Excel

Notes on the Financial Statements

for the year ended 31 December 2006



Group



2006 2005

Rm Rm

1 Headline earnings and earnings per share

Reconciliation of total earnings to headline earnings attributable to equity holders

Total earnings attributable to equity holders 2 875 1 442

Non-headline earnings (374) 399

Goodwill impairment 397

(Profit)/loss on sale of subsidiaries (374) 2

Headline earnings 2 501 1 841

Insurance operations 1 395 942

Shareholders’ fund investments 1 106 899

Net income earned on BEE preference shares 88 88

BEE normalised headline earnings 2 589 1 929

As investment properties are held to match policyholder liabilities, in line with insurance industry

practice, no adjustment is made in headline earnings for fair value adjustments or realised

gains/losses on investment properties.

Cents Cents

Earnings per share

Total earnings attributable to equity holders

Basic 1 138,3 572,8

Headline 990,4 731,2

BEE normalised headline 930,2 694,8

Fully diluted

Basic 1 091,4 560,3

Headline 949,5 715,3

Definitions:

Basic earnings per share is total earnings divided by the weighted average number of ordinary

shares in issue during the year.



Headline earnings per share is total earnings adjusted for defined non-headline amounts divided

by the weighted average number of ordinary shares in issue during the year.



BEE normalised headline earnings is headline earnings adjusted for dividends received on BEE

preference shares (not recognised as a financial asset) divided by the weighted average of

ordinary shares assuming the BEE allocated shares are in issue.



Fully diluted basic and headline earnings per share is calculated adjusting the weighted average

number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary

shares. Both the BEE transaction and share options could potentially cause dilution. A calculation

is performed to determine the number of shares that could have been acquired at fair value

(determined as the average annual market share price of the company’s shares) based on the

monetary value of the subscription rights attached to outstanding share options adjusted for any

share-based payment expense recognised. The number of shares calculated as above is

compared with the number of shares that would have been issued assuming the exercise of the

share options.

000’s 000’s

Weighted average number of shares in issue 252 545 251 761

Weighted average before BEE transaction 278 341 277 557

Effect of BEE transaction (25 796) (25 796)





Guidance on application of IFRS to the BEE transaction specifies that even if, as in 2006, certain

portions of the preference shares used to fund the transaction are redeemed, the full number of

applicable ordinary shares will continue as a deduction in deriving the weighted average number of

shares in issue for earnings per share calculations. These shares will be considered inissue only

to the extent the preference shares are held by external parties at risk or if redeemed in full. This

treatment distorts the economic reality and a BEE normalised headline earnings per share is

provided which better reflects shareholder economic earnings.



Fully diluted weighted average number of shares adjustment

Fully diluted weighted average number of shares in issue 263 405 257 358

Weighted average number of shares is issue 252 545 251 761

Adjustments for:

Implementation of shares under option below fair value issued before 7 November 2002 948 1 057

Share options accounted for under IFRS 2 (1) 3 633 993

Effect of BEE transaction 6 279 3 547



(1)

Certain of the share options which have been granted after 7 November 2002, which are subject

to the measurement requirements of IFRS 2 are anti-dilutive. The cost of these shares have

been accounted for (refer note 37).

Notes on the Financial Statements

for the year ended 31 December 2006



2 Risk management framework and objectives



The board acknowledges its responsibility for establishing and communicating appropriate risk and

control policies and ensuring that adequate risk management processes are in place. The group has

a number of committees which deal with the various aspects on policies for accepting risks,

including selection and approval of risks to be insured, use of limits and avoiding undue

concentrations of risk, underwriting strategies to ensure the appropriate risk classification and

premium levels, etc. as detailed below:



Responsibility for risk management



A group risk management committee, appointed by the Liberty Group Limited board, is in place to

assist the board in discharging its risk management obligations.



The principal objectives of the group’s risk management committee are to:



-Review the group’s risk philosophy, strategy, policies and processes recommended by executive

management;



- Review compliance with risk policies and with the overall risk profile of the group;



-Review and assess the integrity of the process and procedures for identifying, assessing,

recording and monitoring of risk;



-Review the adequacy and effectiveness of the group’s risk management function and its

implementation by management;



-Ensure that material corporate risks have been identified, assessed and receive attention; and



- Provide the board with an assessment of the state of risk management within the group.



A significant part of Liberty Life’s business involves the acceptance and management of risk.

Primary responsibility for risk management at an operational level rests with the executive

committee. The group’s risk management processes, of which the systems of internal, financial and

operating controls are an integral part, are designed to control and monitor risk throughout the

group. For effectiveness, these processes rely on regular communication, sound judgement and a

thorough knowledge of the products and markets by the people closest to them. Management and



In particular:



Group audit and actuarial committee

The group audit and actuarial committee’s principal objectives (pertaining to risk) are as follows:



-Act as an effective communication channel between the board on the one hand and the external

auditors and the head of internal audit on the other;



-Satisfy the board that adequate internal, financial and operating controls are being identified,

addressed and monitored by management and that material corporate risks have been identified and

are being contained and monitored through the group risk committee; and

-Enhance the quality, effectiveness, relevance and communication value of the published financial

statements and other public documentation of a financial nature issued by Liberty Group Limited,

with focus being placed on the actuarial assumptions, parameters, valuations and reporting

guidelines and practices adopted by the statutory actuary as appropriate to the group’s life insurance

activities.



Capital management committee

The capital management committee is responsible for the management of the group’s capital and

investment thereof.



Asset/liability management committee

This committee focuses on the matching of assets and policyholder liabilities. It also oversees the

high-level mix parameters for various products and portfolios and is tasked with agreeing

benchmarks and mandates for performance of each investment portfolio in conjunction with the

asset managers.



Product approval committee

The product approval committee meets monthly to assess whether all new products conform to

Liberty Life’s predetermined requirements and standards such as meeting policyholder needs,

appropriate margins, investment backing, legal, underwriting, taxation considerations and, where

appropriate, currency risks, as well as Liberty Life’s administrative capabilities for managing these

products.



Underwriting committee

The underwriting committee reviews underwriting standards and claims experience as well as

monitoring reinsurance retention limits and stop loss limits.

Notes on the Financial Statements

for the year ended 31 December 2006



3 Financial instruments and risk management



3.1 Fair value of financial instruments





The group’s financial instruments mainly consist of instruments held at fair value through profit or loss.







The methods for recognition and measurement of financial instruments are disclosed in the group’s accounting policies.



Financial instruments not held at fair value are summarised below, with their respective fair

values at 31 December:

2006 2006 2005 2005

Carrying Fair Carrying Fair

Rm value value value value

Financial assets

Held-to-maturity investments within joint

ventures 502 518 515 562

Mortgages and loans 809 809 2028 2044

Financial liabilities

Callable capital bond (2 054) (2 037) (2 054) (2 125)

Redeemable non-participating preference

shares (207) (207) (206) (206)





The fair values have been calculated and measured consistently with methods described in the accounting policies for

assets held at fair value through profit or loss.



3.2 Risk management



Risks associated with policyholder investment contract liabilities (financial instruments as defined) are discussed in note 4

and have been excluded from the analysis below.









The group has appointed qualified asset managers to manage the group’s financial instruments that support policyholder

liabilities. In the case of Liberty Group Limited and Liberty Active Limited the principal asset manager is STANLIB Limited

while in the case of Capital Alliance Holdings Limited (CAHL) the principal asset manager is Investec Asset Management

Limited. In addition, there are a number of smaller asset managers and the group’s own management that assist in asset

management, particularly surrounding offshore and shareholder assets.









Exposure to outside financial institutions concerning financial instruments is monitored in accordance with parameters

which have been approved by the STANLIB Limited audit and risk committee, the STANLIB Limited board as mandated

by the board of the Liberty Group and CAHL. Liberty Life places emphasis on investing in quality growth shares that

reflect a reasonable value proposition. Identification and selection of quality growth shares is made through research and

analysis. The group makes use of derivative instruments for the purpose of adjusting portfolio exposures and smoothing

the investment cycle.



The financial risks to which the group is exposed are described below:



Market risk







Market risk includes currency risk, interest rate risk and equity price risk. From time to time derivative financial

instruments are entered into to reduce this exposure to market risk (refer to note 5).



(i) Currency risk

Currency risk is the risk that the value of a financial instrument will fluctuate in rands due to changes in foreign

exchange rates.







The following financial instruments denominated in foreign currencies are included in the group balance sheet as

at 31 December (the 2005 comparatives include financial instruments owned by disposal groups held for sale):

Japanese Australian

Assets British pound US dollar Euro yen dollar Other

Rm 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005

Government,

municipal

and utility stocks 9 15 73 93 150 1 085 12 16 8 13

Debentures 11 15 21 20 6 6 24 689

Listed shares 244 134 10 506 9 612 2 391 554 168 196 8 22 136 123

Unlisted shares 52 43 87 158

Mutual funds 369 544 1 165 1 477 967 690 186 178

Deposits and money

market securities 624 272 1 151 1 205 714 479 (3) 3 2

Policy loans 9

Net current assets/

(liabilities) 58 -47 19 (1) 120 100

Total 1 315 918 12 962 12 470 4 242 2 813 369 398 215 994 147 138

Directly attributable

to shareholders (1) 253 255 391 191 22 14 120



Exchange rates 2006 2005 2004

R/£ closing rate 13,80 10,95 10,88

Average R/£ 12,49 11,57 11,75

R/$(US) closing rate 7,05 6,36 5,64

Average R/$(US) 6,77 6,36 6,41

R/i closing rate 9,29 7,52 7,67

Average R/i 8,51 7,91 7,98

R/Yen closing rate 0,06 0,05 0,06

Average R/yen 0,06 0,06 0,06

R/Aus$ closing rate 5,55 4,69

Average R/Aus$ 5,12 4,91





(1)

These amounts are in respect of assets specifically designated as shareholder assets. The remaining asset amounts

are allocated to match policyholders’ liabilities. Therefore shareholders are only exposed to the extent any remaining

asset movements would impact profit margins and management fees earned in respect of servicing policyholder

contracts.







The group’s offshore asset manager’s current practice is to reduce material currency translation exposures by means of

forward exchange contracts where future revenues, assets and matching liabilities are in different currencies.





All forward exchange contracts are valued at fair value on the balance sheet with the resultant gain or loss included in the

income statement.







Foreign Rand carrying

Forward exchange currency Settlement Settlement Average value at Maturity

contract summary amount currency value rate 31-Dec dates

2007

2006 ’m ’m Rm

Financial instruments



Sell

Canadian dollars 1,0 US dollars 0,8 1,15 –

Euros 1,4 US dollars 1,8 0,76 – Various

New Zealand

Japanese yen 85,8 dollars 1,1 80,34 – between

New Zealand dollars 2,3 US dollars 1,6 1,45 – 1 January 2007

and

Norwegian krone 6,7 US dollars 1,1 6,20 – 21 March 2007

US dollars 1,8 Euros 1,4 1,32 –





US dollars 5,3 Japanese yen 612,1 0,01 (1)

Norwegian

US dollars 2,1 krone 12,8 0,16 –



US dollars 2,8 British pounds 1,4 1,96 –





US dollars 1,2 Swedish krona 8,3 0,15 –



Total (1)



2005

Disposal group held for sale

(Ermitage)

Various between

Sell 13 January 2006

US dollars 46,6 British pounds 25,7 1,81 (15) and 30 June 2006

Various between

24 January 2006

Euros 0,6 British pounds 0,4 1,44 – and 30 June 2006



Sub-total (15)



Financial instruments



Sell

Australian dollars 8,5 US dollars 6,3 1,36 –

Euros 3,4 Japanese yen 467,7 0,01 –

Euros 11,0 British pounds 7,5 1,47 (1)

Euros 3,9 Swedish krona 36,7 0,11 –

Euros 9,8 US dollars 11,6 0,85 (1)

Japanese yen 1 357,3 US dollars 11,5 118,00 (2)

Various between

British pounds 4,4 Euros 6,5 0,68 1 1 January 2006

British pounds 1,0 Japanese yen 201,5 0,00 – and 6 February 2006

British pounds 8,5 US dollars 14,6 0,58 –

Swedish krona 12,3 Euros 1,3 9,41 –

US dollars 27,9 Euros 23,7 1,18 2

US dollars 18,3 Japanese yen 2 162,7 1,01 3

US dollars 1,4 Norwegian krone 9,4 0,15 –

US dollars 11,2 British pounds 6,5 1,73 –



Total (13)



(ii) Interest rate risk





Interest rate risk is the risk that the value and cash flow of a financial instrument will fluctuate due to changes in market

interest rates.



The following investments and liabilities, which are held at fair value, will be directly impacted by changes in market

interest rates:





Accounts receivable and accounts payable where settlement is expected within 90 days are not included in the analysis

below, since the effect of interest rate risk on these balances is not considered material given the short-term duration of

these underlying cash flows.

Financial instrument investments Exposed to Exposed to

cash flow fair value Effective

Note: the table for 2005 includes financial Carrying interest interest interest

instruments owned by disposal groups held value rate risk rate risk rate (1)

for sale Rm Rm Rm %

2006

Financial instrument investments

Held at fair value

Government, municipal and utility stocks 19 960 37 19 923 7,08

Debentures 15 493 2160 13 333 8,47

Money market securities 11 948 447 11 501 6,71

Investment policies 932 177 755 8,49

Preference shares with dividend yield

indexed to interest rate 2 825 1 626 1 199 6,73

Preference shares with fixed rate 1 291 1 054 237 7,57

Cash and cash equivalents 5 237 3 534 1 703 6,81

Held-to-maturity and loans and receivables

Mortgages and loans 809 402 1 199 12,50

Total 58 495 9 437 49 850

Directly attributable to shareholders (2) 5 930 2 354 3 576

2005

Financial instrument investments

Held at fair value

Government, municipal and utility stocks 20 432 4 20 428 7,12

Debentures 10 580 1 411 9 169 7,67

Money market securities 3 382 275 3 107 6,80

Investment policies 888 167 721 7,05

Preference shares with dividend yield

indexed to interest rate 1 987 1 391 596 7,06

Preference shares with fixed rate 819 573 246 6,23

Cash and cash equivalents 12 585 7 845 4 740 5,73

Held-to-maturity and loans and receivables

Mortgages and loans 2028 (3) 253 1 775 (3)



Total 52 701 52 701 40 782

Directly attributable to shareholders (2) 3 759 3 211 548

(1)

Effective interest rate is the rate applicable at 31 December on a nacm basis averaged on a weighted basis

with reference to carrying value.

(2)

These amounts are in respect of assets specifically designated as shareholder assets. The remaining asset

amounts are allocated to match policyholders’ liabilities. Therefore shareholders are only exposed to the extent

any remaining asset movements would impact profit margins and management fees earned in respect of

servicing policyholder contracts.

(3)

In 2005 these were mainly advances made to policyholders by cancellation of policyholders’ value of units

held. In effect these assets earn the same return as the unit portfolios in which they are invested. With effect from

1 January 2006 advances, which result in a cancellation of policyholders’ value of units held, have been

accounted for as partial surrenders and therefore a reduction in policyholder liabilities.



The maturity profile of the financial instrument investments is as follows:

2006 2006 2005 2005

Carrying Contractual Carrying Contractual

amount repricing (2) amount repricing (2)

Rm Rm Rm Rm

Within 1 year 16 877 2 182 14 178 966

1 – 2 years 5 450 1 138 2 814 590

2 – 3 years 2 279 411 4 811 927

3 – 4 years 5 813 980 2 145 182

4 – 5 years 3 377 610 5 128 671

More than 5 years 23 853 62 21 582 54

Variable 846 2 043

Total 58 495 5 383 52 701 3 390



Exposed to Exposed to

cash flow fair value Effective

Carrying interest interest interest

value rate risk rate risk rate (1)

Financial instrument liabilities Rm Rm Rm %

2006

Held-to-maturity

Callable capital bond 2 054 2 054 8,77



Redeemable non-participating

preference shares 207 207 9,21

2005

Held-to-maturity

Callable capital bond (3) 2 054 2 054 8,77



Redeemable non-participating

preference shares 206 206 7,45

(1)

Effective interest rate is the rate applicable at 31 December on a nacm basis averaged on a weighted

basis with reference to the carrying value.

(2)

The amounts represented are where there is a contractual repricing of the coupon interest rate prior

to the maturing date.

(3)

Contractually repriced on 12 September 2012, at which date it is callable by Liberty Group Limited,

with compulsory redemption on 12 September 2017.



(iii) Equity price risk



Equity price risk is the risk that the value of a financial instrument will fluctuate as a result of changes in

market prices.







Investments in all equities, certain derivatives, investment policies and mutual funds are valued

at fair value and are therefore susceptible to market fluctuations. The group makes use of

futures, options, and other derivatives in order to reduce market risk in the equity portfolios.



Of the total investments subject to equity price risk being R120 970 million (2005: R95 462

million),



R5 318 million (2005: R3 499 million) are designated shareholder specific assets not linked to

policyholders’ liabilities and therefore shareholders carry the full risk. Designated shareholder

specific assets are managed by the group’s capital management committee where concentration

and other risks are continuously evaluated.

The remaining investments are allocated to match policyholder liabilities. Investments that do not

exactly match the policyholder liability determination and those that support unearned margins

expose shareholders to further price risk. Shareholder management fees based on asset values

will also be affected by price movements. This is expanded upon in note 4.





Investments in mutual fund associates are not specifically defined financial instruments, but are

subject to price risk as described above, refer to note 14.



Credit risk



Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an

obligation and cause the group to incur a financial loss.





Scrip lending counterparties are restricted to appropriately accredited institutions. During 2006

the highest level of equity scrip lending activity at any one time amounted to R4 112 million

(2005: R2 380 million) and at

31 December 2006 R4 112 million (2005: R2 157 million). Scrip lending activities have resulted in

R9 million

(2005: R2 million) in scrip lending fees. Fees earned are split 10% to STANLIB and 90% to

Liberty Group Limited. The amount received by Liberty Group Limited is allocated 60% to

policyholder benefits and 40% to shareholder income.



With regard to credit risk contained in insurance and other receivables (including in 2005

receivables within disposal groups held for sale), the exposure is limited to R3 188 million (2005:

R2 839 million), comprising balances with policyholders, agents, brokers and intermediaries and

debtors arising from investment sales as follows:

2006 2005

Rm Rm

Policyholder short-term debtors 1 193 1 074

Agents, brokers and intermediaries 186 183

Investment debtors 250 497

Other 1 559 1 085

3 188 2 839





The majority of policyholders’ debts of R1 193 million (2005: R1 074 million) are recoverable

through offset against their respective liabilities (policy benefits).





Agents, brokers and intermediaries totalling R186 million (2005: R183 million) are subject to a

comprehensive relationship management programme, including credit assessment. Exposure to

any single agent, broker or intermediary is insignificant (less than R5 million, (2005: R3 million)).

The widespread nature of the individual amounts combined with the relationship programme

reduces the credit risk.





Debt collection procedures are rigorously carried out on defaulters. Industry supported default

lists help to prevent rogue agents, brokers and intermediaries from conducting business with

Liberty Life. Full provision is made for non-recoverability as soon as management is uncertain as

to the recovery.







Investment sale debtors are protected by the security of the underlying investment not being

transferred to the purchaser prior to payment. Established broker relationships and protection

afforded through the rules and directives of the JSE Limited further reduces credit risk.





Derivative counterparties and cash transactions are limited to high credit quality financial

institutions with minimum credit ratings of “A” determined by reputable credit rating agencies,

unless specifically authorised by the appropriate investment committee. Cash transactions are

mainly entered into with the group’s holding company, Standard Bank Group Limited and its

subsidiaries. The group has policies that limit the amount of the credit exposure to any one

financial institution.









The group is exposed to tenant default and unlet space within its investment property portfolio of

R14 112 million (2005: R13 368 million). This exposure risk is mainly attributable to the matching

policyholder liability and the shareholder exposure is limited to management fees and profit

margins. The managed diversity of the property portfolio and the existence of multi-tenanted

buildings significantly reduces the exposure to this credit risk. At 31 December 2006 the value of

unlet space in the property portfolio amounted to R11 million (2005: R83 million) proportionate

value. If policyholders cease to pay their premiums, as contractually required, any insurance risk

would lapse and any investment product would be subject to charges in order to recover

outstanding costs (refer to note 4).

Liquidity risk





Liquidity risk is the risk that the group will encounter difficulty in raising funds to meet

commitments associated with financial instruments.





Insurance companies are registered financial institutions and are required to hold minimum

capital to inter alia reduce policyholder exposure to the entity’s liquidity risk. The Financial

Services Board is the regulatory authority that regularly reviews compliance with these minimum

capital requirements. The statutory actuary and management continually manage and monitor

liquidity and capital requirements – refer to notes 2 and 4 for further detail.



The Financial Services Board’s approval of the group issuance of subordinated debt (callable

capital bonds) included a requirement to hold liquid assets equal to at least the amount of the

outstanding debt being R2 billion.



Liquidity risks arising out of contractual obligations to policyholders are discussed further in note

4.



Refer to the directors’ report for the company’s borrowing powers.



Legal risk



Legal risk is the risk that the group will be exposed to contractual obligations which have not

been provided for.



The group has a policy of ensuring all contractual obligations are documented and appropriately

evidenced to agreements with the relevant parties to the contract.

During the development stage of any new product and for any corporate transactions the

legal resources of the group, and if required external resources, monitor the drafting of

the contract document to ensure that rights and obligations of all parties are clearly set

out. All significant contracted claims are reviewed by independent legal resources and

amounts are immediately provided for if there is consensus as to any possible group

exposure. At 31 December 2006, the directors are not aware of any significant obligation



Operational risk



Operational risk is the risk of direct or indirect loss resulting from inadequate or failed

internal processes, people and systems or from external events.







The initiation of all transactions and their administration is conducted on the foundation of

segregation of duties that has been designed to ensure materially the completeness,

accuracy and validity of all transactions. These controls are augmented by management

and executive review of control accounts and systems, electronic and manual checks

and controls, back-up facilities and contingency planning. The internal control systems

and procedures are also subjected to regular internal audit reviews.



Taxation risk



Taxation risk is the risk that the group will incur a financial loss due to an incorrect

interpretation and application of taxation legislation or due to the impact of new taxation

legislation on existing structures.





During the development stage of any new product and prior to any corporate

transactions the taxation resources of the group, and if required external resources,

identify and advise on any material potential taxation impact thereof.



Proposed new taxation legislation is researched fully by the legal and taxation resources

to identify any potential impact to the group and where appropriate representation is

made to the relevant government minister, including lobby groups to assist in ensuring

the fairness of new taxation legislation.



Taxation risk is further mitigated through policy terms and conditions, which enable the

risk to be passed back to policyholders. This is the case on all classes of business other

than non-participating annuity business.



Regulatory risk



Regulatory risk is the risk arising from a change in regulations pertaining to the business

of the group. In order to manage this risk, the group is an active participant in industry

bodies, such as the Life Offices Association, that engage in discussions with policy

makers and regulators.

