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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

(Mark One)



| ̈ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------------

OR



|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended June 30, 2007

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from                      to

OR



| ̈ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | -------------------------------------------------------------------------------------------

Date of event requiring this shell company report

Commission File Number 0-20281

CREATIVE
TECHNOLOGY LTD.

(Exact name of Registrant as specified in its charter)

SINGAPORE

(Jurisdiction of incorporation or organization)

31 International Business Park

Creative Resource

Singapore 609921

(Address of principal executive offices)

Securities registered pursuant to Section 12(b) of
the Act:



|                    |  |                                              
|------------------- |  | ---------------------------------------------
|Title of each class |  | Name of each exchange on which registered    
|Ordinary Shares     |  | Singapore Exchange Securities Trading Limited

Securities registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

The number of outstanding shares of each of the issuers classes of capital or common stock as of June 30, 2007: 83,622,029

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. ̈Yes    x  No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934. ̈Yes    x  No

Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.    x  Yes ̈No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.

 ̈Large accelerated filer                    x  Accelerated filer ̈Non-accelerated filer

Indicate by check mark which financial
statement item the registrant has elected to follow. ̈Item 17    x  Item 18

If this is an annual report, indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act). ̈Yes    x  No



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TABLE OF CONTENTS



|                                                                |  |                                                                              |  |   
|--------------------------------------------------------------- |  | ---------------------------------------------------------------------------- |  | --
|Securities and Exchange Commission Item Numbers and Description |  | Page #                                                                      
|                                                                |  |                                                                             
|                                                                |  | PART I                                                                       |  |   
|                                                                |  |                                                                             
|Item 1                                                          |  | Identity Of Directors, Senior Management And Advisers                        |  | 4 
|Item 2                                                          |  | Offer Statistics And Expected Timetable                                      |  | 4 
|Item 3                                                          |  | Key Information                                                              |  | 5 
|Item 4                                                          |  | Information On The Company                                                   |  | 18
|Item 4A                                                         |  | Unresolved Staff Comments                                                    |  | 25
|Item 5                                                          |  | Operating And Financial Review And Prospects                                 |  | 25
|Item 6                                                          |  | Directors, Senior Management And Employees                                   |  | 38
|Item 7                                                          |  | Major Shareholders And Related Party Transactions                            |  | 42
|Item 8                                                          |  | Financial Information                                                        |  | 42
|Item 9                                                          |  | The Offer And Listing                                                        |  | 44
|Item 10                                                         |  | Additional Information                                                       |  | 45
|Item 11                                                         |  | Quantitative And Qualitative Disclosures About Market Risk                   |  | 50
|Item 12                                                         |  | Description Of Securities Other Than Equity Securities                       |  | 51
|                                                                |  |                                                                             
|                                                                |  | PART II                                                                      |  |   
|                                                                |  |                                                                             
|Item 13                                                         |  | Defaults, Dividend Arrearages And Delinquencies                              |  | 52
|Item 14                                                         |  | Material Modifications To The Rights Of Security Holders And Use Of Proceeds |  | 52
|Item 15                                                         |  | Controls And Procedures                                                      |  | 52
|Item 15T                                                        |  | Controls And Procedures                                                      |  | 52
|Item 16                                                         |  | Reserved                                                                     |  | 53
|Item 16A                                                        |  | Audit Committee Financial Expert                                             |  | 53
|Item 16B                                                        |  | Code Of Ethics                                                               |  | 53
|Item 16C                                                        |  | Principal Accountant Fees And Services                                       |  | 53
|Item 16D                                                        |  | Exemptions From The Listing Standards For Audit Committees                   |  | 54
|Item 16E                                                        |  | Purchases Of Equity Securities By The Issuer And Affiliated Purchasers       |  | 54
|                                                                |  |                                                                             
|                                                                |  | PART III                                                                     |  |   
|                                                                |  |                                                                             
|Item 17                                                         |  | Financial Statements                                                         |  | 55
|Item 18                                                         |  | Financial Statements                                                         |  | 55
|Item 19                                                         |  | Exhibits                                                                     |  | 55
|                                                                | 
|Signature                                                       |  | 56                                                                          

Creative, the Creative logo, and the Creative products referred to herein are either the
trademarks or the registered trademarks of Creative. All other trademarks are property of their respective owners.



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SAFE HARBOR STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Except for the historical information contained herein, the matters set forth contains forward-looking statements and are subject to certain risks and
uncertainties that could cause Creatives actual results to differ materially. Such risks and uncertainties include: Creatives ability to timely develop new products that gain market acceptance and to manage frequent product transitions;
competitive pressures in the marketplace; a reduction or cancellation of sales orders for Creative products; accelerated declines in the average selling prices of Creatives products or any prices of components; Creatives ability to
successfully integrate acquisitions; potential fluctuations in quarterly results due to the seasonality of Creatives business and the difficulty of projecting such fluctuations; possible disruption in commercial activities caused by factors
outside of Creatives control, such as terrorism, armed conflict and labor disputes; a reduction in demand for computer systems, peripherals and related consumer products as a result of poor economic conditions, social and political turmoil;
major health concerns; the proliferation of sound functionality in new products from competitors at the application software, chip and operating system levels; the deterioration of global equity markets; exposure to excess and obsolete inventory;
Creatives reliance on sole sources for many of its chips and other key components; component shortages which may impact Creatives ability to meet customer demand; Creatives ability to protect its proprietary rights; the
vulnerability of certain markets to current and future currency fluctuations; the effects of restricted fuel availability and rising costs of fuel; and fluctuations in the value and liquidity of Creatives investee companies. For further
information regarding the risks and uncertainties associated with Creatives business, please refer to its filings with the U.S. Securities and Exchange Commission (SEC), including elsewhere in this annual report filed on Form 20-F.
Creative undertakes no obligation to update any forward-looking statement to conform the statement to actual results or changes in Creatives expectations.



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PART I



|ITEM 1: | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|------- | -----------------------------------------------------

Not applicable.



|ITEM 2: | OFFER STATISTICS AND EXPECTED TIMETABLE
|------- | ---------------------------------------

Not
applicable.



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|ITEM 3: | KEY INFORMATION
|------- | ---------------

SELECTED CONSOLIDATED FINANCIAL DATA

The following table contains selected data from Creatives Consolidated Statements of Operations for the five years ended
June 30, 2007. The data for the three years ended June 30, 2007 is derived from and should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this annual report. The data for
the two years ended June 30, 2004 and 2003 is derived from audited financial statements which are not included in this annual report.

CONSOLIDATED STATEMENTS OF OPERATIONS DATA

(US$000, EXCEPT PER SHARE DATA):



|                                                                    |  |                             |         |   |      |   |           |      |  |   |           |   |  |      |         |   |  |   |         |  
|------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | --------- | ---- |  | - | --------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                                    |  | For the years ended June 30 |        
|                                                                    |  | 2007                        |         |   | 2006 |   |           | 2005 |  |   | 2004      |   |  | 2003 |        
|Sales, net                                                          |  | $                           | 914,906 |   |      | $ | 1,127,531 |      |  | $ | 1,224,411 |   |  | $    | 814,853 |   |  | $ | 701,769 |  
|Cost of goods sold                                                  |  |                             | 737,203 |   |      |   | 963,217   |      |  |   | 949,151   |   |  |      | 533,513 |   |  |   | 452,952 |  
|                                                                    |  |                             |         |   |      |   |           |      |  |   |           |   |  |      |         |   |  |   |         |  
|Gross profit                                                        |  |                             | 177,703 |   |      |   | 164,314   |      |  |   | 275,260   |   |  |      | 281,340 |   |  |   | 248,817 |  
|Operating expenses:                                                 |  |                             |         |   |      |   |           |      |  |   |           |   |  |      |         |   |  |   |         |  
|Selling, general and administrative                                 |  |                             | 175,180 |   |      |   | 195,197   |      |  |   | 196,258   |   |  |      | 167,588 |   |  |   | 162,839 |  
|Research and development                                            |  |                             | 63,646  |   |      |   | 77,186    |      |  |   | 82,325    |   |  |      | 69,504  |   |  |   | 58,775  |  
|Impairment of goodwill and other intangible assets                  |  |                             |        |   |      |   | 31,478    |      |  |   | 65,225    |   |  |      |        |   |  |   |        |  
|Other charges (1)                                                   |  |                             |        |   |      |   | 5,873     |      |  |   |          |   |  |      |        |   |  |   |        |  
|                                                                    |  |                             |         |   |      |   |           |      |  |   |           |   |  |      |         |   |  |   |         |  
|Operating (loss) income                                             |  |                             | (61,123 | ) |      |   | (145,420  | )    |  |   | (68,548   | ) |  |      | 44,248  |   |  |   | 27,203  |  
|(Loss) gain from investments, net                                   |  |                             | (1,880  | ) |      |   | 18,904    |      |  |   | 74,405    |   |  |      | 72,602  |   |  |   | (6,049  | )
|Interest income                                                     |  |                             | 9,916   |   |      |   | 6,241     |      |  |   | 3,571     |   |  |      | 4,592   |   |  |   | 2,623   |  
|Interest expense                                                    |  |                             | (10,245 | ) |      |   | (9,411    | )    |  |   | (3,674    | ) |  |      | (1,001  | ) |  |   | (1,495  | )
|Others (2)                                                          |  |                             | 114,622 |   |      |   | 3,572     |      |  |   | (4,260    | ) |  |      | 5,685   |   |  |   | 3,736   |  
|                                                                    |  |                             |         |   |      |   |           |      |  |   |           |   |  |      |         |   |  |   |         |  
|Income (loss) before income taxes and minority interest             |  |                             | 51,290  |   |      |   | (126,114  | )    |  |   | 1,494     |   |  |      | 126,126 |   |  |   | 26,018  |  
|Income tax (expense) benefit (3)                                    |  |                             | (23,918 | ) |      |   | 7,150     |      |  |   | (969      | ) |  |      | 8,539   |   |  |   | (2,720  | )
|Minority interest in loss (income)                                  |  |                             | 817     |   |      |   | 805       |      |  |   | 63        |   |  |      | (418    | ) |  |   | 79      |  
|                                                                    |  |                             |         |   |      |   |           |      |  |   |           |   |  |      |         |   |  |   |         |  
|Net income (loss)                                                   |  | $                           | 28,189  |   |      | $ | (118,159  | )    |  | $ | 588       |   |  | $    | 134,247 |   |  | $ | 23,377  |  
|                                                                    |  |                             |         |   |      |   |           |      |  |   |           |   |  |      |         |   |  |   |         |  
|Basic earnings (loss) per share                                     |  | $                           | 0.34    |   |      | $ | (1.42     | )    |  | $ | 0.01      |   |  | $    | 1.66    |   |  | $ | 0.30    |  
|                                                                    |  |                             |         |   |      |   |           |      |  |   |           |   |  |      |         |   |  |   |         |  
|Weighted average ordinary shares outstanding (000)                 |  |                             | 83,452  |   |      |   | 83,093    |      |  |   | 82,661    |   |  |      | 80,654  |   |  |   | 79,202  |  
|                                                                    |  |                             |         |   |      |   |           |      |  |   |           |   |  |      |         |   |  |   |         |  
|Diluted earnings (loss) per share                                   |  | $                           | 0.34    |   |      | $ | (1.42     | )    |  | $ | 0.01      |   |  | $    | 1.61    |   |  | $ | 0.29    |  
|                                                                    |  |                             |         |   |      |   |           |      |  |   |           |   |  |      |         |   |  |   |         |  
|Weighted average ordinary shares and equivalents outstanding (000) |  |                             | 83,913  |   |      |   | 83,093    |      |  |   | 85,333    |   |  |      | 83,630  |   |  |   | 80,851  |  
|                                                                    |  |                             |         |   |      |   |           |      |  |   |           |   |  |      |         |   |  |   |         |  
|Dividends declared per share                                        |  | $                           | 0.25    |   |      | $ | 0.25      |      |  | $ | 0.50      |   |  | $    | 0.25    |   |  | $ | 0.25    |  
|                                                                    |  |                             |         |   |      |   |           |      |  |   |           |   |  |      |         |   |  |   |         |  



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CONSOLIDATED BALANCE SHEET DATA (US$000):



|                                          |  |               |         |      |   |         |  |      |           |      |   |         |  |   |        
|----------------------------------------- |  | ------------- | ------- | ---- | - | ------- |  | ---- | --------- | ---- | - | ------- |  | - | -------
|                                          |  | As of June 30
|                                          |  | 2007          |         | 2006 |   | 2005    |  | 2004 |           | 2003
|Cash and cash equivalents                 |  | $             | 250,480 |      | $ | 213,995 |  | $    | 187,246   |      | $ | 211,077 |  | $ | 232,053
|Working capital                           |  |               | 351,260 |      |   | 405,907 |  |      | 506,527   |      |   | 297,502 |  |   | 209,389
|Total assets                              |  |               | 723,033 |      |   | 830,613 |  |      | 1,077,474 |      |   | 940,848 |  |   | 646,843
|Long-term debt, net of current maturities |  |               | 129,131 |      |   | 206,593 |  |      | 209,455   |      |   | 35,614  |  |   | 39,027 
|Shareholders equity                      |  |               | 408,570 |      |   | 393,153 |  |      | 581,132   |      |   | 691,497 |  |   | 428,837

---

Notes:



|(1) | Other charges of $5.9 million in the results of operations in fiscal year 2006 comprised a $4.9 million restructuring charge relating to 3Dlabs Inc., Ltd (3Dlabs) and
$1.0 million in employee separation costs under a worldwide workforce reduction exercise.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Other income of $114.6 million in fiscal year 2007 included a $100.0 million paid-up license by Apple Inc. for use of the Creative ZEN Patent in its products.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | As described in Note 10 of Notes to Consolidated Financial Statements, Creative was granted a Pioneer Certificate under the International Headquarters Award that will
expire in March 2010. Under the Pioneer Certificate, profits arising from qualifying activities will be exempted from income tax in Singapore, subject to certain conditions. As a result of obtaining the Pioneer Certificate, income taxes in fiscal
year 2006 and 2004 includes a $10.0 million and $12.3 million reversal of income taxes. The reversal was related to corporate taxes provided for in full for profits arising from qualifying activities from the commencement date of the Pioneer
Certificate until the second quarter of fiscal year 2004, based on the standard tax rates of 24.5% for fiscal year 2001 and 22% for fiscal years 2002 and 2003 and 20% for fiscal year 2004. These standard corporate income tax rates continue to be
applicable to profits arising from activities excluded from the Pioneer Certificate. See Operating and Financial Review and Prospects for further discussion.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

DIVIDENDS

At the Annual General Meeting held on October 31, 2007, Creatives shareholders
approved an ordinary dividend of S$0.20 for each outstanding ordinary share of Creative for the fiscal year ended June 30, 2008. The dividends will be paid on November 30, 2007 to all shareholders of record as of November 14, 2007. In
fiscal year 2007, Creative paid an ordinary dividend of $0.25 each, amounting to $20.9 million on December 1, 2006 to all shareholders as of record as of November 15, 2006, and an ordinary dividend of $0.25 each in fiscal year 2006,
amounting to $20.7 million.

EXCHANGE RATES

Creative publishes its consolidated financial statements in US dollars, which is the principal currency in which it conducts its business. In this annual report, references to US dollars and $ are to United States
currency and references to Singapore dollars and S$ are to Singapore currency. Except as otherwise stated herein, all monetary amounts in this annual report have been presented in US dollars.

The following table sets forth, for the periods indicated, certain information concerning the currency exchange rate as expressed in US dollars per
Singapore dollar as certified for customs purposes by the Federal Reserve Bank of New York:



|                           |  |               |  |         |  |        |  |       
|-------------------------- |  | ------------- |  | ------- |  | ------ |  | ------
|Fiscal years ended
June 30 |  | At period-end |  | Average |  | High   |  | Low   
|2003                       |  | 0.5679        |  | 0.5697  |  | 0.5822 |  | 0.5545
|2004                       |  | 0.5804        |  | 0.5819  |  | 0.5997 |  | 0.5666
|2005                       |  | 0.5912        |  | 0.6012  |  | 0.6180 |  | 0.5783
|2006                       |  | 0.6317        |  | 0.6088  |  | 0.6398 |  | 0.5862
|2007                       |  | 0.6536        |  | 0.6460  |  | 0.6619 |  | 0.6274



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Monthly highs and lows for most recent six-month period are:



|          |  |        |  |       
|--------- |  | ------ |  | ------
|Months    |  | Highs  |  | Lows  
|April     |  | 0.6619 |  | 0.6575
|May       |  | 0.6606 |  | 0.6523
|June      |  | 0.6545 |  | 0.6477
|July      |  | 0.6646 |  | 0.6566
|August    |  | 0.6620 |  | 0.6515
|September |  | 0.6739 |  | 0.6550

On November 9, 2007, each Singapore dollar equaled 0.6934 US dollars, as certified for
customs purposes by the Federal Reserve Bank of New York.



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RISK FACTORS

In addition to the other information and risks described elsewhere in this annual report, Creatives business is subject to the following risks:

Creative needs to efficiently develop and introduce new products that gain market acceptance and to manage frequent product transitions in order to be competitive

The markets that Creative targets are highly competitive and are characterized by rapidly changing technologies, dynamic consumer demand, frequent new
product introductions and decreasing prices. Creatives business depends to a significant extent on its ability to cost-effectively develop and introduce new products and product enhancements for the digital entertainment market that gain
market acceptance.

In order to be competitive, Creative must, among other things:



| |  |  | anticipate the features and functionality in digital entertainment products that consumers will demand;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | incorporate those features and functionality into timely new products and product enhancements;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | manufacture the new products and product enhancements in commercial volumes at a high-quality;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | timely deliver the new products and product enhancements to its retailers, distributors and channel partners;
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | price its new products and product enhancements competitively; and
| | - |  | ------------------------------------------------------------------



| |  |  | manage product transitions smoothly and cost-effectively.
| | - |  | ---------------------------------------------------------

The development of new products and product enhancements can be very challenging and requires high levels of innovation. The development process is also lengthy and costly. In addition, the introduction of a new
product or product line is a complex task which involves heavy expenditures in training, promotion and channel development, the effective management of inventory levels in line with anticipated demand as well as careful management of existing
product inventories to avoid the costs associated with returns and slow-moving channel inventory.

Creative faces a number of risks when it
introduces new or enhanced products or integrates new technologies into new or existing products, including, among other things, disruption in its customers ordering patterns, excessive levels of older product inventories and delivering
adequate supplies of new products to meet customer demand.

Creative may not successfully enter the various product markets that it
identifies and sales of new products and product enhancements introduced may not become significant or profitable in the face of competition. If Creative is not successful in cost-effectively identifying, developing, manufacturing and selling new
products or product enhancements, or if it is unable to manage product transitions smoothly and efficiently, its results of operations and financial condition could be harmed.

Creative faces a high level of competition in each of its product markets

Creative faces intense
competition from a large number of established companies and emerging companies in the personal digital entertainment, PC audio, graphics, communications and speakers markets and semiconductor markets and expects competition to continue to intensify
as these markets evolve. In addition, Creative increasingly faces competition from cell phone companies which have been promoting phones that offer music and other entertainment functions. Furthermore, in the U.S., service providers often discount
the price of cell phones when purchased with a calling plan. The industries in which Creative competes are characterized by frequent product introductions, short product lifecycles, aggressive pricing practices, downward pressure on



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gross margins and steady improvements in product price/performance characteristics. Many of Creatives current and potential competitors have
substantially greater financial, manufacturing, marketing, distribution and other resources. Some of Creatives competitors may also have greater name recognition and market presence, longer operating histories, greater market power and product
depth, lower cost structures and larger customer bases.

Creatives competitors may be able to adapt more quickly to new technologies
and changes in consumer preferences by introducing new products at competitive prices, which may result in lost market share for Creative and may force Creative to lower prices on its products, which may result in reduced margins for those products.
These competitive pressures may also cause Creatives potential customers to delay or defer their purchasing decisions in anticipation of potential new products, lower prices, or both. Creative may not be able to compete successfully in the
future with its existing or potential competitors and intense competition could have a material adverse effect on Creatives operating results. For more information regarding Creatives competition and the risk factors arising out of the
competitive environment in which Creative operates, see Competition in Item 4 of this annual report.

Creatives gross margins
have fluctuated and can vary significantly depending on product mix and other factors

Creative has a diversified product portfolio of
consumer electronics and peripherals for PCs and sells these products through a worldwide network of domestic and international distributors, retailers and OEM customers. Creatives gross margins vary significantly by product line and customer
type, as well as within product lines.

In fiscal year 2007, Creatives gross margin was 19.4% compared to gross margin of 14.6% for
fiscal year 2006 and 22.5% for fiscal year 2005. The fluctuation in Creatives gross margins over the past three fiscal years was largely attributable to a change in the mix of products sold during those periods.

Sales of Creatives audio products, including the Sound Blaster X-Fi family of sound cards, generally have higher gross margins than sales of its
portable digital audio players, including the ZEN family of hard drive players and flash players. Over the last three fiscal years, sales of personal digital entertainment products, which include portable digital audio and video players, have
increased dramatically while sale of Creatives audio products have declined. A continued shift in sales mix away from higher-margin audio products towards lower-margin portable audio and video players will adversely affect Creatives
future overall gross margin and operating margin.

In addition, Creative recorded a substantial write-down for inventories of components in
the third quarter of fiscal year 2006, which also adversely affected its gross margin. Given the rapid and unpredictable pace of product obsolescence in the consumer electronics and PC industries and fluctuations in the price of components, such as
flash memory, the company may incur inventory and related charges in the future. Such charges have had, and may have, a material adverse effect on the companys gross margin and operating margin.

Creatives gross margins are generally lower for sales to OEM customers compared with sales to its retail customers. Increases in OEM sales or
decreases in retail sales relative to total sales may also negatively impact Creatives gross margins.

A substantial proportion of Creatives
overall sales are derived from a few product categories

A limited number of Creatives product categories account for a
substantial portion of Creatives overall sales. Sales of personal digital entertainment products represented approximately 63% of sales in fiscal year 2007, 65% of sales in fiscal year 2006 and 63% of sales in fiscal year 2005. Sales of audio
products represented approximately 13% of sales in fiscal year 2007, 13% of sales in fiscal year 2006 and 14% of sales in fiscal year 2005. Sales of speakers represented approximately 16% of sales in fiscal year 2007, 13% of sales in fiscal year
2006 and 14% of sales in fiscal year 2005. Creatives profitability has resulted largely from sales of products from these categories.



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The markets for personal digital entertainment products are evolving rapidly and competition is
particularly intense. In addition, some of Creatives competitors in the semiconductor industry are integrating basic audio capabilities into their products for inclusion in PCs. The integration of audio capabilities into the central processing
units, motherboards and/or operating systems of PCs has adversely impacted and may continue to adversely impact Creatives ability to sell its sound card products into the PC market.

Creative expects that these product categories will continue to account for a significant portion of Creatives sales in the future. Creative
believes that a decline in demand or prices for these products, whether as a result of competition, technological change or otherwise, would adversely affect Creatives sales and profitability.

Because Creative must acquire components and build products based on forecasted demand, it faces substantial inventory risk

Creative must order components and build inventory in advance of customer orders for products. Because demand for the companys products is affected
by a number of factors, including market acceptance of its products, competition and general economic conditions, there is a risk that Creative may forecast demand incorrectly and produce or order from third parties excess or insufficient
inventories of particular products. Creative has experienced differences between actual and forecasted demand in the past and expects differences to arise in the future. In addition, Creatives operating results and financial condition have in
the past and may in the future be materially adversely affected by the companys ability to manage its inventory levels and respond to short-term shifts in customer demand.

Creative records a write-down for inventories of components and products that have become obsolete or are in excess of anticipated demand or net
realizable value and accrues necessary reserves for cancellation fees of orders for inventories that have been cancelled. Creative recorded a substantial write-down for inventories of components in the third quarter of fiscal year 2006 and, given
the rapid and unpredictable pace of product obsolescence in the consumer electronics and PC industries and fluctuation in the prices of components, such as flash memory, the company may incur inventory and related charges in the future. Such charges
have had, and may have, a material adverse effect on the companys results of operations and financial condition.

Creative acquires new
technologies from time to time; acquisitions involve numerous risks and may not lead to improved operating results

Creatives
growth is dependent on growth in its target markets, its ability to enhance its products and its ability to introduce new products and product enhancements on a timely basis that gain market acceptance. Creative acquires technologies from time to
time for its products from third parties through acquisitions, licenses or other means, often at substantial cost.

While acquisitions may
be important to remain competitive, they may not lead to any improvements in Creatives operating results and involve numerous risks, including the following:



| |  |  | difficulties in integrating the operations, technologies, products and personnel of any acquired entities or businesses;
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | diversion of managements attention from normal daily operations of the business;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | difficulties in entering markets in which Creative has no or limited direct prior experience and where competitors in such markets have stronger market positions;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | potential difficulties in completing projects associated with in-process research and development;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | insufficient revenues to offset increased expenses associated with acquisitions;
| | - |  | --------------------------------------------------------------------------------



| |  |  | the potential loss of key employees of the acquired entities or businesses; and
| | - |  | -------------------------------------------------------------------------------



| |  |  | the diversion of capital and other resources.
| | - |  | ---------------------------------------------



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Acquisitions may also cause Creative to:



| |  |  | issue shares, which would dilute the ownership percentage of Creatives current shareholders;
| | - |  | ---------------------------------------------------------------------------------------------



| |  |  | assume liabilities;
| | - |  | -------------------



| |  |  | record goodwill and non-amortizable intangible assets that will be subject to impairment testing and potential periodic impairment charges;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | incur amortization expenses related to certain intangible assets;
| | - |  | -----------------------------------------------------------------



| |  |  | incur large and immediate write-offs; and
| | - |  | -----------------------------------------



| |  |  | become subject to litigation.
| | - |  | -----------------------------

Mergers and acquisitions of high-technology companies are inherently risky and no assurance can be given that Creatives previous or future acquisitions will be successful and will not materially adversely affect its business,
operating results or financial condition. If Creative fails to successfully integrate acquisitions or achieve any anticipated benefits of an acquisition, its operations and business could be harmed.

Creatives operating results fluctuate due to seasonal buying patterns and other factors and are not indicative of future performance

Creatives operating results have been in the past, and will continue to be, subject to quarterly and annual fluctuations as a result of a number of
factors. These factors include:



| |  |  | the seasonal buying patterns of Creatives customers, which typically result in higher demand for Creative products in the second quarter of the fiscal year
compared to the other quarters of the fiscal year;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the volume and timing of significant orders;
| | - |  | --------------------------------------------



| |  |  | the timing of new product introductions by Creative and its competitors;
| | - |  | ------------------------------------------------------------------------



| |  |  | Creatives ability to maintain appropriate inventory levels and purchase commitments;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | variations in product costs, mix of products sold and average selling prices of products;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | manufacturing lead times;
| | - |  | -------------------------



| |  |  | fluctuations in Creatives gross margins;
| | - |  | -----------------------------------------



| |  |  | fluctuations in spending on sales and marketing activities; and
| | - |  | ---------------------------------------------------------------



| |  |  | general economic and other conditions, especially conditions that affect consumer demand for personal computers and products used with personal computers.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

As a consequence, Creatives operating results for a particular future period are difficult to predict, and
therefore, prior results are not necessarily indicative of results to be expected in future periods. Many of Creatives operating expenses are relatively fixed in the short term and Creative may be unable to rapidly adjust spending to
compensate for any unexpected sales shortfall. Any of the foregoing factors, or any other factors discussed elsewhere in this annual report, could have a material adverse effect on Creatives business, results of operations and financial
condition.

Creative depends upon outside vendors and has limited supply sources for certain components of its most successful products

Creatives sales are principally derived from its personal digital entertainment products, audio products and speaker products. Creative purchases
several components for these products from third party vendors, some of whom are the sole sources for these components. Creative has experienced delays and shortages in the delivery



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of these components, including flash memory chips and hard disk drives, in the past and may experience them again in the future. If Creatives vendors
do not allocate a sufficient supply of high-quality components to meet Creatives needs, Creative may be required to procure these components at a higher cost from alternative suppliers. Creative may also be forced to alter product designs to
accommodate the alternative components, which may cause significant delays in the manufacturing process. In the event any delay or shortage occurs, Creatives operations could be adversely impacted by reducing Creatives ability to
distribute its products to distributors and to meet customer demand.

Creative is subject to risks associated with substantial international operations

Sales outside the United States accounted for 64% of Creatives net sales in fiscal year 2007. In addition, a substantial number
of Creatives products are manufactured, assembled and tested by third parties in Asia. As a result, Creative is subject to a number of risks of conducting business outside of the United States, any of which could have a material adverse impact
on its results of operations, including:



| |  |  | fluctuations in the U.S. dollar, the principal currency used by Creative to transact business;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | unexpected changes in, or impositions of, government requirements;
| | - |  | ------------------------------------------------------------------



| |  |  | delays resulting from difficulty in obtaining export licenses for certain technologies, tariffs, quotas and other trade barriers and restrictions;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | shipping delays resulting from disruptions to Creatives supply chain caused by labor disputes, war or other events beyond Creatives control;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | potentially longer payment cycles;
| | - |  | ----------------------------------



| |  |  | greater difficulty in accounts receivable collection;
| | - |  | -----------------------------------------------------



| |  |  | the imposition of additional taxes and penalties;
| | - |  | -------------------------------------------------



| |  |  | the burdens of complying with a variety of non-U.S. laws; and
| | - |  | -------------------------------------------------------------



| |  |  | other factors beyond Creatives control, including terrorism, major health concerns and rising fuel costs.
| | - |  | ----------------------------------------------------------------------------------------------------------

Creative is also subject to geopolitical risks, such as political and economic instability and changes in diplomatic and trade relationships. In
addition, the laws of some countries in which Creatives products are or may be manufactured or sold may not protect its products or intellectual property rights to the same extent as do the laws of the United States.

Creative may be adversely affected by general economic conditions, political and economic uncertainty in various countries and other factors outside of its control

Sales of consumer electronics and PCs have historically been dependent upon discretionary spending by consumers and Creatives
operating performance depends significantly on general global economic conditions and growth of the consumer electronics and PC markets. A slowdown in the global economy and the consumer electronics and PC markets coupled with a poor economic
outlook, political and social turmoil in the near future may cause consumers to defer decisions to purchase Creative products.

Creative
also has strategic investments in numerous companies throughout the world, including Asia and the Middle East. Creatives financial position, results of operations, return on investments or ability to realize the anticipated benefits from a
portfolio companys technology may be adversely impacted in the future due to turmoil in international markets.

To remain competitive, Creative
must be able to maintain substantial capital which Creative may be unable to do in the future

In order to compete, Creative believes
that it will need to have substantial capital in order to maintain the flexibility to take advantage of opportunities as they arise and to fund Creatives working capital requirements.



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Creative believes that at the current level of operations, its existing resources, including existing cash and cash equivalents, existing credit facilities
and anticipated cash flows from operations, will be adequate to meet its projected working capital and other cash needs for at least the next twelve months. To the extent, however, that existing resources and anticipated cash flows are not adequate
for its operational and other cash needs, Creatives operating results and financial position could be adversely affected.

In
November 2004, Creative entered into a five-year $175.0 million syndicated term loan facility with a group of international banks and drew down on the entire loan during fiscal year 2005. The proceeds from this facility were used primarily to fund
the growth in working capital requirements arising from the growth in the companys revenue. The loan facility contains certain financial covenants, including requirements for Creative to maintain certain working capital ratios, but does not
restrict Creatives ability to borrow or distribute earnings. Creative repaid $75 million of the loan in fiscal 2007.

