OLD MUTUALSMOOTHED BONUS FUNDSDISCLOSURE REPORT - DECEMBER 2019

CORPORATE 175 YEARS OF DOING GREAT THINGS

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CONTENTS

1. Introduction ................................................................................................................................................................ 32. Underlying Investment Portfolios .....................................................................................................................4 Smoothed Bonus Portfolio ................................................................................................................................4 Local Equity Portfolio .............................................................................................................................................8 Local Interest-Bearing Portfolio ..................................................................................................................... 11 Direct Property Portfolio .................................................................................................................................... 13 Local Alternative Asset Portfolio................................................................................................................... 15 Global Equity Portfolio ........................................................................................................................................ 16 Global Interest-Bearing Portfolio ................................................................................................................. 19 Global Alternative Asset Portfolio ............................................................................................................... 21 African Listed Equity Portfolio ...................................................................................................................... 22 Other Asset Strategies ........................................................................................................................................ 23 Responsible Investment ................................................................................................................................... 233. Bonuses ........................................................................................................................................................................26 Bonus Philosophy ..................................................................................................................................................26 Bonus Declaration Process .............................................................................................................................. 27 Allowance for Management Action in Adverse Circumstances ............................................ 314. Bonus Smoothing Reserve Levels ........................................................................................................... 33 Absolute Growth Portfolios............................................................................................................................. 33 CoreGrowth Portfolio .......................................................................................................................................... 34 Guaranteed Fund ................................................................................................................................................... 345. Fund Size ..................................................................................................................................................................... 356. Ringfencing...............................................................................................................................................................367. Fees and Charges ............................................................................................................................................................378. Company Solvency ............................................................................................................................................... 41How to Contact Us .......................................................................................................................................................... 42

OLD MUTUAL SMOOTHED BONUS FUNDS 2020 DISCLOSURE REPORT

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1. INTRODUCTIONThis Disclosure Report contains details of the structure of the portfolio of assets underlying the Old Mutual smoothed bonus funds, as well as the returns generated by the underlying assets as at 31 December 2019.

The aforementioned Old Mutual smoothed bonus funds include the following portfolios:• Old Mutual Absolute Growth Portfolios• Old Mutual CoreGrowth Portfolios• Old Mutual Guaranteed Fund

This report also includes information on the Bonus Smoothing Reserve (BSR) levels of the smoothed bonus funds, Old Mutual’s internal processes and bonus declaration philosophies, and the level of capital Old Mutual holds to back portfolios with guaranteed benefits.

Finally, information on the fee and cost structure as well as the size of the each smoothed bonus fund is provided.

The report is not intended to provide a comprehensive explanation of contractual terms and conditions; the contractual terms and conditions will always prevail.

The nature and format of disclosure may be reviewed in the future.

Disclosure Reports for the smoothed bonus funds are available annually with an effective date of 31 December.

More regular information on the funds’ performance and the returns earned on their underlying portfolios is provided in the quarterly reports of the Old Mutual smoothed bonus funds.Download the latest versions of these reports by clicking the link below:

Smoothed Bonus Quarterly Report

In terms of Financial Services Board Directive 147.A.(LT)(4 December 2006), Old Mutual is required to define and publicise the principles and practices of financial management (PPFM) that are applied in the management of its discretionary participation business, which includes the smoothed bonus funds. The PPFM document, as well as a consumer-friendly version specific to the Old Mutual smoothed bonus funds, is available on Old Mutual’s website. Alternatively a hard copy can be obtained on request, by using the contact details at the end of this report. Links to these reports are available below:

• PPFM• CFPPFM

OLD MUTUAL SMOOTHED BONUS FUNDS 2020 DISCLOSURE REPORT

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2. UNDERLYING INVESTMENT PORTFOLIOSThis section of the Disclosure Report provides information about the structure and performance of the investment portfolios underlying the smoothed bonus funds.

The underlying investment portfolios are managed predominantly by various investment boutiques within the Old Mutual Investment Group (OMIG).

All investment returns shown in this section are annualised, time-weighted rates of return and are shown gross of underlying asset management fees. The only exception is the local alternative assets portfolio, where investment returns are stated net of asset management fees. The information provided in this section is in respect of funds for untaxed investors, such as retirement funds.

SMOOTHED BONUS PORTFOLIOSOMIG’s MacroSolutions investment boutique manages the asset allocation of the underlying portfolios in accordance with the strategic (long-term) asset allocations described below. MacroSolutions also applies tactical asset allocation tilts around these strategic allocations based on its views of the prospects for the asset classes in which the portfolios invest.

STRATEGIC ASSET ALLOCATIONSTable 1 below shows the strategic asset allocations of the underlying portfolios for the smoothed bonus funds as at 31 December 2019.

Table 1

ASSET CLASS

STRATEGIC ALLOCATIONS

ABSOLUTE GROWTH

PORTFOLIOSGUARANTEED

FUNDCOREGROWTH

PORTFOLIOS

Growth asset exposure over the long term1 80% + 70% + 60% +

Local

Equities 45.5% 37.5% 26.0%

Bonds 9.0% 14.5% 20.0%

Money market and cash 4.0% 6.5% 12.5%

Property 6.5% 6.5% 6.5%

Alternative assets 7.0% 7.0% 7.0%

Global

Equities 19.5% 18.5% 16.8%

Bonds and money market 4.0% 5.0% 6.7%

Alternative assets 3.5% 3.5% 3.5%

African equities 1.0% 1.0% 1.0%

Although the smoothed bonus funds’ strategic asset allocations are not expected to change frequently, Old Mutual may make adjustments if deemed necessary – for instance, if changes occur in the economic and investment environment, or if a change occurs in the assessed risks or prospects for a particular asset class.

1 Includes local and global equities, property, alternative assets and African equities.

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RISK MANAGEMENTThe investment mandates given to portfolio managers include specific restrictions and limitations designed to manage risk. The most important of these risk management measures are as follows:

• The overweight or underweight positions (tilts) that can be taken towards or away from an asset class’s strategic weight are restricted within specified ranges. These ranges are consistent across funds. In general, the maximum tilts are less than 10% for larger asset classes (those with a strategic allocation above 10%) and less than 5% for smaller asset classes (those with a strategic allocation below 10%).

• The smoothed bonus funds are aligned with the requirements of Regulation 28, thereby ensuring a well-diversified portfolio of asset classes and individual holdings.

• The portfolio cannot include more than 30% offshore assets and 10% Africa assets, in line with South African Reserve Bank (SARB) requirements.

• A significant portion of the listed equity portfolio is allocated to portfolio managers that are bound by tracking error limits relative to their benchmarks.

• The local equity portfolio cannot invest more than 10% of its assets in shares with a market capitalisation of R2 billion or less. For larger market capitalisation shares, the local equity portfolio cannot invest more than 15% of its assets in any one share. Investment in any single company may not exceed 20% of that company’s issued share capital or voting shares without prior approval from Old Mutual Life Assurance Company (South Africa) (OMLACSA).

• Derivative instruments can only be used for the purposes of investment risk reduction, efficient portfolio allocation and yield enhancement. Derivatives may not be used to speculate. Asset class exposure is shown after taking derivatives into account, i.e. effective exposure is shown.

• Prior to Old Mutual’s managed separation, there were restrictions on the amount of Old Mutual plc shares that could be held, as well as the trading of Old Mutual plc and Nedbank Limited shares during closed periods. These restrictions applied equally to trading activity with regard to the central pool of Old Mutual plc shares. After the completion of the managed separation, there are no longer any restrictions on trading Old Mutual shares.

• Bond and money market assets are assigned an internal credit rating by the portfolio manager. There are exposure limits per counterparty and rating category, and minimum credit ratings at a portfolio level.

• The alternative assets portfolio has diversified exposure to various alternative investments. An example would be investing in different types of infrastructure, such as renewable energy and toll roads. This allows for increased diversification across different geographies, industries, markets and other risk factors.

• From time to time, Old Mutual may invest in newly established portfolios with the intention of including the portfolio in the mainstream investment strategy once it has developed a satisfactory track record. The amount that can be invested in these types of portfolios is restricted, both in aggregate and per portfolio.

OLD MUTUAL SMOOTHED BONUS FUNDS 2020 DISCLOSURE REPORT

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PERFORMANCEThe performance of the smoothed bonus portfolios has ranged between 7.3% p.a. and 8.2% p.a. over the past three years.

7.3% 7.

7% 8.2%

7.7% 8.0

%

8.3%

3-Year Annualised Return

10%

8%

6%

4%

2%

0%Absolute Growth

PortfolioGuaranteed Fund CoreGrowth

n Portfolio n Benchmark

The difference in returns between these funds is primarily due to their unique strategic asset allocations. While the performance of the three funds is expected to differ over time, there may be some periods where the funds perform similarly. The past three years has been such a period of similar performance by all three funds, largely due to the fact that local bonds have continued to deliver better returns than local equities over this period. The more conservative CoreGrowth Portfolio has outperformed the Absolute Growth Portfolio and Guaranteed Fund over this three-year period, due to its higher exposure to the local bond market.

