Commonwealth of Australia

PROSPECTUS

TREASURY

INDEXED BONDS

TO BE OFFERED FOR SALE BY PERIODIC TENDER REDEEMABLE AT MATURITY

 

Announcement of Periodic Tender

Treasury Indexed Bonds will be offered for sale by periodic tender. An official announcement will be made prior to each tender and will include details of:

• each series of Treasury Indexed Bonds for which bids will be invited;
• the amount to be offered of each series;
• the closing time and date for bids; and
• the settlement arrangements.

A subsequent announcement will be made giving the results of the tender.

Indexed Bonds

Treasury Indexed Bonds will be issued only as capital-indexed bonds with the capital value of the investment being adjusted by the rate of inflation. Interest will be paid quarterly, at a fixed rate, on the adjusted capital value. At maturity, investors will receive the inflation-adjusted capital value of the security - the value as adjusted for inflation over the life of the bond.

Eligibility

Only bids submitted electronically by members of the Reserve Bank Information and Transfer System (RITS) in accordance with the RITS Regulations and Conditions of Operation will be accepted.

Applications for Tender Stock

Bids will be received on a competitive tender basis. Each competitive bid must be submitted on the basis of real yield to maturity (% per annum). The yield bid may be expressed to a maximum of two decimal places (eg 5%, 5.0%, 5.00%). Any additional decimal places will be disregarded.

No bid may be withdrawn or amended after the bid has been committed in terms of the RITS Regulations and Conditions of Operation. Bids not complying in all respects with the requirements of this prospectus will be liable to rejection.

The Treasurer reserves the right to cancel a tender by reason of any circumstance including a circumstance beyond the reasonable control of the Reserve Bank and, without limitation, partial or total failure, malfunction or overload of RITS.

Size of Bids

Each competitive bid must be for a minimum parcel of $100,000 (face value) and in multiples of $1,000 (face value) thereafter.

Allotment of Stock

Acceptance of bids will be made in ascending order of yield bid, i.e. from the lowest yield bid to the highest yield accepted. Allotments will be made at the yields bid.

At the highest yield accepted, the amount of Treasury Notes allotted to each bidder will, in the first instance, be calculated proportionately to the amount of bids at the yield, and then, in the case of bids of $1 million or more (face value), rounded to the nearest $1 million (face value) and, in the case of bids under $1 million (face value), rounded up to the next $100,000 (face value). However, no bidder will be allotted an amount greater than the amount bid.

In allotting stock at the highest accepted yield, amounts by which the total bids from any one tenderer exceed the amount offered at tender will be disregarded.

The Treasurer reserves the right to accept bids for the full amount of a tender or any part thereof and to reject any bid or part thereof.

Notice of acceptance or rejection of a bid or any part thereof will be made available to each bidder as soon as possible after allotment.

Settlement of Stock

The settlement price for stock per $100 face value, extended to the ninth decimal place, shall be calculated on the basis of the following formula:

PRICE PER $100 FACE VALUE =

where V	=	where i = annual percentage real yield / 400. For example: where stock is to be allotted at a yield of 4.65 per cent per annum:
x	=	1, if there is an interest payment at the next interest payment date.
x	=	0, if there is no interest payment at the next interest payment date.
	=	nominal value of the principal at the next interest payment date (whether or not there is an interest payment due).
	=	where
		= nominal value of the principal at the previous interest payment date. is equal to $100 (the face value of the stock) at the interest payment date on or prior to the earliest date on which the stock may be settled at their first issue.
		and are rounded to two decimal places.
p	=	the average percentage change in the Consumer Price Index over the two quarters ending in the quarter which is two quarters prior to that in which the next interest payment falls (for example, if the next interest payment is in November, p is based on the average movement in the Consumer Price Index over the two quarters ended in the June quarter preceding)
	=	rounded to two decimal places, where is the Consumer Price Index for the second quarter of the relevant two quarter period, and is the Consumer Price Index for the quarter immediately prior to the relevant two quarter period.
f	=	the number of days from the date of settlement to the next interest payment date.
d	=	the number of days in the quarter ending on the next interest payment date.
g	=	the fixed quarterly interest rate payable (equal to the annual fixed rate divided by 4).
n	=	the number of full quarters between the next interest payment date and the date of maturity.
	=

The settlement amount will be rounded to the nearest cent (0.50 cent being rounded up).

Unless otherwise specified in the official announcement of a tender, settlement in RITS during System hours, as defined in the RITS Regulations and Conditions of Operation, is to take place on the second day following the tender. Settlements by banks and authorised dealers in the short term money market must be by debit to their accounts at the Reserve Bank of Australia.

Failure to make due payment of any amount payable in respect of any allotment pursuant to a competitive bid will render the allotment liable to cancellation.

Interest on Stock

Interest payments for stock shall be as calculated on the basis of the following formula.

where g and are as defined under ‘Settlement of Stock’.
Example: with the level of the Consumer Price Index at the beginning and end of the relevant two quarter period 110 and 112 respectively (average quarterly change 0.91%) and a fixed annual interest rate of 4%, the next interest payment would be calculated as follows:

where:

= $1.01

Interest payments shall be rounded to the nearest cent (0.50 cent being rounded up).

If the average percentage change in the CPI for any relevant two quarter period is negative, the nominal value of the principal will be adjusted downwards and the interest payment will be paid on this reduced amount. However, no quarterly interest payment will be based on a nominal value of less than $100. Where the nominal value of the principal does fall below $100, succeeding interest and/or principal payments will, in such cases, be reduced by the difference between the fixed interest payment which was paid in the relevant period, and the payment which would otherwise have been made under the above formula except for this provision.

