Financial Statements for the Year Ended 30 June 1996

Abstract

[evdate 1996-06-30] CONTENTS I. THE HONG KONG UNIVERSITY OF SCIENCE AND TECHNOLOGY Treasurer's Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Auditors' Report . . . . . . . . . . . . . . . . . . . 6 Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Income and Expenditure Statement . . . . . . . . . . 8

Cash Flow Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Reconciliation of Funding Surplus/(Shortfall) to Net Cash Inflow from University Operations . . 10 Notes to the Financial Statements 1. Significant Accounting Policies. . . . . . . . . . . . . . . . . . . . 11 2. Capital Commitments . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

3. Comparative Figures . . . . . . Schedules to the Financial Statements Buildings 14

Construction-in-progress.. .. 14

Other Fixed Assets 15

Investments 16

Loans to Affiliated Companies 16

Sundry Receivables 16

UGC Holding Account 17

Bank and Cash Balances .. 17

Accounts Payable and Accruals 18

Long-term Liabilities 18

Building Fund 19

Capital Fund 20

Reserves and Provisions 20

Reserves and Provisions - Amount Transferred 21

Specific Funds 22

Earmarked Grants 23

Earmarked Grants - UGC Central Allocation Vote 1992-95.. 23

Earmarked Grants - Research Grants Council.. 24

Capital Grants 25

Donations and Designated Endowment Funds.. 26

Donations and Designated Endowment Recurrent Accounts .. 27

Designated Endowment Capital Accounts.. 29

Other Operating Funds 30

UGC Triennium Equalization Account.. 31

General Income and Expenditure 32 UGC Recurrent Grant/Hong Kong Government Subventions 33

Fee Income 33

General Expenditure 34

II. THE HONG KONG UNIVERSITY OF SCIENCE AND TECHNOLOGY STAFF SUPERANNUATION SCHEME Trustees' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Revenue Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Notes to the Financial Statements 1. Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

2. Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

3. Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Full Actuarial Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Ill. THE HONG KONG UNIVERSITY OF SCIENCE AND TECHNOLOGY ANCILLARY STAFF SUPERANNUATION SCHEME Trustees' Report . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Auditors' Report . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Balance Sheet . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Revenue Account . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

Notes to the Financial Statements 1. Background . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

2. Significant Accounting Policies . . . .. . . . . . . . . . . . . . . . . . 53

3. Investments . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Full Actuarial Certificate . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . , . . . . . . . . . 55

THE HONG KONG UNIVERSITY OF SCIENCE AND TECHNOLOGY FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 1996 TREASURER'S REPORT The financial year ended 30 June 1996 saw the University continuing its growth both in terms of the student population as

well as teaching and research activities. The total net assets as at 30 June 1996 rose by 7% as compared with total net

assets as at 30 June 1995 to $4,031.09 million. This was largely attributable to the senior staff quarters, graduate

residences and a University Centre which were still under construction, a higher level of surplus cash on bank deposits

partially offset by an increase in bank loans, and was due largely to the current year's surplus and the sale of Hong Kong

Supernet Limited. After the campus project (Phases I & II) had been satisfactorily completed, the University with the approval from the

University Grants Committee ('UGC") started in 1993194 the construction on campus of 66 additional senior staff quarters

(Phase IIA), another 156 additional senior staff quarters (Phase IIB), additional graduate residences with 1,080 places and

a University Centre ("GRUC The final account for the construction of 66 additional senior staff quarters was expected to

be settled at a total cost lower than the tendered sum. In 1995196, with the approval from the UGC and the relevant bank,

$4.50 million was drawn from the existing bank loan facility for Phase IIA project to fund the costs of furniture and

appliances. General income increased by 18% to total $1,645.17 million for the year, to cope with the growth in student numbers.

General expenditure primarily funded by the UGC increased by 6% to reach $1,508.48 million for the year. Specific income

increased by 23% to total $437.84 million for the year. The increase was due largely to the substantial other operating

income arising from the sale of Hong Kong Supernet Limited and the transfer from the excess general income. Specific

expenditure on basic teaching equipment, specialist equipment and facilities, furniture and general equipment and other

capital grants funded by the UGC totalled $160.94 million for the year. Other specific expenditure funded by the UGC on an

earmarked basis amounted to $52.16 million for the year. Funding for research activities, both from the Government as

well as from the private sector, had also grown substantially. The University continued to receive generous financial

support from the commercial sector, private individuals and the community at large.

The University established Hong Kong Supernet Limited as a wholly owned subsidiary to take up the development of the

Supernet project, which was a pioneer and at one time the only licensed provider of commercial Internet services in Hong

Kong. Hong Kong Supernet Limited was sold in June 1996 for a net amount of $36.01 million and the sale proceeds were

transferred to the University Development Fund. From 1995/96, apart from the capitalisation policy on fixed assets, the University has adopted the accounting practices as

set out in a proposed Statement of Recommended Practice ("SORP") for UGC-funded Institutions in Hong Kong to prepare

its financial statements; the proposed SORP recommends the capitalisation of fixed assets only when their costs are

funded by loan facilities, but the University has decided to continue with its accounting policy of capitalising all fixed assets

irrespective of the source of financing in order to record and reflect their total historical financial value in the University's

books. The proposed SORP which has incorporated as far as possible the views and comments made by the auditors of

the institutions and the Hong Kong Society of Accountants, has been developed and agreed by all finance officers of the

seven UGC-funded institutions. Significant accounting policies are given in the notes to the financial statements.

CONSTRUCTION PROJECTS FUNDED BY CREDIT FACILITIES Additional Senior Staff Quarters In agreeing with the University that there would be a shortage of senior staff quarters on campus, the UGC gave approval

to develop on the University's campus 66 additional senior staff quarters (Phase IIA) and another 156 additional senior staff

quarters (Phase IIB) with the full construction costs and legal and facility charges financed by two bank loans. The UGC

also agreed that repayments of the bank loans over a number of years could come from the recurrent grant, up to amounts

equivalent to the rental value of leasing a similar number of such staff quarters from the market. Two loan facilities of up to

$150 million and $300.20 million, respectively, were arranged in the name of the University. The Phase IIA project was

completed on time and under budget, and was handed over to the University during the financial year 1994/95. As at

30 June 1996, a total of $133.88 million and $151 .l 1 million was drawn to finance the construction costs of Phase IIA and

The Hong Kong University of Science and Technology 1

Phase IIB respectively. In addition, the University has started to repay the bank loan of the Phase IIA project from the

recurrent grant and a total of $27.51 million had been repaid as at 30 June 1996.

Graduate Residence and University Centre In 1994/95, the UGC also approved the construction of additional graduate residences with 1,080 places and a University

Centre. The project is funded by a bank loan facility of up to $250 million in the name of the University. The bank loan will

be repaid by the University over a number of years primarily from rental charges to be collected from occupants to the

graduate residences and the University Centre. As at 30 June 1996, a toital of $135.62 million was drawn to finance the

amount incurred thus far on the project. GENERAL INCOME AND EXPENDITURE The University operates under a triennial block grant arrangement. The current triennium started on 1 July 1995 and will

end on 30 June 1998. For the triennium 1995-98, Language Enhancement Grant and Indicated Equipment Grant were not

included as part of the UGC block grant. Starting from 1995196, the Indicated Equipment Grant is no longer separately

funded by the UGC and the Language Enhancement Grant is provided by the UGC on an earmarked grant basis. General

funds are Government funds for the general operation of the University. General Income For 1995/96, the first year of the current triennium 1995-98, the total general income increased by 18% to $1,645.17 million,

of which $1,369.94 million or 83% was provided by the Government through the UGC: a block grant of $1,254.48 million,

two reserved supplementary grants totalling $99.70 million to cover additional costs arising from general salary revisions for

University staff in line with annual salary adjustments approved for the Civil Service and $15.76 million for the

reimbursement of property rates paid by the University. The remainder of the general income included $187.67 million of tuition fees and others totalling $87.56 million,

General Expenditure The total general expenditure for the year amounted to $1,508.48 million of which $124.32 million or 8% was for

Administration and $885.25 million or 59% was for Academic Departments and Academic Support Centres. Other general

expenditure (e.g. Maintenance of Premises and Grounds) totalled $498.91 million. The continued expansion of the

University saw a continuous upward trend of expenditure in both absolute and relative terms for Academic Departments

and Academic Support Centres. Of the total general expenditure, salaries and superannuation/gratuities including salary revisions accounted for $959.74

million or 64%, and will continue to be the major item of general expenditure. As the University approaches a steady state,

the allocation of resources for administrative purposes will stabilise. The ratio of administrative staff cost to academic staff

cost will reach a reasonable level. Surplus for General Income over General Expenditure The surplus for general income over general expenditure for the year after transfers had been made to reserves/provisions

and other operating funds was $80.81 million. In accordance with general guidelines laid down by the UGC, this surplus

will be carried forward to and utilised in future years of the triennium. 2 The Hong Kong Unwersity of Science and Technology

SPECIFIC FUNDS Specific funds are those funds which can only be applied to an earmarked or designated specific purpose or activity.

Earmarked Grants Languaqe Enhancement Grant 1995/96 Starting from 1995/96, the Language Enhancement Grant has been provided by the UGC on an earmarked grant basis

instead of as a part of the block grant. In 1995/96, the UGC had approved $6 million for language enhancement. As at

30 June 1996, a total of $4.47 million was expended. The unspent balance will be carried forward to and utilised in future

years of the triennium 1995-98. Teachinq Development Grant 1994/95 The UGC approved a teaching development grant of $2.20 million in 1994195 to encourage, promote and reward innovative

approaches to teaching and/or improvements to the learning environment. As at 30 June 1996, a total of $1.93 million was

expended. In order to complete the teaching development project, the unspent balance has been approved by the UGC for

carrying forward till the end of the triennium 1995-98. Teachinq Development Grant 1995-98 The UGC also approved $5.33 million as the first tranche of the teaching development grant for 1995-98. As at

30 June 1996, a total of $0.45 million was expended. The unspent balance will be carried forward to and utilised in future

years of the triennium. UGC Central Allocation Vote 1992-95 The UGC approved $39.71 million from the UGC Central Allocation Vote 1992-95 to fund projects proposed jointly with

other UGC-funded institution(s), with the University as the "Co-ordinating Institution (Cl Of this amount, a total of $39.70

million was expended as at 30 June 1996. At the same time, the University is also the "Participating Institution" in two

projects with the Chinese University of Hong Kong and City University of Hong Kong as the Cl, respectively. A total of

$1.61 million was granted to the University by these Cls, of which a total of $0.83 million was expended. The unspent

balances in these joint institutions' research projects has been approved by the UGC for carrying forward till the end of the

triennium 1995-98. Research Grant Council During the year, the University received $66.42 million from the Research Grants Council ("RGC") to fund research

projects, equipment and facilities. The grants are detailed as follows: RGC - Direct Allocation and Competitive Bids Proiects A total of $64.82 million was received during the year from the RGC to fund research projects. Of this, $56.82 million was

obtained on a competitive bid basis for individual projects. The remaining $8 million was given to the University in the form

of a direct allocation grant to support individual research projects at the discretion of the University. As at 30 June 1996,

there was an unallocated amount of $0.16 million from the direct allocation grant. This will be carried forward to and utilised

in future years of the triennium 1995-98. The Hong Kong Unwersity of Science and Technology 3

RGC - Central Allocation Vote 1994/95 A grant of $1.90 million was approved by the RGC in 1994/95 to support the establishment of "A Polymer Materials

Development Processing and Characterisation Laboratory". As at 30 June 1996, the grant was fully expended.