Over the three-year period to 31 December 2019, the tactical asset allocation calls made by OMIG’s MacroSolutions asset allocation team, resulted in a negative alpha of 0.2% p.a. The largest single detractor from performance was the trimming of global equity exposure via derivatives, in particular a short S&P futures position. Buying of SA equity exposure through derivatives also negatively impacted on performance as the local equity market continued to lag its global counterparts. Another factor was the underweight holding of SA alternative assets, as these did not match their benchmark performance.

The biggest positive contribution came from currency derivative activity, as it was bought into rand weakness. SA bond trading via futures also added value.

The benchmarks for the smoothed bonus portfolios are composites of the underlying asset class benchmarks. Further details about the performance of each asset class against their respective benchmarks are provided in the relevant sections of this report.

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FORWARD VIEWSMacroSolutions’ overweight or underweight positions (tilts) towards or away from the strategic allocations are shown below as at 31 December 2019.

-2% -1% 0% 1% 2%

Tilts relative to benchmark

Local Equities

Local Interest-bearing assets

Local Alternative assets

Property

Global equities

Global interest-bearing assets

Global alternatives assets

African equities

0.5%

1.0%

0.3%

-0.4%

-1.8%

-0.4%

0.4%

0.3%

At 31 December 2019, the portfolio had an overweight position to local equities and local interest bearing assets and was largely underweight global equities. The underperformance of the local equity market presented a buying opportunity and local equity holdings were increased over 2019.

MacroSolutions does not take views on illiquid asset classes, namely property and alternative assets. The intention is rather to remain as close as possible to the strategic allocation over the long term, with the actual allocation varying depending on the availability of investment opportunities, maturities of investments and the liquidity of these asset classes.

Details about the management of each asset class are provided in the sections that follow. All performance numbers are quoted in South African rands (ZAR).

For a better view, you should have a better height!

Mehmet Murat ildan

OLD MUTUAL SMOOTHED BONUS FUNDS 2020 DISCLOSURE REPORT

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LOCAL EQUITY PORTFOLIOPORTFOLIO MANAGEMENTThe local equity portfolio is designed to deliver long-term inflation-beating returns relative to the benchmark, by utilising the skills of specialist boutique equity portfolio managers within OMIG. A portion of the portfolio is managed by external managers via the Old Mutual Multi-Managers capability, where appropriate.

The local equity portfolio takes a multi-strategy approach that combines a passive (index tracking) portfolio with active management. The active part of the portfolio is further split between different investment styles in order to provide a smoother return profile, making the portfolio less dependent on specific market cycles for performance.

Table 2 below provides a breakdown of the strategy, including the weights in each of the portfolios as at 31 December 2019:

Table 2

STRATEGY PORTFOLIO ALLOCATION %

Passive Index Tracking 35%

Active

Old Mutual Equities 35%

Managed Alpha 14%

Premium Equity 6%

Old Mutual Multi-Managers 10%

TOTAL 100%

The Old Mutual Equities (OME) team runs an actively managed portfolio that invests in undervalued shares, based on fundamentals that are expected to outperform the market over the medium- to long-term. The portfolio aims to achieve its performance objectives primarily through stock selection, combining this with a strong emphasis on ensuring that its portfolios are well diversified by employing a rigorous portfolio construction process.

OMIG’s Customised Solutions boutique manages the Index Tracking, Managed Alpha and Premium Equity portfolios.• The Index Tracking portfolio is an important component of the overall solution, and provides stability during times

when active managers underperform the benchmark.• The Managed Alpha portfolio is a quantitatively driven investment strategy. It evaluates the relative attractiveness of

shares through the systematic analysis of fundamental, risk, economic and market data. The portfolio is designed to adapt to different market conditions by investing in themes that are currently driving the market. Managed Alpha aims to provide additional diversification relative to other, more traditional, fundamentals-based active strategies.

• The Premium Equity portfolio employs a unique risk-controlled equity strategy that exploits opportunities within the equity derivative market. This strategy has successfully outperformed its benchmark and provided uncorrelated returns since it was included in the local equity portfolio nearly eight years ago.

Old Mutual Multi-Managers (OMMM) manages a number of external managers for the local equity portfolio. This strategy provides further diversification within the portfolio by investing with a range of investment managers that are not part of the Old Mutual Group. In line with our commitment to supporting the transformation of our industry, there is a requirement for a specified allocation of investment management responsibilities to black managers.

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BENCHMARKThe performance benchmark for the local equity portfolio is the FTSE/JSE Capped SWIX Total Return Index. Prior to 1 July 2017 the benchmark was the FTSE/JSE SWIX Total Return Index.

SECTOR ALLOCATIONAllocations across sectors are an outcome of the blend of manager strategies. The sector tilts relative to the benchmark as at 31 December 2019 were as follows:

-6% -4% -2% 0% 2% 4% 6%

Tilts relative to benchmark

Resources

Financials

Cons, Ind & Tech

Small Companies

Property

Cash/Other 4.1%

0.6%

-2.2%

-4.7%

1.4%

0.7%

TOP 10 HOLDINGSThe local equity portfolio’s top 10 holdings as at 31 December 2019 are shown in the table below. The portfolio exposure represents the stock holding as a percentage of the local equity portfolio and includes external equity managers.

Table 3

STOCK PORTFOLIO EXPOSURE BENCHMARK EXPOSURE

Naspers Ltd 9.5% 10.6%

British American Tobacco 5.5% 3.3%

FirstRand 4.9% 3.9%

Anglo American PLC 4.3% 4.1%

Sasol 3.7% 3.3%

Standard Bank 3.7% 4.2%

Prosus 3.6% 3.3%

MTN 3.3% 2.9%

ABSA Group Limited 3.2% 2.1%

Impala Platinum Holdings Ltd 3.1% 2.0%

Total 44.8% 39.7%

OLD MUTUAL SMOOTHED BONUS FUNDS 2020 DISCLOSURE REPORT

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PERFORMANCEThe local equity portfolio delivered a return of 3.8% p.a. over the three-year period to December 2019, underperforming the benchmark by 0.3% p.a. over this period.

3.8% 4.

1%

Annualised 3-year return

5%

4%

3%

2%

1%

0%

n Local Equity Portfolio

n Benchmark

The resource sector was the best-performing local sector over the three-year period with a return of 20.5% p.a. The financial and industrial sectors delivered 3.5% p.a. and 3.2% p.a. respectively over the same period.

The Old Mutual Equities portfolio underperformed its benchmark over the past three years by 0.4% p.a. This was mainly as a result of the portfolio’s overweight positions in Steinhoff and Netcare, and the underweight holding of Anglo American. The portfolio’s overweight position to Naspers, AngloGold Ashanti and Transaction Capital contributed positively to the portfolio's performance.

The Managed Alpha portfolio underperformed the benchmark by 1.4% p.a. The major detractors were the overweight position in Coronation as well as its position in Telkom and Naspers. The overweight positions in BHP and Kumba and the underweight position in Aspen benefitted the portfolio.

The Premium Equity portfolio delivered 5.8% p.a. over the three-year period, outperforming the benchmark by 1.7% p.a. Over this period the local derivatives market offered a number of diverse trading opportunities at attractive prices. As opportunities presented themselves, the portfolio was able to introduce varied trade ideas within a risk-controlled framework. The strategy tends to outperform when equity returns are flat, moderately rising or negative. As a result, over the past three years, most of the alpha in the portfolio came from selling call options.

The Old Mutual Multi-Managers (OMMM) external manager portfolio underperformed the benchmark by 1.4% p.a. over the last three years. The underperformance can largely be attributed to the underperformance of Visio. The Visio mandate was terminated in November 2019, with this portfolio transitioning to Investec.

The Capped SWIX Tracking portfolio delivered in line with its objective of tracking the Capped SWIX Index, and remains within 0.1% of its benchmark over all periods.

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LOCAL INTEREST-BEARING PORTFOLIOPORTFOLIO MANAGEMENTThe local interest-bearing portfolio consists of bond and money market assets. The bulk of the assets are managed by OMIG’s Futuregrowth boutique.

The money market portfolio aims to generate returns through the active management of short- to medium-term interest-bearing instruments.

The bond strategy comprises a combination of a core bond and a yield-enhanced bond portfolio. The core bond portfolio aims to generate returns primarily through the management of interest rate risk. In addition to asset allocation and active interest rate management, the yield-enhanced portfolio aims to generate returns through investing in other listed and unlisted credit instruments.

BENCHMARKThe performance benchmarks for the bond and money market portfolios are the All Bond Index (ALBI) and STeFI Composite Index respectively. The bond portfolio is limited, at all times, to an average modified duration within one year of the average modified duration of the benchmark.

PERFORMANCEPerformance across the interest-bearing portfolio has been strong, with outperformance against the benchmark over three years.

8.5%

10.1%

7.4%

9.4%

3-Year Annualised return

14%

12%

10%

8%

6%

4%

2%

0%Local Money

Market (STeFI)Local Bond

(ALBI)

n Local Interest-Bearing Assets n Benchmark

3-year return

The overall bond portfolio outperformed the ALBI benchmark by 0.6% p.a. over three years. The main drivers for good returns included;• a small exposure to short-dated inflation-linked bonds; and• strong performance of the underlying credit investments.

The money market portfolio outperformed the STeFI benchmark by 1.1% p.a. over three years. The fund has benefited from the positions held in 6 - 12 month instruments and treasury bills.

