25 SEPTEMBER 2008 NEW ZEALAND GAZETTE, No. 143 3917

Financial Liabilities

Risks arising from the trust’s financial assets and liabilities are inherent in the nature of the trust’s activities, and are managed through an ongoing process of identification, measurement and monitoring. The trust is exposed to credit risk, liquidity risk, and market risk (including currency, interest rate and pricing risks).

The trust’s income is generated from its financial assets. Liabilities which arise from its operations are met from cash flows provided by these assets.

Information regarding the fair value of assets and liabilities exposed to risk is regularly reported to the trust’s management, the trust’s finance and administration and investment committees and ultimately to the board of trustees. The investment portfolio is regularly rebalanced to ensure that asset classes remain within the strategic asset allocation set out in the trust’s statement of investment policy and objectives (SIPO).

The SIPO sets out the trust’s investment objectives. These can be summarised as to:

• maintain the real value of the trust’s capital with regard to inflation
• maintain equity between present and future generations in terms of the amounts available for grants
• ensure a stable level of grants over time by maximising the total return that can be provided by the investments of the trust, subject to a prudent level of portfolio risk.

As a responsible member of the world community, the trust aims to demonstrate leadership by advancing universal principles and responsible corporate citizenship to make the global economy more sustainable and inclusive. The trust supports the United Nations Global Compact and is a signatory to the United Nations Principles for Responsible Investment. The investment portfolio is screened against the principles set out in the United Nations Global Compact and the trust contracts an external service provider to engage with companies where there have been allegations of practices contrary to the global compact principles. The trust encourages dialogue and discussion in this process of engagement.

The Investment Portfolio

The trust manages its investment portfolio in terms of its SIPO. The SIPO is monitored on a regular basis by the board of trustees and, as required, amended to reflect international best investment practice. The portfolio’s strategic asset allocation is reviewed at three-yearly intervals. The strategic asset allocation was last reviewed in 2005, and was under review at this year’s balance date. Russell Investment Group Limited assists both management and trustees with international strategic best investment advice and portfolio monitoring. The pricing of financial assets is undertaken by JP Morgan Chase Inc, the trust’s custodian.

Portfolio Characteristics

The trust is not directly involved with the analysis, sale or purchase of individual asset securities. Investments are made into either pooled funds or segregated accounts with fund managers. The performance of each asset class is measured against an appropriate internationally accepted standard or index for each asset class.

Global Equities

The global equities portfolio is made up of three pooled funds with eight underlying product fund managers. This spread of fund managers enables the trust to access a wide range of segments within the global equity markets. This portfolio is measured against the MSCI World Index, and is fully hedged back to New Zealand dollars.

Global Bonds

The global bond portfolio is managed by one fund of fund manager, with four underlying product managers. This spread of fund managers enables the trust to access a wide range of segments within the global bond markets. The portfolio is measured against the Lehman Brothers Global Aggregate Index, and is fully hedged back to New Zealand dollars.

Collateralised Commodity Futures (CCF)

The CCF portfolio is an index fund, managed by one fund manager. It invests in and is measured against the S&P GSCI Commodity Index, and is fully hedged back to the New Zealand dollar.

Global Property

The global property portfolio is managed by one fund of fund manager, with four underlying product fund managers. This spread of fund managers enables the trust to access a wide range of segments with the global property markets. The portfolio is measured against the FTSE EPRA/NAREIT index, and is fully hedged back to New Zealand dollars.

New Zealand Equities

The New Zealand equity portfolio is a segregated account with one fund manager. The investment mandate allows the fund manager to invest up to 20% of the portfolio in companies listed on the Australian Stock Exchange. This portfolio is measured against the NZX 50 index.

New Zealand Bonds

The New Zealand bond portfolio is managed by two fund managers. The investment guidelines provide strict limits on the underlying investment categories, along with credit and duration restrictions. The portfolio is measured against the NZX Government Stock Index.

Cash

The cash portfolio is managed by one fund manager. The mandate places limits on the underlying investment categories, along with credit and duration restrictions. The portfolio is measured against the NZX 90 day bank bill index.

Credit Risk

Credit risk represents the risk that a counterparty to a financial asset fails to discharge an obligation which will cause the trust to incur a financial loss.

With regard to the credit risk arising from financial assets, the trust’s credit risk arises from any default by a counterparty. The current exposure at balance date is the fair value of these assets as disclosed in the statement of financial position.