RGC - Central Allocation Vote 1995/96 A grant of $1.60 million was approved by the RGC in 1995/96 to support the establishment of "Computing Resources for

Research on High-Performance Video Compression". As at 30 June 1996, the project was still at a planning stage. No

money was expended and the unspent balance has been approved by the UGC for carrying forward to the next financial

year. RGC - Co-operative Research Centres A grant of $2.10 million was approved by the RGC in 1993/94 for the establishment of a CRC pilot scheme in wireless

communication. As at 30 June 1996, a total of $2.09 million was expended. The unspent balance has been approved by

the UGC for carrying forward till 30 September 1996. Academic Exchanges with Institutions of Hiaher Education in China A grant of $0.5 million was received from the UGC during 1995/96 to support the University's academic exchange activities

with China. As at 30 June 1996, the entire amount was fully expended. Capital Grants The UGC approved a total grant of $1,521.95 million for the acquisition of basic teaching equipment, specialist equipment

and facilities, furniture and general equipment. In addition, the UGC also approved a capital grant of $32.97 million to

finance the construction of laboratories and facilities in the University. Basic Teachinq Equipment In July 1990, the Government approved a grant of $194 million to meet requirements for basic teaching equipment for

Phase I development of the University. As at 30 June 1996, a total of $178.16 million was expended.

In February 1995, the UGC also approved an additional provision of $120 million for the University to acquire basic

teaching equipment required to meet the needs of its approved student nurnber targets up to 1997/98. As at 30 June 1996,

a total of $16.03 million was expended. Specialist Equipment and Facilities In June 1990, the Government approved a grant of $700 million for the acquisition of specialist equipment and facilities for

both Phases I & II. As at 30 June 1996, a total of $457.02 million was expended.

Furniture and General Equipment In July 1990, the Government approved a grant of $453 million for the acquisition of furniture and general equipment for

both Phases I & II. In June 1995, the UGC revised downward the total provision for building-related items (within the

originally approved $453 million) from $169 million to $164.72 million due to a downward Tender Price Index movement

4 The Hong Kong Unwersity of Science and Technology

thus reducing the grant for acquiring furniture and general equipment from the original $453 million to $448.72 million. As

at 30 June 1996, a total of $412.57 million was expended. Other Capital Grants The UGC approved $32.97 million to finance the construction of additional dangerous goods stores, the fitting out and

installation of environmental control for the engineering laboratories and the fitting out of the Microfabrication Centre in

Phase II. As at 30 June 1996, a total of $23.76 million was spent on these projects.

Donations, Designated Endowment Funds and Other Operating Funds Donations and investment/interest income for general and designated purposes during the year amounted to $57.87

million, of which 79% was for the support of research activities, 5% for the support of general University activities, 11% for

scholarships, bursaries and student loans, and 5% for designated endowments. In addition, the University generated

$120.45 million from self-financing activities, research contracts and others in 1995/96. With a total of $13.12 million

earned from investment and bank interest income and after expending or transferring $93.71 million, the balance of

donations designated endowment funds and other operating funds stood at $252.01 million as at 30 June 1996.

OUTLOOK FOR 1996197 With the construction of the additional 156 senior staff quarters, the graduate residence and the University Centre, it is

anticipated that total assets will increase correspondingly but against the carrying of a broadly equivalent amount in bank

loans. General income and expenditure will continue to grow albeit slowly as the University will have almost reached the

planned total student capacity and the high growth since 1991192 when students were first admitted is unlikely to recur.

Donations and specific income are also expected to increase, as the University will continue to be successful in attracting

research funding, but the extent of the increase might be relatively smaller after discounting the sale proceeds for Hong

Kong Supernet Limited in 1995/96. The financial year under review has been a busy but smooth and successful one. I would like to take this opportunity to

thank my colleagues in the University's Finance Committee and all parties involved in the management of the University's

finances for their advice and contributions during the year. SIGNED Mr. LAU Wah-sum, OBE, JP Treasurer of the University, 22 November 1996 The Hong Kong University of Science and Technology 5 AUDITORS' REPORT To: The Council of the Hong Kong University of Science and Technology We have audited the financial statements on pages 7 to 35 which have been prepared in accordance with accounting

principles generally accepted in Hong Kong. Respective Responsibilities of the Council and Auditors The Council are responsible for the preparation of financial statements which give a true and fair view. In preparing

financial statements which give a true and fair view, it is fundamental that appropriate accounting policies are selected and

applied consistently. We are engaged to form an independent opinion, based on our audit, on those statements and to report our opinion to you.

Basis of Opinion We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Society of

Accountants. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the

financial statements. It also includes an assessment of the significant estimates and judgments made by the Council in the

preparation of the financial statements, and of whether the accounting policies are appropriate to the University's

circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in

order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free

from material misstatements. In forming our opinion we also evaluated the overall adequacy of the presentation of

information in the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Opinion In our opinion the financial statements give a true and fair view of the state of affairs of The Hong Kong University of

Science and Technology as at 30 June 1996 and of its surplus of income over expenditure and cash flows for the year then

ended. SIGNED Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong 22 November 1996

BALANCE SHEET AS AT 30 JUNE 1996 30 June 1995 K$'OOO H 3,581,748 205,329 2,262 618.076 784,260 469,983 ] 148.093 3,937,432 (159,577) FIXED ASSETS Buildings Construction-in-progress Other Fixed Assets 3,485,417 3 377,950 INVESTMENTS 4 LOANS TO AFFILIATED COMPANIES 5 CURRENT ASSETS Stocks Prepayments and Deposits Sundry Receivables UGC Holding Account Bank and Cash Balances LESS: CURRENT LIABILITIES Accounts Payable and Accruals NET CURRENT ASSETS 9 LONG-TERM LIABILITIES 10 3,777,855 TOTAL NET ASSETS 4,031,092 3,028,089 BUILDING FUND 11 3,033,981 390,152 CAPITAL FUND 12 377,950 218,177 RESERVES AND PROVISIONS 13 287,108 141,437 SPECIFIC FUNDS 14 251,238 0 UGC TRIENNIUM EQUALIZATION ACCOUNT 15 80.815 3,777,855 TOTAL FUNDS 4,031,092 Schedule 30 June 1996 HK$'OOO K$'OOO H 3,863,367 223,715 30 864 32,804 41,268 1,007 708,317 472,052 312,208 4,399,320 (368,228) Approved by the Council on 22 November 1996 SIGNED SIGNED Mr. LAU Wah-sum Professor Chia-Wei WOO Treasurer of the University President The accompanying notes and schedules are an mfegral part of the finanoal statements.

SIGNED Norman W. Y. NGAI Director of Finance INCOME AND EXPENDITURE STATEMENT FOR THE YEAR ENDED 30 JIJNE 1996 1 July 1994 to 30 June 1995 HK$'OOO 1 ,198,775 125,971 36,816 27,880 3,784 GENERAL INCOME UGC Recurrent Grant/Hong Kong Government Subventions Fee Income Investment and Bank Interest Income Rental Recoveries from Staff Miscellaneous Income 1,393,226 73,870 170,316 65,596 46,061 355.843 SPECIFIC INCOME Earmarked Grants Capital Grants Donations and Designated Endowment Income Other Operating Income 107,648 877,293 234,917 25,379 27,735 155.907 GENERAL EXPENDITURE Administration Academic Maintenance of Premises General Education Student Facilities and Amenities Miscellaneous 1,428,879 1.508.477 79,855 171,172 39,311 40,729 331,067 SPECIFIC EXPENDITURE Expenditure met from Earmarked Grants Expenditure met from Capital Grants Expenditure funded by Donations and Designated E%dowment Income Other Operating Expenditure (10,877) SURPLUS/(DEFICIT) FOR THE YEAR (75,55i) Transferred from the UGC Holding Account Transferred to Reserves/Provisions 0 Transferred to Other Operating Funds 4,081 Transferred from/(to) Specific Funds SURPLUS/(DEFICIT) TRANSFERRED TO THE (82,350) UGC TRIENNIUM EQUALIZATION ACCOUNT The accompanying notes and schedules are an infegfal part of the financial statements

Schedule 1 July 1995 to 30 June 1996 K!{????}OOO H 16 1,369,937 189,032 46,180 35,450 4,568 1,645,167 14 78,560 180,972 57,865 120,446 437,843 16 124,316 885,250 236,362 20,246 32,998 209.305 14 52,162 160,937 50,321 38.695 302,115 16 13(a) 16 14 272,418 1,294 (65,865) (17,421) (109,611) 16 80,815 8 The Hong Kong Unwersity of Science and Technology

CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 1996 1 July 1994 1 July 1995 to to 30 June 1995 30 June 1996 HK$'OOO K$'OOO H 324,609 (390) 36,816 6,956 (121) 43,651 (35,659) (267,294) 20 (146,307) 0 (1,232) - !-I (603,535; (235,665) NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING 10,372 FINANCING Capital Element of Finance Lease Payments (258) Draw Down on Bank Loans 258,519 Repayment of Bank Loans (27,507) 152,446 (83,219) 512,611 NET CASH INFLOW FROM FINANCING INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS BROUGHT FORWARD 230,754 -I 241 ,126 429,392 NET CASH INFLOW FROM UNIVERSITY OPERATIONS NET CAPITAL INFLOW/(OUTFLOW) FROM DESIGNATED ENDOWMENTS 347,382 190 RETURNS ON INVESTMENTS AND SERVICING OF FINANCE lnvestmentllnterest Income from General Funds Investment/Interest Income from Specific Funds Interest Element of Finance Lease Payments NET CASH INFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE 60,515 INVESTING ACTIVITIES (Increase)/Decrease in Bank Deposits Maturing after Three Months 90,377 Payments to Acquire Other Fixed Assets (220,024) Receipts from Sales of Other Fixed Assets 5 Payments to Acquire Investments (18,386) Receipt from Sales of Hong Kong Supernet Ltd. 36,010 Loans to Affiliated Companies 0 Repayment of Loans from HKUST R and D Corporation Ltd. 2,232 Expenditure on Capital Projects (287,929) NET CASH OUTFLOW FROM INVESTING ACTIVITIES (397,715) 429,392 CASH AND CASH EQUIVALENTS CARRIED FORWARD 670,518 425,653 3,739 ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Bank Deposits Maturing within Three Months Other Bank and Cash Balances 429,392 670,518 626,148 44,370 RECONCILIATION OF FUNDING SURPLUS/(SHORTFALL) TO NET CASH INFLOW FROM UNIVERSITY OPERATIONS FOR THE YEAR ENDED 30 JUNE 1996 1 July 1994 1 July 1995 to to 30 June 1995 30 June 1996 K$'OOO H HK$'OOO I I 1 (35,653) (8,670) 8,930 (I,1 16) (5,400) (30,796) 29,465 0 755 (1180) 26,394 5,332 24,776 (10,877) TOTAL FUNDING SURPLUS/(SHORTFALL) 254,997 223.502 .I TOTAL ADJUSTMENTS 123,411 212,625 NET FUNDING SURPLUS 378,408 323 (21,308) (3,371) (14,624) 150,332 (42) 674 111,984 (31,026) FUNDING SURPLUS/(SHORTFALL) Surplus/(Shortfall) from General Funds Surplus/(Shortfall) from Specific Funds Capital Account Capital Works Reserve Fund Other Capital Grants Phase I/II Campus Development Project - Menor Modification Works UGC Central Allocation Vote 1992-95 Research Grants Council Language Enhancement Grant 1995/96 Teaching Development Grant 1994/95 Teaching Development Grant 1995-98 Academic Exchanges with Institutions of Higher Education in China Donations and Designated Endowment Recurrent Accounts Other Operating Funds ADJUSTMENTS Acquisition of Other Fixed Assets Disposal of Other Fixed Assets Disposal of Hong Kong Supernet Ltd. Investment/Interest Income from General Funds Investment/Interest Income from Specific Funds DECREASE IN STOCKS INCREASE IN PREPAYMENTS AND DEPOSITS INCREASE IN SUNDRY RECEIVABLES (INCREASE)/DECREASE IN THE UGC HOLDING ACCOUNT INCREASE/(DECREASE) IN ACCOUNTS PAYABLES AND ACCRUALS INCLUDING OVERPROVISION OF OUTSTANDING COMMITMENTS INCREASE/(DECREASE) IN DEFERRED GRATUITIES INCREASE IN RESERVES AND PROVISIONS 324,609 NET CASH INFLOW FROM UNIVERSITY OPERATIONS 347.382 136.690 (14,600) 28,828 5,807 (1!12!) 22,228 1,528 (484) 4,874 (623) 7,544 64,330 118,307 149 (1,186) (17,613) 650 (18,575) 2,483 3,066 10 The Hong Kong Unwersityof Science andTechnology NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 1996 SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting Apart from the capitalisation policy on fixed assets, the financial statements have been prepared in accordance

with the proposed Statement of Recommended Practice ("SORP") for UGC-funded Institutions in Hong Kong; the

proposed SORP recommends the capitalisation of fixed assets only when their costs are funded by loan facilities

but the University has decided to continue with its accounting policy of capitalising all fixed assets irrespective of

the source of financing in order to record and reflect their total historical financial value in the University's books.

