Subsidized Schools Provident Fund
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Annual Report 2015
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OTHER INFORMATION
Funds Section Education Bureau
Ms LAM Wing-hop, Sandy Senior Accounting Officer
Room 1517, 15/F Wu Chung House 213 Queen’s Road East
Wanchai Hong Kong
Secretary
Ms HON Hin-yan Education Officer
School Administration and Support Division Education Bureau
5/F, East Wing, Central Government Offices 2 Tim Mei Avenue
Tamar Hong Kong
Treasurer
Ms LEUNG Yin-fun, Fanny
Assistant Director of Accounting Services The Treasury
Room 2701, 27/F, Immigration Tower 7 Gloucester Road
Wanchai Hong Kong
Auditor
Mr David SUN, BBS, JP Director of Audit
26/F, Immigration Tower 7 Gloucester Road Wanchai
Hong Kong
CONTENTS PAGE
Foreword 1
Board of Control 4
Investment Sub-committee 7
Chairman’s Report 9
Treasurer’s Report 12
Number of Contributors (2006 – 2015) 18
Dividend Declared and Investment Return (2006 – 2015) 19
Net Assets (2006 – 2015) 20
Spread of Net Assets 21
Report of the Director of Audit 22
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 Subsidized Schools Provident Fund (The Fund) is governed by the Subsidized Schools Provident Fund Rules 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 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 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 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 5(4) of the Subsidized Schools Provident Fund Rules. The investment functions are the responsibility of the Board of Control who formulates the investment strategies of the Fund within the investment framework approved by the Financial Secretary. All sum considered by the Board to be surplus to the normal cash requirements of the Fund may at the direction of the Board be invested by the Treasurer as well as external investment managers who are appointed by the Board with the approval of the Financial Secretary.
An Investment Sub-committee is formed by the Board and meets every quarter 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 his 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 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 HON Hin-yan 1. Mr CHEUK Tak-kan, Paul
2. Mr FUNG Ka-chun, Chris 2. Mr CHEUNG Yung-pong
3. Mr FOK Lap-tak 3. Mr FUNG Suk-kai
4. Mr AU YEUNG Ka-keung 4. Mr CHOI Yu-lung, Henry
5. Ms TSANG Bik-har 5. Mr TAM Kim-hung
6. Mr HO Wing-chung 6. Mr SIU Man-tat, Martin
7. Mr CHAN Chi-yuen, Stanley 7. Ms LEUNG Yin-fun, Fanny (Treasurer)
8. Ms HO Kit-ying 8. Mr KWOK Man-leung
9. Mr WONG Kwan-bo, Remy
Not in the picture
1. Mr CHEUNG Fu-wing 2. Mr LAM Yat-fung
3. Mr LEUNG Tsz-wing, Dennis 4. Mr SHAO Yan-kit
5. Mr KWONG Yiu-chung
SUBSIDIZED SCHOOLS PROVIDENT FUND BOARD OF CONTROL
1.9.2014 – 31.8.2015
Chairman
Mr AU YEUNG Ka-keung CCC Rotary Secondary School SC
Vice-Chairman
Mr CHEUNG Fu-wing GCEPSA Whampoa Primary School EP
Members
Mr CHAN Chi-yuen, Stanley Po Leung Kuk Vicwood K.T. Chong No.2 Primary School
PC
Mr CHOI Yu-lung, Henry Cheung Sha Wan Catholic Secondary School ES
Ms DUNG Yi-ping CCC Chuen Yuen Second Primary School EP
Ms FUNG Pik-yee Aplichau Kaifong Primary School EP
Mr FUNG Suk-kai Catholic Mission School EP
Ms FUNG Yun-yee NG Yuk Secondary School ES
