<PAGE>
PROSPECTUS
16,000,000 TRUEPRS-SM-
NAB EXCHANGEABLE PREFERRED TRUST
---------------
Each of the Trust Units Exchangeable for Preference Shares-TM- ("TrUEPrS")
of NAB Exchangeable Preferred Trust (the "Trust") offered hereby (the
"Offering") will represent a proportionate share of a beneficial ownership
interest in assets of the Trust and, as described herein, upon the occurrence of
an Exchange Event (as defined herein), will be exchanged for either (i) American
Depositary Receipts evidencing, for each TrUEPrS, one American Depositary Share
("ADS") representing two fully-paid preference shares, liquidation preference
US$12.50 per share ("NAB Preference Shares"), issued by National Australia Bank
Limited (A.C.N 004 044 937) ("NAB" or the "Company") or (ii) cash in an amount
of US$25 per TrUEPrS, plus the accrued dividend distributions thereon for the
current quarterly dividend period. Each TrUEPrS will be sold at an initial
offering price of US$25. Except as described herein, holders of the TrUEPrS will
receive non-cumulative dividend distributions in an amount equal to US$2.00 per
TrUEPrS per annum, payable quarterly in arrears in an amount equal to US$.50 per
TrUEPrS on March 31, June 30, September 30 and December 31 of each year,
commencing December 31, 1998 (each, a "Dividend Payment Date"), to holders of
record as of the immediately preceding March 15, June 15, September 15 and
December 15, respectively (each, a "Record Date"). The first dividend
distribution in respect of the period from and including September 29, 1998 (the
"Issue Date") to but excluding December 31, 1998 will equal US$.5055 per
TrUEPrS.
The TrUEPrS have been approved for listing on the New York Stock Exchange
(the "NYSE") under the trading symbol "NAR Pr", subject to official notice of
issuance. Trading of the TrUEPrS on the NYSE is expected to commence within a
30-day period after the initial delivery of the TrUEPrS. See "Underwriting."
(CONTINUED ON FOLLOWING PAGE)
SEE "PROSPECTUS SUMMARY--RISK FACTORS," BEGINNING ON PAGE 9 OF THIS
PROSPECTUS AND "RISK FACTORS," BEGINNING ON PAGE 23 OF THIS PROSPECTUS, FOR
CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE TRUEPRS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO SALES PROCEEDS TO
PUBLIC(1) LOAD(2) TRUST(3)(4)
<S> <C> <C> <C>
Per TrUEPrS.............................................. $25.00 (4) $25.00
Total(5)................................................. $400,000,000 (4) $400,000,000
</TABLE>
(1) Plus accrued dividends, if any, from September 29, 1998.
(2) In view of the fact that the proceeds of the sale of the TrUEPrS will
ultimately be invested in the NAB Preference Shares, the Trust and NAB have
agreed to indemnify the several U.S. Underwriters (the "Underwriters")
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."
(3) Before deducting estimated expenses of $632,000 payable by the Trust. See
"Management Arrangements--Estimated Expenses."
(4) In view of the fact that the proceeds of the sale of the TrUEPrS will
ultimately be invested in the NAB Preference Shares, the Trust and NAB have
agreed to pay the Underwriters, as compensation (the "Underwriters'
Compensation"), $.7875 per TrUEPrS or $12,600,000 in the aggregate (or
$14,486,850 in the aggregate if the Underwriters' over-allotment options are
exercised in full); provided that such compensation for sales of more than
10,000 TrUEPrS to any single purchaser will be $.50 per TrUEPrS and, to the
extent such sales are made, the actual amount of Underwriter's Compensation
will be less than the aggregate amounts specified herein. See "Fee Table"
and "Underwriting."
(5) The Trust has granted the U.S. Underwriters an option, exercisable for 30
days from the date hereof, to purchase up to 2,396,000 additional TrUEPrS
solely to cover over-allotments, if any. If all such TrUEPrS are purchased,
the total Price to Public and Proceeds to Trust will be $459,900,000 and
$459,900,000, respectively. See "Underwriting." The total Price to Public
and Proceeds to the Trust excludes $100,000 relating to 4,000 TrUEPrS sold
to ML IBK Positions, Inc. in connection with the formation of the Trust.
------------------------------
The TrUEPrS are offered by the several Underwriters, subject to prior sale,
when, as and if issued to and accepted by them, and subject to approval of
certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the TrUEPrS will be made through the facilities of The Depository
Trust Company on or about September 29, 1998.
- ------------------------------
- -SM-Service mark of Merrill Lynch & Co., Inc.
------------------------------
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER SALOMON SMITH BARNEY
A.G. EDWARDS & CO., INC.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
------------------------------
The date of this Prospectus is September 23, 1998.
