2021 Provident Fund Subsidized Schools

Subsidized Schools Provident Fund

════════════════

Annual Report 2021

════════════════

OTHER INFORMATION

Funds Section Education Bureau

Mr HEUNG Chi-yan, Bryan Senior Accounting Officer

Room 1517, 15/F Wu Chung House 213 Queen’s Road East

Wanchai Hong Kong

Secretary

Ms CHENG Kit-yee, Ivy Education Officer

School Administration Division Education Bureau

5/F, East Wing, Central Government Offices 2 Tim Mei Avenue

Tamar Hong Kong

Treasurer

Ms LEE Kwan, Vivian

Assistant Director of Accounting Services The Treasury

Room 2701, 27/F, Immigration Tower 7 Gloucester Road

Wanchai Hong Kong

Auditor

Mr John CHU, JP Director of Audit 6th Floor, High Block

Queensway Government Offices 66 Queensway

Hong Kong

CONTENTS PAGE

Foreword 1

Board of Control 4

Investment Sub-committee 7

Chairman’s Report 9

Treasurer’s Report 11

Number of Contributors (2012 – 2021) 17

Dividend Declared and Investment Return (2012 – 2021) 18

Net Assets (2012 – 2021) 19

Spread of Net Assets 20

Report of the Director of Audit 21

Balance Sheet 24

Income and Expenditure Account 25

Reserve Fund 26

Statement of Changes in Net Assets Available for Benefits 27

Statement of Cash Flows 28

Notes to the Financial Statements 29

- 1 - FOREWORD

The Fund

The Subsidized Schools Provident Fund (The Fund) is governed by the Subsidized Schools Provident Fund Rules made under section 85 of the Education Ordinance (Cap. 279). The Fund is a defined contribution retirement scheme established to provide for payments upon retirement, resignation, dismissal, termination of contract or death of contributors. Contributors refer to teachers in subsidized schools and also, with effect from 19 May 2000, teachers in Direct Subsidy Scheme (DSS) schools who contribute to the Fund.

Board of Control

The complete administration and control of the Fund, subject to the Fund Rules, is vested in the Board of Control, the composition of which is as follows:

Chairman : elected from among the 18 other members Vice-chairman : elected from among the 18 other members Permanent Secretary for Education or his representative

Director of Accounting Services or his representative Eighteen other members :

(a) 4 appointed by the Subsidized Primary Schools Council,

(b) 4 appointed by the Hong Kong Subsidized Secondary Schools Council,

(c) 1 appointed by the Hong Kong Special Schools Council,

(d) 4 elected from the representatives of teachers of the subsidized primary schools,

(e) 4 elected from the representatives of teachers of the subsidized secondary schools, and

(f) 1 elected from the representatives of teachers of the special schools.

Meetings of the Board of Control

The Board of Control holds an annual general meeting to receive and consider the annual financial statements of the Fund and to declare the annual dividend for contributors.

It also holds other meetings during the year as and when required. Fourteen members form a quorum. All matters arising before any meeting of the Board of Control are determined by a majority of the members present and voting thereon.

Contributions and donations

Contributors’ contributions and the matching donations from the Government and DSS schools are made monthly to the Fund according to the following scale as a percentage of a contributor’s basic salary, including any approved allowance:

No. of years of continuous contributory service

Teacher’s contribution

Donations from the Government and

DSS schools

% %

Less than 10 5 5

10 to less than 15 5 10

15 or more 5 15

Benefits

Contributors are entitled to a lump sum payment when they cease to be contributors to the Fund. Subject to certain exceptions laid down in the Fund Rules, the amount of payment is determined as follows:

Length of contributory service Benefits

10 years or more All accumulated contributions and donations from the Government and DSS schools and dividends thereon.

5 years to less than 10 years All accumulated contributions and dividends thereon and 10% of the donations from the Government and DSS schools and dividends thereon for each complete year of contributory service.

Less than 5 years All accumulated contributions and dividends thereon.

Statement of provident fund account balance

Each contributor is provided by the Treasurer of the Fund with a statement of provident fund account in September and March each year. These statements show the balance standing to the credit of each contributor’s account at the previous 31 August and 28 February (or 29 February as appropriate) respectively. The March statement incorporates the latest annual dividend declared by the Board of Control for the year ended the previous 31 August. The supervisor of each school also maintains a provident fund account for each contributor in his school and these accounts are available for inspection by contributors.

- 3 - Payments to outgoing contributors

Except for the peak months of August and September, payments of benefits to the outgoing contributors are made by the Fund within 23 working days from the date of receipt of the outgoing contributor’s application by the Permanent Secretary for Education or the effective date of ceasing to be a teacher, whichever is later. Payments are made by the Fund within 28 working days for the two peak months. Both pledges are subject to the condition that the withdrawal application is correctly completed by the outgoing contributor.

Investment Management

The day-to-day management of the Fund is the responsibility of the Treasurer who is appointed by the Director of Accounting Services under rule 5(4) of the Subsidized Schools Provident Fund Rules. The investment functions are the responsibility of the Board of Control which formulates the investment strategies of the Fund within the investment framework approved by the Financial Secretary. All sum considered by the Board of Control to be surplus to the normal cash requirements of the Fund may at the direction of the Board of Control be invested by the Treasurer as well as external investment managers who are appointed by the Board of Control with the approval of the Financial Secretary.

An Investment Sub-committee is formed by the Board of Control and meets on a quarterly basis to:

(a) review the investments made and to verify that they were made within the approved framework and strategy of the Fund;

(b) interview investment managers regarding their performance and obtain their views on various financial markets; and

(c) discuss and formulate investment strategies for recommendations to the Board of Control.