OLD MUTUAL SMOOTHED BONUS FUNDS 2020 DISCLOSURE REPORT

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LOCAL BOND PORTFOLIO EXPOSURE BY DURATIONAs at 31 December 2019, the bond portfolio had an underweight modified duration position relative to the ALBI. The bond portfolio was overweight in short- to medium-term bonds (1 - 7 years) and underweight in longer-dated bonds (7 - 12 years and 12+ years). The following graph shows the maturity profile of the local bond portfolio compared to the benchmark.

1.1%

0.0

% 2.5%

15.8

%

16.4

%

64.1%

2.8%

26.7

%

14.6

%

55.8

%

Maturity Profile

80%

70%

60%

50%

40%

30%

20%

10%

0% 0-1 yr 1-3 yr 3-7 yr 7-12 yr 12+ yr

n Local Interest-Bearing Portfolio

n Benchmark

LOCAL BOND PORTFOLIO CREDIT STRUCTUREThe bond portfolio largely consists of securities with credit ratings of A or higher, with a small portion in unlisted credit to increase the overall credit yield. The following graph shows the credit profile of the local bond portfolio and its benchmark as at 31 December 2019:

Credit Profile

6.9%

74.5

%

9.1%

9.1%

93.2

%

0.6

% 5.4%

0.9

%

0.0

%

0.4

%

100%

80%

60%

40%

20%

0% AAA AA+ A+ BBB+ Unrated

n Local Interest-Bearing Portfolio

n Benchmark

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DIRECT PROPERTY PORTFOLIOPORTFOLIO MANAGEMENTThe direct property portfolio invests in a diversified range of unlisted properties, with exposure across the retail, office and industrial property sectors. While the majority of the portfolio’s assets are located in South Africa, the portfolio has recently started to diversify its exposure into other countries where suitable opportunities exist. The portfolio is managed by Old Mutual Property Management Services (OMPMS).

BENCHMARKThe performance benchmarks for property investments are:• Developed properties: SAPOA/IPD2 South African Property Total Return Index. This index is compiled annually and

published up to six months in arrears. Actual performance of the portfolio is used to estimate the benchmark portfolio performance until the latest IPD figures are available. Benchmark performance is then updated retrospectively.

• Properties under development and vacant land: South African Consumer Price Inflation (CPI).

EXPOSURE BY TYPE AND REGIONThe direct property portfolio is dominated by large retail shopping centres. Large industrial properties and selected office space also form part of the broader strategy, as well as pockets of land strategically held for development.

As at 31 December 2019, the exposure of the property portfolio to the various property sectors was as follows:

Table 4

COUNTRY SECTOR EXPOSURE

South Africa

Retail 73.9%

Industrial 7.5%

Office 4.3%

Land 0.2%

Kenya Retail 0.6%

United Kingdom Office 3.9%

Eastern Europe Office 9.6%

The largest properties in the portfolio include Gateway Shopping Centre (Durban), Cavendish Square (Cape Town), Bedford (Johannesburg), Riverside Mall (Nelspruit), The Zone (Johannesburg) and the Mutualpark office building (Cape Town).

Table 5 below shows the portfolio exposure by country and province:

COUNTRY PROVINCE EXPOSURE

South Africa

KwaZulu-Natal 36.4%

Gauteng 23.2%

Western Cape 17.1%

Mpumalanga 5.9%

Eastern Cape 3.3%

Kenya 0.6%

United Kingdom 3.9%

Eastern Europe 9.6%

The high exposure to KwaZulu-Natal is primarily due to the investment in the Gateway Shopping Centre, which is the largest single property in the portfolio.

2Investment Property Databank (IPD) is a leading global provider of real estate analysis.

OLD MUTUAL SMOOTHED BONUS FUNDS 2020 DISCLOSURE REPORT

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PERFORMANCE

3 -year Annualised return to 31 December 2019

4.4%

6.5%8%

6%

4%

2%

0%

n Property Portfolio n Benchmark

The direct property portfolio underperformed the benchmark by 2.1% over the 3 years to the end of December 2019.

The fund vacancy of 7.5% is above the industry average, mainly due to retail development activity in the fund and high office vacancies. Some of the development space has been let with occupation for early 2020. This will reduce vacancies to 6.3%.

The fund delivered an income return of 6.3% and had a negative capital return of 0.8%. The income return is in line with the budgeted net income. Capital returns have been negatively impacted by reduced income streams i.e. rental reversions, lower rental escalations, high vacancies and lower turnover rental income. Municipal expenses (rates, electricity, water) continue to increase at rates in excess of CPI, leading them to being absorbed by the landlord.

Major risks for 2020 are non-renewal of leases. However, this risk is actively managed by starting lease renewals six to nine months prior to expiry to ensure enough time to find a replacement tenant if required. With most retailers generating little or no sales growth, rental escalations and rental increases at expiry will become increasingly difficult to achieve. This will impact the ability of the fund to grow its net income. The fund forecasts net income growth for its static portfolio of between 2% and 4% for 2020. In addition, lead time to lease vacant space is increasing, and demand for rentals is decreasing. Pressure is also increasing on consumer spend, with high fuel costs and electricity increases reducing the amount of disposable income available for shoppers to spend.

Despite this difficult environment, the fund has continued to improve the properties with numerous properties under-going development over the past 24 months, including: Gateway, Vincent Park, Rosebank Node, and Cavendish Node.

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LOCAL ALTERNATIVE ASSETS PORTFOLIO

PORTFOLIO MANAGEMENT The portfolio is managed by the Old Mutual Alternative Investments (OMAI) boutique, with the exception of the agricultural investments, which are managed by OMIG’s Futuregrowth boutique.

The local alternative assets portfolio includes:• Private equity investments (shares in unlisted companies).• Infrastructure investments in commercially viable development projects, predominantly in South Africa, including

renewable energy, toll roads, utilities and prisons.• Impact funds, which mainly consist of assets that meet the definition of targeted investments in the Financial Sector

Charter (FSC). This includes investments in affordable housing and schools, as well as in companies that provide end-user finance to low- to middle-income earners.

• Agricultural investments, which comprise South African agricultural land and associated infrastructure.

Note: The FSC assets were included in the local alternative assets portfolio from June 2014 and performance for FSC is reflected from this date onwards.

BENCHMARKThe overall performance benchmark for the local alternative assets portfolio is a composite, which includes an inflation-linked component, and is assessed over rolling three-year periods. Asset strategies within this class are also managed according to their own individual benchmarks.

Over the short- to medium- term, performance relative to the inflation-related benchmark may not reflect the skill of the asset manager. Therefore, consideration is given to the market and inflation environment when assessing relative performance over three-year periods. Given the long-term nature of this asset class and its non-investable benchmark, we show returns for periods of three- and five years for alternative assets.

PERFORMANCEThe performance for the local alternative assets portfolio, as shown in the graph below, is net of investment management fees.

5.0

% 6.8%

11.4

%

12.0

%

3 Years 5 Years

n Local Alternatives Portfolio

n Composite Benchmark

14%

12%

10%

8%

6%

4%

2%

0%

OLD MUTUAL SMOOTHED BONUS FUNDS 2020 DISCLOSURE REPORT

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The local alternative assets portfolio has underperformed its benchmark over both three- and five years. This is a result of the private equity and impact funds sub-classes having underperformed their targets. Infrastructure performance is well ahead of target over all time periods.

The private equity fund sub-class has mainly been impacted by challenging prevailing economic conditions that have affected certain key acquisitions of the fund. In addition, fund valuations continue to lag behind listed equity returns as a result of new investments that require time to increase in value. The outperformance of the infrastructure sub-class was driven by the strong operating performance of the underlying assets.

The underperformance of the local alternatives assets was largely driven by the impact fund sub-class, which experienced material delays in approvals for planned projects, and also saw buyers being unable to afford products and banks reducing their financing of buyers in the segment. Consequently, assets have been impaired to reflect the aforementioned economic factors. The housing assets were the main contributor to the underperformance.

Over the long term, the local alternative assets portfolio continues to deliver strong returns against a challenging benchmark. It has contributed returns that are close to the benchmark since inception.

GLOBAL EQUITY PORTFOLIO

PORTFOLIO MANAGEMENTThe bulk of the global equity portfolio is invested in MacroSolutions’ Multi-Style Global Equity portfolio, which aims to generate returns above the benchmark by allocating funds to underlying offshore asset managers. This is an actively managed strategy that blends different managers and investment styles to target a relatively stable performance outcome. The majority of the underlying portfolios allow managers to invest in both developed and emerging markets.

Table 6 provides the latest Multi-Style portfolio line-up, including the strategic weights in each of the portfolios as at 31 December 2019:

Table 6

MANAGER STRATEGY STRATEGIC ALLOCATION

OMIG Customised Solutions MSCI World ESG Tracker 27%

OMIG GEM boutique Global Emerging Markets 3%

OMIG MacroSolutions Global Macro 10%

Acadian Global Quant

60%Barrow Hanley Global Value

Fiera CapitalGlobal Growth

Baillie Gifford

CHANGES TO STRATEGIC PORTFOLIO ALLOCATIONSDuring 2017, exposure to a passively managed portfolio that tracks the MSCI World ESG Developed Market Index was introduced. Exposure to the actively managed Emerging Market portfolio was re-invested into the MSCI Emerging Market ESG Index portfolio. Exposure to these two portfolios was increased over the course of 2018 and 2019 to approximately 30% of the total global equity strategy.

