Aig Private Equity 2007 Annual Report

A N N UA L R E PO RT 20 07

FAC TS AN D F I G U R E S

Company profile AIG Private Equity Ltd. is a Swiss investment company with an objective to achieve long-term capital growth for shareholders by investing in a diversified 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 listed 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

Exchange rate

USD/CHF

1.1329

Exchange rate

EUR/CHF

1.6544

(applying fair values)

Number of shares outstanding Market capitalization

Swiss Security Number 915.331 ISIN: CH0009153310 Ticker: APEN

Trading Information Reuters: APEZn.S Bloomberg: APEN Telekurs: APEN

www.aigprivateequity.com

3 949 027 CHF

719 236 288

Financial Highlights Net A sset Value per Share and Share Price (C H F) Net Asset Value per Share

190

Share Price

180 170 160 150 140 130 120 110 100 90

2004

2005

2006

2007

Investment Income (C H F in million) 135 120

+94%

105

+90%

90 75 60 45

–34% +155%

30 15 0

2004

2005

2006

2007

CO NTE NTS Chairman’s Statement Management Report – Review 2007 and Outlook – Overview of 20 Largest Investments – Overview of 20 Largest Funds Financial Report – AIG Private Equity Group Consolidated Financial Statements 2007 – Corporate Governance – AIG Private Equity Ltd. Financial Statements 2007

2

4 8 18

22 51 60

C HAI R MAN’S STATE M E NT

E D UAR D O LE E MAN N, Chairman of the Board

D R. C H R I STIAN WE N G E R, Vice Chairman

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

Dear Shareholders

volatility 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 part 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 million and significantly above prior year’s results. Net asset value per share increased 13.4% despite the weak US dollar, which hurt the performance 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 diversified 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 investment committee. Robert Thompson was elected to the board of directors. Mr. Thompson is the Head of AIG Investment’s world-

2

C HAI R MAN’S STATE M E NT

D R. E R N ST MÄD E R, Member

D R. R O G E R S C H M I D, Member

R O B E RT TH O M P S O N, Member

wide Alternative Investments business. Mr. Thompson has over

the Company’s portfolio for 2008 correspond to long term

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

volumes. Particularly large buyout opportunities will diminish

ness including mezzanine, direct investments, joint ventures,

while operationally-focused managers may capture the oppor-

leveraged buyouts and fund investments and will be a valuable

tunities available in periods of economic weakness. Despite the

addition to the board of directors.

difficult market conditions, 2008 will yield significant opportu-

Debt markets are still in the process of recalibrating to the

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

new risk perceptions. Currently, banks are restrictive in lending

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

and debt for new transactions is only available for buyouts with

the confidence you have placed in us.

an enterprise value of up to USD/EUR two billion. 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

Eduardo Leemann

satisfactory year.

Chairman of the Board

The year ended on a somber note, with credit markets in turmoil, volatility abounding and a sense that further uncertainty lies ahead. The start into 2008 has been challenging. Financial and equity markets posted substantial losses and volatility 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 performance remained positive. We expect to see exit and investment activity from

3

MANAG E M E NT R E PO RT

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.

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

Review 2007 and Outlook

markets and the health of the banking sector. Investment income amounted to about CHF 36 million in each of the first three quarters, an amount significantly greater

The private equity industry experienced record deal activity

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

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

Investment income slowed considerably in the fourth quarter,

seemingly limitless supply of debt financing on favorable

but, at CHF 18.7 million, was still in line with results from

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

previous years. The vast majority of the investment income

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

came from European 2001 to 2005 vintage year funds. CapVest

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

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

were both unwilling and unable to finance transactions of that

I each contributed more than CHF 10 million of investment

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

income as they sold portfolio companies such as FoodVest, AZ

deals and by unsyndicated buyout debt of more than USD 300

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

billion clogging the balance sheets of originating banks.

pany did not receive more than CHF 10 million of investment

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

income from any single fund.

smaller buyout deals continued to transact and, in certain areas (such as Scandinavia and

Quarterly Investment Income from 2003 to 2007

Eastern Europe), there was no noticeable impact on the availability 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). Nonetheless, the year ended with a great deal of uncertainty regarding the possibility and potenInvestment Income in TCHF

4

MANAG E M E NT R E PO RT

AN D R E W F LE TC H E R

CO N R AD I N S C H N E I D E R

The revaluation reserve for investments and foreign

The average maturity of the Company’s funds portfolio has

exchange offset each other roughly. As the Company realized

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

significant investment income and invested more than CHF 400

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

million of new investments, the increase of unrealized gains of

portfolio funds with a vintage of 2001 or earlier (seven years or

CHF 25.5 million was lower than in 2006 (CHF 70.9 million).

older) represented 20.8% of investment assets, down from

With the continued weakening of the US dollar the unrealized

41.0% at the end of 2006.

FX losses on investments increased by CHF 16.0 million. The write-down on non-current assets amounted to CHF 10.1 million (2006 CHF 28.8 million). In accordance with

Top 20 investments

IFRS requirements, the Company considers any investment (whether fund or direct investment) with a fair value below cost

The Company’s top 20 investments portfolio recorded another

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

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

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

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

considered impaired regardless of the length the investment

partial sales, two announced exits and two recapitalizations

was held below cost. Since impairments are taken automatically

during 2007 made their contribution to the overall positive

under the policy, an impairment does not necessarily reflect

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

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

detailed information on the portfolio of top 20 investments.

ment will ultimately return a loss. Investments in private equity funds make up the majority of the portfolio (CHF 686 million; 2006: CHF 408.6 million).

Top 20 Funds

Contractual Agreements (CHF 41.4 million; 2006: CHF 53.7 million), direct investments (CHF 101.8 million; 2006: CHF 93.3

For the first time, the Company is happy to provide share-

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

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

lion) make up the balance. We expect the loans and contractual

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

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

funds increased significantly during the year. Of seven new

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

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

funds and the balance in direct investments.

2007 vintage funds. All funds are active in the buyout space 5

MANAG E M E NT R E PO RT

with the exception of a secondary fund that has little exposure

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

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

portion of the portfolio: Affinity Asia Pacific Fund III (USD 25

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

million), AIG Brazil Special Situations Fund II (USD 10 million).

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

Unfunded commitments as of year end amounted to

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

approximately CHF 966 million or 110.2% of total assets. Generally, we expect funds to invest over a period of approximately five years. On a portfolio basis, drawdowns in 2007 were very

Investment Program

much in line with expectations based on the Company’s cash flow models. To cover potential volatility in fund cash flows

The Company added nineteen funds and four direct invest-

and to allow appropriate vintage year diversification, the

ments to its portfolio in 2007. The commitments to the nine-

Company maintains a USD 50 million credit line (increased

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

to USD 100 million in January 2008) with a consortium of

eleven new funds.

Swiss banks.

The Company made commitments to a total of nine new funds in 2007 with an investment focus on North America: Sun Capital (USD 17 million), Silver Lake III (USD 30 million),

New Direct Investments

AIG Altaris Health Partners II (USD 20 million), Olympus V (USD 23 million), Avista Capital Partners I (USD 25 million),

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

Carlyle V (USD 30 million), AIG Highstar III (USD 25 million),

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

New Mountain III (USD 20 million) and Platinum Equity Capi-

presents a decrease of nearly five percentage points over the

tal Partners II (USD 20 million).

prior year.

Eight European funds were added to the portfolio with

The Company added four direct investments to its portfolio

commitments totaling EUR 162 million: Lion Capital Partners II

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

(EUR 20 million), Terra Firma Capital Partners III (EUR 25 mil-

initial direct investment in Falcon Farms (USD 0.4 million) with

lion), Odewald III (EUR 15 million), Carlyle Europe Partners III

a commitment to invest a further USD 1.6 million into the

(EUR 35 million), Astorg IV (EUR 20 million), PAI V (EUR 20

leading importer and distributor of fresh cut flowers in the

million), Mid Europa Partners Fund III (EUR 10 million) and

United States and Canada. Falcon Farms operates over 300

Ventizz Capital Fund IV (EUR 17 Mio.).

hectares of farmland in Colombia, Ecuador and Mexico and

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

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

AIG Funds Portfolio

Venture 4.5% Development Capital 4.7% Mezzanine 4.5% Buyout 86.3%

Developed Markets Europe North America Other Markets Total

6

3rd-Party Funds Portfolio

Direct Total Investments Portfolio

2.2% 4.6%

40.5% 29.7%

4.8% 9.2%

47.5% 43.5%

4.3% 11.1%

4.2% 74.4%

0.1% 14.1%

8.6% 99.6%

MANAG E M E NT R E PO RT

supplies its fresh cut flowers to leading mass merchant re-

Outlook

tailers in North America. During the second quarter, the Company invested USD 3.7 million in Advanstar, a leading inte-

The first quarter of 2008 continued to be volatile, with equity

grated marketing solutions provider in the Fashion & Licensing,

markets extremely weak in January and March and a sharply

Powersports and Life Science industries. Advanstar’s B2B

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

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

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

publications and directories, 150 electronic publications and

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

web sites, as well as educational seminars. USD 1.3 million was

against the Swiss franc – and the share price performance of

invested in United Surgical Partners International (USPI). USPI

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

is the second largest operator of ambulatory surgery centers in

private equity portfolio continues to develop well. Despite con-

the US. USPI operates 138 facilities in the US and three in the

tinued uncertainty in markets, there are grounds for optimism

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

as the US economy has proven relatively resilient despite the

full-service non-asset based logistics solution provider that

severe housing recession and the fact that major banks have

specializes in handling high-velocity, time critical parts. It ser-

taken considerable steps towards repairing their balance

vices Fortune 500 companies and has a global network of 570

sheets and divesting themselves of leveraged loan portfolios.

agents in 44 countries.

Although deal activity is likely to be significantly lower than the

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

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

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

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

investments in Xanodyne, Thomas Nelson Publishing and

in the second quarter. We anticipate that overall transaction

Medispectra and two larger follow-on investments were made

activity will increase in the second half of 2008.

in Knowledge Universe Education (USD 3.9 million) and JetDirect Aviation (USD 1.7 million). 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 million. The average direct investment size amounts to CHF 5.2 million.

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

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

32.4 %

in % 30 i

North America 43.6%

25 21.9 %

19.0 %

20 15

5.2 % 5 1.3 % 0

Other regions 8.7%

8.4 %

10

87–97

5.2 %

3.1 %

2.8 % 0.6 %

0.1 % 1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Europe 47.7%

7

MANAG E M E NT R E PO RT

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.

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

Top 20 Investments

the top 20 investments portfolio anymore, due to the partial exit of AZ Electronic Materials and a reclassification of Freescale into the semiconductor industry segment.

As of December 31, 2007, the total fair market value of the Group’s twenty largest holdings was CHF 172.3 million. Although this represents a 10.5% increase over the value of

Top 20 Portfolio Performance

the top 20 investments portfolio at the end of 2006, it also represents a smaller share (20%) of the Group’s total assets

The exit of AZ Electronic Materials, which manufactures

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

and markets photoresist, anti-reflective coatings and ancillary

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

chemicals for use in electronics applications, was announced

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

last March by The Carlyle Group and the Group received

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

EUR 5.5 million from the sale. Since the Carlyle Group re-

companies entered the portfolio based on initial cost as the

invested some of its proceeds in AZ Electronic Materials, the

Group made a number of large new investments during the

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

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

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

portfolio continues to be well-diversified, with the following

top 20 investments after a recapitalization in May 2007 and a

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

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

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

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

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

invested capital. In June, the Group sold half of its direct and indirect holdings in Theravance (Theravance’s Nasdaq Ticker: THR X) and realized a full exit in December, yielding a return of 2 times cost. AMF Bowling, position sixteen 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 million. The Group continues to hold a stake of

8

MANAG E M E NT R E PO RT

Vaasan & Vaasan through the buyer, Lion Capital Fund II. HSH Nordbank fell out of the Group’s top 20 investments after a re-

Distribution of value in Top 20 2007 vs. 2006

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

70%

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

60%

year, The Carlyle Group sold its remaining shares in QinetiQ

50%

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

40%

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

30% 20%

inflows of 7.6 times the Group’s invested capital, QinetiQ was a highly successful transaction for the Group.

10% 0% Top 3

Capmark, a globally diversified company that provides a

Top 10

Top 5

T

Top 10–20

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

Comparison Top 20 by Maturity 2007 vs. 2006 45% 40% 35%

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

30%

services, a global oil field services company, replaced Hertz,

25%

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

15%

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

10%

creased substantially in value based on growing revenues and

0%

20%

5% 1 year

2 years

3 years

4 years

5 years

7 years

6 years

1

profits, while Hertz’s share price (NYSE ticker: HTZ) reflected the volatility of public markets generally during the year and ended up down 8.6% after being up over 50% through October.

Comparison Top 20 2007 vs. 2006 by Industry

The Group exited about 20% of its Hertz position in June and has been repaid 1.01 times its invested capital in Hertz.

40% 35%

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

30%

all investment multiple on the Hertz investment at year end was

25%

2.24 times. Due to significant valuation increases, Thomas

20%

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

Leisure

Technology

Industrial Products

Semiconductors

the Christian Bible, and also sells secular titles to mainstream

Medical & Health

0% Financial Services

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

Energy

5% Communications

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

Consumer

10%

Services

15%

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

ness is the Gospel Music Channel, which has seen exponential growth in its subscription base. Suomen Asiakastieto, the

2007

2006 adjusted for currency differences

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, 9

MANAG E M E NT R E PO RT

retail and entertainment complex, and Universal Studios

sales and marketing agency servicing consumer packaged

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

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

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

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

2008, the Group sold its holding in Universal Studios Escape

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

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

valuation increase stemming from strong operating results.

in Universal was made in 2000 and despite the adverse impact of the September 11th events, Universal posted a good overall performance, returning 2.58 times invested capital. Foodvest,

New Top 20 Companies

last year’s largest investment, was sold in the first quarter of 2007 to CapVest Equity Partners II, in which the Group is a

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

limited partner. The Group continues to have exposure to

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

Foodvest through CapVest II and through vendor loan notes

six were new investments in 2007 and four of them are still

held by the selling fund, but the Group’s percentage interest

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

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

Kinder Morgan, one of the largest pipeline transporters and

investment by size. Freescale Semiconductor, a global de-

terminal operators in North America, has already increased

signer, manufacturer, and marketer of broad line semicon-

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

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

formance. Kinder Morgan is held through AIG Highstar Capital

semiconductor business during 2007 and a reduction in orders

III and Carlyle Partners IV. Maxam, mainly a developer, manu-

from its primary customer, Motorola. The Nielsen Company

facturer and seller of civil explosives and initiation systems for

(formerly known as VNU) fell one position compared to

the mining, quarry and infrastructure industries, has increased

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

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

information, audience measurement, and business media pro-

South America, Central Asia and Russia. The investment in

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

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

value is a result of foreign exchange influences. Nevertheless,

ciled fund of the Group. EMI, a portfolio company of Terra

three more holdings within the Group’s top 20 investments

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

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

panies. Primesight, the second investment in the top 20

diversified media company, saw its valuation increase by 22%

investments portfolio sponsored by GMT Communications

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

Partners III (after Suomen Asiakastieto), is a leading outdoor

Holdings (formally known as DC A Group) has dropped out of

media owner of various sheets, backlight billboards and exclu-

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

sive advertising contracts. In October 2007, the Group invested

investments portfolio during the fourth quarter as a result of

EUR 4.2 million in Ethypharm, which was acquired by Astorg

an increased valuation after the announced sale of their “Aged

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

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

systems companies and has launched over 50 products in over

diagnostic imaging network and is held trough CVC European

70 countries. The initial investment of EUR 3.3 million in

Equity Partners IV, CVC European Equity Partners Tandem Fund

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

and CVC Capital Partners Asia Pacific II. Acosta, a leading

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 investment in Knowledge Universe Education, a leading global education company serving a wide range of students, from

10

MANAG E M E NT R E PO RT

TO P 20 I NVE STM E NTS Fair Value (CHF million)

Percentage of NAV

Type

CapMark

14.5

2.0%

Buyout

July 2005

Geoservices

13.3

1.8%

Buyout

Energy

Global

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 Australia

Investment Date

Portfolio Company

1

March 2006

2 3

1

Geography

Financial Services

North America

Sector

18

Nov. 2006

I-Med Holdings (fka. as DCA Group)

6.0

0.8%

Buyout

Medical/Health

19

July 2007

Hema

5.5

0.8%

Buyout

Consumer

Europe

20

July 2006

Acosta

5.1

0.7%

Buyout

Services

North America

172.3

24.0%

Total Fair Value Top 20 Holdings * Denotes publicly traded company (Hertz’s NYSE Ticker: HTZ) 1

EVCA Definition

infants and toddlers to primary and secondary students,

Outlook

which is one of five direct investments of the Group’s top 20. Numéricâble, the number one cable operator in France,

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

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

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

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

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

acquisition and an uplift in value due to a partial sale to The

of 2008.

Carlyle Group.

Subsequent Events As indicated above, the Group sold its interest in Universal Studios Escape as part 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 invested capital. Furthermore, GMT Communications Partners III 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 million to the Group. 11

MANAG E M E NT R E PO RT

1

Capmark w w w.capmark.com

Capmark TM is a global, diversified company that provides a broad range of financial services to investors in commercial real estaterelated assets. Capmark has three core businesses: lending and mortgage banking, investments and funds management, and servicing. The company operates in North America, Europe and Asia.