Accounts and audit

Apart from other duties described in the Fund Rules, the Treasurer maintains proper accounts and records of all transactions of the Fund and prepares the annual financial statements for audit by the Director of Audit. The audited financial statements together with the auditor’s report are placed before the Board of Control at the annual general meeting.

SUBSIDIZED SCHOOLS PROVIDENT FUND BOARD OF CONTROL

Back Row

(From Left to Right)

Front Row

(From Left to Right)

1. Ms YU Yee-wah, Eva 1. Mr KING Chi-yu

2. Ms CHUNG Lai-kam 2. Mr WONG Yuen-ho

3. Ms CHEUNG Yee-may, JP 3. Mr CHOI Yu-lung, Henry

4. Mr SZE Chi-king 4. Mr FUNG Ka-chun, Chris

5. Mr CHAN Chi-wai, Ringo 5. Mr LAU Chun-hung

6. Mr CHEUNG Man-chung 6. Ms CHEUNG Susanna Sau-lan, JP

7. Mr CHAN Chung-shun 7. Ms LEE Kwan, Vivian (Treasurer)

8. Ms SUNG Wai-yi 8. Ms VU Im-fan

9. Ms LO Ca-yin 9. Mr TAM Kim-hung

10. Ms LEE Yi-ying 10. Mr WONG Kwan-bo, Remy

11. Ms CHENG Kit-yee, Ivy

Not in the picture

1. Mr CHAN Kai-yin, Vincent 2. Ms CHOI Man-kwan

SUBSIDIZED SCHOOLS PROVIDENT FUND BOARD OF CONTROL

1.9.2020 – 31.8.2021

Chairman

Mr TAM Kim-hung True Light Girls’ College SC

Vice-Chairman

Mr CHOI Yu-lung, Henry Cheung Sha Wan Catholic Secondary School ES Members

Mr CHAN Chi-wai, Ringo Buddhist Mau Fung Memorial College SC

Mr CHAN Chung-shun De La Salle Secondary School, N.T. ES

Ms CHEUNG Yee-may, JP Yaumati Kaifong Association School PC

Ms CHUNG Lai-kam Po Kok Primary School PC

Mr FUNG Ka-chun, Chris Sai Kung Sung Tsun Catholic School (Primary Section) EP Ms HO Hoi-yiu, Helen Aberdeen St. Peter’s Catholic Primary School PC

Ms HO Kit-ying PLK Lee Shing Pik College ES

Ms HUI Sze-lai Lutheran Tsang Shing Siu Leun School EP

Mr KAM Wing-tim (Up to 22.11.2020)

SKH St. John’s Primary School PC

Mr KING Chi-yu (From 16.9.2020)

Lutheran School For the Deaf ESP

Mr LAU Chun-hung LST Yu Kan Hing Secondary School SC

Ms LEE Yi-ying Kowloon True Light School SC

Mr SZE Chi-king Fresh Fish Traders’ School EP

Ms VU Im-fan (From 23.11.2020)

Kowloon Bay St. John The Baptist Catholic Primary School

PC

Mr WONG Kwan-bo, Remy Ebenezer School SP

Mr WONG Ting-hong Cotton Spinners Association Secondary School ES

Mr WONG Yuen-ho Man Kiu Association Primary School EP

Ms CHENG Kit-yee, Ivy Representative of Permanent Secretary for Education and Secretary to the Board

Mr WONG Shing-hei, Charlix, JP Director of Accounting Services

Note

PC Appointed by Subsidized Primary Schools Council

SC Appointed by Hong Kong Subsidized Secondary Schools Council SP Appointed by Hong Kong Special Schools Council

EP Elected teacher representatives of subsidized primary schools ES Elected teacher representatives of subsidized secondary schools ESP Elected teacher representative of special schools

SUBSIDIZED SCHOOLS PROVIDENT FUND BOARD OF CONTROL

From 1.9.2021

Chairman

Mr LAU Chun-hung LST Yu Kan Hing Secondary School SC

Vice-Chairman

Mr FUNG Ka-chun, Chris Sai Kung Sung Tsun Catholic School (Primary Section) EP Members

Mr CHAN Chi-wai, Ringo Po On Commercial Association Wong Siu Ching Secondary School

SC

Mr CHAN Chung-shun De La Salle Secondary School, N.T. ES

Mr CHAN Kai-yin, Vincent (From 20.11.2021)

PLK Law’s Foundation School SP

Mr CHEUNG Man-chung SKH Holy Trinity Church Secondary School ES Ms CHEUNG Yee-may, JP

(Up to 7.12.2021)

Yaumati Kaifong Association School PC Ms CHOI Man-kwan

(From 8.12.2021)

PLK Riverain Primary School PC

Mr CHOI Yu-lung, Henry Cheung Sha Wan Catholic Secondary School ES

Ms CHUNG Lai-kam Po Kok Primary School PC

Mr KING Chi-yu Lutheran School For the Deaf ESP

Ms LEE Yi-ying Kowloon True Light School SC

Ms LO Ca-yin TWGHs Kwok Yat Wai College ES

Ms SUNG Wai-yi Yuen Long Long Ping Estate Wai Chow School PC

Mr SZE Chi-king Fresh Fish Traders’ School EP

Mr TAM Kim-hung True Light Girls’ College SC

Ms VU Im-fan Kowloon Bay St. John The Baptist Catholic Primary School

PC Mr WONG Kwan-bo, Remy

(Up to 19.11.2021)

