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146th Annual Report 2007 1925E 04.08

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personal Liechtensteinische Landesbank AG 146th Annual Report 2007 1925E 04.08

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personal Liechtensteinische Landesbank AG LLB-GB-2007_de_1103:Layout 1 14.03.2008 9:19 Uhr Seite 3 LLB-GB-2007_de_1103:Layout 1 14.03.2008 9:19 Uhr Seite 3 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:39 Uhr Seite 5 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:39 Uhr Seite 6

Imprint

Published by Liechtensteinische Landesbank AG 9490 Vaduz, Liechtenstein

Design and layout Montfort Werbung 9491 Ruggell, Liechtenstein

Printed by BVD Druck + Verlag AG 9494 Schaan, Liechtenstein

Photos Scanderbeg Sauer Photography 8001 Zurich, Switzerland

Interviews write and bite 29308 Winsen, Germany

Paper Printed on Munken Polar and Scheufelen PhoeniXmotion Xenon Ideals 7

Contents

>> Information for shareholders 86 Consolidated ﬁnancial statement >> Key ﬁgures of the LLB Group 87 Report of the Group auditors

Ideals Success is based on ideals, on values, that need to be nurtured, 12 Letter to shareholders 88 Consolidated management report cultivated and refined. Ideals serve as a measure, a planning aid, a driving 14 Organisational structure 90 Consolidated income statement force and a wellspring of ideas. They are a milestone on the path to reach- on 1 January 2008 91 Consolidated balance sheet ing goals and, at the same time, they provide food for thought along the 18 Strategy and organisation 92 Consolidated statement of way. We fill our values and ideals with new life everyday, and while doing recognised income and expense so, we interact with those who think like we do, with those who are like 28 Review of operations 93 Consolidated cash flow statement us: authentic, fresh, personal, experienced, dedicated, distinguished. 28 Domestic Clients 94 Notes to the consolidated financial 33 International Clients statement 36 Institutional Clients 41 Corporate Center 170 Financial statement of LLB AG, Vaduz 44 Employees 171 Report of the independent auditors 49 Legal and regulatory framework 172 Management report of the Liechtenstein financial centre 173 Balance sheet 51 Sustainability and environment 174 Profit and loss account 54 Social responsibility and sponsoring 175 Distribution of balance sheet profit 57 Corporate governance 176 Notes to the financial statement

198 Locations and addresses Ideals 7

Contents

>> Information for shareholders 86 Consolidated ﬁnancial statement >> Key ﬁgures of the LLB Group 87 Report of the Group auditors

198 Locations and addresses 9

Information for shareholders Key ﬁgures <<

LLB bearer share Consolidated income statement + / – % to in CHF millions 2007 2006 2005 2006 Security number 3019524 Income statement ISIN number LI0030195247 Operating income 560.1 456.9 392.5 22.6 Listing SWX (Swiss Exchange) Operating expenses 272.5 186.1 161.1 46.4 Ticker symbols Bloomberg LLB SW Net proﬁt attributable to the shareholders of LLB AG 240.0 245.7 212.2 –2.3 Reuters LLB.S

Telekurs LLB Performance ﬁgures Cost/income ratio (in percent) 48.6 40.7 41.0 Return on equity attributable to the shareholders Capital structure of LLB AG (in percent) 15.9 15.8 13.3 + / – % to 31. 12. 2007 * 31. 12. 2006 * 31. 12. 2005 31. 12. 2006 Share capital (in CHF thousands) 154'000 164'000 164'000 –6.1 Total shares issued 30'800'000 32'800'000 32'800'000 –6.1 Consolidated balance sheet and capital management Total shares outstanding, eligible for dividend 28'453'717 28'421'090 32'682'530 0.1 + / – % to Weighted average number of shares 28'463'422 29'719'440 32'719'090 –4.2 in CHF millions 31. 12. 2007 31. 12. 2006 31. 12. 2005 31. 12. 2006 Balance sheet Equity attributable to the shareholders of LLB AG 1'578 1'438 1'664 9.8 Total assets 21'645 14'970 13'158 44.6 Information per bearer share + / – % to 31. 12. 2007 * 31. 12. 2006 * 31. 12. 2005 31. 12. 2006 Capital ratio Par value (in CHF) 5.00 5.00 5.00 0.0 Tier 1 ratio (in percent) 9.7 15.1 20.3 Share price (in CHF) 99.50 105.50 79.50 –5.7 Risk-weighted assets 13'509 7'924 6'891 70.5 Basic earnings (in CHF) 8.43 8.27 6.49 2.0 Price/earnings ratio 11.80 12.76 12.25 Dividend (in CHF) ** 3.40 3.20 2.80 6.3 Others + / – % to * Adjusted to consider the share split of 1:10 on 10 May 2007. 31. 12. 2007 31. 12. 2006 31. 12. 2005 31. 12. 2006 ** Proposal of the Board of Directors to the General Meeting of Shareholders on 9 May 2008. Assets under management (in CHF millions) 59'989 50'525 43'042 18.7 Employees (full-time equivalents, in positions) 943 645 588 46.2

Comparison of LLB bearer share with the Swiss Market Index (SMI) indexed from 1 January 2003

240 220 200 180 160 For ease of reading, the Liechtensteinische Landesbank Aktiengesellschaft is referred to 140 variously in the following as the Liechtensteinische Landesbank, LLB AG and the LLB. 120 Bank Linth LLB AG is also referred to in this report as Bank Linth.

100 The 2007 Annual Report is also available in an interactive online version: German: http://gb2007.llb.li 80 English: http://ar2007.llb.li

This Annual Report is also available in German. The German version is authoritative. 60 2003 2004 2005 2006 2007

Liechtensteinische Landesbank (LLB) Swiss Market Index (SMI) 9

Information for shareholders Key ﬁgures <<

Comparison of LLB bearer share with the Swiss Market Index (SMI) indexed from 1 January 2003

100 The 2007 Annual Report is also available in an interactive online version: German: http://gb2007.llb.li 80 English: http://ar2007.llb.li

This Annual Report is also available in German. The German version is authoritative. 60 2003 2004 2005 2006 2007

Liechtensteinische Landesbank (LLB) Swiss Market Index (SMI) LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 11

Contents 11

Ideals

20 authentic

1 Claudia Fritsche, Ambassador of the Principa lity of Liechtenstein to the United States of America

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2 Hans-Peter Hussong, from Uetikon am See, proprietor and Chef de Cuisine of the Wiesengrund Restaurant (2 Michelin stars)

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3 Fred Mayer, from Zurich, story-teller with the camera and publisher of several photography books

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4 Daniel Hasler, from Gamprin, professional footballer at FC Vaduz and member of the Liechten- stein national team

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5 Evelyne Bermann, from Schaan, designer and freelance artist

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6 Manu Melwani, famous tailor and proprietor of Sam's Tailors in Hong Kong

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12 Ideals

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« Having a clear vision of the future is seeing the ideal situation in your mind's eye. In that sense we are no different. What distinguishes us, however, is that we have a clear vision of how we want to achieve our goals. Ideals underpin our system of values and make them perceivable for our shareholders, clients, business partners and employees.»

Chairman of the Board of Management and Chairman of the Board of Directors

1 Dr. Josef Fehr 2 Dr. Hans-Werner Gassner LLB-GB-2007_uk_1103:Layout 1 14.03.2008 9:44 Uhr Seite 13

Board of Directors 13

We can look back on a successful business year in 2007. Net profit attributable to the shareholders of LLB AG amounted to CHF 240.0 million. Therefore, our result was within the scope of that of the 2006 business year, which amounted to CHF 245.7 million. Both interest income (+49.4 percent) and fee and commission income (+28.7 percent) made a significant contribution to this success. Operat - ing expenses posted an above-average increase (+46.4 percent), reflecting the higher expenditure in connection with the acquisition of a majority equity stake in Bank Linth LLB AG, the introduction of our new brand identity and intensified sales and market penetration activities. The cost/income ratio stood at 48.6 percent (2006: 40.7 percent), and the tier 1 ratio amounted to 9.7 percent. Client assets showed a very positive development, climbing by 18.7 percent to CHF 60.0 billion, with net new money inflows totalling CHF 3.0 billion. This business result confirms the validity of our growth-driven strategy. All the Group's business units and locations made valuable contributions to this good business result.

Challenging environment 2007 was a challenging year. Liechtenstein and Switzerland recorded significant economic growth and a good trend in the financial industry in the first half-year. The sub-prime mortgage crisis in the USA generated great friction and uncertainty in the international financial system in the second six months. The change in basic business conditions had an impact on our target markets, although these markets – indeed we ourselves – were only indirectly affected by this crisis. We have neither granted sub-prime mortgage loans in the USA nor invested directly in US mortgage instruments.

Increase in dividend to CHF 3.40 The Board of Directors will propose an increase in the dividend to CHF 3.40 per share to the General Meeting of Shareholders on 9 May 2008. The dividend yield therefore amounts to 3.4 percent. As part of our continuing efforts to make the LLB bearer share even more attractive for investors, we carried out two strategic initiatives in 2007 to optimise our capital structure; we effected a capital reduction and we carried out a share split in a ratio of 1:10.

Milestones in 2007

New organisational structure On 1 January 2007, we implemented a new organisational structure to enable us to focus even more intensively on the needs of our clients and market segments. The Board of Management of the parent bank, which at the same time forms the Group Executive Management, was reduced from ﬁve to three members; in tandem with this measure, we also created four independent business units. Thanks to this new organisation, we are better able to exploit the synergies within the LLB Group. (For more detailed information, see «Strategy and organisation» on page 18.) LLB-GB-2007_uk_1103:Layout 1 14.03.2008 9:44 Uhr Seite 15

Board of Directors 13

Intensive cooperation with Bank Linth Thanks to our majority shareholding in Bank Linth LLB AG, we have been able to extend our service offer to the clients of both banks and expand our activities in Switzerland. Our close cooperation in the ﬁeld of asset management represents an important milestone. (For more detailed information, see «Strategy and organisation» on page 18.)

New brand identity Since the General Meeting in 2007, we have adopted a new, uniform corporate brand which brings together our comprehensive services as a universal bank, as well as our core competencies of private banking, asset management, fund services and trust services. The launch of our new corporate brand has enabled us to take a further step in expanding our business activities in our target markets. (For further information, see «Strategy and organisation» on page 19.)

Market penetration – opening of a representative office in Dubai Our strategy is aimed primarily at strengthening our position in the core markets and penetrating new markets. The implementation of various regulatory criteria into national law, such as the new EU MiFID regulations, will further enhance the reputation of the Liechtenstein ﬁnancial centre and increase investor protection. We have attained above-average growth in Switzerland through our business locations in Zurich, Basel, Geneva, Lugano and Uznach. We have also achieved success in the new markets. Thanks to the expansion of our network of intermediaries, we were able to intensify our activities in Eastern Europe, especially in Russia, Poland and Romania. We also registered above-average growth in the Near and Middle East through our re - presentative office in Abu Dhabi. To enable us to intensify our presence in this region, we plan to open a representative office in Dubai in 2008. Preparations are already progressing at full steam.

Expansion of equity stake in Jura Trust AG We have held an equity stake in Jura Trust AG since 2005. On 1 January 2008, we increased our stake from 61 to 100 percent of the company's share capital. This step enables us to set the seal on our long cooperation and intensify the strong partnership between the Group companies Jura Trust AG and LLB Treuhand AG. Jura Trust AG will continue to operate as an independent company under the Jura Trust AG brand. Within the scope of succession planning, a change took place in the top management of Jura Trust AG. Dr. E. Michael Feichtinger passed on the management of the company to Michael A. Steiger, but he will remain a member of the Board of Directors of Jura Trust AG. Moreover, we can continue to call on his great experience in advising clients in the future. LLB-GB-2007_uk_1103:Layout 1 14.03.2008 9:44 Uhr Seite 17

Board of Directors 13

New objectives We measure our success in terms of four performance indicators. However, basic conditions, parti - cularly as a result of our Group's robust growth, have changed in recent years. We have now redeﬁned these objectives as follows:

◆ the increase in new money inﬂows must amount to at least 3 percent per year; ◆ on a banking industry comparison basis, our cost/income ratio will continue to be one of the best; ◆ our return on equity will be at least 15 percent; ◆ our tier ratio will be 12 percent.

Outlook The Liechtenstein ﬁnancial centre has had to contend with difficult conditions at the beginning of 2008. Liechtenstein will make every effort to preserve the good reputation of its business centre and to strongly assure its further development. Against this background, we are conﬁdent of attaining our objectives in a challenging environment. We shall intensify our activities in Liechtenstein and in Switzerland. At an international level, we shall concentrate on penetrating and developing new markets, particularly in Eastern Europe as well as the Near and Middle East. On this note, we look forward to another successful business year and thank all our staff for their hard work and dedication.

Dr. Josef Fehr Dr. Hans-Werner Gassner Chairman of the Board of Management Chairman of the Board of Directors LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 13

Board of Directors 13

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Board of Directors of the Liechtensteinische Landesbank AG

1 Peter Harald Frommelt 2 Ingrid Hassler-Gerner 3 Dr. Michael Ritter, Vice Chairman 4 lic. oec. Helmuth Elkuch 5 Dr. Hans-Werner Gassner, Chairman 6 Ewald Marxer 7 lic. iur. Siegbert Anton Lampert LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 14

14 Ideals

Organisational structure on 1 January 2008

Group Board Group Internal of Directors Audit and Board of Directors * Angelica Bienz

Group Execu- tive Board and Board of Management **

Board of Board of Management Management

Dr. Josef Fehr, Norman Oehri Chairman

Group Group Human Group Legal & Domestic International Corporate Resources Compliance Clients Clients Communica- tions Werner MMag. Roland P. Daniel Dr. Cyrill Sele Meier Robert Rastner Matt Bischof

Private Clients Commercial Bank Cashiers Private Clients Liechtenstein / Clients Branches Vaduz International Switzerland Martin Thomas Karl Karl Bruno Heutschi Rutz Büchel Schädler Vogt Board of Management 15 18 Ideals

Strategy and organisation To exploit the synergies within our Group even more intensively, we have implemented various strategic measures, for example, our new organisational structure, our new brand identity and Project « 2gether ». These steps enable us to strengthen our position in our home markets of Liechtenstein and Switzer- land while, at the same time, beneﬁting in the new target markets from the potential offered by our Group.

Building on success We shall further intensify our By resolutely implementing our strategy, we can exploit the strengths of the LLB Group even more 1 2 3 activities in both our traditional and intensively, optimise the quality of our client services and align the company to achieve further in the target markets. growth. By implement ing speciﬁcally targeted measures, we want not only to strengthen our posi- Board of Management of the Liechtensteinische Landesbank AG tion in Liechten stein and Switzerland, but also to open up new markets, particularly in Eastern 1 Dr. Josef Fehr, Chairman 2 Elfried Hasler 3 Norman Oehri Europe as well as in the Near and Middle East.

New organisational structure With the implementation of a new organisational structure from 1 January 2007, we put in place the essentials for an intensiﬁcation of business activities in our target markets. In addition to a separate Group Executive Management, the new structure comprises four new business units, namely: Domestic Clients, International Clients, Institutional Clients, as well as Operations & Services. The structure reﬂects our close ties with the Principality of Liechtenstein and its people while underlin- ing our leading position in the domestic market. The Board of Management of the parent bank, which at the same time forms the Group Executive Management, now consists of three members: Dr. Josef Fehr (Chairman), Norman Oehri and Elfried Hasler. As the supreme management body of the LLB Group, the Group Executive Management is responsible for the four business units and also the Group companies. Norman Oehri is responsible for the Domestic Clients and International Clients Business Units. The two units are headed by Roland Matt and P. Daniel Bischof respectively. Elfried Hasler has responsibility for the Institutional Clients and Operations & Services Business Units, which are headed by Urs Müller and Franz Lampert respectively.

Project « 2gether» with Bank Linth LLB AG Following the takeover of the Following the acquisition of the majority shareholding in Bank Linth LLB AG, Project « 2gether » com- majority shareholding in Bank Linth, prising 16 sub-projects was launched. The aim was to identify growth potential and explore possible intensive communication and cooperation are occurring at all synergies. We have already been able to take advantage of certain synergy effects, for example, in trad- management levels. ing operations, in securities administration and in asset management. After twelve months, we can ﬁrmly state that our cooperation so far, both at the communications and services level, has been very successful. Contacts have been established and our partnership has been consolidated at all organisatio nal levels. Various specialist departments of both banks nurture an intensive cooperation, par ticularly in the areas of private ﬁnancial planning and legal services and compliance. For its asset management activities, Bank Linth LLB AG has been able to call on the entire service offer of the LLB Group since 1 January 2008. Organisation 17

Group companies on 1 January 2008

* Group Board of Directors and Liechtensteinische Landesbank LLB Fondsleitung AG (100 %) Board of Directors (Switzerland) Ltd. (100 %) Board of Directors ◆ Dr. Hans-Werner Gassner, Board of Directors ◆ Elfried Hasler, Chairman Chairman ◆ Dr. Josef Fehr, Chairman ◆ Norman Oehri, Vice Chairman ◆ Dr. Michael Ritter, ◆ Elfried Hasler, Vice Chairman ◆ Dr. Josef Fehr Vice Chairman ◆ Martin P. Egli ◆ lic. iur. Urs Müller ◆ lic. oec. Helmuth Elkuch ◆ Prof. Dr. Franz Jaeger Management Board ◆ Peter Harald Frommelt ◆ Peter G. May ◆ Roland Bargetze, ◆ Ingrid Hassler-Gerner Management Board Managing Director ◆ lic. iur. Siegbert Anton Lampert ◆ Patrik M. Paulus, Chairman ◆ Ewald Marxer ◆ Dr. Marco Regotz LLB Treuhand AG (100 %) ◆ Dieter Zürcher Board of Directors ** Group Executive Board and ◆ Norman Oehri, Chairman Board of Management Bank Linth LLB AG (74.2 %) ◆ Dr. Josef Fehr, Vice Chairman ◆ Dr. Josef Fehr Board of Directors ◆ Elfried Hasler ◆ Norman Oehri ◆ Prof. Dr. Heinz Knecht, Chairman ◆ lic. oec. Karlheinz Heeb ◆ Elfried Hasler ◆ Elfried Hasler, Vice Chairman Management Board ◆ Hans Fäh ◆ Dr. Peter Prast, Board of ◆ Dr. Josef Fehr Managing Director Management ◆ Hugo Fontana Elfried Hasler ◆ Dr. Georges Knobel Jura Trust AG (100 %) ◆ Norman Oehri Board of Directors ◆ Konrad Schnyder ◆ Norman Oehri, Chairman ◆ lic. iur. Hans Rudolf Spiess ◆ Angelika Nigg-Vogt, Management Board Vice Chairwoman ◆ lic. oec. publ. Thomas Eichler, ◆ Dr. E. Michael Feichtinger Chairman ◆ Elfried Hasler ◆ Kurt Rosenberger ◆ Dr. Josef Fehr ◆ Dr. David B. Sarasin ◆ lic. oec. Karlheinz Heeb ◆ Dr. Kurt Mäder Management Board Institutional Operations & Group Group ◆ Michael A. Steiger, Chairman Clients Services Corporate Finance & Risk ◆ lic. iur. Markus Hutter Development LLB Asset Management AG (100 %) lic. iur. Franz lic. oec. publ. Siegbert Board of Directors ◆ lic. iur. Martin Gstoehl Urs Müller Lampert Eduard Zorc Näscher ◆ Elfried Hasler, Chairman ◆ Dr. Josef Fehr, Vice Chairman swisspartners Investment ◆ Norman Oehri Network AG (54.9 %) Management Board Board of Directors ◆ Mag. Markus Wiedemann, ◆ Martin P. Egli, Chairman Managing Director ◆ Dr. Otto Bruderer ◆ Elfried Hasler LLB Fund Services AG (100 %) ◆ Rainer H. Moser Board of Directors ◆ Norman Oehri Financial Professional Trading Securities Payment Account Organisation Internal Information ◆ Elfried Hasler, Chairman Management Board Intermediaries Investors Administration Systems Management Services Technology ◆ Norman Oehri, Vice Chairman ◆ Markus Wintsch, Norman Werner Peter Stephan Anton Pius Rudolf Wolfgang Roland ◆ Dr. Josef Fehr Chairman Marxer Thöny Marxer Schneider Federer Schädler Lampert Matt Mauser ◆ lic. iur. Urs Müller Management Board ◆ lic. oec. Ernst Risch, Managing Director Organisation 17

Group companies on 1 January 2008

Strategy and organisation 19

During 2008 we shall take advantage of further synergy sources such as in a common trading platform and in securities administration. Our goal in the medium term is to develop a standard IT solution for the whole LLB Group. A project group, consisting of representatives of both banks, is currently examining various options. A corresponding decision is expected during the ﬁrst half of 2008.

Positioning of our new corporate brand Our new visual identity exploits Since the General Meeting in May 2007, we have projected a new visual identity in the form of a new the potential of a collective corpo- collective corporate brand. This brings together the LLB Group's comprehensive services: as a univer- rate brand and communicates sal bank, in private banking, as well as in the other core competencies of asset management, fund our strengths of stability, security, partnership and openness. services and trust services. With the new brand we can better exploit the potential of a uniform corporate identity in our target markets. Associate companies (such as Bank Linth LLB AG, swisspartners Investment Network AG, Jura Trust AG), which are to remain independent for market, client-related or legal reasons, will retain their own brand identities.

Partnership and openness – strengths that deﬁne us Our new image brand is clear, simple and authentic. It symbolises our strengths: stability, security, part nership and openness. Two right angles form a unit and enfold a square core. The two right angles stand for stability and security. The angles projecting from the basic shape symbolise our bank's openness. The square core stands for competence as well as the LLB's relationship with its shareholders, clients and employees. As their partner throughout the world, providing performance and success. The colours employed, green and red, are warm and natural. The manner in which the various elements are arranged and the harmonious interplay of the colours reﬂects the individuality of our bank.

Change of name for two Group companies In line with the development of our new corporate brand, we have changed the names of two of our wholly-owned Group companies. The General Meeting of Shareholders of LLB Investment Partners AG and of Global Fund Services AG unanimously approved the name change to LLB Asset Manage- ment AG and LLB Fund Services AG with effect from 25 April 2007.

Branding image study and market penetration plans We are perceived as a client-focused, An image study carried out in 2007 revealed that we are perceived as a client-focused, close at hand, close at hand, personal, reliable personal, reliable and sound bank. We regard it as a primary task to build upon these strengths and and sound bank. Our strategy aims at proﬁling our new brand even to actively position our new brand identity in our target markets. The market penetration strategies more clearly on these attributes. for the individual business units envisage concrete measures to attain these objectives in 2008.

Personal banking in perfection We want to inspire our clients – with innovative ideas and made to measure solutions for them and future generations. We took four further signiﬁcant steps in the development of our advisory process in 2007. With this innovative structured advisory process, which is planned for introduction in the ﬁrst quarter of 2008, we can provide our private banking clients with even more comprehensive and detailed advisory services. By constantly seeking methods to improve our services, we are striving to achieve outstanding levels of care and attention in order to offer our clients « Personal banking in perfection». LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 20

20 Ideals

Ideals _ authentic fresh personal experienced dedicated distinguished

« I define myself in terms of the things I like to do and of the people with whom I like to be together. » 24 Ideals

Ideals authentic _ fresh personal experienced dedicated distinguished

« I need to be surrounded by intellectual freshness, new thoughts and ideas, as well as people who are open to these things.»

Claudia Fritsche Ambassador of the Principality of Liechtenstein to the United States of America authentic 23

authentic Different from others. Rich in maturity and fresh in thought. Flexible in the market and reliable for our partners. This is who we are and this is how we are perceived: as a sound and accepted partner who always will work together with you to formulate the ideal solution. Authenticity that sets the trust placed in us on a ﬁrm foundation and which, in the meantime, has become a characteristic of our corporate brand.

A discussion with: 1 2 Yes. But if I were to go to the door in my dress- control and stay calm. That doesn't mean they for the official receptions you attend and the year of birth 1952, 3 4 Claudia Fritsche, ing gown, it might become something that have to obscure their true selves. I drive to most of Ambassador of the Princi pa lity of chauffeur-driven limousines? 5 6 Liechtenstein to the United States went on in the minds of my neighbours, and Which of the people you have met so far the events and receptions in Washington in of America that is exactly what I want to avoid. in your career have been the most exciting and my VW Beetle Convertible – and I drive myself. It appears as though you like to reflect on interesting? Madeleine Albright, for example. An « un-diplomatic » solution, in the true Mrs. Fritsche, you have been in the USA a lot of things. Does that also apply to age? Yes, She's still a friend of mine and I see her regularly sense of the world, don't you think? A simple now for 17 years. Don't you miss your home? but solely in a positive way. Here in the USA, in Washington. I got to know Kofi Annan be- and pragmatic solution – just the way I like it. Of course. But I come home now and then, that's not something that's always understood. fore he became Secretary General of the United You experience a lot. But you also have to when I have the time. Moreover, my friends visit Can you give us an example? I enjoy get- Nations. His wife is a qualified attorney, but give a lot, and you don't get the opportunity to me occasionally; and they bring a little bit of ting older and I often talk about it. But in this in New York she was a dedicated artist. I really take many breaks. Aren't there some days when our home with them to the US. culture, here where I live, one does everything liked her paintings. Once we drove together you wake up and think I wish I'd done some- Then let me pay you a compliment. It's to stay young forever. So occasionally I get with Kofi Annan to her studio and I bought a thing else, some other profession? No! Never. My not easy to nurture friendships over such a long strange looks. painting. That was about half a year before he profession is the best that I could ever wish for. period and such a long distance. That's right, but What character trait is responsible for your became Secretary General. Later we met him You represent a tiny country, Liechten- I manage. My friends are important; they mean genuine pleasure in getting old? Authenticity. at a concert and my ex-husband said to him: stein, in a huge country, the USA. How are you a lot to me. And therefore I take the necessary What makes you an authentic person? « It's a good thing we bought the painting now. regarded in America? We are received with cu- time for them. Some diplomats define themselves in terms of Prices for your wife's pictures will go up now.» riosity, fairness and amazement. That sounds as if you have plenty of time? their profession. I prefer to define myself in Let's turn now to leisure. What do you do Amazement? Many people know little or No, that's definitely not the case. Leisure time terms of the things I like to do and of the people to relax? I do nothing. nothing about Liechtenstein and they are amaz - is very rare in my profession. I often feel as if I'm with whom I like to be together; in terms of How should we interpret that? By doing ed when I tell them we have a highly develop - still on duty, when I'm actually not. my spontaneity, affectionateness, curiosity, of nothing, I simply mean that I live. ed industrial sector, which generates more pub- Can you explain that in more detail? For the feeling never to forget where I come from You live? Yes, I'm simply at home. I don't lic revenue than the financial services sector. example, in the morning when I pick up the and where I want to go. Looked at from this have to entertain myself, I can simply do When they hear, that in addition to the 30'000 newspaper from outside the front door, I don't pers pec tive, my profession is an intermediate the ordinary things that everybody else does jobs in Liechtenstein, we've also created 30'000 do that like everybody else in my dressing gown. station. at home: tidy up, rearrange things, lie around. jobs in foreign countries, they are amazed that I get properly dressed first because I have to But to come back to your profession. Does Just being able to spend a whole day like that a country with 35'000 inhabitants employs consider what kind of an impression that could it permit you sufficient leeway to remainauthen- really helps me regenerate, recharge my batter- 60'000 people throughout the world. make on the neighbours if they were to see an tic in those terms? Aren't diplomats more like ies so to speak. I'm always amazed at how quickly the ambassador in a dressing gown. actors? That's misleading. Diplomats have to That sounds almost as if you envy other time passes. Thank you for this interview. Isn't that something that might be all in deal with many different personalities and cul- people's freedom to do what they want in their I thank you. your mind and not in that of your neighbours? tures. They should keep themselves under free time, whereas for their part, they envy you authentic 23

Ideals authentic _ fresh personal experienced dedicated distinguished

« I need to be surrounded by intellectual freshness, new thoughts and ideas, as well as people who are open to these things.»

Claudia Fritsche Ambassador of the Principality of Liechtenstein to the United States of America 28 Ideals

Domestic Clients In establishing this business unit we want to underline our extremely close ties to our home markets of Liechtenstein and Switzerland. The particular focus of our activities lies here in private banking, as well as in retail and commercial client business. Innovative services and products go hand in hand with the expansion of our market position and our clear path to growth.

Structure / Market The Domestic Clients Business Unit encompasses the regional private banking as well as the retail and commercial banking business of the LLB Group. We focus on the needs of our clients in Liechtenstein and Switzerland, developing individual solutions in close cooperation with them. A total of 475 employees (full-time equivalent basis) work in this business unit.

Business division result We posted a very good result in 2007. Operating income rose by 79.1 percent to CHF 189.4 million (previ ous year: CHF 105.8 million). Operating expenses climbed from CHF 50.1 million to CHF 109.4 million. The segment result before tax increased by 43.6 percent to CHF 80.0 million (previous year: Hans-Peter Hussong CHF 55.7 million). Assets under management climbed by 50.0 percent to CHF 16.3 billion (previous Proprietor and Chef de Cuisine of the year: CHF 10.9 billion). Wiesengrund Restaurant (2 Michelin stars) Competitors Liechtenstein's large banks are among our main competitors in private banking and retail and commercial banking business. In Switzerland, we are in competition with the large banks, the cantonal and regional banks, as well as the credit cooperative banks.

Strategy With individual solutions and superior We plan the following initiatives to realise our strategy in this business unit: advisory competence, we are increasing our market shares in Liechtenstein and in Switzerland. ◆ active market penetration and acquisition of market shares in private banking business in Liechtenstein and in Switzerland; ◆ strengthening of our leading market position in the Liechtenstein mortgage lending market and gaining of market shares in the Swiss mortgage lending market; ◆ intensiﬁcation of activities in private ﬁnancial planning services as well as corporate pension schemes; ◆ further development of LLB iBanking system and acquisition of new online clients; ◆ enhancement of advisory competence through the recruitment and training of client advisors for our target markets. fresh 27

fresh Open to new ideas, bubbling with enthusiasm and pulsing with vitality. New fashions and technologies rapidly make what is modern today obsolete tomorrow, they define new challenges and offer new opportunities. Within these parameters, we cultivate the fullest freshness in our thinking, in our strategies and products. Not least in the way that we conduct ourselves towards others.

A discussion with: 1 2 Freshness appears to be of supreme im- put the question like that, I would have to say of the place one is in, or put more simply: when year of 3 4 Hans-Peter Hussong, I myself. It's happened quite often that, when in Rome, do as the Romans. birth 1955, from Uetikon am See, portance in your kitchen. Does it also play a role 5 6 Gault Millau Chef of the Year in other areas of your life? Yes, indeed. I need we've served something from the kitchen, I've Can you give us a concrete example of in 2000, proprietor and Chef de to be surrounded by intellectual freshness, new thought to myself: boy! I'd like to sit at the what you mean? Yes. When I'd just arrived here Cuisine of the Wiesengrund thoughts and ideas, as well as people who are table and eat that myself. I ordered a beer the way we would do back Restaurant (2 Michelin stars) open to these things.Sometimes I meet friends As a teenager then, how did you get a home: « Make mine a beer! » Afterwards, I learn- who don't work in this industry. We go for a taste for Switzerland? I just wanted to see what ed that the waiters thought I was really rude. Who cooks at home? My wife. meal, exchange views and discuss all kinds of it was like here. I didn't plan to stay. Back then, it was new to me that here in a bar Do you like what she cooks? My children things. This type of freshness is also very impor- That was 36 years ago. Did you stop look- you asked politely for a beer. That's the point. claim she cooks even better than I do. tant to me. ing for other alternatives along the way? I liked Back then I wasn't being rude, I just wasn't pro- Even so, you've got two Michelin stars And what does the two-star chef think Switzerland so much that I no longer needed to perly informed. more than her. That's because Michelin awards about the new breed of TV cooks? Are they full look for alternatives. I assume that's changed in the meantime. the stars and not my kids. And because my of fresh ideas or just bland imitators? A couple Professionally, was there ever an alterna- Yes. 36 years in Switzerland didn't just go by wife cooks exactly what my kids want. of them are not bad. But the majority of these tive for you? What would you have liked to do unnoticed. Can you be tempted now and again by a so-called celebrity chefs just warm up old if you had not become a chef? I've never asked One notices that. I almost had the feeling hamburger and French fries? No way! I've only reci pes in a new way. Sometimes the presen- myself that question, so I've never had to ans- I was talking to a dyed-in-the-wool Swiss. ever seen the big fast food chains from outside. tation is OK and sometimes completely off wer it. I've always put my heart and soul into Oh, thanks. So in culinary terms, hamburgers repre- the mark. I recently saw a programme where cooking, and I still do. No, let me thank you. Ok, it was a pleasure. sent the absolute worst case scenario for you? the presen ter grated white truffles straight Is there something special about doing Yes, unless they are prepared with proper meat, into his mouth; half of them missed and fell on this job in Switzerland? You can find great good bread and fresh ingredients – herbs, the floor. That was vulgar and degenerate. pleasure in being a chef anywhere. But I'm real- onions and garlic. Food can't be fresh without Have you ever had VIPs in your restau- ly content in Switzerland, I enjoy the beautiful fresh products, food can't be perfect without rant? Yes, often. But I have to say, frequently I scenery and the courtesy and friendliness of the perfect products. don't know who they are. Neither my wife nor people here. Where do you get your inspiration for myself are very good at recognizing VIPs and Are they more courteous and friendly than perfect food? If you love your profession, you al- celebrities. And, in fact, they usually look a lot in your home country Germany? I find such ques- ways keep your eyes wide open. I like to read different in real life than they do on TV or in tions problematic. What is directness for one cookery books, I watch documentaries on TV, glossy magazines. person, is regarded as impolite by another. And, and I surf the Web. When I come across inter- Is there any specific person, who you on the other hand, what is polite for one per- esting shops, I go in and buy a few things to try would like to have as a guest in your restaurant? son, comes across as boring or smug to some them out. Actually, almost everyone is welcome. But if you one else. I think one should respect the culture fresh 27

Review Domestic Clients of operations 29

Review

Leader position in mortgage lending business strengthened In the Liechtenstein mortgage market For years, the mortgage market has been subject to ﬁerce price and competitive pressure. Never the - we were again the market leaders in 2007. less, in 2007 we successfully strengthened our leading position in the Liechtenstein domestic market We are countering the increasing price and competitive pressure with intelligent and, in cooperation with Bank Linth, expanded our activities in Switzerland. The mortgage loans dou- extra offers, which provide additional bled to CHF 6.6 billion (previous year: 3.1 billion). We counter the price pressure in mortgage lending substantial added value for our clients. business by offering extra incentives and therefore enhanced client beneﬁts. For example, when taking out a building loan or a new mortgage, our clients can have their private pension provisioning checked by our specialists free of charge. On account of the increases in key interest rates imposed by the Swiss National Bank and the situation on the money and capital markets, we raised our interest rates for variable mortgages and sav ings accounts by 0.25 percent. With these advantageous conditions, we are still one of the lowest- priced mortgage providers in the Swiss / Liechtenstein currency area.

New service for doctors In private banking we are increasing our Our « Medi Banking» programme is aimed at doctors and offers them individual and comprehensive lead through new offers and services. private banking solutions. In this connection, we have adopted a special advisory approach: our client is assigned his or her personal « medi-banker» as a contact partner for all ﬁnancial matters. Detailed information about this unique service in Liechtenstein was provided at various client events. The response we received conﬁrmed that by offering this service we are satisfying a genuine client requirement.

New investment possibility for vested pension assets In September 2007, the government of the Principality of Liechtenstein revised the ordinance to the Law concerning Corporate Pension Schemes (BPVG / BPVV). Previously, vested pension assets from company pension schemes could only be deposited in a blocked pension savings account. Now, however, they can also be placed in a special investment fund. As the ﬁrst and only Liechtenstein bank, we have seized the opportunity to offer this investment possibility to our clients. A total of four funds are available to them for the long-term investment of pension provisioning money.

New Rendita Pension Account 3a The Rendita Pension Account 3a is a vested private pension provisioning account that we offer to our Swiss private clients in cooperation with Bank Linth. The annual deposits in this private pension account receive preferential interest payments and enjoy tax privileges.

Everything you need to know about pension provisioning Our experts have held information seminars about pension planning at various companies for their employees. In addition, we continued our successful series of seminars designated « Worry-free Retire - ment», which was launched in 2006. These are aimed at company managers and senior executives. These events enabled us to intensify our relationships with clients while highlighting our expertise as the market leader in private ﬁnancial planning and pension provisioning in our Liechtenstein domestic market. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 30

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« LLB Kompakt» magazine In September 2007, a new edition of our annual magazine « LLB Kompakt» was published. This edition focused on the subject of estate planning. The magazine, which was launched in 2006, regularly deals with topics from the fields of private financial planning and pension provisioning. Our aim is to motivate clients to think about the planning of their private finances at an early stage, and to seek advice from our specialists. Another edition dealing with an interesting subject will be issued in 2008.

Corporate staff pension schemes In its third year of business, the The LLB Liechtenstein Pension Fund Foundation is well positioned, and in its third year of business LLB Liechtenstein Pension Fund Foun- already administers pension fund assets amounting to over CHF 100 million. We regard the rapid dation already administers pension fund assets of over CHF 100 million. attainment of this level of assets as conﬁrmation that we completely satisfy the sophisticated demands that companies place on a modern staff pension scheme. As part of our « Financial Perspectives» series of seminars, in November 2007 we highlighted the future of corporate staff pensions schemes in the Principality of Liechtenstein. Subjects such as practice-oriented pension fund governance, risk and investment controlling, as well as Liechtenstein as a centre for pension funds were dealt with in great detail. For the ﬁrst time, the Liechtenstein Financial Market Authority presented comprehensive data on the overall corporate pension fund market in Liechtenstein.

Bank counter client survey We take the needs of our clients very seriously. Keeping abreast of these requirements enables us to continually improve our services to them. In December 2007, we carried out a survey at our bank counters. The results showed that our clients are very satisﬁed with our services. Special mention was made of our staff's friendliness and helpfulness. The results of the survey will be considered in the further development of our advisory service process.

New bank branch concept During the year under report, we revised our bank branch concept and sought out synergy effects that arose from our new organisational structure. Our branches in Schaan and Triesenberg focus principally on private client business, while in Balzers and Eschen, parallel to classical banking functions, we also provide private banking services. So that we can also offer clients in this business area comprehensive and competent advice and care, close cooperation is maintained with the Private Banking Liechtenstein Division in Vaduz.

10'000th client for LLB iBanking Various aspects of our LLB iBanking system were upgraded and further developed in 2007. (Detailed information on the process improvements can be found in « Corporate Center», on page 42.) Our readiness to innovate is Our fresh new corporate identity is also reflected here in our readiness to innovate. Since its launch also reflected in our LLB iBanking in 1999, our LLB iBanking system has become more and more popular. In 2001 just 600 clients used system. Already every second payment is made online. our online banking application, now six years later there are already 10'000. Today, every second payment is made electronically. In 2007, 53 percent of payment orders (previous year: 45 %) and 18 percent of all stock exchange orders (previous year: 10 %) were placed via our LLB iBanking system. In response to the great demand, our specific iBanking seminars for online clients will be continued this year. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 31

Review Domestic Clients of operations 31

Payment orders placed in 2007

Payments via LLB iBanking 53 % Payments in paper form 47 %

Outlook Through our traditional strength In 2008 we want to consolidate our leading position in mortgage lending business and consequent- in mortgage business we ly increase our overall lending volume by CHF 350 million. Credit business, in which we traditionally will generate new private banking business relationships. have a strong position, often serves as a door-opener for new business relationships. We intend to exploit these synergies in order to offer our clients across-the-board services in all financial matters. As a further objective, we shall review our range of bank accounts and supplement it with attractive products aimed at young people. We also want to enhance our advisory expertise, particularly in relation to private banking, and especially with regard to private financial planning services. With regard to our LLB iBanking system, we shall strive to increase the level of automation; furthermore we shall hold more seminars to gain new clients. We shall pay particular attention to new business development and market penetration in all areas in Liechtenstein and Switzerland. In doing so, we shall expand our network, participate in various trade fairs and seminars, as well as organising professional conventions and conferences for specific client groups. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 32

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Segment reporting

in CHF thousands 2007 2006 + / – % Total operating income 189'362 105'754 79.1 Personnel, general and administrative expenses –98'340 –46'556 111.2 Depreciation and amortisation –9'481 –3'573 165.4 Value adjustments, provisions and losses –1'616 32 –5'150.0

Total operating expenses –109'437 –50'097 118.5 Business division proﬁt before tax 79'925 55'657 43.6

Performance ﬁgures

2007 2006 Net new money (in CHF millions) 213 353 Growth of net new money (in percent) 2.0 3.7 Cost/income ratio (in percent) 57.8 47.4

Additional information

in CHF millions 31. 12. 2007 31. 12. 2006 + / – % Assets under management 16'332 10'886 50.0 Employees (full-time equivalents) including allocated resources capacities (in positions) 475 222 114.0 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 33

Review International Clients of operations 33

International Clients Grow in core markets – gain ground in new markets. This is the stated strategy of our International Clients Business Unit. Accordingly, we signiﬁcantly strengthened our acquisition activity at the international level in the year under report, and attained success in all areas. The excellent results achieved were attributable to the expansion of our networks and intensiﬁed client service activities in our growth markets.

Structure / Market Germany, Austria and Eastern The International Clients Business Unit encompasses the international private banking activities of Europe together with the Near and the LLB Group. We focus on our clients' requirements especially in the following markets: Germany, Middle East are among our most important international markets. Austria, Eastern Europe, the Near and Middle East, and the rest of the Asian region. A total of 147 employees (full-time equivalent basis) work in this business unit.

Competitors In our target markets of Germany, Austria, Eastern Europe, as well as the Near and Middle East, we are in competition with the Swiss large and private banks, as well as with other large banks that are engaged in international wealth management.

Strategy In our growth markets wealth We plan the following initiatives to implement our strategy in this business unit: management is of particular importance. We shall supplement our ◆ expansion and intensiﬁcation of acquisition activity in the core markets; offer to clients here. ◆ expansion of wealth management activities and intensiﬁed business presence in the growth markets, particularly in Eastern Europe, as well as in the Near and Middle East; ◆ further development and enlargement of our offer for affluent and wealthy private clients; ◆ enhancement of advisory competence through the recruitment and training of client advisors for our target markets.