The latest version of the proposed SORP, jointly agreed by all finance officers of the seven UGC-funded

institutions for implementation from this financial year, has incorporated as far as possible the views of their

auditors and preliminary comments made by the Hong Kong Society of Accountants, and is now under further

review by the Hong Kong Society of Accountants. In general, the financial statements have been prepared on the

accruals basis except for the expenditure as specified in Note 1.3 below. The University has separately constituted a HKUST Educational Trust for the promotion and development of

education and learning through teaching and research by the University, and independent Deeds of Trust for the

University's two superannuation schemes. Their accounts are prepared and audited separately and are not

included in these financial statements. The University has not consolidated in these financial statements the financial activities of its wholly owned

subsidiary companies, HKUST R and D Corporation Limited and HKUST Properties Limited, as the transactions of

HKUST R and D Corporation Limited are not material in the context of the University while HKUST Properties

Limited is a dormant company. UGC Subventions Recognition All subventions are accounted for on an accruals basis as they are and will be approved by the UGC for the

financial year. Expenditure It is the policy of the University to recognise, as a liability, approved expenditure relating to items in respect of

which purchase orders have been placed by the University with suppliers but for which goods or services have not

been received at the balance sheet date. Buildings and Construction-in-progress Construction-in-progress is capitalised at cost to the Building Fund but is not depreciated. When a building is

completed and formally handed-over to the University, costs formerly recorded under the Construction-in-progress

are reclassified as Buildings and depreciated on a straight-line basis to write off from the Building Fund the

capitalised costs of the buildings at the year end over their useful llives at 2% per annum.

The campus site located at Sai Kung of approximately 60 hectares was granted by the Government at a nominal

rent for 58 years through 30 June 2047. The land grant, in the nature of an operating lease, is not recorded in the

financial statements. 1.5 Other Fixed Assets The costs of other fixed assets acquired are first charged against the respective fund accounts in the year of

acquisition based on approved orders and then capitalised to the Capital Fund. Depreciation is provided on a

straight-line basis to write off from the Capital Fund the capitalised cost of other fixed assets at the year end over

their useful lives at the following rates :- Computing, audio/visual, maintenance, teaching and sports equipment Motor vehicles Office and quarters furniture and equipment, and electrical appliances 25% per annum 25% per annum 20% per annum Other fixed assets include those conferred by the HKUST Educational Trust. Assets leased under finance leases

are capitalised at the present value of the minimum payments at the inception of the lease and depreciated on the

same basis as mentioned above or, where shorter, over the terms of the finance leases.

1.6 Investments Listed and unlisted investments are stated at cost. Realised and accrued income and investment expenses are

dealt with in the related funds. 1.7 Stocks Stocks held for resale in respect of self-financing operations are valued at the lower of cost and net realisable

value. Cost is calculated using the average cost method. Net realisable value is calculated with reference to the

actual or estimated selling price less the related cost of marketing, selling and distribution. Other stocks are

written off against the related funds in the year in which expenditure is incurred.

1.8 Library Books and Periodicals Library books and periodicals are written off against the related funds in the year in which expenditure is incurred.

1.9 Donations, Donated Services and In-kind Contributions Donations are accounted for on an accruals basis. The value of donated services and in-kind contributions is not

recorded in the financial statements except in cases where their monetary benefits are material and can be

reasonably assessed. 1.10 Taxation The University is exempted from payment of tax by virtue of Section 88 of the Inland Revenue Ordinance.

1.11 Cash Equivalents Cash equivalents are defined as short-term, highly liquid investments which are readily convertible into known

amounts of cash and which were within three months of maturity when acquired, less advances from banks

repayable within three months from the date of the advance. 2. CAPITAL COMMITMENTS As at 30 June 1996, there were outstanding capital commitments of $8.02 million funded by the UGC and $176.75

million funded by loan facilities respectively (1995: $17.67 million funded by the UGC and $470.75 million funded

by loan facilities) in respect of capital works contracted for. Liquidated damages of $22 million will be received in the following financial year from the contractor to the

University for the revision of the time for the completion of the construction projects on the 156 additional senior

staff quarters (Phase IIB), the graduate residences with 1,080 places and the University Centre.

3. COMPARATIVE FIGURES Certain comparative figures have been reclassified to conform to the current year's presentation.

The Hong Kong Untverslty of Science and Technology 13

SCHEDULES TO THE FINANCIAL STATEMENTS 30 JUNE 1996 1. BUILDINGS Campus Project Phases I Senior and II Staff Phases I Modification Quarters - and II Works Phase IIA Total -- K$'OOO H K$'OOO H K$'OOO H K$'OOO H (Note 7) (Note 2) COST Asat30June1995 Additions Asat30June1996 /cGJ-mJmr 3,257 406 I 19,387 133,585 3,410,378 DEPRECIATION Asat30June1995 Charged for the Year Asat30June1996 285,213 701 5,008 290,922 NET BOOK VALUE Asat30June1996 2,9;'2,193 18,686 128,577 3,119,456 -- Asat30June1995 3,003,968 15,341 114,465 3,133,774 -- Notes: 1. The UGC approved a total captal project cost of HK$I35 mill/on to develop on the Univewfy's campus 66 add/t/ona/ senior staff quarters

(Phase //A) with the full construction cost and legal and facility charges financed by a bank loan of up to a maxmum of HK$'I50 m/ho~

2. The net book value of buildings was represented and financed by the Building Fund, Bank Loans and Accounts Payable.

2. CONSTRUCTION-IN-PROGRESS Graduate Senior Residence Fitting Out and Environ- mental Environ- mental/ COST Staff and Quarters - University Phase IIB Centre H K$'OOO H K$'OOO (Note 7) (Note 2) Asat30June1995 Additions /l--zr Asat30June1996 179,245 160,156 Dangerous Control of Micro- Geotechnical Goods Engineering fabrication Research Stores Laboratories Centre Total Facility (Note 3) 968 10,251 14,264 1,077 365,961 Notes: 1. The UGC a/so approved the construction of another 156 semor staff quarters (Phase i/B) on the Umvers/ty's campus with fundmg

arrangements smilar to those for the 66 senior staff quarters (Phase //A). A bank loan of up to a maxmum of HK$300.20 md/~on was

secured. 2. Smilarly, the UGC approved the construct/on of additional graduate resjdences w/fh 1,080 places and a Umvers/fy Centre. The project IS

a/so financed by a bank loan of up to a maxmum of HK$250 milhon. 3. The net book value of construct/on-in-progress was represented and financed by the ding Fund, Bank Loans and Accounts Payabie

14 The Hong Kong University of Science and Technology

3. OTHER FIXED ASSETS COST Asat30June1995 652,150 5,085 252,398 909,633 Additions 185,586 490 34,161 220,237 Disposals/Written Off (4.2601 (205: (7661 (5,231) Asat30June1996 833,476 5,370 285,793 1,124,639 DEPRECIATION Asat30June1995 Charged for the Year DisposalsNVritten Off Asat30June1996 NET BOOK VALUE Asat30June 996 301,466 951 75,533 377,950 Asat30June 995 296,402 1,196 92,554 390,152 Computing, AudioNisual, Maintenance, Teaching and sports Equipment K$'OOO H Motor Vehicles H K$'OOO Off ice and Quarters Furniture and Equipment, and Electrical Appliances K$'OOO H Total K$'OOO H 355,748 178,464 c202) 532,010 3,889 210,260 746,689 The net book value of other fixed assets included an asset held under a finance lease which had a net book value of HK$264,000 as at

30 June 1995 and which was fully depreciated as at 30 June 1996. With the approval from the UGC and the relevant bank, an amount of

HK$4.50 million was drawn in 1995/96 from the existing bank loan facility for the Phase /IA project to fund the costs of furmfure and

apphances for the development. The Hong Kong University of Science and Technology 15

4. INVESTMENTS Balance as at 30 June 1995 78,358 126,920 1 50 0 0 126,971 205,329 Listed Investments with Investment Managers at Cost, Including Accumulated Net Realised Income (Note) Unlisted Investments at Cost Bonds and Cash/Bank Deposits with Investment Managers (Note) Joint Universities Computer Centre Ltd. 1 share of HK$500 Varsity Resources Corporation Ltd. 50,000 shares of HK$l each Investment in Wholly-owned Subsidiaries at Cost HKUST Properties Ltd. 2 shares of HK$l each HKUST R and D Corporation Ltd. 2 shares of HK$l each Balance as at 30June1996 H K$'OOO 85,404 138,260 1 50 0 0 138,311 223,715 Note. The market value of listed and unlisted investments with investment managers as at 30 June 1996 was HK$245.20 m on (1995,

HKs220.21 million). The nef profits of the subsidiaries not consolidated but attributable to the University were:

Previous Years Since Acquisition HK$'CWO 0 Dealt with in the Financial Statements of the Un/vers/fy 0 Not dealt with in the hancial Statements of the University 5. LOANS TO AFFILIATED COMPANIES Balance as at 30 June 1995 K$'OOO H 2,232 HKUST R and D Corporation Ltd. 30 Varsity Resources Corporation Ltd. 2,262 6. SUNDRY RECEIVABLES Balance as at 30 June 1995 335 15 52 0 666 19,180 0 0 56 415 2,936 23,655 Amount Due from The HKUST Educational Trust Amount Due from HKUST Properties Ltd. Amount Due from HKUST R and D Corporation Ltd. Amount Due from Hong Kong Supernet Ltd. Backpayments in relation to General Salary Revision with effect from 1 April 1993 for the Year July 1994 to June 1995 Backpayments in relation to General Salary Revision with effect from 1 April 1995 for the Period April to June 1995 Backpayments in relation to General Salary Revision with effect from 1 April 1996 for the Period April to June 1996 Capital Grants Reimbursable from the UGC Rates Reimbursable Staff Debtors Other Sundry Receivables 1995/96 HK$'OOO 0 117 Balance as at 30 June 1996 H K$'OOO 0 30 30 Balance as at 30 June 1996 H KS'000 400 15 0 236 0 0 17,800 14,800 24 289 7,704 41,268 16 The Hong Kong University of Science and Technology

