Grant Schools Provident Fund
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Annual Report 2017
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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 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, GBS, 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 11
Number of Contributors (2008 – 2017) 17
Dividend Declared and Investment Return (2008 – 2017) 18
Net Assets (2008 – 2017) 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 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 of St. Stephen’s Girls’ College and Heep Yunn School.
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. Five 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 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 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.
GRANT SCHOOLS PROVIDENT FUND BOARD OF CONTROL
Back Row Front Row
(From Left to Right) (From Left to Right) 1. Ms HON Hin-yan 1. Mr SIU Man-tat, Martin 2. Mr WAI Wing-yin, Eric
3. Mr AU Man-hin 4. Mr TONG Wun-sing
2. Mr CHENG Kwun-kit, Allan 3. Dr SO Ying-lun
4. Ms LEE Kam-ha, Melaine
5. Mr TSO Yan-chung, Mikel 5. Ms LEUNG Yin-fun, Fanny (Treasurer) 6. Ms LAM Yuen-fan, Fanny
Not in the picture
1. Mr LEUNG Wai-kit, Ricky 2. Mr WONG Shing-hei, Charlix
GRANT SCHOOLS PROVIDENT FUND BOARD OF CONTROL
1.9.2016– 31.8.2017
Chairman
Dr SO Ying-lun Wah Yan College, Hong Kong
Vice-Chairman Mr CHENG Kwun-kit, Allan Ying Wa 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 TONG Wun-sing (From 29.9.2016)
La Salle College
Ms TSANG Kit-yee, Amelia St. Mary’s Canossian College Mr WAI Wing-yin, Eric Wah Yan College, Kowloon
Ms HON Hin-yan Representative of Permanent Secretary for Education and Secretary to the Board Mr SIU Man-tat, Martin Director of Accounting Services
GRANT SCHOOLS PROVIDENT FUND BOARD OF CONTROL
From 1.9.2017
Chairman
Dr SO Ying-lun Wah Yan College, Hong Kong
Vice-Chairman Mr CHENG Kwun-kit, Allan Ying Wa 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 TONG Wun-sing La Salle College
Mr TSO Yan-chung, Mikel
(From 28.9.2017) St. Mary’s Canossian College Mr WAI Wing-yin, Eric Wah Yan College, Kowloon
Ms HON Hin-yan Representative of Permanent Secretary for Education and Secretary to the Board Mr SIU Man-tat, Martin
(Up to 2.1.2018) Director of Accounting Services Mr WONG Shing-hei, Charlix
(From 3.1.2018) Director of Accounting Services
GRANT SCHOOLS PROVIDENT FUND INVESTMENT SUB-COMMITTEE 1.9.2016 – 31.8.2017
Chairman
Dr SO Ying-lun Wah Yan College, Hong Kong
Members Mr CHENG Kwun-kit, Allan Ying Wa College
Mr LEUNG Wai-kit, Ricky St. Mark’s School
Mr WAI Wing-yin, Eric Wah Yan College, Kowloon 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
(Up to 20.11.2016) Treasury Accountant
Ms TSE Yuk-lin, Cathy (From 21.11.2016)
Treasury Accountant
GRANT SCHOOLS PROVIDENT FUND INVESTMENT SUB-COMMITTEE From 1.9.2017
Chairman
Dr SO Ying-lun Wah Yan College, Hong Kong
Members Mr CHENG Kwun-kit, Allan Ying Wa College
Mr LEUNG Wai-kit, Ricky St. Mark’s School
Mr WAI Wing-yin, Eric Wah Yan College, Kowloon Mr SIU Man-tat, Martin
(Up to 2.1.2018)
Director of Accounting Services Mr WONG Shing-hei, Charlix
(From 3.1.2018)
Director of Accounting Services
Treasurer
Ms LEUNG Yin-fun, Fanny Assistant Director of Accounting Services
Secretary
Ms TSE Yuk-lin, Cathy 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 29 January 2018, the Board of Control (BoC) declared a guaranteed dividend of 5% for contributors for the year ended 31 August 2017.
