Grant Schools Provident Fund
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Annual Report 2021
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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
FOREWORD
The Fund
The Grant Schools Provident Fund (The Fund) is governed by the Grant 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 grant 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 : nominated by the Grant Schools Council Vice-chairman : nominated by the Grant Schools Council
out of the 8 additional members Permanent Secretary for Education or his representative Director of Accounting Services or his representative Eight additional members :
(a) 2 nominated jointly by contributors who are members of the staff of Roman Catholic boys schools in Hong Kong,
(b) 2 nominated jointly by contributors who are members of the staff of Roman Catholic girls schools in Hong Kong,
(c) 2 nominated jointly by contributors who are members of the staff of the Diocesan Boys’ School, the Diocesan Girls’ School, St.
Paul’s Co-educational College, St. Paul’s College and St. Mark’s School,
(d) 1 nominated jointly by contributors who are members of the staff of Ying Wa College, Ying Wa Girls’ School and the Methodist College, and
(e) 1 nominated jointly by contributors who are members of the staff
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. Five 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.
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 6(1) of the Grant 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
GRANT SCHOOLS PROVIDENT FUND BOARD OF CONTROL
Back Row Front Row
(From Left to Right) (From Left to Right)
1. Ms CHOW Tze-sze, Cecilia 1. Ms WONG Pui-yi, Emily
2. Ms WONG Yuen-fan 2. Mr TONG Wun-sing
3. Mr NG Siu-wah, Jack 3. Ms CHEUNG Susanna Sau-lan, JP 4. Mr LAW Kan-chung, Kenneth 4. Ms LEE Kwan, Vivian (Treasurer) 5. Ms LEE Kam-ha, Melaine
6. Ms CHENG Kit-yee, Ivy
Not in the picture
1. Ms LAM Yuen-fan, Fanny 2. Mr LEUNG Wai-kit, Ricky
GRANT SCHOOLS PROVIDENT FUND BOARD OF CONTROL
1.9.2020 – 31.8.2021
Chairman
Mr CHENG Kwun-kit, Allan Ying Wa College
Vice-Chairman
Mr TONG Wun-sing La Salle College
Members
Mr AU Man-hin Diocesan Girls’ School
Ms LAM Yuen-fan, Fanny Heep Yunn School
Ms LEE Kam-ha, Melaine Maryknoll Convent School
Mr LEUNG Wai-kit, Ricky St. Mark’s School
Mr TSO Yan-chung, Mikel St. Mary’s Canossian College
Mr WAI Wing-yin, Eric Wah Yan College, Kowloon
Ms WONG Pui-yi, Emily Methodist College
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
GRANT SCHOOLS PROVIDENT FUND BOARD OF CONTROL
From 1.9.2021
Chairman
Mr TONG Wun-sing La Salle College
Vice-Chairman
Ms WONG Pui-yi, Emily Methodist College
Members
Ms CHOW Tze-sze, Cecilia Wah Yan College, Kowloon
Ms LAM Yuen-fan, Fanny Heep Yunn School
Mr LAW Kan-chung, Kenneth St. Francis’ Canossian College
Ms LEE Kam-ha, Melaine Maryknoll Convent School
Mr LEUNG Wai-kit, Ricky St. Mark’s School
Mr NG Siu-wah, Jack (From 23.9.2021)
Diocesan Girls’ School
Ms WONG Yuen-fan St. Joseph’s College
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
GRANT SCHOOLS PROVIDENT FUND INVESTMENT SUB-COMMITTEE
1.9.2020 – 31.8.2021
Chairman
Mr CHENG Kwun-kit, Allan Ying Wa College
Members
Mr TONG Wun-sing La Salle College
Mr TSO Yan-chung, Mikel St. Mary’s Canossian College
Ms WONG Pui-yi, Emily Methodist College
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
GRANT SCHOOLS PROVIDENT FUND INVESTMENT SUB-COMMITTEE
From 1.9.2021
Chairman
Mr TONG Wun-sing La Salle College
Members
Mr LAW Kan-chung, Kenneth St. Francis’ Canossian College
Ms WONG Pui-yi, Emily Methodist College
Ms WONG Yuen-fan St. Joseph’s College
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 10 February 2022, the Board of Control declared a guaranteed dividend of 5% for contributors for the year ended 31 August 2021.
