Hang Seng Mandatory Provident Fund ValueChoice · Sponsor and HSBC Provident Fund Trustee (Hong Kong) Limited as the Trustee. The Scheme is registered under section 21 of the MPF

Hang Seng Mandatory Provident Fund – ValueChoice

30 June 2019

Hang Seng Mandatory Provident Fund – ValueChoice Year ended 30 June 2019

Contents Page(s) Directory of parties 1 – 2 Scheme report 3 – 7 Investment report 8 – 49 Independent auditor’s report on the financial statements 50 – 53 Scheme

Statement of changes in net assets available for benefits 54 Statement of net assets available for benefits 55 Cash flow statement 56

Constituent funds

Statement of comprehensive income 57 – 59 Statement of assets and liabilities 60 – 62 Statement of changes in net assets attributable to members 63 – 65

Notes to the financial statements 66 – 94 Independent auditor’s assurance report 95 – 97


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Directory of parties Sponsor Hang Seng Bank Limited 83 Des Voeux Road Central Hong Kong Trustee and Custodian HSBC Provident Fund Trustee (Hong Kong) Limited HSBC Main Building 1 Queen’s Road Central Hong Kong Investment Managers HSBC Investment Funds (Hong Kong) Limited (for the approved pooled investment funds directly or indirectly invested by the constituent funds except the Hang Seng Index Tracking Fund and the Hang Seng China Enterprises Index Tracking Fund) HSBC Main Building 1 Queen’s Road Central Hong Kong Hang Seng Investment Management Limited (for the approved index-tracking collective investment schemes directly or indirectly invested by the Hang Seng Index Tracking Fund and the Hang Seng China Enterprises Index Tracking Fund) 83 Des Voeux Road Central Hong Kong Investment Adviser HSBC Global Asset Management (Hong Kong) Limited (for the approved pooled investment funds directly or indirectly invested by the constituent funds except the Hang Seng Index Tracking Fund and the Hang Seng China Enterprises Index Tracking Fund) HSBC Main Building 1 Queen’s Road Central Hong Kong


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Directory of parties (continued) Administrator The Hongkong and Shanghai Banking

Corporation Limited (designated on 1 November 2018)

1 Queen’s Road Central Central, Hong Kong HSBC Life (International) Limited (retired on 1 November 2018) 18th Floor, Tower 1, HSBC Centre 1 Sham Mong Road, Kowloon Hong Kong Investment Agent Hang Seng Investment Management Limited (for the Hang Seng Index Tracking Fund and the Hang Seng China Enterprises Index Tracking Fund only) 83 Des Voeux Road Central Hong Kong Legal Adviser Baker & McKenzie (effective from 18 March 2019) 14th Floor, One Taikoo Place 979 King’s Road, Quarry Bay Hong Kong Baker & McKenzie (prior to 18 March 2019) 14th Floor, Hutchison House 10 Harcourt Road, Central Hong Kong Auditor KPMG 8th Floor, Prince’s Building 10 Chater Road, Central Hong Kong


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Scheme report The Trustee has pleasure in submitting the scheme report together with the audited financial statements of the Hang Seng Mandatory Provident Fund – ValueChoice (“the Scheme”) for the year ended 30 June 2019.

1. The Scheme

The Scheme is a master trust scheme set up for the purpose of providing benefits to members in accordance with the Hong Kong Mandatory Provident Fund Schemes Ordinance (“the MPF Ordinance”). The Scheme was established under a trust deed dated 24 November 2010 as amended from time to time, with the latest amended and restated trust deed dated 23 June 2017, between Hang Seng Bank Limited as the Sponsor and HSBC Provident Fund Trustee (Hong Kong) Limited as the Trustee. The Scheme is registered under section 21 of the MPF Ordinance. The Trust Deed of the Scheme was amended on 1 March 2019 due to the Scheme restructuring. With effect from 1 July 2019, the Scheme was merged with Hang Seng Mandatory Provident Fund - SuperTrust Plus. All members of the Scheme and their accrued benefits under the Scheme were transferred to Hang Seng Mandatory Provident Fund - SuperTrust Plus on 1 July 2019. Details on the merger can be found at the following website https://www.hangseng.com/cms/cbd/eMPF/merger_notice_190 325e.pdf. The Trust Deed of the Scheme was amended on 8 April 2019 due to the addition of the tax deductible voluntary contributions feature to the Scheme.

Other than the above, there was no change in the governing rules of the Scheme since the last year ended 30 June 2018.


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Scheme report (continued) 2. Financial development

(Expressed in Hong Kong dollars)

Total subscriptions

for the year ended

30 June 2019

Total subscriptions

for the year ended

30 June 2018

Net assets as at

30 June 2019

Net assets as at

30 June 2018 $’000 $’000 $’000 $’000 MPF Conservative Fund 230,420 160,799 280,481 217,562 Hang Seng Index Tracking

Fund 137,478 111,655 248,468 216,211 Global Bond Fund 39,774 39,109 104,893 83,783 Core Accumulation Fund 67,501 60,978 160,365 112,197 ValueChoice Balanced

Fund 23,036 27,784 81,193 69,058 ValueChoice Asia Pacific

Equity Fund 24,551 28,898 90,925 84,269 ValueChoice European

Equity Fund 14,431 13,774 25,592 22,737 ValueChoice US Equity

Fund 76,424 29,322 93,301 67,674 Hang Seng China

Enterprises Index Tracking Fund(1) 64,759 64,879 98,426 89,485

Global Equity Fund 19,391 19,029 53,755 40,781 Age 65 Plus Fund 17,611 14,995 24,315 12,695

(1) Hang Seng China Enterprises Index Tracking Fund was formerly known as Hang Seng

H-Share Index Tracking Fund prior to 5 March 2018.

3. Directory of parties

Details of those parties engaged by the Trustee for the purposes of the Scheme for the year ended 30 June 2019 are set out on pages 1 to 2.


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Scheme report (continued) 4. Directors

The directors of HSBC Provident Fund Trustee (Hong Kong) Limited during the year and up to the date of this report are as follows:

Mark Ivan BOYNE Elaine Yuen Man LO Sau Ling TSE Horace Kwan Hor CHAU Daniel Gareth HANKINSON Rex Pak-kuen AUYEUNG (appointed on 14 June 2019) Sai Kit HEUNG (resigned on 30 June 2019)

The business address of these directors is:

HSBC Main Building 1 Queen’s Road Central Hong Kong

5. Particulars of parties associated with the Trustee

HSBC Life (International) Limited

The directors of HSBC Life (International) Limited during the financial year are as follows:

Benny Man Bun TSE Kevin Ross MARTIN Kathleen Chieh Huey GAN Gregory Thomas HINGSTON Sebastian Richmond HORN Bryce Leslie JOHNS Terence Man Chung CHIU Edward Charles Lawrence MONCREIFFE Siew Boi TAN Babak NIKZAD ABBASABADI Chi Fai YAM (appointed on 1 February 2019)


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Scheme report (continued) 5. Particulars of parties associated with the Trustee (continued)

The Hongkong and Shanghai Banking Corporation Limited The directors of The Hongkong and Shanghai Banking Corporation Limited during the financial year are as follows: Peter Tung Shun WONG Laura May Lung CHA Zia MODY Graham John BRADLEY Christopher Wai Chee CHENG Raymond Kuo Fung CH’IEN Irene Yun-lien LEE Jennifer Xinzhe LI Victor Tzar Kuoi LI Kevin Anthony WESTLEY Francis Sock Ping YEOH Louisa Wai Wan CHEANG Yiu Kwan CHOI Bin Hwee QUEK (née CHUA) John Michael FLINT John Robert SLOSAR (resigned on 24 July 2018) Marjorie Mun Tak YANG (retired on 4 April 2019)

Hang Seng Bank Limited

The directors of Hang Seng Bank Limited during the financial year are as follows:

Raymond Kuo Fung CH’IEN Louisa Wai Wan CHEANG John Cho Chak CHAN Nixon Lik Sang CHAN Lai Yuen CHIANG Margaret Wing Han KWAN Irene Yun Lien LEE Eric Ka Cheung LI Vincent Hong Sui LO Kenneth Sing Yip NG Peter Tung Shun WONG Michael Wei Kuo WU Kathleen Chieh Huey GAN (appointed on 10 May 2019) Sarah Catherine LEGG (resigned on 1 March 2019)


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Investment report for the year ended 30 June 2019 1. Statement of investment objective and policies

As at 30 June 2019 and during the year, Hang Seng Mandatory Provident Fund – ValueChoice (the “Scheme”) is a master trust scheme and offering the following constituent funds: 1. MPF Conservative Fund 2. Hang Seng Index Tracking Fund 3. Global Bond Fund 4. Core Accumulation Fund 5. ValueChoice Balanced Fund 6. ValueChoice Asia Pacific Equity Fund 7. ValueChoice European Equity Fund 8. ValueChoice US Equity Fund 9. Hang Seng China Enterprises Index Tracking Fund 10. Global Equity Fund 11. Age 65 Plus Fund Each of the constituent funds has different investment objectives and policies, achieved through investing its assets into an approved pooled investment fund.

1.1 MPF Conservative Fund

The investment objective of the MPF Conservative Fund is to achieve a rate of return higher than that available for savings deposits. This Fund shall be invested in an approved pooled investment fund (HSBC MPF “A” – MPF Conservative Fund) comprised entirely of high grade Hong Kong dollars denominated monetary instruments such as treasury bills, bills of exchange, commercial paper, certificates of deposit or interbank deposits; and other ancillary investments as allowed under the General Regulation. Such investments will have an average portfolio remaining maturity of not more than 90 days. The purchase of a unit in the MPF Conservative Fund is not the same as placing funds on deposit with a bank or deposit-taking company. There is no obligation to redeem units at the offer value and the MPF Conservative Fund (or the approved pooled investment fund it is invested in) is not subject to the supervision of the Hong Kong Monetary Authority. The approved pooled investment fund held by this MPF Conservative Fund may not acquire financial futures contracts and financial option contracts, may not engage in securities lending nor enter into repurchase agreements as defined in the General Regulation. The MPF Conservative Fund does not guarantee the repayment of capital.


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Investment report for the year ended 30 June 2019 (continued)

1. Statement of investment objective and policies (continued)

1.1 MPF Conservative Fund (continued)

The MPF Conservative Fund is established to comply with section 37 of the General Regulation. Fees and charges of an MPF Conservative Fund can be deducted from either (i) the assets of the fund or (ii) members’ account by way of unit deduction. This fund uses method (i) and, therefore, its unit prices, net asset value (NAV) and fund performance quoted have reflected the impact of fees and charges. There was no change in the statement of investment objective and policies during the period of this report that will materially affect the risk attached to the investments of the fund.

1.2 Hang Seng Index Tracking Fund

The investment objective of the Hang Seng Index Tracking Fund is to match as closely as practicable the performance of the Hang Seng Index by investing directly in an approved Index-Tracking Collective Investment Scheme (“ITCIS”) (Hang Seng Index ETF) with a similar investment objective. For efficient portfolio management, the approved ITCIS held by the Hang Seng Index Tracking Fund may gain exposure to the Hang Seng Index or its constituent stocks through investing in financial instruments, engaging in borrowings, securities lending and entering into repurchase agreements, as allowed under the applicable laws and regulations. Whilst the investment objective of the Hang Seng Index Tracking Fund and the underlying approved ITCIS is to track the Hang Seng Index, there can be no assurance that the performance of the Hang Seng Index Tracking Fund and the underlying approved ITCIS will at any time be identical to the performance of the Hang Seng Index. There was no change in the statement of investment objective and policies during the period of this report that will materially affect the risk attached to the investments of the fund.


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1.3 Global Bond Fund

The investment objective of the Global Bond Fund is to achieve stable capital growth with low volatility. This Fund shall be invested in an approved pooled investment fund (HSBC MPF “A” – Global Bond Fund), which in turn invests in two or more underlying approved pooled investment fund(s) and/or ITCIS(s) as allowed under the General Regulation. Through such underlying investments, this Fund primarily invests in a portfolio of carefully selected global fixed income securities. The investment adviser(s) and investment sub-adviser(s) appointed to manage the investments of the approved pooled investment fund(s) held by this Fund directly or indirectly are members of the HSBC Group. The investment portfolio indirectly held by this Fund will comprise mainly of fixed and floating rate debt securities (up to around 10 percent of debt securities with maturity period of one year or less and the remaining debt securities with maturity period over one year). The portfolio may also include deposits and other permitted investments up to 30 percent of the net asset value of this Fund. The intended asset allocation aforesaid is for indication only and may be changed as and when the Investment Manager considers appropriate. For efficient portfolio management, the approved pooled investment fund and its underlying investments may acquire financial futures contracts and financial option contracts, engage in securities lending, enter into repurchase agreements, and invest in other investments, as allowed under the applicable laws and regulations. Investments in this Fund are subject to market fluctuations and investment risks, in particular, the risks associated with debt securities. Generally, the prices of debt securities fall when interest rates rise. Change in the credit worthiness of the underlying investments may also adversely affect the value of this Fund. There was no change in the statement of investment objective and policies during the period of this report that will materially affect the risk attached to the investments of the fund.

1.4 Core Accumulation Fund

The investment objective of the Fund is to provide capital growth to Members by investing in a globally diversified manner. The Fund shall invest in an approved pooled investment fund (HSBC MPF “A” – Core Accumulation Fund) which in turn invests in two or more underlying approved pooled investment fund(s) and/or ITCIS(s) as allowed under the General Regulation.


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1.4 Core Accumulation Fund (continued) The HSBC MPF “A” – Core Accumulation Fund adopts an active investment strategy so that the investment adviser of the HSBC MPF “A” – Core Accumulation Fund may, subject to the limits of asset allocation, allocate the assets among different underlying approved pooled investment fund(s) and/or ITCIS(s) in such proportions as it shall, at its discretion, determine in response to various factors within the market environment for the best interest of the unitholders of the HSBC MPF “A” – Core Accumulation Fund. The underlying approved pooled investment fund(s) and/or ITCIS(s) may be actively managed or may adopt a passive management style against an index. There is no constraint restricting the investment adviser from investing in underlying collective investment schemes with any particular investment strategy. The investment adviser(s) of the underlying approved pooled investment fund(s) and/or ITCIS(s) in which the HSBC MPF “A” – Core Accumulation Fund invests in may appoint one or more investment sub-advisers to manage the investment of the underlying approved pooled investment fund(s), and such investment sub-advisers may include members of the HSBC Group as well as non-HSBC Group entities. The Fund, through its underlying investments, will hold 60 percent of its net assets in Higher Risk Assets (such as global equities), with the remainder investing in Lower Risk Assets (such as global bonds and money market instruments). The asset allocation to Higher Risk Assets may vary between 55 percent and 65 percent due to differing price movements of various equity and bond markets. The Fund itself will not engage in securities lending transactions, financial futures and option trading or enter into repurchase agreements. For efficient portfolio management, the portfolio of the underlying approved pooled investment fund may acquire financial futures contracts and financial option contracts (for hedging purposes only if acquired directly by the underlying approved pooled investment fund), engage in securities lending, enter into repurchase agreements, and invest in other investments, as allowed under the applicable laws and regulations. The Fund will, through the investment of HSBC MPF “A” – Core Accumulation Fund maintain a minimum Hong Kong currency exposure of 30 percent, as prescribed by the General Regulation. There was no change in the statement of investment objective and policies during the period of this report that will materially affect the risk attached to the investments of the fund.


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1.5 ValueChoice Balanced Fund

The investment objective of the ValueChoice Balanced Fund is to achieve medium to high capital growth with medium volatility. This Fund shall be invested in an approved pooled investment fund (HSBC MPF “A” – VC Balanced Fund), which in turn invests in two or more underlying approved ITCIS(s) and/or approved pooled investment fund(s) as allowed under the General Regulation. It is expected that preference will be given to ITCIS(s) when making investments. Through such underlying investments, this Fund invests in a diversified portfolio that normally comprises global bonds and equities with heavier weighting in equities. The Investment Adviser of the approved pooled investment fund in which the ValueChoice Balanced Fund invests is responsible to allocate the assets to the underlying investments in such proportions as it shall, at its discretion, determine. Around 55 percent to 85 percent of the portfolio of this Fund will be indirectly invested in equities and equity-related investments. The remainder of the assets will be invested in deposits, debt securities and other investments as allowed under the General Regulation. The intended asset allocation aforesaid is for indication only and may be changed as and when the Investment Adviser considers appropriate. For efficient portfolio management, the approved pooled investment fund and its underlying investments may acquire financial futures contracts and financial option contracts, engage in securities lending, enter into repurchase agreements, and invest in other investments, as allowed under the applicable laws and regulations. Investments in this Fund are subject to market fluctuations and investment risks, in particular, the risks associated with investments in global bonds and equities. As a result of a heavier weighting in equities, the volatility of this Fund is higher than investments spread equally between global bonds and equities. There was no change in the statement of investment objective and policies during the period of this report that will materially affect the risk attached to the investments of the fund.


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1.6 ValueChoice Asia Pacific Equity Fund

The investment objective of the ValueChoice Asia Pacific Equity Fund is to achieve long-term capital growth. This Fund shall be invested in an approved pooled investment fund (HSBC MPF “A” – VC Asia Pacific Equity Fund), which in turn invests in an underlying approved pooled investment fund. Through such underlying investments, this Fund invests primarily in an actively managed portfolio of carefully selected quoted securities on the regulated stock markets in the economies of Asia Pacific, excluding Japan. The main markets of investment include, but not limited to, Australia, China, Hong Kong, India, Korea, Malaysia, New Zealand, Singapore, Taiwan and Thailand. The investment portfolio indirectly held by this Fund will comprise mainly of equities and equity-related investments. The portfolio may also include deposits, debt securities and other permitted investments up to 30 percent of the net asset value of this Fund. The intended asset allocation aforesaid is for indication only and may be changed as and when the Investment Adviser considers appropriate. For efficient portfolio management, the approved pooled investment fund and its underlying investments may engage in securities lending, enter into repurchase agreements, and invest in other investments as allowed under the General Regulation. The underlying investments may also acquire financial futures contracts and financial option contracts as allowed under the General Regulation. Investments in this Fund are subject to market fluctuations and investment risks, in particular, the risks associated with investments in securities of Asia Pacific markets. In general, the volatility of this Fund is higher than that of funds which invest in developed markets. Further, the volatility of this Fund, being a regional fund, is higher than that of funds which invest in a number of continents or regions. There was no change in the statement of investment objective and policies during the period of this report that will materially affect the risk attached to the investments of the fund.