Business division result In 2007, we posted very strong growth. Operating income expanded by 28.8 percent to CHF 127.3 million (previous year: CHF 98.8 million). Operating expenses increased by 37.8 percent to CHF 52.0 million (previous year: CHF 37.7 million). The segment result before tax rose by 23.3 percent to CHF 75.3 million (previous year: CHF 61.1 million). Assets under management climbed by 22.4 percent to CHF 13.5 billion (previous year: CHF 11.0 billion).

Review

Positive development in the core markets With the introduction of our new organisational structure, the essentials were put in place to enable us to intensify and sustain our business activities in our target markets. In the year under report, business posted a very positive development in our traditional core markets. We have a smooth function- ing team that is characterised by its extensive business experience. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 34

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High net money inflows in the growth markets Thanks to our intensified business Our strategy is aimed at boosting growth in the core markets and penetrating new markets – espe- activities in the Near and Middle cially in Eastern Europe and the Near and Middle East. Our intensified activities in this area made a East, as well as the launching of special products, we attained high major contribution to the net money inflow of CHF 1.8 billion. net new money inflows. To enable us to intensify business activity in the Near and Middle East, we established a representative office in Abu Dhabi in 2005 through Liechtensteinische Landesbank (Switzerland) Ltd. As a competent local partner for our discerning clients, this business base now employs ten staff, nine of whom stem from the Gulf region. Thanks to their hard work and support, we successfully strengthened our position in that market in 2007. Our product and service offer appeals, above all, to private clients from the Near and Middle East, who value the conservative approach of an internationally networked bank. During the year under report, as a co-issuer we launched several Middle Eastern products which comply with Sharia rules. Eastern Europe is one of the most important growth regions and offers very promising market opportunities in private banking. Active and systematic sales and market penetration activities via our network of intermediaries, in particular through specific events, enabled us to make new contacts with clients in this region.

Growth in assets under management 2007 CHF 2'468 million (22.4 %)

New money 16.4 % Performance 6.0 %

New representative office planned in Dubai The opening of a new representative Our business operations in India are also progressing very positively. By expanding our network of office in Dubai will have a positive inter mediaries we have been able to intensify our market penetration. We plan to open a represen - effect on expan sion of our business tative office in Dubai in 2008 to enable us intensify our activities. The new re presentative office in the activities in India. second largest Emirate represents an ideal business base for us from which to offer our services more robustly in the Asian region.

Zurich and Lugano – business locations with potential Since 1998, we have been represented in Zurich by a fully-licensed bank, Liechtensteinische Landes - bank (Switzerland) Ltd. This Group company concentrates very successfully on international private banking and has also established an additional business field as a custodian bank for Swiss investment funds. As a result of the enormous growth in the last few years, and the resulting expansion in personnel, we shall move into a new bank building on the Stampfenbachstrasse in 2008. In its first year of business, In its first full business year, the Lugano branch of Liechtensteinische Landesbank (Switzerland) our Lugano branch has already Ltd., which was opened in 2006, has already clearly exceeded all the expectations placed in it. The bank exceeded all expectations. branch mainly offers asset and wealth management services for wealthy Italian clients. Even if wealth LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 35

Review International Clients of operations 35

in Italy no longer increases at the same rapid rate as 20 years ago, Lugano is still one of the key ﬁnan- cial centres. Thanks to their geographical proximity, Lombardy, Veneto and Piedmont, which – measured in terms of gross domestic product – are among the wealthiest regions in Europe, offer great potential.

Outlook In 2008, we shall push ahead with the realisation of our strategic goals and enlarge our human resources to enable the proactive penetration of our core markets. We shall place our business focus above all on expanding operations in the Near and Middle East as well as in Eastern Europe.

Segment reporting

in CHF thousands 2007 2006 + / – % Total operating income 127'341 98'878 28.8 Personnel, general and administrative expenses –46'552 –33'419 39.3 Depreciation and amortisation –4'356 –3'698 17.8 Value adjustments, provisions and losses –1'081 –624 73.2

Total operating expenses –51'989 –37'741 37.8 Business division proﬁt before tax 75'352 61'137 23.3

Performance ﬁgures

2007 2006 Net new money (in CHF millions) 1'804 987 Growth of net new money (in percent) 16.4 10.7 Cost/income ratio (in percent) 40.8 38.2 Operating income / average assets under management (in basis points) 104.0 97.6

Additional information

in CHF millions 31. 12. 2007 31. 12. 2006 + / – % Assets under management 13'475 11'007 22.4 Employees (full-time equivalents) including allocated resources capacities (in positions) 147 132 11.4 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 36

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Institutional Clients In institutional business we concentrate on the markets in Liechtenstein and Switzerland with the particular emphasis on intermediary business, as well as fund and asset management. To enable us to expand further in these areas, we are intensifying cooperation with our Group companies, developing new innovative fund products together with specific services, and increasing the level of process automation. Moreover, we are enhancing the care and advice offered to clients and taking more time for personal contacts.

Structure / Market The Institutional Clients Business Unit encompasses financial intermediary business as well as the investment funds and asset management of the LLB Group. We concentrate on the requirements of professional investors and financial intermediaries, particularly those of fiduciaries, asset managers, fund promoters and fund companies in Liechtenstein and Switzerland. A total of 214 employees (full-time equivalent basis) work in this business unit.

Competitors In our home market, and in Switzerland, the Liechtenstein banks that are active in intermediary business, are our main competitors. In Switzerland, we compete, in particular, with the large and private banks as well as asset managers.

Strategy We will exploit the synergies We are planning the following initiatives in order to realise our strategy in this business unit: within our Group to expand our fund and trust business and gain new market shares. ◆ expansion of fund and trust business as well as the acquisition of new market shares in cooperation with our Group companies, i. e. LLB Asset Management AG, LLB Fund Services AG, LLB Treuhand AG and Jura Trust AG; ◆ further development of speciﬁc fund products and services; ◆ enhancement of advisory competence through the recruitment and training of client advisors for our target markets; ◆ increase in the level of automation of core processes in securities trading and administration.

Business division result We recorded good business ﬁgures in 2007. Operating income advanced by 12.4 percent to CHF 209.4 million (previous year: CHF 186.4 million). Operating expenses were up by 12.5 percent to CHF 69.9 million (previous year: CHF 62.1 million). The segment result before tax rose by 12.3 percent to CHF 139.5 million (previous year: CHF 124.3 million). Assets under management increased by 5.4 percent to CHF 30.2 billion (previous year: CHF 28.6 billion). LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 37

Review Institutional Clients of operations 37

Review

Intensified client care for financial intermediaries Made to measure services, In the year under report, we intensified our contacts with financial intermediaries. Regular meetings regular communication and and discussions enabled us to strengthen existing business relationships. We maintained a dynamic intensified advice enable us to strengthen our contact exchange of views and ideas with our clients, particularly in relation to the implementation of relevant with financial intermediaries. regulatory directives.

New service «LLB DataFeed» Our new service « LLB DataFeed» enables us, in line with the speciﬁc requirements of individual ﬁnan- cial intermediaries, to prepare transaction and portfolio data electronically in such a manner that this can be downloaded and further processed by their computer systems.

« FinancialPerspectives» focus on MiFID Asset managers are increasingly evolving into wealth mangers as the ﬁnancial affairs of their clients become ever more complex. Furthermore, in the cross-currents generated by client orientation, regulation of basic business conditions and globalisation of markets, they see themselves faced with in - creasingly sophisticated needs and demands. In view of these changes, we dedicated the latest in our series of « FinancialPerspectives» conferences in June 2007 to the subject of « Asset Management – Client Orientation in the Cross-currents of New Developments». In addition to selected regulatory aspects, the new MiFID EU directive formed a key topic of the conference. (For detailed information about MiFID, see « Legal and regulatory conditions in the Liechtenstein ﬁnancial centre», on page 50.)

High quality in stock exchange trading and in securities administration We again significantly increased the level of automation in our stock exchange trading and securities administration activities. Thanks to the acompanying improvement in efficiency and our highly qualified staff, we are able to maintain our high quality standards of order execution even with substan- tially higher business volumes. Despite the continuing growth of automation, specific client wishes, e. g. in relation to brokerage or custody, can still be fulfilled. For instance, in the year under report, we offered our clients the possibility of carrying out securities trading in new markets, in Vietnam, for example.

Expansion of securities lending business Our securities lending service has in the meantime been fully automated. This attractive extra service has proved very popular with our clients, revenues increased by over 50 percent year on year.

Extended range of investment funds and larger fund volume Our funds volume exceeded the In 2007, we further supplemented our range of investment funds with various equity and bond funds, CHF 5-billion mark for the first time such as products which invest in convertible bonds, real estate or inflation-linked bonds. Our fund in the year under report. range now encompasses 29 products. The total volume of our funds also posted a very gratifying development, exceeding the CHF 5-billion mark for the first time in May 2007. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 38

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Best small and mid cap fund in Switzerland Thus, in 2007 and 2008, our In a competition comparison, our funds are distinguished by good performance and low costs. This is LLB Equities Regio Bodensee (CHF) confirmed by external assessments carried out periodically by independent fund rating agencies. fund was selected as the best small and mid cap fund over three Thus, for example, in 2007 and 2008 our LLB Equities Regio Bodensee (CHF) fund was selected as the and five years. best small and mid cap fund in Switzerland over three and five years by Lipper, the fund rating specialists.

Performance of LLB Regio Bodensee (CHF) over ﬁve years indexed from 1 January 2003

500 450 400 350 300 250

200

150

100

50 2003 2004 2005 2006 2007

LLB Equities Regio Bodensee (CHF) SPI (overall market Switzerland) SPI Small & Medium Companies

Asset management for Bank Linth Since our acquisition of the majority stake in Bank Linth, we have been cooperating closely in the ﬁeld of asset management. We provide our partner with our investment expertise and Bank Linth can also take advantage of our entire spectrum of services in offering comprehensive advice to its clients.

Successful LLB Investment Forum Our Investment Forum for institutional clients of the LLB Group was held in Zurich for the fourth time. Among other topics, we informed our clients about economic and business conditions as well as the accompanying investment opportunities in the coming year. Other key topics included the development of the Swiss equity market and the Liechtenstein investment fund centre.

Expansion of private labelling Intensified activities have enabled us Private labelling business is of special strategic importance to us. We have set up a large portion of to grow our private labelling business. private label funds in the field of alternative investments and thereby gained valuable expertise. In total during 2007, we participated in the launch of over 50 private label funds that were set up by our clients. Furthermore, we have also developed our own process model, geared specifically to private labelling business. This process is accompanied and supported by various fund, legal and tax experts from within the LLB Group. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 39

Review Institutional Clients of operations 39

Leading custodian bank in Liechtenstein We have noted a very pleasing increase in the number of custodian bank mandates and the adminis- tered fund volume over the last few years. As a custodian bank, we administer about 160 funds having a volume of CHF 10.8 billion, making us currently the largest-volume custodian bank in Liechtenstein.

Volume development custodian bank mandates in CHF millions

12'000

10'833 6'031 10'000

8'669 5'275 8'000 7'423 4'291

6'000 4'902 2'684 4'802 4'000 3'352 1'324 3'394 2'732 3'132 864 2'000 2'218 1'868 2'028

0 Dec. 02 Dec. 03 Dec. 04 Dec. 05 Dec. 06 Dec. 07

Third-party funds LLB funds

Outlook With innovative fund products and We want to realise our growth strategy in alignment with the Group's overall objectives. We shall new investment methods we aim for establish the prerequisites for this by providing active care and advice to subsequently gain new mar- consistent growth. ket share and further intermediary clients. In the trading and securities administration sphere, we aim to further increase the level of automation. Moreover, we are continually reviewing the addition of new stock markets including those in India as well as the Near and Middle East. Further projects in 2008 include the expansion of securities lending business, the supplementing of our range of funds with new products, the creation of new attractive investment opportunities, as well as the extension of our private labelling services utilising the advantages of the Liechtenstein investment fund centre. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 40

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Segment reporting

in CHF thousands 2007 2006 + / – % Total operating income 209'406 186'366 12.4 Personnel, general and administrative expenses –61'879 –51'792 19.5 Depreciation and amortisation –3'979 –3'658 8.8 Value adjustments, provisions and losses –3'992 –6'636 –39.8

Total operating expenses –69'850 –62'086 12.5 Business division proﬁt before tax 139'556 124'280 12.3

Performance ﬁgures

2007 2006 Net new money (in CHF millions) 987 1'349 Growth of net new money (in percent) 3.4 5.6 Cost/income ratio (in percent) 33.4 33.3 Operating income / average assets under management (in basis points) 71.2 70.6

Additional information

in CHF millions 31. 12. 2007 31. 12. 2006 + / – % Asset under management 30'182 28'632 5.4 Employees (full-time equivalents) including allocated resources capacities (in positions) 214 189 13.2 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 41

Review Corporate Center of operations 41

Corporate Center As the internal advisor, driving force, organiser and coordinator in the realisation of strategic projects, the Corporate Center last year played a leading role in such major projects as our new organisational structure, our new corporate brand and Project «2gether». Furthermore, in daily business operations we improved IT efficiency and information ﬂows as well as optimising the ratio between productivity and security.

Structure The Corporate Center supports the business units in realising their strategies. In doing so, it focuses on the following functions: ﬁnancial and risk management, human resources, marketing and communication, legal services and compliance, development of new markets, as well as logistics and IT services. A total of 107 employees (full-time equivalent basis) work in the Corporate Center.

Business division result Due to the conditions on the ﬁnancial markets, we recorded lower ﬁgures in 2007. Operating income decreased by 48.4 percent to CHF 34.0 million (previous year: CHF 65.9 million). Operating ex pen ses expanded by 13.9 percent to CHF 41.2 million (previous year: CHF 36.2 million). The segment result before tax amounted to minus CHF 7.2 million (previous year: CHF 29.7 million).

Strategy We optimally utilise our resources The cardinal aim of the Corporate Center is to support the other business units and Group companies and create a balanced relationship in realising their strategies, whereby the focus always lies on providing direct and indirect client ben- between productivity and security. eﬁts. We optimise the Group's resources and strive to achieve a balanced relationship between productivity and security. Under these circumstances, we have assigned the continual enhancement of our IT infrastructure and the improvement in the efficiency of processing systems a high priority.

Review

Realisation of strategically important major projects In the year under report, the During the year under report, parallel to daily business, we were also mainly involved in four large- Corporate Center demonstrated its scale projects: the implementation of the new organisational structure; the introduction of the LLB high level of efficiency by implementing four large-scale projects. Group's new brand; the « 2gether» project with Bank Linth LLB AG, and the introduction of the EU's MiFID regulations. The complexity of these projects, which had an inﬂuence on client advisory services, marketing and IT processes, represented a demanding challenge for all the bank's operating areas. Nevertheless, thanks to the great dedication of all the participants, all the projects were realised on schedule and all the regulatory requirements involved with them were fulﬁlled.

Expansion of the IT network in external business locations The consistently high service level of all our systems ensures smooth and seamless banking operations. Our aim is to provide as many services as possible centrally for the LLB Group. This enables us to exploit synergies and efficiently support client advisory services. In 2007, we successively expanded our IT network services for the entire corporate Group, but especially for the branch office in Lugano and the representative office in Abu Dhabi. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 42

42 Ideals

Optimisation through new solutions Our key focus in 2007 was on increasing the level of automisation. Accordingly, a new technical solution for coupon settlement and securities lending was introduced. The new system-supported processes enable us to carry out stock exchange transactions and security lending business fully auto matically and, therefore, more efficiently for our clients. Moreover, we made further progress in automating the administrative processes involved with trading transactions. Finally, the entire let- ters of credit, collection against documents and bank guarantee business was optimised both for the parent bank and Liechtensteinische Landesbank (Switzerland) Ltd.

Further development of LLB iBanking system In spite of the existing high In addition to the flexibility of being able to access account and safe custody account information at security standards, we still have any time, and carry out payment transfers as well as stock exchange transactions using the latest mar- our LLB iBanking system ket data, our clients are able to benefit from the user-friendliness and strict security of electronic bank- checked by external specialists at regular intervals. ing. Our LLB iBanking system is based on a software application we have developed ourselves. To log in to the system, in addition to their personal password, clients require a USB token with a stored individual certificate. In spite of its acknowledged high level of security, we are constantly reviewing our iBanking system with the support of external specialists to determine optimisation possibilities.

Information from the Group staff departments

Group Corporate Communications As a central staff function, Group Corporate Communications was heavily involved in all four of the major projects that were realised in 2007. The key focus of this department's activity was the phased introduction and implementation of the Group's new brand identity. (Detailed information can be found in « Strategy and organisation», on page 19, and in « Employees», on page 44.)

Group Human Resources Two projects took precedence in the year under report: the introduction of the new organisational structure at the parent bank with the accompanying staff recruitments and change management seminars, as well as the introduction and implementation of the new corporate brand with the con- comitant workshops and courses for executives and staff. (Detailed information is available in « Employees», on page 44.)

Group Corporate Development The Group Corporate Development Staff Department was established during the introduction of the new organisational structure. Its mission is to support the Group's management, particularly with respect to strategic projects as well as with the new and advanced development of markets, business sectors and products within the LLB Group. In 2007, it was responsible, among other things, for the introduction and coordination of the new organisational structure at the parent bank as well as for the « 2gether» project in cooperation with Bank Linth LLB AG.

Group Finance & Risk The main duties and responsibilities of the Group Finance & Risk Staff Function in 2007 included the review of overall bank controlling systems taking into consideration management philosophy and strategy. A parallel goal was also the revision of the quantitative objectives of the LLB Group. Our primary corporate objective is to create sustained added value for all stakeholders. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 43

Review Corporate Center of operations 43

Group Legal & Compliance Group Legal & Compliance concentrated its resources on MiFID, the EU's Market in Financial Instru- ments Directive, which was enacted into national law on 1 November 2007. In addition, work on implementing the third EU Money Laundering Directive, which reflects the recommendations of the FATF, has begun. Using the latest software for name-matching and transaction monitoring, as well as through regular training courses, we ensure that external regulations and internal guidelines are complied with and abuses are prevented. However, great importance is attached not just to money laundering, but also to the identification of market manipulation and insider trading. Our operational risk reporting has been expanded to provide management with even more detailed information. This enables us to fulfil our obligations with respect to the global identification, reporting and limitation of money laundering risks.

Outlook We shall explore synergies within In 2008, we intend to concentrate on the further development of uniform processes within our cor- the LLB Group in 2008 to create a porate Group to enable us to better exploit existing synergy potential. In the medium term, our objec- common IT architecture. tive is to establish a common IT platform for the LLB Group, whereby the focus will be on the integration of Bank Linth. At present, a project team consisting of representatives of both banks is exploring possible synergy potentials for a common IT architecture. By the middle of 2008, we shall have in place a uniform platform for stock exchange trading and securities administration. Another goal involves optimising the communication possibilities within the LLB Group. By utilising the latest web technology, we can enlarge our offer of electronic market data (ﬁnancial information) while at the same time making it more user-friendly. We aim to make our LLB iBanking system even more attractive by adding services for external asset managers. The improvement of output management in the production and dispatch of client vouchers is also a key point of our activity planning in 2008.

Segment reporting

in CHF thousands 2007 2006 + / – % Total operating income 34'003 65'890 –48.4 Personnel, general and administrative expenses –37'885 –33'308 13.7 Depreciation and amortisation –3'311 –2'874 15.2 Value adjustments, provisions and losses 0 0

Total operating expenses –41'196 –36'182 13.9 Business division proﬁt before tax –7'193 29'708 –124.2

Additional information

in positions 31. 12. 2007 31. 12. 2006 + / – % Employees (full-time equivalents) including allocated resources capacities 107 102 4.9 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 44

44 Ideals

Employees Skill, motivation, competence, dedication, proﬁle, credibility: not simply lip service, but values which our staff embody. Day after day. Inside our offices and wherever our clients are. Against this backdrop, we again organised an array of workshops and seminars last year. These were devoted, in particular, to our new brand and our corporate values.

Committed to our values We are partners in every respect. Throughout the world, providing performance and success. For our shareholders, clients and employees. We generate trust by always giving our very best. Our values determine our vision, our conduct and our impact. We can live up to them only if every single employee identiﬁes with them.

Inspired by our new brand Our new brand with its central During the year under report, we organised various « pit stops for executives» as well as workshops values and attributes was the and a photo competition for all our staff. Here we intentionally focused on the creativity and personal focus of various workshops and symposiums for our employees. perception of our new brand. The events provided a refreshingly different approach to our values. Our staff utilised innovative and creative methods to explore different interpretations of our new branding concept. At the same time, the workshops offered the opportunity of entering into a direct dia- logue with members of the bank's and the Group's management. (For more detailed information about our new brand, see « Strategy and organisation» on page 19.)

Investments in training and professional education The dedication and competence In 2007, the staff of the parent bank attended internal and external training courses for 2'679 days. of our staff are among our This corresponds to an average of 5.06 days per employee. Bank internal training courses accounted most important success factors. for an impressive 57 percent of training days (previous year: 39 %). In addition to the branding work- Consequently, we once again invested in speciﬁc staff training shops, the focus was placed on courses to enhance management skills as well as advisory and sales and education. competence. Furthermore, we organised courses on due diligence obligations and banking secrecy for employees having direct contact with clients.

Change management Our new organisational struc- All our executives attended an internal workshop dedicated to change management. In line with the ture was the key subject at the motto « We are successfully designing a new LLB organisation», the workshop focused on dealing seminars for executives and senior managers. with the changes generated by the new organisational structure. A member of the Board of Manage- ment was present at each of the seminars. We design and develop a large portion of our professional education and training programmes ourselves, or in cooperation with specialist external partners such as the Center for Young Profes - sionals in Banking (CYP), Zurich. Together with the CYP we foster, in particular, the training of apprentices, high school graduates and trainers. We also offer a new form of traineeship in private banking for highly-qualiﬁed and motivated young people. This programme offers them excellent career pro s - pects in the ﬁnancial services industry. Furthermore, every year we organise try out days during which school children can try out and inform themselves about the professions they may wish to take up. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 45

Review Employees of operations 45

At the end of December 2007, a total of 26 apprentices, 4 BFM practical trainees and 1 private banking trainee were undergoing training at the parent bank. In total, we invested around CHF 2.04 million in professional education and training in 2007. We supported our staff training with ﬁnancial contributions totalling CHF 501'862.– and by granting leave for part-time training purposes.

Development of headcount At the end of 2007, the LLB Group employed 1'045 persons (previous year: 732 persons), of whom 566 worked at the parent bank. Adjusted to consider part-timers, the number of jobs groupwide expanded by 46.2 percent to 943. A comparison of headcount development over the last five years reflects the consistent realisation of our growth strategy. The recruitment of qualified specialists was particularly challenging due to the tight employment situation in the banking and financial services sector. The overall staff turnover rate of the LLB Group was 9.9 percent.

Development of headcount at the LLB Group 2002 – 2007

1'000 943

800

645 600 588

493 486 486

400

200

0 2002 2003 2004 2005 2006 2007

Employees (full-time equivalent basis)

Length of service of parent bank employees Status per 31. 12. 2007, full-time employees

up to 4 years 27.5 % 5– 14 years 45.6 % 15– 24 years 17.7 % 25– 34 years 7.8 % 35 and more 1.4 % LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 46

46 Ideals

The average length of service at the parent bank was 10.3 years (previous year: 10.7 years). About 205 employees have worked for us for ten or more years. The average age of employees was 40 years (previous year: 40.2 years). The 35 to 44 age group was the largest proportion with 31.7 percent, followed by the 45 to 54 age group with 24.9 percent. Our strategic focus on Liechtenstein and Switzerland as well as the new growth markets is also reﬂected in the nationality of our staff. With around 82.9 percent Liechtenstein and Swiss employees we cover well over half the total personnel of the parent bank. 266 men and 232 women are employed at the parent bank. Most of our part-time employees are women. At the parent bank, 84 women and 14 men are employed on a part-time basis of between 40 and 90 percent.

Performance-related salary model Our employees’ salaries are We not only foster the professional education and further training of our employees, we also have in increasingly determined by the place a tried and tested salary system that enables us to flexibly react to new developments. In 2007, performance factor. we defined a set of measures for a time- and market-reflective adjustment of the system. Thus, for example, the performance factor will have a greater impact in future, and, in line with the concept of « total compensation», the profit-related bonus component will be integrated in the salary system.

Profit-related bonus The profit-related bonus is dependent on the LLB's business result as well as the employee's function and his/her personal performance. A part of the bonus of senior executives is paid in the form of LLB bearer shares. (For further information on this point, see « Accounting principles», Point 2.19 « Employee benefits» on page 101.) In the 2007 business year, the profit-related bonus amounted to around 23.7 percent of the total salary payment.

Varied communication media In keeping pace with continuing Communication channels are short at our bank, hierarchies are flat. Even though the LLB Group has growth, we utilise all modern commu- grown rapidly over the last few years, we still attach great importance to maintaining personal con- nications media to safeguard an optimum flow of information. At the tacts with senior executives and members of the Board of Management within the company. same time, we ensure that per- The annual performance discussion with each employee is one of the most important compo- sonal contacts between employees nents of our human resources policy. Good communication with superiors motivates employees, and senior executives are not lost. integrates them in the organisation, facilitates the discussion and definition of personal goals, expectations and tasks. Moreover, it encourages our staff in their personal and professional development. At the beginning of the year, individual targets for the current year are defined jointly by employees and their superiors. The extent of target attainment is reviewed on a quarterly basis. The overall assessment arrived at in the annual appraisal discussion forms the basis for the employee's performance-related salary. Our internal Intranet is an important communication instrument in our day to day work. In addition to facts about our product range, personnel and bank regulations, it also provides information on our new brand identity and general IT tips and instructions. The electronic IRIS manual regulates the project and process organisation within the LLB Group. Our inhouse staff journal, which is published four times a year and is also sent to retired staff, represents an important internal information platform. Apart from reports about innovations and changes within the Group as well as events and excursions, it also focuses on individuals – often outside their everyday professional lives. Starting in 2008, the journal will be produced by a new editori- al and correspondent team composed of staff of the LLB Group. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 47

Review Employees of operations 47

In a broader sense, company events can be included as communication media. Chief among these is probably the Autumn Company Day of the LLB Group, to which all current and retired employees of the LLB Group are invited. Our Sport and Hobby Club also plays a major role in encouraging social and sporting activities among employees. In 2007, the programme included a visit to the bank branch in Lugano. Other activities included a company ski day, a sport weekend and various trips and excursions. The bank supported the Sport Club with a ﬁnancial contribution of CHF 65'000.– in the year under report.

Health management

Smoking ban in public rooms The well-being of our staff is of Since 1 January 2007, smoking has been forbidden in all offices, work places and public rooms at the vital importance to us. Therefore, we bank and the Group companies. In line with this regulation, a special smoking room was set up in attach great importance to health management within the company. each building.

Promotion of health initiatives By offering all our staff time out possibilities and sabbaticals for senior executives, we contribute to preserving the health of our staff. These time out possibilities were utilised by 15 employees in 2007 – usually in connection with a period of language training abroad. (For more detailed information regarding health management, see « Sustainability and environment» on pages 51 and 52.)

« Health menus» in the cafeteria A balanced and healthy diet is becoming ever more important. In our cafeteria we have been offering special health menus and healthy drinks since April 2007. This food is freshly and specially prepared using seasonal products. We also pay attention to the origin of the food products and ensure that the delivery routes for them are short.

Influenza pandemic We work on contingency plans The risk of a worldwide influenza pandemic has never been as high as at present. The World Health to enable us to react immediately Organisation (WHO) and other prestigious institutions are in agreement that it is no longer just a in the case of emergencies, for example, in case of an influenza question of whether there could be an influenza pandemic, but rather only of when it will occur. Such pandemic. a pandemic does not have to originate in Asia, it can break out just as easily in the middle of Europe. In such a scenario, we assume that about 25 percent of our staff would be affected for on average between five and eight days, and therefore would not be able to work. An internal committee is currently working intensively on a pandemic contingency plan.

Staff pension scheme Our staff pension fund encompasses a range of sophisticated contribution and benefit plans enabling our employees to take advantage of individual retirement solutions, e. g. a life-long pension or a one- time capital payment. The benefits in the event of death or invalidity are defined separately from retirement benefits. (For further information on staff welfare benefits, see « Accounting policies», point 2.19 «Employee benefits» on page 101.) LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 48

48 Ideals

Staff representative body Our staff representative body fosters An internal staff representative body has represented employees' interests at the parent bank since communication between employees 1999. These representatives are elected every three years by the bank's employees and represent and the Board of Management and Group Executive Board. They particu- them vis à vis the LLB management and their superiors. The staff representative body participates in larly address social welfare issues. an annual management conference with the LLB's management where topics such as strategy, corporate development and salary adjustments, etc. are discussed. Together with the Human Resources Department, they deal with issues such as health, social welfare and pension provisioning. Their task is also to foster cooperation and communication between employees and the Board of Management and the Group Executive Board for the beneﬁt of both sides, as well as to safeguard the rights of employees.

Outlook The concrete implementation of the planned adjustments in our salary system will be among the key points of our activities in 2008. Moreover, our responsibilities include the continual improvement and adaptation of procedures and processes in the human resources area to suit the organisational changes in the LLB Group. As regards professional education and training, we shall concentrate on three issues in 2008: in addition to advanced management workshops for the realisation of our branding concept, we shall also focus on the introduction of a standardised advisory process. Within the framework of regular due diligence training courses, we shall employ the new e-learning programme of the Liechtenstein Bankers Association for the ﬁrst time. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 49

Legal and regulatory framework Review of the Liechtenstein financial centre of operations 49

Legal and regulatory framework of the Liechtenstein ﬁnancial centre Regulations, regulatory provisions and laws bring order and uniformity to the commotion of business, they generate conﬁdence and establish clear parameters. Since its foundation in 1861, our bank has been a sound and reliable partner. In continuing to live up to these standards, it is part of our corporate culture not to regard legal rules and regulations as restrictions but to integrate them in our strategy at an early phase.

Our corporate Group The Liechtensteinische Landesbank Liechtensteinische Landesbank AG is licensed under Liechtenstein law. We are subject to the law on is the parent bank of the banks and ﬁnance companies (banking law) of 21 October 1992 as well as the ordinance on banks LLB Group. Our bank is licensed under Liechtenstein law and is super- and ﬁnance companies (banking ordinance) of 22 February 1994. Furthermore, our business activity vised by the Liechtenstein Financial is governed by the law concerning the Liechtensteinische Landesbank, which was enacted by the Market Authority. Landtag (Liechtenstein's parliament) in 1992. The Liechtensteinische Landesbank was converted in- to a public limited company in 1993. Since then, the bearer share has been listed on the SWX Swiss Exchange. The Principality of Liechtenstein holds the majority of the share capital and is liable in a subsidiary capacity for savings deposits and medium-term notes of our bank. The Liechtensteinische Landesbank is the parent company of the LLB Group, which is represented at the following locations: Vaduz (headquarters), Uznach, Zurich, Basel, Geneva, Lugano, on the Cay - man Islands, in Abu Dhabi (United Arab Emirates) and Hong Kong. The competent supervisory authority in Liechtenstein is the Liechtenstein Financial Market Authority. The LLB Group's business activities in the other locations are supervised by the responsible authorities in the individual country.

Due diligence obligations and combating of money laundering We support the measures against Banks in the Principality of Liechtenstein are subject to the law on professional due diligence with market abuse and fulﬁl all legal ﬁnancial transactions as well as the corresponding ordinance. Since Liechtenstein is a member of the requirements with respect to combating money laundering. European Economic Area, the third EU anti-money laundering directive, which conforms with the recommendations of the FATF, is currently being implemented into national law. But the strict observance of know-your-customer rules and risk-commensurate monitoring of business relationships are already standard practice. In this connection, particular attention is paid to persons from high-risk countries, politically exposed persons and correspondent bank relationships .

Law on market abuse On 1 February 2007, the new law on market abuse in trading with ﬁnancial instruments came into force. This represents the implementation of a further European Union directive. The purpose of the new law is to combat insider trading and market manipulation (market abuse). Its scope of validity encompasses all exchange and over-the-counter transactions with ﬁnancial instruments licensed (or for which a licence application has been submitted) in the EEA, irrespective of whether they are traded on regulated exchanges or elsewhere. By enacting this law, Liechtenstein wants to prevent unreg- ulated markets, alternative trading systems and other forms of trading from being misused. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 50

50 Ideals

Markets in financial instruments directive (MiFID) The implementation of the EU's In April 2004, the European Union issued the MiFID directive. As a member of the European Economic MiFID directive provides investors with Area, Liechtenstein is obligated to implement this EU directive into national law. The directive is an an even higher degree of protection. integral part of an overall package of measures by the EU aimed at strengthening the European market. Essentially, the purpose of the MiFID directive is to improve investor protection and standardise this at a European level. The new legal framework envisaged by MiFID relates principally to the provision of securities services by banks and securities firms, to which the Liechtenstein asset management companies also belong. In view of the fact that, on account of their specific experience and know ledge of securities business, investors exhibit different levels of protection, the Liechtenstein banks are legally obliged to classify their clients in accordance with specific criteria. With the coming into force of the MiFID regualtions, the position of the clients of Liechtenstein banks and securities companies is further strengthened. A project group consisting of representatives of the Liechtenstein banks and the Liechtenstein Bankers Association was responsible for ensuring that the new EU directive was implemented on schedule. Even though many of the provisions that MiFID contains were already being applied in practice, it was still a major task for the banks, and therefore for us as well, to implement this EU directive on time on 1 November 2007.

Further development of corporate staff pension schemes On 7 September 2007, the government of the Principality of Liechtenstein revised the ordinance to the law concerning corporate staff pension schemes (BPVG / BPVV). This revision opened up new perspectives for the investment of vested corporate pension funds. Previously, these assets could only be deposited in blocked pension savings accounts. In future, clients can invest their vested assets from corporate pension schemes in special investment funds. We have seized this opportunity, as the ﬁrst and only Liechtenstein bank, to offer our clients this attractive investment possibility.

Liechtenstein as a centre for pension funds Since the incorporation of the EU At the beginning of 2007, Liechtenstein enacted the new EU pension fund directive into national law. pension fund directive in national law, This represented a further step in making the Principality attractive to foreign companies as a centre Liechtenstein has also become an interesting alternative for foreign for corporate pension funds. As a result, a Liechtenstein pension fund can manage foreign pension companies. schemes and thus conduct cross-border business activities in the member states of the EEA. We are convinced that Liechtenstein offers great potential as a centre for pension funds.

Banking ombudsman Since April 2005, the banking ombudsman has been available to clients of banks domiciled in Liechtenstein as a neutral and basically free of charge mediating agent. Various forms of voluntary, out of court, procedures to settle disputes are employed in an effort to avoid time-consuming and costly legal proceedings. The banking ombudsman deals with concrete complaints that are submitted by the clients of banks with registered offices in Liechtenstein. The banking ombudsman is a neutral party, who acts as a competent and experienced mediating agent in the ﬁnancial services sector. The banking ombudsman is not a court of law, nor does he or she possess legal authority; rather he or she fosters discussion between the parties involved and submits possible settlement solutions to them. Since the parties are not bound by the banking ombudsman's settlement proposal, they are at liberty to accept this or, for example, to take legal action. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 51

Review Sustainability and environment of operations 51

Sustainability and environment We define ourselves as a part of society not only in terms of our rights, but above all through our responsibilities. Consequently, we have committed ourselves and our operations to paying particular consideration to environmental concerns. We have implemented a multi-facetted mobility management concept and, in order to save paper, we have launched new special products and services, such as our new monthly statement.

Acting in a sustainable manner Sustainability in a corporate The term « sustainability» is relatively new and therefore it has many different deﬁnitions. Perhaps sense should include ecological as the most popular is « development that meets the needs of the present without compromising the well as economic aspects. ability of future generations to meet their own needs». Thus, for example, in the case of the forestry industry it can mean planting a new tree for every one that is cut. For us, sustainability means taking responsibility today for tomorrow – with the goal of passing on a healthy environment and sta- ble economic and social structures to future generations. We are committed to this principle and we regard the concept of sustainability as an integral part of our business conduct.

Mobility management The largest proportion of business traffic is usually generated by employees travelling to and from work. And it is precisely here that corporate mobility management has a role to play by initiating an interaction between speciﬁc incentives and regulations, in order to promote environmental awareness among staff.

Parking space management A parking space management concept based on a system of fees has been in place at our company since 1997. The individual terms and conditions are contained in a set of regulations issued by the Board of Management. All revenues obtained from car parking fees are paid into a fund for ecological purposes. These resources are used, for example, to motivate our staff to switch to public transport by subsidising bus fares and passes. In addition, they are employed to support national and international environmental projects. A commission consisting of members of the Internal Services and Human Resources Departments as well as employee representatives is responsible for the LLB's car parking facilities. It keeps the management and staff informed about its activities and the use of the parking revenues in a report issued annually. We have available over 250 of our own parking spaces; about 84 are leased in addition (situation at 31 December 2007). Our employees can choose between a permanently allocated parking space or one assigned on a daily basis. The permanently allocated parking spaces are classiﬁed in three zones. The corresponding fees amount to between CHF 30. – and CHF 50. – per month. Daily parking spaces for which a fee must be paid are accessible to all staff, but for a maximum of ﬁve half-days per week and person. We contribute to the costs of public We contribute CHF 100.– per person to the cost of an annual travel pass from the Liechtenstein transport and encourage car pooling. Bus Company. Employees, who do not live in Liechtenstein and who do not have access to the public By providing incentives, we promote environmental awareness among staff. bus system, can form a car pool to use our natural-gas-driven car. Moreover, we also provide the necessary infrastructure (bicycle stands, changing rooms, showers and lockers) for employees who come to work by bicycle. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 52

52 Ideals

Staff concessions and incentives During the year under report, we ﬁnanced various concessions and events for our staff with some of the revenues from the mentioned fund:

◆ subsidised lunches in our cafeteria; ◆ bicycle prize draws for employees who had not used their private cars on randomly selected days; ◆ subsidised bicycle helmet and bicycle repair day.

We support environmentally- In cooperation with the Liechtenstein Chamber of Industry and Commerce, the government of the friendly mobility concepts. Principality of Liechtenstein and the Liechtenstein Automobile Club, we regularly participate in various projects aimed, in particular, at promoting the use of public transport. We also take part in the European Mobility Week, and contribute to caring for the health of our employees through various campaigns such as « By Bike to Work» or « Every Step Counts».

Business ecology By increasing the use of electronic Our paper consumption per 31. December 2007 amounted to 97.42 tonnes, corresponding to a year- client vouchers in LLB iBanking on-year increase of 18.2 percent. This increase was mainly attributable to the introduction of our new and introducing a new monthly statement, we are setting an example corporate brand. Although we are committed to reducing paper consumption, as a ﬁnancial institute in the responsible use of resources. we must still use and issue large quantities of client vouchers, forms, printed matter and envelopes. To reduce our paper consumption, we provide our LLB iBanking clients with electronic documents and vouchers. Furthermore, in October 2007 we launched a new type of monthly statement that enabled us to sharply reduce the printing of individual vouchers. (For detailed information about this subject see « Products and services» on page 53.)

Paper consumption at parent bank 97.42 tonnes

Letter paper 4.6 % Cash receipts 2.8 % Copier paper 25.4 % Standard vouchers 50.4 % Envelopes 16.8 %

We sort rubbish and waste paper into four categories according to security and environmental criteria. Central collection points are located in all bank buildings for ordinary rubbish and waste requiring special disposal (print cartridges, batteries etc.).

Energy We employ the following energy sources: gas, geothermal power, heating oil and electrical power to operate the heat pumps. One of our rented office buildings is heated with oil, while our own properties employ solely gas and geothermal power. Two of our buildings are equipped with solar power panels that enable a portion of our electric power supply to be provided in an environmentally-friendly manner. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 53

Review Sustainability and environment of operations 53

Energy consumption in kilowatt-hours Status per 31. 12. 2007

Gas 597'475 kwh Geothermal power 203'696 kwh District heating 262'000 kwh Heating oil 122'808 kwh

Products and services

New monthly statement We have provided our clients with a new type of monthly statement since October 2007. This replaces various credit and debit advice notes that were previously issued for each individual booking. Consequently, our clients receive less mail and therefore less paper. Furthermore, postage charges are reduced because individual vouchers are no longer mailed.

LLB iBanking Our electronic banking programme provides clients with the possibility of downloading and saving their bank vouchers onto their own computer at any time.

Eco and renovation mortgage With our eco and renovation We pay special attention to environmental risks when developing our products. With our eco and ren- mortgage loans, we offer an eco- ovation mortgage loans, we support not only the new construction of energy-saving buildings, pas- logical ﬁnancing model at very attractive conditions. sive houses and buildings complying with comparable alternative energy standards, we also promote the renovation of heating and insulation systems. Our eco and renovation mortgage loans are granted at more attractive conditions in comparison with conventional mortgages.

Risk management We also take environmental factors into consideration when granting credit facilities. If there are particular ecological risks with a project, we do not provide ﬁnancing for it.

Sharia-compatible investments Islamic law forbids Muslims from demanding interest on their ﬁnancial investments. Furthermore, investments in business areas, which infringe these principles are also prohibited. Through our representative office in Abu Dhabi, we can offer our clients tailor-made products which comply with Sharia principles. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 54

54 Ideals

Social responsibility and sponsoring Giving and taking. If we draw the inspiration for our success from our environment, it's only ﬁtting and fair to return a portion of that success. This credo provides the motivation for our broad spectrum of support and sponsoring activities. We are committed to supporting many social and ecological projects, to fostering long-term health management, and we are signiﬁcant sponsors of sport and culture in Liechtenstein.

Partners in every respect As the longest established bank in Liechtenstein, we maintain very close ties with the Principality and its people. We take our corporate social responsibility very seriously and demonstrate this, among other ways, through our sponsoring activities and donations. Sponsoring has been an integral part of our corporate strategy for many years. We concentrate our sponsoring activities in Liechtenstein in the areas of social projects, education, ecology, culture and sport. Wherever possible, we strive to establish long-term partnerships, highlighting – as in daily banking business – the key attributes of continuity and trust.