<PAGE>
(CONTINUED FROM COVER PAGE)
The Trust is a newly-created Delaware business trust established for the
sole purpose of (a) issuing the TrUEPrS, (b) investing the proceeds thereof in
and holding 8% Mandatorily Redeemable Debt Securities due December 31, 2047 (the
"Debt Securities") issued by Cuzzano (UK) Company, a special purpose unlimited
company incorporated under the laws of England and Wales and domiciled in the
United Kingdom (the "U.K. Company"), with an aggregate principal amount equal to
such proceeds, and (c) entering into the ADSs Purchase Contract between the
Trust and the Jersey Subsidiary referred to herein (the "ADSs Purchase
Contract"). The Trust's investment objective is to distribute to the holders of
TrUEPrS (a) prior to an Exchange Date (as defined herein) PRO RATA based on the
number of TrUEPrS outstanding the interest the Trust receives on the Debt
Securities from time to time and (b) upon the occurrence of an Exchange Event,
(i) if the Exchange Event is anything other than the (x) redemption, (y)
mandatory repurchase (such repurchase being referred to as a "Buy-Back") or (z)
reduction of a portion of the capital of each NAB Preference Share immediately
followed by redemption by NAB of the remaining capital thereof on the next
Business Day (as defined herein) following the date of such reduction of capital
(such reduction of capital and subsequent redemption are collectively referred
to herein as "Capital Reduction"), in each case, of the NAB Preference Shares
for cash, ADRs evidencing, for each TrUEPrS, one ADS representing two NAB
Preference Shares, and (ii) if the Exchange Event is a redemption, Buy-Back or
Capital Reduction of the NAB Preference Shares for cash, US$25 per TrUEPrS plus
an amount equal to the accrued but unpaid interest on each US$25 principal
amount of the Debt Securities from and including the Interest Payment Date
immediately preceding the Exchange Date to but excluding such Exchange Date.
Prior to the Exchange Date, the NAB Preference Shares will not pay dividends. On
the Exchange Date (unless the Exchange Event is the redemption, Buy-Back or
Capital Reduction of the NAB Preference Shares for cash), each NAB Preference
Share will automatically convert into a dividend-paying NAB Preference Share
which will accrue non-cumulative dividends at the rate of US$1.00 per share per
annum, payable quarterly in arrears in an amount equal to US$.25 per share on
each Dividend Payment Date to holders of record as of the immediately preceding
Record Date. As used herein, the term "NAB Preference Shares" refers to such
shares both before and after such conversion. See "Investment Objective and
Policies."
The Trust will not be managed like a typical closed-end investment company.
The Trust has adopted a fundamental policy (a) to invest 100% of its portfolio
in the Debt Securities and not to dispose of the Debt Securities during the term
of the Trust other than in connection with a mandatory redemption thereof as a
result of an Exchange Event and (b) to enter into the ADSs Purchase Contract and
not to dispose of the ADSs Purchase Contract during the term of the Trust. For
information concerning the ADSs that may be received by the holders of TrUEPrS
upon the occurrence of an Exchange Event and the NAB Preference Shares
represented thereby, see the accompanying prospectus of NAB. The TrUEPrS are a
suitable investment only for investors who are able to understand the unique
nature of the Trust and the economic characteristics of the Debt Securities, and
the ADSs and the NAB Preference Shares that may be delivered in exchange for
TrUEPrS upon an Exchange Event. See "Investment Objective and Policies."
The Trust will be treated as a grantor trust for U.S. Federal income tax
purposes. In general, for U.S. Federal income tax purposes no gain or loss
should be recognized by U.S. holders of the TrUEPrS upon receipt of the ADSs
upon an exchange or dissolution of the Trust. However, U.S. holders will
recognize taxable gain or loss upon receipt of cash, if any, upon an exchange or
dissolution of the Trust. See "Taxation--Certain United States Federal Income
Tax Considerations."
Prior to the Offering there has been no public market for the TrUEPrS.
SHARES OF CLOSED-END INVESTMENT COMPANIES HAVE IN THE PAST FREQUENTLY TRADED AT
A DISCOUNT FROM THEIR NET ASSET VALUES AND INITIAL PUBLIC OFFERING PRICES. THE
RISK OF LOSS ASSOCIATED WITH THIS CHARACTERISTIC OF CLOSED-END INVESTMENT
COMPANIES MAY BE GREATER FOR INVESTORS EXPECTING TO SELL SHARES OF A CLOSED-END
INVESTMENT COMPANY SOON AFTER THE COMPLETION OF AN INITIAL PUBLIC OFFERING.
This Prospectus sets forth concisely information about the Trust that a
prospective investor should know before investing and should be read and
retained for future reference.