7. UGC HOLDING ACCOUNT Balance as at 30 June 1995 Amount Reimbursed from the UGC During the Year Over-provision of Outstanding Commitments, 1995196 Prior to the Triennium 1992-95 For the Triennium 1992-95 Reserved Supplementary Grants for General Salary Revision with effect from 1 Apnl 1995 for the Period April to June 1995 - Excess with effect from 1 April 1995 for 1995/96 - Deficit Net Amount to be Returned to the UGC (2,565) Shortfall in Rates Reimbursement, 1995/96 3,572 Balance as at 30 June 1996 1,007 HK$'OOO The balance under the UGC Holding Account represented the excess of specified expendifure over UGC grants or recoveries and is to

be reimbursed by the UGC 8. BANK AND CASH BALANCES Balance as at 30June1995 HK$'OOO Bank Deposits Maturing within Three Months Maturing after Three Months 553,829 3,739 Other Bank and Cash Balances 557,568 Balance as at 30June1996 HK$'OOO 663,947 44.370 708,317 The Hong Kong University of Science and Technology 17 9. ACCOUNTS PAYABLE AND ACCRUALS Balance Balance as at as at 30June1995 30June1996 HK$'OOO HK$'OOO 0 Amount Due to HKUST R and D Corporation Ltd. Backpayments in relation to General Salary Revision 79 19,180 with effect from 1 April 1995 for the Period April to June 1995 Backpayments in relation to General Salary Revision 0 0 5,607 0 2,773 105,977 92,778 90,117 6,827 8,834 258 137,632 with effect from 1 April 1996 for the Period April to June 1996 Bank Loans (Due Within One Year) Construction Expenditure Funded by Bank Loans Deferred Gratuities (Due Within One Year) Expenditure Funded by Capital Grants Expenditure Funded by Indicated Equipment Grant Gratuities (Due Within One Year) Income In Advance Library Books Orders Obligations Under Finance Lease (Due Within One Year) Other Accounts Payable and Accruals 17,800 30,149 59,337 3,175 105,031 20,391 98,722 10,009 1,979 302 125,078 469,983 472,052 10. LONG-TERM LIABILITIES Balance Balance as at as at 30June1995 30June1996 HK$'OOO HK$'OOO 156,487 Bank Loans (Note) 362,957 2,705 Deferred Gratuities (Due Beyond One Year) 5,188 385 Obligations Under Finance Lease Repayable in the Second Year 83 159,577 368,228 Note: Three term loan faci/if/es of HK$150 m/l//on, HK$300.20 million and HK$250 million were obfa/ned by the Un/vers/fy to finance

respecfively the construction of 66 additional senior staff quarters (Phase I/A), 156 add/f/ona/ senior staff quarters (Phase l/B) and

additional graduate residences with 1,080 places together with a Universsify Cenfre. Within the term loan fachfy of HK$150 m on,

HK$4.50 m ion was used to fund fhe costs of furniture and appliances for the Phase //A project. Repayments of the two bank lodns for

senior staff quarters will come from the recurrent grant over a number of years, up to amounts equ/va/enf to the rental value of leasIng a

similar number of such staff quarters from the market, while the third bank loan w//l be repaId by the Un/vers/fy over a number of years

primarily from rental charges to be collected from occupants to the graduate rekdences and the Unwersify Cenfre. As at 30 June 1996,

a total repayment of HK$27.51 mill/on to the bank loan for Phase I/A project was made.

18 The Hong Kong Unwersity of Science and Technology 11. BUILDING FUND Campus Project Phases I Senior Phases I and II K$'OOO H (Note) Balances as at 30 June 1995 3,003,968 15,341 (2,336) Addhons/Deprecia!ron Written Off Addltlons 33,373 Depreciation Wntten Off and II Staff Modification Quarters - Works Phase IIA K$'OOO H K$'OOO H (2,672) Net Additions (31,775) 3,345 18,878 Fitting Out and Environ- mental Dangerous Control of Goods Engineering Stores Laboratories K$'OOO H K$'OOO H 10.113 969 0 3,028,089 138 934 13,295 0 13,295 5,892 ~- 138 Environ- mental/ Micro- Geotechnical fabrication Research Centre m Total HK$'OOO K$'OOO H K$'OOO H Balances as at 30 June 1996 2,972,193 18,686 16,542 968 10,251 14,264 1,077 3,033,981 -=

Note, The Campus Protect - Phases I and It, estmated to cost HK$3,548 mhon excludmg fumture cost at the June 1990 price level was financed by a donatm of HK$1,926 m on from the Royal Hong Kong Jockey Club and an approved subvention of HK$1,622 m//ton from the t-tong Kong Government. An add/bona/

fundmg of HKS21 m m was a/located by the Royal Hong Kong Jockey Club to fund the project team. As at 30 June 1996, the total expendtture at cost for the

project stood at HK$3.257 m/l/on and was financed by : 3OJune 1995 HKS'OOO 1.941,695 1,282,338 3.224,033 (220,065) 3,003,968 Royal Hong Kong Jockey Club Donation Hong Kong Government Total Expenditure at Cost Less: Accumulated Depremfion 30June 1996 HK$'OOO 1,944,186 1,313,220 3,257,406 (285,213) 2,972,193 The Hong Kong University of Science and Technology 19

12. CAPITAL FUND Balance as at 30 June 1995 Additrons/Depreciatron Written Off Additions Depreclatron Written Off Net Additions Balance as at 30 June 1996 The balance of the Capfal Fund as af 30 June 1996, representing the nef book value of ofher fixed assets, was funded by:

30 June 1995 HK$'OOO 841,721 c-l Government Funds 67,912 Non-Government funds 909,633 (519,481) Less; Accumulated Depreciation 390.152 K$'OOO H 390,152 (12,202) 377,950 30June 1996 HK$'OOO 1,124,639 (746,689) - 377.950 Balance as at The cost of Non-Government funds included fhaf relating to other fixed assets conferred by the HKUST Educational Trust.

13. RESERVES AND PROVISIONS Amount Amount Balance Transferred Transferred as at Amount from General/ Amount to General/ 30 June 1995 Received Specific Funds Expended Specific Funds 30 June 1996 K$'OOO H K$'OOO H H K$'OOO (Sch. 73(a)) H K$'OOO HK$'OOO (Sch. 13(a)) 400 200 1,400 1,300 1,800 1.200 6,300 0 2,443 H K$'OOO Building-related Reserves Air Conditioner Plant (Chiller) Air Conditioner Plant (Small Unit) Household Furniture/Appliances Lifts Maintenance of Premises Maintenance/Renovation of Staff Quarters 3,123 1,310 8,452 2,936 12,639 7.047 3,523 1,510 9,852 4,236 11,996 8,247 39,364 Non-building-related Reserves Computer Equipment General and Academic Equipment Motor Vehicles - 32,000 Staff-related Reserves Contractual Passages Gratuities Leave Entitlement 105,326 0 65.245 49,047 110,324 Student Residential Halls General Furniture and Equipment Major Redecoration 8,463 0 6,717 0 2,030 13,150 180 0 2,000 Exchange Equalization 2,000 180 0 Prowsions for Research Projects 98,663 0 64,548 -~ TOTAL 218,177 110,504 120,765 107,438 54,900 287,108 -~ 20 The Hong Kong Unwersity of Science and Technology

13(a). RESERVES AND PROVISIONS - AMOUNT TRANSFERRED General Funds Specific Funds General Funds and Specific Funds Amount Amount Transferred Transferred From To KS'000 H HK$'OOO Building-related Reserves Staff -related Reserves Sub-total (Ill) Student Residential Halls General Furniture and Equipment 11,200 0 11.200 0 0 0 0 0 0 0 ~ Sub-total (IV) Provisions for Research Projects Infrastructure Grant Competitrve Bids Direct Allocatron Others Sub-total (V) TOTAL (l (ll)t(lll)t(lV V) 0 0 12,690 18,912 0 0 0 0 0 610 12,690 19,522 62,190 22,442 Sub- Total i K$'OO( 400 200 1,400 1,300 (643 1,200 3,857 16,800 15,008 (285 31,523 11.200 11.200 3,141 1,626 1,570 58 2,006 346 6,717 2,030 4,687 (6,222 0 0 20,090 C 1,340 (61C 0 0 45,856 25,766 6,002 4,662 0 0 0 (6,832 51,858 30,428 21,430 39.74E 58,575 32,458 26,117 Amount Amount Transferred Transferred From To K$'OOO H HK$'OOO 1,515 1,512 1,660 Amount Amount Transferred Transferred From IQ HK$'OOO HK$'OOO 400 0 200 0 1,400 0 1,300 0 1,800 2,443 1,200 0 6,300 2,443 15,200 192 0 285 32,000 477 3,141 1,626 1,570 58 2,006 346 6,717 2,030 12,690 18,912 45,856 25,766 6,002 4,662 0 610 ~ ~ 64,548 49,950 Total iK$'OOO 1,300 (643 1.200 3857 A 15,008 (285 31,523 11 200 A 11 200 I 1,512 1,660 4687 A (6,222 (610 14598 L 65865 A The Hong Kong Umverslty of Science and Technology 21

14. SPECIFIC FUNDS Specific Income Amount Recerved/Transferred 78,560 174,852 50,211 114,981 418,604 0 418,604 lnvestmenfflnterest Income 0 6,120 7,654 5,465 Endowment Recervednransferred 0 0 0 0 ~- 19,239 0 0 19,239 200 200 200 Donations and Designated Endowment Other Earmarked Capital Recurrent Operating Grants Grants Accounts Funds Schedule H K$'OOO HK$'OOO H K$'OOO HK$'OOO (Sch. 74(a)) (Sch. 74(b)) (Sch. 14(c)) (Sch. 14(d)) 78,560 180,972 57,865 120,446 437,843 Specific Expenditure AmountExpended/Transferred 52,162 160,937 50,321 38,695 302,115 10 302,125 Surplus for the Year Before Transfers 26,398 20,035 7,544 81,751 135,728 190 135,918

Transferred to Reserves/Provisions 13(a) (21,430) 0 -0-o (26,117) 0 (26,117 Surplus for the Year After Transfers 4,968 20,035 7,544 77,064 109,611 190 109,801

Balances as at 30 June 1995 4,267 (30,041) 117,891 20,885 -~ Balances as at 30 June 1996 9,235 (10,006) 125,435 97,949 Sub- J-otA HK$'OOO 113,002 28,435 222,613 28,625 Designated Endowment Capital Accounts H K$'OOO (Sch. 14(c)) IO&l HK$'OOO 438,043 22 The Hong Kong University of Science andTechnology