Ms HO Kit-ying PLK Lee Shing Pik College ES
Mr HO Wing-chung Laichikok Catholic Primary School PC
Mr KING Chi-yu Lutheran School for the Deaf ESP
Mr KWOK Man-leung Buddhist Yip Kei Nam Memorial College SC
Mr LEUNG Tak-yin QES Old Students’ Association Secondary School ES Mr LIU Ah-chuen Christian Alliance S W Chan Memorial College SC
Mr TAM Kim-hung True Light Girls’ College SC
Mr TAM Wai-kuen Tung Wan Mok Law Shui Wah School SP
Ms TSANG Bik-har PLK Wong Wing Shu Primary School PC
Ms WAI Ching-han Hong Kong and Macau Lutheran Church Primary School
PC
Ms Hanifa ISMAIL (Up to 21.9.2014)
Representative of Permanent Secretary for Education and Secretary to the Board
Ms HON Hin-yan (From 22.9.2014)
Representative of Permanent Secretary for Education and Secretary to the Board
Mr SIU Man-tat, Martin 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 BOARD OF CONTROL
From 1.9.2015
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 AU YEUNG Ka-keung CCC Rotary Secondary School SC
Mr CHAN Chi-yuen, Stanley Po Leung Kuk Vicwood K.T. Chong No.2 Primary School
PC
Mr CHEUK Tak-kan, Paul Tung Wan Mok Law Shui Wah School ESP
Mr CHEUNG Fu-wing GCEPSA Whampoa Primary School EP
Mr CHEUNG Yung-pong (Up to 17.12.2015)
SKH St James’ Primary School PC
Mr FOK Lap-tak Aplichau Kaifong Primary School EP
Mr FUNG Ka-chun, Chris HHCKLA Buddhist Wong Cho Sum School EP
Mr FUNG Suk-kai Catholic Mission School EP
Ms HO Kit-ying PLK Lee Shing Pik College ES
Mr HO Wing-chung Laichikok Catholic Primary School PC
Mr KWOK Man-leung Buddhist Yip Kei Nam Memorial College SC
Mr KWONG Yiu-chung (From 18.12.2015)
S.T.F.A. Wu Siu Kui Memorial Primary School PC
Mr LAM Yat-fung Lions College SC
Mr LEUNG Tsz-wing, Dennis SKH Lam Woo Memorial Secondary School ES
Mr SHAO Yan-kit Tsang Pik Shan Secondary School ES
Ms TSANG Bik-har PLK Wong Wing Shu Primary School PC
Mr WONG Kwan-bo, Remy Ebenezer New Hope School SP
Ms HON Hin-yan Representative of Permanent Secretary for Education and Secretary to the Board
Mr SIU Man-tat, Martin Director of Accounting Services
Note
PC Appointed by Subsidized Primary Schools Council
SC Appointed by Hong Kong Subsidized Secondary Schools Council
SUBSIDIZED SCHOOLS PROVIDENT FUND INVESTMENT SUB-COMMITTEE
1.9.2014 – 31.8.2015
Chairman
Mr TAM Kim-hung True Light Girls’ College
Members
Mr AU YEUNG Ka-keung CCC Rotary Secondary School
Mr CHAN Chi-yuen, Stanley Po Leung Kuk Vicwood K.T. Chong No.2 Primary School Mr CHEUNG Fu-wing GCEPSA Whampoa Primary School
Mr CHOI Yu-lung, Henry Cheung Sha Wan Catholic Secondary School
Mr FUNG Suk-kai Catholic Mission School
Ms HO Kit-ying PLK Lee Shing Pik College
Mr HO Wing-chung Laichikok Catholic Primary School Mr KING Chi-yu Lutheran School for the Deaf
Mr KWOK Man-leung Buddhist Yip Kei Nam Memorial College Mr LIU Ah-chuen Christian Alliance S W Chan Memorial College Mr TAM Wai-kuen Tung Wan Mok Law Shui Wah School
Ms TSANG Bik-har PLK Wong Wing Shu Primary School
Ms WAI Ching-han Hong Kong and Macau Lutheran Church Primary School Mr SIU Man-tat, Martin Director of Accounting Services
Treasurer Mr Kenneth SIU (Up to 7.6.2015)
Assistant Director of Accounting Services
Ms LEUNG Yin-fun, Fanny (From 8.6.2015)
Assistant Director of Accounting Services
Secretary Mr Wesley PAN (Up to 20.8.2015)
Treasury Accountant