2
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE TRUEPRS AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF, OR AN INVITATION TO
PURCHASE OR SUBSCRIBE FOR, THE TRUEPRS IN THE COMMONWEALTH OF AUSTRALIA OR ANY
OF ITS STATES OR TERRITORIES. THE TRUEPRS MAY NOT BE OFFERED, SOLD OR DELIVERED
IN OR TO ANY RESIDENT OF THE COMMONWEALTH OF AUSTRALIA OR ANY OF ITS STATES OR
TERRITORIES. SEE "UNDERWRITING."
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY SHOULD BE READ IN CONJUNCTION WITH THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED,
THE INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS'
OVER-ALLOTMENT OPTION IS NOT EXERCISED.
THE TRUST
NAB Exchangeable Preferred Trust is a newly-created Delaware business trust
that will be registered as a non-diversified closed-end management investment
company under the U.S. Investment Company Act of 1940, as amended (the
"Investment Company Act"). The term of the Trust will expire on or shortly after
the occurrence of an Exchange Event. The Trust will be treated as a grantor
trust for United States Federal income tax purposes.
THE OFFERING
The Trust is offering 16,000,000 TrUEPrS, each representing a proportionate
share of beneficial interest in the assets of the Trust, at an initial public
offering price of US$25 per TrUEPrS. The Trust has granted the Underwriters an
option, exercisable for 30 days from the date of this Prospectus, to purchase up
to an aggregate of 2,396,000 additional TrUEPrS solely to cover over-allotments,
if any. See "Underwriting." In accordance with the requirements of the
Investment Company Act, on September 10, 1998, the Trust issued 4,000 TrUEPrS
(the "Initial TrUEPrS") to ML IBK Positions, Inc., an affiliate of Merrill
Lynch, Pierce, Fenner & Smith Incorporated, for the purchase price of US$25 per
TrUEPrS.
USE OF PROCEEDS AND COLLATERAL ARRANGEMENTS
The following transactions will take place on the Issue Date. The Trust will
use the proceeds from the sale of the TrUEPrS in the Offering and the Initial
TrUEPrS to subscribe for and purchase from the U.K. Company Debt Securities with
an aggregate principal amount equal to such proceeds. The Trust will also enter
into the ADSs Purchase Contract. The Trust, as the holder of the Debt
Securities, will be entitled to receive interest due thereon quarterly in
arrears on each Dividend Payment Date (each, an "Interest Payment Date"), at the
rate per annum of 8%. The Debt Securities will be issued only in bearer form and
will be denominated and pay interest in U.S. dollars. The Debt Securities will
be listed on the Luxembourg Stock Exchange and, unless redeemed earlier, will be
redeemed on December 31, 2047. The U.K. Company will use the proceeds from the
sale of the Debt Securities to purchase at a price equal to their liquidation
preference fully paid, non-dividend paying preference shares, liquidation
preference US$25 per share (the "Jersey Preference Shares"), issued by Cuzzano
(Investments) Limited, a company incorporated with limited liability under the
laws of, and domiciled in, Jersey, the Channel Islands (the "Jersey
Subsidiary"). The Jersey Subsidiary will use the proceeds from the sale of the
Jersey Preference Shares to make a payment to NAB in consideration for the
issuance by NAB of NAB Preference Shares to the ADR depositary and the issuance
by the ADR depositary of the ADSs to the Jersey Subsidiary at a price per ADS
equal to US$25 (I.E., the aggregate liquidation preference of the two NAB
Preference Shares represented thereby). Pursuant to a security and pledge
agreement (the "ADRs Security and Pledge Agreement") to be entered into among
the Trust, the U.K. Company, the Jersey Subsidiary and The Bank of New York, as
collateral agent (the "Collateral Agent"), the Jersey Subsidiary will
irrevocably and unconditionally deposit and pledge the ADRs evidencing the ADSs
(i) to the holder of the Jersey Preference Shares (initially the U.K. Company)
to secure its redemption obligations under the Jersey Preference Shares and (ii)
to the Trust to secure its obligation to deliver ADSs under the ADSs Purchase
Contract. Also, pursuant to the ADRs Security and Pledge Agreement, the U.K.
Company, with the consent of the Jersey Subsidiary, will irrevocably and
unconditionally assign and hypothecate its interest in such pledge to the Trust
to secure its redemption obligations under the Debt Securities. Pursuant to a
separate security and pledge agreement (the "Jersey Preference Shares Security
and Pledge Agreement" and, together with the ADRs Security and Pledge Agreement,
the "Security and Pledge Agreements") to be entered into among the Trust, the
U.K. Company and the Collateral Agent, the U.K. Company will
4
<PAGE>
irrevocably and unconditionally deposit the Jersey Preference Shares with the
Collateral Agent and pledge the Jersey Preference Shares to secure its
redemption obligations to the Trust under the Debt Securities. Prior to the
occurrence of an Exchange Event, ownership of the Jersey Preference Shares and
the ADSs will remain with the U.K. Company and the Jersey Subsidiary,
respectively, although pursuant to the ADRs Security and Pledge Agreement, the
Jersey Subsidiary will agree to, or will cause the Collateral Agent to, direct
the ADR depositary to vote the NAB Preference Shares represented by the ADSs as
directed by the holders of the TrUEPrS.