Contributors’ Account
During the year, 53 new contributors joined the Fund and 75 withdrew from it. These figures include 17 transfers in from and 11 transfers out to the Subsidized Schools Provident Fund. The total number of contributors decreased by 22 or 1.89% to 1,141. The balance of the contributors’ account increased by HK$34.2 million or 1.01% to HK$3,404.2 million.
The service profile of contributors who withdrew from the Fund during the year was as follows:
2021 2020
Below 10 years 14% 24%
10 to 15 years 8% 6%
Above 15 years 78% 70%
Net Assets and Management Cost
As at 31 August 2021, the net assets of the Fund amounted to HK$4,460.0 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$11.5 million – equivalent to 0.26% of the Fund’s net assets.
Major Activities of the Board of Control
At the annual general meeting held on 20 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; and (b) the Fund’s supervision fee budget for the year.
Vote of Thanks
Mr CHENG Kwun-kit, Allan, Mr AU Man-hin, Mr TSO Yan-chung, Mikel and Mr WAI Wing-yin, Eric ceased to be members of the Board of Control 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) 3,404.2 3,370.0 +1.01%
Net Assets (b) 4,460.0 4,138.2 +7.78%
Management Cost
(as a percentage of net assets)
11.5 (0.26%)
9.7 (0.23%) Reserve Level at year end (%)
－ before the year’s dividend
[(b)-(a)]/(a) above 31.01 22.80
－ after the year’s dividend 24.76 16.94
Investment Return for the year (%) 11.50 8.48
Total Dividend Declared (%) 5.00 5.00
Number of Contributors 1,141 1,163 -1.89%
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
100.00% 100.00%
TONG Wun-sing Chairman Board of Control Grant Schools Provident Fund 10 February 2022
GRANT 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$455.9 million for the year as follows:
Operating surplus 57.1
Net realised and revaluation gains 398.8
Overall surplus 455.9
(ii) Investment Return
The overall surplus represented an investment return of 11.50% (2020:
overall surplus of 8.48%) 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 1.31 times, providing a reserve level of 31.01% as follows:
Net Assets (a) 4,460.0 Less: Contributors’ Account
(before the year’s dividend) (b) 3,404.2
Reserve (c) 1,055.8
Asset Cover (a)/(b) 1.31 times (2020 : 1.23 times)
Reserve Level (c)/(b) 31.01% (2020 : 22.80%)
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%.
The dividend formula comes up with a dividend rate of 3.57%. Since the calculated annual dividend is below 5%, the dividend for this year shall be the guaranteed 5%. The dividend calculation has been audited by the Director of Audit.
4. DECLARATION OF THE GUARANTEED DIVIDEND AND TRANSFER FROM THE RESERVE FUND
I recommend that the Board of Control:
(a) transfer a sum of HK$113.6 million from the Reserve Fund to the Income and Expenditure Account in accordance with rule 11(3) of the Grant Schools Provident Fund Rules, and
(b) declare a guaranteed dividend of HK$170.8 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.
The above appropriations have been incorporated in the financial statements.
5. ASSET COVER / RESERVE LEVEL - After the year’s dividend
After provision for the total dividend of 5% for the year, the asset cover of the Fund stood at 1.25 times and the level of reserve at 24.76% as follows:
Net Assets (a) 4,460.0
Less: Contributors’ Account (after the year’s dividend):
Contributors’ Account 3,404.2
Provision for the year’s dividend 170.8 (b) 3,575.0
Reserve (c) 885.0
Asset Cover (a)/(b) 1.25 times (2020: 1.17 times)
Reserve Level (c)/(b) 24.76% (2020: 16.94%)
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$4,446.4 million of which HK$3,536.5 million or 79.54% 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 － 16.58 16.58
Debt securities denominated in Hong
Kong dollar － 10.66 10.66
Hong Kong dollar fixed deposits 18.90 － 18.90
Equity securities listed outside Hong
Kong － 35.96 35.96
Debt securities denominated in currencies other than Hong Kong
dollar － 15.27 15.27
Fixed deposits denominated in currencies other than Hong Kong
dollar 1.56 － 1.56
Call deposits and balances with custodians denominated in currencies other than Hong Kong
dollar － 1.05 1.05
Derivative financial instruments
- assets － 0.03 0.03
- liabilities － (0.01) (0.01)
20.46 79.54 100.00
The Fund’s external investment managers were as follows:
First Sentier Investors (Hong Kong) Limited
Schroder Investment Management (Hong Kong) Limited State Street Global Advisors Asia Limited
The ten single largest securities holdings in the Fund’s investment portfolios were:
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 10 February 2022.