Creative may
decide to obtain additional working capital to better position the company for growth in the personal digital entertainment market and other markets. In such event, Creative may engage in equity or debt financing to secure additional funds. If
Creative raises additional funds through issuances of equity or convertible debt securities, its existing shareholders could suffer significant dilution, and any new equity securities issued by Creative could have superior rights to those of
Creatives ordinary shares. Any new debt financing secured by Creative in the future could involve restrictive covenants relating to Creatives capital raising activities and other financial and operational matters, which may make it more
difficult for Creative to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, Creative may not be able to obtain additional financing on favorable or commercially acceptable terms. If
Creative is unable to obtain adequate financing or financing on favorable or commercially acceptable terms, its ability to pursue new business opportunities and to respond to business challenges could be limited.

Creatives continued success is dependent on a group of key distributors and customers

Creative relies on distributors, retailers and resellers to sell its products. If Creatives competitors offer its distributors, retailers or
resellers more favorable terms or have more products available to meet demand from their customers or are able to exert greater leverage over the distributors, retailers or resellers than Creative, then Creatives distributors, retailers and
resellers may de-emphasize or decline to carry its products. If Creative is unable to maintain successful relationships with its distributors, retailers and resellers or to expand its distribution channels, its operating results and financial
position will suffer.

Although during fiscal years 2007, 2006 and 2005, none of Creatives customers accounted for more than 10% of
Creatives total worldwide sales, a reduction or delay in orders from a group of Creatives key distributors and customers could have an adverse effect upon Creatives operating results and financial position. As of June 30, 2007
and 2006, one customer accounted for more than 10% of net accounts receivable, and as of June 30, 2005, two customers accounted for more than 10% of net accounts receivable.

Distributors and retail customers historically have been characterized by rapid change, including periods of widespread financial difficulties and
consolidation. Creative may be unable to retain its distributors and retail customers and may be unable to find alternative distributors and retail customers without incurring delays and increased costs. In addition, sales to any particular
distributor or retailer may fluctuate significantly from quarter to quarter. Though Creative records allowances for expected bad or doubtful accounts receivable balances, non-recovery of these or other accounts receivable balances could have an
adverse effect upon Creatives operating results and financial position.

Creatives success is dependent upon its ability to continue to
protect its proprietary technologies, and know-how in product design

Creatives ability to compete successfully depends, in part,
on its ability to protect its proprietary technologies, and know-how in product design. Creative relies primarily upon its trade secrets program,



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copyrights and patents to protect its technologies. Creative generally enters into confidentiality and/or license agreements with its employees,
distributors, customers and potential customers. It also limits access to, and distribution of, its software, documentation and other proprietary information. However, these protections may not be adequate and Creatives competitors may
independently develop technologies that are substantially equivalent or superior to Creatives technologies. In addition, the steps taken by Creative may not be adequate to deter misappropriation or independent third-party development of
Creatives technologies. Furthermore, the protection provided to Creatives proprietary technologies by the laws and courts of foreign nations may not be substantially similar to or as protective as the remedies available under U.S. laws.

Creative holds various U.S. patents and pending U.S. patent applications and corresponding patents and pending applications in other
countries. It is possible that a patent owned by Creative will be invalidated, deemed unenforceable, circumvented or challenged, that the patent rights granted will not provide competitive advantages to Creative or that one or more of
Creatives pending or future patent applications will not be issued. Any of these events could significantly harm Creatives business and future prospects.

Creatives success depends on its ability to attract and retain key personnel

Creatives
success depends to a significant extent upon a number of key employees and senior management. The loss of the service of one or more of these key employees, none of whom is bound by a written employment agreement, could have a material adverse
effect on Creative. Creative believes that its future success will also depend in large part upon its ability to attract and retain highly skilled technical, managerial and marketing personnel. Competition for such personnel is intense. Creative may
not be successful in attracting and retaining the personnel it requires.

Creative may incur substantial costs enforcing its intellectual property
rights and defending against third party claims as a result of litigation or other proceedings

Creative is a party to lawsuits in the
normal course of its business. In connection with the enforcement of Creatives own intellectual property rights or in connection with disputes relating to the validity or alleged infringement of third party rights, including patent rights,
Creative has been, currently is and may in the future be, subject to claims or litigation. Any assertion of infringement against Creative may result in potentially costly litigation by Creative, may require Creative to enter into royalty
arrangements with the third parties claiming infringement and may result in an injunction or award of damages against Creative.

Litigation
can also be disruptive to normal business operations. Moreover, the results of legal proceedings are often difficult to predict. An unfavorable resolution of a particular lawsuit could have a material adverse effect on Creatives business,
operating results or financial condition. For additional information regarding certain of the lawsuits in which Creative is involved, see Legal Proceedings in Item 8 of this annual report.

Changes in environmental rules and regulations could increase Creatives costs and impact its future operating results

Creative is subject to environmental regulations and other requirements in a number of countries. For example, Creative is subject to the European Union
Waste Electrical and Electronic Equipment Directive as enacted by individual European Union countries, which makes producers of electrical goods responsible for the collection, recycling, treatment and disposal of covered products. In the event it
is determined that Creative has not complied with applicable environmental laws and regulations, Creative may incur remediation costs, other penalties and sustain injury to its brand image. Creatives activities also may be limited if it is
unable to comply with applicable environmental regulations, which could adversely affect its operating results.

Similar environmental
legislation may be enacted in other geographies, including federal and state legislation in the United States, the cumulative impact of which could be significant. There is no assurance that such existing laws or future laws will not have a material
adverse effect on Creative.



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Rising fuel costs, limited fuel availability or higher shipping costs may increase Creatives costs of doing
business

Increases in fuel costs, limited fuel availability or higher shipping costs may adversely affect Creatives business,
including its gross margins. Creatives products are often manufactured far from the final points of sale for these products. As a result, Creatives shipping costs are impacted by an increase in fuel costs or limitations on fuel
availability.

Creative is controlled by one founding shareholder

As of June 30, 2007, Mr. Sim Wong Hoo, one of Creatives founders and its current Chief Executive Officer, beneficially owned approximately 28.7% of Creatives outstanding ordinary shares. Because
he is the largest shareholder, Mr. Sim may be able to influence the election of Creatives directors, to determine the outcome of most corporate actions requiring shareholder approval and to control the management and affairs of Creative.

Creative is subject to anti-takeover provisions that could delay or prevent an acquisition and could adversely affect the price of Creatives
ordinary shares

The Securities and Futures Act (Chapter 289) of Singapore and the Singapore Code on Take-Overs and Mergers
(Code) contain certain provisions that may discourage, delay, deter or prevent a future takeover or change in control of Creative. Except with the Securities Industry Councils consent, the Code requires any person acquiring an
interest in 30% or more of Creatives voting rights, to extend a takeover offer to the holders of any class of share capital of Creative which carries votes. Such voting rights may be acquired either individually or by acting in concert with
other parties, through a single transaction or a series of transactions over a period of time. The Code also requires such takeover offer to be made if a person holding between 30% and 50% of Creatives voting rights, either individually or
acting in concert with other parties, acquires an additional 1% of Creatives voting rights in any six month period. In addition to such person, each of the principal members of the group of persons acting in concert with him may also have the
obligation to extend such takeover offer.

These provisions may discourage or prevent certain types of transactions involving an actual or
threatened change of control of Creative, which may allow shareholders to sell their shares of Creative at a price above the prevailing market price. Therefore, these provisions could limit the price that investors might be willing to pay for shares
of Creative in the future.

As a result of Creatives voluntary delisting from the NASDAQ Global Market, U.S. investors may find it more difficult
to buy or sell Creatives ordinary shares

On September 4, 2007, Creative announced that the company completed the voluntary
delisting of its ordinary shares from the NASDAQ Global Market. August 31, 2007 was the last day of trading for Creative ordinary shares on NASDAQ. The delisting of Creatives shares from NASDAQ could reduce the ability of holders of its
ordinary shares to purchase or sell shares as quickly and as inexpensively as they have done historically, and may have an adverse effect on the trading price of Creatives ordinary shares.

If Creative terminates its U.S. public company reporting obligations, investors may find it more difficult to obtain information about Creative

Creative currently files reports with the U.S. Securities and Exchange Commission electronically and its reports can be found at the SECs website.
Creative intends to terminate its reporting obligations under the Securities Exchange Act of 1934 when it becomes eligible to do so, which will occur at the earliest twelve months after the delisting of its ordinary shares from NASDAQ and will occur
only if Creative meets certain requirements under the Exchange Act. The elimination of Creatives U.S. public reporting obligations may make



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it more difficult for investors to obtain current information about Creative. If Creative terminates its reporting obligations under the Exchange Act, it
will still be obligated to file reports under Singapores applicable reporting requirements, but Singapores applicable reporting requirements may not require the same level of disclosure as the U.S. public reporting requirements and
investors may not have easy access to Creatives Singapore-mandated reports.

If Creative is unable to suspend its U.S. public reporting
obligations or spends a substantial amount of its cash reserves in an effort to do so, then its results of operations and financial condition will be harmed

Creative will be able to terminate its U.S. public company reporting obligations if the U.S. average daily trading volume of its ordinary shares is 5% or less of the worldwide average daily trading volume of its
ordinary shares during the twelve-month period ending 60 days before filing to deregister its securities under the Securities Exchange Act of 1934. Alternatively, if Creatives ordinary shares are held by fewer than 300 U.S. residents,
including each U.S. resident that owns shares in the name of a broker, dealer, bank or nominee for such holders account, and if options to purchase ordinary shares are held by fewer than 300 U.S. residents, Creative will be able to suspend its
U.S. public reporting obligations after completion of the fiscal year in which Creative is able to so reduce the number of holders of Creatives ordinary shares and options to purchase ordinary shares.

If Creative is not able to terminate or suspend its U.S. public reporting obligations, then it will continue to incur significant costs and
administrative burdens to comply with its U.S. public reporting obligations. Such costs and burdens may have an adverse impact on Creatives profitability and results of operations.

In addition, if Creative spends a substantial amount of its cash reserves to be in the position to cease its U.S. public reporting obligations, then its
cash position will be adversely affected.

Changes in, or interpretations of, accounting principles could result in unfavorable accounting charges

Creative prepares its consolidated financial statements in conformity with U.S. generally accepted accounting principles. These principles
are subject to interpretation by the SEC and various bodies formed to interpret and create appropriate accounting principles. A change in these principles can have a significant effect on Creatives reported results and may even retroactively
affect previously reported transactions.

Creative is exposed to increased costs and risks associated with complying with Section 404 of the
Sarbanes-Oxley Act

Section 404 of the Sarbanes-Oxley Act of 2002 requires that public companies in the United States evaluate and
report on their systems of internal controls over financial reporting. Creative is not required to comply with the requirement to provide an auditors attestation report on internal control over financial reporting until the fiscal year ending
on or after July 15, 2007. Creative has incurred and will continue to incur significant expenses and management resources to comply with the requirements of Section 404 on an ongoing basis and Creative cannot provide any assurance that it
will be able to satisfy the requirements related to internal controls on an ongoing basis and that its auditors will be able to provide an attestation report regarding managements internal control report when required.

A determination that Creatives internal control over financial reporting is not effective might cause investors to lose confidence in the
companys reported financial information, which could cause volatility in the market price of the companys shares.

The market price of
Creatives ordinary shares is volatile

The quoted market price of Creatives ordinary shares has fluctuated significantly in
the past and is likely to continue to be highly volatile. The quoted market price of Creatives ordinary shares may be significantly affected by a variety of factors, including:



| |  |  | the announcement of new products or technologies;
| | - |  | -------------------------------------------------



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| |  |  | innovations by Creative or its competitors;
| | - |  | -------------------------------------------



| |  |  | acquisitions of new technologies;
| | - |  | ---------------------------------



| |  |  | divestments of particular low-performing product lines;
| | - |  | -------------------------------------------------------



| |  |  | quarter to quarter variations in Creatives results of operations;
| | - |  | ------------------------------------------------------------------



| |  |  | the timing of the cessation of Creatives U.S. public company reporting obligations; and
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | general market conditions or market conditions specific to particular industries.
| | - |  | ---------------------------------------------------------------------------------

The stock prices for many technology companies, including Creative, have experienced wide fluctuations, which often have been unrelated to the operating
performance of these companies. In addition, the relatively low trading volume of Creatives ordinary shares on the SGX-ST in Singapore may lead to more volatility in the market price of Creatives shares. As a result, these fluctuations
may adversely affect the market price of Creatives ordinary shares in the future.

Creatives stock price may fluctuate because the value of
its investments fluctuates

A portion of Creatives assets includes equity investments in various companies. These companies
include both publicly traded and non-publicly traded companies. The market price, valuations and carrying value of the securities that Creative holds in these companies may fluctuate due to general market conditions, volatility for technology stocks
and other conditions over which Creative has no control. Fluctuations in the market price and valuations of the securities that Creative holds in other companies may result in potential price reductions of carrying values of Creatives investee
companies and fluctuations in the market price of Creatives ordinary shares. Decreases in the value of Creatives publicly-traded investments may reduce the amount of working capital available to Creative.

The enforceability of U.S. judgments against Creative is limited

Because substantial portions of Creatives assets are located outside the United States, purchasers of Creatives securities have limited assets in the United States against which they may enforce judgments
of U.S. courts. As a result, purchasers of Creatives securities who obtain judgments against Creative based upon allegations of violations of U.S. laws may be required to seek enforcement of their judgments in non-U.S. jurisdictions, such as
Singapore, where Creatives executive offices and its principal research and development operations are located. However, there is no guarantee that a court in a non-U.S. jurisdiction would enforce a U.S. judgment.

There is no treaty between the United States and Singapore providing for the reciprocal recognition and enforcement of judgments. As a result, U.S.
judgments are not automatically enforceable in Singapore. In addition, judgments of U.S. courts based on the civil liability provisions of the U.S. securities laws are not enforceable in Singapore courts. It is doubtful as to whether Singapore
courts will hear actions brought in Singapore courts based solely upon the civil liability provisions of the U.S. securities laws or enter judgments in such actions.

Service of process on Creative in the United States is limited generally

Creative is a Singapore
corporation. A majority of the members of its management team and Board of Directors are not U.S. residents. As a result, it may not be possible for investors to effect service of process within the United States upon these non-U.S. residents.



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|ITEM 4: | INFORMATION ON THE COMPANY
|------- | --------------------------

HISTORY AND DEVELOPMENT OF CREATIVE

Creative Technology Ltd., founded in 1981 by Mr. Sim Wong Hoo, was incorporated in Singapore as a private limited company in July
1983 and continues to maintain its principal executive offices there. From 1983 to 1988, Creatives revenues were derived primarily from the design, manufacture and distribution of personal computers, or PCs, and related enhancement products.
In 1987, as a result of intense competition and continuing price erosion in the PC market, Creative decided to concentrate its development strategy on newer, higher margin audio products. In November 1987, Creative began shipments of Game Blaster, a
product designed to add music capabilities to PCs targeted at the PC games and entertainment market. This product evolved into the Sound Blaster product line that began shipping in November 1989. Revenues grew significantly, reflecting rapid market
acceptance of Sound Blaster and other products in the Blaster family, which lead to Creatives successful initial public offering in the United States. Creatives ordinary shares began trading on the NASDAQ Global Market
(NASDAQ) under the symbol CREAF on August 3, 1992. On June 15, 1994 Creatives shares began trading on the Singapore Exchange Securities Trading Limited (SGX-ST). On September 4, 2007, Creative
announced that the company has completed the voluntary delisting of its ordinary shares from NASDAQ. August 31, 2007 was the last day of trading for Creative ordinary shares on NASDAQ. Creatives sole stock exchange listing is on the
SGX-ST. The delisting from NASDAQ did not affect the status of Creatives shares on the SGX-ST.

Creatives corporate
headquarters is located in Singapore at 31 International Business Park, Creative Resource, Singapore 609921, telephone number: 65-6895-4000. Creative manages its operations in the United States, Canada and Latin America through its U.S. subsidiary,
Creative Labs, Inc., (Creative Labs) which is located at 1901 McCarthy Boulevard, Milpitas, California 95035. Creatives primary manufacturing facilities are based in Malaysia and China, with sales, distribution and research and
development being carried out through a global network of subsidiaries located in North America, Europe and Asia.

Principal Capital Expenditures

Creatives capital expenditures for property, plant and equipment for the fiscal years 2007, 2006 and 2005 were $6.0 million, $13.3
million and $34.2 million, respectively. The principal areas of capital expenditures were machinery, computer hardware and software in fiscal year 2007, land and buildings, machinery, computer hardware and office equipment in fiscal year 2006, and
land and buildings, machinery, computer hardware and software in fiscal year 2005. Subsequent to the fiscal year 2007, Creative sold an 80.1% interest in its manufacturing operations in Malaysia. The sale of a controlling interest in the Malaysia
manufacturing operations is in line with managements goal of streamlining and improving operational efficiencies.

Principal Equity Investments

As part of its long-term business strategy, from time to time, Creative makes strategic equity investments in companies that can
provide Creative with technologies or products that management believes will give Creative a competitive advantage in the markets in which Creative competes. During fiscal years 2007, 2006 and 2005, Creative made investments that totaled $1.7
million, $2.5 million and $17.8 million, respectively.

Net investment loss of $1.9 million in fiscal year 2007 was mainly due to $2.0
million in write-downs of investments. Net investment gain of $18.9 million in fiscal year 2006 included a $20.9 million net gain from sales of investments offset by $2.0 million in write-downs of investments. Net investment gain of $74.4 million in
fiscal year 2005 comprised a $86.0 million net gain from sales of investments offset by $11.6 million in write-downs of investments. The bulk of the net gain from the sales of investments was derived from sales of shares of SigmaTel, Inc.
(SigmaTel).

BUSINESS OVERVIEW

Creative is one of the leading providers of digital entertainment products and products for PCs. Creatives products include digital media players and other products used in a wide array of solutions for entertainment,



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education, music, Internet applications and services and productivity tools markets. Creative markets its products to consumers and system integrators, with
worldwide distribution through traditional marketing channels, original equipment manufacturers (OEMs) and the Internet, under a variety of trademarks, including the MuVo®, ZEN® and Blaster® family of names. Creatives EAX® technologies have been established as de facto standards for multimedia enhancements for the PC.

Creative believes that its strengths in the digital entertainment and PC market resulting from its MuVo, ZEN, Blaster and other brand names, its extensive global distribution
network, and its technology and manufacturing expertise, places it in a solid position to sell new and enhanced digital entertainment, PC audio, speaker, and related products. Creative continues to invest in research and development activities to
improve existing products and to introduce new products. It continually evaluates other companies technologies and product offerings and may make equity investments in, or establish strategic alliances with, those entities that can provide
Creative with complementary products and technologies. To achieve low per unit costs and meet rapid time to market demands, Creative has developed in-house expertise in software and hardware development, industrial/mechanical design, and chip
design.

Creatives Principal Products

Using proprietary technologies and industrial design expertise, Creatives innovative hardware and applications enable consumers to experience high quality digital entertainment, especially in three core categories: digital
entertainment products, sound cards, and speakers/headphones.

Personal Digital Entertainment Products

Portable Digital Entertainment Players: Creative offers an array of portable digital audio and video players. Creatives digital audio
players are aimed at consumers with an active lifestyle and include the ZEN and MuVo line of products, such as the Creative ZEN, Creative ZEN Stone Plus, Creative ZEN Stone, Creative ZEN V Plus, Creative ZEN V, and Creative MuVo T100. The Creative
ZEN is a credit card-sized media player with a high quality 2.5 LCD screen that can play MP3 and non-protected AAC music formats and video, and comes equipped with an SD card memory expansion slot. The ZEN Stone Plus is a tiny light weight
player with a blue OLED screen that captures personal bests with its stop watch function. The small and trendy Creative ZEN V Plus features a brilliant full color 1.5 OLED display with a suite of music, photo, radio and video functions. The
Creative MuVo T100 also has a small form factor, and offers instant Plug-n-Play without the need for software.

Web Cameras:
Creative offers a full line of feature-rich desktop and notebook webcams. The Creative Live! Cam Optia AF does not require installation of drivers and is the first webcam to offer auto focus technology and a true 2.0 megapixel CMOS sensor. It also
offers built-in dual Adaptive Array microphones which deliver superb noise cancellation ability. The ultra portable Live! Cam Notebook Ultra has an Ultra Wide-Angle Precision Lens and offers full motion 30fps digital video streams.

Audio Products

Since the introduction of the
original Sound Blaster in 1989, Creative has continuously improved the technology and features of its PC audio offerings. Creatives most advanced sound card to date, the Sound Blaster X-Fi series of sound cards, includes the Sound
Blaster X-Fi Elite Pro and the Sound Blaster X-Fi XtremeGamer Fatal1ty Professional Series. The Sound Blaster X-Fi Elite Pro is Creatives top-of-the-line sound card and features professional-quality digital-to-analog converters and a
comprehensive selection of connectivity for audio creation, together with all of the standard features of the rest of the family of Sound Blaster X-Fi cards. The Sound Blaster X-Fi XtremeGamer Fatal1ty Professional Series was designed for gamers and
is equipped with X-RAM for high performance gaming. It improves PC gamers frame rates and supports the latest EAX ADVANCED HD 5.0. All models of Sound Blaster X-Fi sound cards come with 24-bit Crystalizer, X-Fi CMSS-3D, and X-Fi CMSS-3D
Headphone Expander technologies. The 24-bit Crystalizer technology enhances



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music to 24-bit quality, enabling MP3s, CDs, games and other sources to sound better. The X-Fi CMSS-3D surround technology converts basic stereo content into
multi-channel in real-time to maximize the experience from multi-channel speakers and even deliver incredible virtual surround over 2-speakers or headphones. The CMSS-3D Headphone Expander technology enhances the listeners audio experience by
making the sound appear to come from external speakers instead of headphones pressed right against the listeners ears. Creative also offers a line of external solutions that feature the 24-bit Crystalizer and X-Fi CMSS-3D technologies. The
Creative Xmod plugs directly into a PC, Mac or a digital audio player without the need to install any drivers or software and restores detail and vibrance to compressed music. The Creative Xmod Wireless adds wireless streaming capabilities to the
Xmod and allows consumers to play X-Fi Xtreme Fidelity music from a PC wirelessly in any room. The Creative Xdock allows consumers to connect an iPod® to their home stereo system.
Consumers can also use the Xdock together with X-Fi Wireless Receivers to play X-Fi Xtreme Fidelity music from their docked iPod in any room of the house.

Speakers/Headphones

Speakers:To provide a
complete audio solution for music, gaming and movie enthusiasts, Creative offers a complete range of high-quality satellite and subwoofer speaker and docking systems for the PC and portable media players. Current models include Creative
GigaWorks® ProGamer G550W speakers with a wireless remote, highly-efficient 3 inch full-range driver, full-frequency satellites (including wireless rear speakers) and a wood subwoofer with
a dual ported design for aggressive bass, the Creative GigaWorks T40, a 2.0 speaker system with a three-driver system and a Midrange-Tweeter-Midrange driver configuration for high quality sound, the Creative I-Trigue 3000, a 2.1 lifestyle speaker
with Neo Titanium Tri-Array Technology, and Creative X-Fi Sound System i600 which offers X-Fi enhanced audio playback for different iPod models. Creative also offers a complete range of portable speaker systems such as the Creative TravelSound® range of portable speakers. The TravelSound 400 features a novel 180° swivel design which can be rotated out of the way for speaker protection and automatic power-off. Other portable models
include the compact TravelSound PoPz is available in a selection of colors, the TravelSound ZEN V, a portable stereo speakers for ZEN V and ZEN V Plus, the TravelSound i for iPod players, and the TravelSound ZEN Stone for ZEN Stone and ZEN Stone
Plus.

Headphones and Headsets: Creative offers a wide range of headphones and headsets including noise-canceling headphones
and wireless headphones and headsets for music, home entertainment, gaming and professional or studio purposes. The Aurvana Live! and Aurvana X-Fi headphones are the top-of-the-line models. The Aurvana Live! offers advanced driver technology with
pro-quality acoustic tuning, and the Aurvana X-Fi are the worlds first noise-canceling headphones to feature award-winning X-Fi Xtreme Fidelity audio technologies.

Marketing, Sales, Customer Support And Backlog

Retail sales

Creative markets its products in more than 50 countries in the Americas, Europe and Asia through a worldwide network of wholly-owned subsidiaries and
third-party distributors, and key on-line and brick and mortar retailers. The third party distributors and retailers are selected for their expertise in marketing and ability to place Creatives products in the major retail channels. See Note
19 of Notes to Consolidated Financial Statements for information relating to foreign and domestic operations and export sales.

Creatives sales, by geographical region, expressed as a percentage of total external sales are as follows:



|             |  |                             |   |  |      |   |  |      |  
|------------ |  | --------------------------- | - |  | ---- | - |  | ---- | -
|             |  | Fiscal years ended June 30, |  
|             |  | 2007                        |   |  | 2006 |   |  | 2005 |  
|The Americas |  | 36                          | % |  | 41   | % |  | 43   | %
|Europe       |  | 47                          | % |  | 41   | % |  | 38   | %
|Asia Pacific |  | 17                          | % |  | 18   | % |  | 19   | %



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Creative distributes its products in North America predominantly through Creative Labs and through other
subsidiaries, including CLCS, CL Direct, 3Dlabs and Cambridge SoundWorks. The distribution of products in Europe is carried out principally through Creative Labs Ireland, a wholly-owned European subsidiary located in Dublin, Ireland, where product
marketing, finance and customer support operations are conducted. In order to focus its products more directly on satisfying local market needs, and to enhance and support existing distribution arrangements, Creative also utilizes wholly-owned sales
and marketing agencies in certain European countries including: the United Kingdom, France, Germany, Belgium, Russia, Spain, Denmark, Sweden, Italy, Poland and Portugal. In Asia, Creative distributes its products through its headquarters in
Singapore and its subsidiaries in Australia, China, Hong Kong, Japan, Malaysia, Taiwan and United Arab Emirates.

Like other manufacturers
of consumer products, Creative is exposed to the risk of product returns from distributors and retailers, either through customers exercising their contractual return rights or as a result of Creatives strategic interest in assisting customers
to balance their inventories. For example, although Creative attempts to monitor and manage the volume of its sales to its distributors and retailers, large shipments made to these distributors and retailers to meet anticipated high demand during
the year-end holiday season can lead to a post-holiday overstock situation which may result in the need to balance customer inventory resulting in larger than normal product returns, following the holiday season. Moreover, the risk of product
returns may increase if the demand for Creatives products declines, or if competitors liquidate inventory at distressed prices. In the past, Creative has accepted returns from its direct retail channel customers that have overstocked certain
of its products or rotated older products out in order to stock newer Creative products. Creative continually reviews its allowance for sales returns and believes that it has provided adequate allowances for projected returns. However, there can be
no assurance that such allowances will be sufficient for actual returns in future periods. Creative provides price protection to its distributors, and online and brick and mortar retailers. Creative also believes that it has provided sufficient
allowances to cover its price protection obligations. In addition, Creative may provide end user rebate promotions to increase demand for its products in the retail channel. Creative believes that it has provided sufficient allowances to cover its
rebate obligations. A significant decrease in the price of Creatives products could adversely affect Creatives operating results.

OEM
sales

Creatives primary OEM focus has been to sell and support its family of sound cards, MP3 players, speakers and
headphones to companies who incorporate or bundle those products into their PCs. Creative products are either included as a part of a pre-configured feature in some OEM system configurations or offered as an upgrade option that the end customer can
specify. OEMs typically sell Creatives portable digital entertainment products, audio products, speakers and headphones either as a bundle with their systems or as stand-alone units.

Customer support

Creative maintains three
customer support centers one each in the United States, Ireland and Singapore to provide multilingual support to purchasers of Creatives products in the United States and Europe via email, on-line knowledge base systems, user forums, on-line
chat, telephone and fax. Support center services and support representatives answer questions regarding product specifications, availability, installation and use. Product specifications, technical information and various levels of support are also
available through Creatives Internet web site at www.creative.com. In addition, Creative provides extensive programming support to developers of PC Games software used for the creation of PC games that incorporate Sound Blaster EAX support.

Backlog

Because
Creatives customers typically require delivery within a short period of time after submitting a purchase order, Creative seeks to ship products promptly after receipt of such orders and expects to operate without significant backlog, relying
on bookings each quarter to comprise a predominant portion of its sales for that quarter. As a result, Creative does not believe that backlog is a meaningful indicator of future sales.



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Location In Singapore

Creatives executive offices and a substantial portion of its research and development operations are located in Singapore and, therefore, its operations and the market price of its ordinary shares may be
affected by economic, geopolitical and other conditions in Singapore and in the Asia Pacific region.

Manufacturing

Central to Creatives pricing strategy is its ability to manufacture high-quality, sophisticated products in commercial volumes at a relatively low
cost at facilities in Malaysia and China, using modern surface mount technology assembly lines. To minimize component costs and to enable Creative to price its products competitively, Creative relies extensively on in-house research and development
and strict control of the manufacturing process. In order to balance manufacturing capacity requirements, Creative also utilizes, and expects to continue to utilize, a number of subcontractors in Singapore, Malaysia and China. These subcontractors
assemble speakers, PDE products and provide board assembly functions during periods of peak demand. This flexibility between in-house and third party manufacturing allows Creative to lower its fixed manufacturing costs, thereby reducing per unit
cost, while meeting rapid time-to-market demands.

Research And Development

Creative has maintained its research and development department (R&D Department) at its Singapore headquarters and in the U.S., U.K. and
China. The efforts of the R&D Department have been critical in Creatives development of its products and resulted in several new products, including the latest Sound Blaster X-Fi product line, Xdock Wireless and Xmod Wireless, which
includes X-Fi technology, PDE products, including the Zen and MuVo lines of portable digital audio players and media players, the Live! Cam family of webcams, the new line of headphone products, including the Aurvana line of high quality headphones,
and the line of speakers under the Gigaworks, I-Trigue, Inspire, Cambridge SoundWorks and TravelSound brands.

To remain competitive,
Creative believes that it will need to continue to invest significant resources in research and development to enhance existing products and to develop new technologies and products. In fiscal years 2007, 2006 and 2005, Creative spent $63.6 million,
$77.2 million, and $82.3 million, respectively, on research and development. Some of the technologies and products currently being developed by Creative include next generation audio products that incorporate X-Fi technology, OpenAL, 3D Audio and
EAX technologies for gaming, software processing technologies for new PDE products including digital cameras and digital audio players, and a new line of headphone and speaker products. 3Dlabs continues with the design of sophisticated programmable
high performance media processors that are among some of the most complex silicon devices in the industry. In developing new products, Creative strives to design technologies, products and processes that provide greater consumer functionality, ease
of use, lower cost of production, and better performance. In addition to in-house research and development efforts, Creative continues to license and purchase relevant technologies in the normal course of its business.

Patents and Licenses

Creative holds a number of
patents and pending patent applications from the United States and other countries. Creative also licenses patents and other intellectual property from third parties. However, Creative does not believe that it is materially dependent on any single
patent or license. While Creative believes that patent protection is important, Creative also believes that other competitive factors, such as technological and manufacturing expertise, product design and ease of use, are as important if not more
important to its business.

In August 2005, Creative was awarded a patent by the
U.S. Patent and Trademark Office. This patent, Patent no. 6,928,433, which Creative refers to as ZEN Patent, covers the user interface of portable media players, including many of the Creative ZEN and earlier NOMAD® Jukebox MP3 players, and some competing players, such as the Apple® iPod®
products, and certain cell phones with music functions. The ZEN Patent covers the user interface that enables users of such devices to efficiently and intuitively navigate among and select tracks on the device.



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Seasonality

Creatives sales are seasonal. Creative typically experiences higher demand for its products in the second quarter of the fiscal year compared to the other quarters of the fiscal year, due primarily to the back to school buying season
and the year-end holiday shopping season.