On the Issue Date, NAB will use the proceeds from the issue of the NAB
Preference Shares to make a capital contribution to a business trust established
under the laws of the State of Delaware (the "Distribution Trust"). The
Distribution Trust will use NAB's capital contribution to make a loan (the
"Distribution Loan") to a Delaware limited liability company that is a
wholly-owned subsidiary of NAB (the "USLLC"). The USLLC will use the proceeds of
the Distribution Loan to make one or more loans (each, a "NAB Loan") to NAB
and/or one or more wholly-owned subsidiaries or branches of NAB (each, a "NAB
Borrower").
Reference is made to page 12 for a diagram of the foregoing transactions.
NAB
Reference is made to the accompanying prospectus of NAB with respect to the
NAB Preference Shares represented by the ADSs that may be received by a holder
of TrUEPrS upon the occurrence of an Exchange Event. THE PROSPECTUS OF NAB IS
BEING ATTACHED HERETO AND DELIVERED TO PROSPECTIVE PURCHASERS OF TRUEPRS
TOGETHER WITH THIS PROSPECTUS FOR CONVENIENCE OF REFERENCE ONLY. THE PROSPECTUS
OF NAB DOES NOT CONSTITUTE A PART OF THIS PROSPECTUS, NOR IS IT INCORPORATED BY
REFERENCE HEREIN.
INVESTMENT OBJECTIVE AND POLICIES; DIVIDENDS AND DISTRIBUTIONS
The Trust's investment objective is to distribute to the holders of TrUEPrS
(a) prior to an Exchange Date, the interest the Trust receives on the Debt
Securities from time to time, PRO RATA based on the number of TrUEPrS
outstanding and (b) upon the occurrence of an Exchange Event, (i) if the
Exchange Event is anything other than a redemption, Buy-Back or Capital
Reduction of the NAB Preference Shares for cash, ADRs evidencing, for each
TrUEPrS, one ADS, and (ii) if the Exchange Event is a redemption, Buy-Back or
Capital Reduction of the NAB Preference Shares for cash, US$25 per TrUEPrS plus
an amount equal to the accrued but unpaid interest on each US$25 principal
amount of the Debt Securities from and including the Interest Payment Date
immediately preceding the Exchange Date to but excluding such Exchange Date. See
"Investment Objective and Policies."
Except as described herein, holders of TrUEPrS will receive non-cumulative
dividend distributions in an amount equal to US$2.00 per TrUEPrS per annum,
payable quarterly in arrears in an amount equal to US$.50 per TrUEPrS on each
Dividend Payment Date to holders of record on the immediately preceding Record
Date. The first distribution in respect of the period from and including the
Issue Date to but excluding December 31, 1998 will equal US$.5055 per TrUEPrS.
See "Investment Objective and Policies-- Trust Assets."
Dividend payments on the TrUEPrS will be made from the interest payments
received by the Trust on the Debt Securities. Interest payments on the Debt
Securities will be made from income payments (the "Income Entitlements")
received by the U.K. Company, to the extent received, as the income beneficiary
of the Distribution Trust. The U.K. Company's right to receive Income
Entitlements will not represent an absolute ownership interest in the
Distribution Trust or the income thereof, but rather an entitlement to receive
Income Entitlements only to the extent actually distributed to the U.K. Company
by the Distribution Trust; if any Income Entitlement payable on any Interest
Payment Date is not paid to the U.K. Company on such date for any reason, the
Distribution Trust will have no obligation to pay such Income Entitlement to the
U.K. Company and the U.K. Company will have no right to require such payment. In
5
<PAGE>
the event an Income Entitlement is not paid to the U.K. Company for any reason,
an Exchange Event will occur because the U.K. Company will have insufficient
funds to pay interest due on the Debt Securities.
On and after an Exchange Date, the U.K. Company will cease to be the income
beneficiary of the Distribution Trust; PROVIDED, HOWEVER, if the Exchange Event
is the redemption, Buy-Back or Capital Reduction of the NAB Preference Shares
for cash, the U.K. Company will be entitled to receive an Income Entitlement
equal to the accrued but unpaid interest on the Debt Securities for the period
from and including the Interest Payment Date immediately preceding the Exchange
Date to but excluding the Exchange Date.
Under the terms of the Distribution Trust, other than in connection with a
redemption, Buy-Back or Capital Reduction of the NAB Preference Shares for cash,
no Income Entitlement shall be paid or payable to the U.K. Company on any
Interest Payment Date if (i) an Exchange Event has occurred prior to such date,
(ii) the amount of Income Entitlement payable on such date, together with the
aggregate amount of dividends paid on or before such date during the then
current fiscal year of NAB on any preference shares or ordinary shares of NAB,
would exceed NAB's earnings during the prior fiscal year or (iii) such payment
would be prohibited or limited by applicable law, regulation or order or by any
instrument or agreement to which NAB is subject (collectively, the "Payment
Prohibitions").
