The Committee made no major changes in Directors' remuneration policy during the year. Implementation of existing policy continued to develop. In particular:

(a) one executive Director participated in a co-investment plan, as approved by shareholders at the Company's Annual General Meeting held on 12 July 2006 (the "2006 AGM");

(b) a portion of the performance share awards made to executive Directors comprised Super-performance Share awards. These awards were made subject to a particularly challenging performance condition. Further details are provided on Further details are provided on below and in the Performance Share and Super-performance Share awards section; and;

(c) the Committee considered appropriate remuneration arrangements for senior staff in the Group's Infrastructure and Quoted Private Equity businesses, including the Director responsible for Growth Capital and Infrastructure.

Non-executive Directors

The Company's policy for the financial year to 31 March 2008 (the "coming year") for non-executive Directors (including the Chairman) continues to be to pay fees which are competitive with the fees paid by other financial services companies. Non-executive Directors are not eligible for bonuses, share options, long-term incentives, pensions or performance-related remuneration. The Company does not currently expect its policy on non-executive Directors' remuneration for subsequent financial years to change significantly. Non-executive Directors' fees (other than those of the Chairman, which are determined by the Committee) are regularly reviewed and determined by the Board as a whole, within the limits set by the Company's Articles of Association, having taken advice from the Committee's remuneration advisers. During the year the basic non-executive Director's fee was £48,000 per annum. The annual fee for membership of the Audit and Compliance, Remuneration and Valuations Committees was £3,000 and the annual fee for Committee Chairmanship was £10,000. No fees were paid to Directors in respect of their membership of Nominations Committee.

Executive Directors

The Company's policy for the coming year for executive Directors is to provide remuneration and other benefits sufficient to attract, retain and motivate executives of the calibre required. Variable remuneration (comprising annual cash bonuses, deferred share bonuses and long-term incentives) is intended to form a substantial component of total remuneration.

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(a) Salaries

The Committee is sensitive to wider issues including pay and employment conditions elsewhere in the Group when setting executive Directors' pay levels and takes into account the Company's reward strategy generally, before deciding specific packages for the executive Directors. The table below provides details of the average percentage increase in base salaries per annum for members of Management Committee (including executive Directors) and other executive staff in the UK who were in employment for the period from 31 March 2006 to 31 March 2007.

Salaries for Chief Executive and Finance Director The Company's policy for the coming year in relation to the remuneration of the Chief Executive and Finance Director is to pay salaries comparable to those paid by other financial services companies of broadly similar UK market capitalisation. Salary supplements are paid to Mr P E Yea and Mr S P Ball to enable them to make additional pension provision.

Salaries for Directors responsible for investment business The Company's policy for the coming year in relation to the remuneration of Directors with responsibility for investment business continues to be to provide salaries comparable to those paid in the private equity and venture capital industry.

(b) Annual bonuses

Employees, including executive Directors, are eligible for discretionary annual bonuses. The Committee determines target bonuses for each executive Director at the beginning of each year. These are intended to be competitive with arrangements in the financial services industry or, in the case of Directors responsible for investment businesses, the private equity and venture capital industry. Target bonuses are achievable if corporate performance targets, personal performance targets and, in the case of Directors responsible for investment businesses, business targets are met. During the year, executive Directors' target bonuses were 90% of base salary, except that the target bonus for the Director responsible for Growth Capital and Infrastructure was 125%. Bonuses above target will only be paid for outstanding performance, and the maximum is twice the target bonus. Bonuses above 1.5 times target will be in shares deferred for two years and the Committee may decide that a higher proportion of bonus should be paid in deferred shares. The Committee retains discretion to make adjustments to bonus arrangements in appropriate circumstances.

The main measures used to assess corporate performance for the year were: total shareholder return and change in net asset value per share both in absolute terms and compared with the FTSE All-Share Index; total non market-driven return; and one to three-year internal rate of return compared with performance of the private equity and venture capital industry as a whole. In forming its overall judgment the Committee also took into account a number of more detailed indicators of performance and activity, such as the level of investment, realised profits and costs. The Committee's view, after reviewing performance of the Company against the indicators outlined above, was that corporate performance merited bonus levels above target. As this report shows, total shareholder return of 22.9% was well ahead of the FTSE All-Share return of 11.1%; total return on opening shareholders' funds was 26.8% and the greater part of this came from non market-driven factors. The two main business lines (Buyouts and Growth Capital) performed ahead of their published return targets during the year, and IRR comparisons with the European private equity industry indicated strong outperformance by the Company over the three-year period. Realisations were very high, and investment was significantly higher than in the year to 31 March 2006. While costs had risen, these were mainly associated with the development of the Group's business lines (including the continuing development of the Infrastructure team and the formation of a Quoted Private Equity team).

The Committee's combined assessment of corporate and personal performance in the year led to awards in the upper part of the bonus range for all three executive Directors. Within the maximum of two times target bonus, combined awards ranged from 1.8 to 1.89 times target, which translated into 1 to 1.41 times salary in cash and 0.62 to 0.94 times salary in shares deferred for two years.

