EFTA00608391.pdf

EMPIRE VALUATION CONSULTANTS, ac PRIVATE & CONFIDENTIAL October 18, 2007 Carlyn McCaffrey, Esq. Weil Gotshal & Manges LLP 767 Fifth Avenue New York, NY 10153-0119 Dear Ms. McCaffrey: You have requested Empire Valuation Consultants, LLC ("Empire") to render its opinion as to: 1) the fair market value of each of limited partnership interests in the fund management entities, as defined below (the "Management Interests" and the "Advisor Interests") contributed by LBF Holdings' ("LBFH," a Delaware limited liability company) to Apollo Management Holdings, LP ("AMHLP" or the "Partnership") as a percentage of the combined fair market value of all the Management Interests contributed by LBFH to AMHLP; and 2) the fair market value of the limited partnership interest in AMHLP received in exchange for the contribution of the Management Interests (the "AMHLP LP Interest"). These valuations are as of April 16, 2007 (the "Valuation Date"). The Management Interests include limited partnership interests in: 1) Apollo Management III, L.P. ("AMIIILP"); 2) Apollo Management IV, L.P. ("AMIVLP"); 3) Apollo Management V, L.P. ("AMVLP"); 4) Apollo Management VI, L.P. ("AMVILP"); 5) Apollo Management VII, L.P. ("AMVIILP"); 6) Apollo Investment Management, L.P. ("AIMLP"); 7) Apollo Value Management, L.P. ("VIFMLP"); 8) Apollo SVF Management, L.P. ("ASVFMLP"); 9) Apollo Asia Management, L.P. ("AAMLP"); 10) Apollo Europe Management, L.P. ("AEMLP"); 11) Apollo Alternative Assets, L.P. ("AAALP"), 12) to be formed Apollo EPF Management, L.P. ("EPFMLP"), and 13) to be formed New Funds Management, L.P. ("NFMLP") collectively the "Management Companies"). The Advisor Interests include limited partnership interests in: Apollo Fund VII Advisor ("Fund VII Advisor"), Apollo EPF Advisors ("EPF Advisors"), and Apollo New Fund Advisors ("New Fund Advisors"), collectively the "Advisor Companies". 350 Fifth Avenue Suite 5513 New York, NY 10118 New York Rochester West Hanford EFTA00608391 Carlyn McCaffrey, Esq. October 18, 2007 Page 2 This report references analysis and methodologies discussed in Management Companies valuation reports as of December 21, 2006 (the "December 2006 Reports"). This report has been prepared as a Restricted Use Appraisal Report as defined in Standards Rule 10 of The Appraisal Foundation's Uniform Standards of Professional Appraisal Practice ("USPAP"), which specifically applies to the preparation of valuation reports of business interests. This report is for your use and should be considered only in conjunction with the December 2006 Reports. This report should only be shared with those persons who have read the December 2006 Reports and have the requisite knowledge to understand the risks, opportunities, and the valuation theories and analyses discussed and applied in this situation, since this report may not be understood properly by readers who have not read the December 2006 Reports. Methodology AMHLP, the Management Companies, and the Advisor Companies have been valued on a going concern basis. Since all are closely-held, and thus without a public market for their ownership interests, this appraisal was conducted according to guidelines established by the Internal Revenue Service ("IRS") and USPAP, and in conformity with the American Society of Appraisers' Principles of Appraisal Practice and Code of Ethics, together with other standards that were deemed relevant to this engagement. This appraisal considered all pertinent factors outlined in USPAP Standards Rule 9 and IRS Revenue Ruling 59-60, including, but not limited to, the following: • the nature and history of AMHLP, the Management Companies, and the Advisor Companies; • the financial and economic conditions affecting the general economy, the Partnership, the Management Companies, the Advisor Companies, and their industry; • the past results, current operations, and future prospects of AMHLP, the Management Companies, and the Advisor Companies; • the earning capacity and dividend-paying capacity of the Partnership, the Management Companies, and the Advisor Companies; • the economic benefit to the Partnership, Management Companies, and the Advisor Companies of both their tangible and intangible assets; EFTA00608392 Carlyn McCaffrey, Esq. October 18, 2007 Page 3 • the market price of actively traded interests in public entities engaged in the same or similar lines of business as AMHLP, the Management Companies, and the Advisor Companies as well as sales of ownership interests in entities similar to the Partnership, the Management Companies, and the Advisor Companies; • the prices, terms, and conditions of past sales of ownership interests in AMHLP, the Management Companies, and the Advisor Companies; and • the impact on the value of ownership interests in AMHLP, the Management Companies, and the Advisor Companies, resulting from the existence of buy-sell and option agreements, investment letter stock restrictions, restrictive shareholders agreements, or other such agreements. In defining "fair market value," IRS Revenue Ruling 59-60 refers to