Notes on the Financial Statements

for the year ended 31 December 2006





4 Management of insurance and financial risk on contractual obligations to policyholders





Liberty Life issues contracts that result in the transfer of insurance risk and/or financial risk to the

group. This note summarises Liberty Life’s objectives in managing market, insurance, credit and

liquidity risks arising from contractual obligations t



Responsibility for risk management



4.1 The Capital Adequacy Requirement (CAR) as part of the risk management framework







The group is required to demonstrate solvency to the Registrar of Long-term Insurance, in

accordance with the Long-term Insurance Act (1998) as amended. This requires the group to

demonstrate that it has sufficient assets to meet its liabilities and CAR f









The CAR is intended to approximate a risk -based capital measure and gives guidance to the

board concerning acceptable minimum group capital requirements. The CAR is calculated in

accordance with the Long-term Insurance Act (1998) and PGN 104, as the grea

Financial risk arising from mismatches between assets and liabilities, including specific

provision for mismatches between assets backing liabilities in respect of embedded

– derivatives and the liabilities themselves;

– Changes in lapse and withdrawal experience;

– Fluctuations in experience for mortality, morbidity and expenses; and

– The risk that assumptions for mortality and morbidity are not accurate estimates.



Statutory capital adequacy requirements were covered 2,3 times at 31 December 2006 (2005:

2,0 times).





Risk categories, and risks within categories, are discussed in approximately decreasing order of

importance based on the group’s assessment of these risks after taking risk management

procedures and mitigating factors into account. This ordering is broadl



4.2 Market risk









The group is exposed to market risk through its financial assets, financial liabilities (investment

contracts and borrowings), insurance liabilities, and in particular the risk that the proceeds from

its financial assets are not sufficient to fund the obl









The group manages these positions within an asset liability management (ALM) framework that

aims to match assets to the liabilities arising from insurance and investment contracts by

currency, nature and term. For each distinct category of liabilities in



The following table provides a more detailed breakdown of policyholders’ liabilities to

contextualise the discussion that follows:

Liabilities Proportion Liabilities Proportion

as at of total as at of total

31 December policyholders’31 December policyholders’

2006 liabilities 2005 liabilities

Rm % Rm %

Individual non-participating

business: 17 482 10 17 400 12



– non-participating annuities 14 217 8 14 363 10

– guaranteed capital bonds 4 295 3 3 860 3

– other (1 030) ( 1) ( 823) ( 1)



Individual participating business: 117 276 69 94 504 67



– business with DPF 26 904 16 13 636 10

– unit linked 88 892 52 80 326 57

– other 1 480 1 542



Group risk 2 560 2 2 451 2

Group non-risk 32 328 19 27 249 19



– business with DPF 5 791 3 5 096 3

– other 26 537 16 22 153 16



Total 169 646 100 141 604 100

Total deferred taxation applicable to fair

value adjustments ( 748) ( 769)

Total policyholders’ liabilities 168 898 140 835

4.2.1 Interest rate and market price risk



These risks have very different impacts on the various categories of business used in the

group’s ALM framework. Interest rate and market price risk have been discussed together since

they interact on certain types of liabilities.



(a) Guaranteed maturity values



Embedded derivatives in the form of guaranteed maturity values are attached to a

significant portion of unit linked business. Liabilities arising from these embedded

derivatives are valued in accordance with valuation techniques described in PGN 110.









These liabilities are essentially put options on the underlying unit linked liabilities and as

such are sensitive to movements in interest rates and equity prices and their volatilities.

The group constantly monitors the exposure and is investigating econ



(b) Guaranteed annuity options









Guaranteed annuity options (GAOs) give the policyholder the option to convert the maturity

proceeds of a retirement annuity into an annuity at a predefined rate. GAOs are no longer

sold on new business. As in the case of guaranteed maturity values, liabil









GAOs expose the group to interest rate risk. Falling interest rates increase the value of

GAOs significantly. In addition, since the GAO applies to the full proceeds of the

underlying policy, which is typically an equity-based investment, they give rise t



The group constantly monitors the exposure and is investigating economically efficient

ways in which the risks arising from GAOs could be more closely hedged.



(c) Unit linked business









For unit linked contracts, the group holds the assets on which the unit prices are based. As

a result, there is no mismatch. For purposes of this matching exercise gross unit liabilities,

in respect of defined insurance contracts, are however reduced by t





Management fees charged on this business are determined as a percentage of the fair

value of the underlying assets held in the linked funds, which are subject to interest rate

and market price risk. As a result the management fees are volatile, although a





On a portion of business in this category, policyholders are entitled to only 90% of both the

upside and downside returns achieved on the underlying assets. This leaves shareholders’

earnings with exposure to the remaining 10% thereby introducing earnings





Within this category of business there are insurance contracts with minimum guaranteed

death benefits and universal life type contracts in terms of which the sum at risk depends

on the fair value of the underlying investments. These contract features mean



(d) Non-participating annuities









Non-participating annuities provide benefit payments that are fixed and guaranteed at

inception of the contract (although a small proportion of the business provides inflation

related increases on annuities in payment). These liabilities are backed largel









The group monitors interest rate risk on this business by comparing the modified duration

and convexity of the investment portfolio and the liabilities issued. The modified duration of

the liabilities is determined by projecting expected cash flows from t





The portfolio mandate requires that the difference between the modified duration of the

asset and liabilities is never more than one year. For a large proportion of the business,

sensitivity to changes in the shape of the yield curve is also monitored and





The table below describes the expected cash flow profile arising from these annuities

(excluding some annuities in respect of disability income business and certain corporate

investment business):

Cash flows Total cash

arising Cash flows arising flows

under annuities under annuities arising on

classified as classified non-

insurance participating

Rm business as investment business annuities

2006

Within 1 year 1 409 380 1 789

2 – 5 years 5 494 530 6 024

6 – 10 years 6 475 15 6 490

11 – 20 years 10 683 4 10 687

Over 20 years 15 269 15 269

Total 39 330 929 40 259

2005 (restated)

Within 1 year 1 341 379 1 720

2 – 5 years 5 150 615 5 765

6 – 10 years 6 076 12 6 088

11 – 20 years 10 483 4 10 487

Over 20 years 13 935 13 935

Total 36 985 1 010 37 995

The 2005 figures have been restated to include annuities in payment in respect of Liberty

Corporate disability income business.



(e) Long-term insurance contracts with discretionary participating features (DPF)









The group has a number of books of long-term insurance contracts with DPFs most of

which have been acquired from other insurers. Each book of business is backed by a

distinct asset profile, often as a result of conditions included in the scheme of transfe









Bonuses are declared on this business taking a number of factors into account, including:

the previous bonus rates declared, policyholders’ reasonable expectations, expenses,

actual investment returns on the underlying assets, expectations of future inves









The group recognises the full value of the backing assets as a liability. The group, however

,only bears interest rate risk in relation to the guaranteed benefits under these contracts,

and not in respect of the DPF component of the liability. Furthermore



(f) Guaranteed capital bonds and structured products





Guaranteed capital bonds have benefit payments that are fixed and guaranteed at

inception of the contract. The ALM framework dictates that assets are selected to provide a

cash flow match to these liabilities. There is consequently no exposure to interest









Structured products provide a guaranteed minimum maturity benefit together with

predefined market related upside. The ALM framework dictates that these obligations are

matched exactly. This is done by holding a zero coupon bond to match the guaranteed min



On this business the risk of a change in tax laws is mitigated through policy terms and

conditions which enable this risk to be passed back to the policyholder.



(g) Investment business





Discussion of interest rate and equity price risk arising from contracts classified as

investment business is provided in the paragraphs above. For purposes of clarity and

completeness a brief description of interest rate and equity price risk arising on





The majority of business classified as investment business is unit-linked in nature,

including group investment contracts, linked life annuities and matured endowment

policies. As described in (c) above, the group holds the assets on which the unit prices





Similarly, structured products and guaranteed capital bonds classified as investment

business are also backed by exactly the assets required to provide the benefits promised,

as discussed in (f) above. There is consequently no interest rate or equity pric





Annuities certain with fixed terms account for the balance of investment business. As

described in (d) above annuities are matched by interest-bearing assets of the appropriate

duration. This does not constitute an exact cash flow match, so there is some



4.2.2 Currency risk

Offshore assets are held in policyholder assets to match the corresponding liabilities. As a result

of this, the group is exposed to currency risk through maturity guarantees issued on contracts

invested in offshore portfolios. Maturity guarantees are no



4.3 Insurance risk









Insurance risk is the risk that future claims and expenses will exceed the value placed on

insurance liabilities. It occurs due to the uncertainty of the timing and amount of future cash

flows arising under insurance contracts. The timing is specifically



The larger the portfolio of uncorrelated insurance risks, the smaller the relative variability about

the expected outcome will be. In addition, a more diversified portfolio of risks is less likely to be

affected across the board by a change in any subset



4.3.1 Policyholder behaviour risk





Policyholders have the option to discontinue or reduce contributions or withdraw benefits prior to

expiry of the contract term. As a result policyholder behaviour contributes to insurance risk.





The main risk posed by this behaviour is the risk that expenses and commissions incurred early

in the term of the contract, but priced to be recovered by means of ongoing charges over a

longer period, are not fully recovered due to the decision by the pol









On contracts where a withdrawal benefit is payable, this risk is mitigated by conditions built into

policy contracts which enable the group to recoup these unrecovered expenses by means of a

lump sum charge. Charges of this sort have been limited in terms



In addition, commission clawback provisions, included in contracts with intermediaries, enable

the group to mitigate some of the risk of early termination.



4.3.2 Mortality and morbidity risk



Procedures to control and manage the underwriting risks at a group level are in operation, of

which the more significant are as follows:









The statutory actuary reports annually on the actuarial soundness of the premium rates in use

and the profitability of the business taking into consideration the reasonable benefit expectation

of policyholders. All new premium rates are approved and autho





Catastrophe reinsurance has been consolidated across all of Liberty’s life licences. Cover is in

place for single event disasters leading to claims of more than R50 million up to a limit of R500

million in respect of a single event and R1 000 million in a





Assumptions are made concerning the expected deaths and disabilities (including dread

disease claims) that will occur in each future time period. The risk posed by deviations from the

assumptions depends on the type of business. The significant classes of



(a) Life annuity business









In terms of life annuity business, the insurer undertakes to pay a series of future payments

contingent on the policyholder’s survival. The most significant insurance risk on these liabilities

is continued medical advances and improvement in social condit





Claims on disability income business also gives rise to life annuities. A proportion of both group

and individual disability income business is reinsured on a proportionate quota share basis, so a

proportion of all annuities arising from disability income







Undue concentration of life annuities in payment would leave cash flows and, consequently,

liabilities heavily exposed to the mortality experience of a few lives. The profile of annuity

amounts payable per life, in respect of non-participating life annuit

2006 2005

Restated

Number of Annual Number Annual

annuity of annuity

Annuity amount per life annuities life

amount exposure annuities amount exposure

annum (R) in payment (Rm) in payment (Rm)

0 – 240 000 96 960 1 381 98 897 1 412

240 000 – 480 000 240 76 234 74

480 000 – 720 000 22 13 21 12

720 000 and above 12 11 11 10

Total 97 234 1 481 99 163 1 508

Figures for 2005 have been restated to include group participating annuity business.

(b) Group risk business









The most significant factors that could increase the frequency of mortality claims are epidemics,

such as AIDS and Asian bird flu, or lifestyle changes such as eating, drinking and exercise

habits, resulting in earlier or more claims than expected. Morbid





Group scheme pricing is based on past scheme experience, industry class and average income

amongst other factors. The group monitors exposure per industry class in order to maintain a

diversified portfolio of risks and manage concentration exposure to a p



The following table provides the split by industry class of annual premium income received on

group risk business:

2006 2005

Restated

Industry class % %

Administrative/professional 21 21

Retail 28 27

Light manufacturing 32 30

Heavy manufacturing 13 14

Heavy industrial and other high risk 6 8

Total 100 100

The 2005 figures have been restated to include a block of business that had previously been

excluded from this analysis.









Free cover limits are set for individual schemes based on the size of the scheme and the

distribution of sums assured. Larger sums assured in excess of the free cover limit are medically

underwritten. As a result, very few lives are tested for HIV. Howeve



Large individual risks on group schemes are reinsured on a surplus risk premium basis.



(c) Individual assurance business



In order to eliminate cross-subsidies in the pricing basis, premiums are differentiated by gender,

smoker status, and proxies to socio-economic class. Historic experience has shown that these

factors are significant determinants of mortality and morbidity



The underwriting committee determines underwriting guidelines concerning authority limits and

procedures to be followed.







The health condition and family medical history of applicants are assessed at inception of new

contracts as part of the underwriting process and premiums and terms and conditions are varied

accordingly. Special risks, such as hazardous pursuits and unusua





All applications for risk cover in excess of specified limits are reviewed by experienced

underwriters and evaluated against established standards. Specific testing for HIV is carried out

in all cases where the applications for risk cover exceed set limit









The group analyses the progression of claims experience on a monthly basis. Given experience

to date and the composition of the business written, deterioration in mortality and morbidity due

to HIV and AIDS is currently considered to be a relatively small









Charges for mortality and morbidity risk on unit-linked universal life business can be altered in

accordance with the terms and conditions, thereby reducing the risk exposure. However, delays

in implementing increases in charges and market or regulatory r





Premiums on the majority of unit-linked risk business and the non-participating Lifestyle

Protector product, can be reviewed on expiry of a guarantee period which varies by policy type

or age of the policyholder at inception. This gives the group the abil





The product approval committee considers the risk associated with future premium updates. In

general updates follow the terms and conditions of the original contract, as described above,

thereby giving the group the ability to mitigate against this risk.









For Liberty Life individual business, mortality and morbidity benefits in excess of R8,0 million

(2005: R7,5 million) are reinsured under an original terms surplus reinsurance arrangement.

This retention limit is reviewed annually to keep pace with inflat



The following table provides a summary of the profile of amounts at risk per life in terms of

mortality benefits before and after reinsurance:

2006 Before reinsurance After reinsurance

Retained sum at risk (R) Rm % Rm %

0 – 1 499 999 231 724 52 196 494 52

1 500 000 – 2 999 999 83 998 19 77 370 21

3 000 000 – 7 499 999 116 934 26 90 671 24

7 500 000 and above 17 081 4 9 766 3

Total 449 737 100 374 301 100

2005 restated Before reinsurance After reinsurance

Retained sum at risk (R) Rm % Rm %

0 – 1 499 999 246 257 57 202 828 57

1 500 000 – 2999 999 78 487 18 72 430 20

3 000 000 – 7 499 999 99 813 23 79 607 22

7 500 000 and above 3 830 1 2 748 1

Total 428 387 100 357613 100

The 2005 figures have been restated to include Liberty Active.



4.4 Credit risk



Provisions of the Long-term Insurance Act 1998 have the effect of limiting exposure to individual

issuers due to the inadmissibility of assets for regulatory purposes if specified limits are

breached.









In addition, each policyholder portfolio has specific mandates which include guidelines

concerning the credit rating of issuers. Compliance with mandates is monitored by the asset

managers in accordance with guidelines established by the asset liability m



Credit ratings of reinsurers are taken into account in reinsurance placement decisions. Credit

exposure to reinsurers is also limited through the use of several reinsurers.



4.5 Liquidity risk







Net cash flows are monitored closely. Over the last few years the Liberty Group has

experienced positive net cash flows. In addition, the group has significant credit lines over and

above the liquid assets held to meet cash demands. Liquidity requirements









Since the majority of the business is unit linked (or market related), liquidity risk arising as a

result of changes in lapse and withdrawal experience is limited through policy terms and

conditions that restrict claims to the value at which assets are re









The following two tables give an indication of liquidity needs in respect of cashflows required to

meet obligations arising under insurance contracts and investment contracts with DPF (as

defined in IFRS 4). The amounts in the unit cash flow table represe







disability income business and credit life business, has been excluded from the table (but group

annuities and disability income claims in payment have been included). Cash flows from

investment contracts (as defined under IFRS 4) have also been excluded.

Amount payable

Period when unit reserve cash flows become due 2006 2005

(insurance contracts and investment contracts with DPF) Rm Rm

Within 1 year 17 510 13 744

2 – 5 years 45 781 37 794

6 – 10 years 28 118 23 404

11 – 20 years 18 984 15 599

Over 20 years 5 344 4 335

Total 115 737 94 876

Total deferred taxation applicable to fair value adjustments on

investment properties ( 602) ( 619)

Total policyholders’ liabilities under insurance contracts and

investment contracts with DPF 115 135 94 257

Amount payable

Period when rand reserve cash flows become due 2006 2005

(insurance contracts and investment contracts with DPF) Rm Rm

Within 1 year 2 003 1 188

2 – 5 years 2 090 3 516

6 – 10 years 1 076 1 624

11 – 20 years 5 626 6 211

Over 20 years 14 722 13 956

Effect of discounting cash flows (16 058) (16 773)

Total 9 459 9 722

Notes on the Financial Statements

for the year ended 31 December 2006



5 Derivative financial instruments



The company and the group are parties to derivative financial instruments. These instruments

are used to limit or reduce risk, and comprise futures, options, swaps and forward exchange

contracts.









Derivative financial instruments are either traded on a regulated exchange (South African

Futures Exchange, SAFEX) or negotiated over-the-counter (OTC) as a direct arrangement

between two counterparties. Instruments traded on SAFEX are margined and SAFEX

Group Company

2006 2005 2006 2005

Rm Rm Rm Rm

Equity contracts 77 113 (78) (18)

Forward exchange

contracts (1) (13)

Reclassified as

disposal groups held

for sale 15

Total derivative

financial instruments 76 115 ( 78) ( 18)

Disclosed as:

Assets included in

financial instruments

(refer note 15) 172 150 12 16

Financial liabilities (96) (35) (90) (34)

Total 76 115 (78) (18)



5.1 Equity contracts summary

Total

Group equity contracts

Bought Sold

Rm Rm

Open derivative positions at

31 December are:

2006

Notional or underlying principal

amount by term to maturity (1)

Exchange traded

Less than 1 year 21

Over the counter

Less than 1 year 1 945 (2 492)

1 to 5 years 249 (126)

Total 2 215 (2618)

Fair value 168 (96)

(2)

Maximum credit risk 168



2005

Notional or underlying principal

(1)

amount by term to maturity

Exchange traded

Less than 1 year 13 (431)

Over the counter

Less than 1 year 155 (272)

1 to 5 years 170 (108)

Total 338 (811)

Fair value 148 (35)

Maximum credit risk (2) 148



Total

Company equity contracts

Bought Sold

Rm Rm

Open derivative positions at

31 December are:

2006

Notional or underlying principal

(1)

amount by term to maturity

Exchange traded

Less than 1 year 1

Over the counter

Less than 1 year 1 945 (2492)

1 to 5 years 15

Total 1 961 (2492)

Fair value 12 (90)

Maximum credit risk (2) 12



2005

Notional or underlying principal

amount by term to maturity (1)

Exchange traded

Less than 1 year 11 (299)

1 to 5 years

Over the counter

Less than 1 year 155 (271)

1 to 5 years 18 (69)

Total 184 (639)

Fair value 16 (34)

Maximum credit risk (2) 16



(1)

Notional or underlying principal amount reflects the volume of the group’s or company’s

investment in derivative financial instruments. It represents the amount to which a rate or price

is applied to calculate the exchange of cash flows. The amount at





(2)

Maximum credit risk represents the cost of replacing, at current fair values, all contracts

which have a positive fair value, should the counterparty default. Since no loss related to credit

risk is incurred for contracts with a negative fair value, o



5.2 Forward exchange contracts



Refer to note 3(i) for full details of the group’s forward exchange contracts in existence at 31

December.

Notes on the Financial Statements

for the year ended 31 December 2006



6 Segment information



(a) Primary reporting segment – business segments



At 31 December 2006, the principal business of the group is the provision of long-term

insurance and investments, which is managed using the following segments:



Group

Group benefits administer packaged solutions to the retirement funding and insured benefit

needs of mostly small to medium-sized companies although it does include larger corporate

funds.



(1) Group – Risk

Any scheme benefit where the claim proceeds payable under the benefit are not in any way

linked to the performance of any asset.



(2) Group – Non-risk

Any scheme benefit where the claim proceeds payable under the benefit are in some way

dependent on the performance of applicable investment assets.



Individual

Individual business administers a wide range of investment, retirement, health and risk products

and services to individuals and their families.



(3) Individual – Participating (excluding Prudential participating business)



Any benefit on an individual policy that is not non-participating, i.e. the premium charged for

and/or the claim proceeds payable, other than on early termination, under the benefit are in

some way dependent on the performance of applicable investment ass



(4) Individual – Non-participating

Any benefit on an individual policy where the premium charged for and the claims proceeds

payable, other than on early termination, are in no way linked to the performance of any asset

after the inception of the policy.



(5) Prudential participating business

Represents a portion of the insurance contracts acquired from a previous business

acquisition. This portion of business operates as a segregated business with profits fund. As

such it is discretionary participating in nature.



Non-insurance business



(6) Asset management



Comprises STANLIB, a joint venture of the Liberty Group that offers a local and international

investment product mix that includes all asset classes and aims to meet the wealth creation

needs of both institutional and retail investors; and Liberty Group P



(7) Shareholder operations

Shareholders’ income and expenses and other activities not directly related to the business

segments identified are included in shareholder operations. This also includes segments that

are not separated due to their immateriality.



(8) Mutual funds









IFRS requires the consolidation of certain mutual funds where the Liberty Group is considered

to have control of such funds through the size of its investment, voting control and related

management contracts. The consolidation of mutual funds has no effec



(9) Disposal groups held for sale in 2005

Comprises Liberty Ermitage Jersey Limited, an offshore asset management and hedge fund

specialist operation and Prefsure Holdings Limited, an Australian-based long-term insurer.

These entities were disposed of in 2006.