Ebenezer School SP

Mr WONG Yuen-ho Man Kiu Association Primary School EP

Ms YU Yee-wah, Eva HKTA YYI Shek Wai Kok Primary School EP

Ms CHENG Kit-yee, Ivy Representative of Permanent Secretary for Education and Secretary to the Board

Mr WONG Shing-hei, Charlix, JP (Up to 13.10.2021)

Director of Accounting Services Ms CHEUNG Susanna Sau-lan, JP

(From 14.10.2021)

Director of Accounting Services

Note

PC Appointed by Subsidized Primary Schools Council

SC Appointed by Hong Kong Subsidized Secondary Schools Council SP Appointed by Hong Kong Special Schools Council

EP Elected teacher representatives of subsidized primary schools ES Elected teacher representatives of subsidized secondary schools

SUBSIDIZED SCHOOLS PROVIDENT FUND INVESTMENT SUB-COMMITTEE

1.9.2020 – 31.8.2021

Chairman

Mr LAU Chun-hung LST Yu Kan Hing Secondary School

Members

Mr CHAN Chi-wai, Ringo Buddhist Mau Fung Memorial College Mr CHAN Chung-shun De La Salle Secondary School, N.T.

Ms CHEUNG Yee-may, JP Yaumati Kaifong Association School

Mr CHOI Yu-lung, Henry Cheung Sha Wan Catholic Secondary School

Ms CHUNG Lai-kam Po Kok Primary School

Mr FUNG Ka-chun, Chris Sai Kung Sung Tsun Catholic School (Primary Section) Ms HO Hoi-yiu, Helen Aberdeen St. Peter’s Catholic Primary School

Ms HO Kit-ying PLK Lee Shing Pik College

Ms HUI Sze-lai Lutheran Tsang Shing Siu Leun School Mr KING Chi-yu

(From 16.9.2020)

Lutheran School For the Deaf

Ms LEE Yi-ying Kowloon True Light School

Mr SZE Chi-king Fresh Fish Traders’ School

Mr TAM Kim-hung True Light Girls’ College

Ms VU Im-fan (From 23.11.2020)

Kowloon Bay St. John The Baptist Catholic Primary School

Mr WONG Kwan-bo, Remy Ebenezer School

Mr WONG Ting-hong Cotton Spinners Association Secondary School Mr WONG Yuen-ho Man Kiu Association Primary School

Mr WONG Shing-hei, Charlix, JP Director of Accounting Services

Treasurer

Mr NG Wai-man, Raymond Assistant Director of Accounting Services

Secretary

Mr WONG Wilson Chun-ming Treasury Accountant

SUBSIDIZED SCHOOLS PROVIDENT FUND INVESTMENT SUB-COMMITTEE

From 1.9.2021

Chairman

Mr TAM Kim-hung True Light Girls’ College

Members

Mr CHAN Chi-wai, Ringo Po On Commercial Association Wong Siu Ching Secondary School Mr CHAN Chung-shun De La Salle Secondary School, N.T.

Mr CHAN Kai-yin, Vincent (From 20.11.2021)

PLK Law’s Foundation School

Mr CHEUNG Man-chung SKH Holy Trinity Church Secondary School Ms CHOI Man-kwan

(From 8.12.2021)

PLK Riverain Primary School

Mr CHOI Yu-lung, Henry Cheung Sha Wan Catholic Secondary School

Mr FUNG Ka-chun, Chris Sai Kung Sung Tsun Catholic School (Primary Section)

Mr KING Chi-yu Lutheran School For the Deaf

Mr LAU Chun-hung LST Yu Kan Hing Secondary School

Ms LEE Yi-ying Kowloon True Light School

Ms LO Ca-yin TWGHs Kwok Yat Wai College

Ms SUNG Wai-yi Yuen Long Long Ping Estate Wai Chow School Mr SZE Chi-king Fresh Fish Traders’ School

Ms VU Im-fan Kowloon Bay St. John The Baptist Catholic Primary School Mr WONG Kwan-bo, Remy

(Up to 19.11.2021)

Ebenezer School

Mr WONG Yuen-ho Man Kiu Association Primary School Ms YU Yee-wah, Eva HKTA YYI Shek Wai Kok Primary School Mr WONG Shing-hei, Charlix, JP

(Up to 13.10.2021)

Director of Accounting Services

Ms CHEUNG Susanna Sau-lan, JP (From 14.10.2021)

Director of Accounting Services

Treasurer

Mr NG Wai-man, Raymond (Up to 14.10.2021)

Assistant Director of Accounting Services

Ms LEE Kwan, Vivian (From 15.10.2021)

Assistant Director of Accounting Services

Secretary

Mr WONG Wilson Chun-ming Treasury Accountant

CHAIRMAN’S REPORT

(Amounts expressed in millions of Hong Kong dollars, unless otherwise stated.) Dividend

I am pleased to report that at the annual general meeting held on 14 February 2022, the Board of Control declared a total dividend of 5.15% for contributors for the year ended 31 August 2021. This 5.15% (made up of the 5% guaranteed dividend and, with the approval of the Chief Executive, a supplementary dividend of 0.15%) has been determined according to the dividend formula adopted by the Board of Control. The relevant formula is set out in section 3 of the Treasurer’s report.

Contributors’ Account

During the year, 1,689 new contributors joined the Fund and 2,125 withdrew from it.