Section 25.2512-1 of the Gift Tax Regulations. Fair market value is described therein as the price at which ownership interests would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts. Executive Summary As will be detailed in this report, Empire has determined that Leon Black holds a 33.57% limited partnership interest in AMHLP that is reasonably stated as $860,100,000, as of April 16, 2007. Sources of Information Information used in determining the fair market value of a limited partnership interest in AMHLP was provided by the documents and sources listed below: • A copy of the Amended and Restated Limited Partnership Agreement of AMHLP, dated April 19, 2007 (the "AMHLP Partnership Agreement"); • A copy of the AMIIILP, AMIVLP, AMVLP, AMVILP, AMVIILP, AIMLP, VIFMLP, ASVFMLP, AAMLP, AEMLP, AAMLP, and AAALP valuation reports as of December 21, 2006, referenced earlier as the December 2006 Reports; • A copy of the Amended and Restated Limited Partnership Agreement of AMIIILP, dated March 17, 1995 (the "AMIIILP Partnership Agreement"); EFTA00608393 Carlyn McCaffrey, Esq. October 18, 2007 Page 4 • Copies of Amended and Restated Limited Partnership Agreements of Apollo Investment Fund III, L.P. ("Fund III"), dated March 31, 1995; Apollo Overseas Partners III, L.P. ("Overseas"), dated March 31, 1995; and Apollo UK Partners III, L.P. ("UKIII"), dated March 31, 1995; • Copies of AMIIILP's federal income tax returns, Form 1065, for the years ended December 31, 2002 through 2005 and preliminary for 2006; • A copy of the Amended and Restated Limited Partnership Agreement of AMIVLP, dated April 18, 1998 (the "AMIVLP Partnership Agreement"); • Copies of Amended and Restated Limited Partnership Agreements of Apollo Investment Fund IV, L.P. ("Fund IV"), dated April 21, 1998; and Apollo Overseas Partners IV, L.P. ("Overseas IV"), dated April 21, 1998; • Copies of AMIVLP's federal income tax returns, Form 1065, for the years ended December 31, 2002 through 2006; • A copy of the Amended and Restated Limited Partnership Agreement of AMVLP, dated October 26, 2000 (the "AMVLP Partnership Agreement"); • Copies of Amended and Restated Limited Partnership Agreements of Apollo Investment Fund V, L.P. ("Fund V"), dated April 19, 2002 ("Fund V Partnership Agreement"); Apollo Overseas Partners V, L.P. ("Overseas V"), dated April 30, 2002; Apollo Netherlands Partners V(A), L.P. ("NPVA"), dated July 31, 2001; Apollo Netherlands Partners V(B), L.P. ("NPVB"), dated July 31, 2001; and Apollo German Partners V GMBH & Co. KG ("AGV"), dated July 13, 2001; • Copies of AMVLP's federal income tax returns, Form 1065, for the years ended December 31, 2003 through 2005 and preliminary for 2006; • A copy of the Amended and Restated Limited Partnership Agreement of AMVILP, effective as of September 21, 2006 (the "AMVILP Partnership Agreement"); • Copy of the Amended and Restated Limited Partnership Agreement of Apollo Investment Fund VI, L.P. ("Fund VI"), dated August 26, 2005 ("Fund VI Partnership Agreement"); EFTA00608394 Carlyn McCaffrey, Esq. October 18, 2007 Page 5 • Copies of Amended and Restated Limited Partnership Agreements of Apollo Overseas Partners VI, L.P.; Apollo Overseas Partners (Delaware) VI, L.P.; Apollo Overseas Partners (Delaware 892) VI, L.P.; and Apollo Overseas Partners (Germany) VI, L.P., all dated August 26, 2005; • Copy of AMVILP's preliminary federal income tax return, Form 1065, for the year ended December 31, 2006; • Copy of Apollo Investment Fund VII, L.P.'s ("Fund VII") Private Placement Memorandum; • Copy of AIMLP's Agreement of Limited Partnership, effective as of February 3, 2004 (the "AIMLP Partnership Agreement"); • Copy of an Investment Advisory Management Agreement between AMHLP and Apollo Investment Corporation ("AINV" or the "Company") including a supplement that clarifies the capital gains fee calculation, dated March 25, 2004; • Copies of AIMLP's federal income tax returns, Form 1065, for the years ended December 31, 2004 through 2005 and preliminary for 2006; • Copy of AINV's Prospectus, dated September 20, 2006; • Copy of AINV's annual report, or 10-K, filed with the Securities and Exchange Commission ("SEC"), for the Company's fiscal year ended March 31, 2006; • Copy of AINV's quarterly report, or 10-Q, for the Company's fiscal quarter ended December 31, 2006; • Copy of a management presentation of AINV as of the end of 2006; • Agreement of Limited Partnership of Apollo DIF Management. L.P. ("DIF"), dated May 8, 2003; • Amended and Restated Agreement of Limited Partnership of Apollo Value Investment, L.P., dated June 1, 2007; EFTA00608395 Carlyn McCaffrey, Esq. October 18, 2007 Page 6 • First Amended and Restated Limited Partnership Agreement of Apollo Value Investment Master Fund, L.P., ("VIF Master Fund") dated January 1, 2007; • Amended and Restated Investment Management Agreement between Apollo Value Investment Offshore Fund, Ltd. and VIFMLP, dated January 1, 2007 ("VIFMLP Management Agreement"); • Copies of VIFMLP's federal income tax returns, Form 1065, for the years ended December 31, 