Competition

Creative faces intense competition from a large number of established companies and emerging companies in the personal digital entertainment, PC audio, graphics, communications, headphones and speakers markets and
semiconductor markets and expects competition to continue to intensify as these markets evolve. In addition, Creative increasingly faces competition from cell phone companies which have been promoting phones that offer music and other entertainment
functions. Furthermore, in the U.S., service providers often discount the price of cell phones when purchased with a calling plan. Many of Creatives current and potential competitors have substantially greater financial, manufacturing,
marketing, distribution and other resources. Some of Creatives competitors may also have greater name recognition and market presence, longer operating histories, greater market power and product depth, lower cost structures and larger
customer bases. Creatives current competitors include:



| |  |  | for Creatives portable audio and video player products: A-MAX Technology, Apple Computer, Archos Technology, Epson, i-River, Logitech, Memorex, Microsoft,
Panasonic, Philips, Thompson, Samsung, SanDisk, Sony, Toshiba and a large number of companies from China and Taiwan that offer private label products;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | for Creatives audio products: Sound Blaster boards and chipsets: Analog Devices, ASUS, Diamond, Intel, M-Audio, RAZER, SigmaTel, Terratec, VIA Technologies,
C-Media, Realtek, Toshiba and a small number of companies from China and Taiwan that offer private label products;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | in the speaker market: Altec Lansing, Bose, Cyber Acoustics, Edifier, Harmon Multimedia/JBL, iHome, Klipsch, Logitech/Labtec, Philips, SONY, and a large number of
non-branded Chinese manufacturers;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | in the webcam market: Logitech, Microsoft, Philips, notebooks with integrated webcameras and a large number of private label products from China and Taiwan;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | in the headphone market: Apple, Bose, Etymotic, Logitech, Perfect Ears, Sennheiser, Sony, Shure and a large number of US and European-based companies as well as
private label products from China.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

These competitors may be able to adapt more quickly to new technologies and changes
in consumer preferences by introducing new products at competitive prices which may result in lost market share for Creative and may force Creative to lower prices on its products which may result in reduced margins for those products. These
competitive pressures may also cause Creatives potential customers to delay or defer their purchasing decisions in anticipation of potential new products, lower prices, or both. Creative may not be able to compete successfully in the future
with its existing or potential competitors and intense competition could have a material adverse effect on Creatives operating results. See Item 3 Risk FactorsCreative faces a high level of competition in each of its
product markets.

Sources of Supply

Creative procures raw materials, parts and components to be used in the production of its products from various vendors around the world. While there are multiple sources of supply for many categories of parts and components, Creative has
limited supply sources for certain components of its most successful products, such as flash memory chips and hard disk drives used in various PDE products. The inability of limited supply sources to provide Creative with sufficient quantities of
components has in the past and may in the future affect Creatives production and/or cost of goods sold. See Item 3 Risk FactorsCreative depends upon outside vendors and has limited supply sources for certain components
of its most successful products.



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Governmental Regulation

Creative is subject to various governmental regulations in countries in which it operates, including regulations relating to business/investment approvals, export regulations including those related to national
security considerations, tariffs, antitrust, intellectual property, consumer and business taxation and exchange controls. In addition, Creative is subject to the rules and regulations of the Accounting and Corporate Regulatory Authority and
Singapore Exchange Securities Trading Limited in Singapore, and the rules and regulations of the Securities and Exchange Commission in the United States. Creative is also subject to environmental, recycling and occupational health and safety
regulations in the jurisdictions in which it operates, particularly those in which it has manufacturing, research, or similar operations.

ORGANIZATIONAL STRUCTURE

The following is a listing of the significant (direct/indirect) subsidiaries of Creative:



|                                          |  |                         |  |           |  
|----------------------------------------- |  | ----------------------- |  | --------- | -
|Name/Region of Principal Operations       |  | Country ofIncorporation |  | Ownership |  
|United States of America:                 |  |                         |  |           |  
|Creative Labs, Inc.                       |  | U.S.A.                  |  | 100       | %
|                                          |  |                        
|Europe:                                   |  |                         |  |           |  
|Creative Labs Ireland                     |  | Ireland                 |  | 100       | %
|                                          |  |                        
|Asia:                                     |  |                         |  |           |  
|Creative Media Kabashiki Kaisha           |  | Japan                   |  | 70        | %
|Creative Technology Centre Pte Ltd        |  | Singapore               |  | 100       | %
|Creative Labs Pty Ltd                     |  | Australia               |  | 100       | %
|Creative Technology (Qingdao) Co. Ltd     |  | China                   |  | 100       | %
|                                          |  |                        
|Others:                                   |  |                         |  |           |  
|CTI Limited                               |  | Bermuda                 |  | 100       | %
|CTI II Limited                            |  | Bermuda                 |  | 100       | %
|3Dlabs Inc., Ltd and subsidiary companies |  | Bermuda                 |  | 100       | %

PROPERTY, PLANTS AND EQUIPMENT

Creatives headquarters, research and development, international sales and marketing, and engineering facilities are located in Singapore. Creative
has a manufacturing plant in China and subsequent to fiscal year 2007, Creative sold its manufacturing operations in Malaysia and owns a minority interest in it.

The following is a description of Creatives leased properties as of June 30, 2007:



|                               |  |                                          |  |              |  |                
|------------------------------ |  | ---------------------------------------- |  | ------------ |  | ---------------
|Location                       |  | Description of Property                  |  | Area Sq. Ft. |  | LeaseExpiration
|Singapore                      |  | Land for corporate headquarters building |  | 267,863      |  | 2024           
|Beijing, China                 |  | Office                                   |  | 46,807       |  | 2008           
|Shanghai, China                |  | Office                                   |  | 21,170       |  | 2007           
|Hefei, China                   |  | Office                                   |  | 22,927       |  | 2008           
|Stillwater, Oklahoma, USA      |  | Office and warehouse                     |  | 58,720       |  | 2010           
|San Jose, California, USA      |  | Office and warehouse                     |  | 129,270      |  | 2011           
|Scotts Valley, California, USA |  | Office, R&D center and warehouse         |  | 34,081       |  | 2010           
|Westwood, Massachusetts, USA   |  | Warehouse                                |  | 60,000       |  | 2007           



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Creative also currently leases an aggregate of approximately 111,000 square feet of office space for
smaller sales offices in Australia, Belgium, Denmark, France, Germany, Hong Kong, Italy, Japan, Poland, Portugal, Spain, Sweden, Taiwan, Dubai, Malaysia, the United Kingdom, and the United States. In addition, Creative operates 3 retail stores with
an aggregate of approximately 16,000 square feet in Needham and Singapore. Leases for these smaller sales offices are subject to lease agreements expiring between 2007 and 2016.

Creative Technology Centre Pte. Ltd., a subsidiary of Creative, owns the 663,000 square foot corporate headquarters building on leased land in Singapore.
This facility is being utilized for offices, research and development and warehousing. In addition, Creative also owns an office building in Milpitas, California that is approximately 56,000 square feet. Creative also has office, production and
warehouse facilities of approximately 100,000 square feet in Dublin, Ireland and 288,000 square feet in China. Creative owns approximately 5 acres of land for its facilities in Ireland, approximately 3.5 acres of land for its facilities in U.S. and
approximately 58 acres of leasehold land for its facilities in China. Subsequent to fiscal year 2007, Creative sold its manufacturing operations in Malaysia and owns a minority interest in its 1,037,000 square feet office, production and warehouse
facilities with approximately 30 acres of leasehold land.

Creative believes that all of its properties are in good condition and suitable
for the purposes for which they are used.



|ITEM 4A: | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

Not applicable.



|ITEM 5: | OPERATING AND FINANCIAL REVIEW AND PROSPECTS
|------- | --------------------------------------------

CRITICAL
ACCOUNTING POLICIES AND ESTIMATES

GENERAL

Operating and Financial Review and Prospects are based upon Creatives Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States
of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and
liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgment about the carrying values of
assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Management believes the following critical accounting policies affect its more significant estimates and assumptions used in the preparation of its consolidated financial statements:

Revenue recognition;

Allowances for doubtful accounts, returns and
discounts;

Product warranties;

Valuation of inventories;

Valuation of investments;

Valuation of goodwill and other
intangible assets;

Assessment of the probability of the outcome of current litigation; and

Accounting for income taxes.

REVENUE RECOGNITION

Revenue from product sales is recognised when the following four criteria are met:



| |  |  | Persuasive evidence of an arrangement exists
| | - |  | --------------------------------------------



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Persuasive evidence of an arrangement exists when Creative receives a purchase order from the customer
and Creative subsequently confirms the order by issuing a sales order to the customer.



| |  |  | Title and risk of loss have been transferred and delivery has occurred
| | - |  | ----------------------------------------------------------------------

Based on the shipping terms specified in the customers purchase order or Creatives sales order to the customer, this criteria is met when a
product is delivered to a common carrier, or delivered to the customers delivery site or shipped to the customer.



| |  |  | The price is fixed or determinable
| | - |  | ----------------------------------

The price is fixed or determinable when a sales order is issued to the customer.



| |  |  | Collection is probable
| | - |  | ----------------------

Creative assesses the credit worthiness of each customer and will only issue a sales order to a customer if it believes that collection from that customer is probable.

Allowances are provided for estimated returns, discounts and warranties. Management analyzes historical returns, current economic trends and changes in
customer demand and acceptance of its products when evaluating the adequacy of the sales returns allowance. Such allowances are adjusted periodically to reflect actual and anticipated experience. When recognizing revenue, Creative records estimated
reductions to revenue for customer and distributor programs and incentive offerings, including price protection, promotions, other volume-based incentives and rebates. Significant management judgment and estimates must be used in connection with
establishing these allowances in any accounting period. Creative may take action when necessary in response to market conditions to increase customer incentive offerings, possibly resulting in an incremental reduction of revenue at the time the
incentive is offered.

ALLOWANCES FOR DOUBTFUL ACCOUNTS, RETURNS AND DISCOUNTS

Creative distributes its products primarily through third party resellers. Creative establishes allowances for doubtful accounts, returns and discounts
for specifically identified doubtful accounts, returns and discounts based on credit profiles of its customers, current economic trends, contractual terms and conditions and historical payment, return and discount experience. Management performs
ongoing credit evaluations of customers financial condition and uses letters of credit in certain circumstances. Credit insurance coverage is obtained when coverage is available and feasible. However, Creative is not able to procure credit
insurance coverage for all customers as insurers have excluded certain customers and geographic markets. In the event actual returns, discounts and bad debts differ from the companys estimates, or Creative adjusts these estimates in future
periods, its operating results and financial position could be adversely affected.

PRODUCT WARRANTIES

The warranty period for the bulk of Creatives products typically ranges between 1 to 3 years. The product warranty accrual reflects
managements best estimate of probable liability under its product warranties. Management determines the warranty provision based on known product failures (if any), historical experience, and other currently available evidence. If actual
experience of product returns or cost of repair differ from the managements estimates, revisions to the estimated warranty liability would be required and could have a material effect on Creatives future results of operations.

VALUATION OF INVENTORIES

Creative states inventories at the lower of cost or market. The company records a write-down for inventories of components and products which have become obsolete or are in excess of anticipated demand or net realizable value. Management
performs a detailed assessment of inventory at each balance sheet date to establish provisions for excess and obsolete inventories. Managements evaluation includes a review of, among other factors,



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historical sales, current economic trends, forecasted sales, demand requirements, product lifecycle and product development plans, quality issues, and
current inventory levels. The markets for PC peripherals and personal digital entertainment products are subject to a rapid and unpredictable pace of product and component obsolescence and demand changes. If future demand or market conditions for
the companys products are less favorable than forecasted or if unforeseen technological changes negatively impact the utility of component inventory, Creative may be required to record write-downs which would negatively affect gross margins in
the period when the write-downs are recorded and its operating results and financial position could be adversely affected.

VALUATION OF
INVESTMENTS

Creative holds equity investments in various companies from less than 1% to 100% of the issuers outstanding capital
stock. Investments in companies in which Creative acquires more than 50% of the outstanding capital stock and which are under Creatives effective control, are treated as investments in subsidiaries, and the balance sheets and results of
operations are fully consolidated after making an allowance for any minority interests. Companies in which Creatives investments total between 20% and 50% of such companys capital stock are treated as associated companies and recorded on
an equity basis, whereby the cost of investment is adjusted to recognise Creatives share of all post acquisition results of operations.

As for investments of less than 20%, non-quoted investments are carried at cost, less provisions for permanent impairment where necessary, and quoted investments are reported at fair value with the unrealised gains and losses included as a
separate component of shareholders equity. The investment portfolio is monitored on a periodic basis for impairment. Creatives investments in these companies are inherently risky because the markets for the technologies or products they
have under development are typically in the early stages and may never develop. In the event that the carrying value of an investment exceeds its fair value and the decline in value is determined to be other-than-temporary, an impairment charge is
recorded and a new cost basis for the investment is established. Fair values for investments in public companies are determined using quoted market prices. Fair values for investments in privately-held companies are estimated based upon one or more
of the following: pricing models using historical and forecasted financial information and current market rates, liquidation values, the values of recent rounds of financing, or quoted market prices of comparable public companies.

In order to determine whether a decline in value is other-than-temporary, Creative evaluates, among other factors: the duration and extent to which the
fair value has been less than the carrying value; the financial condition of and business outlook for the company, including key operational and cash flow metrics, current market conditions and future trends in the companys industry, and the
companys relative competitive position within the industry; and Creatives intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value.

VALUATION OF GOODWILL AND OTHER INTANGIBLE ASSETS

Creative uses the purchase method of accounting for business combinations, in line with Financial Accounting Standards Boards (FASB) Statement of Financial Accounting Standard (SFAS)
No. 141 Business Combinations. The purchase method of accounting for acquisitions requires extensive use of accounting estimates and judgment to allocate the purchase price paid to the fair value of the net tangible and intangible
assets acquired, including in-process technology. The allocation of the purchase price is based on independent appraisals. The amounts and useful lives assigned to intangible assets could impact future amortization. The amount assigned to in-process
technology is expensed immediately. If the assumptions and estimates used to allocate the purchase price are not correct, purchase price adjustments or future asset impairment charges could be required.



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Creative reviews goodwill and purchased intangible assets for impairment annually and whenever events or
changes in circumstances indicate the carrying value of an asset may not be recoverable in accordance with SFAS No. 142, Goodwill and Other Intangible Assets. Factors that Creative may consider important which could trigger an
impairment review include the following:



| |  |  | significant under-performance relative to historical or projected future operating results;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | significant changes in the manner of use of the acquired assets or the strategy for Creatives overall business;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | significant negative industry or economic trends;
| | - |  | -------------------------------------------------



| |  |  | significant decline in Creatives stock price for a sustained period; and
| | - |  | -------------------------------------------------------------------------



| |  |  | Creatives market capitalization relative to net book value.
| | - |  | ------------------------------------------------------------

When the existence of one or more of the above factors indicate that the carrying value of goodwill and other intangible assets may be impaired, Creative measures the amount of impairment based on a combination of
market comparable method and projected discounted cash flow method using a discount rate determined by the management to commensurate with the risk inherent in Creatives current business model. Additionally, in response to changes in the PC
peripherals and consumer electronics industries and changes in global or regional economic conditions, Creative may strategically realign its resources and consider restructuring, disposing or otherwise exiting businesses, which could result in an
impairment of property, plant and equipment, identifiable intangibles or goodwill.

ASSESSMENT OF THE PROBABILITY OF THE OUTCOME OF
CURRENT LITIGATION

Creative records accruals for loss contingencies when it is probable that a liability has been incurred and the
amount of loss can be reasonably estimated.

ACCOUNTING FOR INCOME TAXES

In preparing its financial statements, Creative estimates its income taxes for each of the jurisdictions in which it operates. This involves estimating
the actual current tax exposure and assessing temporary differences resulting from differing treatment of items, such as reserves and accruals for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which
are included within Creatives consolidated balance sheet. Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and future taxable income for purposes of assessing the
ability to realize any future benefit from its deferred tax assets. Creative provides for a valuation allowance with regard to its deferred tax assets as management believes that a substantial uncertainty exists regarding the realizability of these
assets.



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RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, selected statement of operations data as a percentage of sales:



|                                                        |  |                     |   |  |      |    |  |      |  
|------------------------------------------------------- |  | ------------------- | - |  | ---- | -- |  | ---- | -
|                                                        |  | Years ended June 30 |  
|                                                        |  | 2007                |   |  | 2006 |    |  | 2005 |  
|Sales, net                                              |  | 100                 | % |  | 100  | %  |  | 100  | %
|Cost of goods sold                                      |  | 81                  |   |  | 85   |    |  | 78   |  
|                                                        |  |                     |   |  |      |    |  |      |  
|Gross profit                                            |  | 19                  |   |  | 15   |    |  | 22   |  
|                                                        |  |                     |  
|Operating expenses:                                     |  |                     |   |  |      |    |  |      |  
|Selling, general and administrative                     |  | 19                  |   |  | 18   |    |  | 16   |  
|Research and development                                |  | 7                   |   |  | 7    |    |  | 7    |  
|Impairment of goodwill and other intangible assets      |  |                    |   |  | 3    |    |  | 5    |  
|Other charges                                           |  |                    |   |  |     |    |  |     |  
|                                                        |  |                     |   |  |      |    |  |      |  
|Operating loss                                          |  | (7                  | ) |  | (13  | )  |  | (6   | )
|                                                        |  |                     |  
|(Loss) gain from investments, net                       |  |                    |   |  | 2    |    |  | 6    |  
|Interest income                                         |  | 1                   |   |  | 1    |    |  |     |  
|Interest expense                                        |  | (1                  | ) |  | (1   | )  |  |     |  
|Others                                                  |  | 13                  |   |  |     |    |  |     |  
|                                                        |  |                     |   |  |      |    |  |      |  
|Income (loss) before income taxes and minority interest |  | 6                   |   |  | (11  | )  |  |     |  
|                                                        |  |                     |  
|Income tax (expense) benefit                            |  | (3                  | ) |  | 1    |    |  |     |  
|Minority interest in loss                               |  |                    |   |  |     |    |  |     |  
|                                                        |  |                     |   |  |      |    |  |      |  
|Net income (loss)                                       |  | 3                   | % |  | (10  | )% |  |     | %
|                                                        |  |                     |   |  |      |    |  |      |  

The following table sets forth Creatives net sales, by product category expressed as a
percentage of sales for the past three fiscal years:



|                               |  |                                                        |   |  |      |   |  |      |  
|------------------------------ |  | ------------------------------------------------------ | - |  | ---- | - |  | ---- | -
|                               |  | Percentage of Net Sales for fiscal years ended June 30 |  
|                               |  | 2007                                                   |   |  | 2006 |   |  | 2005 |  
|Personal Digital Entertainment |  | 63                                                     | % |  | 65   | % |  | 63   | %
|Audio                          |  | 13                                                     | % |  | 13   | % |  | 14   | %
|Speakers                       |  | 16                                                     | % |  | 13   | % |  | 14   | %
|All Other Products             |  | 8                                                      | % |  | 9    | % |  | 9    | %



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YEAR ENDED JUNE 30, 2007 COMPARED TO YEAR ENDED JUNE 30, 2006

Net sales

Net sales for the year ended June 30,
2007 decreased by 19% compared to the year ended June 30, 2006 mainly due to lower sales of personal digital entertainment (PDE) and audio products. Sales of PDE products, which include digital audio players and digital cameras,
decreased by 21% compared to fiscal year 2006 and represented 63% of sales in fiscal year 2007 compared to 65% of sales in fiscal year 2006. The decrease in sales of PDE products was primarily attributable to lower average selling prices of digital
audio players resulting from product mix and managements decision to streamline the companys lineup of digital audio players to focus on strategic and more profitable products. Sales of audio products, which consist of Sound Blaster
audio cards and chipsets, decreased by 22% compared to fiscal year 2006 and represented 13% of sales in fiscal years 2007 and 2006. The decrease in audio product sales was mainly due to a decrease in sales of low-end audio sound cards. Sales of
speakers decreased by 6% in fiscal year 2007 compared to fiscal year 2006 and represented 16% of sales in fiscal year 2007 compared to 13% in fiscal year 2006. Sales from all other products, which include graphics products, communication products,
accessories and other miscellaneous items, decreased by 20% compared to fiscal year 2006 and represented 8% of sales in fiscal year 2007 and 9% in fiscal year 2006. The decrease was primarily attributable to decreases in sales of graphics and other
miscellaneous products.

Gross profit

Gross profit in fiscal year 2007 was 19% of sales compared to 15% in fiscal year 2006. Gross profit at 19% in fiscal year 2007 was consistent with the mix of products sold during the fiscal year with a higher percentage of sales coming from
digital audio players which generally have lower gross profit margins due to competitive pricing on the digital audio players. The lower gross profit margin in fiscal year 2006 was primarily attributable to a substantial write-down of flash memory
inventory amounting to $19.0 million in the third quarter of fiscal year 2006 due to a drop in flash memory prices. The drop in flash memory prices caused market uncertainty that resulted in lower sales and selling prices of digital audio players,
negatively impacting the gross profit margin of fiscal year 2006.

Operating expenses

In line with the decrease in sales and managements efforts to reduce operating costs, selling, general and administrative (SG&A)
expenses in fiscal year 2007 decreased by 10% compared to fiscal year 2006. As a percentage of sales, SG&A expenses were 19% of sales compared to 18% of sales in fiscal year 2006.

Research and development (R&D) expenses decreased by 18% compared to fiscal year 2006. The decrease was in line with the
managements costs cutting efforts and a reduced R&D spending by Creatives wholly-owned subsidiary, 3Dlabs, due to a change in its business strategy to focus on the portable handheld device market instead of the professional
workstation graphics business. As a percentage of sales, R&D expenses were 7% of sales in fiscal years 2007 and 2006.

In fiscal year
2006, there was a change in the business strategy of 3Dlabs to refocus on the portable handheld device market instead of the professional workstation graphics business. As a result, the fair value of 3Dlabs could no longer support the carrying value
of the goodwill and other intangible assets associated with the acquisition of 3Dlabs in May 2002. Accordingly, Creative recorded a $31.5 million impairment of goodwill and other intangible assets in fiscal year 2006. See Note 3 of Notes to
Consolidated Financial Statements.

Other charges of $5.9 million for fiscal year 2006 comprised mainly restructuring charges
incurred by 3Dlabs due to the change in business strategy. The restructuring charges comprised mainly employee severance costs and fixed assets impairment write-downs. See Note 12 of Notes to Consolidated Financial Statements.



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Net investment (loss) gain

Net loss of $1.9 million in fiscal year 2007 was mainly due to $2.0 million write-downs of investments. Net investment gain of $18.9 million in fiscal year 2006 included a $20.9 million net gain from sales of
investments offset by $2.0 million in write-downs of investments.

As part of its long-term business strategy, from time to time, Creative
makes strategic equity investments in companies that can provide Creative with technologies or products that management believes will give Creative a competitive advantage in the markets in which Creative competes.

Net interest

Net interest for fiscal years 2007 and
2006 was an expense of $0.3 million and $3.2 million respectively. The lower net interest expense for fiscal year 2007 was due to higher interest income from the higher average cash balance in fiscal year 2007 compared to fiscal year 2006 which
helped to offset the bulk of the interest expense in fiscal year 2007.

Others

Other income was $114.6 million in fiscal year 2007 compared to $3.6 million in fiscal year 2006. Other income of $114.6 million in fiscal year 2007
included a $100.0 million paid-up license by Apple Inc. for use of the Creative ZEN Patent in its products and a $12.1 million exchange gain. Other income of $3.6 million in fiscal year 2006 comprised mainly of $1.4 million in dividends received
from investments and $2.0 million in sundry income, the bulk of which pertained to a write-back of unclaimed invoices.

Income tax (expense) benefit

Income tax expense of $23.9 million in fiscal year 2007 was mainly due to $18.0 million withholding tax paid on the license fees
received from Apple and the changes in the mix of taxable income arising from various geographical regions. Income taxes of foreign subsidiaries are based on the corporate income tax rates of the country in which the subsidiary is located. Net
operating profits from some subsidiaries are not offsetable with net operating losses sustained by subsidiaries from a different tax jurisdiction. In Singapore, Creative was granted a Pioneer Certificate under the International Headquarters Award
that will expire in March 2010. Profits arising from qualifying activities under the Pioneer Certificate will be exempted from income tax, subject to certain conditions. The Singapore corporate income tax rate of 18% is applicable to profits
excluded from the Pioneer Certificate.

In fiscal year 2006, tax write-back includes a $10.0 million reversal of income taxes. The reversal
was related to corporate taxes provided for in full for profits arising from qualifying activities from the commencement date of the Pioneer Certificate until the second quarter of fiscal year 2004, based on the standard tax rates of 24.5% for
fiscal year 2001, 22% for fiscal years 2002 and 2003, and 20% for fiscal year 2004.

YEAR ENDED JUNE 30, 2006 COMPARED TO YEAR ENDED JUNE 30, 2005

Net sales

Net sales for the year ended
June 30, 2006 decreased by 8% compared to the year ended June 30, 2005. Sales of PDE products, which include digital audio players and digital cameras, decreased by 5% compared to fiscal year 2005 and represented 65% of sales in fiscal
year 2006 compared to 63% of sales in fiscal year 2005. During the first six months of fiscal year 2006, sales of PDE products increased by 34% compared to the same period in the prior fiscal year, but sales of such products slowed significantly in
the second half of the fiscal year. The slowdown in sales of PDE products in the second half of fiscal year 2006 was mainly due to a drop in flash memory prices during that period, which created uncertainty and price instability in the retail market
for flash- based digital audio players and contributed to a slowdown in worldwide sales of digital audio players, and



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Creatives decision to streamline its lineup of digital audio players to focus on strategic and more profitable products. Sales of audio products, which
consist of Sound Blaster audio cards and chipsets, decreased by 12% compared to fiscal year 2005 and represented 13% of sales in fiscal year 2006 compared to 14% in fiscal year 2005. The decrease in audio product sales was mainly due to a decrease
in sales of low-end audio sound cards. Sales of speakers decreased by 12% in fiscal year 2006 compared to fiscal year 2005 and represented 13% of sales in fiscal year 2006 compared to 14% in fiscal year 2005. The decrease was primarily attributable
to lower sales of non-multimedia speakers. Sales from all other products, which include graphics products, communication products, accessories and other miscellaneous items, decreased by 16% compared to fiscal year 2005 and represented 9% of sales
in fiscal years 2006 and 2005. The decrease was primarily attributable to decreases in sales of graphics and communication products.

Gross profit

Gross profit in fiscal year 2006 was 15% of sales compared to 22% in fiscal year 2005. The decrease in gross profit was primarily
attributable to a substantial write-down of flash memory inventory amounting to $19.0 million in the third quarter of fiscal year 2006 due to a drop in the flash memory prices. The drop in flash memory prices caused market uncertainty that resulted
in lower sales and reductions in the selling prices of digital audio players, which negatively impacted gross profit.

Operating expenses

SG&A expenses in fiscal year 2006 decreased marginally by 1% compared to fiscal year 2005. As a percentage of sales, SG&A
expenses were 18% of sales compared to 16% of sales in fiscal year 2005.

R&D expenses decreased by 6% compared to fiscal year 2005. As
a percentage of sales, R&D expenses were 7% of sales in fiscal years 2006 and 2005.

In fiscal year 2006, there was a change in the
business strategy of 3Dlabs to refocus on the portable handheld device market instead of the professional workstation graphics business. As a result, the fair value of 3Dlabs could no longer support the carrying value of the goodwill and other
intangible assets associated with the acquisition of 3Dlabs in May 2002. Accordingly, Creative recorded a $31.5 million impairment of goodwill and other intangible assets in fiscal year 2006. See Note 3 of Notes to Consolidated Financial
Statements.

The impairment of goodwill and intangible assets charge of $65.2 million in fiscal year 2005 resulted from a review of
the goodwill and intangible assets of 3Dlabs during the second quarter of fiscal year 2005. During the second quarter of fiscal year 2005, management noted that the revenue of 3Dlabs continued to perform below expectations due to delays in the
launch of new products. Therefore, in accordance with SFAS No. 142, an impairment test was performed by an independent assessor on the goodwill and other intangible assets of 3Dlabs. The fair value was determined based on a combination of the
projected discounted cash flow method and the market comparable method whereby market multiples of 3Dlabs were compared to the market multiples of other publicly traded companies in similar lines of business. The conclusion of the impairment review
was that the fair value of 3Dlabs could no longer support the carrying value of the remaining goodwill and other intangible assets associated with them. As a result, Creative recorded goodwill and other intangible assets impairment charge of $65.2
million in fiscal year 2005.

Other charges of $5.9 million for fiscal year 2006 comprised mainly restructuring charges incurred by 3Dlabs
due to the change in business strategy. The restructuring charge comprised mainly employee severance costs and fixed assets impairment write-downs. See Note 12 of Notes to Consolidated Financial Statements.

Net investment (loss) gain

Net investment gain of
$18.9 million in fiscal year 2006 included a $20.9 million net gain from sales of investments offset by $2.0 million in write-downs of investments. Net investment gain of $74.4 million in fiscal year 2005 comprised a $86.0 million net gain from
sales of investments offset by $11.6 million in write-downs of



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##### Table of Contents

investments. The bulk of the net gain from the sales of investments was derived from sales of shares of SigmaTel, Inc. (SigmaTel).

As part of its long-term business strategy, from time to time, Creative makes strategic equity investments in companies that can provide Creative with
technologies or products that management believes will give Creative a competitive advantage in the markets in which Creative competes.

Net interest

Net interest for fiscal year 2006 was an expense of $3.2 million compared to an expense of $0.1 million for fiscal year 2005. The
higher net interest expense in fiscal year 2006 was due to the five-year $175.0 million syndicated term loan, of which $100.0 million was drawn-down in December 2004 and the remaining $75.0 million in February 2005.

Others

Other income was $3.6 million in fiscal year
2006 compared to an expense of $4.3 million in fiscal year 2005. Other income of $3.6 million in fiscal year 2006 comprised mainly of $1.4 million in dividends received from investments and $2.0 million in sundry income, the bulk of which pertained
to a write-back of unclaimed invoices. Other expenses in fiscal year 2005 included an exchange loss of $4.2 million and Creatives share of equity-method investees losses of $1.6 million, offset partially by $1.2 million in dividends
received from investments.

Income tax (expense) benefit

Income taxes of foreign subsidiaries are based on the corporate income tax rates of the country in which the subsidiary is located. Net operating profits from some subsidiaries are not offsetable with the net
operating losses sustained by subsidiaries from a different tax jurisdiction. In Singapore, Creative was granted a Pioneer Certificate under the International Headquarters Award that will expire in March 2010. Profits arising from qualifying
activities under the Pioneer Certificate will be exempted from income tax, subject to certain conditions. The Singapore corporate income tax rate of 20% is applicable to the profits excluded from the Pioneer Certificate.

In fiscal year 2006, tax write-back included a $10.0 million reversal of income taxes. The reversal was related to corporate taxes provided for in full
for profits arising from qualifying activities from the commencement date of the Pioneer Certificate until the second quarter of fiscal year 2004, based on the standard tax rates of 24.5% for fiscal year 2001, 22% for fiscal years 2002 and 2003, and
20% for fiscal year 2004.



