This section describes ILB calculation methodologies for Australia and New Zealand.

Australia

Australian Inflation Index Bonds differ dramatically from the US/Canadian Inflation Linked Model. Australian ILBs pay quarterly interest coupon payments based on fixed coupon rates. The Australian CPI is published at the end of each quarter. There are no monthly values for the CPI. The Australian ILBs use a two-quarter trailing CPI (6 months) before the start of the coupon to calculate the index ratio for the coupon period. Whereas the US/Canadian Inflation Linked calculation method has daily iteration of the index ratio, Australian ILBs have one inflation index ratio for the coupon period (quarterly), which is calculated at the start of each coupon period. As a result of having only one inflation index ratio for the period, all of the inflationary income is recognized on the first day of the new coupon period. The Inflation Protected Principal at maturity, and the inflation index ratio during the life of the period, are never calculated at a value lower than 1.

The Cash Flow Calculation follows:

                                   Annual Coupon Rate               Kt
Interest Payment = -------------------------------- x -----------------------
                                                     4                           100

Kt = nominal value of the principal at the date of the next interest payment.

                           i
= Kt - 1 [ 1 + ----------- ]
                        100

Kt - 1 = nominal value of the principal at the date of the previous coupon payment. If there is no previous interest payment (bond is in the first period of issue) then Kt - 1 = 100 (the face value of the bond). Kt and Kt - 1 are rounded to 2 decimal places.

i = the average percentage change in the CPI over the two quarters ending in the quarter that is two quarters prior to that in which the next interest payment falls. For example, if the next interest payment is in November 1995, the interest payment is based on the average movement of the CPI between December 1994 and June 1995.

      100          CPI t
I = --------- [ ---------------- - 1]
        2            CPI t - 2

For more information on Australian ILB, visit:

http://aofm.gov.au/ags/treasury-indexed-bonds/

New Zealand

New Zealand Inflation Linked Bonds use a methodology similar to the Australian Inflation Linked Bonds with one exception. New Zealand ILBs do not have a clause preventing the calculation of an Index Ratio below 1, whereas the Australian ILBs do. Therefore, an interest payment can be calculated using an Index Ratio less than 1. The New Zealand CPI is published at the end of each quarter.

Also:

• There is no principal protection at maturity

• Maturity is based on the change in inflation over the life of the bond

The cash flow calculation is as follows:

                                   Annual Coupon Rate                   Kt
Interest Payment = --------------------------------- x ---------------------------
                                                  4                                 100

Kt = nominal value of the principal at the date of the next interest payment

                            i
= Kt - 1 [ 1 + ----------- ]
                        100

Kt - 1 = nominal value of the principal at the date of the previous coupon payment. If there is no previous interest payment (bond is in the first period of issue) then Kt - 1 = 100 (the face value of the bond). Kt and Kt - 1 are rounded to 2 decimal places.

i = the average percentage change in the CPI over the two quarters ending in the quarter that is two quarters prior to that in which the next interest payment falls. For example, if the next interest payment is in November 1995, the interest payment is based on the average movement of the CPI between December 1994 and June 1995.

       100           CPI t
I = --------- [ ---------------- - 1]
         2            CPI t - 2