Ms KAI Man-man, Stella (From 21.8.2015)
Treasury Accountant
SUBSIDIZED SCHOOLS PROVIDENT FUND INVESTMENT SUB-COMMITTEE
From 1.9.2015
Chairman
Mr KWOK Man-leung Buddhist Yip Kei Nam Memorial College
Members
Mr AU YEUNG Ka-keung CCC Rotary Secondary School
Mr CHAN Chi-yuen, Stanley Po Leung Kuk Vicwood K.T. Chong No.2 Primary School Mr CHEUK Tak-kan, Paul Tung Wan Mok Law Shui Wah School
Mr CHEUNG Fu-wing GCEPSA Whampoa Primary School Mr CHEUNG Yung-pong
(Up to 17.12.2015)
SKH St James’ Primary School
Mr CHOI Yu-lung, Henry Cheung Sha Wan Catholic Secondary School Mr FOK Lap-tak Aplichau Kaifong Primary School
Mr FUNG Ka-chun, Chris HHCKLA Buddhist Wong Cho Sum School
Mr FUNG Suk-kai Catholic Mission School
Ms HO Kit-ying PLK Lee Shing Pik College
Mr HO Wing-chung Laichikok Catholic Primary School Mr KWONG Yiu-chung
(From 18.12.2015)
S.T.F.A. Wu Siu Kui Memorial Primary School
Mr LAM Yat-fung Lions College
Mr LEUNG Tsz-wing, Dennis SKH Lam Woo Memorial Secondary School Mr SHAO Yan-kit Tsang Pik Shan Secondary School
Mr TAM Kim-hung True Light Girls’ College
Ms TSANG Bik-har PLK Wong Wing Shu Primary School Mr WONG Kwan-bo, Remy Ebenezer New Hope School
Mr SIU Man-tat, Martin Director of Accounting Services
Treasurer
Ms LEUNG Yin-fun, Fanny Assistant Director of Accounting Services
Secretary
Ms KAI Man-man, Stella 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 27 February 2016, the Board of Control (BoC) declared a guaranteed dividend of 5% for contributors for the year ended 31 August 2015.
Contributors’ Account
During the year, 1,654 new contributors joined the Fund and 1,595 withdrew from it.
These figures include 16 transfers in from and 23 transfers out to the Grant Schools Provident Fund. The total number of contributors increased by 59 or 0.16% to 36,444. The balance of the contributors’ account increased by HK$3,171.9 million or 5.42% to HK$61,661.1 million. The service profile of contributors who withdrew from the Fund during the year was as follows:
2015 2014
Below 10 years 38% 36%
10 to 15 years 11% 14%
Above 15 years 51% 50%
Net Assets and Management Cost
As at 31 August 2015, the net assets of the Fund amounted to HK$69,535.2 million.
The cost of managing the Fund by way of supervision fee paid to Government, fees of investment managers, fees of custodians and investment transaction costs was HK$154.1 million － equivalent to 0.22% of the Fund’s net assets.
Major Activities of the Board of Control
At the annual general meeting held on 12 February 2015, the BoC adopted the annual statement of accounts of the Fund and declared a dividend of 5% for the year ended 31 August 2014.
The BoC also approved the following matters during the year ended 31 August 2015:
(a) the Fund’s investment plan for the year;
(b) the Fund’s supervision fee budget for the year; and
(c) seeking approval from the Financial Secretary for the novation request of an existing overseas bond investment manager.
Vote of Thanks
During the year, Ms DUNG Yi-ping, Ms FUNG Pik-yee, Ms FUNG Yun-yee, Mr KING Chi-yu, Mr LEUNG Tak-yin, Mr LIU Ah-chuen, Mr TAM Wai-kuen, Ms WAI Ching-han and Ms Hanifa ISMAIL ceased to be members of the BoC. On behalf of the BoC, I thank them for their invaluable contributions to the work of the BoC in the past year.