2

Geoservices www.geoservices.com

Geoservices is an upstream oil field services company with headquarters located near Paris, France. Almost 100% of its business activity takes place outside France on a worldwide basis in at least 50 different locations spread over all continents. Geoservices employs over 4 000 people of some 60 different nationalities. Its main business lines are: Mud Logging; Well Intervention and Field Surveillance.

3

Thomas Nelson/Faith Media w w w.thomasnelson.com

Faith Media Holdings, LLC, is a company formed by InterMedia Advisors to acquire the controlling interests in Thomas Nelson Media, Inc. (“TNM”) and The Gospel Music Channel (“GMC”). TNM is the leading publisher of Christian-oriented fiction and non-fiction books, Bible reference books, and translations of the Christian Bible. TNM also sells secular titles to mainstream commercial markets. GMC is the first advertiser supported cable network dedicated to gospel music. 12

4

EMI www.emi.com

EMI is one of the world’s largest music companies. It operates directly in 50 countries, with licensees in a further 20 countries, and it employs around 5 500 people. The business comprises two divisions: EMI Music Publishing and EMI Recorded Music. EMI Music Publishing has one of the largest catalogs of songs in the world and EMI Recorded Music represents musicians such as Lily Allen, The Beach Boys, The Beatles, Coldplay, Norah Jones, Kylie and Pink Floyd.

MANAG E M E NT R E PO RT

5

Knowledge Universe Education www.knowledgeu.com

Knowledge Universe Education (KUE) is a leading global education company serving a wide range of students, from infants and toddlers to primary and secondary students. The Company operates approximately 1 900 centers in the U.S.,

6

roughly double the nearest competitor. KUE also offers before and after-school tutoring services at approximately 700 school sites and an on-line education business through its Knowledge Learning Corporation subsidiary. KUE also owns a minority stake in k12, a leading operator of web-delivered curriculum for “virtual charter schools”.

Suomen Asiakastieto www.asiakastieto.com

Suomen Asiakastieto is the leading business and credit information company in Finland. The company provides customers with information and benefits at all stages of the business relationship. Its circle of services comprises targeting, decision-making, and monitoring. Asiakastieto’s database is the most extensive and comprehensive in Finland, with real-time connections with several public and private data sources. It contains up-to-date and comprehensive contact, credit, and financial information on Finnish companies as well as credit history information on private individuals.

7

Kinder Morgan www.kindermorgan.com

Kinder Morgan is one of the largest pipeline transporters and terminal operators in North America. The Kinder Morgan companies own an interest in or operate more than 37 000 miles of pipelines that transport primarily natural gas, crude oil, petroleum products and CO 2 , and approximately 165 terminals that store, transfer and handle products like gasoline and coal.

13

MANAG E M E NT R E PO RT

8

Hertz www.hert z.com

Hertz is the world’s largest general use car rental company and the third largest equipment rental business in North America. The Company and its independent licensees and associates cur-

rently rent cars at approximately 7 700 locations in over 150 countries. Hertz has been in the car rental business since 1918 and in the equipment rental business for over 40 years. Wholly owned subsidiaries of Hertz include: Hertz Equipment Rental Corporation, Hertz Claim Management Corporation (a Third Party Liability Claims Administrator), and Hertz Local Edition, which specializes in insurance replacement and local car rentals.

9

Primesight www.primesight.co.uk

Primesight is one of the leading Outdoor Media Owners, with interests in Roadside 6 Sheets, Convenience 6 Sheets, Premium Backlight Billboards, Glasgow Subway and exclusive contracts to advertise in private Health Clubs & multiplex Cinemas Foyers. The Company has also developed a strong market position in several niche segments such as CTN (Confection, Tobacco, News), small retail shops and petrol stations.

10

Universal Studios Escape www.universalorlando.com

Universal Studios Escape consists of two theme parks, Universal Studios Florida and Islands of Adventure. It also includes CityWalk, a dining, retail and entertainment complex. Universal Studios Florida is a movie-based theme park designed to allow guests to become a part of their favorite movies. Islands of Adventure, opened in 1999, has 16 rides, shows, and attractions along with a façade of famous film locations. CityWalk is a diverse collection of restaurants, retail outlets, and nightclubs, and also includes a 20-screen Cineplex. The latest attraction, The Incredible Hulk Coaster, has a top speed of 67 mph, one of the fastest rides in the world. 14

MANAG E M E NT R E PO RT

11

FoodVest www.foodvest.co.uk

Foodvest is one of the largest food groups in Europe. Foodvest is a UK registered business and was created in 2006 with the merger of Young’s Seafood in the UK and Findus in Sweden. Today the business is run by a single management team. Young’s Seafood is based in Grimsby, England. Young’s is the UK’s leading seafood producer, with a 40% share of both the frozen and chilled seafood market. Findus is based in Malmo, Sweden. Findus is the leading frozen food brand in Sweden, Norway, Finland and France. Findus produces a wide range of products including seafood, vegetables, ready meals and frozen bakery products.

12

Freescale www.freescale.com

Freescale Semiconductor, Inc., is a global designer, manufacturer, and marketer of broad line semiconductors. The Company develops products for multiple markets, including the wireless and wire line communication, consumer, and automotive semiconductor markets. The company is based in Austin, Texas, and has design, research and development, manufacturing, or sales operations in more than 30 countries. Freescale is one of the world’s largest semiconductor companies and has more than 24 000 employees.

13

Maxam www.maxam-corp.com

Founded in 1872 by Alfred Nobel, Maxam is an international company with productive centers in more than 20 countries and commercial presence in more than 90 countries. Maxam is the European leader and the third largest player of the world in the development, manufacture and sale of civil explosives and initiation systems for the mining, quarry and infrastructure industries in addition to a leading producer of hunting cartridges and powders for sporting use. Besides its mining expertise, Maxam is a key supplier of raw materials to the Nitrochemical industry.

14

The Nielsen Company (VNU) w w w.nielsen.com

The Nielsen Company is the world’s leading provider of marketing information, audience measurement, and business media products and services. By delivering an unmatched combination of insights, market intelligence, advanced analytical tools, and integrated marketing solutions, Nielsen provides clients with the most complete view of their consumers and their markets. The company is active in more than 100 countries, with headquarters in Haarlem, the Netherlands, and New York, USA. 15

MANAG E M E NT R E PO RT

15

Ethypharm w w w.ethypharm.com

Ethypharm is one of the world’s leading drug delivery systems (DDS) companies that provides a range of effective solutions to optimize the delivery of pharmaceutical products. The use of Ethypharm’s DDS technologies delivers important benefits including improving the drug’s efficacy, enhancing patient compliance and comfort, extending the life cycles of existing pharmaceutical products, and reducing the total cost of treatment. Ethypharm has launched 50 products in over 70 countries.

16

PBL Media www.pblmedia.com.au

PBL Media is Australia’s largest diversified media company. The group’s core businesses are television production and broadcasting, magazine publishing and distribution, and strategic investments in key digital media

and entertainment businesses. It owns a leading free-to-air television network, the Nine Network Australia, and Australia’s largest magazine publisher, ACP Magazines. Additionally PBL Media is a joint venture partner in ninemsn, the leading on-line business in Australia, and owns the majority in the number one auto website carsales.com, and interests in myhome.com.au and Australian News Channel Sky News.

17

Numéricâble www.numericable.fr

Numéricâble was created in March 2005, combining cable operators and their cable networks from France Télécom, Canal+ (Vivendi) and TDF. Subsequently, Altice One, which owned cable assets in eastern France, Belgium and Luxembourg and then the number two cable provider in France, Noos – UPC France were acquired. As a result, Numéricâble is the number one cable operator in France passing more than 9.5 million homes (i.e. serving more than 99% of the French cable subscribers). Numéricâble is the first telecom operator to massively deploy its own fiber network in France. This unique fiber network already passes 2 million households and will be extended to 8 million households by 2010. In September 2007, Completel was acquired – it is the third largest B2B infrastructure-based telecommunications operator in France with both a national backbone and a DSL network with 600 exchanges covering 110 cities in France. 16

MANAG E M E NT R E PO RT

18

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

The I-MED Network (“I-Med”) is Australia’s largest private diagnostic imaging network. It was formerly part of DC A Group, which also included Australia and New Zealand’s leading for-profit aged care facility operator, prior to its sale to BUPA in December 2007. DC A has been renamed I-Med and is now primarily a diagnostic imaging business. Across Australia and the United Kingdom, the I-MED Network operates over 240 diagnostic imaging clinics. Its model is to provide the best quality of service to patients and their referrers by offering comprehensive imaging services in all modalities of this expanding branch of diagnostic medicine. I-Med has more then 4 500 employees.

19

Hema www.hema.nl

Hema is a unique and highly successful general merchandise retailer which offers its customers an extensive range of apparel, home, personal care and 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), as well as a captive website. Hema is known by its customers for its extensive and high quality product offering at attractive prices. The company has approximately 10 000 employees.

20

Acosta www.acosta.com

Acosta is the leading sales and marketing agency servicing consumer packaged goods companies in the U.S. and Canada. Its customer base comprises over 1 300 clients and includes top tier global food and beverage manufacturers. Acosta has roughly 11 000 non-unionized sales associates deployed at more then 120 000 retail locations to serve the grocery channel and strategic channels, which include mass/club, natural/specialty, convenience stores, and drug stores. 17

MANAG E M E NT R E PO RT

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.

Partners IV (CHF 24.2 million), Carlyle IV (CHF 23.5 million),

Top 20 Funds

AIG Horizon Partners (CHF 23.2 million) and Carlyle European Equity Partners II (CHF 22.0 million). These funds are fully or nearly fully invested and have, with the exception of AIG

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

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

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

Horizon Partners is the most mature (vintage year 1999) and

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

is actively divesting its portfolio companies. The other funds

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

have made initial distributions but are generally in the value

year, four were 2007 vintage funds. Their value represents

creation phase of the underlying portfolio companies.

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

New Top 20 Funds

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

Advent International Global Private Equity V (GPE V)

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

has increased its net asset value due to the strong performance

the top 20 funds portfolio is invested primarily in Western

of underlying portfolio companies. Furthermore, Advent made

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

eleven new investments during the year. In 2007 the Group

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

invested USD 9.4 million in Ares Corporate Fund II. Ares

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

makes majority and shared-control investments in distressed

distribution of overall fund size: one CHF 20+ billion fund,

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

two funds between CHF 10–20 billion, three funds between

2006, the Group committed USD 20 million in Madison Dear-

CHF 5–10 billion, ten funds between CHF 500 million to CHF 5

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

billion, and four funds below CHF 500 million.

20 funds. Madison Dearborn Partners V makes investments

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

in management buyouts and other private equity transactions

Capital Partners V (CHF 35.9 million), CVC European Equity

in the communications, basic industries, financial services, consumer and healthcare industries. The Fund seeks to be a lead investor and majority/control owner in most of its investments. Terra Firma Investments III is focused on buyouts

18

MANAG E M E NT R E PO RT

TO P 20 F U N D S Fair Value (CHF million)

Percentage of NAV

Strategic Focus

Geographic Focus

Blackstone Capital Partners V, L.P.

35.9

5.0%

Buyout

North America/Europe

2005

CVC European Equity Partners IV, L.P.

24.2

3.4%

Buyout

Europe/Asia

3

2005

Carlyle Partners IV, L.P.

23.5

3.3%

Buyout

North America/Europe

4

1999

AIG Horizon Partners Fund, L.P.

23.2

3.2%

Buyout

Europe/US

5

2003

Carlyle Europe Partners II, 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 III

20.9

2.9%

Buyout

Europe

8

2006

GMT Communications Partners III, L.P.

20.6

2.9%

Buyout

Europe

Inception

Fund

1

2006

2

9

2006

Ares Corporate Fund II, L.P.

19.4

2.7%

Buyout

North America

10

2006

Madison Dearborn Partners 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 III, L.P.

17.8

2.5%

Buyout

Europe Europe

13

2007

The Fourth Cinven Fund

17.4

2.4%

Buyout

14

2005

AIG Global Emerging Markets Fund II, 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 Partners Asia Pacific II, L.P.

15.5

2.1%

Buyout

Asia

17

2006

Lexington Capital Partners VI, L.P.

15.2

2.1% Buyout/Venture

Europe/North America

18

2007

Avista Capital Partners, L.P.

14.6

2.0%

19

2007

AIG Highstar Capital III, L.P.

14.2

20

2006

Diamond Castle IV, L.P.

13.6 389.4

54.1%

Total Fair Value Top 20 Funds

Buyout

North America

2.0%

Buyout

North America

1.9%

Buyout

North America

of large, asset-rich and complex businesses in need of operational and/or strategic change. EMI, a top 20 investment of the Group, is a perfect example of one of their underlying port-

Comparison Top 20 Funds by Geography 2007 vs. 2006 80%

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

70%

is The Fourth Cinven Fund. The Group already had exposure

60% 50%

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

40%

standing performance. Cinven will continue to focus on buy-

30%

outs in large high quality pan-European businesses. Avista

20% 10%

Capital Partners is the first independent fund lead by two

0% Europe

seasoned private equity professionals that spun out of DL J

Rest of the World

North America

E

Merchant Banking Partners. The fund invests in the energy, healthcare and media sectors in the United States, typically pursuing control equity investments. AIG Highstar Capital

Comparison Top 20 Funds by Vintage 2007 vs. 2006

III is a fund targeting to make investments in infrastructure

35%

related assets and businesses primarily in North America.

30% 25% 20% 15% 10% 5% 0%

2007

2006

2005

2004

2003

2002

2001

19 2007

2006 adjusted for currency differences

F I NA NC IA L R E PO RT 2007

AI G P R IVATE E Q U IT Y G R O U P – CO N S O LI DATE D F I NAN C IAL STATE M E NTS 2007

CO N S O LI DATE D BAL AN C E S H E E T A S O F D E C E M B E R 31, 2007 AN D D E C E M B E R 31, 2006 in TCHF Note

2007

2006

Assets Current assets – Cash and cash equivalents

2

26

37 179

– Derivative instruments

4

1 645

945

– Receivables and prepayments

5

Total current assets

1 826

12 078

3 497

50 202

18 655

34 155

Non-current assets – Loans

1

– 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

847 865

589 753

20

851 362

639 955

6

24 008

14 109

7

107 954

–

13

145

–

132 107

14 109

412 500

412 500

Total non-current assets Total Assets Liabilities and Shareholders’ Equity Current Liabilities – Payables and accrued charges – Loans – Deferred tax liability Total current liabilities Shareholders’ Equity – Share capital

8

– 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

851 362

639 955

3 949 027

3 896 194

182.13

160.63

Total Liabilities and Shareholders’ Equity Net asset value per share Number of share outstanding at year-end Net asset value per share (in CHF)

8

The accompanying notes on pages 26 to 48 form an integral part of these consolidated financial statements. 22

AI G P R IVATE E Q U IT Y G R O U P – CO N S O LI DATE D F I NAN C IAL STATE M E NTS 2007

CO N S O LI DATE D I N CO M E STATE M E NT FO R TH E P E R I O D JAN UARY 1 TO D E C E M B E R 31, 2007 AN D JAN UARY 1 TO D E C E M B E R 31, 2006 in TCHF Note

2007

2006

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

Income

Interest income from current assets

671

2 615

2 642

–

20

129 661

67 701

Management fees

14

(14 205)

(11 256)

Net gain on derivative instruments Total Income Expenses Performance 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 Total Expenses Tax expenses

13

Net profit for the period

–

(1 381)

(48 187)

(63 569)

(890)

(1 156)

80 584

2 976

Earnings per share Weighted 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

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

23

AI G P R IVATE E Q U IT Y G R O U P – CO N S O LI DATE D F I NAN C IAL STATE M E NTS 2007

CO N S O LI DATE D STATE M E NT O F C A S H F LOWS FO R TH E P E R I O D JAN UARY 1 TO D E C E M B E R 31, 2007 AN D JAN UARY 1 TO D E C E M B E R 31, 2006 in TCHF Note

2007

2006

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

673

2 613

Cash Flows from Operating Activities

Interest income received from current assets 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

1 942

–

Proceeds from derivative instruments Operating costs Management & Performance fees

14

Changes in other current assets and liabilities

(3 892)

(3 335)

(14 662)

(12 345)

–

1

(155 867)

(141 642)

Proceeds from loans

107 954

–

Interest paid on line of credit

(1 586)

–

Total Cash Flows from Operating Activities Cash Flows from Financing Activities

Proceeds from capital increase

–

145 519

Treasury share purchase

–

(36 465)

Treasury share sale Total Cash Flows generated by/(used in) Financing Activities Foreign Exchange Effect Increase (decrease) in Cash and Cash Equivalents

8 454

7 677

114 822

116 731

3 892

(1 863)

(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

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

24

AI G P R IVATE E Q U IT Y G R O U P – CO N S O LI DATE D F I NAN C IAL STATE M E NTS 2007

STATE M E NT O F C HAN G E S I N CO N S O LI DATE D S HAR E H O LD E R S’ E Q U IT Y A S O F D E C E M B E R 31, 2007 in TCHF Share

Share

Less

Reserve

Revaluation

Accumulated

Total

Capital

Capital

treasury

for stock

Reserve

Surplus

Equity

Premium

stock

option

(at cost)

plan

(3 775)

78

(Deficit)

Shareholders’ Equity Balance January 1, 2006 Share capital increase

317 500

94 557

(50 786)