14(a). EARMARKED GRANTS UGC Language Teaching Teaching Central Enhancement Development Development Allocation Grant Grant Grant Vote 1995196 1994195 1995-98 1992-95 (Note) (Note) (Note) (Sch. 14(a-I)) Academic Exchanges with Institutions Research of Higher Grants Education Council in China IcrtiA K$'OOO H HK$'OOO H K$'OOO (Sch. 14(a-II)) Approved Commitments 6,000 2,200 5,325 41,321 70,417 1,518 126,781 - ~ q Subventions Received Up to 30 June 1995 0 2,200 0 41,001 4,000 1,020 48,221 During the Year 6,000 0 5,325 320 66,417 498 78,560 - Up to 30 June 1996 6,000 2,200 5,325 41,321 70,417 1,518 126,781 Expenditure/Transferred Up to 30 June 1995 Dunng the Year Transferred to ReseweslProvwons 4,472 484 451 73,592 --L 1 445 65,619 1,121 Up to 30 June 1996 4,472 1,929 451 40,532 68,644 1,518 117,546 -- Balances as at 30 June 1996 1,528 271 4,874 789 1,773 0 9,235 q ~- Balances as at 30 June 1995 0 755 0 1,914 975 623 4,267 - q 14(a-I). EARMARKED GRANTS - UGC CENTRAL ALLOCATION VOTE 1992-95 Hong Kong Centrifuge Chinese Evaluation Joint Facility for Medicine of the Institution Institute Geotechnical and Other Student Job Placement of Micro Characterization Natural Experience Svstem Systems and Modelling Products Project Total K$'OOO H HK$'OOO K$'OOO H HK$'OOO HK$'OOO HK$'OOO (Note 7) (Note I) (Note I) (Note 2) (Note 2) Approved Commitments 2,710 30,000 7,000 452 1,159 41,321 q - Subventions Received Up to 30 June 1995 During the Year Up to 30 June 1996 2,710 30,000 7,000 512 779 41,001 0 0 0 (60) 380 320 - 2,710 30,000 7,000 452 1,159 41,321 Expendlturenransferred Up to 30 June 1995 1,775 30,000 7,000 303 9 39,087 During the Year 935 (11) 0 149 372 1,445 _ Up to 30 June 1996 2,710 29,989 7,000 452 381 40,532 Balances as at 30 June 1996 (Note 3) 0 11 0 0 778 789 =- - Balances as at 30 June 1995 935 0 0 209 770 1,914 ~- =- - Notes The Hong Kong Untverslty of Science and Technology 23 14(a-II). EARMARKED GRANTS - RESEARCH GRANTS COUNCIL Approved Commitments Subventions Received Up to 30 June 1995 During the Year Up to 30 June 1996 Expenditurenransferred Up to 30 June 1995 During the Year Transferred to Reserves/Provisions Up to 30 June 1996 Balances as at 30 June 1996 Balances as at 30 June 1995 Notes. Central Central Co-operative Direct Competitive Allocation Allocation Research Allocation Bids Vote 1995196 Vote 1994/95 Centres Total HK$'OOO K$'OOO H HK$'OOO H K$'OOO K$'OOO H HK$'OOO (Note I) (Note 2) (Note 3) 8,000 56,817 1,900 1,600 2,100 70,417 -- 0 0 1,900 0 2,100 4,000 8,000 56,817 0 1,600 0 -- 66,417 8,000 56,817 1,900 1,600 2.100 70,417 7,839 56,817 260 0 703 65,619 -- 7,839 56,817 1,900 0 2,088 68,644 161 0 0 1,600 12 -m 1,773 0 0 260 0 715 975 -m 1. The unallocated balance as at 30 June 1996 w/l be carried forward t/l/ the end of the triennium 199598.

2. The UGC has approved carrying forward the unspent balance to the next financial year 1996197.

3. The unspent balance has been approved by the UGC for carrying forward t//l 30 September 1996.

24 The Hong Kong University of Science and Technology

14(b). CAPITAL GRANTS 30 June 1995 HK$OOO HK$'OOO HK$'OOO 194,000 120,000 59,233 219,435 0 6,096 225,531 166,062 12,101 178,163 0 8,300 0 8,300 0 16,032 16,032 59,233 0 0 59,233 58,370 863 59,233 373,233 278,668 8,300 6,056 293,064 CAPITAL WORKS RESERVE FUND (49,546) Specralist Equipment and Facrlrtres ~ -i33.615) Furniture and General Equipment (83 161) Sub-total (II) (Note 2) 700,000 303,247 448,720 363885 667,132 OTHER CAPITAL GRANTS (34) DangemusGoodsStores Frttrng Out and Envrronmental Control (113) of Engineering Laboratones 1,487 13,765 0 10,000 __ L969) Mrcrofabncatron Centre 17,722 --A' 91 Sub-total (Ill) (Note 2) 32,974 J30 041) TOTAL (l)t(ll)t(lll) 1 554,927 Subventions/lnvestmenfflnterest Received Exrnditure Subventions Investment/ Received/ Interest Receivable Received Balance up to During During up to up to During up to as at 30 June 1995 the Year the Year 30June1996 30June1995 theYear 30June1996 30June1996

HK$'OOO (Note 1) HK$'OOO HK$'OOO HK$'OOO HK$'OOO HK$'OOO HK$'OOO 47,368 (7,732) 14(c). DONATIONS AND DESIGNATED ENDOWMENT FUNDS Balance Amount Investment/ Amount as at Received/ Interest Expended/ 30 June 1995 Transferred Income Transferred Schedule K$'OOO H K$'OOO H H K$'OOO K$'OOO H General Donations 14(c-I) 21,221 1,600 0 7,000 Designated Funds 14(c-I) 93,874 48,288 4,950 42,180 Designated Endowment Recurrent Accounts 14(c-I) 2,796 323 2,704 1,141 Sub-total (I) Designated Endowment Capital Accounts 117,891 50,211 7,654 50,321 14(c-II) 28,435 200 0 10 Balance as at 30 June 1996 H K$'OOO 15,821 104,932 4,682 125,435 28,625 Sub-total (II) 28,435 200 0 10 28,625 TOTAL (l)t(ll) 146,326 50,411 7,654 50,331 154,060 26 The Hong Kong Unwerslty of Science and Technology

14(c-I). DONATIONS AND DESIGNATED ENDOWMENT RECURRENT ACCOUNTS GENERAL DONATIONS Chow Yer Chrng Fund Lam Woo Fund Leung Yat Sing Fund The S H. Ho Foundation Limrted Fund TVB Fund Others Sub-total (I) DESIGNATED FUNDS Oroanised Research Units Advanced Materials Research lnstrtute Joyce M Kuok Foundatron - Lasers and Photonrcs Laboratory Shun Hrng Education and Chanty Fund, Inc. - Solid State Clusters Laboratory Zheng Ge Ru Foundation - Thin Film Sctence Laboratory Centre for Asran Frnancral Markets Centre for Economrc Development Harnan Institute Hongkong Telecom lnstrtute of Information Technology Institute for Infrastructure Development Srno Software Research Centre Individual Research Projects Croucher Foundation Projects Industrial Support Fund Projects Integrated Crrcurt Package Design and Analysrs Programme Others Sir S.K. Tana Library Fund Scholarships and Bursarv Funds Student Loan Fur Sub-total (II) Balance as at 30 June 1995 HK$'OOO Amount Investment/ Amount Balance Received/ Interest Expended/ as at Transferred Income Transferred -~ 30 June 1996 -- HK$'OOO HK$'OOO HK$'OOO HK$'OOO 5,107 1,863 1,863 2,978 7,659 4,165 16,426 50,418 0 0 0 1 133 6,771 9,683 0 16,588 304 944 4,395 311 816 4,602 125 0 1,988 123 119 1,868 0 114 2,997 0 4,575 9,855 551 2,964 11,435 901 3,426 13,901 2,650 13,223 56,433 4,215 348 4,669 18,761 2,860 18,831 580 788 19,977 0 0 580 2,751 25,727 3.006 L-2 25,277 1.136 24,038 2,876 28,102 17,394 0 1,164 0 18,558 320 5,855 0 0 4,339 1,836 15 568 580 r-4 -~ 93,874 48,288 4,950 42,180 104,932 The Hong Kong Unwerstty of Science and Technology 27

14(c-I). DONATIONS AND DESIGNATED ENDOWMENT RECURRENT ACCOUNTS (Cont'd) Balance Amount Investment/ Amount Balance as at Received/ Interest Expended/ as at 30 June 1995 Transferred Income Transferred 30 June 1996 HK$'OOO HK$'OOO HK$'OOO HK$'OOO HK$'OOO DESIGNATED ENDOWMENT RECURRENT ACCOUNTS Andrew Vee Say Shaw Memorial Scholarships Endowment Fund Dow Hong Kong Scholarships Endowment Fund Elizabeth (Libby) Fuhnman Gardner Endowment Fund Hongkong and Kowloon Electrical Appliances Merchants Association Scholarshtps Endowment Fund Hongkong Telecom Institute of Information Technology Endowment Fund HKUST Arts Endowment Fund Lee Hysan Foundation Endowment Fund Tsim Sha Tsui Kai Fong Welfare Association Bursaries Endowment Fund WeI Lun Endowment Fund Sub-total (Ill) TOTAL (l)t(ll lll) 25 0 41 25 41 41 0 55 40 56 7 10 5 10 12 2 0 7 4 5 1,533 0 1,947 764 2,716 130 303 34 208 259 124 0 209 0 333 0 10 13 10 13 934 0 393 80 1247 -- -I 2,796 323 2,704 1,141 4,682 117,891 !jO,211 7,654 50,321 125,435 28 The Hong Kong University of Science and Technology

14(ell). DESIGNATED ENDOWMENT CAPITAL ACCOUNTS Balance as at 30 June 1995 K$'OOO H Amount Received/ Transferred H K$'OOO Amount Expended/ Transferred K$'OOO H Balance as at 30 June 1996 K$'OOO H Andrew Vee Say Shaw Memortal Scholarships Endowment Fund 600 0 0 600 Dow Hong Kong Scholarships Endowment Fund 800 0 0 800 Elizabeth (Libby) Fuhriman Gardner Endowment Fund 78 0 IO 68 Hongkong and Kowloon Electrical Appliances Merchants Association Scholarships Endowment Fund 100 0 0 100 Hongkong Telecom Institute of Information Technology Endowment Fund 18,500 0 0 18,500 HKUST Arts Endowment Fund 357 0 0 357 Lee Hysan Foundation Endowment Fund 3,000 0 0 3,000 Tsim Sha Tsui Kar Fong Welfare Association Bursaries Endowment Fund 0 200 0 200 Wei Lun Endowment Fund 5,000 0 0 5,000 TOTAL 28,435 200 10 28,625 = The Hong Kong Unlverslty of Science and Technology 29

14(d). OTHER OPERATING FUNDS Departmental Discretionary Fund 2,050 1,704 0 1,202 0 2,552 HKUST Annex Fund 0 2,500 45 0 0 2,545 Hall Accounts 0 16,920 916 13,562 4,274 0 Summer Letting of Dormitory Places - Undergraduate Halls 907 2,471 175 2,246 283 1,024 Summer Letting of Dormitory Places - Postgraduate Halls 1,708 901 167 502 2,144 Visrtor Centre 1,736 3,330 0 1,516 3,550 Conference and Workshops 1,569 3,722 0 2,648 2.643 Continuing and Professional Education Programmes 125 2,430 0 1,747 808 Executive Programmes and Classes 1,839 1,842 0 1,685 1,996 MBA Programmes 4,046 5,593 0 3,016 6,623 Souvenir Shop 285 2,546 0 2,231 University Development Fund (Note) 4 130 3,485 57,280 4,144 64,905 Research Contracts 1,192 11,507 0 6,991 5,708 Others 1,345 TOTAL 1,943 2,235 18 2,851 20,885 114,981 5,465 38,695 4,687 97,949 Note: Balance as at 30 June 1995 Amount Received/ Transferred Investment/ Interest Income -- Amount Expended Amount Transferred Balance as at 30 June 1996 ~- 15. UGC TRIENNIUM EQUALIZATION ACCOUNT HK$'OOO Balance as at 30 June 1995 0 Recurrent Account, 1995196 80,815 Balance as at 30 June 1996 80,815 Under the block grant arrangement the difference between funds released by the UGC plus other general income and the actual

amount spentltransferred by the Unwers/ty IS dealt w//h through the UGC Tr~ennium Equalization Account. The balance as at 30 June