Contributors’ Account
During the year, 42 new contributors joined the Fund and 60 withdrew from it. These figures include 16 transfers in from and 11 transfers out to the Subsidized Schools Provident Fund. The total number of contributors decreased by 18 or 1.54% to 1,149. The balance of the contributors’ account increased by HK$162.6 million or 5.79% to HK$2,972.2 million.
The service profile of contributors who withdrew from the Fund during the year was as follows:
2017 2016
Below 10 years 33% 34%
10 to 15 years 9% 4%
Above 15 years 58% 62%
Net Assets and Management Cost
As at 31 August 2017, the net assets of the Fund amounted to HK$3,621.6 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$8.0 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 18 January 2017, the BoC adopted the annual
statement of accounts of the Fund and declared a dividend of 5% for the year ended 31 August 2016.
The BoC also approved the following matters during the year ended 31 August 2017:
(a) the Fund’s investment plan for the year; and (b) the Fund’s supervision fee budget for the year.
Vote of Thanks
Ms TSANG Kit-yee, Amelia ceased to be member of the BoC at the end of the year.
On behalf of the BoC, I thank her for her invaluable contributions to the work of the BoC in the past year.
Financial Highlights for the year ended 31 August 2017
2017 2016 Changes
Contributors’ Account (a) 2,972.2 2,809.6 +5.79%
Net Assets (b) 3,621.6 3,232.3 +12.04%
Management Cost
(as a percentage of net assets)
8.0 (0.22%)
7.6 (0.24%) Reserve Level at year end (%)
－ before the year’s dividend [(b)-(a)]/(a) above
21.85 15.04
－ after the year’s dividend 16.04 9.57
Investment Return for the year (%) 11.44 5.78
Total Dividend Declared (%) 5.00 5.00
Number of Contributors 1,149 1,167 -1.54%
Performance Indicator
2017 2016
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%
Dr SO Ying-lun
Chairman Board of Control
Grant Schools Provident Fund 29 January 2018
GRANT SCHOOLS PROVIDENT FUND
TREASURER’S REPORT FOR THE YEAR ENDED 31 AUGUST 2017 (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$366.5 million for the year as follows:
Operating surplus 70.4
Net realised and revaluation gains 296.1
Overall surplus 366.5
(ii) Investment Return
The overall surplus represented an investment return of 11.44% (2016:
overall surplus of 5.78%) 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 1.22 times, providing a reserve level of 21.85% as follows:
Net Assets (a) 3,621.6 Less: Contributors’ Account
(before the year’s dividend) (b) 2,972.2
Reserve (c) 649.4
Asset Cover (a)/(b) 1.22 times (2016 : 1.15 times) Reserve Level (c)/(b) 21.85% (2016 : 15.04%)
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 2.50%. 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$78.3 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$148.7 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 2016 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 2016 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 5.14% (2016: 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 1.16 times and the level of reserve at 16.04% as follows:
Net Assets (a) 3,621.6
Less: Contributors’ Account (after the year’s dividend):
Contributors’ Account 2,972.2
Provision for the year’s dividend 148.7
(b) 3,120.9
Reserve (c) 500.7
Asset Cover (a)/(b) 1.16 times (2016 : 1.10 times)
Reserve Level (c)/(b) 16.04% (2016 : 9.57%)
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 2017, the Fund’s investment portfolios amounted to HK$3,608.1 million of which HK$2,883.7 million or 79.92% was placed under the management of external investment managers. The distribution of the investments in proportion terms was as follows:
Managed by
Managed by Investment
Investments Treasurer Managers Overall
% % %
Equity securities listed in Hong Kong － 20.87 20.87 Debt securities denominated in Hong
Kong dollar
0.80 9.86 10.66
Hong Kong dollar fixed deposits 10.90 － 10.90
Equity securities listed outside Hong Kong
－ 32.42 32.42
Debt securities denominated in currencies other than Hong Kong dollar
2.21 16.46 18.67
Fixed deposits denominated in currencies other than Hong Kong dollar
6.14 － 6.14
Call deposits and balances with custodians denominated in currencies other than Hong Kong dollar
0.03 0.32 0.35
Trading financial instruments
- assets － 0.05 0.05
- liabilities － (0.06) (0.06)
20.08 79.92 100.00
The Fund’s external investment managers were as follows:
First State Investments (Hong Kong) Limited
Schroder Investment Management (Hong Kong) Limited
The ten single largest securities holdings in the Fund’s investment portfolios were:
10. AUDITED FINANCIAL STATEMENTS
The financial statements of the Fund for the year ended 31 August 2017 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 29 January 2018.