Social projects and education

Liechtenstein Medical Association Nothing is more important than one's health. Since 2007, we have supported the Wednesday forum of the Liechtenstein Medical Association and thus made a contribution to sustaining a high level of healthcare in Liechtenstein and the adjacent region. Eleven such forums are held every year, at which specialist doctors present and discuss important health issues.

Helpmail Our social commitment goes The « NetzWerk» is a social institution founded in 1990 which is dedicated to combating and pre- far beyond conventional sponsoring venting addiction, violence and suicide. On behalf of the public sector and private companies, it de- measures. For example, we support projects focusing on preventing velops appropriate projects and realises them in schools, local communities and companies. At its addiction, suicide and violence. web site www.helpmail.li, the association offers psychological advice, which can also be obtained anonymously. For many people this represents a ﬁrst step in recognising their problems and seeking professional help. We have supported this electronic helpline since 2002 as the main sponsor. We are particularly keen to make a contribution to a social service where assistance can be obtained quickly and easily when required.

Adult education The Liechtenstein Adult Education Foundation is a public law foundation. It is tasked with planning, promoting and coordinating adult education in Liechtenstein and utilising the resources approved by the government in accordance with the law. The Foundation is the largest provider of adult training courses in the region. Its offer ranges from language, computer and handicraft training to events and courses in art, history, philosophy, psychology and sport, as well as training trips and excursions. We have supported this important institution since 2003 as the main sponsor. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 55

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« aha – tips and information for young people» Children and young people are The Youth Information Centre was set up on 17 December 1999 and has its head office in Schaan. The especially important to us. We are Centre helps young people to help themselves. currently supporting three projects of the Youth Information In today's world information is a social necessity; because only well-informed persons can find Centre in Schaan and once a their way properly, define their own values and get ahead in the world. The more intensively young year we organise a skiing day for people can get to grips with suitable information structures, the greater will be the incentive and an SOS Children's Village. motivation for them to think about their own prospects. We offer young people not just banking services, we are also committed to supporting construc- tive leisure activities for them. Here our sponsoring activity – already in its fifth year – focuses on three major projects developed by the Youth Information Centre: « Holiday job exchange», « Longing for summer» (vacations for young people) and « Holiday fun» (courses for children and young people).

SOS Children's Village Weilheim Every year Liechtensteinische Landesbank (Switzerland) Ltd. invites children from the SOS Children's Village Weilheim in southern Germany for three days of skiing in Arosa, Switzerland.

Donations Donations and contributions have a long tradition at our bank. For more than 30 years we have supported charitable and social institutions in Liechtenstein. Over this period, we have continually extended the number of recipient organisations.

Ecology

« Holzkreislauf» Association In 2000, the « Holzkreislauf» Association was established. This is an association of forestry engineers, sawmill owners, carpenters and woodworkers whose aim is to promote wood products from sustainable forests in Liechtenstein. The idea of processing and using local timber resources in Liechten - stein is simple, appealing and, at the same time, environmentally sound. Long haulage distances are avoided and an over-aging of forest stands is prevented. Wood is a modern material which offers almost unlimited possibilities for creative building solutions. Against this backdrop, the association has created a special award: the most innovative timber construction pro jects undertaken in Liechtenstein by architects, engineers, public and private construction companies are awarded a « Wooden Oscar». As the main sponsor, we have supported the aims of the association since the beginning and, therefore, made an important contribution to promoting the timber industry, which has a long tradition in Liechtenstein.

Culture

Vaduz Film Festival Our sponsoring commitments For 13 years the Vaduz Film Festival has delighted lovers of open-air cinema. And we have been the also support a range of cultural and main sponsor of this annual event right from the start. The festival's exciting, entertaining and sporting activities. thought-provoking programme enriches local and regional cultural life every summer. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 56

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Schlösslekeller Theatre The « Schlösslekeller» Little Theatre in Vaduz was opened in 2003 and is dedicated to organising cabaret, readings, exhibitions and narrative theatre for a lively cabaret scene in Liechtenstein. In ad - dition to internationally-known celebrities, local artists frequently perform. The Little Theatre also offers young artists an ideal stage to demonstrate their talent and ﬂair.

Balzers Operatic Society The Balzers Operatic Society has been a very popular ﬁxture of Liechtenstein's multifaceted cultural programme for decades and is well known far beyond the Principality's borders. High-calibre produc- tions are staged in which both well-known artists and performers from the region appear. Our successful cooperation with the Operatic Society goes back more than 20 years and is simply an indis- pensable part of our commitment to culture. As the event's main sponsor, every summer we invite the public to a « Matinee im Hof», where songs from the latest production echo through the bank's inner courtyard to launch the new operatic season.

Our events « im Hof» Under the title « Jazz & Blues im Hof» we have organised concerts and various events in the inner courtyard of the bank's head office in Vaduz since 1996. Above all, these events provide outstanding bands and talented young musicians from the region with a possibility of performing in a special atmosphere before a large audience. In addition, our « Culture im Hof» programme offers a platform to clubs and associations with which we have a sponsoring relationship.

Sport

FC Vaduz Since the 1997/98 season, we have been the main sponsor of the FC Vaduz ﬁrst team, which plays in the second division of the Swiss football league. Over the ten years of our partnership the club has been very successful at a regional and also at an international level.

LC Vaduz Active partnership is not only a guiding principle of our business policy, but also of our sponsoring commitment to the Vaduz Light Athletic Club. We have been the main sponsor of the « Städtlelauf», a run through Vaduz organised by the club since 2006. This event is aimed at the general public and strives to motivate as many people as possible to run for the beneﬁt of their health. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 57

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Corporate governance The principles and directives defining corporate governance are laid down in the statutes, the regulations governing the conduct of business and the charters of the Board of Directors Committees. They are regularly reviewed and, if necessary, modified. They are based on the directives and recommendations contained in the Swiss Code of Best Practice for Corporate Governance issued by the Swiss Business Federation (economiesuisse). This corporate governance report describes the Landesbank's corporate governance principles in accordance with the information about corporate governance required by the SWX Swiss Exchange and Liechtenstein legal provisions.

1 Group structure and shareholders

1.1 Group structure

1.1.1 Description of the operative Group structure The Liechtensteinische Landesbank is structured as an «Aktiengesellschaft» according to Liechten - stein law. It is the parent company of the LLB Group. The LLB Group is therefore based on a parent company structure. The Board of Directors has approved a The Group regulations, approved by the Liechtensteinische Landesbank's Board of Directors, set of regulations which ensure the ensure a proper conduct of business, a practical organisational structure, and a centralised manage- uniform and competent management of our corporate Group. ment of the LLB Group. This is provided by the Group Board of Directors and Group Internal Audit, the Group Executive Management Board, the Board of Directors committees of the LLB Group companies and the Group Service Centre. The Group Board of Directors and Group Executive Management Board are composed of the same persons who comprise the LLB parent company's Board of Directors and Board of Management. Within the scope of the powers and duties vested in them by the Group regulations, the LLB Group functions can, for example, make decisions and give instructions which are binding not just for the parent company but also for the LLB Group companies – but taking into consideration the provisions of local law applicable to the individual Group companies. Members of the Board of Management of Liechtensteinische Landesbank are represented on the Boards of Directors of the consolidated companies. Either the Chairman (CEO) or a member of the Board of Management of Liechtensteinische Landesbank serves as the Chairman of the Board of Directors of the subsidiary companies. The boards of swisspartners Investment Network AG and Bank Linth LLB AG are exceptions to this rule. The organisational structure on 1 January 2008 is shown on pages 14 to 17. The detailed segment reports are shown on pages 28 to 43. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 58

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1.1.2 Listed companies included in the scope of consolidation

Market Reg. capitalisation Security Company office Listed on (in CHF thousands) Stake (in %) number ISIN number Liechtensteinische SWX Landesbank AG Vaduz (Swiss Exchange) 3'064'600 3019524 LI0030195247 SWX Bank Linth LLB AG Uznach (Swiss Exchange) 410'756 74.2 130775 CH0001307757

The Liechtensteinische Landesbank, with its registered office in Vaduz, is listed on the SWX (Swiss Exchange). As at 31 December 2007, its market capitalisation stood at CHF 3.1 billion (30'800'000 bearer shares having a nominal value of CHF 5.– at a year-end closing price of CHF 99.50). Following our public bid to Following the preliminary announcement on 7 December 2006, Liechtensteinische Landesbank purchase the registered shares AG, Vaduz, submitted a public offer for all publicly owned registered shares of Bank Linth, Uznach, on of Bank Linth, since 21 Feb- ruary 2007 we hold a majority 19 December 2006. The offer price amounted to CHF 540.– net in cash per Bank Linth share. shareholding of 74.2 percent. Following the expiry of the extended deadline at 4.00 p.m. CET on 21 February 2007, the LLB was offered 563'695 Bank Linth shares, corresponding to 70.0 percent of the Bank Linth shares in public circulation at the time point of the offer. Furthermore, up to the expiry of the extended deadline, the LLB acquired 33'804 Bank Linth shares in on-the-board and off-the-board trading, corresponding to a further 4.2 percent of the Bank Linth shares in public circulation at the time point of the offer. Taking into consideration the Bank Linth shares held by the LLB prior to the announcement of the offer and the shares held by persons acting on behalf of the LLB, this resulted in a participation at the time of the expiry of the extended deadline on 21 February 2007 totalling 74.2 percent. Control of the company was officially transferred on 6 March 2007. Consequently, the scope of consolidation in 2007 was extended to include Bank Linth LLB AG, Uznach, which is also listed on the SWX (Swiss Ex - change), Segment «Local Caps», (security number: 130775, ISIN number: CH0001307757, symbol: LINN). As at 31 December 2007, its market capitalisation stood at CHF 410.8 million (805'403 registered shares having a nominal value of CHF 56.– at a year-end closing price of CHF 510.–).

1.1.3 Unlisted companies included in the scope of consolidation Details of the unlisted companies included in the scope of consolidation (company, activity, registered office, share capital and equity interest) can be seen in the Notes to the ﬁnancial statement of the LLB Group in the table «Scope of consolidation» (pages 155 and 156).

1.2 Major shareholders The Principality of Liechtenstein is the majority shareholder of the Liechtensteinische Landesbank. In accordance with the Landesbank law, in terms of capital and voting rights, the Principality of Liech- tenstein must hold at least 51 percent of the shares. The Principality of Liechtenstein On 31 December 2007, the Principality's participation amounted to 57.5 percent; at the end of is our majority shareholder 2006 it was 54.0 percent. The increase was caused by the resolution of the General Meeting on 4 May and currently holds 57.5 percent 2007 to carry out a capital reduction by cancelling 200'000 bearer shares (i. e. taking into considera- of the LLB's shares. tion the share split: 2'000'000 bearer shares – see Point 2.1), which had been purchased by the LLB from the Principality of Liechtenstein in 2006 for the purpose of optimising the Landesbank's capital structure. Detailed information about the development of the Principality of Liechtenstein's equity stake in the Liechtensteinische Landesbank can be obtained at www.llb.li/capital+structure. The remaining bearer shares are held by a broad section of the general public. There are no binding shareholder agreements. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 59

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1.3 Cross participations There are no cross participations between the Liechtensteinische Landesbank and its subsidiaries or other companies.

2 Capital structure

2.1 Capital As at 31 December 2006, the share capital of the Liechtensteinische Landesbank amounted to CHF 164 million (3'280'000 bearer shares having a nominal value of CHF 50.–). On 4 May 2007, the General Meeting of Shareholders of Liechtensteinische Landesbank AG approved the proposal of the Board of Directors to carry out a share split in a ratio of 1:10. The nominal value per share was reduced to a tenth while at the same time the number of shares was increased ten-fold. In the year under report, we carried As a result of the share split, the share capital remained unchanged at CHF 164 million, but then out a share split in a ratio of 1:10 comprised 32'800'000 bearer shares having a nominal value of CHF 5.– each. and a capital reduction amounting to CHF 10 million. Moreover, the shareholders approved the reduction of the share capital by CHF 10 million from CHF 164 million to CHF 154 million and, accordingly, the cancellation of the 200'000 bearer shares (i. e. taking into consideration the share split: 2'000'000 bearer shares), which had been purchased by the LLB from the Principality of Liechtenstein in 2006 for the purpose of optimising the Landesbank's capital structure.

2.2 Conditional and approved capital On the balance sheet date, the Liechtensteinische Landesbank has no conditional capital or approved capital.

2.3 Changes to capital Changes to capital during the last three report years are shown in the table below.

Reserves (capital surplus and retained earnings, provisions Balance for general sheet in CHF thousands Share capital banking risks) profit Total 31.12.2004 164'000 1'237'892 142'588 1'544'480 Distribution of balance sheet profit 63'000 –137'123 –74'123 Release of provisions for general banking risks * –200'000 –200'000 Profit 372'773 372'773

31.12.2005 164'000 1'100'892 378'238 1'643'130 Distribution of balance sheet proﬁt 284'000 –365'638 –81'638 Proﬁt 236'432 236'432

31.12.2006 164'000 1'384'892 249'032 1'797'924 Distribution of balance sheet proﬁt 155'000 –248'164 –93'164 Capital reduction –10'000 –190'972 –200'972 Proﬁt 263'682 263'682

31.12.2007 154'000 1'348'920 264'550 1'767'470

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2.4 Shares and participation certiﬁcates Shareholders have a subscription As at December 31, 2007, the share capital amounted to 30'800'000 fully paid up shares made out to right with the issue of new shares, the bearer with a par value of CHF 5.–. With the exception of the LLB shares held by the Liechtenstei - which entitles them to sub- nische Landesbank and its subsidiaries (2'346'283 shares on 31 December 2007), all the shares are eli- scribe to new shares in proportion to the number of shares they gible for dividend. As at 31 December 2007, therefore, share capital eligible for dividend amounted to already hold. CHF thousands 142'269. In principle, all LLB shares are eligible for voting (one share, one vote). How - ever, on account of the regulations concerning the purchase of own shares (Art. 306a ff. PGR), the shares held by the Liechtensteinische Landesbank and its subsidiaries are not eligible for voting. There are no priority rights or similar entitlements. Shareholders have a subscription right with the issue of new shares, which entitles them to subscribe to new shares in proportion to number of shares they already hold. The Liechtensteinische Landesbank has not issued participation certiﬁcates.

2.5 Profit-sharing certificates The Liechtensteinische Landesbank has not issued profit-sharing certificates.

2.6 Transfer limitations and nominee registrations The Liechtensteinische Landesbank has issued only bearer shares; these are fully transferable.

2.7 Convertible bonds and options On 12 April 2006, the Liechtensteinische Landesbank made a convertible bond issue to the value of 270 million Swiss Francs with a term up to 12 April 2011. The coupon amounts to 1.65 percent per year, payable for the ﬁrst time on 12 April 2007. As a result of the share split in a ratio of 1:10 and the dividend of CHF 32.– per share approved by the General Meeting of Shareholders on 4 May 2007, the conversion price and the conversion ratio of the 1.65-percent convertible bond issued in 2006 were adjusted accordingly.

Validity Conversion ratio Conversion price Reason for adjustment Up to 9 May 2007 0.848572 CHF 1'178.45 – Split of bearer shares 10–17 May 2007 8.485362 CHF 117.85 in ratio 1:10 Dividend of CHF 32.– gross per bearer share From 18 May 2007 8.492569 CHF 117.75 for the 2006 business year

From 18 May to 7 April 2011 or up to the early redemption date of the bond issue, each bond with a denomination of CHF 1'000.– can be converted free of charge into 8.492569 bearer shares of the Liechtensteinische Landesbank having a par value of CHF 5.–. The conversion price therefore amounts to CHF 117.75. Fractions having a value in excess of CHF 1.– will be reimbursed in cash. The Liechtensteinische Landesbank may – while observing a period of notice of 30 days – redeem the convertible bonds under the following conditions at par plus accrued interest:

◆ at any time, provided that less than 15 percent of the original bond issue amount is outstanding; ◆ from 27 April 2009, provided the closing price of the LLB bearer share exceeds 130 percent of the applicable conversion price on 20 days during a period of 30 consecutive trading days. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 61

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The convertible bond of Liechtensteinische Landesbank is listed on the SWX Swiss Exchange (security number 2481854, ISIN number LI0024818549). More details regarding the convertible bond issue can be seen in the Notes to the consolidated ﬁnan cial statement of the LLB Group in the table «Debt issued and mortgage-backed securities» (page 140). As per 31 December 2007, the Liechtensteinische Landesbank had no options on its own shares outstanding.

3 Board of Directors

3.1 Members

a) Name, nationality, education and professional career

Name Year of birth Profession Nationality Business consultant and Hans-Werner Gassner 1958 certified public accountant FL Michael Ritter 1957 Attorney-at-law FL Helmuth Elkuch 1952 Business consultant FL Peter Harald Frommelt 1961 Business consultant and fiduciary FL / CH Ingrid Hassler-Gerner 1947 Asset manager FL Siegbert Anton Lampert 1965 Attorney-at-law and fiduciary FL Ewald Marxer 1950 Asset manager FL

Hans-Werner Gassner

Education: ◆ Licentiate in economics at the University of St. Gallen, 1983 ◆ Swiss federal diploma in accountancy, 1988 ◆ Dr. oec. HSG, 1989 ◆ Swiss Banking School, 1996

Professional career: ◆ Accountant at Neutra Treuhand Group, 1984–1989 ◆ Head Internal Audit at Liechtensteinische Landesbank, 1990–1998 ◆ Head Finances at Liechtensteinische Landesbank, 1998–2000 ◆ Partner at Gassner & Partner Wirtschaftsprüfung und Beratung AG, Balzers, since April 2000 ◆ Proprietor of Adcom Treuunternehmen reg., Balzers, since April 2000 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 62

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Michael Ritter

Education: ◆ Licentiate in law at University of Berne, 1983 ◆ Court training, 1984 ◆ Dr. iur., University of Berne, 1992 ◆ Attorney-at-law, 1995

Professional career: ◆ Member of the Liechtenstein government, Minister of Economics, 1993–2001 ◆ Deputy Head of Government, 1997– 2001 ◆ Partner at Ritter & Ritter law ﬁrm, Vaduz, since 2001 ◆ Partner at Ritter Consulting Establishment, Vaduz, since 2005

Helmuth Elkuch

Education: ◆ Licentiate in economics at the University of St. Gallen, 1975

Professional career: ◆ Mars Group, USA (various functions), 1976–1987 ◆ Managing Director Switzerland, Henkel Group, Germany, 1987–1991 ◆ CEO, Attisholz Group, Switzerland, 1991–1997 ◆ CEO, Sihl Gruppe, Switzerland, 1998–2004 ◆ Business consultant, since 2001

Peter Harald Frommelt

Education: ◆ Graduate in business administration HWV, 1985

Professional career: ◆ UBS, Zurich (various functions), 1986–1988 ◆ LGT Treuhand AG, Vaduz (various functions), 1988–1998 ◆ Partner at ABF Treuhand AG, Vaduz, since December 1998 ◆ Proprietor of the consultancy and commercial ﬁrm Citicon Establishment, Vaduz, since December 1998

Ingrid Hassler-Gerner

Education: ◆ Commercial diploma, 1964

Professional career: ◆ Managing Director, Pan Portfolio AG, Schaanwald, since 1989 ◆ Managing Director, PanFinanzPartner AG, Schaanwald, since 2005 ◆ Member of Parliament of the Principality of Liechtenstein, 1993– 2005 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 63

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Siegbert Anton Lampert

Education: ◆ Licentiate in law at the University of St. Gallen, 1991 ◆ Court training, 1991 ◆ L.L.M., University of Miami, 1995 ◆ Attorney-at-law, 1994

Professional career: ◆ Partner in the law ﬁrm Lampert & Schächle, Vaduz, since 1996 ◆ Managing Director of EUROYAL Treuhand Anstalt, Vaduz, since 1996

Ewald Marxer

Education: ◆ Commercial apprenticeship, 1970 ◆ Various assignments and training periods abroad, 1970– 1973

Professional career: ◆ Investment adviser, LGT Bank in Liechtenstein AG, Vaduz, 1973– 1989 ◆ Head Investment Counselling and Securities Administration, LGT Bank in Liechtenstein AG, Vaduz, 1989– 1996 ◆ Independent asset manager, since 1996 ◆ Co-proprietor of FARO Invest Vermögensberatung AG, Vaduz, since 1996

b) Executive / non-executive members All members of the Board of Pursuant to Art. 22 of the Liechtenstein banking law in connection with Art. 10 of the law concerning Directors are independent and serve the Liechtensteinische Landesbank, special bodies must be constituted for the direction, supervision in a non-executive capacity. and control of a bank. A member of the Board of Directors may not at the same time be a member of the Board of Management. All members of the Board of Directors of Liechtensteinische Landesbank are therefore non-executive members.

c) Independence All members of the Board of Directors are independent within the context of the SWX directives concerning corporate governance information. In the three years prior to period under report, no member of the Board of Directors was a member of the Board of Management of the Liechtensteinische Landesbank or a Group company. No member of the Board of Directors has a signiﬁcant business relationship with the Liechtensteinische Landesbank or with another Group company.

3.2 Other activities and commitments Michael Ritter has been a member of the board of the Liechtenstein Bar Association since 2004 and Siegbert Anton Lampert has served as judge at the State Court of the Principality of Liechtenstein since the end of 2004. Otherwise, the members of the Board of Directors are not involved in the management or supervisory boards of important Liechtenstein, Swiss or foreign private or public law corporations, establishments or foundations, nor do they exercise any permanent management or consultancy functions for important Liechtenstein, Swiss or foreign interest groups, nor do they perform official functions or hold political office. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 64

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3.3 Cross or interlocking interests This point has been deleted by the SWX Swiss Exchange.

3.4 Election and term of office

3.4.1 Principles governing election procedure Pursuant to Article 12 of the law concerning the Liechtensteinische Landesbank, the Board of Direc- tors of the Landesbank is composed of seven members, four of whom are appointed by the Landtag (Parliament) of the Principality of Liechtenstein, and three elected by the General Meeting of Share- holders. The Landtag elects the Chairman. The Board of Directors elects a Vice Chairman from among its members. The members of the Board of Directors are elected for a term of office of three years, whereby a year corresponds to the period from one General Meeting to the next. Re-election is possible. Persons aged 70 or over may not be members of the Board of Directors. With the exception of the provision in Art. 14, para. 1, according to which four board members (including the Chairman) are to be appointed by the Landtag of the Principality of Liechtenstein, and three elected by the General Meeting of Share- holders, the Landesbank's Statutes – these can be seen at www.llb.li/statutes – do not stipulate any other conditions relating to the election procedure. In practice, however, the members of the Board of Directors are elected / appointed on a staggered and individual basis. In the year under report, no new or re-elections were held.

3.4.2 First-time election and remaining term of office

First-time Name Elected by appointment Elected until Hans-Werner Gassner Landtag 2006 2009 Michael Ritter Landtag 2002 2009 Helmuth Elkuch Landtag 2001 2009 Peter Harald Frommelt Landtag 2002 2009 Ingrid Hassler-Gerner General Meeting 2005 2008 Siegbert Anton Lampert General Meeting 2002 2008 Ewald Marxer General Meeting 2002 2008

3.5 Internal organisation

3.5.1 Separation of tasks of the Board of Directors

Name Function Member of Hans-Werner Gassner Chairman Appointments and Compensation Committee * Michael Ritter Vice Chairman Appointments and Compensation Committee Helmuth Elkuch Member Audit and Risk Committee * Peter Harald Frommelt Member Audit and Risk Committee Ingrid Hassler-Gerner Member Siegbert Anton Lampert Member Appointments and Compensation Committee Ewald Marxer Member Audit and Risk Committee

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Dr. Hans-Werner Gassner is the Chairman of the Board of Directors. Dr. Michael Ritter is the Vice Chairman. The Secretary (recorder of the minutes) is Angelica Bienz (Head Internal Audit).

3.5.2 Composition of all Board of Directors committees, their tasks and terms of reference The Board of Directors delegates The Board of Directors may delegate a portion of its duties to speciﬁc committees. To support the a portion of its tasks to the Board of Directors in performing its tasks, the following standing committees exist: the Audit and Audit and Risk Committee as well as to the Appointments Risk Committee as well as the Appointments and Compensation Committee. As preparatory bodies, and Compensation Committee. these two committees deal in detail with the tasks assigned to them, submit the results of their activities to the Board of Directors, and make proposals if decisions are required. The Board of Directors is entitled to transfer decision-making authority to the committees. However, so far this has not occurred. Accordingly, the two committees act only in an advisory capacity. They have no authority to take decisions. The powers and responsibilities of The committee members must have the knowledge necessary for the scope of duties and tasks. the committees are speciﬁed All committee members must be independent. The Board of Directors issues terms of reference for in terms of reference. The committee members must have the necessary each committee. knowledge for their duties and tasks. The tasks and terms of reference of the two committees are as follows:

Audit and Risk Committee The Audit and Risk Committee is composed of Helmuth Elkuch (Chairman), Peter Harald Frommelt and Ewald Marxer. The Audit and Risk Committee was established in 1996, it

◆ supports the Board of Directors in fulfilling the duties and responsibilities vested in it by banking law with respect to the direction, supervision and control of the company; ◆ monitors the effectiveness of the internal and external auditors, and their cooperation; ◆ evaluates the effectiveness of the internal control system with reference to risks on the basis of internal and external assessment reports; ◆ critically reviews individual company and Group financial accounts and the publishing of specific interim financial statements, and decides whether individual company and Group financial statements can be forwarded to the Board of Directors for submission to the General Meeting; ◆ evaluates the performance and fees of the external auditors, and checks their independence; ◆ examines the compatibility of auditing activities with possible consulting mandates.

Appointments and Compensation Committee The Appointments and Compensation Committee consists of Dr. Hans-Werner Gassner (Chairman), Dr. Michael Ritter and Siegbert Anton Lampert. This Committee has the following duties and responsibilities:

◆ development of criteria for proposals concerning the selection, election and re-election of members of the Board of Directors; ◆ development of criteria for proposals concerning the selection and assessment of the members of the Board of Directors to be elected at the General Meeting, as well as the submission of election proposals to the Board of Directors for the attention of the General Meeting; ◆ formulation of successor plans and their periodic review both in the event of the age-related and the ad hoc stepping down of members of the Board of Directors; ◆ development of criteria for proposals concerning the selection and appointment of members of the Board of Management for the attention of the Board of Directors; LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 66

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◆ formulation and annual review of the principles and regulations for the compensation of the members of the Board of Directors, the members of the Board of Management and the staff of the LLB for submission to the Board of Directors; ◆ formulation of proposals for the compensation of members of the Board of Directors, the members of the Board of Management and the staff of the Internal Audit Department for submission to the Board of Directors in accordance with existing principles and regulations; ◆ annual review of the compensation of the members of the Board of Directors and the members of the Board of Management for submission to the Board of Directors in accordance with existing principles and regulations.

3.5.3 Work methods of the Board of Directors and its committees The Board of Directors passes In general, the Board of Directors convenes a meeting once a month. A meeting must last at least half its resolutions by a simple majority a day. During the 2007 business year, the Board held 16 meetings. This figure includes two seminars of the votes present. A quorum of the Board of Directors is consti- held with the Board of Management. All board members were present at the meetings. The Board is tuted when at least half of its convened by in vitation of its Chairman, or if he is absent, by its Vice Chairman. A quorum of the Board members is present. of Directors is constituted when at least half of its members is present. The Board of Directors passes its resolutions by a simple majority of the votes present. In the event of a tie, the Chairman has the casting vote. Members of the Board of Directors are obliged to abstain from voting when matters are dealt with, which affect their own interests or those of persons or legal entities with whom they are closely associated. In general, the Chairman of the Board of Management attends the meetings of the Board of Directors. The other members of the Board of Management attend meetings of the Board of Directors when matters involving them are dealt with. No external experts were called in during the 2007 business year. In general, the Audit and Risk Committee convenes once a quarter; the external auditors are present at a meeting at least once a year, i. e. to discuss the audit report stipulated by banking law. In 2007, five half-day meetings were held. All committee members were present at all the meetings. Generally, the Chairman of the Board of Management and the Head of Internal Audit participate in the meetings in an advisory capacity. Representatives of the committees involved in risk management participate in the meetings as required, but particularly to provide periodic reports. No external experts were called in during the 2007 business year. The Appointments and Compensation Committee meets as often as business requires, but at least once a year. In 2007, six meetings lasting a maximum of half a day were held. All committee members were present at the meetings. The Chairman of the Board of Management participa ted in one meeting because one point on the agenda concerned the Board of Management. During the 2007 business year, external experts were called in to assess the salary and profit-related bonus system. The Chairmen of the two committees inform the full Board of Directors about the agenda dealt with at the last committee meeting, and submit proposals for those points requiring decisions. Further more, they submit an activity report to the full Board of Directors once a year on the work of the two committees.

3.6 Deﬁnition of areas of responsibility The Board of Directors is responsible The Board of Directors is responsible for the direction, supervision and control of the company. It is for the direction, supervision and responsible for all duties and is vested with all powers not reserved to other corporate bodies by the control of the company. It appoints the members of the Board of law, the statutes or other internal regulations. In addition to the duties and responsibilities speci- Manage ment and the committees ﬁed in the statutes – which can be obtained at www.llb.li/statutes – the Board of Directors has the as well as the staff of the Internal following non-transferable duties and responsibilities: Audit Department.

◆ the formulation and periodic review of medium and long-term corporate strategy and the allocation of resources to attain the objectives speciﬁed in the corporate strategy; LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 67

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◆ the approval of the budget; ◆ the definition of management policy; ◆ the appointment of ◆ the members of the committees from among its members; ◆ the Chairman and other members of the Board of Management; ◆ the staff of the Internal Audit Department; ◆ the discussion of the reports submitted by Internal Audit and the external auditors as well as the approval of measures implemented on the basis of audit reports; ◆ the duty to keep itself regularly informed about the course of business and special occurrences, in particular by: ◆ discussing and approving the quarterly reports with comments on the development of business, earnings situation, balance sheet development, equity capital requirements and risk situation; ◆ ensuring prompt information in the event of imminent risk threats; ◆ the issuing of guidelines and regulations concerning the principles of risk management as well as the accountabilities and the processes for the approval of risk-related transactions, whereby in particular market, credit, default, process, liquidity and reputation risks as well as operational and legal risks are to be identified, limited and monitored; ◆ the decision regarding the acquisition or sale of participations in other companies as well as the establishment or liquidation of subsidiaries and the appointment of board members, who are employees of the Liechtensteinische Landesbank; ◆ the decision regarding the setting up and closure of bank offices, branches and representative offices; ◆ the decision regarding the initiation of legal actions as well as judicial and extrajudicial settlements involving amounts of over CHF 10 million; stipulation of credit competences and decisions regarding large commitments (including cluster risks) and loans to corporate bodies, as well as the issuing of regulations regarding transactions for the account of corporate bodies and employees; ◆ the stipulation, at least once a year, of overall commitment and individual limits; ◆ the approval of the annual report and decisions regarding all other proposals to the General Meeting; ◆ the formulation of the principles governing the compensation system including stipulation of the salaries of the members of the Board of Management and the staff of the Internal Audit Department; ◆ the stipulation of competence to authorise expenditure and decisions concerning business dealings that exceed specified limits; ◆ the decision regarding the exercising of external mandates and activities by members of the Board of Management and the Internal Audit Department.

The Board of Management is the The Board of Management is the supreme governing body of the company and it represents the com- supreme governing body of the company vis à vis external parties, provided the Board of Directors does not appoint a special delegation pany and it represents the company for speciﬁc cases. In addition to the duties and responsibilities speciﬁed in the statutes – which can vis à vis external parties. It ensures that the resolutions of the Board of be obtained at www.llb.li/statutes – the Board of Management is responsible, in particular, for the Directors are implemented. following:

◆ ensuring that the resolutions of the Board of Directors and its committees are implemented; ◆ submitting suggestions for the organisation of business operations in general, and proposals for speciﬁc business matters, to the Board of Directors and the responsible committees, provided these matters exceed the scope of authority of the Board of Management, with respect to; LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 68

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◆ the formulation and periodic review of medium and long-term corporate strategy and the allocation of resources to attain the corporate objectives; ◆ participations, subsidiaries, business offices, branches and representative offices; ◆ annual income and expenditure budget; ◆ preparation of the annual report; ◆ implementing of efficient processes and procedures as well as an effective internal control system to avoid and limit risks of all kind; ◆ appointing persons (excluding staff of the Internal Audit Department) to sign on behalf of the Liechtensteinische Landesbank as authorised signatories, bank officers, assistant directors, deputy directors and directors in accordance with legal provisions; ◆ regular reporting to the Board of Directors, the responsible committees and above all to the Chairmen regarding the development of business, extraordinary occurrences, as well as the presentation of the draft annual report; ◆ issuing of the rulings and directives necessary for the conduct of business by the Liechtensteinische Landesbank, its branches and representative offices; ◆ deciding on cross-business unit transactions or business transactions which exceed the joint authority vested in the head of a business unit and the Chairman of the Board of Management; ◆ coordinating the management and administration of subsidiaries and participations; ◆ stipulating take up limits for securities and value rights within the scope of primary market transactions; ◆ coordinating the product offer of Liechtensteinische Landesbank and specifying the pricing policy as well as conditions for the offered products and services; ◆ deciding on or issuing rulings governing the exercise of external mandates and activities by employees, where this is not reserved to the authority of the Board of Directors; ◆ performing representation duties as a full corporate body and/or as individual members of the Board of Management; ◆ signing of cooperation and partnership agreements as well as membership of professional bodies and associations; ◆ deciding on the acquisition and sale of properties within the scope of the general power to authorise expenditure.

3.7 Information and control instruments vis à vis the Board of Management The Chairman of the Board of Directors participates once a month in the meetings of the Board of Management in an advisory capacity. In general, the Board of Directors is kept informed by the Chairman of the Board of Management and the minutes of the meetings of the Board of Management. The Chairman of the Board of Management generally attends the meetings of the Board of Directors in an advisory capacity. He informs the Board of Directors about the development of business, about extraordinary occurrences and answers any questions the members of the Board of Directors have. The other members of the Board of Management attend meetings of the Board of Directors when matters involving them are dealt with. The Chairman of the Board of Management usually participates in the meetings of the Audit and Risk Committee. Every member of the Board of Directors can request information about all matters relating to the Liechtensteinische Landesbank at the meetings. Outside board meetings, every member of the Board of Directors can request information about the development of business from members of the Board of Management and, with the approval of the Chairman of the Board of Directors, about individual business transactions. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 69

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The Chairman of the Board of The Chairman of the Board of Management also informs the Chairman of the Board of Directors out- Management reports to the Board side board meetings about the development of business and extraordinary occurrences. The Chair- of Directors and informs it about extraordinary occurrences. man of the Board of Directors is responsible for informing the full Board of Directors about extraordinary occurrences. Monthly reports concerning the course of business are submitted to the Board of Directors. The management information system (MIS) used for this purpose supplies both quantitative and qualitative historical and future-related data. It enables the Board of Directors to be kept informed in concentrated form about the most important business developments, earnings situation, balance sheet structure, liquidity and risk situations. As an independent unit, Internal In exercising its supervision and control functions, the Board of Directors is also assisted by the Audit supports the Board Internal Audit Department, which is subordinate directly to the Board. As an independent body, it of Directors in fulfilling its supervisory and control function. examines in particular the risk management, as well as the effectiveness of the internal control and steering system and the management processes. The powers and duties of the Internal Audit are stipulated in a special set of regulations (terms of reference). The annual auditing activity is defined in accordance with the risk and controlling criteria and is guided by a long-term auditing plan. To avoid duplication of work and to optimise controls, the auditing plans are coordinated with the statutory auditors. The short-term auditing plan and the personnel requirement plan are reviewed by the Audit and Risk Committee and submitted to the Board of Directors for approval. In addition, Internal Audit regularly monitors whether the deficiencies found have been rectified and whether its recommendations have been implemented, and submits reports about this to the Audit and Risk Committee. At the LLB Group great importance is attached to proactive, comprehensive opportunity/risk management. The Board of Directors has issued guidelines and regulations concerning the principles of risk management, as well as the responsibilities and procedure for approval of business transactions involving various levels of risk. The Group Risk Controlling Staff Department submits a report every six months to the Board of Directors regarding the market price, lending, default, business procedure, liquidity and reputation risks, as well as operational and legal risks. The risk management specialists strive to create and maintain a uniform risk culture and risk approach. This establishes the fundamentals for an appropriate risk/return profile and an optimum allocation of capital. All LLB employees are obliged to comply with all legal, regulatory and internal regulations. In doing so, they are supported by the Group Compliance Staff Department, whose tasks and principles are specified in a set of regulations. Its responsibilities include the systematic training of LLB staff and the issuing of detailed compliance instructions, as well as the management of effective control and monitoring instruments. The Board of Directors, with the assistance of the Audit and Risk Com mit - tee, is responsible for the supervision and control of the compliance function. At least once a year, the Board of Directors reviews whether the compliance standards applicable to it and the company are sufficiently well known and whether they are permanently observed.

4 Board of Management

4.1 Members With the aim of focussing even more intensively on the needs of its clients, Liechtensteinische Landesbank AG introduced a new organisational structure on 1 January 2007, which also involved changes in the Board of Management. Benno Büchel and Theodor Stäuble, who made a decisive contribution to the management of the LLB over many years, stepped down from the Board of Manage - ment per 31 December 2006. The Board of Management of the parent bank, which also forms the Group Executive Board, comprises three members since 1 January 2007: Dr. Josef Fehr (Chairman), Elfried Hasler (Head Institutional Clients and Operations & Services) and Norman Oehri (Head Domestic Clients and International Clients). LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 70

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Member of Name Year of birth Nationality Function / Area of responsibility Board since 1992, since Josef Fehr 1957 FL Chairman 2000 Chairman Member, Head Institutional Clients Elfried Hasler 1965 FL and Operations & Services 2000 Member, Head Domestic Clients Norman Oehri 1951 FL and International Clients 2000

Josef Fehr

Education: ◆ Licentiate in law at the University of Fribourg, 1981 ◆ Dr. iur., University of Fribourg, 1984 ◆ Swiss Banking School, 1996

Professional career: ◆ Legal counsel at the Liechtensteinische Landesbank, 1986–1992 ◆ Head of Trading Division, Liechtensteinische Landesbank, 1992–1998 ◆ Head of Private Clients Division, Liechtensteinische Landesbank, 1998–2000 ◆ Member of the Board of Management, Liechtensteinische Landesbank, 1992–2000 ◆ Chairman of the Board of Management, Liechtensteinische Landesbank, 2000–2006 ◆ Chairman of the Board of Management and Group Executive Board, Liechtensteinische Landesbank, since 2007

Board of Directors mandates in the Liechtensteinische Landesbank group companies: ◆ Liechtensteinische Landesbank (Switzerland) Ltd. (Chairman) ◆ LLB Treuhand AG (Vice Chairman) ◆ LLB Asset Management AG (Vice Chairman) ◆ LLB Fund Services AG (member) ◆ LLB Fondsleitung AG (member) ◆ Bank Linth LLB AG (member) ◆ Jura Trust AG (member)

Other functions: ◆ Chairman of the Liechtenstein Bankers Association ◆ Member of the Executive Board of the Liechtenstein Chamber of Industry and Commerce LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 71

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Norman Oehri

Education: ◆ Federally qualiﬁed bank professional, 1978

Professional career: ◆ Investment advisor / asset manager at a large Swiss bank in Zurich, Geneva, London and St. Gallen, 1972– 1980 ◆ Investment advisor / asset manager, Liechtensteinische Landesbank, 1980– 1987 ◆ Head of Capital Investments Department, Liechtensteinische Landesbank, 1987– 2000 ◆ Head of Private Banking Counselling Division, 2000– 2006 ◆ Member of the Board of Management, Liechtensteinische Landesbank, 2000– 2006 ◆ Member of the Board of Management and Group Executive Board, Liechtensteinische Landesbank, since 2007

Board of Directors mandates in the Liechtensteinische Landesbank group companies: ◆ LLB Treuhand AG (Chairman) ◆ LLB Asset Management AG (member) ◆ LLB Fund Services AG (Vice Chairman) ◆ LLB Fondsleitung AG (Vice Chairman) ◆ Bank Linth LLB AG (member) ◆ Jura Trust AG (Chairman) ◆ swisspartners Investment Network AG (member) ◆ swisspartners (Liechtenstein) AG (member)

Board of Directors mandate in the following Liechtensteinische Landesbank participation: ◆ MBPI AG (member)

Other functions: ◆ Member of the Board of Directors of IFAG Institutionelle Fondsleitung AG LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 72

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Elfried Hasler

Education: ◆ Graduate in business administration, HWV, 1989 ◆ Federally qualified financial analyst and asset manager, 1993 ◆ Federally qualified finance and investment expert, 1998

Professional career: ◆ Head of Research, VP Bank, 1989– 1997 ◆ Head of Asset Management Division, Liechtensteinische Landesbank, 1997– 2000 ◆ Head of Private Banking Products Division, Liechtensteinische Landesbank, 2000– 2006 ◆ Member of the Board of Management, Liechtensteinische Landesbank, 2000– 2006 ◆ Member of the Board of Management and Group Executive Board, Liechtensteinische Landesbank, since 2007

Board of Directors mandates in the Liechtensteinische Landesbank group companies: ◆ Liechtensteinische Landesbank (Switzerland) Ltd. (Vice Chairman) ◆ LLB Treuhand AG (member) ◆ LLB Asset Management AG (Chairman) ◆ LLB Fund Services AG (Chairman) ◆ LLB Fondsleitung AG (Chairman) ◆ Bank Linth LLB AG (Vice Chairman) ◆ Jura Trust AG (member) ◆ swisspartners Investment Network AG (member)

4.2 Other activities and commitments Apart from the mandates speciﬁed in Point 4.1, no other important commitments exist.