1996, representmg the excess of the General home over actual spendingl'transfers, IS to be carried forward for use in the remamhg

years of the tnennm. Surplus on the block grant, /f any, af the end of the tnennium w/l/ normally be transferred to the UGC Holding

Account and refunded to the UGC. The Hong Kong Umverslty of Science and Technology 31

16. GENERAL INCOME AND EXPENDITURE General Income UGC Recurrent Grant/Hong Kong Government Subventions Fee Income Investment and Bank Interest Income 16(a) 1,254,474 16(b) 189,032 46,180 Rental Recoveries from Staff 31,923 Mrscellaneous Income 4.568 UGC Block Grant, Fees and Income Schedule HK$'OOO 1.526.177 General Expenditure 16(c) Administration 111,578 Academic 806,648 Maintenance of Premises 210,357 General Educatron 20,246 Student Facrlities and Amenities Miscellaneous 30,059 209,305 Surplus/(Deficit) for the Year Before Transfers Transferred from the UGC Holding Account 137,984 Transferred to ReservesiProvrsions Transferred to Other Operattng Funds 7 0 13(a) (39,748) 14(d) (17,421) Surplus Transferred to the UGC Triennium Equalization Account 15 80,815 1,388,193 &served Sunulementarv Grants General General Salary Salary Revisions Revisions w.e.f. w.e.f. 1 April 1996 1 April 1995 for April to for 1995196 June 1996 HK$'OOO HK$'OOO 81,900 17,800 0 0 0 0 2,892 635 0 0 84.792 18.435 10,494 2,244 124 316 64,711 13,891 0 885,250 8,455 1,787 15.763 236 362 0 0 20 246 2,426 513 0 32 998 0 0 0 209 305 86,086 18,435 15,763 1.508 477 Rates pi&l HK$'OOO H K$'OOO 15,763 1,369 937 0 189 032 0 46,180 0 35,450 0 4 568 15,763 1,645 167 (1,294) 0 1,294 0 0 0 0 0 0 0 136,690 1 294 (39 748) 0 (17.421) 0 80 815 32 The Hong Kong Unwersity of Science and Technology

16(a). UGC RECURRENT GRANT/HONG KONG GOVERNMENT SUBVENTIONS 1 July1994 1 July1995 to to 30Junel995 30Junel996 HK$'OOO HK$'OOO 849,617 7,628 111,950 4,000 973,195 60,176 61,759 65,152 19,180 0 0 206,267 17,800 99,700 19,313 Rates 15,763 1 ,198,775 1,369,937 Block Grant UGC Recurrent Grant Supplementary Grant for Additional Research Postgraduate Indicated Equipment Grant Indicated Language Enhancement Grant Reserved Supplementary Grants General Salary Revisions with effect from 1 April 1992 for 1992/93 General Salary Revisions with effect from 1 April 1993 for 1993194 General Salary Revisions with effect from 1 April 1994 for 1994/95 General Salary Revisions with effect from 1 April 1995 for April to June 1995 General Salary Revisions with effect from 1 April 1995 for 1995/96 General Salary Revisions with effect from 1 April 1996 for April to June 1996 16(b FEE INCOME lJuly1994 lJuly1995 to to 30Junel995 30Junel996 HK$'OOO HK$'OOO 124,541 Tuition Fees 236 Graduation Fees 16(c). GENERAL EXPENDITURE 1 July 1994 1 July 1995 to to 30 June 1995 30 June 1996 H K$'OOO H K$'OOO ADMINISTRATION Salaries and Gratuities/Superannuation-Senior Staff Salaries and Gratuities/Superannuation-Support Staff Audit and Legal Fees Financial Charges General Advertisements General Office Expenses Official Pu blrcations Postage Vehicles Running Expenses Sub-total (I) 323,392 58,925 86,062 28,975 38,750 536,104 574,145 15,486 15,825 500 975 37,740 3,500 4,700 820 1,375 80,921 15,323 55,240 Library Salaries and Gratuities/Superannuation-Senior Staff Salaries and Gratuities/Superannuation-Support Staff Book Binding General Office Expenses Library Books and Periodicals Library Electronic Media Library Media Resources Library On-line Search Others 19,155 18,946 650 960 19,100 3.700 1,200 854 1513 Research Grants Computer Facilities Academic Support Centres Centralised and Departmental Laboratories Centre for Advanced Engineering Materials Computer Aided Design and Manufacturing Centre Deans' Offices Educational Technology Centre Industrial Training Centre Language Centre Materials Characterisation and Preparation Centre Mechanical Workshop Microelectronics Fabrication Centre VP-AA Off ice Office of Contract and Grant Adminrstration Research Centre Technology Transfer Centre VP-RD Offrce 66,078 20,933 50,848 19,070 932 1,717 22,497 14,314 9,361 23,945 24,722 3,967 23,964 10,363 4,167 22,987 3,535 4,164 189,705 877,293 22.526 1.254 2.666 28.742 15,969 8,864 23.908 9.849 4.355 7,814 12,476 4,557 19.759 4,724 5,783 173.246 sub-total (II) 885.250 ACADEMIC DEPARTMENTS AND ACADEMIC SUPPORT CENTRES Academic Departments Salaries and Gratuities/Superannuation-Senior Staff Salaries and GratuitiesSuperannuatIon-Support Staff Equipment and Maintenance General Off ice/Laboratory Expenses Postgraduate Studentships 124,316 34 The Hong Kong Unlverslty of Science and Technology

16(c). GENERAL EXPENDITURE (Cont'd) 1 July 1994 1 July 1995 to to 30Junel995 30 June 1996 H K$'OOO H K$'OOO 12,991 66,402 1,907 7,965 6,756 1,248 30,981 19,313 40,439 6,776 335 39,804 234,917 MAINTENANCE OF PREMISES AND GROUNDS Salaries and Gratuities/Superannuation-Senior Staff Salaries and Gratuities/Superannuation-Support Staff Building-related Insurance Premiums Cleaning Expenses Furniture and Equipment General Office Expenses Minor Works Rates Repairs and Maintenance Security Expenses Staff Uniforms and Laundry Utility Charges Sub-total (Ill) 14,544 79,373 2,183 8,774 477 1,351 22,621 15,763 42,625 7,229 306 41.116 236.362 106 1,508 0 9,277 11,273 109 66 3,040 25,379 GENERAL EDUCATION Admission Expenses Advisory Committees Meetings/Accreditation Artist-In-Residence Program Consultancies Duty Visits and Staff Development Examinations Subscriptions to International Education Associations Workshops and Seminars Sub-total (IV) 143 1,167 498 5,463 10,714 163 61 2,037 20,246 330 240 23,337 3,828 27,735 STUDENT FACILITIES AND AMENITIES Grants to Student Bodies Physical Education Facilities Student Affairs Office Student Health Sub-total (V) 391 249 28,258 4,100 32,998 1,802 144 6,016 1,553 104,881 16,168 1,422 516 33 12,783 1,584 7,192 963 660 190 155,907 MISCELLANEOUS Congregation Expenses Court/Council Meetings Education Allowances Home Purchase Scheme Housing Benefits Medical and Dental Benefits Non-building-related Insurance Premiums Official Entertainment Outreach Programmes to Schools Passages Publicity Expenses Recruitment Expenses Removal Expenses and Hire of Vehicles Subsidies for Staff Buses Miscellaneous Sub-total (VI) 604 184 7,938 1,795 155,401 20,232 2,467 496 31 12,580 2,223 4,269 655 581 (151) 209.305 1,428,879 TOTAL (l)t(ll)t(lll)t(lV)t(V)t(VI) 1,508,477 The Hong Kong Unwersltyof Science and Technology 35

THE HONG KONG UNIVERSITY OF SCIENCE AND TECHNOLOGY STAFF SUPERANNUATION SCHEME FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 1996

TRUSTEES' REPORT Introduction The Hong Kong University of Science and Technology Staff Superannuation Scheme ("the Scheme") was established on 1

July 1992. The main purpose of the Scheme is to provide a lump-sum cash retirement benefit for staff members of The

Hong Kong University of Science and Technology ("HKUST") who are eligible to participate in the Scheme. The Scheme

was registered with the Office of the Registrar of Occupational Retirement Schemes on 8 March 1995.

The Trustees The Scheme has been constituted under a Deed of Trust and individual Trustees are appointed by the HKUST Council.

During this financial year which ended on 30 June 1996, Trustees who together formed a Board of Trustees were:

Chairman: Mr. LAU Wah-sum Members: Dr. CHENG Hon-kwan Mr. Michael HUDSON (from 1 January 1996) Dr. LEE Hon-chiu Mr. PANG Tak-ming (until 31 March 1996) Mr. TAN Chuen-yan Paul Dr. WONG Sze-chung Raymond (until 31 December 1995) Prof. WOO Chia-Wei While Messrs. Lau Wah-sum, Cheng Hon-kwan, Lee Hon-chiu, Tan Chuen-yan Paul and Prof. Woo Chia-Wei were

appointed directly by the HKUST Council, the appointments of Mr. Michael Hudson, Mr. Pang Tak-ming and Dr. Wong Sze-

chung Raymond were made by the HKUST Council based on the results of elections which were open to all eligible

Scheme Members. Membership of the Scheme The total number of Scheme Members as at the end of the financial year stood at 1,388, representing a net increase of 116

Members when compared with the membership at 30 June 1995. Of the total number of Scheme Members, 111 and 1,277

were otherwise Terms A and Terms B staff members of HKUST respectively. Assets of the Scheme As expected, there was a significant growth in the assets of the Scheme during the year. As at the end of the financial year,

the total net assets of the Scheme were $185.13 million. This represented an increase of $82.49 million when compared

with the amount of net assets at the end of the last financial year. The increase was attributable largely to net contributions

amounting to $64.38 million during the year. Of the net assets of $185.13 million, $166.24 million belonged to the HKUST

Balance and Members' Balance. The Scheme had a General Reserve of $18.89 million as at 30 June 1996.

Professional Advisers The Board engaged professional advisers to help in the management of the Scheme. The professional advisers appointed

by Trustees for the previous year continued to provide various services to the Scheme during the year. The investment

managers were BZW Investment Management Hong Kong Limited ("BZW") and INVESCO Asia Limited ("INVESCO",

previously known as AEtna Investment Management (Hong Kong) Limited). The Scheme Administrator was Bermuda

Trust (Far East) Limited. Towers Perrin, who was appointed by the HKUST Council, continued to serve as the Actuary to

the Scheme. The auditors of the Scheme were Messrs. Deloitte Touche Tohmatsu. The Hong Kong Unlverslty of Science and Technology Staff Superannuation Scheme 37

Investment Performance For the year ended 30 June 1996, BZW achieved a return of 13.0% (1994195: 8.8%) and INVESCO achieved a return of

19.2% (1994/95: 1.4 The median return as measured by the Wyatt Measurement of Investment Performance Survey

for Hong Kong Retirement Schemes was 15.0% for the same year while the median return as measured by the Towers

Perrin Investment Monitoring Service was 15.4%. The cumulative performance achieved over a three-year period was

41.8% for BZW and 51.4% for INVESCO. The Wyatt median over the sarne period was 43.2%. These were satisfactory

returns. Actuarial Valuation An actuarial valuation as at 30 June 1996 was performed by the Actuary on the funding position of the Scheme. The

funding position was assessed by two ratios: the solvency ratio and the adequacy ratio. The solvency ratio compares the

total net assets of the Scheme to the aggregate vested benefits payable if all Members were to leave the Scheme at the

valuation date. The adequacy ratio, on the other hand, compares the net assets of the Scheme to the aggregate present

value of future benefits which all Members would reasonably be entitled to receive from the Scheme. According to the

actuarial valuation performed on 30 June 1996, the solvency ratio and the adequacy ratio of the Scheme were 179% and

103% respectively. These satisfied the legal requirement regarding the financial health of the Scheme.