2003 through 2005 and preliminary for 2006; • Copy of ASVFMLP's Agreement of Limited Partnership, dated May 17, 2006 (the "ASVFMLP Partnership Agreement"); • Copies of private placement memorandums for Apollo Strategic Value Fund Offshore Fund, Ltd. ("Offshore") and Apollo Strategic Value Fund, L.P. ("SVF Master Fund"), both as of January 2007; • Copy of the Second Amended and Restated Limited Partnership Agreement of the Master Fund, dated February 1, 2007 (the "Master Fund LP Agreement"); • Copy of the Master Fund's financial statements for the period from June 14, 2006 (commencement of operations) to December 31, 2006; • Copy of ASVFMLP's preliminary federal income tax return, Form 1065, for the year ended December 31, 2006; • A copy of the Limited Partnership Agreement of AAMLP, dated December 14, 2006 (the "AAMLP Partnership Agreement"); • Copies of the Limited Partnership Agreements of Apollo Asia Opportunity Fund, L.P. ("AAO Master Fund"), dated December 11, 2006 ("AAO Partnership Agreement"); • A copy of the Amended and Restated Limited Partnership Agreement of AAALP, dated May 19, 2006 (the "AAALP Partnership Agreement"); EFTA00608396 Carlyn McCaffrey, Esq. October 18, 2007 Page 7 • Copies of the Limited Partnership Agreements of AP Alternative Investments, L.P. ("AAA"), dated May 31, 2006 ("AAA Partnership Agreement"); • Copy of AAALP's preliminary federal income tax return, Form 1065, for the year ended December 31, 2006; • Copy of an Agreement of Limited Partnership for Apollo International Management, L.P.' as of April 4, 2006 (the "AEMLP Partnership Agreement"); • Copy of AEMLP's preliminary federal income tax return, Form 1065, for the year ended December 31, 2006; • Apollo AP Investment Europe Investor Presentation as of March 31, 2007, containing some information as of December 31, 2006 (the "AEM Investor Report"); • Projections provided by management as of April 2007; • Ownership schedule of Mr. Black's interests provided by Apollo, as of the Valuation Date; • Conversations and correspondence with John Suydam, Apollo Group's ("Apollo") Chief Legal Officer; Barry Giarraputo, Chief Financial Officer for AP Alternative Investments; and Michael Gullace, Director of Special Projects and others at Apollo; as well as attorneys from the firm of Weil Gotshal & Manges, LLP and Akin Gump Strauss Hauer & Felp LLP; and • Other reviews, analyses, and research as were deemed necessary. Apollo, Management Companies & Advisor Companies Overview Founded in 1990 by a group of four experienced investment management individuals from Drexel Burnham Lambert, the Apollo umbrella covers a variety of mainly private investment vehicles. It is considered a leading global alternative asset manager. Alongside its traditional private equity funds, Apollo also oversees distressed debt and mezzanine investing. Typically, Apollo has concentrated its Apollo International Management, M.'s name was changed to AEMLP prior to the Valuation Date. EFTA00608397 Carlyn McCaffrey, Esq. October 18, 2007 Page 8 investments in middle-market companies. Apollo's managing partners are Leon Black, Joshua Harris, and Marc Rowan, who have worked together for more than 20 years and, as of December 2006, led a team of over 70 investment specialists. Apollo has offices in New York, London, Los Angeles, Singapore, Frankfurt, and Paris. As of the Valuation Date, Apollo had invested some $24.5 billion since inception in over 150 companies. Over time, the firm hopes to assemble a balance between its private equity and capital market funds, but as of December 2006, over $20 billion was concentrated in private equity. In the context of the Apollo funds, private equity funds raise pools of capital from institutional investors and high net worth individuals. These funds typically seek to acquire significant controlling ownership interests in businesses and typically invest in the common equity or preferred stock of private and sometimes public companies. Private equity funds are typically structured as unregistered limited partnership funds with terms of eight to ten years, and can contain provisions to extend the life of the fund under certain circumstances. Investors in private equity funds provide a commitment to the fund that is called by the fund as investments are made and equity capital is required. Private equity fund managers typically earn fees as follows: (i) management fees based on the amount of invested or committed capital; (ii) transaction and advisory fees as capital is invested and portfolio companies are managed; and (iii) a carried interest based on the performance of the fund, which is often subject to a preferred return for investors, or "hurdle." Apollo's capital market funds are essentially "hedge funds."2 Hedge funds are typically structured as limited partnerships, limited liability companies or offshore corporations. Hedge fund managers earn a base management fee typically based on the net asset value ("NAV") of the fund, and incentive fees based on a percentage of the fund's profits. Some hedge funds set a "hurdle