The Community Trust of Southland Community Trusts Act 1999 Consolidated Statement of Financial Performance for the Year Ended 31 March 1999 Note 1999$ 1998$ Income: Dividends and distributions 4,204,641 1,202,896 Interest 4,619,395 9,992,332 Revaluation of investments1 2,554,859 4,173,676 Total income 11,378,895 15,368,904 Less expenditure: Salaries and staff costs 214,220 273,894 Fund manager fees 906,733 374,596 Professional fees2 152,784 103,167 Occupancy costs 18,330 17,658 Communications 14,412 14,621 Office expenses 20,016 12,967 Audit fees 5,834 5,400 General expenses 52,429 36,293 Vehicle expenses 14,922 14,054 Grants advertising and promotion 17,862 13,260 Conference costs 14,917 0 Trustees' fees3 124,345 94,080 Reporting and compliance expenses 45,160 45,348 Depreciation1 71,004 43,285 Total expenditure 1,672,968 1,048,623 Net surplus before taxation 9,705,927 14,320,281 Taxation 0 0 Net surplus after taxation 9,705,927 14,320,281 Share of income of Invest South Limited4 16,202 20,080 Net surplus for the year $9,722,129 $14,300,201 Consolidated Statement of Movements in Trust Funds for the Year Ended 31 March 1999 Note 1999$ 1998$ Trust capital beginning of year 181,317,045 177,047,078 Add this year's surplus 9,722,129 14,300,201 Less Grants approved5 9,570,828 10,030,234 Trust capital end of year $181,468,346 $181,317,045 Consolidated Statement of Financial Position as at 31 March 1999 Note 1999$ 1998$ Funds employed: Initial trust capital1 158,460,000 181,317,045 Capital maintenance reserve1 4,402,377 0 Grants maintenance reserve1 18,605,969 0 Total capital and reserves $181,468,346 $181,317,045 Liabilities: Accounts payable 448,887 197,763 Grants committed but not paid 8,871,349 8,561,572 Total liabilities 9,320,236 8,759,335 Total capital and liabilities $190,788,582 $190,076,380 Assets: Current assets: WestpacTrust cheque account 10,224 281,919 Accounts receivable and interest accrued 60,279 257,926 Total current assets 70,503 539,845 Fixed assets6 1,180,131 1,112,077 Investment assets: WestpacTrust call account 1,111,072 2,271,997 ASB call account 335,000 0 Trading bank deposits 19,500,000 46,000,000 TeNZ fund 10 million units 9,900,000 11,600,000 Managed funds ANZ funds management7 44,234,658 42,337,526 Armstrong Jones7 44,801,626 42,857,206 Bankers Trust7 24,597,746 42,127,809 Morgan Stanley7 43,396,184 0 Loans8 415,540 0 Invest South Limited4 1,246,122 1,229,920 Total investment assets 189,537,948 188,424,458 Total assets $190,788,582 $190,076,380 Signed on behalf of the board of trustees: C. S. BALLANTYNE, Chairman. SHIRLEY J. PALMER, Trustee. Consolidated Statement of Cash Flows for the Year Ended 31 March 1999 Note 1999$ 1998$ Cash flows from operating activities Cash was provided by (applied to): Administration expenses (1,332,611) (905,960) Grants to the community (9,261,051) (6,508,002) Interest and dividends 9,050,591 13,046,539 Net cash flows from operating activities9 (1,543,071) 5,632,577 Cash flows from investing activities Cash was provided by (applied to): Investments 1,047,184 (2,848,864) Fixed assets (186,193) (990,172) Loans (415,540) 0 Net cash flows from investing activities 445,451 (3,839,036) Net increase (decrease) in cash held ($1,097,620) $1,793,541 Cash reconciliation Cash held at beginning of year 2,553,916 760,375 Cash held at end of year 1,456,296 2,553,916 Net increase (decrease) in cash held ($1,097,620) $1,793,541 Notes to the Financial Statements for the Year Ended 31 March 1999 1. Statement of Significant Accounting Policies General The financial statements presented here are for the reporting entity the Community Trust of Southland Group (the group). The group consists of the Community Trust of Southland (the trust), its wholly owned company Southland Community Trust Charities Limited, and the trust's interests in associates. The Community Trust of Southland was formed under the Trustee Banks Restructuring Act 1988, and is incorporated under the Charitable Trusts Act 1957. The financial statements are presented in accordance with the Financial Reporting Act 1993. The financial statements are prepared on the basis of historical cost except that investment assets are stated at valuation. The accounting policies for trust funds have been modified this year, however as they impact only on the treatment of funds within total trust funds it has no impact on the financial position of the trust. All other policies have been applied on bases consistent with those used in the prior year. Consolidation The financial statements of the trust's wholly owned company Southland Community Trust Charities Limited are included in the financial statements using the purchase method of consolidation. Associates Associates are entities in which the group has significant influence, but not control, over the operating and financial policies. The financial statements include the group's share of the net surplus of associates on an equity accounted basis. Initial Trust Capital Following the sale of the group's shares in Trust Bank New Zealand Limited in April 1996 the trustees agreed that the value of the trust at that time should be maintained for the benefit of current and future generations living in the region. For this purpose the trustees agreed that $158,460,000 would be considered as the ``Initial Trust Capital'' value of the group, and that this value would be maintained. Capital Maintenance Reserve The capital maintenance reserve represents the additional amount necessary to preserve the real value of the initial trust capital allowing for inflation as measured by the consumers price index (all groups). Grants Maintenance Reserve While the trustees have adopted a long-term investment strategy, they accept that annual returns from investments are likely to fluctuate from year to year. In recognition of this a grants maintenance reserve has been established. In years when net income from investments is higher than the level of grants, surplus income will be transferred to this reserve. In years when there is insufficient income to sustain the level of grants, an appropriate amount will be transferred from the grants maintenance reserve to income. Investments The group states its equity in investments at market value, and reports realised and unrealised gains or losses on holding these investments in the statement of financial performance. These gains or losses are shown in the statement of financial performance as income from revaluation of investments. The group intends to hold bank deposits until maturity and states these investments at cost. Fixed Assets Fixed assets are initially stated at cost and then depreciated on a straight line basis to allocate the cost of an asset, less any residual value, over its useful life. The estimated useful lives of fixed assets are as follows: Landindefinite Buildings3040 years Furniture and fittings 315 years Office equipment 3 8 years Motor vehicles 5 8 years Accounts Receivable The group states these at expected realisable value. Grants The group brings these to account when approved by trustees. Unpaid grants are recorded as a liability. Income Tax The group provides for income tax on its net income after adjusting for tax accounting differences and any beneficiaries income determinations made pursuant to section OB1 (226) of the Income Tax Act. Goods and Services Tax The group is not registered for goods and services tax. The financial statements are prepared so that all components are stated inclusive of G.S.T. 2. Professional Fees 1999$ 1998$ Accountancy 13,343 Financial advisory44,928 19,999 Taxation advisory38,313 5,923 Legal23,560 52,380 Other45,983 11,522 $152,784 $103,167 3. Trustee's Fees Meeting fees and honorariums were paid to trustees as follows: Meetings 1999$ 1998$ C. S. Ballantyne40 28,144 26,121 W. A. Cambridge35 14,650 10,059 F. G. Cardno31 11,666 7,513 P. Duffy26 10,312 7,402 G. A. Farry12 6,496 5,323 J. J. Grant14 6,886 5,273 C. A. McCulloch32 11,620 9,152 B. J. Mackay (retired August 1998)14 4,914 6,023 G. M. Neave35 12,434 8,382 D. J. Stronach29 11,323 8,832 S. G. Palmer (appointed August 1998)15 5,900 Nil Total $124,345 $94,080 4. Investments in Associates The total investment in Invest South Limited comprises: 1999$ 1998$ Opening value of investment1,229,920 1,250,000 Share of operating surplus (deficit)16,202 (20,080) Equity accounted value of investment$1,246,122 $1,229,920 5. Grants Approved 1999$ 1998$ Grants approved this year9,885,045 10,030,234 Less prior year's grants cancelled(314,217) Net grants approved$9,570,828 $10,030,234 6. Fixed Assets Cost$ Accum Depn$ 1999 Value$ 1998 Value$ Land457,419 Nil 457,419 457,419 Buildings509,893 21,060 488,833 459,235 Office equipment103,645 44,739 58,906 45,372 Furniture and fittings140,127 20,086 120,041 118,300 Motor vehicles86,644 31,712 54,932 31,751 Totals$1,297,728 $117,597 $1,180,131 $1,112,077 7. Investments Managed by Fund Managers The group has funds with 4 institutional investment managers (fund managers), being ANZ Funds Management, Armstrong Jones (NZ) Limited, BT Funds Management (NZ) Limited, and Morgan Stanley Dean Witter. Market values, and asset allocations, of these investments as at balance date were as follows: ANZ(NZ$m) ArmstrongJones (NZ$m) B.T.(NZ$m) MorganStanley(NZ$m) Total1999Value Total1998Value New Zealand equities5.97 9.96 7.27 23.20 20.54 Overseas equities9.35 8.59 43.40 61.34 23.86 New Zealand fixed interest17.35 11.65 11.47 40.47 38.07 Overseas fixed interest 13.99 13.99 29.00 Cash11.57 0.61 5.86 18.04 15.83 Totals$44.24m $44.80m $24.60m $43.40m $157.04m $127.30m Exposure to currency, interest rate and credit risk arises in the normal course of the fund managers' management of the group's investments. A range of hedging policies are in place whereby the fund managers use derivative financial instruments as a means of managing exposure to fluctuations in foreign exchange rates and interest rates. While these financial instruments are subject to the risk of market rates changing subsequent to acquisition, such changes would generally be offset by opposite effects on the items being hedged. 8. Loans During the year short-term loans were made to 3 organisations the balances outstanding as at 31 March were as follows: 1999$ 1998$ Southland Life Education Trust20,000 Topoclimate South Trust320,037 Southland Museum and Art Gallery75,503 $415,540 $Nil Each loan is interest free and repayable upon demand. 