Outlook for 1996/97 It is envisaged that both the assets of the Scheme and the number of Scheme Members will continue to grow substantially

in 1996/97 when more Terms A staff members who are gradually completing their two or three-year employment contracts

join the Scheme. The Board would like to take this opportunity to thank all parties involved in the management of the Scheme for their advice

and contributions during the year. Board of Trustees, 12 November 1996 38 The Hong Kong University of Science and Technology Staff Superannuation Scheme

AUDITORS' REPORT To: The Trustees of The Hong Kong University of Science and Technology Staff Superannuation Scheme (Registered under the Occupational Retirement Schemes Ordinance) We have audited the financial statements on pages 41 to 44 which have been prepared in accordance with accounting

policies set out on page 43. Respective Responsibilities of the Trustees and Auditors The Trustees are responsible for the preparation of financial statements which give a true and fair view. In preparing

financial statements which give a true and fair view it is fundamental that appropriate accounting policies are selected and

applied consistently. It is our responsibility to form an independent opinion, based on our audit, on those financial statements and on certain

other matters ("Specific Matters") relating to the Scheme as specified in Section 20(3) of the Ordinance, and to report our

opinion to you. Basis of Opinion We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Society of

Accountants. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the

financial statements and to the compliance of the Scheme with the Specific Matters. It also includes an assessment of the

significant estimates and judgments made by the Trustees in the preparation of the financial statements, and of whether the

accounting policies are appropriate to the Scheme's circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free

from material misstatement and as to whether the Scheme complied with the Specific Matters. In forming our opinion we

also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit

provides a reasonable basis for our opinion. Opinion In our opinion: (9 Proper accounts and records have been kept during the year ended 30 June 1996 as regards the assets, liabilities

and financial transactions of the Scheme. (ii) The financial statements show a true and fair view of the disposition of the Scheme's assets and liabilities at

30 June 1996 and of its financial transactions during the year then ended. (iii) The relevant undertaking in respect of the actuarial certificate dated 19 September 1995 has been complied with

during the year ended 30 June 1996. The Hong Kong Unlverslty of Science and Technology Staff Superannuation Scheme 39

(iv) As at 30 June 1996 none of the assets of the Scheme were subject to any assignment, charge, pledge or other

encumbrance. (v) The investment requirement of Section 27(2) of the Ordinance has been complied with as regards the Scheme as

at 31 December 1995,31 March 1996 and 30 June 1996. SIGNED Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong 12 November 1996 40 The Hong Kong University of Sctence and Technology Staff Superannuation Scheme

1995 K$'OOO H 98,373 INVESTMENTS 3 180,032 4,572 5,480 311 LESS: CURRENT LIABILITIES Accounts Payable 384 4.261 NET CURRENT ASSETS 5,096 102,634 NET ASSETS 185,128 BALANCE SHEET AS AT 30 JUNE 1996 CURRENT ASSETS Accounts Receivable Bank Balances 73,048 HKUST BALANCE 24,318 MEMBERS' BALANCE 5,268 GENERAL RESERVE 102,634 TOTAL FUNDS 185,128 Approved by the Board of Trustees on 12 November 1996 SIGNED SIGNED Chairman, Secretary, Board of Trustees Board of Trustees The accompanying notes are an integral part of the finsnc/a/ statements Note K$'OOO H K$'OOO H 124,740 41,495 18,893 The Hong Kong Unwersity of Science and Technology Staff Superannuation Scheme 41

REVENUE ACCOUNT FOR THE YEAR ENDED 30 JUNE 1996 1995 K$'OOO H 54,873 6,266 48,607 12 5 39 191 245 79 38 1,355 4 3,777 5,745 2,111 3,426 456 1,439 (371) (508) 3.414 7,856 50,718 51,916 102,634 CONTRIBUTIONS AND WITHDRAWALS HKUST Contributions Members' Contributions Transfer in from HKUST Ancillary Staff Superannuation Scheme Interest Credited to HKUST Balance and Members' Balance Less: Withdrawals of Contributions and Interest on Members Leaving Service of HKUST Forfeitures of Contributions and Interest on Members Leaving Service of HKUST NET AMOUNT TRANSFERRED TO HKUST BALANCE AND MEMBERS' BALANCE INCOME AND EXPENDITURE INCOME Forfeitures of Contributions and Interest on Members Leaving Service of HKUST Interest Income Investment Income Profit/(Loss) on Sale of Investments Gain Loss) on Exchange Unrealised Gain on Revaluation of Investments LESS: EXPENDITURE General Office Expenses Audit Fee Actuary's Fee Scheme Administration Fee Investment Managers' Fee and Expenses Custodian Fee Other Professional Fees Death and Disability Insurance Premium Miscellaneous Financial Charges Interest Credited to HKUST Balance and Members' Balance EXCESSOFINCOMEOVEREXPENDITURETRANSFERRED TOGENERALRESERVE INCREASE IN SCHEME FUND DURING THE YEAR ADD: SCHEME FUND BALANCE BROUGHT FORWARD FROM PREVIOUS YEAR TOTAL FUNDS The accompanymg notes are an integral part of the fmamal statements K$'OOO H HK$'OOO 78,433 9,564 4,295 360 1,669 9,694 1,266 7,618 24,902 68,869 11,277 13.625 82,494 102,634 185,128 42 The Hong Kong Unlverslty of Science and Technology Staff Superannuation Scheme

NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 1996 1. BACKGROUND The Hong Kong University of Science and Technology Staff Superannuation Scheme ("the Scheme") was

established with effect from 1 July 1992 under a Deed of Trust. The Scheme starts on a defined contribution basis

and moves after six years of a Scheme Member's service to become a defined benefit scheme, with both staff

members and The Hong Kong University of Science and Technology ("HKUST") contributing to the Scheme.

2. SIGNIFICANT ACCOUNTING POLICIES 2.1 Investments Listed investments are stated at market value. All gains and losses arising from revaluation of investments are

recorded in the Revenue Account. 2.2 Interest and Investment Income Income from fixed interest investments and bank deposits is accounted for on the accrual basis. Dividend income

is accounted for when declared. 2.3 Foreign Currencies Foreign currency balances have been translated into Hong Kong dollars at the market rates of exchange ruling at

the balance sheet date. Foreign currency transactions during the year were translated into Hong Kong dollars at

the rates ruling at the transaction dates. Differences arising on transactions in and translation of foreign

currencies are dealt with in the Revenue Account. The Hong Kong Unlverslty of Science and Technology Staff Superannuation Scheme 43

3. INVESTMENTS AT COST, INCLUDING ACCUMULATED NET REALISED INCOME AT MARKET VALUE Equities (Direct Investment) Hong Kong Malaysia Singapore Thailand Japan United States Equities (Pooled Funds) Hong Kong 17,482 South East Asia 10,795 Japan 10,799 United States 12,495 United Kingdom 5,154 Europe 9,198 Bonds (Direct Investment) Hong Kong United States Germany BZW Investment Management Hong Kong Limited -- HK$'OOO 81,528 -- 0 8,977 8,977 Bonds (Pooled Funds) United States Europe Cash 1,802 5,694 7,496 20,810 5,135 88,535 -- INVESCO Asia Limited H K$'OOO 86,527 62,476 62,476 17,482 10,795 10,799 12,495 5,154 18,413 75,138 91.497 180,032 Total K$'OOO H 168,055 j] 25,945 44 The Hong Kong Unwerstty (3f Science and Technology Staff Superannuation Scheme

FULL ACTUARIAL CERTIFICATE Prepared pursuant to Part 1 of Schedule 2 in the Occupational Retirement Schemes Ordinance Registration Number Name of Scheme Date of Actuarial Certificate Date of Actuarial Review Representative Employer Relevant Employer : R002225(9) : THE HONG KONG UNIVERSITY OF SCIENCE &TECHNOLOGY STAFF SUPERANNUATION SCHEME: : 25 October 1996 : 30 June 1996 : The Hong Kong University of Science & Technology : The Hong Kong University of Science & Technology I hereby certify that:- 0) (ii) (iii) I Review. An actuarial review has been conducted as regards the Scheme as of the Date of Actuaria

In the course of the review I have had regard to the financial condition of the Scheme.

The review included a valuation of the Scheme's liabilities (including contingent and prosp lective liabilities) and the

basis of the valuation, assumptions used, results and commentary on those results are detailed in a report dated

1 October 1996. (iv) As at the Date of Actuarial Review the Scheme's assets were sufficient to meet the Scheme's aggregate vested

liability. (4 Following the review I have made recommendations as regards funding of the Scheme for three years as follows:-

(vi) Monthly For the period Regular contributions by - Members: 5% of salaries 1 July 1996 to 30 June 1999 - Relevant Employer: 15% of salaries 1 July 1996 to 30 June 1999 Following the review I have received a copy of a written undertaking by the Relevant Employer of the Scheme to

the administrator of the Scheme to contribute to the Scheme's funds in accordance with those recommendations.

(vii) (A) Provided the Scheme is funded in accordance with those recommendations, I would expect that the

Scheme's assets would continue to be sufficient to meet the Scheme's aggregate vested liability throughout

the period of 3 years from the Date of Actuarial Review; and (B) As at the Date of Actuarial Review the Scheme's assets were sufficient to meet the Scheme's aggregate

past service liability. Signature : Name Qualification : Address : SIGNED Gregory J Cooper Fellow of The Institute of Actuaries of Australia Towers Perrin Suite 3001-2, Central Plaza 18 Harbour Road, Wanchai Hong Kong Date : 25 October 1996 Tel : 2593-4588 Fax : 2868-l 517 The Hong Kong Unlverslty of Science and Technology Staff Superannuation Scheme 45

THE HONG KONG UNIVERSITY OF SCIENCE AND TECHNOLOGY ANCILLARY STAFF SUPERANNUATION SCHEME FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 1996

TRUSTEES' REPORT Introduction The Hong Kong University of Science and Technology Ancillary Staff Superannuatron Scheme ("the Scheme") was

established on 1 July 1992. The main purpose of the Scheme is to provide a lump-sum cash retirement benefit for the

ancillary staff members of The Hong Kong University of Science and Technology ("HKUST") who are eligible to participate

in the Scheme. The Scheme was registered with the Office of the Registrar of Occupational Retirement Schemes on 27

March 1995. The Trustees The Scheme has been constituted under a Deed of Trust and individual Trustees are appointed by the HKUST Council.

