exposures in, our portfolio. As required, we will adopt SFAS No. 157 in our first quarter 2008 Form 10-Q; disclosures enabling investors to understand how we establish fair values for our investments will be included. Our Form 10-Q disclosures will also reflect our consideration of the disclosure issues set forth in the Staff's March 2008 "sample letter" to certain public companies on the topic of fair value measurement.

AFG is the investment manager for six CDOs. It also has investments ranging from 7.5% to 24.4% of the most subordinate tranche of these entities. Owners of these tranches receive distributions from the residual income of the CDO after the more senior tranches are paid stated rates of interest. In analyzing all expected cash flows (the income from our subordinate tranche investment and our expected management fees), AFG has determined that it will not receive a majority of their residual returns nor absorb a majority of these entities' expected losses. Accordingly, AFG is not the primary beneficiary of these variable interest entities under paragraph 14 of FIN 46(R). In addition, there are no contractual arrangements for AFG to provide additional funding for, or purchase securities from, these entities or their investors. Absent a voluntary election to purchase additional interests in one of these entities, there is no scenario in which AFG would have to consolidate any of the CDOs. Acco rdingly, AFG's maximum exposure to loss as a result of its involvement with these entities is its aggregate carrying value ($20 million at December 31, 2007).

The disclosures of off-balance sheet arrangements called for by Item 303(a)(4) of Regulation S-K are required if such arrangements are reasonably likely to have a current or future effect on the registrant's financial condition, changes in financial condition, revenues or expenses, results of operations, etc. that is material to investors. Given that our maximum exposure to loss if all of our CDOs failed to provide any return is less than one-half of one percent of AFG's equity, we do not believe the disclosures requested by the Staff in comments No. 3 and No. 4 are material to investors. Nonetheless, since Instruction No. 5 to Item 303(a)(4) states that the discussion of off-balance sheet arrangements need not repeat information provided in the footnotes to the financial statements provided the footnote information is clearly cross-referenced, we propose expanding (in our 2008 Form 10-K) the footnote disclosure of our CDO investments on page F-27 to clarify our maximum exposure with language similar to the following:

We propose adding disclosure similar to the following in our 2008 Form 10-K under the MD&A heading "Off-Balance Sheet Arrangements" in addition to the expanded footnote disclosure discussed in response to comment No. 3 to address (i) the likelihood of consolidation, (ii) what events would require us to reconsider whether we are the primary beneficiary, and (iii) reasonable expectations for a material impact on income.

The disclosures contained in Note N on page F-27 were intended to meet those required by paragraph 24 of FIN 46R. As noted in our response to comment No. 3, the disclosures will be further clarified in our 2008 Form 10-K.