LEE Kwan, Vivian Treasurer
Grant Schools Provident Fund 13 January 2022
Equities
Alibaba Group Holding Limited 66.5
Tencent Holdings Limited 64.5
Apple Inc. 46.3
AIA Group Limited 46.1
Microsoft Corporation 44.3
HSBC Holdings plc 42.1
Meituan 31.7
Amazon.com, Inc. 29.9
Hong Kong Exchanges and Clearing Limited 29.7
Debt Securities
United States Treasury 2.500% 15/05/2024 24.2
G RA NT S CHO O L S P ROVI DE NT F UN D
1,276 1,219 1,188 1,178 1,167 1,1491,1691,170 1,163 1,141 1,000
1,050
1,100
1,150
1,200
1,250
1,300 2012201320142015201620172018201920202021
N u m b er of C on tr ib u tor s as at 31 A u gu st 20 12 to 20 21
umber YearG RA NT S CHO O L S P ROVI DE NT F UN D
5.005.005.005.005.005.005.005.005.005.00 2.106.57
10.95 -3.09
5.78
11.44 5.52 1.79
8.48
11.50 -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
% NOTE: Dividend declared is the dividendby way of a percentage of the account of each contributor as at 31 August of the relevant year as declared by the BoardYear Ended 31 August of Control. (Since 1998, pro rata dividendwill be credited to each contributor's account which is not open for the entire financial year.)
G RA NT S CHO O L S P ROVI DE NT F UN D
2,7532,853 3,166 3,0693,2323,6223,7883,837
4,138
4,460 0
200
400
600
800
,000
,200
,400
,600
,800
,000
,200
,400
,600
,800
,000
,200
,400
,600
,800
,000
,200
,400
,600
,800 2012201320142015201620172018201920202021
N et A ss et s as at 31 A u gu st 20 1 2 to 20 2 1
$ million YearSpread of Net Assets as at 31 August 2021
TOTAL: HK$4,460 million (2020: HK$4,138 million)
- 20 -
Equity securities listed outside Hong Kong HK$1,599 million (35.85%) (2020: 35.35%) Equity securities
listed in Hong Kong HK$737 million (16.53%) (2020: 17.69%)
Debt securities denominated in currencies other than Hong Kong dollar HK$679 million (15.22%) (2020: 17.86%)
Deposits denominated in currencies other than Hong Kong dollar HK$116 million (2.60%) (2020: 5.39%) Debt securities denominated
in Hong Kong dollar HK$474 million (10.63%) (2020: 10.15%)
Hong Kong dollar deposits, net derivative financial instruments and net accounts receivable HK$855 million (19.17%) (2020: 13.56%)
Report of the Director of Audit
Independent Auditor’s Report
To the Board of Control, Grant Schools Provident Fund
Opinion
I certify that I have audited the financial statements of the Grant Schools Provident Fund set out on pages 24 to 48, 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 Grant Schools Provident Fund are prepared, in all material respects, in accordance with rule 15(1) of the Grant 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 15(2) of the Grant 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 Grant 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, Grant Schools Provident Fund for the financial statements
The Treasurer, Grant Schools Provident Fund is responsible for the preparation of the financial statements in accordance with rule 15(1) of the Grant 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, Grant 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, Grant Schools Provident Fund is responsible for assessing in conjunction with the Board of Control, Grant Schools Provident Fund the ability of the Grant 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;
— 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 Grant 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, Grant Schools Provident Fund; and
— conclude on the appropriateness of the Treasurer, Grant 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 Grant 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 Grant 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
GRANT SCHOOLS PROVIDENT FUND BALANCE SHEET
AS AT 31 AUGUST 2021
(Expressed in thousands of Hong Kong dollars)
Note 2021 2020
ASSETS
Cash at banks 14,117 10,838
Investments:
Deposits with banks and other
financial institutions 3 956,560 775,250
Securities 4 3,489,295 3,354,355
Derivative financial instruments 5 1,185 958
Receivables and other assets 6 20,541 19,595
LIABILITIES
Derivative financial instruments 5 (636) (4,087)
Payables and other liabilities 7 (21,055) (18,677)
NET ASSETS AVAILABLE FOR BENEFITS 4,460,007 4,138,232
Representing:
Contributors’ account 8 3,404,173 3,370,046
Reserve fund 9 885,070 599,494
Provision for guaranteed dividend 10 170,764 168,692 4,460,007 4,138,232
The notes on pages 29 to 48 form part of these financial statements.