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1.7 ValueChoice European Equity Fund

The investment objective of the ValueChoice European Equity Fund is to achieve long-term capital growth. This Fund shall be invested in an approved pooled investment fund (HSBC MPF “A” – VC European Equity Fund), which in turn invests in two or more underlying approved ITCIS(s) and/or approved pooled investment fund(s) as allowed under the General Regulation. It is expected that preference will be given to ITCIS(s) when making investments. Through such underlying investments, this Fund invests in a diversified portfolio that mainly comprises European equities and equity-related investments. The portfolio may also include deposits, debt securities and other permitted investments up to 30 percent of the net asset value of this Fund. The Investment Adviser of the approved pooled investment fund in which the ValueChoice European Equity Fund invests is responsible to allocate the assets to the underlying investments in such proportions as it shall, at its discretion, determine. The intended asset allocation aforesaid is for indication only and may be changed as and when the Investment Adviser considers appropriate. For efficient portfolio management, the approved pooled investment fund and its underlying investments may acquire financial futures contracts and financial option contracts, engage in securities lending, enter into repurchase agreements, and invest in other investments, as allowed under the applicable laws and regulations. Investments in this Fund are subject to market fluctuations and investment risks, in particular, the risks associated with investments in European securities. The volatility of this regional Fund is higher than that of funds which invest in a number of continents or regions. There was no change in the statement of investment objective and policies during the period of this report that will materially affect the risk attached to the investments of the fund.


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1.8 ValueChoice US Equity Fund

The investment objective of the ValueChoice US Equity Fund is to achieve long-term capital growth. This Fund shall be invested in an approved pooled investment fund (HSBC MPF “A” – VC US Equity Fund), which in turn invests in two or more underlying approved ITCIS(s) and/or approved pooled investment fund(s) as allowed under the General Regulation. It is expected that preference will be given to ITCIS(s) when making investments. Through such underlying investments, this Fund invests in a diversified portfolio that mainly comprises US equities and equity-related investments. The portfolio may also include deposits, debt securities and other permitted investments up to 30 percent of the net asset value of this Fund. The Investment Adviser of the approved pooled investment fund in which the ValueChoice US Equity Fund invests is responsible to allocate the assets to the underlying investments in such proportions as it shall, at its discretion, determine. The intended asset allocation aforesaid is for indication only and may be changed as and when the Investment Adviser considers appropriate. For efficient portfolio management, the approved pooled investment fund and its underlying investments may acquire financial futures contracts and financial option contracts, engage in securities lending, enter into repurchase agreements, and invest in other investments, as allowed under the applicable laws and regulations. Investments in this Fund are subject to market fluctuations and investment risks, in particular, the risks associated with investments in US equities and equity-related investments. Despite a number of US companies having significant operations outside the US, the volatility of this Fund may be higher than that of more diversified funds which invest in a number of continents or geographic regions. There was no change in the statement of investment objective and policies during the period of this report that will materially affect the risk attached to the investments of the fund.

1.9 Hang Seng China Enterprises Index Tracking Fund

The investment objective of the Hang Seng China Enterprises Index Tracking Fund is to match as closely as practicable the performance of the Hang Seng China Enterprises Index by investing directly in an approved ITCIS (Hang Seng China Enterprises Index ETF) with a similar investment objective.


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1.9 Hang Seng China Enterprises Index Tracking Fund (continued) For efficient portfolio management, the approved ITCIS held by the Hang Seng China Enterprises Index Tracking Fund may gain exposure to the Hang Seng China Enterprises Index or its constituent stocks through investing in financial instruments, engaging in borrowings, securities lending and entering into repurchase agreements, as allowed under the applicable laws and regulations. Whilst the investment objective of the Hang Seng China Enterprises Index Tracking Fund and the underlying approved ITCIS is to track the Hang Seng China Enterprises Index, there can be no assurance that the performance of the Hang Seng China Enterprises Index Tracking Fund and the underlying approved ITCIS will at any time be identical to the performance of the Hang Seng China Enterprises Index. There was no change in the statement of investment objective and policies during the period of this report that will materially affect the risk attached to the investments of the fund.

1.10 Global Equity Fund

The investment objective of Global Equity Fund is to achieve long-term capital growth. This Fund shall be invested in an approved pooled investment fund (HSBC MPF “A” – Global Equity Fund), which in turn invests in two or more underlying approved pooled investment fund(s) and/or ITCIS(s) as allowed under the General Regulation. Through such underlying investments, this Fund primarily invests in a portfolio of carefully selected shares traded on different global markets. The investment adviser(s) and investment sub-adviser(s) appointed to manage the investments of the approved pooled investment fund(s) held by this Fund directly or indirectly are members of the HSBC Group. The investment portfolio indirectly held by this Fund will comprise mainly of equities and equity related investments traded on stock exchanges in global markets. The portfolio may also include deposits, debt securities and other permitted investments up to 30 percent of the net asset value of this Fund. The intended asset allocation aforesaid is for indication only and may be changed as and when the Investment Manager considers appropriate. For efficient portfolio management, the approved pooled investment fund and its underlying approved pooled investment funds and/or ITCIS may engage in securities lending, enter into repurchase agreements, and invest in other investments to the extent permitted by the General Regulation. The approved pooled investment fund and its underlying approved pooled investment funds and/or ITCIS may also acquire financial futures contracts and financial option contracts as allowed under the General Regulation.


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Investment report for the year ended 30 June 2019 (continued) 1. Statement of investment objective and policies (continued)

1.10 Global Equity Fund (continued)

Investments in this Fund are subject to market fluctuations and investment risks, in particular, the risks associated with equity investments. The value of equity investments are affected by many factors, including but not limited to the business, performance and activities of individual companies as well as general market and economic conditions. This Fund may invest in both developed and emerging markets globally. Investment in emerging markets may be subject to higher volatility. There was no change in the statement of investment objective and policies during the period of this report that will materially affect the risk attached to the investments of the fund.

1.11 Age 65 Plus Fund

The investment objective of Age 65 Plus Fund is to provide stable growth for the retirement savings to Members by investing in a globally diversified manner. The Fund shall be invested in an approved pooled investment fund (HSBC MPF “A” – Age 65 Plus Fund), which in turn invests in two or more underlying approved pooled investment fund(s) and/or ITCIS(s) as allowed under the General Regulation. The HSBC MPF “A” – Age 65 Plus Fund adopts an active investment strategy so that the investment adviser of the HSBC MPF “A” – Age 65 Plus Fund may, subject to the limits of asset allocation, allocate the assets among different underlying approved pooled investment fund(s) and/or ITCIS(s) in such proportions as it shall, at its discretion, determine in response to various factors within the market environment for the best interest of the unitholders of the HSBC MPF “A” – Age 65 Plus Fund. The underlying approved pooled investment fund(s) and/or ITCIS(s) may be actively managed or may adopt a passive management style against an index. There is no constraint restricting the investment adviser from investing in underlying collective investment schemes with any particular investment strategy. The investment adviser(s) of the underlying approved pooled investment fund(s) and/or ITCIS(s) in which the HSBC MPF “A” – Age 65 Plus Fund invests in may appoint one or more investment sub-advisers to manage the investment of the underlying approved pooled investment fund(s), and such investment sub-advisers may include members of the HSBC Group as well as non-HSBC Group entities. The Fund, through its underlying investments, will hold 20 percent of its assets in Higher Risk Assets (such as global equities), with the remainder investing in Lower Risk Assets (such as global bonds and money market instruments). The asset allocation to Higher Risk Assets may vary between 15 percent and 25 percent due to differing price movements of various equity and bond markets.


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1.11 Age 65 Plus Fund (Continued) The Age 65 Plus Fund itself will not engage in securities lending transactions, financial futures and option trading or enter into repurchase agreements. For efficient portfolio management, the portfolio of the underlying approved pooled investment fund may acquire financial futures contracts and financial option contracts (for hedging purposes only if acquired directly by the underlying approved pooled investment fund), engage in securities lending, enter into repurchase agreements, and invest in other investments, as allowed under the applicable laws and regulations. The Fund will, through the investment of HSBC MPF “A” – Age 65 Plus Fund maintain a minimum Hong Kong currency exposure of 30 percent, as prescribed by the General Regulation. There was no change in the statement of investment objective and policies during the period of this report that will materially affect the risk attached to the investments of the fund.


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Investment report for the year ended 30 June 2019 (continued) 2. Investment Manager’s Market Review and outlook for the year ended 30

June 2019

Can you give us an overview of global equity markets in the first half of 2019? There have been two key developments of note this year. Firstly, the US Federal Reserve’s position on interest rates has become clear after an extended ‘will they, won’t they’ waiting game that had investors on tenterhooks last year. The Fed pivoted to a more dovish stance at the beginning of 2019, putting further rates hikes on hold and adopting a data dependent approach for future policy decisions. Secondly, with respect to global economic growth - we’ve seen a degree of stabilisation, primarily in the US and in China, and this has helped anchor the world economy. To put this in context we need to flash back to 2017 when the key economies were growing strongly, in a synchronised manner, amidst low inflation. Risk assets thrived in that environment. When investors saw signs of economic growth flagging in 2018, amidst an array of other concerns – primarily the Fed’s rate hiking path and US-China trade tensions – they punished the markets, particularly in the second half of the year. While there was no material shift in the economic or business cycle in 2019, there was a change in sentiment as many of last year’s pressing concerns - including, for a brief period, the US-China trade standoff - began to fade into the background. This combined with cheap valuations after last year’s correction, unleashed the latent value in global equities, and stock markets rallied sharply in the beginning of the year before giving up some gains to the latest round of trade frictions in May. One area where the narrative has been negative, and unfairly so in our opinion, is earnings growth. There has been a lot of discussion around earnings ‘misses’ in the fourth quarter of 2018 and the first three months of 2019, but here the focus is on how accurate analysts’ estimates are. Instead, we should be thinking about whether companies are delivering better profitability and return on equity (ROE) (Figure 1). Earnings growth has undoubtedly slowed when compared with 2018, trending in single digits for most major markets, but this has largely been factored into the current stock prices. This means any upside we see from here could provide a boost.


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June 2019 (continued) Can you give us an overview of global equity markets in the first half of 2019? (continued) Figure 1: Profitability forecast

EPS growth forecast PE PB RoE

2019E 2020E 2019E 2019E 2019E

China 12.40% 12.10% 11.6x 1.5x 13.10%

Asia ex Japan 4.10% 13.90% 13.2x 1.4x 10.90%

Emerging Markets 0.80% 11.60% 12.1x 1.4x 12.20%

Europe 1.20% 10.80% 13.8x 1.7x 12.20%

US 3.80% 11.70% 17.5x 3.2x 18.90%

World 2.90% 10.90% 15.3x 2.1x 14.10% Source: Goldman Sachs, data as of May 2019. Any forecast, projection or target contained in this document is indicative only and is not guaranteed in any way. Past performance is not a reliable indicator of future returns. What is your outlook for the rest of 2019? Based on the most recent round of talks between the US and China, which resulted in tit-for-tat tariffs and no definite timeline for any sort of resolution, it looks like the spectre of a full-fledged trade conflict will spill over into the second half of 2019. In our opinion, the uncertainty and negative sentiment that comes with a prolonged conflict is a bigger threat to companies and markets than the potential increase in tariffs. Even in a scenario (not our base case) where the US imposes a 25% tariff on USD500bn worth of goods it imports from China, and China retaliates with similar measures, estimates suggest that the economic hit may be limited to around 50-60 basis points off their GDP growth. This is certainly not a positive development and will have a disproportionately large impact on the agricultural sector and consumers in the US, but another potential consequence is the removal of uncertainty, which will allow corporates that are currently in limbo to once again make long-term decisions and investments, such as potential supply-chain realignments.


21


June 2019 (continued)

What is your outlook for the rest of 2019? (continued) In our view the US and China could reach a deal ultimately, but the timing, format and terms of any deal, let alone details of implementation, are difficult, if not impossible to predict. However, we believe trade frictions are merely a symptom of the deeper running conflict between the two nations which is being likened to a Thucydides Trap – an allusion to the Athenian historian Thucydides and the belief that when an emerging power threatens an incumbent one, it ultimately leads to conflict. Thus investors will potentially need to adjust to a longer period of geo-political uncertainty, especially as we move closer to the campaign for the 2020 US Presidential elections where US-China relations are sure to be on the agenda. What key opportunities do you see? Another shifting narrative at the global level is the intersection between conventional economics and the Modern Monetary Theory (MMT), which seems to be gaining traction with the rise of populism and the call for more fiscal stimulus in the face of slowing global economic growth. We are already experiencing this in many parts of the world where governments are choosing fiscal measures over monetary tools, and we could potentially see more if there is a dip in growth. We are buyers of risk assets, and equities in particular, in this environment. The US markets have run ahead of the others, but Japan and Europe still look undervalued and attractive. Within emerging markets, Asia stands out as others grapple with greater geo-political and economic uncertainties (new regime in Brazil, elections in Argentina and South Africa, below forecast growth in Russia). From a medium to long-term perspective we can see the fundamentals play out and the latent value emerging from these equity markets; but in the more immediate future we have to be prepared for some turbulence. What are the key considerations for global equity investors in the rest of 2019? In addition to the re-escalation of trade tensions between the US and China, there are other geo-political factors at play, especially since 2019 is a crucial election year for many emerging markets. It's always difficult to predict political outcomes and it's even harder to predict their impact on asset markets, but one lesson we can learn from history is that the effect of these political events tends to be ephemeral. The most important consideration for us as investors is political stability and policy continuity. The Asia-Pacific region in particular has witnessed a number of key elections this year but the reform agendas in major economies have not shown signs of wavering despite shifts in the political landscape. This is a positive sign for equity markets and should be a continued tailwind over the medium to long term in the region. Unpredictable as they might be, it is clear that geopolitical uncertainties have a huge impact on sentiment and can drive markets in powerful ways in the short term. The only logical action in such situations is to invest according to fundamentals; and the fundamentals as we see them are still favourable - the slowdown in economic growth has moderated, corporate profitability remains intact and inflation is still low.


22



What are the key considerations for global equity investors in the rest of 2019? (continued) Another factor that is mostly under-priced at the moment, is inflation. Inflation remains below target in developed markets and low in emerging markets, but the trade conflict between the US and China could change that as tariffs are inflationary and so are counter measures such as onshoring manufacturing. We don’t expect inflation to come back in a big way in 2019, but we will continue to monitor it as other risk factors play out. What has driven fixed income performance so far in 2019? Looking back at developments leading into the year, most of 2018 was driven by central bank tightening, eventually contributing to a slowdown in economic growth and a market shift to risk aversion. The adverse reaction by markets highlighted an important background theme – secular stagnation forces, such as demographics, deleveraging and environmental change, continue to hold sway. With their drag on global economies, any budgetary or monetary tightening can quickly slow economic growth, revealing a lack of intrinsic strength in the recovery to be sustained at a global level. We continue to live in a world of moderate economic growth and low inflation, along with significant political uncertainty and geopolitical tensions. This environment is not particularly adverse for fixed income. At the start of 2019 our base scenario was that if a major global economic slowdown was avoided, liquidity and investors were poised to return to bond markets. The Fed policy pivot then reinforced markets. Benign fundamentals, continued global expansion, and monetary policies back to neutral or accommodative have supported all fixed income segments in 2019, with high yield, US dollar EM debt (EMD) and Asian bonds leading the way. A key driver for high-yield bond performance has been credit default rates remaining low in both Europe and the US. Asia and emerging countries have benefited from a better policy mix (tax cuts and public investment in China as an example), along with global commodity prices creeping up. A more patient Fed and tame inflation have paved the way for more neutral monetary policies across emerging markets, trending towards easing.


23



There have been notable policy changes across key central banks this year. Looking forward, what is your outlook on rates? Over the year-end, expectations flipped markedly. We moved from the Fed continuing to bring short-term rates closer to long-term equilibrium rates of roughly 3%, to a more patient Fed no longer prioritising the cyclical hiking path and structural balance sheet reduction. Signalling the massive change in sentiment over US monetary policy, a narrative of the Fed adopting a precautionary rate cut, started to develop as we entered the second quarter, and this was reflected in forward prices. We believe however, that the Fed will maintain a neutral policy over the remainder of the year. Whilst inflation is depressed by some temporary factors, we do not expect a pre-emptive rate cut and believe the Fed will instead react to macro data first and foremost. Keeping this in mind, along with a mostly positive outlook on growth, we maintain our short-duration bias across developed market portfolios. We acknowledge that it could take time for US and European rates to break their current range, and will pursue tactical adjustments in the near-term. In the UK, rates are also largely range-trading dependent on Brexit scenarios, but again a short-duration bias seems justified overall. We have maintained our preference for short-duration on inflation bonds and real yields, yet with a more prudent long bias on inflation break-evens, which have recovered relatively well from their trough earlier this year. In Europe, we continue to see some value in the periphery as economic growth recovers or at least holds up. Italy however, remains volatile, justifying political-induced tactical adjustments. What opportunities do you see and what are the key risks? A lot of valuation potential has been revealed and is materialising already this year with the strong performance across fixed income assets. Investors should be expecting a more muted second half where we see little value in sovereign and investment grade credit. We continue to see some value in high yield, with a bias in Europe for relative value. We still prefer EMD thanks to the strong combination of fundamentals and improving recovery stories. Furthermore, we believe that technical, structural diversification as a tail wind will continue to support this segment. Geopolitics and trade tensions will continue to pose challenges, and we will be paying close attention to developments in Europe regarding Brexit and the Italian budget. Separately, default rates could start to creep up if any slowdown in the US economy drives notable earnings declines in the second half of the year. A keen eye should be kept on developments in the loan markets and the balance of upgrades and downgrades in the BBB segment, to which the performance in indices is very sensitive.