The segment results for the year ended 31 December 2006 are as follows:

Group Individual Other

Pru- Total

dential life Share-

Non- parti- fund Asset holder

Non- Partici- partici- cipating opera- manage- opera- Mutual

Rm Risk risk pating pating business tions ment tions funds Total



Net insurance 1 614 126 14 071 4 241 14 20 066 20 066

premiums

Service fee income

from investment

contracts 562 150 52 764 764

Investment returns 162 6 742 24 000 1 224 2 617 34 745 35 1 950 1 703 38 433

Management fees

on assets under

management 52 (34) 18

Inter-segmental revenue (37) 37

Segment revenue 1 776 7 430 38 184 5 554 2 631 55 575 87 1 916 1 703 59 281



Claims and policyholder

benefits under

insurance contracts (1 619) (610) (11 753) (2 689) (388) (17 059) (17 059)

Insurance claims

recovered from

reinsurers 335 163 80 578 578

Change in policyholder

liabilities under

insurance contracts (19) (699) (18 583) (376) (1 982) (21 659) (21 659)

Fair value adjustment

to policyholders’

liabilities under

investment contracts (5 360) (2 848) (68) (8 276) (8 276)

Fair value adjustment

on third party

mutual fund interests (1 480) (1 480)

Acquisition costs

associated with

insurance and

investment contracts ( 68) ( 138) (1 055) (1 152) (2 413) (2 413)

General marketing

and administration

expenses (143) (486) (1 874) ( 667) (54) (3 224) (3) (234) (223) (3 684)

Segment result 262 137 2 234 682 207 3 522 84 1 682 0 5 288



Finance costs (2) (8) (2) (12) (203) (215)

Preference dividend (184) (184) (184)

Profit on sale

of subsidiaries 374 374

Equity accounted

earnings from joint

ventures 49 49 101 150

Profit before taxation 262 135 2 275 496 207 3 375 185 1 853 5 413

Taxation (77) (73) (1 504) (176) (150) (1 980) (15) (254) (2 249)

Total earnings 185 62 771 320 57 1 395 170 1 599 3 164





The restated segment results for the year ended 31 December 2005 are as follows:

Group Individual Other

Pru- Total

dential life Share-

Non- parti- fund Asset holder

Non- Partici- partici- cipating opera- manage- opera- Mutual Disposal

Rm Risk risk pating pating business tions ment tions funds groups Total

Net insurance 1 336 259 13 412 3 391 14 18 412 567 18 979

premiums

Service fee income from

investment contracts 490 180 39 709 4 713

Investment returns 227 5 644 18 514 2 683 2 138 29 206 27 1 494 2 084 25 32 836

Management fees on

assets under

management 1 1 87 (49) 326 365

Inter-segmental revenue 56 (56)

Segment revenue 1 563 6 393 32 163 6 057 2 152 48 328 114 1 445 2 084 922 52 893



Claims and policyholder

benefits under insurance

contracts (1 344) (490) (9 339) (2 935) (288) (14 396) (399) (14 795)

Insurance claims

recovered

from reinsurers 296 186 33 515 260 775

Change in policyholder

liabilities under

insurance contracts (46) (836) (15 715) (484) (1 659) (18 740) (56) (18 796)

Fair value adjustment to

policyholders’ liabilities

under investment

contracts (4 273) (2 402) (150) (6 825) (9) (6 834)

Fair value adjustment on

third party mutual fund

interests (1 879) (1 879)

Acquisition costs

associated

with insurance and

investment contracts (62) (135) (2 235) (972) (3 404) (190) (3 594)

General marketing and

administration expenses (121) (547) (1 823) (499) (28) (3 018) (27) (264) (205) (368) (3 882)

Segment result 286 112 835 1 050 177 2 460 87 1 181 – 160 3 888



Finance costs (2) (10) (1) (1) (14) (65) (2) (81)

Preference dividend (1) (137) (138) (138)

Goodwill impairment (397) (397)

Loss on sale

of subsidiary (2) (2)

Equity

accounted earnings

from joint ventures 14 14 77 91

Profit before taxation 285 110 839 912 176 2 322 164 717 – 158 3 361

Taxation (96) (104) (678) (376) (154) (1 408) (14) (174) (27) (1 623)

Total earnings 189 6 161 536 22 914 150 543 – 131 1 738







Other segment items included in the income statement and the segment assets and liabilities and capital

expenditure for the year then ended are as follows:

Group Individual Other

Prudential Share- Disposal

Non- partici- Asset holder groups

Partici- partici- pating manage- opera- Mutual held

Rm Risk Non-risk pating pating businessment tions funds for sale Total

2006

Depreciation (1) (106) (107)

Amortisation of PVIF (8) (22) (86) (47) (163)

Amortisation of computer

software internally

generated (40) (40)

Amortisation of deferred

acquisition costs (13) (151) (164)

Release of deferred revenue 7 7

2005

Depreciation (1) (122) (5) (128)

Amortisation of PVIF (17) (21) (73) (19) (4) (134)

Amortisation of computer

software internally generated (41) (41)

Impairment of goodwill (397) (397)

Impairment of PVIF (20) (20)

Amortisation and

impairment of deferred

acquisition costs (20) (23) (5) (48)

Release of

deferred revenue 9 9

2006

Investments (1) 1 601 32 088 105 375 16 932 10 331 465 19 111 8 597 194 500

Intangible assets 67 143 690 378 53 1 331

Deferred acquisition costs 76 232 308

Reinsurance assets 892 (56) 229 1 065

Other assets (2) 75 3 594 123 3 792

Segment assets 2 560 32 307 106 241 17 539 10 331 540 22 758 8 720 200 996

Policyholders’ liabilities 2 560 32 328 106 945 17 482 10 331 169 646

Deferred taxation on

investment properties (21) (784) 57 (748)

Deferred revenue 80 80

Other liabilities (3) 46 10 759 8 720 19 525

Segment liabilities 2 560 32 307 106 241 17 539 10 331 46 10 759 8 720 188 503

Capital expenditure (4) 78 245 311 634



Rm

2005

Investments (1) 1,562 26,938 84,371 16,475 8,242 416 16,368 7,224 1,289 162,885

Intangible assets 75 165 776 425 93 162 1,696

Deferred acquisition costs 70 204 24 298

Reinsurance assets 766 8 172 501 1,447

Other assets (2) 420 210 31 2,596 95 428 3,780

Segment assets 2,403 27,173 85,779 17,306 8,242 447 19,057 7,319 2,380 170,106

Policyholders’ liabilities 2451 27249 86153 17400 8351 827 142,431

Deferred taxation on

investment properties (48) (76) (439) (97) (109) (769)

Deferred revenue 65 3 68

Other liabilities (3) 30 9258 7319 440 17047

Segment liabilities 2 403 27 173 85 779 17 306 8 242 30 9 258 7 319 1 267 158 777

Capital expenditure (4) 215 67 984 261 294 6 1827



Inter-segmental transactions are entered into under normal commercial terms and conditions that

would also be available to unrelated third parties.

(1)

Includes financial instruments, associates, joint ventures, owner-occupied and investment

properties and cash and cash equivalents.

(2)

Other assets mainly consist of prepayments, insurance and other receivables.

(3)

Other liabilities mainly consist of insurance and other payables.

(4)

Capital expenditure comprises additions to equipment, owner-occupied and investment

properties, intangible assets and deferred acquisition costs.



(b) Secondary reporting segment – geographical segments



The group’s main business segments mainly operate in southern Africa.



The segment information for the years ended 31 December are as follows:

Southern Africa Rest of World Total

Rm 2006 2005 2006 2005 2006 2005

Segment revenue 59 281 51 971 922 59 281 52 893

Total assets 200 996 167 726 2 380 200 996 170 106

Capital expenditure 634 1 821 6 634 1 827



Revenue is allocated based on the country in which the insurance or investment contract is

issued or service fee income and investment returns are earned.



Total assets are allocated based on where the matching insurance or investment is issued or, if

not matched, where the business owning the asset is situated.



Capital expenditure is based on where the business owning the asset is situated.

Notes on the Financial Statements

for the year ended 31 December 2006



Group Company

2006 2005 2006 2005

Rm Rm Rm Rm

Equipment and properties under

7 development

Cost at beginning of year 1,231 1,085 995 851

Additions through business acquisition 24 137

Additions 185 103 169 67

Additions – capitalised subsequent

expenditure 126 97 126 97

Disposals (86) (39) (79) (28)

Disposals through business disposal (4)

Foreign exchange movements (1)

Disclosed as disposal groups held for sale (42)

Transfers (to)/from investment properties (46) 8 (46) 8

Transfers to owner-occupied properties (1) (1)

Cost at the end of the year 1,409 1,231 1,301 995

Accumulated depreciation and impairment

at the beginngin of the year (806) (731) (645) (571)

Additions through business acquisitions (89)

Depreciation (107) (128) (100) (97)

Disposals 68 31 63 23

Disposals through business disposal 2

Impairments (6)

Foreign exchange movements

Disclosed as disposal groups held for sale 26

Accumulated depreciation and impairment

at end of year (845) (806) (771) (645)

Net carrying amount at end of year 564 425 530 350

Balance at Business Balance Net

beginning acqui- Depre- Transfers at end book

of year sition Additions Disposals ciation out of year value

Rm Rm Rm Rm Rm Rm Rm Rm

Cost – movement

Group

Properties under development (1) 105 126 (47) 184 184

Computer equipment 567 65 (5) 627 121

Purchased computer software 40 12 52 24

Fixtures, furniture and fittings 391 85 (68) 408 165

Office equipment and office machines 71 10 (3) 78 38

Motor vehicles 57 13 (10) 60 32

1,231 311 (86) (47) 1,409 564

Company

Properties under development 105 126 (47) 184 184

Computer equipment 512 17 63 (5) 587 115

Purchased computer software 36 12 48 24

Fixtures, furniture and fittings 240 108 75 (62) 361 147

Office equipment and office machines 50 12 8 (2) 68 32

Motor vehicles 52 11 (10) 53 28

995 137 295 (79) (47) 1,301 530

Accumulated depreciation and

impairment – movement

Group

Computer equipment (465) 8 (49) (506)

Purchased computer software (20) (8) (28)

Fixtures, furniture and fittings (254) 45 (34) (243)

Office equipment and office machines (42) 7 (5) (40)

Motor vehicles (25) 8 (11) (28)

(806) 68 (107) (845)

Company

Computer equipment (419) (14) 7 (46) (472)

Purchased computer software (17) (7) (24)

Fixtures, furniture and fittings (150) (75) 42 (31) (214)

Office equipment and office machines (38) 7 (5) (36)

Motor vehicles (21) 7 (11) (25)

(645) (89) 63 (100) (771)

(1)

No depreciation is provided for on properties under development.

Notes on the Financial Statements

for the year ended 31 December 2006



Group Company

2006 2005 2006 2005

Rm Rm Rm Rm

8 Owner-occupied properties

Fair value at the beginning of the

year 848 757 823 699

Additions – capitalised

subsequent expenditure 17 6 18 5

Additions through business

acquisition 19

Disposals (26) (16) (26) (14)

Revaluations 50 138 49 140

Transfer from properties under

development 1 1

Reclassifications to investment

properties (23) (56) (7)

Fair value at end of year 867 848 865 823

2005 2006

Fair Transfer Reclassi- Fair

value Additions Disposals Revaluations in fication value

Rm Rm Rm Rm Rm Rm Rm

Movement

Group

Land and buildings 826 14 -26 56 1 (23) 848

Appurtenances

– Electrical and mechanical 20 3 (6) 17

– Access control equipment 1 1

– Soft furnishings 1 1

848 17 -26 50 1 (23) 867

Company

Land and buildings 802 15 (26) 55 1 847

Appurtenances

– Electrical and mechanical 19 3 (6) 16

– Access control equipment 1 1

– Soft furnishings 1 1

823 18 (14) 49 1 865



The original cost less accumulated depreciation of the owner-occupied properties is provided below. The allowed

alternative method as described in IAS 16 is fair value, which has been adopted by the group.

Group Company

2006 2005 2006 2005

Rm Rm Rm Rm

Original cost at the beginning of the year 285 294 264 267

Additions – capitalised subsequent expenditure 16 6 17 5

Additions through business acquisition 19

Disposals (16) (6) (18) (6)

Reclassifications to investment properties (21) (28) (4) (2)

Transfer from properties under development 1 1

Cost at the end of the year 265 285 260 264

Accumulated depreciation at the beginning of the year (55) (47) (52) (44)

Depreciation (6) (8) (6) (8)

Reclassifications to investment properties 4 3

Accumulated depreciation at the end of the year (57) (55) (55) (52)

Original cost less accumulated depreciation 208 230 205 212

The valuation of owner-occupied properties and investment properties has been carried out by Ian Mitchell

Investment Property Consultants CC (Chartered Valuation Surveyor – Professional Valuer) and Dijalo Valuation

Services Management (Pty) Limited (Profe









The valuation is prepared in accordance with the guidelines of the South African Institute of Valuers for valuation

reports and in accordance with the appraisal and valuation manual of the Royal institution of Chartered Surveyors,

adapted for South Africa





The basis of value is “market value” which is defined as an opinion of the best price at which the sale of an interest

in property would have been completed unconditionally or a cash consideration on the date of valuation assuming:



- a willing seller;



-that the state of the market, level of values and other circumstances were, on any earlier assumed date of

exchange of contracts, the same as the date of valuation;



- that no account is taken of any additional bid by a prospective purchaser with a special interest; and



- that both parties to the transaction had acted knowledgeably, prudently and without compulsion.









The properties have been valued on a discounted cash flow basis. In the majority of cases, discounted cash flows

have been used and summed together with the capitalised and discounted value of the projected income to give

present value as at 31 December 2









Appropriate discount rates have been applied to cash flows for each property to reflect the relative investment risk

associated with the particular building, tenant, covenant and the projected income flow. Extensive market research

has been conducted to a



Primary discount rates range from 8% to 11,5% on a property by property basis. Exit capitalisation rates generally

range from 8% to 11,5%.





On the basis that turnover or profit rental income has a greater degree of uncertainty and risk than the contractual

base rental, a risk premium of between 1% and 6% has been added to the discount rate and to the exit

capitalisation rate, to reflect the g

Notes on the Financial Statements

for the year ended 31 December 2006





Group Company

2006 2005 2006 2005

Rm Rm Rm Rm

9 Investment properties

Details of property investments are recorded in

registers, which may be inspected by members

or their duly authorised agents, at the company’s

registered office.



Fair value at the beginning of the year 12,637 11,569 11,361 9,205

Revaluations net of lease straight-lining 1,207 849 1,134 1,207



Revaluations 1,388 950 1,223 809

Net movement on straight-lining operating leases (181) (101) (89) 398



Additions – property acquired 23 1,034

Additions – capitalised subsequent expenditure 132 24 132 22

Additions through business acquisition 258

Disposals (845) (134) (751) (106)

Reclassifications from owner-occupied properties 23 56 7

Transfers from/(to) properties under development 46 -8 46 -8

Fair value at the end of the year 13,200 12,637 11,922 11,361

At the end of the year investment properties

comprised the following property types:

Office buildings 864 1,339 816 1,280

Shopping malls 11,254 10,213 9,610 8,664

Hotels 1,460 1,338 1,460 1,331

Other 534 478 350 311

Total investment properties 14,112 13,368 12,236 11,586

Investment properties at fair value 13,200 12,637 11,922 11,361

Operating leases – accrued income 1,164 991 566 485

Operating leases – accrued expense (252) (260) (252) (260)







The investment properties were independently valued as at 31 December 2006 by Mr I Mitchell and

Dijalo Valuation Services, who are both registered as professional valuers with the South African

Council for the Property Valuers Profession as well as member



At 31 December 2006 the value of unlet investment properties for the group amounted to R11 million

(2005: R83 million) proportionate fair value.





The property rental income earned by the group from its investment property, all of which is leased

out under operating leases, amounted to R1 416 million (2005: R1 185 million). Direct operating

expenses arising on the investment property amounted to R23

Notes on the Financial Statements

for the year ended 31 December 2006





Group Company

2006 2005 2006 2005

Rm Rm Rm Rm

10 Intangible assets

Cost at the beginning of the year 2,324 639 436 396

Foreign exchange movements (3)

Additions 96 40

Additions through business acquisition 1864

Disposals/scrapping (68) (68) (12)

Disclosed as disposal groups held for sale (204)

Cost at the end of the year 2,256 2324 424 436

Accumulated amortisation and impairment at

beginning of year (790) (308) (207) (147)

Amortisation (203) (175) (58) (60)

Impairment charge (417)

Disposals/scrapping 68 68 12

Disclosed as disposal groups held for sale 42

Accumulated amortisation at the end of the year (925) (790) (253) (207)

Net carrying amount at the end of the year 1,331 1,534 171 229

Summary of net carrying value

Computer software – internally generated 53 93 53 92

Present value of in-force policyholder contracts 1278 1441 118 137

Balance at Balance

beginning Disposals/ Amorti- at end Amortisation

of year scrapping sation of year period

Rm Rm Rm Rm

Cost – movement

Group

Goodwill (1) 397 397

Computer software –

internally generated 303 (68) 235

Present value of in-force

policyholder contracts (2) 1,624 1,624

2,324 (68) 2,256

Company

Computer software –

internally generated 247 (12) 235

Present value of in-force

policyholder contracts (2) 189 189

436 (12) 424

Accumulated

amortisation

and impairment –

movement

Group

Goodwill (1) (397) (397)

Computer software –

internally generated (210) 68 (40) (182) Up to 5 years

Present value of in-force

policyholder contracts (2) (183) (163) (346) Up to 12 years

(790) 68 (203) (925)

Company

Computer software –

internally generated (155) 12 (39) (182) Up to 5 years

Present value of in-force

policyholder contracts (2) (52) (19) (71) Up to 12 years

(207) 12 (58) (253)

(1)

Goodwill arising from acquisition of Capital Alliance Holdings Limited.

(2)

Represents the pre-taxation present value (at acquisition date) less amortisation of future profits on

policyholder contracts acquired from business combinations. No internally generated value of in-force has been

recognised, since it does not meet th

Notes on the Financial Statements

for the year ended 31 December 2006



Group Company

2006 2005 2006 2005

Rm Rm Rm Rm

11 Deferred acquisition costs

Unamortised cost on adoption of IFRS as at

1 January 2005 (1) 99 92

Balance at 1 January 298 189

Transfer from prepayments, insurance and other

receivables at 1 January 2005 50 50

Cost of new business acquired 174 147 174 148

Additions through business acquisition 123

Amortisation realised through the income statement (164) (120) (137) (100)

Impairment realised through the income statement (1) (1)

Net carrying amount at the end of the year 308 298 226 189

Current 121 110 93 83

Non-current 187 188 133 106





(1)

The adjustment to opening retained surplus as at 1 January 2005 was as a result of the implementation of

the amendment to IAS 18 Revenue Recognition, relating to investment management contract costs.

Notes on the Financial Statements

for the year ended 31 December 2006







Company

2006 2005

Rm Rm

12 Interests in subsidiaries



12.1 Summary



Shares at cost 3 797 4 112

Inter-group balances (242) 35

Impairment provision (576) (581)

Mutual funds at fair value 13 227 10 753

Total interests in subsidiaries 16 206 14 319



12.2 Movement analysis

Shares at cost

Shares at cost at the beginning of the year 4 112 1 467

Acquisitions during the year 3 074

Reduction of capital (315) (429)

Shares at cost at the end of the year 3 797 4 112

Inter-group balances

At beginning of the year 35 (1 695)

Advances 101 1 743

Repayments (378) (13)

At the end of the year (242) 35

Impairment provision

Impairment provision at the beginning of the year (581) (171)

Impairment reversal/(charge) 5 (410)

Impairment provision at the end of the year (576) (581)







Amount Percentage Amount

of issued of issued Shares held owing (to)/by

share capital share capital at cost subsidiary (2) Impairment

2006 2006 2005 2006 2005 2006 2005 2006 2005

% % Rm Rm Rm Rm Rm Rm

12.3 Subsidiaries (unlisted)– directly owned 3 797 4 112 (242) 35 (576) (581)







Life insurance

Capital Alliance Holdings Limited R19 047 050 100 100 3 047 3 047 (234) 16 (397) (397)

Liberty Active Limited R4 750 000 100 100 193 193 120 19







Investment holding

Lexshell 615 (Proprietary) Limited 100 100 100 23 29 (20) (16)



Libgroup Jersey Holdings Limited

(incorporated in Jersey) £38 032 100 100 298 613 (14) 10

LPH Properties Limited R869 083 100 100 13 13 (126) (97)







Social responsibility

The Liberty Life Educational Foundation n/a 100 100



Other

General Staff Scheme Share Trust

[2004 General staff scheme] n/a 100 100



Liberty Group Properties

(Proprietary) Limited 100 100 100 40 40

[Property asset

management]

Liberty Healthcare

(Proprietary) Limited R1 701 100 100 170 170 4 (142) (151)

[Healthcare]

Liberty Nominees

(Proprietary) Limited 1 100 100

[Shareholder transactions]



Dormant

Electric Liberty

(Proprietary) Limited 400 100 100 8 8 (8) (8)

Liberty Life Association of

Africa Limited Share Trust n/a 100 100

Roggebaai Centre

(Proprietary) Limited 100 100 100

Sandton Hotels

(Proprietary) Limited R1 000 100 100

Wedelin Investments 1

(Proprietary) Limited 100 100 100 28 28 (11) (11) (9) (9)

Libsil Holdings

(Proprietary) Limited 1 n/a 100 5

[Deregistered – 2006]

Liberty Hotels

(Proprietary) Limited 1 100 100 60

[Property investment

and hotel operations].

Dormant with effect

from 1 January 2006]

Liblife (Jersey) Limited

(incorporated in Jersey)

[Liquidated – 2006] £24 n/a 100

Liblife International B.V £18 152 100 100

[incorporated in

the Netherlands]

The Liberty Life Foundation

[Dormant with effect

from 1 January 2005] n/a 100 100

Percentage share

of partnership

Unincorporated property partnerships

Offices and shopping centres

Alberton City 64,3 64,3

Nelson Mandela Square 77,0 77,0

Sandton City 75,0 75,0

Sandton Convention Centre 60,0 60,0

Hotel operations

(1)

Sandton Sun and Towers 75,0

(1)

Garden Court Sandton City 75,0









Participation rights Units held

in total issued units at fair value

2006 2005 2006 2005

% % Rm Rm

12.4 Mutual funds 13,227 10,753

STANLIB Funds Limited (formerly Liberty Ermitage

Funds Limited) 61 59 8,373 6,320

STANLIB Multi-Manager Flexible Property Fund 53 54 906 718

STANLIB Multi-Manager Property Fund 55 57 913 963

STANLIB Multi-Manager Equity Feeder Fund 83 87 848 874

Liberty Ermitage Event Driven Fund 82 71 597 464

STANLIB Value Fund 60 65 550 466

STANLIB Multi-Manager International Fund of Funds (3) 28 32 379 413

STANLIB Small Cap Fund 55 59 245 199

Liberty Ermitage North American Absolute Fund Limited 69 89 241 202

STANLIB ALSI 40 Fund 53 56 175 134









Liberty Group Limited, indirectly, has interests in a number of other subsidiaries. The directors are of the opinion that to publish

the full information required in terms of paragraph 69 of the Fourth Schedule of the Companies Act would not be of further



The interest of the company for the year in the taxed profits of its subsidiaries was R943 million (2005: R1 498 million) and in the

losses was R13 million (2005: R692 million).

(1)

In 2005, interests in these property partnerships were held by the company’s subsidiary, Liberty Hotels (Pty) Limited. With

effect from 1 January 2006 the interests were sold to Liberty Group Limited.

(2)

All subsidiary loans have no specific repayment terms but are repayable on demand and are interest free with the exception

of Liberty Hotels (Pty) Limited and Wedelin Investments 1 (Pty) Limited during 2005.

Interest earned is as follows:

2006 2005 Rate

Rm Rm charged

Wedelin Investments 1 (Pty) Limited

Liberty Hotels (Pty) Limited – 22 9,1% nacm

– 6 10,5% nacm

(3)

Held 28% (2005: 32%) at company level and 29% (2005: 26%) within various subsidiaries, totalling 57% (2005: 58%), at a

fair value of R762 million (2005: R753 million) on consolidation.

Notes on the Financial Statements

for the year ended 31 December 2006









Group Company

2006 2005 2006 2005

Rm Rm Rm Rm

13 Interests in joint ventures

Ordinary shares at cost 129 129 129 129

Loans receivable (1) 502 515 482 476

Share of post-acquisition reserves 311 216

Unrealised profit (2) (206) (206) (206) (206)

Total interests in joint ventures 736 654 405 399

Group

2006 2005

Analysis of post-acquisition reserve amounts Rm Rm

Balance at the beginning of the year 216 206

Earnings recognised in the income statement 150 91

Ordinary dividends received (55) (81)

Balance at the end of the year 311 216

(1)

Loans receivable are defined as held-to-maturity investments and comprise:



R440 million (2005: R440 million) of non-convertible cumulative redeemable preference shares in STANLIB Limited at cost. Interest accrues monthly at a rate of 66% of

the Standard Bank prime rate.