Financial Highlights for the year ended 31 August 2015
2015 2014 Changes
Contributors’ Account (a) 61,661.1 58,489.2 +5.42%
Net Assets (b) 69,535.2 71,394.7 -2.60%
Management Cost
(as a percentage of net assets)
154.1 (0.22%)
135.8 (0.19%) Reserve Level at year end (%)
－ before the year’s dividend [(b)-(a)]/(a) above
12.77 22.06
－ after the year’s dividend 7.41 16.26
Investment Return for the year (%) -3.03 10.41
Total Dividend Declared (%) 5.00 5.00
Number of Contributors 36,444 36,385 +0.16%
Performance Indicator
2015 2014
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
99.93% 99.52%
TAM Kim-hung Chairman Board of Control
Subsidized Schools Provident Fund
27 February 2016
SUBSIDIZED SCHOOLS PROVIDENT FUND
TREASURER’S REPORT FOR THE YEAR ENDED 31 AUGUST 2015 (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 Deficit
The Fund recorded an overall deficit of HK$2,134.2 million for the year as follows:
Operating surplus 1,459.1
Net realised and revaluation losses (3,593.3)
Overall deficit (2,134.2)
(ii) Investment Return
The overall deficit represented an investment return of -3.03%
(2014: overall surplus of 10.41%) 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 1.13 times, providing a reserve level of 12.77% as follows:
Net Assets (a) 69,535.2 Less : Contributors’ Account (b) 61,661.1
(before the year’s dividend)
Reserve (c) 7,874.1
Asset Cover (a)/(b) 1.13 times (2014: 1.22 times) Reserve Level (c)/(b) 12.77% (2014: 22.06%)
3. DIVIDEND CALCULATION FOR THE YEAR
The Board 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 -0.39%. 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:
(a) transfer a sum of HK$1,620.2 million from the Reserve Fund to the Income and Expenditure Account in accordance with rule 11(3) of the Subsidized Schools Provident Fund Rules, and
(b) declare a guaranteed dividend of HK$3,079.3 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 2014 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 2014 in accordance with rule 14.
The above appropriations have been incorporated in the financial statements.
5. DIVIDEND YIELD
Based on the average size of the contributors’ accounts during the year, the total dividend of 5% represents a dividend yield to contributors of 5.13% (2014:
5.11%).
6. 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 1.07 times and the level of reserve at 7.41% as follows:
Net Assets (a) 69,535.2
Less:
Contributors’ Account (after the year’s dividend):
Contributors’ Account 61,661.1
Provision for the year’s dividend 3,079.3 (b) 64,740.4
Reserve (c) 4,794.8
Asset Cover (a)/(b) 1.07 times (2014: 1.16 times) Reserve Level (c)/(b) 7.41% (2014: 16.26%)
7. 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.
8. 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.
9. INVESTMENTS
As at 31 August 2015, the Fund’s investment portfolios amounted to HK$68,815.5 million of which HK$60,131.2 million or 87.38% 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 － 18.47 18.47 Debt securities denominated in Hong
Kong dollar
－ 10.97 10.97
Hong Kong dollar fixed deposits 6.77 － 6.77 Equity securities listed outside Hong
Kong
－ 33.33 33.33
Debt securities denominated in currencies other than Hong Kong dollar
－ 24.18 24.18
Fixed deposits denominated in currencies other than Hong Kong dollar
5.84 0.08 5.92
Call deposits and balances with
custodians denominated in currencies other than Hong Kong dollar
0.01 0.30 0.31
Trading financial instruments
- assets － 0.09 0.09
- liabilities － (0.04) (0.04)
12.62 87.38 100.00
The Fund’s external investment managers were as follows:
Baillie Gifford Overseas Limited BOCHK Asset Management Limited BlackRock Financial Management, Inc First State Investments (Hong Kong) Limited Hang Seng Investment Management 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
The ten single largest securities holdings in the Fund’s investment portfolios were:
Equities
HSBC Holdings plc 1,282.0
Tencent Holdings Limited 878.2
AIA Group Limited 667.1
China Mobile Limited 653.3
China Construction Bank Corporation Limited 606.4
Industrial and Commercial Bank of China Limited 499.0
Apple Inc. 435.2
CK Hutchison Holdings Limited 367.4
Bank of China Limited 311.7
Nestlé S.A. 309.4
10. AUDITED FINANCIAL STATEMENTS
The financial statements of the Fund for the year ended 31 August 2015 have been audited by the Director of Audit. The audited financial statements together with the auditor’s report will be placed before the Board at the annual general meeting to be held on 19 February 2016.