For the coming year, following consultation with major shareholders, the target bonus for the Chief Executive will be raised from 90% of base salary to 125%, being the same level as the Director responsible for Growth Capital and Infrastructure, and the target bonus for the Finance Director will be raised from 90% of base salary to 100%. For both the Chief Executive and the Finance Director, any bonus over 100% of base salary will be in shares deferred for two years. The target bonus for the Director responsible for Growth Capital and Infrastructure will remain 125% of base salary with any bonus in excess of 1.5 times target paid in shares deferred for two years. Maximum bonuses for executive Directors will continue to be twice target bonus.

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(c) Long-term incentives

The Committee determines the levels of long-term incentives. During the year, long-term incentive arrangements for the Chief Executive and Finance Director consisted of share options, Performance Share awards and Super-performance Share awards under The 3i Group Discretionary Share Plan ("the Discretionary Share Plan") and this will not change for the coming year.

During the year and following approval by shareholders at the 2006 AGM, Mr M J Queen, the Director responsible for Growth Capital and Infrastructure, participated in co-investment arrangements and carried interest arrangements. Following consultation with major shareholders, we are now making the following changes: (i) in order to reflect that Mr Queen will be giving up responsibility for Growth Capital by 1 April 2008 and concentrating on developing the Group's infrastructure business, Mr Queen's level of participation in the two-year 2006-08 Growth Capital carried interest arrangement is being cut in half and he has not been eligible to make any further co-investment since 1 April 2007;

(ii) in compensation for this, and in recognition for the fact that he received no carried interest or share of fees in relation to infrastructure assets acquired in 2006-07, it is proposed to award him an exceptional bonus in the coming year, part of which is to be deferred over the three years to 2009-10. Payments made during the year to 31 March 2008 will be reported in the 2008 Directors' remuneration report;

and (iii) Mr Queen will be eligible to participate in the new part-deferred bonus arrangement being introduced in the coming year for senior members of the Infrastructure team, in place of carried interest, which is intended to provide similar long-term incentive awards and is based on shares of the advisory fees and performance fees paid to the Group by 3i Infrastructure Limited. The aim is to align Mr Queen's remuneration arrangements both with the Group and with the objectives of investors in infrastructure assets, who expect to see much of their return in the form of yield. The first payment under this new part-deferred bonus arrangement is expected to be made in the year to 31 March 2009 and will be reported in the 2009 Directors' remuneration report. Mr Queen has also undertaken to invest £1 million of his own money in 3i Infrastructure Limited shares over three years.

The Discretionary Share Plan The Discretionary Share Plan is a shareholder approved executive share plan conforming with the Association of British Insurers' guidelines on dilution limits. The level of annual awards of options, Performance Shares and Super-performance Shares is reviewed each year taking account of market practice, individual performance, the specific circumstances facing the Company and calculations of the fair values of share options, Performance Shares and Super-performance Shares. During the year the Company's policy was that maximum annual awards should be market price options with an aggregate exercise price of six times annual salary, or three times salary in respect of Performance Shares and Super-performance Shares. This was subject to an overall limit on the fair value of all share-based awards of two times salary. During the year awards with face values of approximately four times salary in share options, one half times salary in Performance Shares and two times salary in Super-performance Shares were made to the Chief Executive and to the Finance Director.

For the coming year the Committee proposes to maintain the limit of six times salary in nominal terms for an award made in share options and maintain the limit of three times salary for awards in Performance Shares and Super-performance Shares, with any combination being subject to an overall limit on the fair value of all share-based awards in the year. Following consultation with major shareholders, this limit will be increased; the limit for the coming year will be increased to 2.5 times annual salary. This change reflects the fact that the Chief Executive and Finance Director do not participate in any carried interest or co-investment arrangements and reflects the introduction of Super-performance Share awards, which must be awarded within this overall limit. The Committee's remuneration advisers calculate the fair values of share-based awards. For the coming year, these fair values have been calculated by the Committee's remuneration advisers to be 23% of face value for share options, 58% of face value for Performance Share awards and 23% of face value for Super-performance Share awards. These fair values are subject to re-calculation in changing market conditions.

Co-investment plans and carried interest plans Shareholder approval was given at the 2006 AGM to enable executive Directors responsible for investment business to participate in co-investment plans established for the Group's investment executives. Directors responsible for investment business are also eligible to participate in carried interest plans, following approval by shareholders in 2004. The Company's policy is that awards of carried interest are only normally made to executives who have taken up the opportunity offered to them of participating in co-investment plans. The Chief Executive and the Finance Director are not eligible to participate in co-investment plans or carried interest plans. Decisions on an executive Director's participation in co-investment plans and carried interest plans are taken by the Committee, taking into account market practice and the Director's investment responsibilities.

The Company does not currently expect its policy on executive Directors' remuneration for subsequent financial years to change significantly.