On each Interest Payment Date, (i) the NAB Borrower will make an interest
payment on the NAB Loan to the USLLC; (ii) the USLLC will use such payment to
make an interest payment on the Distribution Loan to the Distribution Trust;
(iii) if no Payment Prohibition exists, the Distribution Trust will distribute
such payment as an Income Entitlement to the U.K. Company; and (iv) the U.K.
Company will use the entire proceeds of such Income Entitlement to pay (a)
interest on the Debt Securities to the Trust, (b) ongoing costs and expenses of
the U.K. Company and the Jersey Subsidiary, (c) quarterly dividend payments on
the U.K. Company's voting shares to the Jersey Holding Company (as defined
herein), which dividends will be used by the Jersey Holding Company to pay
ongoing expenses of the Jersey Holding Company, the Jersey Charitable Trust, the
Collateral Agent and (pursuant to an expense agreement (the "Trust Expense
Agreement") between the Jersey Holding Company and The Bank of New York, in its
capacities as Administrator, Custodian and Paying Agent of the Trust) the Trust,
and (d) an indemnity fee payable to National Australia Group Europe Limited, an
affiliate of NAB (the "NAB Affiliate"). On each Interest Payment Date (which
will also be a Dividend Payment Date), The Bank of New York, as Administrator,
will use all the interest received by the Trust on the Debt Securities to pay
dividend distributions on the TrUEPrS.
TRUST ASSETS
Prior to the Exchange Date, the Trust's assets will consist of (a)
US$400,100,000 aggregate principal amount of Debt Securities (US$460,000,000
aggregate principal amount of Debt Securities if the Underwriters'
over-allotment option is exercised in full), and any distributions thereon, and
(b) the ADSs Purchase Contract. See "Investment Objective and Policies--Trust
Assets."
EXCHANGE EVENT
The earliest occurrence of any of the following dates or events shall
constitute an "Exchange Event" as of the "Exchange Date" applicable to such
Exchange Event as specified below:
(i) December 31, 2047 or the date of any redemption, Buy-Back or Capital
Reduction of the NAB Preference Shares for cash (see "Investment Objective
and Policies--Exchange Event"), in which case the Exchange Date will be the
earlier of such dates;
(ii) any date selected by NAB in its absolute discretion, in which case
the Exchange Date will be such date;
(iii) the failure of the Trust to receive for any reason on or within
three Business Days after an Interest Payment Date the interest then due on
the Debt Securities in full without deduction or
6
<PAGE>
withholding for any taxes, duties or other charges, in which case the
Exchange Date will be the fourth Business Day following such Interest
Payment Date;
(iv) the Total Capital Adequacy Ratio or the Tier 1 Capital Ratio of NAB
(either as reported quarterly by NAB to the Australian Prudential Regulation
Authority or any authority succeeding to its powers and functions (the
"Regulatory Authority"), or as determined at any time by the Regulatory
Authority in its absolute discretion) is below 8% or 4%, respectively (or,
in each case, such lesser percentage (the "Required Percentage"), as may be
prescribed by the Regulatory Authority for NAB at the time), and such ratio
is not increased by NAB to at least 8% or 4%, respectively (or such lesser
Required Percentage), within 90 days after the date on which NAB makes such
quarterly report or receives notice from the Regulatory Authority of such
determination by such Regulatory Authority, in which case the Exchange Date
will be the Business Day immediately following the expiration of such 90-day
period;
(v) any change in (A) the legal ownership of the securities (other than
the Debt Securities) issued by, (B) any provision of the constituent
documents of (unless such change has been consented to by the record holders
of more than 50% of the TrUEPrS or, in the opinion of competent legal
counsel selected by the Trust, such change would not have a material adverse
effect on the rights of the holders of the TrUEPrS), or (C) the business
purpose (or, solely with respect to the Jersey Charitable Trust, the powers
of the trustees thereof) (as specified in the constituent documents) of, any
of the U.K. Company, the Jersey Holding Company, the Jersey Charitable Trust
or the Jersey Subsidiary, in which case the Exchange Date will be the date
on which any such change occurs;
(vi) any change in the business purpose of the Distribution Trust (as
specified in the constituent documents thereof), in which case the Exchange
Date will be the date on which any such change occurs;
(vii) the common securities of the Distribution Trust cease to be
wholly-owned, directly or indirectly, by NAB or a direct or indirect
wholly-owned subsidiary or branch of NAB, in which case the Exchange Date
will be the date on which the common securities of the Distribution Trust
cease to be so wholly-owned;
(viii) the USLLC ceases to be a direct or indirect wholly-owned subsidiary
or branch of NAB, in which case the Exchange Date will be the date on which
the USLLC ceases to be so wholly-owned;
