Note 2008 2007
$ $
Income:
Net gain/(loss) from investments 4 (3,343,364) 8,676,574
Less expenses:
Administrative expenses 5 351,701 371,348
Personnel expenses 5 588,923 525,644
Total expenses 940,624 896,992
Net surplus/(deficit) (4,283,988) 7,779,582
Statement of Changes in Equity for the Year Ended 31 March 2008
Note 2008 2007
$ $
Equity at start of period 143,883,298 140,614,057
Net surplus/(deficit) (4,283,988) 7,779,582
Total recognised revenues and expenses (4,283,988) 7,779,582
Net community donations 10 (5,808,492) (4,510,341)
Equity at the end of period 6 133,790,818 143,883,298
Balance Sheet as at 31 March 2008
Note 2008 2007
$ $
Non-current assets:
Financial assets held for trading 7 128,616,670 137,730,430
Property, plant and equipment 8 43,179 62,184
Total non-current assets 128,659,849 137,792.614
Current assets:
Accrued income 145,217 133,087
Cash and cash equivalents 9 7,278.079 7,462,596
Total current assets 7,423,296 7,595,683
Total assets 136,083,145 145,388,297
Equity
Trust capital 6 118,734,668 113,934,668
Donation reserve 6 15,056,150 29,948,630
Total equity 133,790,818 143,883,298
Liabilities:
Non-current liabilities - -

Current liabilities:
Sundry payables 207,010 141,368
Employee entitlements 39,817 18,181
Donations payable 10 2,045,500 1,345,450
Total current liabilities 2,292,327 1,504,999
Total equity and liabilities 133,790,818 143,883,298
These financial statements have been authorised for issue by the trustees on 23 May 2008.
JOHN CULLING CLAIRE MATTHEWS
Chairperson Trustee
Statement of Cash Flows for the Year Ended 31 March 2008
Note 2008 2007
$ $
Cash flows from operating activities-
Cash was provided from:
Investment income 9,835,603 8,243,881
9,835,603 8,243,881
Cash was applied to:
Trustees and employees (507,262) (446,192)
Suppliers of other goods and services (507,523) (635,126)
Community donations (5,108,442) (4,607,041)
Net operating cash flows 11 3,712,376 2,555,522
Cash flows from investing activities-
Cash was applied to:
Net investment in managed funds (3,896,894) (4,703,604)
Purchase of fixed assets - (1,611)
(3,896,894) (4,705,215)
Net cash flows from investing activities (3,896,894) (4,705,215)
Net increase (decrease) in cash held (184,518) (2,149,692)
Add cash at 1 April 7,462,597 9,612,290
Cash and cash equivalents at 31 March 9 7,278,079 7,462,597
Notes to the Financial Statements for the Year Ended 31 March 2008
1. Reporting Entity
Eastern and Central Community Trust Incorporated is a charitable trust incorporated in accordance with the provisions of the Community Trusts Act 1999.
The financial statements, for the year ended 31 March 2008, have been prepared in accordance with the Financial Reporting Act 1993. The Eastern and Central Community Trust Incorporated is primarily involved in the management of the investment of assets and the distribution of donations to the community within a designated lower North Island region of New Zealand.
2. Basis of Preparation
(a) Statement of Compliance
The financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice ("NZ GAAP"). They comply with New Zealand Equivalents to International Financial Reporting Standards ("NZ IFRS"), and other applicable Financial Reporting Standards, as appropriate for public benefit entities.
The financial statements were approved by the Board of Trustees on 23 May 2008.
(b) Basis of Measurement
The financial statements have been prepared on the historical cost basis except for financial instruments at fair value through the income statement, which are measured at fair value and disclosed further in note 14.
(c) Functional and Presentation Currency
These financial statements are presented in New Zealand dollars ("NZD") ($), which is the trust's functional currency. All financial information has been rounded to the nearest dollar.
(d) Use of Estimates and Judgements
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of the income and expenses during the period. Actual results could differ from these estimates.
Fair value estimates are made at a specific point in time, based on market conditions and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgement and therefore, can not be determined with precision. Changes in assumptions could significantly affect the estimates.
3. Significant Accounting Policies
The following are the particular accounting policies, which have a material effect on the measurement of results and financial position. They have been applied consistently to all periods presented in these financial statements.
(a) Foreign Currency Transactions
Foreign currency balances are converted to NZD at the year end rate of exchange unless covered by a forward exchange contract. Where such contracts are in place, the contracted rate is adopted. Transactions completed during the year are converted at the rate applying at the date of the transaction. Foreign exchange gain or loss on monetary items is included within the income statement.