LEUNG Yin-fun, Fanny
Treasurer Grant Schools Provident Fund
16 January 2018 Equities
HSBC Holdings Plc 93.5
Tencent Holdings Limited 90.0
AIA Group Limited 40.9
China Construction Bank Corporation Limited 33.2
Industrial and Commercial Bank of China Limited 30.1 Ping An Insurance (Group) Company of China, Ltd. 26.5
Apple Inc. 26.3
China Mobile Limited 24.4
Debt Securities
China Construction Bank Asia 3.25% 02/07/2019 39.0
Bank of China 2.375% 14/02/2020 31.2
G RANT S C H O O L S P R O V ID E N T F UND
1,282 1,278 1,2801,279 1,276 1,219 1,188 1,178 1,167 1,149 1,0001,050
1,100
1,150
1,200
1,250
1,300
1,350
1,400 2008200920102011201220132014201520162017
N u m b er of C o n tr ib u to rs as at 31 A u gus t 2008 to 2017
mber YearG R A N T S C H O O L S P R O V ID ENT F U ND
5.005.005.005.005.005.005.005.005.005.00 -3.61 -4.575.31
6.77 2.10
6.57
10.95 -3.09
5.78
11.44 -10-50510
15 2008200920102011201220132014201520162017
Dividend Declared Investment Return
Divid en d De cl ar ed an d I n ve st m en t Re tu 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 BoardYear Ended 31 August 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.)
G R A N T SC HOOL S P R OV ID E N T F U N D
2,476 2,357 2,4782,644 2,7532,853
3,166 3,069
3,232
3,622 0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2,400
2,600
2,800
3,000
3,200
3,400
3,600
3,800
4,000 2008200920102011201220132014201520162017
Ne t As se ts as at 31 Au gu st 2008 to 2017
million YearSpread of Net Assets as at 31 August 2017
- 20 -
Equity securities listed in Hong Kong HK$753 million (20.79%)
(2016: 18.53%)
Debt securities denominated in Hong Kong dollar HK$384 million (10.60%) (2016: 12.04%)
Hong Kong dollar deposits, net trading financial instruments and net accounts receivable HK$407 million (11.24%) (2016: 12.65%)
Equity securities listed outside Hong Kong HK$1,170 million (32.30%) (2016: 29.98%)
Deposits denominated in currencies other than
Hong Kong dollar HK$234 million (6.46%) (2016: 8.51%) Debt securities denominated
in currencies other than Hong Kong dollar HK$674 million (18.61%) (2016: 18.29%) TOTAL: HK$3,622 million
(2016: HK$3,232 million)
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 2017, 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
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
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.
David Sun Audit Commission
Director of Audit 26th Floor
Immigration Tower
7 Gloucester Road
16 January 2018 Wanchai, Hong Kong
GRANT SCHOOLS PROVIDENT FUND BALANCE SHEET
AS AT 31 AUGUST 2017
(Expressed in thousands of Hong Kong dollars)
2017 2016 Note
ASSETS
Cash at banks 10,897 14,257
Investments:
Deposits with banks and other 4 627,692 665,158
financial institutions
Securities 5 2,980,700 2,547,182
Trading financial instruments 6 1,929 2,761 Receivables and other assets 7 21,490 23,152
LIABILITIES
Trading financial instruments 6 (2,184) (189) Payables and other liabilities 8 (18,876) (20,029)
NET ASSETS AVAILABLE FOR BENEFITS 3,621,648 3,232,292
Representing:
Contributors’ account 9 2,972,178 2,809,596
Reserve fund 10 500,805 282,374
Provision for guaranteed dividend 11 148,665 140,322
3,621,648 3,232,292
The notes on pages 29 to 48 form part of these financial statements.