(ix) any NAB Borrower ceases to be NAB or a direct or indirect,
wholly-owned subsidiary or branch of NAB, in which case the Exchange Date
will be the date on which such NAB Borrower ceases to be NAB or a direct or
indirect wholly-owned subsidiary or branch of NAB;
(x) (A) a proceeding is commenced by NAB, the U.K. Company, the Jersey
Holding Company, the Jersey Charitable Trust, the Jersey Subsidiary, the
USLLC, the Distribution Trust or any NAB Borrower (each, a "Relevant
Entity") or a person that controls the Relevant Entity for an order that
such Relevant Entity be wound up or liquidated or for the appointment of a
provisional liquidator, liquidator, administrator, controller or similar
official in respect of such Relevant Entity or all or substantially all of
its property, in which case the Exchange Date will be the date on which the
proceeding is filed; (B) a proceeding is commenced by any other person for
an order that a Relevant Entity be wound up or for the appointment of a
provisional liquidator, liquidator, administrator, controller or similar
official in respect of a Relevant Entity or all or substantially all of its
property (unless such proceeding is discontinued or dismissed within 21 days
of its having been filed), in which case the Exchange Date will be the
Business Day immediately following the expiration of such 21-day period; (C)
a provisional liquidator, liquidator, administrator, controller or similar
official is appointed by a court or otherwise in respect of any Relevant
Entity or all or substantially all of its property (unless such appointment
is revoked or set aside within 21 days of such appointment), in which case
the Exchange Date will be the Business Day immediately following the
expiration of such 21-day period; or (D) the Trust dissolves in accordance
with the terms of the Declaration of Trust (as
7
<PAGE>
defined herein) or for any other reason, in which case the Exchange Date
will be the Business Day immediately preceding the effective date of such
dissolution; and
(xi) the Collateral Agent fails, at any time, to have a valid first,
perfected and enforceable security interest in, and lien on, the Jersey
Preference Shares and the ADRs evidencing the ADSs representing the NAB
Preference Shares, and, in each case, any redemption proceeds from any of
the foregoing, and such failure is not remedied on or before ten Business
Days after written notice of such failure is given to the U.K. Company or
the Jersey Subsidiary, as the case may be, by the Collateral Agent as
contemplated by the Security and Pledge Agreements, in which case the
Exchange Date will be the Business Day immediately following the expiration
of such ten-Business Day period.
Notwithstanding the foregoing, (i) the USLLC or the NAB Borrower may, with the
consent of the Distribution Trust or the USLLC, respectively, assign all or any
portion of the Distribution Loan or its NAB Loan, respectively, and (ii) the
Distribution Trust or the USLLC may replace all or any portion of the
Distribution Loan or any NAB Loan, respectively, with another loan, in each case
under (i) and (ii), to NAB or to one or more direct or indirect wholly-owned
subsidiaries or branches of NAB, in which case NAB or such other subsidiary or
branch will take the place of the USLLC or such NAB Borrower, as applicable, and
such loan will be deemed to be the Distribution Loan or such NAB Loan, as
applicable, and each such action will not constitute an Exchange Event.
Upon the occurrence of an Exchange Event, each holder of a TrUEPrS will be
entitled to receive a distribution of either (i) if the Exchange Event is
anything other than a redemption, Buy-Back or Capital Reduction of the NAB
Preference Shares for cash, one ADS per TrUEPrS or (ii) if the Exchange Event is
a redemption, Buy-Back or Capital Reduction of the NAB Preference Shares for
cash, US$25 per TrUEPrS plus an amount equal to the accrued but unpaid interest
on each US$25 principal amount of the Debt Securities from and including the
Interest Payment Date immediately preceding the Exchange Date to but excluding
such Exchange Date. In the case of any such distribution of ADSs, the holders of
TrUEPrS shall become the record holders of the ADSs as of the opening of
business on the Exchange Date, and ADRs evidencing such ADSs will be delivered
to such holders as soon as practicable on or after the Exchange Date.
Dividend distributions on the TrUEPrS will cease to accrue on and after the
Exchange Date. In the case of any Exchange Event other than a redemption,
Buy-Back or Capital Reduction of the NAB Preference Shares for cash, no dividend
distributions will be payable on the TrUEPrS on the Exchange Date (even if such
Exchange Date is a Dividend Payment Date). Instead, non-cumulative dividends
will begin to accrue on the NAB Preference Shares from and including the last
Interest Payment Date prior to an Exchange Date. Accordingly, the dividends for
any quarterly dividend period ending on or after the Exchange Date will be
payable as dividends on the NAB Preference Shares and in accordance with the
terms of the NAB Preference Shares.