(b) Financial Instruments
Financial instruments comprise investments in equity and debt securities, cash and cash equivalents, and trade and other payables. Investments in equity and debt securities are initially recognised at fair value. Subsequent to initial recognition, they are measured to fair value through the income statement. Cash and cash equivalents comprise cash balances, call deposits and short term deposits but do not include cash held by fund managers. Cash flow from operations includes withdrawal of income from managed funds. Trade and other payables are stated at cost.
A financial instrument is recognised when the trust becomes a party to the contractual provisions of the instruments. Financial assets are derecognised if the trust's contractual right to the cash flows from the financial assets expire or
if the trust transfers the financial assets to another party without retaining control or substantially all risks and rewards of the asset.
(c) Donations
Donations are recognised as a liability of the trust when they are approved by trustees and notified to applicants notwithstanding that the applicants may still have to fulfil some conditions.
(d) Property, Plant and Equipment
Items of property, plant and equipment are recorded at cost less accumulated depreciation and impairment losses. The trust has one class of asset being office furniture and fittings.
(e) Depreciation
Depreciation is recognised in the income statement on a straight line basis on all tangible fixed assets at rates calculated to allocate the assets' cost less estimated residual value, over their estimated useful lives. Depreciation methods, useful lives and residual values are reassessed at the reporting date. The estimated life of assets is between
3 and 10 years.
(f) Impairment
The trust's assets are reviewed at each balance date to determine whether there is any objective evidence of impairment. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. Impairment losses directly reduce the carrying amount of assets and are recognised in the income statement.
(g) Employee Benefits
Unused annual leave and long service leave entitlements are the only benefits outstanding to employees. These obligations are recognised as a staff remuneration expense.
(h) GST
GST inclusive accounting has been adopted, as the trust is not registered for GST.
(i) Income Tax
The trust is exempt from income tax by legislation in the Income Tax Act 2004.
(j) Intangible Assets
Software, when acquired by the trust, will be measured at cost less accumulated depreciation and impairment losses.
(k) Leases
The trust has no leased assets that are required to be classed as finance leases. Operating leases are not recognised on the balance sheet. Operating lease payments are recognised in the income statement on a straight line basis.
4. Net Income From Investments
2008 2007
$ $
Realised income
Dividend income on held for trading financial assets 5,802,451 6,262,381
Interest income on held for trading financial assets 631,140 618,196
Gain on disposal on held for trading financial assets 3,414,142 1,249,618
9,847,733 8,130,195
Unrealised income
Foreign exchange (losses) (7,570,307) (11,144,071)
Change in fair value of financial assets held for trading (5,440,345) 11,862,170
(13,010,652) 718,099
Total income from investments (3,162,919) 8,848,294
Less fund managers' fees 180,445 171,720
Total net income from investments (3,343,364) 8,676,574
5. Expenses
2008 2007
$ $
Administrative expenses:
Office administration 32,613 34,779
Advertising and promotion 160,041 162,456
Audit fees 9,264 11,250
Depreciation 19,005 21,190
Rent and services 76,074 74,075
Professional expenses 40,422 58,430
Donation expenses 2,807 (1,791)
Other expenses 11,475 10,959
351,701 371,348
Personnel expenses:
Trustees' remuneration 152,229 137,818
Trustees' meeting expenses 50,804 44,899
Trustees' liability insurance 5,206 10,960
Staff remuneration 327,397 315,455
Increase/(decrease) in staff leave owing 20,239 (4,578)
Staff training and travel 24,036 19,196
KiwiSaver net contributions 7,613 -
ACC levies 1,399 1,515
588,923 525,664
Total expenses 940,624 896,992
6. Equity
The net surplus/(deficit) has been allocated as follows:
2008 2007
$ $
Trust capital maintenance 4,800,000 4,800,000
Donation reserve transfer (9,083,988) 2,979,582
(4,283,988) 7,779,582
(a) Trust Capital
The initial trust capital was set at $90 million in 1997. The trust capital has been increased over time as a surrogate for inflation and population growth within the region administered by the trust. The trustees periodically review the capital maintenance transfer and this year the trustees have determined to increase the capital by $4.8 million. Previous transfers have exceeded inflation and population increases.
Balance at the beginning of the year 113,934,668 109,134,668
Allocation of surplus to capital maintenance 4,800,000 4,800,000
Balance at the end of the year 118,734,668 113,934,668
(b) Donation Reserve
The trustees retain all undistributed income in the donation reserve. The optimum level of the donation reserve is 25% of the capital base so that the annual donation distribution is able to be maintained when investment markets provide negative results.