LEUNG Yin-fun, Fanny Treasurer
Subsidized Schools Provident Fund 5 February 2016
S UB S IDI Z E D S CH O O L S P RO VI DE NT F UND
36,03736,738 36,955 36,884 36,709 36,470 36,601 36,424 36,385 36,444 0,000
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
0,000 2006200720082009201020112012201320142015
N u m b er of C on tr ib u tor s as at 31 A u gu st 2006 to 2015
umber YearS UB S IDI Z E D S CH O O L S P RO VI DE NT F UND
6.9120.92 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00
10.22
18.11 -4.38 -5.00
5.56 6.86 2.26
6.64
10.41 -3.03 -10-505
10
15
20
25 2006200720082009201020112012201320142015
Dividend declared Investment Return
D iv id en d D ec la re d a n d I n v es tm en t R et u rn
% NOTE: Dividend declared is the dividend by way of a percentage of the account of each contributor as at 31 August of the relevant year as declared by the Board of Control. (With effect from 1998, pro rata dividend will be credited to each contributor's account which is not open for the entire financial year.)Year Ended31 August
S UB S IDI Z E D S CH O O L S P RO VI DE NT F UND
51,96360,456 56,748 53,711
56,409
59,82761,440
64,675
71,395 69,535 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 2006200720082009201020112012201320142015
N et A sse ts a s a t 3 1 A u g u st 2006 to 2015
HK$ million YearS U BS ID IZED S C H O O LS P R O V ID E NT F U ND S p r e a d o f Ne t As se ts a s a t 3 1 A u g u st 2 0 1 5
Equity securities listed in Hong Kong HK$12,713 million (18.28%) (2014: 17.76%) Debt securities denominated in Hong Kong dollar HK$7,547 million (10.86%) (2014: 10.03%) Hong Kong dollar deposits, net trading financial instruments and net accounts receivable HK$5,417 million (7.79%) (2014: 9.13%) Equity securities listed outside Hong Kong HK$22,935 million (32.98%) (2014: 31.90%) Depositsdenominated in currencies other than Hong Kong dollar HK$4,288 million (6.17%) (2014: 14.29%) Debt securities denominated in currencies other than Hong Kong dollar HK$16,635 million (23.92%) (2014: 16.89%)TOTAL:HK$69,535 million (2014: HK$71,395 million)
Report of the Director of Audit
Independent Audit Report
To the Board of Control, Subsidized Schools Provident Fund
I certify that I have audited the financial statements of the Subsidized Schools Provident Fund set out on pages 24 to 47, which comprise the balance sheet as at 31 August 2015, 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 a summary of significant accounting policies and other explanatory information.
Treasurer, Subsidized Schools Provident Fund’s Responsibility for the Financial Statements
The Treasurer, Subsidized Schools Provident Fund is responsible for the preparation of these financial statements 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, 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.
Auditor’s Responsibility
My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with rule 16(2) of the Subsidized Schools Provident Fund Rules and the Audit Commission auditing standards. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation of the financial statements 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 entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Treasurer, Subsidized Schools Provident Fund, as well as evaluating the overall presentation of the financial statements.
I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.
Opinion
In my opinion, the financial statements of the Subsidized Schools Provident Fund for the year ended 31 August 2015 are prepared, in all material respects, 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.