R39 million (2005: R33 million) which represents the cost of an option on a 50% share in a convertible debenture issued by The Cullinan Hotel (Pty) Limited. The

debenture is redeemable on 13 February 2008 at an attributable R47 million or convertible into



R3 million (2005: R3 million) on demand interest free loan receivable extended to The Financial Services Exchange (Proprietary) Limited.



Group only: R20 million (2005: R39 million) on demand loan receivable extended to Capital Alliance Finance (Proprietary) Limited. The loan is interest free.

(2)

Represents unrealised profit on disposal of the Liberty Asset Management Business which was sold to STANLIB Limited at the inception of the joint venture.









Held-to-maturity Share of post-

Shares held at Unrealised Equity

financial acquisition

Percentage ownership Total interest accounted

cost profit instruments reserves

earnings

2006

and

2005 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005

% Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm

Principal joint

ventures

– unlisted

STANLIB Limited 37,4 112 112 (206) (206) 440 440 113 60 459 406 101 76

[asset and fund

management]

The Financial

Services Exchange

(Proprietary) Limited 33,3 - - 3 3 (3) (3) - -

[financial verification

and technology service

provider]

The Cullinan Hotel (3)

(Proprietary) Limited 50,0 17 17 39 33 201 159 257 209 49 15

[hotel developer and

manager]

Capital Alliance Finance

(Proprietary) Limited (3) 50,0 20 39 20 39

[financial services

company]

Total 129 129 (206) (206) 502 515 311 216 736 654 150 91



(3)

These entities have 31 March year-ends and therefore management accounts as at 31 December are used to equity account these joint ventures.

Notes on the Financial Statements

for the year ended 31 December 2006 (continured)









Interest held in joint venture

2006 2005

Rm Rm

13 Interest in joint ventures (continued)

Balance sheet extracts (1)

Non-current assets 3 095 553

Current assets 338 1 838

Long-term liabilities – interest-bearing (397) (423)

Long-term liabilities – non-interest-bearing (2 388) (1 546)

Current liabilities (193) (195)

Income statement extracts (1)

Income 984 734

Expenses (834) (643)

Commitments (1)

Capital commitments – authorised by directors but not contracted 16 1

Operating lease commitments 44 49

Within 1 year 6 6

1 to 5 years 29 26

6 to 10 years 9 17



(1)

Represents the group’s proportionate share in the joint ventures.

Notes on the Financial Statements

for the year ended 31 December 2006







Group Company

2006 2005 2006 2005

Rm Rm Rm Rm

14 Interest in associates – mutual funds

Fair value of associates 7 157 5 369 6 853 4 819

Summarised financial information of associates

Total investments 15 886 14 278 15 412 14 170

Current assets 553 404 538 386

Current liabilities (241) (244) (235) (243)

Total revenue (1) 2 846 1 275 2 768 1 040

Increase in net assets as a result of operations (2) 2 660 1 092 2 584 871

(1)

Total revenue is defined as increase in net assets as a result of operations plus expenses.

(2)



Units or shares held in mutual funds are by their nature demand deposits and are held at fair value both for the group and the company. The net

income or loss is capitalised to unit values within each fund. Increase in net assets as a result of operations



As at 31 December, the group’s associates and percentages held were as follows:

Percentage of participation

Fair value

rights in total issued units

Name

2006 2005 2006 2005

% % Rm Rm

Liberty Ermitage Institutional Money Market Funds 40 40 2 283 1 687

Liberty Ermitage Asset Selection Fund 48 38 1 214 998

Liberty Ermitage Global Wealth Management

Strategies Limited 43 39 655 486

STANLIB Multi-Manager Low Equity Fund of Funds (1) 37 38 465 301

STANLIB Managed Flexible Fund 26 375

STANLIB Resources Fund 37 40 281 233

STANLIB Aggressive Income Fund 21 21 256 102

STANLIB Stability Fund (2) 29 32 245 224

(3)

STANLIB Multi-Manager Medium Equity Fund of Funds 33 32 224 138

STANLIB Quants Fund (4) 49 53 153 117

STANLIB Institutional Property Fund 20 148

STANLIB Multi-Manager Real Return Feeder Fund 33 133

STANLIB Capital Growth Fund 21 39 130 176

STANLIB Moderately Conservative Fund of Funds 33 101

STANLIB Flexible income 21 99

STANLIB Dynamics Return Fund 24 91

Liberty Ermitage Global Strategy Fund 28 147

Japan Absolute Fund 37 105

STANLIB Industrial Fund 28 105

Associates at a company level 6 853 4 819

STANLIB European Fund of Funds 35 41 145 109

STANLIB Stability Fund (2) 15 16 122 113

(3)

STANLIB Multi-Manager Medium Equity Fund of Funds 3 5 23 20

STANLIB Multi-Manager Low Equity Fund of Funds (1) 1 14

STANLIB International Equity Fund of Funds 29 308

Associates at a group level 7 157 5 369

(1)

Held 37% at company level and 1% within various subsidiaries, totalling 38% at a fair value of R479 million, in 2006.

(2)

Held 29% (2005: 32%) at company level and 15% (2005: 16%) within various subsidiaries, totalling 44% (2005: 48%) at a fair value of R367 million

(2005: R337 million).

(3) Held 33% (2005: 32%) at company level and 3% (2005: 5%) within various subsidiaries, totalling 36% (2005: 37%) at a fair value of R247 million

(2005: R158 million).

(4) This interest has been disclosed as an associate as the percentage ownership during the year fluctuated at or below what is considered to be a

controlling interest.

Notes on the Financial Statements

for the year ended 31 December 2006









Group Company

2006 2005 2006 2005

Rm Rm Rm Rm

15 Financial instruments

Movement analysis:

Balance at the beginning of the year 128 646 89 469 86 554 73 232

Additions through business acquisition 16 371

Net additions 5 788 1 699 7 480 2 652

Fair value adjustments 31 323 21 089 25 956 17 967

Movement on mutual fund associates and subsidiaries (430) 828 (4 507) (7 297)

Reclassifications from cash and cash equivalents 812 342

Disclosed as disposal groups held for sale (1 152)

Balance at the end of the year 166 139 128 646 115 483 86 554

Comprising:

Held at fair value through profit or loss 165 330 126 618 115 208 86 221

Loans and receivables 809 2 028 275 333

Financial instruments comprise:

Financial assets held at fair value through profit or loss

Quoted in an active market

– Listed 85 025 65 509 59 874 45 737

Equities 82 864 64 425 57 768 44 730

Preference shares 2 161 1 084 2 106 1 007

– Unlisted 76 626 57 802 51 824 37 904

Debentures 15 493 9 924 10 995 6 078

Derivatives 172 150 12 16

Mutual funds 29 053 23 933 21 863 17 024

Government, municipal and utility stocks 19 960 20 413 13 820 14 758

Money market securities 11 948 3 382 5 134 28

Unquoted and unlisted 3 679 3 307 3 510 2 580

Equities 762 706 564 269

Debentures

Preference shares 1 955 1 722 1 422 1 212

Investment policies with inter-group insurers 950 557

Investment policies with external insurers 962 879 574 542

Loans and receivables

Mortgages and loans (3) 809 2 028 275 333

Total financial instruments 166 139 128 646 115 483 86 554

Maturity profile of government, municipal and

utility stocks, debentures and mortgages and loans:

Less than 1 year 995 3 668 813 2 416

1 – 5 years 12 594 12 253 8 057 9 640

5 – 10 years 9 799 4 752 6 857 2 320

Greater than 10 years 12 027 9 618 9 088 6 460

Variable (1) 846 2 074 275 333

Total 36 261 32 365 25 090 21 169

Details of listed and unlisted investments are recorded in registers which may be inspected by members or their duly

authorised agents at the company’s registered office.

(1) Instruments in this category are loans secured against policyholder contracts and the maturity profile is not determinable

as the holder has the option to settle at any time prior to the contract maturity date, as well as R37 million (2005: R46

million) i

(2)

There is no maturity profile for listed and unlisted equities and other non-term instruments as management is unable to

provide a reliable estimate given the volatility of equity markets and policyholder behaviour.

(3)

R1 256 million of mortgages and loans in a subsidiary were reclassified to policyholder liabilities as in substance they

were determined to be partial surrenders.

Notes on the Financial Statements

for the year ended 31 December 2006









Group Company

2006 2005 2006 2005

Rm Rm Rm Rm

16 Prepayments, insurance and

other receivables



Current balances related to insurance contracts

Outstanding premium receivables 1 082 992 81 99



Current balances related to investment contracts

Outstanding premium receivables 111 82 99 77

Current balances related to insurance and

investment contracts 1 193 1 074 180 176

Accrued income 697 605 603 480

Investment debtors 250 497 231 483

Other debtors 1 048 663 712 343

Total prepayments, insurance and other

receivables (1) 3 188 2 839 1 726 1 482

(1) All inflows of economic benefits are expected to

occur within one year.

Notes on the Financial Statements

for the year ended 31 December 2006









Group Company

2006 2005 2006 2005

Rm Rm Rm Rm

17 Cash and cash equivalents

Cash at bank and at hand 607 9 226 403 6 320

Short-term cash deposits 4 630 3 225 1 938 1 288

Total cash and cash equivalents 5 237 12 451 2 341 7 608

The weighted average effective interest rate on short-term cash deposits was 6,81% p.a. (2005: 9,61% p.a.).

Notes on the Financial Statements

for the year ended 31 December 2006









Group

2006 2005

Investment Investment

Insurance contracts Reinsurance Insurance contracts with Reinsurance

contracts with DPF assets contracts DPF assets

Rm Rm Rm Rm Rm Rm

18 Policyholders’ liabilities

Balance at the beginning

of the year 102 439 1 540 (946) 69 055 1 500 (493)

Additions through

business acquisition 15 211 (866)

Reclassifications of mortgages and loans (1 163)

Inflows 46 646 548 (786) 41 915 477 (1 175)

Insurance premiums 20 763 80 (777) 19 942 61 (1 024)

Investment returns 25 834 468 (9) 21 935 416 ( 151)

Unwinding of discount rate (251) 56 7 23

Investments 26 085 468 (65) 21 928 416 (174)

Equity accounted earnings from joint ventures 49 14

Management fees on assets under management 24

Outflows (23 760) (335) 594 (22 166) (400) 1 099

Claims and policyholders’ benefits (16 767) (292) 578 (14 442) (353) 1 423

Claims and policyholders’ benefits under

insurance contracts (16 767) (119) 578 (14 442) (200) 775

Switches between

investment with DPF to

investment without DPF (173) (153)

Acquisition costs associated with insurance

contracts (2 195) (7) (3 404) (7)

General marketing and administration expenses (2 712) (20) (2 643) (22)

Preference dividend (184) (138)

Finance costs (10) ( 16)

Taxation (1 892) (16) 16 (1 269) (18) (1)

Recapture of reinsurance contract (254) 325

Net income from insurance operations (1 287) (34) 73 ( 831) (37) (12)

Changes in estimates 399 431

Variances (2 077) (48) 93 (1 208) (52) (7)

Amortisation of PVIF on acquisition of CAHL 97 73

New business (345) (524)

Shareholder taxation on transfer of net income 639 14 ( 20) 397 15 (5)

Other movements (745) 501

Disclosed as disposal groups held for sale (745) 501



Balance at the end of the year 122 875 1 719 (1 065) 87 973 1 540 (581)

Current 19 196 317 (299) 14 646 307 (230)

Non-current 104 281 1 402 (766) 88 412 1 233 (716)

Total deferred taxation applicable to fair value

adjustment on investment properties (602) (619)

Insurance contracts with DPF

– non-guaranteed element 13 816 10 944

Insurance contracts without DPF

– unit reserve 93 464 75 664

Investment contracts with DPF

– non-guaranteed element 850 793

– guaranteed element 869 747

Insurance contracts with DPF

– guaranteed element 6 761 6 687

Insurance contracts without DPF

– rand reserve 8 781 9 268

IBNR 655 495

Total deferred taxation applicable to fair value

adjustment on investment properties (1) (602) (619)

122 875 1 719 102 439 1 540







(1)

In compliance with IAS 12 Income Taxes, deferred taxation has been provided at the use rate in respect of revaluation surpluses on investment

properties held as long-term strategic investments. The additional deferred taxation liability, which has bee

Notes on the Financial Statements

for the year ended 31 December 2006 (continue)









Group

2006 2005

Investment Investment

Insurance contracts Reinsurance Insurance contracts with Reinsurance

contracts with DPF assets contracts DPF assets

Rm Rm Rm Rm Rm Rm

18 Policyholders’ liabilities (continued)

Balance at the beginning of the year 77 968 1 540 (476) 61 632 1 500 (483)

Inflows 36 124 548 (261) (4 115) 477 (227)

Insurance premiums 14 575 80 (280) 13 855 61 (234)

Investment returns 21 549 468 19 (17 970) 416 7

Unwinding of discount rate (296) 32 (138) 37

Investments 21 845 468 (13) (17 832) 416 (30)



Outflows (16 320) (335) 241 (14 595) (400) 237

Claims and policyholders’ benefits (11 521) (292) 225 (9 397) (353) 238

Claims and policyholders’ benefits under

insurance contracts (11 521) (119) 225 (9 397) (200) 238

Switches between investment with DPF to

investment without DPF (173) (153)

Acquisition costs associated with insurance

contracts (1 408) (7) (2 642) (7)

Finance costs (5)

General marketing and administration expenses (1 720) (20) (1 597) (22)

Taxation (1 666) (16) 16 (959) (18) (1)

Net income from insurance operations (1 269) (34) 39 (618) (37) (3)

Changes in estimates 240 341

Variances (1 427) (48) 55 ( 563) ( 52) (4)

New business (600) (630)

Shareholder taxation on transfer of net income 518 14 (16) 234 15 1



Balance at the end of the year 96 503 1 719 (457) 42 304 1 540 (476)

Current 13 895 317 (83) 10 075 307 (76)

Non-current 83 210 1 402 (374) 68 512 1 233 (400)

Total deferred taxation applicable to fair value

adjustment on investment properties (602) (619)

Insurance contracts with DPF

– non-guaranteed element 11 535 9 413

Insurance contracts without DPF

– unit reserve 80 629 64 016

Investment contracts with DPF

– non-guaranteed element 850 793

– guaranteed element 869 747

Insurance contracts with DPF

– guaranteed element 4 665 4 027

Insurance contracts without DPF

– rand reserve 11 842

IBNR 265 289

Total deferred taxation apllicable to fair value

adjustments on investment properties (1) (602) (619)

96 503 1 719 77 968 1 540







(1)

In compliance with IAS 12 Income Taxes, deferred taxation has been provided at the use rate in respect of revaluation surpluses on investment

properties held as long-term strategic investments. The additional deferred taxation liability, which has bee

Notes on the Financial Statements

for the year ended 31 December 2006









18.1 Policyholders’ liabilities under insurance contracts (continued)



Long-term insurance contracts – process used to decide on assumptions, changes in assumptions and sensitivity analysis



The value of insurance liabilities is based on best estimate assumptions of future experience plus compulsory margins as required in terms of PGN

104, plus additional discretionary margins determined by the statutory actuary.



The process of deriving the best estimate assumptions relating to future mortality, morbidity, medical, withdrawals, investment returns, maintenance

expenses, expense inflation and tax are described below.



Mortality





An appropriate base table of standard mortality is chosen depending on the type of contract and class of business. Industry standard tables are used

for smaller classes of business, while company specific tables, based on graduated industry standard table



Investigations into mortality experience are performed annually. The period of investigation extends over the latest three full years for larger classes of

business. Investigations relating to smaller classes usually extend over five years in order to gai



The results of the investigation are used to set the valuation assumptions, which are applied as an adjustment to the respective standard table.







In setting the assumptions, provision is made for the expected increase in AIDS-related claims. In general, ASSA models are used to allow for AIDS-

related claims. The practice differs by class of business. However, for the major classes of business, a bas



For contracts insuring survivorship, an allowance is made for future mortality improvements based on trends identified in the data and in the

continuous mortality investigations performed by independent actuarial bodies.



Morbidity



The incidence of disability claims is derived from industry experience studies, adjusted where appropriate for the group’s own experience. The

assumptions to be used are reviewed on an annual basis based on claims experience. The same is true for the inci



Medical



The incidence of medical claims is derived from the risk premium rates determined from annual investigations. The incidence rates are reviewed on an

annual basis, based on medical claims experience. The adjusted rates are intended to reflect future expect



Withdrawal









The withdrawal assumptions are based on the most recent withdrawal investigations taking into account past as well as expected future trends. The

withdrawal investigation is performed each year and incorporates a full year’s experience. The withdrawal rat



Investment return



Future investment returns are set for the main asset classes as follows:



Gilt rate – Effective 10-year yield curve rate at the balance sheet date rounded to the nearest 0,25 percentage point (8,0%) (2005: 7,5%).



Equity rate – Gilt rate plus 2 percentage points as an adjustment for risk (10,0%) (2005: 9,5%).



Property rate – Gilt rate plus 1 percentage point as an adjustment for risk (9,0%) (2005: 8,5%).



Cash – Gilt rate less 1,5 percentage points (6,5%) (2005: 6,0%).



The overall investment return for a block of business is based on the investment return assumptions allowing for the current mix of assets supporting

the liabilities.





The pre-taxation discount rate is set at the same rate. For the major classes of business the rate used is 9,5% per annum in 2006 (2005: 9,0% per

annum). Where appropriate the investment return assumption will be adjusted to make allowance for investment



For annuity and guaranteed capital bond business, discount rates are set at rates consistent with the returns implied by the assets matching the

respective business, reduced by an allowance for investment expenses and the relevant prescribed margin.

Notes on the Financial Statements

for the year ended 31 December 2006 (continue)









18.1 Policyholders’ liabilities under insurance contracts (continued)

Expenses



An expense analysis is performed on the actual expenses incurred in the calendar year preceding the balance sheet date.



Implementation of group cost per policy









In 2005 and prior years, Liberty Life and its subsidiary life companies each conducted an independent expense analysis. Subsequent to the functional

integration of Liberty Active Limited and the Capital Alliance Group into Liberty Life, a group-wide expen









Individual policyholder expenses are split between acquisition, maintenance and non-recurring expenses at a cost centre level, based on interviews

with line management or headcount apportionment where applicable. Maintenance expenses are divided by the gr



The resulting individual maintenance cost per policy:

Policy category 2006

Complex (1) R 270

Simple (2) R 135

Annuity (3) R 135

(1)

Complex business refers to individual risk, retirement and investment products. These policies are individually issued and administered and

historically incur the greatest cost of administration due to their complexity, and the range of services and o

(2)

Simple business refers to individual funeral policies.

(3)

Annuity business includes all annuity policies that are in payment.







The expenses derived from this analysis are adjusted by an expense inflation assumption to obtain an appropriate expense base assumption to be

used in the calculation of the insurance liabilities. The policyholders’ liability under insurance contracts cal



The policyholders’ liability under insurance contracts at the balance sheet date has been calculated on the group cost per policy basis. The net of tax

impact of the basis change on 2006 profit after tax was:

Group Company

Rm Rm

Basis change: normal expense variance (24) (15)

Basis change: new methodology (18) 113

Top-up of stabilisation reserves at 31 December

(1)

2006 (12) (3)

Total (decrease)/increase in profit after tax (54) 95

(1)

Policies with discretionary participation features have been compensated for any effects of moving to a group expense per policy basis.



The impact of the change in estimate cannot be accurately determined for future periods as it is dependent on actual expenses and the number of

policies in the relevant period.



Expense inflation





The inflation rate is set at 3,5 percentage points below the gilt rate investment return assumption prevailing at the balance sheet date, resulting in a

best estimate expense inflation assumption of 4,5% at 31 December 2006. The expense inflation assumpti



Taxation









Future taxation and taxation relief are allowed for at the rates and on the bases applicable to section 29A of the Income Tax Act at the balance sheet

date. Each company’s current tax position is taken into account, and taxation rates, consistent with tha



Correlations



No correlations between assumptions are allowed for.

Notes on the Financial Statements

for the year ended 31 December 2006









18.1 Policyholders’ liabilities under insurance contracts (continued)

Contribution increases



In the valuation of the liabilities, voluntary premium increases that give rise to expected profits are not allowed for. However, compulsory increases and

increases that give rise to expected losses are allowed for. This is consistent with the requirement



Embedded investment derivative assumptions









The assumptions used to value embedded derivatives, in respect of policyholder contracts, are set in accordance with PGN 110. Account is taken of

the yield curve at the valuation date. Both implied market volatility and historical volatility are taken int



The total reserves held (including the discretionary margin in respect of the investment guarantees) for embedded investment derivatives approximate

to a market consistent methodology. However, an area of possible refinement relates to the long-term volat



Changes in assumptions



Modelling and other changes were made to the valuation to realign valuation assumptions with expected future experience. These changes resulted in

a net increase in policyholders’ liabilities of R399 million in 2006.



The primary items were:



A move to a group cost per policy methodology, amounting to an increase in liabilities of R43 million and an updating of the expense assumption

increased liabilities by R34 million.



A move in anticipation of the adoption of a market consistent model for the calculation of the liabilities in respect of minimum investment guarantees,

increasing the liability by R148 million.



A change in the economic valuation assumptions to realign the economic assumptions with expected future experience, resulting in an increase of

R85 million. It should be noted that the majority of this change is offset by a corresponding change in the val



The demographic experience assumptions were adjusted to reflect expected future experience, amounting to a decrease in liabilities of R116 million.



Other experience assumptions were adjusted to reflect expected future experience, amounting to a R77 million increase in the liabilities.



The balance of modelling changes amounted to an increase in liabilities of R128 million.



