enterprise value of up to USD/EUR two bill ion. This has led

to reduced portfolio activity compared to the previous years.

We anticipate that private equity activity, once the immediate

impact of the credit market turmoil has receded, will level off at

long term averages. Recent exits of top 20 investments in 2008

are proof that deals are getting done at attractive terms and

provide us confidence that 2008 will turn out to be at least a

satisfactory year.

The year ended on a somber note, with credit markets in

turmoil, volati l i ty abounding and a sense that fur ther uncer-

tainty lies ahead. The star t into 2008 has been challenging.

Financial and equity markets posted substantial losses and

volati l i ty in January and March. Both share price and net asset

value have decreased. The decline of the net asset value is

entirely due to the weakening of the US dollar and the Euro

against the Swiss franc. Investment per formance remained

positive. We expect to see exit and investment activity from

ROBERT THOMPSON, MemberDR. ROGER SCHMID, Member

3

CHAIRMAN’S STATEMENT

DR. ERNST MÄDER, Member

t ial severity of a US (or global) recession, the state of credit

markets and the health of the banking sector.

Investment income amounted to about CHF 36 mill ion in

each of the first three quar ters, an amount significantly greater

than for any quar ter in the Company’s history prior to 2007.

Investment income slowed considerably in the four th quar ter,

but, at CHF 18.7 mill ion, was sti l l in line with results from

previous years. The vast majority of the investment income

came from European 2001 to 2005 vintage year funds. CapVest

I, Carlyle Europe I I, Lexington IV, EQT I I I and IV, and Cognetas

I each contributed more than CHF 10 mill ion of investment

income as they sold portfolio companies such as FoodVest, AZ

Electronic Materials, Symrise and QinetiQ. In 2006, the Com-

pany did not receive more than CHF 10 mill ion of investment

income from any single fund.

The private equity industry experienced record deal activity

in the first half of 2007, spurred by record fund raising and a

seemingly limitless supply of debt financing on favorable

terms. With the disruption of debt markets beginning in July,

investment activity slowed down in the second half of the year,

and came to a complete halt for mega buyouts as major banks

were both unwill ing and unable to finance transactions of that

size. The latter half of the year was fur ther marked by broken

deals and by unsyndicated buyout debt of more than USD 300

bill ion clogging the balance sheets of originating banks.

Despite the turmoil at the large end of the market, however,

smaller buyout deals continued to transact and,

in cer tain areas (such as Scandinavia and

Eastern Europe), there was no noticeable im-

pact on the availabil ity of credit for buyout

transactions. On another positive note, debt

financing (when available) was generally not

significantly more expensive than it was at the

beginning of the year, due to a smaller than

expected increase in spreads and to declines in

reference rates (especially in the US). None-

theless, the year ended with a great deal of

uncer tainty regarding the possibil ity and poten-

4

MANAGEMENT REPORT

Review 2007 and Out look

Quarterly Investment Income from 2003 to 2007

Investment Income in TCHF

AIG Private Equity Ltd. (the “Company”) recorded a successful year in

2007. The Company’s net asset value (“NAV”) per share increased 13.5%

from CHF 160.63 to CHF 182.27 despite the further weakening of the

US dollar (–7.1%) against the Swiss franc which led to lower reported

values for US dollar assets. The Company’s share price increased 6.1%

and ended the year at CHF 170.00. The Company recorded the highest

investment income (CHF 126.3 million) and net income (CHF 80.6 million)

in its nine year history.

CONRADIN SCHNEIDERANDREW FLETCHER

5

MANAGEMENT REPORT

The revaluation reserve for investments and foreign

exchange offset each other roughly. As the Company realized

significant investment income and invested more than CHF 400

mill ion of new investments, the increase of unrealized gains of

CHF 25.5 mill ion was lower than in 2006 (CHF 70.9 mill ion).

With the continued weakening of the US dollar the unrealized

FX losses on investments increased by CHF 16.0 mill ion.

The write-down on non-current assets amounted to

CHF 10.1 mill ion (2006 CHF 28.8 mill ion). In accordance with

IFRS requirements, the Company considers any investment

(whether fund or direct investment) with a fair value below cost

for more than twelve months as impaired. In addition, any

investment with a fair value more than 30% below cost wil l be

considered impaired regardless of the length the investment

was held below cost. Since impairments are taken automatically

under the policy, an impairment does not necessarily reflect

management’s opinion that the affected fund or direct invest-

ment will ult imately return a loss.

Investments in private equity funds make up the majority

of the portfolio (CHF 686 mill ion; 2006: CHF 408.6 mill ion).

Contractual Agreements (CHF 41.4 mill ion; 2006: CHF 53.7 mil-

l ion), direct investments (CHF 101.8 mill ion; 2006: CHF 93.3

mill ion) as well as loans (CHF 18.7 mill ion; 2006: CHF 34.2 mil-

l ion) make up the balance. We expect the loans and contractual

agreements to be repaid either in 2008 or 2009. In the longer

term we look to have more than 80% of the invested assets in

funds and the balance in direct investments.

The average maturity of the Company’s funds portfolio has

decreased somewhat as a result of the high volume of new fund

investments and commitments. As of year end, the fair value of

por tfolio funds with a vintage of 2001 or earlier (seven years or

older) represented 20.8% of investment assets, down from

41.0% at the end of 2006.

Top 20 investments

The Company’s top 20 investments portfolio recorded another

year of high turnover, with a total of eight new investments

joining the top 20 in the course of the year. Four full sales, two

par tial sales, two announced exits and two recapitalizations

during 2007 made their contribution to the overall positive

result of the Company’s top 20 investments. See page 8 for

detailed information on the portfolio of top 20 investments.

Top 20 Funds

For the first t ime, the Company is happy to provide share-

holders an overview of the top 20 funds within the portfolio.

The total fair market value of the Company’s twenty largest

funds increased significantly during the year. Of seven new

funds joining the top 20 in the course of the year, four were

2007 vintage funds. All funds are active in the buyout space

Two funds were added to the Rest-of-the-World/Asia

por tion of the portfolio: Affinity Asia Pacific Fund I I I (USD 25

mill ion), AIG Brazil Special Situations Fund I I (USD 10 mill ion).

Unfunded commitments as of year end amounted to

approximately CHF 966 mill ion or 110.2% of total assets. Gen-

erally, we expect funds to invest over a period of approximately

five years. On a portfolio basis, drawdowns in 2007 were very

much in line with expectations based on the Company’s cash

flow models. To cover potential volati l i ty in fund cash flows

and to allow appropriate vintage year diversif ication, the

Company maintains a USD 50 mill ion credit l ine (increased

to USD 100 mill ion in January 2008) with a consor tium of

Swiss banks.

New Direct Investments

At year end, direct investments accounted for 14.2% of in-

vested assets (including the investments in loans). This re-

presents a decrease of nearly five percentage points over the

prior year.

The Company added four direct investments to its por tfolio

with a total value of CHF 7.4 mill ion. The Company made an

initial direct investment in Falcon Farms (USD 0.4 mill ion) with

a commitment to invest a fur ther USD 1.6 mill ion into the

leading importer and distributor of fresh cut flowers in the

United States and Canada. Falcon Farms operates over 300

hectares of farmland in Colombia, Ecuador and Mexico and

with the exception of a secondary fund that has litt le exposure

to venture capital. The geographic focus lies on Europe, fol-

lowed by North America and Rest of the World (Asia and

Emerging Markets). The 20 largest funds by NAV accounted for

54.1% of total NAV (2006: 46.1%).

Investment Program

The Company added nineteen funds and four direct invest-

ments to its por tfolio in 2007. The commitments to the nine-

teen funds are divided up into eight follow-on funds and

eleven new funds.

The Company made commitments to a total of nine new

funds in 2007 with an investment focus on North America:

Sun Capital (USD 17 mill ion), Silver Lake I I I (USD 30 mill ion),

AIG Altaris Health Par tners I I (USD 20 mill ion), Olympus V

(USD 23 mill ion), Avista Capital Par tners I (USD 25 mill ion),

Carlyle V (USD 30 mill ion), AIG Highstar I I I (USD 25 mill ion),

New Mountain I I I (USD 20 mill ion) and Platinum Equity Capi-

tal Par tners I I (USD 20 mill ion).

Eight European funds were added to the portfolio with

commitments totaling EUR 162 mill ion: Lion Capital Par tners I I

(EUR 20 mill ion), Terra Firma Capital Par tners I I I (EUR 25 mil-

l ion), Odewald I I I (EUR 15 mill ion), Carlyle Europe Par tners I I I

(EUR 35 mill ion), Astorg IV (EUR 20 mill ion), PAI V (EUR 20

mill ion), Mid Europa Par tners Fund I I I (EUR 10 mill ion) and

Ventizz Capital Fund IV (EUR 17 Mio.).

6

MANAGEMENT REPORT

1. Diversification by Investment Focus as of December 31, 2007Expressed as % of invested assets applying fair values

2. Investment Framework as of December 31, 2007Expressed as % of total assets applying fair values

Venture 4.5%

Mezzanine 4.5%

Development Capital 4.7%

Buyout 86.3%

AIG 3rd-Party Direct TotalFunds Funds InvestmentsPortfolio Portfolio Portfolio

Developed MarketsEurope 2.2% 40.5% 4.8% 47.5%North America 4.6% 29.7% 9.2% 43.5%

Other Markets 4.3% 4.2% 0.1% 8.6%Total 11.1% 74.4% 14.1% 99.6%

7

MANAGEMENT REPORT

supplies its fresh cut flowers to leading mass merchant re-

tailers in North America. During the second quar ter, the Com-

pany invested USD 3.7 mill ion in Advanstar, a leading inte-

grated marketing solutions provider in the Fashion & Licensing,

Powerspor ts and Life Science industries. Advanstar’s B2B

offering spans 91 trade shows and stand-alone conferences, 66

publications and directories, 150 electronic publications and

web sites, as well as educational seminars. USD 1.3 mill ion was

invested in United Surgical Par tners International (USPI). USPI

is the second largest operator of ambulatory surgery centers in

the US. USPI operates 138 facil it ies in the US and three in the

UK. Flash Global Logistics (USD 0.96 mill ion) is a fast growing,

full-service non-asset based logistics solution provider that

specializes in handling high-velocity, t ime crit ical par ts. It ser-

vices For tune 500 companies and has a global network of 570

agents in 44 countries.

In addition to the four new direct investments, the Com-

pany made five follow-on investments. Three small add-on

investments in Xanodyne, Thomas Nelson Publishing and

Medispectra and two larger follow-on investments were made

in Knowledge Universe Education (USD 3.9 mill ion) and Jet-

Direct Aviation (USD 1.7 mill ion). These add-on investments

were all made in line with the original business plans.

The Company holds eleven direct investments with a fair

value of more than CHF 3 mill ion. The average direct invest-

ment size amounts to CHF 5.2 mill ion.

Outlook

The first quar ter of 2008 continued to be volati le, with equity

markets extremely weak in January and March and a sharply

weaker US dollar. The Company’s NAV decreased over the first

two months. This decrease, however, was due to currency

effect – with both the US dollar and euro decreasing in value

against the Swiss franc – and the share price performance of

the Company’s listed portfolio companies. The Company’s core

private equity por tfolio continues to develop well. Despite con-

tinued uncer tainty in markets, there are grounds for optimism

as the US economy has proven relatively resil ient despite the

severe housing recession and the fact that major banks have

taken considerable steps towards repairing their balance

sheets and divesting themselves of leveraged loan portfolios.

Although deal activity is l ikely to be significantly lower than the

first half of 2007, the Company has had relatively strong exit

activity year to date, with a number of additional exits expected

in the second quarter. We anticipate that overall transaction

activity will increase in the second half of 2008.

3. Diversification by Vintage Year as of December 31, 2007Expressed as % of invested assets applying fair values

4. Diversification by Region as of December 31, 2007Expressed as % of invested assets applying fair values

2003

5.2 %

2002

0.1 %0

5

10

15

20

25

in %30

87–97 1998 1999 2000

1.3 %2.8 %

5.2 %

8.4 %

2001

3.1 %

2004

0.6 %

2005

21.9 %

2006

32.4 %

i

19.0 %

2007

North America 43.6%

Other regions 8.7%

Europe 47.7%

8

As of December 31, 2007, the total fair market value of the

Group’s twenty largest holdings was CHF 172.3 mill ion.

Although this represents a 10.5% increase over the value of

the top 20 investments por tfolio at the end of 2006, it also

represents a smaller share (20%) of the Group’s total assets

due to the large volume of new investment and the increase in

the overall value of the Group’s assets by 33% over the course

of the year. Por tfolio turnover was high, with a total of eight

new investments joining the top 20. Most of the new top 20

companies entered the portfolio based on initial cost as the

Group made a number of large new investments during the

year. Reflecting the portfolio as a whole, the top 20 investments

por tfolio continues to be well-diversif ied, with the following

industry weightings: 22.8% services, 20.0% consumer, 19.9%

communications, 12.8% energy, 8.4% financial services, 7.5%

medical & health, 4.4% semiconductors and 4.2% industrial.

Top 20 Investments

MANAGEMENT REPORT

The technology sector (12.0% in 2006) is not represented in

the top 20 investments por tfolio anymore, due to the par tial

exit of AZ Electronic Materials and a reclassif ication of

Freescale into the semiconductor industry segment.

Top 20 Portfolio Performance

The exit of AZ Electronic Materials , which manufactures

and markets photoresist, anti-reflective coatings and ancil lary

chemicals for use in electronics applications, was announced

last March by The Carlyle Group and the Group received

EUR 5.5 mill ion from the sale. Since the Carlyle Group re-

invested some of its proceeds in AZ Electronic Materials, the

Group will keep an interest in the firm. Kwik-Fit , Europe’s

leading fast-fit car service business, dropped out of the Group’s

top 20 investments after a recapitalization in May 2007 and a

return of 0.97 times the Group’s initial investment. At year end,

the realized and unrealized value of Kwik-Fit was 1.57 times

invested capital. In June, the Group sold half of its direct and

indirect holdings in Theravance (Theravance’s Nasdaq Ticker:

THRX) and realized a full exit in December, yielding a return of

2 times cost. AMF Bowling , position six teen in the prior year,

dropped out of the top 20 investments portfolio after a cash

distribution to the Group resulting from a debt refinancing. In

July 2007, the Group sold its interest in Vaasan & Vaasan , the

leading bakery company in Finland, and received distributions

of EUR 3.7 mill ion. The Group continues to hold a stake of

The strong performance of the top 20 investments was a key element for

the solid performance of the Group in 2007. During the year, the Group,

recorded four full sales, two partial sales, two announced exits and two

recapitalizations among the top 20 investments. Furthermore, there were

several portfolio companies which saw valuations increase based on

strong operating results.

Top 3 Top 5 Top 10 Top 10–200%

10%

20%

30%

40%

50%

60%

70%

T

9

MANAGEMENT REPORT

Vaasan & Vaasan through the buyer, Lion Capital Fund I I. HSH

Nordbank fell out of the Group’s top 20 investments after a re-

capitalization in March 2007. In April , EQT I I I sold its remaining

shares in Symrise (Symrise’s FSE Ticker: SY1). Also during the

year, The Carlyle Group sold its remaining shares in QinetiQ

(QinetiQ’s LSE Ticker: QQ/), the third full exit in a listed hold-

ing of the Group’s last year top 20 investments. With total

inflows of 7.6 times the Group’s invested capital, QinetiQ was a

highly successful transaction for the Group.

Capmark , a globally diversif ied company that provides a

broad range of financial services to investors in commercial real

estate-related assets, was the Group’s largest single investment

at year end. Although origination business may be somewhat

slower in the current credit envoronment, Capmark secured

favorable financing in the first half of 2007 and is in a position

to benefit from tightness in real estate financing markets. Geo-

services , a global oil f ield services company, replaced Hertz ,

the world’s largest general use car rental company, as the

Group’s second largest investment at year end. Geoservices in-

creased substantially in value based on growing revenues and

profits, while Hertz’s share price (NYSE ticker: HTZ) reflected

the volati l i ty of public markets generally during the year and

ended up down 8.6% after being up over 50% through October.

The Group exited about 20% of its Her tz position in June

and has been repaid 1.01 times its invested capital in Hertz.

Together with the remaining listed position, the Group’s over-

all investment multiple on the Hertz investment at year end was

2.24 times. Due to significant valuation increases, Thomas

Nelson was the Group’s third largest investment at year end.

Thomas Nelson/Faith Media, is the leading publisher of Christ-

ian-oriented books, Bible reference books, and translations of

the Christian Bible, and also sells secular tit les to mainstream

commercial markets. The fasting-growing segment of the busi-

ness is the Gospel Music Channel, which has seen exponential

growth in its subscription base. Suomen Asiakastieto , the

leading business and credit information company in Finland,

shifts up two positions compared to year end 2006 due to

strong revenue and EBITDA growth during 2007. Universal

Studios Escape , consisting of the two theme parks, Universal

Studios Florida and Islands of Adventure, CityWalk, a dining,

Distribution of value in Top 20 2007 vs. 2006

Comparison Top 20 by Maturity 2007 vs. 2006

Comparison Top 20 2007 vs. 2006 by Industry

2007 2006 adjusted for currency differences

0%

5%

10%

15%

20%

25%

30%

35%

40%

Sem

icon

duct

ors

Cons

umer

Serv

ices

Med

ical

&H

ealth

Com

mun

icat

ions

Tech

nolo

gy

Leis

ure

Indu

stria

lPr

oduc

ts

Ener

gy

Fina

ncia

lSe

rvic

es1 year 2 years 3 years 4 years 5 years 6 years

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

7 years 1

10

MANAGEMENT REPORT

retail and enter tainment complex, and Universal Studios

Florida, a movie- based theme park, finished the year 2007 as

number ten of the Group’s top 20 investments. In February

2008, the Group sold its holding in Universal Studios Escape

(Universal) – a long standing top 20 company. The investment

in Universal was made in 2000 and despite the adverse impact

of the September 11th events, Universal posted a good overall

per formance, returning 2.58 times invested capital. Foodvest ,

last year’s largest investment, was sold in the first quar ter of

2007 to CapVest Equity Par tners I I , in which the Group is a

limited par tner. The Group continues to have exposure to

Foodvest through CapVest I I and through vendor loan notes

held by the sell ing fund, but the Group’s percentage interest

in Foodvest declined and it fell to the Group’s number eleven

investment by size. Freescale Semiconductor , a global de-

signer, manufacturer, and marketer of broad line semicon-

ductors, was reduced in value due to general weakness in the

semiconductor business during 2007 and a reduction in orders

from its primary customer, Motorola. The Nielsen Company

(formerly known as VNU) fell one position compared to

December 31, 2006. The world’s leading provider of marketing

information, audience measurement, and business media pro-

ducts and services is sti l l held at cost. The slight decrease in

value is a result of foreign exchange influences. Never theless,

three more holdings within the Group’s top 20 investments

posted strong results in 2007. PBL Media , Australia’s largest

diversif ied media company, saw its valuation increase by 22%

compared to its value as of December 31, 2006. I-Med

Holdings (formally known as DCA Group) has dropped out of

the Group’s top 20 investments and then re-entered the top 20

investments por tfolio during the four th quar ter as a result of

an increased valuation after the announced sale of their “Aged

Care” business. I-Med Holdings is Australia’s largest private

diagnostic imaging network and is held trough CVC European

Equity Par tners IV, CVC European Equity Par tners Tandem Fund

and CVC Capital Par tners Asia Pacific I I . Acosta , a leading

sales and marketing agency servicing consumer packaged

goods companies in the U.S. and Canada, found itself back in

the top 20 after dropping out in the second quarter of 2007.

The return into the Group’s top 20 investments was due to a

valuation increase stemming from strong operating results.

New Top 20 Companies

Eight of the Group's top twenty investments as of December

31, 2007, were new compared to the prior year. Of these eight,

six were new investments in 2007 and four of them are sti l l

held at cost: EMI, Primesight, Ethypharm and Hema .