LEE Kwan, Vivian TONG Wun-sing
Treasurer Chairman
Board of Control Grant Schools Provident Fund
13 January 2022
GRANT SCHOOLS PROVIDENT FUND INCOME AND EXPENDITURE ACCOUNT
FOR THE YEAR ENDED 31 AUGUST 2021
(Expressed in thousands of Hong Kong dollars)
Note 2021 2020
INCOME
Interest income 11 24,023 37,645
Dividend income 12 44,603 45,628
68,626 83,273
EXPENDITURE
Supervision fee 13 (1,300) (1,413)
Fees for investment managers (5,299) (4,553)
Fees for custodians (3,416) (2,931)
Investment transaction costs (1,196) (611)
Other operating expenses (272) (226)
(11,483) (9,734) OPERATING SURPLUS FOR THE YEAR 57,143 73,539 PROPOSED APPROPRIATION FROM
RESERVE FUND 15 113,621 95,153
PROVISION FOR GUARANTEED DIVIDEND 10 (170,764) (168,692)
BALANCE AT THE END OF THE YEAR — —
The notes on pages 29 to 48 form part of these financial statements.
GRANT SCHOOLS PROVIDENT FUND RESERVE FUND
FOR THE YEAR ENDED 31 AUGUST 2021
(Expressed in thousands of Hong Kong dollars)
Note 2021 2020
Donations and dividends transferred from
contributors’ account 14 415 654
Net realised and revaluation gains/(losses) on:
－ securities 395,933 250,596
－ derivative financial instruments 3,009 (2,884)
－ cash and deposits with banks and other
financial institutions (167) (2,530)
398,775 245,182
Proposed appropriation to income and expenditure
account 15 (113,621) (95,153)
Dividends over-provided in previous year 7 —
285,576 150,683
Balance brought forward from previous year 599,494 448,811
BALANCE CARRIED FORWARD 885,070 599,494
The notes on pages 29 to 48 form part of these financial statements.
GRANT SCHOOLS PROVIDENT FUND
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS FOR THE YEAR ENDED 31 AUGUST 2021
(Expressed in thousands of Hong Kong dollars)
Note 2021 2020
OPERATING SURPLUS FOR THE YEAR 57,143 73,539
Net realised and revaluation gains 398,775 245,182
Contributions from contributors 8 49,303 50,777
Donations from the Government and
Direct Subsidy Scheme schools 8 121,598 126,495
Net transfers from
Subsidized Schools Provident Fund 8 15,351 2,361
Withdrawals by ex-contributors 8 (320,395) (196,818)
CHANGES IN NET ASSETS AVAILABLE
FOR BENEFITS 321,775 301,536
NET ASSETS AVAILABLE FOR BENEFITS
AT THE BEGINNING OF THE YEAR 4,138,232 3,836,696
NET ASSETS AVAILABLE FOR BENEFITS
AT THE END OF THE YEAR 4,460,007 4,138,232
The notes on pages 29 to 48 form part of these financial statements.
GRANT SCHOOLS PROVIDENT FUND STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 AUGUST 2021
(Expressed in thousands of Hong Kong dollars)
Note 2021 2020
Cash flows from operating activities
Operating surplus for the year 57,143 73,539
Interest income 11 (24,023) (37,645)
Dividend income 12 (44,603) (45,628)
Net realised and revaluation gains 398,775 245,182
Increase in investments in securities (134,940) (265,110)
Decrease/(Increase) in investments in fixed deposits
with original maturities beyond three months 47,034 (32,219) Change in derivative financial instruments (3,678) 2,790
Increase in receivables and other assets (6,297) (1,283)
Increase in payables and other liabilities 1,859 9,030 Elimination of foreign exchange differences in
revaluation of cash and cash equivalents (158) 29
Interest received 29,993 40,115
Dividends received 43,984 47,004
Net cash from operating activities 365,089 35,804
Cash flows from financing activities
Contributions from contributors 49,303 50,777
Donations from the Government and
Direct Subsidy Scheme schools 121,598 126,495
Net transfers from Subsidized Schools Provident Fund 15,351 2,361
Withdrawals by ex-contributors (319,876) (197,044)
Net cash used in financing activities (133,624) (17,411)
Net increase in cash and cash equivalents 231,465 18,393 Cash and cash equivalents at the beginning of the year 51,162 32,798 Effects of exchange rate changes on cash and cash
equivalents 158 (29)
Cash and cash equivalents at the end of the year 16 282,785 51,162
The notes on pages 29 to 48 form part of these financial statements.