24


June 2019 (continued) Macro Outlook as at November 2019

Global growth continues to face headwinds from a downturn in the industrial cycle and uncertainty related to trade tensions. Nevertheless, the trend in the global Nowcast remains broadly stable at around 2%. US growth remains robust but is likely to moderate. A marked fall in some business surveys of late has increased market concerns over a sharp slowdown, but we do not expect US growth to drop materially below trend. Growth elsewhere is already below trend, although our Nowcast for China has risen gradually over recent months, consistent with improved credit dynamics. Europe remains the main underperformer. The unbalanced nature of growth leaves the global economy vulnerable to negative shocks. However, policy makers are now making a concerted effort to limit the risk of a further sharp slowdown.

For the latest market outlook, please visit https://www.assetmanagement.hsbc.com.hk


25


3. Trustee’s commentary on fund performance against benchmark set by trustee

Annualized return (in terms of %)

1 year 5 years 10 years Since

Launch MPF Conservative Fund Launch date: 24 March 2011 0.71 0.17 - 0.16 Benchmark MPF Prescribed Savings Rates for Cap Preservation 0.10 0.02 - 0.02 Deviation from the benchmark 0.61 0.15 - 0.14 Trustee’s commentary on performance The fund outperformed the benchmark in 1

year, 5 years and since launch. Liquidity conditions in Hong Kong have tightened over the 1-year period, albeit having come down from the highs seen in September and December 2018 on the back of IPO funding squeezes and year end demand.

Hang Seng Index Tracking Fund Launch date: 24 March 2011 1.33 6.97 - 5.46 Benchmark FER Adjusted - Hang Seng Index Total Return (Net)^ 1.52 7.05 - 5.47 Deviation from the benchmark -0.19 -0.08 - -0.01 Trustee’s commentary on performance The fund underperformed the benchmark in 1

year, 5 years and since launch. During the past financial period ended 30 June 2019, the fund’s underperformance was 0.19%. The key causes are the swing pricing impact, the tracking difference of the underlying Hang Seng Index ETF, the cash drag factor and the fund price’s rounding effect. The fund price’s rounding effect contributed positively to the tracking performance of the fund, while the swing pricing impact, the tracking difference of the underlying Hang Seng Index ETF and the cash drag factor due to dividend reinvestment timing lowered the fund’s performance.


26

Investment report for the year ended 30 June 2019 (continued) 3. Trustee’s commentary on fund performance against benchmark set by

trustee (continued)

Annualized return (in terms of %) 1 year 5 years 10 years Since Launch Global Bond Fund Launch date: 24 March 2011 4.97 2.67 - 2.34 Benchmark FER Adjusted - FTSE MPF WGBI (35% HKD Hedged)^ 4.87 2.85 - 2.52 Deviation from the benchmark 0.10 -0.18 - -0.18 Trustee’s commentary on performance The fund outperformed the benchmark in 1 year

but underperformed the benchmark in 5 years and since launch. During the past financial period ended 30 June 2019, selection in Asian credit bonds contributed to relative performance, led mainly by banks and Energy sectors. The overweight in Italy and Spain also lifted returns. Conversely, most non-USD/HKD currency exposure weighed on results as USD strengthened amid heightened US-China trade tensions.


27


trustee (continued)

Annualized return (in terms of %) 1 year 5 years 10 years Since Launch Core Accumulation Fund Launch date: 24 March 2011

4.02 - -

5.60 (since 01 April

2017)* Benchmark Willis Towers Watson MPF DIS Reference Portfolio – Core Accumulation Fund 4.93 - -

6.31 (since 01 April

2017) Deviation from the benchmark

-0.91 - -

-0.71 (since 01 April

2017) Trustee’s commentary on performance The fund underperformed the Reference

Portfolio in 1 year and since launch. During the past financial period ended 30 June 2019, the fund returned positively with the main contribution coming from the fixed income side. US treasury yields fell over the period, resulting in the favorable return of global government bonds and Asian bonds. Both the equity and bond portion added value to the fund at the asset allocation level. However, at stock selection level, equity portion contributed negatively to the fund, offsetting the positive effect of the asset allocation over the period. We believe that markets are inherently inefficient over the short and medium term. Asset prices exhibit excess volatility, relative to fundamentals, often leading to market mispricing. Therefore, we believe active asset allocation based on valuation can exploit this market over reaction and mean reversion.


28


trustee (continued)



Launch ValueChoice Balanced Fund Launch date: 24 March 2011 1.42 3.82 - 3.77 Benchmark FER Adjusted - Willis Towers Watson MPF BM (Equity 60%-80%)^ 2.03 3.81 - 4.19 Deviation from the benchmark -0.61 0.01 - -0.42 Trustee’s commentary on performance The fund underperformed the benchmark in 1

year and since launch but outperformed the benchmark in 5 years. During the past financial period ended 30 June 2019, asset allocation was positive and stock selection was negative. Our overweight in Asian bonds added value to the portfolio. However, at stock selection level, the equity portion contributed negatively to the fund, offsetting the positive effect of the asset allocation over the period. In particular, stock selection in Hong Kong and Asia ex Japan equities were unfavorable. We believe that markets are inherently inefficient over the short and medium term. Asset prices exhibit excess volatility, relative to fundamentals, often leading to market mispricing. Therefore, we believe active asset allocation based on valuation can exploit this market over reaction and mean reversion.


29


trustee (continued)



Launch ValueChoice Asia Pacific Equity Fund Launch date: 24 March 2011 -0.42 2.93 - 2.04 Benchmark FER Adjusted - FTSE MPF Asia Pacific ex Japan (35% HKD Hedged)^ 0.71 3.94 - 2.88 Deviation from the benchmark -1.13 -1.01 - -0.84 Trustee’s commentary on performance The fund underperformed the benchmark in 1

year, 5 years and since launch. During the past financial period ended 30 June 2019, both asset allocation and stock selection detracted value from the fund. Our selection in Financials and Technology sectors weighed on performance. In the longer term, we are more constructive on our positioning as the recent volatility has given rise to significant mispricing opportunities for us to exploit.


30


trustee (continued)



Launch ValueChoice European Equity Fund Launch date: 24 March 2011 2.20 2.72 - 4.07 Benchmark FER Adjusted - FTSE MPF Europe (35% HKD Hedged)^ 2.43 2.70 - 4.40 Deviation from the benchmark -0.23 0.02 - -0.33 Trustee’s commentary on performance The fund underperformed the benchmark in 1

year and since launch but the fund outperformed the benchmark in 5 years. During the past financial period ended 30 June 2019, our sector positioning remains broadly in line with the benchmark. Deviation from benchmark was mainly due to timing difference between the fund and the index. Markets which are driven by extreme events or bubble-like behaviour will challenge many investment strategies e.g. the tech bubble of 2000s or the global financial crisis. Despite the strategy’s diversity, we may expect to underperform when markets trade without referencing to company fundamentals. Our observation has been that such periods are generally short lived.


31


trustee (continued)



Launch ValueChoice US Equity Fund Launch date: 24 March 2011 7.52 8.83 - 10.34 Benchmark FER Adjusted - FTSE MPF USA (35% HKD Hedged)^ 7.82 8.90 - 10.73 Deviation from the benchmark -0.30 -0.07 - -0.39 Trustee’s commentary on performance The fund underperformed the benchmark in 1

year, 5 years and since launch. During the past financial period ended 30 June 2019, our sector positioning remains broadly in line with the benchmark. Deviation from benchmark was mainly due to timing difference between the fund and the index. Markets which are driven by extreme events or bubble-like behaviour will challenge many investment strategies e.g. the tech bubble of 2000s or the global financial crisis. Despite the strategy’s diversity, we may expect to underperform when markets trade without referencing to company fundamentals. Our observation has been that such periods are generally short lived.


32


trustee (continued)



Launch Hang Seng China Enterprises Index Tracking Fund (1) Launch date: 24 March 2011 1.56 3.65 - -0.31 Benchmark FER Adjusted - Hang Seng China Enterprises Index Total Return (Net)^ 1.75 3.69 - 0.61 Deviation from the benchmark -0.19 -0.04 - -0.92 Trustee’s commentary on performance The fund underperformed the benchmark in 1

year, 5 years and since launch. During the past financial period ended 30 June 2019, the fund’s underperformance was 0.19%. The key causes are the tracking difference of the underlying Hang Seng China Enterprises Index ETF, the cash drag factor and the fund price’s rounding effect. The fund price’s rounding effect contributed positively to the tracking performance of the fund, while the tracking difference of the underlying Hang Seng China Enterprises Index ETF and the cash drag factor due to dividend reinvestment timing lowered the fund’s performance.


33


trustee (continued)



Launch Global Equity Fund Launch date: 01 July 2016 2.59 - - 9.44 Benchmark FER Adjusted - FTSE MPF All World (35% HKD Hedged)^ 4.56 - - 11.10 Deviation from the benchmark -1.97 - - -1.66 Trustee’s commentary on performance The fund underperformed the benchmark in 1

year and since launch. During the past financial period ended 30 June 2019, both asset allocation and stock selection detracted value from the fund. Our selection in Japan and North American equities weighed on performance. Markets which are driven by extreme events or bubble-like behaviour will challenge many investment strategies e.g. the tech bubble of 2000s or the global financial crisis. Despite the strategy’s diversity, we may expect to underperform when markets trade without referencing to company fundamentals. Our observation has been that such periods are generally short lived.


34


trustee (continued)



Launch * Age 65 Plus Fund Launch date: 01 April 2017 5.46 - - 3.89 Benchmark Willis Towers Watson MPF DIS Reference Portfolio - Age 65 Plus Fund 5.57 - - 3.97 Deviation from the benchmark -0.11 - - -0.08 Trustee’s commentary on performance The fund underperformed the Reference

Portfolio in 1 year and since launch. During the past financial period ended 30 June 2019, the fund returned positively with the main contribution coming from global government bonds. US treasury yields fell over the period, resulting in the favorable return. Both the equity and bond portion added value to the fund at the asset allocation level. However, at stock selection level, equity portion contributed negatively to the fund, offsetting the positive effect of the asset allocation over the period. We believe that markets are inherently inefficient over the short and medium term. Asset prices exhibit excess volatility, relative to fundamentals, often leading to market mispricing. Therefore, we believe active asset allocation based on valuation can exploit this market over reaction and mean reversion.

Data as at 30 June 2019



^ Benchmark performance is displayed on a FER adjusted basis. Refer to Appendix A for further details on the rationale of FER adjusted benchmark performance.

* Cumulative performance for the Core Accumulation Fund and Age 65 Plus Fund since

they launched as a constituent fund of DIS on 1 April 2017.


35

Investment report for the year ended 30 June 2019 (continued) 4 Trustee’s performance assessment framework and trustee’s action, if any,

to increase efficiency of the scheme and investment return (value) for members

The Trustee works in collaboration with the Sponsor in the on-going monitoring of investment of funds with the setup of Investment Performance Committee with participation from the Sponsor, Trustee and Investment Manager to review performance on a regular basis: • Benchmark and peer group comparison would be conducted with comprehensive

analysis to be provided to evaluate the factors contributing to out/underperformance

• Proposed actions and monitoring of those actions would be covered by the

Committee to tackle the underperformance issues and for Investment Manager to explore alternative sources to improve fund performance including fund restructuring, adoption of new investment approach and etc.

The Trustee has also an Investment Committee represented by members of the Board of Directors of the Trustee to review the fund managers’ fund performance on a regular basis. The criteria for assessment of the overall performance and capabilities of fund managers are: • Compliance with Investment Objectives, tracking error from benchmark

performance and benchmark asset allocation • Breaches in investment restrictions and other regulations • Quantitative assessment - Fund performance relative to benchmark, peer

comparison and risk level • Qualitative assessment - Fund manager in various factors based on the

investment Appendix A – FER-adjusted benchmark performance calculation methodology The FER-adjusted benchmark performance is an annualized figure of the benchmark performance deducted by the Fund Expense Ratio (FER) in which the relevant Constituent Fund (CF) incurred in the captioned period. For the years where FER data is not available (i.e. financial period ended 30 June 2005 and before), the earliest available FER data would be used as proxies for those years (earliest available FER for CFs in ValueChoice Scheme is as of financial period ended 30 June 2006). Same proxy applies to the first year of fund launch without FER, but on a pro rata basis from the relevant CF’s launch date to the first financial year end (e.g. 1 Dec 2000 – 30 Jun 2001).


36

Investment report for the year ended 30 June 2019 (continued) 5. Distribution of constituent funds


As at 30 June 2019, 2018 and 2017 Net assets attributable to members of the Scheme’s constituent funds are as follows:

Net asset value

Fund 2019 2018 2017 $’000 $’000 $’000 MPF Conservative Fund 280,481 217,562 163,277 Hang Seng Index Tracking Fund 248,468 216,211 155,825 Global Bond Fund 104,893 83,783 62,581 Core Accumulation Fund 160,365 112,197 68,975 ValueChoice Balanced Fund 81,193 69,058 52,843 ValueChoice Asia Pacific Equity Fund 90,925 84,269 67,533 ValueChoice European Equity Fund 25,592 22,737 19,823 ValueChoice US Equity Fund 93,301 67,674 52,401 Hang Seng China Enterprises Index Tracking

Fund(1)

98,426 89,485 75,823 Global Equity Fund 53,755 40,781 26,430 Age 65 Plus Fund 24,315 12,695 1,391 Scheme level adjustment 3,801 4,373 3,356

1,265,515 1,020,825 750,258

% of Net assets attributable to constituent

funds of the Scheme Fund 2019 2018 2017 % % % MPF Conservative Fund 22.16 21.31 21.76 Hang Seng Index Tracking Fund 19.63 21.18 20.77 Global Bond Fund 8.29 8.21 8.34 Core Accumulation Fund 12.67 10.99 9.19 ValueChoice Balanced Fund 6.42 6.76 7.04 ValueChoice Asia Pacific Equity Fund 7.19 8.25 9.00 ValueChoice European Equity Fund 2.02 2.23 2.64 ValueChoice US Equity Fund 7.37 6.63 6.98 Hang Seng China Enterprises Index Tracking

Fund(1)

7.78 8.77

10.11 Global Equity Fund 4.25 3.99 3.52 Age 65 Plus Fund 1.92 1.24 0.19 Scheme level adjustment 0.30 0.44 0.46 100.00 100.00 100.00 (1) Hang Seng China Enterprises Index Tracking Fund was formerly known as Hang Seng



37

Investment report for the year ended 30 June 2019 (continued) 6. Performance

Fund Period

Cumulative Return

(%)+/(-) MPF Conservative Fund 1 July 2018 to 30 June 2019 0.71% Hang Seng Index Tracking Fund 1 July 2018 to 30 June 2019 1.29% Global Bond Fund 1 July 2018 to 30 June 2019 5.05% Core Accumulation Fund 1 July 2018 to 30 June 2019 4.02% ValueChoice Balanced Fund 1 July 2018 to 30 June 2019 1.42% ValueChoice Asia Pacific Equity Fund 1 July 2018 to 30 June 2019 (0.42)% ValueChoice European Equity Fund 1 July 2018 to 30 June 2019 2.20% ValueChoice US Equity Fund 1 July 2018 to 30 June 2019 7.52% Hang Seng China Enterprises Index Tracking

Fund 1 July 2018 to 30 June 2019 1.56% Global Equity Fund 1 July 2018 to 30 June 2019 2.59% Age 65 Plus Fund 1 July 2018 to 30 June 2019 5.46%

Cumulative return represents the percentage change in unit price (net asset value per unit) for the year.


38

Investment report for the year ended 30 June 2019 (continued) 7. Financial summary


Fund Period Income

Net (deficit)/income excluding

capital appreciation or depreciation

Net movement in unrealised gain/(loss) on

investments Net gain/(loss) on sale of

investments

Value of the Scheme assets derived from

investment Net asset value $’000 $’000 $’000 $’000 $’000 $’000 MPF Conservative Fund 2019

2018 2017

1 - -

(2,290) (1,445)

(633)

2,226 797 383

1,941 662 260

280,666 217,760 163,305

280,481 217,562 163,277

Hang Seng Index Tracking Fund 2019 2018 2017

8,414 6,206 3,821

6,851 4,825 2,941

(6,634) 5,894

24,926

4,106 13,285 1,203

244,782 213,763 153,526

248,468 216,211 155,825

Global Bond Fund 2019 2018 2017

- - -

(510) (413) (288)

4,612 (71)

(938)

612 704 264

104,940 83,823 62,609

104,893 83,783 62,581

Core Accumulation Fund 2019 2018 2017

- - -

(676) (484) (286)

5,732 3,297

39

833 1,309 3,631

160,431 112,246

69,008

160,365 112,197

68,975 ValueChoice Balanced Fund 2019

2018 2017

- - -

(413) (340) (201)

626 1,595 5,832

1,102 2,461

554

81,229 69,092 52,865

81,193 69,058 52,843

ValueChoice Asia Pacific Equity Fund 2019 2018 2017

- - -

(476) (421) (248)

(1,473) 1,726

11,702

1,611 3,445

781

90,966 84,311 67,560

90,925 84,269 67,533

ValueChoice European Equity Fund 2019 2018 2017

- - -

(130) (119) (74)

27 (333) 3,192

673 1,400

173

25,603 22,748 19,831

25,592 22,737 19,823

ValueChoice US Equity Fund 2019 2018 2017

- - -

(443) (322) (200)

(607) 3,503 6,078

6,478 4,022 1,139

93,342 67,707 52,424

93,301 67,674 52,401

Hang Seng China Enterprises Index Tracking Fund(1) 2019 2018 2017

3,516 2,252 1,382

2,875 1,795 1,215

29 (1,147) 12,662

(1,294) 5,383

(1,597)

97,025 88,635 75,064

98,426 89,485 75,823

Global Equity Fund 2019 2018 2017

- - -

(267) (194) (113)

896 1,447 3,282

750 1,104

285

53,780 40,801 26,443

53,755 40,781 26,430

Age 65 Plus Fund 2019 2018 2017

- - -

(92) (36)

-

1,139 42 2

82 31

-

24,325 12,701 1,391

24,315 12,695 1,391

(1) Hang Seng China Enterprises Index Tracking Fund was formerly known as Hang Seng H-Share Index Tracking Fund prior to 5 March 2018.