These figures include 11 transfers in from and 17 transfers out to the Grant Schools Provident Fund. The total number of contributors decreased by 436 or 1.12% to 38,492. The balance of the contributors’ account increased by HK$1,824.6 million or 2.33% to HK$80,114.5 million. The service profile of contributors who withdrew from the Fund during the year was as follows:

2021 2020

Below 10 years 25% 36%

10 to 15 years 9% 6%

Above 15 years 66% 58%

Net Assets and Management Cost

As at 31 August 2021, the net assets of the Fund amounted to HK$111,534.9 million.

The cost of managing the Fund by way of supervision fee paid to Government, fees of investment managers, fees of custodians, investment transaction costs and other operating expenses was HK$219.7 million － equivalent to 0.20% of the Fund’s net assets.

Major Activities of the Board of Control

At the annual general meeting held on 28 January 2021, the Board of Control adopted

the annual statement of accounts of the Fund and declared a dividend of 5% for the year ended 31 August 2020.

The Board of Control also approved the following matters during the year ended 31 August 2021:

(a) the Fund’s investment plan for the year;

(b) the Fund’s supervision fee budget for the year;

(c) accepting the due diligence report submitted by an investment consultant on an active overseas bond investment manager; and

(d) engaging an investment consultant to conduct a due diligence on an active overseas equity investment manager.

Vote of Thanks

Ms HO Hoi-yiu, Helen, Ms HO Kit-ying, Ms HUI Sze-lai, Mr KAM Wing-tim and Mr WONG Ting-hong ceased to be members of the Board of Control during or at the end of the year. On behalf of the Board of Control, I thank them for their invaluable contributions to the work of the Board of Control in the past year.

Financial Highlights for the year ended 31 August 2021

2021 2020 Changes

Contributors’ Account (a) 80,114.5 78,289.9 +2.33%

Net Assets (b) 111,534.9 100,671.6 +10.79%

Management Cost

(as a percentage of net assets)

219.7 (0.20%)

186.7 (0.19%) Reserve Level at year end (%)

－ before the year’s dividend

[(b)-(a)]/(a) above 39.22 28.59

－ after the year’s dividend 32.36 22.47

Investment Return for the year (%) 13.22 11.99

Total Dividend Declared (%) 5.15 5.00

Number of Contributors 38,492 38,928 -1.12%

Performance Indicator

2021 2020

Proportion of cases of withdrawal paid within 23 working days for October to July, or 28 working days for peak months of August and September

99.64% 99.61%

LAU Chun-Hung Chairman Board of Control

Subsidized Schools Provident Fund 14 February 2022

SUBSIDIZED SCHOOLS PROVIDENT FUND

TREASURER’S REPORT FOR THE YEAR ENDED 31 AUGUST 2021 (Amounts expressed in millions of Hong Kong dollars, unless otherwise stated.)

1. FINANCIAL STATEMENTS

The financial statements of the Fund have been drawn up in accordance with accounting treatments stipulated in the Fund Rules and accounting principles generally accepted in Hong Kong.

2. FINANCIAL RESULTS

(i) Overall Surplus

The Fund recorded an overall surplus of HK$12,923.9 million for the year as follows:

Operating surplus 1,425.5

Net realised and revaluation gains 11,498.4

Overall surplus 12,923.9

(ii) Investment Return

The overall surplus represented an investment return of 13.22% (2020:

overall surplus of 11.99%) of the Fund for the year.

(iii) Asset Cover/Reserve Level - Before the year’s dividend

The financial strength of a defined-contribution scheme is measured in terms of its asset cover (or reserve level), i.e. the adequacy of its assets to meet the benefits payable to scheme members.

The Fund’s net assets covered its liability (represented by the year-end balance of the contributors’ account before provision for the year’s dividend) by 1.39 times, providing a reserve level of 39.22% as follows:

Net Assets (a) 111,534.9 Less: Contributors’ Account

(before the year’s dividend) (b) 80,114.5

Reserve (c) 31,420.4

Asset Cover (a)/(b) 1.39 times (2020: 1.29 times)

Reserve Level (c)/(b) 39.22% (2020: 28.59%)

3. DIVIDEND CALCULATION FOR THE YEAR

The Board of Control has agreed to determine each year’s annual dividend on the basis of the level of reserve held by the Fund at year end and the investment return actually achieved on the Fund’s assets during the year by way of a dividend formula.

The dividend formula comprises two components:

〈--- (a) ---〉 〈--- (b) ---〉

(Reserve Level - 40%) ÷ (1 + 40%) + (Fund Return × Adjusted Reserve Level) where Reserve Level refers to Pre-dividend Reserve Level and the total dividend is subject to a minimum of 5%.

(a) - provides for releasing the excess over the target Pre-dividend Reserve Level of 40%. This component will be zero if the Reserve Level is 40% or less.

(b) - provides for releasing a portion of investment return based on the Reserve Level. If the Reserve Level is 40% or less, then the Adjusted Reserve Level is simply the Reserve Level. If the Reserve Level is above 40%, then the Adjusted Reserve Level is 40%.

In accordance with the dividend formula, a total dividend of 5.18% has been calculated as follows:

[ ( 39.22% - 40% ) ÷ (1 + 40% ) ] + ( 13.22% × 39.22% )

= 0% + 5.18%

= 5.18%

Accordingly, the total amount available for dividend distribution shall be 5.18%

of the closing balance of the contributors’ account at year end (HK$80,114.5 million).

