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ITEM 8 / NOTE 6. FAIR VALUE MEASUREMENTS.....................................................................................................................................................................................Private equity fund investments included above are not redeemable, as distributions from the funds will be receivedwhen underlying investments of the funds are liquidated. Private equity funds are generally expected to have 10-yearlives at their inception, but these lives may be extended at the fund manager’s discretion, typically in one or two-yearincrements. At December 31, 2012, assuming average original expected lives of 10 years for the funds, 41 percent ofthe total fair value using net asset value or its equivalent above would have expected remaining lives of less thanthree years, 56 percent between three and seven years and 3 percent between seven and 10 years.At December 31, 2012, hedge fund investments included above are redeemable monthly (15 percent), quarterly(34 percent), semi-annually (28 percent) and annually (23 percent), with redemption notices ranging from one day to180 days. More than 69 percent of these hedge fund investments require redemption notices of less than 90 days.Investments representing approximately 74 percent of the value of the hedge fund investments cannot be redeemed,either in whole or in part, because the investments include various restrictions. The majority of these restrictions havepre-defined end dates and are generally expected to be lifted by the end of 2015. The restrictions that do not havestated end dates were primarily put in place prior to 2009. The partial restrictions relate to certain hedge funds thathold at least one investment that the fund manager deems to be illiquid.Fair Value Option..............................................................................................................................................................................................Under the fair value option, we may elect to measure at fair value financial assets and financial liabilities that are nototherwise required to be carried at fair value. Subsequent changes in fair value for designated items are reported inearnings. We elect the fair value option for certain hybrid securities given the complexity of bifurcating the economiccomponents associated with the embedded derivatives. Refer to Note 12 for additional information related toembedded derivatives.Additionally, beginning in the third quarter of 2012 we elected the fair value option for investments in certain privateequity funds, hedge funds and other alternative investments when such investments are eligible for this election. Webelieve this measurement basis is consistent with the applicable accounting guidance used by the respectiveinvestment company funds themselves. Refer to Note 7 herein for additional information.The following table presents the gains or losses recorded related to the eligible instruments for which weelected the fair value option:Years Ended December 31,Gain (Loss)(in millions) 2012 2011 2010Assets:Mortgage and other loans receivable $ 47 $ 11 $ 53Bonds and equity securities 2,339 1,273 2,060Trading – ML II interest 246 42 513Trading – ML III interest 2,888 (646) 1,792Retained interest in AIA 2,069 1,289 (638)Other, including Short-term investments 56 35 (39)Liabilities:Policyholder contract deposits – – (320)Long-term debt (a) (681) (966) (1,595)Other liabilities (33) (67) (8)Total gain (b) $ 6,931 $ 971 $ 1,818(a) Includes GIAs, notes, bonds, loans and mortgages payable.(b) Excludes discontinued operation gains or losses on instruments that were required to be carried at fair value. For instruments required to becarried at fair value, we recognized gains of $586 million, $1.3 billion and $4.9 billion for the years ended 2012, 2011 and 2010, respectively, thatwere primarily due to changes in the fair value of derivatives, trading securities and certain other invested assets for which the fair value option wasnot elected.Interest income and dividend income on assets elected under the fair value option are recognized and included inNet Investment Income in the Consolidated Statement of Operations with the exception of DIB-related activity, whichis included in Other income. Interest on liabilities for which we elected the fair value option is recognized in interestexpense in the Consolidated Statement of Operations. See Note 7 herein for additional information about our policiesfor recognition, measurement, and disclosure of interest and dividend income and interest expense...................................................................................................................................................................................................................................AIG 2012 Form 10-K 249