Sensitivity analysis







Shown in the table below are the sensitivities of the value of insurance liabilities disclosed in this note to various changes in assumptions used in the

estimation of the insurance liabilities. Each value is shown with only the indicated assumption being

Change in liability at 31

December

2006 2005

Variable Rm Rm



Future investment returns reduced by a 15% relative reduction in the valuation rate, with the bonus rate changing 2 233 2 265



Assurance mortality and morbidity increased by

10%, annuity mortality decreased by 10% 1 928 1 900





Withdrawal rates increased by 10% 150 172



Maintenance expenses (other than commission)

increased by 10% 375 339



Expense inflation rate increased by 1% 241 268

It should be noted that the sensitivities ignore any changes in matching assets and are prior to any transfer taxation consequences which typically

would be shareholder taxation of 29%. This is particularly relevant to the sensitivity to changes in future

Notes on the Financial Statements

for the year ended 31 December 2006







Group Company

2006 2005 2006 2005

Rm Rm Rm Rm

19 Policyholders’ liabilities on investment contracts

Balance at the beginning of the year 36 856 27 451 34 202 27 176

Additions through business acquisition 2 606

Reclassification of mortgages and loans (93)

Inflows 16 290 15 348 15 994 14 293

Fund inflows from investment contracts

(excluding switches) 7 835 8 312 7 799 7 911

Investment returns 8 455 7 036 8 195 6 382

Fair value adjustment prior to deferred taxation

on investment properties (1) 8 272 6 877 8 030 6 225

Policyholder taxation on investment returns 40 65 33 65

Expenses applied to investment returns 143 94 132 92



Outflows (8 602) (8 391) (7 777) (7 229)

Fund outflows from investment contracts (7 794) (7 545) (7 019) (6 447)

Payments under investment contracts

(excluding switches) (7 967) (7 698) (7 192) (6 600)

Switches between investment with DPF to

investment without DPF 173 153 173 153

Expenses (707) (699) (663) (649)

General marketing and administration expenses (494) (516) (483) (489)

Acquisition costs associated with investment contracts (211) (183) (178) (160)

Finance costs (2) (2)

Taxation (90) (140) (83) (123)

Movement in deferred revenue liability (11) (7) (12) (10)

Net income from investment contracts (147) (76) (132) (38)

Service fee income (764) (713) (717) (610)

Expenses 707 699 663 649

Expenses applied to investment returns (143) (94) (132) (92)

Shareholder taxation on transfer of net income 53 32 54 15

Other movements (82)

Disclosed as disposal groups held for sale (82)



Balance at the end of the year 44 304 36 856 42 287 34 202



Investment contracts 44 450 37 006 42 433 34 352

Total deferred taxation applicable to fair value

adjustments on investment properties (2) (146) (150) (146) (150)



Current 8 720 7 759 8 050 6 908

Non-current 35 730 29 247 34 383 27 444

Total deferred taxation applicable to fair value

adjustment on investment properties ( 146) (150) ( 146) (150)

Total 44 304 36 856 42 287 34 202

(1) Fair value adjustment prior to deferred taxation on

investment properties 8 272 6 877 8 030 6 225

Movement in deferred taxation applicable to fair value

adjutment on investment properties 4 (43) 4 (43)

Fair value adjustment per income statement 8 276 6 834 8 034 6 182

(2)









In compliance with IAS 12 Income Taxes, deferred taxation has been provided at the use rate in respect of revaluation surpluses

on investment properties held as long-term strategic investments. The additional deferred taxation, which has been debited to p

19.1 Maturity profile of policyholders’ liabilities under investment contracts

The maturity profile of policyholders’ liabilities under investment contracts is set out in the table below. Estimates have been used

based on when claim cash flows are expected to arise under this business and the liability apportioned accordingly.

Group

Period when cash flow becomes due 2006 2005

Rm Rm

Less than 1 year 8 720 7 595

1 – 5 years 19 838 16 996

5 – 10 years 9 671 7 613

10 – 20 years 5 252 4 047

Greater than 20 years 969 755

Total 44 450 37 006

Total deferred taxation applicable to fair value adjustments on investment properties (146) (150)

Total policyholders’ liabilities under investment contracts 44 304 36 856

Notes on the Financial Statements

for the year ended 31 December 2006









Group Company

2006 2005 2006 2005

Rm Rm Rm Rm

20 Financial liabilities at amortised cost

Callable capital bonds (1) 2 054 2 054 2 054 2054

(2)

Redeemable non-participating preference shares 207 206

Total financial liabilities at amortised cost 2 261 2 260 2 054 2054

Current 261 60 54

Non-current 2 000 2 200 2 054 2000



(1)

On 12 September 2005, Liberty Group Limited issued R2 billion subordinated unsecured secondary callable capital

bonds redeemable on 12 September 2017 and callable by Liberty Group Limited on 12 September 2012. The bond

was launched at a spread of 120



The coupon rate is fixed at 8,93% and payable bi-annually in arrears on 12 March and 12 September of each year

until 12 September 2012, thereafter floating at three-month JIBAR plur 186 bps and payable quarterly on 12

December, 12 March, 12 June and 12 Se



The financial liability is measured at amortised cost using the effective interest rate method.







(2)

Capital Alliance Special Finance (Pty) Limited, a subsidiary of Capital Alliance Holdings Limited, issued 200 000

redeemable non-participating preference shares of 1 cent each, at a share premium of R999,99 per share. The

interest on these shares is c

Notes on the Financial Statements

for the year ended 31 December 2006





21 Third party liabilities arising on consolidation of mutual funds

Group

2006 2005

Rm Rm

Total third party liabilities arising on consolidation of mutual funds 8 559 7 079



Certain mutual funds have been classified as investments in subsidiaries. Consequently fund interests not held by the

group are classified as third party liabilities as they represent demand deposit liabilities measured at fair value.

Notes on the Financial Statements

for the year ended 31 December 2006





Group Company

2006 2005 2006 2005

Rm Rm Rm Rm

22 Employee benefits

22.1 Summary of provided obligation



Short-term employee benefits 115 119 100 100

Defined benefit pension fund 12 23

Post-retirement medical aid 261 196 261 196

Total employee benefits 388 338 361 296

Notes on the Financial Statements

for the year ended 31 December 2006 (continured)









Leave Incentive scheme Total

2006 2005 2006 2005 2006 2005

Rm Rm Rm Rm Rm Rm

22.2 Short-term employee benefits



Group

At the beginning of the year 42 28 77 54 119 82

Additional provision raised 54 51 74 71 128 122

Additions through business acquisition 18 6 24

Utilised during the year (56) (50) (76) (48) (132) (98)

Disclosed as disposal group held for sale (5) (6) (11)

At the end of the year 40 42 75 77 115 119

Company

At the beginning of the year 30 26 70 48 100 74

Additional provision raised 40 41 70 64 110 105

Utilised during the year (41) (37) (69) (42) (110) (79)

At the end of the year 29 30 71 70 100 100



All outflows in economic benefits in respect of short-term employee benefits are expected to occur within one year.



Leave pay









In terms of group policy, employees are entitled to accumulate a maximum of 15 days compulsory leave and 20 days discretionary leave. Compulsory leave

has to be taken within 12 months of earning it, failing which it is forfeited. Discretionary leave can b



Incentive scheme





In terms of group policy, selected employees at the discretion of directors receive an incentive bonus. The incentive bonus relates to employee, corporate and

divisional performance and is approved by the remuneration committee.



22.3 Details of funds





The group operates the following retirement and post-retirement medical schemes for the benefit of its employees:



Liberty Group Defined Benefit Pension Fund









The group operates a funded defined benefit pension scheme in terms of section 1 of the Income Tax Act, 1962. With effect from 1 March 2001 the majority

of employees accepted an offer to convert their retirement plans from defined benefit to defined contr



ACA Defined Benefit Fund



Capital Alliance Life Limited, a subsidiary of CAHL, operates the ACA funded, paid up, defined benefit pension scheme.



Rentmeester Defined Benefit Fund



Rentmeester Limited, a subsidiary of CAHL, operates a funded, paid up, defined benefit pension scheme.



Alnet Defined Benefit Fund



Alnet Limited, a subsidiary of CAHL, operates a funded defined benefit pension scheme. Employer companies contribute the total cost of benefits provided

taking account of the recommendation of the actuaries.

Liberty Defined Contribution Pension Fund (1)





Liberty Group Limited operates a funded defined contribution pension scheme in terms of section 1 of the Income Tax Act, 1962. The Liberty Defined Contribution Pension Fund offers a benefit to

Liberty Life employees based on the accumulated contributions



Liberty Provident Fund (1)



The Liberty Provident Fund offers a benefit to Liberty Life employees, based on the accumulated contributions and investment returns at retirement. The group contributes to the scheme for the

benefit of employees in terms of the rules of the fund.



Liberty Agency Fund (1)



The Liberty Agency Fund offers a benefit to the group’s qualifying agents based on the accumulated contributions and investment returns at retirement. The employer makes a predetermined rate of

contribution per month as stipulated in the rules of the fund



Liberty Active Provident Fund (1)



The Liberty Active Provident Fund came into effect on 1 February 2005. The fund offers a benefit to Liberty Active employees, based on the accumulated contributions and investment returns at

retirement. The employer makes a predetermined rate of contribut



Liberty Franchise Umbrella Fund (1)



The Liberty Franchise Umbrella Fund offers a benefit to registered qualifying franchises, on the accumulated contributions and investment returns at retirement. The employer makes a predetermined

rate of contribution per month as stipulated in the rules o



Alnet Defined Contribution Pension Fund (1)



Alnet Limited, a subsidiary of CAHL, operates a funded defined contribution pension scheme in terms of section 1 of the Income Tax Act, 1962. The Alnet Defined Contribution Pension Fund offers a

benefit to Alnet employees based on the accumulated contribu



Alnet Provident Fund (1)



The Alnet Provident Fund offers a benefit to Alnet Limited employees based on the accumulated contributions and investment returns at retirement. The group contributes to the scheme for the

benefit of employees in terms of the rules of the fund.



Rentmeester Defined Contribution Pension Fund (1)





Rentmeester Limited, a subsidiary of CAHL, operates a funded paid up defined contribution pension scheme in terms of section 1 of the Income Tax Act, 1962. The Rentmeester Defined Contribution

Pension Fund offers a benefit to Rentmeester employees based o



Capital Alliance Holdings (CAH) Defined Contribution Pension Fund (1)



Capital Alliance Holdings Limited operates a funded defined contribution scheme in terms of section 1 of the Income Tax Act, 1962. The CAH Defined Contribution Fund offers a benefit to Capital

Alliance employees based on the accumulated contributions and



(1) All these schemes are defined contribution schemes. Therefore there can be no future obligation against Liberty Group Limited for unfunded benefits.





Post-retirement medical benefit









The group operates an unfunded post-retirement medical aid benefit for employees who joined the group prior to 1 July 1998. Medical aid costs are included in the income statement within general

marketing and administration expenses in the period during wh





In all cases employer companies contributions are charged to the income statement when incurred. All retirement schemes are governed by the Pension Fund Act, 1956 as amended.

Notes on the Financial Statements

for the year ended 31 December 2006 (continured)









Rent-meester Alnet

ACA Defined

Defined Defined

Benefit Fund

Benefit Fund Benefit Fund

Liberty Pension Fund

2006 2005 2004 2003 2002 2006 2005 2006 2005 2006 2005

Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm

22 Employee benefits (continued)



22.4 Retirement benefit obligation

(a) Change in defined benefit pension fund obligation

In the opinion of the pension fund

valuator, after the most recent

statutory actuarial valuation as at

1 January 2006, the defined

benefit plan was financially sound.



Present value of funded obligation at beginning of the year 637 561 513 472 406 7 3 32

Additions through business acquisition 6 13 32

Adjustments (2) 13

Service cost benefits earned during the year 18 16 16 15 22 1 1

Interest cost on projected

benefit obligation 40 42 30 64 58 1 5

Actuarial (gain)/loss ( 53) 59 48 ( 29) 5 1 ( 14) 1

Benefits paid ( 59) ( 41) ( 59) ( 9) ( 5) ( 11) ( 2) ( 2)

Transfer to STANLIB group ( 14)

Present value of funded obligation at end of the year 583 637 561 513 472 7 7 3 3 22 32

Change in plan assets

Fair value of plan assets at the beginning of the year (3) 1 332 1 093 901 800 894 10 3 9

Additions through business acquisition 8 9 10

Expected return on plan assets 88 77 74 111 112 1 1 1 1

Actuarial gain/(loss) 238 188 163 ( 11) ( 187) 2 1 ( 1)

Employer contribution (5) 14 15 14 10 9 4 2 1

Benefits paid ( 59) ( 41) ( 59) ( 9) ( 5) ( 11) ( 2) ( 2)

Transfer to STANLIB group ( 23)

Fair value of plan assets at the end of the year (3) 1 613 1 332 1 093 901 800 12 10 3 3 10 9

Excess not recognised (4) 1 030 695 532 388 328 5 3 - -

Fund deficit recognised in balance sheet ( 12) ( 23)

Analysis of the defined benefit pension fund obligation movement

Adjustment for change

in valuation basis 13

Current service cost 18 16 16 15 22 1 1

Interest cost 40 42 30 64 58 1 5

Expected return on plan assets ( 88) ( 77) ( 74) ( 111) ( 112) ( 1) ( 1) ( 1) ( 1)

Net actuarial (gain)/

loss recognisedin the year ( 291) ( 129) ( 115) ( 18) 192 ( 14) 2

Employer contributions ( 14) ( 15) ( 14) ( 10) ( 9) ( 4) ( 2) ( 1)

Transfer to STANLIB group 10

Total ( 335) ( 163) ( 144) ( 60) 161 ( 1) ( 4) ( 11) 1

(1)

The ACA Defined Benefit Fund, Rentmeester Defined Benefit Fund and Alnet Defined Benefit Fund form part of the Capital Alliance Holdings Group, which was acquired on 1 April 2005.

(2)

The statutory valuation basis of Liberty Pension Fund changed from a long-term stable basis to a market related valuation basis in 2004. Liabilities are now valued using market interest rates.

The adjustment represents the impact on the liability due

(3)

The fair value of the plan assets for 2006 constitute of: 19,47% cash, 12,20% bonds, 56,23% equities and 12,10% international funds.



(4)

No asset is recognised in respect of the surplus, as the apportionment of the surplus between the respective company and members still needs to be approved by the Registrar of Pension Funds in

terms of the Pension Fund Second Amendment Act, 39 of 2001



(5)

The employer’s best estimate of contributions expected to be paid to the Liberty Pension Fund during 2007 is R12 million.

Notes on the Financial Statements

for the year ended 31 December 2006







Group and Company

2006 2005

Rm Rm

(b) Change in post-retirement medical aid obligation



Present value of unfunded obligation at the beginning of the year 196 160

Service cost benefits earned during the year 5 6

Interest cost on projected benefit obligation 17 23

Actuarial loss 43 7

Present value of unfunded obligation at the end of the year 261 196

Net liability recognised in balance sheet 261 196

Current 72 54

Non-current 189 142



22.5 Assumptions used in the valuation of obligations (1)

Alnet Defined Benefit Post-retirement

Liberty Pension Fund Fund medical aid

2006 2005 2006 2005 2006 2005

The valuation was based on the following

principal actuarial assumptions:



Anticipated after taxation returns on investments 8% 7% 9% 7% 8% 7%

Discount rate 8% 7% 7% 7% 8% 7%

Future salary increases (excluding increases on

promotion) 6% 5% 7% 5% 6% 5%

Medical cost trend rate 6% 6%

Retirement age – executives 63 63 63 63 63 63

– others 65 65 65 65 65 65

Investments in excess of 5% of plan assets

Anglo American plc (Rm) 52

Investments in employer and holding companies Rm Rm

Standard Bank Group Limited 38 49

Liberty Holdings Limited 11 10

Liberty Group Limited 12

The ACA defined benefit fund and Rentmeester defined benefit fund are paid-up funds and, therefore, assumptions are not applicable.



22.6 Sensitivity analysis



Shown in the table below are sensitivities of the value of the post-retirement medical aid to changes in the medical inflation rates:

Decrease/

(increase)

in liability

at 31-Dec

2006

Variable Rm

1% decrease in medical inflation rate

– active members 161

– pensioners 71

1% increase in medical inflation rate

– active members ( 237)

– pensioners ( 87)

Notes on the Financial Statements

for the year ended 31 December 2006 (continured)







22.7 Transactions between group companies and the funds



22.7.1 The contributions which the group companies have made on behalf of the employees during the year are follows:

Group Company

2006 2005 2006 2005

Rm Rm Rm Rm

Retirement 14 15 11 11

Defined benefit funds 139 139 115 134

Defined contribution funds



Medical

Post-retirement medical benefit paid 5 5 4 4



Certain defined benefit funds have various banking relationships with Standard Bank Group Limited and its subsidiaries. The summary of opening and

22.7.2 closing balances and bank charges paid are as follows:

Balance deposited Fees and bank charges Interest received

2006 2005 2006 2005 2006 2005

R’000 R’000 R’000 R’000 R’000 R’000

Defined benefit funds

Balance at 1 January 467 2 770

Balance at 31 December 513 467 96 58 39 15



22.7.3 Certain defined benefit funds have outsourced their management to Liberty Group Limited. The summary of fees paid is as follows:

2006 2005

R’000 R’000

Defined benefit funds 299 247



22.7.4 Alnet Defined Benefit Fund





During 2005, the trustees of the Alnet Defined Benefit Fund, Alnet Defined Contribution Pension Fund and Alnet Provident Fund withdrew insurance policies

valued at R21 million. These policies were held with Rentmeester Versekeraars Beperk, a group subsidi





22.7.5 The Liberty Pension Fund has investments in certain mutual fund subsidiaries and in Standard Bank Group Limited as follows:

2006 2005

Rm Rm

STANLIB Funds Limited (formerly Liberty Ermitage Funds Limited) 192 124

Standard Bank bonds and deposits 114 3

Notes on the Financial Statements

for the year ended 31 December 2006







The following retirement benefit funds have insurance policies with Liberty Group Limited and its subsidiaries held as investment policies in the funds. A

22.7.6 summary of the transactions for each policy within each fund follows:



Liberty Defined Contribution Pension Fund

Fund value

2006 2005

Rm Rm

Balance at 1 January 141 102

Premiums 20 17

Fair value adjustments 40 34

Withdrawals (19) (12)

Balance at 31 December 182 141



Liberty Provident Fund

Fund value

2006 2005

Rm Rm

Balance at 1 January 1 132 923

Premiums 109 100

Fair value adjustments 321 275

Withdrawals (182) (166)

Balance at 31 December 1 380 1132



Liberty Agency Fund

Fund value

2006 2005

Rm Rm

Balance at 1 January 789 691

Premiums 42 42

Fair value adjustments 188 163

Withdrawals (139) (107)

Balance at 31 December 880 789



Liberty Franchise Umbrella Fund

Fund value

2006 2005

Rm Rm

Balance at 1 January 25 16

Premiums 8 6

Fair value adjustments 8 6

Withdrawals (5) (3)

Balance at 31 December 36 25



Alnet Defined Benefit Pension Fund

Fund value

2006 2005

Rm Rm

Balance at 1 January 10

Additions through business acquisition 9

Premiums 4 1

Withdrawals (1) (2)

Fair value adjustments 2 2

Balance at 31 December 15 10



Alnet Provident Fund

Fund value

2006 2005

Rm Rm

Balance at 1 January 9

Additions through business acquisition 9

Premiums 2 1

Withdrawals (3)

Fair value adjustments 2 1

Balance at 31 December 10 11



Alnet Defined Contribution Pension Fund

Fund value

2006 2005

Rm Rm

Balance at 1 January 4

Additions through business acquisition 7

Premiums 2

Withdrawals (1) (3)

Fair value adjustments 1

Balance at 31 December 6 4



Capital Alliance Holdings Defined Contribution Pension Fund

Fund value

2006 2005

Rm Rm

Balance at 1 January 104

Additions through business acquisition 67

Premiums 12

Withdrawals (6) (1)

Fair value adjustments 14 26

Balance at 31 December 112 104



Rentmeester Defined Contribution Pension Fund

Fund value

2006 2005

Rm Rm

Balance at 1 January 3

Additions through business acquisition 6

Premiums 1

Withdrawals (4)

Fair value adjustments 1

Balance at 31 December 4 3

Notes on the Financial Statements

for the year ended 31 December 2006









Group Company

2006 2005 2006 2005

Rm Rm Rm Rm

23 Deferred revenue

Adoption of IFRS as at 1 January 2005 (1) 58 51

Balance at 1 January 68 61

Additions through business acquisition 3

Realised through the income statement (7) (9) (7) (6)

Deferred income relating to new business 19 16 19 16

Net carrying amount at the end of the year 80 68 73 61

Current 10 7 8 7

Non-current 70 61 65 54



Deferred revenue is upfront fees received from investment contract holders as a prepayment for asset management

and related services. These amounts are non-refundable and released to income as the services are rendered.

(1)

The adjustment to opening retained surplus as at 1 January 2005 was as a result of the implementation of the

amendment o IAS 18 Revenue Recognition, relating to investment management fees.

Notes on the Financial Statements

for the year ended 31 December 2006







Group Company

Asset/ Asset/ Asset/ Asset/

(liability) at (Provision)/ (liability) (liability) at (Provision)/ (liability)

beginning release for at end beginning Liability release for at end

of the year the year of the year of the year acquired the year of the year

Rm Rm Rm Rm Rm Rm Rm

24 Deferred taxation

Normal taxation (1 337) (287) (1 624) (1 065) (5) (275) (1 345)

Investment properties

revaluation surpluses (806) 21 (785) (806) 21 (785)

Policyholder liabilities

difference between

statutory and accounting

basis (416) (110) (526) (376) (115) (491)

Special transfer to life fund 361 (250) 111 184 (184)

Intangible assets – PVIF (421) 48 (373) (40) 6 (34)

Deferred acquisition costs (82) (4) (86) (54) (12) (66)

Deferred revenue liability 18 3 21 18 3 21

Provisions 9 5 14 9 (5) 6 10

Capital gains taxation (1 029) (569) (1 598) (871) (517) (1 388)

Total (2 366) (856) (3 222) (1 936) (5) (792) (2 733)

Disclosed as:

Deferred taxation asset 88 40

Deferred taxation liability (2 454) (3 262) (1 936) (2 733)

(2 366) (3 222) (1 936) (2 733)







Group Company

2006 2005 2006 2005

Rm Rm Rm Rm

Deferred taxation

Movement summary

Balance at the beginning of the year (2 366) (1 232) (1 936) (1 173)

Additions through business acquisition (291) (5)

Additions arising from reinsurance recapture (10)

Change in taxation rate 9 8

Charge through the income statement (856) (858) (792) (772)

Release directly to equity 1 1

Disclosed as disposal groups held for sale 15

Balance at the end of the year (3 222) (2 366) (2 733) (1 936)



Deferred tax assets

Non-current 40 88



Deferred tax liabilities

Current (35) (13)

Non-current (3 262) (2 419) (2 733) (1 923)

Notes on the Financial Statements

for the year ended 31 December 2006



Restructuring Possible claims Total

2006 2005 2006 2005 2006 2005

Rm Rm Rm Rm Rm Rm

25 Provisions

Group and Company

Balance at the beginning of the year 39 39

Provision raised 39 60 60 39

Utilised during the year (27) (27)

Balance at the end of the year 12 39 60 72 39



Restructuring

This relates to the restructuring of Liberty Life’s operations, after the acquisition of Capital Alliance Holdings Limited. The

remaining amounts will be incurred during 2007.



Possible claims

Provision has been made for possible claims arising from new business acquisition costs. Due to the nature of the provision, the

timing of the expected cash flows are uncertain but likely to be within the 2007 financial year.