David Sun Audit Commission
Director of Audit 26th Floor
Immigration Tower 7 Gloucester Road
5 February 2016 Wanchai, Hong Kong
SUBSIDIZED SCHOOLS PROVIDENT FUND
BALANCE SHEET AS AT 31 AUGUST 2015
(Expressed in millions of Hong Kong dollars)
2015 2014
Note
ASSETS
Cash at banks 482.3 218.6
Investments:
Deposits with banks and other 4 8,949.1 16,266.7
financial institutions
Securities 5 59,830.0 54,674.6
Trading financial instruments 6 62.2 35.3
Receivables and other assets 7 494.2 394.1
LIABILITIES
Trading financial instruments 6 (25.8) (6.1)
Payables and other liabilities 8 (256.8) (188.5)
NET ASSETS AVAILABLE FOR BENEFITS 69,535.2 71,394.7
Representing:
Contributors’ account 9 61,661.1 58,489.2
Reserve fund 10 4,794.8 9,987.6
Provision for guaranteed dividend 11 3,079.3 2,917.9
69,535.2 71,394.7
The notes on pages 29 to 47 form part of these financial statements.
LEUNG Yin-fun, Fanny TAM Kim-hung
Treasurer Chairman
Board of Control
SUBSIDIZED SCHOOLS PROVIDENT FUND
INCOME AND EXPENDITURE ACCOUNT FOR THE YEAR ENDED 31 AUGUST 2015
(Expressed in millions of Hong Kong dollars)
2015 2014
Note
INCOME
Interest income 12 755.8 825.6
Dividend income 13 857.4 824.8
Other income 14 － 93.7
1,613.2 1,744.1
EXPENDITURE
Supervision fee 15 (18.0) (17.1)
Fees for investment managers (106.0) (92.8)
Fees for custodians (13.7) (13.1)
Investment transaction costs (15.7) (12.6)
Other operating expenses (0.7) (0.2)
(154.1) (135.8)
OPERATING SURPLUS FOR THE YEAR 1,459.1 1,608.3
PROPOSED APPROPRIATION FROM 18 1,620.2 1,309.6
RESERVE FUND
PROVISION FOR GUARANTEED DIVIDEND 11 (3,079.3) (2,917.9)
BALANCE AT THE END OF THE YEAR － －
The notes on pages 29 to 47 form part of these financial statements.
SUBSIDIZED SCHOOLS PROVIDENT FUND
RESERVE FUND FOR THE YEAR ENDED 31 AUGUST 2015
(Expressed in millions of Hong Kong dollars)
2015 2014
Note
Unclaimed contributors’ account balance 16 0.9 1.1
Donations and dividends transferred from 17 19.2 23.4
contributors’ account
Net realised and revaluation (losses)/gains on:
- securities (3,827.3) 5,062.4
- trading financial instruments 560.4 (12.8)
- cash and deposits with banks and other (326.4) (30.6)
financial institutions
(3,593.3) 5,019.0
Proposed appropriation to income and 18 (1,620.2) (1,309.6)
expenditure account
Dividends over/(under)-provided in previous year 0.6 (2.6)
(5,192.8) 3,731.3
Balance brought forward from previous year 9,987.6 6,256.3
BALANCE CARRIED FORWARD 4,794.8 9,987.6
The notes on pages 29 to 47 form part of these financial statements.
SUBSIDIZED SCHOOLS PROVIDENT FUND
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS FOR THE YEAR ENDED 31 AUGUST 2015
(Expressed in millions of Hong Kong dollars)
2015 2014
Note
OPERATING SURPLUS FOR THE YEAR 1,459.1 1,608.3
Net realised and revaluation (losses)/gains (3,593.3) 5,019.0
Contributions from contributors 9 1,088.3 991.2
Donations from the Government and 9 2,561.4 2,318.0
Direct Subsidy Scheme schools
Net transfers from/(to) Grant Schools 9 4.8 (6.7)
Provident Fund
Withdrawals by ex-contributors 9 (3,380.7) (3,210.8)
Unclaimed contributors’ account balance 16 0.9 1.1
CHANGES IN NET ASSETS AVAILABLE (1,859.5) 6,720.1
FOR BENEFITS
NET ASSETS AVAILABLE FOR BENEFITS 71,394.7 64,674.6
AT THE BEGINNING OF THE YEAR
NET ASSETS AVAILABLE FOR BENEFITS 69,535.2 71,394.7
AT THE END OF THE YEAR
The notes on pages 29 to 47 form part of these financial statements.
