Chairperson's Annual Report:
I am pleased to have this opportunity to report on what The Community Trust of Otago ("the Trust") has been doing over the year to 31 March 2001.
We hold local community money in trust and want to be accountable for our stewardship. The purpose of this annual report is to help that process.
The Trust simply wants to do everything excellently, and I hope that readers will contact us with any suggestions at all about how we can improve what we do.
Financial Results
The rate of return on our investments this year was 3.2%. This is the lowest we have had so far and so we cannot pretend to be pleased. But as I have mentioned in every annual report I have made, we expect both good and bad years. And relatively speaking we do have reason to be pleased. This was not a good investment year and an indexed fund with the same asset distribution would have returned 0.2%. This means that we did about 3% better than average investors with similar investment goals. Furthermore, our average annual return since we started investing in December 1994 is 10.3%, which is well above our long run expectation.
Free reserves - the funds we hold surplus to our inflation adjusted initial capital after allowing for unpaid donations - remain at the satisfactorily high level of $23 million.
These results leave us starting the new financial year in a steady position as regards both our investment settings and our donations budget.
Donations
In this year, the Trust committed over 1200 donations totalling $10.1 million. As the year ended we passed a big milestone: since inception in 1988, over $50 million has been committed.
The detail of our donations is covered elsewhere in the report and I will not single out any for special attention. Rather, I would like to mention a couple which demonstrate in a practical way some of our values.
The Trust donated $20,000 to Diving Otago. This is a small group of people that has taken the big step of employing a professional coach and has placed Otago at the front of diving in New Zealand. To raise money, Diving Otago sold barbecued sausages - 11,000 of them (together with 62 litres of tomato sauce and 160 kg of onions and I guess 11,000 slices of bread). We think that it is good for The Community Trust to leverage the commitment of others so that their own efforts bring greater reward.
And I mention a thank you card. The card said "[we] have a feeling of achievement and pride that we have completed this project." The point is that the group retained the pride in and the ownership of the project. The Trust may well have made the difference between whether the project happened or did not happen, but we did not dominate. That is the way we like it and indeed the way we must ensure that it remains.
The Trust regards economic development as important to the province and several initiatives are in progress. As an Otago-wide organisation, we have an Otago-wide perspective and during the year offered a particular regional economic development proposal. Although that was not in the end adopted, there are pleasing signs that the regional view is more widely shared.
During the year the Trust did away with set closing dates. Applications for funding can be made at any time and will normally be processed within two months. This was done to provide a better service to the community and it seems to be working.
The Role of Community Trusts
Overseas, academic analysis is placing increasing emphasis on the role of the "third sector" in society. The third sector is all activity that is not generated in either the private sector or the government sector - this includes your hobby, sport, cultural interest, religion. It includes non-government social delivery agencies. The idea is that all three sectors have to work well for society to be healthy, and it doesn't help if one sector tries to do what is better done by another sector. This is a useful view for the Trust, because we are in the third sector ourselves, most of what we fund is also there, and we see this as good.
During the year there have been some brushfires to fight with government agencies and Wellington consultants who think they can "help" us spend our (actually, your) money better.
Trustees and Staff
Last year I overlooked thanking two retiring trustees, and the oversight must be fixed. Both Sir Robin Gray and Dr James Ng had been trustees since the inception of the Trust and had given immense value over the years. This year we lost four more: Ross Allen, Graeme Bell, Peter Gibson and Richard Walls had also given long and distinguished service. We have missed them in more ways than one.
At the same time it must be said that all replacement trustees have rapidly proved their worth. The Trust has been remarkably fortunate with the quality of trustees. I am most thankful to them all for their continued wisdom and good humour.
We have been very pleased with the way the trustee appointment process has worked over the last two years. We borrowed an idea from the Community Trust of Southland and advertised for registrations of interest, obtaining an overwhelming response. The Government has genuinely consulted, based on that process.
Again, I personally thank the staff of the Trust: chief executive Keith Ellwood, donations assessor Carol Melville, and our office staff Fay Jackson and Lynley Stevenson. All are quality people and wonderfully congenial to work with.
CLIVE MATTHEWSON, Chairperson.
14 June 2001.
Chair/Chairpersons Report to March 2001.
The Community Trust of Otago Directory for the Year Ended 31 March 2001
Trustees: Clive Matthewson (chairperson), Dunedin; Ross Allan, Middlemarch (retired November 2000); Hilary Allison, Dunedin (appointed November 2000); Nancy Bamford, Balclutha; Graeme Bell, Alexandra (retired November 2000); Duncan Butcher, Cromwell (appointed November 2000); John Farry, Dunedin; Peter Gibson, Dunedin (retired November 2000); Ele Ludemann, Oamaru; Richard McKnight, Dunedin; Alan McLay, Oamaru; Barbara Payton, Dunedin (appointed November 2000); Mark Ryan, Dunedin (appointed November 2000); David Shepherd, Dunedin; Gail Tipa Dunedin; Richard Walls, Dunedin (retired November 2000).