Kinder Morgan , one of the largest pipeline transporters and

terminal operators in North America, has already increased

in value due to a reduction of debt and good operating per-

formance. Kinder Morgan is held through AIG Highstar Capital

I I I and Carlyle Par tners IV. Maxam , mainly a developer, manu-

facturer and seller of civil explosives and initiation systems for

the mining, quarry and infrastructure industries, has increased

in value within the first year after strong performance in Spain,

South America, Central Asia and Russia. The investment in

Maxam was made through Ibersuizas I I , the first Spanish domi-

ciled fund of the Group. EMI , a por tfolio company of Terra

Firma Investments I I I , is one of the world’s largest music com-

panies. Primesight , the second investment in the top 20

investments por tfolio sponsored by GMT Communications

Par tners I I I (after Suomen Asiakastieto), is a leading outdoor

media owner of various sheets, backlight bil lboards and exclu-

sive adver tising contracts. In October 2007, the Group invested

EUR 4.2 mill ion in Ethypharm , which was acquired by Astorg

IV. Ethypharm is one of the world’s leading drug delivery

systems companies and has launched over 50 products in over

70 countries. The initial investment of EUR 3.3 mill ion in

Hema , which is held through Lion Capital Fund I I, brought

the successful general merchandise retailer with stores in the

Netherlands, Belgium, and Germany into the Group’s top 20

investments. In October 2006, the Group made an invest-

ment in Knowledge Universe Education , a leading global

education company serving a wide range of students, from

11

MANAGEMENT REPORT

infants and toddlers to primary and secondary students,

which is one of five direct investments of the Group’s top 20.

Numéricâble , the number one cable operator in France,

serving more than 99% of the French cable subscribers, has

entered the Group’s top 20 investments through an add-on

acquisit ion and an uplift in value due to a par tial sale to The

Carlyle Group.

Subsequent Events

As indicated above, the Group sold its interest in Universal

Studios Escape as par t of a secondary transaction in January

2008. The Group sold Universal at a valuation which was

higher than the carrying value and returned 2.58 times in-

vested capital. Fur thermore, GMT Communications Par tners I I I

announced the sale of Suomen Asiakastieto in April 2008.

The transaction is expected to close at the end of May and will

return more than EUR 6 mill ion to the Group.

Outlook

At least one top 20 investment is currently in a sales process

(in addition to Suomen Asiakastieto), and the Group expects

two or more exits from the top 20 portfolio during the course

of 2008.

TOP 20 INVESTMENTSFair Value Percentage

Investment Date Portfolio Company (CHF million) of NAV Type Sector 1 Geography

1 March 2006 CapMark 14.5 2.0% Buyout Financial Services North America

2 July 2005 Geoservices 13.3 1.8% Buyout Energy Global

3 June 2006 Thomas Nelson Publishing 13.3 1.8% Buyout Communications North America

4 Aug. 2007 EMI 12.7 1.8% Buyout Consumer Global

5 Oct. 2006 Knowledge Universe Education 9.8 1.4% Buyout Services Global

6 July 2006 Suominen Asiakastieto 8.7 1.2% Buyout Services Europe

7 May 2007 Kinder Morgan 8.7 1.2% Buyout Energy North America

8 Dec. 2005 Hertz* 8.6 1.2% Buyout Services Global

9 Oct. 2007 Primesight 8.4 1.2% Buyout Communications Europe

10 June 2000 Universal Studios Escape 8.4 1.2% Buyout Consumer North America

11 March 2007 FoodVest 7.9 1.1% Buyout Consumer Europe

12 Nov. 2006 Freescale 7.6 1.1% Buyout Semiconductors Global

13 Jan. 2007 Maxam 7.3 1.0% Buyout Industrial Products Europe

14 June 2006 VNU 7.0 1.0% Buyout Services Global

15 Oct. 2007 Ethypharm 6.9 1.0% Buyout Medical/Health Europe

16 Nov. 2006 PBL Media 6.6 0.9% Buyout Communications Australia

17 May 2005 Numéricable (Ypso) 6.0 0.8% Buyout Communications Europe

18 Nov. 2006 I-Med Holdings (fka. as DCA Group) 6.0 0.8% Buyout Medical/Health Australia

19 July 2007 Hema 5.5 0.8% Buyout Consumer Europe

20 July 2006 Acosta 5.1 0.7% Buyout Services North America

Total Fair Value Top 20 Holdings 172.3 24.0%

* Denotes publicly traded company (Hertz’s NYSE Ticker: HTZ)

1 EVCA Definition

12

MANAGEMENT REPORT

Capmark1 www.capmark.com

CapmarkTM is a global, diversif ied companythat provides a broad range of financial ser-vices to investors in commercial real estate-

related assets. Capmark has three core businesses: lendingand mortgage banking, investments and funds management,and servicing. The company operates in North America, Europeand Asia.

Geoservices2 www.geoservices .com

Geoservices is an upstream oil field servicescompany with headquarters located near

Paris, France. Almost 100% of its business activity takes placeoutside France on a worldwide basis in at least 50 differentlocations spread over all continents. Geoservices employsover 4 000 people of some 60 different nationalit ies. Its mainbusiness lines are: Mud Logging; Well Intervention and FieldSurveil lance.

Thomas Nelson/Faith Media3 www.thomasnelson.com

Faith Media Holdings, LLC, is a companyformed by InterMedia Advisors to acquirethe controll ing interests in Thomas Nelson

Media, Inc. (“TNM”) and The Gospel Music Channel (“GMC”).TNM is the leading publisher of Christian-oriented fiction andnon-fiction books, Bible reference books, and translations ofthe Christian Bible. TNM also sells secular tit les to mainstreamcommercial markets. GMC is the first adver tiser supportedcable network dedicated to gospel music.

EMI4 www.emi.com

EMI is one of the world’s largest music com-panies. It operates directly in 50 countries, withlicensees in a fur ther 20 countries, and it em-

ploys around 5 500 people. The business comprises two divi-sions: EMI Music Publishing and EMI Recorded Music. EMIMusic Publishing has one of the largest catalogs of songs in theworld and EMI Recorded Music represents musicians such asLily Allen, The Beach Boys, The Beatles, Coldplay, Norah Jones,Kylie and Pink Floyd.

13

MANAGEMENT REPORT

Suomen Asiakastieto6 www.asiakast ieto.com

Suomen Asiakastieto is the leading businessand credit information company in Finland.

The company provides customers with information and benefitsat all stages of the business relationship. Its circle of servicescomprises targeting, decision-making, and monitoring. Asia-kastieto’s database is the most extensive and comprehensive inFinland, with real-time connections with several public and pri-vate data sources. It contains up-to-date and comprehensivecontact, credit, and financial information on Finnish companiesas well as credit history information on private individuals.

Knowledge Universe Education5 www.knowledgeu.com

Knowledge Universe Education (KUE) is a leading globaleducation company serving a wide range of students, frominfants and toddlers to primary and secondary students. TheCompany operates approximately 1 900 centers in the U.S.,

Kinder Morgan7 www.kindermorgan.com

Kinder Morgan is one of the largest pipelinetranspor ters and terminal operators in North

America. The Kinder Morgan companies own an interest in oroperate more than 37 000 miles of pipelines that transportprimarily natural gas, crude oil , petroleum products and CO2,and approximately 165 terminals that store, transfer and handleproducts like gasoline and coal.

roughly double the nearest competitor. KUE also offers beforeand after-school tutoring services at approximately 700 schoolsites and an on-line education business through its KnowledgeLearning Corporation subsidiary. KUE also owns a minoritystake in k12, a leading operator of web-delivered curriculumfor “vir tual char ter schools”.

14

MANAGEMENT REPORT

10 Universal Studios Escapewww.universalorlando.com

Universal Studios Escape consists of twotheme parks, Universal Studios Florida and

Islands of Adventure. It also includes CityWalk, a dining, retailand enter tainment complex. Universal Studios Florida is amovie-based theme park designed to allow guests to become apar t of their favorite movies. Islands of Adventure, opened in1999, has 16 rides, shows, and attractions along with a façadeof famous film locations. CityWalk is a diverse collection ofrestaurants, retail outlets, and nightclubs, and also includes a20-screen Cineplex. The latest attraction, The Incredible HulkCoaster, has a top speed of 67 mph, one of the fastest rides inthe world.

Primesight9 www.primesight .co.uk

Primesight is one of the leading OutdoorMedia Owners, with interests in Roadside 6

Sheets, Convenience 6 Sheets, Premium Backlight Bil lboards,Glasgow Subway and exclusive contracts to adver tise in privateHealth Clubs & multiplex Cinemas Foyers. The Company hasalso developed a strong market position in several niche seg-ments such as CTN (Confection, Tobacco, News), small retailshops and petrol stations.

8 Hertzwww.hertz .com

Hertz is the world’s largest general use carrental company and the third largest equip-ment rental business in North America. The

Company and its independent licensees and associates cur-

rently rent cars at approximately 7 700 locations in over150 countries. Her tz has been in the car rental business since1918 and in the equipment rental business for over 40 years.Wholly owned subsidiaries of Her tz include: Her tz EquipmentRental Corporation, Her tz Claim Management Corporation (aThird Par ty Liabil ity Claims Administrator), and Hertz LocalEdition, which specializes in insurance replacement and localcar rentals.

MANAGEMENT REPORT

15

FoodVest11 www.foodvest .co.uk

Foodvest is one of the largest food groups inEurope. Foodvest is a UK registered businessand was created in 2006 with the merger of

Young’s Seafood in the UK and Findus in Sweden. Today thebusiness is run by a single management team. Young’s Seafoodis based in Grimsby, England. Young’s is the UK’s leading sea-food producer, with a 40% share of both the frozen and chilledseafood market. Findus is based in Malmo, Sweden. Findus isthe leading frozen food brand in Sweden, Norway, Finland andFrance. Findus produces a wide range of products includingseafood, vegetables, ready meals and frozen bakery products.

Freescale12 www.freescale .com

Freescale Semiconductor, Inc., is a globaldesigner, manufacturer, and marketer of

broad line semiconductors. The Company develops productsfor multiple markets, including the wireless and wire line com-munication, consumer, and automotive semiconductor markets.The company is based in Austin, Texas, and has design, re-search and development, manufacturing, or sales operationsin more than 30 countries. Freescale is one of the world’slargest semiconductor companies and has more than 24 000employees.

Maxam13 www.maxam-corp.com

Founded in 1872 by Alfred Nobel, Maxam isan international company with productive

centers in more than 20 countries and commercial presence inmore than 90 countries. Maxam is the European leader and thethird largest player of the world in the development, manu-facture and sale of civil explosives and initiation systems for themining, quarry and infrastructure industries in addition to aleading producer of hunting car tridges and powders for spor t-ing use. Besides its mining exper tise, Maxam is a key supplierof raw materials to the Nitrochemical industry.

The Nielsen Company (VNU)14 www.nielsen.com

The Nielsen Company is the world’s leadingprovider of marketing information, audiencemeasurement, and business media products

and services. By delivering an unmatched combination of in-sights, market intell igence, advanced analy tical tools, and in-tegrated marketing solutions, Nielsen provides clients withthe most complete view of their consumers and their markets.The company is active in more than 100 countries, with head-quar ters in Haarlem, the Netherlands, and New York, USA.

MANAGEMENT REPORT

16

Ethypharm15 www.ethypharm.com

Ethypharm is one of the world’s leadingdrug delivery systems (DDS) companies

that provides a range of effective solutions to optimize thedelivery of pharmaceutical products. The use of Ethypharm’sDDS technologies delivers important benefits including im-proving the drug’s efficacy, enhancing patient compliance andcomfor t, ex tending the life cycles of existing pharmaceuticalproducts, and reducing the total cost of treatment. Ethypharmhas launched 50 products in over 70 countries.

Numéricâble17 www.numericable . fr

Numéricâble was created in March 2005,combining cable operators and their cable

networks from France Télécom, Canal+ (Vivendi) and TDF. Sub-sequently, Altice One, which owned cable assets in easternFrance, Belgium and Luxembourg and then the number twocable provider in France, Noos – UPC France were acquired. Asa result, Numéricâble is the number one cable operator inFrance passing more than 9.5 mill ion homes (i.e. serving morethan 99% of the French cable subscribers). Numéricâble is thefirst telecom operator to massively deploy its own fiber networkin France. This unique fiber network already passes 2 mill ionhouseholds and will be extended to 8 mill ion householdsby 2010. In September 2007, Completel was acquired – it isthe third largest B2B infrastructure-based telecommunicationsoperator in France with both a national backbone and a DSLnetwork with 600 exchanges covering 110 cities in France.

PBL Media16 www.pblmedia.com.au

PBL Media is Australia’s largest diversif ied mediacompany. The group’s core businesses are tele-

vision production and broadcasting, magazine publishing anddistribution, and strategic investments in key digital media

and enter tainment businesses. It owns a leading free-to-airtelevision network, the Nine Network Australia, and Australia’slargest magazine publisher, ACP Magazines. AdditionallyPBL Media is a joint venture par tner in ninemsn, the leadingon-line business in Australia, and owns the majority in thenumber one auto website carsales.com, and interests inmyhome.com.au and Australian News Channel Sky News.

MANAGEMENT REPORT

Hema19 www.hema.nl

Hema is a unique and highly successful generalmerchandise retailer which offers its customers anextensive range of apparel, home, personal careand food products, all under the Hema brand,

through a network of stores in the Netherlands (337 sites),Belgium and Luxembourg (59 sites), and Germany (8 sites), aswell as a captive website. Hema is known by its customers forits ex tensive and high quality product offering at attractiveprices. The company has approximately 10 000 employees.

17

I-Med Holdings (DCA Group)18 www.i-med.com.au

The I-MED Network (“I-Med”) is Australia’slargest private diagnostic imaging network.

It was formerly par t of DCA Group, which also included Aus-tralia and New Zealand’s leading for-profit aged care facil i tyoperator, prior to its sale to BUPA in December 2007. DCA hasbeen renamed I-Med and is now primarily a diagnostic imagingbusiness. Across Australia and the United Kingdom, the I-MEDNetwork operates over 240 diagnostic imaging clinics. Its modelis to provide the best quality of service to patients and theirreferrers by offering comprehensive imaging services in allmodalit ies of this expanding branch of diagnostic medicine.I-Med has more then 4 500 employees.

Acosta20 www.acosta .com

Acosta is the leading sales and marketing agencyservicing consumer packaged goods companies

in the U.S. and Canada. Its customer base comprises over 1 300clients and includes top tier global food and beverage manu-facturers. Acosta has roughly 11 000 non-unionized sales asso-ciates deployed at more then 120 000 retail locations to servethe grocery channel and strategic channels, which includemass/club, natural/specialty, convenience stores, and drugstores.

18

MANAGEMENT REPORT

As of December 31, 2007, the total fair market value of the

Group’s twenty largest funds was CHF 389.4 mill ion, a signifi-

cant increase of CHF 101.1 mill ion (35.1%) over the prior year.

Of seven new funds joining the top 20 in the course of the

year, four were 2007 vintage funds. Their value represents

16.4% of Group’s top 20 funds. 2006 vintage funds make up

31.7% of the value of the Group’s top 20. Their share has

increased compared to the prior year (21.0%) as a result of

value increases. 2005 vintage funds make up 30.2% of the top

20 funds portfolio. The share of 2004 funds in the top 20 funds

portfolio remains unchanged at 4.8%. By geography, 55.8% of

the top 20 funds portfolio is invested primarily in Western

Europe, 35.95 in North America and 8.2% in the rest of the

world (Asia and emerging markets). The top 20 funds portfolio

has exposure to a range of deal sizes, with the following

distribution of overall fund size: one CHF 20+ bill ion fund,

two funds between CHF 10–20 bill ion, three funds between

CHF 5–10 bill ion, ten funds between CHF 500 mill ion to CHF 5

bill ion, and four funds below CHF 500 mill ion.

The five largest funds (by net asset value) were Blackstone

Capital Par tners V (CHF 35.9 mill ion), CVC European Equity

Par tners IV (CHF 24.2 mill ion), Carlyle IV (CHF 23.5 mill ion),

AIG Horizon Par tners (CHF 23.2 mill ion) and Carlyle European

Equity Par tners I I (CHF 22.0 mill ion). These funds are fully

or nearly fully invested and have, with the exception of AIG

Horizon, launched follow-on funds. Of these funds, AIG

Horizon Par tners is the most mature (vintage year 1999) and

is actively divesting its por tfolio companies. The other funds

have made initial distributions but are generally in the value

creation phase of the underlying portfolio companies.

New Top 20 Funds

Advent International Global Private Equity V (GPE V)

has increased its net asset value due to the strong per formance

of underlying portfolio companies. Fur thermore, Advent made

eleven new investments during the year. In 2007 the Group

invested USD 9.4 mill ion in Ares Corporate Fund II . Ares

makes majority and shared-control investments in distressed

and under-capitalized middle market companies in the US. In

2006, the Group committed USD 20 mill ion in Madison Dear-

born Par tners V, now the tenth largest fund of the Group’s top

20 funds. Madison Dearborn Partners V makes investments

in management buyouts and other private equity transactions

in the communications, basic industries, f inancial services,

consumer and healthcare industries. The Fund seeks to be a

lead investor and majority/control owner in most of its invest-

ments. Terra Firma Investments I I I is focused on buyouts

Top 20 Funds

Although the Group has investments in 79 funds, the portfolio has become

more focused over the last three years, and the Group’s 20 largest fund

investments represent 46% of the Group’s assets as of year-end 2007

(compared to 45% of assets at the end of 2006). The average commitment

to a 2007 fund was CHF 29 million, up from CHF 26 million in 2006. Despite

the concentration strategy, however, no fund represents more than 5% of

Group assets. The Group had seven new funds move into the top 20 funds

portfolio. The strategic focus remains on the buyout sector, with an

overweight in Europe.

19

MANAGEMENT REPORT

TOP 20 FUNDSFair Value Percentage

Inception Fund (CHF million) of NAV Strategic Focus Geographic Focus

1 2006 Blackstone Capital Par tners V, L.P. 35.9 5.0% Buyout North America/Europe

2 2005 CVC European Equity Par tners IV, L.P. 24.2 3.4% Buyout Europe/Asia

3 2005 Carlyle Par tners IV, L.P. 23.5 3.3% Buyout North America/Europe

4 1999 AIG Horizon Par tners Fund, L.P. 23.2 3.2% Buyout Europe/US

5 2003 Carlyle Europe Par tners I I , L.P. 22.0 3.1% Buyout Europe/North America

6 2005 Advent International GPE V-C L.P. 21.1 2.9% Buyout Europe

7 2003 Astorg I I I 20.9 2.9% Buyout Europe

8 2006 GMT Communications Par tners I I I , L.P. 20.6 2.9% Buyout Europe

9 2006 Ares Corporate Fund I I, L.P. 19.4 2.7% Buyout North America

10 2006 Madison Dearborn Par tners V, L.P. 18.6 2.6% Buyout North America

11 2004 EQT IV, L.P. 18.6 2.6% Buyout Europe

12 2007 Terra Firma Investments I I I , L.P. 17.8 2.5% Buyout Europe

13 2007 The Fourth Cinven Fund 17.4 2.4% Buyout Europe

14 2005 AIG Global Emerging Markets Fund I I, L.P. 16.7 2.3% Buyout Global

15 2005 PAI Europe IV, L.P. 16.6 2.3% Buyout Europe

16 2005 CVC Capital Par tners Asia Pacific I I , L.P. 15.5 2.1% Buyout Asia

17 2006 Lexington Capital Par tners VI, L.P. 15.2 2.1% Buyout/Venture Europe/North America

18 2007 Avista Capital Par tners, L.P. 14.6 2.0% Buyout North America

19 2007 AIG Highstar Capital I I I , L.P. 14.2 2.0% Buyout North America

20 2006 Diamond Castle IV, L.P. 13.6 1.9% Buyout North America

Total Fair Value Top 20 Funds 389.4 54.1%

Europe North America Rest of the World0%

10%

20%

30%

40%

50%

60%

70%

80%

E

Comparison Top 20 Funds by Geography 2007 vs. 2006

Comparison Top 20 Funds by Vintage 2007 vs. 2006

2007 2006 2005 2004 2003 20020%

5%

10%

15%

20%

25%

30%

35%

2001

2007 2006 adjusted for currency differences

of large, asset-rich and complex businesses in need of oper-

ational and/or strategic change. EMI, a top 20 investment of

the Group, is a per fect example of one of their underlying port-

folio companies. Number thir teen of the Group’s top 20 funds

is The Fourth Cinven Fund . The Group already had exposure

to three prior Cinven funds, all of which showed good to out-

standing per formance. Cinven will continue to focus on buy-

outs in large high quality pan-European businesses. Avista

Capital Partners is the first independent fund lead by two

seasoned private equity professionals that spun out of DL J

Merchant Banking Par tners. The fund invests in the energy,

healthcare and media sectors in the United States, typically

pursuing control equity investments. AIG Highstar Capital

I I I is a fund targeting to make investments in infrastructure

related assets and businesses primarily in North America.