2008 2007
$ $
Balance at the beginning of the year 29,948,630 31,479,389
Transfer from Income (9,083,988) 2,979,582
20,864,642 34,458,971
Less net donations 5,808,492 4,510,341
Balance at the end of the year 15,056,150 29,948,630
(c) Total Equity
Equity balance at the beginning of the year 143,883,298 140,614,057
Allocation to trust capital 4,800,000 4,800,000
Transfer from income (9,083,988) 2,979,582
139,599,310 148,393,639
Less net donations 5,808,492 4,510,341
Equity balance at the end of the year 133,790,818 143,883,298
7. Financial Assets Held for Trading
All investments in managed funds are classified as fair value through the income statement.
2008 2007
$ $
Opening balance 137,730,430 132,308,727
Income/(loss) before fund manager fees (3,771,608) 8,238,936
Withdrawals to fund donations (net) (5,342,152) (2,817,233)
Closing balance 128,616,670 137,730,430
Investments comprise:
Bonds 55,803,015 55,597,631
Equities 72,813,655 82,132,799
Total managed funds 128,616,670 137,730,430
Held in: New Zealand Bonds 55,803,015 55,597,631
Equities 9,479,262 10,440,957
65,282,277 66,038,588
Off shore Equities 63,334,393 71,691,842
63,334,393 71,691,842
128,616,670 137,730,430
The fair value of financial assets at fair value through the income statement is determined by reference to the quoted price at the reporting date.
8. Property, Plant and Equipment
2008 2007
$ $
Cost
Balance at beginning of year 157,108 155,496
Additions - 1,612
Disposals - -
Balance at end of year 157,108 157,108
Depreciation and impairment losses
Balance at beginning of year 94,924 73,734
Depreciation for the year 19,005 21,190
Impairment - -
Disposals - -
Balance at end of year 113,929 94,924
Carrying amounts
At beginning of year 62,184 81,762
At end of year 43,179 62,184
9. Cash and Cash Equivalents
2008 2007
$ $
Current accounts 8,796 7,705
Call account 269,268 954,733
Petty cash 15 158
Short term deposits 7,000,000 6,500,000
Total cash 7,278,079 7,462,596
10. Donations
2008 2007
$ $
Standard donations 1,802,870 1,235,640
Special donations 4,114,300 3,586,050
Total community donations 5,917,170 4,821,690
Less donations written back 108,678 311,349
Net community donations 5,808,492 4,510,341
Total donations payable at year end was $2,045,500 ($1,345,450 - 2007). Included in donations payable is $1,572,000 ($890,250 - 2007) of donations, which are subject to the applicants fulfilling certain conditions.
11. Reconciliation of Net Surplus With Operating Cash Flows
2008 2007
$ $
Net surplus/(deficit) for the period (4,283,988) 7,779,582
Adjust for non-cash items:
Income on investments 13,010,653 (718,099)
Depreciation 19,005 21,190
Movements in net current assets:
Accrued income (12,130) 113,686
Sundry payables 87,278 (33,795)
Community donations paid (5,108,442) (4,607,041)
Net operating cash flows 3,712,376 2,555,522
12. Contingent Liabilities and Commitments
Commitments
The trust has no commitments (Nil - 2007).
Lease Commitments
2008 2007
$ $
Less than 1 year 47,592 47,592
1-5 years 190,368 190,368
Over 5 years 154,674 202,266
392,634 440,226
The lease on the present Westerman's premises commenced on 1 July 2004 and expires on 30 June 2016. The rent payable
is to be reviewed at the conclusion of the second and fourth years and the rental will be adjusted, if necessary, in accordance with any increase in the consumer price index. In July 2010, the rent is market assessed but is limited to a 20% increase over the rent set in 2008. During the year ended 31 March 2008, $47,592 was recognised as an expense in the income statement in respect of operating leases ($46,918 - 2007).
Contingencies
There are no contingent liabilities or contingent assets at balance date (Nil - 2007).
13. Related Part Transactions
Related party transactions were as follows:
(a) The trust's premises are leased from a company in which Mr K. Atkinson, former trustee, has a financial interest (refer note 12). The rent paid for the period was $47,592 ($46,918- 2007). As at balance date, there was no outstanding balance owed on the lease.
(b) The trust uses the payroll software and database consultancy of IMS Limited, a company in which Mr K. Atkinson, former trustee, has a financial interest. The costs were prearranged on normal market rates for such services and were approved by the full board. $501 was paid for this service during the year ($4,030 - 2007). As at balance date, there was no outstanding balance owed.