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QUARTERLY RESULTS

The following is a summary of Creatives unaudited quarterly results for the eight quarters ended June 30, 2007, together with the percentage of sales represented by such results. Consistent with the PC
peripherals and digital entertainment markets, demand for Creatives products is generally stronger in the quarter ended December 31, compared to any other quarter of the fiscal year due to consumer buying patterns. In managements
opinion, the results detailed below have been prepared on a basis consistent with the audited financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information for
the periods presented when read in conjunction with the financial statements and notes thereto contained elsewhere herein. Creatives business is seasonal in nature and the quarterly results are not necessarily indicative of the results to be
achieved in future quarters.



|                                                                    |  |                                                                      |         |   |            |   |         |            |  |   |            |   |  |            |         |   |            |   |         |            |  |   |            |   |  |   |         |   |  |   |         |  
|------------------------------------------------------------------- |  | -------------------------------------------------------------------- | ------- | - | ---------- | - | ------- | ---------- |  | - | ---------- | - |  | ---------- | ------- | - | ---------- | - | ------- | ---------- |  | - | ---------- | - |  | - | ------- | - |  | - | ------- | -
|                                                                    |  | Unaudited data for quarters ended (in US$000 except per share data) |        
|                                                                    |  | Jun 302007                                                           |         |   | Mar 312007 |   |         | Dec 312006 |  |   | Sep 302006 |   |  | Jun 302006 |         |   | Mar 312006 |   |         | Dec 312005 |  |   | Sep 302005 |  
|Sales, net                                                          |  | $                                                                    | 165,210 |   |            | $ | 183,828 |            |  | $ | 324,356    |   |  | $          | 241,512 |   |            | $ | 230,875 |            |  | $ | 225,657    |   |  | $ | 390,826 |   |  | $ | 280,173 |  
|Cost of goods sold                                                  |  |                                                                      | 132,040 |   |            |   | 145,845 |            |  |   | 253,706    |   |  |            | 205,612 |   |            |   | 198,371 |            |  |   | 235,799    |   |  |   | 305,440 |   |  |   | 223,607 |  
|                                                                    |  |                                                                      |         |   |            |   |         |            |  |   |            |   |  |            |         |   |            |   |         |            |  |   |            |   |  |   |         |   |  |   |         |  
|Gross profit (loss)                                                 |  |                                                                      | 33,170  |   |            |   | 37,983  |            |  |   | 70,650     |   |  |            | 35,900  |   |            |   | 32,504  |            |  |   | (10,142    | ) |  |   | 85,386  |   |  |   | 56,566  |  
|Operating expenses:                                                 |  |                                                                      |         |   |            |   |         |            |  |   |            |   |  |            |         |   |            |   |         |            |  |   |            |   |  |   |         |   |  |   |         |  
|Selling, general and administrative                                 |  |                                                                      | 36,466  |   |            |   | 44,521  |            |  |   | 52,366     |   |  |            | 41,827  |   |            |   | 42,753  |            |  |   | 51,959     |   |  |   | 55,220  |   |  |   | 45,265  |  
|Research and development                                            |  |                                                                      | 14,790  |   |            |   | 18,035  |            |  |   | 14,958     |   |  |            | 15,863  |   |            |   | 15,682  |            |  |   | 18,843     |   |  |   | 22,734  |   |  |   | 19,927  |  
|Impairment of goodwill and other intangible assets                  |  |                                                                      |        |   |            |   |        |            |  |   |           |   |  |            |        |   |            |   |        |            |  |   | 31,478     |   |  |   |        |   |  |   |        |  
|Other charges                                                       |  |                                                                      |        |   |            |   |        |            |  |   |           |   |  |            |        |   |            |   |        |            |  |   | 5,873      |   |  |   |        |   |  |   |        |  
|                                                                    |  |                                                                      |         |   |            |   |         |            |  |   |            |   |  |            |         |   |            |   |         |            |  |   |            |   |  |   |         |   |  |   |         |  
|Operating (loss) income                                             |  |                                                                      | (18,086 | ) |            |   | (24,573 | )          |  |   | 3,326      |   |  |            | (21,790 | ) |            |   | (25,931 | )          |  |   | (118,295   | ) |  |   | 7,432   |   |  |   | (8,626  | )
|(Loss) gain from investments, net                                   |  |                                                                      | (112    | ) |            |   | (1,276  | )          |  |   | 225        |   |  |            | (717    | ) |            |   | (34     | )          |  |   | 2,030      |   |  |   | 6,880   |   |  |   | 10,028  |  
|Interest income                                                     |  |                                                                      | 2,652   |   |            |   | 3,085   |            |  |   | 2,270      |   |  |            | 1,909   |   |            |   | 2,000   |            |  |   | 1,847      |   |  |   | 1,399   |   |  |   | 995     |  
|Interest expense                                                    |  |                                                                      | (1,698  | ) |            |   | (2,798  | )          |  |   | (2,885     | ) |  |            | (2,864  | ) |            |   | (2,701  | )          |  |   | (2,449     | ) |  |   | (2,244  | ) |  |   | (2,017  | )
|Others                                                              |  |                                                                      | 2,819   |   |            |   | 2,976   |            |  |   | 106,994    |   |  |            | 1,833   |   |            |   | 6,072   |            |  |   | 2,488      |   |  |   | (5,140  | ) |  |   | 152     |  
|                                                                    |  |                                                                      |         |   |            |   |         |            |  |   |            |   |  |            |         |   |            |   |         |            |  |   |            |   |  |   |         |   |  |   |         |  
|(Loss) income before income taxes and minority interest             |  |                                                                      | (14,425 | ) |            |   | (22,586 | )          |  |   | 109,930    |   |  |            | (21,629 | ) |            |   | (20,594 | )          |  |   | (114,379   | ) |  |   | 8,327   |   |  |   | 532     |  
|Income tax (expense) benefit                                        |  |                                                                      | (4,889  | ) |            |   | (529    | )          |  |   | (18,118    | ) |  |            | (382    | ) |            |   | 7,632   |            |  |   | (229       | ) |  |   | (115    | ) |  |   | (138    | )
|Minority interest in loss (income)                                  |  |                                                                      | 2       |   |            |   | (498    | )          |  |   | 310        |   |  |            | 1,003   |   |            |   | 230     |            |  |   | 279        |   |  |   | (1      | ) |  |   | 297     |  
|                                                                    |  |                                                                      |         |   |            |   |         |            |  |   |            |   |  |            |         |   |            |   |         |            |  |   |            |   |  |   |         |   |  |   |         |  
|Net (loss) income                                                   |  | $                                                                    | (19,312 | ) |            | $ | (23,613 | )          |  | $ | 92,122     |   |  | $          | (21,008 | ) |            | $ | (12,732 | )          |  | $ | (114,329   | ) |  | $ | 8,211   |   |  | $ | 691     |  
|                                                                    |  |                                                                      |         |   |            |   |         |            |  |   |            |   |  |            |         |   |            |   |         |            |  |   |            |   |  |   |         |   |  |   |         |  
|Basic (loss) earnings per share                                     |  | $                                                                    | (0.23   | ) |            | $ | (0.28   | )          |  | $ | 1.10       |   |  | $          | (0.25   | ) |            | $ | (0.15   | )          |  | $ | (1.38      | ) |  | $ | 0.10    |   |  | $ | 0.01    |  
|                                                                    |  |                                                                      |         |   |            |   |         |            |  |   |            |   |  |            |         |   |            |   |         |            |  |   |            |   |  |   |         |   |  |   |         |  
|Weighted average ordinary shares outstanding (000)                 |  |                                                                      | 83,608  |   |            |   | 83,484  |            |  |   | 83,394     |   |  |            | 83,322  |   |            |   | 83,179  |            |  |   | 82,895     |   |  |   | 82,740  |   |  |   | 83,556  |  
|                                                                    |  |                                                                      |         |   |            |   |         |            |  |   |            |   |  |            |         |   |            |   |         |            |  |   |            |   |  |   |         |   |  |   |         |  
|Diluted (loss) earnings per share                                   |  | $                                                                    | (0.23   | ) |            | $ | (0.28   | )          |  | $ | 1.10       |   |  | $          | (0.25   | ) |            | $ | (0.15   | )          |  | $ | (1.38      | ) |  | $ | 0.10    |   |  | $ | 0.01    |  
|                                                                    |  |                                                                      |         |   |            |   |         |            |  |   |            |   |  |            |         |   |            |   |         |            |  |   |            |   |  |   |         |   |  |   |         |  
|Weighted average ordinary shares and equivalents outstanding (000) |  |                                                                      | 83,608  |   |            |   | 83,484  |            |  |   | 83,992     |   |  |            | 83,322  |   |            |   | 83,179  |            |  |   | 82,895     |   |  |   | 83,532  |   |  |   | 84,690  |  
|                                                                    |  |                                                                      |         |   |            |   |         |            |  |   |            |   |  |            |         |   |            |   |         |            |  |   |            |   |  |   |         |   |  |   |         |  



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|                                                        |  |                                                              |    |  |             |    |  |             |   |  |             |    |  |             |    |  |             |    |  |             |   |  |             |  
|------------------------------------------------------- |  | ------------------------------------------------------------ | -- |  | ----------- | -- |  | ----------- | - |  | ----------- | -- |  | ----------- | -- |  | ----------- | -- |  | ----------- | - |  | ----------- | -
|                                                        |  | Unaudited data for quarters ended (as a percentage of sales) |   
|                                                        |  | Jun 30 2007                                                  |    |  | Mar 31 2007 |    |  | Dec 31 2006 |   |  | Sep 30 2006 |    |  | Jun 30 2006 |    |  | Mar 31 2006 |    |  | Dec 31 2005 |   |  | Sep 30 2005 |  
|Sales, net                                              |  | 100                                                          | %  |  | 100         | %  |  | 100         | % |  | 100         | %  |  | 100         | %  |  | 100         | %  |  | 100         | % |  | 100         | %
|Cost of goods sold                                      |  | 80                                                           |    |  | 79          |    |  | 78          |   |  | 85          |    |  | 86          |    |  | 105         |    |  | 78          |   |  | 80          |  
|                                                        |  |                                                              |    |  |             |    |  |             |   |  |             |    |  |             |    |  |             |    |  |             |   |  |             |  
|Gross profit (loss)                                     |  | 20                                                           |    |  | 21          |    |  | 22          |   |  | 15          |    |  | 14          |    |  | (5          | )  |  | 22          |   |  | 20          |  
|Operating Expenses:                                     |  |                                                              |    |  |             |    |  |             |   |  |             |    |  |             |    |  |             |    |  |             |   |  |             |  
|Selling, general and administrative                     |  | 22                                                           |    |  | 24          |    |  | 16          |   |  | 17          |    |  | 18          |    |  | 23          |    |  | 14          |   |  | 16          |  
|Research and development                                |  | 9                                                            |    |  | 10          |    |  | 5           |   |  | 7           |    |  | 7           |    |  | 8           |    |  | 6           |   |  | 7           |  
|Impairment of goodwill and other intangible assets      |  |                                                             |    |  |            |    |  |            |   |  |            |    |  |            |    |  | 14          |    |  |            |   |  |            |  
|Other charges                                           |  |                                                             |    |  |            |    |  |            |   |  |            |    |  |            |    |  | 3           |    |  |            |   |  |            |  
|                                                        |  |                                                              |    |  |             |    |  |             |   |  |             |    |  |             |    |  |             |    |  |             |   |  |             |  
|Operating (loss) income                                 |  | (11                                                          | )  |  | (13         | )  |  | 1           |   |  | (9          | )  |  | (11         | )  |  | (53         | )  |  | 2           |   |  | (3          | )
|(Loss) gain from investments, net                       |  |                                                             |    |  | (1          | )  |  |            |   |  | (1          | )  |  |            |    |  | 1           |    |  | 2           |   |  | 4           |  
|Interest income                                         |  | 1                                                            |    |  | 2           |    |  | 1           |   |  | 1           |    |  | 1           |    |  | 1           |    |  |            |   |  |            |  
|Interest expense                                        |  | (1                                                           | )  |  | (2          | )  |  | (1          | ) |  | (1          | )  |  | (1          | )  |  | (1          | )  |  | (1          | ) |  | (1          | )
|Others                                                  |  | 2                                                            |    |  | 2           |    |  | 33          |   |  | 1           |    |  | 2           |    |  | 1           |    |  | (1          | ) |  |            |  
|                                                        |  |                                                              |    |  |             |    |  |             |   |  |             |    |  |             |    |  |             |    |  |             |   |  |             |  
|(Loss) income before income taxes and minority interest |  | (9                                                           | )  |  | (12         | )  |  | 34          |   |  | (9          | )  |  | (9          | )  |  | (51         | )  |  | 2           |   |  |            |  
|Income tax (expense) benefit                            |  | (3                                                           | )  |  | (1          | )  |  | (6          | ) |  |            |    |  | 3           |    |  |            |    |  |            |   |  |            |  
|Minority interest in loss (income)                      |  |                                                             |    |  |            |    |  |            |   |  |            |    |  |            |    |  |            |    |  |            |   |  |            |  
|                                                        |  |                                                              |    |  |             |    |  |             |   |  |             |    |  |             |    |  |             |    |  |             |   |  |             |  
|Net (loss) income                                       |  | (12                                                          | )% |  | (13         | )% |  | 28          | % |  | (9          | )% |  | (6          | )% |  | (51         | )% |  | 2           | % |  |            | %
|                                                        |  |                                                              |    |  |             |    |  |             |   |  |             |    |  |             |    |  |             |    |  |             |   |  |             |  

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents at June 30, 2007 were $250.5 million compared to the balance of $214.0 million at June 30, 2006.

Operating Activities

Net cash provided by operating
activities during fiscal year 2007 was $132.2 million compared with $48.9 million in fiscal year 2006. The cash provided by operating activities of $132.2 million was mainly contributed by gross license fees of $100.0 million received from Apple
Inc., less tax of $18.0 million, a $35.2 million net decrease in accounts receivable and other assets and prepaid expenses, a $100.0 million net decrease in inventory and a $12.4 million adjustment for non-cash items. The decrease in inventory was
in line with managements intention to maintain a lower inventory balance. Cash provided by operating activities was offset partially by a $45.9 million net decrease in accounts payable and accrued and other liabilities. The $12.4 million in
adjustments to non-cash items was mainly pertaining to $18.5 million of depreciation and amortization charges.

Net cash provided by
operating activities during fiscal year 2006 was $48.9 million compared with $204.4 million used in fiscal year 2005. The cash provided by operating activities of $48.9 million was mainly due to a $21.6 million net decrease in accounts receivable
and other assets and prepaid expenses, a $161.0 million net decrease in inventory and a $35.8 million adjustment for non-cash items. The decrease in inventory was in line with managements intention to maintain a lower inventory balance. Cash
provided by operating activities was offset partially by a $49.6 million net decrease in accounts payable and accrued and other liabilities. The $35.8 million in adjustments to non-cash items comprised mainly $25.0 million of depreciation and
amortization, $31.5 million in impairment of goodwill and intangible assets, offset partially by a $20.9 million in net gains from the disposal of investments.



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Investing Activities

Net cash used in investing activities during fiscal year 2007 was $2.8 million compared to cash provided of $10.7 million in fiscal year 2006. The $2.8 million cash used in fiscal year 2007 was primarily for capital
expenditures amounting to $6.0 million offset partially by proceeds from sales of fixed assets $4.3 million.

Net cash provided by
investing activities during fiscal year 2006 was $10.7 million compared with $43.7 million in fiscal year 2005. The $10.7 million cash provided in fiscal year 2006 primarily comprised sales proceeds of investments amounting to $29.2 million, offset
partially by net capital expenditures of $13.3 million and a $4.0 million increase in other non-current assets pertaining to additional investments in equity-method investee companies.

Financing Activities

Net cash used in financing activities during fiscal year 2007 was $99.5 million
compared with $35.0 million in fiscal year 2006. Cash used in financing activities of $99.5 million primarily consisted of a $20.9 million dividend payment (see Note 8 of Notes to Consolidated Financial Statements) and $78.9 million in
repayments of debt obligations.

Net cash used in financing activities during fiscal year 2006 was $35.0 million compared with $142.2
million provided by financing activities in fiscal year 2005. Cash used in financing activities of $35.0 million primarily consisted of a $20.7 million dividend payment (see Note 8 of Notes to Consolidated Financial Statements), $8.1
million in open market repurchases of Creatives ordinary shares, $3.8 million in repayments of debt obligations and $3.7 million in repayments of capital leases, offset partially by proceeds from the exercise of ordinary share options
amounting to $2.9 million.

Current and Expected Liquidity

As of June 30, 2007, in addition to its cash reserves and excluding long term loans, Creative has credit facilities totaling $91.3 million for overdrafts, guarantees, letters of credit and fixed short-term loans,
of which approximately $89.3 million were unutilized.

As part of its long-term business strategy, from time to time, Creative makes
strategic equity investments in companies that can provide Creative with technologies or products that management believes will give Creative a competitive advantage in the markets in which Creative competes.

Management believes that Creative has adequate resources to meet its projected working capital and other cash needs for at least the next twelve months.
To date, inflation has not had a significant impact on Creatives operating results.

Debt Obligations

In November 2004, Creative entered into a five-year $175.0 million syndicated term loan facility with a group of international banks. The proceeds from
this facility were used primarily to fund the growth in working capital requirements arising from the growth in the companys revenue. The facility is unsecured and bears interest at LIBOR plus a margin of 0.45% for the first three years and
LIBOR plus a margin of 0.95% for the remaining two years. The loan facility contains certain financial covenants, including requirements for Creative to maintain certain ratios for its working capital, but does not restrict Creatives ability
to borrow nor distribute earnings. The entire loan facility of $175.0 million was drawn down in fiscal year 2005 and Creative repaid $75.0 million in fiscal year 2007. The weighted average effective interest rate at the balance sheet date was
5.825%.

On November 21, 2002, Creative Technology Centre Pte Ltd (CTC), a Singapore subsidiary of Creative, entered into
a nine-year term loan facility for up to S$54.0 million ($35.3 million) with a bank. The loan is



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repayable in thirty-six quarterly installments of S$1.5 million ($1.0 million). The repayment commenced on March 31, 2003. The interest on the
outstanding loan balance is based on the banks floating rate plus a margin of 1.5%. The loan is secured by a first mortgage on Creatives headquarter building in Singapore and by way of a fixed and floating charge over all assets of CTC.
At June 30, 2007, S$27.0 million ($17.6 million) was outstanding. The weighted average effective interest rate at the balance sheet date was 4.261%.

Creative has various other credit facilities relating to overdrafts, letters of credit, bank guarantees and short term loans with several banks totaling approximately $91.3 million at June 30, 2007. Within these
credit facilities, sub-limits have been set on how Creative may utilize the overall credit facilities. At June 30, 2007, $2.0 million in bank guarantees was drawn under these facilities. Facilities under letters of credit, bank guarantees,
overdrafts and short-term loans bear interest at approximately the banks prime rates.

Foreign Currency

The functional currency of Creative and its subsidiaries is predominantly the US dollar and accordingly, gains and losses resulting from the translation
of monetary assets and liabilities denominated in currencies other than the US dollar are reflected in the determination of net income (loss). From time to time, Creative enters into forward exchange contracts to reduce its exposure to foreign
exchange translation gains and losses. Forward exchange contracts are marked to market each period and the resulting gains and losses are included in the determination of net income or loss. No forward exchange contracts were outstanding at
June 30, 2007. Included in other income (expenses) are exchange gains of $12.1 million and $0.7 million in fiscal years 2007 and 2006, and exchange losses of $4.2 million in fiscal year 2005.

RESEARCH AND DEVELOPMENT

For a discussion on
Creatives research and development activities, please see Item 4 Business Overview.

TREND INFORMATION

For a discussion of significant trends on the financial condition and results of operation, please refer to Item 5 Results of Operations
and Liquidity and Capital Resources.

OFF-BALANCE SHEET ARRANGEMENTS

Creative was not a party to any off-balance sheet arrangement in fiscal year 2007 and is not currently a party to any off balance sheet arrangement.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The following table presents the contractual obligations and commercial commitments of Creative as of June 30, 2007:



|                                   |  |                                  |         |                  |   |              |  |              |         |               |   |        |  |   |       
|---------------------------------- |  | -------------------------------- | ------- | ---------------- | - | ------------ |  | ------------ | ------- | ------------- | - | ------ |  | - | ------
|                                   |  | Payments Due by Period (US$000)
|Contractual Obligations            |  | Total                            |         | Less than 1 year |   | 1 to 3 years |  | 4 to 5 years |         | After 5 years
|Long Term Debt                     |  | $                                | 117,628 |                  | $ | 3,917        |  | $            | 107,835 |               | $ | 5,876  |  | $ |      
|Capital Lease Obligations          |  |                                  | 38      |                  |   | 17           |  |              | 21      |               |   |       |  |   |      
|Operating Leases                   |  |                                  | 32,850  |                  |   | 6,560        |  |              | 8,880   |               |   | 5,210  |  |   | 12,200
|Unconditional Purchase Obligations |  |                                  | 38,042  |                  |   | 38,042       |  |              |        |               |   |       |  |   |      
|Other Obligations                  |  |                                  |        |                  |   |             |  |              |        |               |   |       |  |   |      
|                                   |  |                                  |         |                  |   |              |  |              |         |               |   |        |  |   |       
|Total Contractual Cash Obligations |  | $                                | 188,558 |                  | $ | 48,536       |  | $            | 116,736 |               | $ | 11,086 |  | $ | 12,200
|                                   |  |                                  |         |                  |   |              |  |              |         |               |   |        |  |   |       



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Unconditional purchase obligations are defined as contractual obligations for the purchase of goods or
services, which are enforceable and legally binding on the company and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable price provisions and the approximate timing of the
transaction. The expected timing of payment of the obligations set forth above is estimated based on current information. Timing of payments and actual amounts paid may be different depending on the time of receipt of goods or services or changes to
agreed-upon amounts for some obligations.

As of June 30, 2007, Creative has utilized approximately $2.0 million under guarantees and
letters of credit.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Please refer to Note 1 of Notes to Consolidated Financial Statements for the discussion of recently issued accounting pronouncements.



|ITEM 6: | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|------- | ------------------------------------------



|DIRECTORS | AND SENIOR MANAGEMENT
|--------- | ---------------------

Creatives Directors
and Executive Officers as of August 31, 2007 were as follows:



|                        |  |     |  |                                                   |  |                     |  |                          
|----------------------- |  | --- |  | ------------------------------------------------- |  | ------------------- |  | -------------------------
|Name                    |  | Age |  | Position                                          |  | Year FirstAppointed |  | Year Current Term Expires
|Sim Wong Hoo (1)(2)     |  | 52  |  | Chairman of the Board and Chief Executive
Officer |  | 1981                |  |                         
|Tan Lip-Bu (1)(2)       |  | 47  |  | Director                                          |  | 1990                |  | 2008                     
|Tang Chun Choy (3)      |  | 59  |  | Director                                          |  | 1990                |  | 2007                     
|Lee Kheng Nam (1)(2)(3) |  | 59  |  | Director                                          |  | 1991                |  | 2009                     
|Ng Kai Wa (3)           |  | 51  |  | Director                                          |  | 2005                |  | 2008                     
|Ng Keh Long             |  | 48  |  | Chief Financial Officer                           |  |                    |  |                         

---

|(1) | Member of Compensation Committee
|--- | --------------------------------

|(2) | Member of Option Committee for each of Creative Technology (1999) Share Option Scheme (as defined in Item 6 below).
|--- | -------------------------------------------------------------------------------------------------------------------

|(3) | Member of Audit Committee
|--- | -------------------------

SIM WONG HOOfounded
Creative in Singapore in 1981 and has been its Chairman of the Board and Chief Executive Officer since its inception.

TAN LIP-BUbecame a Director of Creative in 1990. He is the Founder and Chairman of Walden International, a leading international venture capital firm that manages over US$1.8 billion in committed capital. Mr. Tan has been active in the venture
capital business in the United States since the 1980s and has been a lead investor and/or a board member in more than 50 companies, mostly in telecommunications, semiconductor/components and enterprise software related industries. Listed
companies of which he is a director include Cadence Design Systems, Creative Technology, Flextronics, Semiconductor Manufacturing International Corporation (SMIC) and SINA. Mr. Tan is also a board member of the National Venture
Capital Association (NVCA), a member of the Committee of 100 in the United States, and a member of the Visiting Committee for the Department of Electrical Engineering and Computer Science at the Massachusetts Institute of Technology.

TANG CHUN CHOYbecame a Director of Creative in 1990. He has more than 30 years of venture capital, banking, operational and
engineering experience. He spent the last 15 years with Walden International and was its Co-Founder and Vice Chairman. Prior to joining the Walden Group in 1989, Mr. Tang was with the then Chemical Bank for 10 years and his last position, from
1985 to 1988 was its General Manager, based in Singapore. He has also held various management and executive positions at Chemical Banks offices in New York and Jakarta from 1981 to 1985. Earlier in his career, from 1971 to 1976, Mr. Tang
was a Senior Engineer



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and Project Coordinator at Esso Singapore Pte Ltd. He holds directorships in several public and private companies. Mr. Tang holds a Bachelor of
Engineering Degree (Hons) from the then University of Singapore and a Master of Business Administration Degree from the University of British Columbia.

LEE KHENG NAMbecame a Director of Creative in 1991. He is currently the Chairman of Advantec Pte Ltd, an investment holding company. From March 1995 to February 2004, Mr Lee was the President of Vertex
Management Pte Ltd and executive director of Vertex Venture Holdings Ltd (VVH), which were wholly-owned subsidiaries of Singapore Technologies Pte Ltd (ST) engaged in the venture capital direct investment and fund management
business. Mr Lee is currently a non-executive director of Vertex Management (II) Pte Ltd. Mr. Lee is also a Director of three listed companiesCreative Technology Ltd, China Finance Online Co Ltd and United Test and Assembly Centre Ltd
(UTAC). Mr. Lee formerly served on the board of Centillium Communications Inc, Chartered Semiconductor Manufacturing Ltd, GRIC Communications Inc., ActivCard Corp and Gemplus International S.A. Prior to joining Singapore
Technologies Group, Mr. Lee was with NatSteel group as the Manager of the Project Development Department and the Ministry of National Development where he was Deputy Director of Planning. Mr. Lee holds a Bachelor of Science degree in
Mechanical Engineering Degree (First Class Honours) from Queens University, Canada and a Master of Science degree in Operations Research & Systems Analysis from the U.S. Naval Postgraduate School.

NG KAI WAbecame a Director of Creative in 2005. He has been the Co-founder, Chairman and Chief Executive Officer of InnoMedia Pte Ltd since 1995.
InnoMedia is a leading supplier of broadband IP Telephony solutions that deliver high quality-voice and video over IP network, targeted to the broadband service providers, enterprises, consumers and OEM customers. Prior to that, he was the
Co-founder, Chief Technology Officer and Vice Chairman of the Board of Creative Technology Ltd. Mr. Ng holds an Executive Master of Business Administration Degree from the National University of Singapore and a Diploma in Electronic and
Electrical Engineering from Ngee Ann Polytechnic.

NG KEH LONGjoined the company in April 1993 as Financial Controller and held
various financial positions until May 1996, when he was appointed as Vice President, Corporate Treasurer and Acting Chief Financial Officer. In 1998 he was appointed as Chief Financial Officer. Prior to joining Creative, he was a Senior Manager with
Price Waterhouse (now PricewaterhouseCoopers), where he gained more than ten years experience in finance, accounting and auditing. Mr. Ng is a member of the Institute of Certified Public Accountants in Singapore.

Creative has proposed to pay each of its four non-executive Directors S$60,000 (US$39,000) for fees and reimbursement of any expenses incurred in
connection with attendance at Board, Board committee or general meetings of the company.

Creatives Articles of Association provide
that all Directors except Executive Directors are to retire at least once every three years by rotation if they are appointed by the company at the general meeting. The same Articles of Association also provide that a Director appointed by the Board
of Directors will retire at the next general meeting of shareholders.

COMPENSATION

The following table sets forth the aggregate base salary, fees and bonuses paid, or proposed by Creative, for services rendered by all executive officers
and directors for fiscal year 2007 (in US$000):



|                                                            |  |                 |     |         |   |    
|----------------------------------------------------------- |  | --------------- | --- | ------- | - | ---
|Number of Persons in Group                                  |  | BaseSalary/Fees |     | Bonuses
|All executive officers as a group (2 persons)               |  | $               | 451 |         | $ | 138
|All executive officers and directors as a group (6 persons) |  | $               | 608 |         | $ | 138



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##### Table of Contents

BOARD COMMITTEES

Audit Committee

The Audit Committee of the Board of Directors was formed in 1992. The members of the Audit Committee, all
of whom are non-executive directors, are as follows:

Lee Kheng Nam (Chairman)

Tang Chun Choy

Ng Kai Wa

In performing its functions, the Committee reviews the audit plan and the overall scope of work of the external auditors. During fiscal year 2007, the Audit Committee met with the companys auditors to discuss
the results of the companys examination and its evaluation of the system of internal accounting controls of Creative and its subsidiaries. The Audit Committee also reviewed the unconsolidated balance sheet of Creative and the consolidated
financial statements of the Group as well as the auditors report thereon.

The Board of Directors has determined that each member of
the Audit Committee has sufficient knowledge in financial and auditing matters to serve on the Audit Committee and that each member of the Audit Committee meets the independence requirements of the NASDAQ Global Market listing standards and any
applicable rules and regulations of the SEC. In addition, the Board has determined that Mr. Lee Kheng Nam and Mr. Tang Chun Choy are audit committee financial experts as defined by the applicable rules and regulations of the SEC.

Compensation and Option Committee

The
Compensation and Option Committee of the Board of Directors oversees executive compensation and development at Creative. It establishes compensation policies for key executives, reviews the salaries, bonuses and incentives for key executives and
approves share options for executives. The members of the Compensation and Option Committee are Mr. Sim Wong Hoo, Mr. Tan Lip-Bu and Mr. Lee Kheng Nam.

EMPLOYEES

Creative had approximately 5,800 full-time employees as of June 30, 2007 compared to
approximately 6,600 full-time employees as of June 30, 2006. The geographical distribution of these employees was 81% in Asia, 11% in the Americas and 8% in Europe, while the functional distribution was 56% in manufacturing, 14% in selling,
marketing and customer support, 20% in research and development, and 10% in administrative and other. Creative believes that its future success will largely depend upon its ability to continue to attract, retain, train and motivate highly skilled
and dedicated employees. None of Creatives employees is represented by a labor union and Creative has not experienced any work stoppages in the past. Creative believes that its employee relations are good.

SHARE OWNERSHIP

The following table sets forth
certain information regarding the beneficial ownership of Creatives ordinary shares by executive officers and directors as of August 31, 2007.



|                                      |  |                                    |  |                                        |  
|------------------------------------- |  | ---------------------------------- |  | -------------------------------------- | -
|                                      |  | Ordinary Shares Beneficially Owned | 
|Name                                  |  | Number (1)                         |  | Percent Of TotalOutstanding Shares (2) |  
|Sim Wong Hoo                          |  | 23,984,602                         |  | 28.7                                   | %
|Tan Lip-Bu                            |  | 121,667                            |  | *                                      |  
|Tang Chun Choy                        |  | 56,667                             |  | *                                      |  
|Lee Kheng Nam                         |  | 46,667                             |  | *                                      |  
|Ng Kai Wa                             |  | 2,398,672                          |  | 2.9                                    | %
|All officers and directors as a group |  | 28,196,650                         |  | 33.7                                   | %



---

Note: * means less than 1%



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##### Table of Contents

|(1) | Except as otherwise noted, each person or entity named in the table has sole voting and investment power with respect to all ordinary shares listed as owned by such person or
entity. Shares beneficially owned include shares that may be acquired pursuant to the exercise of fully-vested options or warrants issued by Creative that are exercisable within 60 days of August 31, 2007.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Percentage of Total Outstanding Shares is calculated separately for each person and assumes, for the purpose of the calculation, that shares issuable upon exercise of options or
warrants exercisable within 60 days of August 31, 2007 held by such person (but no other shareholders) have been issued as of such date.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Creative Employee Stock Option Plans

In December 1998, Creative adopted the Creative Technology (1999) Share Option
Scheme (1999 Scheme) which allows options to be granted to full-time employees as well as consultants and non-executive directors. The total number of shares that may be granted under the 1999 Scheme is 7.5 million, provided that
such amount shall be automatically increased on the first day (July 1) of each of the five fiscal years ending June 30, 2001, 2002, 2003, 2004 and 2005 by four percent of the issued share capital of Creative as at the last day of the immediate
preceding fiscal year. The Option Committee has the discretion to decide the vesting schedule in the letter of offer. If it is not specifically stated in the letter of offer, 1/4 of the total amount of the grant vests on the first anniversary of the
grant date and 1/48 of the total amount of the grant vests on the last day of each calendar month thereafter. The exercise price of options granted under the 1999 Scheme may be less than the fair market value of the shares as of the date of grant
and the options expire after the tenth anniversary of the date of grant, except in the case of options granted to participants other than employees, options expire not later than the fifth anniversary of the date of grant. Creative issues new shares
to satisfy its share based exercises.