Since a contributor’s account which is not open for the entire financial year is also eligible for a pro rata dividend in accordance with rule 14, the effective dividend rate shall be determined by dividing the total amount available for dividend distribution (HK$4,149.9 million) by the time-weighted average of the contributors’ accounts (HK$80,616.6 million). As a result, the dividend rate to be declared by the Board of Control for the year shall be 5.15%.

The dividend calculation has been audited by the Director of Audit.

4. DECLARATION OF THE GUARANTEED AND SUPPLEMENTARY DIVIDENDS AND TRANSFER FROM THE RESERVE FUND

I recommend that the Board of Control:

(a) transfer a sum of HK$2,605.3 million from the Reserve Fund to the Income and Expenditure Account in accordance with rule 11(3) of the Subsidized Schools Provident Fund Rules,

(b) declare a guaranteed dividend of HK$4,030.8 million out of the Income and Expenditure Account which will be distributed as follows:

(i) a credit of 5% in respect of each contributor’s account which is open for the entire financial year commencing 1 September 2020 as the guaranteed dividend in accordance with rule 12(1), and

(ii) a credit of pro rata dividend in respect of each contributor’s account

which is not open for the entire financial year commencing 1 September 2020 in accordance with rule 14, and

(c) subject to the approval of the Chief Executive, declare a supplementary dividend of HK$119.1 million out of the Reserve Fund which will be distributed as follows:

(i) a credit of 0.15% in respect of each contributor’s account which is open for the entire financial year commencing 1 September 2020 as the supplementary dividend in accordance with rule 12(5), and

(ii) a credit of pro rata dividend in respect of each contributor’s account

which is not open for the entire financial year commencing 1 September 2020 in accordance with rule 14.

The above appropriations have been incorporated in the financial statements.

Total dividend for the year to be declared by the Board of Control amounts to 5.15%, comprising a 5% guaranteed dividend and a supplementary dividend of 0.15%.

5. ASSET COVER / RESERVE LEVEL - After the year’s dividend

After provision for the total dividend of 5.15% for the year, the asset cover of the Fund stood at 1.32 times and the level of reserve at 32.36% as follows:

Net Assets (a) 111,534.9

Less: Contributors’ Account (after the year’s dividend):

Contributors’ Account 80,114.5

Provision for the year’s dividend 4,149.9 (b) 84,264.4

Reserve (c) 27,270.5

Asset Cover (a)/(b) 1.32 times (2020: 1.22 times)

Reserve Level (c)/(b) 32.36% (2020: 22.47%)

6. INVESTMENT OBJECTIVE AND CRITERIA

The Fund’s investment objective is to maximise the recurrent and capital returns on the Fund assets and at the same time observe the principle of prudence.

The Fund is governed by an investment framework approved by the Financial Secretary. The framework sets down broad limits for various classes of investment and defines the quality or credit rating of individual types of securities permitted for investment. All investment decisions of the Fund are made within this framework.

7. INVESTMENT RESPONSIBILITIES

Each year the Board of Control approves an annual investment plan consistent with the Fund’s investment objective. The investment performance of the Fund is then monitored through the Investment Sub-committee which meets on a quarterly basis to review investment reports prepared by the Treasurer and to interview the Fund’s external investment managers.

Investment of funds is the responsibilities of the Treasurer and the Fund’s external investment managers. The Treasurer has the additional responsibility of providing investment guidelines to the investment managers and, with the assistance of the custodians, ensuring that their activities are in compliance with these guidelines.

8. INVESTMENTS

As at 31 August 2021, the Fund’s investment portfolios amounted to HK$111,207.4 million of which HK$91,428.3 million or 82.21% was placed under the management of external investment managers. The distribution of the investments in proportion terms was as follows:

Investments

Managed by Treasurer

Managed by Investment

Managers Overall

% % %

Equity securities listed in Hong Kong － 17.23 17.23

Debt securities denominated in Hong Kong

dollar － 8.82 8.82

Hong Kong dollar fixed deposits 16.14 0.01 16.15

Equity securities listed outside Hong Kong － 39.33 39.33 Debt securities denominated in currencies

other than Hong Kong dollar － 16.07 16.07

Fixed deposits denominated in currencies

other than Hong Kong dollar 1.65 － 1.65

Call deposits and balances with custodians denominated in currencies other than

Hong Kong dollar － 0.74 0.74

Derivative financial instruments

- assets － 0.03 0.03

- liabilities － (0.02) (0.02)

17.79 82.21 100.00

The Fund’s external investment managers were as follows:

Baillie Gifford Overseas Limited BOCHK Asset Management Limited BlackRock Financial Management, Inc.

First Sentier Investors (Hong Kong) Limited

HSBC Global Asset Management (Hong Kong) Limited MFS International (U.K.) Limited

Northern Trust Global Investments Limited

Schroder Investment Management (Hong Kong) Limited State Street Global Advisors Asia Limited

Wellington Management Company LLP

The ten single largest securities holdings in the Fund’s investment portfolios were:

Equities

Tencent Holdings Limited 1,813.8

Alibaba Group Holding Limited 1,737.5

AIA Group Limited 1,156.9

HSBC Holdings plc 977.2

Microsoft Corporation 960.2

Meituan 877.0

Amazon.com, Inc. 837.2

Hong Kong Exchanges and Clearing Limited 699.7

China Construction Bank Corporation 573.0

Thermo Fisher Scientific Inc. 554.0

9. AUDITED FINANCIAL STATEMENTS

The financial statements of the Fund for the year ended 31 August 2021 have been audited by the Director of Audit. The audited financial statements together with the auditor’s report will be placed before the Board of Control at the annual general meeting to be held on 14 February 2022.