TERM OF THE TRUST
The Trust will dissolve as soon as practicable after the exchange of the
TrUEPrS for ADSs or cash, as the case may be, upon the occurrence of an Exchange
Event. See "Investment Objective and Policies-- Trust Dissolution" and "Risk
Factors--Limited Term."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
UNITED STATES
The Trust will be classified as a grantor trust for United States Federal
income tax purposes and the Debt Securities held by the Trust will be treated as
equity in NAB. Accordingly, each holder will be treated for United States
Federal income tax purposes as owning equity of NAB and will be required to
include in income, as dividends, the holder's PRO RATA share of the gross amount
of the interest paid on the Debt Securities to the extent of the current and
accumulated earnings and profits (as determined for United States Federal income
tax purposes) of NAB.
8
<PAGE>
A holder's exchange of TrUEPrS for ADSs upon the occurrence of an Exchange
Event generally will not constitute a taxable event for United States Federal
income tax purposes. However, the receipt of cash upon exchange of the TrUEPrS
in connection with the redemption, Buy-Back or Capital Reduction of the NAB
Preference Shares for cash would constitute a taxable event for United States
Federal income tax purposes, and a holder of TrUEPrS generally would be required
to recognize gain or loss in respect of TrUEPrS exchanged for cash. See
"Taxation--Certain United States Federal Income Tax Considerations."
AUSTRALIA
The Trust will not be treated as a resident of Australia for Australian
income tax purposes. As it is not in receipt of Australian source income it will
not be subject to Australian tax on income earned. Therefore, quarterly
distributions by the Trust to non-Australian resident holders of TrUEPrS will
not be subject to Australian tax whether by withholding or otherwise.
There should be no Australian tax consequences to the Trust of the delivery
of the ADSs to holders of TrUEPrS upon the occurrence of an Exchange Event. The
sale of TrUEPrS or the NAB Preference Shares represented by the ADSs may
generate assessable income to certain U.S. holders. The sale of TrUEPrS or ADSs
by a U.S. holder may be subject to Australian capital gains tax where a U.S.
holder is a non-Australian resident but the U.S. holder and the U.S. holder's
associates together beneficially hold or at any time during the five years
preceding such sale held shares or interest in shares representing 10% or more
in value of the issued capital of an Australian listed company, such as NAB.
Subject to certain conditions, the terms of the NAB Preference Shares
provide for holders to be grossed-up for Australian withholding tax on payments
made on the NAB Preference Shares being dividends or amounts deemed to be
dividends for Australian tax purposes. See "Taxation--Certain Australian Tax
Considerations."
MANAGEMENT ARRANGEMENTS
The Trust will be internally managed and will not have an investment
adviser. Prior to the Exchange Date, the Trust's portfolio will consist only of
(a) US$400,100,000 aggregate principal amount of Debt Securities (US$460,000,000
principal amount of Debt Securities if the Underwriters' over-allotment option
is exercised in full), and any distributions thereon and (b) the ADSs Purchase
Contract. The Trust's portfolio will not be actively managed. The activities of
the Trust will be limited so as to ensure that the Trust will qualify as a
grantor trust for United States Federal income tax purposes. The administration
of the Trust will be overseen by the trustees (the "Trustees") thereof. The
day-to-day administration of the Trust will be carried out by The Bank of New
York (or its successor), as the Administrator. The Bank of New York (or its
successor) will also act as custodian (the "Custodian") for the Trust's assets
and as paying agent, transfer agent and registrar (the "Paying Agent") with
respect to the TrUEPrS. Except as aforesaid, and except for The Bank of New
York's role as Collateral Agent and securities intermediary under the Security
and Pledge Agreements, as paying and transfer agent for the Debt Securities and
the NAB Preference Shares and as depositary for the ADRs, The Bank of New York
will have no other affiliation with, and will not be engaged in any other
transaction with, the Trust. For their services, the fees of the Administrator,
the Custodian, the Trustees and the Paying Agent will be paid by the Jersey
Holding Company pursuant to the Trust Expense Agreement. See "Management
Arrangements."
RISK FACTORS
The Trust has adopted a fundamental policy (a) to invest 100% of its
portfolio in the Debt Securities, and the distributions thereon, and not to
dispose of the Debt Securities during the term of the Trust other than in
connection with a mandatory redemption thereof as a result of an Exchange Event,
and (b) to enter into the ADSs Purchase Contract and not to dispose of the ADSs
Purchase Contract during the term of the Trust. The Trust will not be managed
like a typical closed-end investment company.
9
<PAGE>
The Trust is classified as a "non-diversified" investment company under the
Investment Company Act. Consequently, the Trust is not limited by the Investment
Company Act in the proportion of its assets that may be invested in the
securities of a single issuer. Since the only securities held by the Trust prior
to the Exchange Date will be the Debt Securities, the Trust may be subject to
greater risk than would be the case for an investment company with more
diversified investments.
