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Dialogue Session

17 Jan 2007

Central Provident Fund Board

Institute of Certified Public Accountants of Singapore

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AIM

To dialogue and communicate:

Changes to funds under CPFIS Sharing of observations in breach of

CPFIS terms and conditions Other matters

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Lower charges for new CPF investments in funds under CPFIS

1. Sales Charges

From 1 Jul 07, sales charges must not exceed 3%.

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Risk Classification Expense Ratio Criterion* (%)

Higher risk 1.95

Medium to High Risk 1.75

Low to Medium Risk 1.15

Lower Risk 0.65

* Reviewed periodically based on median expense ratio of funds included under CPFIS as at end of each year. Last review – based on end 2005 ratios. However, decided to retain end 2004 ratios [rounded off to the nearest 0.05].

2. Expense Ratios From 1 Jan 08, expense ratios must not

exceed the expense ratio criterion:

Lower charges for new CPF investments in funds under CPFIS

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What happens to funds that exceed the sales charge and expense ratio criteria?1. Not allowed to take in new CPF monies - until their

sales charges & expense ratios are below the criteria set.

2. Funds with expense ratios higher than the levels set for their risk categories - to provide free switch* to other funds under CPFIS.

* Existing CPF investors need not redeem their investments, if they so decide.

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List “A” and “B” funds

List ‘A’ Funds

• Have met the CPFIS admission criteria for funds

List ‘B’ Funds

• All other funds under CPFIS

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List “A” and “B” (for existing funds)

 To get into List A To stay in List B

 

   To take in new $

Cannot take in new $

a. Top 25th percentile Yes No No

b. Low Expense Ratio Yes Yes (1 Jan 08) No

c. Track Record Yes No No

d. Low Sales Charge Yes (fr 1 Jul 07) Yes (fr 1 Jul 07) No

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Concession granted by CPFB

• Funds that meet the admission criteria after re-evaluation, except for the expense ratio criterion

• Concession for these funds - An additional year to comply with the expense ratio criterion, i.e. by 1 Jan 09.

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SUMMARY OF CHANGESAll funds under CPFIS must not exceed:

a)Sales charge of 3%

b)Expense ratios for risk categories as set

By:

a) 1 Jul 07

b) 1 Jan 08

Exceed the sales charge or expense ratio criteria?

No new CPF money

If does not exceed sales charge of 3% but exceed expense ratios for risk categories as set, and still want new CPF money from 1 Jan 08:

-> volunteer for re-evaluation and obtain top

quartile ranking

Concession:

Additional year to comply with expense ratio criterion,

i.e. by 1 Jan 09

Funds that do not exceed both sales charge and expense ratio criteria but wish to be promoted to List “A”

-> volunteer for re-evaluation

Pass – List “A”

Fail – List “B” (new money still

allowed)

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Whose responsibility to ensure compliance?

• Product providers and their agents• Sales charges: computed at the point when new

units are created.• Expense ratio: based on last audited expense

ratio before the cap kicks in.

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Reminders

• Funds’ names: To reflect correctly• Prescribed format for reporting: To use

appropriate format to the type of operations (i.e. agent bank or product provider) or products (unit trusts, fund management accounts etc)

• Submission: To submit audit report on time

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Clarifications / implications of non-compliance

• Derivatives: if they are for hedging or efficient portfolio management, they do not fall under the deviation limit (up to 5%) in paragraph 8 of CPFIG.

• Minimum Service Delivery Standards: Implications for non-compliance -

• Fraud – whether there are controls • Investment Administrators – cash accounts

Microsoft Word Document

Summary of MSDs

Microsoft PowerPoint Presentation

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Q & A

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Thank You

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Supplementary Slides

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Audit Report - Format for FMC

Annex AThe Board of DirectorsFund Management Company Our ref:

Address 1Address 2 Contact

Singapore

Date

Dear Sirs

AUDITOR’S REPORT ON [NAME OF FMC or SINGAPORE REPRESENTATIVE] (THE “COMPANY”) UNDER CENTRAL PROVIDENT FUND INVESTMENT SCHEME (CPFIS) FOR THE YEAR ENDED ________________

We have audited the financial statements of the Company as at _______ and for the year then ended and have issued our report thereon dated _______. These financial statements are the responsibility of the Company’s directors. Our responsibility is to express an opinion on those financial statements based on our audit.

We conducted our audit in accordance with Singapore Standards on Auditing for the purpose of expressing our opinion on the financial statements under review as required by statute. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. Our work wasnecessarily conducted on a test basis and included such samples as we deemed appropriate. In this connection, we have reviewed the accounting system and system of internal controls in operation in the Company and reliance has been placed on the internal controls where considered appropriate.