74 972

95 000

432 546 95 000

Movement due to share capital increase

55 575

55 575

Share issue cost

(5 056)

(5 056)

Value increase on investments Value increase due to currency translation differences Transaction in treasury shares

3 694

70 879

70 879

2 586

2 586

(32 432)

Transaction in reserve for stock option plan

(28 738) 78

78

Net profit for the period Total Shareholders’ Equity as of December 31, 2006 Balance January 1, 2007

2 976

2 976

412 500 148 770 (36 207)

156

22 679

77 948

625 846

412 500

156

22 679

77 948

625 846

148 770

(36 207)

Value increase on investments Value decrease due to currency translation differences Transaction in treasury shares

346

20 078

20 078

(15 985)

(15 985)

8 360

Transaction in reserve for stock option plan

8 706 26

26

Net profit for the period Total Shareholders’ Equity as of December 31, 2007

412 500

149 116 (27 847)

182

26 772

80 584

80 584

158 532

719 255

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

25

AI G P R IVATE E Q U IT Y G R O U P – CO N S O LI DATE D F I NAN C IAL STATE M E NTS 2007

N OTE S TO TH E CO N S O LI DATE D F I NAN C IAL STATE M E NTS

AIG Private Equity Ltd., Zug (“the Company”) is a Swiss stock corporation established under the relevant provisions of the Swiss Code of Obligations and domiciled in Zug. The Company was established by AIG Private Bank Ltd. on September 17, 1999 for an indefinite period of time and was registered in the commercial register of the Canton of Zug on September 20, 1999. The Company, together with AIG Private Equity (Bermuda) Ltd. and APEN Faith Media Holdings LLC (“the Subsidiaries”), comprises the AIG PE Group (“the Group”). The Company’s shares are listed on the SWX Swiss Exchange. The Company’s investment objective is to achieve longterm capital growth for shareholders by investing in private equity funds. The Company may also make direct investments in operating companies. Although the Company may invest directly in fund investments or companies, it is anticipated that investments will generally be made through the Subsidiaries. The subsidiary in Bermuda was incorporated on October 6, 1999 as a company with limited liability under the laws of Bermuda for an unlimited duration and is domiciled in Pembroke. All shares are held by the Company. The purpose of the subsidiary is to act as an investment vehicle the Company’s investments and related transactions. APEN Faith Media Holdings LLC was incorporated on June 11, 2006 as a company with limited liability under the laws of Delaware, United States of America, for an unlimited duration and is domiciled in Wilmington. All shares of APEN Faith Media Holdings LLC are held by the Company. The purpose of APEN Faith Media Holdings LLC is to act as an investment vehicle for the Company’s direct investments in the United States and to enter into related transactions. The Company’s Board of Directors is responsible for the policies and management of the Company as well as valuations and the appointment of the investment committee. The subsidiary’s investment committee is responsible for assessing the investment opportunities presented by the manager and the investment advisor and subsequently making investment recommendations to the Bermuda Board of Directors for approval. As of December 31, 2007 the Company did not employ any employees (2006: none). For information on the Group’s management please refer to Note 14, Management and Advisory Agreement.

26

ACCOUNTING POLICIES Basis of Presentation The accompanying consolidated financial statements of the Group for the year ended December 31, 2007 have been prepared in accordance with International Financial Reporting Standards (IFRS) formulated by the International Accounting Standards Board (IASB), and comply with Swiss Law and the accounting provisions of the additional rules for the listing of investment companies of the SWX Swiss Exchange. The consolidated financial statements are prepared under the historical cost convention, except that investments available-for-sale and derivative financial instruments are stated at their fair value as disclosed in the accounting policies hereafter. Use of Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Adoption of revised and new standards Amendments to published standards effective in 2007 • IFRS 7, Financial instruments: Disclosures, and the complementary amendment to IAS 1, Presentation of Financial Statements – Capital disclosures introduces new and extended disclosures relating to financial instruments and financial risk management and does not have any impact on the classification and valuation of the group’s financial instruments. The Group has applied IFRS 7 and the amendment to IAS 1 from annual periods beginning January 1, 2007. Further disclosures have been included in order to fulfill the requirements of IFRS 7 and IAS 1. • IFRIC 10 – Interim Financial Reporting and Impairment – (effective for annual periods beginning on or after 1 November 2006). IFRIC 10 prohibits the impairment losses recognized in an interim period on goodwill, investments in equity instruments and investments in financial assets held available for sale to be reversed at a subsequent balance sheet date. The Group has applied IFRIC 10 since January 1, 2007.

AI G P R IVATE E Q U IT Y G R O U P – CO N S O LI DATE D F I NAN C IAL STATE M E NTS 2007

Standards, amendments and interpretations effective in 2007 but not relevant The following standards, adjustments and interpretations are mandatory effective for the accounting periods starting at January 1st, 2007 – but are not relevant for the Group: • IFRIC 7 – Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies Effective for annual periods beginning on or after 1 March 2006. • IFRIC 8 – Scope of IFRS 2 (Effective for annual periods beginning on or after 1 May 2006). IFRIC 8 requires consideration of transactions involving the issuance of equity instruments – where the identifiable consideration received is less than the fair value of the equity instruments issued. • IFRIC 9 – Reassessment of Embedded Derivatives (effective for annual periods beginning on or after 1 June 2006) – This interpretation prescribes that the existence of an embedded derivative is determined at the date an entity first becomes a party to a contract and is reassessed only when there has been a change to the contract that significantly modifies the cash flows. Interpretations to existing standards that are not yet effective The following standards and interpretations are not yet effective: • IFRS 2 (amended) – clarifies that vesting conditions can be service conditions and performance conditions only. Other features of share-based payment are not vesting conditions. It also specifies that all cancellations, whether by the entity or by the other parties, should, receive the same accounting treatment. The Group has not yet evaluated the impact (if any) of this amended statement. • IFRS 3 (revised) – “business combinations” requires significant changes in the application of the acquisition method to business combinations. All payments to purchase a business are to be recorded at fair value at the acquisition date, with some contingent payments subsequently remeasured at fair value through profit and loss. Goodwill may be calculated based on the parent’s share of net assets or it may also include goodwill related to the minority interest. All transaction costs will be expensed. The standard is applicable to business combinations occurring in accounting periods beginning on or after 1 July 2009, with earlier application permitted. • IFRS 8 – Operating segments (effective for annual periods beginning on or after 1 January 2009) – This standard governs newly the use of the Segment Reporting. • IAS 23 – Borrowing Costs (Revised) (effective for annual periods beginning on or after 1 January 2009) – The revised

•

•

•

•

•

standard eliminates the option of expensing all borrowing costs and requires borrowing costs to be capitalised if they are directly attributable to the acquisition, construction or production of a qualifying asset. IAS 27 (amended) – requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control. They will no longer result in Goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is remeasured to fair value and a gain or loss is recognized in profit or loss. In addition, total comprehensive income must be attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. These changes will impact the accounting for future transactions with 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 transactions involving treasury shares or involving group entities (for example options over a parent’s shares) should be accounted for as equity-settled or cash-settled share-based payment transactions in the stand-alone accounts of the parent and group companies. IFRIC 12 – Service Concession Arrangements (effective for annual periods beginning on or after 1 January 2008) – The interpretation provides guidance on the accounting by operators for public-to-private service concession arrangements. IFRIC 13 – Customer Loyalty Programmes (effetive for annual periods beginning on or after 1 July 2008) – The Interpretation requires that loyalty award credits granted to customers as part of a sales transaction are accounted for as 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 January 2008) – This interpretation addresses how to assess the limit under IAS 19 Employee Benefits, on the amount of the surplus that can be recognized as an asset, in particular, when a minimum funding requirement exists.

Principles of Consolidation The consolidated financial statements of the Group include AIG Private Equity Ltd. and the companies that it controls. This control is normally evidenced when the Group owns, either directly or indirectly, more than 50% of the voting rights of a company’s share capital or it is able to govern the financial and 27

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operating policies of an enterprise so as to benefit from its activities. Consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. Subsidiaries are consolidated from the date on which effective control is transferred to the Group and are no longer consolidated from the date that control ceases. The consolidation is performed using the purchase method. All intercompany transactions and balances are eliminated. All Group companies have a December 31 year end. The scope of consolidation currently includes AIG Private Equity (Bermuda) Ltd. and APEN Faith Media Holdings LLC, which both are owned 100% by the Company. The investments of the Group are held as part of the Group’s portfolio solely for the purpose of capital gains upon sale in the near future. As of December 31, 2007 the Group holds ownership interests of 20% or more in AIG Horizon Partners Fund (36.57%; 20.50% including side-by-side vehicle; 2006: 36.57%; 20.50% including side-by-side vehicle). According to the limited partnership agreement of this fund, the Group does not have the power to participate in the financial and operating policy of the fund. Therefore, this investment is excluded from equity accounting. Foreign currency transactions Functional and presentation currency The group’s investments are mainly held in foreign currencies different from the presentation currency. Therefore, proceeds from these investments are also received in foreign currencies. Investments are generally held in the Subsidiaries which are accounted for in USD. Further, performance management and cash flow projections are based on investment currency (primarily USD and EUR). Accordingly, the Board of Directors considers the USD as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions of the Group, and the USD is considered to be the functional currency of the Company and its subsidiaries. The presentation currency of the financial statements is CHF. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income

28

statement. Translation difference on monetary items, such as derivatives held at fair value through profit or loss, are reported part of the fair value gain or loss. Translation differences on non-monetary items, such as equities classified as available-for-sale financial assets, are recognized in equity (reserve from foreign currency translation). Translation to presentation currency The results and financial positions of Group companies are translated from the functional currency into the presentation currency as follows: • assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; • income and expenses for each income statement are translated at effective exchange rates; and • all resulting exchange differences are recognized as a separate component of equity. Derivative Financial Instruments The Company enters into foreign exchange forward or option contracts to partially macro-hedge its net exposure in private equity investments denominated in foreign currency. These derivative financial instruments are held by the Company and the Subsidiaries. The derivative financial instruments are held-fortrading, are recorded at the date of the transaction and initially recognized at fair value excluding transaction costs and subsequently re-measured at fair value. Fair values are obtained from quoted market prices, discounted cash flow models, or option pricing models as appropriate. Changes in the fair value of those derivative financial instruments are recorded into the income statement. Cash and Cash Equivalents Cash includes cash on hand and cash with banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less, and that are subject to an insignificant risk of change of value. Loans While the loans may vary in their specific terms, in general the interest calculated for the year is added to the notional amount. Loans are recognized at the date of the transaction. Loans are carried at amortized cost (with accrued and unpaid interest included in cost) using the effective interest method, less any impairment adjustments.

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Direct Investments and Fund Investments Under IAS 39, the Group has designated all its investments and securities as available-for-sale. This category was chosen as the most appropriate for an investment company as the Group manages net asset value. Available-for-sale securities are initially recorded at fair value including transaction costs at trade date. These securities are subsequently re-measured at fair value. Gains or losses on measurement to fair value of availablefor-sale investments are recognized directly in the revaluation reserve in the shareholder’s equity. When the investment is sold or otherwise disposed of, or, when it is determined to be impaired, the cumulative gain or loss previously recognized in equity is included in net profit or loss for the period. An impairment is recorded when there is a significant (> 30%) or prolonged (> 1 year) decrease in fair value below cost. Such valuation adjustments are recorded under “write-down of longterm assets”. An investment, including contractual rights, is recognized where the Group deems it probable that future economic benefits associated with an investment will flow to the entity, and it has a cost or value than can be measured reliably. The future economic benefit of an investment is its potential to contribute, directly or indirectly, to the flow of cash and cash equivalents to the entity. An investment is derecognized if, and only if, the Group either transfers the contractual rights to receive the cash flows of the financial asset, or it retains the contractual rights to receive the cash flows of the financial asset, but assumes a contractual obligation to pay the cash flows to one or more recipients, and in doing so transfers substantially all of the risks and rewards of the assets. The Group’s investments are mainly non-current financial assets and market quotations are not readily available, therefore these investments are measured at their fair value using the most appropriate valuation techniques as described in detail below. The responsibility for determining the fair values lies with the Board of Directors. Although general partners of funds in which the Group invests and sponsors of the Group’s direct investments provide valuations of these investments, no independent external valuation of the investments were conducted. All fair valuations may differ significantly from values that would have been used had ready markets existed. Such differences could be material. Direct Investments In determining the fair value of an unquoted direct investment, the Group considers all appropriate and applicable factors relevant to their value, including but not limited to the following:

•

•

Venture capital investments: A new financing round material in size to the company with new, sophisticated institutional investors making up a significant piece of the financing round. Inside round of finance does not qualify. Buy-out/later stage investments for which subsequent rounds of finance are not anticipated: Once an investment has been held for one year, an analysis of the fair market value of the investments will be performed. This analysis will typically be based on one of the following methods (depending on what is appropriate for that particular 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 and applicable indicators of fair value, the Group determines the fair values as of the valuation date. Fund Investments In determining the fair value of fund investments, the Group considers the funds as transparent holding vehicles. The fair values of the underlying investments are determined using the same valuation techniques as for direct investments. All purchases and sales of investments are recognized when the capital call/distribution notice is received. Cost of purchase includes transaction cost. Investments in securities and in other financial instruments traded on recognized exchanges (including bonds, equities, futures contracts, options, and funds), are valued at the last reported bid price on the valuation date. Investments in securities and in other financial instruments traded in the overthe-counter market and listed securities for which no trade is reported on the valuation date are valued at the last reported bid and ask price for long and short positions, respectively. Investments are valued on a regular basis. No discount is applied to the bid price of quoted investments, even in cases where such investments are subject to a restriction on their sale or where the number of share held is high in relation to the trading volumes. Dividends are recognized in the income statement upon the receipt of such dividends.

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Contractual Agreements On December 22, 1999 the Group entered into three contractual agreements with American International Group Inc. that entitle the Group to receive payments equal to a pro rata share of all distributions from a specified list of funds, while obligating the Group to make payments equally to a pro rata share of all draw-downs of committed capital to the same underlying funds. The contractual agreements are valued using the latest reported net asset value available from the General Partners and adding or subtracting subsequent cash flows. Interest income, dividends and capital gains are recognized in the income statement on a monthly basis when cash is received from the counterparty. Net Asset Value per Share and Earnings per Share The net asset value per share is calculated by dividing the net assets included in the balance sheet by the number of participating shares outstanding at the reporting date. Basic earnings per share are calculated by dividing the net profit attributable to the ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share are calculated by adjusting the weighted average number of ordinary shares outstanding assuming conversion of all dilutive potential ordinary shares. Taxes Tax provisions are based on reported income. Taxes are calculated in accordance with the tax regulations in force in each country where the Group has investments. Switzerland The Company is taxed as a holding company in the Canton of Zug. Income, including dividend income and capital gains from its participations, is exempt from taxation at the cantonal and communal level. For Swiss federal tax purposes, income tax at an effective tax rate of approximately 7.8% is levied. However, dividend income qualifies for the participation exemption if the related investment represents at least 20% of the other company’s share capital or has a value of not less than CHF 2 million. The participation exemption is extended to capital gains on the sale of a substantial participation (i.e. at least 20%), which was acquired after January 1, 1997, and was held for a minimum holding period of one year. The result of the participation exemption pursuant to the aforementioned requirements is that dividend income and capital gains are almost fully exempt from taxation. In cases where the participation exemption is not applicable, a deferred tax liability will be calculated for Swiss federal tax purposes. 30

Bermuda The activities of the Bermuda subsidiary are currently not subject to any income, withholding or capital gains taxes in Bermuda. US APEN Faith Media Holdings LLC is subject to income and capital gains taxes in the US. Provisions for taxes payable on profits earned in the Group companies are calculated and recorded based on the applicable tax rate in Switzerland. Tax expenses shown in the profit and loss accounts represent withholding taxes paid in various jurisdictions that the Group can not reclaim and may include direct taxes paid in Switzerland or the US. Capital taxes charged to the Company by the Canton of Zug are included in the operating expenses. Shareholders Equity Treasury shares are presented in the balance sheet as a deduction from equity. The acquisition of treasury shares is presented as a change in equity. No gain or loss is recognized in the income statement on the sale, issuance, or cancellation of treasury shares. Consideration received is presented in the financial statements as a change in equity. The transaction costs of an equity transaction, other than in the context of a business combination, are accounted for as a deduction from equity. Equity transaction costs are comprised of only those incremental external costs directly attributable to the equity transaction, which would otherwise have been avoided. The revaluation reserve includes the cumulative net change in fair value of available-for-sale investments until the investment is disposed of or is determined to be impaired. The translation reserve from currency revaluation includes differences due to foreign currency translation between presentation and functional currencies. Impairment of Financial Instruments Financial instruments are reviewed for impairment at each balance sheet date. For available-for-sale investments, the cumulative gain or loss previously recognized in equity is included in net profit or loss for the period when there is objective evidence that the asset is impaired. In the case of equity investments, a significant or prolonged decline in the fair value of the security below its cost is considered in determining whether the assets are impaired. Impairment losses recognized in the income statement on

AI G P R IVATE E Q U IT Y G R O U P – CO N S O LI DATE D F I NAN C IAL STATE M E NTS 2007

equity investments are not reversed through the income statement but through equity. The available-for-sale investments are categorized into three distinct categories. The application of the impairment policy to the individual category of investments is applied as follows:

Contingencies Contingent liabilities are not recognized in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognized in the financial statements but disclosed when an inflow of economic benefits is probable.