rate" under which the fund manager does not earn an incentive fee until the fund's performance exceeds a benchmark rate. Another feature common to hedge funds is the "high water mark" under which a fund manager does not earn incentive fees until the net asset value exceeds the highest historical value on which incentive fees were last paid. Typical investors include high net worth individuals and institutions. These investors can invest and withdraw funds periodically in accordance with the terms of the funds, which may include lock-up periods on withdrawals. Hedge fund 2 Hedge fund is a managed portfolio that has targeted a specific return goal regardless of market conditions and can use a wide variety of different investing strategies to achieve this goal, and generally those strategies are managed and executed by a portfolio manager. EFTA00608398 Carlyn McCaffrey, Esq. October 18, 2007 Page 9 managers often commit a portion of their own capital in the funds they manage to align their interests with those of the investors. Over the last 12 months, the Apollo funds have collectively generated a gross annual return of 22.6%, a net annualized return of 16.4%, and a Sharpe Ratio of 4.4.3 Management was forecasting existing and targeted assets under management ("AUM") for the end of 2007 at $43.7 billion. Over half of that amount was in play at the end of 2006. It should be noted that the return levels achieved by Apollo's funds varied significantly depending on the nature of the funds and the investments made. The Management Companies were established to act as managers for each of the underlying funds and each management company collects a management fee from the fund. In addition, some management companies also receive a carried interest from the underlying fund. The Advisor Companies were established to hold the limited partner interests in the underlying funds and each advisor receives carry income from the investments made by the fund. Fund Profiles & Investment Strategies Profiles and investment strategies of each of the underlying funds is presented below. Funds III, IV, V, VI, and VII are "Private Equity Funds." AIM, VIF, SVF, AAO, AEM, and AAA are "Capital Markets Funds." Europe Principal Finance ("EPF") is a fund to be formed in 2007 and "New Fund" is a new capital markets fund to be formed in 2008. A. Fund Profiles Fund III: Fund III was established in March of 1995 with approximately $1.5 billion in capital. AMIIILP was designated as Fund III's Manager. Fund III's general partner was Apollo Advisors II, L.P. The initial term of Fund III is ten years following the final Closing Date (of March 17, 1995) as defined in the Fund III Partnership Agreement. However, the term of Fund III was extended to liquidate the remaining assets. As of the Valuation Date, the remaining assets were being liquidated and no value is attributed to them. The investment objective of Fund III was to achieve long-term capital appreciation through equity and equity-equivalent investments providing control or influential minority equity positions and through investments in debt or other securities that provided equity-like returns. Fund III generally pursued individual investments 3 A commonly used measure of risk-adjusted performance of an investment asset. EFTA00608399 Carlyn McCaffrey, Esq. ()ember 18, 2007 Page 10 ranging in size from approximately $20 million to $200 million in companies with enterprise values in excess of $100 million. Consistent with the principals' past practice, Fund III aligned itself with the existing management team and, through board representation, sought to develop and implement effective operating plans and appropriate capital structures. Fund III used three approaches to generate value: (1) transition financings; (2) special situation recapitalizations; and (3) middle market leveraged acquisitions. For transition financings, Fund III identified companies that had progressed beyond the early stage venture capital investors but were not yet positioned to access public market capital, or otherwise needed to raise capital more quickly or confidentially than could be done in public markets. Special situation recapitalizations consisted of companies with high quality operating businesses but low quality balance sheets. Fund III purchased distressed securities in the secondary markets or through direct capital infusions. In middle market leveraged acquisitions, Fund III targeted companies or businesses where rates of return could be enhanced through the appropriate use of leverage and where an entrepreneurial management team was comfortable operating in a leveraged environment. Fund III also pursued transactions where it believed a non-core business owned by a large corporation would function more effectively if structured as an independent entity managed by a focused stand-alone team. Fund III did not invest more than 25% of total capital commitments in any portfolio investment or series of portfolio investments made directly or indirectly in a single portfolio company. Fund IV: Fund IV was established