Notes on the Financial Statements

for the year ended 31 December 2006







Group Company

2006 2005 2006 2005

Rm Rm Rm Rm

26 Insurance and other payables



Current balances related to insurance contracts 1 211 1 081 958 939

Outstanding claims and surrenders 873 906 722 776

Commission creditors 222 87 137 86

Statement of intent accrual for out-of-force contracts 116 88 99 77

Current balances related to investment contracts 311 220 283 220

Outstanding claims and surrenders 146 157 127 157

Other 165 63 156 63



Total current balances related to insurance and

investment contracts 1 522 1 301 1 241 1 159

Total other payables 2 720 2 360 860 996

Sundry payables 1 663 1 863 563 652

Collateral deposit 537

Preference share dividend 184 138

Investment creditors 336 359 297 344



Total insurance and other payables 4 242 3 661 2 101 2 155

Current 3 652 3 262 1 886 1 779

Non-current 590 399 215 376

Notes on the Financial Statements

for the year ended 31 December 2006









Group Contribution

funds invested to earnings

2006 2005 2006 2005

Rm Rm Rm Rm

27 Ordinary shareholders’ interests

Analysis of shareholders’ interests:

Insurance operations 908 1 019 1 395 914

Insurance operating surplus – Group 299 252

– Individual 1 523 1 341

Present value of in-force business 908 1 019 (117) (90)

Liberty Active preference dividend (184) (138)

Working capital charge (1) (126) (130)

Statement of intent (refer note 47) (321)

Financing of insurance operations (1 722) 683 (68) 65

Fixed assets and working capital (1) 478 2,883 126 130

Callable capital bonds and preference share liabilities (2 200) (2 200) (194) (65)

Financial services operations 525 449 247 149

Liberty Group Properties 35 11 37 33

STANLIB 459 406 133 107

Liberty Jersey 36

Other 31 32 41 9

Investments 10 954 6 337 561 316

Listed equity investments 2 418 1 797 95 62

Interest-bearing deposits 4 275 2 432 286 99

Preference shares 1 361 406 40 37

Mutual funds 1 460 1 214 40 21

Share of pooled portfolios 943 373 77 54

Unlisted investments 497 115 23 43

Disposal groups held for sale 946 105

Prefsure Holdings 400 28

Liberty Ermitage Jersey 546 77

Administration expenses – shareholder allocation (192) (163)

Normal taxation excluding insurance operations (57) 38

Secondary tax on companies (90) (74)

Capital gains taxation on shareholder specific assets

Net investment gains 705 491

Headline earnings 2 501 1 841

Goodwill impairment (397)

Loss on sale of Hightree Financial Services (2)

Loss on sale of Prefsure Holdings (23)

Profit on sale of Liberty Ermitage Jersey 397



Total shareholders’ interests 10 665 9 434 2 875 1 442





(1)

With effect from 1 July 2005 Liberty Group Limited established a working capital funding loan between insurance operations and shareholder assets,

subsequently supported by the callable capital bonds issue. Inter-divisional interest is charged at 8,77

Shareholder

allocated

group investment

gains/(losses)

2006 2005

Rm Rm









2









2

793 610

592 382

7

(14) 2

90 17

104 102

21 100

12





12









(88) (133)

(705) (491)









- -







ween insurance operations and shareholder assets,

7

Notes on the Financial Statements

for the year ended 31 December 2006



Group and Company

2006 2005

Rm Rm



28 Share capital and share premium

Share capital

Authorised share capital

400 000 000 ordinary shares of 10 cents each 40 40

Unissued shares excluding unissued shares

reserved

59 329 673 (2005: 60 985 961) ordinary shares of

10 cents 6 6

Unissued shares reserved

For the purpose of the Senior Executive Share Option

Scheme 845 892 (2005: 845 892) ordinary shares of

10 cents each – –

For the purpose of the Share Trust 7 915 685

(2005: 8 567 802) ordinary shares of 10 cents each 1 1

For the purpose of the Group Share Incentive

Scheme 25 040 830 (2005: 23 776 641) ordinary

shares of 10 cents each 3 2

For the purpose of the Liberty Life Equity Growth

Scheme 27 644 311 (2005: 27 659 291) ordinary

shares of 10 cents each 3 3

7 6



Group Company

2006 2005 2006 2005

Number Rm Number Rm Number Rm Number Rm

Issued share capital

Ordinary shares of

10 cents each:

Balance at the

beginning of the year 277 949 622 28 276 592 907 28 278 164 413 28 76 592 907 28

Issued during the year 1 059 196 – 1 571 506 – 1 059 196 – 1 571 506 –

Net movement in treasury

shares held in subsidiary 180 791 – (214 791) –

Balance at the end of the year 279 1 89 609 28 277 949 622 28 279 223 609 28 278 164 413 28







Group and Company

2006 2005

Rm Rm

Share premium

Balance at the beginning of the year 2 313 2 245

Issued during the year at an average premium of R47,83 (2005: R43,68) per share in

terms of the Senior Executive Share Option Scheme, Share Trust and Group Share

Incentive Scheme 52 68

Capital reduction at R3,60 per ordinary share (1 004)

Balance at the end of the year 1 361 2 313

Total issued share capital and share premium 1 389 2 341



The following unissued shares are under the general authority and control of the directors which authority expires at the annual general meeting to be held on 24 May 2007: 27 816 441 (2006: 27

659 290) ordinary shares of 10 cents each.



Details of the options outstanding as at 31 December 2006 can be found in the Corporate Governance report.

Notes on the Financial Statements

for the year ended 31 December 2006



Group Company

2006 2005 2006 2005

Rm Rm Rm Rm

29 New business

New business premium income from insurance

contracts 11 147 10 806 8 096 8 455

New fund inflows from investment contracts 5 490 5 829 5 466 5 480

New service fee income from

investment contracts 40 38 40 38

Total new business 16 677 16 673 13 602 13 973

Individual business 11 389 11 250 8 463 8 823

Group business 2 556 2 952 2 413 2 878

Immediate annuities 2 732 2 471 2 726 2 272



Comprising:

New business – recurring 3 600 3 559 1 993 2 412

Individual 2 949 2 924 1 472 1 869

Group 651 635 521 543

New business – single 13 077 13 114 11 609 11 561

Individual 8 440 8 326 6 991 6 954

Group 1 905 2 317 1 892 2 335

Immediate annuities 2 732 2 471 2 726 2 272



Total new business 16 677 16 673 13 602 13 973

New business index (1) 4 908 4,870 3 154 3 568

Contractual increases 1 146 959 1 021 848

New business index net of contractual increases 3 762 3 911 2 133 2 720

Value of new business written in the year 607 777

New business margin (2) 2,5% 3,0%



(1)

New business index is an internationally accepted measure calculated as the sum of annualised recurring new business

plus 10% of new single premiums and inflows for the year.

(2)

Embedded value of new business as a percentage of the present value of future expected premiums.

Notes on the Financial Statements

for the year ended 31 December 2006









Group Company



2006 2005 2006 2005

Rm Rm Rm Rm

30 Premiums

Insurance premiums 20 843 20 003 14 655 13 916

Reinsurance premiums (777) (1 024) (280) (234)

Net insurance premiums 20 066 18 979 14 375 13 682

Fund inflows from investment contracts 7 835 8 312 7 799 7 911

Net premium income from insurance

contracts and inflows from investment

contracts 27 901 27 291 22 174 21 593

Individual 19 020 18 263 14 390 13 876

Group(1) 6 092 6 499 5 006 5 392

Immediate annuities 2 789 2 529 2 778 2 325



Comprising:

Recurring 14 756 13 896 10 540 9 951

Individual 10 553 9 762 7 426 6 894

Group 4 203 4 134 3 114 3 057

Single 13 145 13 395 11 634 11 642

Individual 8 467 8 501 6 964 6 982

Group (1) 1 889 2 365 1 892 2 335

Immediate annuities 2 789 2 529 2 778 2 325



Net premium income from insurance contracts and

inflows from investment contracts 27 901 27 291 22 174 21 593

(1)

Group premium income is stated net of

inter-company transactions between group

companies.

Notes on the Financial Statements

for the year ended 31 December 2006









Group Company

2006 2005 2006 2005

Rm Rm Rm Rm

31 Service fee income

Service fee income from investment contracts 776 720 729 620

Realised through the income statement 7 9 7 6

Deferred income relating to new business (19) (16) (19) (16)

Recognised in the income statement 764 713 717 610

Notes on the Financial Statements

for the year ended 31 December 2006







Group Company

2006 2005 2006 2005

Rm Rm Rm Rm

32 Investment income

Financial assets held at fair value through profit

or loss

Interest income 4 988 3 878 3 139 2 425

Dividends received 2 802 2 156 2 109 1 714

Listed shares 2 507 1 956 1 835 1 511

Unlisted instruments 295 200 274 203

Investment properties

Rental income from investment properties 1 416 1 185 696 297

(1)

Hotel operations sales 506 447 429

Financial instruments held-to-maturity

Interest income 40 71 26 50

Subsidiaries and joint ventures 8 2 717 2 940

Dividends(2)(3) 709 2 938

Scrip lending fees 8 2 8 2

Sundry income 46 21 2 14

Total investment income 9 806 7 760 7 118 7 440

(1)

Hotel operations sales includes room, food and beverage and miscellaneous charges.



2006 2005

Rm Rm

(2)

Dividends received from subsidiaries:



Libgroup Jersey Holdings Limited 275

Liberty Active Limited 350 511

Liberty Group Properties (Pty) Limited 14 25

Liberty Hotels (Pty) Limited 13

Liblife (Jersey) Limited 1 2 321

Libsil Holdings (Pty) Limited 1

Total 654 2 857

(3)

Dividends received from joint ventures:



STANLIB Limited 48 77

The Cullinan Hotel (Pty) Limited 7 4

Total 55 81

Notes on the Financial Statements

for the year ended 31 December 2006









Group Company

2006 2005 2006 2005

Rm Rm Rm Rm

33 Investment gains/(losses)

Investment properties 1 207 1 080 1 134 1 259

Financial instruments held at fair value through profit

or loss 25 907 22 177 22 786 18 886

Cash and cash equivalents 362 48 366 52

Foreign exchange differences on subsidiaries 10 2 2

Mutual funds 1 141 1 769

Subsidiary impairment reversal/(charge) 5 (410)

Total investment gains 28 627 25 076 24 291 19 789

Fair value gains and losses on financial instruments

held at fair value through profit or loss

Quoted instruments 25 482 21 815 22 343 18 459

Unquoted instruments 425 362 443 427

25 907 22 177 22 786 18 886

Notes on the Financial Statements

for the year ended 31 December 2006









Group Company



2006 2005 2006 2005

Rm Rm Rm Rm

34 Claims and policyholders’ benefits

Claims and policyholders' benefits under insurance

contracts 17 059 14 795 11 813 9 750

Payments under investment contracts 7 794 7 545 7 019 6 447

24 853 22 340 18 832 16 197

Insurance claims recovered from reinsurers (578) (775) (225) (238)

Net claims and policyholders' benefits 24 275 21 565 18 607 15 959

Comprising:

Individual 18 202 15 844 13 458 11 049

Death and disability claims 2 709 2 522 1 697 1 609

Policy maturity claims 4 662 4 706 3 022 2 734

Policy surrender claims 8 467 6 516 7 118 5 251

Annuity payments 2 364 2 100 1 621 1 455

Group (1) 6 073 5 721 5 149 4 910

Death and disability claims 1 386 1 187 512 531

Scheme terminations 399 261 396 257

Scheme member withdrawals 2 530 1 985 2 518 1 884

Annuity payments 302 269 302 269

Investment only terminations and withdrawals 1 456 2 019 1 421 1 969



Total claims and policyholders' benefits 24 275 21 565 18 607 15 959

(1)

Group claims and policyholders’ benefits are stated net of inter-company transactions between group companies.

Notes on the Financial Statements

for the year ended 31 December 2006







Group Company

2006 2005 2006 2005

Rm Rm Rm Rm

36 General marketing and administration expenses



General marketing and administration

expenses include the following:

Amortisation of intangible assets 203 175 58 60

Auditors' remuneration 32 25 23 12

Audit fees – Current year 22 24 14 12

Audit fees – Prior year underprovision 6 6

Other services 4 1 3

Consulting fees 128 91 109 50

Depreciation 107 128 100 97

Computer equipment 49 63 46 52

Purchased computer software 8 10 7 7

Fixtures, furniture and fittings 34 37 31 23

Office equipment and office machines 5 7 5 5

Motor vehicles 11 11 11 10

Direct operating expenses – on investment properties 239 256 190 191

– on owner-occupied

properties 25 32 29 36

– on hotel operations 339 342 279

Equipment impairment 6

Intangible assets impairment 20

Loss on disposal of equipment 3 2 2 3

Asset management fees 301 231 161 132

Operating lease charges – equipment 65 82 64 69

– property 34 45 24 24

Other related South African taxes 236 213 158 160

Financial services levy 10 8 8 5

Non-recoverable value-added taxation 216 187 142 139

Regional services council levies 10 18 8 16

Restructuring expense 112 184 109 147

Retrenchment and other staff related costs 20 85 20 79

Infrastructure and office costs 8 42 8 30

Systems and processes 76 55 73 36

Consolidation of marketing and distribution 8 2 8 2

Staff costs 1 133 1 131 719 782

Salaries and wages 803 796 449 526

Defined benefit pension fund contributions 12 13 10 11

Medical aid contributions 64 79 54 70

Staff and management incentives 88 85 80 66

Share-based payment expense – equity-settled 50 40 45 36

– cash-settled 2 2

Other post-retirement benefits 60 70 44 51

Other 54 48 35 22









Company

2006 2005

R’000 R’000

36 Directors' emoluments

Chairman’s and non-executive directors’ fees 2 816 2 215

Non-executive share options 719 664

Executive directors 15 990 13 848



Basic salaries 5 782 4 291

Performance related payments 7 646 6 500

Expense allowances 526 213

Retirement and medical benefits 600 556

Other benefits 32 278

Share options 1 404 2 010



Total emoluments (all paid by the company) 19 525 16 727



Full details of the directors’ emoluments are contained in the Corporate Governance report on page 33.

Notes on the Financial Statements

for the year ended 31 December 2006









Group Company

2006 2005 2006 2005

Rm Rm Rm Rm

35 Acquisition costs associated with insurance

and investment contracts

Insurance contracts 2 202 3 411 1 415 2 649

Investment contracts 47 62 41 59

Amortisation and impairment of deferred acquisition

costs 164 121 137 101

Acquisition costs associated with insurance and

investment contracts 2 413 3 594 1 593 2 809

Incurred during the year(1) (2 423) (3 620) (1 630) (2 856)

Deferred acquisition costs 174 147 174 148

Amortisation and impairment of deferred acquisition

costs (164) (121) (137) (101)

(1)

Prepaid commission of R1 096 million previously included in prepayments, insurance and other receivables was, with effect from 1

January 2005, included in policyholders’ liabilities in respect of insurance contracts.

Notes on the Financial Statements

for the year ended 31 December 2006









Group Company

2006 2005 2006 2005

Rm Rm Rm Rm

37 Share-based payments



Reconciliation of reserve

Staff options

Direct cost 59 32 53 28

Allocated cost to subsidiaries and joint venture 7 5 11 8



BEE transaction

Direct costs 51 28 45 24

Allocated cost to subsidiaries and joint venture 2 1 8 5



Transfer of vested options to retained surplus (17) (17)

Total share-based payments reserve 102 66 100 65



Movement for the year 36 45 35 44



Per the income statement – equity-settled schemes 50 40 46 36

Transfer of vested options to retained surplus (17) (17)

Allocated cost to subsidiaries and joint venture 3 5 6 8







Staff options









Liberty Life has a number of share incentive schemes, which entitles key management personnel and senior employees to purchase Liberty Group Limited shares.

These share incentive schemes are the Liberty Group Senior Executive Share Options Scheme, the Lib



37 Share-based payments (continued)



Staff options (continued)



The following is a summary of the movements of the rights and share options granted:

Shares Shares

under Options/ Options/ Options/ under

Price Final option at rights rights rights option/

payable vesting beginning granted implemented cancelled rights at

Date granted per share date of year during year during year during year end of year

3/14/2003 R46,15 3/14/2008 1 354 800 325 049 83 956 951 105

6/2/2003 R44,90 6/2/2008 166 000 83 000 83 000 –

9/12/2003 R46,40 9/12/2008 30 000 30 000

11/24/2003 R46,25 11/24/2008 86 300 18 950 – 67 350

3/15/2004 R50,65 3/15/2009 1 100 300 44 783 281 617 773 900

8/2/2004 R47,70 8/2/2009 125 000 125 000

9/1/2004 R51,40 9/1/2009 120 000 120 000

11/15/2004 R59,95 11/15/2009 121 000 9 700 25 300 86 000

12/2/2004 R60,39 12/2/2009 100 000 100 000

1/3/2005 R63,00 1/3/2010 50 000 50 000

4/21/2005 R58,40 4/21/2010 1 155 000 14 980 404 842 735 178

6/20/2005 R55,15 6/20/2010 50 000 50 000

10/6/2005 R59,40 10/6/2010 80 000 80 000

11/1/2005 R60,90 11/1/2010 10 000 10 000

11/21/2005 R65,10 11/21/2010 30 000 30 000

12/1/2005 R69,10 12/1/2010 20 000 20 000

1/3/2006 R71,90 1/3/2011 50 000 50 000

3/3/2006 R81,61 3/3/2011 1 288 100 46 800 1 241 300

4/18/2006 R77,28 4/18/2011 60 000 60 000

5/2/2006 R79,38 5/2/2011 50 000 5 000 45 000

6/1/2006 R73,40 6/1/2011 30 000 30 000

7/3/2006 R72,00 7/3/2011 20 000 20 000

8/10/2006 R72,00 8/10/2011 60 000 60 000

10/23/2006 R74,00 10/23/2011 20 000 20 000

11/22/2006 R75,50 11/22/2011 10 000 10 000



The weighted average share price for the year was R78,49 (2005: R65,34). 50% of the options vest in year three, thereafter 25% in year four and five. Typically, the employee must remain in the employment of the



company in order to exercise options. The we



A binominal tree model and a modified binominal tree model were used in order to value the share options and share rights, respectively. The fair value of the share options granted during the year and the

assumptions used are as follows:

Exercise price R71,90 – R81,61

Expected volatility (%) 31,11% – 31,53%

Option life 5 years

Dividend yield (%) 3,70% – 4,86%



Share-based payment expense recognised during 2006 relating to the share options was R26 million (company: R24 million) (2005: group: R17 million, company: R15 million). The share options have been



classified as an equity-settled scheme, and therefore, a



Black Economic Empowerment (BEE) transaction and IFRS 2

Liberty Life entered into a BEE transaction during 2004, which resulted in the recognition of a share-based payment expense.



37 Share-based payments (continued)



Staff options (continued)



Black Economic Empowerment (BEE) transactions and IFRS 2 (continued)

The Katleho Managers Trust has acquired 10,3 million shares in Liberty Group Limited. The acquisition was financed by the trust issuing redeemable preference shares to Liberty Life. All dividends received in respect of Liberty





Group Limited shares will se



Approximately 97% of the share options have been allocated since inception of the transaction in 2004. These options have been valued using an appropriate model, as described below. This expense will be recognised over the





vesting period, which will conti



The fair value of the options were measured using a stochastic simulation model, which incorporated the terms and conditions of the BEE transaction. The model requires a number of assumptions, which are as follows:







 Grant date of the options: 29 October 2004, being the last date of trade before the scheme implementation;

 Market price of the underlying shares at the grant date: R57 per share;

 Dividend yield: assumed to equal the average dividend yield of 5,22% for the 12 months preceding the grant date;



 Strike price: this will differ based on the investment return scenario generated by the valuation mode;

 Expiry date: the options are assumed to have a term of 20 years and, therefore, the expiry date will be in the year 2024;



 Volatility: the annualised standard deviation of the monthly return on Liberty Group Limited shares was used, namely 29,71%;



 Risk-free rate of interest: Bond Exchange of South Africa (BESA) zero-coupon South African government bond curve used as

at the grant date. From the zero-coupon curve, a forward rate curve was derived; and

 Preference dividend rate: this rate is set at 66% (65% when the company income taxation rate was 30%) of the prime lending

rate.







Share-based payment expense recognised during 2006 relating to the BEE transaction was R24 million (company: R21 million) (2005: group: R23 million, company: R21 million). The BEE transaction is classified as an equity-

settled scheme and, therefore, a sha



Phantom share scheme





Liberty Life reduced its capital by approximately R1 billion, or R3,60 per share, which was paid out to shareholders on 12 June 2006 from the share premium account.









Share option holders are not entitled to receive dividends on their share options and therefore each employee who had outstanding share options at that date received a participation right in a phantom share scheme to

compensate for the economic opportunit

Notes on the Financial Statements

for the year ended 31 December 2006









Group Company

2006 2005 2006 2005

Rm Rm Rm Rm

38 Finance costs

Interest expense:

– interest paid on policyholder claims and supplier

balances 21 16 15

– interest on financial liabilities at amortised cost 194 65 179 54

Total finance costs 215 81 194 54

Notes on the Financial Statements

for the year ended 31 December 2006









Group Company

2006 2005 2006 2005

Rm Rm Rm Rm

39 Taxation



39.1 Sources of taxation



South African normal taxation 1 127 746 969 555

Current year taxation 823 490 694 265

Under/(over) provision prior year current taxation 17 (160) (160)

Current deferred taxation 287 292 275 326

Underprovision prior year deferred taxation 125 125

Attributable to a decrease in the taxation rate (1) (1)

South African capital gains taxation 871 699 692 540

Current year taxation 352 266 225 226

Overprovision prior year current taxation (50) (50)

Deferred taxation 569 441 517 321

Attributable to a decrease in the taxation rate (8) (7)

Other related South African taxes 266 221 237 186

Retirement fund taxation 176 147 167 135

Secondary tax on companies 90 74 70 51





Total taxation 2 264 1 666 1 898 1 281

Charged directly to equity 15 43 14 43

Income statement 2 249 1 623 1 884 1 238

39. Taxation (continued)



39.2 Taxation rate reconciliation

Group Company

CIT RFT STC CGT Total CIT RFT STC CGT Total

(1)(8) (2) (3) (4)(8)(9) (1)(8) (2) (3) (4)(8)(9)





2006 Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm

Taxation per the income statement 1 112 176 90 871 2 249 955 167 70 692 1 884

Taxation directly charged to equity reserves 15 15 14 14

Total taxation 1 127 176 90 871 2 264 969 167 70 692 1 898

Taxation specific to policyholder tax funds (5)(7) (375) (176) (783) (1 334) (386) (167) (655) (1208)

Shareholder taxation 752 - 90 88 930 583 - 70 37 690

Revenue per the income statement 3 246 - - 2 167 5 413 3 848 - - 622 4 470

Defined as capital 2 167 2 167 622 622

Defined as revenue 3 246 3 246 3 848 3 848

Taxable revenue directly charged to reserves 50 50 49 49

Dividends paid 1 213 1 213 1 013 1 013

Ordinary 1 013 1 013 1 013 1 013

Preference(6) 200 200



Total 3 296 1 213 2 167 3 897 1 013 622

% % % % % %

Effective rate of taxation 22,8 7,4 4,1 14,9 6,9 5,9

Adjustments due to:

Income exempt from normal taxation:

Dividends received 8,7 6,8

Equity accounted earnings from joint ventures 1,3 0,4

Non-tax deductible expenses (15,9) (2,2)

Revenue offset for life fund taxes 11,8 9,2

(Under)/overprovision of taxes in respect of

prior years (0,5) 2,5 8,1

Deferred acquisition costs and deferred

revenue liability 0,9

Income attributable to controlled foreign

companies (0,6) (0,1)

Utilised tax losses and special transfers 0,3

Effect of differing foreign taxation rates 0,2

Amounts excluded from capital gains tax 6,9

Base cost difference to historical cost 1,0 0,5

Relief obtained from secondary taxation

credits on dividends received 5,1 5,6

Standard rate of South African taxation 29,0 12,5 14,5 29,0 12,5 14,5



(1)

CIT represents corporate income taxation.

(2)

RFT represents retirement funds taxation which is a South African tax on interest on rental income earned within defined retirement tax funds.

(3)

STC represents secondary tax on companies which is a South African tax on defined dividend distributions to shareholders.

(4)

CGT represents capital gains taxation which is an effective tax on defined capital gains in South Africa.

(5)



Policyholder taxation funds are separate taxation persons which have differing taxation rules applied in the South African taxation legislation. There are three separate funds, defined as untaxed, individual and corporate.

As these funds and related taxes

(6)

R16 million of preference dividends is disclosed as interest expense in the income statement but is defined as dividends for taxation purposes.