Contractual Agreements (see also note 16) At each balance sheet date the reference funds are reviewed by the Company and investment advisor. If a reference fund has liquidated all of its portfolio companies and is beyond its investment period, the Company will eliminate the reference fund from the contractual agreements and debit any residual value through the profit and loss accounts. Additionally, the Company will include the cumulative loss previously recognized in equity in net profit or loss for the period if it comes to the conclusion that the future cash flows of the contractual agreements will not cover its costs.

Share-based compensation plans Stock option plan The Group operates an equity-settled, share-based compensation plan. Costs for stock options granted to the management are recognized in the income statement in quarterly amounts over the vesting period starting from the grant date and ending at the beginning of the exercise period, so that the personnel expenses show the fair amount of compensation paid by the Company to its management for their services rendered. The amounts recognized as cost in the income statement are credited to “Reserves for stock option plan” in equity. Cost is defined as the fair market value of the options at grant date. The fair market value is determined by using a recognized option pricing model.

Fund Investments Funds where the Company is a direct limited partner will be reviewed at each balance sheet date. If the fair market value of the Company’s investment in a fund is below the Company’s cost basis in such fund, and has been below the cost basis for at least one year, the Company will recognize the difference as an impairment, which will be booked through profit or loss for the period. Direct Investments Direct investments are reviewed on a quarterly basis by the investment advisor. Financial and market performance is compared with budget information, data obtained from competitors, and subsequent rounds of financing. In case of significant deviations, valuations are adjusted to reflect current market values. If a direct investment has had a fair market value below cost for at least a year, it will be deemed to be impaired and the cumulative loss previously recognized in equity, will be transferred to profit or loss for the period. Segment reporting The sole business segment of the Group is investing in private equity, resulting in no primary segment disclosure. Therefore, the results published in this report correspond to the primary segment-reporting format. The geographical analysis of assets and income is disclosed in Note 20.

Share appreciation rights (SARs) In addition to the stock option plan the Group operates a cashsettled, share-based compensation plan. The corresponding liability is re-measured at each balance sheet date to fair value, with changes recognized immediately in profit or loss. Critical accounting estimates The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets within the next financial year are: Fair value of non-quoted investments The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Group uses its judgment to select a variety of methods and make assumptions that are not always supported by observable market prices or rates. The use of valuation techniques requires management to make estimates. Changes in assumptions could affect the reported fair value of these investments. The carrying amounts of investments for which fair values were determined using valuation techniques amounted to CHF 691.6 million (2006: CHF 385.5 million). 31

AI G P R IVATE E Q U IT Y G R O U P – CO N S O LI DATE D F I NAN C IAL STATE M E NTS 2007

1. Long-term assets Investment Schedule as of December 31, 2007 Opening Opening Balance at Balance at Cost Fair Value in TCHF in TCHF

AIG Fund Portfolio AIG Altaris Health Partners II, L.P. AIG Blue Voyage Fund, L.P. AIG Brazil Special Situations Fund, L.P. AIG Brazil Special Situations Fund II, L.P. AIG Global Emerging Markets Fund II, L.P. AIG Global Sports & Entertainment Fund, L.P. AIG Highstar Capital, L.P. AIG Highstar Capital III Prism Fund, L.P. AIG Horizon Partners Fund, L.P. AIG New Europe Fund II, L.P. AIG Orion Fund, L.P. CapVest Equity Partners, L.P. CapVest Equity Partners II, L.P. AIG Private Equity Portfolio L.P. I AIG Funds Subtotal AIG Funds Third Party Fund Portfolio International Funds Advent International GPE V- C L.P. Affinity Asia Pacific Fund III, L.P. Astorg III Astorg IV Carlyle Europe Partners II, L.P. Carlyle Europe Partners III, L.P. Carlyle Japan Partners II, L.P. CVC Capital Partners Asia Pacific II, L.P. CVC European Equity Fund III, L.P. CVC European Equity Fund IV, L.P. CVC European Equity Partners Tandem Fund, L.P. Cognetas, L.P. Cognetas II, L.P. Emerging Europe Convergence Fund II, L.P. EQT III, L.P. EQT IV, L.P. EQT V, L.P. GMT Communications Partners III, L.P. Ibersuizas II, L.P. Lexington Captial Partners IV, L.P. Lexington Captial Partners VI, L.P. Lion Capital Fund II, L.P. Mid Europa III, L.P. Odewald Private Equity Partners III, L.P. PAI Europe IV, L.P. PAI Europe V, L.P. Sovereign Capital II, L.P. Terra Firma Investments III The Third Cinven Fund The Fourth Cinven Fund Unison Capital Partners II Unison Standby Facility Ventizz Capital Fund IV, L.P. AIG Private Equity Portfolio L.P. I International Funds Subtotal International Funds

32

Third Party Fund Portfolio US Funds Apollo VI, L.P. Apollo VII, L.P. Ares Corporate Fund II, L.P. Avista Capital Partners (Offshore), L.P. Berkshire Fund VII, L.P. Blackstone Capital Partners V, L.P. Carlyle Partners IV, L.P.

Cumulative Gain/Loss 31.12.06 in TCHF

Paid in Capital in TCHF

Returned Capital in TCHF

– 533 5 298 – 7 615 3 904 578 – 35 863 – 1 897 18 813 – 1 986 76 488

– 347 5 015 – 11 659 3 275 428 – 30 803 – 1 287 28 538 – 5 817 87 169

– (186) (283) – 4 044 (629) (150) – (5 060) – (610) 9 725 – 3 831 10 682

– 6 199 2 183 5 111 201 – 20 922 1 818 6 215 – 220 10 570 – 47 445

– – (2 498) – (251) (366) – (7 832) (7 989) – (1 365) (6 265) (1 002) (400) (27 967)

2 399 – 9 578 – 17 746 – 992 10 376 5 401 10 057 – 14 547 8 495 6 401 9 908 13 267 985 7 355 2 648 1 101 7 882 – – – 10 575 – 997 – 5 914 – 1 181 – – 3 349 151 156

5 294 – 12 734 – 25 437 – 872 10 299 7 107 11 185 – 18 092 8 835 6 549 13 393 13 753 997 7 578 2 392 13 298 7 728 – – – 11 253 – 1 049 – 9 115 – 2 034 – – 3 192 192 185

2 895 – 3 155 – 7 691 – (120) (77) 1 706 1 128 – 3 545 340 148 3 485 487 11 223 (256) 12 197 (153) – – – 678 – 52 – 3 200 – 853 – – (157) 41 029

11 707 5 522 3 658 12 902 6 135 4 834 115 6 984 1 122 14 129 5 198 3 540 5 178 5 325 188 186 5 812 12 154 3 504 – 9 575 9 290 1 689 10 170 7 936 68 1 914 17 691 481 17 188 759 272 – 314 185 538

(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)

5 316 – 4 087 – 2 820 21 638 13 614

5 233 – 4 056 – 2 764 21 061 15 483

(83) – (31) – (56) (577) 1 869

9 893 – 14 049 18 194 3 323 17 162 9 610

(3 872) – (1 436) (2 625) – (2 789) (325)

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Total Writedowns of noncurrent assets in TCHF

Book Value 31.12.07 in TCHF

– – – – – – (106) – (1 837) – – – – – (1 943)

– 539 2 999 2 183 12 475 3 739 472 13 090 27 855 6 215 532 12 768 9 567 1 586 94 023

– 352 3 140 2 585 16 651 2 741 275 14 177 23 201 6 224 257 6 714 9 634 3 149 89 101

– – 141 402 4 175 – – 1 086 – 9 – – 66 1 563 7 442

– (187) – – – (999) (197) – (4 654) – (275) (6 054) – – (12 364)

– – – – 367 120 – – 1 634 – – 17 786 – 548 20 455

– – – – – (187) – – – – – (637) – – (824)

– – – – – – – – – – – (4 111) – (28) – – – – – – – – – – – – – – – – – – – – (4 139)

13 776 5 522 11 446 10 890 23 422 4 834 1 107 14 472 5 021 21 383 4 834 8 234 12 320 9 907 8 560 12 866 6 552 16 899 6 152 – 16 268 9 290 1 689 8 697 12 603 68 2 434 17 691 5 165 17 188 1 889 272 – 2 181 293 635

21 061 5 337 20 942 10 740 22 012 4 864 889 15 461 5 714 24 181 4 838 7 377 9 421 11 862 7 683 18 555 6 143 20 559 12 410 8 226 15 218 9 351 1 708 8 660 16 567 67 2 637 17 763 11 996 17 431 1 957 262 – 3 343 345 234

7 285 – 9 496 – – 30 – 988 694 2 798 4 – – 1 956 – 5 690 – 3 659 6 258 8 226 – 60 19 – 3 964 – 204 72 6 830 243 68 – – 1 161 59 702

– (184) – (149) (1 410) – (218) – – – – (857) (2 899) – (878) – (409) – – – (1 050) – – (37) – (1) – – – – – (10) – – (8 103)

6 749 – – – 15 013 – – 331 5 068 2 386 – 11 380 211 – 3 500 8 669 – – – 8 065 3 086 – – – 264 – – – 2 876 – – 160 – 591 68 349

– – – – – – – –

11 338 – 16 700 15 569 6 143 36 012 22 899

12 065 – 19 438 14 586 4 878 35 942 23 520

728 – 2 738 – – – 621

– – – (983) (1 265) (70) –

– – 40 1 099 – – 639

Fair Value Unrealized Gain Unrealized Loss 31.12.07 31.12.07 31.12.07 in TCHF in TCHF in TCHF

Realized Gain Realized Losses 1.1.07–31.12.07 1.1.07–31.12.07 in TCHF in TCHF

Outstanding Commitments in CHF

Original Currency

Vintage Year

22 658 – 3 173 1 447 9 316 2 566 1 452 369 15 696 2 660 26 863 918 22 485 – 109 604

USD USD USD USD USD USD USD USD USD EUR USD EUR EUR USD

2008 2000 2000 2007 2005 2000 2000 2007 1999 2007 2000 2000 2007 NA

– – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – –

7 197 22 987 2 978 22 347 4 585 53 039 6 436 2 175 619 6 395 11 705 210 16 186 4 446 2 554 3 406 13 267 15 995 10 536 428 17 800 23 725 14 836 16 156 7 786 32 744 8 916 23 633 422 32 201 1 469 4 808 28 125 – 420 110

EUR USD EUR EUR EUR EUR JPY EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR USD USD EUR EUR EUR EUR EUR GBP EUR EUR EUR JPY JPY EUR USD

2005 2007 2003 2007 2003 2007 2006 2005 2001 2005 2007 2001 2005 2006 2001 2004 2006 2006 2006 2000 2006 2007 2007 2007 2005 2007 2005 2007 2001 2007 2005 2007 2008 NA

– – – – – – –

17 957 28 323 12 120 11 553 28 488 23 510 2 129

USD USD USD USD USD USD USD

2006 2008 2006 2007 2006 2006 2005

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AI G P R IVATE E Q U IT Y G R O U P – CO N S O LI DATE D F I NAN C IAL STATE M E NTS 2007

Investment Schedule as of December 31, 2007 Opening Opening Balance at Balance at Cost Fair Value in TCHF in TCHF

Third Party Fund Portfolio US Funds Carlyle Partners V, L.P. Charlesbank Equity Partners VI, L.P. CHS Private Equity V, L.P. Cortec Group Fund IV, L.P. Diamond Castle IV, L.P. HealthCare Ventures VIII, L.P. J.C. Flowers Fund II, L.P. KRG Capital Fund III, L.P. KRG Capital Fund IV, L.P. Madison Dearborn V, L.P. Mill Road Capital Partners, L.P. New Mountain Investments III, L.L.C Olympus Growth Fund V, L.P. Polaris Venture V, L.P. SFW Capital Partners Fund, L.P. Silver Lake Partners III Sun Capital Advisors V, L.P. Technology Crossover Ventures IV, L.P. Thompson Street Capital Partners II, L.P. TowerBrook Capital Partners II, L.P. VSS Communications Partners IV, L.P. Wellspring Capital Partners VI, L.P. WestView Capital Partners, L.P. AIG Private Equity Portfolio L.P. I US Funds Subtotal US Funds

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Cumulative Gain/Loss 31.12.06 in TCHF

Paid in Capital in TCHF

Returned Capital in TCHF

– 720 3 753 2 804 10 800 355 5 349 5 010 – 1 101 – – – 370 – – – 4 899 185 6 694 4 996 1 726 4 701 34 651 135 588

– 1 103 4 657 2 771 10 927 678 5 166 4 947 – 1 078 – – – 366 – – – 3 841 187 6 541 4 791 1 728 4 764 27 068 129 211

– 383 904 (34) 128 323 (183) (63) – (23) – – – (4) – – – (1 058) 2 (153) (204) 2 63 (7 583) (6 377)

7 745 1 605 2 785 7 010 5 325 1 284 5 081 4 398 191 20 808 1 853 1 824 – 2 080 587 3 540 1 203 288 3 278 6 779 7 507 493 1 672 670 160 238

– (305) – (1 591) (1 611) – (968) – – (2 532) (332) – – – – (124) – (1 312) – (1 376) (749) – (3 630) (11 241) (36 818)

Contractual Agreements-SWAP

88 369

53 748

(34 621)

876

(19 277)

Direct Investments Portfolio Acosta Advanstar Communications AMF Bowling Worldwide Bell-Riddell Holdings Body Central CapMark Falcon Farms Flash Global Logistics Hertz Knowledge Universe Education Kwik-Fit Medispectra MVLF National Bedding Company NXP Semiconductors Sentient Flight Group, LLC (fka. JetDirect Aviation) SunGard Data Systems Theravance Thomas Nelson Publishing United Surgical Partners International Universal Studios Escape Vanguard Health Systems Xanodyne AIG Private Equity Portfolio L.P., I Direct Investments Subtotal Direct Investments

4 371 – 1 260 1 621 2 364 10 821 – – 2 568 – 3 940 716 15 836 1 255 3 743 1 721 1 236 3 420 8 694 – 4 640 1 867 1 374 10 105 81 552

4 268 – 1 858 1 750 2 306 11 033 – – 6 369 – 5 013 491 16 094 1 220 3 819 1 707 1 494 5 387 8 555 – 5 195 1 828 1 343 13 555 93 286

(103) – 598 129 (58) 212 – – 3 801 – 1 074 (224) 258 (35) 75 (14) 257 1 967 (139) – 556 (39) (32) 3 450 11 733

– 4 548 – – – – 636 1 160 – 9 656 6 30 – – – 2 044 – – 340 1 600 – – 140 – 20 160

– – (1 260) – – – – – (398) – (3 815) – (1 399) (488) – – – (3 420) – – – – – – (10 781)

Loans Mediaspectra Loan Flint Group (fka. Xsys/Aster) MVLF Loan Subtotal Loans

191 1 544 32 187 33 922

183 1 785 32 187 34 155

(8) 241 – 233

– – – –

– – (16 331) (16 331)

567 074

589 753

22 679

414 257

(150 094)

Total of all Investments

AI G P R IVATE E Q U IT Y G R O U P – CO N S O LI DATE D F I NAN C IAL STATE M E NTS 2007

Total Writedowns of noncurrent assets in TCHF

Book Value 31.12.07 in TCHF

– – – – – – – – – – – – – – – – – – – – – – – – –

7 745 2 019 6 538 8 224 14 514 1 639 9 462 9 407 191 19 378 1 521 1 824 – 2 450 587 3 416 1 203 3 876 3 462 12 096 11 753 2 220 2 743 24 080 259 008

7 669 2 618 5 883 6 693 13 566 1 776 8 466 9 559 190 18 611 1 328 1 768 – 2 062 575 3 326 1 141 2 343 2 856 12 782 10 856 1 842 4 691 20 629 251 662

– 598 – – – 137 – 152 – – – – – – – – – – – 686 – – 1 948 – 7 608

(76) – (655) (1 531) (947) – (995) – (1) (767) (193) (56) – (388) (12) (90) (62) (1 532) (606) – (897) (377) – (3 451) (14 955)

– 282 – – – – – – – – – – – – – – – 704 – 26 452 – – 7 297 10 539

– – – – – – – – – – – – – – – – – – – – – – – – –

(2 329)

67 639

41 425

–

(26 213)

7 732

– – – – (796) – – – – – – (746) – – – – – – – – – – – – (1 542)

4 371 4 548 – 1 621 1 568 10 821 636 1 160 2 170 9 656 131 – 14 437 766 3 743 3 765 1 236 – 9 034 1 600 4 640 1 867 1 514 10 105 89 389

5 114 4 203 1 699 1 617 1 421 14 455 596 1 088 4 183 9 809 2 382 – 16 314 756 3 925 3 503 1 938 – 13 301 1 547 4 985 850 1 447 6 656 101 788

743 – 1 699 – – 3 634 – – 2 013 153 2 251 – 1 877 – 182 – 701 – 4 267 – 345 – – – 17 865

– (345) – (3) (147) – (40) (72) – – – – – (11) – (262) – – – (52) – (1 017) (67) (3 449) (5 466)

(191) – – (191)

– 1 544 15 856 17 400

– 1 915 16 739 18 655

– 371 883 1 255

(10 144)

821 093

847 865

93 872

Fair Value Unrealized Gain Unrealized Loss 31.12.07 31.12.07 31.12.07 in TCHF in TCHF in TCHF

Realized Gain Realized Losses 1.1.07–31.12.07 1.1.07–31.12.07 in TCHF in TCHF

Outstanding Commitments in CHF

Original Currency

Vintage Year

26 319 3 418 4 117 14 967 14 862 6 752 19 213 7 717 28 323 4 399 15 599 20 890 26 057 9 233 22 083 30 664 18 123 276 11 387 10 680 4 947 5 862 6 737 – 436 703

USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD

2007 2005 2005 2006 2006 2005 2006 2005 2008 2006 2007 2007 2008 2006 2007 2007 2007 2000 2006 2006 2006 2006 2005 NA

(707)

–

Various

– – 19 – – – – – 1 406 – – 10 35 – – – – 2 210 – – – – – 2 829 6 509

– – – – – – – – – – – – – – – – – – – – – – – – –

– – – – – – – – – – – – – – – – – – – – – – – – –

USD USD USD USD USD USD USD USD USD USD USD USD USD EUR USD USD EUR USD USD USD USD USD USD USD

2006 2007 NA 2004 2006 2006 2006 2007 2007 2005 2007 2005 2001 2006 2005 2006 2006 2005 2000 2006 2007 2000 2004 2005

– – – –

– – – –

– – – –

– – – –

USD EUR EUR

2001 2006 2006

(67 101)

113 584

(1 531)

966 417

35

AI G P R IVATE E Q U IT Y G R O U P – CO N S O LI DATE D F I NAN C IAL STATE M E NTS 2007

Note 2: Cash and Cash Equivalents in TCHF 2007 26 26

Cash at banks Total

2006 37 179 37 179

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

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

Year-end rates: US dollar Euro Yen Average annual rates: US dollar Euro Yen

Note 4: Derivative Instruments Foreign Exchange Forward As of December 31, 2007 the Company has an open foreign exchange forward contract with a notional amount of USD 20 million, a positive market value of TCHF 622 and which matures April 23, 2008. On December 31, 2007 the Company closed a foreign exchange forward contract maturing January 22, 2008, with a

Unit 1 USD 1 EUR 100 Yen

2007 CHF 1.1329 1.6544 1.0141

2006 CHF 1.2195 1.6094 1.0345

1 USD 1 EUR 100 Yen

1.1943 1.6458 1.0168

1.2456 1.5758 1.0743

notional amount of USD 30 million, resulting in a profit of TCHF 1 023. As of December 31, 2006 the Company had an open foreign exchange forward contract with a notional amount of USD 30 million, a positive market value of TCHF 945 and which matured January 12, 2007.