4.3 Management contracts The Liechtensteinische Landesbank has not concluded any management contracts.

5 Compensation, participations and loans

5.1 Contents and stipulation procedure

5.1.1 Responsibility and stipulation procedure The Board of Directors approves The Appointments and Compensation Committee (see Point 3.5), which is composed solely of inde- the regulations governing the com- pendent members of the Board of Directors, prepares the principles and regulations governing the pensation of its members and those of the Board of Management. compensation for the members of the Board of Directors and the Board of Management, as well as the proposed amount of the compensation for the members of the Board of Directors and the Board of Management. The Board of Directors in corpore approves the principles and regulations governing the compensation of the members of the Board of Directors and speciﬁes the amount of the compensation for the members of the Board of Management and its members. The members of the Board of Management are not present at the discussion and decision concerning the amount of the compensation for them. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 73

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No advisor is called in for the formulation of compensation structure. Once a year, the Board of Di- rectors prepares an overview of the compensation of board members, board chairman and manage - ment executives derived from publicly available sources and taking into consideration comparable banks in Liechtenstein and Switzerland.

5.1.2 Fundamentals The criteria determining the The principles and regulations governing the compensation of the members of the Board of Directors compensation of the members of and the Board of Management are reviewed periodically. The amount of the compensation for the the Board of Directors and the Board of Management comprise, members of the Board of Directors and the Board of Management is stipulated each year. on the one hand, quantitative The principal criteria determining the compensation of the members of the Board of Directors corporate objectives and, on the and the Board of Management comprise, on the one hand, quantitative objectives (above all, the busi- other, indi vidual targets. ness result attained) and, on the other, individual targets. The amount of the proﬁt-related component depends primarily on the attainment of the quantitative objectives.

5.1.3 Elements The compensation for members of the Board of Directors comprises a fixed compensation fee, meet - ing allowance (for meetings other than board meetings) and a profit- related component, the size of which depends on the LLB Group's business result. The profit-related component is paid in cash. The compensation system does not incorporate any severance payment in the event of the ending of a mandate. The employment relationship of members of the Board of Management is stipulated in individual employment contracts. The period of notice is either three or four months. The contracts of employment do not contain any special clauses in the event of a termination of employment following a change in control of the company. The compensation for members of the Board of Management is composed of a fee or basic salary plus a performance or profit-related remuneration component. The basic salary is paid in cash. The profit-related component of compensation is contingent upon the business result of the LLB Group. Pay ment is made in cash and through the allocation of LLB shares. The cash/shares allocation is defined in internal regulations as follows: three quarters LLB shares and one quarter cash payment. The members of the Board of Management do not have the right to specify the share/cash ratio. The price per share for the share-based remuneration component is calculated on the basis of the average share price in the last quarter of the financial year. The issued shares are subject to a blocked period of three years. If the share holder leaves the bank's employ, the blocked period is lifted. Apart from the allocation of shares as a profit-related component of compensation, there are no other share plans. The entire profit-related remuneration amount is reported on an accrual basis in the 2007 profit and loss account. Payment is made, however, only in the following year. The Liechtensteinische Landesbank extends the preferential conditions customary in the banking industry to all its staff (including management) on bank products. This generally takes the form of limited preferential interest rates on mortgage loans and credit balances. Standard market condi - tions apply to all transactions made by the Board of Directors with the bank. In connection with the stepping down of members of Board of Management, an amount of CHF 623'151 was transferred from the Employers Foundation to the staff pension fund to finance future retirement pension payments. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 74

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5.2 Transparency of compensation, participation and loans of issuers domiciled abroad The Liechtensteinische Landesbank has its registered office in Vaduz, Liechtenstein. In principle, it is not subject to Art. 663bbis of the Swiss Code of Obligations. However, to enable investors nevertheless to obtain the corresponding information, the SWX Swiss Exchange obliges issuers, whose registered office is not in Switzerland, to apply the provisions of Art. 663bbis Code of Obligations in the same manner within the scope of corporate governance reporting. Details of the compensation and participations of members of the Board of Directors and the Board of Management, as well as loans to them can be found in the Notes to the ﬁnancial statement of the LLB Group in «Transactions with closely associated companies and persons» on pages 149 to 152.

6 Shareholders' participation rights

6.1 Voting right limitation and representation At the General Meeting of Share- The Liechtensteinische Landesbank has issued bearer shares. At the Landesbank's General Meeting holders, each share carries of Shareholders, each share carries one vote. In accordance with Art. 306a ff. of personal and com - one vote. A quorum is present if half of the share capital is pany law, the LLB shares held by the Liechtensteinische Landesbank itself and its subsidiaries represented. (2'346'283 shares per 31 December 2007) are not eligible to vote. At the General Meeting, each shareholder can vote his/her own shares or authorise a third party to vote them by proxy.

6.2 Statutory quorum At the General Meeting, a quorum is present if half of the share capital is represented. Provided that legal provisions do not stipulate to the contrary, the General Meeting passes its resolutions and de - cides its elections by an absolute majority of the votes cast.

6.3 Convening of the General Meeting The Board of Directors convenes an ordinary General Meeting by invitation with a period of notice of three weeks. The meeting must be held within six months following the end of a business year. The invitation to the General Meeting is to be publicised in the official gazettes. The invitation must list the agenda to be dealt with at the meeting, the proposals of the Board of Directors and, in the event of elections, the names of the proposed candidates. An extraordinary General Meeting may be convened by the Board of Directors if this is in the urgent interest of the Liechtensteinische Landesbank, or at the request of one or more shareholders representing ten percent of the share capital.

6.4 Agenda The Board of Directors speciﬁes the agenda for the General Meeting in accordance with the Liechten - steinische Landesbank's statutes. The statutes can be read at www.llb.li/statutes. Liechtenstein equities law contains no regulations comparable in nature to the Swiss legal provisions (Art. 699, para. 3, Code of Obligations), which stipulate the rights of shareholders in setting the agenda for General Meetings. However, legally stipulated minority rights do exist which ensure that signed and detailed items that are submitted to the Board of Directors may be placed on the agenda for discussion and resolution. At the present time, it is not possible to amend the statutes in favour of improv ing shareholders' rights in setting the agenda on account of the applicable regulations of Liechtenstein company law. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 75

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6.5 Registration in the company's share register The Liechtensteinische Landesbank has issued only bearer shares.

7 Change of control and defensive measures There are no regulations compar- The Liechtensteinische Landesbank is a banking institute licensed under Liechtenstein law with its able with the Swiss provisions registered office in the Principality of Liechtenstein. The regulations of the Swiss stock exchange law regarding opting out or opting up. Furthermore, there are concerning public purchase offers are not therefore applicable to the Liechtensteinische Landesbank no change of control clauses. as a possible target company. The Landesbank's statutes contain no regulations comparable with the Swiss provisions regarding opting out or opting up. Likewise, there are no change of control clauses in favour of the Board of Management, the Board of Directors or other senior executives.

8 Independent auditors

8.1 Duration of mandate and term of office of the auditor in charge

8.1.1 Date of acceptance of existing auditing mandate Pricewaterhouse-Coopers AG, St. Gallen has served as the independent auditors of the Liechten- stei nische Landesbank according to company and banking law since 1998. The auditing mandate was taken over in 1998 from Revisuisse Price Waterhouse AG, St. Gallen and its predecessor Revisa Treuhand AG, St. Gallen. Pursuant to person and company law and banking law, the independent auditors are appointed by the General Meeting at the proposal of the Board of Directors for the period of one year. They perform their work in accordance with the legal provisions, and according to the principles of the profession. The independent auditors regularly report to the Board of Directors, the Audit and Risk Committee, and the Board of Management about their ﬁndings and submit suggestions for improvements to them.

8.1.2 Term of office of the auditor in charge of the current auditing mandate Hans Wey has been the responsible auditor in charge since the General Meeting 2007.

8.2 Auditing fee In the 2007 business year, PricewaterhouseCoopers AG invoiced the companies of LLB Group for CHF thousands 2'006 in respect of auditing fees.

8.3 Additional fees For other services, PricewaterhouseCoopers AG invoiced the companies of the LLB Group for CHF thousands 1'222. Of this total, CHF thousands 951 related to advisory services in connection with the takeover offer for Bank Linth.

8.4 Information instruments of the external auditors The Audit and Risk Committee is The Chairman of the Board of Directors and the Audit and Risk Committee are responsible – in responsible for the quality of the inter- cooperation with the Internal Audit Department – for the supervision and control of the external nal and external auditors. auditors. The Audit and Risk Committee is responsible for ensuring the quality of the internal and external audit functions and for their professional cooperation. Both the internal and external auditors submit their reports to the Audit and Risk Committee. Important ﬁndings in the reports of the internal and external auditors since the last meeting are addressed at the next meeting of the Audit and Risk Committee. The head of Internal Audit is responsible for providing the relevant information. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 76

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Representatives of the external auditors participated in two meetings of the Audit and Risk Com - mittee during the report period. The head of Internal Audit attended all the meetings of the Audit and Risk Committee and the full Board of Directors. The Audit and Risk Committee evaluates the performance of the internal and external auditors in their absence annually. The cost planning and its observance are also reviewed and discussed annually. Eduard Lenz served as auditor in charge from 2002 to 2007. The last time a change occured in the independent auditor in charge was at the General Meeting in 2007. The external auditors have direct access to the Board of Directors at all times. They hold regular discussions with the Chairman of the Board of Directors.

9 Information policy The Liechtensteinische Landesbank is committed to providing its shareholders, clients, staff and the general public with comprehensive and regular information. This ensures that all stakeholders are treated equally and fairly. By nurturing these ties consistently, by building up and preserving rela - tionships based on trust with the financial community on the one hand, and with the media and all other interested parties on the other, we assure equality of opportunity and transparency. Our most important information The most important information media of Liechtensteinische Landesbank are its internet web - media are our website, the annual and site www.llb.li, as well as its annual and semi-annual reports, media communiqués, its financial semi-annual reports, media com- muniqués, and the General Meeting result presentation for media and analysts, and its General Meeting of Shareholders. The Liechten - of Shareholders. steinische Landesbank has not compiled a compensation report for the 2007 business year in line with Point 8 of Appendix 1 (Recommendations concerning the compensation of the board of directors and management board) of the «Swiss Code of Best Practice for Corporate Governance» of economiesuisse. Details of the compensation and participations of members of the Board of Directors and the Board of Management, as well as loans to them can be found in the Notes to the financial statement of the LLB Group in «Transactions with closely associated companies and persons» on pages 149 to 152. As a listed company, the Liechtensteinische Landesbank is obliged to publish price-relevant information (ad hoc publicity, Art. 72 of the exchange listing regulations). To receive ad hoc announcements in accordance with the directives for ad hoc publicity automatically, an interested party can re - gister at www.llb.li/registration. Ad hoc announcements are published under the link www.llb.li/ mediacommuniques.

Agenda 2008

Date Time Event Publishing of 2007 business result, 18 March 2008 7.00 a.m. release of online annual report 2007 at www.llb.li 2007 business result advertisement in the «Liechtensteiner Vaterland», the «Liechtensteiner Volksblatt», the «NZZ» and 19 March 2008 in «Finanz und Wirtschaft» 16 April 2008 Publishing of printed annual report 2007 9 May 2008 6.00 p.m. General Meeting of Shareholders 14 May 2008 Payment of dividend Publication of interim financial statement 2008, publishing of printed interim financial statement 2008 and release 29 August 2008 7.00 a.m of online interim financial statement 2008 at www.llb.li 2008 interim financial result advertisement in the «Liechtensteiner Vaterland», the «Liechtensteiner Volksblatt», 30 August 2008 the «NZZ» and in «Finanz und Wirtschaft» LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 77

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If you have any questions regarding the Liechtensteinische Landesbank, please contact the following persons who are responsible for investor relations:

Dr. Josef Fehr Chairman of the Board of Management Telephone +423 236 82 83 Fax +423 236 87 71 E-mail [email protected]

Dr. Cyrill Sele Head Group Corporate Communications Telephone +423 236 82 09 Fax +423 236 84 69 E-mail [email protected]

10 Important changes since the balance sheet date

Expansion of equity stake in Jura Trust AG On 1 July 2005, Liechtensteinische Landesbank acquired a majority shareholding of 61 percent in Jura Trust AG, a Liechtenstein trust company. In the purchase agreement it was speciﬁed that the Landes - bank would take over the remaining 39 percent of the share capital on 1 January 2008. On account of this purchase obligation, in accordance with IFRS standards, the LLB Group has already had to consolidate 100 percent of the share capital. Pursuant to the agreement, the equity stake was increased from 61 to 100 percent from 1 January 2008. This step sets the seal on the two companies' long cooperation and enables the strong partnership between the Group companies LLB Treuhand AG and Jura Trust AG to be intensiﬁed. Jura Trust AG will continue to do business as an independent com pany under the Jura Trust AG brand. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 78

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Ideals authentic fresh _ personal experienced dedicated distinguished

« Each person is responsible for him or herself, for his or her life and for his or her deeds. » 82 Ideals

Ideals authentic fresh personal _ experienced dedicated distinguished

Fred Mayer Story-teller with the camera and publisher of several photography books

« Many experiences are important. But one lesson that goes really deep is always to get back on your feet after you've fallen down.» personal 81

personal Being there where you are needed. Taking responsibility for clients in dealing with risks and resources. All of this is not only an integral part of a philosophy, it is an essential requirement for a bank that wants to be close to its clients. That's why we are regarded as a very personal bank. One that multiplies not only its clients' wealth but also their trust.

1 2 A discussion with: enormous amount of time being on the spot. Now, unfortunately, Pope Ratzinger doesn't would be another topic. There is a rabbi there, year of birth 1933, 3 4 Fred Mayer, I had to make a decision between a happy life want to know about that. who spends his time solely exploring possibili- from Zurich, story-teller with the 5 6 camera and publisher of several with my family in Zurich or as a photographer Do you have people you admire, look up to? No. ties for modern technology to be used by ortho- photography books in New York. I decided in favour of a nice life – Are you someone to admire? I don't know. dox Jews in such a manner that the prohibitions the third best decision of my life. But I hope not. of the Halacha laws could be avoided. He has Your pictures are known around the world, So what was the second best and the best? Your grandson, Tim Oliver, has broken off invented a kosher generator, ink that disapears, in fact they are considerably more famous than The best was to marry my wife. The second best an apprenticeship as a photographer to become a and is the author of widely read books such as you are yourself. Thank goodness! was to father my daughter. car mechanic. Don't you wish – just for once – that « The Sabbath and Elec tri city» and « Obeying the How did it all start? How did you become a How would you describe Fred Mayer as a he might have wanted to be like his grandfather? Commandments in Space ». I really want to get photographer? A friend from the rowing club told person? Which Mayer do you mean? No. It's his life and his personal decision. to know him. me that photographers get to meet loads of How many are there then? Two. The private Didn't that make the photographer half It sounds as if a life of quiet retirement pretty girls. Mayer and the photographer. When I'm work- of you angry? No. And it didn't make the private wouldn't appeal to you? If I wanted pre-pro- Was that usually the way one chose a pro- ing I'm a different person - very, very forceful and half of Mayer angry either. grammed idleness, I would have become a rail- fession at that time? No, but it ﬁt my desire to be stubborn. Sometimes one Mayer takes a look What could make the private half of Mayer wayman or postman. When I think of that different from others. at the other and thinks: what a crazy guy in a angry? Politics, for example. at all, it's in terms of what others do when they Wasn't it quite usual at that time for crazy world. Why? Politics cries out for democracy. But are re tired. parents to have a say in what profession their chil- So what were the crazy moments? Hunting the people can't vote on the most important You will have to explain that to me briefly. dren chose? Each person is responsible for him walrus in Siberia with local people in boats things. The world is run by 50 people. That's like I'm interested in people who once were very or herself, for his or her life and for his or her made only of animal skins; accompanying hun- a formula one race: three drivers have the good important, and who previously had a lot to say deeds. That was my father's view too, so he let ters who catch tigers with their bare hands. cars, all the rest are just extras. in the running of the world, but about whom us make our own decisions. Once I photographed an Easter procession in a It's been said of you that you would have to we now hear nothing. I would like to see how Did you have to think long and hard about Russian-Orthodox church. I was kneeling on live until you were at least 100 to be able to do all they live now, what they are doing, what they what you wanted to do? No. I've always made the ﬂoor when a metropolitan bishop came the things you still want to. So what are your big- think and how they spend their time. my decisions quickly and on the basis of my gut along chanting and dipping a palm frond in holy gest plans? That's true, there are still quite a few Well, I wish you all the best and lots of feeling. I can't act any other way. You see, I water. Suddenly he switched his chant to « Ob- things I would like to do. I would like to photo- pleasure with all these projects. Thank you for this don't have much in my head. And in the mean- jektivo, Objektivo… » and looked directly at me. graph the new Russian space programme. A lot interview. You're welcome. time I also have a plastic valve in my heart. So Luckily, I realised what he meant: I should pro- of things are going on there now, which weren't all that's left is my gut. tect my lens from the holy water. possible in the past; for example, the official co - You were associated with the Magnum Religion is a recurring theme in your work? operation between the Americans and the Rus- photo agency for 40 years? A long relationship, That's right. I've worked in Israel, in Russia and sians. And there are many exciting developments yes. But not married. I worked with and for for many years in the Vatican. I even had an in the USA that I could explore. Depen d ing on Magnum, but not as a full member. If you are audience with Pope Wojtyla, who praised my the outcome of the presidential election, there married to Magnum, you have to invest an book on the Vatican and urged me to carry on. could be great changes on the way. Jerusalem personal 81

Ideals authentic fresh personal _ experienced dedicated distinguished

Fred Mayer Story-teller with the camera and publisher of several photography books

« Many experiences are important. But one lesson that goes really deep is always to get back on your feet after you've fallen down.» 86 Ideals

Contents

>> Consolidated ﬁnancial statement of the LLB Group 87 Report of the Group auditors 88 Consolidated management report 90 Consolidated income statement 91 Consolidated balance sheet 92 Consolidated statement of recognised income and expense 93 Consolidated cash ﬂow statement

94 Notes to the consolidated ﬁnancial statement 94 Accounting principles Daniel Hasler 104 Risk management Professional footballer at FC Vaduz 124 Segment reporting and member of the Liechtenstein national team 126 Notes to the consolidated income statement 130 Notes to the consolidated balance sheet 144 Notes to the consolidated off-balance-sheet transactions 145 Pension plans and other long-term beneﬁts 149 Transactions with closely associated companies and persons 155 Scope of consolidation 157 Assets under management 159 Business combinations experienced 85

experienced Expertise, inspiration, consistency, integrity and profession- alism. For nearly 150 years we have stood not just for sound ideals but also for fresh ideas and proven experience. Our productivity and efficiency are derived from this tradition, it guides us in creating security and stability: strengths that convince our shareholders, clients, business partners and investors throughout the world.

1 2 A discussion with: goes deep is always to get back on your feet But you were already a professional foot- Did you have a hero as a child or teen- year of birth 1974, 3 4 Daniel Hasler, after you've fallen down. Yes. Thomas « Icke » Hässler. From when from Gamprin, professional footballer at that time. Did you have a second job? ager? 5 6 baller at FC Vaduz and member When did you first realize that you posses- You could say so. I built my own home seven I was small up to the present day. of the Liechtenstein national team sed a certain wealth of experience? That's diffi- years ago. Everything that I could do myself, Hässler – Hasler. There's a certain simila- cult to say. You realize it at the latest when you I did myself. rity. So what do you admire about him? He's a know that physically your best years are already And what could you do yourself? The roof very talented footballer. An absolute star. But Daniel Hasler, you're on holiday right behind you, and you must overcome the deficit framework, wooden ceilings, parquet flooring. someone who never acts like a star. Unlike other now? That's right. with experience. That's usually the case after And the wooden staircase. footballers he's remained an ordinary guy. Thank you, that you're nevertheless pre- you reach 30. It's said that wooden staircases are really Have you ever met Hässler personally? pared to give me an interview. OK, let's go! Liechtenstein's national team doesn't difficult to build. Did you install a prefabricat- Oh yes. We played against Germany in Freiburg. Alright, let's go on the attack. As a foot- have the global reputation of say: France, Brazil ed staircase or did you make one yourself from Actually, I'm not one of those players who ex- baller, are you more the impulsive or far-sighted or Germany. How does it feel to play for a less scratch? From the timber planking to the finish- change jerseys after the game – usually I take type? Professionally, I'm definitely far-sighted. well-known national team? For me, it's a great ed staircase, I did everything myself. my jersey with me and give it to a child later. And not just on the football pitch. As a profes- honour. You can drive through our country in 20 Did everything fit perfectly just like that, But when I saw Hässler, I told him my son was sional footballer, you have to think about your minutes. In terms of football potential, we have or did something occasionally go wrong? Of his greatest fan. Then he gave me his jersey. future at a very early age. to make more out of less than other people. course, I made a few mistakes. So actually I was in luck that day. And, have you done that? Yes. For me, a And, nevertheless, we play at the same level as Did that make you angry? No. If at first Well, today I'm in luck. Does that mean clear option later would be to pass on my teams such as Portugal, Iceland or England. you don't succeed, try and try again. you're a fan of mine? experience to young, ambitious footballers as Who are the most famous footballers that What makes you angry then? Lies. And Not yet. Although I enjoyed talking to a trainer. you have fouled? Bierhoff, for example. Or stupidity. you. Even though I know nothing about foot- So you would describe yourself as being Michael Owen, Ronaldo – there are quite a few. So when was the last time someone lied ball. So I'm lucky. Thank you for the interview. experienced? If you're not experienced after Have you ever drunk a beer with a great to you? Today probably. But I didn't notice. You're welcome. many long years in professional football, then football star? No. Usually, you only meet them It wasn't me. Of course not. You only ask you must be more stupid than the widely- at the big tournaments. And then you play foot- questions. believed preconception about footballers. ball and don't drink beer. Off the pitch, you al - What kind of stupidity gets you angry You don't seem to belong to the latter. most never meet. then? In football you always meet people who What is the most important experience that you You are a trained carpenter. When was the have a lot of money and no idea about anything have gained through football? Many experi- last time you really went to work? Seven years else. And that can mean not just money rules ences are important. But one lesson that really ago. the world but stupidity as well. experienced 85

Contents

Consolidated Report of the Group auditors financial statement 87

Report of the Group auditors

As auditors of the Group, we have audited the consolidated financial statements (income statement, balance sheet, statement of recognised income and expense, cash flow statement and notes; pages 90 to 161) and the consolidated management report (pages 88 and 89) of Liechtensteinische Landes- bank Aktiengesellschaft for the year ended 31 December 2007. These consolidated financial statements and the consolidated management report 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 auditing standards promulgated by the profession in Liechtenstein 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 and the consolidated management report 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 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 Liechtenstein law. The consolidated management report is in accordance with the consolidated financial statements. We recommend that the consolidated financial statements submitted to you be approved.

PricewaterhouseCoopers AG

Hans Wey Patrick Helg

St. Gallen, 28 February 2008 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 88

88 Ideals

Consolidated management report

LLB Group financial statement The consolidated financial statement, prepared according to International Financial Reporting Standards (IFRS), shows a net profit attributable to the shareholders of LLB AG of CHF 240.0 million. Therefore, our result was within the scope of that of the 2006 business year, which amounted to CHF 245.7 million. The cost/income ratio stood at 48.6 percent (previous year: 40.7 %). With this value, the LLB Group continues to be among the leaders in international compa rison. Earnings per share rose by 2.0 percent to CHF 8.43 (previous year: CHF 8.27).

Assets under management Assets under mangement expanded to CHF 60.0 billion. The impressive year-on-year growth of 18.7 per cent or CHF 9.5 billion was made up as follows: net new money inﬂow CHF 3.0 billion, ac qui- sition of Bank Linth LLB AG CHF 5.0 billion, as well as performance-related appreciation of assets CHF 1.5 billion. Assets in own-managed funds posted a very positive result, rising by 22.8 percent to CHF 4.3 billion. Thanks to the acquisition of new management mandates, assets with discretionary mandates grew by 8.3 percent to CHF 10.7 billion. Other assets under management amounted to CHF 45.0 billion on 31 December 2007 (CHF 37.2 billion per 31 December 2006).

Assets under management per 31.12.2007 CHF 60.0 billion

Assets in own-managed funds 7 % Assets with discretionary mandates 18 % Other assets under management 75 %

Income statement Compared with the previous year, we increased our operating income by 22.6 percent to CHF 560.1 million. This result also includes the first consolidation of Bank Linth LLB AG; without the inclusion of this company, the increase amounted to 8.1 percent. Thanks to the favourable interest environment and the takeover, net interest income increased by 49.4 percent to CHF 220.9 million. Without taking into consideration the acquisition of Bank Linth LLB AG, the increase amounted to 17.4 percent. Net fee and commission income rose again and amounted to CHF 316.7 million (+28.7 %). This rise highlights the very positive development of brokerage fees (+34.2 %), custody fees (+33.2 %), advisory and management fees (+21.4 %), as well as investment fund fees (+13.7 %). Net trading income amounted to CHF 31.4 million (–4.7 %). The lower income year on year is due to the change in the value of interest rate swaps. Net income from financial investments at fair value through profit and loss, declined sharply in comparison with 2006. The decrease is mainly attributable to changes in the value of financial investments. Other income amounted to minus CHF 15.9 million (previous year: minus CHF 7.1 million). LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 89

Consolidated Consolidated management report financial statement 89

Due to the Group's organic growth and the acquisition of Bank Linth, operating expenses climbed by 46.4 percent year on year to CHF 272.5 million. Without taking into consideration the ﬁrst consolidation of Bank Linth LLB AG, the increase was 18.9 percent. Personnel expenses rose by 45.7 percent to CHF 170.0 million. Adjusted to take into account part- timers, at the end of 2007 the LLB Group employed 943 persons (previous year: 645 persons). The average headcount in the year under report was 843 (compared with 618 in the previous year). At CHF 74.6 million, general and administrative expenses were 54.4 percent higher than in the previous year. The increase in depreciation and amortisation to CHF 21.1 million was attributable to higher depreciation and amortisation in connection with the takeover of Bank Linth LLB AG. Value adjustments, provisions and losses amounted to CHF 6.7 million (previous year: CHF 7.2 million). The dis- proportionate rise in taxes to CHF 44.6 million (previous year: CHF 25.1 million) was caused by a one- time increase in the corporate income tax rate due to the capital reduction.

Operating income 2007 CHF 560.1 million

Net interest income 39 % Net fee and commission income 57 % Net trading income 6 % Net income from ﬁnancial investments 2 % Share of net income from investments in associates –1 % Other income –3 %

Balance sheet As per 31 December 2007, the consolidated balance sheet total stood at CHF 21.6 billion, corresponding to an increase of 44.6 percent compared with the preceding year. On account of the majority shareholding in Bank Linth LLB AG, the balance sheet contains new assets and liabilities which are reported under the corresponding positions. Goodwill and other intangible assets are also reported accordingly. On the assets side, balances due from banks rose by 3.3 percent to CHF 7.3 billion (previous year: CHF 7.0 billion). Loans to customers grew by 68.5 percent to CHF 9.3 billion (previous year: CHF 5.5 billion). On the liabilities side, balances due to customers climbed from CHF 10.3 billion to CHF 12.9 billion. Owing to the great demand for medium-term notes and the takeover of Bank Linth LLB AG, debt issued rose sharply to CHF 2.3 billion (previous year: 0.9 billion). At 31 December 2007, equity capital attributable to the shareholders of LLB AG stood at CHF 1.6 billion (previous year: CHF 1.4 billion). The tier 1 ratio amounted to 9.7 percent (previous year: 15.1 %). The return on equity attributable to the shareholders of LLB AG rose to 15.9 percent (previous year: 15.8 %).

Outlook The Liechtenstein ﬁnancial centre has had to contend with difficult conditions at the beginning of 2008. Liechtenstein will make every effort to preserve the good reputation of its business centre and to strongly assure its further development. Against this background, we are conﬁdent of attaining our objectives in a challenging environment. We shall intensify our activities in Liechtenstein and in Switzerland. At an international level, we shall concentrate on penetrating and developing new markets, particularly in Eastern Europe as well as the Near and Middle East. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 90

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Consolidated income statement

in CHF thousands Note 2007 2006 +/– % Interest income 564'381 336'277 67.8 Interest expenses –343'511 –188'398 82.3 Net interest income 1 220'870 147'879 49.4 Fee and commission income 399'109 312'279 27.8 Fee and commission expenses –82'380 –66'168 24.5 Net fee and commission income 2 316'729 246'111 28.7 Net trading income 3 31'432 32'986 –4.7 Net income from ﬁnancial investments at fair value through proﬁt and loss 4 10'487 37'041 –71.7 Share of net income from investments in associates 5 –3'492 0 Other income 6 –15'914 –7'129 123.2

Total operating income 560'112 456'888 22.6

Personnel expenses 7 –170'030 –116'727 45.7 General and administrative expenses 8 –74'626 –48'348 54.4 Depreciation and amortisation 9 –21'127 –13'803 53.1 Value adjustments, provisions and losses 10 –6'689 –7'228 –7.5

Total operating expenses –272'472 –186'106 46.4

Operating proﬁt before tax 287'640 270'782 6.2

Income tax expenses 11 –44'574 –25'076 77.8

Net proﬁt 243'066 245'706 –1.1

Of which attributable to: Shareholders of LLB AG 240'041 245'706 –2.3 Minority interests 3'025 0

Earnings per share attributable to the shareholders of LLB AG Basic earnings per share (in CHF) 12 8.43 8.27 2.0 Diluted earnings per share (in CHF) 12 8.43 8.27 2.0

The notes on pages 94 to 161 form an integral part of this consolidated ﬁnancial statement. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 91

Consolidated Consolidated balance sheet financial statement 91

Consolidated balance sheet

in CHF thousands Note 31. 12. 2007 31. 12. 2006 +/– % Assets Cash and balances with central banks 13 211'773 166'017 27.6 Due from banks 14 7'272'186 7'040'114 3.3 Due from customers 15 9'277'034 5'507'231 68.5 Trading portfolio assets 16 10'342 2'252 359.2 Derivative ﬁnancial instruments 17 106'683 39'248 171.8 Financial investments at fair value through proﬁt and loss 18 3'788'572 1'728'095 119.2 Investments in associates 19 296'507 0 Property and equipment 20 161'762 104'860 54.3 Investment property 20 32'189 25'529 26.1 Goodwill and other intangible assets 21 250'992 142'918 75.6 Deferred tax assets 29 13'949 9'321 49.7 Accrued income and prepaid expenses 79'191 61'948 27.8 Other assets 22 143'654 142'209 1.0 Total assets 21'644'834 14'969'742 44.6

Liabilities Due to banks 24 713'863 616'983 15.7 Due to customers 25 12'877'197 10'295'794 25.1 Liabilities from insurance contracts 26 87'564 16'514 430.2 Financial liabilities at fair value through proﬁt and loss 27 3'477'759 1'290'322 169.5 Derivative ﬁnancial instruments 17 95'212 35'402 168.9 Debt issued and mortgage-backed securities 28 2'250'770 928'832 142.3 Current tax liabilities 48'573 31'156 55.9 Deferred tax liabilities 29 74'106 53'959 37.3 Accrued expenses and deferred income 79'415 50'808 56.3 Other liabilities 30 266'924 203'691 31.0 Provisions 31 2'250 8'405 –73.2 Total liabilities 19'973'633 13'531'866 47.6

Equity Share capital 33 154'000 164'000 –6.1 Less treasury shares 34 –201'619 –396'419 –49.1 Capital reserve 35 49'618 49'080 1.1 Retained earnings 36 1'571'986 1'619'079 –2.9 Other reserves 37 4'279 2'136 100.3

Total equity attributable to shareholders of LLB AG 1'578'264 1'437'876 9.8

Minority interests 38 92'937 0

Total equity 1'671'201 1'437'876 16.2

Total liabilities and equity 21'644'834 14'969'742 44.6

The notes on pages 94 to 161 form an integral part of this consolidated ﬁnancial statement. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 92

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Consolidated statement of recognised income and expense

in CHF thousands Note 2007 2006 +/– % Actuarial gains and losses according to IAS 19 499 –10'991 –104.5 Tax effects –36 999 –103.6 Foreign currency translation –128 –91 40.7 Equity capital component: convertible bond 0 11'689 –100.0

Net income recognised directly in equity 37/38 335 1'606 –79.1 Net proﬁt 243'066 245'706 –1.1

Total recognised income and expense 243'401 247'312 –1.6

The notes on pages 94 to 161 form an integral part of this consolidated ﬁnancial statement. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 93

Consolidated Consolidated cash flow statement financial statement 93

Consolidated cash ﬂow statement

in CHF thousands 2007 2006 Cash flow from / (used in) operating activities Interest received (excluding financial investments) 563'554 322'719 Interest received from financial investments 13'965 10'602 Dividends received from financial investments 784 1'033 Interest paid –337'978 –184'616 Fee and commission received 398'847 308'228 Fee and commission paid –83'055 –64'843 Net trading income 30'972 26'221 Other income 25'100 9'529 Payments for personnel, general and administrative expenses –236'747 –153'056 Other expenses –18'754 –5'646 Income tax paid –36'056 –17'115 Cash flow from operating activities before changes in operating assets and liabilities 320'632 253'056 Net due from/to banks –416'678 527'679 Net due from insurance contracts –2'114'317 –182'327 Trading portfolio and net replacement values –8'309 –7'231 Net due from/to customers –43'364 –501'028 Other assets 12'403 –18'398 Liabilities from insurance contracts 71'050 1'571 Financial liabilities 2'187'437 349'028 Other liabilities 31'369 4'559 Changes in operating assets and liabilities –280'409 173'853 Net cash flow from / (used in) operating activities 40'223 426'909

Cash flow from / (used in) investment activities Purchase of property and equipment –12'377 –22'275 Purchase of investment property 0 0 Investments in other intangible assets –2'729 –2'485 Purchase of financial investments –283'728 –186'562 Proceeds from sale and redemption of financial investments 495'027 219'720 Acquisition of associates –299'999 0 Acquisition of subsidiaries, net of cash acquired –247'178 0 Net cash flow from / (used in) investment activities –350'984 8'398

Cash flow from / (used in) financing activities Purchase of treasury shares –8'291 –407'476 Disposal of treasury shares 10'296 16'827 Dividends paid –91'164 –79'637 Allocation to LLB Employer Foundation –2'000 –2'000 Minority interests –5'402 –2'342 Issuance of medium-term debt and mortgage-backed securities 423'787 477'559 Repayment of medium-term debt and mortgage-backed securities –183'894 –24'629 Net cash flow from / (used in) financing activities 143'332 –21’698

Effects of foreign currency translation –128 –91

Net increase / (decrease) in cash and cash equivalents –167'557 413'518 Cash and cash equivalents at beginning of the year 1'964'587 1'551'069 Cash and cash equivalents at end of the year 1'797'030 1'964'587

Cash and cash equivalents comprise: Cash and balances with central banks 211'773 166'017 Due from banks (due daily) 1'585'257 1'798'570 Total cash and cash equivalents 1'797'030 1'964'587

The notes on pages 94 to 161 form an integral part of this consolidated ﬁnancial statement. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 94

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Accounting principles

1 Basic information The LLB Group offers a broad spectrum of ﬁnancial services. Of particular importance are asset management and investment counselling for private and institutional clients, as well as retail and corporate client business. The Liechtensteinische Landesbank Aktiengesellschaft, founded and with its registered office located in Vaduz, is the parent company of the LLB Group. It is listed on the SWX (Swiss Exchange). The Board of Directors reviewed this consolidated annual statement at its meeting on 28 Feb- ruary 2008 and approved it for publication. In addition, the consolidated ﬁnancial statement must be approved by the General Meeting on 9 May 2008.

2 Summary of significant accounting policies The significant accounting and valuation methods employed in the preparation of this consolidated financial statement are described in the following. The described methods have been consistently employed for the reporting periods shown provided no statement to the contrary is specified.

2.1 Basis for financial accounting The consolidated financial statement has been prepared in accordance with International Financial Reporting Standards (IFRS). The Group financial statements were compiled on the basis of historical deemed costs with the exception of revaluation of some financial assets and liabilities. The IFRS contain guidelines, which required the LLB Group to make assumptions and estimates while preparing the financial statements. Areas that require more leeway for assessment or of greater complexity, as well as areas where assumptions and estimates are of crucial importance for the consolidated statements, are listed under note 21.

Standards, amendment and interpretations effective from 1 January 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; ◆ IFRIC 7, « Applying IAS 29, Financial Reporting in Hyperinflationary Economies ». IFRIC 7 provides guidance on how to apply the requirements of IAS 29. This change has no influence on the annual financial statement; ◆ IFRIC 8, « Scope of IFRS 2 », 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. This change has no influence on the annual financial statement; ◆ IFRIC 9, « Re-assessment of embedded derivatives ». IFRIC 9 requires an entity to assess whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative when the entity first becomes a party to the contract. This change has no influence on the annual financial statement; ◆ IFRIC 10, « Interim financial reporting and impairment », prohibits the impairment losses recognised in an interim period on goodwill and investments in equity instruments to be reversed at a subsequent balance sheet date. This change has no influence on the annual financial statement; LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 95

Consolidated Accounting principles financial statement 95

Standards, amendments and interpretations to existing standards that are not yet effective. These are:

◆ IAS 1 (amended), « Presentation of financial statements » (effective from 1 January 2009). This amendment should improve the comparability of companies. ◆ IAS 23 (amended), « Borrowing costs » (effective from 1 January 2009). This amendment removes the option of immediately expensing those borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset. ◆ IAS 27 (amended) (effective for accounting periods beginning on or after 1 July 2009) requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control. The standard also specifies the accounting when control is lost. ◆ IFRS 2 (amended) (effective for accounting periods beginning on or after 1 January 2009) deals with two matters. It 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 other parties, should receive the same accounting treatment. ◆ 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. 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 immediately. For accounting periods beginning on or after 1 July 2009. ◆ IFRS 8, « Operating segments » (effective from 1 January 2009). IFRS 8 replaces IAS 14 and redefines segment reporting. ◆ 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 should be accounted for as equity- settled or cash-settled share-based payment transactions in stand-alone accounts. ◆ IFRIC 12, « Service concession arrangements » (effective from 1 January 2008). This interpretation provides guidance on how these services are to be treated in the accounts. ◆ IFRIC 13, « Customer loyalty programmes » (effective from 1 July 2008). This interpretation provides guidance on how these programmes are to be treated in the accounts. ◆ IFRIC 14, « IAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction » (effective from 1 January 2008). IFRIC 14 provides guidance on assessing the limit in IAS 19 on the amount of the surplus that can be recognised as an asset.

The impact of these new standards on the LLB Group's ﬁnancial accounting is currently being analysed by an LLB project team.

2.2 Consolidation policies The consolidated ﬁnancial statement follows a banking format. The consolidation period corresponds to the calendar year. The ﬁnancial year is identical to the calendar year for all consolidated companies. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 96

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Subsidiaries The consolidated financial statement incorporates the financial accounts of Liechtensteinische Lan - des bank AG and its subsidiaries. LLB Group companies, in which Liechtensteinische Landesbank AG holds, directly or indirectly, the majority of the voting rights or otherwise exercises control, are fully consolidated. Subsidiaries acquired are consolidated from the date control is transferred to the LLB Group, and are no longer consolidated from the date this control ends. The consolidation is carried out according to the purchase method. The effects of intra-group transactions and balances are eliminated in preparing the financial statements. Transactions with minorities are booked to equity.

Investments in associates Investments in associates in which the LLB Group has a signiﬁcant inﬂuence but in which it does not have control (normally evidenced when the LLB owns between 20 and 50 % of the voting rights) are accounted for using the equity method.

Changes to the scope of consolidation Since 6 March 2007, Bank Linth LLB AG, with a share capital of CHF thousands 45'103 has been fully consolidated (for details, see «Business combinations»). On 1 February 2007, HQE Trust AG, Zurich (a trust company), was founded with a share capital of CHF thousands 100 and included in the scope of consolidation. On 19 April 2007, QuoDatis AG, Zurich (a management company), was founded with a share capital of CHF thousands 1'000 and included in the scope of consolidation. On 1 July 2007, CJC Treuhand und Management GmbH, with a share capital of CHF thousands 100 was acquired and included in the scope of consolidation (for details, see «Business combinations»).

2.3 General principles

Recording of business Sales and purchases from trading assets, derivative financial instruments and financial investments are booked on the transaction date. Loans, including those to clients, are recorded in that period of time in which the funds flow to the borrower.

Income accrual Income from services is recorded at the time the service was rendered. Asset management fees, safe custody fees and similar types of income are recorded on a pro rata basis over the period the speciﬁc service is provided. Interest income is recorded using the effective interest method. Dividends are recorded upon receipt of payment.

Inland versus abroad Switzerland is included under the designation «Inland».

2.4 Foreign currency translation

Functional currency and reporting currency The items contained in the ﬁnancial accounts of each Group company are valued in the currency which is used in the primary business environment in which the company operates (functional currency). The LLB Group's ﬁnancial statement is reported in Swiss Francs, which represents the Landes- bank's functional and reporting currency. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 97

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Group companies Group companies, which report their ﬁnancial accounts in a functional currency other than the Group's accounting currency are translated as follows: all assets and liabilities are converted at the relevant exchange rate valid on the balance sheet date. All individual items in the income statement and statement of cash ﬂows are converted at the average exchange rate for the accounting period. All exchange differences are booked individually to equity.

Transactions and balances Foreign currency transactions are converted into the functional currency at the exchange rates prevailing at the time of the transaction. Foreign currency assets and liabilities are translated at the exchange rates prevailing on the balance sheet date. Exchange gains and losses arising from the valuation are booked to the income statement. The following exchange rates were employed for foreign currency conversion:

Reporting date rate 31. 12. 2007 31. 12. 2006 Average rate 2007 2006 1 USD 1.1300 1.2210 1 USD 1.1975 1.2566 1 EUR 1.6590 1.6080 1 EUR 1.6433 1.5756 1 GBP 2.2575 2.3960 1 GBP 2.3959 2.3060

2.5 Segments The LLB Group is subdivided into the three operative business divisions Domestic Clients, Inter - national Clients and Institutional Clients, as well as the Corporate Center. This structure constitutes the basis for the LLB Group's primary segment reporting. The geographical segment reporting is carried out according to the principle of business location, i. e. in the segments Liechtenstein and other countries.

2.6 Cash and cash equivalents Cash and cash equivalents are composed of liquid funds, loans from money market securities with an original maturity period of less than three months as well as loans due from banks (due daily).