During the course of our audit, [except for those matters referred to in our _____________ report dated ]*, nothing came to our attention that caused us to believe that the operations of the Company relating to unit holdings [and fund management accounts]* of CPF members were not conducted in accordance with the Central Provident Fund (Investment Scheme) Regulations and any amendments or modifications thereof and the terms and conditions laid down in the Deed of Indemnity dated_____.

This report is issued for submission to the Central Provident Fund Board and should not be used for any other purposes.

Yours faithfully

* delete if not applicable

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Audit Report - Format For Funds

Annex B[Date]

Fund ManagersTrustee

Dear Sirs

AUDITOR’S REPORT ON [NAME OF SCHEME] (THE “FUND”) FOR SCHEME INCLUDED UNDER CENTRAL PROVIDENT FUND INVESTMENT SCHEME (CPFIS) FOR THE YEAR ENDED ________________

We have audited the financial statements of the Fund as at _____________ and for the year then ended and have issued our report thereon dated _______________.

The preparation of those financial statements are the responsibility of [NAME of FMC] (the "Manager") or Board of Directors of [NAME OF SCHEME]*. The responsibility to cause those financial statements to be audited is that of [NAME OF TRUSTEE] (the "Trustee")/ ‘N.A’ where not applicable.

Our responsibility is to express an opinion on those financial statements based on our audit.

We conducted our audit in accordance with the Singapore/International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. Our work was necessarily conducted on a test basis and included such samples as we deemed appropriate. In this connection, we have reviewed the accounting system and system of internal controls in respect of the Fund and reliance has been placed on internal controls where appropriate.

During the course of our audit, except for those matters referred to in our [Internal Control Report/ Management Letter] dated _______________, nothingcame to our notice that caused us to believe that the necessary procedures and internal controls are not in place to ensure, inter alia, that: 1. The provisions of the Deed of Trust (or other relevant constitutive documents constituting or otherwise of the Fund) relating to the investment and expenditure

restrictions, paragraphs 2-10 of the CPF Investment Guidelines and the Disclosure Requirements for FMCs/Insurers under CPFIS have been complied with. 2. There is independent, fair and proper valuation of all investments undertaken by the Manager on behalf of the Fund /on the Fund.3. There are adequate arrangements in place for the safe custody of the Fund’s assets.4. There are adequate arrangements in place for the audit and record-keeping of the Fund’s assets.

This report is issued for your submission to the CPF Board and should not be used for any other purpose.

Yours faithfully

*Delete where appropriate

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• Annex B• The Manager• Investment Schemes Branch• Central Provident Fund Board• 79 Robinson Road• #12-08 CPF Building• Singapore 068897

• Dear Sirs

• AUDITOR’S REPORT ON [NAME OF BANK] (THE “AGENT BANK”) UNDER THE CPF INVESTMENT SCHEME - ORDINARY ACCOUNT (CPFIS-OA) TERMS AND CONDITIONS FOR AGENT BANKS FOR THE YEAR ENDED ____________________

• We have audited the financial statements of the Bank as at _______ and for the year then ended and have issued our report thereon dated _______. These financial statements are the responsibility of the Company’s directors. Our responsibility is to express an opinion on those financial statements based on our audit.

• We conducted our audit in accordance with Singapore Standards on Auditing for the purpose of expressing our opinion on the financial statements under review as required by statute. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. Our work was necessarily conducted on a test basis and included such samples as we deemed appropriate. In this connection, we have reviewed the accounting system and system of internal controls in operation in the Company and reliance has been placed on the internal controls where considered appropriate.

• During the course of our audit, [except for those matters referred to in our _____________ report dated ]*, nothing came to our attention that caused us to believe that the operations of the Bank relating to CPF Investment Accounts of CPF members were not conducted in accordance with the Central Provident Fund (Investment Scheme) Regulations and any amendments or modifications thereof and the terms and conditions laid down in the Deed of Indemnity dated__________.

• This report is issued for submission to the Central Provident Fund Board and should not be used for any other purposes.