LEE Kwan, Vivian Treasurer

Subsidized Schools Provident Fund 13 January 2022

S UB S IDI Z E D S CHO O L S P ROVI DE NT F UN D

37,995

38,447

38,928 38,492 30,000

31,000

32,000

33,000

34,000

35,000

36,000

37,000

38,000

39,000

40,000 2012201320142015201620172018201920202021

Nu m b er of Con tr ib u tor s as at 31 Au gu st 2012 to 2021

S UB S IDI Z E D S CHO O L S P ROVI DE NT F UN D

6.64

10.41 -3.03

6.84

12.74 6.64 1.60

11.99

13.22 -505

10

15 2012201320142015201620172018201920202021

Dividend declared Investment Return

D ivi d en d D ec lar ed an d I n ve st m en t R et u rn

Year Ended31 August

S UB S IDI Z E D S CHO O L S P ROVI DE NT F UN D

74,144

83,956

89,323 90,261

100,672

111,535 10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000

60,000

65,000

70,000

75,000

80,000

85,000

90,000

95,000

100,000

105,000

110,000

115,000

120,000 2012201320142015201620172018201920202021

N et A ss et s as at 31 A u gu st 2012 to 2021

SUBSIDIZED SCHOOLS PROVIDENT FUND Spread of Net Assets as at 31 August 2021

Equity securities listed in Hong Kong HK$19,157 million (17.18%) (2020: 18.37%)

Equity securities listed outside Hong Kong HK$43,741 million (39.22%) (2020: 38.87%) TOTAL: HK$111,535 million

(2020: HK$100,672 million)

- 20 -

Debt securities denominated in currencies other than

Hong Kong dollar HK$17,871 million (16.02%) (2020: 17.68%) Debt securities denominated

in Hong Kong dollar HK$9,811 million (8.80%) (2020: 9.50%)

Deposits denominated in currencies other than Hong Kong dollar HK$2,658 million (2.38%) (2020: 6.37%) Hong Kong dollar deposits,

net derivative financial instruments and net accounts receivable HK$18,297 million (16.40%) (2020: 9.21%)

Report of the Director of Audit

- 21 -

Independent Auditor’s Report

To the Board of Control, Subsidized Schools Provident Fund

Opinion

I certify that I have audited the financial statements of the Subsidized Schools Provident Fund set out on pages 24 to 45, which comprise the balance sheet as at 31 August 2021, and the income and expenditure account, reserve fund, statement of changes in net assets available for benefits and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In my opinion, the financial statements of the Subsidized Schools Provident Fund are prepared, in all material respects, in accordance with rule 16(1) of the Subsidized Schools Provident Fund Rules made under section 85 of the Education Ordinance (Cap.

279) and the accounting policies set out in note 2 to the financial statements.

Basis for opinion

I conducted my audit in accordance with rule 16(2) of the Subsidized Schools Provident Fund Rules and the Audit Commission auditing standards. My responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of my report. I am independent of the Subsidized Schools Provident Fund in accordance with those standards, and I have fulfilled my other ethical responsibilities in accordance with those standards. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion.

Responsibilities of the Treasurer, Subsidized Schools Provident Fund for the financial statements

The Treasurer, Subsidized Schools Provident Fund is responsible for the preparation of the financial statements in accordance with rule 16(1) of the Subsidized Schools Provident Fund Rules and the accounting policies set out in note 2 to the financial statements, and for such internal control as the Treasurer, Subsidized Schools Provident Fund determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the Treasurer, Subsidized Schools Provident Fund is responsible for assessing in conjunction with the Board of Control, Subsidized Schools Provident Fund the ability of the Subsidized Schools Provident Fund to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting.

Auditor’s responsibilities for the audit of the financial statements

My objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes my opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Audit Commission auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with the Audit Commission auditing standards, I exercise professional judgment and maintain professional skepticism throughout the audit. I also:

— identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for my opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;

- 23 -

— obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Subsidized Schools Provident Fund’s internal control;

— evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Treasurer, Subsidized Schools Provident Fund; and

— conclude on the appropriateness of the Treasurer, Subsidized Schools Provident Fund’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Subsidized Schools Provident Fund’s ability to continue as a going concern. If I conclude that a material uncertainty exists, I am required to draw attention in my auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify my opinion. My conclusions are based on the audit evidence obtained up to the date of my auditor’s report. However, future events or conditions may cause the Subsidized Schools Provident Fund to cease to continue as a going concern.

John Chu Audit Commission

Director of Audit 6th Floor, High Block

Queensway Government Offices 66 Queensway

13 January 2022 Hong Kong

SUBSIDIZED SCHOOLS PROVIDENT FUND BALANCE SHEET

AS AT 31 AUGUST 2021

(Expressed in millions of Hong Kong dollars)

Note 2021 2020

ASSETS

Cash at banks 227.4 260.7

Investments:

Deposits with banks and other

financial institutions 3 20,607.8 15,419.0

Securities 4 90,579.4 84,982.7

Derivative financial instruments 5 36.9 33.8

Receivables and other assets 6 596.1 511.2

LIABILITIES

Derivative financial instruments 5 (16.7) (82.9)

Payables and other liabilities 7 (496.0) (452.9)

NET ASSETS AVAILABLE FOR BENEFITS 111,534.9 100,671.6

Representing:

Contributors’ account 8 80,114.5 78,289.9

Reserve fund 9 27,270.5 18,467.7

Provision for guaranteed dividend 10 4,030.8 3,914.0

Provision for supplementary dividend 11 119.1 －

111,534.9 100,671.6

The notes on pages 29 to 45 form part of these financial statements.