in December of 1997 with approximately $3.6 billion in capital. AMIVLP was designated as Fund IV's Manager. Fund IV's general partner was Apollo Advisors III, L.P. The term of Fund IV is ten years following the final Closing Date (of April 21, 1998) as defined in the Fund IV Partnership Agreement. Fund IV is expected to begin liquidation of assets shortly after the Valuation Date; however, it is unknown how long this process will take. The investment objective of Fund IV is to achieve long-term capital appreciation through equity and equity-equivalent investments providing control or influential minority equity positions and through investments in debt or other securities that provided equity-like returns. Fund IV pursued individual investments ranging in size from approximately $50 million to $250 million. Fund IV's investment philosophy is to find companies with strong, enduring business franchises that have attractive risk/reward profiles. Strong business franchises are evidenced by highly respected products, expanding market share, highly efficient production and strong, experienced management teams. Consistent with the principals' past practice, Fund EFTA00608400 Carlyn McCaffrey, Esq. October 18, 2007 Page 11 IV aligned itself with the existing management team and through board representation sought to develop and implement effective operating plans and appropriate capital structures. Fund IV is similar to previously discussed funds in its approach to generate value through: (1) classic buyouts; (2) distressed buyouts; and (3) corporate partner buyouts. Fund V: Fund V was established in April of 2001 with approximately $5 billion in capital. AMVLP was designated as Fund V's Manager. Fund V's general partner was Apollo Advisors V, L.P. The term of Fund V is ten years following the final Closing Date (of April 30, 2002) as defined in the Fund V Partnership Agreement. The investment objective of Fund V is to achieve long-term capital appreciation through equity and equity-equivalent investments providing control or influential minority equity positions and through investments in debt or other securities providing equity-like returns. Fund V is global in nature and seeks investments across a range of industries, markets, and regions and generally pursues individual investments ranging in size from approximately $75 million to $450 million. Fund V is similar to previously discussed funds in its approach to generate value. In terms of geographic orientation, without the consent of its Advisory Board, Fund V may not invest more than 25% of its aggregate commitments in securities of issuers organized and operating primarily outside of North America. Overseas, NPVA, NPVB, and AGV are known as Fund V's Co-Investing Entities and are funded primarily by foreign or tax exempt investors and co-invest with Fund V. Fund VI: Fund VI closed in January of 2006 with approximately $10.1 billion in commitments, of which $1.6 billion had been invested as of the Valuation Date. AMVILP was designated as Fund VI's Manager. Fund VI's general partner was Apollo Advisors VI, L.P. The term of Fund VI is ten years following the final closing (which was in January of 2006) as defined in the Fund VI Partnership Agreement, but may be extended for up to a maximum of three years at the discretion of the General Partner upon notice to the Advisory Board and for further periods with the consent of a majority in interest of limited partners. The investment objective of Fund VI is to achieve long-term capital appreciation by making investments in: control or influential minority equity and equity equivalent positions; and debt or other securities providing equity-like returns. Fund VI seeks investments across a range of industries, markets, and regions and generally pursues EFTA00608401 Carlyn McCaffrey, Esq. October 18, 2007 Page 12 individual investments ranging in size from approximately $150 million to $600 million. Fund VI is similar to previously discussed funds in its approach to generate value. In terms of geographic orientation, without the consent of its Advisory Board, Fund VI may not invest more than 25% of its aggregate commitments in securities of issuers organized and operating primarily outside of North America. The Co- Investing Entities are funded primarily by foreign or tax exempt investors and co- invest with Fund VI. Fund VII: As of the Valuation Date, Fund VII was being established with approximately $15 billion in capital. Fund VII expects to generally pursue investments ranging in size from approximately $200 million to $1.5 billion. Fund VII will seek to make control-oriented investments in undervalued franchise assets at purchase multiples below those of its peers. AINV: AINV, a Maryland corporation, began operations in April of 2004, following its IPO and receipt of some $870 million in total net IPO proceeds. AINV received another $294 million in total net proceeds from its second public offering in March 2006. Since April of 2004, AINV has invested in some 90 companies. In exchange for the management