Note 5: Receivables and Prepayments in TCHF From third parties From related parties: AIG, Inc. AIG Global Investment Group MVLF Subtotal Total The carrying amounts of the accounts receivable and prepayments approximate fair value. 36

2007 326

2006 6 154

1 064 103 333 1 500 1 826

– 5 924 – 5 924 12 078

AI G P R IVATE E Q U IT Y G R O U P – CO N S O LI DATE D F I NAN C IAL STATE M E NTS 2007

Note 6: Payables and Accrued Charges in TCHF Accrued service-, performance and management fees Accrued carried interest contractual agreements and accrual share-based compensation plan payable to related parties Accounts payable and other accrued expenses Total

2007 20 679 2 264

2006 8 237 1 464

1 065 24 008

4 408 14 109

2007 56 645 25 015 26 294 107 954

2006 – – – –

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

Note 7: Loans/Overdrafts in TCHF ZKB Banking Syndicate AIG Private Bank Ltd. HSBC Bank of Bermuda Total

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

Note 8: Share Capital The investment objective of the Group is to achieve long-term capital growth for shareholders by investing in a diversified portfolio of private equity funds and privately held companies. The same team that manages private equity investments for American International Group, Inc. acts as investment advisor to the Group. Private equity is an asset class consisting of equity investments in companies that are not traded on a public stock exchange. Investments typically involve a transformational, value-added, active management strategy. Private equity investments can be divided into various categories: venture capital, mezzanine finance, buyouts etc. The Group invests in private equity funds and co-invests together with these funds in operating companies. The Group’s investment advisor disposes over long-term track record in private equity investing and has access to premier private equity funds, both of which are critical factors in achieving expected returns. Currently, the Group does not intend to pay any dividends to shareholders but rather to re-invest the proceeds. Shareholders’ equity/net assets represent (2007: TCHF 719 255; 2006: TCHF 625 846) the capital available to the

Group to implement and achieve its investment goals. Shareholders’ equity includes revaluation reserves, which represent unrealized value increases/decreases on investments held as available-for-sale and value increases/decreases due to currency translation differences. The share capital of the Company as of December 31, 2007 amounts to CHF 412 500 000 (December 31, 2006: CHF 412 500 000) consisting of 4 125 000 registered shares (December 31, 2006: 4 125 000) with a par value of CHF 100 each. All issued shares are fully paid. Each share entitles the holder to participate in any distribution of income and capital. As of December 31, 2007 the Company has CHF 206.25 million (2006: CHF 63.75 million) authorized share capital outstanding. This authorized share capital will expire at the end of May 2009. As of December 31, 2007 the Company has CHF 206.25 million (2006: CHF 63.75 million) conditional share capital outstanding. This authorized share capital will expire at the end of May 2009. Other than sales of treasury shares, the company did not raise any new capital in 2007.

37

AI G P R IVATE E Q U IT Y G R O U P – CO N S O LI DATE D F I NAN C IAL STATE M E NTS 2007

Share capital is broken down as follows: At 1 January 2006 – Shares issued – Shares sold – Treasury shares purchased At 31 December 2006

Number of Shares

3 130 587 950 000 46 080 (230 473) 3 896 194

At 1 January 2007 – Shares sold – Treasury shares purchased At 31 December 2007

3 896 194 52 833 – 3 949 027

The Company can trade in treasury shares in accordance with the relevant guidelines (Company’s articles of association, Swiss company law, listing 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:

American International Underwriters Overseas Ltd. AIG Life (Ireland) Ltd. Ernst Göhner Stiftung AIG Private Bank Ltd. AIG Private Equity Ltd. SUVA, Schweiz. Unfallversicherungsanstalt AXA Winterthur

Number of Shares

Participation in %

Number of Shares

Participation in %

2007 413 500 1 083 527 267 000 229 284 175 973 127 500 167 000

2007 10.02% 26.27% 6.47% 5.56% 4.27% 3.09% 4.05%

2006 413 500 1 160 127 267 000 – 228 806 – –

2006 10.02% 28.12% 6.47% * 5.55% ** ***

* 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 Winterthur informed the Company that its shareholding had dropped below 5%.

Note 9. Earning per Share Earnings per Share Net profit per share outstanding (in CHF) – basic Net profit per share outstanding (in CHF) – fully diluted Net profit for the period (in TCHF) Weighted average of total number of shares outstanding (in 1 000) – basic Adjustment for share options Weighted average of total number of shares outstanding (in 1 000) – diluted

2007 20.52 20.49

2006 0.84 0.84

80 584 3 927 921 3 978 3 931 899

2 976 3 546 533 4 245 3 550 778

The stock options granted by the Group (note 18) are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share to the extent to which they are dilutive. 38

AI G P R IVATE E Q U IT Y G R O U P – CO N S O LI DATE D F I NAN C IAL STATE M E NTS 2007

Note 10: Revaluation Reserve in TCHF Reserve from foreign currency translation Reserve from fair value movements of investments Total revaluation reserve at December 31

2007 (51 902) 78 674 26 772

2006 (35 917) 58 596 22 679

Reserve from foreign currency translation – at January 1 – currency translation differences during the year – at December 31

(35 917) (15 985) (51 902)

(44 848) 8 931 (35 917)

Reserve from fair value movements of investments – at January 1 – Impairments transferred to income statement – net realized (gains)/losses transferred to income statement – net realized gains/(losses) from changes in Fair Value – at December 31

58 596 10 144 (112 053) 121 987 78 674

(5 938) 28 756 (57 931) 93 709 58 596

Note 11: Write-downs of Non- Current Assets For the year ended December 31, 2007 write-downs on non-current assets were recognized as follows: in TCHF Direct investments Funds Contractual agreements Total

2007 1 733 6 082 2 329 10 144

2006 463 19 563 8 730 28 756

For details please see note 1 to the investment table.

39

AI G P R IVATE E Q U IT Y G R O U P – CO N S O LI DATE D F I NAN C IAL STATE M E NTS 2007

Note 12: Interest Income and Dividends from Non- Current Assets and Net Realized Gains on Investments Interest income, net interest income and dividends from non-current assets, and net realized gains were generated by the three portfolios as follows: in TCHF Interest income from long-term assets: AIG Funds Third Party Funds Direct Investments Total interest income from non-current assets

2007

2006

1 590 7 255 2 285 11 130

2 566 2 722 1 596 6 884

Dividend income from long-term assets: AIG Funds Third Party Funds Direct Investments Total dividend income from non-current assets

650 1 108 1 407 3 165

517 724 244 1 485

19 631 85 913 6 509 112 053

20 978 32 207 3 532 56 717

Net realized gains on investments: AIG Funds Third Party Funds Direct Investments Total net realized gains from non-current assets

Note 13: Taxes in TCHF Current income tax

CHF

Reconciliation of income tax calculated with the applicable tax rate: Profit before income tax Applicable tax rate Income tax Effect from: – income tax payable from current and prior periods – non-taxable profits – deferred taxes – non-refundable withholding tax paid Total income tax expenses

CHF CHF

2007 890

80 584 7.8% 6 285

CHF 152 CHF (6 285) CHF 145 CHF 593 890

CHF

CHF CHF CHF CHF CHF CHF

2006 1 156

4 132 7.8% 322 504 (315) – 645 1 156

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

Note 14: Related Party Transactions Related Parties are individuals and companies where the individual or company has the ability, directly or indirectly, to control the other party or to exercise significant influence over the other party in making financial and operating decisions. 40

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

AI G P R IVATE E Q U IT Y G R O U P – CO N S O LI DATE D F I NAN C IAL STATE M E NTS 2007

RELATED PART Y AGREEMENTS Service Agreement I American International Company Ltd., Pembroke, Bermuda, an indirect wholly owned subsidiary of AIG, provides several administrative services for the subsidiary in Bermuda for an annual fee of TUSD 90 (TCHF 108; 2006: TCHF 75). This agreement is entered into for an indefinite period of time and may be terminated with advance notice of 30 days. Service Agreement II AIG Private Bank Ltd., Zurich, a wholly owned subsidiary of AIG, provides administrative and accounting services for the Group. Compensation for these services in 2007 was TCHF 301 (2006: TCHF 301). This agreement is entered into for an indefinite period of time. Either party is entitled to terminate the agreement with advance notice of 6 months. Management and Advisory Agreement The Group has entered into a Management Agreement with AIG Private Equity Management Ltd. Bermuda (“the Manager”), a wholly owned subsidiary of AIG Private Bank Ltd., Zurich. For services rendered, the Manager is entitled to receive a management fee at an annual rate equal to 2% of the consolidated Net Asset Value of the Group on the last business day of each quarter before deductions or accrual of the management fee and/or performance fees. The initial term of the Management Agreement ended December 31, 2005 and was automatically renewed for five years until December 31, 2010. In addition to the management fee, the Manager will receive quarterly performance fees from the Group. The performance fee with respect to the Third Party Funds Portfolio is fifteen per cent (15%) of the increase in the net asset value of the Third Party Funds Portfolio for each quarter in excess of any baseline return for such quarter of five per cent (5%) (on an annual basis). The performance fee with respect to the Direct Investment Portfolio is twenty per cent (20%) of the increase in the net asset value of the Direct Investment Portfolio for each calendar quarter. Furthermore both performance fees are subject to a “highwater mark”, so that no performance fee will be paid with respect to a particular portfolio unless the net asset value for that portfolio is greater than the previous high net asset value for the portfolio (increased, in the case of the Third Party Funds Portfolio at the rate of 5% annually). The Manager has entered into an advisory agreement with AIG Global Investment Corp., New York, a wholly owned subsidiary of AIG, to act as investment advisor with respect to the Third Party Funds Portfolio and Direct Investments Portfolio.

For its services provided under the management agreement, the advisor is entitled to receive an advisory fee from the Manager. The initial term of the advisory agreement matures December 31, 2005 and was automatically extended until December 31, 2010. In 2007 the management agreement resulted in AIG receiving 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 related parties.

MATERIAL TRANSACTIONS Cash and Cash Equivalents As of December 31, 2007 the Group has cash and cash equivalents totaling TCHF 26 (2006: TCHF 106) on a current account basis with AIG Private Bank Ltd., Zurich. Capital Calls from AIG Fund Investments 2007 Investments (in million)

AIG AIG AIG AIG AIG AIG AIG AIG AIG AIG

Horizon Partners Fund L.P. Brazil Special Situations Fund L.P. Brazil Special Situations Fund II L.P. Orion Fund L.P. Blue Voyage Fund L.P. Global Sports & Entertainment L.P. Highstar Capital L.P. Highstar Capital III Prism L.P. Private Equity Portfolio L.P. Global Emerging Markets L.P., II

CHF

2006

USD

CHF

USD

1.8 1.5 0.2 0.2 2.2 1.8 0.0 0.0 0.0 0.0 0.2 0.2 0.0 0.0 24.6 20.4 0.5 0.4 5.1 4.1

1.1 0.3 0.0 0.0 0.0 0.0 0.0 0.0 2.2 6.1

0.8 0.2 0.0 0.0 0.0 0.0 0.0 0.0 1.7 4.9

2007

2006

Investments (in million)

CHF

EUR

CHF

EUR

AIG New Europe II L.P.

6.2

3.8

0.0

0.0

Personnel Two members of the Board of Directors of the Company are employees of other companies within the AIG Inc., Group. With the exception of the Chairman of the Board, AIG executives serving on the Board of Directors and the Investment Committee of the Group do not receive remuneration from the Group for their services. Remuneration of directors for the year 2007: TCHF 190 (2006: TCHF 176). Refer to note 18 for share compensation schemes granted to the management board. One of the members of management is a member of the board of directors of MV Leveraged Finance Ltd. (see also Note

41

AI G P R IVATE E Q U IT Y G R O U P – CO N S O LI DATE D F I NAN C IAL STATE M E NTS 2007

LIBOR rate at refinancing date; see schedule below). These loans have a variable interest rate corresponding to the LIBOR rate plus a margin. The majority of the Group’s assets are non interest bearing. The Group has not applied an interest rate hedge due to the short term maturity profile of the loans and because the Group has no long term visibility 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 a regular basis and informs the Board of Directors accordingly at its quarterly meetings.

1 MVLF). The Subsidiary in Bermuda made an equity investment (EUR 10 million) and a loan investment (EUR 20 million) in this entity in the fourth quarter 2006. In the course of 2007, the Subsidiary received dividends of TCHF 1 651 (2006: TCHF 0), principal repayments on the loan of TCHF 1399 (2006: TCHF: 0) and loan interest amounting to TCHF 1 845 (2006: TCHF 0).

Note 15: Financial Instruments – Disclosures The Group’s activities expose it to a variety of financial risks, namely market risk (including interest rate risk, currency risk and other price risks), liquidity risk and credit risk. Management observes and manages these risks. These risks could result in a reduction of the Group’s net assets. The Group seeks to minimize these risks and adverse effects by considering potential impacts from the financial markets. The Group manages these risks, where necessary, via collaboration with service partners that are market leaders in their respective area of expertise. Additionally, the Group has internal guidelines and policies in place to ensure that transactions are effected in a consistent and diligent manner. Market Risk • Interest rate risk The risk to which the Group is exposed from changing interest rates results primarily from loans (higher/lower At 31.12.07 in TCHF

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

< 1 month

1–3 months

Non-interest bearing

Total

26 – 18 655 – 18 681

– – – – –

– 3 471 – 829 210 832 681

26 3 471 18 655 829 210 851 362

Payables and accrued charges Loans Deferred tax liability Total Liabilities

– 107 954 – 107 954

– – – –

24 008 – 145 24 153

24 008 107 954 145 132 107

At 31.12.06 in TCHF

< 1 month

1–3 months

Non-interest bearing

Total

37 179 – 34 155 – 71 334

– – – – –

– 13 023 – 555 598 568 621

37 179 13 023 34 155 555 598 639 955

– – –

– – –

14 109 – 14 109

14 109 – 14 109

Cash and cash equivalents Other current assets Loans Investments (available for sale) Total assets

Cash and cash equivalents Other current assets Loans Investments (available for sale) Total assets

42

•

Payables and accrued charges Loans Total Liabilities

AI G P R IVATE E Q U IT Y G R O U P – CO N S O LI DATE D F I NAN C IAL STATE M E NTS 2007

At 31.12.07 (in 1 000)

USD

EUR

GBP

JPY

CHF

Total

Assets Cash and cash equivalents Other current assets Loans receivable Investments (available for sale) Total Assets

– 1 387 – 488 748 490 135

– 439 18 655 334 716 353 810

– – – 2 637 2 637

– – – 3 109 3 109

26 1 645 – – 1 671

26 3 471 18 655 829 210 851 362

Payables and accrued charges Loans payable Deferred tax liability Total Liabilities Total Equity Total Liabilities and Equity

2 407 107 954 – 110 361 – 110 361

– – – – – –

– – – – – –

– – – – – –

21 601 – 145 21 601 719 255 741 001

24 008 107 954 145 132 107 719 255 851 362

USD

EUR

GBP

JPY

CHF

Total

1 426 8 281 183 344 461 354 352

30 563 3 669 33 973 202 163 270 368

1 004 – – 6 063 7 067

1 – – 2 912 2 913

4 183 1 072 – – 5 255

37 178 13 023 34 155 555 599 639 955

4 149 – 4 149 – 4 149

– – – – –

– – – – –

– – – – –

9 960 – 9 960 625 846 635 806

14 109 – 14 109 625 846 639 955

At 31.12.06 (in 1 000)

Assets Cash and cash equivalents Other current assets Loans receivable Investments (available for sale) Total Assets Payables and accrued charges Loans payable Total Liabilities Total Equity Total Liabilities and Equity

propriate measures to mitigate the impact of currency fluctuations on the net asset value (see note 4 for details on current hedge transactions). Additionally, the Group regards loans in the same currencies as its assets as a measure to mitigate 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: per month –0.60%). If this rate of change were to continue in 2008, with all other variables held constant, it would result in a monthly decrease in shareholders equity of CHF 2.9 million (2006: CHF 2.1 million). 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 other variables held constant, it would result in a monthly increase in shareholders 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 quarterly basis to review its strategy and make appropriate adjustments. The FX exposure is reviewed by the board of directors at the quarterly meetings.