LEUNG Yin-fun, Fanny
Dr SO Ying-lun
Treasurer Chairman
Board of Control
Grant Schools Provident Fund
GRANT SCHOOLS PROVIDENT FUND
INCOME AND EXPENDITURE ACCOUNT FOR THE YEAR ENDED 31 AUGUST 2017
(Expressed in thousands of Hong Kong dollars)
2017 2016
Note
INCOME
Interest income 12 29,325 29,907
Dividend income 13 46,820 41,804
Other income 14 2,232 －
78,377 71,711
EXPENDITURE
Supervision fee 15 (1,237) (1,227)
Fees for investment managers (3,923) (3,439)
Fees for custodians (2,097) (2,120)
Investment transaction costs (568) (469)
Other operating expenses (189) (315)
(8,014) (7,570) OPERATING SURPLUS FOR THE YEAR 70,363 64,141
PROPOSED APPROPRIATION FROM 17 78,302 76,181
RESERVE FUND
PROVISION FOR GUARANTEED DIVIDEND 11 (148,665) (140,322) 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 2017
(Expressed in thousands of Hong Kong dollars)
2017 2016 Note
Donations and dividends transferred from 16 641 645
contributors’ account
Net realised and revaluation gains/(losses) on:
- securities 302,080 115,567
- trading financial instruments (5,471) (2,012) - cash and deposits with banks and other (533) (4,121)
financial institutions
296,076 109,434
Proposed appropriation to income and 17 (78,302) (76,181)
expenditure account
Dividends over-provided in previous year 16 3
218,431 33,901
Balance brought forward from previous year 282,374 248,473 BALANCE CARRIED FORWARD 500,805 282,374
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 2017
(Expressed in thousands of Hong Kong dollars)
2017 2016
Note
OPERATING SURPLUS FOR THE YEAR 70,363 64,141
Net realised and revaluation gains 296,076 109,434
Contributions from contributors 9 42,912 41,808
Donations from the Government and 9 109,928 106,785
Direct Subsidy Scheme schools
Net transfers from 9 4,307 3,358
Subsidized Schools Provident Fund
Withdrawals by ex-contributors 9 (134,230) (161,760) CHANGES IN NET ASSETS AVAILABLE 389,356 163,766
FOR BENEFITS
NET ASSETS AVAILABLE FOR BENEFITS 3,232,292 3,068,526 AT THE BEGINNING OF THE YEAR
NET ASSETS AVAILABLE FOR BENEFITS 3,621,648 3,232,292 AT THE END OF THE YEAR
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 2017 (Expressed in thousands of Hong Kong dollars)
2017 2016 Note
Cash flows from operating activities
Operating surplus for the year 70,363 64,141
Interest income 12 (29,325) (29,907)
Dividend income 13 (46,820) (41,804)
Net realised and revaluation gains 296,076 109,434
Increase in investments in securities (433,518) (191,950)
Decrease in investments in fixed deposits 10,859 36,834
with original maturity beyond three months
Change in trading financial instruments 2,827 704
Decrease/(Increase) in receivables and other assets 5,189 (3,681)
(Decrease)/Increase in payables and other liabilities (4,030) 2,513
Elimination of foreign exchange differences in
(336) 582 revaluation of cash and cash equivalents
Interest received 27,489 31,988
Dividends received 45,129 41,648
Net cash (used in)/from operating activities (56,097) 20,502
Cash flows from financing activities
Contributions from contributors 42,912 41,808 Donations from the Government and 109,928 106,785
Direct Subsidy Scheme schools
Net transfers from Subsidized Schools 4,307 3,358
Provident Fund
Withdrawals by ex-contributors (131,353) (161,760) Net cash from/(used in) financing activities 25,794 (9,809) Net (decrease)/increase in cash and cash equivalents (30,303) 10,693 Cash and cash equivalents at the beginning of the year 127,946 117,835 Effects of exchange rate changes on cash and cash 336 (582)
equivalents
Cash and cash equivalents at the end of the year 18 97,979 127,946
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 (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.