(c) Mr K. Atkinson retired from his role as a trustee at the end of May 2007. Mr K. Atkinson had served on the trust for 8 years (two terms).
Trustees update their personal register of interests at each trust meeting. A folder containing each trustee's register of interests is readily available to members of the public.
In addition, a record of all declarations of interests with any donation application is maintained and is also included in the trustees' register of interest folder. Trustees abstain from decisions regarding donations to entities in which they have an interest.
14. Financial Instruments
The trustees regularly review their statement of investment policies and objectives.
(a) Market Risk
Market risk embodies the potential for both loss and gains and includes currency risk, interest risk and price risk.
The trust's investment strategy and the management of the investment risk are detailed in the statement of investment policies and objectives. The trust's investments are diversified across a range of assets including New Zealand and overseas equities, New Zealand bonds, New Zealand and overseas property and cash. Within each asset class, there are defined policies and mandates to ensure diversification, to minimise investment risk and to limit exposure to any one investment. Each asset class has a defined target allocation and is managed within a defined allocation range.
In addition, the trust has a risk management policy which includes a tactical asset allocation policy. This policy is to identify times when the trustees should instigate a process to review the short term investment strategy of the trust.
(b) Currency Risk
The trust has exposure to currency risk through its investments in offshore equities. The investment policy requires full hedging of currency risk for overseas bonds, when held, and 50% hedging of currency risk for overseas equities. There has been no currency hedging on overseas equities as a resolution to this effect was passed by the board in October 2004. This decision has been constantly reviewed. Currency risk is managed by fund managers with a range of tolerance.
Offshore investments are denominated into the following foreign currency groupings:
2008 2007
$ $
USA/Canada 13,385,523 16,298,653
UK/Europe 21,838,583 25,010,255
Japan/Asia 16,225,079 19,451,622
Australia 11,885,208 10,931,312
63,334,393 71,691,842
The Australian Listed Property Index Trust is reported in AUD. The remaining offshore equity investments are:
- Managed by State Street Global Advisors (Boston, USA).
- Invested in 24 individual country common trust funds.
- Reported in the fund's base currency of USD.
Exposure to currency risk:
AUD USD AUD USD
31 March 2008 31 March 2007
$ $ $ $
Equities 929,633 62,404,760 Nil 71,691,842
The following NZD exchange rates applied during the year:
Average of Monthly Mid-Rates
2007-08 2006-07
AUD 0.8750 0.8589
USD 0.7598 0.6570
Sensitivity Analysis for Currency
A 10% movement of the NZD against the following currencies at 31 March would have increased (decreased) profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. This analysis is performed on the same basis for 2007.
Effect in NZD:
Profit or Loss
31 March 2008 31 March 2007
$ $
10% fall in NZD/AUD 103,293 Nil
10% rise in NZD/AUD (84,512) Nil
10% fall in NZD/USD 6,933,862 7,965,760
10% rise in NZD/USD (5,673,160) (6,517,440)
(c) Interest Rate Risk
The trust's investments in fixed rate securities are subject to interest rate risk. The trust's statement of investment policies and objectives requires a fixed rate security to have a minimum of a BBB rating or equivalent grade. The maximum exposure to each fixed security is controlled by the credit rating so that the higher the credit rating, the higher the allowable exposure. The fixed rate securities mandate ensures that a high percentage of the securities are rated A or higher. Short term deposits are invested for periods up to 365 days taking into account current interest rates.
At the reporting date the interest rate profile of the trust's interest bearing financial instruments was:
Carrying Amount
2008 2007
$ $
Fixed Rate Instruments 55,803,015 55,597,631
Variable Rate Instruments 7,278,079 7,462,596
63,083,094 63,060,227
Sensitivity Analysis for Fixed Rate Instruments
A change of 100 basis points (1%) in interest rates would have increased or decreased profit or loss by the amounts shown. The analysis is performed on the same basis for 2007.
Fixed Rate Instruments Cash Flow Sensitivity
31 March 2008 31 March 2007
$ $
100 basis points increase 558,030 555,976
100 basis points decrease (558,030) (555,976)
Sensitivity Analysis for Variable Rate Instruments
A change of 100 basis points (1%) in interest rates at the reporting date would have increased (decreased) profit or loss by the amounts shown below. The analysis is performed on the same basis for 2007.