Chief Executive: Keith Ellwood.
Registered Office: Second Floor, Community Trust House, corner of Filleul Street and Moray Place, Dunedin.
Auditor: Taylor McLachlan, Dunedin.
Solicitor: Anderson Lloyd Caudwell, Dunedin.
Investment Advisors: Frank Russell Limited, Auckland.
Bankers: WestpacTrust, Dunedin.
Custodian: J. P. Morgan, Sydney.
The Community Trust of Otago Consolidated Statement of Financial Performance for the Year Ended 31 March 2001
Note 2001 2000
$000 $000
Revenue 1 5,668 11,616
Expenditure 2 (1,794) (1,791)
Surplus before donations 3,874 9,825
Donations paid from income 4 (5,315) (10,528)
Trustee surplus prior to tax (1,441) (703)
Taxation underpaid in prior years - 89
Trustee (deficit)/surplus (1,441) (792)
This (deficit)/surplus has been allocated to:
Uncommitted surplus (1,441) (792)
(1,441) (792)
The Community Trust of Otago Consolidated Statement of Movement in Trust Funds for the Year Ended 31 March 2001
Note 2001 2000
$000 $000
Opening trust funds 182,715 183,922
Donations paid from capital 4 (930) (415)
181,785 183,507
Trustee (deficit)/surplus (1,441) (792)
Closing trust funds 180,344 182,715
The Community Trust of Otago Consolidated Statement of Financial Position as at 31 March 2001
Note 2001 2000
$000 $000
Source of funds-
Trust funds 3 180,344 182,715
Current liabilities:
Accounts payable 149 112
Taxation payable - 88
180,493 182,915
Employment of funds-
Current assets:
Current account - WestpacTrust 130 396
Short term bank deposits 302 144
Accounts receivable 9 -
Stock on hand 8 -
Accrued interest 35 -
484 540
Non current assets:
Managed funds 5 178,402 180,731
Fixed assets 6 1,357 1,394
Advance to Dunedin Community House Trust 11 250 250
180,009 182,375
180,493 182,915
Approved on behalf of the board:
CLIVE MATTHEWSON, RICHARD MCKNIGHT,
Chairperson. Trustee.
14 June 2001.
The Community Trust of Otago Consolidated Statement of Cashflows for the Year Ended 31 March 2001
2001 2000
$000 $000
Cashflows from operating activities-
Cash was provided from:
Managed funds 5,472 11,456
Interest received on investments 24 73
Net managed funds withdrawn 1,399 370
Other 121 88
Capital withdrawn 930 -
7,946 11,987
Cash was disbursed on:
Payment to suppliers and staff 929 884
Fund management 837 815
Donations paid from income 5,315 10,943
Donations paid from capital 930 -
8,011 12,642
Net cash inflow/(outflow) from operating activities (65) (655)
Cashflows from investing activities-
Cash was disbursed on:
Purchase of fixed assets 43 6
Advance to Dunedin Community House Trust - 250
43 256
Net cash (outflow) from investing activities (43) (256)
2001 2000
$000 $000
Net (decrease) in cash held (108) (911)
Add opening cash brought forward 540 1,451
Ending cash carried forward 432 540
Ending cash comprises:
Cheque accounts 130 396
Term deposits 302 144
432 540
The Community Trust of Otago Notes to the Consolidated Financial Statements for the Year Ended 31 March 2001
Basis of Preparation
These are the consolidated financial statements of The Community Trust of Otago, Otago Community Trust Charities Limited, The Community Trust Amateur Sports Co Limited, The Community Trust District Improvement Co Limited and Fillmor House Limited. The Community Trust of Otago was incorporated as a charitable trust in accordance with the provisions of the Community Trusts Act 1999.
The financial statements have been prepared to comply with the Financial Reporting Act 1993 and comprise consolidated statements of the following: financial performance, movement in trust funds, financial position, cashflows, as well as notes to these financial statements.
The financial statements are prepared on the basis of historical cost, except for the revaluation of managed funds.
Specific Accounting Policies
Income
Income from managed funds includes both realised and unrealised income and is recorded gross of fund management expenses.
Interest is recognised on an accrual basis.
Donations
Donations are accounted for as they are distributed.
Foreign Currencies
All amounts denominated in foreign currencies are converted to New Zealand dollars at balance date. All realised and unrealised gains and losses are recognised in the statement of financial performance.
Taxation
Income tax is recognised on the surplus after distribution, adjusting for differences between taxable and accounting income.
