2024 NEW ZEALAND GAZETTE, No. 76 14 JUNE 2013

EASTERN AND CENTRAL COMMUNITY TRUST INC

c) Pricing Risk

Pricing 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 statement of comprehensive income, 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 SIPO sets down the guidelines for this diversification.

Sensitivity Analysis for Pricing Risk:

The Trust’s financial assets are priced at fair value. The effect on the Trust’s statement of comprehensive income and balance sheet as at 31st March 2013, due to a possible change in market factors is represented in the following table:

| Financial Asset | Sensitivity Range
| | (-1 to +1 Standard Deviations) | Sensitivity Impact
| | | $,000 |
|-------------------------|--------------------------------|----------------------|
| NZ/Australian Equities | -9.9% to 26.4% | -2,948 to 7,999 |
| NZ Bonds | 1.1% to 9.9% | 480 to 4,404 |
| NZ Cash | 2.8% to 5.2% | 332 to 626 |
| Overseas Equities | -9.6% to 23.6% | -4,123 to 10,162 |
| Overseas Bonds | 1.7% to 10.3% | 237 to 1,396 |
| Property | -10.2% to 24.2% | -437 to 1,035 |
| Total Portfolio | -4.4% to 17.4% | -1,385 to 5,492 |

There is a 68% probability that the return in any one year will be within the range -4.4 to 17.4%.

The effect on the Trust’s statement of comprehensive income and balance sheet as at 31st March 2012, due to a possible change in market factors is represented in the following table:

| Financial Asset | Sensitivity Range
| | (-1 to +1 Standard Deviations) | Sensitivity Impact
| | | $,000 |
|-------------------------|--------------------------------|----------------------|
| NZ/Australian Equities | -10.1% to 26.6% | -2,650 to 7,067 |
| NZ Bonds | 3.0% to 12.5% | 1,231 to 5,117 |
| NZ Cash | 4.6% to 6.9% | 370 to 562 |
| Overseas Equities | -9.3% to 26.3% | -4,367 to 12,350 |
| Overseas Bonds | 3.5% to 12.5% | 443 to 1,611 |
| Property | -9.4% to 25.4% | -336 to 905 |
| Total Portfolio | -3.8% to 19.9% | -1,353 to 6,681 |

There is a 68% probability that the return in any one year will be within the range -3.8% to 19.9%.

These sensitivity analyses are based on the volatility of each asset class and the investment portfolio as a whole, as measured by plus or minus one standard deviation. The overall effect of the Trust’s diversified portfolio of uncorrelated financial assets is to reduce volatility and stabilise investment returns over time.

Fair Value Hierarchy

The following fair value information provides an analysis of the financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 on the degree to which the fair value is observable.

• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.

• Level 2 fair value measurements are those derived from inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).