GRANT SCHOOLS PROVIDENT FUND NOTES TO THE FINANCIAL STATEMENTS
(Amounts expressed in thousands of Hong Kong dollars, unless otherwise stated.)
1. LEGISLATION
The Grant Schools Provident Fund (the Fund) is a retirement scheme governed by the Grant 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 17(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
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 19).
(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 17(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.
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, debt securities measured at amortised cost, 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
(iv) Fair value measurement principles
The Fund measures equity and debt securities managed by the Fund’s external investment managers (note 17(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.
(vii) Impairment of financial assets
For financial assets measured at amortised cost, the Fund measures the expected credit losses to determine the loss allowance required to be recognised. Financial assets measured at fair value are not subject to the expected credit loss assessment.
Expected credit losses are a probability-weighted estimate of credit losses. They are based on the difference between the contractual cash flows due in accordance with the contract and the cash flows that the Fund expects to receive, discounted at the effective interest rate. They are measured on either of the following bases:
- 12-month expected credit losses (for financial instruments for which there has not been a significant increase in credit risk since initial recognition): these are losses that are expected to result from possible default events within the 12 months after the reporting date; and
- lifetime expected credit losses (for financial instruments for which there has been a significant increase in credit risk since initial recognition): these are losses that are expected to result from all possible default events over the expected life of the financial
In assessing whether the credit risk of a financial instrument has increased significantly since initial recognition, the Fund compares the risk of default occurring on the financial instrument assessed at the reporting date with that assessed at the date of initial recognition.
In making this assessment, the Fund considers that a default event occurs when (i) the borrower is unlikely to pay its credit obligations to the Fund in full; or (ii) the financial asset is 90 days past due.
The Fund considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.
(e) Cash and cash equivalents
For the purpose of the statement of cash flows, cash and cash equivalents include cash at banks, deposits with banks and other financial institutions and short-term highly liquid investments that are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value, having been within three months of maturity when placed or acquired.
(f) Contributions and donations
Contributions are received from contributors and donations are received from the Government and Direct Subsidy Scheme (DSS) schools.
Contributions and donations are recognised on an accrual basis.
(g) Revenue recognition (i) Interest income
Interest income is recognised in the income and expenditure account on an accrual basis, using the effective interest method.
(ii) Dividend income
Dividend income from equity securities is recognised in the income and expenditure account when the share price is quoted ex-dividend.
(h) Foreign currency translation
Foreign currency transactions during the year are translated into Hong Kong dollars using the spot exchange rates at the transaction dates.
Monetary assets and liabilities denominated in foreign currencies are translated into Hong Kong dollars at the closing exchange rates at the reporting date. In accordance with Fund Rules 11(1)(a)(iv) and 11(1)(b)(iii), all foreign currency translation differences are recognised as revaluation gains or losses in the reserve fund in the period in which they arise.
3. DEPOSITS WITH BANKS AND OTHER FINANCIAL INSTITUTIONS
2021 2020
Fixed deposits denominated in:
－ Hong Kong dollar 840,410 552,410
－ US dollar 69,452 182,516
Call deposits and balances with custodians
denominated in currencies other than
Hong Kong dollar:
－ US dollar 44,266 35,464
－ other currencies 2,432 4,860
956,560 775,250
4. SECURITIES (a) Details
2021 2020
Financial assets measured at fair value
Equity securities listed in Hong Kong 737,030 732,263 Equity securities listed outside Hong Kong 1,598,874 1,463,075 2,335,904 2,195,338
Debt securities denominated in:
－ Hong Kong dollar 474,194 419,901
－ US dollar 322,840 337,469
－ other currencies 356,357 355,432
1,153,391 1,112,802
Subtotal for financial assets measured at
fair value 3,489,295 3,308,140
Debt securities measured at amortised cost
Debt securities denominated in:
－ US dollar — 46,215
3,489,295 3,354,355
(b) Securities holdings exceeding 5% of the asset class as at 31 August
2021 2020
Fair % of Fair % of
Issuer Class value class value class
United States Treasury Debt securities 160,517 13.92% 158,210 13.65%
Government of Japan Debt securities 86,777 7.52% 87,022 7.51%
Government of the Hong Kong Special Administrative
Region Debt securities 64,674 5.61% 93,893 8.10%
5. DERIVATIVE FINANCIAL INSTRUMENTS
2021 2020
Assets Liabilities Assets Liabilities Forward currency
contracts, at fair value 1,185 636 958 4,087 All these forward currency contracts would mature within one year and had a total notional amount of HK$1,655.7 million as at 31 August 2021 (2020:
HK$1,712.7 million). The notional amounts of these contracts indicate the volume of outstanding transactions and do not represent the amounts at risk.