PAGE 17

UNDERLYING PORTFOLIOSAcadian: The manager specialises in global quantitative equity strategies. They seek to capture the fundamental drivers of stock return, exploiting market inefficiencies through a quantitative investment process.

Barrow, Hanley, Mewhinney & Strauss: The manager provides value-oriented investment strategies across various international markets. Their equity portfolios are designed from the bottom up with a strong value underpin, and tend to exhibit below-market price-to-earnings ratios, below-market price-to-book ratios, and above-market dividend yields, regardless of market conditions.

Baillie Gifford: The manager uses fundamental analysis and proprietary research in order to identify companies that it believes will deliver above-average profit growth over the long term. The manager constructs portfolios on a bottom-up basis with the objective of outperforming its benchmark over the long term.

Fiera Capital: This is a growth-oriented manager that seeks to exploit opportunities in long-term quality growth companies with high returns and supportive intrinsic valuations. Investments are made with a long-term horizon, which leads to low portfolio turnover.

MSCI World ESG Tracker: This portfolio tracks the performance of the MSCI World ESG Index. The index is designed to give effect to responsible investing through greater exposure to companies that meet specific economic, social and governance (ESG) criteria. The ESG Index targets the same sector and regional weights as the MSCI World Index in order to target performance that is similar to that of the MSCI World Index, while still achieving the broader objective of investing in companies with strong ESG ratings.

MSCI Global Emerging Market (GEM) ESG Tracker: This portfolio tracks the performance of the MSCI GEM ESG Index. The index is designed to give effect to responsible investing through greater exposure to companies that meet specific economic, social and governance (ESG) criteria. The ESG Index targets the same sector and regional weights as the MSCI Emerging Market Index in order to target performance that is similar to that of the MSCI Emerging Market Index, while still achieving the broader objective of investing in companies with strong ESG ratings.

Global Macro Portfolio: The Global Macro Equity portfolio is an active equity portfolio that applies top-down views in order to generate outperformance relative to the global equity benchmark. Active positions are taken predominantly in regions, countries, sectors and currencies. The portfolio is run by OMIG’s MacroSolutions boutique.

BENCHMARKThe performance benchmark for the global equity portfolio is the total return of the MSCI All Country World (net of dividend withholding tax) measured in South African rands.

The underlying portfolios, within the global equity portfolio, have the following benchmarks:• Acadian – Morgan Stanley Composite Index (MSCI) All Country World• Barrow Hanley Mewhinney & Strauss – MSCI All Country World Value• Ballie Gifford & Fiera Capital – MSCI All Country World Growth• MSCI ESG World Tracker – MSCI ESG World• MSCI ESG GEM Tracker – MSCI GEM

OLD MUTUAL SMOOTHED BONUS FUNDS 2020 DISCLOSURE REPORT

PAGE 18

STYLE ALLOCATION

MSCI World ESG Tracker

27%

MSCI Emerging Market ESG

Tracker3%

Global Macro 10%

Global Quant20%

Global Value20%

Global Growth20%

REGIONAL ALLOCATION TILTS

-15% -10% -5% 0% 5% 10% 15%

Americas

EMEA

Asia Pacific -7.7%

3.0%

4.7%

EMEA = Europe, Middle East, Africa

PERFORMANCE

14.8

%

13.3

%

20%

15%

10%

0%

n Global Equity Portfolio

n Benchmark

The global equity portfolio outperformed the benchmark by 1.5% p.a. over the three-year period. This was primarily as a result of strong investment performance from Barrow Hanley, Mewhinney & Strauss (Global Value), Baillie Gifford and Fiera Capital (Global Growth), all of which materially outperformed their respective benchmarks. Both growth and value benchmarks have outperformed the MSCI All Country World Index.

PAGE 19

GLOBAL INTEREST-BEARING PORTFOLIOPORTFOLIO MANAGEMENTThe global interest-bearing portfolio consists of global bond and global cash assets. OMIG’s MacroSolutions boutique manages the global interest-bearing portfolio by allocating funds to offshore asset managers. During 2019, the global bond fund manager changed from Allianz to Russel Investment Company through their global bond fund offering. The global cash assets continue to be managed by Allianz.

The sub-asset classes within the portfolio are global bonds and global cash.

BENCHMARKThe performance benchmark for the global bond fund is the Bloomberg Barclays Global Aggregate Index.

The performance benchmark for the global cash portfolio is a composite basket of three-month money market instruments. The weights of the instruments in the basket are equivalent to the currency weights in the International Monetary Fund’s Special Drawing Rights Basket.

REGIONAL ALLOCATIONDuring 2019, the portfolio remained overweight American bonds while remaining underweight Japan, Great Britain, Germany and Australia. The full regional allocation is shown below:

Country weights as at 31 December 2019

-15% -10% -5% 0% 5% 10% 15%

Others

PLN

AUD

MYR

SGD

MXN

GBP

JPY

EUR

USD

-0.2%

-0.9%

-7.1%

-7.9%

0.6%

1.2%

1.7%

3.0%

15.0%

-5.5%

OLD MUTUAL SMOOTHED BONUS FUNDS 2020 DISCLOSURE REPORT

PAGE 20

PERFORMANCEPerformance across the global interest-bearing portfolio has been good with outperformance against the benchmark over three years.

4.7%5.

1%

2.6%

5.0

%

3-Year Annualised return

6%

4%

2%

0%

n Global Bonds (Barclays Aggregate) Global Cash

n Benchmark

Global Bonds (Barclays Aggregate)

Global Cash

The global bond portfolio marginally outperformed its benchmark by 0.1% p.a. over three years. The main drivers for returns included;• overweight positions in corporate high yield and investment-grade financials; and• continued underweight position in Australian, British and German Bonds.

The global cash portfolio outperformed its benchmark by 2.1% p.a. over three years.

The courage to soar to great heights is inside all of us.

Kerri Strug

PAGE 21

GLOBAL ALTERNATIVE ASSETS PORTFOLIO

PORTFOLIO MANAGEMENTThe global alternative assets portfolio is managed by the Old Mutual Alternative Investments (OMAI) boutique and OMIG’s Customised Solutions boutique. A portion is also invested in direct property, which is co-managed by Old Mutual Property Management Services.

The portfolio primarily consists of the following:• Private equity investments, held via a fund of funds structure managed by OMAI.• Infrastructure investments, which are also managed by OMAI.• Direct property investments in India, which are co-managed by Old Mutual Property Management Services.• African private equity and infrastructure investments. These investments were transferred to the global alternative

assets portfolio during 2016.

BENCHMARKThe performance benchmark for the global alternative assets portfolio is US CPI + 5% p.a. in US dollars (before charges and tax), assessed over rolling five-year periods. Asset strategies within this portfolio are managed according to their own individual benchmarks.

Over the short- to medium term, performance relative to the inflation-related benchmark may not accurately reflect the skill of the asset manager. Therefore, the market and inflation environment should also be considered when assessing relative performance over these periods.

PERFORMANCEThe chart below reflects the performance of the underlying investments over three and five years:

6.3%

8.9%

7.9%

10.9

%

Annualised return to 31 December 2019

12%

10%

8%

6%

4%

2%

0%Annualised 3-year return Annualised 5-year return

n Global Alternatives Assets

n Benchmark

The global alternative assets portfolio has underperformed its benchmark over three and five years. This was primarily as a result of the performance of the African Fund of Funds portfolio within the global private equity investments.

The non-African funds have exceeded expectations for a portfolio in the current stage of its investment lifespan and have benefited from strong global equity markets, which in turn has resulted in a general increase in asset values. The African assets have detracted from performance over both three- and five-year periods, due to valuations being impacted by unfavourable current economic conditions and poor economic forecasts.

OLD MUTUAL SMOOTHED BONUS FUNDS 2020 DISCLOSURE REPORT

PAGE 22

AFRICAN LISTED EQUITY PORTFOLIO

PORTFOLIO MANAGEMENTExchange control regulations and Regulation 28 of the Pension Funds Act allow retirement funds to invest up to 10% in African assets. This is in addition to the allowance for foreign investments of 30%.

The African equity portfolio is currently managed by the Old Mutual Equities (OME) boutique within OMIG. The portfolio is an actively managed fundamental equity portfolio, which aims to outperform its benchmark over the long term.

BENCHMARKThe African equity portfolio benchmark is the MSCI Emerging Frontier Markets Africa Index (with a component excluding South Africa).

PERFORMANCE

14.3

%

8.2%

3-year annualised return

15%

10%

5%

0%

n Fund Return

n Benchmark Return

The African equity portfolio returned 14.3% p.a. over the three-year period to 31 December 2019, bolstered by a strong fourth quarter which saw it up 7%. However, performance was very mixed across the markets. Kenya ended the year as the top-performing African market, up close to 50%. Kenya’s market was boosted by a strong performance from the leading mobile telecommunications company Safaricom, which continued to show earnings growth.

The removal of interest rate caps was also a driver of performance. This scrapping of the caps not only allows banks to charge higher interest rates, but also price more appropriately for higher risk. As a result, customer loans growth should improve.