SUBSIDIZED SCHOOLS PROVIDENT FUND
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 AUGUST 2015
(Expressed in millions of Hong Kong dollars)
2015 2014
Note
Cash flows from operating activities
Operating surplus for the year 1,459.1 1,608.3
Interest income 12 (755.8) (825.6)
Dividend income 13 (857.4) (824.8)
Net realised and revaluation (losses)/gains (3,593.3) 5,019.0 Increase in investments in securities (5,155.4) (5,061.2) Decrease/(Increase) in investments in fixed deposits 2,359.3 (512.5) with original maturity beyond three months Change in trading financial instruments (7.2) 5.0 (Increase)/Decrease in receivables and other assets (107.9) 85.9 Increase/(Decrease) in payables and other liabilities 71.1 (316.4) Elimination of foreign exchange differences in 38.4 4.0 revaluation of cash and cash equivalents
Interest received 767.0 810.4
Dividends received 854.0 815.3
Net cash (used in)/from operating activities (4,928.1) 807.4
Cash flows from financing activities
Contributions from contributors 1,088.3 991.2
Donations from the Government and Direct Subsidy 2,561.4 2,318.0
Scheme schools
Net transfers from/(to) Grant Schools Provident Fund 4.8 (6.7)
Withdrawals by ex-contributors (3,382.6) (3,213.6)
Net cash from financing activities 271.9 88.9
Net (decrease)/increase in cash and cash equivalents (4,656.2) 896.3 Cash and cash equivalents at the beginning of the year 9,670.8 8,778.5 Effects of exchange rate changes on cash and cash (38.4) (4.0)
equivalents
Cash and cash equivalents at the end of the year 19 4,976.2 9,670.8
The notes on pages 29 to 47 form part of these financial statements.
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 (HKASs) 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.
(b) Basis of preparation of the financial statements
The measurement basis used in the preparation of the financial statements is historical cost except that investments in securities at fair value and trading financial instruments are stated at their fair value as explained in the accounting policies set out below (see note 2(c)).
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 expenses. The estimates and associated assumptions are based on historical 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 balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities in the next year.
(c) Financial assets and financial liabilities
(i) Initial recognition
The Fund classifies its financial assets and financial liabilities into different categories at inception, depending on the purpose for which the assets were acquired or the liabilities were incurred. The categories are: trading financial instruments, securities at fair value, loans and receivables, and other financial liabilities.
Financial assets and financial liabilities are measured initially at fair value, which normally equals to the transaction price, plus transaction costs for loans and receivables and other financial liabilities that are directly attributable to the acquisition of the financial asset or the issue of the financial liability.
Transaction costs on trading financial instruments and securities at fair value are expensed immediately.
The Fund recognises financial assets and financial liabilities on the date it becomes a party to the contractual provisions of the instruments. Regular way purchases and sales of financial assets are accounted for at trade date.
(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(c)(iii) and (v)). This is different from the accounting treatment required under HKAS 39 Financial instruments: Recognition and measurement where such gains or losses are recognised in the income and expenditure account.
(iii) Categorisation
Trading financial instruments
These comprise forward currency contracts used by the Fund to manage its risks associated with foreign currency fluctuations. Such derivative financial instruments do not qualify for hedge accounting and are categorised as “trading”
under HKAS 39.
Trading financial instruments are carried at fair value, and presented as assets when the fair value is positive and as liabilities when the fair value is negative.
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.
Securities at fair value
Securities at fair value consist of equity and debt securities managed by the
HKAS 39. In accordance with Fund Rules 11(1)(a)(iv) and 11(1)(b)(iii), changes in the fair value are recognised in the reserve fund as revaluation gains or losses in the period in which they arise.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and which the Fund has no intention of trading, other than those that the Fund, upon initial recognition, designates at fair value. This category includes cash at banks, deposits with banks and other financial institutions, and receivables and other assets.