F INANCIAL REPORT 2007

AIG PRIVATE EQUITY GROUP – CONSOLIDATED F INANCIAL STATEMENTS 2007

22

CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2007 AND DECEMBER 31, 2006in TCHF

Note 2007 2006Assets

Current assets

– Cash and cash equivalents 2 26 37 179

– Derivative instruments 4 1 645 945

– Receivables and prepayments 5 1 826 12 078

Total current assets 3 497 50 202

Non-current assets

– Loans 1 18 655 34 155

– Investments held as available-for-sale

Direct Investments 1, 17 101 788 93 286

Funds 1, 17 685 997 408 564

Contractual agreements 1, 16 41 425 53 748

Total non-current assets 847 865 589 753

Total Assets 20 851 362 639 955

Liabilities and Shareholders’ EquityCurrent Liabil it ies

– Payables and accrued charges 6 24 008 14 109

– Loans 7 107 954 –

– Deferred tax liabil ity 13 145 –

Total current liabilities 132 107 14 109

Shareholders’ Equity

– Share capital 8 412 500 412 500

– Share capital premium 149 116 148 770

– Treasury stock (at cost) (27 847) (36 207)

– Reserve for stock option plan 18 182 156

– Total Revaluation reserve 10 26 772 22 679

– Accumulated surplus 77 948 74 972

– Net profit for the period 80 584 2 976

Total Shareholders’ Equity 719 255 625 846

Total Liabilities and Shareholders’ Equity 851 362 639 955

Net asset value per shareNumber of share outstanding at year-end 8 3 949 027 3 896 194

Net asset value per share (in CHF) 182.13 160.63

The accompanying notes on pages 26 to 48 form an integral par t of these consolidated financial statements.


23

CONSOLIDATED INCOME STATEMENT FOR THE PERIODJANUARY 1 TO DECEMBER 31, 2007 AND JANUARY 1 TO DECEMBER 31, 2006in TCHF

Note 2007 2006Income

Interest income from non-current assets 12 11 130 6 884

Dividend income from non-current assets 12 3 165 1 485

Net realized gains on investments 12 112 053 56 717

Interest income from current assets 671 2 615

Net gain on derivative instruments 2 642 –

Total Income 20 129 661 67 701

ExpensesManagement fees 14 (14 205) (11 256)

Per formance fees 14 (13 049) (6 103)

Service fees 14 (409) (376)

Write-down of non-current assets 11 (10 144) (28 756)

Other operating expenses (2 764) (2 545)

Interest expense from loans (1 898) –

Net loss on foreign currency exchange (5 718) (13 152)

Net loss on derivative instruments – (1 381)

Total Expenses (48 187) (63 569)

Tax expenses 13 (890) (1 156)

Net profit for the period 80 584 2 976

Earnings per shareWeighted average number of shares outstanding during the period 9 3 927 921 3 546 533

Net profit/loss per share (in CHF) – basic 9 20.52 0.84

Net profit/loss per share (in CHF) – diluted 9 20.49 0.84



24

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE PERIODJANUARY 1 TO DECEMBER 31, 2007 AND JANUARY 1 TO DECEMBER 31, 2006in TCHF

Note 2007 2006Cash Flows from Operating Activities

Purchase of non-current assets 1 (413 270) (273 757)

Proceeds from return of invested capital in non-current assets 1 146 121 80 341

Interest income received from current assets 673 2 613

Net interest income from non-current assets 12 13 193 6 248

Dividends received from non-current assets 12 3 165 1 486

Net realized gains on investments 12 110 863 57 106

Proceeds from derivative instruments 1 942 –

Operating costs (3 892) (3 335)

Management & Per formance fees 14 (14 662) (12 345)

Changes in other current assets and liabil it ies – 1

Total Cash Flows from Operating Activities (155 867) (141 642)

Cash Flows from Financing ActivitiesProceeds from loans 107 954 –

Interest paid on line of credit (1 586) –

Proceeds from capital increase – 145 519

Treasury share purchase – (36 465)

Treasury share sale 8 454 7 677

Total Cash Flows generated by/(used in) Financing Activities 114 822 116 731

Foreign Exchange Effect 3 892 (1 863)

Increase (decrease) in Cash and Cash Equivalents (37 153) (26 774)

Cash and Cash Equivalents as of January 1 2 37 179 63 953

Cash and Cash Equivalents as of December 31 2 26 37 179



25

STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY AS OF DECEMBER 31, 2007in TCHF

Share Share Less Reserve Revaluation Accumulated Total

Capital Capital treasury for stock Reserve Surplus Equity

Premium stock option (Deficit)

(at cost) plan

Shareholders’ EquityBalance January 1, 2006 317 500 94 557 (3 775) 78 (50 786) 74 972 432 546

Share capital increase 95 000 95 000

Movement due to share capital increase 55 575 55 575

Share issue cost (5 056) (5 056)

Value increase on investments 70 879 70 879

Value increase due to currency translation differences 2 586 2 586

Transaction in treasury shares 3 694 (32 432) (28 738)

Transaction in reserve for stock option plan 78 78


Total Shareholders’ Equity as of December 31, 2006 412 500 148 770 (36 207) 156 22 679 77 948 625 846

Balance January 1, 2007 412 500 148 770 (36 207) 156 22 679 77 948 625 846

Value increase on investments 20 078 20 078

Value decrease due to currency translation differences (15 985) (15 985)

Transaction in treasury shares 346 8 360 8 706

Transaction in reserve for stock option plan 26 26


Total Shareholders’ Equity as of December 31, 2007 412 500 149 116 (27 847) 182 26 772 158 532 719 255


26

AIG Private Equity Ltd., Zug (“the Company”) is a Swiss stockcorporation established under the relevant provisions of theSwiss Code of Obligations and domiciled in Zug. The Companywas established by AIG Private Bank Ltd. on September 17,1999 for an indefinite period of time and was registered in thecommercial register of the Canton of Zug on September 20,1999. The Company, together with AIG Private Equity (Ber-muda) Ltd. and APEN Faith Media Holdings LLC (“the Sub-sidiaries”), comprises the AIG PE Group (“the Group”). TheCompany’s shares are listed on the SWX Swiss Exchange.

The Company’s investment objective is to achieve long-term capital growth for shareholders by investing in privateequity funds. The Company may also make direct investmentsin operating companies. Although the Company may investdirectly in fund investments or companies, it is anticipated thatinvestments will generally be made through the Subsidiaries.

The subsidiary in Bermuda was incorporated on October 6,1999 as a company with limited liabil ity under the laws of Ber-muda for an unlimited duration and is domiciled in Pembroke.All shares are held by the Company. The purpose of the sub-sidiary is to act as an investment vehicle the Company’s in-vestments and related transactions.

APEN Faith Media Holdings LLC was incorporated on June11, 2006 as a company with limited liabil ity under the laws ofDelaware, United States of America, for an unlimited durationand is domiciled in Wilmington. All shares of APEN Faith MediaHoldings LLC are held by the Company. The purpose of APENFaith Media Holdings LLC is to act as an investment vehicle forthe Company’s direct investments in the United States and toenter into related transactions.

The Company’s Board of Directors is responsible for thepolicies and management of the Company as well as valuationsand the appointment of the investment committee. The sub-sidiary’s investment committee is responsible for assessing theinvestment opportunities presented by the manager and theinvestment advisor and subsequently making investmentrecommendations to the Bermuda Board of Directors forapproval. As of December 31, 2007 the Company did not em-ploy any employees (2006: none). For information on theGroup’s management please refer to Note 14, Managementand Advisory Agreement.

ACCOUNTING POLICIES

Basis of PresentationThe accompanying consolidated financial statements of theGroup for the year ended December 31, 2007 have been pre-pared in accordance with International Financial ReportingStandards (IFRS) formulated by the International AccountingStandards Board (IASB), and comply with Swiss Law and theaccounting provisions of the additional rules for the listing ofinvestment companies of the SWX Swiss Exchange.

The consolidated financial statements are prepared underthe historical cost convention, except that investments avail-able-for-sale and derivative financial instruments are stated attheir fair value as disclosed in the accounting policies here-after.

Use of EstimatesThe preparation of financial statements requires managementto make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the re-porting period. Actual results could differ from those estimates.

Adoption of revised and new standardsAmendments to published standards effective in 2007• IFRS 7, Financial instruments: Disclosures, and the com-

plementary amendment to IAS 1, Presentation of FinancialStatements – Capital disclosures introduces new and ex-tended disclosures relating to financial instruments andfinancial risk management and does not have any impact onthe classification and valuation of the group’s financialinstruments. The Group has applied IFRS 7 and the amend-ment to IAS 1 from annual periods beginning January 1,2007. Further disclosures have been included in order tofulfil l the requirements of IFRS 7 and IAS 1.

• IFRIC 10 – Interim Financial Reporting and Impairment –(effective for annual periods beginning on or after 1 Nov-ember 2006). IFRIC 10 prohibits the impairment lossesrecognized in an interim period on goodwill, investments inequity instruments and investments in financial assets heldavailable for sale to be reversed at a subsequent balancesheet date. The Group has applied IFRIC 10 since January 1,2007.


NOTES TO THE CONSOLIDATED F INANCIAL STATEMENTS

27

Standards, amendments and interpretations effectivein 2007 but not relevantThe following standards, adjustments and interpretations aremandatory effective for the accounting periods star ting atJanuary 1st, 2007 – but are not relevant for the Group:• IFRIC 7 – Applying the Restatement Approach under IAS 29

Financial Reporting in Hyperinflationary Economies Effec-tive for annual periods beginning on or after 1 March 2006.

• IFRIC 8 – Scope of IFRS 2 (Effective for annual periodsbeginning on or after 1 May 2006). IFRIC 8 requires con-sideration of transactions involving the issuance of equityinstruments – where the identifiable consideration receivedis less than the fair value of the equity instruments issued.

• IFRIC 9 – Reassessment of Embedded Derivatives (effectivefor annual periods beginning on or after 1 June 2006) –This interpretation prescribes that the existence of an em-bedded derivative is determined at the date an entity firstbecomes a party to a contract and is reassessed only whenthere has been a change to the contract that significantlymodifies the cash flows.

Interpretations to existing standards that arenot yet effectiveThe following standards and interpretations are not yeteffective:• IFRS 2 (amended) – clarifies that vesting conditions can be

service conditions and performance conditions only. Otherfeatures of share-based payment are not vesting conditions.It also specifies that all cancellations, whether by the entityor by the other parties, should, receive the same accountingtreatment. The Group has not yet evaluated the impact (ifany) of this amended statement.

• IFRS 3 (revised) – “business combinations” requires signifi-cant changes in the application of the acquisition method tobusiness combinations. All payments to purchase a busi-ness are to be recorded at fair value at the acquisition date,with some contingent payments subsequently remeasuredat fair value through profit and loss. Goodwill may be cal-culated based on the parent’s share of net assets or it mayalso include goodwill related to the minority interest. Alltransaction costs will be expensed. The standard is appli-cable to business combinations occurring in accountingperiods beginning on or after 1 July 2009, with earlierapplication permitted.

• IFRS 8 – Operating segments (effective for annual periodsbeginning on or after 1 January 2009) – This standardgoverns newly the use of the Segment Reporting.

• IAS 23 – Borrowing Costs (Revised) (effective for annualperiods beginning on or after 1 January 2009) – The revised

standard eliminates the option of expensing all borrowingcosts and requires borrowing costs to be capitalised if theyare directly attributable to the acquisition, construction orproduction of a qualifying asset.

• IAS 27 (amended) – requires the effects of all transactionswith non-controlling interests to be recorded in equity ifthere is no change in control. They will no longer result inGoodwill or gains and losses. The standard also specifiesthe accounting when control is lost. Any remaining interestin the entity is remeasured to fair value and a gain or loss isrecognized in profit or loss. In addition, total comprehen-sive income must be attributed to the owners of the parentand to the non-controlling interests even if this results inthe non-controlling interests having a deficit balance. Thesechanges will impact the accounting for future transactionswith non-controlling interests.

• IFRIC 11, IFRS 2 – Group and Treasury Share Transactions(effective for periods beginning on or after 1 March 2007) –IFRIC 11 provides guidance on whether share-based trans-actions involving treasury shares or involving group entities(for example options over a parent’s shares) should beaccounted for as equity-settled or cash-settled share-basedpayment transactions in the stand-alone accounts of theparent and group companies.

• IFRIC 12 – Service Concession Arrangements (effective forannual periods beginning on or after 1 January 2008) – Theinterpretation provides guidance on the accounting by oper-ators for public-to-private service concession arrangements.

• IFRIC 13 – Customer Loyalty Programmes (effetive for an-nual periods beginning on or after 1 July 2008) – The Inter-pretation requires that loyalty award credits granted tocustomers as part of a sales transaction are accounted foras a separate component of the sales transaction.

• IFRIC 14, IAS 19 – The Limit on a Defined Benefit Asset,Minimum Funding Requirements and their Interaction(effective for annual periods beginning on or after 1 Jan-uary 2008) – This interpretation addresses how to assessthe limit under IAS 19 Employee Benefits, on the amount ofthe surplus that can be recognized as an asset, in particular,when a minimum funding requirement exists.

Principles of ConsolidationThe consolidated financial statements of the Group includeAIG Private Equity Ltd. and the companies that it controls. Thiscontrol is normally evidenced when the Group owns, eitherdirectly or indirectly, more than 50% of the voting rights of acompany’s share capital or it is able to govern the financial and


28

operating policies of an enterprise so as to benefit from itsactivit ies. Consolidated financial statements are preparedusing uniform accounting policies for like transactions andother events in similar circumstances. Subsidiaries are consoli-dated from the date on which effective control is transferred tothe Group and are no longer consolidated from the date thatcontrol ceases. The consolidation is per formed using thepurchase method. All intercompany transactions and balancesare eliminated. All Group companies have a December 31 yearend. The scope of consolidation currently includes AIG PrivateEquity (Bermuda) Ltd. and APEN Faith Media Holdings LLC,which both are owned 100% by the Company.

The investments of the Group are held as par t of theGroup’s por tfolio solely for the purpose of capital gains uponsale in the near future.

As of December 31, 2007 the Group holds ownership in-terests of 20% or more in AIG Horizon Par tners Fund (36.57%;20.50% including side-by-side vehicle; 2006: 36.57%; 20.50%including side-by-side vehicle). According to the limited par t-nership agreement of this fund, the Group does not have thepower to par ticipate in the financial and operating policy ofthe fund. Therefore, this investment is excluded from equityaccounting.

Foreign currency transactionsFunctional and presentation currencyThe group’s investments are mainly held in foreign currenciesdifferent from the presentation currency. Therefore, proceedsfrom these investments are also received in foreign currencies.Investments are generally held in the Subsidiaries which areaccounted for in USD. Fur ther, per formance management andcash flow projections are based on investment currency (pri-marily USD and EUR). Accordingly, the Board of Directors con-siders the USD as the currency that most faithfully representsthe economic effects of the underlying transactions, eventsand conditions of the Group, and the USD is considered to bethe functional currency of the Company and its subsidiaries.The presentation currency of the financial statements is CHF.

Transactions and balancesForeign currency transactions are translated into the functionalcurrency using the exchange rates prevail ing at the dates of thetransactions. Foreign exchange gains and losses resulting fromthe settlement of such transactions and from the translation atyear-end exchange rates of monetary assets and liabil it ies de-nominated in foreign currencies are recognized in the income

statement. Translation difference on monetary items, such asderivatives held at fair value through profit or loss, are re-por ted par t of the fair value gain or loss. Translation differ-ences on non-monetary items, such as equities classif ied asavailable-for-sale financial assets, are recognized in equity(reserve from foreign currency translation).

Translation to presentation currencyThe results and financial positions of Group companies aretranslated from the functional currency into the presentationcurrency as follows:• assets and liabil it ies for each balance sheet presented are

translated at the closing rate at the date of that balancesheet;

• income and expenses for each income statement are trans-lated at effective exchange rates; and

• all resulting exchange differences are recognized as aseparate component of equity.

Derivative Financial InstrumentsThe Company enters into foreign exchange forward or optioncontracts to par tially macro-hedge its net exposure in privateequity investments denominated in foreign currency. These de-rivative financial instruments are held by the Company and theSubsidiaries. The derivative financial instruments are held-for-trading, are recorded at the date of the transaction and initiallyrecognized at fair value excluding transaction costs and sub-sequently re-measured at fair value. Fair values are obtainedfrom quoted market prices, discounted cash flow models, oroption pricing models as appropriate. Changes in the fair valueof those derivative financial instruments are recorded into theincome statement.

Cash and Cash EquivalentsCash includes cash on hand and cash with banks. Cash equiva-lents are shor t-term, highly liquid investments that are readilyconver tible to known amounts of cash with original maturit iesof three months or less, and that are subject to an insignificantrisk of change of value.

LoansWhile the loans may vary in their specific terms, in general theinterest calculated for the year is added to the notionalamount. Loans are recognized at the date of the transaction.Loans are carried at amortized cost (with accrued and unpaidinterest included in cost) using the effective interest method,less any impairment adjustments.


29

Direct Investments and Fund InvestmentsUnder IAS 39, the Group has designated all its investments andsecurities as available-for-sale. This category was chosen as themost appropriate for an investment company as the Groupmanages net asset value. Available-for-sale securities are initi-ally recorded at fair value including transaction costs at tradedate. These securities are subsequently re-measured at fairvalue. Gains or losses on measurement to fair value of available-for-sale investments are recognized directly in the revaluationreserve in the shareholder’s equity. When the investment issold or otherwise disposed of, or, when it is determined to be -impaired, the cumulative gain or loss previously recognized inequity is included in net profit or loss for the period. An im-pairment is recorded when there is a significant (> 30%) orprolonged (> 1 year) decrease in fair value below cost. Suchvaluation adjustments are recorded under “write-down of long-term assets”.

An investment, including contractual rights, is recognizedwhere the Group deems it probable that future economicbenefits associated with an investment will f low to the entity,and it has a cost or value than can be measured reliably. Thefuture economic benefit of an investment is its potential tocontribute, directly or indirectly, to the flow of cash and cashequivalents to the entity.

An investment is derecognized if, and only if, the Groupeither transfers the contractual rights to receive the cash flowsof the financial asset, or it retains the contractual rights to re-ceive the cash flows of the financial asset, but assumes a con-tractual obligation to pay the cash flows to one or more reci-pients, and in doing so transfers substantially all of the risksand rewards of the assets.

The Group’s investments are mainly non-current financialassets and market quotations are not readily available, there-fore these investments are measured at their fair value usingthe most appropriate valuation techniques as described in detailbelow. The responsibil ity for determining the fair values lieswith the Board of Directors. Although general par tners of fundsin which the Group invests and sponsors of the Group’s directinvestments provide valuations of these investments, no inde-pendent external valuation of the investments were conducted.All fair valuations may differ significantly from values thatwould have been used had ready markets existed. Such dif-ferences could be material.