Other markets that ended the year up around 10% to 15% were Egypt, Mauritius, Morocco and Bourse Régionale des Valeurs Mobilières SA (BRVM - representing many of the French speaking West African markets). All of Ghana, Nigeria and Zambia delivered negative returns over 2019. Also, following the introduction of its own currency, Zimbabwe’s US dollar return was sharply down.

PAGE 23

OTHER ASSET STRATEGIESDERIVATIVE STRATEGIESDerivative instruments are used to enhance the portfolio. Portfolio managers are not allowed to use derivatives to speculate and may not borrow money to fund derivative positions.

The investment mandates limit the use of derivatives to:

• enhancing the efficiency of asset allocation, including the equitisation of cash;

• adjusting the duration of interest-bearing portfolios, provided it is within mandated risk limits;

• reducing investment risk via hedging, which provides insurance against specific events or reduces the tracking error; and

• enhancing yield through derivative price anomalies.

RESPONSIBLE INVESTMENT

INTRODUCTIONResponsible Investment (RI) is a key part of Old Mutual’s broader approach to Responsible Business, which is characterised by the following five pillars:

1. Responsible to our Customers2. RESPONSIBLE INVESTMENT3. Responsible to our Employees4. Responsible to our Communities5. Responsible Environmental Management

The group believes that Responsible Investment (RI) is essential to its goal of pursuing long-term returns for customers, while aligning with the broader interests of society. In 2012, Old Mutual became a signatory to the United Nations Principles for Responsible Investment (UNPRI), the overarching global framework on (Economic, Social and Governance) ESG issues in investment and ownership decision-making practices.

Old Mutual’s approach to RI is founded on an understanding of the growing sustainability trend and its potential to impact the competitive landscape across sectors. Old Mutual therefore believes that incorporating ESG factors into its investment process and asset ownership practices is important to assist in delivering on its obligations to beneficiaries and aligning with the broader objectives of society. This is in accordance with the ideals of the UNPRI.

The practical endorsement of these beliefs in RI is channelled through three key themes:1. ESG incorporation into the investment process.2. Active ownership, through proxy voting and company engagement.3. Disclosure of policies and implementation.

OLD MUTUAL SMOOTHED BONUS FUNDS 2020 DISCLOSURE REPORT

PAGE 24

ACTIVE OWNERSHIPOMIG’s active ownership practices are guided by its proxy voting policy and active ownership policy, both of which are available online. Active ownership is also informed by a proprietary governance model that evaluates companies on a range of ESG criteria.

The graph below summarises the proxy voting activity by OMIG, in respect of the local listed equity investments of the portfolios.

Engagement Category Remuneration (Policy) Executive Compensation Environment (Climate change) Environment (Climate change) Remuneration (Policy), Board Audit quality Board (Succession) Capital structure/Share capital CEO, Remuneration (Policy) Corporate governance (unspecified) Environment (Climate change) ESG Risk management Executive Compensation, Board Privacy and data security, Board Succession Planning (Blank) Environment (Carbon emission) Environment (Climate change) Environment (Climate change) Environment (unspecified) Remuneration (metrics/measure) Remuneration (Policy), Board Social (unspecified) Environment (Waste) ESG Integration

22 (23.66%)

11 (11.83%)

4 (4.3%)

4 (4.3%)

4 (4.3%)3 (3.23%)3 (3.23%)

3 (3.23%)3 (3.23%)

3 (3.23%)

3 (3.23%)

3 (3.23%)

3 (3.23%)

3 (3.23%)

3 (3.23%)

2 (2.15%)

2 (2.15%)

2 (2.15%)

2 (2.15%)2 (2.15%)

2 (2.15%)

2 (2.15%)2 (2.15%)

1 (1.08%)

1 (1.08%)

OMIG’s policy is to vote on 100% of resolutions. It has adopted a pro-active engagement process so that, in the event that the decision is made to vote against a resolution, the company is contacted directly to discuss the concerns regarding that resolution. When electing directors, votes are guided by the aim of achieving appropriate composition of boards with respect to experience, balance, independence, diversity, etc. When voting on remuneration policies, the aim is to achieve alignment between the company’s business strategy and the long-term interests of shareholders.

During 2019, OMIG successfully engaged with companies on a broad range of ESG issues. It further participated in various industry initiatives on key sectoral or thematic matters, such as the mining charter and integrated reporting.

PAGE 25

INVESTMENTS IN SUSTAINABILITYOld Mutual has also made significant investments in sustainability, which offer attractive investment returns for customers while achieving desirable outcomes for society and the natural environment. These investments are accessed through the alternative assets allocations (equity) and the interest-bearing asset allocations (debt).

Examples of these sustainable investments include:

Infrastructure: The local alternatives portfolio has exposure to infrastructure investments (including renewable energy projects) of over R5 billion.

Agriculture: Investment in agriculture ensures environmentally sustainable methods of agriculture; provides education; healthcare and training for staff; while upholding high ethical and business standards. The local alternative portfolio currently has over R600 million invested in agriculture in South Africa and the broader African continent.

Development Finance: The local alternatives portfolio currently has exposure of over R5 billion to development finance initiatives. These include investments that are aligned with the requirements of the Financial Sector Charter, for example housing and schools, where exposure is gained via the Housing Impact Fund, and Schools Fund.

RI DISCLOSUREAs a signatory to the UNPRI, the Old Mutual Group prepares an annual report of its RI activities, the results of which are available on the UNPRI website.

Old Mutual’s RI Policy and other documents listed below are available publicly on Old Mutual’s website. They can be accessed by following the RI link at Responsible Investing and browsing the Responsible Investment pages for Old Mutual and OMIG.

Alternatively, click directly on the links below:

• Responsible Investment Policy3

• OMIG RI Resources4 – for example, the RI Policy, the Proxy Voting Policy and the CRISA Report

• UNPRI Transparency Report5

3Responsible Investment Policy Link: http://www.oldmutual.co.za/docs/default-source/corporate/products-services/employee-benefits/retirement-investments/guaranteed-investments/responsible-investing/omcresponsibleinvest.pdf?sfvrsn=24OMIG RI Resources Link: http://ww2.oldmutual.co.za/old-mutual-investment-group/about-us/responsible-investing/ri-resources5UNPRI Transparency Report Link: https://reporting.unpri.org/surveys/PRI-reporting-framework-2019/1C22085A-B5CC-4F95-BBD5-9D7E8299F9DB/79894db-c337a40828d895f9402aa63de/html/2/?lang=en&a=1

PAGE 26

OLD MUTUAL SMOOTHED BONUS FUNDS 2020 DISCLOSURE REPORT

3. BONUSESThe smoothing process inherent in the bonus philosophy of the smoothed bonus funds aims to ensure that bonuses produce a return outcome similar to that of the underlying portfolio over the long term, net of capital charges but gross of investment management fees. Through the smoothing process, the impact of short-term market volatility is significantly reduced.

A. BONUS PHILOSOPHYThe investment returns earned on the underlying investment of the smoothed bonus fund are credited to a Bonus Smoothing Reserve (BSR), from which bonuses are declared. The BSR is the difference between the market value of the underlying investments of the smoothed bonus fund and the total smoothed investment account values of all customers invested in the fund.

A separate BSR is maintained for each of the Old Mutual smoothed bonus funds.

Different guarantee options are available for the various smoothed bonus funds. Table 7 below provides a summary of the guarantees provided by the respective smoothed bonus funds.

Table 7

PRODUCT GUARANTEE LEVEL

Old Mutual AGP Smooth Growth Fixed 50%

Old Mutual AGP Stable Growth Fixed 80%

Old Mutual AGP Secure Growth Fixed 100%

Old Mutual CoreGrowth 90 Fixed 90%

Old Mutual CoreGrowth 100 Fixed 100%

Guaranteed Fund 100% of capital; partially vested bonuses

In general, Old Mutual determines a combined BSR in respect of the guarantee options for a smoothed bonus fund, for the purposes of declaring bonuses. For AGP, the overall BSR includes the Absolute Smooth Growth, Absolute Stable Growth and Absolute Secure Growth Portfolios, with each representing the guarantee options within the Absolute Growth Portfolios. Similarly, for CoreGrowth, the BSR includes the guarantee option of CoreGrowth 90 and that of CoreGrowth 100.

Old Mutual is, however, entitled to determine separate BSRs, which may be either an individual BSR in respect of each of the guarantee options, or a combined BSR in respect of any two of the guarantee options, and a separate BSR in respect of the remaining guarantee options. Old Mutual may especially exercise its discretion to determine separate BSRs when a negative bonus is declared (see section B) in respect of any one of the guarantee options.

If a new series is launched for a particular smoothed bonus fund, the BSR for this new series is maintained separately from the BSR of the original series. This is maintained until such time that the BSR levels of the original and the new series are closely aligned, at which point the two BSRs are combined.

The amount available for each bonus declaration is therefore taken as the accumulated balance in the BSR. This balance depends primarily on the following:

• Investment returns earned in the past, which have not previously been declared as bonuses.

Positive BSR balances represent investment returns earned that have not yet been declared as bonuses. These will be used to support future bonus declarations.

A negative BSR balance means that a greater amount has been declared as bonuses than the investment returns earned to that date. This is in line with smoothing principles, however, the deficit will be recovered via future bonus declarations (i.e. future bonuses will be less than the investment returns earned).