LEE Kwan, Vivian LAU Chun-hung

Treasurer Chairman

Board of Control Subsidized Schools Provident Fund

13 January 2022

- 25 -

SUBSIDIZED SCHOOLS PROVIDENT FUND INCOME AND EXPENDITURE ACCOUNT

FOR THE YEAR ENDED 31 AUGUST 2021

(Expressed in millions of Hong Kong dollars)

Note 2021 2020

INCOME

Interest income 12 663.0 899.6

Dividend income 13 982.2 1,034.3

1,645.2 1,933.9

EXPENDITURE

Supervision fee 14 (22.4) (23.5)

Fees for investment managers (152.0) (131.9)

Fees for custodians (17.9) (16.2)

Investment transaction costs (25.9) (13.6)

Other operating expenses (1.5) (1.5)

(219.7) (186.7)

OPERATING SURPLUS FOR THE YEAR 1,425.5 1,747.2

PROPOSED APPROPRIATION FROM

RESERVE FUND 16 2,605.3 2,166.8

PROVISION FOR GUARANTEED DIVIDEND 10 (4,030.8) (3,914.0)

BALANCE AT THE END OF THE YEAR － －

The notes on pages 29 to 45 form part of these financial statements.

.

SUBSIDIZED SCHOOLS PROVIDENT FUND RESERVE FUND

FOR THE YEAR ENDED 31 AUGUST 2021

(Expressed in millions of Hong Kong dollars)

Note 2021 2020

Donations and dividends transferred from

contributors’ account 15 28.7 20.9

Net realised and revaluation gains/(losses) on:

－ securities 11,436.7 8,987.3

－ derivative financial instruments 59.2 (70.4)

－ cash and deposits with banks and other

financial institutions 2.5 (71.3)

11,498.4 8,845.6

Proposed appropriation to income and

expenditure account 16 (2,605.3) (2,166.8)

Dividends over/(under)-provided in previous year 0.1 (0.1)

8,921.9 6,699.6

Balance brought forward from previous year 18,467.7 11,768.1

PROVISION FOR SUPPLEMENTARY

DIVIDEND 11 (119.1) －

BALANCE CARRIED FORWARD 27,270.5 18,467.7

The notes on pages 29 to 45 form part of these financial statements.

- 27 -

SUBSIDIZED SCHOOLS PROVIDENT FUND

STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS FOR THE YEAR ENDED 31 AUGUST 2021

(Expressed in millions of Hong Kong dollars)

Note 2021 2020

OPERATING SURPLUS FOR THE YEAR 1,425.5 1,747.2

Net realised and revaluation gains 11,498.4 8,845.6

Contributions from contributors 8 1,443.4 1,465.9

Donations from the Government and

Direct Subsidy Scheme schools 8 3,307.5 3,377.9

Net transfers to Grant Schools Provident Fund 8 (15.4) (2.4)

Withdrawals by ex-contributors 8 (6,796.1) (5,023.1)

CHANGES IN NET ASSETS AVAILABLE

FOR BENEFITS 10,863.3 10,411.1

NET ASSETS AVAILABLE FOR BENEFITS

AT THE BEGINNING OF THE YEAR 100,671.6 90,260.5

NET ASSETS AVAILABLE FOR BENEFITS

AT THE END OF THE YEAR 111,534.9 100,671.6

The notes on pages 29 to 45 form part of these financial statements.

SUBSIDIZED SCHOOLS PROVIDENT FUND STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 AUGUST 2021

(Expressed in millions of Hong Kong dollars)

Note 2021 2020

Cash flows from operating activities

Operating surplus for the year 1,425.5 1,747.2

Interest income 12 (663.0) (899.6)

Dividend income 13 (982.2) (1,034.3)

Net realised and revaluation gains 11,498.4 8,845.6

Increase in investments in securities (5,596.7) (7,633.3)

Increase in investments in fixed deposits

with original maturities beyond three months (3,879.5) (2,871.8)

Change in derivative financial instruments (69.3) 51.7

Increase in receivables and other assets (199.6) (7.9)

Increase in payables and other liabilities 31.9 15.0

Elimination of foreign exchange differences in

revaluation of cash and cash equivalents (3.3) (1.1)

Interest received 786.3 922.6

Dividends received 973.6 1,066.5

Net cash from operating activities 3,322.1 200.6

Cash flows from financing activities

Contributions from contributors 1,443.4 1,465.9

Donations from the Government and Direct Subsidy

Scheme schools 3,307.5 3,377.9

Net transfers to Grant Schools Provident Fund (15.4) (2.4)

Withdrawals by ex-contributors (6,784.9) (5,012.6)

Net cash used in financing activities (2,049.4) (171.2)

Net increase in cash and cash equivalents 1,272.7 29.4

Cash and cash equivalents at the beginning of the year 867.7 837.2 Effects of exchange rate changes on cash and cash equivalents 3.3 1.1 Cash and cash equivalents at the end of the year 17 2,143.7 867.7

The notes on pages 29 to 45 form part of these financial statements.

- 29 -

SUBSIDIZED SCHOOLS PROVIDENT FUND NOTES TO THE FINANCIAL STATEMENTS

(Amounts expressed in millions of Hong Kong dollars, unless otherwise stated.)

1. LEGISLATION

The Subsidized Schools Provident Fund (the Fund) is a retirement scheme governed by the Subsidized Schools Provident Fund Rules (Fund Rules) made under section 85 of the Education Ordinance (Cap. 279).