(For management purposes only)

39

Investment report for the year ended 30 June 2019 (continued) 8. Performance table


MPF Conservative Fund

Year ended 30 June

Period from 24 March 2011 (date of

commencement) to 30 June

2019 2018 2017 2016 2015 2014 2013 2012 2011(2) Total net asset value ($’000) 280,481 217,562 163,277 109,575 77,392 59,167 29,039 10,663 732 Net asset value per unit 12.70 12.61 12.61 12.61 12.61 12.56 12.50 12.46 12.42 Price record: Highest issue price 12.70 12.62 12.62 12.62 12.61 12.56 12.51 12.46 12.43 Lowest redemption price 12.61 12.61 12.61 12.60 12.56 12.50 12.46 12.42 12.42 Net annualised investment return⑴ 0.7% 0.0% 0.0% 0.0% 0.4% 0.5% 0.3% 0.3% (0.1)%

Hang Seng Index Tracking Fund

Year ended 30 June



2019 2018 2017 2016 2015 2014 2013 2012 2011(2) Total net asset value ($’000) 248,468 216,211 155,825 98,867 94,536 59,151 35,134 13,468 2,261 Net asset value per unit 28.26 27.90 24.22 19.16 23.47 20.18 17.71 16.17 18.09 Price record: Highest issue price 29.46 31.44 24.36 23.46 25.05 20.54 19.81 18.43 19.37 Lowest redemption price 23.95 23.92 18.90 16.53 19.90 17.17 15.71 13.22 17.51 Net annualised investment return⑴ 1.3% 15.2% 26.4% (18.4)% 16.3% 13.9% 9.5% (10.6)% (5.6)%



40

Investment report for the year ended 30 June 2019 (continued) 8. Performance table (continued)


Global Bond Fund

Year ended 30 June



2019 2018 2017 2016 2015 2014 2013 2012 2011(2) Total net asset value ($’000) 104,893 83,783 62,581 38,388 23,242 18,814 11,105 3,655 118 Net asset value per unit 12.48 11.88 11.80 12.05 11.12 10.93 10.31 10.59 10.48 Price record: Highest issue price 12.48 12.21 12.19 12.05 11.36 10.93 10.88 10.89 10.55 Lowest redemption price 11.62 11.74 11.17 10.99 10.92 10.24 10.29 10.40 10.14 Net annualised investment return⑴ 5.1% 0.7% (2.1)% 8.4% 1.7% 6.0% (2.6)% 1.0% 2.2%

Core Accumulation Fund

Year ended 30 June



2019 2018 2017 2016 2015 2014 2013 2012 2011(2) Total net asset value ($’000) 160,365 112,197 68,975 44,069 33,795 26,150 14,661 4,762 454 Net asset value per unit 12.67 12.18 11.52 10.82 11.06 11.07 9.97 9.37 9.97 Price record: Highest issue price 12.67 12.81 11.59 11.04 11.50 11.07 10.53 10.10 10.11 Lowest redemption price 11.24 11.49 10.74 9.99 10.64 9.92 9.24 8.78 9.79 Net annualised investment return⑴ 4.0% 5.7% 6.5% (2.2)% (0.1)% 11.0% 6.4% (6.0)% (0.9)%



41



ValueChoice Balanced Fund

Year ended 30 June



2019 2018 2017 2016 2015 2014 2013 2012 2011(2) Total net asset value ($’000) 81,193 69,058 52,843 35,047 28,844 20,644 11,041 3,222 511 Net asset value per unit 13.58 13.39 12.49 10.82 11.55 11.26 9.96 9.03 9.91 Price record: Highest issue price 13.70 14.46 12.55 11.55 12.06 11.26 10.61 10.06 10.13 Lowest redemption price 12.24 12.39 10.79 9.86 10.72 9.88 8.83 8.20 9.64 Net annualised investment return⑴ 1.4% 7.2% 15.4% (6.3)% 2.6% 13.1% 10.3% (8.9)% (1.3)%

ValueChoice Asia Pacific Equity Fund

Year ended 30 June



2019 2018 2017 2016 2015 2014 2013 2012 2011(2) Total net asset value ($’000) 90,925 84,269 67,533 43,471 39,342 32,181 20,347 8,912 978 Net asset value per unit 11.82 11.87 11.03 8.83 10.09 10.23 8.86 8.36 9.75 Price record: Highest issue price 12.13 13.36 11.10 10.12 10.96 10.23 9.96 9.99 10.17 Lowest redemption price 10.41 10.98 8.77 7.57 9.46 8.65 8.18 7.21 9.36 Net annualised investment return⑴ (0.4)% 7.6% 24.9% (12.5)% (1.4)% 15.5% 6.0% (14.3)% (3.9%)



42



ValueChoice European Equity Fund

Year ended 30 June



2019 2018 2017 2016 2015 2014 2013 2012 2011(2) Total net asset value ($’000) 25,592 22,737 19,823 13,121 12,347 9,568 3,311 756 13 Net asset value per unit 13.91 13.61 12.99 10.50 11.88 12.16 9.79 8.23 9.78 Price record: Highest issue price 14.04 14.61 13.21 12.36 12.56 12.38 10.44 9.95 10.18 Lowest redemption price 11.82 12.85 10.24 9.66 10.46 9.68 8.06 7.28 9.46 Net annualised investment return⑴ 2.2% 4.8% 23.7% (11.6)% (2.3)% 24.2% 19.0% (15.8)% (1.4)%

ValueChoice US Equity Fund

Year ended 30 June



2019 2018 2017 2016 2015 2014 2013 2012 2011(2) Total net asset value ($’000) 93,301 67,674 52,401 32,147 23,898 14,264 6,670 1,727 61 Net asset value per unit 22.58 21.00 18.54 15.58 15.52 14.79 12.06 10.25 10.03 Price record: Highest issue price 22.77 22.01 18.72 16.06 16.05 14.79 12.53 10.73 10.22 Lowest redemption price 18.66 18.45 15.73 13.83 14.02 12.05 10.08 8.42 9.66 Net annualised investment return⑴ 7.5% 13.3% 19.0% 0.4% 4.9% 22.6% 17.7% 2.2% 3.1%



43



Hang Seng China Enterprises Index Tracking Fund(3)

Year ended 30 June



2019 2018 2017 2016 2015 2014 2013 2012 2011(2) Total net asset value ($’000) 98,426 89,485 75,823 57,531 67,728 38,516 26,041 11,095 1,512 Net asset value per unit 9.75 9.60 8.79 7.30 10.50 8.15 7.23 7.25 9.28 Price record: Highest issue price 10.42 11.76 8.92 10.37 11.71 8.93 9.21 9.49 10.00 Lowest redemption price 8.67 8.78 7.15 6.12 8.12 6.92 6.85 6.01 8.87 Net annualised investment return⑴ 1.6% 9.2% 20.4% (30.5)% 28.8% 12.7% (0.3)% (21.9)% 0.3%

Global Equity Fund

Year ended 30 June

Period from 1 July 2016 (date of

commencement) to June

2019 2018 2017(2) Total net asset value ($’000) 53,755 40,781 26,430 Net asset value per unit 14.65 14.28 13.16 Price record: Highest issue price 14.91 15.44 13.28 Lowest redemption price 12.44 13.15 11.07 Net annualised investment return⑴ 2.6% 8.5% 17.7%



44



Age 65 Plus Fund

Year ended 30 June

Period from 1 July 2016 (date of

commencement) to June

2019 2018 2017(2) Total net asset value ($’000) 24,315 12,695 1,391 Net asset value per unit 12.16 11.53 11.30 Price record: Highest issue price 12.16 11.73 11.38 Lowest redemption price 11.30 11.25 11.16 Net annualised investment return⑴ 5.5% 2.0% 1.3%

(1) The net annualised investment return represents the percentage change in unit price (net asset value per unit) for the year.

Percentage change = (Unit price at the end of the year - Unit price at the beginning of the year)/Unit price at the beginning of the year.

(2) The percentage represents the percentage change in unit price (net asset value per unit) for the period specified.

Percentage change = (Unit price at the end of the period - Unit price at the beginning of the period)/Unit price at the beginning of the period.




45

Investment report for the year ended 30 June 2019 (continued) 9. Investment portfolio as at 30 June 2019


Investments (Trade date basis) Holdings Cost

Market value

% of net asset value

$’000 $’000 Collective investment

schemes - Hong Kong dollars

MPF Conservative Fund HSBC MPF “A” – MPF

Conservative Fund 21,370,859 276,785 280,666 100.07 Hang Seng Index Tracking

Fund Hang Seng Index ETF 8,426,569 230,282 244,782 98.52 Global Bond Funds HSBC MPF “A” – Global Bond

Fund 7,751,331 98,448 104,940 100.04 Core Accumulation Fund HSBC MPF “A” – Core

Accumulation Fund 7,194,137 149,689 160,431 100.04 ValueChoice Balanced Fund HSBC MPF “A” – VC Balanced

Fund 5,709,869 72,289 81,229 100.04 ValueChoice Asia Pacific

Equity Fund HSBC MPF “A” – VC Asia Pacific

Equity Fund 7,354,621 80,521 90,966 100.05



46

Investment report for the year ended 30 June 2019 (continued) (Expressed in Hong Kong dollars) 9. Investment portfolio as at 30 June 2019 (continued)


Investments (Trade date basis) Holdings Cost

Market value

% of net asset value

$’000 $’000 Collective investment

schemes - Hong Kong dollars (continued)

ValueChoice European Equity

Fund HSBC MPF “A” – VC European

Equity Fund 1,756,564 23,655 25,603 100.04 ValueChoice US Equity Fund HSBC MPF “A” – VC US Equity

Fund 3,946,379 82,239 93,342 100.04 Hang Seng China Enterprises

Index Tracking Fund(1) Hang Seng China Enterprises

Index ETF 877,575 97,743 97,025 98.58 Global Equity Fund HSBC MPF “A” – Global Equity

Fund 3,349,882 48,155 53,780 100.05 Age 65 Plus Fund HSBC MPF “A” – Age 65 Plus

Fund 1,847,729 23,142 24,325 100.04




47

Investment report for the year ended 30 June 2019 (continued) 10. Statement of movements in portfolio holdings

% of net assets

As at

30 June 2019 As at

30 June 2018 MPF Conservative Fund Collective investment scheme 100.07 100.09 Total investments 100.07 100.09 Other net liabilities (0.07) (0.09) Total net assets 100.00 100.00 Hang Seng Index Tracking Fund Collective investment scheme 98.52 98.87 Total investments 98.52 98.87 Other net assets 1.48 1.13 Total net assets 100.00 100.00 Global Bond Fund Collective investment scheme 100.04 100.05 Total investments 100.04 100.05 Other net liabilities (0.04) (0.05) Total net assets 100.00 100.00 Core Accumulation Fund Collective investment scheme 100.04 100.04 Total investments 100.04 100.04 Other net liabilities (0.04) (0.04) Total net assets 100.00 100.00



48

Investment report for the year ended 30 June 2019 (continued) 10. Statement of movements in portfolio holdings (continued)

% of net assets

As at

30 June 2019 As at

30 June 2018 ValueChoice Balanced Fund Collective investment scheme 100.04 100.05 Total investments 100.04 100.05 Other net liabilities (0.04) (0.05) Total net assets 100.00 100.00 ValueChoice Asia Pacific Equity Fund Collective investment scheme 100.05 100.05 Total investments 100.05 100.05 Other net liabilities (0.05) (0.05) Total net assets 100.00 100.00 ValueChoice European Equity Fund Collective investment scheme 100.04 100.05 Total investments 100.04 100.05 Other net liabilities (0.04) (0.05) Total net assets 100.00 100.00 ValueChoice US Equity Fund Collective investment scheme 100.04 100.05 Total investments 100.04 100.05 Other net liabilities (0.04) (0.05) Total net assets 100.00 100.00



49

Investment report for the year ended 30 June 2019 (continued) 10. Statement of movements in portfolio holdings (continued)

% of net assets

As at

30 June 2019 As at

30 June 2018 Hang Seng China Enterprises Index Tracking

Fund(1) Collective investment scheme 98.58 99.05 Total investments 98.58 99.05 Other net assets 1.42 0.95 Total net assets 100.00 100.00 Global Equity Fund Collective investment scheme 100.05 100.05 Total investments 100.05 100.05 Other net liabilities (0.05) (0.05) Total net assets 100.00 100.00 Age 65 Plus Fund Collective investment scheme 100.04 100.04 Total investments 100.04 100.04 Other net liabilities (0.04) (0.04) Total net assets 100.00 100.00 (1) Hang Seng China Enterprises Index Tracking Fund was formerly known as Hang Seng


kpmg

50

Independent auditor’s report to the Trustee of Hang Seng Mandatory Provident Fund – ValueChoice (“the Scheme”) Report on the Audit of the Financial Statements Opinion We have audited the financial statements of the Scheme set out on pages 54 to 94, which comprise the statement of net assets available for benefits of the Scheme and the statement of assets and liabilities of each of its constituent funds as at 30 June 2019, and the statement of changes in net assets available for benefits and the cash flow statement of the Scheme, and the statement of comprehensive income and the statement of changes in net assets attributable to members of each of its constituent funds for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the financial statements give a true and fair view of the financial position of the Scheme as at 30 June 2019, and of its financial transactions and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). Basis for Opinion We conducted our audit in accordance with Hong Kong Standards on Auditing (“HKSAs”) and with reference to Practice Note 860.1 (Revised), The Audit of Retirement Schemes issued by the HKICPA. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Scheme in accordance with the HKICPA’s Code of Ethics for Professional Accountants (“the Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Emphasis of matter

We draw attention to the fact that the Scheme was merged with Hang Seng Mandatory Provident Fund – SuperTrust Plus with effect from 1 July 2019 and all members of the Scheme and their accrued benefits under the Scheme were transferred to Hang Seng Mandatory Provident Fund – SuperTrust Plus on 1 July 2019. Accordingly, the Scheme is no longer a going concern. Details about the basis of preparation of the financial statements are set out in note 2(b) to the financial statements. Our opinion is not modified in respect of this matter.

kpmg

51

Independent auditor’s report to the Trustee of Hang Seng Mandatory Provident Fund – ValueChoice (“the Scheme”) (continued) Report on the Audit of the Financial Statements (continued) Information Other than the Financial Statements and Auditor’s Report Thereon The Trustee of the Scheme is responsible for the other information. The other information comprises all the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of Trustee and Those Charged with Governance for the Financial Statements The Trustee of the Scheme is responsible for the preparation of the financial statements that give a true and fair view in accordance with HKFRSs issued by the HKICPA and for such internal control as the Trustee of the Scheme 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 Trustee of the Scheme is responsible for assessing the Scheme’s ability to continue as a going concern and disclosing matters related to going concern. The Trustee of the Scheme considers that the Scheme is no longer a going concern and has prepared the financial statements on the basis as set out in note 2(b) thereto. In addition, the Trustee of the Scheme is required to ensure that the financial statements have been properly prepared in accordance with sections 80, 81, 83 and 84 of the Mandatory Provident Fund Schemes (General) Regulation (“the General Regulation”). Those charged with governance are responsible for overseeing the Scheme’s financial reporting process.

kpmg

52

Independent auditor’s report to the Trustee of Hang Seng Mandatory Provident Fund – ValueChoice (“the Scheme”) (continued) Report on the Audit of the Financial Statements (continued) Auditor’s Responsibilities for the Audit of the Financial Statements Our 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 our opinion. This report is made solely to you, in accordance with section 102 of the General Regulation, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with HKSAs 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. In addition, we are required to assess whether the financial statements of the Scheme have been properly prepared, in all material respects, in accordance with sections 80, 81, 83 and 84 of the General Regulation. As part of an audit in accordance with HKSAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We 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 our 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 Scheme’s internal control.

‑ Evaluate the appropriateness of accounting policies used and the reasonableness of

accounting estimates and related disclosures made by the Trustee of the Scheme.

Hang Seng Mandatory Provident Fund – ValueChoice Financial statements for the year ended 30 June 2019

54

Statement of changes in net assets available for benefits – Scheme for the year ended 30 June 2019 (Expressed in Hong Kong dollars) Note 2019 2018 $’000 $’000 Income Distribution income 11,496 8,208 Rebate income 4(a) 433 250 Other income 2 - 11,931 8,458 Expenses Administrator’s fees 4(b) (5,257) (4,023) Fund administration fees 4(c) (412) (192) Management fees 4(d) (451) (276) Sponsor fees 4(e) (570) (278) Investment agency fees 4(f) (320) (442) Trustee’s fees 4(g) (318) (176) Legal and professional fees (1) - Auditor’s remuneration (4) (10) Others (169) (215) (7,502) (5,612)

Net income before net investment gains 4,429 2,846 Net investment gains Realised gains on disposal of investments 16,894 33,806 Movement of unrealised gains or losses on

investments 6,573 16,750 23,467 50,556

Profits and total comprehensive income for the

year 27,896 53,402 Contributions received and receivable 5 330,113 301,964 Benefits paid and payable 6 (113,311) (84,822) Other capital (payments)/receipts 8 (8) 23 Net increase in net assets available for benefits

attributable to members 244,690 270,567 Net assets available for benefits attributable to

members at the beginning of the year 1,020,825 750,258 Net assets available for benefits attributable to

members at the end of the year 1,265,515 1,020,825 The notes on pages 66 to 94 form part of these financial statements.