Other price risks Other price risks (i.e. changes in market prices other than from interest rate risks or currency risk) may affect the value of the investments held as available-for-sale by the Group. Other price risks arise mainly from the uncertainty about future valuations of the investments held as available-for-sale by the Group. Investments held available-for-sale amounted to TCHF 829 210 (2006: TCHF 555 598). For these investments the Group calculates the corresponding fair value on a monthly basis. Please see the “Accounting Policies” for more information on the fair value process as well as Note 1. The Group’s investment advisor performs extensive due diligence prior to recommending any fund or direct investment, including an analysis of the potential risks of the investment. The Group and the investment advisor monitor investments by analyzing regular reports and through direct contact with general partners and company management.

43

AI G P R IVATE E Q U IT Y G R O U P – CO N S O LI DATE D F I NAN C IAL STATE M E NTS 2007

actual investments being made over a period of up to six years. Based on the Group’s experience it is expected (on a portfolio basis) that the maximum net amount invested in a fund will be approximately 60% of a commitment. In order to reach full investment, the Group applies an over-commitment strategy. Outstanding commitments amounted to CHF 966 million in 2007 (2006 CHF 762 million). Even though these commitments could be drawn down at any point in time, the Group expects outstanding 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 equilibrium between drawdowns and distributions. Excess draw-downs are funded by using credit facilities. The Group applies a cash flow model Liquidity risk to estimate future cash flows and cash balances. As of 31 DecDue to the specific nature of private equity funds of the type in ember 2007, cash in banks totaled TCHF 26 (2006: 37 179) and which the Company invests, immediate and full investment of loans payable totaled TCHF 107 954 (2006: TCHF 0). In January assets is not always possible. Commitments made by a private 2008, the Group entered into a long term committed syndiequity investor in a private equity fund typically results in cated USD 100 million credit facility > 3 months/no led by Zürcher Kantonalbank (see < 1 month 1–3 months stated maturity At 31.12.07 (in TCHF) also note 7 and 21). Additionally, the Payables and accrued charges 30 923 – – Group had overdraft facilities in place Loans payable 107 954 – – with Bank of Bermuda and AIG Private Deferred tax liability – – 145 Bank to fund capital drawdowns. Total Current Liabilities 138 877 – 145 Management monitors cash flows on a weekly basis and reports at least on > 3 months/no At 31.12.06 (in TCHF) < 1 month 1–3 months stated maturity a quarterly basis to the board of Payables and accrued charges 26 387 – – directors. Loans payable – – – Total Current Liabilities 26 387 – – If the value of the investments (based on year-end values) had increased or decreased by 1.47% with all other variables held constant, the impact on the shareholders’ equity would have been CHF 12.2 million (2006: 32%, CHF 179.5 million). The Company is exposed to a variety of market risk factors which may change significantly over time. As a result, measurement of such exposure at any given point in time may be difficult given the complexity and limited transparency of the underlying investments. Therefore, a sensitivity analysis is deemed of limited explanatory value or may be misleading.

Credit risk The Group has credit exposure only to established, creditworthy third parties, so that no collateralization is required. Receivables are monitored continuously. The Group attempts to minimize investment risk through effective due diligence in

At 31.12.07 (in TCHF)

Cash at AIG Private Bank Other current assets Total exposure to credit risk At 31.12.06 (in TCHF)

Cash at AIG Private Bank Other current assets Total exposure to credit risk 44

Fully Performing

26 3 471 3 497 Fully Performing

37 179 13 023 50 202

advance of investments, conservative underwriting, reviews of investment partners, and contractual provisions that limit the Group’s downside risk. On a quarterly basis, the Group reviews all investments for potential impairment losses. The Group holds loans in two investments (see Note 1), namely Aster Total Rating and MVLF. Management of the Group 26 n/a monitors these loans on a regular 3 471 n/a basis by ensuring interest is paid and 3 497 n/a by reviewing monthly and quarterly Total Rating reporting. Both loans are current on 37 179 n/a interest payments. 13 023 n/a Management monitors credit risk on a 50 202 n/a regular basis.

AI G P R IVATE E Q U IT Y G R O U P – CO N S O LI DATE D F I NAN C IAL STATE M E NTS 2007

Note 16: Contractual Agreements On December 22, 1999, the Group entered into three contractual agreements with AIG that entitle the Group to receive distributions equal to pro rata share of all distributions from a specified list of funds, while obligating the Group to make payments equal to pro rata share of all draw-downs of committed capital to the same list of funds. Distributions from the underlying fund investments, which are over the amount of its initial investment plus subsequent payments are split 90% to the company and 10% to AIG. The profit sharing is intended to compensate AIG for the management fees it paid with respect to the underlying fund investments prior to the contractual agreements, which are not taken into consideration when calculating the fair value of the underlying fund investments. As of December 31, 2007, the contractual agreements were valued at TCHF 41 425 (2006 TCHF 53 748). In Note 1 the funds held through the contractual agreements are grouped into one line as “contractual agreements”. The following table provides detail of the various funds contained in the contractual agreements. Fair Value (in TCHF)

2007

2006

AIG Swap Funds Portfolio AIG Asian Opportunity Fund AIG Orion Fund Subtotal

4 957 41 4 998

6 327 107 6 434

Fair Value (in TCHF)

2007

2006

International Swap Funds Portfolio AEA Scandinavia I AEA Scandinavia II Baring Communications Equity Limited Carlyle Europe Partners L.P. Doughty Hanson & Co. III Palamon European Equity Fund L.P. Permira VT The Cinven Fund I The Cinven Fund II Subtotal

1 305 1 660 238 909 17 132 4 264 4 716 3 555 2 774 6 604 4 489 135 83 1 145 655 4 012 9 301 21 275 24 719

2007 United States Swap Funds Portfolio AEA Investors Inc. II – American Industrial Partners Capital Fund II, L.P. 26 Apollo Investment Fund III, L.P. 86 Apollo Investment Fund IV, L.P. 2 470 Fair Value (in TCHF)

2006

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

In total 18 private equity funds were either sold or have liquidated all of their portfolio companies. Unfunded commitments of the contractual agreement are negligible as the underlying funds (vintage year 1999 and older) have past their investment periods and are in the process of liquidating their portfolios.

1 354 54 295 3 063 45

AI G P R IVATE E Q U IT Y G R O U P – CO N S O LI DATE D F I NAN C IAL STATE M E NTS 2007

Note 17: AIG Private Equity Portfolio Investment Details Fair Value (in TCHF)

2007

2006

AIG Fund Portfolio AIG Highstar Capital, L.P. AIG Horizon Partners Fund, L.P. AIG PEP I Other Assets and Liabilities Subtotal

174 1 216 1 759 3 149

154 1 632 4 031 5 817

2007

2006

28 1 921 1 394 3 343

297 2 168 727 3 192

2007

2006

Third Party Fund Portfolio International Fund Carlyle Europe Venture Partners, L.P. GMT Communications Partners II, L.P. TH Lee.Putnam Internet Partners, L.P. Subtotal Third Party Fund Portfolio US Funds Advanced Technology Ventures VI, L.P. Arrow Path Venture Capital, L.P. Baker Communications Fund II, L.P. Berkshire Fund V, L.P. Blackstone Mezzanine Partners, L.P. Boston Millennia Partners II, L.P. Carlyle Partners III, L.P. Focus Ventures II, L.P. Heartland Industrial Partners L.P. JK&B Capital III, L.P. KRG Capital Fund I, L.P. Meritage Private Equity Fund, L.P. North Castle Capital Partners II, L.P. Questor Partners Fund II, L.P. RCBA Strategic Partners, L.P. Silver Lake Partners, L.P. Technology Crossover Ventures IV, L.P. Thayer Equity Investors Fund IV, L.P. Thomas Weisal Capital Partners, L.P. T WP CEO Founders’ Circle (QP), L.P. Mesirow Capital Fund Subtotal

46

637 693 406 526 2 744 1 748 2 422 620 698 627 1 457 145 869 1 964 437 503 1 445 2 074 1 257 1 413 10 114 445 1 346 624 1 078 1 379 3 914 824 1 661 733 3 690 1 753 2 873 1 077 624 1 189 1 254 30 35 193 166 20 629 27 068

2007

Fair Value (in TCHF)

Direct Investments Portfolio Theravance Universal Studios Escape Medispectra, Inc. Avalon Pharmaceuticals, Inc. High Response Holdings, Inc. AZ Automotive Corp. Iomai Corporation Springs Industries, Inc. Fresh Direct QinetiQ American Media AMF Bowling NovaRay Altiris Inc. Subtotal Total

2006

505 1 720 3 019 3 147 – 516 72 98 121 170 935 1 297 16 84 570 1 034 301 303 – 4 013 253 234 760 831 38 37 66 71 6 656 13 555 33 777 49 632

Note 18: Share-Based Compensation Plan Stock Option Plan The Company issued the following incentive stock options in May 2005. Outstanding options arising from this agreement as at 31 December 2007 are as follows: Number of options

Year of grant

Vesting date

Expiry

4 000 5 000 6 833

2005 2005 2005

31.5.2006 31.5.2007 31.5.2008

13.6.2008 13.6.2008 13.6.2008

Subscription ratio

Strike price

1:1 1:1 1:1

125 125 125

The options were granted free of charge. Each option entitles the holder to buy one share of the Company at the exercise price. A third of the options are each exercisable after a vesting period of one, two and three years. In case of a termination of the working contract during the vesting period, the unvested options are cancelled. As at 31 December 2007 the Company held no shares specifically in connection with the stock option plan. Movements in the number of share options outstanding and their related exercise prices are as follows:

AI G P R IVATE E Q U IT Y G R O U P – CO N S O LI DATE D F I NAN C IAL STATE M E NTS 2007

2007

2006

Average exercise price per share

Average exercise price per share

At January 1 Granted Forfeited Exercised At December 31

125.00 125.00 125.00 125.00

Options

18 666 – – (2 833) 15 833

125.00 125.00 125.00 125.00

Options

21 000 – (500) (1 834) 18 666

Of the 15 833 options (2006: 18 666) 9 000 options (2006: 5 000) were exercisable. Options exercised in 2007 were transacted 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 options at a market price of CHF 168.00. The related weighted average share price at exercise was CHF 169.88 per share. In the current year, CHF 26 472 (2006: 77 804) was charged as an expense relating to the options resulting in a corresponding increase to shareholders’ equity by the same amount. Share Appreciation Rights (SARs) Outstanding SARs as at 31 December 2007 are as follows: Number of SARs

Year of grant

Vesting date

Expiry

Subscription ratio

Strike price

7 000 7 000 7 000

2006 2006 2006

15.02.2007 15.02.2008 15.02.2009

28.02.2009 28.02.2009 28.02.2009

1:1 CHF 160 1:1 CHF 160 1:1 CHF 160

8 000 8 000 8 000

2007 2007 2007

01.03.2008 01.03.2009 01.03.2010

14.03.2010 14.03.2010 14.03.2010

1:1 CHF 160 1:1 CHF 160 1:1 CHF 160

The SARs were granted free of charge. Each SAR entitles the holder to receive in cash the difference between the strike price and the market price of one share of the Company at the exercise price. A third of the SARs are each exercisable after a vesting period of one, two and three years. In case of a termination of the working contract during the vesting period, the SARs are cancelled. Movements in the number of stock appreciation rights and their related exercise prices are as follows: 2007

2006

Average exercise price per share

SARs

Average exercise price per share

SARs

27 334 24 000 (6 334) 45 000

97 160 97 146

12 367 21 000 (6 033) 27 334

At January 1 Granted Exercised At December 31

145.40 160 97 160.00

Of the 45 000 SARs (2006: 27 334), 7 000 SARs (2006: 6 334) were exercisable. SARs exercised in 2007 were transacted as follows: 2 000 SARs at a market price of CHF 163.00, 1 000 SARs at a market price of CHF 168.00, 1 000 SARs at a market price of 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 per share. In the current year, CHF 433 341 (2006: 291 050) was charged as an expense relating to SARs. The carrying amount at the end of the period amounted to CHF 561 118 (2006: 602 816) and the intrinsic value at the end of the period of liabilities for which the counterpart’s right to cash or other assets had vested by the end of the period (for example vested share appreciation rights) equals CHF 70 000.

Note 19: Commitments, Contingencies and Other Off-balance-sheet Transactions In addition to those commitments disclosed in the Investment Schedule and the Derivative Instruments mentioned in Note 4, the Company has nil off-balance-sheet transactions open as of December 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 are made where deemed necessary. Please refer to Note 15 (liquidity risk) for additional information on commitments.

Note 20: Segment Reporting The Group operates in the sole business segment of private equity investments. The geographical analysis of total assets is determined by specifying in which region the investment was made: in TCHF North America Europe Rest of the World Total

2007 373 389 404 390 73 583 851 362

2006 281 771 310 209 47 975 639 955

47

AI G P R IVATE E Q U IT Y G R O U P – CO N S O LI DATE D F I NAN C IAL STATE M E NTS 2007

The geographical analysis of total income is determined by specifying from which region the investment profits are generated:

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

in TCHF North America Europe Rest of the World Total

Approval of the Financial Statement The consolidated financial statements are authorized for issue on April 29, 2008 by the Board of Directors. The annual general meeting called for May 28, 2008 will vote on the final acceptance of the consolidated financial statements.

2007 24 322 103 916 1 423 129 661

2006 23 362 43 207 1 132 67 701

Note 21: Subsequent Events In January 2008 the Group converted the USD 50 million syndicated standby credit facility into a syndicated credit facility in the amount of USD 100 million. The syndicate is lead by Zurcher Kantonalbank and comprises in total six banks. The Group has made the following new capital commitments from January 1 2008 through April 30, 2008: Advent International GPEVI CVC European Equity Partners V Ares Corporate Fund III

EUR EUR USD

20 million 20 million 20 million

This new commitment was made in the ordinary course of business. We anticipate funding the majority of the commitment over a six-year period. Following the expiry of the investment period of a fund, only minor capital drawdowns (fees and follow-on investments for existing portfolio companies) are expected. These may be offset by distributions from these funds. Based on the Group’s cash flow model and bank facilities, sufficient liquidity is available to fund capital calls. Between January 1, 2008 and March 31, 2008, the following aggregate investment related cash flows have been recorded (by the partnerships under the commitments existing as of December 31, 2007 and direct investments):

48

Capital Calls (in 1 000)

Amount

USD EUR JPY GBP

43 402 19 482 22 882 239

Distributions (in 1 000)

Amount

USD EUR SEK

22 442 7 422 640

AI G P R IVATE E Q U IT Y G R O U P – CO N S O LI DATE D F I NAN C IAL STATE M E NTS 2007

R E PO RT O F TH E G R O U P AU D ITO R S As group auditors, we have audited the consolidated financial statements (balance sheet, income statement, statement of cash flows, statement of changes in shareholders’ equity and notes to the consolidated financial statements) of AIG Private Equity Ltd., Zug on pages 22 to 48 for the year ended 31 December 2007. These consolidated financial statements are the responsibility of the Board of Directors. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We confirm that we meet the legal requirements concerning professional qualification and independence. Our audit was conducted in accordance with Swiss Auditing Standards and with the International Standards on Auditing, which require that an audit be planned and performed to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. We have examined on a test basis evidence supporting the amounts and disclosures in the consolidated financial statements. We have also assessed the accounting principles used, significant estimates made and the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In accordance with Article 20 of the Additional Rules for the Listing of Investment Companies of SWX Swiss Exchange we draw attention to Note 1 of the consolidated financial statements. As indicated in Note 1, the financial statements include unquoted investments stated at their fair value of CHF 847.9 million. Because of the inherent uncertainty associated with the valuation of such investments and the absence of a liquid market, these fair values may differ from their realizable values, and the difference could be material. The fair values of these investments have been determined by the Board of Directors and have been disclosed in Note 1. We have reviewed the procedures applied by the Board of Directors in valuing such investments and have viewed the underlying documentation. While in the circumstances the procedures appear to be reasonable and the documentation appropriate, the determination of fair values involves subjective judgment which cannot be independently verified.