Variable Rate Instruments Cash Flow Sensitivity
31 March 2008 31 March 2007
$ $
100 basis points increase 72,781 74,626
100 basis points decrease (72,781) (74,626)
(d) Other Price Risk
Other price risk is the risk that the value of the instrument will fluctuate as a result of changes in market price (other than those arising from interest rate risk or currency risk), whether caused by factors specific to an individual investment, its issuers or all factors affecting all instruments traded in the market. As the majority of the funds financial instruments are carried at fair value with fair value changes recognised in the income statement, all changes in market conditions will directly affect investment income.
Price risk is managed by the Trust by constructing a diversified portfolio of instruments traded on various markets. The statement of investment policies and objectives sets down the guidelines for this diversification.
15. Explanation of Transition to NZ IFRS
These are the trust's first financial statements prepared in accordance with NZ IFRS. The accounting policies set out in the notes to the financial statements have been applied in preparing the statements for the year ended 31 March 2008, the comparative information presented for the year ended 31 March 2007 and in the preparation of an opening NZ IFRS balance sheet at 1 April 2006 (the trust's date of transition).
In preparing the opening NZ IFRS balance sheet and restating the 2007 financial statements, the trust has considered the amounts previously reported in financial statements prepared in accordance with its old basis of accounting (previous GAAP). It was found that there was no dollar value changes required and that the main effect of the transition was in format and disclosure.
As no changes have been required, reconciliation and explanations of the transition to NZ IFRS have not been included with these accounts.
16. Trustees' Attendance and Remuneration
Trustees' remuneration for meeting attendance and an annual honorarium is set by the Minister of Finance. Trustees are also reimbursed for travel costs. Details of the trustees' attendance and remuneration are:
Attendance Record & Fees of Trustees
Two Day Trust Meetings Sub-Committee Meetings Fees
Trustee Attended Maximum Attended Maximum $

Kevin Atkinson 1 1 3 3 2,552
Brian Bourke 1 1 3 3 2,540
Barbara Cameron 6 6 12 13 12,940
John Culling 6 6 20 20 31,856
Beverley Fullerton-Smith 5 5 4 4 9,163
Ron Garrod 5 5 4 4 7,903
Pamela Good 5 6 4 4 9,818
John Gordon 5 6 11 14 10,780
Reremoana Houkamau 1 1 0 0 1,317
Shona Jones 4 5 3 4 8,313
Claire Matthews 5 6 4 5 9,066
Margaret May 6 6 14 15 18,378
Keith Moretta 4 5 4 4 8,173
James Palmer 4 6 2 2 6,520
Mere Pohatu 6 6 12 13 12,910
Total Fees 152,229
17. Employees' Remuneration
During the year, one employee received remuneration in the range of $120,000-$130,000.
18. Trustees' Indemnity Liability Insurance
Trustees' indemnity liability insurance of $5,206 ($10,960 - 2007) has been paid by the trust as approved by the trustees under the Community Trusts Act 1999. The reduced cost is due to a collective approach from several of the community trusts with a common insurer.
Audit Report
To the Trustees of Eastern & Central Community Trust Incorporated
We have audited the financial statements. The financial statements provide information about the past financial performance of the Eastern & Central Community Trust Incorporated and its financial position as at 31 March 2008. This information is stated in accordance with the accounting policies set out in Notes 1, 2 and 3.
The Trustees' Responsibilities
The trustees are responsible for the preparation of financial statements that give a true and fair view of the financial position
of the trust and the results of its operations and cash flows for the year ended 31 March 2008.
Auditors' Responsibilities
It is our responsibility to express an independent opinion on the 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:
- the significant estimates and judgements made by the trustees in the preparation of the 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 give 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.
Other than in our capacity as auditors, we have no relationship with or interest in the trust.
Unqualified Opinion
We have obtained all the information and explanations we have required.
In our opinion:
- proper accounting records have been kept by the trust as far as appears from our examination of those records; and
- the financial statements:
- comply with New Zealand generally accepted accounting practice; and
- give a true and fair view of the financial position of the trust as at 31 March 2008 and the results of its operations and cash flows for the year ended on that date.
Our audit was completed on 23 May 2008 and our unqualified opinion is expressed as at that date.
BDO SPICERS, Hawke's Bay.
Schedule of Community Payments for the Year Ended 31 March 2008
Donations by Region
2008 2007
$ $
Poverty Bay 603,600 664,100
Hawke's Bay 2,377,600 1,676,400
Tararua 436,300 171,750
Wairarapa 480,550 448,000
Manawatu 1,358,660 1,224,140
Horowhenua 275,260 365,800
Regional 385,200 271,500
Total donations 5,917,170 4,821,690
---------------
An itemised list of all donations is available at www.ecct.org.nz or free of charge from the Trust Manager, Eastern & Central Community Trust Incorporated, PO Box 1058, Hastings.