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, held-to-maturity securities 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, held-to-maturity securities 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 Fund’s external investment managers (note 19(a)). These investments are designated upon initial recognition at fair value and carried at fair value under 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
that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.
Held-to-maturity securities
Held-to-maturity securities are non-derivative financial assets with fixed or determinable payments and fixed maturity which the Fund has the positive intention and ability to hold to maturity, other than (a) those that the Fund, upon initial recognition, designates as at fair value; and (b) those that meet the definition of loans and receivables.
Held-to-maturity securities are carried at amortised cost using the effective interest method less impairment losses, if any (note 2(c)(vii)).
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 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 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
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 foreign currencies 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 21).
4. DEPOSITS WITH BANKS AND OTHER FINANCIAL INSTITUTIONS
2017 2016
Fixed deposits denominated in:
— Hong Kong dollar 393,290 390,530
— US dollar 221,668 140,164
— other currencies － 115,475
Call deposits and balances with custodians denominated in currencies other than Hong Kong dollar:
— US dollar 11,974 13,877
— other currencies 760 5,112
627,692 665,158
5. SECURITIES
(a) Details
2017 2016
Securities at fair value
Equity securities listed in Hong Kong 752,932 598,935 Equity securities listed outside Hong Kong 1,169,645 968,777 1,922,577 1,567,712 Debt securities denominated in:
－ Hong Kong dollar 355,723 359,591
－ US dollar 276,257 240,856
－ other currencies 317,628 311,252
949,608 911,699
Subtotal for securities at fair value 2,872,185 2,479,411
Held-to-maturity securities at amortised cost
Debt securities maturing in more than one year denominated in:
－ Hong Kong dollar 28,740 28,994
－ US dollar 79,775 38,777
Subtotal for held-to-maturity securities 108,515 67,771 2,980,700 2,547,182
(b) Securities holdings exceeding 5% of the asset class as at 31 August
2017 2016
Fair % of Fair % of Issuer Class value class value class
Government of Japan Debt securities 83,106 7.85% 79,930 8.16%
Government of the Hong Kong Special Administrative Region
Debt securities 74,745 7.06% 59,483 6.07%
United States Treasury Debt securities 59,226 5.60% 28,069 2.87%
6. TRADING FINANCIAL INSTRUMENTS
2017 2016
Assets Liabilities Assets Liabilities Forward currency
contracts, at fair value
1,929 2,184 2,761 189
All these forward currency contracts would mature within one year and had a total notional amount of HK$1,396.3 million as at 31 August 2017 (2016: HK$460.1 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
2017 2016
Interest and dividends receivable 15,038 11,511
Proceeds receivable from investments sold 6,401 9,116
Other debtors 51 2,525
21,490 23,152
8. PAYABLES AND OTHER LIABILITIES
2017 2016
Unsettled purchases of investments 13,135 16,675 Amount due to the Government of the Hong Kong
Special Administrative Region 1,237 1,227
Fees for investment managers 1,073 909
Amount due to ex-contributors 2,877 －
Fees for custodians 493 1,157
Other creditors and accruals 61 61
18,876 20,029 All these liabilities are payable within one year.