Direct InvestmentsIn determining the fair value of an unquoted direct investment,the Group considers all appropriate and applicable factors re-levant to their value, including but not limited to the following:

• Venture capital investments: A new financing round mate-rial in size to the company with new, sophisticated insti-tutional investors making up a significant piece of thefinancing round. Inside round of finance does not qualify.

• Buy-out/later stage investments for which subsequentrounds of finance are not anticipated:Once an investment has been held for one year, an analy-sis of the fair market value of the investments will be per-formed. This analysis wil l typically be based on one of thefollowing methods (depending on what is appropriate forthat par ticular company/industry):– Result of multiple analysis;– Result of discounted cash flow analysis;– Reference to transaction prices (including subsequent

financing rounds);– Reference to the valuation of other investors;– Reference to comparable companies.

Based on a composite assessment of all appropriate andapplicable indicators of fair value, the Group determines thefair values as of the valuation date.

Fund InvestmentsIn determining the fair value of fund investments, the Groupconsiders the funds as transparent holding vehicles. The fairvalues of the underlying investments are determined using thesame valuation techniques as for direct investments.

All purchases and sales of investments are recognizedwhen the capital call/distribution notice is received. Cost ofpurchase includes transaction cost.

Investments in securities and in other financial instrumentstraded on recognized exchanges (including bonds, equities,futures contracts, options, and funds), are valued at the lastrepor ted bid price on the valuation date. Investments in securi-t ies and in other financial instruments traded in the over-the-counter market and listed securities for which no trade isreported on the valuation date are valued at the last repor tedbid and ask price for long and short positions, respectively. In-vestments are valued on a regular basis. No discount is appliedto the bid price of quoted investments, even in cases wheresuch investments are subject to a restriction on their sale orwhere the number of share held is high in relation to thetrading volumes.

Dividends are recognized in the income statement uponthe receipt of such dividends.


30


Contractual AgreementsOn December 22, 1999 the Group entered into three contrac-tual agreements with American International Group Inc. thatentit le the Group to receive payments equal to a pro rata shareof all distributions from a specified list of funds, while obliga-ting the Group to make payments equally to a pro rata share ofall draw-downs of committed capital to the same underlyingfunds. The contractual agreements are valued using the latestrepor ted net asset value available from the General Par tnersand adding or subtracting subsequent cash flows. Interest in-come, dividends and capital gains are recognized in the in-come statement on a monthly basis when cash is received fromthe counterpar ty.

Net Asset Value per Share and Earnings per ShareThe net asset value per share is calculated by dividing the netassets included in the balance sheet by the number of par tici-pating shares outstanding at the reporting date. Basic earningsper share are calculated by dividing the net profit attributableto the ordinary shareholders by the weighted average numberof ordinary shares outstanding during the period. Diluted earn-ings per share are calculated by adjusting the weighted aver-age number of ordinary shares outstanding assuming conver-sion of all dilutive potential ordinary shares.

TaxesTax provisions are based on reported income. Taxes are calcu-lated in accordance with the tax regulations in force in eachcountry where the Group has investments.

SwitzerlandThe Company is taxed as a holding company in the Canton ofZug. Income, including dividend income and capital gains fromits par ticipations, is exempt from taxation at the cantonal andcommunal level. For Swiss federal tax purposes, income tax atan effective tax rate of approximately 7.8% is levied. However,dividend income qualif ies for the par ticipation exemption ifthe related investment represents at least 20% of the othercompany’s share capital or has a value of not less than CHF 2mill ion. The par ticipation exemption is extended to capitalgains on the sale of a substantial par ticipation (i.e. at least20%), which was acquired after January 1, 1997, and was heldfor a minimum holding period of one year. The result of thepar ticipation exemption pursuant to the aforementioned re-quirements is that dividend income and capital gains arealmost fully exempt from taxation. In cases where the par tici-pation exemption is not applicable, a deferred tax liabil ity willbe calculated for Swiss federal tax purposes.

BermudaThe activit ies of the Bermuda subsidiary are currently notsubject to any income, withholding or capital gains taxes inBermuda.

USAPEN Faith Media Holdings LLC is subject to income and capi-tal gains taxes in the US.

Provisions for taxes payable on profits earned in the Groupcompanies are calculated and recorded based on the appli-cable tax rate in Switzerland.

Tax expenses shown in the profit and loss accounts repre-sent withholding taxes paid in various jurisdictions that theGroup can not reclaim and may include direct taxes paid inSwitzerland or the US. Capital taxes charged to the Companyby the Canton of Zug are included in the operating expenses.

Shareholders EquityTreasury shares are presented in the balance sheet as a de-duction from equity. The acquisit ion of treasury shares is pre-sented as a change in equity. No gain or loss is recognized inthe income statement on the sale, issuance, or cancellation oftreasury shares. Consideration received is presented in thefinancial statements as a change in equity.

The transaction costs of an equity transaction, other than inthe context of a business combination, are accounted for as adeduction from equity. Equity transaction costs are comprised ofonly those incremental external costs directly attributable to theequity transaction, which would otherwise have been avoided.

The revaluation reserve includes the cumulative net changein fair value of available-for-sale investments until the invest-ment is disposed of or is determined to be impaired. The trans-lation reserve from currency revaluation includes differencesdue to foreign currency translation between presentation andfunctional currencies.

Impairment of Financial InstrumentsFinancial instruments are reviewed for impairment at eachbalance sheet date. For available-for-sale investments, thecumulative gain or loss previously recognized in equity is in-cluded in net profit or loss for the period when there is objec-tive evidence that the asset is impaired.

In the case of equity investments, a significant or pro-longed decline in the fair value of the security below its cost isconsidered in determining whether the assets are impaired.Impairment losses recognized in the income statement on

31


equity investments are not reversed through the income state-ment but through equity.

The available-for-sale investments are categorized intothree distinct categories. The application of the impairmentpolicy to the individual category of investments is applied asfollows:

Contractual Agreements (see also note 16)At each balance sheet date the reference funds are reviewed bythe Company and investment advisor. If a reference fund hasliquidated all of its por tfolio companies and is beyond its in-vestment period, the Company will eliminate the referencefund from the contractual agreements and debit any residualvalue through the profit and loss accounts. Additionally, theCompany will include the cumulative loss previously recog-nized in equity in net profit or loss for the period if it comes tothe conclusion that the future cash flows of the contractualagreements will not cover its costs.

Fund InvestmentsFunds where the Company is a direct l imited par tner will be re-viewed at each balance sheet date. If the fair market value ofthe Company’s investment in a fund is below the Company’scost basis in such fund, and has been below the cost basis forat least one year, the Company will recognize the difference asan impairment, which will be booked through profit or loss forthe period.

Direct InvestmentsDirect investments are reviewed on a quar terly basis by theinvestment advisor. Financial and market per formance is com-pared with budget information, data obtained from competi-tors, and subsequent rounds of financing. In case of significantdeviations, valuations are adjusted to reflect current marketvalues. If a direct investment has had a fair market value belowcost for at least a year, it wil l be deemed to be impaired andthe cumulative loss previously recognized in equity, wil l betransferred to profit or loss for the period.

Segment reportingThe sole business segment of the Group is investing in privateequity, resulting in no primary segment disclosure. Therefore,the results published in this report correspond to the primarysegment-reporting format. The geographical analysis of assetsand income is disclosed in Note 20.

ContingenciesContingent liabil it ies are not recognized in the financial state-ments. They are disclosed unless the possibil ity of an outflowof resources embodying economic benefits is remote. A con-tingent asset is not recognized in the financial statements butdisclosed when an inflow of economic benefits is probable.

Share-based compensation plansStock option planThe Group operates an equity-settled, share-based compen-sation plan. Costs for stock options granted to the manage-ment are recognized in the income statement in quar terlyamounts over the vesting period star ting from the grant dateand ending at the beginning of the exercise period, so that thepersonnel expenses show the fair amount of compensationpaid by the Company to its management for their services ren-dered. The amounts recognized as cost in the income state-ment are credited to “Reserves for stock option plan” in equity.

Cost is defined as the fair market value of the options atgrant date. The fair market value is determined by using arecognized option pricing model.

Share appreciation rights (SARs)In addition to the stock option plan the Group operates a cash-settled, share-based compensation plan. The correspondingliabil ity is re-measured at each balance sheet date to fair value,with changes recognized immediately in profit or loss.

Critical accounting estimatesThe Group makes estimates and assumptions concerning thefuture. The resulting accounting estimates will , by definition,seldom equal the related actual results. The estimates andassumptions that have a significant risk of causing a materialadjustment to the carrying amounts of assets within the nextfinancial year are:

Fair value of non-quoted investmentsThe fair value of financial instruments that are not traded in anactive market is determined by using valuation techniques. TheGroup uses its judgment to select a variety of methods andmake assumptions that are not always supported by observ-able market prices or rates. The use of valuation techniquesrequires management to make estimates. Changes in assump-tions could affect the reported fair value of these investments.The carrying amounts of investments for which fair values weredetermined using valuation techniques amounted to CHF 691.6mill ion (2006: CHF 385.5 mill ion).

AIG Fund PortfolioAIG Altaris Health Par tners I I , L.P.AIG Blue Voyage Fund, L.P.AIG Brazil Special Situations Fund, L.P.AIG Brazil Special Situations Fund I I, L.P.AIG Global Emerging Markets Fund I I, L.P.AIG Global Sports & Enter tainment Fund, L.P.AIG Highstar Capital, L.P.AIG Highstar Capital I I I Prism Fund, L.P.AIG Horizon Par tners Fund, L.P.AIG New Europe Fund I I, L.P.AIG Orion Fund, L.P.CapVest Equity Par tners, L.P.CapVest Equity Par tners I I , L.P.AIG Private Equity Por tfolio L.P. I AIG FundsSubtotal AIG Funds

Third Party Fund PortfolioInternational FundsAdvent International GPE V-C L.P.Affinity Asia Pacific Fund I I I , L.P.Astorg I I IAstorg IVCarlyle Europe Par tners I I , L.P.Carlyle Europe Par tners I I I , L.P.Carlyle Japan Par tners I I , L.P.CVC Capital Par tners Asia Pacific I I , L.P.CVC European Equity Fund I I I , L.P.CVC European Equity Fund IV, L.P.CVC European Equity Par tners Tandem Fund, L.P.Cognetas, L.P.Cognetas I I , L.P.Emerging Europe Convergence Fund I I, L.P.EQT I I I , L.P.EQT IV, L.P.EQT V, L.P.GMT Communications Par tners I I I , L.P.Ibersuizas I I , L.P.Lexington Captial Par tners IV, L.P.Lexington Captial Par tners VI, L.P.Lion Capital Fund I I, L.P.Mid Europa I I I , L.P.Odewald Private Equity Par tners I I I , L.P.PAI Europe IV, L.P.PAI Europe V, L.P.Sovereign Capital I I , L.P.Terra Firma Investments I I IThe Third Cinven FundThe Fourth Cinven FundUnison Capital Par tners I IUnison Standby Facil ityVentizz Capital Fund IV, L.P.AIG Private Equity Por tfolio L.P. I International FundsSubtotal International Funds

Third Party Fund PortfolioUS FundsApollo VI, L.P.Apollo VI I, L.P.Ares Corporate Fund I I, L.P.Avista Capital Par tners (Offshore), L.P.Berkshire Fund VI I, L.P.Blackstone Capital Par tners V, L.P.Carlyle Par tners IV, L.P.32


1. Long-term assets Investment Schedule as of December 31, 2007

OpeningBalance at Cost

in TCHF

–533

5 298–

7 6153 904578

–35 863

–1 89718 813

–1 986

76 488

2 399–

9 578–

17 746–

99210 3765 401

10 057–

14 5478 4956 4019 90813 267

9857 3552 6481 1017 882

–––

10 575–

997–

5 914–

1 181––

3 349151 156

5 316–

4 087–

2 82021 63813 614

Opening Balance atFair Valuein TCHF

–347

5 015–

11 6593 275428

–30 803

–1 287

28 538–

5 81787 169

5 294–

12 734–

25 437–

87210 2997 107

11 185–

18 0928 8356 549

13 39313 753

9977 5782 392

13 2987 728

–––

11 253–

1 049–

9 115–

2 034––

3 192192 185

5 233–

4 056–

2 76421 06115 483

CumulativeGain/Loss 31.12.06

in TCHF

–(186)(283)

–4 044(629)(150)

–(5 060)

–(610)9 725

–3 831

10 682

2 895–

3 155–

7 691–

(120)(77)

1 7061 128

–3 545340148

3 48548711

223(256)12 197(153)

–––

678–

52–

3 200–

853––

(157)41 029

(83)–

(31)–

(56)(577)1 869

Paid in Capitalin TCHF

–6

1992 1835 111201

–20 9221 8186 215

–220

10 570–

47 445

11 7075 5223 658

12 9026 1354 834

1156 9841 122

14 1295 1983 5405 1785 325188186

5 81212 1543 504

–9 5759 2901 68910 1707 936

681 914

17 691481

17 188759272

–314

185 538

9 893–

14 04918 1943 32317 1629 610

Returned Capitalin TCHF

––

(2 498)–

(251)(366)

–(7 832)(7 989)

–(1 365)(6 265)(1 002)(400)

(27 967)

(330)–

(1 791)(2 013)(459)

––

(2 888)(1 502)(2 803)(364)

(5 743)(1 352)(1 791)(1 536)(587)(245)

(2 609)–

(1 101)(1 188)

––

(1 473)(5 908)

–(477)

–(1 230)

–(51)

––

(1 482)(38 920)

(3 872)–

(1 436)(2 625)

–(2 789)(325)

33


Total Write-downs of non-current assets

in TCHF

––––––

(106)–

(1 837)–––––

(1 943)

–––––––––––

(4 111)–

(28)––––––––––––––––––––

(4 139)

––––––––

Book Value31.12.07in TCHF

–539

2 9992 183

12 4753 739472

13 09027 8556 215532

12 7689 5671 586

94 023

13 7765 522

11 44610 89023 4224 8341 107

14 4725 021

21 3834 8348 234

12 3209 9078 560

12 8666 552

16 8996 152

–16 2689 2901 6898 697

12 60368

2 43417 6915 165

17 1881 889272

–2 181

293 635

11 338–

16 70015 5696 143

36 01222 899

Fair Value31.12.07in TCHF

–352

3 1402 58516 6512 741275

14 17723 2016 224257

6 7149 6343 149

89 101

21 0615 337

20 94210 74022 0124 864889

15 4615 714

24 1814 8387 3779 421

11 8627 683

18 5556 143

20 55912 4108 22615 2189 3511 7088 66016 567

672 637

17 76311 99617 4311 957262

–3 343

345 234

12 065–

19 43814 5864 878

35 94223 520

Unrealized Gain31.12.07in TCHF

––

141402

4 175––

1 086–9––

661 5637 442

7 285–

9 496––

30–

988694

2 7984––

1 956–

5 690–

3 6596 2588 226

–6019–

3 964–

20472

6 83024368––

1 16159 702

728–

2 738–––

621

Unrealized Loss31.12.07in TCHF

–(187)

–––

(999)(197)

–(4 654)

–(275)

(6 054)––

(12 364)

–(184)

–(149)

(1 410)–

(218)––––

(857)(2 899)

–(878)

–(409)

–––

(1 050)––

(37)–

(1)–––––

(10)––

(8 103)

–––

(983)(1 265)

(70)–

Realized Gain1.1.07–31.12.07

in TCHF

––––

367120

––

1 634––

17 786–

54820 455

6 749–––

15 013––

3315 0682 386

–11 380

211–

3 5008 669

–––

8 0653 086

–––

264–––

2 876––

160–

59168 349

––

401 099

––

639

Realized Losses1.1.07–31.12.07

in TCHF

–––––

(187)–––––

(637)––

(824)

–––––––––––––––––––––––––––––––––––

–––––––

OutstandingCommitments

in CHF

22 658–

3 1731 4479 3162 5661 452369

15 6962 660

26 863918

22 485–

109 604

7 19722 9872 978

22 3474 585

53 0396 4362 175619

6 39511 705

21016 1864 4462 5543 40613 26715 99510 536

42817 80023 72514 83616 1567 786

32 7448 916

23 633422

32 2011 4694 808

28 125–

420 110

17 95728 32312 12011 55328 48823 5102 129

OriginalCurrency

USDUSDUSDUSDUSDUSDUSDUSDUSDEURUSDEUREURUSD

EURUSDEUREUREUREURJPYEUREUREUREUREUREUREUREUREUREUREUREURUSDUSDEUREUREUREUREURGBPEUREUREURJPYJPYEURUSD

USDUSDUSDUSDUSDUSDUSD

VintageYear

2008200020002007200520002000200719992007200020002007

NA

200520072003200720032007200620052001200520072001200520062001200420062006200620002006200720072007200520072005200720012007200520072008

NA

2006200820062007200620062005

Third Party Fund PortfolioUS FundsCarlyle Par tners V, L.P.Charlesbank Equity Par tners VI, L.P.CHS Private Equity V, L.P.Cortec Group Fund IV, L.P.Diamond Castle IV, L.P.HealthCare Ventures VI I I , L.P.J.C. Flowers Fund I I, L.P.KRG Capital Fund I I I , L.P.KRG Capital Fund IV, L.P.Madison Dearborn V, L.P.Mill Road Capital Par tners, L.P.New Mountain Investments I I I , L.L.COlympus Growth Fund V, L.P.Polaris Venture V, L.P.SFW Capital Par tners Fund, L.P.Silver Lake Par tners I I ISun Capital Advisors V, L.P.Technology Crossover Ventures IV, L.P.Thompson Street Capital Par tners I I , L.P.TowerBrook Capital Par tners I I , L.P.VSS Communications Par tners IV, L.P.Wellspring Capital Par tners VI, L.P.WestView Capital Par tners, L.P.AIG Private Equity Por tfolio L.P. I US FundsSubtotal US Funds

Contractual Agreements-SWAP

Direct Investments PortfolioAcostaAdvanstar CommunicationsAMF Bowling WorldwideBell-Riddell HoldingsBody CentralCapMarkFalcon FarmsFlash Global LogisticsHertzKnowledge Universe EducationKwik-FitMedispectraMVLFNational Bedding CompanyNXP SemiconductorsSentient Flight Group, LLC (fka. JetDirect Aviation)SunGard Data SystemsTheravanceThomas Nelson PublishingUnited Surgical Par tners InternationalUniversal Studios EscapeVanguard Health SystemsXanodyneAIG Private Equity Por tfolio L.P., I Direct InvestmentsSubtotal Direct Investments

LoansMediaspectra LoanFlint Group (fka. Xsys/Aster)MVLF LoanSubtotal Loans

Total of all Investments34

Investment Schedule as of December 31, 2007


OpeningBalance at Cost

in TCHF

–720

3 7532 804

10 800355

5 3495 010

–1 101

–––

370–––

4 899185

6 6944 9961 7264 701

34 651135 588

88 369

4 371–

1 2601 6212 36410 821

––

2 568–

3 940716

15 8361 2553 7431 7211 2363 4208 694

–4 6401 8671 374

10 10581 552

1911 54432 18733 922

567 074

Opening Balance atFair Valuein TCHF

–1 1034 6572 771

10 927678

5 1664 947

–1 078

–––

366–––

3 841187

6 5414 7911 7284 764

27 068129 211

53 748

4 268–

1 8581 7502 306

11 033––

6 369–

5 013491

16 0941 2203 8191 7071 4945 3878 555

–5 1951 8281 343

13 55593 286

1831 785

32 18734 155

589 753

CumulativeGain/Loss 31.12.06

in TCHF

–383904(34)128323

(183)(63)

–(23)

–––

(4)–––

(1 058)2

(153)(204)

263

(7 583)(6 377)

(34 621)

(103)–

598129(58)212

––

3 801–

1 074(224)258(35)75

(14)257

1 967(139)