Effective July 1, 2005, Creative adopted the provisions of SFAS No. 123(R),
Share-Based Payment. SFAS No. 123(R) establishes accounting for share-based awards exchanged for employee services. Accordingly, share-based compensation cost is measured on the date of grant, based on the fair value of the award,
and is recognized as expense over the employees requisite service period. Creative previously applied Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related
Interpretations, and provided the required pro forma disclosures of SFAS No. 123, Accounting for Stock-Based Compensation.

Prior to the adoption of SFAS No. 123(R), Creative provided the disclosures required under SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based
Compensation, Transition and Disclosures.

Creative elected to adopt the modified-prospective application method as provided by SFAS
No. 123(R). Accordingly, during the fiscal year ended June 30, 2007, Creative recorded share-based compensation cost of $1.7 million in the financial statements, totaling the amount that would have been recognized had the fair value method
been applied since the effective date of SFAS No. 123. Previously disclosed amounts have not been restated in the financial statements.

In connection with the adoption of SFAS No. 123(R), Creative also made a one-time adjustment in the quarter ended September 30, 2005 to reverse the unamortized share compensation balance of $0.4 million against the additional
paid-in capital account.

During the fiscal year ended June 30, 2006, Creative granted 3.12 million stock options under the 1999
Scheme with a total grant date fair value of $5.1 million. The weighted average grant date fair value of options granted was $1.63 per share. There were no options granted under the 1999 Scheme in the fiscal year ended June 30, 2007.

In fiscal year 2005, no options were granted under the 1999 Scheme.



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##### Table of Contents

|ITEM 7: | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|------- | -------------------------------------------------

MAJOR
SHAREHOLDERS

The following table sets forth certain information regarding the ownership of Creatives ordinary shares by each
person who is known by Creative to own beneficially more than 5% of its outstanding ordinary shares as of August 31, 2007. The voting rights of shares held by major shareholders are the same as the voting rights of shares held by all other
shareholders. The company does not believe it is directly or indirectly owned or controlled by any corporation or by any foreign government. The company is unaware of any arrangement that might result in a change in its control.



|             |  |                           |  |                                           |  
|------------ |  | ------------------------- |  | ----------------------------------------- | -
|             |  | Shares Beneficially Owned | 
|             |  | Number ofShares (1)       |  | Percentage of TotalOutstanding Shares (2) |  
|Sim Wong Hoo |  | 23,984,602                |  | 28.7                                      | %

---

|(1) | Except as otherwise noted, each person or entity named in the table has sole voting and investment power with respect to all ordinary shares listed as owned by such person or
entity. Shares beneficially owned include shares that may be acquired pursuant to the exercise of fully vested options or warrants issued by Creative that are exercisable within 60 days of August 31, 2007.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Percentage of Total Outstanding Shares is calculated separately for each person and assumes, for the purpose of the calculation, that shares issuable upon exercise of options or
warrants exercisable within 60 days of August 31, 2007 held by such person (but no other shareholders) have been issued as of such date.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Mr. Sim Wong Hoo, one of Creatives founders and its current Chief Executive Officer is the companys largest shareholder. Accordingly, Mr. Sim may be able to influence the election of
Creatives directors, to determine the outcome of most corporate actions requiring shareholder approval and to control the management and affairs of Creative.

As of August 31, 2007, there were approximately 15,008 shareholders of record of the ordinary shares, of which approximately 234 were registered in the US, and approximately 14,774 in Singapore. Because many of
the US shares are held by brokers and other institutions on behalf of shareholders, Creative is unable to estimate the total number of shareholders represented by these US record holders.

RELATED PARTY TRANSACTIONS

In January 2003, a
corporation controlled by a director, Ng Kai Wa, entered into a rental agreement with a subsidiary of Creative, which was prior to Ng Kai Was appointment as a director of Creative in June 2005. The rental agreement expired during fiscal year
2006 and the corporation has moved out of Creatives premises in April 2006. Creative received $150,000 in rent payments in fiscal year 2006 under the rental agreement.



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|ITEM 8: | FINANCIAL INFORMATION
|------- | ---------------------

The following financial
statements of the company and the auditors report appear under Item 19 EXHIBITS on pages F-1 through F-24 and S-1 through S-2.



| |  |  | Report of Independent Registered Public Accounting Firm.
| | - |  | --------------------------------------------------------



| |  |  | Consolidated Balance Sheets at June 30, 2007 and 2006.
| | - |  | ------------------------------------------------------



| |  |  | Consolidated Statements of Operations for the years ended June 30, 2007, 2006 and 2005.
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | Consolidated Statements of Cash Flows for the years ended June 30, 2007, 2006 and 2005.
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | Consolidated Statements of Stockholders Equity for the years ended June 30, 2007, 2006 and 2005.
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | Notes to Consolidated Financial Statements.
| | - |  | -------------------------------------------



| |  |  | Report of Independent Registered Public Accounting Firm on Financial Statement Schedule.
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | Schedule IIAllowance for Doubtful Accounts and Sales Returns.
| | - |  | --------------------------------------------------------------

LEGAL PROCEEDINGS

During the course of its ordinary business operations, Creative and its
subsidiaries are involved from time to time in a variety of intellectual property and other disputes, including claims against Creative alleging copyright infringement, patent infringement, contract claims, employment claims and business torts. One
such dispute is ongoing with representative purchasers of MP3 players (an action alleging false advertising and unfair competition in connection with reported storage capacity). Another such dispute is pending with representative purchasers of the
Zen Vision:M (an action alleging false advertising and warranty claims regarding the quality of the players color screen). In addition, a lawsuit has been filed against Creative by F&G Research alleging patent infringement in connection
with Creatives scrolling mice products. Creative also from time to time receives licensing inquiries and/or threats of potential future patent claims from a variety of entities. Creative believes it has valid defenses to the various claims
asserted against it, and intends to defend the actions vigorously. However, should any of these claimants prevail in their suits or claims, Creative does not expect there to be any consequent material adverse effect on its financial position or
results of operations.

DIVIDENDS

Creative in a general meeting may by ordinary resolution declare dividends recommended by the Board of Directors. The directors may declare an interim dividend. No dividend may be paid except out of profits which are available for
distribution under the provisions of Singapore law. Profits applied by the company to purchase its own shares cannot be paid as dividend to the shareholders. Similarly, the companys gains from the sale of treasury shares cannot be used for the
distribution of dividends.

SIGNIFICANT CHANGES

No significant change has occurred since the date of the companys annual financial statements.



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|ITEM 9: | THE OFFER AND LISTING
|------- | ---------------------

STOCK MARKET INFORMATION

Creatives ordinary shares were traded on the NASDAQ Global Market (NASDAQ) between August 3, 1992, and August 31, 2007
under the symbol CREAF. Creatives ordinary shares have been traded on the Singapore Exchange (SGX-ST) since June 15, 1994. In June 2007, Creative announced its intention to voluntarily delist its ordinary shares
from NASDAQ with August 1, 2007 as the last day of trading on NASDAQ. In July 2007, Creative extended the date of the voluntary delisting with August 31, 2007 as the last day of trading on NASDAQ. After August 31, 2007, the
companys current primary listing on the SGX-ST is Creatives sole exchange listing. The delisting from NASDAQ did not affect the status of Creatives shares on the SGX-ST.

The following table presents, for the registered shares on the NASDAQ and SGX-ST: (i) the annual high and low market prices for the five most recent
full fiscal years; (ii) the high and low market prices for each full fiscal quarter for the two most recent full fiscal years; and (iii) the high and low market prices for each month for the most recent six months. These prices do not
include retail markups, markdowns, or commissions.



|                       |  |                             |  |                                     |  |       |  |      
|---------------------- |  | --------------------------- |  | ----------------------------------- |  | ----- |  | -----
|                       |  | NASDAQ (Price in US$/Share) |  | SGX-ST (Price in Singapore $/Share)
|                       |  | High                        |  | Low                                 |  | High  |  | Low  
|Annual High and Low    |  |                             |  |                                     |  |       |  |      
|Fiscal 2003            |  | 10.50                       |  | 5.65                                |  | 18.90 |  | 10.10
|Fiscal 2004            |  | 12.59                       |  | 7.73                                |  | 20.40 |  | 13.80
|Fiscal 2005            |  | 16.89                       |  | 6.46                                |  | 27.20 |  | 11.00
|Fiscal 2006            |  | 8.95                        |  | 4.72                                |  | 14.40 |  | 7.75 
|Fiscal 2007            |  | 7.31                        |  | 4.78                                |  | 11.40 |  | 7.20 
|                       |  |                             |  |                                    
|Quarterly High and Low |  |                             |  |                                     |  |       |  |      
|Fiscal 2006:           |  |                             |  |                                     |  |       |  |      
|First Quarter          |  | 8.43                        |  | 6.38                                |  | 13.90 |  | 11.00
|Second Quarter         |  | 8.82                        |  | 7.13                                |  | 14.20 |  | 12.30
|Third Quarter          |  | 8.95                        |  | 7.13                                |  | 14.40 |  | 11.80
|Fourth Quarter         |  | 7.56                        |  | 4.72                                |  | 12.10 |  | 7.75 
|                       |  |                             |  |                                    
|Fiscal 2007:           |  |                             |  |                                     |  |       |  |      
|First Quarter          |  | 6.90                        |  | 5.22                                |  | 11.40 |  | 8.40 
|Second Quarter         |  | 7.31                        |  | 6.25                                |  | 11.30 |  | 9.95 
|Third Quarter          |  | 6.92                        |  | 6.12                                |  | 10.80 |  | 9.30 
|Fourth Quarter         |  | 6.19                        |  | 4.78                                |  | 9.50  |  | 7.20 
|                       |  |                             |  |                                    
|Monthly High and Low:  |  |                             |  |                                     |  |       |  |      
|March 2007             |  | 6.64                        |  | 6.12                                |  | 10.30 |  | 9.30 
|April 2007             |  | 6.19                        |  | 5.98                                |  | 9.50  |  | 9.20 
|May 2007               |  | 5.91                        |  | 5.16                                |  | 9.15  |  | 7.95 
|June 2007              |  | 5.41                        |  | 4.78                                |  | 8.30  |  | 7.20 
|July 2007              |  | 4.93                        |  | 4.53                                |  | 7.65  |  | 7.05 
|August 2007            |  | 4.69                        |  | 3.77                                |  | 7.35  |  | 5.80 

As of August 31, 2007, there were approximately 15,008 shareholders of record of the ordinary
shares, of which approximately 234 were registered in the US, and approximately 14,774 in Singapore. Because many of the US shares are held by brokers and other institutions on behalf of shareholders, Creative is unable to estimate the total number
of shareholders represented by these US record holders.

On August 31, 2007, the closing price of Creatives ordinary shares on
the NASDAQ Global Market was $3.84 and on the SGX-ST was S$5.95.



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|ITEM 10: | ADDITIONAL INFORMATION
|-------- | ----------------------

SUMMARY OF MEMORANDUM AND ARTICLES OF
ASSOCIATION

Objects and Purposes

Our objects and purposes are found in paragraph 3 of our Memorandum of Association. Our main object and purpose includes, but is not limited to, the design, manufacture and distribution of digitized sound and video boards, computers and
related multimedia and personal digital entertainment products.

Directors

A director shall not vote in respect of any contract or proposed contract or arrangement in which he has directly or indirectly a personal material
interest and if he shall do so his vote shall not be counted. Notwithstanding his interest, a director may be counted in the quorum present at any meeting of the directors.

The compensation of our directors is determined by the company in a general meeting. Any director who is appointed to an executive office or serves on
any committee or who otherwise performs or renders services, which in the opinion of the directors, are outside his ordinary duties as a director, may be paid such remuneration as the directors may determine.

The directors may exercise all the powers of the company to borrow money and to mortgage or charge its undertaking, property and uncalled capital and to
issue debentures and other securities.

At each annual general meeting of the company, one-third of the directors shall retire from office
by rotation provided that no director who is also an executive shall retire by such rotation. A retiring director is eligible for re-election and the directors to retire every year are those who have been longest in office since their last election.

The directors are entitled to appoint one or more from their body as executive director. A director so appointed shall not, while holding
that office, be subject to retirement by rotation or be taken into account when determining the rotation or retirement of directors but his appointment shall be automatically terminated if he ceases for any cause to be a director. Where an executive
director is appointed for a fixed term, the term shall not exceed five years.

The directors may at any time, and from time to time,
appoint any person to be a director, either to fill a casual vacancy or as an addition to the existing directors. Any directors so appointed shall hold office only until the next annual general meeting, but shall then be eligible for re-election and
shall not be taken into account in determining the directors who are to retire by rotation at that meeting.

A director need not be a
shareholder of the company, but shall be entitled to receive notice of and to attend all general meetings of the company.

New Ordinary Shares

Creative has only one class of shares, known as ordinary shares. All new shares issued by the company are subject to pre-emption
rights, unless these rights have been waived by the shareholders in a general meeting. Shareholders may, at a general meeting, grant general approval to issue new ordinary shares. Such approval would be effective from the date of the meeting at
which it was given, to the date of the companys next general meeting. Creatives shareholders have given it general authority to issue new ordinary shares of up to 25% of the total number of its issued ordinary shares at the time of
issue. All new ordinary shares are under the control of Creatives Board of Directors who may allot and issue the shares with such rights and restrictions as it may think fit, provided that no new ordinary shares may be issued which nullify,
restrict or disparately reduce the per share voting rights of the shareholders.



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The Board of Directors may issue new shares in excess of its 25% mandate from the shareholders, subject
to authority of the company in a general meeting.

The company shall have a first and paramount lien on shares and dividends from time to
time declared in respect of such shares but such lien shall be restricted to unpaid calls and installments upon the specific shares in respect of which such monies are due and unpaid, and to such amounts as the company may be called upon by law to
pay in respect of the shares of the member or deceased member.

The company may sell, in such manner as the directors think fit, any shares
on which the company has a lien, but no sale shall be made unless a sum in respect of which the lien exists is presently payable, nor until the expiration of 14 days after a notice in writing, stating and demanding payment of such part of the amount
in respect of which the lien exists as is presently payable, has been given to the registered holder for the time being of the share, or the person entitled thereto by reason of his death or bankruptcy.

The directors may make calls upon Creatives shareholders in respect of any money unpaid on their shares and not by the conditions of allotment
thereof made payable at fixed times, provided that no call shall be payable at less than one month from the date fixed for the payment of the last preceding call.

Treasury Shares

The Articles of Association allow the company to hold shares in treasury. Treasury shares are shares which
are purchased by the company in accordance with the Singapore Companies Act (Cap.50) and since such purchase, have been continuously held by the company. The company may hold or deal with its treasury shares in the manner authorized by, or
prescribed pursuant to, the Singapore Companies Act. The treasury shares have no voting rights and are not entitled to any dividend or other distribution (whether in cash or otherwise) of the companys assets (including any distribution of
assets to members on a winding up) that may be made by the company.

Transfer of Ordinary Shares

Any shareholder may transfer all or any of his shares. Creatives Board of Directors may decline to register any transfer of ordinary shares which
are not fully paid shares or ordinary shares to a person not approved by them and may also decline to register any transfer of shares on which the company has a lien. No shares shall in any circumstances be transferred to any infant or bankrupt or
person of unsound mind. Ordinary shares may be transferred by a duly signed instrument of transfer. Creatives Board of Directors may also decline to accept any instrument of transfer unless, among other things, the proper amount of duty has
been paid in relation to each instrument of transfer and a certificate of payment of stamp duty is presented for registration together with the instrument of transfer, the share certificate and such other evidence as may be required. Creative will
replace lost or destroyed certificates for ordinary shares if it is properly notified and if the applicant pays a fee which will not exceed S$1 and furnishes any evidence and indemnity that Creatives Board of Directors may require.

If any time the share capital is divided into different classes of shares, the rights attached to any class (unless otherwise provided by the terms of
issue of the shares of that class) may, whether or not the company is being wound up, be varied with the consent in writing of the holders of three-fourths of the issued shares of that class, or with sanction of a special resolution passed at a
separate general meeting of the holders of the shares of the class.

Voting Rights

Every member (except the company as a holder of treasury shares) is entitled to be present and to vote at any general meeting either personally or by
proxy. A proxy need not be a shareholder. A person who holds ordinary shares in the book-entry clearance system maintained by the Central Depository (Pte) Limited, or CDP, will only be entitled to vote at a general meeting as a shareholder if his
name appears on the depository register



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maintained by CDP 48 hours before the general meeting. At any general meeting a resolution put to the vote of the meeting shall be decided on a show of
hands, unless before or on the declaration of the result of the show of hands, a poll is demanded. A poll may be demanded by the Chairman, by at least two members present in person or by proxy, or by any member present in person or by proxy and
holding or representing not less than 10% of the total voting rights of all the voting rights of all members having the rights to vote or 10% of the total number of paid up shares of the company conferring that right. On a show of hands, every
member present in person or by proxy, shall have one vote. If a member is represented by two or more proxies, only one of the proxies, as the Chairman shall determine, shall be entitled to vote. And on a poll, every member present in person or by
proxy shall have one vote for each share he holds or represents.

Dividends

The company in a general meeting may declare dividends, but no dividend shall exceed the amount recommended by the directors. The directors may from time
to time pay to shareholders interim dividends if the directors believe dividends are justified by the profits of the company. Creative must pay all dividends out of its profits which is available for distribution under the provisions of the law.
Profits applied by the company to purchase its own shares cannot be paid as dividends to the shareholders. Similarly, gains of the company from the sale of treasury shares cannot be used for the distribution of dividends. All dividends are paid pro
rata among the shareholders in proportion to the amount paid up on each shareholders ordinary shares, unless the right attaching to an issue of any ordinary share provides otherwise. Unless otherwise directed, dividends are paid by check or
warrant sent through the post to each shareholder at his registered address. Notwithstanding the foregoing, Creatives payment to CDP of any dividend to the extent of payment made to the CDP, discharges it from any liability to that shareholder
in respect of that payment.

Bonus and Rights Issue

The company is entitled to issue bonus shares pursuant to the general mandate to issue shares obtained from its shareholders and may issue such bonus shares for no consideration.

The company may also, in a general meeting may upon the recommendation of the directors, capitalize any of the companys reserve accounts or other
undistributable reserve or any sum standing to the credit of the profit and loss account by appropriating such sum to the persons registered as holders of shares at the close of business on the date of the ordinary resolution in proportion to their
holdings.

Liquidation

If the company
is wound up and liquidated, holders of ordinary shares (except the company as a holder of treasury shares) will be entitled to participate in any surplus assets in proportion to their shareholdings.

Provisions Discriminating against any Existing or Prospective Holder of Shares

There are no provisions in Creatives Articles of Association discriminating against any existing or prospective holder of shares as a result of a shareholder owning a substantial number of shares.

Provisions Relating to Changing the Rights of Holders of Shares

Under the Singapore Companies Act, the rights of shareholders can be altered by way of a special resolution of the company to alter or add to its articles of association. Such special resolution must be passed by not
less than three fourths of the members of the company at a general meeting. Notice of such general meeting must be given to the shareholders 21 days in advance of the same.

In addition, the SGX-ST Listing Manual requires that an alteration to any special entitlement granted to shareholders of listed companies can only be
made with the approval of the SGX-ST.



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Creatives Articles of Association do not prescribe any procedure of changing the rights of holders
of shares. Thus, the procedures under the Singapore Companies Act will apply to Creative. However, the procedures under the SGX-ST Listing Manual do not apply to Creative because the SGX-ST has waived compliance with the SGX-ST Rules.

Meetings of Shareholders

Creative is required to
hold an annual general meeting every year and not more than 15 months after the holding of the last annual general meeting. The Board of Directors may convene an extraordinary general meeting whenever it thinks fit. A quorum of members is required
to be present at the time when the meeting proceeds. Members holding at least one third of all the issued shares of the company shall form a quorum.

All business transacted at an extraordinary general meeting, and all business transacted at an annual general meeting, with the exception of declaring a dividend, the consideration of the accounts, balance sheets, the
report of the directors and auditors, election of directors in the place of those retiring, fixing of fees of directors and the appointment and fixing of the remuneration of the auditors, are regarded as special business. The Companies
ActChapter 50 requires certain matters to be approved by shareholders by special resolutions whereby Creative must give at least 21 days notice in writing for every general meeting convened for the purpose of passing a special
resolution. Ordinary resolutions generally require at least 14 days notice in writing. A notice must be given to every shareholder who has supplied Creative with an address for the giving of notices of general meeting and must set forth the
place, the day and the hour of the meeting and, in the case of special business, the general nature of that business.

Limitations on Rights to Hold or
Vote Shares

Except as described in Voting Rights above, there are no limitations imposed by Creatives Articles of
Association on the rights of shareholders who are non-resident in Singapore to hold or vote ordinary shares.

MATERIAL CONTRACTS

None.

EXCHANGE CONTROLS

There are no exchange control restrictions in Singapore.

TAXATION

This summary of Singapore and United States tax considerations is based on current law and is provided for general
information. The discussion does not purport to deal with all aspects of taxation that might be relevant to particular shareholders in light of their investment or tax circumstances, or to certain types of shareholders (including insurance
companies, tax-exempt organizations, regulated investment companies, financial institutions or broker-dealers, and shareholders that are not U.S. Shareholders (as defined below)) subject to special treatment under the U.S. federal income tax laws.
Such shareholders should consult their own tax advisors regarding the tax consequences of any investment in the ordinary shares.

Income Taxation Under
Singapore Law

Under current provisions of the Singapore Income Tax Act, corporate profits are taxed at a rate of 18%. Prior to
January 1, 2003, under the dividend imputation system, the income tax paid by a company on its profits is fully passed on or imputed to its shareholders when a dividend is paid. Thus, the shareholders receive dividends net of the income tax
paid by Creative. Dividends received by either a resident or a non-resident of



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Singapore are not subject to withholding tax. Shareholders are taxed on the gross amount of dividends (i.e., the cash amount of the dividend plus the amount
of corporate tax paid by Creative). The income tax paid by Creative in respect of the franked dividend paid will be available to shareholders as a tax credit to offset the Singapore income tax liability on their overall income (including the gross
amount of dividends). In the case of a Singapore resident shareholder, if the shareholders marginal tax rate is equal to the corporate tax rate, there is no further Singapore tax to pay in respect of the dividends. If the shareholders
marginal tax rate is lower than the corporate tax paid, the shareholder is entitled to claim a tax refund for the difference from the Inland Revenue Authority of Singapore; conversely, if the resident shareholders marginal tax rate is higher
than the corporate tax rate, the shareholder must pay the difference of the tax rate on the dividend income to the Inland Revenue Authority of Singapore. In the case of a non-resident shareholder, the shareholder is taxed on dividends at the
corporate tax rate. Thus, the non-resident shareholder pays no further Singapore income tax on net dividends received. Further, the non-resident shareholder will not receive any tax refund from the Inland Revenue Authority of Singapore. No tax
treaty currently exists between the Republic of Singapore and the United States of America.

Starting from January 1, 2003, the
dividend imputation system has been replaced by a new one-tier corporate tax system, subject to transitional provisions. Under the new one-tier corporate tax system, dividends paid by a company would be exempt from Singapore tax in the hands of its
resident or non-resident shareholders. A five year transitional period from January 1, 2003 to December 31, 2007 is provided for companies with unutilized franking credits as at December 31, 2002 to remain on the imputation system
(before moving to the new one-tier corporate tax system) for the purpose of paying franked dividends. As of the date of the annual report, Creative has unutilized franking credits and has not opted to move to the new one-tier corporate system.

Creative was granted a Pioneer Certificate under the International Headquarters Award that will expire in March 2010. The Pioneer
Certificate exempts income from qualifying activities from tax in Singapore, subject to certain conditions. The qualifying activities include management of intellectual property, research and development activities, global/ regional functions such
as brand management, corporate marketing etc, and sales of qualifying products. Under the Pioneer Certificate, qualifying pioneer profits for fiscal years 2001, 2002, 2003, 2004, 2005, 2006 and 2007 is exempt from tax in Singapore. Non-pioneer
profits for fiscal years 2001, 2002, 2003, 2004, 2005, 2006 and 2007 is subject to Singapore corporate tax at the prevailing corporate tax rate (2001  24.5%, 2002 and 2003  22%, 2004, 2005 and 2006  20% and 2007  18%).

Under current Singapore tax law there is no tax on capital gains and, thus, any profits from the disposal of shares are not taxable in
Singapore unless the vendor is regarded as carrying on a trade in shares in Singapore, in which case, the disposal profits would be taxable as trade profits rather than capital gains.

There is no stamp duty payable in respect of the holding and disposition of shares. No duty is payable on the acquisition of new shares. Where existing
shares are acquired in Singapore, stamp duty is payable on the instrument of transfer of the shares and computed based on the number of shares transferred multiplied by 0.2% of the higher of consideration paid or net assets value of the company
concerned. The stamp duty is borne by the purchaser unless there is an agreement to the contrary. Where no instrument of transfer is executed or the transfer is registered through the Transfer Agent, no stamp duty is payable on the acquisition of
existing shares. Stamp duty may be payable if the instrument of transfer is subsequently received in Singapore.

Income Taxation Under United States Law

Shareholders that are (i) corporations or partnerships organized under the laws of the United States or any political
subdivision thereof, (ii) an estate the income of which is includible in gross income for United States federal income tax purposes regardless of its source, (iii) a trust, if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more U.S. persons has authority to control all substantial decisions of the trust, (iv) United States citizens or (v) United States resident aliens (as defined in
Section 7701(b) of the Internal Revenue Code of 1986, as amended) (together, US Shareholders, and each a US Shareholder) generally should report dividend income for United States income tax purposes in the



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amount of any cash dividend received from Creative to the extent paid out of the current or accumulated earnings and profits of Creative, as determined under
current United States income tax principles. Such dividend income will generally be foreign source income subject to the separate limitation for passive income for purposes of the foreign tax credit limitation. If a US Shareholder
receives a dividend payment in any currency other than US dollars, the amount of the dividend payment for Federal income tax purposes will be the US dollar value of the dividend payment (determined at the spot rate on the date of such payment)
regardless of whether the payment is in fact converted into US dollars. In such case, US Shareholders may recognize ordinary income or loss as a result of currency fluctuations during the period between the date of a dividend payment and the date
such dividend payment is converted into US dollars. US Shareholders generally should not be entitled to a foreign tax credit for corporate taxes paid by Creative, except that any domestic corporation which owns 10 percent or more of the voting stock
of Creative should consult its tax advisor with respect to its ability to claim foreign tax credits with respect to such taxes. Additionally, US Shareholders will, upon the sale or exchange of ordinary shares, recognize gain or loss for United
States income tax purposes in an amount equal to the difference between the amount realized and the US Shareholders tax basis in such ordinary shares. Such gain or loss will be capital gain or loss if the ordinary shares were a capital asset
in the hands of the US Shareholder and will be long-term capital gain or loss if such ordinary shares have been held for more than one year. If a US shareholder receives any currency other than US dollars on the sale of ordinary shares, such US
Shareholder may recognize ordinary income or loss as a result of currency fluctuations between the date of such sale and the date such sale proceeds are converted into US dollars.

Estate Taxation

Movable assets situated in Singapore of non-domiciled individuals (dying on or after
January 1, 2002) are exempt from estate duty. In the case of an individual who is not domiciled in Singapore, Singapore estate tax is imposed on the value of all immovable assets situated in Singapore. There is an exemption of up to S$9,000,000
for residential properties. In addition, there is an exemption of S$600,000 in respect of the non-domiciled deceaseds other immovable assets. Any excess will be taxed at a rate equal to 5 percent on the first S$12,000,000 of the
individuals Singapore chargeable immovable assets and thereafter at a rate equal to 10 percent. An individual shareholder that is a U.S. citizen or resident (for US estate tax purposes) also will have the value of the shares included in
the individuals gross estate for U.S. estate tax purposes. An individual shareholder generally will be entitled to a tax credit against the shareholders U.S. estate tax if the individual shareholder actually pays Singapore estate tax;
however, such tax credit is generally limited to the percentage of the U.S. estate tax attributable to the inclusion of the value of the shares included in the shareholders gross estate for U.S. estate tax purposes. Individuals who are
domiciled in Singapore should consult their own tax advisors regarding the Singapore estate tax consequences of their investment.

DOCUMENTS ON DISPLAY

Creative files annual and special reports and other information with the SEC. You may read any portion of this Form 20-F and any other
document that Creative files with the SEC at the Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information about the public reference section. Such material may
also be obtained at the internet site maintained by the SEC at www.sec.gov.



|ITEM 11: | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------

Equity Price Risks: Creative is exposed to equity price risk on its quoted investments. An aggregate 10% reduction in market prices of Creatives investments in quoted investments, based on a sensitivity analysis of the balance
as of June 30, 2007, would have a $6.8 million adverse effect on Creatives results of operations and financial position. Creatives results of operations for fiscal year 2006 included $2.0 million of losses from write-downs of
investments.



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Interest Rate Risk: Changes in interest rates could impact Creatives anticipated interest
income on its cash equivalents and interest expense on its debt. Due to the short duration of Creative cash deposits and terms of its debt, an immediate 10% increase in interest rates would not have a material adverse impact on Creatives
future operating results and cash flows.

Foreign Currency Exchange Risk in the Rate of Exchange of Reporting Currency Relative to US$:The functional currency of Creative and its subsidiaries is predominantly the US dollar and accordingly, gains and losses resulting from the translation of monetary assets and liabilities denominated in currencies other than the US dollar are
reflected in the determination of net income (loss). From time to time, Creative enters into forward exchange contracts to reduce its exposure to foreign exchange translation gains and losses. Forward exchange contracts are marked to market each
period and the resulting gains and losses are included in the determination of net income or loss. No forward exchange contracts were outstanding at June 30, 2007. Included in other expenses are exchange gains of $12.1 million and $0.7 million
in fiscal years 2007 and 2006, and exchange losses of $4.2 million in fiscal year 2005.

At June 30, 2007, the monetary assets and
liabilities of Creative are denominated in the following currencies:



|                                     |  |                                                     |   |  |    |   |  |      |   |  |                  |  
|------------------------------------ |  | --------------------------------------------------- | - |  | -- | - |  | ---- | - |  | ---------------- | -
|                                     |  | Approximate Percentage of $ Balance Denominated in: |  
|                                     |  | US$                                                 |   |  | S$ |   |  | EURO |   |  | Other Currencies |  
|Cash and cash equivalents            |  | 60                                                  | % |  | 2  | % |  | 24   | % |  | 14               | %
|Accounts receivable, less allowances |  | 62                                                  | % |  |   |   |  | 28   | % |  | 10               | %
|Total current liabilities            |  | 66                                                  | % |  | 21 | % |  | 6    | % |  | 7                | %
|Long-term obligations                |  | 88                                                  | % |  | 11 | % |  |     |   |  | 1                | %

The exchange rates for the S$ and Euro utilized in translating the balance sheet at June 30,
2007, expressed in US$ per one S$ and Euro was 0.6529 and 1.3505, respectively.