2.7 Cash and balances with central banks Cash and balances with central banks consist of cash in hand, postal cheque balances, giro and sight deposits at the Swiss National Bank and foreign central banks, as well as clearing credit balances at recognised central savings and clearing banks.

2.8 Money market instruments Claims arising from money market instruments are initially recorded at actual cost, corresponding to the fair value of the speciﬁc loan at the time it was granted. Subsequent valuation reﬂects the amortised cost under application of the effective interest rate method. Interest on claims from money market instruments is reported according to the effective interest method and is included under the item interest income as an annual percentage rate.

2.9 Balances due from banks and from customers Balances due from banks and from customers are initially recorded at actual cost, corresponding to the fair value of the speciﬁc loan at the time it was granted. Subsequent valuation reﬂects the amortised cost under application of the effective interest rate method. Interest on balances due from banks and from customers is reported according to the effective interest method and is included under the item interest income as an annual percentage rate. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 98

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Value adjustments and provisions for credit risks Basically, the LLB Group extends loans only on a collateralised basis, and only to counter parties having very high credit worthiness. Loans are regarded as being impaired if it is likely that the entire amount owed according to the loan agreement is not recoverable. Loan impairments are caused by country or counter-party speciﬁc criteria. Indications for the impairment of ﬁnancial assets are:

◆ the ﬁnancial difficulty of the borrower; ◆ a breach of contract, such as a default or delinquency in interest or principal payments; ◆ the increased probability that the borrower will enter bankruptcy or ﬁnancial reorganisation; ◆ national or local economic conditions that correlate with defaults on the assets of the Group.

A value adjustment for credit risks is reported as a reduction of the carrying value of a claim on the balance sheet, whereas for an off-balance-sheet item such as a commitment a provision for credit loss is reported under provisions. The amount of the impairment is measured as the difference between the carrying value of the claim and the estimated future cash ﬂow, discounted by the loan's original effective interest rate. A value adjustment for credit risks is reported as a reduction of the carrying value of a claim on the balance sheet, whereas for an off-balance-sheet item such as a commitment a provision for credit loss is reported under provisions. Impairments are recognised in the income statement.

2.10 Insurance contracts swisspartners Investment Network AG, Zurich, provides insurance products within the scope of its asset management activities. These insurance products mainly comprise deferred pension insurance funds and fund-linked mixed insurance against one-time investments. swisspartners Investment Network AG products do not contain any discretionary surplus sharing component. Assets and liabilities from insurance contracts are evaluated at fair value. Claims are booked under assets in the corresponding position of the balance sheet. Under liabilities are those liabilities from insurance contracts and ﬁnancial obligations. Changes to fair values and premium revenues as well as actuarial provisions are reported under net fee and commission income in the item insurance- related fees and commissions. Financial liabilities are evaluated at fair value because the corresponding assets are also evaluated at fair value, and thus an accounting mismatch is avoided.

2.11 Trading portfolio assets Trading portfolio assets comprise equities, bonds and structured ﬁnancial products. Financial assets held for trading purposes are recorded at fair value. Short positions in securities are reported as trading portfolio liabilities at fair value. Realised and unrealised gains and losses as well as interest and dividends are recorded in net trading income. Fair value is based on current market prices in the case of an active market. In the absence of an active market, fair value is calculated on the basis of valuation models (see 2.13).

2.12 Derivative ﬁnancial instruments All derivative ﬁnancial instruments are valued as positive or negative replacement values corresponding to fair value and are reported in the balance sheet. Fair value is calculated on the basis of ex - change listings; in the absence of these, valuation models are employed. Realised and unrealised gains and losses are recorded in net trading income. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 99

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Hedging transactions The LLB Group may utilise hedge accounting if the conditions in accordance with IAS 39 for the permitted booking as criteria for treatment as a hedging transaction are fulfilled. At the time the financial instrument is designated as a hedge, it is determined whether the instrument represents a fair value hedge of a balance sheet item or a cash flow hedge of a balance sheet item or future transaction. In the case of fair value hedges, the change in fair value of the hedging derivative is recognised in the income statement. Those changes in fair value of the hedged item which are attributable to the risks hedged with the derivative instrument are reflected in an adjustment to the carrying value of the hedged item, which is also recognised in the income statement. In the case of cash flow hedges, a change in the fair value of the effective portion of a derivative designated as a cash flow hedge is recognised in a separate position in equity. The gain or loss resulting from the hedging transaction reported in the equity is recognised in the same accounting period in which the hedged payment flows of the underlying transaction are recognised. Certain derivative transactions do indeed represent hedging transactions, and they do correspond to the risk management principles of the LLB Group, however, due to the strict, specific nature of IFRS guidelines, they do not meet the criteria to be treated as hedging transactions in the financial accounts. Changes in value are recorded for the corresponding period in net trading income.

2.13 Financial investments According to IFRS, financial investments may be subdivided into various categories depending upon the purpose for which the financial investments were made. The management of the LLB Group spec- i fies the category of financial investments when they are first made. In 2007, as was the case in the 2006 financial year, all financial investments were valued at fair value through profit and loss. This designation is in line with the LLB's investment strategy. The securities are managed on a fair value basis and their performance is evaluated accordingly. Members of the Group Executive Mana - gement receive the corresponding information.

Financial investments at fair value through profit and loss Financial assets are recorded on the balance sheet at fair value. Non-realised gains and losses are reflected in the income statement at fair value under income from financial instruments. The fair value of listed shares is based on current market prices. If an active market is not available for financial assets, or if the assets are not listed, the fair value is determined by way of suitable valuation models. These encompass references to recent transactions between independent business partners, the application of the current market prices of other assets which are essentially similar to the assets being valued, discounted cash flows and external pricing models which take into account the special circumstances of the issuer. Interest and dividend income from financial investments is recorded at fair value as income from financial instruments. Interest income is recognised on an accrual basis.

2.14 Property and equipment Real property is reported in the balance sheet at acquisition cost less any depreciation necessary for operational reasons. Property includes bank buildings and other real property. Bank buildings are buildings held by the LLB Group for use in the delivery of services or for administration purposes, whereas other property is held to earn rentals and/or for capital appreciation. If a property is partial- ly used as other property, the classiﬁcation is based on whether or not the two portions can be sold LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 100

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separately. If the portions of the property can be sold separately, each portion is booked separately. If the portions cannot be sold separately, the whole property is classified as a bank building unless the portion used by the bank is minor. Equipment includes fixtures, furnishings, machinery and IT equipment. These items are entered in the financial accounts and depreciated over the estimated useful life of the asset.

Depreciation is conducted on a straight-line basis over the estimated useful life as follows:

Real property 33 years Undeveloped land no depreciation Building supplementary costs 10 years Fixtures, furnishings, machinery 5 years IT equipment 3 years

Small value purchases are charged directly to general and administrative expense. In general, main- tenance and renovation expenditures are booked to general and administrative expense. If the related cost is substantial and results in a significant increase in value, such expenditures are capitalised and depreciated over their useful life. Profits from the sale of fixed assets are reported as other income. Losses result in additional write-downs on fixed assets. Property and equipment is regularly reviewed for impairment, but always when, on account of occurrences or changed circumstances, an over-valuation of the carrying value appears to be possible. If, as a result of the review, a reduction in value or modified useful life is determined, the residual carrying value is depreciated over the adjusted useful life, or an unplanned write-down is made.

2.15 Goodwill and other intangible assets Goodwill is defined as the difference between the purchase price paid for and the determined fair value at date of acquisition of identified net assets in a company purchased by the LLB Group. Other intangible assets contain separately, identifiable intangible values resulting from acquisitions and certain purchased brands / trademarks and similar items. Goodwill and other intangible assets are recognised on the balance sheet at cost determined on the date of acquisition, and are amortised using the straight-line method over the useful life of 10 to 15 years. On each balance sheet date, goodwill and other intangible assets are reviewed for indications of impairment or changes in future benefits. If such indications exist, an analysis is performed to assess whether the carrying value of goodwill or other intangible assets is fully recoverable. An amortisation is made if the carrying amount exceeds the recoverable amount. For impairment testing purposes, goodwill is distributed into cash generating units. The primary reporting segment has been designated as the cash generating unit. Software development costs are capitalised when they meet certain criteria relating to identifiability, it is possible that economic benefits will flow to the company, and the cost can be measured reliably. Internally developed software meeting these criteria and purchased software are capitalised and subsequently amortised over three years. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 101

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2.16 Current and deferred taxes Current income tax is calculated on the basis of the tax law applicable in the individual country and recorded as expense for the accounting period in which the related income was earned. The relevant amounts are recorded on the balance sheet as provisions for taxes. The tax impact from time differentials between the values of assets and liabilities shown on the Group balance sheet and their taxable value are recorded on the balance sheet as accrued tax assets or, as the case may be, deferred tax liabilities. Accrued tax assets attributable to time differentials or accountable loss carry-forwards are capitalised if there is the probability that sufficient taxable proﬁts will become available to offset such differentials or loss carry-forwards. Accrued / deferred tax assets / liabilities are calculated at the tax rates that are likely to be applicable for the accounting period in which the tax assets are realised or the tax liabilities paid. Accrued/deferred taxes are credited or charged directly to equity if the related tax pertains to items that have been credited or charged directly to equity in the same or some other accounting period.

2.17 Balances due to banks and customers Balances due are recorded with the nominal or repayment amount. Interest and discounts are recognised on an accrual basis and charged to interest expense.

2.18 Debt issued Medium-term notes are recorded at issuance value and subsequently valued at ongoing cost of acquisition. Debt instruments, which contain an embedded option for conversion of the debt into shares of the Group, are separated into a liability and an equity component. The difference between the proceeds of the issue price and the fair value of the instrument on the issue date is booked directly to equity capital. The fair value of the liability component on the issue date is determined on the basis of the market interest rate for comparable instruments without conversion rights. Thereafter, it is recognised at ongoing cost according to the effective interest method. Differences between the proceeds and the repayment amount are reported in proﬁt and loss over the term of the debt instrument concerned. The Group does not report changes in the value of the equity capital component in the following reporting periods.

2.19 Employee beneﬁts

Retirement benefit plans The LLB Group maintains a number of retirement benefit plans in Liechtenstein and abroad on behalf of its employees, including both defined-benefit and defined-contribution plans, all of which are regarded as defined-benefit plans according to IFRS. In addition there are long-term service awards which qualify as other long-term employee benefits. For defined-benefit plans, the period costs are determined by opinions obtained from external experts. The benefits provided by these plans are generally based on the number of insured years, the employee's age and covered salary. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 102

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In applying the selection possibility for the reporting of actuarial gains and losses (IAS 19p93a), these amounts are booked directly to equity. For defined-benefit plans with segregated assets, the relevant funded status (surplus or deficit of the cash value of the claims in comparison to the related assets valued at current market value) is recorded on the balance sheet as an asset or liability in accordance with the «projected unit credit method». An asset position is only recognised if this results in an economic benefit for the Group. For plans without segregated assets, the relevant funded status recorded on the balance sheet corresponds to the cash value of the claims plus or minus subsequent amounts to be offset from plan changes. The cash value of the claims is calculated using the «projected unit credit method», whereby the number of insured years accrued up to the valuation date are taken into consideration. Retroactive improvements in benefits due to changes in benefit plans are booked as expense us ing the straight-line method over the average period up to the date of non-forfeitability. If expec- tancies are non-forfeitable immediately, the corresponding expense is immediately recognised in the accounts.

Profit participation, bonus plans and share-based payment Regulations exist governing bonus payments and profit participation schemes. The valuation method employed in the bonus regulations is based on the individual attainment of objectives. The valuation of profit participation regulations is based on the profit attained. Senior executives may opt to receive a portion of their profit participation in the form of LLB bearer shares. No exercising conditions are attached to this. The LLB Group enters a provision as a liability in those cases where a contractual obligation exists or a de facto obligation arises as a result of past business practice. The expense is recognised under personnel expenses. Obligations to be paid in cash are entered under other liabilities. The portion to be compensated with LLB bearer shares is entered in equity. The price per share for the share-based remuneration is calculated from the average price of the last quarter of the year under report. For profit-sharing and bonus schemes, a total of CHF thousands 33'559 (2006: CHF thousands 17'373) in personnel costs were charged in 2007. Of which 31'190 shares were granted at an average price of CHF 105.80 in the 2007 business year (previous year: 36'400 shares at an average price of CHF 99.90).

2.20 Provisions Provisions are taken onto the balance sheet only if the Group has a liability versus a third party that is attributable to a past event, if the amount of such liability can be reliably estimated, and if it is likely that resources will have to be allocated to cover this liability.

2.21 Treasury shares Bank shares held by the LLB Group are valued at cost of acquisition and reported as a reduction in equity. The difference between the sale proceeds and the corresponding cost of acquisition of treasury shares is recorded under capital reserves.

2.22 Securities lending and borrowing transactions Securities lending and borrowing transactions are generally entered into on a collateralised basis, with securities mainly being advanced or received as collateral. Fees and interest received or paid are recognised on an accrual basis and recorded under net fee and commission income. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 103

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2.23 Off-balance sheet transactions Off-balance sheet transactions are shown at par value. Identiﬁable risks from contingent liabilities and other off-balance-sheet transactions are allowed for in the formation of provisions.

3 Changes to the previous year The LLB bearer shares held by the majority shareholder were previously reported as client assets. They are now shown as custody assets. Fiduciary deposits of clients of a subsidiary were previously report - ed under Due to banks. These are now shown under Due to customers. CHF 591.2 million were reclas- siﬁed.Amounts due from reinsurance contracts are reported gross. In 2006, amounts due from reinsurance contracts were offset with amounts due to reinsurance contracts (CHF thousands 16'791).

4 Important changes since the balance sheet date There have been no material effects after the balance sheet date which would require disclosure or adjustment of the consolidated ﬁnancial statement for 2007. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 104

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Risk management

Principles of risk management One of the core competences of a financial institute is to consciously accept risks and manage them profitably. In its risk policy, the LLB Group defines qualitative and quantitative standards of risk responsibility, risk management and risk control. Furthermore, the organisational and methodical pa rameters for the identification, measurement, control and monitoring of risks are specified. The proactive management of risk is an integral part of corporate policy and safeguards the LLB Group's ability to bear and accept risk.

Organisation and responsibilities

Group Board of Directors The Group Board of Directors is responsible for the overall risk situation of the LLB Group. It speciﬁes the basic risk policy and risk tolerance. In fulfulling its tasks and duties, the Group Board of Directors is supported by the Audit and Risk Committee.

Group Executive Board The Group Executive Board is responsible for the overall management of risk within the parameters deﬁned by the Group Board of Directors and for the implementation of the risk management processes. It is supported in this task by the Audit and Risk Committee.

Group Risk Controlling The Group Risk Controlling Department identiﬁes, assesses and monitors the principal risk exposure of the LLB Group and is functionally and organisationally independent of the operative units. It supports the Group Executive Board in the overall management of risk exposure.

Risk categories The LLB Group is exposed to various types of risk and differentiates between the following risk categories:

Market Liquidity and Credit Operational Insurance Strategic risk risk reﬁnancing risk risk risk risk

Reputation risk

Market risk The risk of losses arises from unfavourable changes in interest rates, exchange rates, securities prices and other relevant market parameters. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 105

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Liquidity and refinancing risk Represents the risk of not being able to fulfil payment obligations on time or not being able to obtain refinancing funds on the market at a reasonable price to meet current or future payment obligations.

Credit risk The potential loss is inherent in the partial or complete default of expected payment ﬂows as well as in the impairment of open credit balances on account of the downgrading of borrower's creditworthiness.

Operational risk Is the danger of losses due to the unsuitability or failure of internal procedures, people or systems or as a result of external events.

Strategic risk Arise as a result of decisions taken by the Group Executive Board, which have a negative inﬂuence on the survival, development ability or independence of the LLB Group.

Reputation risk If risks are not recognised, reasonably controlled and monitored, this can lead not only to substantial ﬁnancial losses, but also to damage to the Group's reputation.

Risk management process The implementation of an efficient risk management process is essential to enable risks to be identi- ﬁed, assessed, controlled and monitored. The Group Board of Directors speciﬁes the risk strategy, which provides the operative units with a framework for the treatment of risk exposure. Depending on the type of risk, not only the stipulation of upper limits for losses may be required but also a detailed set of regulations which stipulate which risks may be accepted under what conditions, and when measures to control risks are to be implemented. The control loop of the LLB Group's risk management process is illustrated in the following.

Risk policy / Risk strategy Group Board of Directors

Risk Risk Risk Risk Risk identiﬁcation assessment reporting management monitoring

Group Risk Group Risk Group Risk Group Exe cuti ve Group Risk Controlling Controlling Controlling Board, Group Controlling Risk Commitees

Process monitoring Group Internal Audit LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 106

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1 Market risks Market risk is the risk that arises from changes in interest rates, exchange rates and security prices in the ﬁnancial and capital markets. A differentiation is made between market risks in the trading book and market risks in the banking book. The potential for losses exists primarily in the impairment of the value of an asset or the increase in the value of liabilities (market value perspective) as well as in secondary capacity in the diminution of current earnings or an increase in current expenditures (earn - ings perspective).

1.1 Market risk management The LLB Group has in place a differentiated risk management and risk control system for market risks. The market risk control process comprises a sophisticated control loop involving the identiﬁcation and the uniform valuation of market risk-relevant data as well as the control, monitoring and reporting of market risks.

Trading book The LLB Group enters into no signiﬁcant risks in its trading book.

Banking book Market risks with the banking book mainly involve interest rate ﬂuctuation risk, exchange rate risk and equity price risk.

Interest rate ﬂuctuation risk This is regarded as the adverse effects of changes in market interest rates on capital resources or current earnings. The different interest maturity periods of claims and liabilities from balance sheet transactions and derivatives represent the most important basis.

Exchange rate risk This relates to the risks arising in connection with the uncertainties regarding future exchange rate trends. The calculation of these risks takes into consideration all the positions entered into by the bank.

Equity price risk This is understood to be the risk of losses due to adverse changes in the market prices of equities.

1.2 Valuation of market risks

Value-at-risk The value-at-risk concept measures the potential loss under normal market conditions over a given time interval.

Scenario analysis While the value-at-risk concept supplies an indication of possible losses under normal market conditions, it cannot provide information about potential losses under extreme conditions. The aim of the scenario analyses of the LLB Group is to simulate the effects of normal and stress scenarios. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 107

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1.3 Distribution of market risks The individual Group companies distribute their interest rate risks within the speciﬁed limits at their own discretion. Interest rate swaps are employed to hedge against the risks associated with changes in interest rates. The scope of risk is restricted by means of sensitivity limits. In client business, cur- ren cy risks are basically invested or reﬁnanced in matching currencies. The remaining currency risk is limited using sensitivity limits. Equity investments are limited by means of normal limits.

1.4 Risk monitoring Group Risk Controlling monitors the observance of market risk limits and is also responsible for reporting market risks.

1.5 Value-at-risk and sensitivities by risk categories

Value-at-risk The value-at-risk is an estimate of the potential loss as a result of adverse market ﬂuctuations and is calculated at the LLB Group on the basis of a conﬁdence level of 95 percent and a holding period of four weeks.

Sensitivities Interest rate sensitivity measures the loss in value for the LLB Group caused by an increase in the interest rate level of 100 basis points. Currency risks are measured by a sensitivity analysis assuming a rise in the exchange rate of the Swiss Franc of 10 percent relative to the other currencies, and equity price risks are measured assuming a price fall of 10 percent on the equity market.

in CHF thousands 31.12.2007 31.12.2006

Value- Value- at-risk Sensitivity at-risk Sensitivity Currency risks 19'200 16'790 Interest rate risks 14'010 52'353 7'975 30'508 Equity price risks 9'561 21'543 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:40 Uhr Seite 108

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1.6 Currency risks

Balance sheet by currency

in CHF thousands 31.12.2007

CHF USD EUR Others Total Assets Cash and balances with central banks 191'035 1'100 19'004 634 211'773 Due from banks 2'707'273 989'395 3'090'491 485'027 7'272'186 Due from customers 7'827'692 931'779 482'573 34'990 9'277'034 Trading portfolio assets 6'535 900 1'664 1'243 10'342 Derivative ﬁnancial instruments 78'935 8'319 12'733 6'696 106'683 Financial investments at fair value through proﬁt and loss 481'851 2'474'210 828'449 4'062 3'788'572 Investments in associates 296'507 0 0 0 296'507 Property and equipment 161'762 0 0 0 161'762 Investment property 32'18900032'189 Goodwill and other intangible assets 250'992 0 0 0 250'992 Deferred tax assets 13'94900013'949 Accrued income and prepaid expenses 34'739 20'973 20'830 2'649 79'191 Other assets 66'426 50'865 11'665 14'698 143'654

Total assets reported in the balance sheet 12'149'885 4'477'541 4'467'409 549'999 21'644'834 Delivery claims from forex spot, forex futures and forex options transactions 1'612'954 1'488'222 750'243 578'726 4'430'145

Total assets 13'762'839 5'965'763 5'217'652 1'128'725 26'074'979

Liabilities and equity Due to banks 274'656 87'686 272'321 79'200 713'863 Due to customers 7'696'539 1'675'488 3'041'784 463'386 12'877'197 Liabilities from insurance contracts 0 66'640 20'924 0 87'564 Financial liabilities, directly evaluated at fair value 0 2'646'745 831'014 0 3'477'759 Derivative ﬁnancial instruments 67'171 8'664 12'681 6'696 95'212 Debt issued and mortgage-backed securities 2'165'906 0 84'864 0 2'250'770 Current tax liabilities 48'57300048'573 Deferred tax liabilties 74'10600074'106 Accrued expenses and deferred income 54'720 8'724 13'112 2'859 79'415 Other liabilities 248'272 8'977 5'013 4'662 266'924 Provisions 2'250 0 0 0 2'250 Share capital 154'000 0 0 0 154'000 Less treasury shares –201'619 0 0 0 –201'619 Capital reserve 49'61800049'618 Retained earnings 1'571'9860001'571'986 Other reserves 4'279 0 0 0 4'279 Minority interests 92'93700092'937

Liabilities and equity reported in the balance sheet 12'303'394 4'502'924 4'281'713 556'803 21'644'834 Delivery liabilities from forex spot, forex futures and forex options transactions 1'651'442 1'449'811 750'258 578'634 4'430'145

Total liabilities and equity 13'954'836 5'952'735 5'031'971 1'135'437 26'074'979

Net position per currency –191'997 13'028 185'681 –6'712 0 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 109

Consolidated Risk management financial statement 109

Balance sheet by currency

in CHF thousands 31.12.2006

CHF USD EUR Others Total Assets Cash and balances with central banks 148'974 783 15'858 402 166'017 Due from banks 3'240'172 1'134'951 2'294'962 370'029 7'040'114 Due from customers 4'334'205 646'058 468'022 58'946 5'507'231 Trading portfolio assets 2'252 0 0 0 2'252 Derivative ﬁnancial instruments 8'460 6'801 8'153 15'834 39'248 Financial investments at fair value through proﬁt and loss 526'669 560'313 618'496 22'617 1'728'095 Property and equipment 104'860 0 0 0 104'860 Investment property 25'529 0 0 0 25'529 Goodwill and other intangible assets 142'918 0 0 0 142'918 Deferred tax assets 9'321 0 0 0 9'321 Accrued income and prepaid expenses 28'541 15'768 15'798 1'841 61'948 Other assets 71'828 36'160 19'575 14'646 142'209

Total assets reported in the balance sheet 8'643'729 2'400'834 3'440'864 484'315 14'969'742 Delivery claims from forex spot, forex futures and forex options transactions 596'560 576'286 416'352 376'305 1'965'503

Total assets 9'240'289 2'977'120 3'857'216 860'620 16'935'245

Liabilities and equity Due to banks 419'657 372'112 366'219 50'241 1'208'229 Due to customers 5'767'593 1'325'390 2'208'083 403'482 9'704'548 Liabilities from insurance contracts 0 7'720 8'794 0 16'514 Financial liabilities, directly evaluated at fair value 0 603'213 687'109 0 1'290'322 Derivative ﬁnancial instruments 11'186 7'158 5'031 12'027 35'402 Debt issued 849'688 0 79'144 0 928'832 Current tax liabilities 31'156 0 0 0 31'156 Deferred tax liabilties 53'959 0 0 0 53'959 Accrued expenses and deferred income 31'758 9'527 8'416 1'107 50'808 Other liabilities 201'737 0 1'954 0 203'691 Provisions 8'405 0 0 0 8'405 Share capital 164'000 0 0 0 164'000 Less treasury shares –396'419 0 0 0 –396'419 Capital reserve 49'080 0 0 0 49'080 Retained earnings 1'619'079 0 0 0 1'619'079 Other reserves 2'136 0 0 0 2'136

Liabilities and equity reported in the balance sheet 8'813'015 2'325'120 3'364'750 466'857 14'969'742 Delivery liabilities from forex spot, forex futures and forex options transactions 595'178 577'728 416'407 376'190 1'965'503

Total liabilities and equity 9'408'193 2'902'848 3'781'157 843'047 16'935'245

Net position per currency –167'904 74'272 76'059 17'573 0 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 110

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1.7 Interest rate risks

Interest rate sensitivity positions by currencies

Increase per 100 basis points Within 1 to 3 3 to 12 1 to 5 Over in CHF thousands 1 month months months years 5 years Total 31.12.2007 CHF 707 –1'198 –5'084 –25'672 –15'482 –46'729 EUR –655 –765 –765 –356 –23 –2'564 USD –365 –319 –2'206 172 –30 –2'748 Other currencies –156 –25 –156 25 0 –312

All currencies –469 –2'307 –8'211 –25'831 –15'535 –52'353

31.12.2006 CHF 147 –1'354 –4'274 –13'268 –8'427 –27'176 EUR –348 –250 –378 –367 1 –1'342 USD –245 –279 –1'178 –99 0 –1'801 Other currencies –99 –25 –60 0 –5 –189

All currencies –545 –1'908 –5'890 –13'734 –8'431 –30'508 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 111

Consolidated Risk management financial statement 111

Interest rate repricing balance sheet In the interest rate repricing balance sheet excess assets, equity and liability are calculated using ﬁxed interest rate and derivative positions in the balance sheet and broken down into cycle times. The positions within an unspeciﬁed duration of interest rate repricing are allocated to the corresponding cycle times on the basis of a replication.

Interest commitments of ﬁnancial assets and liabilities (nominal) per 31.12.2007

Within 1 to 3 3 to 12 1 to 5 Over 5 in CHF thousands 1 month months months years years Total Financial assets Cash and balances with central banks 105'0620000105'062 Due from banks 4'542'351 1'226'310 973'620 156'686 150 6'899'117 Due from customers 2'623'204 918'295 2'081'211 3'031'650 484'901 9'139'261 Trading portfolio assets 0 0 2'000 1'055 1'700 4'755 Financial investments 12'321 71'051 47'778 284'579 103'584 519'313

Total ﬁnancial assets 7'282'938 2'215'656 3'104'609 3'473'970 590'335 16'667'508 Derivative ﬁnancial instruments 300'867 241'997 440'613 741'776 51'220 1'776'473

Total 7'583'805 2'457'653 3'545'222 4'215'746 641'555 18'443'981

Financial liabilities Due to banks 535'785 24'765 1'594 110'000 0 672'144 Due to customers 9'290'808 1'062'173 1'024'323 1'317'804 10'133 12'705'241 Debt issued and mortgage-backed securities 62'831 80'417 339'278 1'551'868 229'607 2'264'001

Total ﬁnancial liabilities 9'889'424 1'167'355 1'365'195 2'979'672 239'740 15'641'386 Derivative ﬁnancial instruments 102'430 296'360 788'085 436'418 153'180 1'776'473

Total 9'991'854 1'463'715 2'153'280 3'416'090 392'920 17'417'859

Interest rate repricing exposure –2'408'049 993'938 1'391'942 799'656 248'635 1'026'122 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 112

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Interest commitments of ﬁnancial assets and liabilities (nominal) per 31.12.2006

Within 1 to 3 3 to 12 1 to 5 Over 5 in CHF thousands 1 month months months years years Total Financial assets Cash and balances with central banks 124'4730000124'473 Due from banks 5'322'737 636'162 724'728 215'035 700 6'899'362 Due from customers 1'445'690 601'862 1'433'278 1'585'392 270'173 5'336'395 Trading portfolio assets 00002'224 2'224 Financial investments 5'515 39'822 64'000 266'886 73'466 449'689

Total ﬁnancial assets 6'898'415 1'277'846 2'222'006 2'067'313 346'563 12'812'143 Derivative ﬁnancial instruments 183'431 241'536 613'370 470'000 0 1'508'337

Total 7'081'846 1'519'382 2'835'376 2'537'313 346'563 14'320'480

Financial liabilities Due to banks 1'094'609 73'362 22'857 0 0 1'190'828 Due to customers 7'120'265 691'206 746'775 975'748 0 9'533'994 Debt issued 11'877 22'811 124'958 751'202 32'312 943'160

Total ﬁnancial liabilities 8'226'751 787'379 894'590 1'726'950 32'312 11'667'982 Derivative ﬁnancial instruments 50'000 100'000 615'000 582'177 161'160 1'508'337

Total 8'276'751 887'379 1'509'590 2'309'127 193'472 13'176'319

Interest rate repricing exposure –1'194'905 632'003 1'325'786 228'186 153'091 1'144'161 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 113

Consolidated Risk management financial statement 113

2 Liquidity risk Liquidity risk means that current and future payment obligations may not be completely fulfilled or not fulfilled on time or, in the case of a liquidity squeeze, refinancing funds may only be available at higher market rates (refinancing costs), or that assets may only be liquidated at markdowns to market rates (market liquidity risk). The LLB's liquidity risk measurement is based on a system that monitors the maturities structure of cash flows. The following table shows the maturities according to contractual periods.

Maturity of ﬁnancial assets and liabilities (nominal)

Due Due bet- Due between ween 12 Due Sight within 3 3 months to months to after 5 in CHF thousands deposits Callable months 12 months 5 years years Total 31.12.2007 Total ﬁnancial assets 10'587'658 6'262'664 6'135'498 2'629'955 2'992'991 646'235 29'255'001

Financial liabilities Due to banks 334'550 207'000 25'490 3'364 115'384 0 685'788 Due to customers 2'295'900 5'978'293 3'633'968 544'354 303'604 11'196 12'767'315 Liabilities from insurance contracts 586 86'978 0 0 0 0 87'564 Financial liabilities 23'292 3'454'467 0 0 0 0 3'477'759 Derivative ﬁnancial instruments 8'314'791 0 0 0 0 0 8'314'791 Debt issued and mortgage-backed securities 0 0 157'768 377'330 1'650'682 247'195 2'432'975

Total ﬁnancial liabilities 10'969'119 9'726'738 3'817'226 925'048 2'069'670 258'391 27'766'192

Net liquidity exposure –381'461 –3'464'074 2'318'272 1'704'907 923'321 387'844 1'488'809

31.12.2006 Total ﬁnancial assets 6'379'148 2'808'845 5'475'431 2'145'613 1'884'212 305'989 18'999'238

Financial liabilities Due to banks 465'951 469'542 251'926 23'150 0 0 1'210'569 Due to customers 1'817'384 5'141'418 2'491'915 282'842 3'751 0 9'737'310 Liabilities from insurance contracts 0 16'514 0 0 0 0 16'514 Financial liabilities 0 1'290'322 0 0 0 0 1'290'322 Derivative ﬁnancial instruments 4'408'437 0 0 0 0 0 4'408'437 Debt issued 0 0 38'392 138'195 787'914 33'373 997'874

Total ﬁnancial liabilities 6'691'772 6'917'796 2'782'233 444'187 791'665 33'373 17'661'026

Net liquidity exposure –312'624 –4'108'951 2'693'198 1'701'426 1'092'547 272'616 1'338'212 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 114

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3 Credit risk Within the scope of credit risk management, vital importance is attached to the avoidance of credit risks and the early identiﬁcation of default risks. In addition to systematic risk / return management at the individual loan level, the LLB Group proactively manages its credit risks at the credit portfolio level. The primary objective is to reduce the overall level of risk through diversiﬁcation and a stabili- sation of expected returns.

3.1 Credit risk management Processes and organisational structures ensure that credit risks are identiﬁed, uniformly evaluated, controlled, monitored and included in risk reporting. The process of granting a loan is based on a thorough evaluation of the borrower's creditworthiness, the possible impairment and the legal existence of collateral, as well as risk classiﬁcation in a rating process performed by experienced credit specialists. Loans are granted within the scope of the individual credit authorisation limits.

3.2 Evaluation of credit risks The consistent evaluation of credit risks represents an essential prerequisite of successful risk management. The credit risk can be broken down into the components: probability of default, loss given default and the exposure at the time point of the default.

Probability of default The LLB Group assesses the probability of default of individual counterparties by mean of an internal rating system. The different rating procedures are adapted to suit the different characteristics of borro- wers. The credit risk management ratings employed for banks and debt instruments are based on external ratings from recognised rating agencies. The reconciliation of the internal rating with the external rating is carried out in accordance with the following master scale.

LLB rating Description External Rating (Moody's) AAA, Aa1, Aa2, Aa3, A1, A2, A3, 1 to 4 Investment grade Baa1, Baa2, Baa3 5 to 8, not rated * Standard monitoring Ba1, Ba2, Ba3, B1, B2 9 to 10 Special monitoring B3, Caa, Ca, C 11 to 14 Sub-standard Default

* Non-rated loans are covered and subject to limits.

Loss given default The loss given default is inﬂuenced by the amount of collateralisation and the costs of realising the collateral. It is expressed as a percentage of the individual commitment.

The potential loss at portfolio level is broken down as follows at the LLB Group.

Expected loss The expected loss is a future-related, statistical concept with which the LLB Group estimates the ave- r age annual costs incurred because positions in the current portfolio are classiﬁed as impaired. The expected loss is determined on the basis of the probability of default of a counterparty, the expected credit exposure with this counterparty at the time point of the default and the loss given default. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 115

Consolidated Risk management financial statement 115

Value-at-risk concept The value-at-risk approach aims at computing the size of ﬂuctuations in credit losses incurred by means of a statistical model and to show the change in the risk status of the credit portfolio.

Scenario analysis The modelling of external credit losses is performed on the basis of stress scenarios, which enable us to evaluate the effects of ﬂuctuations in the default rates of the assets pledged as collateral taking into consideration the existing risk concentration in every portfolio.

3.3 Credit risk management Credit risk management has the task of actively inﬂuencing the risk situation of the LLB Group. This is carried out using a limits system, risk-adjusted pricing, through the possibility of using risk hedging instruments and the speciﬁc repayment of credit commitments. Risk management is conducted both at the individual loan and at the portfolio level.

Risk limitation The LLB Group has in place a comprehensive limits system to restrict credit risk exposure. In addition to the limitation of individual credit risks, to prevent risk concentrations, the LLB Group assigns limits for countries, segments and sectors.

Risk mitigation To mitigate credit risk exposure, the LLB Group takes security mainly in the form of pledged assets and ﬁnancial collateral. Mortgages and Lombard loans are granted only on a covered basis. In the case of ﬁnancial collateral in the form of marketable securities, we determine their collateral value by applying a schedule of reductions, the size of which is based on the quality, liquidity, volatility and complexity of the individual instruments.

Derivatives To mitigate risks, the LLB Group can also employ credit derivatives. During the last two years, this possibility has not been utilised.

3.4 Monitoring of credit risks The organisational structure of the LLB Group ensures that the business divisions which cause the risks and those that evaluate, manage and monitor them are completely separated. Individual credit risks are monitored by means of a comprehensive limits system. Infringements are immediately reported to the senior officer responsible.

3.5 Value allowances for credit risks

Speciﬁc value allowances Each impaired claim is individually assessed and the restructuring strategy as well as the estimate of future recoverable amounts are determined. An individual value allowance is allocated on the basis of this criteria.

General value allowances A portfolio is classiﬁed as impaired on a collective basis, if there are objective indications that the portfolio contains impaired claims, which cannot however be determined individually. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 116

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3.6 Country risks A country risk arises if speciﬁc political or economic conditions in a country affect the value of a for - eign position. Country risk is composed of transfer risk (e. g. restrictions on the free movement of money and capital) and other country risks (e. g. country-related liquidity, market and correlation risks). Country risks are controlled on the basis of a limits systems and are continually monitored. Ratings provided by a recognised rating agency are utilised for certain individual countries.

3.7 Maximum credit risk without considering collateral

in CHF thousands 31.12.2007 31.12.2006 Credit risks from balance sheet transactions Due from banks 7'272'186 7'040'114 Loans to customers mortgage loans 6'570'305 3'128'928 loans to public authorities 328'868 691'015 other loans 2'377'861 1'687'288 Trading portfolio fixed interest securities 4'562 2'224 Derivative financial instruments 106'683 39'248 Financial investments at fair value through profit and loss fixed interest securities 511'818 445'838

Total assets 17'172'283 13'034'655

Credit risks from off-balance-sheet transactions Contingent liabilities 202'021 196'256 Credit risks 187'119 19'822

Total credit risks 17'561'423 13'250'733

3.8 Due from banks and loans to customers

in CHF thousands 31.12.2007 31.12.2006

Loans to Due from Loans to Due from customers banks customers banks Neither overdue nor value allowance made 8'894'618 7'272'186 5'326'187 7'040'114 Overdue but no value allowance made 145'362 0 125'850 0 Value allowance (speciﬁc) 299'630 0 59'156 0 Value allowance (general) 1'939 0 1'656 0

Gross 9'341'549 7'272'186 5'512'849 7'040'114 Minus allowances (speciﬁc) –63'597 0 –5'495 0 Minus allowances (general) –918 0 –123 0

Net 9'277'034 7'272'186 5'507'231 7'040'114 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 117

Consolidated Risk management financial statement 117

Due from banks and loans to customers neither overdue nor value allowances made

Loans to Total Mortgage public Other loans to Due from in CHF thousands loans authorities loans customers banks 31.12.2007 Investment grade 325'467 2'669 38'695 366'831 5'556'235 Standard monitoring 5'930'651 326'199 2'150'852 8'407'702 1'715'951 Special monitoring 99'109 0 20'976 120'085 0 Sub-standard 0 0 0 0 0 Total 6'355'227 328'868 2'210'523 8'894'618 7'272'186

31.12.2006 Investment grade 103'815 3'474 21'766 129'055 5'060'457 Standard monitoring 2'993'455 687'542 1'476'609 5'157'606 1'979'657 Special monitoring 8'370 0 31'156 39'526 0 Sub-standard 0 0 0 0 0 Total 3'105'640 691'016 1'529'531 5'326'187 7'040'114

Loans to customers overdue but no value allowances made

Loans to Total Mortgage public Other loans to in CHF thousands loans authorities loans customers 31.12.2007 Overdue by up to 30 days 1'240 0 69'405 70'645 Overdue 31 to 60 days 1'182 0 65'535 66'717 Overdue 61 to 90 days 1'990 0 6'010 8'000 Total 4'412 0 140'950 145'362

31.12.2006 Overdue by up to 30 days 0 0 58'610 58'610 Overdue 31 to 60 days 0 0 61'573 61'573 Overdue 61 to 90 days 0 0 5'667 5'667 Total 0 0 125'850 125'850 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 118

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Total speciﬁc value allowances

Loans to Total Mortgage public Other loans to in CHF thousands loans authorities loans customers 31.12.2007 Fair value of cover 246'389 0 53'241 299'630 Total speciﬁc value allowances –210'666 0 –25'367 –236'033

Total speciﬁc value allowances 35'723 0 27'874 63'597

31.12.2006 Fair value of cover 25'055 0 34'101 59'156 Total speciﬁc value allowances –23'288 0 –30'373 –53'661

Total speciﬁc value allowances 1'767 0 3'728 5'495

Newly agreed loans to customers Newly agreed loans to customers are not substantial.