39. Taxation (continued)



39.2 Taxdation rate reconciliations (continued)



Group Company

CIT RFT STC CGT Total CIT RFT STC CGT Total

(1)(8) (2) (3) (4)(8)(9) (1)(8) (2) (3) (4)(8)(9)



2005 Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm

Taxation per the income statement 707 147 75 694 1 623 517 135 51 535 1 238

Taxation directly charged to equity reserves 38 5 43 38 5 43

Total taxation 745 147 75 699 1 666 555 135 51 540 1 281

Taxation specific to policyholder tax funds (5)(7) (385) (147) (547) (1079) (365) (135) (438) (938)

Shareholder taxation 360 75 152 587 190 51 102 343

Revenue per the income statement 1 970 1 391 3 361 4 010 735 4 745

Defined as capital 1 391 1 391 735 735

Defined as revenue 1 970 1 970 4 010 4 010

Taxable revenue directly charged to reserves 138 38 176 140 38 178

Defined as capital 38 38 38 38

Defined as revenue 138 138 140 140

Dividends paid 923 923 773 773

Ordinary 773 773 773 773

Preference 150 150



Total 2 108 923 1 429 4 150 773 773

% % % % % %

Effective rate of taxation 17,1 8,1 10,6 4,6 6,6 13,2



Adjustments due to:



Income exempt from normal taxation:

Dividends received 5,3 18,3

Equity accounted earnings from joint ventures 1,1 0,7



Non-tax deductible expenses (1,7) (0,5)

Revenue offset for life fund taxes 8,7 4,1

Overprovision of taxes in respect of prior years 1,7 0,9

Deferred acquisition costs and deferred revenue

liability 2,3 0,9

Change in valuation basis (0,5)

Utilised tax losses and special transfers (6,5)

Effect of differing foreign taxation rates 1,5

Amounts excluded from capital gains tax 2,7

Capital gains tax roll-over relief 0,2

Base cost difference to historical cost 1,0 1,3

Relief obtained from secondary taxation credits

on dividends received 4,4 5,9

Standard rate of South African taxation 29,0 12,5 14,5 29,0 12,5 14,5

(7)

Normal policyholder taxation contains a release of R21 million (2005: charge of R242 million) in respect of deferred taxation relating to investment property fair value movements

which as detailed in notes 18 and 19 is considered to be an effective double

(8)

During 2005, the normal South African income taxation rate pertaining to companies changed from 30% to 29% and as a consequence the effective CGT rate reduced to 14,5%

from 15%.

(9)

Capital gains taxation arising on the possible disposal of subsidiaries or business units will only be provided for when a firm intention to sell has been mandated by the directors of

the holding company.

Group Company

2006 2005 2006 2005

Rm Rm Rm Rm

39 Taxation (continued)

39.3 Potential future taxation relief

Secondary taxation credits not utilised and not

provided for representing possible future

STC taxation relief 15 22 15 22

South African assessed losses carried forward not

provided for representing possible future normal

taxation relief 40 84

Notes on the Financial Statements

for the year ended 31 December 2006



Group Company

2006 2005 2006 2005

Rm Rm Rm Rm

40 Reconciliation of total earnings to cash

generated from/(utilised for) operations

Total earnings 3 164 1 738 2 586 3 507

Adjustments for:

Policyholders’ liability transfers 29 935 25 630 26 767 22 565

Interest received (5 028) (3 949) (3 165) (2 475)

Interest paid 215 81 194 54

Dividends received (2 802) (2 156) (2 818) (4 652)

Distribution of profits from subsidiary

unincorporated property partnership (367) (309)

Taxation 2 249 1 623 1 884 1 238

Recovery of share-based payment expenses 3 5 6 8

Net fund inflows after service fees on policyholder

investment contracts (735) 47 51 844

Service fee income deferred on new business 19 16 19 16

Deferred acquisition costs on new business (174) (147) (174) (148)

26 846 22 888 24 983 20 648

Adjustments for non-cash items:

Investment losses on treasury shares (9)

Impairment and amortisation of deferred

acquisition costs 164 121 137 101

Amortisation of deferred revenue liability (7) (9) (7) (6)

Retained income of joint ventures (95) (10)

Amortisation of intangible assets 203 175 58 60

Impairment of intangible assets 20

Depreciation of equipment 107 128 100 97

Impairment of equipment 6

Impairment of goodwill 397

Loss on sale of Hightree Financial Services Limited 2

Net profit on sale of subsidiaries (374)

Loss on disposal of equipment 3 2 2 3

Share-based payment expenses 48 40 44 36

Investment gains (28 627) (25 076) (24 291) (19 789)

Investment gains attributable to third party

mutual fund liabilities 1 480 1,879

Income attributable to minority shareholders in

subsidiaries 184 138

Movement on provisions 33 58 33 60

(Release)/increase in impairment of subsidiary

investments (5) 410

(35) 750 1 054 1 620



Working capital changes: 237 2 569 (233) 1 396



Prepayments, insurance and other receivables (348) 1,681 (244) 691

Insurance and other payables 585 888 11 705



Cash generated from operations 202 3 319 821 3 016

Notes on the Financial Statements

for the year ended 31 December 2006







Group Company

2006 2005 2006 2005

Rm Rm Rm Rm

41 Dividends paid



Dividends as per statement of changes in group

shareholders' funds (1 013) (773) (1 013) (773)

Dividends received on preference shares held in

relation to BEE transaction 89 72 89 72

Dividends paid to minority shareholders in subsidiary (138) (102)

Total dividends paid (1 062) (803) (924) (701)

Notes on the Financial Statements

for the year ended 31 December 2006









Group Company

2006 2005 2006 2005

Rm Rm Rm Rm

42 Taxation paid



Taxation payable and deferred taxation at beginning

of the year (2 847) (1 402) (2 214) (1 289)

Addition through business acquisition (303)

Taxation attributable to group and company (2 264) (1 666) (1 898) (1 281)

Charged directly to equity (15) (43) (14) (43)

Charged directly to the income statement (2 249) (1 623) (1 884) (1 238)

3 615 2 870 3 081 2 214

Taxation payable and deferred taxation at the end

of the year 3 615 2 847 3 081 2 214

Reclassified as disposal groups held for sale 23



Total taxation paid (1 496) (501) (1 031) (356)

Notes on the Financial Statements

for the year ended 31 December 2006





43 Business acquisition and disposals

Disposal of Liberty Ermitage Jersey Limited (Ermitage) and Prefsure Holdings Limited

43.1 (Prefsure)

Early in 2006, the group concluded the disposal of the previously recorded disposal groups

Ermitage (incorporated in Jersey, Channel Islands) and Prefsure (incorporated in Australia). The

sales have effectively been recorded with effect from 1 January 200



Ermitage sale









The sale of Ermitage resulted in net proceeds of R943 million, of which £17,5 million is required

to be deposited offshore in a group subsidiary, for the benefit of the group, but as security in the

event of any warranty claims. £15 million will be unrest



Prefsure sale







The sale of Prefsure resulted in net proceeds of R378 million of which $Aus21 million is held in

escrow at an Australian firm of attorneys. The escrow deposit is for the benefit of the group and is

held as security in the event of any warranty claims. $Au



The directors have no reason to believe any claims will be forthcoming and consequently no

provision has been raised. The group realised a loss on sale of R23 million.



At 31 December 2005, based on the requirements of IFRS 5 Non-current Assets Held for Sale

and Discontinued Operations, the assets and liabilities attributable to Ermitage and Prefsure were

disclosed as a disposal group, and separately disclosed on the bal



The classes of assets and liabilities comprising the disposal groups classified as held for sale and

at the date of disposal were as follows:

Rm

Total assets classified as held for sale 2 380

Comprising of:



Equipment 16

Intangible assets 162

Reinsurance assets 501

Financial instruments 1 152

Prepayments, insurance and other receivables 412

Cash and cash equivalents 137

Other –



Total liabilities classified as held for sale (1 267)

Comprising of:



Insurance contracts (745)

Investment contracts (82)

Provisions (11)

Insurance and other payables (406)

Deferred taxation (15)

Current taxation (8)



Net asset value of the disposal groups 1 113

Attributable to minorities (166)

Net asset value attributable to Liberty Group Limited 947



Proceeds received 1 321

Ermitage 943

Prefsure 378

Net profit on sale of subsidiaries 374

Ermitage 397

Prefsure (23)





43.2 Acquisition of Capital Alliance Holdings Limited (CAHL)



On 1 April 2005, Liberty Life acquired 100% of the issued share capital (excluding existing

holdings), at a purchase price consideration of R3 047 million, utilising excess shareholder funds.



CAHL is a proven integrator of life books that specialises in the reduction of back office and

administration costs through the improvement of service levels and operational efficiencies.



The assets and liabilities arising from the acquisition were as follows:

Total recognised Value of in- Net asset

Rm values force acquired value

Equipment 24 24

Owner-occupied properties 19 19

Investment properties 89 89

Intangible assets 1 467 1 331 136

Deferred acquisition costs 123 123

Interests in joint ventures 51 51

Interests in associates 78 78

Reinsurance assets 866 866

Deferred taxation assets 263 263

Financial instruments 16 371 16 371

Prepayments, insurance and other receivables 1 731 1 731

Cash and cash equivalents 1 445 1 445

Policyholders’ liabilities – insurance contracts (15 211) (15 211)

Insurance contracts with DPF –

guaranteed element (1 864) (1 864)

Insurance contracts with DPF – non-

guaranteed element (787) (787)

Insurance contracts without DPF (12 560) (12 560)

Policyholders’ liabilities – investment

contracts (2 606) (2 606)



Financial liabilities at amortised cost (200) (200)

Retirement benefit obligation (24) (24)

Deferred revenue (3) (3)

Deferred taxation liability (554) (386) (168)

Provisions (24) (24)

Insurance and other payables (1 082) (1 082)

Current taxation (12) (12)

Minority interests (161) (161)

Net identifiable assets and liabilities 2 650 945 1 705

Goodwill on acquisition 397

Consideration paid 3 047

Less: cash acquired (1 445)

Net cash outflow 1 602







The goodwill arose from the residual cost of the acquisition over the embedded value at

acquisition date, which could not be attributed to any other asset (no other intangibles existed). In

the case of CAHL, no value was placed on the potential to generat



43.3 Acquisition of Wedelin Investments 1 (Pty) Limited (Wedelin)





The effective date of acquiring Wedelin was determined by the Competition Tribunal approval,

which was received on 26 May 2005. The only asset acquired from the acquisition was an

investment property under development of R169 million. The purchase conside



43.4 Disposal of Hightree Financial Services Limited (Hightree)

On 1 November 2005, Liberty Life, through its subsidiary Libgroup Jersey Holdings Limited,

disposed of its investment in Hightree. At date of sale, the net asset value was Rnil and the group

incurred a loss on disposal of R2 million.

The assets and liabilities at date of disposal were as follows:

Rm

Equipment 2

Prepayments, insurance and other receivables 2

Cash and cash equivalents 1

Insurance and other payables (5)

Net asset value -

Payment in respect of lease commitments (2)

Loss on disposal (2)

Notes on the Financial Statements

for the year ended 31 December 2006







44 Related party disclosures



List of related parties as defined:



Parents



Direct holding company: Liberty Holdings Limited – controls 51,99% (2005: 52,22%) of the issued ordinary shares including BEE

transaction shares.



Ultimate holding company: Standard Bank Group Limited.



Fellow subsidiaries



All subsidiaries of the Standard Bank Group Limited are fellow subsidiaries of Liberty Group Limited – a full list can be obtained from the company secretary

and details are contained in the published annual report of Standard Bank Group Limited.



Liberty Holdings Limited has no other direct subsidiaries.



Subsidiaries

Directly owned

Details of subsidiaries directly owned by the group are contained in note 12.



Indirectly owned



Wholly owned:









Liberty Ermitage Luxemburg SA, Charter Life Namibia Limited, Shoebill (Pty) Limited, Group Solutions at Capital Alliance (Pty) Limited, Cell within Nova Life

Partners Limited, Capital Alliance Investment Holdings (Pty) Limited, Cal Limited, Traduna Proper







Disposed of with effect from 1 January 2006:









Liberty Ermitage Jersey Limited, Liberty Ermitage UK Limited, Liberty Ermitage Asset Management Jersey Limited, Liberty Ermitage Global Wealth Management Jersey Limited, Liberty

Ermitage Life Jersey Limited, Liberty Ermitage Management (Bermuda) Limited,



Liquidated, deregistered or under application for deregistration during 2006:









Liblife (Jersey) Limited, Roggebaai Centre (Pty) Limited, Monter (Pty) Limited, Rapp & Maister Construction (Pty) Limited, Nayland Investments (Pty) Limited, Globin Nominees (Pty)

Limited, Traduna Randburg (Pty) Limited, Traduna Cougar (Pty) Limited, Trad



Joint ventures

Details of joint ventures of the group are contained in note 13.

Associates

Details of associates of the group are contained in note 14.



Key management personnel

Key management personnel have been defined as follows:

Standard Bank Group Limited directors and executive committee members;

Liberty Holdings Limited directors

; Liberty Group Limited directors and executive committee members.



Refer to the published annual financial statements of Standard Bank Group Limited and Liberty Holdings Limited for details pertaining to their key

management members.



Details of the directors of Liberty Group Limited are on page 2.



Liberty Group Limited executive committee members as at 31 December:

2006 2005

Mark Alexander n/a resigned 1 May

Martin Appelo resigned 30 April appointed 1 April

Hylton Appelbaum n/a resigned 1 June

George Brits appointed 1 June

Deon de Klerk*

Andre du Plessis appointed 1 June

Leanne Dewey appointed 1 June resigned 1 May

Mike Garbutt n/a retired 30 November

Bruce Hemphill* (chairman)

Momin Hukamdad appointed 1 June

Andrew Jacobs appointed 1 June

Lee Izikowitz resigned 30 June

Ian Kirk resigned 31 May appointed 1 April

Andrew Lonmon-Davis*

Ian Maron*

Bobby Malabie*

Audrey Mothupi* appointed 1 April

Hennie Nortje* appointed 1 April

David Price appointed 1 May

Myles Ruck resigned 1 June

Martin Smale n/a resigned 31 May

Rex Tomlinson*

Stuart Wenman appointed 3 January

Alan Woolfson resigned 30 June

* full year







It is not considered necessary to disclose details of key management family members and their influenced or controlled separate entities. To the extent specific transactions have

occurred between the group and these related parties (as defined in IAS 24)



Post-employment benefit plans

Refer to note 22.



Summary of related party transactions:

For purposes of this section Liberty Group Limited will be referred to as Liberty and, where relevant, amounts are excluding value-added taxation.



A. Direct holding company – Liberty Holdings Limited

Liberty provided certain administrative and secretarial services to Liberty Holdings Limited for which it is reimbursed

-2006: R1,5 million (2005: R3,5 million).



A.1 Investment in shares

Liberty and its subsidiaries invest from time to time in securities issued by its holding company, Liberty Holdings Limited, for the benefit of policyholders. Summary of investments held is

as follows:

Liberty and its subsidiaries invest from time to time in securities issued by its holding company, Liberty Holdings Limited, for the benefit of policyholders. Summary of investments held is

as follows:



Nominal holding Market value

Liberty Holdings ordinary shares 2006 2005 2006 2005

Summary of ordinary share holdings and movements: ’000 ’000 Rm Rm

Holdings at 1 January 2,630 2,607 497 459

Liberty 2,513 2,607 475 459

Capital Alliance Life Limited 117 22

Additions through business acquisition

Capital Alliance Life Limited 117 19

Purchases 404 544 81 94

Liberty 398 544 80 94

Liberty Active Limited 6 1

Sales (310) (638) (63) (105)

Liberty (193) (638) (42) (105)

Capital Alliance Life Limited (117) (21)

Fair value adjustments 57 30

Liberty 58 27

Capital Alliance Life Limited (1) 3

Holdings at 31 December 2,724 2,630 572 497

Liberty 2,718 2,513 571 475

Capital Alliance Life Limited 117 22

Liberty Active Limited 6 1 –

Percentage of total issued ordinary shares 5,55% 5,36%



B. Ultimate holding company – Standard Bank Group Limited and fellow subsidiaries

B.1 Investment in ordinary shares, preference shares, bonds and debentures

Liberty and its subsidiaries invest from time to time in securities issued by its ultimate holding company, Standard Bank Group Limited, for the benefit of

policyholders. Summary of investments held is as follows:

Nominal holding Market value

Standard Bank Group ordinary shares 2006 2005 2006 2005

Summary of ordinary share holdings and movements: ’000 ’000 Rm Rm

Holdings at 1 January 46,489 49,308 3,525 3,245

Liberty 41,088 47,931 3,115 3,154

Capital Alliance Life Limited 3,082 234

Liberty Active Limited 2,319 1,377 176 91

Additions through business acquisition

Capital Alliance Life Limited 3,716 234

Purchases 3,346 9,559 281 653

Liberty 2,629 7,639 222 521

Capital Alliance Life Limited 715 278 59 19

Liberty Active Limited 2 1,642 – 113

Sales (11,247) (16,094) (906) (1,101)

Liberty (9,424) (14,482) (756) (989)

Capital Alliance Life Limited (993) (912) (79) (63)

Liberty Active Limited (830) (700) (71) (49)

Fair value adjustments 747 494

Liberty 660 429

Capital Alliance Life Limited 51 44

Liberty Active Limited 36 21

Holdings at 31 December 38,588 46,489 3,647 3,525

Liberty 34,293 41,088 3,241 3,115

Capital Alliance Life Limited 2,804 3,082 207 234

Liberty Active Limited 1,491 2,319 199 176

Percentage of total issued ordinary shares 2,83% 3,44%



Nominal holding Market value

Standard Bank Group preference shares

Summary of preference share holdings and 2006 2005 2006 2005

movements: ’000 ’000 Rm Rm

Holdings at 1 January 626 1,103 76 128

Liberty 611 843 76 98

Capital Alliance Life Limited 15 –

Liberty Active Limited 260 30

Additions through business acquisition

Capital Alliance Life Limited 15

Purchases 2,588 383 294 45

Liberty 2,470 383 281 45

Liberty Active Limited 118 13

Sales (255) (875) (30) (100)

Liberty (143) (615) (19) (70)

Liberty Active Limited (112) (260) (11) (30)

Fair value adjustments (33) 3

Liberty (32) 3

Liberty Active Limited (1)

Holdings at 31 December 2,959 626 307 76

Liberty 2,938 611 306 76

Capital Alliance Life Limited 15 15 – –

Liberty Active Limited 6 1









Nominal holding Market value

Standard Bank Group fixed interest bonds

Summary of fixed interest bond holdings and 2006 2005 2006 2005

movements: Millions Millions Rm Rm

Holdings at 1 January 480 207 488 248

Liberty 475 93 483 112

Liberty Active Limited 5 114 5 136

Purchases 480 494

Liberty 475 489

Liberty Active Limited 5 5

Sales (207) (244)

Liberty (93) (110)

Liberty Active Limited (114) (134)

Fair value adjustments 33 (10)

Liberty 33 (8)

Liberty Active Limited (2)

Holdings at 31 December 480 480 521 488

Liberty 475 475 516 483

Liberty Active Limited 5 5 5 5



Nominal holding Market value

Standard Bank Group unsecured quoted

debentures

Summary of unsecured quoted debentures 2006 2005 2006 2005

holdings and movements: Millions Millions Rm Rm

Holdings at 1 January 1,567 1,427 1,634 1,476

Liberty 1,194 1,104 1,240 1,140

Capital Alliance Life Limited 80 87

Liberty Active Limited 293 323 307 336

Additions through business acquisition

Capital Alliance Life Limited 80 80

Purchases 1,775 637 1,770 661

Liberty 1,693 509 1,688 528

Capital Alliance Life Limited 57 57

Liberty Active Limited 25 128 25 133

Sales (375) (577) (372) (602)

Liberty (259) (419) (257) (440)

Capital Alliance Life Limited (22) (23)

Liberty Active Limited (94) (158) (92) (162)

Fair value adjustments (32) 19

Liberty (15) 12

Capital Alliance Life Limited (3) 7

Liberty Active Limited (14)

Holdings at 31 December 2,967 1,567 3,000 1,634

Liberty 2,628 1,194 2,656 1,240

Capital Alliance Life Limited 115 80 118 87

Liberty Active Limited 224 293 226 307









Nominal holding Market value

Standard Bank Group unsecured unquoted

debentures

Summary of unsecured unquoted debenture 2006 2005 2006 2005

holdings and movements: Millions Millions Rm Rm

Holdings at 1 January 1,895 918

Liberty 1,415 574

Capital Alliance Life Limited 17 17

Liberty Active Limited 463 327

Additions through business acquisition

Capital Alliance Life Limited 17 17

Purchases 1,489 1,878 939 864

Liberty 1,415 542

Liberty Active Limited 1,489 463 939 322

Sales (102) (75)

Capital Alliance Life Limited (17) (17)

Liberty Active Limited (85) (58)

Fair value adjustments 130 37

Liberty 33 32

Liberty Active Limited 97 5

Holdings at 31 December 3,282 1,895 1,912 918

Liberty 1,415 1,415 607 574

Capital Alliance Life Limited 17 17

Liberty Active Limited 1,867 463 1,305 327



Nominal holding Market value

Standard Bank Group local money market

Summary of local money market investments 2006 2005 2006 2005

and movements: Millions Millions Rm Rm

Holdings at 1 January 2006 2,005 1,776 1,828 1,622

Liberty 138 407 181 434

Capital Alliance Life Limited 45 46

Liberty Active Limited 1,822 1,369 1,601 1,188

Purchases 269 562 269 425

Liberty 48 48

Capital Alliance Life Limited 269 45 269 45

Liberty Active Limited 469 332

Sales (281) (333) (327) (326)

Liberty (131) (317) (177) (311)

Capital Alliance Life Limited (53) (53)

Liberty Active Limited (97) (16) (97) (15)

Fair value adjustments 116 107

Liberty 2 10

Capital Alliance Life Limited 2 1

Liberty Active Limited 112 96

Holdings at 31 December 1,993 2,005 1,886 1,828

Liberty 7 138 6 181

Capital Alliance Life Limited 261 45 264 46

Liberty Active Limited 1,725 1,822 1,616 1,601







B.2 Acquisition of proportionate share of Sandton Property Consortium









Liberty on 1 July 2005 increased its investment in property consortiums (which includes properties such as Sandton City, Sandton Sun and Towers and

Nelson Mandela Square), on average by 15%, by purchasing Main Street 9 (Pty) Limited interests (a 100% held



B.3 Information technology outsourcing arrangement

With effect from 1 October 2004, the group partially outsourced its information technology services to Standard Bank of South Africa Limited in terms of an

agreement until 31 March 2010. Fees charged for 2006 amounted to R24 million (2005: R26 million).



B.4 Software development



Standard Bank of South Africa Limited has contracted Liberty to develop a commission and specific customer information system. Fees associated with this

development will be charged over five years. 2006 fees received are R2,3 million (2005: R2,7 million).



B.5 Banking arrangements



Liberty and its subsidiaries make use of banking facilities provided by Standard Bank of South Africa Limited.