An aggregate decline of 10% in foreign currency exchange
rates relative to US$, based on a sensitivity analysis of foreign currency denominated cash and cash equivalents and accounts receivable balances as of June 30, 2007, would have a $10.1 million and $4.2 million adverse effect on Creatives
results of operations and financial position.



|ITEM 12: | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
|-------- | ------------------------------------------------------

Not applicable.



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PART II



|ITEM 13: | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
|-------- | -----------------------------------------------

None.



|ITEM 14: | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
|-------- | ----------------------------------------------------------------------------

None.



|ITEM 15: | CONTROLS AND PROCEDURES
|-------- | -----------------------

Not applicable.



|ITEM 15T: | CONTROLS AND PROCEDURES
|--------- | -----------------------



|(a) | Disclosure Controls and Procedures
|--- | ----------------------------------

Creatives
management under the supervision and with the participation of Creatives Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of the disclosure controls and procedures as of June 30, 2007. Based
on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that as of June 30, 2007, the companys disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934,
as amended, (the Exchange Act)) were effective. The Companys disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports we file under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief
Financial Officer, to allow timely discussions regarding required disclosure.



|(b) | Managements Report on Internal Control over Financial Reporting
|--- | ----------------------------------------------------------------

Creatives management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f)) under the Exchange Act.

Internal control over financial reporting is defined as a process designed by, or under the supervision of, our Chief Executive Officer and Chief
Financial Officer and effected by the companys Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:



| |  |  | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the companys assets;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that the companys receipts and expenditures are being made only in accordance with authorizations of the companys management and members of the board of directors; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on
the companys financial statements.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.



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Creatives management evaluated the effectiveness of the companys internal control over
financial reporting as of June 30, 2007 using the framework set forth in the report of the Treadway Commissions Committee of Sponsoring Organizations (COSO), Internal ControlIntegrated Framework. Based on
this evaluation, Creatives management has concluded that the companys internal control over financial reporting was effective as of June 30, 2007.

This annual report does not include an audit report of the companys registered public accounting firm regarding internal control over financial reporting. The managements report was not subject to audit by
the companys registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only managements report in this annual report.



|(c) | Changes in Internal Control over Financial Reporting
|--- | ----------------------------------------------------

There was no change in the companys internal control over financial reporting during the last fiscal year that has materially affected, or is reasonably likely to materially affect, the companys internal control over financial
reporting.



|ITEM 16: | RESERVED
|-------- | --------



|ITEM 16A: | AUDIT COMMITTEE FINANCIAL EXPERT
|--------- | --------------------------------

The Board of
Directors has determined that both Mr. Lee Kheng Nam and Mr. Tang Chun Choy, members of the Audit Committee, each qualify as an audit committee financial expert as defined in Item 16A of Form 20-F under the Securities
Exchange Act of 1934, as amended, and meets the independence requirements of the NASDAQ Global Market and the rules and regulations of the U.S. Securities and Exchange Commission.



|ITEM 16B: | CODE OF ETHICS
|--------- | --------------

Creative has adopted a code
of ethics as defined in Item 16B of Form 20-F under the Securities Exchange Act of 1934, as amended, that applies to its chief executive officer, chief financial officer, controller and every other officer, director and employee of the
company and its subsidiaries. The text of the Code of Business Conduct and Ethics is posted on the companys Internet website at http://www.creative.com.

During fiscal year 2007, no waivers or amendments were made to the code of ethics for any officer, director or employee of the company.



|ITEM 16C: | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|--------- | --------------------------------------

The
following table sets forth the aggregate fees paid or accrued for the audit and other services rendered to Creative by Creatives independent principal accountant for fiscal years 2007 and 2006 (in US$000):



|                   |  |               |       |      |   |      
|------------------ |  | ------------- | ----- | ---- | - | -----
|                   |  | As of June 30
|                   |  | 2007          |       | 2006
|Audit fees         |  | $             | 1,406 |      | $ | 1,196
|Audit-related fees |  |               | 113   |      |   | 55   
|Tax fees           |  |               | 683   |      |   | 711  
|All other fees     |  |               | 133   |      |   | 202  
|                   |  |               |       |      |   |      
|Total              |  | $             | 2,335 |      | $ | 2,164
|                   |  |               |       |      |   |      

Audit fees. This category consists of fees billed/billable for the annual audit services
engagement and other audit services, which are normally provided by the independent auditors in connection with statutory and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements and
include the group audit.



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Audit-related fees. This category consists of fees billed/billable for assurance and related services
that are reasonably related to the performance of the audit or review of our financial statements or that are traditionally performed by the external auditor, and includes internal control reviews and assistance with and review of documents filed
with the SEC.

Tax fees. This category includes fees for tax compliance, tax planning, and tax advice. Tax compliance generally involves
preparation of original and amended tax returns, claims for refunds and tax payment-planning services. Tax planning and tax advice encompass a diverse range of services, including assistance with tax audits and appeals, tax advice related to mergers
and acquisitions, employee benefit plans and requests for rulings or technical advice from taxing authorities.

All other fees. This
category primarily consists of fees for advice on transfer price studies.

Audit Committees Pre-Approval Policies and Procedures

The Audit Committee has adopted a policy requiring pre-approval by the committee of all services, audit and non-audit, to be provided by the
companys independent auditor. In accordance with that policy, the Audit Committee reviews and pre-approves the scope and the cost of all audit and permissible non-audit services performed by the independent auditors, other than those for de
minimus services which are approved by the Audit Committee prior to the completion of the audit. All of the services provided by the companys principal accountant during the last two fiscal years have been approved by the Audit Committee.



|ITEM 16D: | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
|--------- | ----------------------------------------------------------

Not applicable.



|ITEM 16E: | PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
|--------- | ---------------------------------------------------------------------

At the companys Annual General Meeting (AGM) held on October 31, 2007, the shareholders approved a share repurchase mandate allowing Creative to buy up to 10% of the issued share capital of
Creative outstanding as of the date of the AGM. This amounts to approximately 8.3 million shares. This authority to repurchase these shares shall continue in force unless revoked or revised by the shareholders in a general meeting, or until the
date that the next AGM of Creative is held or is required to be held, whichever is the earlier.

Creative does not have a publicly
announced share repurchase plan or program.

Creative did not repurchase any shares in fiscal year 2007.



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PART III



|ITEM 17: | FINANCIAL STATEMENTS
|-------- | --------------------

Please refer to Item 18.



|ITEM 18: | FINANCIAL STATEMENTS
|-------- | --------------------

Reference is made to pages F1
through F-24.



|I
TEM 19: | EXHIBITS
|--------- | --------



|                                                                                                 |  |     
|------------------------------------------------------------------------------------------------ |  | ----
|                                                                                                 |  | Page
|(A) FINANCIAL STATEMENTS                                                                         |  |     
|                                                                                                 | 
|Report of Independent Registered Public Accounting Firm                                          |  | F-1 
|                                                                                                 | 
|Consolidated Balance Sheets at June 30, 2007 and 2006                                            |  | F-2 
|                                                                                                 | 
|Consolidated Statements of Operations for the years ended June 30, 2007, 2006 and 2005           |  | F-3 
|                                                                                                 | 
|Consolidated Statements of Cash Flows for the years ended June 30, 2007, 2006 and 2005           |  | F-4 
|                                                                                                 | 
|Consolidated Statements of Shareholders Equity for the years ended June 30, 2007, 2006 and 2005 |  | F-5 
|                                                                                                 | 
|Notes to Consolidated Financial Statements                                                       |  | F-6 
|                                                                                                 | 
|(B) SUPPLEMENTAL SCHEDULES                                                                       |  |     
|                                                                                                 | 
|Report of Independent Registered Public Accounting Firm on Financial Statement Schedule          |  | S-1 
|                                                                                                 | 
|Schedule IIAllowance for Doubtful Accounts and Sales Returns                                    |  | S-2 
|                                                                                                 | 
|(C) EXHIBITS                                                                                     |  |     
|                                                                                                 | 
|Exhibit Index                                                                                    |  | E-1 



55



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SIGNATURE

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the
registrant certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.



CREATIVE TECHNOLOGY LTD./S/    NG KEH
LONGNg Keh LongChief Financial OfficerDate: November 16, 2007




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EXHIBIT A: FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND

SHAREHOLDERS OF CREATIVE TECHNOLOGY LTD

In our
opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of cash flows and of shareholders equity present fairly, in all material respects, the financial position of Creative Technology Ltd
and its subsidiaries at June 30, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2007 in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility of Creatives management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers

Singapore

September 26, 2007



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##### Table of Contents

CREATIVE TECHNOLOGY LTD

CONSOLIDATED BALANCE SHEETS

(In US$000, except per share data)



|                                                            |  |              |         |              |   |        
|----------------------------------------------------------- |  | ------------ | ------- | ------------ | - | -------
|                                                            |  | June 30,2007 |         | June 30,2006
|ASSETS                                                      |  |              |         |              |   |        
|                                                            |  |             
|Current assets:                                             |  |              |         |              |   |        
|Cash and cash equivalents                                   |  | $            | 250,480 |              | $ | 213,995
|Accounts receivable, less allowances of $14,153 and $18,806 |  |              | 110,520 |              |   | 133,002
|Inventory                                                   |  |              | 134,911 |              |   | 234,942
|Other assets and prepaids                                   |  |              | 40,308  |              |   | 53,248 
|                                                            |  |              |         |              |   |        
|Total current assets                                        |  |              | 536,219 |              |   | 635,187
|                                                            |  |             
|Property and equipment, net                                 |  |              | 97,696  |              |   | 109,174
|Investments                                                 |  |              | 80,121  |              |   | 74,581 
|Other non-current assets                                    |  |              | 8,997   |              |   | 11,671 
|                                                            |  |              |         |              |   |        
|Total Assets                                                |  | $            | 723,033 |              | $ | 830,613
|                                                            |  |              |         |              |   |        
|LIABILITIES AND SHAREHOLDERS EQUITY                        |  |              |         |              |   |        
|                                                            |  |             
|Current liabilities:                                        |  |              |         |              |   |        
|Accounts payable                                            |  | $            | 66,778  |              | $ | 104,923
|Accrued liabilities                                         |  |              | 92,898  |              |   | 100,690
|Income taxes payable                                        |  |              | 21,349  |              |   | 18,930 
|Current portion of long term obligations and others         |  |              | 3,934   |              |   | 4,737  
|                                                            |  |              |         |              |   |        
|Total current liabilities                                   |  |              | 184,959 |              |   | 229,280
|                                                            |  |              |         |              |   |        
|Long term obligations                                       |  |              | 129,131 |              |   | 206,593
|                                                            |  |              |         |              |   |        
|Minority interest in subsidiaries                           |  |              | 373     |              |   | 1,587  
|                                                            |  |              |         |              |   |        
|Shareholders equity:                                       |  |              |         |              |   |        
|Share capital (000);                                       |  |              |         |              |   |        
|Outstanding: 83,622 and 83,271 shares                       |  |              | 300,086 |              |   | 298,474
|Other reserves                                              |  |              | 53,949  |              |   | 52,265 
|Unrealized holding gains on investments                     |  |              | 24,240  |              |   | 19,453 
|Retained earnings                                           |  |              | 30,295  |              |   | 22,961 
|                                                            |  |              |         |              |   |        
|Total shareholders equity                                  |  |              | 408,570 |              |   | 393,153
|                                                            |  |              |         |              |   |        
|Total Liabilities and Shareholders Equity                  |  | $            | 723,033 |              | $ | 830,613
|                                                            |  |              |         |              |   |        

The accompanying notes are an integral part of these consolidated financial statements.



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CREATIVE TECHNOLOGY LTD

CONSOLIDATED STATEMENTS OF OPERATIONS

(In US$000, except per share data)



|                                                                    |  |                     |         |   |      |   |           |      |  |   |           |  
|------------------------------------------------------------------- |  | ------------------- | ------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                                                    |  | Years ended June 30 |        
|                                                                    |  | 2007                |         |   | 2006 |   |           | 2005 | 
|Sales, net                                                          |  | $                   | 914,906 |   |      | $ | 1,127,531 |      |  | $ | 1,224,411 |  
|Cost of goods sold                                                  |  |                     | 737,203 |   |      |   | 963,217   |      |  |   | 949,151   |  
|                                                                    |  |                     |         |   |      |   |           |      |  |   |           |  
|Gross profit                                                        |  |                     | 177,703 |   |      |   | 164,314   |      |  |   | 275,260   |  
|                                                                    |  |                     |        
|Operating expenses:                                                 |  |                     |         |   |      |   |           |      |  |   |           |  
|Selling, general and administrative                                 |  |                     | 175,180 |   |      |   | 195,197   |      |  |   | 196,258   |  
|Research and development                                            |  |                     | 63,646  |   |      |   | 77,186    |      |  |   | 82,325    |  
|Impairment of goodwill and other intangible assets                  |  |                     |        |   |      |   | 31,478    |      |  |   | 65,225    |  
|Other charges                                                       |  |                     |        |   |      |   | 5,873     |      |  |   |          |  
|                                                                    |  |                     |         |   |      |   |           |      |  |   |           |  
|Operating (loss) income                                             |  |                     | (61,123 | ) |      |   | (145,420  | )    |  |   | (68,548   | )
|                                                                    |  |                     |        
|(Loss) gain from investments, net                                   |  |                     | (1,880  | ) |      |   | 18,904    |      |  |   | 74,405    |  
|Interest income                                                     |  |                     | 9,916   |   |      |   | 6,241     |      |  |   | 3,571     |  
|Interest expense                                                    |  |                     | (10,245 | ) |      |   | (9,411    | )    |  |   | (3,674    | )
|Others                                                              |  |                     | 114,622 |   |      |   | 3,572     |      |  |   | (4,260    | )
|                                                                    |  |                     |         |   |      |   |           |      |  |   |           |  
|Income (loss) before income taxes and minority interest             |  |                     | 51,290  |   |      |   | (126,114  | )    |  |   | 1,494     |  
|                                                                    |  |                     |        
|Income tax (expense) benefit                                        |  |                     | (23,918 | ) |      |   | 7,150     |      |  |   | (969      | )
|Minority interest in loss                                           |  |                     | 817     |   |      |   | 805       |      |  |   | 63        |  
|                                                                    |  |                     |         |   |      |   |           |      |  |   |           |  
|Net income (loss)                                                   |  | $                   | 28,189  |   |      | $ | (118,159  | )    |  | $ | 588       |  
|                                                                    |  |                     |         |   |      |   |           |      |  |   |           |  
|Basic earnings (loss) per share                                     |  | $                   | 0.34    |   |      | $ | (1.42     | )    |  | $ | 0.01      |  
|Weighted average ordinary shares outstanding (000)                 |  |                     | 83,452  |   |      |   | 83,093    |      |  |   | 82,661    |  
|                                                                    |  |                     |        
|Diluted earnings (loss) per share                                   |  | $                   | 0.34    |   |      | $ | (1.42     | )    |  | $ | 0.01      |  
|Weighted average ordinary shares and equivalents outstanding (000) |  |                     | 83,913  |   |      |   | 83,093    |      |  |   | 85,333    |  

The accompanying notes are an integral part of these consolidated financial statements.



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CREATIVE TECHNOLOGY LTD

CONSOLIDATED STATEMENTS OF CASH FLOWS

Increase (decrease) in cash and cash equivalents (in US$000)



|                                                                                  |  |                     |         |   |      |   |          |      |  |   |          |  
|--------------------------------------------------------------------------------- |  | ------------------- | ------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                  |  | Years ended June 30 |        
|                                                                                  |  | 2007                |         |   | 2006 |   |          | 2005 | 
|Cash flows from operating activities:                                             |  |                     |         |   |      |   |          |      |  |   |          |  
|Net income (loss)                                                                 |  | $                   | 28,189  |   |      | $ | (118,159 | )    |  | $ | 588      |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                     |         |   |      |   |          |      |  |   |          |  
|Depreciation of fixed assets                                                      |  |                     | 15,334  |   |      |   | 20,967   |      |  |   | 22,994   |  
|Amortization of intangible assets                                                 |  |                     | 1,451   |   |      |   | 2,184    |      |  |   | 3,383    |  
|Deferred share compensation amortization                                          |  |                     | 1,684   |   |      |   | 1,892    |      |  |   | 1,504    |  
|Minority interest in loss                                                         |  |                     | (817    | ) |      |   | (805     | )    |  |   | (63      | )
|Equity share in loss of unconsolidated investments                                |  |                     | 1,231   |   |      |   | 260      |      |  |   | 1,640    |  
|(Gain) loss on disposal of fixed assets                                           |  |                     | (2,088  | ) |      |   | 281      |      |  |   | (139     | )
|Write downs of investments and other non-current assets                           |  |                     | 1,713   |   |      |   | 2,034    |      |  |   | 11,571   |  
|Loss (gain) from investments, net                                                 |  |                     | 326     |   |      |   | (20,938  | )    |  |   | (85,755  | )
|Impairment of goodwill / intangible assets                                        |  |                     |        |   |      |   | 31,478   |      |  |   | 65,225   |  
|Deferred income taxes, net                                                        |  |                     | 834     |   |      |   | 554      |      |  |   | (393     | )
|Gain on disposal of interests in associated company                               |  |                     |        |   |      |   |         |      |  |   | (264     | )
|Foreign currency exchange (gain) loss                                             |  |                     | (5,828  | ) |      |   | (697     | )    |  |   | 5,658    |  
|Dividend income                                                                   |  |                     | (1,463  | ) |      |   | (1,420   | )    |  |   | (1,178   | )
|                                                                                  |  |                     |        
|Changes in assets and liabilities, net:                                           |  |                     |         |   |      |   |          |      |  |   |          |  
|Accounts receivable                                                               |  |                     | 22,482  |   |      |   | 30,281   |      |  |   | (77,728  | )
|Inventory                                                                         |  |                     | 100,031 |   |      |   | 160,979  |      |  |   | (211,987 | )
|Other assets and prepaids                                                         |  |                     | 12,675  |   |      |   | (8,641   | )    |  |   | (18,490  | )
|Accounts payable                                                                  |  |                     | (38,145 | ) |      |   | (46,199  | )    |  |   | 64,891   |  
|Accrued and other liabilities                                                     |  |                     | (7,792  | ) |      |   | (3,410   | )    |  |   | 15,130   |  
|Income taxes                                                                      |  |                     | 2,419   |   |      |   | (1,782   | )    |  |   | (1,008   | )
|                                                                                  |  |                     |         |   |      |   |          |      |  |   |          |  
|Net cash provided by (used in) operating activities                               |  |                     | 132,236 |   |      |   | 48,859   |      |  |   | (204,421 | )
|                                                                                  |  |                     |         |   |      |   |          |      |  |   |          |  
|Cash flows from investing activities:                                             |  |                     |         |   |      |   |          |      |  |   |          |  
|Capital expenditures, net                                                         |  |                     | (6,026  | ) |      |   | (13,348  | )    |  |   | (34,191  | )
|Proceeds from sales of fixed assets                                               |  |                     | 4,276   |   |      |   | 146      |      |  |   | 347      |  
|Proceeds from disposal of interests in associated company                         |  |                     |        |   |      |   |         |      |  |   | 234      |  
|Proceeds from sale of investments                                                 |  |                     | 121     |   |      |   | 29,152   |      |  |   | 98,129   |  
|Purchase of new subsidiaries (net of cash acquired)                               |  |                     |        |   |      |   | (131     | )    |  |   |         |  
|Purchase of investments                                                           |  |                     | (1,744  | ) |      |   | (2,491   | )    |  |   | (17,766  | )
|Dividend income received                                                          |  |                     | 1,463   |   |      |   | 1,420    |      |  |   | 1,178    |  
|Increase in other non current assets, net                                         |  |                     | (912    | ) |      |   | (4,049   | )    |  |   | (4,281   | )
|                                                                                  |  |                     |         |   |      |   |          |      |  |   |          |  
|Net cash (used in) provided by investing activities                               |  |                     | (2,822  | ) |      |   | 10,699   |      |  |   | 43,650   |  
|                                                                                  |  |                     |         |   |      |   |          |      |  |   |          |  
|Cash flows from financing activities:                                             |  |                     |         |   |      |   |          |      |  |   |          |  
|Increase (decrease) in minority shareholders loan and equity balance             |  |                     | 3       |   |      |   | (958     | )    |  |   | 366      |  
|Buyout of subsidiarys minority interest                                          |  |                     |        |   |      |   | (604     | )    |  |   |         |  
|Proceeds from exercise of ordinary share options                                  |  |                     | 1,612   |   |      |   | 2,949    |      |  |   | 14,773   |  
|Repurchase of ordinary shares                                                     |  |                     |        |   |      |   | (8,134   | )    |  |   |         |  
|Proceeds from debt obligations                                                    |  |                     |        |   |      |   |         |      |  |   | 175,000  |  
|Repayments of debt obligations                                                    |  |                     | (78,917 | ) |      |   | (3,780   | )    |  |   | (3,542   | )
|Repayments of capital leases                                                      |  |                     | (954    | ) |      |   | (3,747   | )    |  |   | (3,079   | )
|Dividends paid to ordinary shareholders                                           |  |                     | (20,855 | ) |      |   | (20,700  | )    |  |   | (41,357  | )
|Dividends paid to minority interest                                               |  |                     | (400    | ) |      |   |         |      |  |   |         |  
|                                                                                  |  |                     |         |   |      |   |          |      |  |   |          |  
|Net cash (used in) provided by financing activities                               |  |                     | (99,511 | ) |      |   | (34,974  | )    |  |   | 142,161  |  
|                                                                                  |  |                     |         |   |      |   |          |      |  |   |          |  
|Net increase (decrease) in cash and cash equivalents                              |  |                     | 29,903  |   |      |   | 24,584   |      |  |   | (18,610  | )
|Effects of exchange rate changes on cash and cash equivalents                     |  |                     | 6,582   |   |      |   | 2,165    |      |  |   | (5,221   | )
|Cash and cash equivalents at beginning of year                                    |  |                     | 213,995 |   |      |   | 187,246  |      |  |   | 211,077  |  
|                                                                                  |  |                     |         |   |      |   |          |      |  |   |          |  
|Cash and cash equivalents at end of year                                          |  | $                   | 250,480 |   |      | $ | 213,995  |      |  | $ | 187,246  |  
|                                                                                  |  |                     |         |   |      |   |          |      |  |   |          |  
|Supplemental disclosure of cash flow information:                                 |  |                     |         |   |      |   |          |      |  |   |          |  
|Interest paid                                                                     |  | $                   | 8,240   |   |      | $ | 9,433    |      |  | $ | 3,517    |  
|                                                                                  |  |                     |         |   |      |   |          |      |  |   |          |  
|Income taxes paid, net                                                            |  | $                   | 20,621  |   |      | $ | 3,772    |      |  | $ | 4,471    |  
|                                                                                  |  |                     |         |   |      |   |          |      |  |   |          |  
|Non cash transaction:                                                             |  |                     |         |   |      |   |          |      |  |   |          |  
|Fixed assets acquired under capital lease                                         |  | $                   | 18      |   |      | $ |         |      |  | $ |         |  
|                                                                                  |  |                     |         |   |      |   |          |      |  |   |          |  

The accompanying notes are an integral part of these consolidated financial statements.



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##### Table of Contents

CREATIVE TECHNOLOGY LTD

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

(In US$000, except share data)



|                                                              |  |                      |   |  |              |         |   |                          |   |          |               |  |                                               |        |  |                           |         |   |                  |   |        |       |  |   |          |   |  |   |          |  
|------------------------------------------------------------- |  | -------------------- | - |  | ------------ | ------- | - | ------------------------ | - | -------- | ------------- |  | --------------------------------------------- | ------ |  | ------------------------- | ------- | - | ---------------- | - | ------ | ----- |  | - | -------- | - |  | - | -------- | -
|                                                              |  | OrdinaryShares(000) |   |  | ShareCapital |         |   | AdditionalPaid InCapital |   |          | OtherReserves |  | UnrealisedHoldingGains(Losses) on
Investments |        |  | DeferredShareCompensation |         |   | RetainedEarnings |   |        | Total | 
|Balance at June 30, 2004                                      |  | 81,369               |   |  | $            | 7,952   |   |                          | $ | 323,660  |               |  | $                                             |       |  | $                         | 151,153 |   |                  | $ | (1,991 | )     |  | $ | 210,723  |   |  | $ | 691,497  |  
|Shares issued under employee options and share purchase plans |  | 2,224                |   |  |              | 334     |   |                          |   | 14,439   |               |  |                                               |       |  |                           |        |   |                  |   |       |       |  |   |         |   |  |   | 14,773   |  
|Dividends paid                                                |  |                     |   |  |              |        |   |                          |   |         |               |  |                                               |       |  |                           |        |   |                  |   |       |       |  |   | (41,357  | ) |  |   | (41,357  | )
|Reversal of unvested deferred share compensation, net         |  |                     |   |  |              |        |   |                          |   | (109     | )             |  |                                               |       |  |                           |        |   |                  |   | 109    |       |  |   |         |   |  |   |         |  
|Amortization of deferred share compensation                   |  |                     |   |  |              |        |   |                          |   |         |               |  |                                               |       |  |                           |        |   |                  |   | 1,504  |       |  |   |         |   |  |   | 1,504    |  
|Comprehensive (loss) income                                   |  |                     |   |  |              |        |   |                          |   |         |               |  |                                               |       |  |                           | (85,873 | ) |                  |   |       |       |  |   | 588      |   |  |   | (85,285  | )
|                                                              |  |                      |   |  |              |         |   |                          |   |          |               |  |                                               |        |  |                           |         |   |                  |   |        |       |  |   |          |   |  |   |          |  
|Balance at June 30, 2005                                      |  | 83,593               |   |  |              | 8,286   |   |                          |   | 337,990  |               |  |                                               |       |  |                           | 65,280  |   |                  |   | (378   | )     |  |   | 169,954  |   |  |   | 581,132  |  
|Shares issued under employee options and share purchase plans |  | 678                  |   |  |              | 103     |   |                          |   | 2,846    |               |  |                                               |       |  |                           |        |   |                  |   |       |       |  |   |         |   |  |   | 2,949    |  
|Repurchase of ordinary shares                                 |  | (1,000               | ) |  |              | (150    | ) |                          |   | 150      |               |  |                                               |        |  |                           |        |   |                  |   |       |       |  |   | (8,134   | ) |  |   | (8,134   | )
|Dividends paid                                                |  |                     |   |  |              |        |   |                          |   |         |               |  |                                               |       |  |                           |        |   |                  |   |       |       |  |   | (20,700  | ) |  |   | (20,700  | )
|Reversal of unvested deferred share compensation, net         |  |                     |   |  |              |        |   |                          |   | (378     | )             |  |                                               |       |  |                           |        |   |                  |   | 378    |       |  |   |         |   |  |   |         |  
|Amortization of deferred share compensation                   |  |                     |   |  |              |        |   |                          |   | 1,892    |               |  |                                               |       |  |                           |        |   |                  |   |       |       |  |   |         |   |  |   | 1,892    |  
|Effect of Companies (Amendment) Act 2005 (see Note 17)        |  |                     |   |  |              | 290,235 |   |                          |   | (290,235 | )             |  |                                               |       |  |                           |        |   |                  |   |       |       |  |   |         |   |  |   |         |  
|Transfer to other reserves                                    |  |                     |   |  |              |        |   |                          |   | (52,265  | )             |  |                                               | 52,265 |  |                           |        |   |                  |   |       |       |  |   |         |   |  |   |         |  
|Comprehensive loss                                            |  |                     |   |  |              |        |   |                          |   |         |               |  |                                               |       |  |                           | (45,827 | ) |                  |   |       |       |  |   | (118,159 | ) |  |   | (163,986 | )
|                                                              |  |                      |   |  |              |         |   |                          |   |          |               |  |                                               |        |  |                           |         |   |                  |   |        |       |  |   |          |   |  |   |          |  
|Balance at June 30, 2006                                      |  | 83,271               |   |  |              | 298,474 |   |                          |   |         |               |  |                                               | 52,265 |  |                           | 19,453  |   |                  |   |       |       |  |   | 22,961   |   |  |   | 393,153  |  
|Shares issued under employee options and share purchase plans |  | 351                  |   |  |              | 1,612   |   |                          |   |         |               |  |                                               |       |  |                           |        |   |                  |   |       |       |  |   |         |   |  |   | 1,612    |  
|Dividends paid                                                |  |                     |   |  |              |        |   |                          |   |         |               |  |                                               |       |  |                           |        |   |                  |   |       |       |  |   | (20,855  | ) |  |   | (20,855  | )
|Amortization of deferred share compensation                   |  |                     |   |  |              |        |   |                          |   |         |               |  |                                               | 1,684  |  |                           |        |   |                  |   |       |       |  |   |         |   |  |   | 1,684    |  
|Comprehensive income                                          |  |                     |   |  |              |        |   |                          |   |         |               |  |                                               |       |  |                           | 4,787   |   |                  |   |       |       |  |   | 28,189   |   |  |   | 32,976   |  
|                                                              |  |                      |   |  |              |         |   |                          |   |          |               |  |                                               |        |  |                           |         |   |                  |   |        |       |  |   |          |   |  |   |          |  
|Balance at June 30, 2007                                      |  | 83,622               |   |  | $            | 300,086 |   |                          | $ |         |               |  | $                                             | 53,949 |  | $                         | 24,240  |   |                  | $ |       |       |  | $ | 30,295   |   |  | $ | 408,570  |  
|                                                              |  |                      |   |  |              |         |   |                          |   |          |               |  |                                               |        |  |                           |         |   |                  |   |        |       |  |   |          |   |  |   |          |  

The accompanying notes are an integral part of these consolidated financial statements.



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CREATIVE TECHNOLOGY LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of
presentation

The consolidated financial statements include the financial statements of Creative Technology Ltd and Creatives
subsidiaries under its effective control from their respective dates of acquisition, after elimination of inter-company transactions and balances. The consolidated financial statements are presented in accordance with accounting principles generally
accepted in the United States of America (US GAAP). The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the reporting periods. Actual results may differ from those estimates and such
differences could be material. Certain reclassifications have been made in prior years financial statements to conform with classifications used in the current year. Creative conducts a substantial portion of its business in United States
dollars (US$ or $). All dollar amounts included in the financial statements and in the notes herein are United States dollars unless designated as Singapore dollars (S$). Creative operates on a thirteen week
calendar closing on the Friday closest to the natural calendar quarter. Our financial year 2007 ended on June 29, 2007, the Friday nearest to June 30, 2007, while our prior financial years ended on June 30, 2006 and July 1, 2005.
All quarters and fiscal years are described by their natural calendar dates.

Foreign exchange

The functional currency of Creative and its subsidiaries is predominantly the US dollar and accordingly, gains and losses resulting from the translation
of monetary assets and liabilities denominated in currencies other than the US dollar are reflected in the determination of net income (loss). From time to time, Creative enters into forward exchange contracts to reduce its exposure to foreign
exchange translation gains and losses. Forward exchange contracts are marked to market each period and the resulting gains and losses are included in the determination of net income or loss. No forward exchange contracts were outstanding at
June 30, 2007. Included in other income (expenses) are exchange gains of $12.1 million and $0.7 million in fiscal years 2007 and 2006, and exchange losses of $4.2 million in fiscal year 2005.