PAGE 27

• The investment return earned in the prior month.

Bonuses declared usually differ from the actual investment return earned in any month, so as to reduce the impact of short-term volatility of returns. In months when above-average investment returns are earned, the bonus declared tends to be lower than the investment return earned. And in months when below-average investment returns are earned, the bonus declared tends to exceed the investment return earned.

The BSR is therefore credited with the investment return and is debited with the cost of bonuses declared and capital charges. The capital charge is in respect of the cost of the capital that Old Mutual is required to hold to be able to meet the guarantee offered, should it be required.

It is important to note that the BSR is used to declare bonuses for the benefit of the smoothed bonus funds’ customers only. This means that this reserve is strictly in place for the policyholders’ benefit and cannot be accessed by Old Mutual shareholders.

B. BONUS DECLARATION PROCESSTwo main bonus declaration methods are used for smoothed bonus funds, namely Formulaic Methodology and Discretionary Methodology. The methods are explored separately below.

1. FORMULAIC BONUS PHILOSOPHY The bonuses declared for the Absolute Growth Portfolio are determined using a formulaic methodology and are declared monthly in advance.

I. BONUS FORMULAThe following section describes how the bonus formula is applied to declare bonuses for each Absolute Growth Portfolio.

TARGET RETURNSEach Absolute Growth Portfolio targets an inflation-linked return, as follows:

Table 8

GUARANTEE OPTION TARGET RETURN

Absolute Smooth Growth CPI + 6.0% p.a.

Absolute Stable Growth CPI + 5.5% p.a.

Absolute Secure Growth CPI + 3.5% p.a.

These targets are measured over the long term (in excess of ten years) and are net of capital charges and gross of investment fees.

The formula-based bonus declaration process is as follows:

WHILE THE BSR IS 0% OR GREATERThe monthly bonus is defined as:

A + B, subject to a minimum of C

Where

A equals the monthly equivalent of the set CPI-linked target return for the particular Absolute Growth Portfolio guarantee option, and CPI is the annualised rolling three-year CPI with a three-month lag.

B is an adjustment based on the level of the BSR, using the table below, to ensure a consistently fair distribution of the BSR to customers and obtain a smoothed progression of bonus returns over time. The adjustment differs depending on whether the average three-year CPI exceeds 6%, the current upper limit of the South African Reserve Bank’s target range.

C equals 0.05%.

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OLD MUTUAL SMOOTHED BONUS FUNDS 2020 DISCLOSURE REPORT

B in the above formula is sourced from the following table:

BSR RANGE AVERAGE THREE-YEAR CPI IS LESS THAN OR EQUAL TO 6%

AVERAGE THREE-YEAR CPI IS GREATER THAN 6%

0% (incl.) to 5% 0.00% -0.50%

5% (incl.) to 10% 0.50% 0.00%

10% (incl.) to 15% 0.75% 0.25%

15% (incl.) to 20% 1.00% 0.50%

20% (incl.) to 25% 1.25% 0.75%

25% (incl.) to 30% 1.50% 1.00%

> 30% (incl.) 1.75% 1.25%

Table 9WHILE THE BSR IS BETWEEN MINUS 15% (INCLUSIVE) AND 0%The monthly bonus is fixed, with no link to CPI, and depends entirely on the size of the BSR as follows:

BSR RANGEMONTHLY GROSS BONUS

ABSOLUTE SMOOTH GROWTH

ABSOLUTE STABLE GROWTH

ABSOLUTE SECURE GROWTH

-2.5% (incl.) to 0.0% 0.49% 0.45% 0.29%

-5.0% (incl.) to -2.5% 0.29% 0.25% 0.08%

-7.5% (incl.) to -5.0% 0.14% 0.10% 0.05%

-15.0% (incl.) to -7.5% 0.05% 0.05% 0.05%

WHILE THE BSR IS LESS THAN MINUS 15% In severe market conditions, should the BSR become more negative than -15%, the monthly bonus in respect of Absolute Smooth Growth and Absolute Stable Growth will be negative and based on the table below. This is subject to a maximum negative bonus equal to the non-guaranteed element for each guarantee option. For example, for Absolute Stable Growth, the negative bonus will not be more severe than minus 20%. Negative bonuses cannot be declared for Absolute Secure Growth, given that it is fully (100%) guaranteed.

BSR RANGEMONTHLY NEGATIVE BONUS

ABSOLUTE SMOOTH GROWTH ABSOLUTE STABLE GROWTH

-15% to -20% -15% -15%

-20% to -25% -20% -20%

-25% to -30% -25% -20%

-30% to -35% -30% -20%

-35% to -40% -35% -20%

Less than -40% -40% -20%

PAGE 29

II. LONG-TERM BSR TARGET RANGEThe long-term target of the BSR is within a range of 0% to 5% of the accumulated smoothed investment account values. The bonus formula described above aims to restore the BSR to its long-term target over a reasonable period, consistent with guidelines issued by the Actuarial Society of South Africa (ASSA) that require management actions to be taken to prevent the BSR from dropping below a position that can reasonably be expected to be restored within three years.

The smoothing process, coupled with short-term market movements and the impact of cash flows, will inevitably cause the BSR to move outside of this long-term target range in the short term. In severe market conditions, should the BSR fall below -15%, Old Mutual may declare negative bonuses for Absolute Smooth Growth and Absolute Stable Growth. This is as per the formula described above.

III. USE OF DISCRETION WITHIN THE FORMULA-BASED BONUS DECLARATION PROCESSOld Mutual may use its discretion to declare bonuses, and so deviate from the above formula. This is especially the case if the bonus declared by the formula would result in a BSR that is inappropriately high or low, and in turn reduce the possibility of restoring the BSR to its long-term target over a reasonable period.

In assessing the possibility of restoring the BSR to its long-term target, consideration will be given to the views on the relative market levels compared to historical levels, as well as the current and medium-term economic outlook and prospects for investment markets.

For example, discretion may be used when inflation is significantly higher, while the prospects for investment markets are significantly lower. In this case, the bonus derived from the bonus formula would be inappropriately high, given its link to inflation, which would result in a BSR that is inappropriately low, given the prospects for investment markets.

Using discretion when determining the bonus to be declared, consideration is also given to the impact of a severe market environment on bonuses. For example, in such an environment, bonuses will be affected by the need to ensure that the BSR does not become too negative, as this would adversely impact on future bonuses.

When declaring negative bonuses, Old Mutual can deviate from the formula stated above for Absolute Smooth Growth and Absolute Stable Growth. This is provided the Old Mutual Limited Board, on the recommendation of the Statutory Actuary, considers that it is still possible to restore the level of the BSR during the ensuing three years, while taking due cognisance of the economic and investment environment at all times. This may result in a more or less severe negative bonus being declared at each BSR level, or the declaration of a negative bonus at a BSR level less negative than -15%.

If, after the removal of the non-guaranteed element through negative bonuses, the Board believes that the level of the BSR may not be capable of being restored within three years, shareholder capital will be used to provide temporary support to the portfolios. If and when the position improves, the support provided will be returned to shareholder funds, with any returns earned.

IV. GUARANTEED VS NON-GUARANTEED BONUSESThe total investment account balance is guaranteed at 50%, 80% and 100% for Absolute Smooth, Absolute Stable and Absolute Secure Growth respectively.

Before a negative bonus is applied, the fund guarantee levels are 50%, 80% and 100% for Absolute Smooth Growth, Absolute Stable Growth and Absolute Secure Growth, respectively. This limits the amount that the investors book value can be reduced by in periods of poor market performance.

If a negative bonus is applied to Absolute Smooth Growth and/or Absolute Stable Growth, the investors total account value will reduce but the guarantee level will increase as a result of positive bonuses being declared after the declaration of the negative bonus until the initial guarantee level is reached. As a result, the declaration of bonuses will not cause the total account of the investor to fall below the guarantee level. This is to reduce the guaranteed percentage of investment account balances until it is restored to 50% for Absolute Smooth Growth and 80% for Absolute Stable Growth. The guaranteed percentage will never be lower than 50% for Absolute Smooth Growth, 80% for Absolute Stable Growth and 100% for Absolute Secure Growth.

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OLD MUTUAL SMOOTHED BONUS FUNDS 2020 DISCLOSURE REPORT

2. DISCRETIONARY BONUS PHILOSOPHYThe bonuses for the CoreGrowth and Guaranteed Fund portfolios are declared based entirely on the discretion of Old Mutual in the bonus declaration process, as set out below. Furthermore, CoreGrowth declares bonuses monthly in advance, whereas Guaranteed Fund declares bonuses annually in arrears.

Bonus declarations are therefore at the ultimate discretion of the Old Mutual Limited Board and are based on the recommendation of the Statutory Actuary. The Board has delegated the authority for approving monthly bonuses to the Statutory Actuary, who keeps the Board updated.

In addition to the above considerations, the process below describes how the bonus is determined for the discretionary bonus methodology (for CoreGrowth & Guaranteed Fund):

• The impact of the declaration of a proposed bonus on the BSR is assessed.

The long-term BSR target is within a range of 0% to 5% of the total smoothed investment account values of all customers invested in the smoothed bonus fund. However, the smoothing process, coupled with short-term market movements, and the impact of cash flows, will inevitably cause the BSR to move outside of this range in the short term. Given this, Old Mutual aims to target a short-term BSR range of -15% to 20%.