3.9 Debt instruments

in CHF thousands 31.12.2007 31.12.2006

Desig- Desig- Trading nated Trading nated portfolio fair value Total portfolio fair value Total AAA 2'875 308'727 311'602 0 211'398 211'398 AA- to AA+ 0 67'153 67'153 993 96'896 97'889 A- to A+ 1'677 10'884 12'561 1'231 26'928 28'159 Lower than A- 0 54'554 54'554 0 5'348 5'348 Without a rating 10 70'500 70'510 0 105'268 105'268

Total 4'562 511'818 516'380 2'224 445'838 448'062

3.10 Taken over collateral

in CHF thousands 31.12.2007 31.12.2006

Real estate/ properties Total Total As at 1 January 2007 000 Changes to scope of consolidation 6'302 6'302 0 Additions/disposals –3'549 –3'549 0 Proﬁt/loss from disposals 514 514 0

As at 31 December 2007 3'267 3'267 0

Taken over collateral is disposed of again as soon as possible. Taken over collateral is reported in other assets. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 119

Consolidated Risk management financial statement 119

3.11 Risk concentration

Risk concentration by regions

Liechten- Europe stein without North in CHF thousands Switzerland FL/CH America Asia Other Total 31.12.2007 Due from banks 1'330'007 5'455'086 425'118 14'007 47'968 7'272'186 Due from customers mortgage loans 6'570'30500006'570'305 loans to public authorities 328'8680000328'868 other loans 1'339'607 200'079 5'278 487'239 345'658 2'377'861 Trading portfolio fixed interest securities 10 3'682 0 0 870 4'562 Derivative financial instruments 89'525 15'259 654 1'019 226 106'683 Financial investments at fair value through profit and loss fixed interest securities 177'177 239'139 74'128 4'855 16'519 511'818

Total 9'835'499 5'913'245 505'178 507'120 411'241 17'172'283

31.12.2006 Due from banks 2'079'470 4'312'784 585'678 9'943 52'239 7'040'114 Due from customers mortgage loans 3'128'92800003'128'928 loans to public authorities 691'0150000691'015 other loans 961'822 209'273 6'946 176'910 332'337 1'687'288 Trading portfolio fixed interest securities 0 2'2240002'224 Derivative financial instruments 27'395 11'107 52 242 452 39'248 Financial investments at fair value through profit and loss fixed interest securities 11'683 316'349 72'166 4'895 40'745 445'838

Total 6'900'313 4'851'737 664'842 191'990 425'773 13'034'655 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 120

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Risk concentration by sectors

Financial Private in CHF thousands services Utilities Real estate households Other Total 31.12.2007 Due from banks 7'272'18600007'272'186 Due from customers mortgage loans 56'453 7'020 527'337 5'258'879 720'616 6'570'305 loans to public authorities 0 16'668 0 0 312'200 328'868 other loans 830'700 66'303 342'712 637'263 500'883 2'377'861 Trading portfolio fixed interest securities 4'552000104'562 Derivative financial instruments 96'212 813 638 9'020 0 106'683 Financial investments at fair value through profit and loss 304'641 136'816 30 0 70'331 511'818 fixed interest securities

Total 8'564'744 227'620 870'717 5'905'162 1'604'040 17'172'283

31.12.2006 Due from banks 7'040'11400007'040'114 Due from customers mortgage loans 28'402 350 227'150 2'668'188 204'838 3'128'928 loans to public authorities 0000691'015 691'015 other loans 719'669 58'501 99'070 446'038 364'010 1'687'288 Trading portfolio fixed interest securities 2'22400002'224 Derivative financial instruments 31'743 0 0 7'505 0 39'248 Financial investments at fair value through profit and loss fixed interest securities 292'393000153'445 445'838

Total 8'114'545 58'851 326'220 3'121'731 1'413'308 13'034'655

4 Operational and legal risk The LLB defines operational risks as being the danger of losses due to the failure of internal procedures, people or IT systems or as a result of an external event. Legal risks form a part of operational risks. The LLB has in place an active and systematic process for managing operational risks. Policies and directives have been formulated for the identification, control and management of this risk category, which are valid for all Group companies. Potential and incurred losses from various organisational units, as well as significant external events, are recorded and evaluated promptly at the parent bank. In addition, the LLB collates and analyses risk ratios, e. g. from the areas of due diligence and employee transactions for own account. Ultimately, the risks are limited by means of internal rules and regulations regarding organisation and control. The risk management process is supported by specialised software. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 121

Consolidated Risk management financial statement 121

5 Insurance risk The swisspartners Group with its business units in the Principality of Liechtenstein and on the Cayman Islands writes solely fund-linked life insurance policies for wealthy private clients. These fund-linked life insurance policies generally comprise a mixed form of life insurance, which provide the policyholder with more flexibility in the investment process. Consequently, the policyholder also bears the investment risk and benefits from any investment performance. Neither the repurchase value not the expiration benefits are guaranteed with these insurance pro ducts. In the event of death, the beneficiary receives the insured value or the fund capital, if this exceeds the insured amount. To finance the cover in the event of death in the case of a positive difference between the insured amount and the fund capital, a risk premium is charged to the fund each quarter. The specific insurance risk factor of death is constantly monitored by the responsible actuaries. In doing so they employ standard actuarial methods stipulating adequate security margins (value-at- risk of the overall loss repartition at the specified security level). With the exception of a small own risk amount, the risks in the event of death are completely reinsured. The reinsurers have at least an «AA-» rating from Standard & Poor’s and the default risk associated with them is regularly checked.

6 Strategic risk For the LLB Group a strategic risk represents the endangering of a projected business result due to the inadequate focusing of the Group on the political, economic, technological, social or eco logical environment. Accordingly, these risks can arise as a result of an inadequate strategic decision- making process, unforeseeable events on the market or a deﬁcient implementation of the selected strategies. Strategic risks are regularly reviewed by the Group Board of Directors.

7 Reputational risk If risks are not identiﬁed, adequately managed and monitored, this can lead not only to substantial ﬁnancial losses, but also to reputational damage. The LLB Group does not regard reputational risk as an independent risk category, but rather as the danger of additional losses stemming from the categories concerned. Consequently, a reputational risk can both cause losses in all risk categories, such as market or credit risks, or be caused by such losses. Reputational risks are regularly reviewed by the Audit and Risk Committee and by the Group Board of Directors.

8 Fair value of financial instruments The table shows the fair values of financial instruments based on the valuation methods explained in the following, and assumptions. The fair value corresponds to the amount, at which assets could be exchanged or obligations fulfilled between knowledgeable, willing parties. If an active market exists (e. g. a recognised exchange), the LLB Group determines the fair value on the basis of the market price or other market quotes. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 122

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in CHF thousands 31.12.2007 31.12.2006

Carrying Carrying value Fair value Deviation value Fair value Deviation Assets Cash and balances with central banks 211'773 211'773 0 166'017 166'017 0 Due from banks 7'272'186 7'291'994 19'808 7'040'114 7'052'637 12'523 Due to customers 9'277'034 9'354'554 77'520 5'507'231 5'565'566 58'335 Trading portfolio assets 10'342 10'342 0 2'252 2'252 0 Derivative ﬁnancial instruments 106'683 106'683 0 39'248 39'248 0 Financial investments at fair value through proﬁt and loss 3'788'572 3'788'572 0 1'728'095 1'728'095 0

Liabilities Due to banks 713'863 716'749 –2'886 1'208'229 1'208'098 131 Due to customers 12'877'197 12'820'154 57'043 9'704'548 9'662'860 41'688 Liabilities from insurance contracts 87'564 87'564 0 16'514 16'514 0 Financial liabilities, directly evaluated at fair value 3'477'759 3'477'759 0 1'290'322 1'290'322 0 Derivative ﬁnancial instruments 95'212 95'212 0 35'402 35'402 0 Debt issued and mortgage- backed securities 2'250'770 2'270'384 –19'614 928'832 966'018 –37'186

Deviation between fair value and carrying value 131'871 75'491

The following valuation methods are applied in calculating the fair value of ﬁnancial instruments:

Cash and balances with central banks and money market instruments. These financial instruments have a maturity or a refinancing profile of maximum one year. The book value corresponds approximately to fair value.

Due from/to banks and customers The fair value of these positions having a maturity or a refinancing profile are determined using similar maturity swap rates. Replicate portfolios are employed for products for which fixed interest rates or cash flows are not known in advance.

Trading portfolio assets, derivative financial instruments, financial investments at fair value thtrough profit and loss, investment property and due from/to insurance business For the majority of financial instruments, fair value corresponds to the market value. The fair value of financial instruments without an established market value is determined using generally accepted valuation models. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 123

Consolidated Risk management financial statement 123

9 Capital management Capital adequacy is monitored by the LLB Group and by the individual operative units in accordance with the equity capital regulations of the Principality of Liechtenstein, which are based on the standards of the Basel Committee on Banking Supervision.

Tier 1 capital

in CHF thousands 31.12.2007 31.12.2006 Share capital 154'000 164'000 Capital reserve 49'618 49'080 Retained earnings 1'571'986 1'619'079 Other reserves 4'279 2'136 Minority interests 92'937 0 Less distribution of proﬁt –96'743 –92'947 Non-realised gains after tax –10'838 –8'732 Less treasury shares –201'619 –396'419 Less intangible assets –250'992 –142'918

Total tier 1 capital 1'312'628 1'193'279

Risk-weighted assets Balance sheet transactions 13'355'518 7'828'168 Off-balance sheet transactions 153'425 95'905 Total risk-weighted assets 13'508'943 7'924'073

Tier 1 ratio (in percent) 9.7 15.1 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 124

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Segment reporting

Segment reporting by business division On account of the new organisational structure, from 1 January 2007, the LLB Group introduced a new system of segment reporting (see page 18). The segment reporting comprises the three operative business divisions: Domestic Clients, International Clients and Institutional Clients. Income and expenses which are not directly attributable to these divisions are reported under Corporate Center.

Principles of management accounting The external segment reporting reﬂects the internal organisational structure and management accounting. Income and expenses are assigned to the business divisions on the basis of client relationships. Indirect costs resulting from services provided internally between the segments are accounted for according to the principle of causation, and are recorded as a cost reduction for the service provider and a cost increase for the service recipient. Intercompany payments for internal services are based on agreements such as those that would be concluded with independent third parties (« at arm's length»). These agreements are periodically renegotiated in order to take into consideration new economic circumstances. Income and expenditures of a superordinate nature that cannot be attributed to the segments are booked to the Corporate Center. Consolidated items are also booked to the Corporate Center. The segment assets and segment liabilities are attributed to the individual business divisions on the basis of business activities. For a description of assets under management see the section « Assets under management». Capital expenditures are additions to property, equipment and intangible assets. The imputable resources correspond to the personnel capacities utilised in the form of services procured from the Corporate Center and other business areas.

Year ended December 2007

Inter- Institu- Domestic national tional Corporate Total in CHF thousands Clients Clients Clients Center Group Operating income 189'362 127'341 209'406 34'003 560'112 Operating expenses –109'437 –51'989 –69'850 –41'196 –272'472

Business division proﬁt before tax 79'925 75'352 139'556 –7'193 287'640

Additional information Divisional assets (in CHF millions) 7'270 1'950 3'456 8'969 21'645 Divisional liabilities (in CHF millions) 7'401 3'140 7'358 2'075 19'974 Depreciation and amortisation 9'481 4'356 3'979 3'311 21'127 Capital expenditure 180'823 3'048 2'618 6'327 192'816 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 125

Consolidated Segment reporting financial statement 125

Year ended December 2006

Inter- Institu- Domestic national tional Corporate Total in CHF thousands Clients Clients Clients Center Group Operating income 105'754 98'878 186'366 65'890 456'888 Operating expenses –50'097 –37'741 –62'086 –36'182 –186'106

Business division proﬁt before tax 55'657 61'137 124'280 29'708 270'782

Additional information Divisional assets (in CHF millions) 3'570 864 2'034 8'502 14'970 Divisional liabilities (in CHF millions) 4'353 2'051 5'307 1'821 13'532 Depreciation and amortisation 3'573 3'698 3'658 2'874 13'803 Capital expenditure 8'082 3'001 5'152 9'978 26'213

Segment reporting by geographic location

Year ended December 2007

Other Total in CHF thousands Liechtenstein countries Group Operating income 388'173 171'939 560'112 Total assets (in CHF millions) 13'273 8'372 21'645 Capital expenditure 6'194 186'622 192'816

Year ended 2006

Other Total in CHF thousands Liechtenstein countries Group Operating income 374'929 81'959 456'888 Total assets (in CHF millions) 12'876 2'094 14'970 Capital expenditure 6'759 19'454 26'213

Reporting is based on operating location. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 126

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Notes to the consolidated income statement

1 Net interest income

in CHF thousands 2007 2006 +/– % Interest and discount income from money market instruments 0 16 –100.0 Interest income from banks 289'617 196'524 47.4 Interest income from customers 271'757 137'746 97.3 Loan commissions with the character of interest 3'007 1'991 51.0

Total interest income 564'381 336'277 67.8

Interest expenses on amounts due to banks –63'838 –52'257 22.2 Interest expenses on amounts due to customers –276'145 –133'669 106.6 Other interest expenses –3'528 –2'472 42.7

Total interest expenses –343'511 –188'398 82.3

Total net interest income 220'870 147'879 49.4

2 Net fee and commission income

in CHF thousands 2007 2006 +/– % Brokerage fees 160'012 119'233 34.2 Custody fees 52'959 39'768 33.2 Advisory and management fees 79'624 65'589 21.4 Investment fund fees 45'380 39'923 13.7 Credit-related fees and commissions 3'599 1'515 137.6 Insurance-related fees and commissions * 9'226 7'043 31.0 Commission income from other services 48'309 39'208 23.2

Total fee and commission income 399'109 312'279 27.8

Brokerage fees paid –22'916 –22'184 3.3 Other fee and commission expenses –59'464 –43'984 35.2

Total fee and commission expenses –82'380 –66'168 24.5

Total net fee and commission income 316'729 246'111 28.7

* Insurance-related fees and commissions contain premiums and commissions received as well as net value changes of the investments, commitments and provisions from insurance business. The change in fair value can be seen in note 27. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 127

Consolidated Notes to the consolidated income statement financial statement 127

3 Net trading income

in CHF thousands 2007 2006 +/– % Securities 378 338 11.8 Foreign exchange trading 24'991 19'995 25.0 Foreign note trading 3'989 4'396 –9.3 Precious metals trading 756 1'559 –51.5 Interest rate instruments * 1'318 6'698 –80.3

Total net trading income 31'432 32'986 –4.7

* The LLB Group uses interest rate swaps for trading and hedging purposes. If the interest rate swaps do not fulﬁl the approval criteria according to IAS 39 in order to be booked as hedging transactions, they are treated as interest rate swaps for trading purposes.

4 Net income from ﬁnancial investments at fair value through proﬁt and loss

in CHF thousands 2007 2006 +/– % Interest income 14'004 10'609 32.0 Dividend income 784 1'033 –24.1 Price gains –4'301 25'399 –116.9

Total net income from ﬁnancial investments at fair value through proﬁt and loss * 10'487 37'041 –71.7

* Only gains from financial assets which belong to the LLB Group's own holdings are shown. The gains from financial assets through insurance contracts are shown in the position « Insurance-related fees and commissions» (note 2). The distribution of financial assets can be seen in note 18.

5 Share of net income from investments in associates

in CHF thousands 2007 2006 Non-realised price gains –3'492 0 Realised price gains 0 0

Total share of net income from investments in associates –3'492 0

6 Other income

in CHF thousands 2007 2006 +/– % Net income from investments in property 159 300 –47.0 Value ﬂuctuations on purchase price liabilities from acquisitions –18'461 –8'586 115.0 Other ordinary income 2'388 1'157 106.4

Total other income –15'914 –7'129 123.2 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 128

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7 Personnel expenses

in CHF thousands 2007 2006 +/– % Salaries and bonuses –141'694 –96'867 46.3 Contributions to retirement plans –12'580 –8'870 41.8 Other social contributions –9'819 –7'235 35.7 Other personnel expenses –6'966 –4'837 44.0 Capitalised personnel expenses 1'029 1'082 –4.9

Total personnel expenses –170'030 –116'727 45.7

The average headcount of LLB Group, adjusted to consider part-time staff, amounted to 843 in 2007 and 618 in 2006.

8 General and administrative expenses

in CHF thousands 2007 2006 +/– % Occupancy –8'042 –7'023 14.5 Expenses for IT, machinery and other equipment –15'937 –9'110 74.9 Information and communication expenses –12'399 –8'265 50.0 Marketing and public relations –17'966 –9'413 90.9 Consulting and audit fees –9'600 –6'445 49.0 Capital tax and other tax –3'012 –2'492 20.9 Other –8'054 –5'971 34.9 Capitalised general and administrative expenses 384 371 3.5

Total general and administrative expenses –74'626 –48'348 54.4

9 Depreciation and amortisation

in CHF thousands 2007 2006 +/– % Depreciation of property –6'022 –4'611 30.6 Depreciation of equipment –5'693 –3'770 51.0 Depreciation of investment property –590 –406 45.3 Amortisation of intangible assets –8'822 –5'016 75.9

Total depreciation and amortisation –21'127 –13'803 53.1

10 Value adjustments, provisions and losses

in CHF thousands 2007 2006 +/– % Credit risks –4'995 –153 3'164.7 Operational risks –1'694 –7'075 –76.1

Total value adjustments, provisions and losses –6'689 –7'228 –7.5 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 129

Consolidated Notes to the consolidated income statement financial statement 129

11 Income tax expense

in CHF thousands 2007 2006 +/– % Current –47'713 –29'142 63.7 Deferred * 3'139 4'066 –22.8

Total income tax expenses –44'574 –25'076 77.8

* See also note 29.

The LLB Group made net tax payments, including domestic and foreign taxes, of CHF 36.1 million for the full year 2007 and of CHF 17.1 million for the full year 2006.

The tax on pre-tax Group proﬁt deviates from the theoretical amount, calculated on the basis of the weighted average Group tax rate on proﬁt before tax, as follows:

in CHF thousands 2007 2006 +/– % Operating proﬁt before tax 287'640 270'782 6.2

Income tax as per assumed rate of 11.5 % (2006: 10.5 %) –33'079 –28'432 16.3

Increase / (decrease) resulting from Difference between actual and assumed tax rates * –14'634 –710 1'961.1 Operating loss carry forwards 0 –257 –100.0 Non-taxable revenues –5'912 –59 9'920.3 Non-deductable depreciation on intangible assets 1'282 640 100.3 Other non-deductible expenses 7'769 3'742 107.6

Total income tax expenses –44'574 –25'076 77.8

* The capital reduction at LLB AG led to a one-time increase in the corporate income tax rate of ﬁve percentage points.

12 Earnings per share

2007 * 2006 +/– % Net proﬁt attributable to the shareholders of LLB AG (in CHF thousands) 240'041 245'706 –2.3 Weighted average shares outstanding 28'463'422 29'719'440 –4.2

Basic earnings per share (in CHF) 8.43 8.27 2.0

Net proﬁt attributable to the shareholders of LLB AG (in CHF thousands) 240'041 245'706 –2.3 Net proﬁt for diluted earnings per share attributable to the shareholders of LLB AG (in CHF thousands) 240'041 245'706 –2.3 Weighted average shares outstanding 28'463'422 29'719'440 –4.2 Weighted average shares outstanding for diluted earnings per share 28'463'422 29'719'440 –4.2

Diluted earnings per share (in CHF) 8.43 8.27 2.0

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Notes to the consolidated balance sheet

13 Cash and balances with central banks

in CHF thousands 31. 12. 2007 31. 12. 2006 + / – % Cash 58'678 39'565 48.3 Balances in postal current accounts, payable on demand –5'733 –3'021 89.8 Balances with central banks 158'828 129'473 22.7

Total cash and balances with central banks 211'773 166'017 27.6

14 Due from banks

in CHF thousands 31. 12. 2007 31. 12. 2006 + / – % Due from banks on demand 1'585'257 1'798'570 –11.9 at maturity or callable 5'386'269 5'145'611 4.7 allowance for credit losses 0 0

Total due from banks 6'971'526 6'944'181 0.4

Due from banks through insurance contracts pursuant to IFRS 4 21'371 542 3'843.0 pursuant to IAS 39 279'289 95'391 192.8

Total due from banks through insurance contracts 300'660 95'933 213.4

Total due from banks 7'272'186 7'040'114 3.3

15 Due from customers

in CHF thousands 31. 12. 2007 31. 12. 2006 + / – % Mortgages 6'606'028 3'130'695 111.0 Public institutions 328'868 691'015 –52.4 Other loans and advances 2'347'014 1'547'650 51.7 Due from customers through insurance contracts pursuant to IFRS 4 62 67 –7.5 Due from customers through insurance contracts pursuant to IAS 39 59'577 143'422 –58.5 Allowance for credit losses –64'515 –5'618 1'048.4

Total due from customers 9'277'034 5'507'231 68.5 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 131

Consolidated Notes to the consolidated balance sheet financial statement 131

By type of collateral

in CHF thousands 31. 12. 2007 31. 12. 2006 + / – % Secured by real estate 6'737'671 3'190'619 111.2 Other collateral 1'775'918 1'363'346 30.3 Unsecured 763'445 953'266 –19.9

Total 9'277'034 5'507'231 68.5

Allowance for credit losses

Loans Mortgage to public Other in CHF thousands loans authorities loans Total As at 1 January 2007 1'767 0 3'851 5'618 Write-offs 1'423––1'296 –2'719 Recoveries and doubtful interest income 179 1'199 1'378 Increase in credit loss allowances recognised in the income statement 8'075 8'685 16'760 Decrease in credit loss allowances recognised in the income statement –7'386 –5'211 –12'597 Foreign currency translation and other adjustments 0 0 0 Changes in the scope of consolidation 34'511 21'564 56'075

As at 31 December 2007 35'723 0 28'792 64'515

As at 1 January 2006 1'748 0 5'543 7'291 Write-offs –225 –982 –1'207 Recoveries and doubtful interest income –182 –71 –253 Increase in credit loss allowances recognised in the income statement 767 1'278 2'045 Decrease in credit loss allowances recognised in the income statement –341 –1'917 –2'258 Foreign currency translation and other adjustments 0 0 0 Changes in the scope of consolidation 0 0 0

As at 31 December 2006 1'767 0 3'851 5'618

16 Trading portfolio assets

in CHF thousands 31. 12. 2007 31. 12. 2006 + / – % Debt instruments listed 4'562 2'224 105.1 unlisted 0 0

Total debt instruments 4'562 2'224 105.1

Equity instruments listed 5'780 0 unlisted 0 28 –100.0

Total equity instruments 5'780 28 20'542.9

Total trading portfolio assets 10'342 2'252 359.2 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 132

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17 Derivative financial instruments Within the scope of balance sheet management, interest rate swaps are concluded to hedge interest rate fluctuation risks. These instruments are fair value hedges. Furthermore, derivative financial instruments are employed primarily within the context of transactions for clients. Both standardised and OTC derivatives are traded for the account of clients. First-class Swiss banks act as counterparties. The bank does not assume a market-maker function. Derivative financial instruments are used to a limited extent in the management of the bank's own securities portfolio.

Term to Term to Term to Term to maturity maturity maturity maturity within 3 3 to 12 1 to 5 after 5 Total months months years years Total contract in CHF thousands PRV NRV PRV NRV PRV NRV PRV NRV PRV NRV volume 31.12.2007 Interest rate contracts Trading swaps 0 0 1'003 2'674 9'226 3'684 1'793 1'910 12'022 8'268 1'427'473 Fair value hedge 0 0 0 0 2'719 268 4'207 0 6'926 268 349'000 Forward contracts 0 0 0 0 0 19 373 6 373 25 19'726

Foreign exchange contracts Forward contracts 33'685 33'286 5'967 5'762 65 64 0 0 39'717 39'112 4'348'683 Over the counter (OTC) contracts 22'862 22'862 20'786 20'786 0 0 0 0 43'648 43'648 1'969'368

Precious metals contracts Forward contracts 2'642 2'536 0 0 0 0 0 0 2'642 2'536 165'086 Over the counter (OTC) contracts 64 64 27 27 0 0 0 0 91 91 3'868

Equity / index contracts Over the counter (OTC) contracts 1'264 1'264 0 0 0 0 0 0 1'264 1'264 31'587

Total derivative ﬁnancial instruments 60'517 60'012 27'783 29'249 12'010 4'035 6'373 1'916 106'683 95'212 8'314'791

31.12.2006 Interest rate contracts Trading swaps 0 0 275 1'965 5'427 5'779 1'025 596 6'727 8'340 1'257'168 Fair value hedge 0 0 0 0 3'926 0 1'678 284 5'604 284 393'290 Forward contracts 20 340 12 24 0 0 0 0 32 364 38'242

Foreign exchange contracts Forward contracts 19'663 19'400 3'159 2'958 11 10 0 0 22'833 22'368 2'563'288 Over the counter (OTC) contracts 834 834 968 968 0 0 0 0 1'802 1'802 98'439

Precious metals contracts Forward contracts 53 47 0 0 0 0 0 0 53 47 6'355 Over the counter (OTC) contracts 125 125 350 350 0 0 0 0 475 475 10'821

Equity / index contracts Over the counter (OTC) contracts 638 638 1'084 1'084 0 0 0 0 1'722 1'722 40'834

Total derivative ﬁnancial instruments 21'333 21'384 5'848 7'349 9'364 5'789 2'703 880 39'248 35'402 4'408'437

PRV: Positive replacement value. NRV: Negative replacement value. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 133

Consolidated Notes to the consolidated balance sheet financial statement 133

18 Financial investments at fair value through proﬁt and loss

in CHF thousands 31. 12. 2007 31. 12. 2006 + / – % Debt instruments listed 463'956 413'373 12.2 unlisted 47'862 32'465 47.4

Total debt instruments 511'818 445'838 14.8

Equity instruments listed 35'433 97'870 –63.8 unlisted 60'173 117'556 –48.8

Total equity instruments 95'606 215'426 –55.6

Financial investments through insurance contracts pursuant to IFRS 4 42'255 15'011 181.5 pursuant to IAS 39 3'138'893 1'051'820 198.4

Total ﬁnancial investments through insurance contracts 3'181'148 1'066'831 198.2

Total ﬁnancial investments at fair value through proﬁt and loss 3'788'572 1'728'095 119.2

19 Investments in associates

in CHF thousands 2007 2006 As at 1 January 0 0 Additions * 299'999 0 Disposals 0 0 Non-realised price gains –3'492 0 Realised price gains 0 0

Total investments in associates 296'507 0

* In January 2007, securities were withdrawn from ﬁnancial investments and placed in a fund.

Details of investments in associates

Name Business activity Ownership interest in % LLB Qualiﬁed Investors Strategy One, Vaduz Investment company 49.99

in CHF thousands 2007 2006 Net fund assets 593'017 0 Proﬁt / (loss) –6'984 0 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 134

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Investment Allocation per in percent strategy 31.12.2007 Asset Allocation Liquidity 0.0 0.8 Bonds 50.0 48.6 Equities 30.0 29.3 Hedge funds 20.0 21.3

Total 100.0 100.0

20 Property and equipment as well as investment property

Total property Other and other Investment in CHF thousands Property equipment equipment property As at 1 January 2006 Cost 150'179 41'824 192'003 34'322 Accumulated depreciation –65'448 –35'589 –101'037 –8'387

Net book amount 84'731 6'235 90'966 25'935

Year ended December 2006 Opening net book amount 84'731 6'235 90'966 25'935 Additions 16'915 5'360 22'275 0 Disposals / write-offs 0 0 0 0 Depreciation –4'611 –3'770 –8'381 –406

Closing net book amount 97'035 7'825 104'860 25'529

As at 31 December 2006 Cost 167'094 47'151 214'245 34’322 Accumulated depreciation –70'059 –39'326 –109'385 –8’793

Net book amount 97'035 7'825 104'860 25'529

Year ended December 2007 Opening net book amount 97'035 7'825 104'860 25'529 Additions 3'882 8'549 12'431 0 Changes in the scope of consolidation 53'443 2'796 56'239 7'250 Disposals / write-offs 0 –53 –53 0 Depreciation –6'022 –5'693 –11'715 –590

Closing net book amount 148'338 13'424 161'762 32'189

As at 31 December 2007 Cost 224'419 58'443 282'862 41'572 Accumulated depreciation –76'081 –45'019 –121'100 –9'383

Net book amount 148'338 13'424 161'762 32'189 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 135

Consolidated Notes to the consolidated balance sheet financial statement 135

Additional information

in CHF thousands 31. 12. 2007 31. 12. 2006 + / – % Fire insurance value of property 251'150 162'115 54.9 Fire insurance value of investment property 22'981 6'595 248.5 Fire insurance value of other equipment 62'822 40'389 55.5 Fair value of investment property 33'185 25'935 28.0

There are no ﬁnancing leases for premises or equipment.

Future net commitments for operating leases

in CHF thousands 31. 12. 2007 31. 12. 2006 + / – % Due 2008 235 225 4.4 Due 2009 to 2013 3'354 3'225 4.0 Due 2014 and thereafter 20'575 20'881 –1.5

Total future net commitments for operating leases 24'164 24'331 –0.7

Operating expenses for 2007 include CHF thousands 3'497 and for 2006 CHF thousands 3'159 from operating leases. At year's end, LLB Group was obligated under a number of non-cancellable operating leases for premises and equipment used mainly for banking purposes. The signiﬁcant premises leases include renewal options and escalation clauses.

Future net receivables from operating leases

in CHF thousands 31. 12. 2007 31. 12. 2006 + / – % Due 2008 505 187 170.1 Due 2009 to 2013 877 72 1'118.1 Due 2014 and thereafter 2'005 0

Total future net receivables from operating leases 3'387 259 1'207.7

Other income for 2007 includes CHF 1'603 and for 2006 CHF thousands 283 from operating leases. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 136

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21 Goodwill and other intangible assets

Other intangible in CHF thousands Goodwill assets Software Total As at 1 January 2006 Cost 114'801 55'015 9'780 179'596 Accumulated amortisation –26'261 –2'716 –6'623 –35'600

Net book amount 88'540 52'299 3'157 143'996

Year ended December 2006 Opening net book amount 88'540 52'299 3'157 143'996 Additions 0 599 3'339 3'938 Disposals / write-offs 0 0 0 0 Amortisation 0 –4'129 –887 –5'016

Closing net book amount 88'540 48'769 5'609 142'918

As at 31 December 2006 Cost 114'801 55'614 13'119 183'534 Accumulated amortisation –26'261 –6'845 –7'510 –40'616

Net book amount 88'540 48'769 5'609 142'918

Year ended December 2007 Opening net book amount 88'540 48'769 5'609 142'918 Additions 0 0 4'142 4'142 Disposals / write-offs 0 0 0 0 Changes in the scope of consolidation 55'620 56'760 374 112'754 Amortisation 0 –7'404 –1'418 –8'822

Closing net book amount 144'160 98'125 8'707 250'992

As at 31 December 2007 Cost 170'421 112'374 17'635 300'430 Accumulated amortisation –26'261 –14'249 –8'928 –49'438

Net book amount 144'160 98'125 8'707 250'992

Goodwill Goodwill is allocated to the Group's cash-generating units (CGUs) identiﬁed according to the business segments.

in CHF thousands 2007 2006 Domestic Clients 74'844 19'224 International Clients 33'943 33'943 Institutional Clients 35'373 35'373 Corporate Center 0 0

Total 144'160 88'540 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 137

Consolidated Notes to the consolidated balance sheet financial statement 137

In an impairment test, the obtainable amount of a CGU is determined of the basis on value-in-use calculations. These calculations use cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using an average estimated growth rate.

Inter- Institu- Domestic national tional in percent Clients Clients Clients Key assumptions used for value-in-use calculations: Cash flow / operating profit (average planned value) 31.5 31.3 26.3 Average growth rate used to extrapolate cash flows beyond the budget period 1.5 0.8 1.5 Discount rate 8.5 10.8 10.8

Management has determined the revenues and expenditures based on developments in the past and expectations regarding future developments as well as strategic development. The average growth rate is in accord with forecasts made by the industry. The discount rate, which is applied to the cash flow projections, is an equity capital cost rate and reflects the specific risks of the segment concerned. An analysis of the value retention of goodwill revealed that no impairment of value has occured.

For analysis purposes, the Group makes estimates and assumptions regarding future developments. The extrapolated figures obtained in this manner only very rarely correspond to actual subsequent events and conditions. The following overview provides information about significant risks within the next financial year in the form of an adjustment of book values:

Actual value to planned value Value impairment goodwill

Domestic International Institutional Clients Clients Clients Cash ﬂow before tax –10.0 % none none none Discount rate +10.0 % none none none

If subsequently the cash ﬂow before tax were to be higher or the discount interest rate lower than estimated by management, an already effected, unplanned write-off (value impairment) of goodwill cannot be reversed. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 138

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Other intangible assets Customer relationships and brand values are reported as assets under other intangible assets. These are amortised over a period of 10 to 15 years on a straight-line basis. Estimated aggregated amortisation on intangible assets amounts to:

in CHF thousands 2008 8'125 2009 8'125 2010 8'125 2011 8'084 2012 7'903 2013 and thereafter 57'763

Total 98'125

22 Other assets

in CHF thousands 31. 12. 2007 31. 12. 2006 + / – % Settlement account 106'038 128'471 –17.5 VAT and other tax receivables 1'072 606 76.9 Precious metal holdings 10'265 13'105 –21.7 Acquired properties 3'267 0 Claims from reinsurance contracts 23'012 * 0 Other receivables 0 27 –100.0

Total other assets 143'654 142'209 1.0

* In 2006, amounts due from reinsurance contracts were offset with amounts due to reinsurance contracts (CHF thousands 16'791).

23 Assets pledged

in CHF thousands 31.12.2007 31.12.2006

Carrying Actual Carrying Actual value liability value liability Financial investments 90'191 9 100'231 10 Due from banks 8'295 8'295 00 Mortgage loans 775'320 624'378 00

Total assets pledged 873'806 632'682 100'231 10

The ﬁnancial investments are pledged with national and central banks for Lombard limits, for stock exchange guarantees and to safeguard the business activity of foreign organisations pursuant to local legal provisions. The amounts due from banks and mortgage loans are pledged as collateral for loans and mortgage-backed securities. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 139

Consolidated Notes to the consolidated balance sheet financial statement 139

24 Due to banks

in CHF thousands 31. 12. 2007 31. 12. 2006 + / – % On demand 260'813 43'045 505.9 At maturity or callable 453'050 573'938 –21.1

Total due to banks 713'863 616'983 15.7

25 Due to customers

in CHF thousands 31. 12. 2007 31. 12. 2006 + / – % On demand 6'242'279 4'869'518 28.2 At maturity or callable 4'130'522 2'933'806 40.8 Savings accounts 2'504'396 2'492'470 0.5

Total due to customers 12'877'197 10'295'794 25.1

26 Liabilities from insurance contracts

in CHF thousands 2007 2006 + / – % As at 1 January 33'305 14'943 122.9 Newly issued insurance contracts 48'956 488 9'932.0 Expired or terminated insurance contracts 0 –122 –100.0 Performance change –1'785 667 –367.6 Changes to provisions from insurance business 7'088 538 1'217.5

As at 31 December 87'564 16'514 430.2 Claims from reinsurance contracts –23'012 * 0

Status on 31 December net 64'552 16'514 290.9

* In 2006 the net amount was reported in the balance sheet. The claims from reinsurance contracts amounted to CHF thousands 16'791.

27 Financial liabilities at fair value through proﬁt and loss

in CHF thousands 2007 2006 + / – % As at 1 January 1'290'322 941'294 37.1 Newly issued insurance contracts 2'112'865 266'113 694.0 Expired or terminated insurance contracts –9'688 –14'347 –32.5 Performance change 84'260 97'262 –13.4

As at 31 December * 3'477'759 1'290'322 169.5

* The stated book value corresponds to the repayment amount. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 140

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28 Debt issued and mortgage-backed securities

in CHF thousands 31. 12. 2007 31. 12. 2006 + / – % Convertible bonds * 256'769 255'672 0.4 Medium-term notes ** 1'369'623 673'160 103.5 Mortgage-backed securities 624'378 0

Total debt issued and mortgage-backed securities 2'250'770 928'832 142.3

* On 12 April 2006, Liechtensteinische Landesbank AG made a convertible bond issue amounting to CHF thousands 270'000. The coupon amounts to 1.65 percent, the bond is due in 2011 and the conversion price amounts to CHF 117.75. Bond holders are entitled to convert bonds having a par value of CHF 1'000.– each from 6 July 2006 to 7 April 2011 into 8.492569 bearer shares of Liechtensteinische Landesbank AG (adjustments are possible). The proceeds from the bond issue were recognised partly as a liability and partly as an equity component. The fair value of the liability component amounted to CHF thousands 258'118; it was calculated on the basis of the market interest rate for an equivalent non-convertible bond. The remaining amount of CHF thousands 11'882 was reported as an equity component in other reserves. Trans- action costs amounting to CHF thousands 4'191 were deducted from the component reported as liabilities, while costs of CHF thousands 193 were deducted from other reserves. The effective interest rate amounted to 2.60 percent. ** The average interest rate per 31 December 2007 was 2.30 percent and per 31 December 2006 was 1.85 percent.

29 Deferred taxes

in CHF thousands 31. 12. 2007 31. 12. 2006 + / – % Deferred tax assets Loss carry forwards 0 0 Property and equipment 2'329 2'175 7.1 Others 11'620 7'146 62.6

Total deferred tax assets 13'949 9'321 49.7

Deferred tax liabilities Allowance for credit losses 16 36 –55.6 Intangible assets 17'660 7'588 132.7 Property 860 0 Financial investments through proﬁt and loss 807 4'215 –80.9 Other provisions 54'763 42'120 30.0

Total deferred tax liabilities 74'106 53'959 37.3

Net movement on deferred taxes As at 1 January 44'638 48'704 –8.3 Change with no effect on the income statement 36 0 Increase in deferred taxes recognised in the income statement 6'954 3'255 113.6 Decrease in deferred taxes recognised in the income statement –10'093 –7'321 37.9 Changes in the scope of cosolidation 18'622 0

As at 31 December 60'157 44'638 34.8

Deferred taxes arise from temporary differences between valuations used for IFRS and for statutory tax purposes. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 141

Consolidated Notes to the consolidated balance sheet financial statement 141

30 Other liabilities

in CHF thousands 31. 12. 2007 31. 12. 2006 + / – % Outstanding medium-term notes 5'098 2'860 78.3 Unredeemed coupons 654 248 163.7 Charge accounts 21'755 4'913 342.8 Accounts payable 17'453 14'828 17.7 Clearing accounts 25'581 9'910 158.1 Pension liabilities 49'189 44'538 10.4 Liabilities for outstanding holidays / ﬂexi-time 4'960 3'079 61.1 Liabilities from other long-term beneﬁts 7'435 6'325 17.5 Purchase price liabilities from acquisitions 134'799 116'990 15.2

Total other liabilities 266'924 203'691 31.0

31 Provisions

in CHF thousands 2007 2006 + / – % As at 1 January 8'405 5'150 63.2 Provisions applied –1'254 –2'905 –56.8 Increase in provisions recognised in the income statement 356 6'469 –94.5 Release of provisions recognised in the income statement –6'350 –309 1'955.0 Changes in the scope of consolidation 1'093 0

As at 31 December 2'250 8'405 –73.2

Provisions for operational risks * 2'250 8'405 –73.2

Total 2'250 8'405 –73.2

* These are principally provisions for legal and litigation risks.

in CHF thousands 31. 12. 2007 31. 12. 2006 + / – % Short-term provisions 1'500 3'986 –62.4 Long-term provisions 750 4'419 –83.0

Total 2'250 8'405 –73.2

32 Legal cases Due to the nature of the business LLB Group is involved in, various disputes and legal proceedings arise in the ordinary course of business. LLB Group makes provisions for such matters when, in the opinion of management and its professional advisors, it is probable that a payment or loss will be made by Group companies, and the amount can be reasonably estimated. All provisions for legal proceedings are included in the item provisions in the balance sheet. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 142

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33 Share capital

31. 12. 2007 * 31. 12. 2006 + / – % Number of bearer shares (authorised and fully paid up) 30'800'000 32'800'000 –6.1 Par value per bearer share (in CHF) 5 5 0.0

Total par value (in CHF thousands) 154'000 164'000 –6.1

* Adjusted to consider the share split 1:10 per 10 May 2007.

34 Treasury shares

in CHF Quantity thousands As at 1 January 2006 * 74'260 4'726 Purchases ** 4'449'060 407'476 Disposals –180'810 –15'783

As at 31 December 2006 ** 4'342'510 396'419 Purchases 96'933 8'291 Disposals –124'350 –9'758 Capital reduction –2'000'000 –193'333

As at 31 December 2007 ** 2'315'093 201'619

* Adjusted to consider the share split 1:10 per 10 May 2007. ** On 28 March 2006, Liechtensteinische Landesbank AG repurchased 230'000 LLB bearer shares having a value of CHF thousands 200'154 from the Principality of Liechtenstein to secure the issue of convertible bonds (see note 28). For the purpose of a capital reduction, on 4 May 2006 Liechtensteinische Landesbank AG repurchased 200'000 LLB bearer shares having a value of CHF thousands 193'333 from the Principality of Liechtenstein. The repurchase price of the shares in both cases was calculated on the basis of the average closing prices of the last 30 trading days prior to the transaction date. *** For proﬁt participation in the ﬁnancial year 2007 (payment in 2008) 31'190 shares or CHF thousands 3'300 were settled with treasury shares (previous year: 36'400 shares or CHF thousands 3'636).

35 Capital reserves

in CHF thousands 2007 2006 + / – % As at 1 January 49'080 48'036 2.2 Net movements in treasury shares 538 1'044 –48.5

As at 31 December 49'618 49'080 1.1 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 143

Consolidated Notes to the consolidated balance sheet financial statement 143

36 Retained earnings

in CHF thousands 2007 2006 + / – % As at 1 January 1'619'079 1'458'356 11.0 Net proﬁt attributable to the shareholders of LLB AG 240'041 245'706 –2.3 Dividends of LLB AG * –91'164 –79'637 14.5 Allocation to LLB Employer Foundation –2'000 –2'000 0.0 Capital reduction –190'972 0 Dividends paid to minority interests –3'093 –2‘342 32.1 Other changes 95 –1'004 –109.5

As at 31 December 1'571'986 1'619'079 –2.9

* The dividend per share amounted CHF 3.20 (previous year: CHF 2.80).

37 Other reserves

in CHF thousands 2007 2006 + / – % As at 1 January 2'136 –1'470 –245.3 Foreign currency translation –128 –91 40.7 Assets inﬂows according to IAS 19 2'000 2'000 0.0 Actuarial proﬁt and loss according to IAS 19 (after taxes) 271 –9‘992 –102.7 Equity component convertible bond 0 11‘689 –100.0

As at 31 December 4‘279 2‘136 100.3

38 Minority interests

in CHF thousands 2007 2006 As at start of the period 0 0 Acquisition of Bank Linth LLB AG 92'029 0 Actuarial proﬁt and loss according to IAS 19 (after taxes) 192 0 Reduction nominal value minority interests –2'462 0 Increase (reduction) in minority interests 153 0 Minority interests in net proﬁt 3'025 0

As at end of the period 92'937 0 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 144

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Notes to the consolidated off-balance-sheet transactions

39 Contingent liabilities and assets

in CHF thousands 31. 12. 2007 31. 12. 2006 + / – % Collateral guarantees and similar instruments 133'348 131'660 1.3 Performance guarantees and similar instruments 68'673 64'596 6.3

Total contingent liabilities 202'021 196'256 2.9

Total contingent assets * 3'423 3'423 0.0

* In connection with the sale of a financial investment, it was agreed between the parties that a portion of the sales price (CHF thousands 3'423) would only be paid after the fulfilment of certain conditions specified in the purchase agreement. This flow of funds is uncertain and is therefore reported as a contingent asset.