During this financial year which ended on 30 June 1996, Trustees who together formed a Board of Trustees were:

Chairman: Mr. LAU Wah-sum Members: Mr. CHAN Kam-wing (from 1 February 1996) Dr. CHENG Hon-kwan Dr. LEE Hon-chiu Mr. LEUNG Tit-ming (until 30 April 1996) Mr. LIU Kew-kin (until 31 January 1996) Mr. TAN Chuen-yan Paul Ms. WAN Yuk-kan (from 1 May 1996) Prof. WOO Chia-Wei While Messrs. Lau Wah-sum, Cheng Hon-kwan, Lee Hon-chiu, Tan Chuen-yan Paul and Prof. Woo Chia-Wei were

appointed directly by the HKUST Council, the appointments of Messrs. Chan Kam-wing, Leung Tit-ming, Liu Kew-kin and

Ms. Wan Yuk-kan were made by the HKUST Council based on the results of elections which were open to all eligible

Scheme Members. Membership of the Scheme The total number of Scheme Members as at the end of the financial year stood at 196, representing a net increase of 2

Members when compared with the membership at 30 June 1995. All the Members were otherwise Terms C staff members

of HKUST. Assets of the Scheme As expected, there was growth in the assets of the Scheme during the year. As at the end of the financial year, the total net

assets of the Scheme were $10.55 million. This represented an increase of $4.08 million when compared with the amount

of net assets at the end of the last financial year. The increase was attributable largely to net contributions amounting to

$2.92 million during the year. Professional Advisers The Board engaged professional advisers to help in the management of the Scheme. The professional advisers appointed

by Trustees for the previous year continued to provide various services to the Scheme during the year. The investment

managers were BZW Investment Management Hong Kong Limited ("BZW") and INVESCO Asia Limited ("INVESCO",

previously known as AEtna Investment Management (Hong Kong) Limited). The Scheme Administrator was Bermuda

Trust (Far East) Limited. Towers Perrin, who was appointed by the HKUST Council, continued to serve as the Actuary to

the Scheme. The auditors of the Scheme were Messrs. Deloitte Touche Tohmatsu. The Hong Kong Univewty of Science and Technology Ancillary Staff Superannuation Scheme 47

Investment Performance For the year ended 30 June 1996, BZW achieved a return of 13.0% (1994/95: 8.8%) and INVESCO achieved a return of

19.2% (1994/95: 1.4 The median return as measured by the Wyatt Measurement of Investment Performance Survey

for Hong Kong Retirement Schemes was 15.0% for the same year while the median return as measured by the Towers

Perrin Investment Monitoring Service was 15.4%. The cumulative performance achieved over a three-year period was

42.0% for BZW and 51.4% for INVESCO. The Wyatt median over the same period was 43.2%. These were satisfactory

returns. Actuarial Valuation An actuarial valuation as at 30 June 1996 was performed by the Actuary on the funding position of the Scheme. The

funding position was assessed by two ratios: the solvency ratio and the adequacy ratio. The solvency ratio compares the

total net assets of the Scheme to the aggregate vested benefits payable if all Members were to leave the Scheme at the

valuation date. The adequacy ratio, on the other hand, compares the net assets of the Scheme to the aggregate present

value of future benefits which all Members would reasonably be entitled to receive from the Scheme. According to the

actuarial valuation performed on 30 June 1996, the adequacy ratio of the Scheme was 200%. The solvency ratio was not

determined as none of the Members had attained five years or more of Scheme service and hence none was entitled to

any benefits as at 30 June 1996. Outlook for 1996/97 It is envisaged that the assets of the Scheme will continue to grow in 1996/97 albeit relatively slowly. The number of

Scheme Members has already reached a steady state and is expected to remain at the present level.

The Board would like to take this opportunity to thank all parties involved in the management of the Scheme for their advice

and contributions during the year. Board of Trustees, 12 November 1996 48 The Hong Kong Unwersity of Science and Technology Ancillary Staff Superannuation Scheme

AUDITORS' REPORT To: The Trustees of The Hong Kong University of Science and Technology Ancillary Staff Superannuation Scheme (Registered under the Occupational Retirement Schemes Ordinance) We have audited the financial statements on pages 51 to 54 which have been prepared in accordance with accounting

policies set out on page 53. Respective Responsibilities of the Trustees and Auditors The Trustees are responsible for the preparation of financial statements which give a true and fair view. In preparing

financial statements which give a true and fair view it is fundamental that appropriate accounting policies are selected and

applied consistently. It is our responsibility to form an independent opinion, based on our audit, on those financial statements and on certain

other matters ("Specific Matters") relating to the Scheme as specified in Section 20(3) of the Ordinance, and to report our

opinion to you. Basis of Opinion We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Society of

Accountants. An audit includes examination on a test basis, of evidence relevant to the amounts and disclosures in the

financial statements and to the compliance of the Scheme with the Specific Matters. It also includes an assessment of the

significant estimates and judgments made by the Trustees in the preparation of the financial statements, and of whether the

accounting policies are appropriate to the Scheme's circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in

order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free

from material misstatement and as to whether the Scheme complied with the Specific Matters. In forming our opinion we

also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit

provides a reasonable basis for our opinion. Opinion In our opinion: 0) Proper accounts and records have been kept during the year ended 30 June 1996 as regards the assets, liabilities

and financial transactions of the Scheme. (ii) The financial statements show a true and fair view of the disposition of the Scheme's assets and liabilities at

30 June 1996 and of its financial transactions during the year then ended. (iii) The relevant undertaking in respect of the actuarial certificate dated 19 September 1995 has been complied with

during the year ended 30 June 1996. The Hong Kong University of Science and Technology Anctllary Staff Superannuation Scheme 49

(iv) As at 30 June 1996 none of the assets of the Scheme were subject to any assignment, charge, pledge or other

encumbrance. (v> The investment requirement of Section 27(2) of the Ordinance has been complied with as regards the Scheme as

at 31 December 1995,31 March 1996 and 30 June 1996. SIGNED Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong 12 November 1996 50 The Hong Kong Unwerslty of Science and Technology Ancillary Staff Superannuation Scheme

1995 H K$'OOO 6,285 222 35 187 INVESTMENTS BALANCE SHEET AS AT 30 JUNE 1996 CURRENT ASSETS Bank Balances LESS: CURRENT LIABILITIES Accounts Payable NET CURRENT ASSETS 6,472 NET ASSETS 6,472 TOTAL FUNDS Approved by the Board of Trustees on 12 November 1996 SIGNED Chairman, Board of Trustees The accompanying notes are an integral part of the fmancial statements. Note K$'OOO H 3 247 45 SIGNED Secretary, Board of Trustees K$'OOO H 10,348 202 10,550 10,550

1995 2,640 38 REVENUE ACCOUNT FOR THE YEAR ENDED 30 JUNE 1996 CONTRIBUTIONS Contributions Received from HKUST 3,064 Less: Transfer out to HKUST Staff Superannuation Scheme 147 2,602 INCOME AND EXPENDITURE INCOME Interest Income Investment Income ProfitQLoss) on Sale of Investments Gain/(Loss) on Exchange Unrealised Gain on Revaluation of Investments 214 EXCESS OF INCOME OVER EXPENDITURE 1,161 2,816 3,656 6,472 LESS: EXPENDITURE General Office Expenses Audit Fee Actuary's Fee Scheme Administration Fee Investment Managers' Fee and Expenses Custodian Fee Other Professional Fees Miscellaneous Financial Charges INCREASE IN SCHEME FUND DURING THE YEAR ADD: SCHEME FUND BALANCE BROUGHT FORWARD FROM PREVIOUS YEAR TOTAL FUNDS The accompanying notes are an integral part of the financial statements. H K$'OOO K$'OOO H 2,917 1,252 91 4,078 6.472 10,550 52 The Hong Kong Unwerslty of Science and Technology Ancillary Staff Superannuation Scheme

NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 1996 1. BACKGROUND The Hong Kong University of Science and Technology Ancillary Staff Superannuation Scheme ("the Scheme")

was established with effect from 1 July 1992 under a Deed of Trust. The Scheme is a defined benefit scheme,

with only The Hong Kong University of Science and Technology ("HKUST") making contributions.

2. SIGNIFICANT ACCOUNTING POLICIES 2.1 Investments Listed investments are stated at market value. All gains and losses arising from revaluation of investments are

recorded in the Revenue Account. 2.2 Interest and Investment Income Income from fixed interest investments and bank deposits is accounted for on the accrual basis. Dividend income

is accounted for when declared. 2.3 Foreign Currencies Foreign currency balances have been translated into Hong Kong dollars at the market rates of exchange ruling at

the balance sheet date. Foreign currency transactions during the year were translated into Hong Kong dollars at

the rates ruling at the transaction dates. Differences arising on transactions in and translation of foreign

currencies are dealt with in the Revenue Account. The Hong Kong Unwersity of Science and Technology Ancillary Staff Superannuation Scheme 53

3. INVESTMENTS BZW Investment Management Hong Kong Limited -- HK$'OOO INVESCO Asia Limited K$'OOO H Total K$'OOO H AT COST, INCLUDING ACCUMULATED NET REALISED INCOME 4,671 4,989 9,660 -- AT MARKET VALUE Equities (Direct Investment) Hong Kong Malaysia Singapore Thailand Japan United States 0 0 0 352 755 555 3,602 1,495 292 153 352 755 1 555 0 3,602 Equities (Pooled Funds) 531 Hong Kong South East Asia Japan United States United Kingdom Europe 3,778 531 4,309 115 294 109 Bonds (Direct Investment) 115 i 294 109 518 518 Hong Kong United States Germany Bonds (Pooled Funds) United States Europe 1,192 296 1,488 Cash 103 328 431 5,073 5,275 10,348 54 The Hong Kong Untverslty of Science and Technology Ancillary Staff Superannuation Scheme

FULL ACTUARIAL CERTIFICATE Prepared pursuant to Part 1 of Schedule 2 in the Occupational Retirement Schemes Ordinance Registration Number Name of Scheme Date of Actuarial Certificate Date of Actuarial Review Representative Employer Relevant Employer : R002646(7) : THE HONG KONG UNIVERSITY OF SCIENCE & TECHNOLOGY ANCILLARY STAFF SUPERANNUATION SCHEME : 25 October 1996 : 30 June 1996 : The Hong Kong University of Science & Technology : The Hong Kong University of Science & Technology I hereby certify that:- An actuarial review has been conducted as regards the Scheme as of the Date of Actuarial Review.

In the course of the review I have had regard to the financial condition of the Scheme.

The review included a valuation of the Scheme's liabilities (including contingent and prospective liabilities) and the

basis of the valuation, assumptions used, results and commentary on those results are detailed in a report dated

1 October 1996. (iv) As at the Date of Actuarial Review the Scheme's assets were sufficient to meet the Scheme's aggregate vested

liability. (v) Following the review I have made recommendations as regards funding of the Scheme for three years as follows:-

(vi) Monthly For the period Regular contributions by - Members: 0% of salaries 1 July 1996 to 30 June 1999 - Relevant Employer: 15% of salaries 1 July 1996 to 30 June 1999 Following the review I have received a copy of a written undertaking by the Relevant Employer of the Scheme to

the administrator of the Scheme to contribute to the Scheme's funds in accordance with those recommendations.

(vii) (A) Provided the Scheme is funded in accordance with those recommendations, I would expect that the

Scheme's assets would continue to be sufficient to meet the Scheme's aggregate vested liability throughout

the period of 3 years from the Date of Actuarial Review; and (B) As at the Date of Actuarial Review the Scheme's assets were sufficient to meet the Scheme's aggregate

past service liability. Signature : Name Qualification : Address : SIGNED Gregory J Cooper Fellow of The Institute of Actuaries of Australia Towers Perrin Suite 3001-2, Central Plaza 18 Harbour Road, Wanchai Hong Kong Date : 25 October 1996 Tel : 2593-4588 Fax : 2868-l 517 The Hong Kong Unwersity of Science and Technology Ancillary Staff Superannuation Scheme 55