The bonus process is designed to restore the BSR to its long-term target over a reasonable period, consistent with guidelines issued by ASSA. The guidelines require management actions to be taken to prevent the BSR from dropping below a position that can reasonably be expected to be restored within three years. Therefore, consideration is given to the current level of the BSR. For example, if the BSR is at a level below the long-term target range, the proposed bonus may be reduced. The greater the shortfall, the greater the downward adjustment. Any shortfalls or excesses are not eliminated immediately, but rather recouped or distributed over time.

• A view on the relative level of the market compared to historical levels, as well as the current and medium-term economic outlook and prospects for investment markets, is also taken into consideration.

This is necessary to assess the amount available for the bonus declaration. For example, in times when relative market levels are high, and returns on the underlying assets have consequently been high, the BSR will be more positive. This allows an assessment to be made of the appropriate level of the BSR going forward.

Additional factors considered by the Old Mutual Limited Board when determining the bonus to be declared include the following:• The degree to which returns are smoothed, compared to previous bonus declarations and levels of returns earned on

the underlying assets.• The reasonable expectations of customers as to the size of the bonus.• The impact of a severe market environment on bonuses. For example, in such an environment, bonuses will be affected

by the need to ensure that the BSR does not become too negative, as this would adversely affect subsequent bonuses.• The competitive position with regard to the bonus declarations of smoothed bonus funds offered by other providers.

Separate bonuses are declared each month for CoreGrowth - one per guarantee option of each smoothed bonus fund. The difference in bonus rates between the guarantee options of a smoothed bonus fund correlate with the difference in the capital charges for the guarantee options.

For example, the CoreGrowth 90 guarantee option has a capital charge that is 1.0% p.a. lower than the capital charge of the CoreGrowth 100 guarantee option. As a result, the CoreGrowth 90 guarantee option will earn bonuses that are 1.0% p.a. higher than those of the CoreGrowth 100 guarantee option. This does not imply cross-subsidising between the different guarantee options, as the higher bonus is funded through the lower capital charge.

Old Mutual reserves the right to vary these bonus rate differentials should any of the bonuses in respect of a guarantee option be zero. Old Mutual also reserves the right to vary these bonus rate differentials at its discretion.

PAGE 31

1. GUARANTEED VS NON-GUARANTEED BONUSESFor the CoreGrowth 100 guarantee option, 100% of the total bonus declared (gross of investment fees) is guaranteed. Similarly, for the CoreGrowth 90 guarantee option, 90% of the total bonus declared is guaranteed. As a result both the initial capital invested and declared bonuses i.e. accumulated Total Account balance is guaranteed at 100% and 90% respectively.

The proportion of each bonus that is guaranteed for the final bonus of the Guaranteed Fund is specified in the bonus declaration. The Guaranteed Fund’s interim bonuses are not guaranteed.

2. INTERIM AND FINAL BONUS RATES ON THE GUARANTEED FUNDAt the end of the Guaranteed Fund bonus year, 30 June annually, the final bonus for the year is declared in arrears. The final bonus replaces the interim bonus that was declared for the previous bonus year. On the same day, an interim bonus is declared on the fund, in advance for the next bonus year.

The intention is not to change the interim bonus rates frequently to reflect the variation in the value of the underlying portfolio. The interim bonus is set conservatively and aims to distribute a reasonable return to customers who may exit during the 12-month period after 30 June, without disadvantaging customers who continue to invest in the fund.

However, the interim bonus rate is reviewed, retrospectively, every quarter or more frequently. This review could result in an increase or decrease in the interim bonus rate.

3. GROSS VS NET BONUSESAll bonuses for CoreGrowth and Absolute Growth Portfolios are declared net of the capital charge applicable to the guarantee option of the particular smoothed bonus fund, but gross of the investment management fee - which includes both the asset management fee and the investment administration fee for the fund. The Guaranteed Fund declares bonuses net of the capital charge and asset management fee and gross of the investment administration fee.

More information can be found in the Fees and Charges section of this report.

There is no top. There are always further heights to reach.

Jascha Heifetz

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OLD MUTUAL SMOOTHED BONUS FUNDS 2020 DISCLOSURE REPORT

C. ALLOWANCE FOR MANAGEMENT ACTION IN ADVERSE CIRCUMSTANCES

As mentioned, the long-term target level for the BSR is within a range of 0% to 5% of the fund’s total smoothed investment account values of all customers invested in the fund. Tolerance for BSR levels outside this range reduces as the absolute levels move further away from this range. The tolerance for a particular level of smoothing reserve also depends on the prevailing investment and economic conditions and the outlook for these.

The focus is particularly on a three-year time horizon, in line with ASSA guidelines as described in this section. While Old Mutual has some internal guidelines, there are no absolute levels at which particular management actions are automatically taken. Such an approach could be imprudent, as it may not consider all the factors involved at the time. However, if the BSR trends away from the long-term average, the extent of management action will become more pronounced, and will include the use of remedial steps, taking due cognisance of the economic and investment environment at all times.

The first such action would take place through the bonus mechanism as described in this section. This is a mechanism used at all BSR levels. The second would be to remove the non-guaranteed element (difference between investment account and guaranteed, or vested, account) as described before, where this is possible.

If, after the removal of the non-guaranteed element, the Board believes that the level of the BSR may not be capable of being restored within three years, shareholder capital will be used to provide temporary support to the portfolio.

PAGE 33

4. BONUS SMOOTHING RESERVE LEVELSOld Mutual is required to disclose BSR levels below -7.5% for smoothed bonus funds.

Old Mutual complies with this requirement by making information relating to the BSR levels for all classes of business publicly available in published reports. These reports contain statements regarding the solvency levels of each class relative to a level of -7.5% of the total smoothed investment account values of that class.

The BSR for the smoothed bonus funds was within the -5.0% to 10% range, and therefore not below -7.5%, as at 31 December 2019.

The long-term target range of the BSR is between 0% and 5% for each of the smoothed bonus funds. Deviations around this long-term target range can be expected in the short term. This is as a result of the smoothing process, coupled with short-term market movements, and the impact of cash flows, which will inevitably cause the BSR to move outside of this range in the short term.

ABSOLUTE GROWTH PORTFOLIOSAt the end of each quarter during the year to 31 December 2019, the Absolute Growth Portfolios’ BSR levels, after taking account of all declared bonuses, fell within the ranges indicated in the tables shown below.

BONUS SMOOTHING RESERVE

31 M

AR

2019

30 J

UN

201

9

30 S

EPT

2019

31 D

EC 2

019

Greater than 20%

Between 15% and 20%

Between 10% and 15%

Between 5% and 10%

Between 0% and 5%

Between -5% and 0%

Between -10% and -5%

OLD MUTUAL SMOOTHED BONUS FUNDS 2020 DISCLOSURE REPORT

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COREGROWTH PORTFOLIOThe BSR levels for CoreGrowth, after taking account of all declared bonuses, fell within the ranges indicated in the tables shown below.

BONUS SMOOTHING RESERVE

31 M

AR

2019

30 J

UN

201

9

30 S

EPT

2019

31 D

EC 2

019

Greater than 20%

Between 15% and 20%

Between 10% and 15%

Between 5% and 10%

Between 0% and 5%

Between -5% and 0%

Between -10% and -5%

GUARANTEED FUNDThe BSR level for the Guaranteed Fund is disclosed annually, effective 30 June. The BSR range as at 30 June 2019 is shown below.

BONUS SMOOTHING RESERVE GUARANTEED FUND

Greater than 20%

Between 15% and 20%

Between 10% and 15%

Between 5% and 10%

Between 0% and 5%

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5. FUND SIZEThe size of each of the smoothed bonus funds, expressed as the aggregate sum of the investment accounts for each smoothed bonus fund as at 31 December 2019, was as follows:

FUND (R’BN)

Absolute Growth Portfolios 134.6

CoreGrowth 8.9

Guaranteed Fund 4.6

Total 148.1

These fund sizes do not include the BSR for each fund.

In the middle of every difficulty, lies opportunity

Albert Einstein

OLD MUTUAL SMOOTHED BONUS FUNDS 2020 DISCLOSURE REPORT

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6. RINGFENCINGThe portfolio of underlying assets that supports each of the smoothed bonus funds is managed separately from the assets of other portfolios (both policyholder and shareholder portfolios).

In addition, exercising discretion in a reasonable manner, and with the objective of maintaining equity between different generations of policyholders, Old Mutual may operate more than one series of a smoothed bonus fund. The assets underlying the different series will be managed separately until the series are merged.

Each smoothed bonus fund is managed separately in accordance with a specific mandate as described earlier in this report.

All fees and charges are transferred from each portfolio to shareholder fund portfolios at regular intervals.

Other transfers of assets between different portfolios would occur in the normal course of events. Such transfers could reflect normal trading between two portfolio managers with different investment mandates and investment views, or the transfer of a pool of assets where a customer chooses to change their investment, for example from Absolute Stable Growth Portfolio to CoreGrowth.