Summary of cash balances, interest earned and fees charged:

Cash balances

2006 2005

Rm Rm

Holdings at 1 January 606 527

Liberty 267 449

Liberty subsidiaries 339 78

Other net movements during the year 1,069 79 Interest earned Fees charged

Liberty 968 (182) 2006 2005 2006 2005

Liberty subsidiaries 101 261 Rm Rm Rm Rm

Holdings at 31 December

Liberty 1,235 267 11 32 22.0 17.7

Liberty subsidiaries 440 339 25 36 1.9 1.4

Total 1,675 606 36 68 23.9 19.1



B.6 Operating leases



Lease expense







Liberty leases a Pretoria property from Standard Bank of South Africa Limited in terms of a lease entered on 22 December 1999 for a period of 13,5 years

terminating on 31 May 2013. Lease escalations are fixed at 12% per annum. Total lease payments for 200



Lease income



Standard Bank of South Africa Limited leases several properties from Liberty, including 50% of its head office at 5 Simmonds

Street, Johannesburg, and various retail branches in shopping centres. These leases are governed by numerous separate lease agreements. Total lease

receipts for 2006: R44 million (2005: R47 million).

B.7 Bancassurance









Liberty and Liberty Active Limited have entered into a profit share agreement (renegotiated on 25 April 2002 for a period until 31 December 2010) with

Standard Bank of South Africa Limited for the sale and promotion of insurance products. New business pre



B.8 Forward exchange contracts



In 2005 Liberty Ermitage Jersey Limited, while a group subsidiary, entered into forward exchange contracts with Standard Bank of South Africa Limited and

certain of its offshore subsidiaries.



A summary of contracts entered into:

2005

Sell Settlement

US dollars British pounds

Contractor US$m GBPm

Liberty Ermitage Jersey Limited 13 7



B.9 Corporate action







Standard Bank of South Africa Limited provided consultancy services to Liberty with respect to various corporate actions. Fees charged are as follows:

2006 2005

Rm Rm

Purchase of preference shares in Shanduka Newsprint 2.0

Issue of callable capital bonds 4.4

Acquisition of Capital Alliance Holdings Limited 1.5

BEE ownership transaction 10

Total 2.0 15.9



B.10 Liberty conference centre utilisation



Various subsidiaries of the Standard Bank Group Limited used the facilities of Liberty’s conference centre – fees earned amounted to R2,0 million (2005:

R1,6 million).



B.11 Insurance









Certain insured risks of the Liberty Group are negotiated and/or included in the Standard Bank Group Limited insurance policy. These include R1,5 billion

(2005: R230 million) cover for professional indemnity and R500 million for computer crime and bankers



B.12 Approved purchase of shares held by Standard Bank Limited in STANLIB Limited



Liberty shareholders on 29 January 2007 approved the purchase of shares in STANLIB Limited held by Standard Bank Limited. Refer note 46 for further

details.



C. Subsidiaries



C.1 Administration fees, loans and dividends









Liberty provides company secretarial services for all its South African registered subsidiaries for which no specific fee is charged. Certain subsidiaries

receive asset management, human resources, group risk, administration and information systems suppor

Liberty provides company secretarial services for all its South African registered subsidiaries for which no specific fee is charged. Certain subsidiaries

receive asset management, human resources, group risk, administration and information systems suppor



Fees earned for asset management, administration, forensics, internal audit, human resources and information systems services:

2006 2005

Rm Rm

Liberty Group Properties (Pty) Limited 102 96

Liberty Active Limited 101 15

Capital Alliance Life Limited 47 1

Rentmeester Versekeraars Beperk 1

Charter Life Namibia (Pty) Limited 2

Total 253 112



C.2 Liberty Life Association of Africa Limited Share Trust (the trust)



During 2005 the trust provided 262 953 Liberty ordinary shares at nil value to partly satisfy the requirements of the general staff scheme approved by

shareholders on 15 October 2004. Liberty waived certain loan rights against the trust to the value of R5



C.3 Liblife (Jersey) Limited (Liblife)



In 2005 various financial instruments were sold to Liberty by Liblife at their market value of GBP66,1 million. An interest free loan claim of GPB0,9 million

was ceded to Liberty.



Liblife was liquidated during 2006.



C.4 Lexshell 615 Investments (Pty) Limited (Lexshell)



Lexshell holds Liberty Group Limited ordinary shares to satisfy obligations under share option schemes. The number of ordinary shares held at the end of

the year was 34 000 (2005: 214 791).









In 2005, at the insistence of Liberty Group Limited, the company provided 85 747 Liberty ordinary shares at nil value to partly satisfy the requirements of the

general staff scheme approved by shareholders on 15 October 2004. Lexshell purchased 70 062 (20



C.5 Electric Liberty (Pty) Limited (Electric)



A capital reduction of R414 million was received by Liberty from Electric in 2005. Electric paid STANLIB Limited R2 million in investment management fees

in 2005.



C.6 The Liberty Life Foundation (foundation)







The foundation received contributions from Liberty and STANLIB Limited and transferred net funds to The Liberty Life Educational Foundation as follows:

2006 2005

Rm Rm

Contributions:

Liberty 16

Transfer:

STANLIB Limited 7

The Liberty Life Educational Foundation (7)

Total (7) 23



The foundation had its banking arrangements with Standard Bank of South Africa Limited. The bank account has been closed. The cash balance at 31

December 2005 was R1,1 million. Interest earned for the 2005 year amounted to R42 000.



2005 fees charged for the year were R12 000.

The foundation also previously held deposits with STANLIB Limited at various times. At 31 December 2005 the deposit balance was R4,9 million and 2005

interest earned was R0,6 million.



The foundation’s assets and liabilities including founding trust capital of R1 million was transferred to the Liberty Life Educational Foundation with effect from

1 January 2006.



C.7 The Liberty Life Educational Foundation (educational foundation)



The educational foundation received contributions form Liberty and the foundation as follows:

2006 2005

Rm Rm

Liberty 5

The Liberty Life Foundation 7

Total 12

The educational foundation has its banking arrangements with Standard Bank of South Africa Limited. The cash balance at 31 December 2006 was R5,0

million (2005: Nil). Interest earned for the year amounted to R47 000 (2005: Nil).



Fees charged for the year were R9 000 (2005: Nil).



The educational foundation also held deposits with STANLIB Limited at various times during the year. At 31 December 2006 the deposit balance was R0,2

million (2005: Nil) and interest earned was R0,9 million (2005: Nil).



C.8 Liberty conference centre utilisation

Various subsidiaries of Liberty and one of its joint ventures utilised the facilities of the conference centre owned by Liberty.



Summary of fees earned:

2006 2005

R'000 R'000

Capital Alliance Life Limited 44 40

Liberty Healthcare (Pty) Limited 6

Liberty Active Limited 30 7

Liberty Group Properties (Pty) Limited 1

Liberty Life Educational Foundation 12

Liberty Life Foundation 42

STANLIB Limited 2

Total 94 90



C.9 Share-based transactions



The value of certain Liberty share options granted to employees of subsidiaries of Liberty are charged to the applicable subsidiary.



Summary of share option charges:

2006 2005

Rm Rm

Liberty Group Properties (Pty) Limited 2.2 1.9

Liberty Active Limited 3.1 3.1

Total 5.3 5.0



C.10 Property leases



Certain Liberty subsidiaries lease properties from Liberty for business operations purposes. These leases are negotiated annually. Total lease income

earned:

2006 2005

Rm Rm



Capital Alliance Life Limited 23

Liberty Active Limited 10 4

Liberty Group Properties (Pty) Limited 4 3

Liberty Hotels (Pty) Limited 100

Rentmeester Versekeraars Beperk 1

Total 38 107



C.11 Divisionalisation of Liberty Hotels (Pty) Limited



With effect from 1 January 2006 Liberty acquired the business operations, including net assets and liabilities amounting to R13 million, from Liberty Hotels

(Pty) Limited.



C.12 Reinsurance arrangements



Liberty and Liberty Active Limited have entered into various reinsurance arrangements. These arrangements are accounted as financial instruments.

Summary of movements is as follows:

2006 2005

Rm Rm

Held as financial instrument assets by Liberty

Balance at 1 January 557 336

New policies issued 341 190

Fair value adjustments 52 31

Balance at 31 December 950 557

Held as financial instrument assets by Liberty Active Limited

Balance at 1 January 552 618

Policies cancelled/matured (194)

New policies issued 129 45

Fair value adjustments 88 83

Balance at 31 December 769 552



C.13 Liberty Ermitage Jersey Limited



In 2005 whilst a group subsidiary, Liberty Ermitage Jersey Limited provided management, investment and administration services to various mutual fund

associates in 2005. Fees earned from the associates in 2005 were as follows:



2005

Rm

Japan Absolute 10

Liberty Ermitage Global Wealth Management 17

Liberty Ermitage Institutional Money Market 7

Liberty Ermitage Asset Selection 65

Liberty Ermitage Global Strategy 23

Total 122



C.14 STANLIB Funds Limited



During 2006 Liberty provided management, investment and administration services to the mutual fund subsidiary STANLIB Funds Limited. Fees received

were R35 million.



D. Transactions with directors and related entities

Refer to note 48 for related party relationships in respect of the 2004 BEE transaction.



D.1 Computer equipment



RentWorks Africa (Pty) Limited is 51% controlled by Shanduka Group (Pty) Limited which in turn is a related entity of Cyril Ramaphosa, a current director of

Standard Bank Group Limited.



A substantial portion of the Liberty Group computer equipment is leased from RentWorks Africa (Pty) Limited under various lease agreements ranging

between three to four years with no escalations.

A substantial portion of the Liberty Group computer equipment is leased from RentWorks Africa (Pty) Limited under various lease agreements ranging

between three to four years with no escalations.



Rentals paid are summarised as folllows:



2006 2005

Rm Rm

Liberty 16 17

Liberty subsidiaries 4 4

Total 20 21



E. Joint ventures



E.1 Treasury function



STANLIB Limited (STANLIB) performs a treasury function for Liberty and its subsidiaries in terms of the asset management agreement referred to below.

Fees charged for this service are included in the asset management fees.



Summary of cash balances and interest earned:

Cash balances Interest earned

2006 2005 2006 2005

Rm Rm Rm Rm

Cash

Liberty 27 49 43 24

Liberty subsidiaries 49 87 3 5

Total 76 136 46 29



E.2 Asset management



In terms of an asset management agreement effective from 1January 2005, subject to 30 days’ notice, betweenSTANLIB, Liberty and Liberty Active Limited,

STANLIB is mandated to manage certain policyholder investments.

Value of assets

under management

31 December Fees charged

2006 2005 2006 2005

Rm Rm Rm Rm

Liberty 105,470 81,396 161 141

Liberty Active Limited 10,706 10,355 29 26

Total 116,176 91,751 190 167



E.3 Administration, forensics, internal audit, information technology and human resources services



Liberty provides certain administration, internal audit ,information systems and human resourcesservices to joint ventures STANLIB and The Financial

Services Exchange (Pty) Limited. Fees earned are as follows:



2006 2005

Rm Rm

STANLIB Limited 6.4 5.7

The Financial Services Exchange (Pty) Limited 0.1

Total 6.4 5.8







The Financial Services Exchange (Pty) Limited provides financial verification services to Liberty and fees charged were R1,3 million (2005: R1,0 million).







E.4 Share-based transactions



The value of Liberty share options granted to employees of STANLIB Limited are reimbursed to Liberty by STANLIB Limited. Reimbursement for 2006 was

R2,6 million (2005: R3,7 million).

The value of Liberty share options granted to employees of STANLIB Limited are reimbursed to Liberty by STANLIB Limited. Reimbursement for 2006 was

R2,6 million (2005: R3,7 million).



E.5 Reinsurance arrangement



Liberty Active Limited, a subsidiary of Liberty, has entered into a reinsurance contract with a STANLIB subsidiary. The contract is designated as a financial

instrument asset by Liberty Active Limited. Summary of movements is as follows:

2006 2005

Rm Rm

Balance at 1 January 42 39

Fair value adjustment 5 3

Balance at 31 December 47 42



E.6 Mutual fund subsidiaries



Mutual fund subsidiaries paid investment management fees to STANLIB as follows:

2006 2005

Rm Rm

STANLIB Value Fund 5.2 3.4

STANLIB ALSI 40 Fund 1.3 0.8

STANLIB Small Cap Fund 4.1 3.3

STANLIB Multi-Manager Property Fund 20.4 17.8

STANLIB Multi-Manager Equity Feeder Fund 19.7 18.2

STANLIB Multi-Manager Flexible Property Fund 20.8 7.5

STANLIB Multi-Manager International Fund of Funds 17.3 18.6

Total 88.8 69.6



E.7 Multivest administration



STANLIB Wealth Management Limited, a subsidiary of STANLIB Limited, administers various Liberty investment products collectively named Multivest.

Fees charged for this administration service were R13,9 million for 2006 (2005: R10,8 million).



F.

Key management personnel of Liberty Group Limited, Liberty Holdings Limited and Standard Bank Group Limited, families of key management

(as defined in IAS 24) and entities significantly influenced or controlled by key management

(i) Liberty Group Limited directors’ and executive committee members’ aggregate compensation paid by the group or on behalf of the group for services

rendered to Liberty Group Limited:

2006 2005

Rm Rm

Salaries and other short-term employee benefits 70,334 41,809

Termination benefits 2,299

Post-employment benefits 2,506 2,572

Share-based payments 7,756 6,595

Directors’ fees 2,816 2,215

Total 85,711 53,191



(ii)

Aggregate details of insurance, annuity and investment transactions between Liberty Group Limited, any subsidiary, associate or joint venture of Liberty

Group Limited and key management personnel, their families (as defined per IAS 24) and entities signif

Insurance

Aggregate Premiums

insured cover received Claims paid Surrender value

2006 2005 2006 2005 2006 2005 2006 2005

R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000

Life 120,888 37,831 1,365 513 Nil 5 4,867 3,186

Morbidity 13,663 11,655 included in life included in life

premiums claims

(iii)

Aggregate details of insurance, annuity and investment transactions between Liberty Group Limited, any subsidiary, associate or joint venture of Liberty

Group Limited and key management personnel, their families (as defined per IAS 24) and entities signif



Annuities

Premiums received Amounts paid

2006 2005 2006 2005

R’000 R’000 R’000 R’000

Life Nil Nil 664 600

Total (1) Nil Nil 664 600



Investments

Fund value

2006 2005

R’000 R’000

Balance at 1 January 12,579 24,838

Appointments and resignations 1,521 (15,334)

Premiums received 2,476 1,522

Investment return credited net of charges 6,175 2,180

Commission and other transaction fees (49) (30)

Claims and withdrawals (2,545) (597)

Balance at 31 December 20,157 12,579

(1)

There are no certain or term annuity related party transactions.

Notes on the Financial Statements

for the year ended 31 December 2006







Group Company

2006 2005 2006 2005

Rm Rm Rm Rm

45 Commitments

45.1 Operating lease commitments

Equipment 32 64 23 43

Within 1 year 17 31 11 19

1 to 5 years 15 33 12 24

Properties 600 691 596 645

Within 1 year 78 79 76 69

1 to 5 years 359 344 357 313

6 to 10 years 163 268 163 263



45.2 Capital commitments

STANLIB Limited acquisition – refer note 46 1 575 1 575

Equipment 101 288 97 283

Under contracts 248 248

Authorised by the directors but not contracted 101 40 97 35

Investment properties 233 206

Under contracts 89 67

Authorised by the directors but not contracted 144 139

Owner-occupied properties 78 78

Under contracts 50 50

Authorised by the directors but not contracted 28 28



Total commitments 2 619 1 043 2 575 971







The group's share of commitments of joint ventures amounting to R60 million (2005: R50 million), is disclosed

in note 13. The above expenditure will be financed by available bank facilities, existing cash resources,

internally generated funds, the issue o

Notes on the Financial Statements

for the year ended 31 December 2006







46 Acquisition of STANLIB Limited (STANLIB)









The board of directors released various announcements during the second half of 2006, stating its intention to pursue the acquisition of the

remaining 62,6% of the ordinary shares of STANLIB, owned by Standard Bank Group Limited (Standard Bank) (37,4%) an









The life industry has experienced a pronounced shift from on-balance sheet life products to off-balance sheet savings products over the past few

years enhancing the value of STANLIB (an investment management, linked investment and collective investment sc



The purchase consideration will be settled as follows:



Liberty Group Limited issuing to Standard Bank 7 246 005 ordinary shares and a cash payment of R384 million; and



Liberty Group Limited issuing to Quantum Leap 2 486 577 ordinary shares and a cash payment of R441 million.



The shares which will be issued for the purpose of this transaction will be issued on or about 4 April 2007 at the ruling share price at the close of

business on the preceding day. The final acquisition value will therefore only be determined at that date



Transaction costs of R10 million will be written off directly against shareholder reserves.



Carrying value of assets and liabilities of STANLIB at the effective date of acquisition

Rm Total recognised values

Equipment 33

Goodwill 1 076

Interests in joint ventures 11

Financial instruments 6 400

Deferred taxation 40

Prepayments, insurance and other receivables 192

Cash and cash equivalents 565

Policyholders’ liabilities – investment contracts (6 343)

Financial liabilities at amortised cost (935)

Employee benefits (91)

Deferred taxation (7)

Net inter-group balances (146)

Insurance and other payables (137)

Current taxation (58)

Net identifiable assets and liabilities 600







This transaction falls outside the scope of IFRS 3 Business Combinations as it involves entities under common control, Standard Bank being the

ultimate parent before and after the acquisition. IFRS allows the use of other accounting standards where there









Under this method, the carrying amount of assets and liabilities recognised in the balance sheet of each of the combining entities are carried forward

to the balance sheet of the combined entity. No other assets or liabilities are recognised as a result o

Notes on the Financial Statements

for the year ended 31 December 2006







47 Statement of intent (SOI)



After a period of negotiation, representatives of the LOA, the five largest life insurance groups and the Minister of Finance

signed an SOI in December 2005. This was as a result of various Pension Fund Adjudicator rulings relating to charges levied

on ea







On 1 December 2006, regulations giving effect to the minimum standards specified in the SOI were gazetted in government

notice Volume 498, No 29446. These regulations are materially consistent with the group’s interpretation of the SOI.

Therefore the fina







The proposed revised commission regulations referred to in the SOI are still under discussion with likely resolution during

2007. National Treasury has agreed to provide regulation intended to reduce exposure to churn within the industry whilst the

new co



The new commission regulations and churn protection will not require any adjustment to existing policyholder liabilities.

Notes on the Financial Statements

for the year ended 31 December 2006







48 Black Economic Empowerment (BEE) transaction







The company entered into a series of transactions during 2004 whereby an investment in aggregate of R1 251 million was

made in cumulative redeemable preference shares. On 12 June 2006 the company paid a capital reduction of R3,60 per

ordinary share. The t

Original

amount Remaining

invested Redemption amounts

2004 2006 invested

Companies Beneficiary Rm Rm Rm

Lexshell 620 (Pty) Limited Safika Holdings (Pty) Limited 300 (22) 278

Lexshell 621 (Pty) Limited Shanduka Group (Pty) Limited 200 (15) 185

Lexshell 622 (Pty) Limited The Black Managers’ Trust (1) 501 (37) 464

Lexshell 623 (Pty) Limited The Community Trust(2) 250 (18) 232

1 251 (92) 1 159



(1)

Registered as the Katleho Managers Trust.

(2)

Registered as the Katleho Community Trust.

The cumulative redeemable preference shares attract dividends at 66% (2005: 66% with effect from 1 March 2005, 65% prior)

of Standard Bank’s prime lending rate. The preference dividends are payable on each date the company (which has issued

the preference with local and international accounting advice the preference shares do not meet the definition of a financial

In accordance

asset in terms of International Financial Reporting Standards and therefore the investment value of the preference shares has

redu purposes of earnings per share calculations the weighted average number of shares in issue is reduced by the

For the

number of company shares held by the empowerment subsidiaries directly funded by the proceeds received from the

preference shares. In acco

Saki Macozoma, who is currently defined as key management through his directorships of Liberty Group Limited and

Standard Bank Limited, effectively controls 20% of Safika Holdings (Pty) Limited. Mr Macozoma is also chairman of STANLIB

Limited in which Saf

Cyril Ramaphosa, who is currently defined as key management through his directorship of Standard Bank Group Limited,

effectively controls 35,9% of Shanduka Group (Pty) Limited.

Notes on the Financial Statements

for the year ended 31 December 2006







49 Changes to comparatives



49.1 Consolidation of unincorporated property partnerships









The group has certain investments in properties and related property management in which the benefit is shared with external parties in terms of partnership

agreements. The group and company previously accounted for the relevant income and share of assets



Group

This has resulted in increases in other assets of R11 million, investments of R1 721 million, prepayments, insurance and other receivables of R41 million, insurance

and other payables of R45 million and minority interests of R1 728 million as at 31 Decemb







The effect on the income statement for the year ended 31 December 2005 is an increase in investment income of R285 million, investment gains of R143 million and

an increase in general marketing and administration expenses of R146 million, with the net amo



There is no impact on the earnings attributable to equity holders from the above adjustments.



Company

Rental income of R411 million and general marketing and administration expenses of R102 million have been reclassified as a distribution of profits from

unincorporated property partnerships.



Lease straight-lining

As a result of accounting for these minority interests and the subsequent effect on straight-lining rental income, investment properties have decreased by R142 million

(company: R352 million) with the same amount increasing operating leases accrued income







In the income statement for the year ended 31 December 2005, R39 million (company: R352 million) of investment income has been reclassified to investment gains.



49.2 Reclassifications and grossing up

Properties under development included in owner-occupied properties (R59 million) and investment properties (R46 million) as at 31 December 2005 (group and

company) have been reclassified as equipment and properties under development.



Short-term employee benefits comprising incentive scheme and leave pay of R119 million (company: R100 million) have been reclassified from provisions to

employee benefits as at 31 December 2005.



Certain rental income relating to hotel operations was stated net of operating expenses. Investment income and general marketing and administration expenses have

both increased by R153 million for the year ended 31 December 2005.



Reclassified reinsurance premiums of R774 million previously net-off against insurance premium revenue in the group income statement – no impact on net insurance

premiums.



Inter-company management fees on assets under management were previously not eliminated. Management fees on assets under management have decreased by

R88 million with a corresponding decrease in general marketing and administration expenses for the year e



The current portion of financial liabilities at amortised cost of R60 million (company: R54 million) has been reclassified from insurance and other payables to financial

liabilities at amortised cost.







On further analysis of the group’s investment portfolio, it was considered more appropriate to adopt a look through approach to underlying interests in certain

investments. This resulted in a reclassification of a number of mutual funds the group invests



Mutual fund subsidiaries – group



Increase in financial instruments of R2 080 million;

Increase in prepayments, insurance and other receivables of R51 million;

Increase in cash and cash equivalents of R138 million;

Increase in third party liabilities arising on consolidation of mutual funds of R2 202 million;

Increase in insurance and other payables of R67 million;

Increase in investment income of R248 million;

Increase in investment gains of R346 million;

Increase in fair value adjustment on third party mutual fund interests of R525 million; and

Increase in general marketing and administration expenses of R69 million.



Mutual fund associates – group



Reclassification of R1 432 million from financial instruments to interest in associates.



Company



Reclassification of R3 318 million from financial instruments to interests in subsidiaries; and

Reclassification of R1 058 million from financial instruments to interests in associates.



There is no impact on earnings from the above adjustments.



49.3 Risk disclosures

To ensure comparability arising from new definitions, certain changes have been made to comparatives in various templates in the risk disclosures in note 4.