of the day-to-day operations of AINV (subject to AINV's Board of Directors) and investment advisory services, AINV pays a fee to AIMLP. This fee consists of two components: (1) a base management fee; and (2) an incentive fee. AINV invests primarily in middle-market companies in the form of mezzanine and senior secured loans. In general, the Company structures its mezzanine investments primarily as unsecured, subordinated loans that provide for relatively high interest rates that provide current interest income. These loans typically have interest-only payments in the early years, with amortization of principal deferred to the later years of the mezzanine loans. In some cases, AINV enters into loans that, by their terms, convert into equity or additional debt securities or defer payments of interest after its investment. Also, in some cases its mezzanine loans may be collateralized by a subordinated lien on some or all of the assets of the borrower. Typically, AINV's mezzanine loans have stated maturities of five to ten years. AINV also invests in portfolio companies in the form of senior secured loans that it expects to have terms of three to ten years and may provide for deferred interest payments over the term of the loan. AINV generally seeks to obtain security interests in the assets of its portfolio companies that serve as collateral in support of the repayment of these loans. This collateral may take the form of first or EFTA00608402 Carlyn McCaffrey, Esq. October 18, 2007 Page 13 second priority liens on the assets of a portfolio company. In addition, AINV makes some direct equity investments and, from time to time, may also invest in companies that are thinly traded. It was management's expectation that AINV would hold most of its investments to maturity or repayment, but that it may sell certain of its investments earlier, if a liquidity event takes place. As of the Valuation Date, over half of AINV's investments were in the form of subordinated debt/corporate notes. VIF Master Fund: VIF Master Fund was established in July of 2003 with approximately $1 billion in capital. VIFMLP was designated as VIF's Manager. VIF's general partner was Apollo Value Advisors, L.P. As with SVF and AAO, the master fund was organized to receive all of its capital contributions from the feeder funds, which consist of an on-shore and off-shore component. The feeder funds operate by placing substantially all of their assets in, and conducting their investment and trading activities through the master fund. Management and incentive fees are generally paid at the feeder fund level. Senior management believes that distressed debt is an asset class that performs well in a very distinct and limited economic and capital market environment. When such an environment exists, VIF seek to create a diversified portfolio of bank debt, high yield debt and preferred stock. Investments are made in increments of approximately $10 million to $50 million. The intent is to take large, long-term illiquid positions in distressed debt in order to seek significant influence or control of companies and make smaller, shorter-term market-oriented investments based on company fundamentals without seeking control. SVF Master Fund: SVF Master Fund is a Delaware limited partnership and Offshore is a Cayman Islands exempted company, both of which commenced operations in June 2006. SVF was designed to be suitable primarily for investors that are United States ("U.S.") taxpayers while Offshore was designed for investors who are U.S. tax-exempt or non-U.S. based. The Feeder Funds operate by placing substantially all of their assets in, and conducting substantially all of their investment and trading activities through, the Master Fund, which facilitates collective investment by the Feeder Funds. SVF offers two types of limited partnership interests: Class A and Class B. These interests are identical except for exposure to "Special Investments:4 management 4 Special Investments are defined as those categorized by the general partner or the Manager as such. Generally these investments are subject to legal or contractual restrictions on transferability or otherwise not readily marketable without impairing the value of such investments. EFTA00608403 Carlyn McCaffrey, Esq. October 18, 2007 Page 14 fees, and withdrawal rights. Likewise, Offshore offers Class A shares and Class B shares, which have identical rights with the same exceptions as SVF. The rights of the Feeder Funds' two types of interests (where they differ) are described in the following table. Table I Feeder Funds' Class A & Class B Rights Right Class A Class B Initial Lock-up 12 months 5 years 6% declining to 2% during the second year of Withdrawal Reductions None investment 20% of the capital account balance (SVF) or Limit on "Special Investments" None 20% of NAV (Offshore) Management Fees 2.0% 1.75% Offshore uses "Class S Shares" to facilitate accounting for Special Investments. All shares other than Class S Shares are considered "Regular Shares." Whenever Offshore makes a Special Investment (or when ASVFMLP, in its sole discretion, determines that an investment has become a Special Investment), Offshore shall: (i) authorize a new series of Class S Shares with an aggregate net value equal to the cost (or, in the case of an existing investment which is reclassified as a Special Investment, the fair market value) of such Special Investment; and (ii) exchange Regular Shares outstanding at such time with an aggregate NAV equal to that of the new series of Class S Shares, pro rata by class (based on the aggregate NAV of all Regular Shares of each class of shares at such time), according to each shareholder's pro rata share (based on the relative number of Regular Shares of such class held by each shareholder). When a Special Investment is realized or deemed realized, each holder of Class S Shares will have them exchanged back into Regular Shares at the then-current NAV per share. The SVF Master Fund was formed to invest in absolute-value investment opportunities, primarily among the securities of distressed companies in North America and Europe. The SVF Master Fund invests in the securities of leveraged companies using three primary strategies: (1) distressed investments (primarily a long-only strategy focused on the debt securities of companies in the periods before, during, and after bankruptcy); (2) value driven investments (long and short investments that span the capital structure of leveraged companies and seek to profit from identified catalysts that will typically develop within six to nine months from the initial investments); and (3) special opportunities (primarily a long-only strategy focused on control opportunities and illiquid securities). EFTA00608404 Carlyn McCaffrey, Esq. October 18, 2007 Page 15 AAO Master Fund: AAO Master Fund was established in December of 2006 with approximately $200.0 million in capital. AAMLP was designated as AAO's Manager. AAO's general partner was Apollo Asia Advisors L.P. At the Valuation Date, $65.0 million had been invested. AAO will invest primarily in strategic and event-driven opportunities through investments in debt and equity securities principally of middle market and large companies, with a primary investment focus on China, Indonesia, India, Malaysia, and Singapore and a secondary focus on Australia, South Korea, Taiwan, Thailand, and other Southeast Asian countries. AEM: AEM is a limited liability Guernsey incorporated investment company that commenced operations in July 2006 with $250 million in invested capital from AP Alternative Assets ("APA"). AEMLP was designated as AEM's Investment Manager. AEM closed a private placement shortly before the Valuation Date (the "First Private Placement and Closing"). During the period from incorporation to the Valuation Date, APA had invested some $250 million in redeemable preference shares issued by the company. APA's investment in AEM will be converted into "A" Ordinary Shares, prior to closing of the First Private Placement and Closing. In addition, AEM has one majority voting share in issue which carries the right to vote but not to receive any participation in the economic performance of the Company and, prior to the First Private Placement and Closing, will be redesignated as 100 "B" Ordinary Shares. AEM's investment objectives are to generate current income and capital appreciation through mezzanine, debt, and equity investments primarily in European companies. AEM intends to invest approximately 70% of its gross assets in secured and unsecured subordinated loans (also referred to as mezzanine loans), senior secured loans, high-yield debt and preference equity (together the "Target Credit Instruments"). AEM also intends that approximately 70% of its gross assets will be invested in securities issued by, or loans made to, companies established or operating in Europe. AEM has a current focus on western European companies. While AEM's primary focus is on Target Credit Instruments and on investments in companies established or operating in Europe, it also expects to invest up to 30% of its gross assets in other opportunistic investments, such as distressed debt and private or public equity investments worldwide. AEM currently intends to seek a listing on a recognized European exchange of the "A" Ordinary Shares following full investment of the proceeds of the First Private EFTA00608405  Carlyn McCaffrey, Esq. October 18, 2007 Page 16 Placement and Closing. In the event that AEM has not applied for such listing within 18 months of closing, the base management fee will be suspended and, in the event that such listing has not been achieved within 24 months of the closing, the Board is required to seek the approval of the shareholders to the continuation of the Company in its current form. AAA: AAA was established in May of 2006 with approximately $1.8 billion in capital. AAALP was designated as AAA's Manager. AAA's general partner was AAA Guernsey Limited. Over time, AAA expects to invest 50% or more of its capital in private equity investments. The remaining capital will be co-invested with