At June 30, 2007, the monetary assets and liabilities of Creative are denominated in the following currencies:



|                                     |  |                                                     |   |  |    |   |  |      |   |  |                  |  
|------------------------------------ |  | --------------------------------------------------- | - |  | -- | - |  | ---- | - |  | ---------------- | -
|                                     |  | Approximate Percentage of $ Balance Denominated in: |  
|                                     |  | US$                                                 |   |  | S$ |   |  | EURO |   |  | Other Currencies |  
|Cash and cash equivalents            |  | 60                                                  | % |  | 2  | % |  | 24   | % |  | 14               | %
|Accounts receivable, less allowances |  | 62                                                  | % |  |   |   |  | 28   | % |  | 10               | %
|Total current liabilities            |  | 66                                                  | % |  | 21 | % |  | 6    | % |  | 7                | %
|Long-term obligations                |  | 88                                                  | % |  | 11 | % |  |     |   |  | 1                | %

The exchange rates for the S$ and Euro utilized in translating the balance sheet at June 30,
2007, expressed in US$ per one S$ and Euro was 0.6529 and 1.3505, respectively.

Cash equivalents

Cash equivalents consist of highly liquid investment instruments with original or remaining maturities of three months or less at the time of purchase.
All deposits are in short-term deposits and money market accounts with various banks. This diversification of risk is consistent with Creatives policy to maintain liquidity and ensure the safety of principal. Included in cash equivalents as of
June 30, 2007 and 2006 are fixed rate deposits of $204.7 million and $170.0 million, respectively.



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Fair value of financial instruments

For certain of Creatives financial instruments, including cash equivalents, accounts receivable, accounts payable and accrued expenses, the carrying amounts approximate fair value due to their short maturities.
The amounts shown for long-term obligations also approximate fair value because current interest rates charged to Creative for debts of similar maturities are substantially the same.

Inventory

Inventory is stated at the lower of cost or market. Cost is determined using standard
cost, appropriately adjusted at the balance sheet date to approximate actual cost on a weighted average basis. In the case of finished products and work-in-progress, cost includes materials, direct labor and an appropriate proportion of production
overheads.

Management performs a detailed assessment of inventory at each balance sheet date to establish provisions for excess and
obsolete inventories. The evaluation includes a review of, among other factors, historical sales, current economic trends, forecasted sales, demand requirements, product lifecycle and product development plans, quality issues, and current inventory
levels.

Property and equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the
remaining facility lease term or the estimated useful lives of the improvements. No depreciation is provided on freehold land and construction in progress.

Creative reviews property and equipment for impairment in accordance with SFAS No. 144, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed. Long-lived assets
are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparison of its carrying amount to future undiscounted cash
flows the assets are expected to generate. If the property and equipment are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the assets exceeds its fair market value. For the three fiscal
years ended June 30, 2007, 2006 and 2005, Creative had no impairment of its long-lived assets, except for the impairment of certain assets in connection with the restructuring actions described in Note 12 of the Notes to Consolidated Financial
Statements.

Investments

Creative
holds equity investments in various companies pursuant to which it has acquired anywhere from less than 1% to 100% of the issuers outstanding capital stock. Investments in which Creative acquires more than 50% of the outstanding capital stock
of an entity and which are under the effective control of Creative, are treated as investments in subsidiaries, and the balance sheets and results of operations of these subsidiaries are fully consolidated after making allowance for any minority
interests. Companies in which Creatives investment totals between 20% and 50% of such companys capital stock are treated as associated companies and recorded on an equity basis, whereby Creative adjusts its cost of investments to
recognize its share of all post acquisition results of operations. In the event where a subsidiary or associated company issues shares to a third party at a price different from Creatives carrying value of such shares, the difference is taken
to the income statement.

Non-quoted investments of less than 20% in an entity are carried at cost, less provisions for permanent
impairment where necessary.

In accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity
Securities, quoted investments of less than 20% in an entity are classified as available-for-sale. Such investments are



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reported at fair value with the unrealized gains and losses included as a separate component of shareholders equity. Unrealized losses are charged
against income when a decline in fair value is determined to be other than temporary. Realized gains and losses upon the sale or disposition of such investments are based on the average cost of the specific investments sold.

The investment portfolio is monitored on a periodic basis for impairment. Creatives investments in these companies are inherently risky because the
markets for the technologies or products they have under development are typically in the early stages and may never develop. In the event that the carrying value of an investment exceeds its fair value and the decline in value is determined to be
other-than-temporary, an impairment charge is recorded and a new cost basis for the investment is established. Fair values for investments in public companies are determined using quoted market prices. Fair values for investments in privately-held
companies are estimated based upon one or more of the following: pricing models using historical and forecasted financial information and current market rates, liquidation values, the values of recent rounds of financing, or quoted market prices of
comparable public companies.

In order to determine whether a decline in value is other-than-temporary, Creative evaluates, among other
factors: the duration and extent to which the fair value has been less than the carrying value; the financial condition of and business outlook for the company, including key operational and cash flow metrics, current market conditions and future
trends in the companys industry, and the companys relative competitive position within the industry; and Creatives intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in
fair value.

Goodwill and other intangible assets

Goodwill and other intangible assets are stated at cost and relate principally to the acquisition of new subsidiaries accounted for under the purchase method. Under this method, the purchase price has been allocated
to the assets acquired, liabilities assumed and in-process technology based on their estimated fair market values at the dates of acquisition. Amounts allocated to acquired in-process technology are expensed in the period in which the acquisition is
consummated. Intangible assets are amortized on a straight-line basis over the estimated useful lives of the assets, ranging from one to seven years. Goodwill is not subject to amortization, but evaluated at least annually for impairment.

Reviews for impairment of goodwill and other intangible assets are also conducted whenever events indicate that the carrying amount might
not be recoverable. Factors that Creative may consider important which could trigger an impairment review include the following:



| |  |  | significant under performance relative to historical or projected future operating results;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | significant changes in the manner of use of the acquired assets or the strategy for Creatives overall business;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | significant negative industry or economic trends;
| | - |  | -------------------------------------------------



| |  |  | significant decline in Creatives stock price for a sustained period; and
| | - |  | -------------------------------------------------------------------------



| |  |  | Creative market capitalization relative to net book value.
| | - |  | ----------------------------------------------------------

When the existence of one or more of the above factors indicates that the carrying value of the goodwill or intangible assets may be impaired, Creative measures any impairment based on a combination of market
comparable method and projected discounted cash flow method using a discount rate determined by the management commensurate with the risk inherent in Creatives current business model.

Product warranties

The warranty period for the bulk
of Creatives products typically ranges between 1 to 3 years. The product warranty accrual reflects managements best estimate of probable liability under its product warranties. Management determines the warranty provision based on known
product failures (if any), historical experience, and other currently available evidence.



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Revenue recognition

Revenue from product sales is recognized when the following four criteria are met:



| |  |  | Persuasive evidence of an arrangement exists
| | - |  | --------------------------------------------

Persuasive evidence of an arrangement exists when Creative receives a purchase order from the customer and Creative subsequently confirms the order by issuing a sales order to the customer.



| |  |  | Title and risk of loss have been transferred and delivery has occurred
| | - |  | ----------------------------------------------------------------------

Based on the shipping terms specified in the customers purchase order or Creatives sales order to the customer, this criteria is met when a
product is delivered to a common carrier, or delivered to the customers delivery site or shipped to the customer.



| |  |  | The price is fixed or determinable
| | - |  | ----------------------------------

The price is fixed or determinable when a sales order is issued to the customer.



| |  |  | Collection is probable
| | - |  | ----------------------

Creative assesses the credit worthiness of each customer and will only issue a sales order to a customer if it believes that collection from that customer is probable.

Allowances are provided for estimated returns, discounts and warranties based on historical experience, current economic trends and changes in customer
demand and acceptance of its products. Such allowances are adjusted periodically to reflect actual and anticipated experience. When recognizing revenue, Creative records estimated reductions to revenue for customer and distributor programs and
incentive offerings, including price protection, promotions, other volume-based incentives and rebates.

Research and development

Research and development costs are charged to operations as incurred.

Assessment of the probability of the outcome of current litigation

Creative records accruals for
loss contingencies when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated.

Income taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the carrying amounts of existing assets and liabilities in the financial statements and their respective tax bases, and operating loss and tax carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. A valuation allowance is recorded for loss carryforwards and other deferred tax assets where it is more likely than not that such deferred tax assets will not be realized.

Concentrations of credit risk

Financial instruments that potentially subject Creative to significant concentrations of credit risk consist principally of cash and cash equivalents and trade accounts receivable. Creative limits the amount of credit exposure to any one
financial institution. Creative sells its products to original equipment manufacturers,



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distributors and key retailers. Creative believes that the concentration of credit risk in its trade receivables is substantially mitigated due to
performance of ongoing credit evaluations of its customers financial condition, use of short collection terms, use of letters of credit in certain circumstances, procurement of credit insurance coverage and the geographical dispersion of
sales. Creative establishes allowances for doubtful accounts, returns and discounts for specifically identified doubtful accounts, returns and discounts based on credit profiles of its customers, current economic trends, contractual terms and
conditions and historical payment, returns and discount experience.

Share-based compensation

Effective July 1, 2005, Creative accounts for share-based employee compensation in accordance with SFAS No. 123(R), Share-Based
Payment. Accordingly, share-based compensation cost is measured on the date of grant, based on the fair value of the award, and is recognized as expense over the employees requisite service period. Creative previously applied Accounting
Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees, and related Interpretations, and provided the required pro forma disclosures of SFAS No. 123, Accounting for Stock-Based
Compensation, and SFAS No. 148, Accounting for Stock-Based Compensation, Transition and Disclosures. See Note 9.

Employees
pension scheme

Creative participates in a number of defined contribution retirement plans in certain countries of operations.
Contributions are based on a percentage of each eligible employees salary and are expensed as the related salaries are incurred. Creative incurred expenses of approximately $8.0 million, $8.1 million and $7.5 million with respect to these
retirement plans for the fiscal years 2007, 2006 and 2005, respectively.

Recently issued accounting pronouncements

In June 2006, the FASB issued FASB Interpretation Number 48 (FIN 48), Accounting for Uncertainty in Income Taxesan interpretation
of SFAS No. 109. The interpretation contains a two step approach to recognizing and measuring uncertain tax positions accounted for in accordance with SFAS No. 109. The first step is to evaluate the tax position for recognition by
determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit
as the largest amount which is more than 50% likely of being realized upon ultimate settlement. The provisions are effective for fiscal years beginning after December 15, 2006. Creative is currently evaluating the impact of FIN 48, but does not
expect the adoption of FIN 48 to have a material impact on its consolidated financial statements.

In September 2006, the Securities and
Exchange Commission (SEC) released Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108). SAB 108
provides interpretive guidance on the SECs views on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The provisions of SAB 108 will be effective for
fiscal years ending November 15, 2006. Creative has adopted SAB 108 and it has no material effect on its consolidated financial statements.

In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair Value Measurements (SFAS 157), which defines fair value, establishes guidelines for measuring fair value
and expands disclosures regarding fair value measurements. SFAS 157 does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS 157 is effective for fiscal
years beginning after November 15, 2007. Earlier adoption is permitted, provided the company has not yet issued financial statements, including for interim periods, for that fiscal year. Creative is currently evaluating the impact of SFAS 157.



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In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R) (SFAS 158). This standard requires employers to recognize the underfunded or overfunded status of a defined benefit
postretirement plan as an asset or liability in its statement of financial position and to recognize changes in the funded status in the year in which the changes occur through accumulated other comprehensive income, which is a component of
shareholders equity. Additionally, SFAS 158 requires employers to measure the funded status of a plan as of the date of its year-end statement of financial position. The new reporting requirements and related new footnote disclosure rules of
SFAS 158 are effective for fiscal years ending after December 15, 2006. Creative has adopted SFAS 158 and it has no material impact on its consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159 The Fair Value Option for Financial Assets and Financial Liabilities (SFAS
159). SFAS 159 permits companies to choose to measure certain financial instruments and certain other items at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be
reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. Creative is currently evaluating the impact of SFAS 159.

NOTE 2NET INCOME (LOSS) PER SHARE

In accordance with SFAS No. 128, Earnings per Share, Creative
reports both basic earnings per share and diluted earnings per share. Basic earnings per share is computed using the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share is computed using the weighted
average number of ordinary and potentially dilutive ordinary equivalent shares outstanding during the period. Ordinary equivalent shares are excluded from the computation if their effect is anti-dilutive. In computing diluted earnings per share, the
treasury stock method is used to determine, based on average stock prices for the respective periods, the ordinary equivalent shares to be purchased using proceeds received from the exercise of such equivalent shares. Other than the dilutive effect
of stock options, there are no other financial instruments that would impact the weighted average number of ordinary shares outstanding used for computing diluted earnings per share. The potentially dilutive ordinary equivalent shares outstanding
under the employee share purchase plan were not material.

The following is a reconciliation between the average number of ordinary shares
outstanding and equivalent shares outstanding (in 000):



|                                                                     |  |               |  |        |  |       
|-------------------------------------------------------------------- |  | ------------- |  | ------ |  | ------
|                                                                     |  | As of June 30
|                                                                     |  | 2007          |  | 2006   |  | 2005  
|Weighted average ordinary shares outstandingBasic                   |  | 83,452        |  | 83,093 |  | 82,661
|Effect of dilutive shares on account of stock options                |  | 461           |  |       |  | 2,672 
|                                                                     |  |               |  |        |  |       
|Weighted average ordinary shares and equivalents outstandingDiluted |  | 83,913        |  | 83,093 |  | 85,333
|                                                                     |  |               |  |        |  |       

For fiscal year 2006, approximately 0.8 million shares were excluded from the computation of
dilutive earnings per share, as the effect of including such shares would be anti-dilutive.

NOTE 3BALANCE SHEET DETAIL (in US$000)



|                  |  |               |         |      |   |        
|----------------- |  | ------------- | ------- | ---- | - | -------
|                  |  | As of June 30
|                  |  | 2007          |         | 2006
|Inventory:        |  |               |         |      |   |        
|Raw materials     |  | $             | 62,034  |      | $ | 110,469
|Work in progress  |  |               | 5,916   |      |   | 1,198  
|Finished products |  |               | 66,961  |      |   | 123,275
|                  |  |               |         |      |   |        
|Total inventory   |  | $             | 134,911 |      | $ | 234,942
|                  |  |               |         |      |   |        



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Included in cost of goods sold in the third quarter of fiscal year 2006 was a substantial write-down of
flash memory inventory amounting to $19.0 million. There was no material write-down of flash memory inventory in the comparative period in fiscal year 2007.



|                                          |  |                       |      |               |          |      |  |   |          |  
|----------------------------------------- |  | --------------------- | ---- | ------------- | -------- | ---- |  | - | -------- | -
|                                          |  | Estimated Useful Life |      | As of June 30 |         
|                                          |  |                       | 2007 |               |          | 2006 | 
|Property and equipment:                   |  |                       |      |               |          |      |  |   |          |  
|Freehold land                             |  |                      |      | $             | 2,625    |      |  | $ | 3,524    |  
|Leaseho ld land and buildings             |  | 25 to 96 years        |      |               | 104,531  |      |  |   | 105,817  |  
|Machinery and equipment                   |  | 3 to 6 years          |      |               | 60,509   |      |  |   | 63,012   |  
|Furniture, fixtures and office equipments |  | 1 to 8 years          |      |               | 82,166   |      |  |   | 83,307   |  
|Leaseho ld improvements                   |  | Term of lease         |      |               | 11,853   |      |  |   | 12,164   |  
|                                          |  |                       |      |               |          |      |  |   |          |  
|                                          |  |                       |      | $             | 261,684  |      |  | $ | 267,824  |  
|Accumulated depreciation                  |  |                       |      |               | (163,988 | )    |  |   | (158,650 | )
|                                          |  |                       |      |               |          |      |  |   |          |  
|Net property and equipment                |  |                       |      | $             | 97,696   |      |  | $ | 109,174  |  
|                                          |  |                       |      |               |          |      |  |   |          |  

Included in property and equipment are assets purchased under capital lease obligations with a
cost and accumulated depreciation of approximately $10.9 million and $10.9 million for fiscal year 2007, and $16.5 million and $16.0 million for fiscal year 2006, respectively.

Depreciation charged to results of operations, including depreciation related to assets under capital leases, amounted to $15.3 million, $21.0 million
and $23.0 million for fiscal years 2007, 2006 and 2005, respectively.

Creative routinely reviews the remaining estimated useful lives of
its machinery and equipment to determine if such lives should be adjusted due to the likelihood of technological obsolescence arising from changes in production techniques or in market demand for the use of its machinery and equipment.



|                               |  |               |         |   |      |   |         |  
|------------------------------ |  | ------------- | ------- | - | ---- | - | ------- | -
|                               |  | As of June 30 |        
|                               |  | 2007          |         |   | 2006 |  
|Other non-current assets:      |  |               |         |   |      |   |         |  
|Other intangible assets        |  | $             | 37,568  |   |      | $ | 37,568  |  
|Accumulated impairment charges |  |               | (4,727  | ) |      |   | (4,727  | )
|Accumulated amortization       |  |               | (32,538 | ) |      |   | (31,087 | )
|                               |  |               |         |   |      |   |         |  
|Other intangible assets, net   |  |               | 303     |   |      |   | 1,754   |  
|Goodwill                       |  |               |        |   |      |   | 91,976  |  
|Accumulated impairment charges |  |               |        |   |      |   | (91,976 | )
|                               |  |               |         |   |      |   |         |  
|Goodwill, net                  |  |               |        |   |      |   |        |  
|Other non-current assets       |  |               | 8,694   |   |      |   | 9,917   |  
|                               |  |               |         |   |      |   |         |  
|Total other non-current assets |  | $             | 8,997   |   |      | $ | 11,671  |  
|                               |  |               |         |   |      |   |         |  

Other intangible assets consist of mainly patents and trademarks.

Creative reviews goodwill and purchased intangible assets for impairment annually and whenever events or changes in circumstances indicate the carrying
value of an asset may not be recoverable in accordance with SFAS No. 142, Goodwill and Other Intangible Assets. Creative typically performs its annual impairment assessment for goodwill and other intangible assets in the fourth
quarter of its fiscal year. However, during the third quarter of fiscal 2006, Creatives subsidiary, 3Dlabs, restructured its graphics business to focus its business on the portable handheld device market instead of the professional workstation
graphics market. As a result, the fair value of 3Dlabs could no longer support the carrying value of the goodwill and other intangible assets associated with the acquisition of 3Dlabs in May 2002, and accordingly, Creative recorded a goodwill
impairment charge of $29.4 million and other intangible assets impairment charge of $2.0 million in fiscal 2006.



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Goodwill and other intangible assets fully amortized were excluded from the table above. Other intangible
assets amortization expense was $1.5 million, $2.2 million and $3.4 million for fiscal years 2007, 2006 and 2005, and is estimated to be $0.3 million in fiscal year 2008, respectively.



|                                |  |               |        |      |   |        
|------------------------------- |  | ------------- | ------ | ---- | - | -------
|                                |  | As of June 30
|                                |  | 2007          |        | 2006
|Other accrued liabilities:      |  |               |        |      |   |        
|Marketing accruals              |  | $             | 22,304 |      | $ | 28,992 
|Payroll accruals                |  |               | 15,500 |      |   | 20,346 
|Royalty accruals                |  |               | 6,071  |      |   | 5,299  
|Warranty accruals               |  |               | 6,499  |      |   | 9,536  
|Deposits and other creditors    |  |               | 12,932 |      |   | 4,430  
|Other accruals                  |  |               | 29,592 |      |   | 32,087 
|                                |  |               |        |      |   |        
|Total other accrued liabilities |  | $             | 92,898 |      | $ | 100,690
|                                |  |               |        |      |   |        

Other accruals of $29.6 million and $32.1 million as of June 30, 2007 and 2006 includes
accruals for various operating expense items that individually account for less than 5% of the total current liabilities.



|                            |  |               |         |      |   |        
|--------------------------- |  | ------------- | ------- | ---- | - | -------
|                            |  | As of June 30
|                            |  | 2007          |         | 2006
|Long term obligations:      |  |               |         |      |   |        
|Long term debt              |  | $             | 113,711 |      | $ | 192,010
|Capital lease obligations   |  |               | 21      |      |   | 18     
|Deferred tax liabilities    |  |               | 15,399  |      |   | 14,565 
|                            |  |               |         |      |   |        
|Total long term obligations |  | $             | 129,131 |      | $ | 206,593
|                            |  |               |         |      |   |        

NOTE 4PRODUCT WARRANTIES

The warranty period for the bulk of Creatives products typically ranges between 1 to 3 years. The product warranty accrual reflects
managements best estimate of probable liability under its product warranties. Management determines the warranty provision based on known product failures (if any), historical experience, and other currently available evidence.

Movements in the product warranty accrual for fiscal year 2007 were as follows (in US$000):



|                                                                              |  |               |         |   |      |   |         |  
|----------------------------------------------------------------------------- |  | ------------- | ------- | - | ---- | - | ------- | -
|                                                                              |  | As of June 30 |        
|                                                                              |  | 2007          |         |   | 2006 |  
|Balance at the beginning of the year                                          |  | $             | 9,536   |   |      | $ | 12,418  |  
|Accruals for warranties issued during the period                              |  |               | 28,420  |   |      |   | 50,352  |  
|Adjustments related to pre-existing warranties (include changes in estimates) |  |               | (580    | ) |      |   | (206    | )
|Settlements made during the period                                            |  |               | (30,877 | ) |      |   | (53,028 | )
|                                                                              |  |               |         |   |      |   |         |  
|Balance at the end of the year                                                |  | $             | 6,499   |   |      | $ | 9,536   |  
|                                                                              |  |               |         |   |      |   |         |  



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NOTE 5LEASES AND COMMITMENTS

Creative leases the use of land and certain of its facilities and equipment under non-cancelable operating lease arrangements.

Minimum future lease commitments for non-cancelable leases as of June 30, 2007, are as follows (in US$000):



|                                |  |                  |       
|------------------------------- |  | ---------------- | ------
|                                |  | Operating Leases
|Fiscal years ending June 30,    |  |                  |       
|2008                            |  | $                | 6,560 
|2009                            |  |                  | 4,904 
|2010                            |  |                  | 3,976 
|2011                            |  |                  | 3,147 
|2012                            |  |                  | 2,063 
|Thereafter                      |  |                  | 12,200
|                                |  |                  |       
|Total minimum lease commitments |  | $                | 32,850
|                                |  |                  |       

Rental expense under all operating leases was $12.2 million, $14.0 million and $13.4 million for
fiscal years 2007, 2006 and 2005, respectively.

Future minimum lease commitments, which are secured by the underlying assets, as of
June 30, 2007, under capital leases are as follows (in US$000):



|                                |  |                |    |  
|------------------------------- |  | -------------- | -- | -
|                                |  | Capital Leases |   
|Fiscal years ending June 30,    |  |                |    |  
|2008                            |  | $              | 19 |  
|2009                            |  |                | 13 |  
|2010                            |  |                | 10 |  
|2011                            |  |                |   |  
|2012                            |  |                |   |  
|Thereafter                      |  |                |   |  
|                                |  |                |    |  
|Total minimum lease commitments |  | $              | 42 |  
|Less: Interest                  |  |                | (4 | )
|                                |  |                |    |  
|Total capital lease commitments |  | $              | 38 |  
|                                |  |                |    |  

NOTE 6COMPREHENSIVE INCOME

The components of total comprehensive income (loss) are as follows (in US$000):



|                                              |  |                     |        |   |      |   |          |      |  |   |         |  
|--------------------------------------------- |  | ------------------- | ------ | - | ---- | - | -------- | ---- |  | - | ------- | -
|                                              |  | Years ended June 30 |       
|                                              |  | 2007                |        |   | 2006 |   |          | 2005 | 
|Net income (loss)                             |  | $                   | 28,189 |   |      | $ | (118,159 | )    |  | $ | 588     |  
|Movement in unrealized holding gains (losses) |  |                     | 7,331  |   |      |   | (28,074  | )    |  |   | (12,937 | )
|Reclassification adjustments:                 |  |                     |        |   |      |   |          |      |  |   |         |  
|Gains included in net income (loss)          |  |                     | (2,544 | ) |      |   | (17,753  | )    |  |   | (72,936 | )
|                                              |  |                     | 4,787  |   |      |   | (45,827  | )    |  |   | (85,873 | )
|                                              |  |                     |        |   |      |   |          |      |  |   |         |  
|Total comprehensive income (loss)             |  | $                   | 32,976 |   |      | $ | (163,986 | )    |  | $ | (85,285 | )
|                                              |  |                     |        |   |      |   |          |      |  |   |         |  



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NOTE 7SHARE REPURCHASES

Details of share repurchases by Creative since the commencement date of the program on November 6, 1998 are set out below:



|                                     |  |                                            |  |                     |   
|------------------------------------ |  | ------------------------------------------ |  | ------------------- | --
|                                     |  | Number of Shares Repurchased (in
millions) |  | Average Price (US$)
|Fiscal year 1999 to fiscal year 2005 |  | 26.3                                       |  | $                   | 13
|Fiscal year 2006                     |  | 1.0                                        |  | $                   | 8 
|Fiscal year 2007                     |  |                                           |  |                     |  
|                                     |  |                                            |  |                     |   
|Total                                |  | 27.3                                       |  | $                   | 13
|                                     |  |                                            |  |                     |   

At the Annual General Meeting (AGM) held on October 31, 2006, the shareholders
approved the share repurchase mandate allowing Creative to buy up to 10% of the issued share capital of Creative outstanding as of the date of the AGM. This amounts to approximately 8.3 million shares. This authority to repurchase these shares
shall continue in force unless revoked or revised by the shareholders in a general meeting, or until the date that the next AGM of Creative is held or is required to be held, whichever is the earlier.

The Companies (Amendment) Act 2005 of Singapore (Companies Amendment Act), which became effective on January 30, 2006, introduced key amendments to
the Companies Act, Chapter 50 of Singapore (Companies Act). As a result of these amendments, a Singapore company can now repurchase shares out of share capital, as well as from distributable profits and ordinary shares repurchased by a company can
be held by that company as treasury shares instead of being cancelled.

NOTE 8DIVIDENDS

At the Annual General Meeting held on October 31, 2006, Creatives shareholders approved an ordinary dividend of $0.25 for each outstanding
ordinary share of Creative for the fiscal year ended June 30, 2007. Dividends of $20.9 million were paid on December 1, 2006 to all shareholders of record as of November 15, 2006. In fiscal year 2006, Creative paid an ordinary
dividend of $0.25 for each outstanding ordinary share amounting to $20.7 million.

NOTE 9EMPLOYEE STOCK OPTION PLANS

Creative Employee Stock Option Plans

In December
1998, Creative adopted the Creative Technology (1999) Share Option Scheme (1999 Scheme) which allows options to be granted to full-time employees as well as consultants and non-executive directors. The total number of shares that
may be granted under the 1999 Scheme is 7.5 million, provided that such amount shall be automatically increased on the first day (July 1) of each of the five fiscal years ending June 30, 2001, 2002, 2003, 2004 and 2005 by four percent of
the issued share capital of Creative as at the last day of the immediate preceding fiscal year. The Option Committee has the discretion to decide the vesting schedule in the letter of offer. If it is not specifically stated in the letter of offer,
1/4 of the total amount of the grant vests on the first anniversary of the grant date and 1/48 of the total amount of the grant vests on the last day of each calendar month thereafter. The exercise price of options granted under the 1999 Scheme may
be less than the fair market value of the shares as of the date of grant and the options expire after the tenth anniversary of the date of grant, except in the case of options granted to participants other than employees, options expire not later
than the fifth anniversary of the date of grant. Creative issues new shares to satisfy its share based exercises.

Effective July 1,
2005, Creative adopted the provisions of SFAS No. 123(R), Share-Based Payment. SFAS No. 123(R) establishes accounting for share-based awards exchanged for employee services. Accordingly, share-based compensation cost is
measured on the date of grant, based on the fair value of the award, and is



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##### Table of Contents

recognized as expense over the employees requisite service period. Creative previously applied Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees, and related Interpretations, and provided the required pro forma disclosures of SFAS No. 123, Accounting for Stock-Based Compensation.

Prior to the adoption of SFAS No. 123(R), Creative provided the disclosures required under SFAS No. 123, Accounting for Stock-Based
Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation, Transition and Disclosures.

Creative elected to adopt the modified-prospective application method as provided by SFAS No. 123(R). Accordingly, during the fiscal year ended June 30, 2007, Creative recorded share-based compensation cost of $1.7 million in the
financial statements, totaling the amount that would have been recognized had the fair value method been applied since the effective date of SFAS No. 123. Previously disclosed amounts have not been restated in the financial statements.

In connection with the adoption of SFAS No. 123(R), Creative also made a one-time adjustment in the quarter ended September 30,
2005 to reverse the unamortized share compensation balance of $0.4 million against the additional paid-in capital account.

During the
fiscal year ended June 30, 2006, Creative granted 3,120,000 stock options under the 1999 Scheme with a total grant date fair value of $5.1 million. The weighted average grant date fair value of options granted was $1.63 per share. There were no
options granted under the 1999 Scheme in the fiscal year ended June 30, 2007.