Where Treasury Indexed Bonds are lodged in RITS, interest payments will be made in the manner described in the RITS Regulations and Conditions of Operation. In the case of banks and authorised dealers in the short term money market, interest will be paid by credit to their accounts at the Reserve Bank of Australia. In other cases, interest payments (including the first interest payment) will be made according to the instructions of the owner recorded at the close of business one week prior to the interest payment date, by credit into an account at a bank or by cheque. To ensure timely payment, investors should notify the Reserve Bank Registry of any change in address.

Consumer Price Index

The index to be used for the purpose of this prospectus shall be the ‘Weighted Average of Eight Capital Cities: All-Groups Index’ as maintained and published quarterly by the Australian Bureau of Statistics.

If, for any reason, the CPI is not published for any quarter for which it is relevant for the purposes of this prospectus, or if publication is delayed until after the date on which an interest payment is determined, the CPI published for the previous quarter will apply in the interim. On subsequent publication of the actual CPI figure for that quarter by the Australian Bureau of Statistics, adjustment to the nominal value and/or interest payment will be made.

If the Australian Bureau of Statistics were to cease to publish the CPI and were to publish another index which it stated to be in replacement of the CPI, then that index shall be used for the purposes of this prospectus.

If the Australian Bureau of Statistics were to cease to publish the CPI without publishing a replacement index, or if any change were to be made to the coverage, periodicity, or basic calculation of the CPI which, in the opinion of the Treasurer, constituted a change in the CPI which would be materially detrimental to the interests of stockholders, the Department of the Treasury will publish a notice in the Commonwealth Gazette as soon as practicable following the announcement of the change informing stockholders and offering them the right to redeem their Treasury Indexed Bonds at market-related prices as determined by the Reserve Bank of Australia. Repayment to stockholders who exercise such a right will be on a date specified by the Department of the Treasury no later than six months from the date of publication of the last CPI figure made prior to such a change as is referred to earlier in this paragraph. In these circumstances, a notice setting out the administrative arrangements for redemption and payment will be sent to stockholders at their registered address by the Reserve Bank of Australia at the appropriate time. In the event that stockholders choose not to redeem their holdings under this provision, the quarterly adjustments to the nominal value and interest payments applying to stock not redeemed shall be calculated according to an index to be announced by the Treasurer which, for the purposes of this prospectus, shall be deemed to be a replacement for the Consumer Price Index.

If the reference base of the CPI is changed after Treasury Indexed Bonds are issued, the index which shall be used for the purposes of this prospectus shall be the CPI numbers expressed on the new base as published by the Australian Bureau of Statistics.

If a relevant CPI number is revised after the payment of interest at a particular interest payment date, a subsequent adjustment will be made to the nominal value and/or interest payment to take account of any discrepancy.

Stock

Treasury Indexed Bonds will be issued as stock only in accordance with the Commonwealth Inscribed Stock Act 1911 and shall be lodged in RITS in the name of the applicant in accordance with the RITS Regulations and Conditions of Operation. Subsequent transactions shall be at face value in multiples of $1,000.

Transfer of Treasury Indexed Bonds may be effected through RITS in accordance with the RITS Regulations and Conditions of Operation or by lodgement of a completed Transfer and Acceptance Form at any Commonwealth Government Inscribed Stock Registry.

Payment at Maturity

Treasury Indexed Bonds lodged in RITS will be redeemed on maturity in the manner described in the RITS Regulations and Conditions of Operation. In the case of banks and authorised dealers in the short term money market, Treasury Indexed Bonds will be redeemed on maturity by credit to their accounts at the Reserve Bank of Australia.

In the case of stock not lodged in RITS, instructions as to the disposal of the proceeds of maturing Treasury Indexed Bonds may be lodged with the Registry no later than three business days prior to maturity. Where no instructions are provided, payment of proceeds will be effected by cheque payable to the owner and posted to the registered address.

In all cases, the final redemption value shall be no less than $100 face value, irrespective of the movements in the CPI over the life of the security.

Repayment of Treasury Indexed Bonds is made from the Consolidated Revenue Fund of the Commonwealth under standing appropriations.

Official Subscriptions

The Reserve Bank of Australia and certain other official bodies may, from time to time, apply for Treasury Indexed Bonds. Amounts to be taken up in this way will be indicated in the official announcement prior to the tender and will be additional to the amount offered for public tender. Such allotments will be at the weighted average issue yield(s) announced for the relevant tender.

Registries

Commonwealth Government Inscribed Stock Registries are operated by the Reserve Bank of Australia at Canberra, Sydney, Melbourne, Brisbane, Adelaide, Perth, Hobart and Darwin.

Miscellaneous

Stamp duty – Transfers of Treasury Indexed Bonds will be free of stamp duty imposed by the Commonwealth and the States.

Trustees – Treasury Indexed Bonds are authorised investments under trustee legislation applying in Australia.

Stock Exchange Listing - It is intended to apply for the listing of Treasury Indexed Bonds on Australian Stock Exchanges as soon as possible after issue.

Authority for Issue – Treasury Indexed Bonds are issued in accordance with the Financial Agreement and issues are authorised under the Commonwealth Inscribed Stock Act 1911 and other Acts containing specific borrowing authority or the Financial Agreement. Treasury Indexed Bonds are issued in such amounts, in such manner and upon such terms and conditions as the Treasurer directs.

Taxation - Assessable income from Treasury Indexed Bonds derived by way of interest or discount or through capital accruals throughout the life of the Treasury Indexed Bonds will be liable to tax according to the provisions of the laws of the Commonwealth and the States.