• Yours faithfully• * delete if not applicable

Audit Report - Format For Agent Banks

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• Annex B• The Manager• Investment Schemes Branch• Central Provident Fund Board• 79 Robinson Road• #12-08 CPF Building• Singapore 068897

• Dear Sirs

• AUDITOR’S REPORT ON [NAME OF BANK] (THE “BOND DEALER”) UNDER THE CPF INVESTMENT SCHEME-SPECIAL ACCOUNT (CPFIS-SA) TERMS AND CONDITIONS FOR BONDS DEALERS FOR THE YEAR ENDED ________________

• We have audited the financial statements of the Bank as at _______ and for the year then ended and have issued our report thereon dated _______. These financial statements are the responsibility of the Company’s directors. Our responsibility is to express an opinion on those financial statements based on our audit.

• We conducted our audit in accordance with Singapore Standards on Auditing for the purpose of expressing our opinion on the financial statements under review as required by statute. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. Our work was necessarily conducted on a test basis and included such samples as we deemed appropriate. In this connection, we have reviewed the accounting system and system of internal controls in operation in the Company and reliance has been placed on the internal controls where considered appropriate.

• During the course of our audit, [except for those matters referred to in our _____________ report dated ]*, nothing came to our attention that caused us to believe that the operations of the Bank relating to approved bonds of CPF members were not conducted in accordance with the Central Provident Fund (Investment Scheme) Regulations and any amendments or modifications thereof and the terms and conditions laid down in the Deed of Indemnity dated________.

• This report is issued for submission to the Central Provident Fund Board and should not be used for any other purposes.• Yours faithfully• * delete if not applicable

Audit Report - Format For Bond Dealers

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• Annex B• The Manager• Investment Schemes Department• Central Provident Fund Board• 79 Robinson Road• #12-08 CPF Building• Singapore 068897

• Dear Sirs

• AUDITOR’S REPORT ON [NAME OF FIXED DEPOSIT BANK] (THE “BANK”) UNDER CENTRAL PROVIDENT FUND INVESTMENT SCHEME (CPFIS) TERMS AND CONDITIONS FOR FIXED DEPOSIT BANKS FOR THE YEAR ENDED ________________

• We have audited the financial statements of the Bank as at _______ and for the year then ended and have issued our report thereon dated _______. These financial statements are the responsibility of the Bank’s directors. Our responsibility is to express an opinion on those financial statements based on our audit.

• We conducted our audit in accordance with Singapore Standards on Auditing for the purpose of expressing our opinion on the financial statements under review as required by statute. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. Our work was necessarily conducted on a test basis and included such samples as we deemed appropriate. In this connection, we have reviewed the accounting system and system of internal controls in operation in the Bank and reliance has been placed on the internal controls where considered appropriate.

• During the course of our audit, [except for those matters referred to in our _____________ report dated ]*, nothing came to our attention that caused us to believe that the operations of the Bank relating to fixed deposits placed by CPFIS members were not conducted in accordance with the Central Provident Fund (Investment Scheme) Regulations and any amendments or modifications thereof and the terms and conditions laid down in the Deed of Indemnity dated________.

• This report is issued for submission to the Central Provident Fund Board and should not be used for any other purposes.

• Yours faithfully• * delete if not applicable

Audit Report - Format For FD Banks

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• Annex B • The Board of Directors• [Name of Investment Administrator or “IA”] Our ref:• Address 1• Address 2 Contact• Singapore

• Date

• Dear Sirs• AUDITOR’S REPORT ON [NAME OF IA] (THE “COMPANY”) UNDER CENTRAL PROVIDENT FUND INVESTMENT SCHEME (CPFIS) TERMS AND

CONDITIONS FOR INVESTMENT ADMINISTRATORS FOR THE YEAR ENDED ________________

• We have audited the financial statements of the Company as at _______ and for the year then ended and have issued our report thereon dated _______. These financial statements are the responsibility of the Company’s directors. Our responsibility is to express an opinion on those financial statements based on our audit.

• We conducted our audit in accordance with Singapore Standards on Auditing for the purpose of expressing our opinion on the financial statements under review as required by statute. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. Our work was necessarily conducted on a test basis and included such samples as we deemed appropriate. In this connection, we have reviewed the accounting system and system of internal controls in operation in the Company and reliance has been placed on the internal controls where considered appropriate.

• During the course of our audit, [except for those matters referred to in our _____________ report dated ]*, nothing came to our attention that caused us to believe that the operations of the Company relating to investment holdings of CPF members were not conducted in accordance with the Central Provident Fund (Investment Scheme) Regulations 2000 and any amendments or modifications thereof and the terms and conditions laid down in the Deed of Indemnity dated_____.

• This report is issued for submission to the Central Provident Fund Board and should not be used for any other purposes.

• Yours faithfully• * delete if not applicable

Audit Report - Format For Investment Administrators