–556(39)(32)

3 45011 733

(8)241

–233

22 679

Paid in Capitalin TCHF

7 7451 6052 7857 0105 3251 2845 0814 398

19120 8081 8531 824

–2 080587

3 5401 203288

3 2786 7797 507493

1 672670

160 238

876

–4 548

––––

6361 160

–9 656

630–––

2 044––

3401 600

––

140–

20 160

––––

414 257

Returned Capitalin TCHF

–(305)

–(1 591)(1 611)

–(968)

––

(2 532)(332)

––––

(124)–

(1 312)–

(1 376)(749)

–(3 630)(11 241)(36 818)

(19 277)

––

(1 260)–––––

(398)–

(3 815)–

(1 399)(488)

–––

(3 420)––––––

(10 781)

––

(16 331)(16 331)

(150 094)

35


Total Write-downs of non-current assets

in TCHF

–––––––––––––––––––––––––

(2 329)

––––

(796)––––––

(746)––––––––––––

(1 542)

(191)––

(191)

(10 144)

Book Value31.12.07in TCHF

7 7452 0196 5388 22414 5141 6399 4629 407

19119 3781 5211 824

–2 450587

3 4161 2033 8763 462

12 09611 7532 2202 743

24 080259 008

67 639

4 3714 548

–1 6211 56810 821

6361 1602 1709 656

131–

14 437766

3 7433 7651 236

–9 0341 6004 6401 8671 514

10 10589 389

–1 544

15 85617 400

821 093

Fair Value31.12.07in TCHF

7 6692 6185 8836 693

13 5661 7768 4669 559190

18 6111 3281 768

–2 062575

3 3261 1412 3432 856

12 78210 8561 8424 691

20 629251 662

41 425

5 1144 2031 6991 6171 421

14 455596

1 0884 1839 8092 382

–16 314

7563 9253 5031 938

–13 3011 5474 985850

1 4476 656

101 788

–1 915

16 73918 655

847 865

Unrealized Gain31.12.07in TCHF

–598

–––

137–

152–––––––––––

686––

1 948–

7 608

–

743–

1 699––

3 634––

2 013153

2 251–

1 877–

182–

701–

4 267–

345–––

17 865

–371883

1 255

93 872

Unrealized Loss31.12.07in TCHF

(76)–

(655)(1 531)(947)

–(995)

–(1)

(767)(193)(56)

–(388)(12)(90)(62)

(1 532)(606)

–(897)(377)

–(3 451)

(14 955)

(26 213)

–(345)

–(3)

(147)–

(40)(72)

–––––

(11)–

(262)–––

(52)–

(1 017)(67)

(3 449)(5 466)

––––

(67 101)

Realized Gain1.1.07–31.12.07

in TCHF

–282

–––––––––––––––

704–

26452

––

7 29710 539

7 732

––

19–––––

1 406––

1035––––

2 210–––––

2 8296 509

––––

113 584

Realized Losses1.1.07–31.12.07

in TCHF

–––––––––––––––––––––––––

(707)

–––––––––––––––––––––––––

––––

(1 531)

OutstandingCommitments

in CHF

26 3193 4184 117

14 96714 8626 75219 2137 717

28 3234 399

15 59920 89026 0579 233

22 08330 66418 123

27611 38710 6804 9475 8626 737

–436 703

–

–––––––––––––––––––––––––

––––

966 417

OriginalCurrency

USDUSDUSDUSDUSDUSDUSDUSDUSDUSDUSDUSDUSDUSDUSDUSDUSDUSDUSDUSDUSDUSDUSDUSD

Various

USDUSDUSDUSDUSDUSDUSDUSDUSDUSDUSDUSDUSDEURUSDUSDEURUSDUSDUSDUSDUSDUSDUSD

USDEUREUR

VintageYear

20072005200520062006200520062005200820062007200720082006200720072007200020062006200620062005

NA

20062007

NA200420062006200620072007200520072005200120062005200620062005200020062007200020042005

200120062006

36

Note 2: Cash and Cash Equivalentsin TCHF

2007 2006Cash at banks 26 37 179Total 26 37 179

For the purpose of the cash flow statement cash and cash equivalents comprise all cash, shor t-term deposits and other moneymarket instruments, net of shor t-term overdrafts, with a original maturity of three months or less. Cash and cash equivalents arerecorded at nominal value.The carrying amounts of cash and cash equivalents approximate fair value.

Note 3: Foreign Exchange RatesThe following exchange rates have been applied to translate the foreign currencies of significance for the group:

2007 2006Year-end rates: Unit CHF CHFUS dollar 1 USD 1.1329 1.2195Euro 1 EUR 1.6544 1.6094Yen 100 Yen 1.0141 1.0345Average annual rates:US dollar 1 USD 1.1943 1.2456Euro 1 EUR 1.6458 1.5758Yen 100 Yen 1.0168 1.0743

Note 5: Receivables and Prepaymentsin TCHF

2007 2006From third par ties 326 6 154From related par ties:AIG, Inc. 1 064 –AIG Global Investment Group 103 5 924MVLF 333 –Subtotal 1 500 5 924Total 1 826 12 078

The carrying amounts of the accounts receivable and prepayments approximate fair value.


Note 4: Derivative InstrumentsForeign Exchange ForwardAs of December 31, 2007 the Company has an open foreignexchange forward contract with a notional amount of USD 20million, a positive market value of TCHF 622 and which maturesApril 23, 2008.

On December 31, 2007 the Company closed a foreign ex-change forward contract maturing January 22, 2008, with a

notional amount of USD 30 mill ion, resulting in a profit ofTCHF 1 023.

As of December 31, 2006 the Company had an open foreignexchange forward contract with a notional amount of USD 30million, a positive market value of TCHF 945 and which maturedJanuary 12, 2007.

37


Note 6: Payables and Accrued Chargesin TCHF

2007 2006Accrued service-, per formance and management fees 20 679 8 237Accrued carried interest contractual agreements and 2 264 1 464accrual share-based compensation plan payable to related par tiesAccounts payable and other accrued expenses 1 065 4 408Total 24 008 14 109

The carrying amounts of the accounts payable and accrued charges approximate fair value.

Note 7: Loans/Overdraftsin TCHF

2007 2006ZKB Banking Syndicate 56 645 –AIG Private Bank Ltd. 25 015 –HSBC Bank of Bermuda 26 294 –Total 107 954 –

In 2005, the Company entered into a long term committed syndicated USD 35 mill ion back-up credit facil ity from Zurcher Kantonal-bank and Migrosbank. In August 2007 the facil ity was increased to USD 50 mill ion and the syndicate was expanded by Bank Linth.The credit facil ity was fully drawn as per year end (2006. 0).

Note 8: Share CapitalThe investment objective of the Group is to achieve long-termcapital growth for shareholders by investing in a diversif iedportfolio of private equity funds and privately held companies.The same team that manages private equity investments forAmerican International Group, Inc. acts as investment advisorto the Group. Private equity is an asset class consisting ofequity investments in companies that are not traded on apublic stock exchange. Investments typically involve a trans-formational, value-added, active management strategy. Privateequity investments can be divided into various categories:venture capital, mezzanine finance, buyouts etc. The Group in-vests in private equity funds and co-invests together with thesefunds in operating companies. The Group’s investment advisordisposes over long-term track record in private equity investingand has access to premier private equity funds, both of whichare crit ical factors in achieving expected returns.

Currently, the Group does not intend to pay any dividendsto shareholders but rather to re-invest the proceeds.

Shareholders’ equity/net assets represent (2007: TCHF719 255; 2006: TCHF 625 846) the capital available to the

Group to implement and achieve its investment goals. Share-holders’ equity includes revaluation reserves, which representunrealized value increases/decreases on investments held asavailable-for-sale and value increases/decreases due to cur-rency translation differences.

The share capital of the Company as of December 31,2007 amounts to CHF 412 500 000 (December 31, 2006: CHF412 500 000) consisting of 4 125 000 registered shares (Decem-ber 31, 2006: 4 125 000) with a par value of CHF 100 each. Allissued shares are fully paid. Each share entit les the holder topar ticipate in any distribution of income and capital.

As of December 31, 2007 the Company has CHF 206.25 mil-l ion (2006: CHF 63.75 mill ion) authorized share capital out-standing. This authorized share capital will expire at the endof May 2009. As of December 31, 2007 the Company hasCHF 206.25 mill ion (2006: CHF 63.75 mill ion) conditionalshare capital outstanding. This authorized share capital wil lexpire at the end of May 2009. Other than sales of treasuryshares, the company did not raise any new capital in 2007.

38


Share capital is broken down as follows: Number of Shares

At 1 January 2006 3 130 587– Shares issued 950 000– Shares sold 46 080– Treasury shares purchased (230 473)At 31 December 2006 3 896 194

At 1 January 2007 3 896 194– Shares sold 52 833– Treasury shares purchased –At 31 December 2007 3 949 027

The Company can trade in treasury shares in accordance with the relevant guidelines (Company’s ar ticles of association, Swiss com-pany law, list ing rules of the SWX Swiss Exchange). Treasury shares are treated as a deduction from the consolidated shareholders’equity (2007: TCHF 27 847: 2006: TCHF 36 207). During 2007 the Company sold 52 833 (2006: 46 080) shares.

The following major shareholders held shares and voting rights of 3% and more as of December 31, 2007:

Number of Shares Participation in % Number of Shares Participation in %

2007 2007 2006 2006American International Underwriters Overseas Ltd. 413 500 10.02% 413 500 10.02%AIG Life (Ireland) Ltd. 1 083 527 26.27% 1 160 127 28.12%Ernst Göhner Stiftung 267 000 6.47% 267 000 6.47%AIG Private Bank Ltd. 229 284 5.56% – *AIG Private Equity Ltd. 175 973 4.27% 228 806 5.55%SUVA, Schweiz. Unfallversicherungsanstalt 127 500 3.09% – **AXA Winter thur 167 000 4.05% – ***

* On November 15, 2006 AIG Private Bank informed the Company that its shareholding had dropped below 5%.

** On March 21, 2006 SUVA informed the Company that its shareholding had dropped below 5%.

*** On June 27, 2006 AXA Winter thur informed the Company that its shareholding had dropped below 5%.

Note 9. Earning per Share

Earnings per Share 2007 2006Net profit per share outstanding (in CHF) – basic 20.52 0.84Net profit per share outstanding (in CHF) – fully diluted 20.49 0.84

Net profit for the period (in TCHF) 80 584 2 976Weighted average of total number of shares outstanding (in 1 000) – basic 3 927 921 3 546 533Adjustment for share options 3 978 4 245Weighted average of total number of shares outstanding (in 1 000) – diluted 3 931 899 3 550 778

The stock options granted by the Group (note 18) are considered to be potential ordinary shares and have been included in thedetermination of diluted earnings per share to the extent to which they are dilutive.

39


Note 10: Revaluation Reservein TCHF

2007 2006Reserve from foreign currency translation (51 902) (35 917)Reserve from fair value movements of investments 78 674 58 596Total revaluation reserve at December 31 26 772 22 679

Reserve from foreign currency translation– at January 1 (35 917) (44 848)– currency translation differences during the year (15 985) 8 931– at December 31 (51 902) (35 917)

Reserve from fair value movements of investments– at January 1 58 596 (5 938)– Impairments transferred to income statement 10 144 28 756– net realized (gains)/losses transferred to income statement (112 053) (57 931)– net realized gains/(losses) from changes in Fair Value 121 987 93 709– at December 31 78 674 58 596

Note 11: Write-downs of Non-Current AssetsFor the year ended December 31, 2007 write-downs on non-current assets were recognized as follows:

in TCHF 2007 2006Direct investments 1 733 463Funds 6 082 19 563Contractual agreements 2 329 8 730Total 10 144 28 756

For details please see note 1 to the investment table.

40


Note 12: Interest Income and Dividends from Non-Current Assets and Net Realized Gains on InvestmentsInterest income, net interest income and dividends from non-current assets, and net realized gains were generated by the threeportfolios as follows:

in TCHF 2007 2006Interest income from long-term assets:AIG Funds 1 590 2 566Third Par ty Funds 7 255 2 722Direct Investments 2 285 1 596Total interest income from non-current assets 11 130 6 884

Dividend income from long-term assets:AIG Funds 650 517Third Par ty Funds 1 108 724Direct Investments 1 407 244Total dividend income from non-current assets 3 165 1 485

Net realized gains on investments:AIG Funds 19 631 20 978Third Par ty Funds 85 913 32 207Direct Investments 6 509 3 532Total net realized gains from non-current assets 112 053 56 717

Note 13: Taxesin TCHF

2007 2006Current income tax CHF 890 CHF 1 156

Reconcil iation of income tax calculated with the applicable tax rate:Profit before income tax CHF 80 584 CHF 4 132Applicable tax rate 7.8% 7.8%Income tax CHF 6 285 CHF 322Effect from:– income tax payable from current and prior periods CHF 152 CHF 504– non-taxable profits CHF (6 285) CHF (315)– deferred taxes CHF 145 CHF –– non-refundable withholding tax paid CHF 593 CHF 645Total income tax expenses 890 1 156

In 2007, the Group paid TCHF 593 (2006: TCHF 645) non-refundable withholding taxes.

Note 14: Related Party TransactionsRelated Par ties are individuals and companies where the in-dividual or company has the ability, directly or indirectly, tocontrol the other par ty or to exercise significant influence overthe other par ty in making financial and operating decisions.

The Group has entered into several agreements with variouscompanies of the American International Group, Inc., New York(“AIG”) which have a significant influence on the financial andoperating decisions of the Group.

RELATED PARTY AGREEMENTS

Service Agreement IAmerican International Company Ltd., Pembroke, Bermuda, anindirect wholly owned subsidiary of AIG, provides several ad-ministrative services for the subsidiary in Bermuda for an an-nual fee of TUSD 90 (TCHF 108; 2006: TCHF 75). This agree-ment is entered into for an indefinite period of time and maybe terminated with advance notice of 30 days.

Service Agreement I IAIG Private Bank Ltd., Zurich, a wholly owned subsidiary ofAIG, provides administrative and accounting services for theGroup. Compensation for these services in 2007 was TCHF 301(2006: TCHF 301). This agreement is entered into for an in-definite period of time. Either par ty is entit led to terminate theagreement with advance notice of 6 months.

Management and Advisory AgreementThe Group has entered into a Management Agreement withAIG Private Equity Management Ltd. Bermuda (“the Manager”),a wholly owned subsidiary of AIG Private Bank Ltd., Zurich. Forservices rendered, the Manager is entit led to receive a man-agement fee at an annual rate equal to 2% of the consolidatedNet Asset Value of the Group on the last business day of eachquar ter before deductions or accrual of the management feeand/or per formance fees. The initial term of the ManagementAgreement ended December 31, 2005 and was automaticallyrenewed for five years until December 31, 2010.

In addition to the management fee, the Manager willreceive quar terly per formance fees from the Group. The per-formance fee with respect to the Third Par ty Funds Portfolio isfifteen per cent (15%) of the increase in the net asset value ofthe Third Par ty Funds Portfolio for each quar ter in excess ofany baseline return for such quar ter of five per cent (5%) (onan annual basis). The performance fee with respect to theDirect Investment Por tfolio is twenty per cent (20%) of the in-crease in the net asset value of the Direct Investment Por tfoliofor each calendar quar ter.

Fur thermore both per formance fees are subject to a “high-water mark”, so that no per formance fee will be paid withrespect to a par ticular por tfolio unless the net asset value forthat por tfolio is greater than the previous high net asset valuefor the portfolio (increased, in the case of the Third Par tyFunds Portfolio at the rate of 5% annually).

The Manager has entered into an advisory agreement withAIG Global Investment Corp., New York, a wholly owned sub-sidiary of AIG, to act as investment advisor with respect to theThird Par ty Funds Portfolio and Direct Investments Por tfolio. 41


For its services provided under the management agreement,the advisor is entit led to receive an advisory fee from theManager. The initial term of the advisory agreement maturesDecember 31, 2005 and was automatically extended untilDecember 31, 2010.

In 2007 the management agreement resulted in AIG re-ceiving management fees amounting to TCHF 14 205 (2006:TCHF 11 256) and performance fees amounting to TCHF 13 049(2006: TCHF 6 103) from the Group.

Refer to notes 1, 5, 6, and 11 for more information on re-lated par ties.

MATERIAL TRANSACTIONS

Cash and Cash EquivalentsAs of December 31, 2007 the Group has cash and cash equiva-lents totaling TCHF 26 (2006: TCHF 106) on a current accountbasis with AIG Private Bank Ltd., Zurich.

Capital Calls from AIG Fund Investments

2007 2006Investments (in million) CHF USD CHF USD

AIG Horizon Par tners Fund L.P. 1.8 1.5 1.1 0.8AIG Brazil Special Situations Fund L.P. 0.2 0.2 0.3 0.2AIG Brazil Special Situations Fund I I L.P. 2.2 1.8 0.0 0.0AIG Orion Fund L.P. 0.0 0.0 0.0 0.0AIG Blue Voyage Fund L.P. 0.0 0.0 0.0 0.0AIG Global Sports & Enter tainment L.P. 0.2 0.2 0.0 0.0AIG Highstar Capital L.P. 0.0 0.0 0.0 0.0AIG Highstar Capital I I I Prism L.P. 24.6 20.4 0.0 0.0AIG Private Equity Por tfolio L.P. 0.5 0.4 2.2 1.7AIG Global Emerging Markets L.P., I I 5.1 4.1 6.1 4.9

2007 2006Investments (in million) CHF EUR CHF EUR

AIG New Europe I I L.P. 6.2 3.8 0.0 0.0

PersonnelTwo members of the Board of Directors of the Company areemployees of other companies within the AIG Inc., Group. Withthe exception of the Chairman of the Board, AIG executivesserving on the Board of Directors and the Investment Commit-tee of the Group do not receive remuneration from the Groupfor their services. Remuneration of directors for the year 2007:TCHF 190 (2006: TCHF 176). Refer to note 18 for share com-pensation schemes granted to the management board.

One of the members of management is a member of theboard of directors of MV Leveraged Finance Ltd. (see also Note

42


1 MVLF). The Subsidiary in Bermuda made an equity investment(EUR 10 mill ion) and a loan investment (EUR 20 mill ion) in thisentity in the fourth quarter 2006. In the course of 2007, the Sub-sidiary received dividends of TCHF 1 651 (2006: TCHF 0), princi-pal repayments on the loan of TCHF 1399 (2006: TCHF: 0) andloan interest amounting to TCHF 1845 (2006: TCHF 0).

Note 15: Financial Instruments – DisclosuresThe Group’s activit ies expose it to a variety of financial risks,namely market risk (including interest rate risk, currency riskand other price risks), l iquidity risk and credit risk. Manage-ment observes and manages these risks. These risks could re-sult in a reduction of the Group’s net assets. The Group seeksto minimize these risks and adverse effects by consideringpotential impacts from the financial markets. The Group man-ages these risks, where necessary, via collaboration with ser-vice par tners that are market leaders in their respective area ofexper tise. Additionally, the Group has internal guidelines andpolicies in place to ensure that transactions are effected in aconsistent and diligent manner.

Market Risk• Interest rate risk

The risk to which the Group is exposed from changinginterest rates results primarily from loans (higher/lower

LIBOR rate at refinancing date; see schedule below). Theseloans have a variable interest rate corresponding to theLIBOR rate plus a margin. The majority of the Group’sassets are non interest bearing. The Group has not appliedan interest rate hedge due to the short term maturity pro-fi le of the loans and because the Group has no long termvisibil ity of its cash flows due to its business activity.If interest rates had changed (+/–) by 0.3% (30 basis points)the change in net income would have been (+/–) TCHF 268(2006: TCHF 102).The Group’s management monitors interest rates on aregular basis and informs the Board of Directors accord-ingly at its quar terly meetings.

