THE WAIKATO COMMUNITY TRUST INCORPORATED

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

For the year ended 31 March 2009

Due to the timing of its cash inflows and outflows, the Trust invests surplus cash with registered banks. The Trust’s investment policy limits the amount of credit exposure to any one institution.

The Trust has processes in place to review the credit exposure and credit quality of funds prior to the funds being deposited with financial institutions.

The Trust’s maximum credit exposure for each class of financial instrument is represented by the total carrying amount of cash equivalents (note 9), other financial assets at fair value through profit or loss (note 11) and trade and other receivables (note 10).

Liquidity Risk Management

Liquidity risk is the risk that the Trust will encounter difficulty raising liquid funds to meet commitments as they fall due. Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The Trust aims to maintain flexibility in funding by keeping committed credit lines available.

In meeting its liquidity requirements, the Trust maintains a target level of investments that must mature within specified timeframes.

Capital Risk Management

The Trust’s objective when managing Trust capital is to safeguard its ability to continue as a going concern so that it can continue to provide returns for the community. The capital structure of the Trust consists of cash and cash equivalents and Trust funds. The Trust’s Investment Committee reviews the Trust funds and risks associated with the Trust funds.

Following the sale of the Trust’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 Waikato region. For this purpose the Trustees agreed that $169,800,000 would be considered as the initial capital of the Trust and increased each year to reflect growth due to inflation and regional growth.

The Trustees have adopted an investment strategy with a targeted long term annual rate of return of 6.8% (2008 - 7.1%) of the Trust’s capital value. Recognising that actual returns are likely to fluctuate from year to year, the Trust retains the variation from the target in Trust funds so that in years when investment returns are less than the target sufficient funds are available to meet expenditure and make distributions. If the Trust fund falls below the value that needs to be maintained for the benefit of current and future generations the level of expenditure and distributions are reviewed by the Trust.

The Trust’s present donation policy is to distribute annually as donations between 3% and 4% (2008 - 3.5% and 4.5%) of the Trust fund value that should be maintained for the benefit of current and future generations. The Trustees recognise that for a number of reasons this might not always be achievable and that there will inevitably be fluctuations between the donations distributed and the actual target.

At the end of 2008, the Trust recognised that the value of the Trust fund had fallen below the level required to be maintained for the benefit of current and future generations. The Trust then reviewed its approach to donations distributions for forthcoming years and set a reduced donation budget for the 2009/2010 financial year and indicative reduced budgets for the following two years. The Trust also reviewed its strategic asset allocation (see below) and committed to reduced operating expenditure.