56

Cash flow statement – Scheme for the year ended 30 June 2019 (Expressed in Hong Kong dollars) Note 2019 2018 $’000 $’000 Operating activities Net expenses before distribution income and net

investment gains (7,067) (5,362) Decrease/(increase) in other receivables 3 (46) Increase in accrued expenses and other payables 42 315 Net cash used in operating activities (7,022) (5,093) Investing activities Distributions received 9,693 7,934 Payments for purchase of investments (729,142) (575,010) Proceeds from disposal of investments 508,717 356,679 Net cash used in investing activities (210,732) (210,397) Financing activities Contributions received 329,206 301,719 Benefits paid (114,244) (84,427) Other capital receipts (8) 23 Net cash generated from financing activities 214,954 217,315 Net (decrease)/increase in cash and cash

equivalents (2,800) 1,825 Cash and cash equivalents at the beginning of the

year 5,330 3,505 Cash and cash equivalents at the end of the year 4(i) 2,530 5,330 The notes on pages 66 to 94 form part of these financial statements.


57

Statement of comprehensive income – Constituent funds for the year ended 30 June 2019 (Expressed in Hong Kong dollars) MPF Conservative Fund Hang Seng Index Tracking Fund Global Bond Fund Core Accumulation Fund Note 2019 2018 2019 2018 2019 2018 2019 2018 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Income Distribution income - - 8,413 6,206 - - - - Rebate income 4(a) - - - - - - - - Other income 1 - 1 - - - - - 1 - 8,414 6,206 - - - - Expenses Administrator’s fees 4(b) (1,404) (981) (1,022) (778) (408) (348) (545) (412) Fund administration fees 4(c) (164) (62) (68) (37) (27) (14) (29) (13) Management fees 4(d) (451) (276) - - - - - - Sponsor fees 4(e) (136) (52) (114) (61) (45) (23) (66) (30) Investment agency fees 4(f) - - (227) (385) - - - - Trustee’s fees 4(g) (111) (48) (57) (37) (23) (14) (24) (11) Legal and professional fees - - (1) - - - - - Auditor’s remuneration (1) (3) (1) (1) - (1) (2) (3) Others (24) (23) (73) (82) (7) (13) (10) (15) (2,291) (1,445) (1,563) (1,381) (510) (413) (676) (484) Net (expenses)/income before net investment gains/(losses) (2,290) (1,445) 6,851 4,825 (510) (413) (676) (484) Net investment gains/(losses) Realised gains/(losses) on disposal of investments 1,941 662 4,106 13,285 612 704 833 1,309 Movement of unrealised gains or losses on investments 2,226 797 (6,634) 5,894 4,612 (71) 5,732 3,297 4,167 1,459 (2,528) 19,179 5,224 633 6,565 4,606 Profits/(losses) and total comprehensive income for the year 1,877 14 4,323 24,004 4,714 220 5,889 4,122


58

Statement of comprehensive income – Constituent funds for the year ended 30 June 2019 (continued) (Expressed in Hong Kong dollars) ValueChoice Balanced Fund ValueChoice Asia Pacific Equity Fund ValueChoice European Equity Fund ValueChoice US Equity Fund Note 2019 2018 2019 2018 2019 2018 2019 2018 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Income Distribution income - - - - - - - - Rebate income 4(a) - - - - - - - - Other income - - - - - - - - - - - - - - - - Expenses Administrator’s fees 4(b) (331) (285) (382) (352) (104) (100) (354) (271) Fund administration fees 4(c) (22) (12) (25) (15) (7) (4) (24) (11) Management fees 4(d) - - - - - - - - Sponsor fees 4(e) (37) (20) (42) (25) (11) (7) (39) (19) Investment agency fees 4(f) - - - - - - - - Trustee’s fees 4(g) (18) (12) (21) (15) (6) (4) (20) (11) Legal and professional fees - - - - - - - - Auditor’s remuneration - - - (1) - - - - Others (5) (11) (6) (13) (2) (4) (6) (10) (413) (340) (476) (421) (130) (119) (443) (322) Net (expenses)/income before net investment gains/(losses) (413) (340) (476) (421) (130) (119) (443) (322) Net investment gains/(losses) Realised gains/(losses) on disposal of investments 1,102 2,461 1,611 3,445 673 1,400 6,478 4,022 Movement of unrealised gains or losses on investments 626 1,595 (1,473) 1,726 27 (333) (607) 3,503 1,728 4,056 138 5,171 700 1,067 5,871 7,525 Profits/(losses) and total comprehensive income for the year 1,315 3,716 (338) 4,750 570 948 5,428 7,203


59

Statement of comprehensive income – Constituent funds for the year ended 30 June 2019 (continued) (Expressed in Hong Kong dollars)

Hang Seng China Enterprises

Index Tracking Fund(1) Global Equity Fund Age 65 Plus Fund Scheme level adjustments The Scheme

Note 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Income Distribution income 3,083 2,002 - - - - - - 11,496 8,208 Rebate income 4(a) 433 250 - - - - - - 433 250 Other income - - - - - - - - 2 - 3,516 2,252 - - - - - - 11,931 8,458 Expenses Administrator’s fees 4(b) (420) (303) (213) (163) (74) (30) - - (5,257) (4,023) Fund administration fees 4(c) (28) (16) (14) (7) (4) (1) - - (412) (192) Management fees 4(d) - - - - - - - - (451) (276) Sponsor fees 4(e) (47) (27) (24) (11) (9) (3) - - (570) (278) Investment agency fees 4(f) (93) (57) - - - - - - (320) (442) Trustee’s fees 4(g) (23) (16) (12) (7) (3) (1) - - (318) (176) Legal and professional fees - - - - - - - - (1) - Auditor’s remuneration - (1) - - - - - - (4) (10) Others (30) (37) (4) (6) (2) (1) - - (169) (215) (641) (457) (267) (194) (92) (36) - - (7,502) (5,612) Net (expenses)/income before net investment gains/(losses) 2,875 1,795 (267) (194) (92) (36) - - 4,429 2,846 Net investment gains/(losses) Realised gains/(losses) on disposal of investments (1,294) 5,383 750 1,104 82 31 - - 16,894 33,806 Movement of unrealised gains or losses on investments 29 (1,147) 896 1,447 1,139 42 - - 6,573 16,750 (1,265) 4,236 1,646 2,551 1,221 73 - - 23,467 50,556 Profits/(losses) and total comprehensive income for the year 1,610 6,031 1,379 2,357 1,129 37 - - 27,896 53,402 (1) Hang Seng China Enterprises Index Tracking Fund was formerly known as Hang Seng H-Share Index Tracking Fund prior to 5 March 2018. The notes on pages 66 to 94 form part of these financial statements.


60

Statement of assets and liabilities – Constituent funds as at 30 June 2019 (Expressed in Hong Kong dollars) MPF Conservative Fund Hang Seng Index Tracking Fund Global Bond Fund Core Accumulation Fund Note 2019 2018 2019 2018 2019 2018 2019 2018 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Assets Investments 9,19 280,666 217,760 244,782 213,763 104,940 83,823 160,431 112,246 Distribution receivables - - 3,834 2,583 - - - - Contributions receivable - - - - - - - - Amounts receivable on subscription of units 534 2,037 23 2,753 258 267 - 237 Amounts receivable from disposal of investments 2,043 2,536 50 963 84 543 181 210 Other receivables - - - - - - - - Cash and cash equivalents 4(i) - - 2 2 1 1 1 1 283,243 222,333 248,691 220,064 105,283 84,634 160,613 112,694 Liabilities Amounts payable on purchase of investments 534 2,037 23 2,752 258 267 - 237 Benefits payable - - - - - - - - Forfeitures payable 6 - - - - - - - - Amounts payable on redemption of units 2,043 2,536 50 963 84 543 181 210 Accrued expenses and other payables 185 198 150 138 48 41 67 50 2,762 4,771 223 3,853 390 851 248 497 Net assets attributable to members 280,481 217,562 248,468 216,211 104,893 83,783 160,365 112,197 Number of units in issue 22,078,263 17,248,740 8,790,827 7,749,950 8,407,991 7,050,007 12,657,433 9,211,251 Net asset value per unit* HK$ 12.70 HK$ 12.61 HK$ 28.26 HK$ 27.90 HK$ 12.48 HK$ 11.88 HK$ 12.67 HK$ 12.18 * The net asset value per unit is calculated by dividing the exact net assets attributable to members by the exact number of units in issue.


61

Statement of assets and liabilities – Constituent funds as at 30 June 2019 (continued) (Expressed in Hong Kong dollars) ValueChoice Balanced Fund ValueChoice Asia Pacific Equity Fund ValueChoice European Equity Fund ValueChoice US Equity Fund Note 2019 2018 2019 2018 2019 2018 2019 2018 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Assets Investments 9,19 81,229 69,092 90,966 84,311 25,603 22,748 93,342 67,707 Distribution receivables - - - - - - - - Contributions receivable - - - - - - - - Amounts receivable on subscription of units 455 72 26 54 6 39 1,342 135 Amounts receivable from disposal of investments 14 250 2 527 2 160 - 236 Other receivables - - - - - - - - Cash and cash equivalents 4(i) 1 1 1 1 1 1 1 1 81,699 69,415 90,995 84,893 25,612 22,948 94,685 68,079 Liabilities Amounts payable on purchase of investments 455 72 26 54 6 39 1,342 135 Benefits payable - - - - - - - - Forfeitures payable 6 - - - - - - - - Amounts payable on redemption of units 14 250 2 527 2 160 - 236 Accrued expenses and other payables 37 35 42 43 12 12 42 34 506 357 70 624 20 211 1,384 405 Net assets attributable to members 81,193 69,058 90,925 84,269 25,592 22,737 93,301 67,674 Number of units in issue 5,980,070 5,156,805 7,690,857 7,096,647 1,840,019 1,670,290 4,131,918 3,222,883 Net asset value per unit* HK$ 13.58 HK$ 13.39 HK$ 11.82 HK$ 11.87 HK$ 13.91 HK$ 13.61 HK$ 22.58 HK$ 21.00 * The net asset value per unit is calculated by dividing the exact net assets attributable to members by the exact number of units in issue.


63

Statement of changes in net assets attributable to members – Constituent funds for the year ended 30 June 2019 (Expressed in Hong Kong dollars) MPF Conservative Fund Hang Seng Index Tracking Fund Global Bond Fund Core Accumulation Fund Note 2019 2018 2019 2018 2019 2018 2019 2018 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Net assets brought forward 217,562 163,277 216,211 155,825 83,783 62,581 112,197 68,975 Add: Subscriptions 230,420 160,799 137,478 111,655 39,774 39,109 67,501 60,978 Less: Redemptions (169,378) (106,528) (109,544) (75,273) (23,378) (18,127) (25,222) (21,879) 278,604 217,548 244,145 192,207 100,179 83,563 154,476 108,074 Other capital receipts/(payments) 8 - - - - - - - 1 278,604 217,548 244,145 192,207 100,179 83,563 154,476 108,075 Profits/(losses) and total comprehensive income for the year 1,877 14 4,323 24,004 4,714 220 5,889 4,122 Net assets carried forward 280,481 217,562 248,468 216,211 104,893 83,783 160,365 112,197 Units in issue Units brought forward 17,248,740 12,945,511 7,749,950 6,434,540 7,050,007 5,303,907 9,211,251 5,989,051 Units issued 18,210,910 12,749,195 5,131,972 3,971,954 3,315,716 3,256,761 5,527,342 5,022,469 Units redeemed (13,381,387) (8,445,966) (4,091,095) (2,656,544) (1,957,732) (1,510,661) (2,081,160) (1,800,269) Units carried forward 22,078,263 17,248,740 8,790,827 7,749,950 8,407,991 7,050,007 12,657,433 9,211,251


64

Statement of changes in net assets attributable to members – Constituent funds for the year ended 30 June 2019 (continued) (Expressed in Hong Kong dollars) ValueChoice Balanced Fund ValueChoice Asia Pacific Equity Fund ValueChoice European Equity Fund ValueChoice US Equity Fund Note 2019 2018 2019 2018 2019 2018 2019 2018 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Net assets brought forward 69,058 52,843 84,269 67,533 22,737 19,823 67,674 52,401 Add: Subscriptions 23,036 27,784 24,551 28,898 14,431 13,774 76,424 29,322 Less: Redemptions (12,216) (15,285) (17,557) (16,912) (12,146) (11,808) (56,225) (21,252) 79,878 65,342 91,263 79,519 25,022 21,789 87,873 60,471 Other capital receipts/(payments) 8 - - - - - - - - 79,878 65,342 91,263 79,519 25,022 21,789 87,873 60,471 Profits/(losses) and total comprehensive income for the year 1,315 3,716 (338) 4,750 570 948 5,428 7,203 Net assets carried forward 81,193 69,058 90,925 84,269 25,592 22,737 93,301 67,674 Units in issue Units brought forward 5,156,805 4,231,851 7,096,647 6,123,644 1,670,290 1,526,252 3,222,883 2,827,057 Units issued 1,756,084 2,055,627 2,140,442 2,357,897 1,075,610 1,008,284 3,547,895 1,444,637 Units redeemed (932,819) (1,130,673) (1,546,232) (1,384,894) (905,881) (864,246) (2,638,860) (1,048,811) Units carried forward 5,980,070 5,156,805 7,690,857 7,096,647 1,840,019 1,670,290 4,131,918 3,222,883


65

Statement of changes in net assets attributable to members – Constituent funds for the year ended 30 June 2019 (continued) (Expressed in Hong Kong dollars)

Hang Seng China Enterprises

Index Tracking Fund(1) Global Equity Fund Age 65 Plus Fund Scheme level adjustments Elimination for switching The Scheme Note 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Net assets brought forward 89,485 75,823 40,781 26,430 12,695 1,391 4,373 3,356 - - 1,020,825 750,258 Add: Subscriptions 64,759 64,879 19,391 19,029 17,611 14,995 36 1,493 (385,299) (270,751) 330,113 301,964 Less: Redemptions (57,428) (57,248) (7,796) (7,035) (7,120) (3,728) (600) (498) 385,299 270,751 (113,311) (84,822) 96,816 83,454 52,376 38,424 23,186 12,658 3,809 4,351 - - 1,237,627 967,400 Other capital receipts/(payments) 8 - - - - - - (8) 22 - - (8) 23 96,816 83,454 52,376 38,424 23,186 12,658 3,801 4,373 - - 1,237,619 967,423 Profits/(losses) and total comprehensive income for the year 1,610 6,031 1,379 2,357 1,129 37 - - - - 27,896 53,402 Net assets carried forward 98,426 89,485 53,755 40,781 24,315 12,695 3,801 4,373 - - 1,265,515 1,020,825 Units in issue Units brought forward 9,319,839 8,623,660 2,855,008 2,007,876 1,101,087 123,123 Units issued 6,821,926 6,354,660 1,359,993 1,336,488 1,511,471 1,300,880 Units redeemed (6,046,536) (5,658,481) (546,320) (489,356) (612,413) (322,916) Units carried forward 10,095,229 9,319,839 3,668,681 2,855,008 2,000,145 1,101,087 (1) Hang Seng China Enterprises Index Tracking Fund was formerly known as Hang Seng H-Share Index Tracking Fund prior to 5 March 2018. The notes on pages 66 to 94 form part of these financial statements.


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Notes to the financial statements (Expressed in Hong Kong dollars) 1 The Scheme

Hang Seng Mandatory Provident Fund – ValueChoice (“the Scheme”) is a scheme established under a trust deed dated 24 November 2010 (“the Trust Deed”) between Hang Seng Bank Limited (“the Sponsor) and HSBC Provident Fund Trustee (Hong Kong) Limited (“the Trustee”). The Trust Deed was subsequently amended by deed of variation dated 18 October 2012, 9 April 2015, 27 August 2015, 22 December 2015, 18 May 2016, 12 December 2016 and 23 June 2017, 19 March 2019 and 8 April 2019 between the Sponsor and the Trustee. The Scheme is registered under section 21 of the Hong Kong Mandatory Provident Fund Schemes Ordinance (“the MPF Ordinance”).

Under the Trust Deed as subsequently amended, the Trustee is required to establish and maintain separate constituent funds into which contributions may be invested. The constituent funds are only available for investment by members of the Scheme.