• Currency riskThe net asset value per share is calculated in CHF, the pre-sentation currency of the Company. However, as the Group’sinvestments are largely denominated in USD and Euro, theCompany will be exposed to a certain degree of currencyrisk, which can adversely affect performance. Fluctuations inforeign currency exchange rates affect the net asset value ofthe investments and therefore of the Group. The Group canenter into currency contracts to mitigate these currency risks.Such transactions are based upon decisions made by the FXCommittee that meets at least on quarterly basis. Over thepast several years, the FX Committee decided to take ap-

At 31.12.07 in TCHF < 1 month 1–3 months Non-interest bearing Total

Cash and cash equivalents 26 – – 26Other current assets – – 3 471 3 471Loans 18 655 – – 18 655Investments (available for sale) – – 829 210 829 210Total assets 18 681 – 832 681 851 362

Payables and accrued charges – – 24 008 24 008Loans 107 954 – – 107 954Deferred tax liabil ity – – 145 145Total Liabilities 107 954 – 24 153 132 107

At 31.12.06 in TCHF < 1 month 1–3 months Non-interest bearing Total

Cash and cash equivalents 37 179 – – 37 179Other current assets – – 13 023 13 023Loans 34 155 – – 34 155Investments (available for sale) – – 555 598 555 598Total assets 71 334 – 568 621 639 955

Payables and accrued charges – – 14 109 14 109Loans – – – –Total Liabilities – – 14 109 14 109

43


propriate measures to mitigate the impact of currency fluc-tuations on the net asset value (see note 4 for details oncurrent hedge transactions). Additionally, the Group regardsloans in the same currencies as its assets as a measure tomitigate the impact of currencies on the net asset value.

The average monthly fluctuation of the USD against the CHF(the presentation currency) in 2007 was –0.59% (2006: permonth –0.60%). If this rate of change were to continue in2008, with all other variables held constant, it would result ina monthly decrease in shareholders equity of CHF 2.9 mill ion(2006: CHF 2.1 mill ion).

The average monthly fluctuation of the EUR against the CHF(the presentation currency in 2007 was 0.2178% (2006: 0.28%).If this rate of change were to continue in 2008, with all othervariables held constant, it would result in a monthly increase inshareholders equity of CHF 0.8 million (2006: CHF 0.7 million).

The Group’s currency position is monitored on a regular basis.The FX Committee meets at least on a quar terly basis to reviewits strategy and make appropriate adjustments. The FX exposureis reviewed by the board of directors at the quarterly meetings.

Other price risksOther price risks (i.e. changes in market prices other than frominterest rate risks or currency risk) may affect the value of theinvestments held as available-for-sale by the Group. Otherprice risks arise mainly from the uncer tainty about futurevaluations of the investments held as available-for-sale bythe Group. Investments held available-for-sale amounted toTCHF 829 210 (2006: TCHF 555 598). For these investments theGroup calculates the corresponding fair value on a monthlybasis. Please see the “Accounting Policies” for more inform-ation on the fair value process as well as Note 1.

The Group’s investment advisor per forms extensive duediligence prior to recommending any fund or direct invest-ment, including an analysis of the potential risks of the invest-ment. The Group and the investment advisor monitor invest-ments by analyzing regular reports and through direct contactwith general par tners and company management.

At 31.12.07 (in 1 000) USD EUR GBP JPY CHF Total

AssetsCash and cash equivalents – – – – 26 26Other current assets 1 387 439 – – 1 645 3 471Loans receivable – 18 655 – – – 18 655Investments (available for sale) 488 748 334 716 2 637 3 109 – 829 210Total Assets 490 135 353 810 2 637 3 109 1 671 851 362

Payables and accrued charges 2 407 – – – 21 601 24 008Loans payable 107 954 – – – – 107 954Deferred tax liabil ity – – – – 145 145Total Liabilities 110 361 – – – 21 601 132 107Total Equity – – – – 719 255 719 255Total Liabilities and Equity 110 361 – – – 741 001 851 362

At 31.12.06 (in 1 000) USD EUR GBP JPY CHF Total

AssetsCash and cash equivalents 1 426 30 563 1 004 1 4 183 37 178Other current assets 8 281 3 669 – – 1 072 13 023Loans receivable 183 33 973 – – – 34 155Investments (available for sale) 344 461 202 163 6 063 2 912 – 555 599Total Assets 354 352 270 368 7 067 2 913 5 255 639 955

Payables and accrued charges 4 149 – – – 9 960 14 109Loans payable – – – – – –Total Liabilities 4 149 – – – 9 960 14 109Total Equity – – – – 625 846 625 846Total Liabilities and Equity 4 149 – – – 635 806 639 955

44


If the value of the investments (based on year-end values)had increased or decreased by 1.47% with all other variablesheld constant, the impact on the shareholders’ equity wouldhave been CHF 12.2 mill ion (2006: 32%, CHF 179.5 mill ion).

The Company is exposed to a variety of market risk factorswhich may change significantly over time. As a result, measure-ment of such exposure at any given point in time may be diffi-cult given the complexity and limited transparency of theunderlying investments. Therefore, a sensitivity analysis isdeemed of limited explanatory value or may be misleading.

Liquidity riskDue to the specific nature of private equity funds of the type inwhich the Company invests, immediate and full investment ofassets is not always possible. Commitments made by a privateequity investor in a private equity fund typically results in

actual investments being made over a period of up to six years.Based on the Group’s experience it is expected (on a portfoliobasis) that the maximum net amount invested in a fund will beapproximately 60% of a commitment. In order to reach fullinvestment, the Group applies an over-commitment strategy.Outstanding commitments amounted to CHF 966 mill ion in2007 (2006 CHF 762 mill ion). Even though these commitmentscould be drawn down at any point in time, the Group expectsoutstanding commitments to be drawn over a six year period(standard investment period of a private equity fund).

It is the aim of the Group to maintain equil ibrium betweendrawdowns and distributions. Excess draw-downs are fundedby using credit facil it ies. The Group applies a cash flow modelto estimate future cash flows and cash balances. As of 31 Dec-ember 2007, cash in banks totaled TCHF 26 (2006: 37 179) andloans payable totaled TCHF 107 954 (2006: TCHF 0). In January2008, the Group entered into a long term committed syndi-

cated USD 100 mill ion credit facil ityled by Zürcher Kantonalbank (seealso note 7 and 21). Additionally, theGroup had overdraft facil i t ies in placewith Bank of Bermuda and AIG PrivateBank to fund capital drawdowns.Management monitors cash flows ona weekly basis and reports at least ona quar terly basis to the board ofdirectors.

> 3 months/noAt 31.12.07 (in TCHF) < 1 month 1–3 months stated maturity

Payables and accrued charges 30 923 – –Loans payable 107 954 – –Deferred tax liabil ity – – 145Total Current Liabilities 138 877 – 145

> 3 months/noAt 31.12.06 (in TCHF) < 1 month 1–3 months stated maturity

Payables and accrued charges 26 387 – –Loans payable – – –Total Current Liabilities 26 387 – –

advance of investments, conservative underwriting, reviews ofinvestment par tners, and contractual provisions that l imit theGroup’s downside risk. On a quar terly basis, the Group reviewsall investments for potential impairment losses.

The Group holds loans in two invest-ments (see Note 1), namely Asterand MVLF. Management of the Groupmonitors these loans on a regularbasis by ensuring interest is paid andby reviewing monthly and quar terlyreporting. Both loans are current oninterest payments.Management monitors credit risk on aregular basis.

Credit riskThe Group has credit exposure only to established, credit-worthy third par ties, so that no collateralization is required.Receivables are monitored continuously. The Group attemptsto minimize investment risk through effective due diligence in

At 31.12.07 (in TCHF) Fully Performing Total Rating

Cash at AIG Private Bank 26 26 n/aOther current assets 3 471 3 471 n/aTotal exposure to credit risk 3 497 3 497 n/a

At 31.12.06 (in TCHF) Fully Performing Total Rating

Cash at AIG Private Bank 37 179 37 179 n/aOther current assets 13 023 13 023 n/aTotal exposure to credit risk 50 202 50 202 n/a

Note 16: Contractual AgreementsOn December 22, 1999, the Group entered into three contrac-tual agreements with AIG that entit le the Group to receive dis-tributions equal to pro rata share of all distributions from aspecified list of funds, while obligating the Group to make pay-ments equal to pro rata share of all draw-downs of committedcapital to the same list of funds.

Distributions from the underlying fund investments, whichare over the amount of its init ial investment plus subsequentpayments are split 90% to the company and 10% to AIG. Theprofit sharing is intended to compensate AIG for the manage-ment fees it paid with respect to the underlying fund invest-ments prior to the contractual agreements, which are not takeninto consideration when calculating the fair value of the un-derlying fund investments.

As of December 31, 2007, the contractual agreements werevalued at TCHF 41 425 (2006 TCHF 53 748). In Note 1 the fundsheld through the contractual agreements are grouped into oneline as “contractual agreements”. The following table providesdetail of the various funds contained in the contractual agree-ments.

Fair Value (in TCHF) 2007 2006AIG Swap Funds PortfolioAIG Asian Opportunity Fund 4 957 6 327AIG Orion Fund 41 107Subtotal 4 998 6 434

Fair Value (in TCHF) 2007 2006International Swap Funds PortfolioAEA Scandinavia I 1 305 1 660AEA Scandinavia I I 238 909Baring Communications Equity Limited 17 132Carlyle Europe Par tners L.P. 4 264 4 716Doughty Hanson & Co. I I I 3 555 2 774Palamon European Equity Fund L.P. 6 604 4 489Permira VT 135 83The Cinven Fund I 1 145 655The Cinven Fund I I 4 012 9 301Subtotal 21 275 24 719

Fair Value (in TCHF) 2007 2006United States Swap Funds PortfolioAEA Investors Inc. I I – 1 354American Industrial Par tners Capital Fund I I, L.P. 26 54Apollo Investment Fund I I I , L.P. 86 295Apollo Investment Fund IV, L.P. 2 470 3 063

Fair Value (in TCHF) 2007 2006United States Swap Funds PortfolioBain Capital Fund VI, L.P. 70 113Bain Capital VI Coinvestment Fund, L.P. 84 134Berkshire Fund I I I , L.P. 35 82Berkshire Fund IV, L.P. 202 248Blackstone Capital Par tners I I 133 129Blackstone Capital Par tners I I I 1 579 2 706Carlyle Par tners I I , L.P. 16 84Charterhouse Equity Par tners I I , L.P. 30 57Clayton & Dubilier Private Equity Fund IV, L.P. 1 43DLJ Merchant Banking Par tners I I , L.P. 383 441Dubilier CRM Fund I, L.P. 5 5Evercore Capital Par tners, L.P. 71 –Fenway Capital Par tners Fund I I, L.P. 1 073 1 235Fenway Capital Par tners Fund, L.P. 33 49GKH Investments, L.P. – 1Greenwich Street Capital Par tners, L.P. 62 289Kelso Investment Associates VI, L.P. 309 427KRG Capital Fund I, L.P. 20 132Morgan Stanley Capital Par tners I I I , L.P. 252 266Morgan Stanley Leveraged Equity Fund I I, L.P. 74 –North Castle Capital Par tners I I , L.P. 339 843Odyssey Investment Par tners Fund, L.P. 84 291Questor Par tners Fund I I, L.P. 1 360 3 007RCBA Strategic Par tners, L.P. 891 961Sandler Mezzanine Par tners 11 44Sankaty High Yield Asset Par tners 462 435Silver Lake Par tners, L.P. 957 1 376Stonington Capital Appreciation 1994 Fund, L.P. 1 112 1 387Thayer Equity Investors Fund IV, L.P. 740 846Warburg Pincus Equity Par tners, L.P. 1 952 1 812WPG Corporate Development Associates IV, L.P. 3 4WPG Corporate Development Associates V, L.P. 227 382Subtotal 15 152 22 595Total 41 425 53 748

In total 18 private equity funds were either sold or haveliquidated all of their por tfolio companies.

Unfunded commitments of the contractual agreement arenegligible as the underlying funds (vintage year 1999 andolder) have past their investment periods and are in theprocess of liquidating their por tfolios.

45


46


Note 17: AIG Private Equity Portfolio Investment Details

Fair Value (in TCHF) 2007 2006AIG Fund PortfolioAIG Highstar Capital, L.P. 174 154AIG Horizon Par tners Fund, L.P. 1 216 1 632AIG PEP I Other Assets and Liabil it ies 1 759 4 031Subtotal 3 149 5 817

Third Party Fund Portfolio 2007 2006International FundCarlyle Europe Venture Par tners, L.P. 28 297GMT Communications Par tners I I , L.P. 1 921 2 168TH Lee.Putnam Internet Par tners, L.P. 1 394 727Subtotal 3 343 3 192

Third Party Fund Portfolio 2007 2006US FundsAdvanced Technology Ventures VI, L.P. 637 693Arrow Path Venture Capital, L.P. 406 526Baker Communications Fund I I, L.P. 2 744 1 748Berkshire Fund V, L.P. 2 422 620Blackstone Mezzanine Par tners, L.P. 698 627Boston Millennia Par tners I I , L.P. 1 457 145Carlyle Par tners I I I , L.P. 869 1 964Focus Ventures I I , L.P. 437 503Hear tland Industrial Par tners L.P. 1 445 2 074JK&B Capital I I I , L.P. 1 257 1 413KRG Capital Fund I, L.P. 10 114Meritage Private Equity Fund, L.P. 445 1 346North Castle Capital Par tners I I , L.P. 624 1 078Questor Par tners Fund I I, L.P. 1 379 3 914RCBA Strategic Par tners, L.P. 824 1 661Silver Lake Par tners, L.P. 733 3 690Technology Crossover Ventures IV, L.P. 1 753 2 873Thayer Equity Investors Fund IV, L.P. 1 077 624Thomas Weisal Capital Par tners, L.P. 1 189 1 254TWP CEO Founders’ Circle (QP), L.P. 30 35Mesirow Capital Fund 193 166Subtotal 20 629 27 068

Fair Value (in TCHF) 2007 2006Direct Investments PortfolioTheravance 505 1 720Universal Studios Escape 3 019 3 147Medispectra, Inc. – 516Avalon Pharmaceuticals, Inc. 72 98High Response Holdings, Inc. 121 170AZ Automotive Corp. 935 1 297Iomai Corporation 16 84Springs Industries, Inc. 570 1 034Fresh Direct 301 303QinetiQ – 4 013American Media 253 234AMF Bowling 760 831NovaRay 38 37Altir is Inc. 66 71Subtotal 6 656 13 555Total 33 777 49 632

Note 18: Share-Based Compensation PlanStock Option PlanThe Company issued the following incentive stock options inMay 2005. Outstanding options arising from this agreement asat 31 December 2007 are as follows:

Number Year of Subscription Strikeof options grant Vesting date Expiry ratio price

4 000 2005 31.5.2006 13.6.2008 1:1 1255 000 2005 31.5.2007 13.6.2008 1:1 1256 833 2005 31.5.2008 13.6.2008 1:1 125

The options were granted free of charge. Each option en-tit les the holder to buy one share of the Company at the exer-cise price. A third of the options are each exercisable after avesting period of one, two and three years. In case of a termi-nation of the working contract during the vesting period, theunvested options are cancelled. As at 31 December 2007 theCompany held no shares specifically in connection with thestock option plan.

Movements in the number of share options outstandingand their related exercise prices are as follows:

47


2007 2006Average exercise Average exerciseprice per share Options price per share Options

At January 1 125.00 18 666 125.00 21 000Granted – –Forfeited 125.00 – 125.00 (500)Exercised 125.00 (2 833) 125.00 (1 834)At December 31 125.00 15 833 125.00 18 666

Of the 15 833 options (2006: 18 666) 9 000 options (2006:5 000) were exercisable. Options exercised in 2007 were trans-acted as follows: 1 666 options at a market price of CHF 170.00,1 000 options at a market price of CHF 170.00 and 167 optionsat a market price of CHF 168.00. The related weighted averageshare price at exercise was CHF 169.88 per share.

In the current year, CHF 26 472 (2006: 77 804) was chargedas an expense relating to the options resulting in a correspond-ing increase to shareholders’ equity by the same amount.

Share Appreciation Rights (SARs)Outstanding SARs as at 31 December 2007 are as follows:

Number Year of Subscription Strikeof SARs grant Vesting date Expiry ratio price

7 000 2006 15.02.2007 28.02.2009 1:1 CHF 1607 000 2006 15.02.2008 28.02.2009 1:1 CHF 1607 000 2006 15.02.2009 28.02.2009 1:1 CHF 160

8 000 2007 01.03.2008 14.03.2010 1:1 CHF 1608 000 2007 01.03.2009 14.03.2010 1:1 CHF 1608 000 2007 01.03.2010 14.03.2010 1:1 CHF 160

The SARs were granted free of charge. Each SAR entit les theholder to receive in cash the difference between the strikeprice and the market price of one share of the Company at theexercise price. A third of the SARs are each exercisable after avesting period of one, two and three years. In case of a termi-nation of the working contract during the vesting period, theSARs are cancelled.

Movements in the number of stock appreciation rights andtheir related exercise prices are as follows:

2007 2006Average exercise Average exerciseprice per share SARs price per share SARs

At January 1 145.40 27 334 97 12 367Granted 160 24 000 160 21 000Exercised 97 (6 334) 97 (6 033)At December 31 160.00 45 000 146 27 334

Of the 45 000 SARs (2006: 27 334), 7 000 SARs (2006: 6 334)were exercisable. SARs exercised in 2007 were transacted asfollows: 2 000 SARs at a market price of CHF 163.00, 1 000 SARsat a market price of CHF 168.00, 1 000 SARs at a market priceof CHF 170.00 and 2 334 SARs at a market price of CHF 172.00.The related average share price at exercise was CHF 168.21 pershare.

In the current year, CHF 433 341 (2006: 291 050) was chargedas an expense relating to SARs. The carrying amount at the endof the period amounted to CHF 561 118 (2006: 602 816) and theintrinsic value at the end of the period of liabil it ies for whichthe counterpar t’s right to cash or other assets had vested bythe end of the period (for example vested share appreciationrights) equals CHF 70 000.

Note 19: Commitments, Contingencies and OtherOff-balance-sheet TransactionsIn addition to those commitments disclosed in the InvestmentSchedule and the Derivative Instruments mentioned in Note 4,the Company has nil off-balance-sheet transactions open as ofDecember 31, 2007 (2006: nil off-balance-sheet transactions).The operations of the Company may be affected by legislative,fiscal and regulatory developments for which provisions aremade where deemed necessary. Please refer to Note 15 (liqui-dity risk) for additional information on commitments.

Note 20: Segment ReportingThe Group operates in the sole business segment of privateequity investments. The geographical analysis of total assets isdetermined by specifying in which region the investment wasmade:

in TCHF 2007 2006North America 373 389 281 771Europe 404 390 310 209Rest of the World 73 583 47 975Total 851 362 639 955

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The geographical analysis of total income is determinedby specifying from which region the investment profits aregenerated:

in TCHF 2007 2006North America 24 322 23 362Europe 103 916 43 207Rest of the World 1 423 1 132Total 129 661 67 701

Note 21: Subsequent EventsIn January 2008 the Group converted the USD 50 mill ion syn-dicated standby credit facil ity into a syndicated credit facil i tyin the amount of USD 100 mill ion. The syndicate is lead byZurcher Kantonalbank and comprises in total six banks.

The Group has made the following new capital commit-ments from January 1 2008 through April 30, 2008:

Advent International GPEVI EUR 20 mill ionCVC European Equity Par tners V EUR 20 mill ionAres Corporate Fund I I I USD 20 mill ion

This new commitment was made in the ordinary course of busi-ness. We anticipate funding the majority of the commitmentover a six-year period. Following the expiry of the investmentperiod of a fund, only minor capital drawdowns (fees andfollow-on investments for existing portfolio companies) areexpected. These may be offset by distributions from thesefunds. Based on the Group’s cash flow model and bank facil i-t ies, sufficient liquidity is available to fund capital calls.