40 Credit risks

in CHF thousands 31. 12. 2007 31. 12. 2006 + / – % Irrevocable commitments 178'423 19'767 802.6 Pay-in and pay-up obligations 8'696 55 15'710.9

Total credit risks 187'119 19'822 844.0

41 Fiduciary transactions

in CHF thousands 31. 12. 2007 31. 12. 2006 + / – % Fiduciary deposits with other banks 3'573'530 3'067'622 16.5 Fiduciary loans 81'347 85'441 –4.8 Total ﬁduciary transactions 3'654'877 3'153'063 15.9

42 Lending and pension transactions with securities

in CHF thousands 31.12.2007 31.12.2006

Carrying Actual Carrying Actual value liability value liability Own securities lent or provided as collateral within the scope of securities lending or borrowing transactions 3'030 3'030 138'416 138'416 of which capable of being resold or further pledged without restrictions 3'030 3'030 138'416 138'416 Securities borrowed or accepted as collateral within the scope of securities lending or borrowing transactions which are capable of being resold or further pledged without restrictions 2'281'222 2'785'242 of which resold or further pledged securities 2'281'222 2'785'242 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 145

Consolidated Pension plans and other long-term benefits financial statement 145

Pension plans and other long-term beneﬁts

The LLB Group has established a number of pension plans in compliance with prevailing legal provisions, which insure most employees in the event of death, invalidity and retirement. In addition, further plans exist for long-service anniversaries which qualify as other long-term employee benefits. In the case of most of the pensions plans, contributions are made by employees, which are then supplemented by corresponding contributions from the LLB Group. The pensions schemes are financed in compliance with local legal and fiscal regulations. Benefits are usually dependent on one or more factors such as the number of years the employee was covered in the plan, age, pensionable salary and to some extent on the accumulated old age capital. The assets of the funded pension plans are held within separate foundations or insur- ances and may not revert to the employer. The « projected unit credit method» is used to determine the benefit obligations for defined bene fit pension plans. The last actuarial valuations were performed on 31 De cem ber 2006 and 31 De - cember 2007. The actuarial profits and losses are included in the consolidated statement of recognised income and expense under equity.

The following amounts are reported in the income statement as personnel expenses:

Other long-term in CHF thousands Pension plans beneﬁts

2007 2006 2007 2006 Current service cost –14'477 –10'359 –828 –679 Interest on obligations –9'874 –7'263 –203 –181 Expected return on plan assets 11'807 8'788 0 0 Net actuarial (losses) gains recognised 0 0 162 –56 Amortisation of unvested past service cost –36 –36 0 0 Vested past service cost 0 0 0 0

Total included in employee beneﬁts expense –12'580 –8'870 –869 –916

Actual return on plan assets 2'427 10'854 0 0

The following overview shows the gains and losses reported in the consolidated statement of recognised income and expense:

in CHF thousands Pension plans

2007 2006 At at 1 January –24'722 –13'731 Actuarial gains / (losses) during the year 9'390 –13'057 Asset gains / (losses) –9'380 2'066 Alteration of non-reported assets 489 0

As at 31 December –24'223 –24'722 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 146

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Development of plan obligations Other long-term in CHF thousands Pension plans beneﬁts

2007 2006 2007 2006 As at 1 January 276'719 240'707 6'325 6'079 Current service cost 14'477 10'359 828 679 Plan participant contributions 5'474 3'935 0 0 Interest on obligations 9'874 7'263 203 181 Beneﬁt payments and net transferrals –6'338 1'398 –707 –670 Pension payments by employer –26 0 0 0 Changes in the scope of consolidation 67'382 0 948 0 Actuarial (gains) or losses –9'390 13'057 –162 56 Past service cost 0 0 0 0

As at 31 December 358'172 276'719 7'435 6'325

Development of plan assets

in CHF thousands Pension plans

2007 2006

As at 1 January 231'486 205'470 Plan participant contributions 5'474 3'935 Contributions by employer 12'983 9'829 Beneﬁt payments and net transferrals –6'338 1'398 Expected return on plan assets 11'807 8'788 Actuarial gains or (losses) –9'380 2'066 Changes in the scope of consolidation 68'930 0 Others 0 0

As at 31 December 314'962 231'486

The pension fund assets per 31 December 2007 include shares of the LLB with a market value of CHF thousands 91 (CHF thousands 422 at 31 December 2006) and shares of Bank Linth LLB AG with a market value of CHF 102 (CHF thousands 0 at 31 December 2006). The expected Group contributions for the 2008 ﬁnancial year amount to CHF thousands 12'000 for the pension plans and CHF thousands 750 for the other long-term beneﬁts. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 147

Consolidated Pension plans and other long-term benefits financial statement 147

Overview of the net debt recognised in the balance sheet Other long-term in CHF thousands Pension plans beneﬁts

31.12.2007 31.12.2006 31.12.2007 31.12.2006 Present value of funded obligations 357'966 276'719 0 0 Minus fair value of plan assets 314'962 231'486 0 0

Under- / (Over-)funding 43'004 45'233 0 0 Present value of unfunded obligations 206 0 7'435 6'325 Unrecognised past service cost –659 –695 0 0 Non-reported assets 6'638 0 0 0

Net debt recognised in the balance sheet 49'189 44'538 7'435 6'325

Asset classes and expected returns

in percent 31.12.2007 31.12.2006

Share Share of total Expected of total Expected assets return assets return Equities 17.8 7.25 28.4 7.00 Bonds 36.4 3.25 48.2 3.00 Real estate 5.8 5.00 7.5 5.00 Others including cash 40.0 3.05 15.9 2.00

in percent 2008 2007 Weighted return 4.00 4.15

The expected return on bonds and shares is based on the yield for long-term federal medium-term notes and the corresponding market expectations. The remaining expected returns are based on empirical values.

Weighted average of principal actuarial assumptions

Calculation of plan obligations

Other long-term in percent Pension plans beneﬁts

31.12.2007 31.12.2006 31.12.2007 31.12.2006 Discount rate 3.25 3.00 3.25 3.00 Future salary increases 1.99 2.00 1.67 2.00 Future pension indexations 0.25 0.25 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 148

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Calculation of annual costs Other long-term in percent Pension plans beneﬁts

31.12.2007 31.12.2006 31.12.2007 31.12.2006 Discount rate 3.00 3.00 3.00 3.00 Expected return on plan assets 4.14 4.15

Development of liabilities and assets The following table shows the deviations between actual and assumed development of plan obligations and assets:

in CHF thousands 31.12.2007 31.12.2006 31.12.2005 31.12.2004 Deﬁned beneﬁt obligations 357'966 276'719 240'707 184'285 Minus fair value of assets 314'962 231'486 205'470 153'362

Under- / (Over-)funding 43'004 45'233 35'237 30'923 Experience adjustments on plan liabilities –5'271 –10'759 –742 0 Gains / (losses) on assets –9'380 2'066 8'127 –2'318 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 149

Transactions with closely Consolidated associated companies and persons financial statement 149

Transactions with closely associated companies and persons

The LLB Group is controlled by the Principality of Liechtenstein which owns 57.5 percent of the bearer shares of Liechtensteinische Landesbank AG, Vaduz. 6.5 percent of the bearer shares (2'300'000 shares) are reserved to secure the convertible bond issue. The remaining bearer shares are held by a broad section of the general public. The related parties of the LLB Group comprise the Principality of Liechtenstein, associated companies, the Board of Directors and the Group Executive Board, close family members and enterprises which are controlled by these individuals through their majority shareholding or their role as chairman and/or CEO in these companies, as well as their own pension funds.

Compensation

Contributions to Share-based in CHF thousands Salary ﬁxed Salary variable beneﬁt plans compensation Total

2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 Members of the Board of Directors of LLB AG Hans-Werner Gassner, Chairman BoD from 1 July 2006 268 134 157 66 38 6 0 0 463 206 Erwin Vogt, Chairman BoD up to 30 June 2006 156 92 23 0 271 Michael Ritter, Vice Chairman BoD 107 85 109 94 0 0 0 0 216 179 Helmuth Elkuch, Member 54 43 89 74 0 0 0 0 143 117 Peter Harald Frommelt, Member 54 43 78 65 0 0 0 0 132 108 Ingrid Hassler-Gerner, Member 54 43 79 72 0 0 0 0 133 115 Siegbert Anton Lampert, Member 54 43 68 62 0 0 0 0 122 105 Ewald Marxer, Member 54 43 87 74 0 0 0 0 141 117

Total 645 590 667 599 38 29 0 0 1'350 1‘218

Members of the Group Executive Board Josef Fehr, CEO 700 561 102 103 115 73 268 271 1'185 1'008 Other members of the Group Executive Board 1'146 1'583 169 327 179 214 443 859 1'937 2'983

Total 1'846 2'144 271 430 294 287 711 1'130 3'122 3'991 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 150

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Loans Board of Directors

Variable Other in CHF thousands Fixed mortgages mortgages loans Total

2007 2006 2007 2006 2007 2006 2007 2006 Members of the Board of Directors of LLB AG Hans-Werner Gassner, BoD Chairman from 1 July 2006 0 0 0 0 0 0 0 0 Michael Ritter, BoD Vice Chairman 1'089 1'089 200 200 39 35 1'328 1'324 Helmuth Elkuch, Member 1'500 1'500 1'800 0 46 38 3'346 1'538 Peter Harald Frommelt, Member 0 0 0 0 0 0 0 0 Ingrid Hassler-Gerner, Member 0 100 0 0 0 0 0 100 Siegbert Anton Lampert, Member 0 0 0 0 0 0 0 0 Ewald Marxer, Member 0 0 0 0 0 0 0 0 Closely associated persons 644 784 140 0 22 47 806 831

Total 3'233 3'473 2'140 200 107 120 5'480 3'793

At 31 December 2007, the maturities of the ﬁxed mortgages ranged between 16 and 64 months (previous year: between 5 and 76 months) at interest rates of 2.625 to 3.5 percent p. a. (previous year: 2.375 to 3.5 %).

Loans Group Executive Board

Variable Other in CHF thousands Fixed mortgages mortgages loans Total

2007 2006 2007 2006 2007 2006 2007 2006 Members of the Group Executive Board Josef Fehr, CEO 0 862 784 0 19 0 803 862 Other members of the Group Executive Board 720 1'181 100 1'583 153 218 973 2'982 Closely associated persons 0 39 39 0 468 0 507 39

Total 720 2'082 923 1'583 640 218 2'283 3'883

At 31 December 2007, the maturities of the ﬁxed mortgages ranged between 14 and 43 months (previous year: between 9 and 55 months) at interest rates of 2.0 to 3.0 percent p. a. (previous year: 1.875 to 3.0 %). Of the total amount for mortgages, CHF thousands 1'570 (previous year: CHF thousands 2'894) was granted at the preferential interest rate for staff, the remainder was subject to the standard market interest rate. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 151

Transactions with closely Consolidated associated companies and persons financial statement 151

Transactions Within the scope of its business activities, the LLB Group also carries out banking transactions with associated companies and persons. These transactions relate principally to loans, deposits and services. The volumes of these transactions, their scope and the corresponding income and expense are shown below.

Transactions with corporate bodies

in CHF thousands 2007 2006 + / – % Loans As at 1 January 7'676 7'782 –1.4 Loans issued during the year 3'299 1'536 114.8 Loan repayments during the year –3'212 –1'642 95.6

As at 31 December 7'763 7'676 1.1

In the current year, loans were granted to LLB corporate bodies at interest rates of 2.5 to 9.25 percent (previous year: 2.375 to 3.0 %) and variable maturities (previous year: ﬁxed maturities of 36 to 84 months). The fair value of cover for the newly agreed loans amounts to CHF thousands 8'702 (previous year: CHF thousands 4'871).

No provisions have been recognised in respect of loans granted to corporate bodies.

in CHF thousands 2007 2006 + / – % Deposits As at 1 January 15'167 18'554 –18.3 Change –7'473 –3'387 120.6

As at 31 December 7'694 15'167 –49.3

Income and expenses Interest income 296 147 101.4 Interest expenses –59 –165 –64.2 Other income * 23 60 –61.7 Other expenses ** –76 –49 55.1

Total 184 –7 –2'728.6

* Mainly net fee and commission income. ** Services in connection with consultation.

No guarantees have been granted by the LLB for third parties on behalf of corporate bodies. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 152

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Share ownership (incl. closely associated persons)

Convertible Option in CHF thousands Bearer shares rights rights Total

2007 2006 2007 2006 2007 2006 2007 2006 Members of the Board of Directors of LLB AG Hans-Werner Gassner, BoD Chairman 0 0 0 0 0 0 0 0 Michael Ritter, BoD Vice Chairman 400 400 0 0 0 0 400 400 Helmuth Elkuch, Member 0 0 0 0 0 0 0 0 Peter Harald Frommelt, Member 330 430 0 0 0 0 330 430 Ingrid Hassler-Gerner, Member 1'400 1'400 0 0 0 0 1'400 1'400 Siegbert Anton Lampert, Member 310 310 0 0 0 0 310 310 Ewald Marxer, Member 150 150 0 0 0 0 150 150

Total 2'590 2'690 0 0 0 0 2'590 2'690

Members of the Group Executive Board Joser Fehr, CEO 9'230 9'150 0 0 0 0 9'230 9'150 Elfried Hasler 7'220 7'550 0 0 0 0 7'220 7'550 Norman Oehri 6'950 6'900 0 0 0 0 6'950 6'900 Benno Büchel 8'200 0 0 8'200 Theodor Stäuble 7'760 0 0 7'760

Total 23'400 39'560 0 0 0 0 23'400 39'560

No member of the Board of Directors or the Group Executive Board owns more than 0.1 percent of the voting rights. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 153

Transactions with closely Consolidated associated companies and persons financial statement 153

Transactions with the Principality of Liechtenstein

in CHF thousands 2007 2006 + / – % Deposits As at 1 January 784'268 259'862 201.8 Change –538'158 524'406 –202.6

As at 31 December 246'110 784'268 –68.6

Loans As at 1 January 251'504 1'407 17'775.2 Change –249'681 250'097 –199.8

As at 31 December 1'823 251'504 –99.3

Income and expenses Interest expenses –6'778 –5‘236 29.4 Interest income 26 13 100.0 Other income * 979 6‘690 –85.4 Other expenses ** –377 –377 0.0

Total –6'150 1‘090 –664.2

* Mainly net fee and commission income. ** Relates to the compensation payment for the state guarantee. In July 2005, the EFTA supervisory authority decided that the state guarantee extended to the LLB could remain in effect. The annual compensation payment for the state guarantee is calculated on the basis of criteria speciﬁed in EEA law and on the total amount of the savings deposits and medium-term notes covered by the state guarantee. This ruling shall remain in effect for at least the next 12 years.

No guarantees have been granted by the LLB for third parties on behalf of the Principality of Liech- tenstein. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 154

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Transactions with associated companies

in CHF thousands 2007 2006 Deposits As at 1 January 0 0 Deposits received during the year 5'488 0

As at 31 December 5'488 0

Income and expenses Interest expenses –233 0 Interest income 27 0 Other income * 1'505 0

Total 1'299 0

* Mainly net fee and commission income.

No guarantees have been granted by the LLB for third parties on behalf of associated companies.

Transactions with own pension funds

in CHF thousands 2007 2006 + / – % Deposits As at 1 January 37'169 41'671 –10.8 Deposits repaid during the year –25'119 –4'502 458.0

As at 31 December 12'050 37'169 –67.6

Income and expenses Interest expenses –824 –839 –1.8 Other income * 127 148 –14.2

Total –697 –691 0.9

* Mainly net fee and commission income.

No guarantees have been granted by the LLB for third parties on behalf of own pension funds. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 155

Consolidated Scope of consolidation financial statement 155

Scope of consolidation

Equity interest Jurisdiction of Capital accumu- Subsidiaries Note incorporation Business activity Currency stock lated IFRS Legal Fully consolidated companies Bank Linth LLB AG Uznach Bank CHF 45'102'568 74.5 74.2 Blextra Immobilien AG Uznach Real estate company CHF 100'000 74.5 74.2 Jura Trust AG 1 Vaduz Trust company CHF 100'000 100.0 61.0 Jura Overseas Limited 1 Tortola, BVI Management company CHF 150 100.0 61.0 Jura Overseas (Hong Kong) Limited 1 Hong Kong Management company HKD 10'000 100.0 61.0 Jura Management Trust reg. 1 Vaduz Management company CHF 30'000 100.0 61.0 Nemaru Trust reg. 1 Vaduz Management company CHF 30'000 100.0 61.0 Jura Asset Controlling Trust reg. 1 Vaduz Trust company CHF 100'000 100.0 61.0 Liechtensteinische Landesbank AG Vaduz Bank CHF 154'000'000 100.0 100.0 Liechtensteinische Landesbank (Switzerland) AG Zurich Bank CHF 100'000'000 100.0 100.0 LLB Beteiligungen AG Sargans Investment company CHF 100'000 100.0 100.0 LLB Asset Management AG Vaduz Asset management company CHF 1'000'000 100.0 100.0 LLB Fondsleitung AG Vaduz Fund management company CHF 1'000'000 100.0 100.0 LLB Fund Services AG Vaduz Fund management company CHF 1'000'000 100.0 100.0 LLB Holding (Schweiz) AG Zurich Holding company CHF 250'000 100.0 100.0 LLB Invest AGmvK Vaduz Investment company CHF 50'000 100.0 100.0 LLB Linth Holding AG Gaiserwald Holding company CHF 95'328'000 100.0 100.0 LLB Treuhand AG Vaduz Trust company CHF 1'000'000 100.0 100.0 LLB Qualiﬁed Investors AGmvK Vaduz Investment company CHF 50'000 100.0 100.0 Milfolium Management Inc. Tortola, BVI Management company USD 10'000 100.0 100.0 swisspartners Investment Network AG 2 Zurich Asset management company CHF 500'000 100.0 54.9 swisspartners AG 2 Zurich Trust company CHF 100'000 100.0 54.9 swisspartners Wealth Management AG 2 Zurich Trust company CHF 100'000 100.0 54.9 SP Management AG 2 Vaduz Trust company CHF 100'000 100.0 54.9 Arch Capital Partners AG 2 Zurich Investment company CHF 100'000 100.0 54.9 Consulting Partners Ltd. 2 Tortola, BVI Management company USD 1'000 100.0 54.9 swisspartners Versicherung AG 2 Vaduz Insurance company CHF 6'500'000 100.0 54.9 swisspartners (Liechtenstein) AG 2 Vaduz Asset management company CHF 500'000 100.0 54.9 Grand Cayman, swisspartners Insurance Company SPC Ltd. 2 Cayman Island Insurance company CHF 3'000'000 100.0 54.9 HQE Trust AG 2 Zurich Trust company CHF 100'000 100.0 54.9 Quo Datis AG 2 Zurich Management company CHF 1'000'000 100.0 54.9 CJC Treuhand und Management GmbH 2 Zurich Trust company CHF 100'000 100.0 54.9 Terrenia Anstalt Vaduz Management company CHF 100'000 100.0 100.0

1 On 31 December 2007, the LLB Group held 61 percent of the capital and votes of Jura Trust AG, Vaduz (incl. its subsidiaries) and Jura Asset Controlling Trust reg. A purchase agreement exists, according to which the remaining 39 percent of the capital and votes of Jura Trust AG and Jura Asset Controlling Trust reg. will be acquired on 1 January 2008. On the basis of this commitment, pursuant to IFRS, the remaining 39 percent of the capital and votes do not represent minority interests. Irrespective of the legal situation, therefore, the LLB Group has to consolidate 100 percent of the share capital.

2 On 31 December 2007, the LLB Group held 54.9 percent of the capital and votes of swisspartners Investment Network AG, Zurich (incl. its subsidiaries). An agreement exists, according to which the shareholders are granted the right to sell the remaining 45.1 percent of the capital and votes of swisspartners Investment Network AG to the LLB. At the same time, the shareholders have granted the LLB Group the right to buy the remaining 45.1 percent of the capital and votes of swisspartners Investment Network AG. On the basis of this put/call combination, pursuant to IRFS, the remaining 45.1 percent of the capital and votes do not represent minority interests. Irrespective of the legal situation, therefore, swisspartners Investment Network AG (incl. its subsidiaries) is to be fully consolidated by the LLB Group. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 156

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Equity interest Jurisdiction of Capital accumu- Subsidiaries incorporation Business activity Currency stock lated IFRS Legal Companies fully consolidated for the ﬁrst time Acquisition of subsidaries in 2007 * Bank Linth LLB AG Uznach Bank CHF 45'102'568 74.5 74.2 Blextra Immobilien AG Uznach Real estate company CHF 100'000 74.5 74.2 CJC Treuhand und Management GmbH Zurich Trust company CHF 100'000 100.0 54.9

Newly founded companies in 2007 LLB Linth Holding AG Gaiserwald Holding company CHF 95'328'000 100.0 100.0 HQE Trust AG Zurich Trust company CHF 100'000 100.0 54.9 Quo Datis AG Zurich Management company CHF 1'000'000 100.0 54.9

Companies removed from the scope of consolidation None

Companies accounted under the equity method of accounting LLB Qualiﬁed Investors Strategy One Vaduz Investment company

Changes in company names during the year under review LLB Fund Services AG (previous year: called Global Fund Services AG) LLB Asset Management AG (previous year: called LLB Investment Partners AG)

* See also « Business combinations». LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 157

Consolidated Assets under management financial statement 157

Assets under management

in CHF millions 31.12.2007 31.12.2006 + / – % Assets in own-managed funds 4'270 3'476 22.8 Assets with discretionary mandates 10'720 9'899 8.3 Other assets under management 44'999 37'150 21.1

Total assets under management (incl. double counting) 59'989 50'525 18.7

Of which double counting 3'792 3'282 15.5

Net new money 3'004 2'689 11.7

Breakdown of assets under management

in percent 31.12.2007 31.12.2006 By asset classes Equities 25.8 30.9 Bonds 19.0 18.5 Investment funds 25.3 22.5 Liquidity 29.4 27.7 Precious metals 0.5 0.4

Total 100.0 100.0

By currencies CHF 37.7 36.8 EUR 30.9 32.5 USD 22.3 21.1 Other 9.1 9.6

Total 100.0 100.0

Calculation method Assets under management comprise all client assets managed or held for investment purposes. Ba sic - ally, these include all balances due to customers, ﬁduciary time deposits and all valued portfolio assets. Also included are other types of client assets, which can be deduced from the principle of the investment purpose. Custody assets (assets held solely for transaction and safe-keeping purposes) are not included in assets under management.

Assets in own-managed funds This item comprises the assets of all LLB Group investment funds. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 158

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Assets with discretionary mandates Securities, value rights, precious metals, the market value of ﬁduciary investments with third parties and customer deposits are included in the calculation of assets with discretionary mandates. The ﬁg- ures comprise both assets deposited with Group companies and assets deposited with third parties, for which the Group companies hold a discretionary mandate.

Other assets under management Securities, value rights, precious metals, the market value of ﬁduciary investments with third parties and customer deposits are included in the calculation of other assets under management. The ﬁgures comprise assets, for which an administration or advisory mandate is exercised.

Double counting This item comprises fund units in own-managed funds, which are contained in client portfolios with discretionary mandates and in other client safe-keeping accounts.

Net new money This position is composed of the acquisition of new clients, lost client accounts and inflows or outflows from existing clients. Performance-related asset fluctuations, e. g. price gains, interest and dividend payments including interest, commissions and expenses charged to client accounts, are not regarded as inflows or outflows. No reclassification of custody assets shown as accounted for in client assets took place. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 159

Consolidated Business combinations financial statement 159

Business combinations

On 6 March 2007, 74.2 percent of the share capital and voting rights of Bank Linth LLB AG, Uznach (incl. its subsidiaries) was acquired. Furthermore, as per 6 March 2007, Bank Linth LLB AG had 0.5 percent of the share capital and voting rights as its own holdings. Since this date, Bank Linth LLB AG with all its subsidiaries has been fully consolidated according to the purchase method. The company contributed CHF thousands 66'420 to operating income and CHF thousands 11'870 to the LLB Group's net proﬁt in the period from 6 March to 31 December 2007. If the company had already been purchased on 1 January 2007, the operating income of the LLB Group would have amounted to CHF thousands 573'396 and the net proﬁt of the LLB Group to CHF thousands 245'440.

Details of the net assets acquired and goodwill are as follows:

in CHF thousands Cash paid 322'592 Direct costs relating to the acquisition 2'543 Total purchase price 325'135 Fair value of net assets acquired 269'515

Total goodwill 55'620

The goodwill arises from the high proﬁtability of the purchased company, the comprehensive know- how of the staff and synergy effects, which can be expected from the integration of Bank Linth LLB AG in the LLB Group. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 160

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The assets and liabilities arising from the acquisition are as follows:

Step-up to in CHF thousands Book value fair value Fair value Cash and balances with central banks 34'887 0 34'887 Due from banks 140'081 1'641 141'722 Due from customers 3'349'031 9'986 3'359'017 Trading portfolio 6'975 0 6'975 Derivative financial instruments 12'245 0 12'245 Financial investments at fair value through profit and loss 184'965 0 184'965 Property and equipment 51'208 4'978 56'186 Property held as financial investments 7'250 0 7'250 Intangible assets 374 55'763 56'137 Deferred tax assets 1'975 1'453 3'428 Accrued income and prepaid expenses 24'202 0 24'202 Other assets 13'844 0 13'844 Due to banks –163'655 162 –163'493 Due to customers –2'221'493 –3'710 –2'225'203 Derivative financial instruments –12'373 0 –12'373 Debt issued and mortgage-backed securities –1'077'911 –3'719 –1'081'630 Current tax liabilities –5'512 0 –5'512 Deferred tax liabilities –7'375 –14'474 –21'849 Accrued expenses and deferred income –17'399 0 –17'399 Other liabilities –10'762 0 –10'762 Provisions –1'093 0 –1'093

Net assets 309'464 52'080 361'544 Minority interests (25.5 %) 92'029

Net assets acquired 269'515

Purchase price paid in cash and cash equivalents 325'135 Cash and cash equivalents in purchased company –79'486

Cash outﬂow on acquisition 245'649

Note pursuant to IFRS 3p69: the ﬁrst-time ﬁnancial reporting for Bank Linth LLB AG is only provision- al, as described in paragraph 62. The determination of the fair values of the assets, particularly those of the intangible assets, as well as the liabilities had not been completed on the balance sheet date. Consolidated 160 Ideals Business combinations financial statement 161

The assets and liabilities arising from the acquisition are as follows: On 1 July 2007, CJC Treuhand und Management GmbH, Zurich, was taken over completely. Since this date, CJC Treuhand und Management GmbH, Zurich, has been fully consolidated according to the Step-up to purchase method. in CHF thousands Book value fair value Fair value Cash and balances with central banks 34'887 0 34'887 In the period from 1 July to 31 December 2007, the company contributed CHF thousands 663 to Due from banks 140'081 1'641 141'722 operating income and CHF thousands –135 to the LLB Group's net profit. If the company had already Due from customers 3'349'031 9'986 3'359'017 been purchased on 1 January 2007, the operating income of the LLB Group would have amounted to Trading portfolio 6'975 0 6'975 CHF thousands 560'738 and the net profit of the LLB Group to CHF thousands 243'318. Derivative financial instruments 12'245 0 12'245 Financial investments at fair value through profit and loss 184'965 0 184'965 Details of the net assets acquired and goodwill are as follows: Property and equipment 51'208 4'978 56'186 Property held as financial investments 7'250 0 7'250 in CHF thousands Cash paid 1'600 Intangible assets 374 55'763 56'137 Direct costs relating to the acquisition 0 Deferred tax assets 1'975 1'453 3'428 Total purchase price 1'600 Accrued income and prepaid expenses 24'202 0 24'202 Fair value of net assets acquired 1'600 Other assets 13'844 0 13'844 Due to banks –163'655 162 –163'493 Total goodwill 0 Due to customers –2'221'493 –3'710 –2'225'203 Derivative financial instruments –12'373 0 –12'373 Debt issued and mortgage-backed securities –1'077'911 –3'719 –1'081'630 The assets and liabilities arising from the acquisition are as follows: Current tax liabilities –5'512 0 –5'512 Deferred tax liabilities –7'375 –14'474 –21'849 Step-up to in CHF thousands Book value fair value Fair value Accrued expenses and deferred income –17'399 0 –17'399 Due from banks 71 0 71 Other liabilities –10'762 0 –10'762 Due from customers 966 0 966 Provisions –1'093 0 –1'093 Property and equipment 48 5 53 Net assets 309'464 52'080 361'544 Other intangible assets 0 998 998 Minority interests (25.5 %) 92'029 Accrued income and prepaid expenses 1 0 1 Net assets acquired 269'515 Other assets 404 Current tax liabilities –93 0 –93 Purchase price paid in cash and cash equivalents 325'135 Deferred tax liabilities –76 –201 –277 Cash and cash equivalents in purchased company –79'486 Accrued expenses and deferred income –7 0 –7 Cash outflow on acquisition 245'649 Other liabilities –116 0 –116 Provisions 000

Net assets 798 802 1'600 Note pursuant to IFRS 3p69: the ﬁrst-time ﬁnancial reporting for Bank Linth LLB AG is only provision- Minority interests 0 al, as described in paragraph 62. The determination of the fair values of the assets, particularly those Net assets acquired 1'600 of the intangible assets, as well as the liabilities had not been completed on the balance sheet date.

Purchase price paid in cash and cash equivalents 1'600 Cash and cash equivalents in the purchased company –71

Cash outﬂow on acquisition 1'529 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 162

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Ideals authentic fresh personal experienced _ dedicated distinguished

« I stood up for womens' rights and fought for a range of laws against discrimination and for equality.» 166 Ideals

Ideals authentic fresh personal experienced dedicated _ distinguished

« I listen to my customers. And I listen very, very carefully.»

Evelyne Bermann Designer and artist dedicated 165

dedicated For decades, we have been one of the service providers that set the pace in the region. We are dedicated and we offer more than is expected of us. Our hard work and dedication create trust and generate beneﬁts in every respect. Since we identify with the Principality and its people, we are not just providers of ﬁnancial services, we are also committed to supporting cultural events, social institutions and environmental projects as well as spectator sport and sporting activities.

1 2 A discussion with: enough that the affluence and prosperity stein after my years of travelling, I campaigned simple sausage and bread. What do you enjoy year of 3 4 Evelyne Bermann, in our country should not be taken for granted. along with many others for womens' right to birth 1950, from Schaan, designer as a counterbalance to the creative demands of 5 6 and freelance artist Moreover, I think that everyone should just vote. I'm one of those who spent the late 60's at your art? I enjoy the technical craftsmanship, learn about themselves for once, outside and foreign universities, so I'm used to voicing criti- the skill involved in the work process, which en- away from the bonds of family and home. That cism loudly and clearly. ables me to create tangible works of art from teaches one modesty and humility. What other causes did you support? Up to ideas and concepts. Evelyne Bermann, you are a graphic de- Tell me about your personal skills in crea- the mid 1990's, I generally stood up for womens' Thank you for talking to me. Is it over signer and as an artist you work with plexiglass ting art from plexiglass. I hope you're not modest rights and I fought for a range of laws against already? You haven't even asked me what dis- and enamel. You seem to be multitalented? about those? That calls for absolute profes- discrimination and for equality. Over the last ten turbs, disgusts or angers me. I would like to be. But I'm very versatile. sionalism. I do everything myself, from the ﬁrst years I've dedicated myself to artistic and cul- Perhaps I'm afraid of the answer. OK, what What are your strengths then? Languages, draft concept up to the ﬁnished item: sawing, tural themes. makes you angry? Injustice of all kinds. And for example, and a lot of things I have learned grinding, polishing, bonding, cleaning. And all What would you like to change in Liechten- especially the exploitation of people, animals along the way. without the help of a computer. stein? I'd spend less money on representation or nature. Please tell me more? I was lucky to enjoy Without a computer? Yes. Just like our an- and more for culture. Thank you for your answer. And once again, very comprehensive and broadly-based training, cestors. They where able to work accurately too. A side-swipe? Of course. But not against thanks for the interview. which ranged from book layout to logo design Does your art have a message? It should the LLB. Because the Landesbank does a great and photography. During my years of travelling please the eye and stimulate the mind. But it deal to support cultural life in Liechtenstein. I got to know many different areas of design also offers a second aspect. My work only opens Culture seems to be an important issue for and layout. There was never a radical departure, itself to the viewer slowly, and differently from you? Culture is what survives. Take a look at but always a steady further development. every new perspective. the old castles and palaces. You won't see much Years of travelling? Was that usual in your So the message really is: take it slowly? evidence of the political events that once oc- profession at that time? That's just what I call My art invites one to look closely and to do so curred there. But their cultural worth lives on. this period of my life. It was always clear to me carefully. You can only get to know all sides, Do you have ideals that are extremely im- that I wanted to see something of the world. if you look from all angles. Just like in real life. portant for your profession? Many. But I'll men- And even though I love Liechtenstein: I would But there are no political messages in your tion just three. It's very important to me that still have it written into the constitution that art? I don’t use art for that. I've always expres - I think straight, that my work comes across as every young person must have worked abroad. sed my political views plainly and clearly, when- authentic, and that it's professionally made. An interesting idea. And if you had to justi- ever I thought it was necessary. It is said of gourmets and restaurant critics fy it? That's no problem. I believe that today's And was that often the case in the past? that once they have completed their work, they young people cannot learn and experience early Quite regularly. When I returned to Liechten- like to relax by sitting in the kitchen and eating dedicated 165

Ideals authentic fresh personal experienced dedicated _ distinguished

« I listen to my customers. And I listen very, very carefully.»

Evelyne Bermann Designer and artist 170 Ideals

Contents

>> Financial statement of LLB AG, Vaduz 171 Report of the independent auditors 172 Management report 173 Balance sheet 174 Proﬁt and loss account 175 Distribution of balance sheet proﬁt

176 Notes to the ﬁnancial statement 176 Notes on business operations 177 Accounting policies and valuation principles 180 Risk management 182 Notes on the balance sheet 195 Notes on off-balance-sheet transactions Manu Melwani 196 Notes on the proﬁt and loss account

Famous tailor and proprietor of Sam's Tailors in Hong Kong distinguished 169

distinguished Precise concepts. Sound knowledge. Exact work. Close proximity to clients and made to measure products. To be among the best, even a bank has to work harder than the rest. That forms the foundation of our thoughts and actions. And our good worldwide reputation that we have to live up to every day.

1 2 A discussion with: made and which comes from another tailor. Why do you think clothes play such an im- What effects has that had on your life? year of birth 1947, 3 4 Manu Melwani, Which suit is off-the-peg, which is badly fitting Whoever wants or has to present Well, for one thing, it certainly had an effect on famous tailor and proprietor of portant role? 5 6 Sam's Tailors in Hong Kong and which is both. themselves in a business environment knows the number of suits I've worn out. And I also Are there clear features that distinguish what I'm talking about. It will be easier for you have to admit that I feel naked if I don't have my your work? Of course. My personal cut, my per- to clinch a business deal in a good suit than suits close at hand. sonal style. in casual clothing. Your work day surely lasts longer than It's said that a good tailor must really What's the secret of your success? What Your son Roshan started his career in the eight hours? No, no. know his customers. Apart from their measure- makes you better than other master tailors? IT industry, but he's now traded in his keyboard Your reply shows that you are good at ments, what else does he need to know? He has I listen to my customers. And I listen very, very for a needle and thread. Is his change of mind saving time. Will you use this flair to go into re- to know their preferences, the style they prefer, carefully. due to your powers of persuasion? No. He took tirement at the right time? I've been retired and what they don't like. Was it clear to you that you would tread the decision to carry on his grandfather's busi- for years. So besides his trade, what else does he in your father's footsteps? Or did you also con- ness himself. If that's the case, I don't want to steal have to do? He must be able to listen well and sider the idea of another profession? No it wasn't I've read about you that you make your any more of your precious retirement time. So understand just as well. And he has to be able automatically clear. I had to think long and hard tailors sew button holes for years before they can thank you very much for this interview. You're to turn this knowledge into a suit. So that about whether it was what I wanted. I knew do anything else. Did that go faster in Roshan's very welcome. the customer gets exactly what he has ordered. that if I decided to take this road, I would have case? On the contrary, he's working through If he gets something else, then he could just to learn and listen for seven long years before I this phase very slowly. as well have bought ready-to-wear. could actually start work. In the beginning I What would have happened to Sam's Apart from the fact that it fits perfectly, also played with the idea of becoming a lawyer. Tailors if Roshan had decided to stay with his what else distinguishes a tailor-made suit and You come into contact with many famous computers? I don't know. Fortunately, however, a good ready-to-wear one? Absolutely nothing. people. Are you awestruck by fame and cele- we don't have to worry about this question, Both have arms and legs. Usually two of each. brity, or just by the personality of the individual instead we can concentrate on what is really Excuse me? I was only joking. A made-to- VIP? My VIP customers don't pay me for awe, important: our customers. measure suit is something you have personally they too pay me for good suits. And besides, How do you spend your leisure time? chosen. Precisely that. It corresponds 100 per- every person deserves to be treated with respect. I spend it with my wife and try to relax. cent to your wishes and ideas. It's said that « clothes make the man ». Could one ever meet you on the street in Do you sometimes recognise your suits Do you believe that? Definitely. Clothes help casual clothes? Yes. on the cover pages of magazines? Of course. And the people who wear them to be seen for what Over the course of your life have you worn not just on cover pages but also, for example, they are. And they help the observer to better more suits or more casual clothes? Definitely at parties. I can tell you exactly which suit I have classify the person they are looking at. more suits. distinguished 169

Contents

>> Financial statement of LLB AG, Vaduz 171 Report of the independent auditors 172 Management report 173 Balance sheet 174 Proﬁt and loss account 175 Distribution of balance sheet proﬁt

Famous tailor and proprietor of Sam's Tailors in Hong Kong LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 171

Financial Report of the independet auditors statement 171

Report of the independent auditors

As statutory auditors, we have audited the accounting records and the financial statements (balance sheet, income statement and notes; pages 173 to 196) and the management report (page 172) of Liechtensteinische Landesbank Aktiengesellschaft for the year ended 31 December 2007. These financial statements and the management report 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 auditing standards promulgated by the profession in Liechtenstein, which require that an audit be planned and performed to obtain reasonable assurance about whether the financial statements and the management report 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 financial statements give a true and fair view of the financial position and the results of operations in accordance with the Liechtenstein law. Furthermore, the accounting records and financial statements and the management report and the proposed appropriation of available earnings comply with Liechtenstein law and the company's articles of incorporation. The management report is in accordance with the financial statements. We recommend that the financial statements submitted to you be approved.

PricewaterhouseCoopers AG

Hans Wey Patrick Helg

St. Gallen, 28 February 2008 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 172

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Management report

The details of the management report of Liechtensteinische Landesbank AG, Vaduz, can largely be seen in the consolidated report of the LLB Group. On the balance sheet date, Liechtensteinische Landesbank AG, Vaduz, and its subsidiaries held a total of 2'346'283 bearer shares (4'378'910 bearer shares in the previous year). This corresponds to a share capital stake of about 7.6 percent (13.4 percent in the previous year). With respect to the volume of and changes to treasury shares of Liechtensteinische Landesbank AG, reference is made to the individual ﬁnancial statement. The Board of Directors proposes to the General Meeting of Shareholders on 9 May 2008 that the dividend be increased to CHF 3.40 per bearer share (CHF 3.20 in the previous year). No important changes have occurred since the balance sheet date which would necessitate the reporting of any additional data or a correction of the 2007 ﬁnancial statement. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 173

Financial Balance sheet statement 173

Balance sheet

Art. 24b Banking Ord.

in CHF thousands 31.12.2007 31.12.2006 +/–% Assets Liquid funds 139'533 157'020 –11.1 Public authority debt instruments and bills, approved for refinancing by central banks 0 0 0.0 public authority debt instruments and similar paper 0 0 Due from banks 7'432'070 7'620'413 –2.5 due on a daily basis 1'543'371 1'775'389 other claims 5'888'699 5'845'024 Due from customers 5'553'731 4'899'989 13.3 of which mortgages 3'210'085 3'030'623 of which subordinated claims 23'000 23'000 Bonds and other fixed-interest securities 336'111 447'281 –24.9 bonds 336'111 447'281 from public authority issuers 132'391 129'530 from other issuers 203'720 317'751 of which subordinated bonds 0 0 Shares and other non-fixed-interest securities 352'826 139'477 153.0 Participations 354 3'554 –90.0 Shares in associated companies 151'468 56'135 169.8 Intangible assets 6'027 4'768 26.4 Fixed assets 90'840 93'711 –3.1 Own shares 204'571 400'304 –48.9 Other assets 179'826 183'751 –2.1 Accrued income and prepayments 75'844 59'157 28.2 Total assets 14'523'201 14'065'560 3.3

Liabilities Due to banks 1'627'457 1'504'398 8.2 due on a daily basis 1'088'830 937'139 with agreed maturities or periods of notice 538'627 567'259 Due to customers 9'699'161 9'641'461 0.6 savings deposits 2'035'466 2'490'681 other liabilities 7'663'695 7'150'780 due on a daily basis 5'057'917 4'383'048 with agreed maturities or periods of notice 2'605'778 2'767'732 Certiﬁed liabilities 1'185'376 939'405 26.2 of which medium-term notes 918'254 673'160 Other liabilities 119'135 72'596 64.1 Accrued expenses and deferred income 44'012 34'810 26.4 Provisions 80'590 74'966 7.5 tax provisions 79'840 68'716 other provisions 750 6'250 Provisions for general banking risks 792'625 792'625 0.0 Subscribed capital 154'000 164'000 –6.1 Capital surplus 47'750 47'750 0.0 Retained earnings 508'545 544'517 –6.6 Balance brought forward 868 12'600 –93.1 Proﬁt for the year 263'682 236'432 11.5 Total liabilities 14'523'201 14'065'560 3.3

Off-balance-sheet transactions Contingent liabilities 221'640 506'731 –56.3 Credit risks 51'566 19'822 160.1 irrevocable commitments 51'515 19'767 call liabilities 51 55 Derivative ﬁnancial instruments 6'307'420 4'408'090 43.1 Fiduciary transactions 3'531'869 3'067'622 15.1 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 174

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Proﬁt and loss account

Art. 24c Banking Ord.

in CHF thousands 2007 2006 +/–% Interest income 479'770 341'683 40.4 of which from fixed-interest securities 10'013 10'956 of which from trading transactions 10 18 Interest expenses –298'474 –187'741 59.0 Net interest income 181'296 153'942 17.8 Shares and other non-fixed-interest securities 139 608 –77.1 of which from trading transactions 0 0 Participations 1 135 –99.3 Income from securities 140 743 –81.2 Credit-related commissions and fees 1'018 848 20.0 Commissions from securities and investment business 202'626 181'552 11.6 Other commission and fee income 15'842 15'196 4.3 Commission and fee expenses –57'368 –49'619 15.6 Net commission and fee income 162'118 147'977 9.6 Income from financial transactions 48'416 29'733 62.8 of which from trading business 26'029 26'437 –1.5 Income from financial transactions 48'416 29'733 62.8 Income from real estate holdings 648 587 10.4 Sundry ordinary income 24'787 31'534 –21.4 Other ordinary income 25'435 32'121 –20.8

Gross income 417'405 364'516 14.5

Personnel expenses –74'109 –66'093 12.1 Administrative expenses –35'012 –30'060 16.5 Total operating expenses –109'121 –96'153 13.5

Gross operating proﬁt 308'284 268'363 14.9

Depreciation on intangible assets and ﬁxed assets –7'807 –7'268 7.4 Other ordinary expenses –7'704 –6'378 20.8 Value adjustments on claims and allocations to provisions for contingent liabilities and lending risks –4'660 –2'045 127.9 Earnings from the release of value adjustments on claims and of provisions for contingent liabilities and lending risks 18'463 7'764 137.8 Write-downs on participations, shares in associated companies and securities treated as long-term investments –3'720 –43 8'551.2 Earnings from write-ups on participations, shares in associated companies and securities treated as long-term investments 0 1'300 –100.0

Result from normal business operations 302'856 261'693 15.7

Income taxes –36'947 –22'927 61.2 Other taxes –2'227 –2'334 –4.6

Proﬁt for the year 263'682 236'432 11.5 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 175

Financial Distribution of balance sheet profit statement 175

Distribution of balance sheet proﬁt

The Board of Directors proposes to the General Meeting of 9 May 2008, that the balance sheet proﬁt at 31 December 2007 be distributed as follows:

in CHF thousands 2007 2006 Proﬁt for the year 263'682 236'432 Balance brought forward 868 12'600 Balance sheet proﬁt 264'550 249'032

Distribution of balance sheet proﬁt Allocation to other reserves 164'000 155'000 Allocation to corporate capital (common stock) 96'743 91'164 Allocation to LLB Employer Foundation 2'000 2'000 Balance carried forward 1'807 868

Subject to the acceptance of this proposal, the dividend for the 2007 business year will be paid out as follows on 14 May 2008:

in CHF 2007 * 2006 Gross per bearer share 3.40 3.20 Minus 4 % coupon tax 0.14 0.13 Net to be paid 3.26 3.07

* Adjusted to consider the share split of 1:10 on 10 May 2007. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 176

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Notes on business operations

Art. 24e, Para. 1, Point 1, Banking Ord.