9. CONTRIBUTORS’ ACCOUNT
2017
Contributions
Donations from the Government and DSS
schools Dividends Total
Additions for the year 42,912 109,928 140,306 293,146
Net transfers from Subsidized Schools
Provident Fund 859 1,723 1,725 4,307
Withdrawals by ex-contributors (18,990) (42,870) (72,370) (134,230)
Transfers to reserve fund in accordance with Fund Rule 11(1)(a)(ii)
－ (554) (87) (641)
Net additions for the year 24,781 68,227 69,574 162,582
Balance brought forward from previous year 520,106 1,100,938 1,188,552 2,809,596 Balance carried forward 544,887 1,169,165 1,258,126 2,972,178
2016
Contributions
Donations from the Government and DSS
schools Dividends Total Additions for the year 41,808 106,785 134,194 282,787
Net transfers from Subsidized Schools
Provident Fund 1,074 1,469 815 3,358
Withdrawals by ex-contributors (22,540) (51,967) (87,253) (161,760)
Transfers to reserve fund in accordance
with Fund Rule 11(1)(a)(ii) － (553) (92) (645)
Net additions for the year 20,342 55,734 47,664 123,740
Balance brought forward from previous year 499,764 1,045,204 1,140,888 2,685,856 Balance carried forward 520,106 1,100,938 1,188,552 2,809,596
Donations from DSS schools for the year amounted to HK$32.7 million (2016: HK$32.3 million).
An analysis of the withdrawals by ex-contributors is shown below:
2017 2016
Retirement 78,597 113,682
Resignation 50,117 47,932
Death and ill health 5,468 －
Others (such as contract termination and schools ceasing to be grant schools or DSS schools)
48 146
134,230 161,760
Vested contributors’ benefits as at 31 August 2017 amounted to HK$2,961.1 million
10. RESERVE FUND
The reserve fund is maintained in accordance with Fund Rule 11.
11. 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 2017 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 2017 (2016: Nil) as the shortfall between the guaranteed dividend and the operating surplus was met by a transfer from the reserve fund (see note 17).
12. INTEREST INCOME
2017 2016
Debt securities at fair value 18,886 18,679
Held-to-maturity securities 2,503 1,607
Deposits denominated in:
－ Hong Kong dollar 3,552 2,298
－ US dollar 2,920 1,058
－ other currencies 1,464 6,265
7,936 9,621
29,325 29,907
13. DIVIDEND INCOME
2017 2016
Equity securities listed:
－ in Hong Kong 22,022 18,726
－ outside Hong Kong 24,798 23,078
46,820 41,804
14. OTHER INCOME
2017 2016
Tax refund 2,070 －
Compensations 162 －
2,232 －
15. SUPERVISION FEE
This represents the provision for the supervision fee for the year ended 31 August 2017 payable to the Government of the Hong Kong Special Administrative Region under Fund Rule 6(2) in respect of the costs incurred in administering the Fund.
16. DONATIONS AND DIVIDENDS TRANSFERRED FROM CONTRIBUTORS’
ACCOUNT
Under Fund Rule 13, whenever a contributor with less than 10 years continuous contributory service ceases to be employed as a teacher in a grant school or DSS school (as the case may be), his account shall be closed and the payment due to him shall include a percentage of all Government donations and DSS school donations (if any) and all dividends that have been declared on such donations.
Donations and dividends not payable to him are transferred to the reserve fund in
17. PROPOSED APPROPRIATION FROM RESERVE FUND / TO INCOME AND EXPENDITURE ACCOUNT
In accordance with Fund Rule 11(3) and subject to the approval of the Board of Control, it is proposed to transfer a sum of HK$78.3 million (2016: HK$76.2 million) from the reserve fund to the income and expenditure account. The transfer is to cover the shortfall of the operating surplus in meeting the provision of the 5% guaranteed dividend of HK$148.7 million (2016: HK$140.3 million).
18. ANALYSIS OF CASH AND CASH EQUIVALENTS
2017 2016
Fixed deposits with original maturity within three
months
74,348 94,700
Cash at banks and call deposits and balances with custodians
23,631 33,246
TOTAL 97,979 127,946
Reconciliation with the balance sheet:
Amounts shown in the balance sheet
Cash at banks 10,897 14,257
Deposits with banks and other financial institutions 627,692 665,158 638,589 679,415 Less: Amounts with original maturity beyond three
months
(540,610) (551,469) Cash and cash equivalents in the statement of cash
flows
97,979 127,946