Apollo's capital markets funds. AAA's private equity investments will consist of: (1) commitments to private equity funds sponsored by Apollo; (2) co-investments alongside such funds; and (3) purchases of secondary interests in such funds. In addition to investments in private equity, AAA will deploy capital through investments in, or co-investment arrangements with, Apollo's capital markets-focused funds, in SVF Master Fund (one of Apollo's debt and equity investment funds focused on value-oriented and distressed securities), AEM (Apollo's European mezzanine and leveraged debt investment vehicle), and Apollo Investment Corporation (Apollo's U.S. mezzanine and leveraged debt investment vehicle). EFP is tentatively marketed as a Germany fund. No concrete plans have been made for New Fund at the Valuation Date. B. Economic Structure The economic structure of each Fund is outlined below, based on the terms set forth in the respective partnership agreements. Any capitalized terms below that have not been specifically defined elsewhere in this report shall have the meanings set forth in the respective partnership agreements. Table II Fund Economic Structure Allocation Operating Fund Name Management Fees of Profits Distributions Clawback Expenses & Lasses Fund III 1.5% of committed Pro Rata First, return of GP will be Fund Ill capital. Management capital to all required to shall bear EFTA00608406  Carlyn McCaffrey, Esq. October 18, 2007 Page 17 Allocation Operating Fund Name Management Fees of Profits Distributions Clawback Expenses & Lasses fees reduced by 50% partners. Then, to restore all normal of operating expenses. LPs until LPs funds if it operating receive 8% internal has received expenses. rate of return. more than Finally, 80% to 20% of the GP until the proceeds. GP earns a 20% return. Thereafter, 20% to GP and 80% to all partners. Fund IV Before 6th Anniversary: Pro Rata First, return of GP will be Fund IV 1.5% up to $2.5 capital to all required to shall bear billion, 1.0% in excess partners. Then, to restore all normal of $2.5 billion, 0.25% LPs until LPs funds if it operating in excess of $3.0 receive 8% internal has received expenses. billion. After 6th rate of return. more than Anniversary: 0.75% up Finally, 80% to 20% of to $3.0 billion, 0.25% the GP until the proceeds. in excess of $3.0 GP earns a 20% billion. Management return. Thereafter, fees reduced by 65% 20% to GP and of operating expenses. 80% to all partners. Fund V Before 6th Anniversary: Pro Rata First, return of GP will be Fund V 1.5% up to $3.1 capital to all required to shall bear billion, 1.0% in excess partners. Then, to restore all normal of $4.6 billion, 0.25% LPs until LPs funds if it operating in excess of $4.6 receive 8% internal has received expenses. billion. After 6th rate of return. more than Anniversary: 0.75% up Finally, 80% to 20% of to $2.3 billion, 0.25% the GP until the proceeds. in excess of $2.3 GP earns a 20% billion. Management return. Thereafter, fees reduced by 65% 20% to GP and of operating expenses. 80% to all partners. Fund VI Before 6th Anniversary: Pro Rata First, return of GP will be Fund VI 1.5% up to $5.0 capital to all required to shall bear billion and 1.0% in partners. Then, to restore all normal excess of $5.0 billion. LPs until LPs funds if it operating After 6th Anniversary: receive 8% internal has received expenses. 0.75% up to $2.3 rate of return. more than billion, 0.25% in Finally, 80% to 20% of excess of $2.3 billion. the GP until the proceeds. EFTA00608407  Carlyn McCaffrey, Esq. October 18, 2007 Page 18 Allocation Operating Fund Name Management Fees of Profits Distributions Clawback Expenses & Losses Management fees GP earns a 20% reduced by 65% of return. Thereafter, operating expenses. 20% to GP and 80% to all partners. Fund VII 1.5% up to $7.0 Pro Rata First, return of N/A Fund VII billion and 1.0% in capital to all shall bear excess of $7.0 billion. partners. Then, to all normal Management fees LPs until LPs operating reduced by 68% of receive 8% internal expenses. operating expenses. rate of return. Finally, 80% to the GP until the GP earns a 20% return. Thereafter, 20% to GP and 80% to all partners. AINV 2% of capital. N/A First, return of N/A N .\ capital to all partners. Then, to LPs until LPs receive 7% internal rate of return. Finally, 80% to the GP until the GP earns a 20% return. Thereafter, 20% to GP and 80% to all partners. VIE 1.5% of LP net asset Pro rata. First, return of N/A VIF shall value. capital to all bear all partners. Then, to normal LPs until LPs operating receive 8% internal expenses. rate of return. Finally, 80% to the GP until the GP earns a 20% return. Thereafter, 20% to GP and 80% to all partners. SVF 2% of Class A net N/A N/A N/A N/A EFTA00608408  Carlyn McCaffrey, Esq. October 18, 2007 Page 19 Allocation Operating Fund Name Management Fees of Profits Distributions Clawback Expenses & Lasses asset value and 1.75% of Class B net asset value. AAO 2% on the net asset Pro rata. Pro rata as N, A AAO shall value of the LP determined by the bear all interest. GP.