In our opinion, the consolidated financial statements give a true and fair view of the financial position, the results of operations and the cash flows in accordance with the International Financial Reporting Standards (IFRS) and comply with the accounting provisions of the Additional Rules for the Listing of Investment Companies of SWX Swiss Exchange as well as with Swiss law. We recommend that the consolidated financial statements submitted to you be approved. PricewaterhouseCoopers AG Thomas Romer Auditor in charge

Nik Hood

Zurich, April 29, 2008

49

AI G P R IVATE E Q U IT Y G R O U P – CO R PO R ATE G OVE R NAN C E

CO R PO R ATE G OVE R NAN C E AT AI G P R IVATE E Q U IT Y LTD.

1. GROUP STRUCTURE AND SHAREHOLDERS AIG Private Equity Ltd. (the Company) is a holding company according to Swiss law and domiciled in Zug. Its 100% subsidiary AIG Private Equity Ltd. (Bermuda) holds the vast majority of investments on its behalf. Both Fund Investments and Direct Investments are investments in private equity which forms the only investment category of the Company. For presentation purposes, the investments are divided in the following three portfolios: – AIG Companies Funds – Third Party Funds – Direct Investments

For further information please also refer to the principles of consolidation section within the consolidated financial statements. See also note 1 of statutory accounts (participations). Significant Shareholders There are several shareholders with a participation exceeding the 3% threshold of the Company’s share capital. The number of shares and voting rights of the major shareholders are disclosed in note 8 of the consolidated financial statements.

Organisational Structure

S HAR E H O LD E R S

AI G P R IVATE E Q U IT Y LTD. ZU G (CO M PANY)

B OAR D O F D I R E C TO R S

S E R VI C E AG R E E M E NT I I

AI G P R IVATE BAN K LTD. ZU R I C H (BAN K)

AI G G LO BAL I NVE STM E NT CO R P. (I NVE STM E NT ADVI S O R)

100 %

AP E N FAITH M E D IA H O LD I N G S LLC

100 % TH I R D PART Y FUNDS

DIRECT I NVE STM E NTS

MANAG E M E NT AG R E E M E NT

AI G P R IVATE E Q U IT Y M G MT LTD. B E R M U DA (MANAG E R)

ADVI S O RY AG R E E M E NT

100 %

I NVE STM E NT CO M M IT TE E

BOARD OF DIRECTORS Eduardo Leemann, Chairman Dr. Ernst Mäder Dr. Roger Schmid Robert Thompson Dr. Christian Wenger

AI G P R IVATE E Q U IT Y (B E R M U DA) LTD. (S U B S I D IARY)

S E R VI C E AG R E E M E NT I

AM E R I C AN I NTE R NATI O NAL CO M PANY LTD. (S E R VI C E CO M PANY)

AI G F U N D S PO RTFO LI O

TH I R D PART Y F U N D S PO RTFO LI O

D I R E C T I NVE STM E NTS PO RTFO LI O

I NVE STM E NTS

I NVE STM E NTS

I NVE STM E NTS

INVESTMENT COMMIT TEE Dr. Thomas Lips, Chairman Steven Costabile (Fund Investments) FT Chong (Direct Investments) Win Neuger

MANAGEMENT BOARD Andrew Fletcher Conradin Schneider

AUDITORS PricewaterhouseCoopers Ltd. Birchstrasse 160 CH-8050 Zürich

51

AI G P R IVATE E Q U IT Y G R O U P – CO R PO R ATE G OVE R NAN C E

2. C AP ITAL STR U C TU R E Capital As of December 31, 2007 the issued share capital of the Company was CHF 412 500 000, divided into 4 125 000 fully paid registered shares with a nominal amount of CHF 100 each. As per the same date 3 949 027 shares were outstanding and the Company held 175 973 shares as treasury shares. The market capitalization of the Company per year-end amounts to CHF 671 million. The shares are listed on the SWX Swiss Exchange. Changes of capital On June 13, 2000 the Company increased its share capital from CHF 184 000 000 to CHF 317 500 000 by issuing 1 335 000 fully paid-in shares with a nominal value of CHF 100.00 at a price of CHF 150.00 per share. On June 28, 2006 the Company increased its share capital from CHF 317 500 000 to CHF 412 500 000 by issuing 950 000 shares of which 736 013 were paid-in shares with a nominal value of CHF 100.00 at a price of CHF 158.50. The balance of 213 987 shares were subscribed by the Company. Shares and participation certificates There are no preferential rights or similar rights. Each share is entitled to one vote and has full dividend rights. Voting rights may be exercised only after a shareholder has been registered in the Company’s share register. No shares and/or share certificates will be issued to shareholders. Two Global Share Certificates (“Globalurkunde auf Dauer”) are deposited with SIS SegaInterSettle AG under Swiss Security number 915.331, ISIN CHF0009153310. Transfers of shares are effected through a book-entry system maintained by SIS SegaInterSettle AG. There are neither participation certificates nor profit sharing certificates.

52

Authorized and conditional capital The board of directors is entitled to an increase in authorized capital up to a maximum amount of CHF 206 250 000 by issuing 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 entitled to an increase in conditional capital up to a maximum amount of CHF 206 250 000 by issuing no more than 2 062 500 shares with a nominal of CHF 100.–. The duration of the authorization period expires May 30, 2009. Shares for which subscription rights were granted but not executed are at the board of director’s disposal. The pre-emptive rights of the shareholders can be excluded in case of acquisitions of other companies or additional listings to foreign stock exchanges. If doing so, the board of directors is not allowed to fix the issuing price under the Net Asset Value of the shares of the Company. See also Article 4 lit. b of the articles of association (available at www.aigprivateequity.com), Limitations of transferability and nominee registrations The Company’s shares are freely transferable, without any limitations, provided that the buyers declare they are the beneficial owners of the shares and comply with the disclosure requirements of the Federal Act on Stock Exchanges and Securities Trading of March 24, 1995. Nominees who act as fiduciaries of shareholders are entered without further inquiry in the Company’s share register as shareholders with voting rights up to a maximum of 3% of the outstanding capital available at the time. See also Article 4 of the articles of association. Convertible Bonds and Warrants There are no convertible bonds and warrants issued by the company or by its subsidiaries on shares of the Company outstanding.

AI G P R IVATE E Q U IT Y G R O U P – CO R PO R ATE G OVE R NAN C E

3. BOARD OF DIRECTORS Responsibilities The board of directors consists of one or more members. The board of directors is ultimately responsible for the policies and management of the corporation. The board establishes the strategic, accounting, organizational and financing policies to be followed by the corporation. The board further appoints the executive officers and the authorized signatories of the corporation, supervises the management of the corporation and monitors the investment decisions. Moreover, the board is entrusted with preparing shareholders' meetings and carrying out shareholders resolutions. The board may, pursuant to its regulations, delegate the conduct of day-to-day business operations to management under its control. The board approves all compensation upon proposal of the chairman. Meeting schedule The board usually meets four times per year in person (minimum twice). The regular meetings are typically held in February, May, August and November. Additional meetings are called on short notice if and when required. In the year under review, four board meetings and a workshop took place. Each of the board meetings has a special focus which is basically connected to the Company’s reporting rhythm. Such focuses are the financial statements, interim results, the medium-term plan, investments, foreign exchange exposure, the annual general meeting and corporate governance. The members of the management committee are invited to attend the board meetings and have attended all four board meetings. The board resolves by majority vote with the presence of a majority of members. The average duration of a board meeting is ninety minutes. Principles of the election procedure The members of the Board will be elected by the annual general meeting according to Article 11 of the articles of association. The term of office for all members is three years with the possibility of repeated re-election. Members of the Board of Directors Eduardo Leemann, born 1956, Swiss citizen, Chairman, nonexecutive member, term of office expires in 2009. Mr. Leemann joined AIG Private Bank in Zurich in 1997 as Chief Executive Officer. In May 2006 he has relinquished the operational leadership of the bank to take over the management of the AIG Global Wealth Management Organization and

became Chairman of the Board of Directors of AIG Private Bank Ltd. He previously worked at Goldman, Sachs & Co Bank as Member of the Management Committee and Head of Private Banking. Prior to that, Mr. Leemann was Deputy to the Head of Private Banking worldwide at Bank Julius Baer with direct responsibilities for the Western Hemisphere, Switzerland as well as the overall marketing effort in Private Banking. Prior to that, he was responsible for building the private banking business of Bank Julius Baer in their New York branch. Eduardo Leemann is a graduate of the “Swiss School of Economics and Business Administration” (SEBA) and from the Advanced Executive Program of the J. L. Kellog Graduate School of Management at the Northwestern University in Chicago, USA. Mr. Leemann became Chairman of the Company’s board of directors in September 1999. Mr. Leemann also serves on the Board of Directors of AIG International Real Estate GmbH & Co. KgaA, a listed real estate company in Frankfurt, Germany. Mr. Leemann also serves as a member of the board of directors of the SWX Group and SWX Swiss Stock Exchange. Dr. Ernst Mäder, born 1954, Swiss citizen, non-executive member, term of office expires in 2009. Currently the CFO of the Swiss National Accident Insurance Fund, Dr. Mäder has had an extensive career with leading Swiss banks. He served Credit Suisse Private Banking as Head of Investment Research and Credit Suisse First Boston as Head of the Fixed Income & Derivatives Research Department Switzerland/Europe. Previously, Dr. Mäder was the Head of the Bond and Derivatives Research Division for Credit Suisse in Zurich. Earlier in his career, he spent ten years at UBS Zurich working with the Economic Department, Investment Research and the Asset Management. Dr. Mäder holds an Economics degree from the University of Zurich with post-graduate studies in “the use of VAR-models in forecasting interest rates and analysing data.” Mr. Mäder joined the Company’s board of directors in December 2000. Dr. Roger Schmid, born 1959, Swiss citizen, non-executive member, term of office expires in 2009. Mr. Schmid joined Ernst Goehner Foundation in 1996 as Managing Director and became a member of the board of trustees in 2005. Prior to joining Ernst Goehner Foundation, Mr. Schmid worked for five years with Bank Leu Ltd. as counselor-at-law and became a Member of the Senior Management in 1995. Mr. Schmid received a degree in law from Zurich University. His professional education includes training programs and work in South Africa, England and the United States. 53

AI G P R IVATE E Q U IT Y G R O U P – CO R PO R ATE G OVE R NAN C E

Mr. Schmid joined the Company’s board of directors in September 1999. Mr. Schmid also serves as a non-executive member on the board of directors of Panalpina Welttransport (Holding) Ltd. Robert Thompson, born 1954, US citizen, non-executive member, term of office expires in 2010. Mr. Thompson is the Head of AIG Investments worldwide Alternative Investments business, having joined AIG Investments in 2005. Mr. Thompson was a co-founder and managing member of Ferrer Freeman Thompson & Co., LLC, (“FFT”) a private equity firm dedicated to investing in the Health Care industry. Prior to FFT, he was Managing Director and Equity Group Leader at GE Capital. Mr. Thompson founded, organized, and developed GE Capital’s Private Equity activities throughout the U.S., Europe and Asia. Mr. Thompson has over 15 years experience in all segments of the private equity business including mezzanine, direct investments, joint ventures, leveraged buyouts and fund investments. Mr. Thompson has also held various positions at Bain & Co. and Chemical Bank. He currently serves on Investment Committees for AIG Investments alternative investments activities. Mr. Thompson received an A.B. in Economics from Harvard College and an M.B.A. from Stanford University. Mr. Thompson joined the Company’s board of directors in May 2007. Dr. Christian C. Wenger, born 1964, Swiss citizen, non-executive member, term of office expires in 2009. Mr. Wenger is a lawyer and a partner at the well-known law firm of Wenger & Vieli in Zurich. He joined the firm in 1996 and became partner in 1999. Mr. Wenger is specialized in commercial and business law, with a focus on Private Equity, Venture Capital and M&A. Mr. Wenger is member of the management board of SEC A (Swiss Association for Private Equity and Corporate Finance) as well as president of CTI Invest, an investors’ organization associated with KTI, the Swiss federal government’s agency to promote innovation. In the scope of his professional activities, Mr. Wenger is member of the board of several Swiss as well as international companies. He received a degree in law from Zurich University (Dr. iur.) and completed his studies with an LL.M at Duke University Law School, North Carolina. Mr. Wenger joined the Company’s board of directors in May 2006. Mr. Wenger also serves as a non-executive member of the board of directors of Looser Holding Ltd. and AIG Private Bank Ltd. 54

Internal Organization and definition of areas of responsibility The principal responsibilities of the board of directors encompass: – Establishment of strategic, organizational, reporting and financial policies – Appointment of executive officers – Definition of investment policy and supervision of its implementation – Preparation and execution of annual shareholders meeting They are summarized in Article 13 of the articles of association (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 more committees. The board of directors has delegated to the Management Committee the coordination of the day-to-day business operations of the company. See also Article 3 of the Internal Regulations of the Board of Directors (available at www.aigprivateequity.com). The board of directors has not concluded any contracts with third parties to manage the business. For the tasks and responsibilities of the board see internal regulations of the board of directors (available at www.aigprivateequity.com). Information and control instruments vis-à-vis the management board In order to allow fulfilment of its supervising duties, the board of directors is provided with the following information: – Discussions with the management during the board of directors 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 participate at every meeting of the board if directors. Additionally, the members of the management committee engage on a frequent basis with the chairman of the board and other members of the board of directors.

AI G P R IVATE E Q U IT Y G R O U P – CO R PO R ATE G OVE R NAN C E

4. INVESTMENT COMMIT TEE Dr. Thomas Lips, Chairman of the Investment Committee Dr. Lips is Chief Investment Officer for AIG Global Investment Corp. (Switzerland) Ltd. and is responsible for directing European Equities activities. Prior to joining the AIG Companies in 1998, he was at Goldman, Sachs & Co. Bank as Chief Investment Officer responsible for building the private and institutional asset management business in Switzerland. Prior to Goldman, Sachs & Co., Dr. Lips was head of Investment Counseling and Research for Union Bank of Switzerland. Dr. Lips studied at the Universities of Fribourg, Basel and Zurich, where he received his Doctorate Degree in Economics. He is the founding member of the board of the Swiss Training Center for Investment Managers, and a member of the editing body of the Swiss Association for Investment Research. He is also the Chairman of the Swiss Association of Financial Analysts and Investment Managers. Dr. Lips is a member of the AIG Global Investment Policy Committee. Steven Costabile (fund investments) Mr. Costabile joined AIG Investments in 2000 and is the Managing Director of the Private Equity Funds Group. Mr. Costabile has played a significant role in the successful growth of three product lines, Pinestreet LLC, PineStar (secondaries) and the PEP program. Mr. Costabile serves on the Developed Markets Fund Investment Committee, APEN Investment Committee and Japan Private Equity Investment Committee. His current responsibilities include overseeing all private equity funds investments in the developed markets, as well as sourcing, due diligence, monitoring product development, and marketing. From 1997 to 2000, Mr. Costabile was a Vice President at Credit Suisse First Boston (CSFB) in the Private Funds Group, with a focus on investments on behalf of CSFB and third party investors. Prior to that, he was the Senior Investment Officer of Alternative Investments for the Commonwealth of Massachusetts and the Assistant Director of Venture Capital for the Commonwealth of Pennsylvania. In both positions, Mr. Costabile focused on private equity fund investments. He received both a BSBA and an MBA from Duquesne University. He is also a CFA charterholder and holds a Series 7 license.

FT Chong (direct investments) Mr. Chong joined AIG Investments in 1998 and currently leads the Direct Investments Team which focuses on private equity and mezzanine investing in developed markets such as the United States and Europe. Mr. Chong has worked in buyouts and leveraged financing since 1981. Mr. Chong is currently a director of a number of companies including Fresh Direct. Prior to joining AIG Investments, Mr. Chong was Executive Vice President for Business Development for the GT Group, an Asian conglomerate, from 1994 to 1998. In the early 1990’s he was a founder and CFO of DynadxTechnologies, Inc., a start-up company that developed and marketed a new out-of-home advertising technology. From 1981 to 1989 he was head of the USD 3 billion US leveraged finance group at Swiss Bank Corp. and participated in or led the financing for more than two dozen high profile leveraged buyouts. He received an MBA from Columbia University and also has a degree in Chemical Engineering from the University of Malaya. Win J. Neuger Mr. Neuger is responsible for directing AIG Investments strategies on a worldwide basis. He is also an Executive Vice President and Chief Investment Officer of AIG. He also served as a member of the board of directors of the Company from 2006–2007. Mr. Neuger joined AIG Investments in 1995, with investment management experience since 1981. Before joining AIG Investments, he was with Bankers Trust Company, where he served both as Managing Director, Fixed Income and, subsequently, Managing Director, Global Equities. Prior to joining Bankers Trust, Mr. Neuger served as Chief Investment Officer at Western Asset Management. He was also the Head of Fixed Income at Northwestern National Bank in Minnesota. Mr. Neuger received an AB from Dartmouth College and an MBA from Dartmouth’s Amos Tuck Graduate School of Business. He is a CFA charterholder and is a member of the New York Society of Security Analysts (NYSSA) and the CFA Institute (formerly AIMR).

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AI G P R IVATE E Q U IT Y G R O U P – CO R PO R ATE G OVE R NAN C E

Investment Process Diagram Management & Investment Advisor

Sourcing

Evaluation

Investment

Negotiation

Investment

Memorandum

of Terms

Approval

Monitoring

Exit

Recommendations

Investment Committee

The Investment Committee is appointed by the board of directors of the Subsidiary and is responsible for assessing the investment opportunities presented by the Manager and the Investment Advisor and subsequently making investment recommendations to the board of directors of the Subsidiary for approval by the latter. See also note 14 to the consolidated financial statements.