Future tax benefits are not recognised unless realisation of the asset is virtually certain.
Fixed Assets
Fixed assets are recorded at cost less accumulated depreciation.
Depreciation
Depreciation has been charged to the financial statement using rates, which will write off the cost of assets less their estimated residual value over their estimated economic lives. The depreciation rates used are:
Buildings 4%
Office furniture and equipment 12-48%
G.S.T.
Subsidiaries of The Community Trust of Otago, Fillmor House Limited and The Community Trust District Improvement Company Limited are registered for G.S.T.
Accordingly, their financial performance and financial position have been consolidated within the accounts on a G.S.T. exclusive basis.
Subject to the above, the Trust is not registered for G.S.T. purposes and, therefore, the financial statements have been prepared on a G.S.T. inclusive basis.
Basis of Consolidation
The Community Trust of Otago, Otago Community Charities Limited, Fillmor House Limited, The District Improvement Company Limited and The Community Trust Amateur Sports Company Limited have been consolidated using the purchase method of consolidation.
Capital Maintenance Reserve
The capital maintenance reserve represents the additional amount necessary to preserve the real value of the capital allowing for inflation as measured by the Consumers' Price Index (C.P.I.).
Investments
Investments are valued at year end market value. All realised and unrealised gains and losses are recognised in the statement of financial performance.
Hedging Instruments
The Trust through its investment managers enters into hedging instruments such as futures, options and forward exchange contracts. These are converted to the New Zealand dollar rate at balance date with all realised and unrealised gains and losses being recognised in the statement of financial performance as income from managed funds.
Statement of Cashflows
Cash comprises cash at bank and call deposits but does not include cash or deposits held by the fund managers.
Financial Instruments
Financial instruments all relate to cash, accounts receivable and accounts payable, and all revenues and expenses relating to these are recognised in the statement of financial performance in the period that any gain or loss becomes certain.
Cash and investments are stated at cost. Receivables are stated at net realisable value.
Payables are stated at amounts owed to those entities at balance date.
The maximum exposure to credit risk is represented by the carrying value of each of the financial assets and liabilities in the statement of financial position.
Income Tax
Income tax expense is recognised on the surplus available for distribution before taxation, adjusting for differences between taxable and accounting income.
Changes in Accounting Policies
There have been no changes in accounting policies during this accounting period.
Changes in Comparative Figures
Where applicable, certain comparatives have been restated to comply with the accounting presentation adopted for the current period.
2001 2000
$000 $000
1. Revenue
Interest 59 73
Managed funds 5,472 11,456
Other 137 87
5,668 11,616
2. Expenditure
Depreciation 80 81
Fund managers' fees 838 815
Occupancy 50 50
Other operating 123 90
Professional fees 197 252
Promotion 34 32
Public & statutory reporting 64 62
Staff 222 221
Trustee fees 154 152
Trustee expenses 32 36
1,794 1,791
Professional Fees-
Payments to auditors:
- Audit fees 8 8
- Accounting and other support 17 22
- Computer support 13 8
Legal advisors 4 5
Professional investment advisers 80 80
Tax advice 28 30
Other professional advice 47 99
197 252
3. Trust Funds
Trust Capital
The trust capital represents the realised value of its original asset, being shares in Trust Bank. They were sold, partly in 1994 when Trust Bank listed on the NZ Stock Exchange and the balance in 1996 when Westpac took over Trust Bank.
2001 2000
$000 $000
Opening balance 131,467 131,467
Transfer from uncommitted surplus - -
Closing balance 131,467 131,467
Capital maintenance reserve:
Opening balance 11,181 9,073
Transfers 4,422 2,108
Closing balance 15,603 11,181

2001 2000
$000 $000
Uncommitted surplus:
Opening balance 40,067 43,382
Donations paid from capital (930) (415)
Trustee (deficit)/surplus (1,441) (792)
Transfer to capital maintenance reserve (4,422) (2,108)
Closing balance 33,274 40,067
Total trust funds at 31 March 2001 180,344 182,715

2001 2000
$000 $000
4. Donations
Donations paid from income 5,315 10,528
Donations paid from capital 930 415
6,245 10,943
Donations which the Trust has conditionally approved but not yet paid are shown in the accounts as a contingent liability
(see Note 10).
2001 2000
$000 $000
5. Managed Funds
Managed by external managers:
Opening balance 180,731 181,101
Gross income 5,471 11,456
Fund managers fees - deducted (800) (826)
Withdrawals to fund donations (7,000) (11,000)
Closing balance 178,402 180,731

Investments comprise:
Cash, deposits and miscellaneous 19,851 14,270
Bonds 91,945 88,769
Equities 66,606 77,692
Total managed funds 178,402 180,731
Held in: New Zealand 79,325 79,747
Offshore 99,077 100,984
178,402 180,731

6. Fixed Assets 2001 2000
2001
Cost
$000 Accum
Dep
$000 Book
Value
$000 Book
Value
$000
Land 432 - 432 432
Buildings 1,026 210 816 883
Office furniture and equipment 210 101 109 79
1,658 311 1,357 1,394
7. Financial Instruments
(a) The financial instruments are subject to an interest rate risk.