Between January 1, 2008 and March 31, 2008, the followingaggregate investment related cash flows have been recorded(by the par tnerships under the commitments existing as ofDecember 31, 2007 and direct investments):

Capital Calls (in 1 000) Amount

USD 43 402EUR 19 482JPY 22 882GBP 239

Distributions (in 1 000) Amount

USD 22 442EUR 7 422SEK 640

Since the balance sheet date of December 31, 2007, therehave been no material events that could impair the integrity ofthe information presented in the financial statements.

Approval of the Financial StatementThe consolidated financial statements are authorized for issueon April 29, 2008 by the Board of Directors. The annual gen-eral meeting called for May 28, 2008 will vote on the finalacceptance of the consolidated financial statements.

49


REPORT OF THE GROUP AUDITORS

As group auditors, we have audited the consolidated financialstatements (balance sheet, income statement, statement ofcash flows, statement of changes in shareholders’ equity andnotes to the consolidated financial statements) of AIG PrivateEquity Ltd., Zug on pages 22 to 48 for the year ended 31 Dec-ember 2007.

These consolidated financial statements are the responsibi-l ity of the Board of Directors. Our responsibil ity is to expressan opinion on these consolidated financial statements basedon our audit. We confirm that we meet the legal requirementsconcerning professional qualif ication and independence.

Our audit was conducted in accordance with Swiss AuditingStandards and with the International Standards on Auditing,which require that an audit be planned and performed toobtain reasonable assurance about whether the consolidatedfinancial statements are free from material misstatement.We have examined on a test basis evidence supporting theamounts and disclosures in the consolidated financial state-ments. We have also assessed the accounting principles used,significant estimates made and the overall consolidated finan-cial statement presentation. We believe that our audit providesa reasonable basis for our opinion.

In accordance with Ar ticle 20 of the Additional Rules for theListing of Investment Companies of SWX Swiss Exchange wedraw attention to Note 1 of the consolidated financial state-ments. As indicated in Note 1, the financial statements includeunquoted investments stated at their fair value of CHF 847.9mill ion. Because of the inherent uncer tainty associated withthe valuation of such investments and the absence of a liquidmarket, these fair values may differ from their realizablevalues, and the difference could be material. The fair values ofthese investments have been determined by the Board ofDirectors and have been disclosed in Note 1. We have reviewedthe procedures applied by the Board of Directors in valuingsuch investments and have viewed the underlying documen-tation. While in the circumstances the procedures appear tobe reasonable and the documentation appropriate, the deter-mination of fair values involves subjective judgment whichcannot be independently verif ied.

In our opinion, the consolidated financial statements givea true and fair view of the financial position, the results ofoperations and the cash flows in accordance with the Inter-national Financial Reporting Standards (IFRS) and comply withthe accounting provisions of the Additional Rules for the List-ing of Investment Companies of SWX Swiss Exchange as well aswith Swiss law.

We recommend that the consolidated financial statementssubmitted to you be approved.

PricewaterhouseCoopers AG

Thomas Romer Nik HoodAuditor in charge

Zurich, April 29, 2008

51

1. GROUP STRUCTURE AND SHAREHOLDERS

AIG Private Equity Ltd. (the Company) is a holding companyaccording to Swiss law and domiciled in Zug. Its 100% subsi-diary AIG Private Equity Ltd. (Bermuda) holds the vast majorityof investments on its behalf.

Both Fund Investments and Direct Investments are in-vestments in private equity which forms the only investmentcategory of the Company. For presentation purposes, theinvestments are divided in the following three portfolios:

– AIG Companies Funds– Third Par ty Funds– Direct Investments

For further information please also refer to the principles of con-solidation section within the consolidated financial statements.See also note 1 of statutory accounts (par ticipations).

Significant ShareholdersThere are several shareholders with a par ticipation exceedingthe 3% threshold of the Company’s share capital. The numberof shares and voting rights of the major shareholders are dis-closed in note 8 of the consolidated financial statements.

AIG PRIVATE EQUITY GROUP – CORPORATE GOVERNANCE

CORPORATE GOVERNANCE AT AIG PRIVATE EQUITY LTD.

ADVISORY AGREEMENTMANAGEMENT

AGREEMENT

SERVICE AGREEMENT I

SERVICE AGREEMENT I I

SHAREHOLDERS

100 %

100 %

INVESTMENTS INVESTMENTS INVESTMENTS

AIG PR IVATE EQUIT Y LTD.ZUG

(COMPANY)

AIG PR IVATE BANK LTD.ZURICH(BANK)

AIG GLOBAL INVESTMENT CORP.

( INVESTMENT ADVISOR)

AIG PR IVATE EQUIT Y MGMT LTD. BERMUDA

(MANAGER)

AIG PR IVATE EQUIT Y (BERMUDA) LTD.

(SUBS IDIARY)

AMERICAN INTERNATIONALCOMPANY LTD.

(SERVICE COMPANY)

AIG FUNDSPORTFOLIO

THIRD PART Y FUNDSPORTFOLIO

DIRECT INVESTMENTSPORTFOLIO

BOARD OF DIRECTORS

INVESTMENTCOMMIT TEE

APEN FAITH MEDIA HOLDINGS LLC

100 %

DIRECT INVEST-MENTS

THIRD PART Y FUNDS

BOARD OF DIRECTORS INVESTMENT COMMITTEE MANAGEMENT BOARD AUDITORSEduardo Leemann, Chairman Dr. Thomas Lips, Chairman Andrew Fletcher PricewaterhouseCoopers Ltd.

Dr. Ernst Mäder Steven Costabile (Fund Investments) Conradin Schneider Birchstrasse 160

Dr. Roger Schmid FT Chong (Direct Investments) CH-8050 Zürich

Robert Thompson Win Neuger

Dr. Christian Wenger

Organisational Structure

52


2. CAPITAL STRUCTURE

CapitalAs of December 31, 2007 the issued share capital of the Com-pany was CHF 412 500 000, divided into 4 125 000 fully paidregistered shares with a nominal amount of CHF 100 each.As per the same date 3 949 027 shares were outstanding andthe Company held 175 973 shares as treasury shares. The mar-ket capitalization of the Company per year-end amounts toCHF 671 mill ion.

The shares are listed on the SWX Swiss Exchange.

Changes of capitalOn June 13, 2000 the Company increased its share capital fromCHF 184 000 000 to CHF 317 500 000 by issuing 1 335 000 fullypaid-in shares with a nominal value of CHF 100.00 at a price ofCHF 150.00 per share.

On June 28, 2006 the Company increased its share capitalfrom CHF 317 500 000 to CHF 412 500 000 by issuing 950 000shares of which 736 013 were paid-in shares with a nominalvalue of CHF 100.00 at a price of CHF 158.50. The balance of213 987 shares were subscribed by the Company.

Shares and participation certificatesThere are no preferential rights or similar rights. Each share isentit led to one vote and has full dividend rights. Voting rightsmay be exercised only after a shareholder has been registeredin the Company’s share register. No shares and/or share cer ti-f icates will be issued to shareholders. Two Global Share Cer ti-f icates (“Globalurkunde auf Dauer”) are deposited with SISSegaInterSettle AG under Swiss Security number 915.331, ISINCHF0009153310. Transfers of shares are effected through abook-entry system maintained by SIS SegaInterSettle AG.

There are neither par ticipation cer tif icates nor profit shar-ing cer tif icates.

Authorized and conditional capitalThe board of directors is entit led to an increase in authorizedcapital up to a maximum amount of CHF 206 250 000 by issu-ing no more than 2 062 500 shares with a nominal of CHF 100.–.The duration of the authorization period expires May 30, 2009.

The board of directors is entit led to an increase in con-ditional capital up to a maximum amount of CHF 206 250 000by issuing no more than 2 062 500 shares with a nominal ofCHF 100.–. The duration of the authorization period expiresMay 30, 2009.

Shares for which subscription rights were granted but notexecuted are at the board of director’s disposal.

The pre-emptive rights of the shareholders can be excludedin case of acquisit ions of other companies or additional l istingsto foreign stock exchanges. If doing so, the board of directorsis not allowed to fix the issuing price under the Net Asset Valueof the shares of the Company.

See also Article 4 lit . b of the ar ticles of association (avail-able at www.aigprivateequity.com),

Limitations of transferability and nomineeregistrationsThe Company’s shares are freely transferable, without anylimitations, provided that the buyers declare they are the bene-ficial owners of the shares and comply with the disclosurerequirements of the Federal Act on Stock Exchanges andSecurit ies Trading of March 24, 1995.

Nominees who act as fiduciaries of shareholders are en-tered without fur ther inquiry in the Company’s share registeras shareholders with voting rights up to a maximum of 3% ofthe outstanding capital available at the time.

See also Article 4 of the ar ticles of association.

Convertible Bonds and WarrantsThere are no convertible bonds and warrants issued by thecompany or by its subsidiaries on shares of the Company out-standing.

53


3. BOARD OF DIRECTORS

ResponsibilitiesThe board of directors consists of one or more members. Theboard of directors is ultimately responsible for the policies andmanagement of the corporation. The board establishes thestrategic, accounting, organizational and financing policies tobe followed by the corporation. The board fur ther appoints theexecutive officers and the authorized signatories of the cor-poration, supervises the management of the corporation andmonitors the investment decisions. Moreover, the board is en-trusted with preparing shareholders' meetings and carrying outshareholders resolutions. The board may, pursuant to its regu-lations, delegate the conduct of day-to-day business oper-ations to management under its control. The board approvesall compensation upon proposal of the chairman.

Meeting scheduleThe board usually meets four times per year in person (mini-mum twice). The regular meetings are typically held in Fe-bruary, May, August and November. Additional meetings arecalled on short notice if and when required. In the year underreview, four board meetings and a workshop took place. Eachof the board meetings has a special focus which is basicallyconnected to the Company’s reporting rhythm. Such focusesare the financial statements, interim results, the medium-termplan, investments, foreign exchange exposure, the annual ge-neral meeting and corporate governance. The members of themanagement committee are invited to attend the board mee-tings and have attended all four board meetings. The board re-solves by majority vote with the presence of a majority ofmembers. The average duration of a board meeting is ninetyminutes.

Principles of the election procedureThe members of the Board will be elected by the annual gen-eral meeting according to Article 11 of the ar ticles of asso-ciation. The term of office for all members is three years withthe possibil ity of repeated re-election.

Members of the Board of Directors

Eduardo Leemann, born 1956, Swiss citizen, Chairman, non-executive member, term of office expires in 2009.

Mr. Leemann joined AIG Private Bank in Zurich in 1997 asChief Executive Officer. In May 2006 he has relinquished theoperational leadership of the bank to take over the manage-ment of the AIG Global Wealth Management Organization and

became Chairman of the Board of Directors of AIG Private BankLtd. He previously worked at Goldman, Sachs & Co Bank asMember of the Management Committee and Head of PrivateBanking. Prior to that, Mr. Leemann was Deputy to the Head ofPrivate Banking worldwide at Bank Julius Baer with directresponsibil it ies for the Western Hemisphere, Switzerland aswell as the overall marketing effor t in Private Banking. Prior tothat, he was responsible for building the private bankingbusiness of Bank Julius Baer in their New York branch. EduardoLeemann is a graduate of the “Swiss School of Economics andBusiness Administration” (SEBA) and from the Advanced Exe-cutive Program of the J. L. Kellog Graduate School of Manage-ment at the Northwestern University in Chicago, USA.

Mr. Leemann became Chairman of the Company’s board ofdirectors in September 1999.

Mr. Leemann also serves on the Board of Directors of AIGInternational Real Estate GmbH & Co. KgaA, a listed real estatecompany in Frankfur t, Germany. Mr. Leemann also serves as amember of the board of directors of the SWX Group and SWXSwiss Stock Exchange.

Dr. Ernst Mäder, born 1954, Swiss citizen, non-executivemember, term of office expires in 2009.

Currently the CFO of the Swiss National Accident InsuranceFund, Dr. Mäder has had an extensive career with leading Swissbanks. He served Credit Suisse Private Banking as Head ofInvestment Research and Credit Suisse First Boston as Head ofthe Fixed Income & Derivatives Research Department Switzer-land/Europe. Previously, Dr. Mäder was the Head of the Bondand Derivatives Research Division for Credit Suisse in Zurich.Earlier in his career, he spent ten years at UBS Zurich workingwith the Economic Department, Investment Research and theAsset Management. Dr. Mäder holds an Economics degree fromthe University of Zurich with post-graduate studies in “the useof VAR-models in forecasting interest rates and analysing data.”

Mr. Mäder joined the Company’s board of directors inDecember 2000.

Dr. Roger Schmid, born 1959, Swiss citizen, non-executivemember, term of office expires in 2009.

Mr. Schmid joined Ernst Goehner Foundation in 1996 asManaging Director and became a member of the board oftrustees in 2005. Prior to joining Ernst Goehner Foundation,Mr. Schmid worked for five years with Bank Leu Ltd. as coun-selor-at-law and became a Member of the Senior Managementin 1995. Mr. Schmid received a degree in law from Zurich Uni-versity. His professional education includes training programsand work in South Africa, England and the United States.

54


Internal Organization and definition of areas ofresponsibilityThe principal responsibil it ies of the board of directors en-compass:

– Establishment of strategic, organizational, repor tingand financial policies

– Appointment of executive officers– Definition of investment policy and supervision of its

implementation– Preparation and execution of annual shareholders

meetingThey are summarized in Article 13 of the ar ticles of asso-

ciation (available at www.aigprivateequity.com).In view of the relatively small board of directors and the

complexity of the tasks, the board did not constitute any morecommittees.

The board of directors has delegated to the ManagementCommittee the coordination of the day-to-day businessoperations of the company. See also Article 3 of the InternalRegulations of the Board of Directors (available at www.aig-privateequity.com). The board of directors has not concludedany contracts with third par ties to manage the business.

For the tasks and responsibil it ies of the board see internalregulations of the board of directors (available at www.aig-privateequity.com).

Information and control instruments vis-à-visthe management boardIn order to allow fulfi lment of its supervising duties, the boardof directors is provided with the following information:

– Discussions with the management during the board ofdirectors meetings, telephone conferences, etc.

– Quarterly, Semi-annual and Annual reports– Auditors report on the annual audit of the financial

statements

Members of the management committee par ticipate atevery meeting of the board if directors. Additionally, the mem-bers of the management committee engage on a frequent basiswith the chairman of the board and other members of theboard of directors.

Mr. Schmid joined the Company’s board of directors inSeptember 1999.

Mr. Schmid also serves as a non-executive member on theboard of directors of Panalpina Welttransport (Holding) Ltd.

Robert Thompson, born 1954, US citizen, non-executivemember, term of office expires in 2010.

Mr. Thompson is the Head of AIG Investments worldwide Al-ternative Investments business, having joined AIG Investmentsin 2005. Mr. Thompson was a co-founder and managing mem-ber of Ferrer Freeman Thompson & Co., LLC, (“FFT”) a privateequity firm dedicated to investing in the Health Care industry.Prior to FFT, he was Managing Director and Equity Group Lea-der at GE Capital. Mr. Thompson founded, organized, and de-veloped GE Capital’s Private Equity activit ies throughout theU.S., Europe and Asia. Mr. Thompson has over 15 years experi-ence in all segments of the private equity business includingmezzanine, direct investments, joint ventures, leveraged buy-outs and fund investments. Mr. Thompson has also held va-rious positions at Bain & Co. and Chemical Bank. He currentlyserves on Investment Committees for AIG Investmentsalternative investments activit ies. Mr. Thompson received anA.B. in Economics from Harvard College and an M.B.A. fromStanford University.

Mr. Thompson joined the Company’s board of directors inMay 2007.

Dr. Christian C. Wenger, born 1964, Swiss citizen, non-exe-cutive member, term of office expires in 2009.

Mr. Wenger is a lawyer and a par tner at the well-known lawfirm of Wenger & Vieli in Zurich. He joined the firm in 1996 andbecame partner in 1999. Mr. Wenger is specialized in commer-cial and business law, with a focus on Private Equity, VentureCapital and M&A. Mr. Wenger is member of the managementboard of SECA (Swiss Association for Private Equity and Cor-porate Finance) as well as president of CTI Invest, an investors’organization associated with KTI, the Swiss federal govern-ment’s agency to promote innovation. In the scope of his pro-fessional activit ies, Mr. Wenger is member of the board ofseveral Swiss as well as international companies. He received adegree in law from Zurich University (Dr. iur.) and completedhis studies with an LL.M at Duke University Law School, NorthCarolina.

Mr. Wenger joined the Company’s board of directors inMay 2006.

Mr. Wenger also serves as a non-executive member ofthe board of directors of Looser Holding Ltd. and AIG PrivateBank Ltd.

55


4. INVESTMENT COMMITTEE

Dr. Thomas Lips, Chairman of the Investment CommitteeDr. Lips is Chief Investment Officer for AIG Global InvestmentCorp. (Switzerland) Ltd. and is responsible for directing Euro-pean Equities activit ies. Prior to joining the AIG Companies in1998, he was at Goldman, Sachs & Co. Bank as Chief Invest-ment Officer responsible for building the private and in-stitutional asset management business in Switzerland. Prior toGoldman, Sachs & Co., Dr. Lips was head of InvestmentCounseling and Research for Union Bank of Switzerland. Dr.Lips studied at the Universit ies of Fribourg, Basel and Zurich,where he received his Doctorate Degree in Economics. He isthe founding member of the board of the Swiss Training Cen-ter for Investment Managers, and a member of the editingbody of the Swiss Association for Investment Research. He isalso the Chairman of the Swiss Association of Financial Ana-lysts and Investment Managers. Dr. Lips is a member of the AIGGlobal Investment Policy Committee.

Steven Costabile (fund investments)Mr. Costabile joined AIG Investments in 2000 and is the Man-aging Director of the Private Equity Funds Group. Mr. Costabilehas played a significant role in the successful growth of threeproduct lines, Pinestreet LLC, PineStar (secondaries) and thePEP program. Mr. Costabile serves on the Developed MarketsFund Investment Committee, APEN Investment Committee andJapan Private Equity Investment Committee. His current re-sponsibil it ies include overseeing all private equity funds in-vestments in the developed markets, as well as sourcing, duediligence, monitoring product development, and marketing.From 1997 to 2000, Mr. Costabile was a Vice President atCredit Suisse First Boston (CSFB) in the Private Funds Group,with a focus on investments on behalf of CSFB and third par tyinvestors. Prior to that, he was the Senior Investment Officerof Alternative Investments for the Commonwealth of Massa-chusetts and the Assistant Director of Venture Capital forthe Commonwealth of Pennsylvania. In both positions, Mr.Costabile focused on private equity fund investments. Hereceived both a BSBA and an MBA from Duquesne University.He is also a CFA char terholder and holds a Series 7 license.

FT Chong (direct investments)Mr. Chong joined AIG Investments in 1998 and currently leadsthe Direct Investments Team which focuses on private equityand mezzanine investing in developed markets such as theUnited States and Europe. Mr. Chong has worked in buyoutsand leveraged financing since 1981. Mr. Chong is currently adirector of a number of companies including Fresh Direct. Priorto joining AIG Investments, Mr. Chong was Executive VicePresident for Business Development for the GT Group, anAsian conglomerate, from 1994 to 1998. In the early 1990’s hewas a founder and CFO of DynadxTechnologies, Inc., a star t-upcompany that developed and marketed a new out-of-homeadver tising technology. From 1981 to 1989 he was head of theUSD 3 bill ion US leveraged finance group at Swiss Bank Corp.and par ticipated in or led the financing for more than twodozen high profile leveraged buyouts. He received an MBAfrom Columbia University and also has a degree in ChemicalEngineering from the University of Malaya.