The Scheme had eleven constituent funds as at 30 June 2019:

‑ MPF Conservative Fund

‑ Hang Seng Index Tracking Fund

‑ Global Bond Fund

‑ Core Accumulation Fund

‑ ValueChoice Balanced Fund

‑ ValueChoice Asia Pacific Equity Fund

‑ ValueChoice European Equity Fund

‑ ValueChoice US Equity Fund

‑ Hang Seng China Enterprises Index Tracking

‑ Global Equity Fund

‑ Age 65 Plus Fund


67

1 The Scheme (continued) Except for Hang Seng Index Tracking Fund and Hang Seng H Share Index Tracking Fund which invest in Hang Seng Index ETF and Hang Seng H Share Index ETF respectively, all constituent funds invest in sub-funds of HSBC MPF Fund Series “A” which are approved pooled investment funds. The Scheme is generally funded by contributions from the participating employers and members. Under section 7A of the MPF Ordinance, each of the participating employers and members is required to contribute 5% of relevant income to the Scheme on a monthly basis. The contribution was subject to a maximum amount of $1,500 prescribed by section 10 and schedule 3 of the MPF Ordinance. According to section 9 and schedule 2 of the MPF Ordinance, members with monthly salary of less than the minimum level of $7,100 are exempted from contributions. Such exemption is not applicable for their employers. The Employee Choice Arrangement (“the ECA”) has been launched by the Hong Kong Mandatory Provident Fund Schemes Authority (“the Authority”) with effect from 1 November 2012. The ECA allows members to opt to transfer the member's portion of mandatory contributions and investment returns (i.e. the accrued benefits) in their contribution accounts of the original mandatory provident fund scheme to another mandatory provident fund scheme of their own choice once a year. Alternatively, members do not have to make any change. They can retain the accrued benefits in the original mandatory provident fund scheme selected by their employers. The feature of tax deductible voluntary contributions (“TVC”) has been added to the Scheme with effect from 1 April 2019. The TVC allows eligible persons to set up a TVC account and pay TVC into such account. TVC may be eligible for tax concessions starting from the year of assessment 2019/2020. TVC is voluntary in nature. However, it is subject to the same vesting, preservation and withdrawal restrictions applicable to mandatory contributions. With effect from 1 July 2019, the Scheme was merged with Hang Seng Mandatory Provident Fund - SuperTrust Plus. All members of the Scheme and their accrued benefits under the Scheme were transferred to Hang Seng Mandatory Provident Fund - SuperTrust Plus on 1 July 2019. The Scheme may be terminated on the occurrence of one or more events as specified in clause 21 of the Trust Deed as subsequently amended.


68

2 Significant accounting policies (a) Statement of compliance

The financial statements of the Scheme have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”), which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong, the relevant disclosure provisions of the Trust Deed dated 24 November 2010 as subsequently amended, the MPF Ordinance, the Hong Kong Mandatory Provident Fund Schemes (General) Regulation (“the General Regulation”), the Hong Kong Code on MPF Investment Funds (“the MPF Code”) and other relevant guidelines issued by the Authority. Significant accounting policies adopted by the Scheme are disclosed below.

The HKICPA has issued certain new and revised HKFRSs that are first effective or available for early adoption for the current accounting period of the Scheme. Note 3 provides information on any changes in accounting policies resulting from initial application of these developments to the extent that they are relevant to the Scheme for the current and prior accounting periods reflected in these financial statements.

(b) Basis of preparation of the financial statements

The functional and presentation currency of the Scheme is the Hong Kong dollar and reflects transactions which have been processed by the Trustee into the constituent funds. As explained in note 1, the Scheme was merged with Hang Seng Mandatory Provident Fund - SuperTrust Plus with effect from 1 July 2019 and all members of the Scheme and their accrued benefits under the Scheme were transferred to Hang Seng Mandatory Provident Fund - SuperTrust Plus on 1 July 2019. Accordingly, the Scheme is no longer a going concern. No material adjustments had been made to the financial statements. The relevant costs and expenses in connection with the merger of the Scheme are not charged to the Scheme.

The financial statements are prepared on a fair value basis for financial assets and liabilities at fair value through profit or loss. Other financial assets and financial liabilities are stated at amortised cost or redemption amount. The preparation of financial statements in conformity with HKFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, 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 of making the judgements about 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 estimates are revised if the revisions affect only that period, or in the period of the revisions and future periods if the revisions affect both current and future periods.


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2 Significant accounting policies (continued) (c) Recognition of income

Distribution income from listed investments is recognised when the share price of the investment goes ex-dividend. Rebate income is recognised when the right to receive payment is established. Other income is recognised in the statement of comprehensive income on an accrual basis.

(d) Subscription for and redemption of units of the constituent funds

Subscription for and redemption of units of the constituent funds are accounted for on an accrual basis.

(e) Other expenses Other expenses are accounted for on an accrual basis.

(f) Investments (i) Classification

Assets The Scheme and its constituent funds classify their investments based on both the Scheme and its constituent funds’ business model for managing those financial assets and the contractual cash flow characteristics of the financial assets. The portfolio of financial assets is managed and performance is evaluated on a fair value basis. The Scheme and its constituent funds are primarily focused on fair value information and uses that information to assess the assets’ performance and to make decisions. The Scheme and its constituent funds have not taken the option to irrevocably designate any equity securities as fair value through other comprehensive income. The contractual cash flows of the Scheme and its constituent funds’ debt securities are solely principal and interest, however, these securities are neither held for the purpose of collecting contractual cash flows nor held both for collecting contractual cash flows and for sale. The collection of contractual cash flows is only incidental to achieving the Scheme and its constituent funds’ business model’s objective. Consequently, all investments are measured at fair value through profit or loss.

(ii) Recognition, derecognition and measurement Regular purchases and sales of investments are recognised on the trade date - the date on which the Scheme and its constituent funds commit to purchase or sell the investment. Financial assets at fair value through profit or loss are initially recognised at fair value, excluding transaction costs which are expensed as incurred. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Scheme and its constituent funds have transferred substantially all risks and rewards of ownership.


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2 Significant accounting policies (continued) (f) Investments(continued)

(ii) Recognition, derecognition and measurement (continued)

Subsequent to initial recognition, all financial assets at fair value through profit or loss are measured at fair value. Gains and losses arising from changes in the fair value of the “Financial assets at fair value through profit or loss” category are presented in the Statement of Changes in Net Assets Available for Benefits of the Scheme within “Net realised gains/(losses) on redemption of units in constituent funds” and “Change in unrealised gains/losses in value of constituent funds”; and in the Statement of Comprehensive Income of the constituent funds within “Change in unrealised gains/losses in value of financial assets at fair value through profit or loss” and “Realised gains/(losses) on sales of financial assets at fair value through profit or loss” in the period in which they arise.

(iii) Valuation of investments 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 in the principal, or in its absence, the most advantageous market to which the Scheme has access at that date. The fair value of a liability reflects its non-performance risk.

When applicable, the Scheme measures the fair value of an instrument using the quoted price in an active market for that instrument provided such price is within the bid-ask spread. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. In circumstances where quoted price is not within the bid-ask spread, the Trustee will determine the points within the bid-ask spread that are most representative of the fair value. When there is no quoted price in an active market, the Scheme uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all the factors that market participants would take into account in pricing a transaction. Investments in open-ended investment funds are recorded at the net asset value per unit as reported by the managers of such funds.

(iv) Impairment The Scheme and its constituent funds recognise loss allowances for expected credit losses (“ECLs”) on financial assets measured at amortised cost. The Scheme and its constituent funds measure loss allowances at an amount equal to lifetime ECLs, except for the following, which are measured at 12-month ECLs: - financial assets that are determined to have low credit risk at the reporting date;

and

- other financial assets for which credit risk (i.e. the risk of default occurring over the expected life of the asset) has not increased significantly since initial recognition.


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2 Significant accounting policies (continued)

(f) Investments (continued)

(iv) Impairment (continued)

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Scheme and its constituent funds consider reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Scheme’s historical experience and informed credit assessment and including forward-looking information. The Scheme and its constituent funds assume that the credit risk on a financial asset has increased significantly if it is more than 30 days past due. The Scheme and its constituent funds consider a financial asset to be in default when: - the borrower is unlikely to pay its credit obligations to the Scheme and its constituent

funds in full, without recourse by the Scheme and its constituent funds to actions such as realising security (if any is held); or

- the financial asset is more than 90 days past due. The Scheme and its constituent funds consider a financial asset to have low credit risk when the credit rating of the counterparty is equivalent to the globally understood definition of “investment grade”. The Scheme and its constituent funds consider this to be Baa3 or higher per Moody’s or BBB- or higher per Standard & Poor’s. Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument. 12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months). The maximum period considered when estimating ECLs is the maximum contractual period over which the Scheme and its constituent funds are exposed to credit risk. Measurement of ECLs ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Scheme and its constituent funds expect to receive). ECLs are discounted at the effective interest rate of the financial asset.


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2 Significant accounting policies (continued)

(f) Investments (continued)

(iv) Impairment (continued) Credit-impaired financial assets At each reporting date, the Scheme and its constituent funds assess whether financial assets carried at amortised cost are credit-impaired. A financial asset is “credit-impaired” when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a financial asset is credit-impaired includes the following observable data: - significant financial difficulty of the borrower or issuer; - a breach of contract such as a default or being more than 90 days past due; or - it is probable that the borrower will enter bankruptcy or other financial

reorganisation. Presentation of allowance for ECLs in the statement of assets and liabilities Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets. Write-off The gross carrying amount of a financial asset is written off when the Scheme and its constituent funds have no reasonable expectations of recovering a financial asset in its entirety or a portion thereof.

(g) Foreign currency translation Foreign currency transactions during the year are translated into Hong Kong dollars at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated into Hong Kong dollars at the foreign exchange rates ruling at the reporting date. Foreign currency exchange differences arising on translation and realised gains and losses on disposals or settlements of monetary assets and liabilities are recognised in the statement of comprehensive income of the relevant constituent funds. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the reporting currency of the Scheme and its constituent funds using the foreign exchange rates ruling at the dates on which the fair values were determined.


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2 Significant accounting policies (continued) (h) Related parties

(a) A person, or a close member of that person’s family, is related to the Scheme if

that person: (i) has control or joint control over the Scheme; (ii) has significant influence over the Scheme; or (iii) is a member of the key management personnel of the Scheme or the

Scheme’s parent.

(b) An entity is related to the Scheme if any of the following conditions applies: (i) The entity and the Scheme are members of the same group (which means

that each parent, subsidiary and fellow subsidiary is related to the others). (ii) One entity is an associate or joint venture of the other entity (or an

associate or joint venture of a member of a group of which the other entity is a member).

(iii) Both entities are joint ventures of the same third party. (iv) One entity is a joint venture of a third entity and the other entity is an

associate of the third entity. (v) The entity is a post‑employment benefit plan for the benefit of employees of

an entity related to the Scheme. (vi) The entity is controlled or jointly‑controlled by a person identified in (a). (vii) A person identified in (a)(i) has significant influence over the entity or is a

member of the key management personnel of the entity (or of a parent of the entity).

(viii) The entity, or any member of a group of which it is a part, provides key

management personnel services to the Scheme or to the Scheme’s parent. Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity.


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2 Significant accounting policies (continued) (i) Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Scheme has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditures expected to settle the obligation. Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non‑occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

(j) Contributions Contributions are accounted for on an accruals basis.

(k) Benefits Benefits are accounted for on an accruals basis.

(l) Transfers in/out Transfer-in amounts are recognised when the right to receive payment is established. Transfer-out amounts are accounted for when the obligation to make payment is established.

(m) Forfeitures Forfeitures are the amounts forfeited when member’s employment is terminated before the voluntary contributions vest. Forfeitures may be refunded to the employers or re‑invested to the Scheme upon the request from the employers.

(n) Cash and cash equivalents Cash and cash equivalents comprise cash at bank, demand deposits with banks and other financial institutions with original maturities of three months or less from the date of placement, and short‑term, highly liquid investments that are readily convertible into known amounts of cash which are subject to an insignificant risk of changes in value.


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2 Significant accounting policies (continued) (o) Units in issue

The Scheme classifies financial instruments issued as financial liabilities or equity instruments in accordance with the substance of the contractual terms of the instruments. A puttable financial instrument that includes a contractual obligation for the Scheme to repurchase or redeem that instrument for cash or another financial asset is classified as equity instruments if it meets all of the following conditions: - it entitles the holder to a pro rata share of the Scheme’s net assets in the event of

its liquidation; - it is in the class of instruments that is subordinate to all other classes of

instruments; - all financial instruments in the class of instruments that is subordinate to all other

classes of instruments have identical features; - apart from the contractual obligation for the Scheme to repurchase or redeem the

instrument for cash or another financial asset, the instrument does not include any other features that would require classification as a liability; and

- the total expected cash flows attributable to the instrument over its life are based

substantially on the profit or loss, the change in the recognised net assets or the change in the fair value of the recognised and unrecognised net assets of the Scheme over the life of the instrument.

In addition to the instrument having all the above features, the Scheme must have no other financial instrument or contract that has: ‑ total cash flows based substantially on the profit or loss, the change in the

recognised net assets or the change in the fair value of the recognised and unrecognised net assets of the Scheme; and

‑ the effect of substantially restricting or fixing the residual return to the puttable

instrument holders. The redeemable units are not in the class of instruments that are subordinate to all other classes of instruments which have identical features. Therefore, they do not meet the criteria for equity classification and therefore are classified as financial liabilities. They are measured at the present value of the redemption amount.

(p) Taxation

The Scheme is registered under the MPF Ordinance and is therefore a recognised scheme for Hong Kong Profits Tax purposes. The policy of the Hong Kong Inland Revenue Department (“IRD”), as set out in IRD Practice Note No. 23, is that “recognised retirement schemes and their trustees are not considered to be subject to profits tax on their investment income”. Accordingly, no provision for Hong Kong Profits Tax has been made in the Scheme’s financial statements.


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3 Changes in accounting policies The HKICPA has issued a number of new HKFRSs and amendments to HKFRSs that are first effective for the current accounting period of the Scheme. Of these, the following developments are relevant to the Scheme’s financial statements: HKFRS 9, Financial instruments HKFRS 9 ‘Financial Instruments’ became effective for annual periods beginning on or after 1 January 2018. It addresses the classification, measurement and derecognition of financial assets and liabilities and replaces the multiple classification and measurement models in HKAS 39. Classification and measurement of debt assets are driven by the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. A debt instrument is measured at amortised cost if the objective of the business model is to hold the financial asset for the collection of the contractual cash flows and the contractual cash flows under the instrument solely represent payments of principal and interest (SPPI). A debt instrument is measured at fair value through other comprehensive income if the objective of the business model is to hold the financial asset both to collect contractual cash flows from SPPI and to sell. All other debt instruments must be recognised at fair value through profit or loss. An entity may however, at initial recognition, irrevocably designate a financial asset as measured at fair value through profit or loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency. Derivative and equity instruments are measured at fair value through profit or loss unless, for equity instruments not held for trading, an irrevocable option is taken to measure at fair value through other comprehensive income. HKFRS 9 also introduces a new expected credit loss (ECL) impairment model. HKFRS 9 has been applied retrospectively by the Scheme and its constituent funds and did not result in a change to the classification or measurement of financial instruments as outlined in note 2(f). The Scheme and its constituent funds’ investment portfolios continue to be classified as fair value through profit or loss and other financial assets which are held for collection continue to be measured at amortised cost. There was no material impact on adoption from the application of the new impairment model. There are no other standards, interpretations or amendments to existing standards that are effective for the first time for the financial year beginning 1 July 2018 that would be expected to have a material impact on the Scheme and its constituent funds.


77

4 Transactions with related parties In addition to the transactions and balances disclosed elsewhere in these financial statements, the Scheme entered into the following material related party transactions for the year. All such transactions were entered into in the ordinary course of business and on normal commercial terms.

(a) Rebate income Effective 1 December 2017, rebate income was earned from Hang Seng Investment

Management Limited (“HSIM”) at 0.465 percent per annum of the portion of NAV of Hang Seng China Enterprises Index Tracking Fund investing in the Hang Seng China Enterprises Index ETF. This has been reflected in the daily unit price of the Constituent Fund.

The rebate income earned during the year amounted to $433,000 (2018: $250,000).

The amount due from this related party in respect of the rebate income at the year end was $36,000 (2018: $36,000).

(b) Administrator’s fees The Scheme is administered by The Hongkong and Shanghai Banking Corporation Limited (“HSBCL”). Prior to 1 November 2018 the Scheme was administered by HSBC Life (International) Limited (“HLL”) Effective 1 December 2017, the administrator’s fees are charged from 0.410 percent to 0.450 percent per annum of the net asset value (“NAV”) of each relevant Constituent Fund and this has been reflected in the daily unit price of each relevant Constituent Fund. Prior to 1 December 2017, the administrator’s fees were charged from 0.18 percent to 0.49 percent per annum of the NAV of each relevant Constituent Fund. Administrator’s fees incurred during the year amounted to $5,257,000 (2018: $4,023,000) of which HSBCL received $1,831,000 (2018: Nil) and HLL received $3,426,000 (2018: $4,023,000). The amount due to HSBCL in respect of administrator’s fees as at 30 June 2019 amounted to $451,000 (2018: Nil) while to HLL as at 30 June 2019 was Nil (2018: $420,000). During the year, $30,000 (2018: Nil) was contributed by HSBCL as a rebate to members of the Scheme. No rebate was contributed by HLL (2018: $1,000). The amount was included in contributions received and receivable in the statement of changes in net assets available for benefits of the Scheme and subscriptions in the statement of changes in net assets attributable to members of the Constituent Funds.

(c) Fund administration fees

Effective 1 December 2017, the Trustee is entitled to fund administration fees, calculated each valuation date and payable monthly in arrears, based on 0.022 percent to 0.030 percent per annum of the NAV of the constituent funds. Prior to 1 December 2017, no fund administration fees were charged for all constituent funds. The fund administration fees earned by the Trustee for the year was $412,000 (2018: $192,000). As at 30 June 2019, the amount due to the Trustee in respect of fund administration fees was $36,000 (2018: $28,000).


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4 Transactions with related parties (continued)

(d) Management fees The management fees were charged at 0.15 percent per annum of the NAV of MPF Conservative Fund (“MCF”) for the investment management fees paid to the investment manager of the underlying approved investment fund – HSBC MPF “A” – MPF Conservative Fund. The investment manager of HSBC MPF “A” – MPF Conservative Fund is HSBC Investment Funds (Hong Kong) Limited (“HIFH”) which is a fellow subsidiary of the Administrator and the Trustee. During the year ended 30 June 2019, the management fee for MCF deductible under section 37 of the General Regulation amounted to $451,000 which was deducted from the assets of the MCF (2018: $276,000). The amount due to HIFH in respect of the management fee at the year end was $35,000 (2018: $37,000).

