Fonterra Shareholders' Fund

The number of units in the Fund corresponds to the number of shares in which economic rights are held for the Fund:

• unitholders are entitled to have passed through to them an amount equal to any dividend payable in relation to a share in Fonterra (less any PIE tax, withholding tax or any other adjustments for tax in relation to that unitholder);
• if Fonterra reconstructs or adjusts its shares, an equivalent reconstruction or adjustment will be made in respect of units;
• if Fonterra makes bonus issues or rights issues of shares to its shareholders, corresponding issues of units will be made to unitholders; and
• if there is an offer to acquire shares held by the Fonterra Farmer Custodian, the Fund will seek instructions from unit holders as to whether the offer should be accepted.

If a unitholder directs the Fund to accept the offer, the Fund will redeem units from such unitholder, and accept the offer for shares in proportion to that direction. The amount received from the sale of the shares will be paid by the Fund to the unit holder.

Unitholders are entitled to attend and vote at unitholder meetings, and to elect three directors of the Manager of the Fund.

Unitholders do not have any right to attend or vote or request the Fonterra Farmer Custodian to attend or vote, at any meeting of farmer shareholders. The Fonterra Farmer Custodian also does not have any voting rights at meetings of farmer shareholders, except on certain interest group resolutions. Situations, where interest group resolutions are required, are expected to be rare.

The Fund Size Risk Management Policy is designed to address the following requirements:

• the key goals of the Fund are to supplement liquidity in the Fonterra Shareholders’ Market, thereby promoting price convergence,
• and to provide flexibility for Farmer Shareholders;
• the size of the Fund should remain within specified limits; and
• the Fund size should be managed based on graduated responses.

It is important to note that a change in the number of units on issue does not, of itself, result in a dilution in per unit measures of financial performance (such as distributions per unit or earnings per unit). That is because changes in the number of units on issue need not (and typically will not) reflect any change in the number of shares on issue.