Win J. NeugerMr. Neuger is responsible for directing AIG Investments stra-tegies on a worldwide basis. He is also an Executive Vice Presi-dent and Chief Investment Officer of AIG. He also served as amember of the board of directors of the Company from2006–2007. Mr. Neuger joined AIG Investments in 1995, withinvestment management experience since 1981. Before joiningAIG Investments, he was with Bankers Trust Company, wherehe served both as Managing Director, Fixed Income and, sub-sequently, Managing Director, Global Equities. Prior to joiningBankers Trust, Mr. Neuger served as Chief Investment Officerat Western Asset Management. He was also the Head of FixedIncome at Northwestern National Bank in Minnesota. Mr.Neuger received an AB from Dartmouth College and an MBAfrom Dartmouth’s Amos Tuck Graduate School of Business. Heis a CFA char terholder and is a member of the New YorkSociety of Security Analysts (NYSSA) and the CFA Institute(formerly AIMR).

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5. MANAGEMENT BOARD

Members of the Management Board

Andrew Fletcher, born 1964, US citizen.Mr. Fletcher joined the Company in 2001. Mr. Fletcher is also amember of the management board of AIG Global InvestmentCorp. (Switzerland) Ltd., responsible for alternative invest-ments and structured products, and a managing director of AIGInternational Real Estate GmbH & Co. KGaA, a listed real estatecompany in Frankfur t, and its subsidiaries. Prior to 2001, Mr.Fletcher worked for four years as Assistant General Counsel inAIG’s corporate law depar tment in New York and for six yearsin private practice. He is a graduate of Harvard College andHarvard Law School.

Mr. Fletcher is also a member of the management board ofAIG International Real Estate GmbH & Co. KGaA, a listed realestate company in Frankfur t, Germany. He is also a member ofthe management board of AIG Private Bank Ltd., Zurich.

Conradin Schneider, born 1962, Swiss citizen.Mr. Schneider joined the AIG Companies in 1999. He was in-volved in establishing and listing the Company, a Swiss listedprivate equity investment company, on the SWX Swiss Ex-change. With the Company Mr. Schneider is responsible forscreening private equity funds and direct investment opportu-nities and for operations. Prior to joining AIG, Mr. Schneiderwas with Aventic Ltd., the private equity vehicle of UBS forsmall and medium sized companies in Switzerland. Prior to hisassignment with UBS-Aventic, he worked 8 years as a corporatebanker with UBS with a focus on Swiss multinationals. Mr.Schneider received his graduate degree from the University ofSt. Gall , Switzerland, specializing in banking and economics.

Mr. Schneider is also a member of the board of directors ofMV Leverage Finance Limited and AIG MezzVest I I , and a mem-ber of the management board of AIG International Real EstateGmbH & Co. KGaA, a listed real estate company in Frankfur t,Germany. He is also a member of the management board ofAIG Private Bank Ltd., Zurich.

Investment Process DiagramManagement &

Investment Advisor

InvestmentCommittee

Board ofDirectorsSubsidiary

Sourcing EvaluationInvestment

Memorandum

Negotiation

of Terms

Investment

ApprovalMonitoring Exit

Recommendations

The Investment Committee is appointed by the board ofdirectors of the Subsidiary and is responsible for assessing theinvestment opportunities presented by the Manager and theInvestment Advisor and subsequently making investmentrecommendations to the board of directors of the Subsidiaryfor approval by the latter. See also note 14 to the consolidatedfinancial statements.

It also has to be noted that three members of the Invest-ment Committee (W. Neuger, S. Costabile and FT Chong) ofthe Subsidiary are senior executives and members of theInvestment Committee of AIG.

Share-based compensation plansThe members of Management of the Company have the optionto exercise an aggregate of (i) 45 000 stock appreciation rightsof the Company over a period of three years and (ii) 15 833stock options of the Company over a period of three years.

As of 31 December 2007, they held the following stockappreciation rights and stock options:

6333 stock appreciation rights and 2833 options were exer-cised in 2007. No other options to purchase shares of the Com-pany have been issued by the Company.

Highest total compensation of Board ofDirectors memberSee above, total of compensations for both boards.

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SubscriptionNumber of options Year of grant Vesting date Expiry Date ratio Strike Price

4 000 2005 31.5.2006 13.6.2008 1:1 CHF 1255 000 2005 31.5.2007 13.6.2008 1:1 CHF 1256 833 2005 31.5.2008 13.6.2008 1:1 CHF 125

Number of SARs

7 000 2006 15.2.2008 28.2.2009 1:1 CHF 1607 000 2006 15.2.2009 28.2.2009 1:1 CHF 1607 000 2006 15.2.2010 28.2.2009 1:1 CHF 160

8 000 2007 1.3.2008 14.3.2010 1:1 CHF 1608 000 2007 1.3.2009 14.3.2010 1:1 CHF 1608 000 2007 1.3.2010 14.3.2010 1:1 CHF 160

Base Variable Other Total Share-All amounts in CHF Compensation Compensation*1 Compensation**1 20071 holdings2 SARs3

Board of DirectorsEduardo Leeman 60 000 2 500 6 967 69 467 200 –Erich Hort 30 000 2 000 2 936 34 936 – –Dr. Ernst Mäder 30 000 2 500 2 909 35 409 – –Win Neuger (as from May 2007) – – – – – –Dr. Roger Schmid 30 000 1 500 – 31 500 750 –Robert Thompson (as from May 2007) – – – – – –Dr. Christian Wenger 17 500 1 500 – 19 000 – –Total Board of Directors 167 500 10 000 12 812 190 312 950 –

ManagementAndrew Fletcher 242 319 – – 242 319 1 000 15 000Conradin Schneider – – – – 3 334 7 500Total Management 242 319 – – 242 319 4 334 22 500

* Attendance fee 1 in CHF** Social security payments 2 number held at year end

3 number granted during year

6. COMPENSATION, SHAREHOLDINGS AND LOANS

Content and Method of Determining CompensationsThe compensation of the Board of Directors lies in theresponsibil ity of the general meeting. The Board of Directorsapproves compensation (including the share option plan) for

the management board upon proposal of the Chairman. Theshare based compensation plan is designed to ensure thatthe Company maintains a competitive bonus program in orderto recruit, retain and motivate management in the overallinterests of shareholders.

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7. SHAREHOLDER’S PARTICIPATION RIGHTS

Voting-rights restrictions and representationsEach registered share in the Company is entit led to one vote.See also Article 7 section 1 in the ar ticles of association. Votingrights may be exercised only after a shareholder has beenregistered as shareholder with voting rights in the Company’sshare register.

Rules on participating in the general meeting ifdifferent from lawNo restrictions. See Article 7 section 2 in the ar ticles of asso-ciation.

Statutory quoraThe statutory quora comply with the applicable legal regu-lations. See Article 8 in the ar ticles of association.

Convocation of the general meeting of shareholdersand proposal for agenda itemsThe convocation of the Shareholders’ Meeting complies withthe applicable legal regulations. The convocation may alsobe requested by one or several shareholders representingtogether at least ten percent of the share capital. See alsoArticles 5 and 6 in the ar ticles of association.

Registration in the share registerThere is no statutory rule on the deadline for registering share-holders in connection with the attendance of the Annual Gen-eral Meeting. In 2008, the qualifying date is May 5, while theAnnual General Meeting will be held on May 28.

8. CHANGES OF CONTROL AND DEFENSE MEASURES

Duty to make an offerThe company refrains from the duty to make an offer (opt-

ing-out; see also Article 23 in the ar ticles of association)pursuant to Ar ticle 32 of the Federal Stock Exchange Act(SESTA).

9. AUDITORS

Date of Assumption of the Existing Auditing MandatePricewaterhouseCoopers (PwC) was re-elected for another 3years at the general meeting in June 2005.

Responsible Par tner: Thomas Romer (since 2004)Responsible Senior Manager: Nik Hood (since 2007)

Total of auditing honorariums 2007TCHF 150

Additional honorariumsTax-consulting TCHF 89

Supervisory and control instruments vis-à-vis theauditors, control instrumentsSince there is no Audit Committee, the Auditors’ repor t will bepresented to the whole Board of Directors as a par t of theannual report.

In addition to that, the responsible Auditor par ticipates inthe annual general meeting and is standing by for questionsand detailed audit information.

10. INFORMATION POLICY

The Company aims to offer the shareholders a high degree oftransparency. In this respect the Company publishes an annualrepor t, a semi-annual report and three quar terly reports. In ad-dition, the Company publishes the net asset value of the Com-pany on a monthly basis.

In between the quarterly report publications relevant in-formation (including information subject to Ad-hoc publicityaccording to section 72 of the listing rules) is published in theform of press releases and available at www.aigprivateequity.com.

AIG PRIVATE EQUITY LTD. – F INANCIAL STATEMENTS 2007

60

BALANCE SHEET AS OF DECEMBER 31, 2007 AND DECEMBER 31, 2006in TCHF

Note 2007 2006Assets

Current Assets

– Cash and cash equivalents 26 4 128

– Loans to subsidiary 25 150 –

– Derivative instruments 5 1 645 945

– Prepayments 219 127

– Own shares 3 27 847 36 207

54 887 41 407Long-term Assets

– Par ticipation 1 546 716 525 739

– Direct Investments 8 2 170 11 123

– Funds 8 3 041 2 052

551 927 538 914Total Assets 606 814 580 321

Liabilities and Shareholders’ EquityCurrent Liabil it ies

– Payables and accrued charges 1 401 1 838

– Bank loan 25 015 –

26 416 1 838Shareholders’ Equity

– Share capital 2, 6 412 500 412 500

– Reserve (non-disposable) 82 500 82 500

– Other reserves (disposable) 61 607 61 607

Total share capital premium 144 107 144 107– Less Reserve set aside for own shares (21 729) (30 088)

122 378 114 019

– Reserve for own shares 4 27 847 36 207

– Reserve for stock option plan 182 156

– Retained earnings 17 491 15 601

580 398 578 483Total Liabilities and Shareholders’ Equity 606 814 580 321


61

INCOME STATEMENT FOR THE PERIOD JANUARY 1 TO DECEMBER 31, 2007 AND JANUARY 1 TO DECEMBER 31, 2006in TCHF

Note 2007 2006Income

Dividend income from non-current assets – 718

Net realized gains on investments 1 566 219

Interest income from current assets 210 175

Gain on foreign currency exchange 10 1 028

Gain on derivative instruments 5 2 642 –

Gain on sale of own shares 3 346 3 694

Total Income 4 774 5 834

ExpensesService fees 301 301

Other operating expenses 2 319 1 912

Loss on foreign currency exchange 112 1 197

Loss on derivative instruments – 1 377

Tax expenses 152 675

Total Expenses 2 884 5 462

Net profit for the year 1 890 372

Accumulated surplus (deficit)Balance, beginning of the year 21 720 21 348

Net profit for the year 1 890 372

Balance, end of the year 23 610 21 720


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AIG Private Equity Ltd., Zug (“the Company”) is a Swiss stockcorporation established under the relevant provisions of theSwiss Code of Obligations and domiciled in Zug. The Companywas established by AIG Private Bank Ltd. on September 17,1999 for an indefinite period of time and was registered in thecommercial register of the Canton of Zug on September 20,1999. The Company, together with AIG Private Equity (Ber-muda) Ltd. and APEN Faith Media Holdings LLC (“the Sub-sidiaries”), comprises the AIG PE Group (“the Group”). TheCompany’s shares are listed on the SWX Swiss Exchange sinceOctober 12, 1999.

The Company’s investment objective is to achieve long-term capital growth for shareholders by investing in privateequity funds. The Company may also make direct investmentsin operating companies. Although the Company may investdirectly in fund investments or companies, it is anticipated thatinvestments will generally be made through the Subsidiaries.

2. Authorized and Conditional Share CapitalAs per December 31, 2007 the Company has CHF 206.25 mil-l ion (2006: CHF 63.75 mill ion) authorized share capital out-standing. This authorized share capital wil l expire at the end ofMay 2009.

As per December 31, 2007 the Company has CHF 206.25mill ion (2006: CHF 63.75 mill ion) conditional share capitaloutstanding. This conditional share capital wil l expire at theend of May 2009.

3. Balances and transactions with own shares

Number Amount CHF

Balance as of January 1, 2007 228 806 36 207 033Disposal (sold at CHF 164.50) (50 000) (8 225 000)Disposal (purchased at CHF 168.00)* (167) (28 056)Disposal (purchased at CHF 170.00)* (1 666) (283 220)Disposal (purchased at CHF 170.00)* (1 000) (170 000)Total 175 973 27 500 757Realized gains on sale of own shares 2007 345 782Book value as of December 31, 2007 27 846 539

* This relates to equity settlement of option exercised during the year.

4. Reserve for Own SharesAt the end of 2007 the Reserve for Own Shares amounted toCHF 27 846 539. The decrease of CHF 8 360 494 has beenposted against Share Capital Premium – see also point 3 ofthe notes.

5. Derivative InstrumentsForward Exchange Transactions

2007As of December 31, 2007 the Company has one open foreignexchange forward contracts:

Contractual Exchange PositiveNominal Maturity exchange rate at replacementamount date rate year end value

USD 20 000 000 23.04.2008 1.1640 1.1329 CHF 622 000

On December 31, 2007 the Company closed a foreign exchangeforward contract with a notional amount of USD 30 000 000resulting in the Company receiving TCH 1023 in January 2008.

Cer tain prior year comparisons have been reclassif ied tocorrespond with current year presentation.

NOTES TO THE F INANCIAL STATEMENTSin TCHF

1. ParticipationLocation Capital held Nominal Value Paid Book value Book value

in % in TUSD in TUSD in TCHF in TCHF

31.12.07 31.12.06AIG Private Equity (Bermuda) Ltd. Pembroke, Bermuda 100 552 663 495 870 537 680 525 739APEN Faith Media Holdings LLC. Delaware, USA 100 0 9 780 9 036 0Total 552 663 505 650 546 716 525 739


63

7. Compensation, shareholdings and loansThe compensation of the Board of Directors is within the com-petence of the general meeting. The Board of Directors ap-proves compensation (including the share option plan) for themanagement board upon proposal of the Chairman.

6. Shareholders’ EquityThe following major shareholders held shares and voting rights of 3% and more as of December 31, 2007:

Number of Shares Participation in % Number of Shares Participation in %

2007 2007 2006 2006American International Underwriters Overseas Ltd. 413 500 10.02% 413 500 10.02%AIG Life (Ireland) Ltd. 1 083 527 26.27% 1 160 127 28.12%Ernst Göhner Stiftung 267 000 6.47% 267 000 6.47%AIG Private Bank Ltd. 229 284 5.56% – *AIG Private Equity Ltd. 175 973 4.27% 228 806 5.55%SUVA, Schweiz. Unfallversicherungsanstalt 127 500 3.09% – **AXA Winter thur 167 000 4.05% – ***

* On November 15, 2006 AIG Private Bank informed the Company that its shareholding had dropped below 5%.** On March 21, 2006 SUVA informed the Company that its shareholding had dropped below 5%.

*** On June 27, 2006 AXA Winter thur informed the Company that its shareholding had dropped below 5%.

Base Variable Other Total Share-Compensation1 Compensation*1 Compensation**1 20071 holdings2 SARs3

Board of DirectorsEduardo Leeman 60 000 2 500 6 967 69 467 200 –Erich Hort 30 000 2 000 2 936 34 936 – –Dr. Ernst Mäder 30 000 2 500 2 909 35 409 – –Win Neuger (until May 2007) – – – – – –Dr. Roger Schmid 30 000 1 500 – 31 500 750 –Robert Thompson (as from May 2007) – – – – – –Dr. Christian Wenger 17 500 1 500 – 19 000 – –Total Board of Directors 167 500 10 000 12 812 190 312 950 –

ManagementAndrew Fletcher 242 319 – – 242 319 1 000 15 000Conradin Schneider – – – – 3 334 7 500Total Management 242 319 – – 242 319 4 334 22 500

* Attendance fee 1 in CHF** Social security payments 2 number held at year end

3 number granted during year

2006As of December 31, 2006 the company had open foreignexchange forward contracts as follows:

Contractual Exchange PositiveNominal Maturity exchange rate at replacementamount date rate year end value

USD 30 000 000 12.01.2007 1.2502 1.2187 CHF 945 000

Share-based compensation plansThe members of Management of the Company have the optionto exercise an aggregate of (i) 45 000 stock appreciation rightsof the Company over a period of three years and (ii) 15 833stock options of the Company over a period of three years.

As of 31 December 2007, they held the following stock appre-ciation rights and stock options:

8. InvestmentsThe Company holds one direct investment (Hertz) and threeprivate equity par tnerships (Carlyle Japan Par tners I I , L.P.;Unison Capital Par tners I I and Unison Standby Facil ity). Thebook values of these investments are as follows (in TCHF):

Her tz 2 170Carlyle Japan Par tners I I 889Unison Capital Par tners I I 1 890Unison Standby Facil ity 262

9. Subsequent EventsSince the balance sheet date of December 31, 2007, there havebeen no material events that could impair the integrity of theinformation presented in the financial statements.


64

SubscriptionNumber of options Year of grant Vesting date Expiry Date ratio Strike Price

4 000 2005 31.5.2006 13.6.2008 1:1 CHF 1255 000 2005 31.5.2007 13.6.2008 1:1 CHF 1256 833 2005 31.5.2008 13.6.2008 1:1 CHF 125

Number of SARs

7 000 2006 15.2.2008 28.2.2009 1:1 CHF 1607 000 2006 15.2.2009 28.2.2009 1:1 CHF 1607 000 2006 15.2.2010 28.2.2009 1:1 CHF 160

8 000 2007 1.3.2008 14.3.2010 1:1 CHF 1608 000 2007 1.3.2009 14.3.2010 1:1 CHF 1608 000 2007 1.3.2010 14.3.2010 1:1 CHF 160

REPORT OF THE STATUTORY AUDITORS

As statutory auditors, we have audited the accounting recordsand the financial statements (balance sheet, income statementand notes) of AIG Private Equity AG, Zug on pages 60 to 64 forthe year ended 31 December 2007.

These financial statements are the responsibil i ty of theBoard of Directors. Our responsibil ity is to express an opinionon these financial statements based on our audit. We confirmthat we meet the legal requirements concerning professionalqualif ication and independence.

Our audit was conducted in accordance with Swiss AuditingStandards, which require that an audit be planned and per-formed to obtain reasonable assurance about whether thefinancial statements are free from material misstatement. Wehave examined on a test basis evidence supporting theamounts and disclosures in the financial statements. We havealso assessed the accounting principles used, significant esti-mates made and the overall f inancial statement presentation.We believe that our audit provides a reasonable basis for ouropinion.

In our opinion, the accounting records and financial state-ments comply with Swiss law and the company’s ar ticles ofincorporation.

We recommend that the financial statements submitted toyou be approved.

PricewaterhouseCoopers AG

Thomas Romer Nik HoodAuditor in charge

Zurich, April 29, 2008


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ADDRESSES AND CONTACTS

Registered OfficeAIG Private Equity Ltd.Grafenauweg 8CH-6300 ZugPhone +41 (41) 710 70 60Fax +41 (41) 710 70 64E-mail [email protected]

SubsidiariesAIG Private Equity (Bermuda) Ltd.29, Richmond RoadPembroke, HM 08Bermuda

APEN Faith Media Holdings, LLC2711 Centervil le Road, Suite 400Wilmington, New Castle CountyDelaware 19808USA

Investor RelationsConradin SchneiderAIG Private Equity Ltd.Grafenauweg 8CH-6300 ZugPhone +41 (41) 710 70 60Fax +41 (41) 710 70 64E-mail [email protected]

If you would like to submit an investmentproposal please contact:

For US direct investments:E-mail [email protected];Phone +1 646 857 8651

For US based private equity funds:E-mail [email protected] +1 646 857 8693

For European direct investments:E-mail [email protected] +44 207 954 8121

For European private equity funds:E-mail [email protected] +41 44 227 52 57

www.aigprivateequity.com

AIG Private Equity Ltd.Grafenauweg 8CH-6300 ZugSwitzerland

Phone +41 (41) 710 70 60Fax +41 (41) 710 70 64Email [email protected]

aig private equity 2007 annual report

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