Loans and receivables are carried at amortised cost using the effective interest method less impairment losses, if any (note 2(c)(vii)).
The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating 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 instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Fund estimates cash flows considering all contractual terms of the financial instrument but does not consider future 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.
Other financial liabilities
These are financial liabilities other than trading financial instruments. They are carried at amortised cost using the effective interest method.
(iv) Fair value measurement principles
The Fund measures its investments in securities and trading financial instruments at fair value at each balance sheet 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 minimizing 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 balance sheet 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.
The Fund uses the weighted average method to determine realised gains and losses to be recognised in the reserve fund on derecognition in accordance with Fund Rules 11(1)(a)(i) and 11(1)(b)(i).
A financial liability is derecognised when the obligation specified in the contract is discharged, cancelled or when it expires.
(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
The carrying amounts of loans and receivables are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. If any such evidence exists, an impairment loss is recognised in the reserve fund as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the asset’s original effective interest rate. If in a subsequent period the amount of such impairment loss decreases and the decrease can be linked objectively to an event occurring after the impairment loss was recognised, the impairment loss is reversed through the reserve fund.
(d) 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.
(e) 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.
(f) 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.
(iii) Other income
Other income is recognised in the income and expenditure account on an accrual basis.
(g) 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 currencies other than Hong Kong dollars are translated into Hong Kong dollars at the closing exchange rates at the balance sheet 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. CHANGES IN ACCOUNTING POLICIES
The HKICPA has issued a number of new and revised HKFRSs which are effective for the current accounting period. There have been no significant 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 that is not yet effective for the current accounting period (note 23).
4. DEPOSITS WITH BANKS AND OTHER FINANCIAL INSTITUTIONS
2015 2014
Fixed deposits denominated in:
— Hong Kong dollar 4,660.8 6,065.6
— US dollar 2,437.9 3,122.3
— other currencies 1,634.3 6,521.7
Call deposits and balances with custodians denominated in currencies other than Hong Kong dollar:
— US dollar 179.4 485.9
— other currencies 36.7 71.2
8,949.1 16,266.7
5. SECURITIES
(a) Details
2015 2014
Securities at fair value
Equity securities listed in Hong Kong 12,712.8 12,681.6 Equity securities listed outside Hong Kong 22,934.6 22,778.3
35,647.4 35,459.9
Debt securities denominated in:
－ Hong Kong dollar 7,547.1 7,159.2
－ US dollar 5,713.7 4,871.9
－ other currencies 10,921.8 7,183.6
24,182.6 19,214.7
59,830.0 54,674.6
(b) Securities holdings exceeding 5% of the asset class as at 31 August
2015 2014
Fair % of Fair % of
Issuer Class value class value class
United States Treasury Debt securities 1,418.8 5.87% 1,235.2 6.43%
Government of the Hong Kong Special Administrative Region
Debt securities 738.3 3.04% 1,100.2 5.73%
6. TRADING FINANCIAL INSTRUMENTS
2015 2014
Assets Liabilities Assets Liabilities
Forward currency
contracts, at fair value
62.2 25.8 35.3 6.1
All these forward currency contracts would mature within one year and had a total notional amount of HK$17,363.7 million as at 31 August 2015 (2014: HK$18,493.4 million). The notional amounts of these contracts indicate the volume of outstanding transactions and do not represent the amounts at risk.
7. RECEIVABLES AND OTHER ASSETS
2015 2014
Interest and dividends receivable 301.7 309.5
Proceeds receivable from investments sold 187.7 84.6
Amount due from Grant Schools Provident Fund 4.8 －
494.2 394.1
8. PAYABLES AND OTHER LIABILITIES
2015 2014
Unsettled purchases of investments 201.9 136.4
Fees for investment managers 26.0 25.5
Amount due to the Government of the Hong Kong Special Administrative Region
18.0 17.1
Amount due to ex-contributors 4.5 7.3
Fees for custodians 6.2 2.1
Other creditors and accruals 0.2 0.1
256.8 188.5