2. SIGNIFICANT ACCOUNTING POLICIES (a) Financial reporting framework

The Fund has adopted a financial reporting framework incorporating the requirements of the Fund Rules and applicable requirements of Hong Kong Financial Reporting Standards (HKFRSs), which is a collective term that includes all applicable individual HKFRSs, Hong Kong Accounting Standards and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (HKICPA). A summary of the significant accounting policies adopted by the Fund is set out below.

The HKICPA has issued certain new or revised HKFRSs that are first effective or available for early adoption for the current accounting period of the Fund. Note 2(c) provides information on the changes, if any, in accounting policies resulting from initial application of these developments to the extent that they are relevant to the Fund for the current and prior accounting periods reflected in these financial statements.

(b) Basis of preparation of the financial statements

The measurement basis used in the preparation of the financial statements is historical cost except that equity and debt securities managed by the Fund’s external investment managers (note 18(a)) and derivative financial instruments are measured at fair value as explained in the accounting policies set out in note 2(d).

The preparation of financial statements in conformity with the financial reporting framework (note 2(a)) requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenditure. The estimates and associated assumptions are based on experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis.

Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

There are no critical accounting judgements involved in the application of the Fund’s accounting policies. There are also no key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities in the next year.

(c) Changes in accounting policies

The HKICPA has issued certain new or revised HKFRSs that are first effective for the current accounting period of the Fund. There have been no changes to the accounting policies applied in these financial statements for the years presented as a result of these developments.

The Fund has not applied any new standard or interpretation that is not yet effective for the current accounting period (note 20).

(d) Financial assets and financial liabilities (i) Initial recognition and measurement

The Fund recognises financial assets and financial liabilities on the date it becomes a party to the contractual provisions of the instrument. Regular way purchases and sales of financial instruments are recognised on trade date, the date on which the Fund commits to purchase or sell the instruments.

At initial recognition, financial assets and financial liabilities are measured at fair value plus or minus, in the case of a financial asset or financial liability not subsequently measured at fair value, transaction costs that are directly attributable to the acquisition of the financial assets or the issue of the financial liabilities. Transaction costs of financial instruments subsequently measured at fair value are expensed immediately at initial recognition.

(ii) Basis of recognition of gains or losses

The Fund has adopted the requirements of Fund Rule 11 to recognise revaluation gains or losses arising from changes in fair value and realised gains or losses on derecognition of financial instruments in the reserve fund (see note 2(d)(iii) and (v)). This is different from the accounting treatment required under HKFRS 9 where such gains or losses are recognised in the income and expenditure account.

(iii) Classification and subsequent measurement Financial instruments measured at fair value

These comprise equity and debt securities managed by the Fund’s external investment managers (note 18(a)), and derivative financial instruments. They are subsequently measured at fair value. In accordance with Fund Rules 11(1)(a)(iv) and 11(1)(b)(iii), changes in the fair value are recognised as revaluation gains or losses in the reserve fund in the period in which they arise.

- 31 -

Derivative financial instruments used by the Fund to manage its risks associated with foreign currency fluctuations do not qualify for hedge accounting. They are presented as assets when the fair value is positive and as liabilities when the fair value is negative.

Financial assets measured at amortised cost

These comprise cash at banks, deposits with banks and other financial institutions, and receivables and other assets. They are held for the collection of contractual cash flows which represent solely payments of principal and interest. They are subsequently measured at amortised cost using the effective interest method. The measurement of loss allowances for these financial assets is based on the expected credit loss model as described in note 2(d)(vii).

The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating and recognising the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial asset or financial liability to the gross carrying amount of the financial asset or to the amortised cost of the financial liability. When calculating the effective interest rate, the Fund estimates cash flows by considering all contractual terms of the financial instrument but does not consider the expected credit losses. The calculation includes all fees received or paid between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

Financial liabilities measured at amortised cost

These comprise payables and other liabilities. They are subsequently measured at amortised cost using the effective interest method.

The Fund reclassifies a financial asset when and only when it changes its business model for managing the assets. A financial liability is not reclassified.

(iv) Fair value measurement principles

The Fund measures equity and debt securities managed by the Fund’s external investment managers (note 18(a)) and derivative financial instruments at fair value at each reporting date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either (a) in the principal market for the asset or liability, or (b) in the absence of a principal market, in the most advantageous market for the asset or liability; and the Fund has access to these markets at the measurement date.

The fair value of an asset or a liability is measured with those assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their best economic interest.

The Fund uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

The Fund measures fair values using the following fair value hierarchy that reflects the significance of inputs used in making the measurements:

Level 1 – fair values are quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 – fair values are determined with inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3 – fair values of financial instruments are determined with inputs that

are not based on observable market data (unobservable inputs).

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Fund determines whether transfers between levels in the hierarchy should be reflected in the financial statements by re-assessing categorisation (based on the level of input that is most significant and relevant to the fair value measurement as a whole) at the reporting date.

(v) Derecognition

A financial asset is derecognised when the contractual rights to receive the cash flows from the financial asset expire, or where the financial asset together with substantially all the risks and rewards of ownership have been transferred.

A financial liability is derecognised when the obligation specified in the contract is discharged, cancelled or when it expires.

Realised gains and losses are recognised in the reserve fund on derecognition in accordance with Fund Rules 11(1)(a)(i) and 11(1)(b)(i).

(vi) Offsetting

Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet where there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the assets and settle the liabilities simultaneously.