6. RECEIVABLES AND OTHER ASSETS
2021 2020
Proceeds receivable from investments sold 9,602 3,305
Interest and dividends receivable 10,939 16,290
20,541 19,595
7. PAYABLES AND OTHER LIABILITIES
2021 2020
Unsettled purchases of investments 17,129 15,328
Amount due to the Government of the Hong Kong
Special Administrative Region 1,300 1,413
Fees for investment managers 1,322 1,225
Amount due to ex-contributors 519 —
Fees for custodians 783 711
Other payables and accruals 2 —
21,055 18,677
All these liabilities are payable within one year.
8. CONTRIBUTORS’ ACCOUNT
2021
Contributions
Donations from the Government and DSS
schools Dividends Total
Additions for the year 49,303 121,598 168,685 339,586
Net transfers from Subsidized Schools
Provident Fund 2,719 6,147 6,485 15,351
Withdrawals by ex-contributors (44,084) (107,678) (168,633) (320,395)
Transfers to reserve fund in accordance
with Fund Rule 11(1)(a)(ii) — (357) (58) (415)
Net additions for the year 7,938 19,710 6,479 34,127
Balance brought forward from previous year 606,294 1,338,245 1,425,507 3,370,046
Balance carried forward 614,232 1,357,955 1,431,986 3,404,173
2020
Contributions
Donations from the Government and DSS
schools Dividends Total
Additions for the year 50,777 126,495 161,305 338,577
Net transfers from Subsidized
Schools Provident Fund 607 929 825 2,361
Withdrawals by ex-contributors (26,708) (63,430) (106,680) (196,818)
Transfers to reserve fund in accordance
with Fund Rule 11(1)(a)(ii) — (579) (75) (654)
Net additions for the year 24,676 63,415 55,375 143,466
Balance brought forward from previous year 581,618 1,274,830 1,370,132 3,226,580
Balance carried forward 606,294 1,338,245 1,425,507 3,370,046
Donations from DSS schools for the year amounted to HK$32.2 million (2020: HK$34.1 million).
An analysis of the withdrawals by ex-contributors is shown below:
2021 2020
Retirement 214,719 117,783
Resignation 105,087 79,013
Death and ill health — —
Others (such as contract termination and schools
ceasing to be grant schools or DSS schools) 589 22
320,395 196,818
9. RESERVE FUND
The reserve fund is maintained in accordance with Fund Rule 11.
10. PROVISION FOR GUARANTEED DIVIDEND
The amount represents the provision under Fund Rule 12 for the guaranteed dividend of 5% of the balance of the contributors’ account which was open for the entire financial year ended 31 August 2021 and Fund Rule 14 for payment of pro rata dividends in respect of contributors’ account which was not open for the entire financial year.
Fund Rule 12 provides that, where in any year the guaranteed dividend of 5%
cannot be met by the Fund, the Financial Secretary may direct that an interest-free Government loan be paid to the Fund out of the general revenue to cover the balance of the guaranteed dividend which cannot be met. No such Government loan had been paid to the Fund for the year ended 31 August 2021 (2020: Nil) as the shortfall between the guaranteed dividend and the operating surplus was met by a transfer from the reserve fund (see note 15).
11. INTEREST INCOME
2021 2020 Interest income from:
Debt securities measured at fair value 18,482 20,667 Debt securities measured at amortised cost 244 1,939
Deposits denominated in:
－ Hong Kong dollar 3,577 10,159
－ US dollar 1,720 4,879
－ other currencies — 1
5,297 15,039 24,023 37,645