(e) Sponsor fees

The Sponsor of the Scheme is The Hang Seng Bank Limited. Effective 1 December 2017, the Sponsor receives sponsor fees which were paid out from the constituent funds for sponsoring the Scheme. The fee is charged at 0.05 percent per annum of the NAV of all constituent funds. During the year ended 30 June 2019, $570,000 were paid out from the constituent funds to the Sponsor (2018: $278,000). Prior to 1 December 2017, the sponsor fees were charged at 0.05 percent per annum of the NAV of all the constituent funds and paid out of administrator’s fees. During the year ended 30 June 2019, no sponsor fees were paid out of administrator’s fees. During the year ended 30 June 2018, $166,000 was paid out of administrator’s fee to the Sponsor. As at 30 June 2019, the amount due to this related party in respect of the sponsor fees amounted to $51,000 (2018: $42,000).

(f) Investment agency fees The Hang Seng Index Tracking Fund invests in Hang Seng Index ETF while The Hang Seng China Enterprises Index Tracking Fund invests in Hang Seng China Enterprises Index. Both funds are managed by HSIM. HSIM is appointed by the Trustee as its agent to perform duties relating to the investment by the Hang Seng Index Tracking Fund and The Hang Seng China Enterprises Index Tracking Fund, including subscription and redemption of units. Effective 1 December 2017, investment agency fees are charged by HSIM at 0.10 percent per annum of the NAV of the Hang Seng Index Tracking Fund and Hang Seng China Enterprises Index Tracking Fund. This has been reflected in the daily unit price of the Constituent Fund. Prior to 1 December 2017, investment agency fees were charged by HSIM at 0.35 percent and 0.01 percent per annum of the NAV of the Hang Seng Index Tracking Fund and Hang Seng China Enterprises Index Tracking Fund, respectively. The investment agency fees incurred during the year amounted to $320,000 (2018: $442,000). The amount due to this related party in respect of the investment agency fees at the year end amounted to $28,000 (2018: $26,000).


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4 Transactions with related parties (continued) (g) Trustee’s fees

The Trustee and Custodian of the Scheme is HSBC Provident Fund Trustee (Hong Kong) Limited. The Trustee receives trustee’s fees for valuation and other services from the relevant constituent funds. Effective 1 December 2017, the fees are charged at 0.018 percent to 0.025 percent per annum of the NAV of each relevant constituent fund and this has been reflected in the daily unit price of each relevant constituent fund. Prior to 1 December 2017, the trustee’s fees were charged at 0.008 percent per annum of the NAV of each relevant constituent fund with the exception that of Core Accumulation Fund and Age 65 Plus Fund are paid out of the administrator’s fees with effect from 1 April 2017. The fee has been reflected in the daily unit price of each relevant constituent fund. Trustee’s fees incurred during the year amounted to $318,000 (2018: $176,000). The amount due to this related party in respect of trustee’s fees as at 30 June 2019 amounted to $28,000 (2018: $24,000).

(h) Valuation fees With effect from 1 April 2017 up to 1 December 2017, Core Accumulation Fund and Age 65 Plus Fund utilise the fund administration and valuation services of HSBC Institutional Trust Services (Asia) Limited (“HTHK”), which is a fellow subsidiary of the Trustee within the HSBC Group. The valuation fees are charged at a standard fee rate per valuation as set out in the table below based on the previous month end NAV of each relevant constituent fund. The service has ceased effective from 1 December 2017 with charging of Trustee’s fees (see note 4(g)). No valuation fees were incurred during the year (2018: Nil). There was no amount due to this related party in respect of valuation fees at the year end (2018: Nil). Fee Rate

For NAV smaller than $400 million Waived For NAV $400 million – below $1.3 billion $250 per valuation For NAV $1.3 billion – below $2 billion $800 per valuation For NAV $2 billion or more $1,200 per valuation

(i) Cash and cash equivalents

As at 30 June 2019, the Scheme maintained bank balance of $2,530,000 (2018: $5,330,000) with HSBCL, which is the Sponsor of the Scheme and a group company of the Trustee, Custodian and Administrator of the Scheme. These amounts are mainly related to contributions received from members by the Administrator which have not yet been allocated according to the members’ instructions due to cheques awaiting clearance and/or incomplete information provided by employers. During the year ended 30 June 2019, there was no bank interest income and interest receivable has been earned from HSBCL (2018: Nil). There was no amount due from this related party in respect of bank interest receivable at the year end (2018: Nil).


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5 Contributions received and receivable Contributions received and receivable in the statement of changes in net assets available for benefits of the Scheme are derived from the following: The Scheme 2019 2018 $’000 $’000 From members

- Mandatory 89,576 74,421 - Additional voluntary 4,007 3,134

From employers

- Mandatory 91,930 77,445 - Additional voluntary 541 420

186,054 155,420 Transfers in

- From other schemes 143,427 146,168 143,427 146,168 Contributions surcharge 601 375 Other capital movements 31 1 330,113 301,964

6 Benefits paid and payable Benefits paid and payable in the statement of changes in net assets available for benefits of the Scheme are derived from the following: The Scheme 2019 2018 $’000 $’000 Benefits 22,888 17,246 Transfers out 89,560 66,768 Forfeitures 223 276 Other capital movements 640 532 113,311 84,822 Forfeitures may be refunded to the employers or reinvested to the Scheme upon the request from the employers. As at 30 June 2019, forfeitures amounted to $544 were reinvested in the constituent funds (2018: $541).


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7 Capital management The capital of the constituent funds is represented by the net assets attributable to members. Subscription and redemption of units during the year are shown in the statement of changes in net assets attributable to members of the respective Constituent Funds. The amount of net assets attributable to members can change significantly on a daily basis as the constituent funds are subject to daily subscriptions and redemptions at the discretion of members. The Constituent Funds’ objective when managing capital is to safeguard their ability to continue as a going concern in order to provide retirement benefits to members and benefits for other stakeholders and to maintain a strong capital base to support the development of the investment activities of the Constituent Funds. For capital management purpose, the Trustee performs the following: ‑ monitor the level of daily subscriptions and redemptions relative to the liquid assets;

and ‑ redeem and issue units of the constituent funds in accordance with the Trust Deed

as subsequently amended and the rules of the Scheme.

8 Other capital receipts/(payments) The other capital receipts/(payments) are the dealing gains/(losses) as a result of timing difference in processing member’s transactions and the guaranteed benefits to members which they are entitled under the insurance policies of MPF Guaranteed Fund, which Guaranteed Fund invested in.


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9 Investments

2019 2018 $’000 $’000

Hang Seng Mandatory Provident Fund – ValueChoice

Investments in constituent funds: MPF Conservative Fund 280,481 217,562 Hang Seng Index Tracking Fund 248,468 216,211 Global Bond Fund 104,893 83,783 Core Accumulation Fund 160,365 112,197 ValueChoice Balanced Fund 81,193 69,058 ValueChoice Asia Pacific Equity Fund 90,925 84,269 ValueChoice European Equity Fund 25,592 22,737 ValueChoice US Equity Fund 93,301 67,674

Hang Seng China Enterprises Index Tracking

Fund(1) 98,426 89,485 Global Equity Fund 53,755 40,781 Age 65 Plus Fund 24,315 12,695 Other liabilities (4,625) (2,865) Investments at fair value 1,257,089 1,013,587


2019 2018 $’000 $’000 Constituent funds MPF Conservative Fund HSBC MPF “A” – MPF Conservative Fund 280,666 217,760 Hang Seng Index Tracking Fund Hang Seng Index ETF 244,782 213,763


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9 Investments (continued) 2019 2018 $’000 $’000 Constituent funds (continued) Global Bond Fund HSBC MPF “A” – Global Bond Fund 104,940 83,823 Core Accumulation Fund HSBC MPF “A” – Core Accumulation Fund 160,431 112,246 ValueChoice Balanced Fund HSBC MPF “A” – VC Balanced Fund 81,229 69,092 ValueChoice Asia Pacific Equity Fund HSBC MPF “A” – VC Asia Pacific Equity Fund 90,966 84,311 ValueChoice European Equity Fund HSBC MPF “A” – VC European Equity Fund 25,603 22,748 ValueChoice US Equity Fund HSBC MPF “A” – VC US Equity Fund 93,342 67,707

Hang Seng China Enterprises Index Tracking

Fund(1) Hang Seng China Enterprises Index 97,025 88,635 Global Equity Fund HSBC MPF “A” – Global Equity Fund 53,780 40,801 Age 65 Plus Fund HSBC MPF “A” – Age 65 Plus Fund 24,325 12,701




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10 Involvement with unconsolidated structured entities The Scheme has concluded that collective investment schemes in which its constituent funds invest, but that they do not consolidate, meet the definition of structured entities because: ‑ the voting rights in the collective investment schemes are not dominant rights in

deciding who controls them as they relate to administrative tasks only; ‑ each collective investment scheme’s activities are restricted by its prospectus; and ‑ the collective investment schemes have narrow and well-defined objectives to

provide investment opportunities to investors. The table below describes the types of structured entities that the constituent funds do not consolidate but in which they hold an interest.

Type of structured entity Nature and purpose Interest held by the

constituent funds Collective investment

schemes To manage assets on behalf of third party investors and generate fees for the investment manager These vehicles are financed through the issue of units to investors

Investment in units issued by the collective investment schemes

The table below sets out interests held by the constituent funds in unconsolidated structured entities. The maximum exposure to loss is the carrying amount of the financial assets held by the constituent funds.

30 June 2019

Investment in collective investment schemes

Number of collective

investment schemes invested Total net assets

Carrying amount

included in “Investments”

$’000 $’000 MPF Conservative Fund ‑ Approved pooled investment fund 1 38,882,792 280,666 Hang Seng Index Tracking Fund ‑ Approved index tracking fund 1 53,149,359 244,782 Global Bond Fund ‑ Approved pooled investment fund 1 6,155,640 104,940 Core Accumulation Fund ‑ Approved pooled investment fund 1 13,751,798 160,431


85

10 Involvement with unconsolidated structured entities (continued)

30 June 2019 (continued)




Carrying amount


$’000 $’000 ValueChoice Balanced Fund ‑ Approved pooled investment fund 1 686,690 81,229 ValueChoice Asia Pacific Equity Fund ‑ Approved pooled investment fund 1 741,963 90,966 ValueChoice European Equity Fund ‑ Approved pooled investment fund 1 244,396 25,603 ValueChoice US Equity Fund ‑ Approved pooled investment fund 1 809,231 93,342 Hang Seng China Enterprises Index

Tracking Fund ‑ Approved index tracking fund 1 28,768,343 97,025 Global Equity Fund ‑ Approved pooled investment fund 1 324,358 53,780 Age 65 Plus Fund ‑ Approved pooled investment fund 1 3,310,310 24,325

30 June 2018




Carrying amount


$’000 $’000 MPF Conservative Fund ‑ Approved pooled investment fund 1 36,054,416 217,760 Hang Seng Index Tracking Fund ‑ Approved index tracking fund 1 53,306,822 213,763 Global Bond Fund ‑ Approved pooled investment fund 1 4,895,630 83,823 Core Accumulation Fund ‑ Approved pooled investment fund 1 11,108,284 112,246


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10 Involvement with unconsolidated structured entities (continued)

30 June 2018 (continued)




Carrying amount


$’000 $’000 ValueChoice Balanced Fund ‑ Approved pooled investment fund 1 615,633 69,092 ValueChoice Asia Pacific Equity Fund ‑ Approved pooled investment fund 1 710,150 84,311 ValueChoice European Equity Fund ‑ Approved pooled investment fund 1 233,215 22,748 ValueChoice US Equity Fund ‑ Approved pooled investment fund 1 620,732 67,707 Hang Seng China Enterprises Index

Tracking Fund(1) ‑ Approved index tracking fund 1 36,753,116 88,635 Global Equity Fund ‑ Approved pooled investment fund 1 256,763 40,801 Age 65 Plus Fund ‑ Approved pooled investment fund 1 2,282,929 12,701 (1) Hang Seng China Enterprises Index Tracking Fund was formerly known as Hang Seng

H-Share Index Tracking Fund prior to 5 March 2018. During the year, except for the amounts invested in the collective investment schemes, the Scheme did not provide financial support to the collective investment schemes and had no intention of providing financial or other support. The constituent funds can redeem units in the collective investment schemes on a trade day basis.

11 Capital preservation fees

The capital preservation fees are payable to the Administrator and deductible from the MPF Conservative Fund when net investment return exceeds the prescribed savings rate. These fees were deducted from the assets of the MPF Conservative Fund. The capital preservation fees for the year ended 30 June 2019 amounting to $2,291,000 (2018: $1,445,000) were deducted from the assets of the MPF Conservative Fund.


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12 Soft commission arrangements During the year ended 30 June 2019, the constituent funds have no soft commission arrangement (2018: Nil).

13 Security lending arrangements During the year ended 30 June 2019, the constituent funds did not enter into any security lending arrangements (2018: Nil).

14 Negotiability of assets As at 30 June 2019, there were no statutory or contractual requirements restricting the negotiability of the assets of the constituent funds (2018: Nil).

15 Contingent liabilities and capital commitments As at 30 June 2019, there were no contingent liabilities or capital commitments outstanding (2018: Nil).

16 Marketing expenses No marketing expenses have been deducted from the constituent funds during the year ended 30 June 2019 (2018: Nil).

17 Maintenance of adequate insurance During the year ended 30 June 2019, the Trustee maintained adequate insurance coverage in respect of the Scheme. The insurance coverage indemnifies the members and the ultimate beneficiaries of the Scheme against any losses arising from any risk prescribed in section 8 of the General Regulation. The insurance policies can only be terminated by the insurer giving not less than 30 days’ written notice in advance.

18 Bank loans and other borrowings As at 30 June 2019, there were no bank loans or other borrowings (2018: Nil).


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19 Financial instruments and associated risks The Scheme is exposed to various risks which are discussed below.

(a) Market risk Market risk embodies the potential for both losses and gains and includes currency risk, interest rate risk and other price risk. Investments of the constituent funds comprise units in collective investment schemes. This is in accordance with the Scheme’s investment policies. The underlying investment of the collective investment schemes directly or indirectly invest in a variety of financial instruments, which may expose the Scheme’s investments to the market risk. The Scheme’s market price risk is managed through diversification of the investments made by the collective investment schemes.

(i) Currency risk The Scheme is not subject to direct currency risk as all transactions of the Scheme are denominated in Hong Kong dollar. Investments of the Scheme comprise units in collective investment schemes. The underlying collective investment schemes may directly or indirectly invest in a variety of financial instruments denominated in currencies other than Hong Kong dollar, which may expose the Scheme’s investments to indirect currency risk. The investment manager of the underlying collective investment schemes has policies and procedures to manage portfolios effectively and mitigate the currency risk. Details are provided in the financial statements of the underlying collective investment schemes.

(ii) Interest rate risk Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. The majority of the Scheme’s financial assets and liabilities are non‑interest bearing. Deposits with banks are placed under current accounts which are not subject to interest rate risk. Indirect interest rate risk from underlying collective investment schemes are managed by respective investment managers. As a result, the Scheme is not subject to significant direct interest rate risk exposure.

(iii) Other price risk Other price risk is the risk that value of investments will fluctuate as a result of changes in market prices (other than those arising from interest rate risk or currency risk), whether caused by factors specific to an individual investment, its issuer or all factors affecting all instruments traded in the market. The Scheme is exposed to other price risk arising from changes in net assets of the underlying collective investment schemes. The underlying collective investment schemes strive to invest in strong businesses with quality management and at sensible prices. Other price risk is mitigated and monitored by the investment manager of the underlying collective investment schemes on a regular basis by constructing a diversified portfolio of investments across different issuers, sectors and markets.


89

19 Financial instruments and associated risks (continued) (a) Market risk (continued) (iii) Other price risk (continued)

Sensitivity analysis As at the reporting date, the investments in collective investment schemes held by each constituent fund were as follows. A 5% (2018: 5%) increase in prices of the investments held by each constituent fund at the reporting date, with all other variables held constant, would have increased the net assets of the respective constituent fund and the changes in net assets attributable to members by the amount shown below. A 5% (2018: 5%) decrease in prices would have an equal but opposite effect. The analysis is performed on the same basis for 2018.

As at 30 June 2019

MPF Conservative

Fund

Hang Seng Index

Tracking Fund

Global Bond Fund

Core Accumulation

Fund

ValueChoice Balanced

Fund


ValueChoice European

Equity Fund

ValueChoice US Equity

Fund

Hang Seng China

Enterprises Index

Tracking Fund(1)

Global Equity Fund

Age 65 Plus Fund The Scheme

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Investments 280,666 244,782 104,940 160,431 81,229 90,966 25,603 93,342 97,025 53,780 24,325 1,257,089 Increase in net assets and changes in net assets attributable to members 14,033 12,239 5,247 8,022 4,061 4,548 1,280 4,667 4,851 2,689 1,216 62,853

As at 30 June 2018

MPF Conservative

Fund

Hang Seng Index

Tracking Fund

Global Bond Fund

Core Accumulation

Fund

ValueChoice Balanced

Fund


ValueChoice European

Equity Fund

ValueChoice US Equity

Fund

Hang Seng China

Enterprises Index

Tracking Fund(1)

Global Equity Fund

Age 65 Plus Fund The Scheme

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 Investments 217,760 213,763 83,823 112,246 69,092 84,311 22,748 67,707 88,635 40,801 12,701 1,013,587 Increase in net assets and changes in net assets attributable to members 10,888 10,688 4,191 5,612 3,455 4,216 1,137 3,385 4,432 2,040 635 50,679 (1) Hang Seng China Enterprises Index Tracking Fund was formerly known as Hang Seng H-Share Index Tracking Fund prior to 5 March 2018.