The investment portfolios are treated as lump sum investments. The fund managers or custodians manage both the credit risk and foreign exchange risk.
No comparison is provided between the carrying value and estimated fair value of financial instruments, due to the carrying value reflecting market price.
2001 2000
$000 $000
New Zealand
Bonds and deposits 69,090 64,610
Equities 10,235 15,677
79,325 80,287

2001 2000
$000 $000
Overseas
Bonds and deposits 42,706 38,970
Equities 56,371 62,014
99,077 100,984
Total
Bonds and deposits 111,796 103,580
Equities 66,606 77,691
178,402 181,271
(b) Credit Risk
At balance date there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying value of each financial asset in the statement of financial position.
(c) There are no off balance sheet financial instruments.
8. Taxation
2001 2000
$000 $000
Net surplus before donations as per statement of financial performance 3,874 9,825

Less: Unrealised equity gains - 1,426
Charitable business exemption and donations 5,072 5,704
5,072 7,130
(1,198) 2,695
Plus: Unrealised equity losses 2,977 -
Non deductible expenditure 385 233
Accrued AMP dividend - (84)
Imputation & withholding tax credits received 262 340
3,624 489
Total taxable income 2,426 3,184
Less: Distribution of income to beneficiaries 868 2,429
Total trustees taxable income 1,558 755
Less: Losses brought forward 1,446 (755)
Assessable income for tax purposes 112 -
Taxation @ 33% 37 -
Less: Overseas withholding tax credits claimed 35 -
2 -
Taxation payable before imputation credits
Less: Imputation credits 2 (313)
Taxation payable - -
Excess imputation credits 225 (313)
Losses brought forward 1,445 494
Plus: Conversion of excess imputation credits to losses 683 949
Prior year adjustment 1 757
Less: Losses claimed this year 1,446 (755)
Total losses to be carried forward 683 1,445
9. Reconciliation of Reported Surplus to Net Cashflow From Operating Activities
2001 2000
$000 $000
Surplus/(deficit) for the period (1,441) (792)
Add:
Non-cash items:
Depreciation 80 81
Net managed funds drawn down 2,329 370
Less:
Non-cash items:
Net managed funds reinvested - -
Donations paid from capital 930 415
38 (756)
2001 2000
$000 $000
Movements in working capital items-
Increase/(decrease) in creditors 37 11
(Increase)/decrease in debtors (9) 3
Increase/(decrease) in income tax payable (88) 88
Effect of rounding - (1)
Increase in stock (8) -
(Increase) in accrued interest (35) -
(103) 101
Net cashflow from operating activities (65) (655)
10. Contingent Liabilities
Contingent liabilities at 31 March 2001 consist of donations approved but not disbursed of $8,127,326 (2000 $4,283,665).
11. Loan to Dunedin Community House Trust (Inc.)
The loan was advanced interest free in December 1999. It has a ten year term. Trustees have agreed that the commencement date for principal repayments can be extended from December 2000 to December 2001.
Audit Report
To the Trustees of The Community Trust of Otago Consolidated
We have audited the consolidated financial statements. The consolidated financial statements provide information about
the past consolidated financial performance of The Community Trust of Otago and its consolidated financial position as at
31 March 2001. This information is stated in accordance with the accounting policies.
Trustees' Responsibilities
The trustees are responsible for the preparation of consolidated financial statements which give a true and fair view of the consolidated financial position of the Trust as at 31 March 2001, and the results of its consolidated operations and cashflows 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 consolidated financial statements. It also includes assessing:
? the significant estimates and judgements made by the trustees in the preparation of the consolidated financial statements; and
? whether the accounting policies are appropriate to the Trust's circumstances, consistently applied and adequately disclosed.
We conducted our audit in accordance with New Zealand Auditing Standards issued by the Institute of Chartered Accountants of New Zealand. 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 consolidated 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 consolidated financial statements.
Our firm carries out other assignments for the Trust in the area of special consultancy projects. The firm has no other interests in the Trust.
Unqualified Opinion
We have obtained all the information and explanations we have required.
In our opinion, the consolidated financial statements:
? comply with New Zealand generally accepted accounting practice; and
? give a true and fair view of the consolidated financial position of the Trust as at 31 March 2001 and the results of its consolidated operations and cashflows for the year ended on that date.
Our audit was completed on 14 June 2001 and our unqualified opinion is expressed as at that date.