The fair value of each share option granted is
estimated on the date of grant using the Black Scholes option-pricing model. The option-pricing model requires the input of highly subjective assumptions, including the options expected life, risk-free interest rates, dividend yield and the
price volatility of the underlying share. The expected life of the options represents the period of time the options are expected to be outstanding and is based on historical trends. The expected share price volatility assumption was determined
using the historical volatility of Creatives shares. The following table presents the weighted-average assumptions used in the Black Scholes option-pricing model for the share option grants.



|                                    |  |                  |  |                            |  |                 
|----------------------------------- |  | ---------------- |  | -------------------------- |  | ----------------
|                                    |  | Fiscal Year 2007 |  | Fiscal Year 2006           |  | Fiscal Year 2005
|Expected volatility                 |  |                 |  | 36%                        |  |                
|Risk-free interest rates            |  |                 |  | 2.31% to 4.40%             |  |                
|Dividend yield                      |  |                 |  | 3.0%                       |  |                
|Expected life of options (in years) |  |                 |  | 0.60 years after vest date |  |                



|                                                      |  |                     |   |      |   |      |  |   |  
|----------------------------------------------------- |  | ------------------- | - | ---- | - | ---- |  | - | -
|                                                      |  | Years ended June 30
|                                                      |  | 2007                |   | 2006 |   | 2005
|Weighted average fair value of stock options granted: |  |                     |   |      |   |      |  |   |  
|Stock options:                                        |  |                     |   |      |   |      |  |   |  
|At market                                             |  | $                   |  |      | $ | 1.63 |  | $ | 
|Below market                                          |  | $                   |  |      | $ |     |  | $ | 



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##### Table of Contents

Summary of outstanding options under Creatives employee share option plans

The following table summarizes the option information under the Creatives employee share option plans as at June 30, 2007.



|                             |  |                        |   |  |                                   
|---------------------------- |  | ---------------------- | - |  | ----------------------------------
|                             |  | Number ofOptions(000) |   |  | Weighted AverageExercise Price ($)
|Outstanding at June 30, 2004 |  | 8,921                  |   |  | 6.82                              
|Granted                      |  |                       |   |  |                                  
|Exercised                    |  | (2,224                 | ) |  | 6.48                              
|Cancelled/Forfeited/Expired  |  | (116                   | ) |  | 6.83                              
|                             |  |                        |   |  |                                   
|Outstanding at June 30, 2005 |  | 6,581                  |   |  | 6.93                              
|Granted                      |  | 3,120                  |   |  | 7.50                              
|Exercised                    |  | (677                   | ) |  | 4.29                              
|Cancelled/Forfeited/Expired  |  | (355                   | ) |  | 8.92                              
|                             |  |                        |   |  |                                   
|Outstanding at June 30, 2006 |  | 8,669                  |   |  | 7.26                              
|Granted                      |  |                       |   |  |                                  
|Exercised                    |  | (351                   | ) |  | 4.40                              
|Cancelled/Forfeited/Expired  |  | (501                   | ) |  | 8.06                              
|                             |  |                        |   |  |                                   
|Outstanding at June 30, 2007 |  | 7,817                  |   |  | 7.34                              
|                             |  |                        |   |  |                                   
|Exercisable at June 30, 2007 |  | 6,122                  |   |  | 7.29                              
|                             |  |                        |   |  |                                   

The options outstanding and exercisable as at June 30, 2007 were in the following exercise
price ranges:



|                         |  |                                  |  |                              |       |                                |   |                                                    |  |                                  |  |                              |  |                                |       |                                                    |   |     |  |     
|------------------------ |  | -------------------------------- |  | ---------------------------- | ----- | ------------------------------ | - | -------------------------------------------------- |  | -------------------------------- |  | ---------------------------- |  | ------------------------------ | ----- | -------------------------------------------------- | - | --- |  | ----
|                         |  | Options Outstanding              |  | Options Exercisable         
|Range of Exercise Prices |  | Number ofSharesOutstanding(000) |  | WeightedAverageExercisePrice |       | AggregateIntrinsicValue($000) |   | WeightedAverageRemainingContractualTerm (in years) |  | Number ofSharesExercisable(000) |  | WeightedAverageExercisePrice |  | AggregateIntrinsicValue($000) |       | WeightedAverageRemainingContractualTerm (in years)
|$1.00 to $ 2.99          |  | 77                               |  | $                            | 2.84  |                                | $ | 152                                                |  | 3.50                             |  | 77                           |  | $                              | 2.84  |                                                    | $ | 152 |  | 3.50
|$3.00 to $ 4.99          |  | 1,612                            |  | $                            | 4.46  |                                | $ | 559                                                |  | 4.30                             |  | 1,612                        |  | $                              | 4.46  |                                                    | $ | 559 |  | 4.30
|$5.00 to $ 6.99          |  | 118                              |  | $                            | 5.90  |                                | $ |                                                   |  | 4.53                             |  | 118                          |  | $                              | 5.90  |                                                    | $ |    |  | 4.53
|$7.00 to $10.99          |  | 6,006                            |  | $                            | 8.19  |                                | $ |                                                   |  | 4.96                             |  | 4,311                        |  | $                              | 8.45  |                                                    | $ |    |  | 3.88
|$11.00 to $18.99         |  | 4                                |  | $                            | 18.40 |                                | $ |                                                   |  | 2.67                             |  | 4                            |  | $                              | 18.40 |                                                    | $ |    |  | 2.67
|                         |  |                                  |  |                              |       |                                |   |                                                    |  |                                  |  |                              |  |                                |       |                                                    |   |     |  |     
|                         |  | 7,817                            |  | $                            | 7.34  |                                | $ | 711                                                |  | 4.80                             |  | 6,122                        |  | $                              | 7.29  |                                                    | $ | 711 |  | 4.00
|                         |  |                                  |  |                              |       |                                |   |                                                    |  |                                  |  |                              |  |                                |       |                                                    |   |     |  |     

The intrinsic value is determined by the difference between Creatives closing share price of
$4.81 as of June 30, 2007 and the grant price. The aggregate intrinsic value in the table above represents the amount that would have been received by the option holders had all option holders exercised their options as of that date. The total
intrinsic value of options exercised during the fiscal year ended June 30, 2007 was $0.7 million. As at June 30, 2007, Creative expects to recognize the total unrecognized compensation cost relating to non-vested share-based compensation
of $1.7 million over a weighted average period of 2.31 years.

NOTE 10INCOME TAXES

Creative was granted a Pioneer Certificate under the International Headquarters Award that will expire in March 2010. Under the Pioneer Certificate,
profits arising from qualifying activities will be exempted from income tax in Singapore, subject to certain conditions. As a result of obtaining the Pioneer Certificate, there were tax write-backs of $10.0 million and $12.3 million in fiscal years
2006 and 2004. The reversal was related to



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corporate taxes provided for in full for profits arising from qualifying activities from the commencement date of the Pioneer Certificate until the second
quarter of fiscal year 2004, based on the standard tax rates of 24.5% for fiscal year 2001 and 22% for fiscal years 2002 and 2003 and 20% for fiscal year 2004. These standard corporate income tax rates continue to be applicable to profits arising
from activities excluded from the Pioneer Certificate.

The Singapore and other components of income (loss) before income taxes are as
follows (in US$000):



|                                                        |  |                     |        |      |   |          |      |  |   |         |  
|------------------------------------------------------- |  | ------------------- | ------ | ---- | - | -------- | ---- |  | - | ------- | -
|                                                        |  | Years ended June 30 |       
|                                                        |  | 2007                |        | 2006 |   |          | 2005 | 
|Singapore                                               |  | $                   | 36,245 |      | $ | (74,910  | )    |  | $ | 18,211  |  
|Other countries                                         |  |                     | 15,045 |      |   | (51,204  | )    |  |   | (16,717 | )
|                                                        |  |                     |        |      |   |          |      |  |   |         |  
|Income (loss) before income taxes and minority interest |  | $                   | 51,290 |      | $ | (126,114 | )    |  | $ | 1,494   |  
|                                                        |  |                     |        |      |   |          |      |  |   |         |  

The income tax expense (benefit) consists of (in US$000):



|                             |  |                     |        |      |   |        |      |  |   |        |  
|---------------------------- |  | ------------------- | ------ | ---- | - | ------ | ---- |  | - | ------ | -
|                             |  | Years ended June 30 |       
|                             |  | 2007                |        | 2006 |   |        | 2005 | 
|Singapore                    |  | $                   | 20,177 |      | $ | (9,313 | )    |  | $ | (1,896 | )
|Other countries              |  |                     | 3,741  |      |   | 2,163  |      |  |   | 2,865  |  
|                             |  |                     |        |      |   |        |      |  |   |        |  
|Income tax expense (benefit) |  | $                   | 23,918 |      | $ | (7,150 | )    |  | $ | 969    |  
|                             |  |                     |        |      |   |        |      |  |   |        |  

Creatives effective tax provision for fiscal years 2007, 2006 and 2005 reconciles to the
amount computed by applying the Singapore statutory rate of 18.0% for 2007 and 20.0% for 2006 and 2005 to income before income taxes and minority interest, as follows (in US$000):



|                                                         |  |                     |        |   |      |   |         |      |  |   |         |  
|-------------------------------------------------------- |  | ------------------- | ------ | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                         |  | Years ended June 30 |       
|                                                         |  | 2007                |        |   | 2006 |   |         | 2005 | 
|Income tax expense (benefit) at Singapore statutory rate |  | $                   | 9,232  |   |      | $ | (25,223 | )    |  | $ | 299     |  
|Tax exempt loss (income)                                 |  |                     |        |   |      |   |         |      |  |   |         |  
|Singapore                                                |  |                     | 4,068  |   |      |   | 13,633  |      |  |   | (2,971  | )
|Others                                                   |  |                     | (1,806 | ) |      |   | (4,547  | )    |  |   | (14,316 | )
|Non-deductible expenses and write-offs                   |  |                     | 792    |   |      |   | 679     |      |  |   | 406     |  
|Change in valuation allowances                           |  |                     | (1,247 | ) |      |   | 5,692   |      |  |   | (81     | )
|Rate differences and others                              |  |                     | 12,936 |   |      |   | 12,808  |      |  |   | 19,447  |  
|Tax refund receivable                                    |  |                     | (57    | ) |      |   | (10,192 | )    |  |   | (1,815  | )
|                                                         |  |                     |        |   |      |   |         |      |  |   |         |  
|Income tax expense (benefit)                             |  | $                   | 23,918 |   |      | $ | (7,150  | )    |  | $ | 969     |  
|                                                         |  |                     |        |   |      |   |         |      |  |   |         |  



Deferred tax assets at
June 30, 2007 and 2006 consisted of the following (in US$000):



|                                            |  |               |         |   |      |   |         |  
|------------------------------------------- |  | ------------- | ------- | - | ---- | - | ------- | -
|                                            |  | As of June 30 |        
|                                            |  | 2007          |         |   | 2006 |  
|Non-deductible reserves                     |  | $             | 19,889  |   |      | $ | 24,493  |  
|Net operating loss carryforwards            |  |               | 60,384  |   |      |   | 59,095  |  
|Others                                      |  |               | 624     |   |      |   | 612     |  
|                                            |  |               |         |   |      |   |         |  
|Total deferred tax assets                   |  |               | 80,897  |   |      |   | 84,200  |  
|Valuation allowance for deferred tax assets |  |               | (80,897 | ) |      |   | (84,200 | )
|                                            |  |               |         |   |      |   |         |  
|                                            |  | $             |        |   |      | $ |        |  
|                                            |  |               |         |   |      |   |         |  



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Deferred tax liabilities at June 30, 2007 and 2006 consisted of the following (in US$000):



|                                                     |  |               |        |      |   |       
|---------------------------------------------------- |  | ------------- | ------ | ---- | - | ------
|                                                     |  | As of June 30
|                                                     |  | 2007          |        | 2006
|Unremitted offshore interest income                  |  | $             | 6,600  |      | $ | 7,256 
|Undistributed profit of certain foreign subsidiaries |  |               | 6,144  |      |   | 6,144 
|Others                                               |  |               | 2,655  |      |   | 1,165 
|                                                     |  |               |        |      |   |       
|Total deferred tax liabilities                       |  |               | 15,399 |      |   | 14,565
|                                                     |  |               |        |      |   |       

Creative had net operating loss carryforward of approximately $174.8 million and $167.4 million as
at June 30, 2007 and June 30, 2006, the bulk of which expire between 2009 and 2029. The utilization of the net operating losses by Creative is subject to certain conditions.

Valuation allowance is provided for Creatives deferred tax assets as management believes substantial uncertainty exists regarding the realizability
of these assets.

Creative has United States tax deductions not included in the net operating loss carryforward described above aggregating
approximately $59.2 million and $59.0 million at June 30, 2007 and June 30, 2006, as a result of the exercise of employee stock options, the tax benefit of which has not been realized. The tax benefit of the deductions, when realized will
be accounted for as a credit to other reserves rather than a reduction of the income tax provision.

NOTE 11DEBT OBLIGATIONS

In November 2004, Creative entered into a five-year $175.0 million syndicated term loan facility with a group of international banks. The proceeds from
this facility were used primarily to fund the growth in working capital requirements arising from the growth in the companys revenue. The facility is unsecured and bears interest at LIBOR plus a margin of 0.45% for the first three years and
LIBOR plus a margin of 0.95% for the remaining two years. The loan facility contains certain financial covenants, including requirements for Creative to maintain certain ratios for its working capital, but does not restrict Creatives ability
to borrow nor distribute earnings. The entire loan facility of $175.0 million was drawn down in fiscal year 2005 and Creative repaid $75.0 million in fiscal year 2007. The weighted average effective interest rate at the balance sheet date was
5.825%.

On November 21, 2002, Creative Technology Centre Pte Ltd (CTC), a Singapore subsidiary of Creative, entered into
a nine-year term loan facility for up to S$54.0 million ($35.3 million) with a bank. The loan is repayable in thirty-six quarterly installments of S$1.5 million ($1.0 million). The repayment commenced on March 31, 2003. The interest on the
outstanding loan balance is based on the banks floating rate plus a margin of 1.5%. The loan is secured by a first mortgage on Creatives headquarter building in Singapore and by way of a fixed and floating charge over all assets of CTC.
At June 30, 2007, S$27.0 million ($17.6 million) was outstanding. The weighted average effective interest rate at the balance sheet date was 4.261%.

The following table presents the payments due by period for the long term debt and capital lease obligations as of June 30, 2007:



|                          |  |                                  |         |                  |   |              |  |              |         |               |   |       |  |   |  
|------------------------- |  | -------------------------------- | ------- | ---------------- | - | ------------ |  | ------------ | ------- | ------------- | - | ----- |  | - | -
|                          |  | Payments Due by Period (US$000)
|Debt Obligations          |  | Total                            |         | Less than 1 year |   | 1 to 3 years |  | 4 to 5 years |         | After 5 years
|Long Term Debt            |  | $                                | 117,628 |                  | $ | 3,917        |  | $            | 107,835 |               | $ | 5,876 |  | $ | 
|Capital Lease Obligations |  |                                  | 38      |                  |   | 17           |  |              | 21      |               |   |      |  |   | 
|                          |  |                                  |         |                  |   |              |  |              |         |               |   |       |  |   |  
|Total Debt Obligations    |  | $                                | 117,666 |                  | $ | 3,934        |  | $            | 107,856 |               | $ | 5,876 |  | $ | 
|                          |  |                                  |         |                  |   |              |  |              |         |               |   |       |  |   |  



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Creative has various other credit facilities relating to overdrafts, letters of credit, bank guarantees
and short term loans with several banks totaling approximately $91.3 million at June 30, 2007. Within these credit facilities, sub-limits have been set on how Creative may utilize the overall credit facilities. At June 30, 2007, $2.0
million in bank guarantees was drawn under these facilities. Facilities under letters of credit, bank guarantees, overdrafts and short-term loans bear interest at approximately the banks prime rates.

NOTE 12  OTHER CHARGES

In February 2006,
Creative announced that its wholly-owned subsidiary 3Dlabs will refocus its graphics business on the portable handheld device market instead of the professional workstation graphics market. As a result, Creative recorded restructuring charges of
$4.9 million in operating expenses and an inventory charge of $4.3 million to cost of goods sold. The $4.9 million restructuring charges in operating expenses comprised $3.0 million in employee separation costs, $0.3 million in facility exit costs
and fixed assets impairment write-downs of $1.6 million. Besides 3Dlabs restructuring charges, as part of ongoing worldwide cost-cutting measures, $1.0 million in employee separation costs was charged to operating expenses as part of
restructuring costs in fiscal year 2006.

Employee separation costs for 3Dlabs and other Creative subsidiaries in fiscal year 2006
represented the costs of involuntary severance benefits for approximately 200 employees. Facility exit costs in fiscal year 2006 consisted primarily of lease termination costs and research and development expenses on some 3Dlabs graphics
chips.

Fixed assets impairment write-downs of $1.6 million in fiscal year 2006 were attributed to computer hardware and software
associated with the 3Dlabs facilities that were shut down.

The $4.3 million inventory charge in fiscal year 2006 comprised inventory
obsolescence costs for 3Dlabs graphics cards.

NOTE 13INTELLECTUAL PROPERTY INDEMNIFICATION OBLIGATIONS

Creative indemnifies certain customers, distributors, suppliers, and subcontractors for attorneys fees and damages and costs awarded against these
parties in certain circumstances in which its products are alleged to infringe third party intellectual property rights, including patents, trademarks, or copyrights. The term of its indemnification obligations are generally perpetual from the
effective date of the agreement. In certain cases, there are limits on and exceptions to its potential liability for indemnification relating to intellectual property infringement claims. Creative cannot estimate the amount of potential future
payments, if any, that the company might be required to make as a result of these agreements. Creative does not expect there to be any consequent material adverse effect on its financial position or results of operations. However, there can be no
assurance that Creative will not have any future financial exposure under those indemnification obligations.

NOTE 14LEGAL PROCEEDINGS

During the course of its ordinary business operations, Creative and its subsidiaries are involved from time to time in a variety of
intellectual property and other disputes, including claims against Creative alleging copyright infringement, patent infringement, contract claims, employment claims and business torts. One such dispute is ongoing with representative purchasers of
MP3 players (an action alleging false advertising and unfair competition in connection with reported storage capacity). Another such dispute is pending with representative purchasers of the Zen Vision:M (an action alleging false advertising and
warranty claims regarding the quality of the players color screen). In addition, a lawsuit has been filed against Creative by F&G Research alleging patent infringement in connection with Creatives scrolling mice products. Creative
also from time to time receives licensing inquiries and/or threats of potential future patent claims from a variety of entities. Creative believes it



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has valid defenses to the various claims asserted against it, and intends to defend the actions vigorously. However, should any of these claimants prevail in
their suits or claims, Creative does not expect there to be any consequent material adverse effect on its financial position or results of operations.

NOTE 15INVESTMENTS

Net investment loss of $1.9 million in fiscal year 2007 was mainly due to $2.0 million in
write-downs of investments. Net investment gain of $18.9 million in fiscal year 2006 comprised a $20.9 million net gain from sales of investments offset by $2.0 million in write-downs of investments.

The following is a summary of investments as of June 30 (in US$000):



|                              |  |               |        |      |   |       
|----------------------------- |  | ------------- | ------ | ---- | - | ------
|                              |  | As of June 30
|                              |  | 2007          |        | 2006
|Non-quoted equity investments |  | $             | 12,274 |      | $ | 11,056
|Quoted equity investments     |  |               | 67,847 |      |   | 63,525
|                              |  |               |        |      |   |       
|Total investments             |  | $             | 80,121 |      | $ | 74,581
|                              |  |               |        |      |   |       

The following provides a breakdown on the net (loss) gain from available-for-sale investments (in
US$000):



|                                   |  |                     |        |   |      |   |        |      |  |   |         |  
|---------------------------------- |  | ------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                   |  | Years ended June 30 |       
|                                   |  | 2007                |        |   | 2006 |   |        | 2005 | 
|Proceeds from disposals            |  | $                   | 2      |   |      | $ | 29,152 |      |  |   | 96,180  |  
|Fair value of investments disposed |  |                     |       |   |      |   | (7,911 | )    |  |   | (12,433 | )
|                                   |  |                     |        |   |      |   |        |      |  |   |         |  
|Realized gain from disposals       |  |                     | 2      |   |      |   | 21,241 |      |  |   | 83,747  |  
|Write-downs of investments         |  |                     | (1,224 | ) |      |   | (87    | )    |  |   | (5,896  | )
|                                   |  |                     |        |   |      |   |        |      |  |   |         |  
|Net (loss) gain                    |  | $                   | (1,222 | ) |      | $ | 21,154 |      |  | $ | 77,851  |  
|                                   |  |                     |        |   |      |   |        |      |  |   |         |  

Gross realized gains for fiscal year 2007 were negligible and for fiscal years 2006 and 2005 were
$21.2 million and $83.7 million, respectively. There were no gross realized losses for fiscal years 2007, 2006 and 2005.

NOTE 16RELATED PARTY
TRANSACTIONS

In January 2003, a corporation controlled by a director, Ng Kai Wa, entered into a rental agreement with a subsidiary of
Creative, which was prior to Ng Kai Was appointment as a director of Creative in June 2005. The rental agreement expired during fiscal year 2006 and the corporation has moved out of Creatives premises in April 2006. Creative received
$150,000 in rent payments in fiscal year 2006 under the rental agreement.

NOTE 17SHARE CAPITAL AND OTHER RESERVES

Effective January 30, 2006, Creative became subject to the amendments promulgated under the Companies (Amendment) Act 2005 of Singapore. These
amendments included the abolition of the ordinary share par value and authorized capital. The relevant amendments have resulted in all ordinary shares being recorded with no par value. The amendments do not affect the actual number of ordinary
shares issued and the paid-in capital of Creative. As a result of the abolition of the ordinary share par value, a significant portion of the additional paid-in capital amounting to $290.2 million became part of the share capital account as at
June 30, 2006 and increased the share capital account on that date to $298.5 million. The remaining balance of $52.3 million in the additional paid-in capital was classified as other reserves where it comprised mainly compensation expense for
stock options, tax benefits relating to exercise of non qualified stock options by US employees and reserves arising from the buyout of a subsidiarys convertible preference shares.



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NOTE 18SUBSEQUENT EVENTS

Subsequent to the end of the fiscal year on June 30, 2007, Creative sold an 80.1% interest in its manufacturing operations in Malaysia to a group of third party investors. The sale of a controlling interest in
the Malaysia manufacturing operations is in line with managements goal of streamlining and improving operational efficiencies.

On
September 4, 2007, Creative announced that the company has completed the voluntary delisting of its ordinary shares from the NASDAQ Global Market (NASDAQ). August 31, 2007 was the last day of trading for Creative ordinary
shares on NASDAQ. Creatives sole stock exchange listing is on the Singapore Exchange Securities Trading Limited (SGX-ST). The delisting from NASDAQ did not affect the status of Creatives shares on the SGX-ST. Creative intends
to terminate its reporting obligations under the U.S. Securities Exchange Act of 1934 when it becomes eligible to do so, which will occur at the earliest twelve months after the delisting of its ordinary shares from NASDAQ and will occur only if
Creative meets certain requirements under the Exchange Act. Following the termination of its U.S. reporting obligations, Creative will comply with the Continuing Listing Rules of SGX-ST. Creatives U.S. shareholders will continue to
have electronic access to information Creative makes available publicly in Singapore in compliance with the SGX-ST requirements.

NOTE 19SEGMENT
REPORTING

Creative operates primarily in one industry segment and provides advanced multimedia solutions for personal computers and
personal digital entertainment products. Creative has manufacturing plants and distribution centers in Malaysia and China and the Americas distribution center located in Milpitas, California. Creative focuses its worldwide sales and marketing
efforts predominantly through sales offices in North America, Europe and the Asia Pacific region.

The following is a summary of net sales
by product category (in US$000):



|                               |  |                     |         |      |   |           |  |   |          
|------------------------------ |  | ------------------- | ------- | ---- | - | --------- |  | - | ---------
|                               |  | Years ended June 30
|                               |  | 2007                |         | 2006 |   | 2005     
|External net sales:            |  |                     |         |      |   |           |  |   |          
|Personal Digital Entertainment |  | $                   | 579,650 |      | $ | 732,253   |  | $ | 768,649  
|Audio                          |  |                     | 113,967 |      |   | 146,378   |  |   | 166,325  
|Speakers                       |  |                     | 144,909 |      |   | 153,911   |  |   | 175,729  
|All Other Products             |  |                     | 76,380  |      |   | 94,989    |  |   | 113,708  
|                               |  |                     |         |      |   |           |  |   |          
|Consolidated                   |  | $                   | 914,906 |      | $ | 1,127,531 |  | $ | 1,224,411
|                               |  |                     |         |      |   |           |  |   |          

The following is a summary of operations by geographical regions (in US$000):



|                    |  |                     |         |      |   |           |  |   |          
|------------------- |  | ------------------- | ------- | ---- | - | --------- |  | - | ---------
|                    |  | Years ended June 30
|                    |  | 2007                |         | 2006 |   | 2005     
|External net sales: |  |                     |         |      |   |           |  |   |          
|Asia Pacific        |  | $                   | 158,789 |      | $ | 204,133   |  | $ | 233,152  
|The Americas        |  |                     | 331,960 |      |   | 457,677   |  |   | 522,489  
|Europe              |  |                     | 424,157 |      |   | 465,721   |  |   | 468,770  
|                    |  |                     |         |      |   |           |  |   |          
|Consolidated        |  | $                   | 914,906 |      | $ | 1,127,531 |  | $ | 1,224,411
|                    |  |                     |         |      |   |           |  |   |          



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|                                        |  |                     |         |   |      |   |          |      |  |   |         |  
|--------------------------------------- |  | ------------------- | ------- | - | ---- | - | -------- | ---- |  | - | ------- | -
|                                        |  | Years ended June 30 |        
|                                        |  | 2007                |         |   | 2006 |   |          | 2005 | 
|Operating (loss) income:                |  |                     |         |   |      |   |          |      |  |   |         |  
|Asia Pacific                            |  | $                   | (73,332 | ) |      | $ | (130,916 | )    |  | $ | (77,026 | )
|The Americas                            |  |                     | 4,504   |   |      |   | 2,337    |      |  |   | 2,397   |  
|Europe                                  |  |                     | 7,705   |   |      |   | (16,841  | )    |  |   | 6,081   |  
|                                        |  |                     |         |   |      |   |          |      |  |   |         |  
|Consolidated                            |  | $                   | (61,123 | ) |      | $ | (145,420 | )    |  | $ | (68,548 | )
|                                        |  |                     |         |   |      |   |          |      |  |   |         |  
|                                        | 
|                                        |  | Years ended June 30 |        
|                                        |  | 2007                |         |   | 2006 |   |          | 2005 | 
|Depreciation and amortization expenses: |  |                     |         |   |      |   |          |      |  |   |         |  
|Asia Pacific                            |  | $                   | 13,958  |   |      | $ | 19,204   |      |  | $ | 20,259  |  
|The Americas                            |  |                     | 1,601   |   |      |   | 2,439    |      |  |   | 2,634   |  
|Europe                                  |  |                     | 1,226   |   |      |   | 1,508    |      |  |   | 3,484   |  
|                                        |  |                     |         |   |      |   |          |      |  |   |         |  
|Consolidated                            |  | $                   | 16,785  |   |      | $ | 23,151   |      |  | $ | 26,377  |  
|                                        |  |                     |         |   |      |   |          |      |  |   |         |  
|                                        | 
|                                        |  | Years ended June 30 |        
|                                        |  | 2007                |         |   | 2006 |   |          | 2005 | 
|Income tax expense (benefit):           |  |                     |         |   |      |   |          |      |  |   |         |  
|Asia Pacific                            |  | $                   | 23,285  |   |      | $ | (7,992   | )    |  | $ | (1,705  | )
|The Americas                            |  |                     | 260     |   |      |   | (552     | )    |  |   | 1,353   |  
|Europe                                  |  |                     | 373     |   |      |   | 1,394    |      |  |   | 1,321   |  
|                                        |  |                     |         |   |      |   |          |      |  |   |         |  
|Consolidated                            |  | $                   | 23,918  |   |      | $ | (7,150   | )    |  | $ | 969     |  
|                                        |  |                     |         |   |      |   |          |      |  |   |         |  



|                     |  |               |         |      |   |        
|-------------------- |  | ------------- | ------- | ---- | - | -------
|                     |  | As of June 30
|                     |  | 2007          |         | 2006
|Identifiable assets: |  |               |         |      |   |        
|Asia Pacific         |  | $             | 528,115 |      | $ | 574,499
|The Americas         |  |               | 103,276 |      |   | 156,442
|Europe               |  |               | 91,642  |      |   | 99,672 
|                     |  |               |         |      |   |        
|Consolidated         |  | $             | 723,033 |      | $ | 830,613
|                     |  |               |         |      |   |        

Long-lived assets are based on the physical location of the assets at the end of each of the
fiscal years. Geographic revenue information for the three years ended June 30, 2007 is based on the location of the selling entity.



|                         |      |               |         |  |   |        
|------------------------ | ---- | ------------- | ------- |  | - | -------
|(In US$000)             |      | As of June 30
|                         | 2007 |               | 2006   
|Identifiable assets:     |      |               |         |  |   |        
|Singapore                |      | $             | 334,225 |  | $ | 395,902
|United States of America |      |               | 103,276 |  |   | 156,442
|Ireland                  |      |               | 87,392  |  |   | 95,841 
|Rest of the World        |      |               | 198,140 |  |   | 182,428
|                         |      |               |         |  |   |        
|Consolidated             |      | $             | 723,033 |  | $ | 830,613
|                         |      |               |         |  |   |        



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|                              |      |                     |         |  |      |           |  |   |          
|----------------------------- | ---- | ------------------- | ------- |  | ---- | --------- |  | - | ---------
|(In US$000)                  |      | Years ended June 30
|                              | 2007 |                     | 2006    |  | 2005
|Revenue by geographic region: |      |                     |         |  |      |           |  |   |          
|Singapore                     |      | $                   | 112,985 |  | $    | 118,552   |  | $ | 114,860  
|United States of America      |      |                     | 331,960 |  |      | 457,677   |  |   | 522,489  
|Ireland                       |      |                     | 424,157 |  |      | 465,721   |  |   | 468,770  
|Rest of the World             |      |                     | 45,804  |  |      | 85,581    |  |   | 118,292  
|                              |      |                     |         |  |      |           |  |   |          
|Consolidated                  |      | $                   | 914,906 |  | $    | 1,127,531 |  | $ | 1,224,411
|                              |      |                     |         |  |      |           |  |   |          

Major customers:In fiscal years 2007, 2006 and 2005, no customer accounted for more than
10% of net revenues. As of June 30, 2007 and June 30, 2006, one customer accounted for more than 10% of net accounts receivable, and as of June 30, 2005, two customers accounted for more than 10% of net accounts receivable.



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EXHIBIT B: SUPPLEMENT SCHEDULES

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

FIRM ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors of

Creative Technology Ltd.

Our audits of the consolidated financial statements referred to in our report dated September 26, 2007, appearing on page F-1 of
this Annual Report on Form 20-F included an audit of the Financial Statement Schedule listed in Item 19(b) of this Form 20-F. In our opinion, this Financial Statement Schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial statements.

PricewaterhouseCoopers

Singapore

September 26, 2007



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SCHEDULE II

CREATIVE TECHNOLOGY LTD.

ALLOWANCE FOR DOUBTFUL ACCOUNTS AND SALES RETURNS



|                                                          |  |                      |         |   |      |   |         |      |  |   |         |  
|--------------------------------------------------------- |  | -------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                          |  | Years ended June 30, |        
|(In US$000)                                              |  | 2007                 |         |   | 2006 |   |         | 2005 | 
|Balance at beginning of year                              |  | $                    | 18,806  |   |      | $ | 21,288  |      |  | $ | 20,700  |  
|Additions charged to consolidated statement of operations |  |                      | 34,820  |   |      |   | 26,872  |      |  |   | 23,029  |  
|Deductions from allowance                                 |  |                      | (39,473 | ) |      |   | (29,354 | )    |  |   | (22,441 | )
|                                                          |  |                      |         |   |      |   |         |      |  |   |         |  
|Balance at end of year                                    |  | $                    | 14,153  |   |      | $ | 18,806  |      |  | $ | 21,288  |  
|                                                          |  |                      |         |   |      |   |         |      |  |   |         |  



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EXHIBIT C: EXHIBITS

EXHIBIT INDEX



|               |  |                                                                                                                                                                                                                                        
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description                                                                                                                                                                                                                            
|1.1            |  | Memorandum and Articles of Association of Creative incorporated by reference to Exhibit 4.1 of Creatives Registration Statement on Form F-3 (Registration No. 333-13084) as filed with the
SEC on January 22, 2001.                   
|               | 
|4.1            |  | Term Loan Agreement between Creative Technology Centre Pte Ltd and United Overseas Bank Limited dated November 21, 2002, incorporated by reference to Creatives Annual Report on Form 20-F
for the fiscal year ended June 30, 2003.   
|               | 
|4.2            |  | Five-year $175.0 million Syndicated Term Loan Agreement between Creative Technology Ltd and a group of international banks, incorporated by reference to Creatives Annual Report on Form
20-F for the fiscal year ended June 30, 2005.
|               | 
|8              |  | List of significant subsidiaries                                                                                                                                                                                                       
|               | 
|12.1           |  | Certification Pursuant to Rule 13a-14(a)/15d-14(a)                                                                                                                                                                                     
|               | 
|12.2           |  | Certification Pursuant to Rule 13a-14(a)/15d-14(a)                                                                                                                                                                                     
|               | 
|13.1           |  | Certification Pursuant to Rule 13A-14(B) or Rule 15D-14(B) And Section 1350 of Chapter 63 of Title 18 of The United States Code                                                                                                        
|               | 
|13.2           |  | Certification Pursuant to Rule 13A-14(B) or Rule 15D-14(B) And Section 1350 of Chapter 63 of Title 18 of The United States Code                                                                                                        
|               | 
|23.1           |  | Consent of PricewaterhouseCoopers, Independent Accountants                                                                                                                                                                             



E-1