Large new customers may also be allowed to transfer portfolios of assets instead of cash to the portfolio, if such a transfer is deemed acceptable to the portfolio manager. The principle applied to any such transfer, or take-on, of portfolios is that any assets accepted into the portfolio must not alter the portfolio in such a way that compliance with the investment mandate is compromised.

The transfer of BSRs between different policyholder portfolios is not precluded, but will only happen in specific circumstances. This could occur when a customer moves their investment from one Old Mutual smoothed bonus fund to another. Under certain circumstances any corresponding portion of the underlying BSR in the transferring portfolio can be transferred. The principle applied is aiming, as far as possible, to ensure that the BSR percentages of both portfolios after such a transfer are similar to what they were before the transfer.

As a mature portfolio diminishes in size over time, a stage may be reached where the size of the portfolio is less than optimal for the smoothing of returns to be effective. At this stage, the mature portfolio may be combined with a larger portfolio. In such a case, a corresponding transfer of its BSR will take place. The principle applied is, once again, that customers in neither of the portfolios should be prejudiced by such a step.

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7. FEES AND CHARGES

INVESTMENT MANAGEMENT FEESAn investment management fee is calculated on the daily balance in the investment account. This fee is deducted from the investment account monthly in arrears, in respect of the investment administration and asset management functions performed by Old Mutual. This fee excludes the following:

• Performance fees payable in respect of alternative assets and in respect of assets placed with asset managers that are not within the Old Mutual Group.

• Other costs and expenses incurred in the management of the assets including, but not limited to, brokerage, taxes, levies, audit charges, bank charges, custodian charges, agent fees, licensing fees and other costs and expenses incurred on behalf of customers.

• Specialist investment management costs, which will include, but are not limited to, costs incurred in respect of scrip lending.

These excluded costs and fees are deducted from the underlying assets as and when incurred. All bonuses declared are net of these costs and fees.

The standard fee structures (sliding scale) for the various funds are currently as shown in the tables below. These rates are subject to a minimum fee of R5 000 p.a.

ABSOLUTE GROWTH PORTFOLIOS (AGP)AGP uses a sliding scale, charging different rates for local and global assets. A combined rate, based on the current strategic asset allocation to local (75%) and global (25%) assets, is then used to calculate each customer’s fee.

FUND VALUE LOCAL GLOBAL COMBINED

Applicable to the first R50 million 0.650% 0.950% 0.725%

Applicable to the next R100 million 0.600% 0.900% 0.675%

Applicable to the next R150 million 0.550% 0.850% 0.625%

Applicable to amounts exceeding R300 million 0.525% 0.825% 0.600%

Note that some clients may be on different legacy fee structures.

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OLD MUTUAL SMOOTHED BONUS FUNDS 2020 DISCLOSURE REPORT

COREGROWTH AND GUARANTEED FUNDCoreGrowth and Guaranteed Fund use a sliding scale that charges different rates depending on the size of a customer’s fund.

INVESTMENT ACCOUNTINVESTMENT MANAGEMENT FEE

GUARANTEED FUND4 COREGROWTH

For the first R50 million 0.350% 0.500%

For the next R50 million 0.300% 0.400%

For the next R50 million 0.250% 0.350%

For the next R50 million 0.250% 0.350%

For the next R100 million 0.200% 0.250%

For the next R100 million 0.200% 0.250%

Thereafter 0.200% 0.230%

CAPITAL CHARGESRegulation requires that Old Mutual holds capital reserves in respect of the given level of guarantee inherent in each guarantee option for a smoothed bonus fund. Capital charges are thus levied on the policy to cater for the above requirement.

FUND GUARANTEE LEVEL CAPITAL CHARGE

Absolute Smooth Growth 50% 0.20%

Absolute Stable Growth 80% 0.70%

Absolute Secure Growth 100% 2.70%

CoreGrowth 90 90% 0.80%

CoreGrowth 100 100% 1.80%

Guaranteed Fund Full capital protection with a portion of bonus guaranteed 0.75%

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TOTAL INVESTMENT CHARGEThe Association for Savings and Investment South Africa (ASISA) has prescribed that investment portfolios should disclose their Total Investment Charge (TIC). In terms of this requirement, fees charged on the portfolio should be broken down as follows:

Investment Management Fee (IMF) + Performance fee+ Other fees = Total Expense Ratio (TER)+ Transaction Costs (TC)= Total Investment Charge (TIC)

Items typically included under “other fees” and “transaction costs” are displayed below:

OTHER FEES TRANSACTION COSTS

Custody fees Brokerage

Trustee fees VAT

Audit fees Securities Transfer Tax (STT)

Bank fees Investor protection levy

Taxes STRATE contract fees

Net negative interest charges FX spread cost

Cost in relation to scrip lending CFDs

Administration cost

The total investment charge for one client can be different to that paid by another client as a result of the investment management fee charged to each of these clients. The investment management fee is a component in the calculation of the total investment charge, and this fee is based on a sliding scale, depending on the client’s specific assets under management (AUM).

Below is the December 2019 calculation of the TIC based on figures applicable to the quarter ending 31 December 2019 for the AGP and CoreGrowth portfolios as well as the Guaranteed Fund:

AGPFEE COMPONENT P.A. PERCENTAGE P.A. COMPONENT

Investment Management Fee (IMF) 0.630%* A

Performance Fee1 0.014% B

Other Fees2 0.002% C

Total Expense Ratio (TER) 0.646% D=A+B+C

Transaction Costs (TC)3 0.053% E

Total Investment Charge (TIC) 0.699% F=D+E

*Fees are based on an average scheme size (AUM) of the AGP Portfolio as at 31 December 2019

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OLD MUTUAL SMOOTHED BONUS FUNDS 2020 DISCLOSURE REPORT

COREGROWTHFEE COMPONENT P.A. PERCENTAGE P.A. COMPONENT

Investment Management Fee (IMF) 0.433%* A

Performance Fee1 0.012% B

Other Fees2 0.002% C

Total Expense Ratio (TER) 0.447% D=A+B+C

Transaction Costs (TC)3 0.034% E

Total Investment Charge (TIC) 0.481% F=D+E

*Fees are based on an average scheme size (AUM) of the CoreGrowth Portfolio as at 31 December 2019

GUARANTEED FUNDFEE COMPONENT P.A. PERCENTAGE P.A. COMPONENT

Investment Management Fee (IMF) 0.628%* A

Performance Fee1 0.090% B

Other Fees2 0.002% C

Total Expense Ratio (TER) 0.720% D=A+B+C

Transaction Costs (TC)3 0.046% E

Total Investment Charge (TIC) 0.766% F=D+E

*Fees are based on the average scheme size (AUM) of the Guaranteed Fund as at 31 December 2019

Notes: 1Performance fees are charged on alternative assets and assets held with external asset managers outside the Old Mutual Group. 2Other costs include items such as bank fees, custody fees, audit fees, scrip lending fees, etc. 3Transaction costs are incurred in the buying and selling of a product’s underlying assets.The above excludes the Capital charge.

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8. COMPANY SOLVENCYThe guarantees on benefit payments offered in the smoothed bonus funds are supported by the capital of Old Mutual. The extent of capital, combined with the stability over time, provides an indication of the quality of the guarantees that apply to the smoothed bonus funds.

It is important to note that the Actuarial Liabilities shown below include BSRs for the different classes of business.

The capital required on a statutory basis at the corresponding dates was as follows:

DEC-18 (R’BN) DEC-19 (R’BN)

Eligible Own Funds* 76.1 79.2

Solvency Capital Ratio (SCR) 33.4 36.7

Solvency Ratio 228% 216%

*Net of inadmissible and other regulatory adjustments.

Due to the fact that risks inherent in the different funds offered by Old Mutual are correlated (whether negatively or positively), the amount of capital set aside to back all guarantees cannot be separated for each individual fund. As such, the figures shown above apply across the board for the whole of Old Mutual.

PAGE 42

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BD

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4.20

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1078 Old Mutual Life Assurance Company (SA) Limited is a licensed FSP situated at Mutualpark, Jan Smuts Drive, Pinelands 7405, South Africa. Company registration

no.: 1999/004643/06.. The information contained in this document is provided as general information and does not constitute advice or an offer by Old Mutual. Every effort has been made to ensure that the information provided meets the statutory and regulatory requirements. However, should you become aware of any breach of such statutory and regulatory requirements, please address the matter in writing to: The Compliance Officer, Old Mutual Corporate, PO Box 1014, Cape Town 8000, South Africa.

HOW TO CONTACT USFind out more about the investment portfolios in Old Mutual’s range of growth and protection solutions. Contact your Old Mutual Corporate consultant, or broker, or call your nearest Old Mutual Corporate office.

AREA INTERMEDIARY CONSULTANTS

DIRECT CLIENT CONSULTANTS

Johannesburg

011 217 1195/1275 011 217 1280/1990

011 217 1210 011 217 1537/1990

Pretoria 012 360 0000/0001 012 360 0000/0001

Western Cape 021 530 9600/9615 021 530 9600/9608

021 530 9618

KwaZulu-Natal 031 581 0600/0712 031 581 0600/0705

Eastern Cape 041 391 6300/6321 041 391 6300/6304

Bloemfontein 051 430 9787 051 430 9787

For more information, email corporateinvestments@oldmutual.com or alternatively visit the Old Mutual Corporate website www.oldmutual.co.za/corporate