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19 Financial instruments and associated risks (continued) (b) Credit risk

Credit risk is the risk that a counter party will fail to discharge an obligation or commitment that it has entered into with the Scheme. At the reporting date, the Scheme is exposed to the following credit risk: 2019 2018 $’000 $’000 Investments 1,257,089 1,013,587 Distribution receivables 5,256 3,453 Contributions receivable 1,349 442 Amounts receivable from disposal of investments 3,193 6,425 Other receivables 43 46 Cash and cash equivalents 2,530 5,330 Total 1,269,460 1,029,283 Indirect credit risk from underlying collective investment schemes are managed by respective investment managers. The Trustee of the Scheme considers that the credit risk is not significant. With respect to credit risk arising from the other financial assets of the Scheme, which comprise cash and cash equivalents, other receivables, amount receivables from disposal of investment, contribution receivable and distribution receivables; the Scheme’s exposure equal to the carrying amount of these instruments. The Authority requests the Scheme to place deposits with an authorised financial institution or an eligible overseas bank according to the requirement in Schedule 1 to the General Regulation. Distribution receivables represent distributions from Hang Seng Index ETF, listed in Hong Kong Stock Exchange, which is with low default risk. The credit risk is not considered to be significant. As at 30 June 2019 and 2018, there were no significant concentrations of credit risk. Amounts arising from ECL Impairment on distribution receivables, contribution receivable, amounts receivable on subscription of units, amounts receivable from disposal of investments, other receivables and cash and cash equivalents have been measured on a 12-month expected loss basis and reflects the short maturities of the exposures. The Scheme considers that these exposures have low credit risk based on the external credit ratings and/or review result of the counterparties. The Scheme monitors changes in credit risk on these exposures by tracking published external credit ratings of the counterparties and/ or performed ongoing review of the counterparties.


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19 Financial instruments and associated risks (continued) (b) Credit risk (continued)

On initial application of HKFRS 9 as at 1 July 2018, the Managers considers the probability of default to be close to zero as the counterparties have a strong capacity to meet their contractual obligations in the near term. There is no impairment allowance recognised on distribution receivables, contribution receivable, amounts receivable on subscription of units, amounts receivable from disposal of investments, other receivables and cash and cash equivalents. The amount of the loss allowance did not change during the year ended 30 June 2019.

(c) Liquidity risk

Liquidity risk is the risk that the Scheme will encounter difficulty in meeting obligations associated with financial liabilities. The Scheme’s policy is to regularly monitor current and expected liquidity requirements to ensure that they maintain sufficient reserves of cash and readily realisable investments to meet benefit payments and other liquidity requirements in the short and longer term. The Scheme invests all its assets in collective investment schemes that could be readily converted into cash to meet its liquidity requirement. All financial liabilities disclosed in the statement of net assets and mature within 6 months from the reporting date.

(d) Fair value information

The major methods and assumptions used in estimating the fair values of financial instruments are disclosed in note 2(f)(iii). The carrying amounts of all the Scheme’s financial assets and financial liabilities at the reporting date approximated their fair values. For the quoted collective investment schemes, the fair value is based on their latest net asset value per unit at the reporting date. For other financial instruments, including distribution receivables, contributions receivable, amounts receivable from disposal of investments, other receivables, amounts receivable on subscription of units, amounts payable on purchase of investments, benefits payable, forfeitures payable, accrued expenses and other payables and amounts payable on redemption of units, the carrying amounts approximate fair value due to the immediate or short-term nature of these financial instruments.

20 Deferred expenses In accordance with section 37 of the General Regulation, administrative expenses for the MPF Conservative Fund which have not been deducted in the respective months may be deducted in the following twelve months. As at 30 June 2019, there was no deferred administrative expenses (2018: $334,000).


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21 Payments charged to default investments strategy constituent funds or scheme members who invest in the constituent funds

Core Accumulation fund and Age 65 Plus fund are designated as default investment strategy (“DIS”) constituent funds with effect from 1 April 2017. Payments for services, out-of-pocket expenses and other payment charged to the DIS constituent funds are disclosed below. Payments for services and out-of-pocket expenses are those defined in the MPF Ordinance. During the year ended 30 June 2019

Core Accumulation

Fund Age 65 Plus

Fund $’000 $’000 Payments for services

- Administrator’s fees 545 74 - Fund administration fees 29 4 - Sponsor fees 66 9 - Trustee’s fees 24 3

Total payments for services 664 90

Out-of-pocket expenses

- Auditor’s remuneration 2 - - Printing and advertising fees 8 1 - Insurance premium expenses 1 - - Bank charges - 1 - SFC annual fees 1 -

Total out-of-pocket expenses 12 2 Total payments 676 92 Out-of-pocket expenses expressed as

a percentage of net asset value of the DIS constituent funds(1) 0.009% 0.010%

(1) The net asset value used for calculating the percentage is the average of the net asset

value of the DIS constituent funds as at the last dealing day of each month during the year ended 30 June 2019.


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21 Payments charged to default investments strategy constituent funds or scheme members who invest in the constituent funds (continued) During the year ended 30 June 2018

Core Accumulation

Fund Age 65 Plus

Fund $’000 $’000 Payments for services

- Administrator’s fees 412 30 - Fund administration fees 13 1 - Sponsor fees 30 3 - Trustee’s fees 11 1

Total payments for services 466 35

Out-of-pocket expenses

- Auditor’s remuneration 3 - - Printing and advertising fees 14 1 - SFC annual fees 1 -

Total out-of-pocket expenses 18 1 Total payments 484 36 Out-of-pocket expenses expressed as

a percentage of net asset value of the DIS constituent funds(1) 0.019% 0.013%

(1) The net asset value used for calculating the percentage is the average of the net asset

value of the DIS constituent funds as at the last dealing day of each month during the year ended 30 June 2018.


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22 Subsequent event With effect from 1 July 2019, the Scheme was merged with Hang Seng Mandatory Provident Fund - SuperTrust Plus. All members of the Scheme and their accrued benefits under the Scheme were transferred to Hang Seng Mandatory Provident Fund - SuperTrust Plus on 1 July 2019.

23 Possible impact of amendments, new standards and interpretations issued but not yet effective for the year ended 30 June 2019 Up to the date of issue of these financial statements, the HKICPA has issued a number of amendments, new standards and interpretation which are not yet effective for the year ended 30 June 2019 and which have not been adopted in these financial statements. These include the following which may be relevant to the Scheme. Effective for

accounting periods beginning on or after

Annual Improvements to HKFRSs 2015-2017 Cycle 1 January 2019 HK(IFRIC) 23, Uncertainty over income tax treatments 1 January 2019 The Trustee is in the process of making an assessment of what the impact of these amendments, new standards and interpretations is expected to be in the period of initial application. So far it has concluded that the adoption of them is unlikely to have a significant impact on the financial statements of the Scheme.

kpmg

95

Independent auditor’s assurance report to the Trustee of Hang Seng Mandatory Provident Fund – ValueChoice (“the Scheme”) We have audited the financial statements of the Scheme for the year ended 30 June 2019 in accordance with Hong Kong Standards on Auditing and with reference to Practice Note 860.1 (Revised), The Audit of Retirement Schemes (“PN 860.1 (Revised)”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), and have issued an unqualified auditor’s report thereon dated 11 December 2019. Pursuant to section 102 of the Mandatory Provident Fund Schemes (General) Regulation (“the General Regulation”), we are required to report whether the Scheme complied with certain requirements of the Mandatory Provident Fund Schemes Ordinance (“the MPF Ordinance”) and the General Regulation. Trustee’s Responsibility The General Regulation requires the Trustee to ensure that: (a) proper accounting and other records are kept in respect of the constituent funds of the

Scheme, the Scheme assets and all financial transactions entered into in relation to the Scheme;

(b) the requirements specified in the guidelines made by the Mandatory Provident Fund

Schemes Authority (“the Authority”) under section 28 of the MPF Ordinance with respect to forbidden investment practices and the requirements of sections 37(2), 51 and 52 and Part X of, and Schedule 1 to, the General Regulation are complied with;

(c) the requirements under sections 34DB(1)(a), (b), (c) and (d), 34DC(1), 34DD(1) and (4)

of the MPF Ordinance are complied with; and (d) the Scheme assets are not subject to any encumbrance, otherwise than as permitted

by the General Regulation. Our Independence and Quality Control We have complied with the independence and other ethical requirements of the Code of Ethics for Professional Accountants issued by the HKICPA, which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour. The firm applies Hong Kong Standard on Quality Control 1 and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

kpmg

96

Independent auditor’s assurance report to the Trustee of Hang Seng Mandatory Provident Fund – ValueChoice (“the Scheme”) (continued) Auditor’s Responsibility Our responsibility is to report solely to you, on the Scheme’s compliance with the above requirements based on the results of the procedures performed by us, in accordance with section 102 of the General Regulation, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements 3000 (Revised), Assurance Engagements Other Than Audits or Reviews of Historical Financial Information and with reference to PN 860.1 (Revised) issued by the HKICPA. We have planned and performed our work to obtain reasonable assurance on whether the Scheme has complied with the above requirements. We have planned and performed such procedures as we considered necessary with reference to the procedures recommended in PN 860.1 (Revised), which included reviewing, on a test basis, evidence obtained from the Trustee of the scheme regarding the Scheme’s compliance with the above requirements. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion Based on the foregoing: (1) In our opinion:

(a) proper accounting and other records have been kept during the year ended 30 June 2019 in respect of the constituent funds of the Scheme, the Scheme assets and all financial transactions entered into in relation to the Scheme; and

(b) the requirements specified in the guidelines made by the Authority under section

28 of the MPF Ordinance with respect to forbidden investment practices and the requirements of sections 37(2), 51 and 52 and Part X of, and Schedule 1 to, the General Regulation have been complied with, in all material respects, as at 31 October 2018, 28 February 2019 and 30 June 2019; and

HANG SENGFund Expense Ratio (%)

30-Jun-19

Hang Seng Mandatory Provident Fund ValueChoice

- MPF Conservative Fund 0.89%

- Hang Seng Index Tracking Fund 0.78%

- Global Bond Fund 0.78%

- Core Accumulation Fund (1) 0.77%

- ValueChoice Balanced Fund 0.94%

- ValueChoice Asia Pacific Equity Fund 0.85%

- ValueChoice European Equity Fund 0.88%

- ValueChoice US Equity Fund 0.85%

- Hang Seng China Enterprises Index Tracking Fund (3) 0.87%

- Global Equity Fund 0.82%

- Age 65 Plus Fund(2) 0.78%

Remark

(1) Hang Seng MPF ValueChoice Core Accumulation Fund was formerly known as Hang Seng MPF ValueChoice Stable Growth Fund prior to 1 April 2017

(2) Hang Seng MPF ValueChoice Age 65 Plus Fund launched on 1 April 2017

(3) Hang Seng MPF ValueChoice Hang Seng China Enterprises Index Tracking Fund was formerly known as Hang Seng MPF ValueChoice

Hang Seng H-Share Index Tracking Fund prior to 5 March 2018.

PUBLIC

Hang Seng Mandatory Provident Fund – ValueChoice Addendum to the Annual Consolidated Report for the financial year ended 30 June 2019 The purpose of this addendum is to clarify and amend the annual consolidated report for the financial year ended 30 June 2019. There is a typographical error in the first sentence of the second paragraph under the “The Scheme” section on page 3 of the consolidated report as follows:

The Trust Deed was not amended for the restructuring of the scheme. As such the first sentence of the second paragraph under “The Scheme” section on page 3 of the consolidated report is deleted.

Please find the revised “The Scheme” section in the attachment for your reference. HSBC Provident Fund Trustee (Hong Kong) Limited 16 March 2020 Encl.

Hang Seng Mandatory Provident Fund – ValueChoice Attachment of Addendum to the Annual Consolidated Report

for the financial year ended 30 June 2019

Revised “The Scheme” section on page 3 of the Consolidated Report 1. The Scheme

The Scheme is a master trust scheme set up for the purpose of providing benefits to members in accordance with the Hong Kong Mandatory Provident Fund Schemes Ordinance (“the MPF Ordinance”). The Scheme was established under a trust deed dated 24 November 2010 as amended from time to time, with the latest amended and restated trust deed dated 23 June 2017, between Hang Seng Bank Limited as the Sponsor and HSBC Provident Fund Trustee (Hong Kong) Limited as the Trustee. The Scheme is registered under section 21 of the MPF Ordinance. With effect from 1 July 2019, the Scheme was merged with Hang Seng Mandatory Provident Fund - SuperTrust Plus. All members of the Scheme and their accrued benefits under the Scheme were transferred to Hang Seng Mandatory Provident Fund - SuperTrust Plus on 1 July 2019. Details on the merger can be found at the following website https://www.hangseng.com/cms/cbd/eMPF/merger_notice_190 325e.pdf. The Trust Deed of the Scheme was amended on 8 April 2019 due to the addition of the tax deductible voluntary contributions feature to the Scheme. Other than the above, there was no change in the governing rules of the Scheme since the last year ended 30 June 2018.

Hang Seng Mandatory Provident Fund – ValueChoice Second Addendum to the Annual Consolidated Report for the financial year ended 30 June 2019 The purpose of this addendum is to clarify and amend the annual consolidated report for the financial year ended 30 June 2019. There is a typographical error in the 6th line of the first paragraph under the “The Scheme” section of Note 1 to financial statement on page 66 of the consolidated report as follows:

The Trust Deed was not amended by deed of variation on 19 March 2019, hence such amendment date in the 6th line of the first paragraph under the “The Scheme” section of Note 1 to financial statement is deleted.

Please find the revised “The Scheme” section of Note 1 to financial statement in the attachment for your reference. HSBC Provident Fund Trustee (Hong Kong) Limited 20 March 2020 Encl.

Hang Seng Mandatory Provident Fund – ValueChoice Attachment of the 2nd Addendum to the Annual Consolidated Report


Revised “The Scheme” section of Note 1 to financial statement

Notes to the financial statements (Expressed in Hong Kong dollars)

1 The Scheme

Hang Seng Mandatory Provident Fund – ValueChoice (“the Scheme”) is a scheme established under a trust deed dated 24 November 2010 (“the Trust Deed”) between Hang Seng Bank Limited (“the Sponsor) and HSBC Provident Fund Trustee (Hong Kong) Limited (“the Trustee”). The Trust Deed was subsequently amended by deed of variation dated 18 October 2012, 9 April 2015, 27 August 2015, 22 December 2015, 18 May 2016, 12 December 2016 and 23 June 2017 and 8 April 2019 between the Sponsor and the Trustee. The Scheme is registered under section 21 of the Hong Kong Mandatory Provident Fund Schemes Ordinance (“the MPF Ordinance”).

Under the Trust Deed as subsequently amended, the Trustee is required to establish and maintain separate constituent funds into which contributions may be invested. The constituent funds are only available for investment by members of the Scheme.

The Scheme had eleven constituent funds as at 30 June 2019:

‑ MPF Conservative Fund

‑ Hang Seng Index Tracking Fund

‑ Global Bond Fund

‑ Core Accumulation Fund

‑ ValueChoice Balanced Fund

‑ ValueChoice Asia Pacific Equity Fund

‑ ValueChoice European Equity Fund

‑ ValueChoice US Equity Fund

‑ Hang Seng China Enterprises Index Tracking

‑ Global Equity Fund

‑ Age 65 Plus Fund

Hang Seng Mandatory Provident Fund – ValueChoice Attachment of the 2nd Addendum to the Annual Consolidated Report


1 The Scheme (continued) Except for Hang Seng Index Tracking Fund and Hang Seng H Share Index Tracking Fund which invest in Hang Seng Index ETF and Hang Seng H Share Index ETF respectively, all constituent funds invest in sub-funds of HSBC MPF Fund Series “A” which are approved pooled investment funds. The Scheme is generally funded by contributions from the participating employers and members. Under section 7A of the MPF Ordinance, each of the participating employers and members is required to contribute 5% of relevant income to the Scheme on a monthly basis. The contribution was subject to a maximum amount of $1,500 prescribed by section 10 and schedule 3 of the MPF Ordinance. According to section 9 and schedule 2 of the MPF Ordinance, members with monthly salary of less than the minimum level of $7,100 are exempted from contributions. Such exemption is not applicable for their employers. The Employee Choice Arrangement (“the ECA”) has been launched by the Hong Kong Mandatory Provident Fund Schemes Authority (“the Authority”) with effect from 1 November 2012. The ECA allows members to opt to transfer the member's portion of mandatory contributions and investment returns (i.e. the accrued benefits) in their contribution accounts of the original mandatory provident fund scheme to another mandatory provident fund scheme of their own choice once a year. Alternatively, members do not have to make any change. They can retain the accrued benefits in the original mandatory provident fund scheme selected by their employers. The feature of tax deductible voluntary contributions (“TVC”) has been added to the Scheme with effect from 1 April 2019. The TVC allows eligible persons to set up a TVC account and pay TVC into such account. TVC may be eligible for tax concessions starting from the year of assessment 2019/2020. TVC is voluntary in nature. However, it is subject to the same vesting, preservation and withdrawal restrictions applicable to mandatory contributions. With effect from 1 July 2019, the Scheme was merged with Hang Seng Mandatory Provident Fund - SuperTrust Plus. All members of the Scheme and their accrued benefits under the Scheme were transferred to Hang Seng Mandatory Provident Fund - SuperTrust Plus on 1 July 2019. The Scheme may be terminated on the occurrence of one or more events as specified in clause 21 of the Trust Deed as subsequently amended.

Documents

Hang Seng Mandatory Provident Fund ValueChoice · Sponsor and HSBC Provident Fund Trustee (Hong Kong) Limited as the Trustee. The Scheme is registered under section 21 of the MPF