Liechtensteinische Landesbank Aktiengesellschaft with its registered office in Vaduz and four domestic branch offices is active as a full-service (universal) bank. The LLB has subsidiaries in Liechtenstein and Switzerland. At the end of 2007, LLB AG employed 488 persons (2006: 463) on a full-time equivalent basis. The average headcount in 2007 amounted to 467 persons (2006: 450). As a universal bank, LLB AG is engaged in commission and fees business, credit and lending business, money market and interbank business, as well as securities trading business.

Commissions and fees business The major proportion of revenues from commissions and fees business is attributable to commissions earned in connection with securities trading for customers. Other important income streams are provided by securities safe custody business, asset management (incl. for investment funds) and bro- kering ﬁduciary investments.

Credit and lending business The largest proportion of loans comprises mortgages, Lombard loans and advances to public institutions. Mortgages are granted to ﬁnance properties in Liechtenstein and in the neighbouring areas of Switzerland. Real estate ﬁnancing for the rest of Switzerland and Lombard loans are granted within the scope of integrated asset management business. A major proportion of loans and advances to public authorities relates to credit facilities extended to cantons and municipalities in Switzerland. As regards international syndicated loans, the bank is active to only a very limited extent in this line of business.

Money market and interbank business Domestic and international funds deposited with the bank, which cannot be invested in lending business, are placed with ﬁrst class banks, predominantly in Switzerland and Western Europe.

Securities trading business The bank offers its clients a full range of services in connection with the execution and settlement of securities trading transactions. It trades for its own account only to a moderate extent. Transactions with derivative ﬁnancial instruments for the bank's own account are largely employed for hedging purposes. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 177

Financial Accounting policies and valuation principles statement 177

Accounting policies and valuation principles

Art. 24e, Para. 1, Point 2, Banking Ord.

Basic principles The accounting and valuation policies are drawn up in accordance with the provisions of the Liechten - stein Person and Company Law (PGR), as well as the Liechtenstein Banking Law and the accompanying Banking Ordinance.

Recording of business All completed business transactions are valued and recorded in the balance sheet and the proﬁt and loss account according to the speciﬁed valuation principles. The transactions are booked on the transaction date. Up to their date of settlement or the value date, futures transactions are recorded at their replacement value under other assets or other liabilities.

Foreign currency translations Assets and liabilities denominated in foreign currencies are translated at the foreign exchange middle rate prevailing on the balance sheet date. Bank note holdings for exchange business are translated at the bank note bid rate in effect on the balance sheet date. Exchange gains and losses arising from the valuation are booked to the proﬁt and loss account. The following exchange rates were employed for foreign currency conversion:

31. 12. 2007 31. 12. 2006 1 USD 1.1300 1.2210 1 EUR 1.6590 1.6080 1 GBP 2.2575 2.3960

Liquid funds, public authority debt instruments and bills approved for refinancing by central banks, balances due from banks and customers, liabilities These items are shown in the balance sheet at nominal value minus any unearned discount on money market instruments. Impaired due amounts, i. e. amounts due from debtors who probably will not repay them, are valued on an individual basis and their impairment is covered by specific value adjustments. Off-balance- sheet transactions such as commitments for loans, guarantees and derivative financial instruments, are also included in this valuation. Loans are regarded as overdue at the latest when interest and/or principal repayments are more than 90 days in arrears. Overdue and impaired interest payments are charged directly to value adjustments and provisions. Loans are put on a non-accrual basis if the interest due on them is deemed to be uncollectible and interest accrual is therefore no longer practical. The impairment is measured on the basis of the difference between the book value of the claim and the probable recoverable amount taking into consideration counterparty risk and the net proceeds from the realisation of any collateral. If it is expected that the realisation process will take longer than one year, the estimated realisation proceeds are discounted on the balance sheet date. The specific value adjustments are deducted directly from the corresponding asset positions. A claim LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 178

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is reclassiﬁed as no longer endangered if the outstanding principal and interest are again repaid on time in accordance with the original contractual terms. To cover the risks in retail business, which are composed of numerous small claims, lump-sum individual value adjustments, calculated on the basis of empirical values, are made for the unsecured loans and overdrawn limits for which individual value adjustments have not already been considered.

Debt instruments and other fixed-interest securities, equities and other non-fixed-interest securities Trading portfolios of securities and precious metals are valued at the market value on the balance sheet date. Securities for which there is no regular, active market are carried at the lower of cost or market value. Holdings of securities and precious metals as current assets are valued at the lower of cost or market value. Interest earnings are credited to the item interest income, dividend income is carried under the item income from securities. Price gains are shown under the item income from financial transactions. Fixed-interest securities that are intended to be held until final maturity are valued according to the accrual method. Accordingly, interest income, including amortisation of premiums and accretion of discounts, is recognised on an accrual basis until final maturity. Interest-related realised capital gains or losses arising from the premature sale or redemption of securities are recognised on an accrual basis over the remaining period to maturity, i. e. up to the original date of final maturity. Interest earnings are credited to the item interest income. Equities and precious metals holdings held as fixed assets are valued at the lower of cost or market value. Dividend income is carried under the item income from securities. Value adjustments are shown under the items write-downs to participations (or earnings from write-ups to participations), shares in associated companies and securities treated as long-term investments, or earnings from additions to participations, shares in associated companies and securities are treated as long-term investments.

Participations Participations comprises shares owned by LLB AG in companies which represent a minority participation and which are held as long-term investments, as well as all participations of an infrastructur- al nature. These items are valued at cost minus necessary value adjustments.

Shares in associated companies LLB AG's existing majority participations are recorded as shares in associated companies. These items are valued at cost minus necessary value adjustments.

Intangible assets Costs related to the acquisition and installation of software are reported and depreciated on a straight-line basis over the estimated useful life of the software, i. e. three years. Low-cost acquisitions are charged directly to administrative expenses.

Tangible ﬁxed assets Real estate is valued at the acquisition cost plus any investment that increases the value of the property, less necessary depreciation. New buildings and refurbishments are depreciated over 33 years and building supplementary costs over 10 years. No depreciation is charged on undeveloped land unless an adjustment has to be made to allow for a reduction in its market value. Other physical assets are depreciated in full over their estimated economic life (3 to 5 years). LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 179

Financial Accounting policies and valuation principles statement 179

Value adjustments and provisions In accordance with prudent accounting practice, speciﬁc value adjustments and provisions are made for all risks existing on the balance sheet date. Value adjustments are offset directly with the corresponding asset position. Provisions are booked as such in the balance sheet.

Taxes Accruals for taxes payable on the basis of the proﬁts earned in the period under report are charged as expenses in the corresponding period. Provisions for deferred tax are formed in relation to value adjustments and provisions recognised only for tax purposes. The calculation is made on the basis of the estimated tax rates used for actual taxation.

Provisions for general banking risks Provisions for general banking risks are precautionary reserves formed to hedge against latent risks in the bank's operating activities.

Off-balance-sheet business Off-balance-sheet transactions are valued at nominal values. Provisions are made in the case of iden- tiﬁable risks arising from contingent liabilities and other off-balance-sheet transactions.

Derivative financial instruments The gross replacement values of individual contracts in derivative financial instruments – positive and negative replacement values are not offset against each other – are stated in the balance sheet (under other assets or other liabilities) and in the notes to the financial statement. All replacement values for contracts concluded for the bank's own account are reported. In contrast, in the case of customer transactions only the replacement values for OTC contracts are reported, or for exchange- traded products if margin requirements are inadequate. The contract volumes are reported in the statement of off-balance-sheet transactions and in the notes. Trading positions in financial derivatives are valued at market rates provided the contracts are listed on an exchange or a regular, active market exists. If this is not the case, the contracts are valued at the lower of cost or market value. If interest business positions are hedged with derivatives, the differential amount between the market value and the accrual method is recognised in the settlement account.

Flow of funds statement On account of its obligation to prepare a consolidated financial statement, Liechtensteinische Landesbank AG is exempted from the necessity to provide a flow of funds statement (Art. 24l, Banking Ord.). The consolidated cash flow statement of the LLB Group is a part of the consolidated financial statement.

Changes compared with the previous year None. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 180

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Risk management

Art. 24e, Para. 1, Point 2, Banking Ord.

Overview LLB AG's risk policy is governed, in legal and operative terms, by the Liechtenstein Banking Law, the corresponding Banking Ordinance and the principles of the Basel Committee for Banking Supervision as well as by the bank's own statutes and business regulations. The ultimate responsibility for basic risk policy and for continually monitoring the bank's risk exposure lies with the Board of Directors. In fulﬁlling this function, it is supported by the Audit and Risk Committee. The Board of Management has overall responsibility for risk management. It is supported by separate expert committees. An in - dependent Risk Controlling Department monitors compliance with the issued regulations.

Market risk On the basis of its business activity, LLB AG is exposed primarily to interest rate ﬂuctuation, share price and currency risks. The Nostro Management Team is responsible for managing risks associated with trading activities, and the Asset and Liability Committee for controlling interest rate ﬂuctuation risks. These bodies limit risk exposure using sensitivity and value-at-risk analyses. Aggregate risks are analysed and worst-case scenarios are simulated on a regular basis.

Credit default risks Credit and lending facilities are extended primarily in interbank business, in private and corporate client business mainly on a secured basis, and in business transactions with public authorities. The Credit Committee is responsible for credit risk management. The bank pursues a conservative collateral lending policy. Credits and loans are granted within the scope of strict credit approval procedures. Cluster and country risks are also restricted within the scope of the strict limitation of credit risks. An internal rating system is employed to determine risk-related terms and conditions. A limits system based on the creditworthiness of the individual country is used to control country risks.

Valuation estimates of real estate are stipulated in internal directives. The market value, which serves as the basis for loan-to-value ratios, is determined as follows:

◆ owner-occupied property: actual value; ◆ investment property: productive and actual value, depending on the property and the ratio of productive to actual value; ◆ owner-used commercial or industrial property: the productive and actual values attainable on the market, depending on the property and the ratio of productive to actual value; ◆ building land: internally stipulated price estimates taking into consideration future use.

Operational and legal risks Internal regulations and directives concerning organisation and controls are employed to limit exposure to operative and legal risks. In formulating these instructions, the Board of Management is supported by the Operational Risk Committee. The bank's internal auditors and Compliance Depart ment regularly check that these regulations are observed. External legal experts are brought in on a case- by-case basis to control and manage legal risks. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 181

Financial Risk management statement 181

Liquidity risks Liquidity risks are monitored and managed in accordance with the provisions of banking law.

Business policy concerning the use of derivative financial instruments Within the scope of balance sheet management, interest rate swaps are concluded to hedge interest rate fluctuation risks. Derivative financial instruments are used to a limited extent in the management of the bank's own securities portfolio. Furthermore, derivative financial instruments are employed primarily within the context of transactions for clients. Both standardised and OTC derivatives are traded for the account of clients. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 182

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Notes on the balance sheet

Type of collateral Art. 24e, Para. 1, Point 3.1, Banking Ord.

in CHF thousands Type of collateral

Secured by Other mortage collateral Unsecured Total Loans Due from customers (excluding mortgage loans) 50'929 1'503'985 788'732 2'343'646 Mortgage loans residential property 2'495'221 2'495'221 office and business property 281'710 281'710 commercial and industrial property 277'298 277'298 other 155'856 155'856

Total loans 31.12.2007 3'261'014 1'503'985 788'732 5'553'731 31.12.2006 3'090'861 746'042 1'063'086 4'899'989

Off-balance-sheet transactions Contingent liabilities 1'419 87'136 133'085 221'640 Irrevocable commitments 21'927 29'588 51'515 Call liabilities 51 51

Total off-balance-sheet transactions 31.12.2007 23'346 87'136 162'724 273'206 31.12.2006 15'528 86'126 424'899 526'553

Impaired due amounts

Estimated Gross realisation Net Speciﬁc amount value ofamount value in CHF thousands due collateral due adjustment 31.12.2007 196'842 187'595 9'247 9'247 31.12.2006 149'356 130'361 18'995 18'995 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 183

Financial Notes on the balance sheet statement 183

Securities and precious metals trading positions Art. 24e, Para. 1, Point 3.2, Banking Ord.

in CHF thousands Book value Cost Market value

31.12.2007 31.12.2006 31.12.2007 31.12.2006 31.12.2007 31.12.2006 Debt securities 4'552 2'224 4'609 2'248 4'552 2'224 listed 4'552 2'224 4'609 2'248 4'552 2'224 unlisted 0 0 0 0 0 0 Equities 3'034 3'971 3'382 3'721 3'034 3'971 listed 3'034 3'943 3'382 3'693 3'034 3'943 of which own shares 3'034 3'943 3'382 3'693 3'034 3'943 unlisted 0 28 0 28 0 28 Precious metals 2'291 3'844 1'779 3'356 2'291 3'844

Total 9'877 10'039 9'770 9'325 9'877 10'039 Of which securities rediscountable or pledgeable with central banks (incl. eligible for repo transactions) 4'552 0 4'609 0 4'552 0

Securities and precious metals holdings as current assets (excluding trading positions) Art. 24e, Para. 1, Point 3.2, Banking Ord.

in CHF thousands Book value Cost Market value

31.12.2007 31.12.2006 31.12.2007 31.12.2006 31.12.2007 31.12.2006 Debt securities 145'559 137'557 148'463 141'046 146'600 137'747 listed 142'965 134'963 145'869 138'453 143'873 135'116 unlisted 2'594 2'594 2'594 2'593 2'727 2'631 Equities 257'850 342'471 267'160 351'757 297'509 420'347 listed 218'469 263'355 219'885 264'790 249'879 324'433 unlisted 39'381 79'116 47'275 86'967 47'630 95'914

Total 403'409 480'028 415'623 492'803 444'109 558'094 Of which securities rediscountable or pledgeable with central banks (incl. eligible for repo transactions) 48'946 46'540 51'228 48'415 48'946 46'541 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 184

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Securities and precious metals as ﬁxed assets Art. 24e, Para. 1, Point 3.2, Banking Ord.

in CHF thousands Book value Cost Market value

31.12.2007 31.12.2006 31.12.2007 31.12.2006 31.12.2007 31.12.2006 Debt securities 186'000 307'500 185'241 306'201 182'323 304'292 valued according to accrual method 186'000 307'500 185'241 306'201 182'323 304'292 Equities 296'513 193'339 300'145 193'437 296'513 211'006 listed 0 193'333 0 193'333 0 211'000 unlisted 296'513 6 300'145 104 296'513 6 Precious metals 7'920 9'262 9'268 10'610 11'508 11'664

Total 490'433 510'101 494'654 510'248 490'344 526'962 Of which securities rediscountable or pledgeable with central banks (incl. eligible for repo transactions) 159'000 194'500 158'346 193'737 155'992 192'457 Premium on debt securities valued according to the accrual method 10 62 Discount on debt securities valued according to the accrual method –396 –659

Own shares included in current assets (excluding trading positions) Art. 24e, Para. 1, Point 3.2, Banking Ord.

Quantity / in CHF thousands Quantity Book value

31.12.2007 * 31.12.2006 31.12.2007 31.12.2006 Start of year 2'341'540 100'830 203'029 6'872 Bought 16'790 2'305'790 1'470 200'640 Sold –42'540 –65'080 –2'983 –4'483 Value adjustments 0 0 21 0

End of year 2'315'790 2'341'540 201'537 203'029

* Adjusted to consider the share split of 1:10 on 10 May 2007.

Participations and shares in associated companies Art. 24e, Para. 1, Point 3.2, Banking Ord.

in CHF thousands 31.12.2007 31.12.2006 Participations With market value 4 0 Without market value 350 3'554

Total participations 354 3'554

Shares in associated companies With market value 5 0 Without market value 151'463 56'135

Total shares in associated companies 151'468 56'135 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 185

Financial Notes on the balance sheet statement 185

Participations and shares in associated companies Art. 24e, Para. 1, Point 3.3, Banking Ord.

Company name and registered office Business activity 31.12.2007 31.12.2006

Share % share % share Share % share % share Currency capital of votes of capital Currency capital of votes of capital Participations CapitalLeben Versicherung AG, Vaduz Insurance company CHF 14'450'000 9.7 9.7 MBPI AG, Triesen Asset management CHF 2'000'000 17.5 17.5 CHF 2‘000'000 17.5 17.5

Shares in associated companies LLB Treuhand AG, Vaduz Trust company CHF 1'000'000 100.0 100.0 CHF 1'000'000 100.0 100.0 Fund LLB Fondsleitung AG, Vaduz management company CHF 1'000'000 100.0 100.0 CHF 1'000'000 100.0 100.0 Fund LLB Fund Services AG, Vaduz management company CHF 1'000'000 100.0 100.0 CHF 1'000'000 100.0 100.0 LLB Beteiligungen AG, Sargans Investment company CHF 100'000 100.0 100.0 CHF 100'000 100.0 100.0 LLB Holding (Schweiz) AG, Zurich Holding company CHF 250'000 100.0 100.0 CHF 250'000 100.0 100.0 Liechtensteinische Landesbank (Switzerland) Ltd., Zurich * Bank CHF 100'000'000 100.0 100.0 CHF 100'000'000 100.0 100.0 LLB Asset Management AG, Vaduz Asset management CHF 1'000'000 100.0 100.0 CHF 1'000'000 100.0 100.0 LLB Qualiﬁed Investors AGmvK, Vaduz Investment company CHF 50'000 100.0 100.0 CHF 50'000 100.0 100.0 Milfolium Management Inc., Tortola, BVI Management company USD 10'000 100.0 100.0 USD 10'000 100.0 100.0 Terrenia Anstalt, Vaduz Management company CHF 100'000 100.0 100.0 CHF 100'000 100.0 100.0 swisspartners Investment Network AG, Zurich * / ** Asset management CHF 500'000 54.9 54.9 CHF 500'000 52.7 52.7 Jura Trust AG, Vaduz *** Trust management CHF 100'000 61.0 61.0 CHF 100'000 61.0 61.0 Jura Asset Controlling Trust, Vaduz *** Trust management CHF 100'000 61.0 61.0 CHF 100'000 61.0 61.0 LLB Linth Holding AG, Gaiserwald Holding company CHF 95'328'000 100.0 100.0 Bank Linth LLB AG, Uznach * Bank CHF 45'102'568 74.2 74.2

* Indirect participation. ** The purchase of further shares in this participation is tied to certain conditions and commitments of Liechtensteinische Landesbank AG (not included in the balance sheet) which valued on 31 December 2007 amounted to CHF 108.2 million (selling right/selling commitment for the shareholders of swisspartners Investment Network AG against Liechtensteinische Landesbank AG). On 31 December 2007, the equity capital of swisspartners Investment Network AG stood at CHF 62.5 million, the company's proﬁt for the year amounted to CHF 16.2 million. *** For the acquisition of the remaining shares in this participation, a ﬁrm bid which was not reported, which evaluated on 31 December 2007 amounted to CHF 10.5 million.

Change of names in 2007 business year: LLB Fund Services AG (previous year: called Global Fund Services AG) LLB Asset Management AG (previous year: called LLB Investment Partners AG) LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 186

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Statement of ﬁxed assets Art. 24e, Para. 1, Point 3.4, Banking Ord.

Accu- mulated Dis- depre- Book value Invest- invest- Reclassi- Book value in CHF thousands Cost ciation 31.12.2006 ments ments ﬁcations Additions Depreciation 31.12.2007 Total participations (minority interests) 3'566 –12 3'554 –3'200 354 Total shares in associated companies 56'391 –256 56'135 95'333 151'468

Total securities and precious metals as ﬁxed assets 511'534 –1'433 510'101 301'065 –317'199 –3'534 490'433 Total intangible assets * 11'845 –7'077 4'768 1'773 –514 6'027 Real estate bank premises 131'249 –67'889 63'360 19 –3'540 59'839 other properties 34'320 –8'791 25'529 –405 25'124 Other ﬁxed assets 35'311 –30'489 4'822 4'607 –205 –3'347 5'877

Total ﬁxed assets 200'880 –107'169 93'711 4'626 –205 0 0 –7'292 90'840

Fire insurance value of real estate 150'691 151'797 Fire insurance value of other ﬁxed assets 29'678 30'879

* Solely licence and software costs.

Depreciation is carried out according to prudent business criteria over the estimated service life. No undisclosed reserves exist. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 187

Financial Notes on the balance sheet statement 187

Plegded or assigned assets and assets subject to reservation of ownership Art. 24e, Para. 1, Point 3.6, Banking Ord.

in CHF thousands 31.12.2007 31.12.2006 Excluding lending transactions and pension transactions with securities Book value of pledged and assigned (as collateral) assets 86'572 100'231 Actual commitments 9 10

Lending transactions and pension transactions with securities Own securities lent or provided as collateral within the scope of securities lending of borrowing transactions 3'030 138'416 of which capable of being resold or further pledged without restrictions 3'030 138'416 Securities borrowed or accepted as collateral within the scope of securities lending or borrowing transactions which are capable of being resold or further pledged without restrictions 2'278'222 2'785'242 of which resold or further pledged securities 2'278'222 2'785'242

Liabilities in respect of own pension funds Art. 24e, Para. 1, Point 3.7, Banking Ord.

in CHF thousands 31.12.2007 31.12.2006 Current account, call money and time deposits 2'155 1'050 Savings deposits 6'345 28'898 Medium-term notes 2'000 2'000

Total 10'500 31'948

Outstanding bond issues Art. 24e, Para. 1, Point 3.8, Banking Ord.

in CHF thousands 31.12.2007

Out- Interest Year of Earliest standing rate in % issue call Currency amount LLB convertible bond 1.65 2006 27.04.2009 CHF 270'000 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 188

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Value adjustments and provisions / provisions for general banking risks Art. 24e, Para. 1, Point 3.9, Banking Ord.

Recoveries, New Write- overdue provisions backs interest, charged credited Total Speciﬁc Change of currency to P / L to P / L Total in CHF thousands 31.12.2006 write-downs purpose differences account account 31.12.2007 Value adjustments for loan default risks Speciﬁc value adjustments 18'872 –180 4'235 4'645 –18'463 9'109 Lump-sum individual value adjustments (incl. those for country risks) 123 15 138 Provisions for taxes and deferred taxes 68'716 –27'159 38'283 79'840 Other provisions 6'250 –5'500 750

Total value adjustments and provisions 93'961 –27'339 0 4'235 42'943 –23'963 89'837 Minus value adjustments –18'995––––––9'247

Total provisions according to balance sheet 74'966–––––80'590

Provisions for general banking risks 792'625–––––792'625

Common stock Art. 24e, Para. 1, Point 3.10, Banking Ord.

in CHF thousands 31.12.2007 31.12.2006

Total Capital Total Capital nominal ranking for nominal ranking for value Quantity dividend value Quantity dividend Share capital 154'000 30'800'000 142'269 164'000 * 32'800'000 142'105

Total common stock 154'000 30'800'000 142'269 164'000 32'800'000 142'105

* Adjusted to consider the share split of 1:10 on 10 May 2007.

No conditional or authorised capital exists. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 189

Financial Notes on the balance sheet statement 189

Signiﬁcant shareholders and groups of shareholders linked by voting rights Art. 24e, Para. 1, Point 3.10, Banking Ord.

in CHF thousands 31.12.2007 31.12.2006

Holding Holding Nominal in % Nominal in % With voting right: Principality of Liechtenstein 88'500 57.5 88'500 54.0

Statement of shareholders' equity Art. 24e, Para. 1, Point 3.11, Banking Ord.

in CHF thousands 31.12.2007 Shareholders' equity as at 1 January 2007 Paid in subscribed capital 164'000 Capital surplus 47'750 Legal reserves 144'212 Reserve for own shares 400'305 Provisions for general banking risks 792'625 Balance sheet proﬁt 249'032

Total shareholders' equity as at 1 January 2007 (before profit distribution) 1'797'924 Nominal capital reduction –10'000 Withdrawal from reserves for capital reduction –190'972 Dividend and other distributions from previous year's profit –93'164 Release of provisions for general banking risks 0 Net profit for the year 263'682

Total shareholders' equity at 31 December 2007 (before proﬁt distribution) 1'767'470

Of which: Paid in subscribed capital 154'000 Capital surplus 47'750 Legal reserves 303'974 Reserve for own shares 204'571 Provisions for general banking risks 792'625 Balance sheet proﬁt 264'550 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 190

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Maturity structure of assets, liabilities and provisions Art. 24e, Para. 1, Point 3.12, Banking Ord.

Due Due between between Due Sight Due within 3 months to 12 months after Immo- in CHF thousands deposits Callable 3 months 12 months to 5 years 5 years bilised Total Assets Liquid funds 139'533 139'533 Public authority debt instruments and bills, approved for reﬁnancing by central banks 0 Due from banks 1'543'371 7'000 4'556'683 1'124'742 197'074 3'200 7'432'070 Due from customers 84 2'001'858 1'271'383 1'376'333 759'343 144'730 5'553'731 of which mortgage loans 84 1'648'577 312'559 404'397 713'938 130'530 3'210'085 Securities and precious metals held for trading 9'877 9'877 Securities and precious metals holdings as current assets (excluding trading positions) 403'409 403'409 Securities and precious metals holdings as ﬁxed assets 7'926 296'507 12'000 29'000 135'500 9'500 490'433 Other assets 177'159 47'892 12'827 7'581 248'689 494'148

Total assets 31.12.2007 2'104'200 2'305'365 6'017'225 2'577'967 1'104'744 165'011 248'689 14'523'201 31.12.2006 2'625'146 1'410'513 5'694'432 2'296'298 1'615'674 265'329 158'168 14'065'560

Liabilities and provisions Due to banks 313'709 775'121 529'492 9'135 1'627'457 Due to customers 1'592'467 5'500'916 2'300'181 304'289 1'308 9'699'161 of which savings deposits 2'035'466 2'035'466 of which other liabilities 1'592'467 3'465'450 2'300'181 304'289 1'308 7'663'695 Certiﬁed liabilities 66'748 199'316 899'047 20'265 1'185'376 of which medium-term notes 66'748 199'316 631'925 20'265 918'254 Provisions (excluding provisions for general banking risks) 34'193 750 45'647 80'590 Other liabilities 4'251 129'530 23'440 4'016 1'910 163'147

Total liabilities and provisions 31.12.2007 1'910'427 6'276'037 3'025'951 570'373 905'121 67'822 12'755'731 31.12.2006 2'188'280 5'625'696 3'139'064 476'611 763'236 74'749 12'267'636

Bonds and other ﬁxed-interest securities that are due in the following business year 108'608 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 191

Financial Notes on the balance sheet statement 191

Claims on and liabilities to participations and associated companies Art. 24e, Para. 1, Point 3.13, Banking Ord.

in CHF thousands 31.12.2007 31.12.2006 Claims on participations 0 0 Liabilities to participations 2'147 6'494 Claims on associated companies 1'011'696 909'337 Liabilities to associated companies 1'238'394 1'027'186

Claims on and liabilities to qualiﬁed participations and companies associated with the Principality Art. 24e, Para. 1, Point 3.13, Banking Ord. and Art. 81, Para. 2

in CHF thousands 31.12.2007 31.12.2006 Claims on the Principality of Liechtenstein 1'823 251'504 Liabilities to the Prinicipality of Liechtenstein 246'110 784'268 Claims on companies associated with the Principality * 31'169 16'974 Liabilities to companies associated with the Principality * 136'975 78'242

* Associated companies: Liechtensteinische Kraftwerke, Liechtensteinische Gasversorgung, LTN Liechtenstein TeleNet AG, Liechtensteinische Post AG, Liechtenstein Bus Anstalt and AHV-IV-FAK-Anstalt.

The stated claims and liabilities are included in the balance sheet in the items due from customers and due to customers.

Loans to corporate bodies Art. 24e, Para.1, Point 3.13, Banking Ord.

in CHF thousands 31.12.2007 31.12.2006 Members of the Board of Directors 5'480 3'793 Members of the Board of Management 2'283 3'883

Transactions with closely associated persons Art. 24e, Para. 1, Point 3.13, Banking Ord.

Transactions (e. g. securities transactions, payment transfers, lending facilities and interest on depo - sits) were made with closely associated persons under the same terms and conditions as applicable to third parties. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 192

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Breakdown of assets and liabilities by location Art. 24e, Para. 1, Point 3.14, Banking Ord.

in CHF thousands 31. 12.2007 31.12.2006

FL/CH Abroad FL/CH Abroad Assets Liquid funds 139'533 157'020 Public authority debt instruments and bills, approved for refinancing by central banks Due from banks 1'804'576 5'627'494 2'671'317 4'949'096 Due from customers (excluded mortgages) 1'578'415 765'231 1'512'415 356'951 Mortgage loans 3'210'085 3'030'623 Bonds and other fixed-interest securities 336'111 10'000 437'281 Shares and other non-fixed-interest securities 327'868 24'958 89'492 49'985 Participations 350 4 3'550 4 Shares in associated companies 151'456 12 56'123 12 Intangible assets 6'027 4'768 Fixed assets 90'840 93'711 Own shares 204'571 400'304 Other assets 174'821 5'005 178'728 5'023 Accrued income and prepayments 22'192 53'652 23'668 35'489 Total assets 7'710'734 6'812'467 8'231'719 5'833'841

Liabilities Due to banks 1'470'645 156'812 1'239'330 265'068 Due to customers (excluding savings deposits) 5'792'445 1'871'250 5'543'657 1'607'123 Savings deposits 1'733'872 301'594 2'150'496 340'185 Certified liabilities 1'091'735 93'641 853'159 86'246 Other liabilities 110'433 8'702 64'015 8'581 Accrued expenses and deferred income 26'395 17'617 22'237 12'573 Provisions 80'590 74'966 Provisions for general banking risks 792'625 792'625 Subscribed capital 154'000 164'000 Capital surplus 47'750 47'750 Legal reserves 303'974 144'212 Reserves for own shares 204'571 400'305 Profit carried forward 868 12'600 Profit for the year 263'682 236'432 Total liabilities 12'073'585 2'449'616 11'745'784 2'319'776

Geographical breakdown of assets by locations Art. 24e, Para. 1, Point 3.15, Banking Ord.

in CHF thousands 31.12.2007 31.12.2006

Absolute % of Absolute % of value total value total Liechtenstein / Switzerland 7'710'734 53.1 8'231'719 58.5 Europe (excluding Liechtenstein / Switzerland) 5'629'268 38.8 4'774'334 33.9 North America 420'233 2.9 682'817 4.9 Asia 393'843 2.7 54'711 0.4 Elsewhere 369'123 2.5 321'979 2.3 Total assets 14'523'201 100.0 14'065'560 100.0 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 193

Financial Notes on the balance sheet statement 193

Breakdown of assets and liabilities according to currencies Art. 24e, Para. 1, Point 3.16, Banking Ord.

in CHF thousands CHF USD EUR Others Total Assets Liquid funds 124'058 654 14'302 519 139'533 Public authority debt instruments and bills, approved for refinancing by central banks 0 Due from banks 2'975'434 930'845 3'034'360 491'431 7'432'070 Due from customers (excluding mortgages) 1'274'078 779'757 255'415 34'396 2'343'646 Mortgage loans 3'210'085 3'210'085 Bonds and other fixed-interest securities 241'497 48'473 46'141 336'111 Shares and other non-fixed-interest securities 338'726 1'559 12'541 352'826 Participations 350 4 354 Shares in associated companies 151'456 12 151'468 Intangible assets 6'027 6'027 Fixed assets 90'840 90'840 Own shares 204'571 204'571 Other assets 98'296 41'493 18'684 21'353 179'826 Accrued income and prepayments 32'664 20'501 20'038 2'641 75'844 Total on-balance-sheet assets 8'748'082 1'823'294 3'401'485 550'340 14'523'201 Delivery claims from forex spot, forex futures and forex options transactions 771'319 737'262 590'568 462'070 2'561'219 Total assets 9'519'401 2'560'556 3'992'053 1'012'410 17'084'420

Liabilities Due to banks 604'097 425'738 479'037 118'585 1'627'457 Due to customers (excluding mortgages) 3'173'501 1'339'827 2'719'354 431'013 7'663'695 Savings deposits 2'035'466 2'035'466 Certified liabilities 1'100'512 84'864 1'185'376 Other liabilities 70'380 19'472 17'585 11'698 119'135 Accrued expenses and deferred income 22'019 8'049 12'139 1'805 44'012 Provisions 80'590 80'590 Provisions for general banking risks 792'625 792'625 Subscribed capital 154'000 154'000 Capital surplus 47'750 47'750 Legal reserves 303'974 303'974 Reserves for own shares 204'571 204'571 Profit carried forward 868 868 Profit for the year 263'682 263'682 Total on-balance-sheet liabilities 8'854'035 1'793'086 3'312'979 563'101 14'523'201 Delivery liabilities from forex spot, forex futures and forex options transactions 770'519 738'076 590'645 461'979 2'561'219 Total liabilities 9'624'554 2'531'162 3'903'624 1'025'080 17'084'420 Net position per currency –105'153 29'394 88'429 –12'670 0 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 194

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Other assets Art. 24e, Para. 2, Point 6, Banking Ord.

in CHF thousands 31.12.2007 31.12.2006 +/– % Coupons 0 27 –100.0 Precious metal holdings 10'211 13'105 –22.1 Tax prepayments 151 167 –9.6 Positive replacement values 64'376 39'237 64.1 Clearing accounts 102'690 128'471 –20.1 Deferred tax claim 2'398 2'744 –12.6

Total other assets 179'826 183'751 –2.1

Other liabilities Art. 24e, Para 2, Point 6, Banking Ord.

in CHF thousands 31.12.2007 31.12.2006 +/– % Outstanding medium-term notes 3'949 2'860 38.1 Unredeemed coupons 302 248 21.8 Charge accounts 12'740 3'482 265.9 Negative replacement values 52'811 35'458 48.9 Settlement account 16'984 14'007 21.3 Other receivables 6'822 6'637 2.8 Clearing accounts 25'527 9'904 157.7

Total other liabilities 119'135 72'596 64.1 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 195

Financial Notes on off-balance-sheet transactions statement 195

Notes on off-balance-sheet transactions

Contingent liabilities Art. 24e, Para. 1, Point 4.1, Banking Ord.

in CHF thousands 31.12.2007 31.12.2006 Credit guarantees and similar instruments 63'360 359'617 Performance guarantees and similar instruments 39'599 44'776 Irrevocable commitments 118'681 102'338 Total contingent liabilities 221'640 506'731

Open derivative contracts Art. 24e, Para. 1, Point 4.3, Banking Ord.

in CHF thousands Trading instruments Hedging instruments

Positive Negative Positive Negative replacement replacement Contract replacement replacement Contract value value volume value value volume Interest rate instruments Swaps 5'057 6'628 512'540 13'891 1'908 1'274'933 Forward transactions 373 25 19'726

Foreign exchange contracts Forward contracts 38'851 38'152 4'143'169 Options (OTC) 2'207 2'207 156'512

Precious metals Forward contracts 2'642 2'536 165'085 Options (OTC) 91 91 3'868

Equity / indices contracts Options (OT) 1'264 1'264 31'587

Total excluding netting agreements 31.12.2007 50'485 50'903 5'032'487 13'891 1'908 1'274'933 31.12.2006 30'217 33'186 3'346'873 9'019 2'271 1'061'217

Liechtensteinische Landesbank AG has concluded no netting agreements.

Fiduciary transactions Art. 24e, Para. 1, Point 4.4, Banking Ord.

in CHF thousands 31.12.2007 31.12.2006 Fiduciary deposits with other banks 3'531'869 3'067'622 Fiduciary credits 0 0

Total ﬁduciary transactions 3'531'869 3'067'622 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 196

196 Ideals

Notes on the proﬁt and loss account

Income from trading operations Art. 24e, Para. 1, Point 5.2, Banking Ord.

in CHF thousands 2007 2006 +/– % Foreign exchange trading 19'914 18'294 8.9 Foreign note trading 3'431 4'351 –21.1 Precious metals trading 756 1'559 –51.5 Securities trading 101 1'018 –90.1 Swaps 1'827 1'215 50.4

Total 26'029 26'437 –1.5

Personnel expenses Art. 24e, Para. 1, Point 5.3, Banking Ord.

in CHF thousands 2007 2006 +/– % Salaries and remuneration 60'406 53'901 12.1 Social beneﬁts and pension scheme contributions 10'289 9'496 8.4 of which pension scheme contributions 5'239 4'998 4.8 Other personnel expenses 3'414 2'696 26.6

Total 74'109 66'093 12.1

The emoluments of the Board of Directors and the Board of Management are disclosed according to IFRS in the consolidated ﬁnancial statement.

Administrative expenses Art. 24e, Para. 1, Point 5.4, Banking Ord.

in CHF thousands 2007 2006 +/– % Occupancy expenses 4'078 4'778 –14.7 Expenses for IT, machinery, vehicles and other equipment 6'218 6'255 –0.6 Other business expenses 24'716 19'028 29.9

Total 35'012 30'061 16.5

Other ordinary income Art. 24e, Para. 2, Point 6, Banking Ord.

Other ordinary income includes gains on the disposal of participations amounting to CHF 13.5 million. LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 197

197 LLB-GB-2007_uk_BVD:Layout 1 14.03.2008 11:41 Uhr Seite 198

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Locations and addresses

Headquarters Group companies

Liechtensteinische Landesbank AG Liechtensteinische Landesbank (Switzerland) Ltd. Städtle 44 · P. O. Box 384 · 9490 Vaduz · Liechtenstein Klausstrasse 19 · 8008 Zurich · Switzerland Telephone +423 236 88 11 · Fax +423 236 88 22 Telephone +41 44 421 46 11 · Fax +41 44 421 46 22 Internet www.llb.li · E-mail [email protected] Internet www.llb.ch · E-mail [email protected]

Branches Bank Linth LLB AG Zürcherstrasse 3 · P. O. Box 168 · 8730 Uznach · Switzerland Balzers Telephone +41 844 11 44 11 · Fax +41 844 11 44 12 Höﬂe 5 · 9496 Balzers · Liechtenstein Internet www.banklinth.ch · E-mail [email protected] Telephone +423 388 22 11 · Fax +423 388 22 22 LLB Asset Management AG Eschen Städtle 7 · P. O. Box 201 · 9490 Vaduz · Liechtenstein St. Martins-Ring · 9492 Eschen · Liechtenstein Telephone +423 236 95 00 · Fax +423 236 95 06 Telephone +423 377 55 11 · Fax +423 377 55 22 Internet www.llb.li/assetmanagement E-mail [email protected] Schaan Im Zentrum · Landstrasse 36/38 · 9494 Schaan · Liechtenstein LLB Fund Services AG Telephone +423 236 99 11 · Fax +423 236 99 22 Äulestrasse 80 · P. O. Box 1238 · 9490 Vaduz · Liechtenstein Telephone +423 236 94 00 · Fax +423 236 94 06 Triesenberg Internet www.llb.li/fundservices · E-mail [email protected] Jonaboda · 9497 Triesenberg · Liechtenstein Telephone +423 262 89 22 · Fax +423 268 23 43 LLB Fondsleitung AG Äulestrasse 80 · P. O. Box 1256 · 9490 Vaduz · Liechtenstein Telephone +423 236 81 40 · Fax +423 236 81 46 Internet www.llb.li/fondsleitung · E-mail [email protected]

LLB Treuhand AG Mitteldorf 1 · P. O. Box 568 · 9490 Vaduz · Liechtenstein Telephone +423 236 86 00 · Fax +423 236 86 06 Internet www.llb.li/treuhand · E-mail [email protected]

Jura Trust AG Mitteldorf 1 · 9490 Vaduz · Liechtenstein Telephone +423 237 75 75 · Fax +423 237 75 76 Internet www.juratrust.li · E-mail [email protected]

swisspartners Investment Network AG Am Schanzengraben 23 · 8039 Zurich · Switzerland Telephone +41 58 200 00 00 · Fax +41 58 200 01 00 Internet www.swisspartners.com · E-mail [email protected] LLB-GB-2007_de_1103:Layout 1 14.03.2008 9:21 Uhr Seite 204 146th Annual Report 2007 1925E 04.08

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