9. Reconciliation With Operating Surplus 1999$ 1998$ Net surplus9,722,129 14,300,201 Less grants(9,570,828) (10,030,234) 151,301 4,269,967 Add/(less) movement in working capital Increase (decrease) in liabilities560,901 3,677,931 (Increase) decrease in accounts receivable197,647 1,851,310 758,548 5,529,241 Add(less) movement in items classified as investing/financing Asset purchases47,137 (56,321) 47,137 (56,321) Add(less) movement in non-cash items Revaluation of investments(2,571,061) (4,153,595) Depreciation71,004 43,285 (2,500,057) (4,110,310) Net cash provided by operating activities($1,543,071) ($5,632,577) 10. Financial Instruments General The group states its investments at balance date at estimated market value. The trustees consider that the fair value of the financial assets is identical to the value in the statement of financial position. Concentration of Credit Risk The group has significant funds in trading bank deposits, and in TeNZ Fund units. The group limits risk by spreading the deposits over several trading banks, and the TeNZ Fund's policy of selecting 10 investments in its portfolio also limits the risk. The group has not required collateral or other security to support its financial statements. The group further limits risk through its policy of placing investment funds with 4 separate fund managers, with each fund manager having an investment mandate which requires that they diversify their investments on the group's behalf. The group has sought and obtained the advice of a professional financial adviser prior to making its investment allocation and placement decisions. Interest Rate Risk The bank deposits are sensitive to changes in interest rates, as are a proportion of the funds managed by the fund managers. Loans and advances do not carry interest, and therefore do not hold any interest rate risk. 11. Tax Calculation 1999$ 1998$ Net surplus as per statement of financial performance 9,722,129 14,300,201 Less: Dividend income on black-list equities(2,225,532) Charitable business exemption(727,654) Realised gains on black-list equities(4,570,720) (7,523,906) Add: Unrealised loss on New Zealand equities68,485 Unrealised loss on greylist equities2,411,197 Unrealised loss on blacklist equities4,087,392 FIF income2,708,860 Non deductible expenditure391,430 Imputation credits received494,665 530,505 RWT credits received43,635 NRWT credits received102,894 10,308,558 530,505 Total taxable income 12,506,781 14,830,706 Less: Allocation of beneficiaries' income to the charitable company(11,100,000) (10,080,508) Non-taxable equity accounting income(16,202) 20,080 Allocation of beneficiaries' income to tax exempt entities(106,284) (11,222,486) (10,060,428) Total trustees' income 1,284,295 4,770,278 Less: tax losses brought forward 0 (228,452) Assessable income for tax purposes 1,284,295 4,541,826 Taxation @ 33 percent 423,817 1,498,803 Less: Imputation credits received (494,665) 530,505 Foreign tax credits on overseas dividends (102,894) Tax effect of permanent differences 968,298 Resident withholding tax (43,635) Taxation payable/refund plus excess imputation credits (217,377) Nil Made up of: Resident withholding tax refunded (43,635) Excess imputation credits (173,742) (217,377) Excess imputation credits converted to loss to carry forward (526,490) Total loss to carry forward ($526,490) Nil Auditors' Report to the Trustees of the Community Trust of Southland We have audited the consolidated financial statements that provide information about the past financial performance of the trust and its financial position as at 31 March 1999. This information is stated in accordance with the accounting policies set. Trustees' Responsibilities The trustees are responsible for the preparation of financial statements which give a true and fair view of the financial position of the trust as at 31 March 1999 and the results of its operations and cash flows for the year ended on that date. Auditors' Responsibilities It is our responsibility to express an independent opinion on the consolidated financial statements presented by the trustees and report our opinion to you. Basis of Opinion An audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the financial statements. It also includes assessing: (a) the significant estimates and judgments made by the trustees in the preparation of the financial statements; and (b) whether the accounting policies are appropriate to the trustees circumstances, consistently applied and adequately disclosed. We conducted our audit in accordance with New Zealand auditing standards. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to obtain reasonable assurance that the financial statements are free from material misstatements, whether caused by fraud or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Partners and employees of our firm deal with the trust on normal terms within the ordinary course of operating of the trust. The firm has no other interest in the trust. Unqualified Opinion We have obtained all the information and explanations we have required. In our opinion the financial statements: (a) comply with generally accepted accounting practice; and (b) give a true and fair view of the financial position of the trust as at 31 March 1999 and the results of its operations and cash flows for the year ended on that date. Our audit was completed on 27 August 1999 and our unqualified opinion is expressed as at that date. WARD WILSON, Invercargill.