ATTEMPTED FRAUD ON CUSTODIAN OF CSS FUND DETECTED WITH NO IMPACT ON MEMBERS' BENEFITS

Our custodian, JPMorgan, was subjected to an attempted fraud late in 2003.

The attempted fraud was detected quickly and because of action by the CSS Board and its custodian, resulted in no impact on our return to members, with not a single dollar of members' benefits lost.

The Australian Federal Police (AFP) advised that this attempted fraud was highly sophisticated. JPMorgan's robust security system detected the attempted fraud and immediate action was taken to manage the situation.

The attempted fraud is still the subject of a criminal investigation by the AFP and accordingly it is inappropriate to provide further details. Our focus now is on supporting the AFP in catching the perpetrator and ensuring all security systems involving the investment of the CSS Fund are strengthened.

We can advise however that, at the time it occurred, this matter was disclosed fully to our governing and regulatory bodies including the Minister for Finance & Administration, the Auditor-General, the Australian Prudential Regulation Authority and the Australian Securities & Investments Commission.

For prudential reasons it was not disclosed to members because no members' funds were affected and, in accordance with a request from the Australian Federal Police, any public disclosure could prejudice ongoing criminal investigations.

We have put this notice on the website to provide members with background information and assurance that their benefits are not affected.

What is the relationship between the CSS Board and its custodian?

The relationship between the CSS and its custodian JPMorgan is similar to that between an individual and their bank. In other words, JPMorgan is our bank. There is a third party involved in the relationship and that is the investment, or fund, manager. The investment manager is responsible for investing money and instructing the custodian to receive and pay money, and accordingly they also share responsibility for integrity of the investment of funds.

Of course, the CSS Board is ultimately responsible for protecting its members' benefits and, to this end, has very stringent requirements for its custodian and investment managers to ensure that these service providers deliver systems which are secure and best practice.

Is the CSS safe from future fraud?

Fraud is a fact of life in sophisticated financial markets, but we employ all available means to manage it.

In fulfilling its responsibility to its members, the CSS Board has stringent security requirements with which our service providers' systems must comply.

The CSS Board and its service providers constantly review processes and procedures to minimise the risk of fraud.

5 June 2004