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

5. MANAGEMENT BOARD

Conradin Schneider, born 1962, Swiss citizen. Mr. Schneider joined the AIG Companies in 1999. He was involved in establishing and listing the Company, a Swiss listed private equity investment company, on the SWX Swiss Exchange. With the Company Mr. Schneider is responsible for screening private equity funds and direct investment opportunities and for operations. Prior to joining AIG, Mr. Schneider was with Aventic Ltd., the private equity vehicle of UBS for small and medium sized companies in Switzerland. Prior to his assignment with UBS-Aventic, he worked 8 years as a corporate banker with UBS with a focus on Swiss multinationals. Mr. Schneider received his graduate degree from the University of St. Gall, Switzerland, specializing in banking and economics. Mr. Schneider is also a member of the board of directors of MV Leverage Finance Limited and AIG MezzVest II, and a member of the management board of AIG International Real Estate GmbH & Co. KGaA, a listed real estate company in Frankfurt, Germany. He is also a member of the management board of AIG Private Bank Ltd., Zurich.

Members of the Management Board Andrew Fletcher, born 1964, US citizen. Mr. Fletcher joined the Company in 2001. Mr. Fletcher is also a member of the management board of AIG Global Investment Corp. (Switzerland) Ltd., responsible for alternative investments and structured products, and a managing director of AIG International Real Estate GmbH & Co. KGaA, a listed real estate company in Frankfurt, and its subsidiaries. Prior to 2001, Mr. Fletcher worked for four years as Assistant General Counsel in AIG’s corporate law department in New York and for six years in private practice. He is a graduate of Harvard College and Harvard Law School. Mr. Fletcher is also a member of the management board of AIG International Real Estate GmbH & Co. KGaA, a listed real estate company in Frankfurt, Germany. He is also a member of the management board of AIG Private Bank Ltd., Zurich. 56

Board of Directors Subsidiary

AI G P R IVATE E Q U IT Y G R O U P – CO R PO R ATE G OVE R NAN C E

the management board upon proposal of the Chairman. The share based compensation plan is designed to ensure that the Company maintains a competitive bonus program in order to recruit, retain and motivate management in the overall interests of shareholders.

6. COMPENSATION, SHAREHOLDINGS AND LOANS Content and Method of Determining Compensations The compensation of the Board of Directors lies in the responsibility of the general meeting. The Board of Directors approves compensation (including the share option plan) for Base Compensation

All amounts in CHF

Variable Compensation* 1

Other Compensation** 1

Total 2007 1

Shareholdings 2

SARs 3

Board of Directors Eduardo Leeman Erich Hort Dr. Ernst Mäder Win Neuger (as from May 2007) Dr. Roger Schmid Robert Thompson (as from May 2007) Dr. Christian Wenger Total Board of Directors

60 000 30 000 30 000 – 30 000 – 17 500 167 500

2 500 2 000 2 500 – 1 500 – 1 500 10 000

6 967 2 936 2 909 – – – – 12 812

69 467 34 936 35 409 – 31 500 – 19 000 190 312

200 – – – 750 – – 950

– – – – – – – –

Management Andrew Fletcher Conradin Schneider Total Management

242 319 – 242 319

– – –

– – –

242 319 – 242 319

1 000 3 334 4 334

15 000 7 500 22 500

* Attendance fee ** Social security payments

1 2 3

in CHF number held at year end number granted during year

Share-based compensation plans The members of Management of the Company have the option to exercise an aggregate of (i) 45 000 stock appreciation rights of the Company over a period of three years and (ii) 15 833 stock options of the Company over a period of three years. As of 31 December 2007, they held the following stock appreciation rights and stock options:

6 333 stock appreciation rights and 2 833 options were exercised in 2007. No other options to purchase shares of the Company have been issued by the Company. Highest total compensation of Board of Directors member See above, total of compensations for both boards.

Number of options

Year of grant

Vesting date

Expiry Date

Subscription ratio

4 000 5 000 6 833

2005 2005 2005

31.5.2006 31.5.2007 31.5.2008

13.6.2008 13.6.2008 13.6.2008

1:1 1:1 1:1

CHF 125 CHF 125 CHF 125

7 000 7 000 7 000

2006 2006 2006

15.2.2008 15.2.2009 15.2.2010

28.2.2009 28.2.2009 28.2.2009

1:1 1:1 1:1

CHF 160 CHF 160 CHF 160

8 000 8 000 8 000

2007 2007 2007

1.3.2008 1.3.2009 1.3.2010

14.3.2010 14.3.2010 14.3.2010

1:1 1:1 1:1

CHF 160 CHF 160 CHF 160

Strike Price

Number of SARs

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AI G P R IVATE E Q U IT Y G R O U P – CO R PO R ATE G OVE R NAN C E

7. SHAREHOLDER’S PARTICIPATION RIGHTS

9. AUDITORS

Voting-rights restrictions and representations Each registered share in the Company is entitled to one vote. See also Article 7 section 1 in the articles of association. Voting rights may be exercised only after a shareholder has been registered as shareholder with voting rights in the Company’s share register.

Date of Assumption of the Existing Auditing Mandate PricewaterhouseCoopers (PwC) was re-elected for another 3 years at the general meeting in June 2005. Responsible Partner: Thomas Romer (since 2004) Responsible Senior Manager: Nik Hood (since 2007)

Rules on participating in the general meeting if different from law No restrictions. See Article 7 section 2 in the articles of association. Statutory quora The statutory quora comply with the applicable legal regulations. See Article 8 in the articles of association. Convocation of the general meeting of shareholders and proposal for agenda items The convocation of the Shareholders’ Meeting complies with the applicable legal regulations. The convocation may also be requested by one or several shareholders representing together at least ten percent of the share capital. See also Articles 5 and 6 in the articles of association. Registration in the share register There is no statutory rule on the deadline for registering shareholders in connection with the attendance of the Annual General Meeting. In 2008, the qualifying date is May 5, while the Annual General Meeting will be held on May 28.

8. CHANGES OF CONTROL AND DEFENSE MEASURES Duty to make an offer The company refrains from the duty to make an offer (opting-out; see also Article 23 in the articles of association) pursuant to Article 32 of the Federal Stock Exchange Act (SESTA).

58

Total of auditing honorariums 2007 TCHF 150 Additional honorariums Tax-consulting TCHF 89 Supervisory and control instruments vis-à-vis the auditors, control instruments Since there is no Audit Committee, the Auditors’ report will be presented to the whole Board of Directors as a part of the annual report. In addition to that, the responsible Auditor participates in the annual general meeting and is standing by for questions and detailed audit information.

10. INFORMATION POLICY The Company aims to offer the shareholders a high degree of transparency. In this respect the Company publishes an annual report, a semi-annual report and three quarterly reports. In addition, the Company publishes the net asset value of the Company on a monthly basis. In between the quarterly report publications relevant information (including information subject to Ad-hoc publicity according to section 72 of the listing rules) is published in the form of press releases and available at www.aigprivateequity. com.

AI G P R IVATE E Q U IT Y LTD. – F I NAN C IAL STATE M E NTS 2007

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

2007

2006

Assets Current Assets – Cash and cash equivalents – Loans to subsidiary – Derivative instruments

5

– Prepayments – Own shares

3

26

4 128

25 150

–

1 645

945

219

127

27 847

36 207

54 887

41 407

546 716

525 739

Long-term Assets – Participation

1

– Direct Investments

8

2 170

11 123

– Funds

8

3 041

2 052

Total Assets

551 927

538 914

606 814

580 321

1 401

1 838

Liabilities and Shareholders’ Equity Current Liabilities – Payables and accrued charges – Bank loan

25 015

–

26 416

1 838

412 500

412 500

82 500

82 500

Shareholders’ Equity – Share capital

2, 6

– Reserve (non-disposable) – 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

27 847

36 207

– Reserve for own shares – Reserve for stock option plan – Retained earnings Total Liabilities and Shareholders’ Equity

60

4

182

156

17 491

15 601

580 398

578 483

606 814

580 321

AI G P R IVATE E Q U IT Y LTD. – F I NAN C IAL STATE M E NTS 2007

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

2007

2006

–

718

Income Dividend income from non-current assets Net realized gains on investments Interest income from current assets Gain on foreign currency exchange Gain on derivative instruments

5

Gain on sale of own shares

3

Total Income

1 566

219

210

175

10

1 028

2 642

–

346

3 694

4 774

5 834

Expenses Service fees Other operating expenses Loss on foreign currency exchange Loss on derivative instruments Tax expenses

301

301

2 319

1 912

112

1 197

–

1 377

152

675

Total Expenses

2 884

5 462

Net profit for the year

1 890

372

21 720

21 348

1 890

372

23 610

21 720

Accumulated surplus (deficit) Balance, beginning of the year Net profit for the year Balance, end of the year

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AI G P R IVATE E Q U IT Y LTD. – F I NAN C IAL STATE M E NTS 2007

N OTE S TO TH E F I NAN C IAL STATE M E NTS in TCHF 1. Participation

AIG Private Equity (Bermuda) Ltd. APEN Faith Media Holdings LLC. Total

Location

Capital held in %

Nominal Value in TUSD

Paid in TUSD

Book value in TCHF

Book value in TCHF

Pembroke, Bermuda Delaware, USA

100 100

552 663 0 552 663

495 870 9 780 505 650

31.12.07 537 680 9 036 546 716

31.12.06 525 739 0 525 739

AIG Private Equity Ltd., Zug (“the Company”) is a Swiss stock corporation established under the relevant provisions of the Swiss Code of Obligations and domiciled in Zug. The Company was established by AIG Private Bank Ltd. on September 17, 1999 for an indefinite period of time and was registered in the commercial register of the Canton of Zug on September 20, 1999. The Company, together with AIG Private Equity (Bermuda) Ltd. and APEN Faith Media Holdings LLC (“the Subsidiaries”), comprises the AIG PE Group (“the Group”). The Company’s shares are listed on the SWX Swiss Exchange since October 12, 1999. The Company’s investment objective is to achieve longterm capital growth for shareholders by investing in private equity funds. The Company may also make direct investments in operating companies. Although the Company may invest directly in fund investments or companies, it is anticipated that investments will generally be made through the Subsidiaries. 2. Authorized and Conditional Share Capital As per December 31, 2007 the Company has CHF 206.25 million (2006: CHF 63.75 million) authorized share capital outstanding. This authorized share capital will expire at the end of May 2009. As per December 31, 2007 the Company has CHF 206.25 million (2006: CHF 63.75 million) conditional share capital outstanding. This conditional share capital will expire at the end of May 2009.

3. Balances and transactions with own shares Number

Amount CHF

Balance as of January 1, 2007 228 806 36 207 033 Disposal (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 27 500 757 Realized gains on sale of own shares 2007 345 782 Book value as of December 31, 2007 27 846 539 * This relates to equity settlement of option exercised during the year. 4. Reserve for Own Shares At the end of 2007 the Reserve for Own Shares amounted to CHF 27 846 539. The decrease of CHF 8 360 494 has been posted against Share Capital Premium – see also point 3 of the notes. 5. Derivative Instruments Forward Exchange Transactions 2007 As of December 31, 2007 the Company has one open foreign exchange forward contracts: Nominal amount

Maturity date

Contractual Exchange exchange rate at rate year end

USD 20 000 000 23.04.2008 1.1640

1.1329

Positive replacement value

CHF 622 000

On December 31, 2007 the Company closed a foreign exchange forward contract with a notional amount of USD 30 000 000 resulting in the Company receiving TCH 1023 in January 2008. Certain prior year comparisons have been reclassified to correspond with current year presentation. 62

AI G P R IVATE E Q U IT Y LTD. – F I NAN C IAL STATE M E NTS 2007

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

Nominal amount

Maturity date

Contractual Exchange exchange rate at rate year end

USD 30 000 000 12.01.2007 1.2502

1.2187

Positive replacement value

CHF 945 000

6. Shareholders’ Equity 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 413 500 1 083 527 267 000 229 284 175 973 127 500 167 000

2007 10.02% 26.27% 6.47% 5.56% 4.27% 3.09% 4.05%

2006 413 500 1 160 127 267 000 – 228 806 – –

2006 10.02% 28.12% 6.47% * 5.55% ** ***

American International Underwriters Overseas Ltd. AIG Life (Ireland) Ltd. Ernst Göhner Stiftung AIG Private Bank Ltd. AIG Private Equity Ltd. SUVA, Schweiz. Unfallversicherungsanstalt AXA Winterthur

* 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 Winterthur informed the Company that its shareholding had dropped below 5%.

7. Compensation, shareholdings and loans The compensation of the Board of Directors is within the competence of the general meeting. The Board of Directors approves compensation (including the share option plan) for the management board upon proposal of the Chairman. Base Compensation 1

Variable Compensation* 1

Other Compensation** 1

Total 2007 1

Shareholdings 2

SARs 3

Board of Directors Eduardo Leeman Erich Hort Dr. Ernst Mäder Win Neuger (until May 2007) Dr. Roger Schmid Robert Thompson (as from May 2007) Dr. Christian Wenger Total Board of Directors

60 000 30 000 30 000 – 30 000 – 17 500 167 500

2 500 2 000 2 500 – 1 500 – 1 500 10 000

6 967 2 936 2 909 – – – – 12 812

69 467 34 936 35 409 – 31 500 – 19 000 190 312

200 – – – 750 – – 950

– – – – – – – –

Management Andrew Fletcher Conradin Schneider Total Management

242 319 – 242 319

– – –

– – –

242 319 – 242 319

1 000 3 334 4 334

15 000 7 500 22 500

* Attendance fee ** Social security payments

1 2 3

in CHF number held at year end number granted during year

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AI G P R IVATE E Q U IT Y LTD. – F I NAN C IAL STATE M E NTS 2007

Share-based compensation plans The members of Management of the Company have the option to exercise an aggregate of (i) 45 000 stock appreciation rights of the Company over a period of three years and (ii) 15 833 stock options of the Company over a period of three years. As of 31 December 2007, they held the following stock appreciation rights and stock options: Number of options

Year of grant

Vesting date

Expiry Date

Subscription ratio

4 000 5 000 6 833

2005 2005 2005

31.5.2006 31.5.2007 31.5.2008

13.6.2008 13.6.2008 13.6.2008

1:1 1:1 1:1

CHF 125 CHF 125 CHF 125

7 000 7 000 7 000

2006 2006 2006

15.2.2008 15.2.2009 15.2.2010

28.2.2009 28.2.2009 28.2.2009

1:1 1:1 1:1

CHF 160 CHF 160 CHF 160

8 000 8 000 8 000

2007 2007 2007

1.3.2008 1.3.2009 1.3.2010

14.3.2010 14.3.2010 14.3.2010

1:1 1:1 1:1

CHF 160 CHF 160 CHF 160

Strike Price

Number of SARs

8. Investments The Company holds one direct investment (Hertz) and three private equity partnerships (Carlyle Japan Partners II, L.P.; Unison Capital Partners II and Unison Standby Facility). The book values of these investments are as follows (in TCHF): Hertz Carlyle Japan Partners II Unison Capital Partners II Unison Standby Facility

2 170 889 1 890 262

9. Subsequent Events Since the balance sheet date of December 31, 2007, there have been no material events that could impair the integrity of the information presented in the financial statements.

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AI G P R IVATE E Q U IT Y LTD. – F I NAN C IAL STATE M E NTS 2007

R E PO RT O F TH E STATUTO RY AU D ITO R S As statutory auditors, we have audited the accounting records and the financial statements (balance sheet, income statement and notes) of AIG Private Equity AG, Zug on pages 60 to 64 for the year ended 31 December 2007. These financial statements are the responsibility of the Board of Directors. Our responsibility is to express an opinion on these financial statements based on our audit. We confirm that we meet the legal requirements concerning professional qualification and independence. Our audit was conducted in accordance with Swiss Auditing Standards, which require that an audit be planned and performed to obtain reasonable assurance about whether the financial statements are free from material misstatement. We have examined on a test basis evidence supporting the amounts and disclosures in the financial statements. We have also assessed the accounting principles used, significant estimates made and the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the accounting records and financial statements comply with Swiss law and the company’s articles of incorporation. We recommend that the financial statements submitted to you be approved. PricewaterhouseCoopers AG Thomas Romer Auditor in charge

Nik Hood

Zurich, April 29, 2008

65

AD D R E S S E S AN D CO NTAC TS Registered Office AIG Private Equity Ltd. Grafenauweg 8 CH-6300 Zug Phone +41 (41) 710 70 60 Fax +41 (41) 710 70 64 E-mail [email protected] Subsidiaries AIG Private Equity (Bermuda) Ltd. 29, Richmond Road Pembroke, HM 08 Bermuda APEN Faith Media Holdings, LLC 2711 Centerville Road, Suite 400 Wilmington, New Castle County Delaware 19808 USA Investor Relations Conradin Schneider AIG Private Equity Ltd. Grafenauweg 8 CH-6300 Zug Phone +41 (41) 710 70 60 Fax +41 (41) 710 70 64 E-mail [email protected] If you would like to submit an investment proposal 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] Phone +1 646 857 8693 For European direct investments: E-mail [email protected] Phone +44 207 954 8121 For European private equity funds: E-mail [email protected] Phone +41 44 227 52 57 www.aigprivateequity.com

AIG Private Equity Ltd. Grafenauweg 8 CH-6300 Zug Switzerland

Phone +41 (41) 710 70 60 Fax +41 (41) 710 70 64 Email [email protected] www.aigprivateequity.com