The TrUEPrS have no trading history and it is not possible to predict how
they will trade in the secondary market. The Underwriters currently intend, but
are not obligated, to make a market in the TrUEPrS. There can be no assurance
that a secondary market will develop or, if a secondary market does develop,
that it will provide the holders of the TrUEPrS with liquidity of investment or
that it will continue for the life of the TrUEPrS.
The Trust is a newly organized closed-end investment company with no
previous operating history. Shares of closed-end investment companies frequently
trade at a discount from their net asset value, which is a risk separate and
distinct from the risk that the Trust's net asset value will decrease. The risk
of loss associated with this characteristic of closed-end investment companies
may be greater for investors expecting to sell shares of a closed-end investment
company soon after the completion of an initial public offering.
Except as described below, holders of the TrUEPrS will not be entitled to
any rights with respect to the NAB Preference Shares (including, without
limitation, rights to receive any dividends or other distributions in respect
thereof) until such time, if any, as the Trust shall have delivered ADSs
representing the NAB Preference Shares in exchange for TrUEPrS upon the
occurrence of an Exchange Event (other than the redemption, Buy-Back or Capital
Reduction of the NAB Preference Shares for cash). Pursuant to the ADRs Security
and Pledge Agreement and the ADR deposit agreement, each TrUEPrS will entitle
the holder thereof to direct the exercise of the voting rights attaching to one
ADS and the two NAB Preference Shares represented thereby. The holders of NAB
Preference Shares will be entitled to vote together with the holders of ordinary
shares of NAB (to the extent such holders are entitled to vote) on the basis of
one vote per NAB Preference Share on any poll (a) in all cases with respect to
certain matters specified herein and (b) during a Special Voting Period (as
defined herein), with respect to all matters on which the holders of the
ordinary shares of NAB are entitled to vote. A "Special Voting Period" is the
period from and including (i) any Dividend Payment Date on which NAB fails to
pay in full the dividends accrued in respect of the quarterly dividend period
then ended or (ii) the fourth Business Day after the Exchange Date occurring as
a result of any failure by the Trust to receive in full the interest payable on
the Debt Securities unless, prior to such date, NAB has paid in full an optional
dividend on the NAB Preference Shares in an aggregate amount equal to the amount
of interest not so received (an "Optional Dividend"), in each case to but
excluding the first Dividend Payment Date thereafter as of which NAB has paid in
full four consecutive quarterly dividends on the NAB Preference Shares. In
addition, the holders of the NAB Preference Shares will have the right to vote
separately as a class in certain circumstances involving a variation of the
rights of holders of the NAB Preference Shares. Pursuant to the ADRs Security
and Pledge Agreement, so long as the ADRs are owned by the Jersey Subsidiary,
the Jersey Subsidiary will, or will cause the Collateral Agent to, direct the
ADR depositary to vote the NAB Preference Shares represented by the ADSs as
directed by the holders of TrUEPrS. See "Risk Factors."
LISTING
The TrUEPrS have been approved for listing on the New York Stock Exchange
(the "NYSE") under the trading symbol "NAR Pr", subject to official notice of
issuance. Trading of the TrUEPrS on the NYSE is expected to commence within a
30-day period after the initial delivery of the TrUEPrS. See "Underwriting."
10
<PAGE>
FEE TABLE
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load (as a percentage of offering price)................... 0%(a)
Automatic Dividend Reinvestment Plan Fees................................ Not Applicable
ANNUAL EXPENSES (as a percentage of net assets)
Management Fees(b)....................................................... 0%
Other Expenses(c)........................................................ 0%
--------------------
TOTAL ANNUAL EXPENSES(C)................................................. 0%
--------------------
--------------------
<CAPTION>
1 year 3 years
--------- ---------
<S> <C> <C>
Example
- ---------------------------------------------------------------------------
An investor would pay the following expenses on a $1,000 investment, $0 $0
including the maximum sales load of $0 and assuming (1) no annual
expenses and (2) a 5% annual return throughout the periods...............
</TABLE>
- ------------------------
(a) There is no sales load because, in view of the fact that the proceeds of the
sale of the TrUEPrS will ultimately be invested in the NAB Preference
Shares, NAB has agreed to pay a portion of the Underwriters' Compensation.
The Trust will pay the remainder of such compensation (approximately
$4,000,000, or $4,599,000 if the Underwriters' over-allotment option is
exercised in full) out of the facility fee to be paid on the Issue Date to
the Trust by the U.K. Company in connection with the investment by the Trust
in the Debt Securities. See the cover page of this Prospectus and
"Underwriting."
(b) See "Management Arrangements." The Trust will be internally managed;
consequently there will be no separate investment advisory fee paid by the
Trust. The Bank of New York will act as the Administrator of the Trust.
(c) The organization costs of the Trust in the amount of $32,000 and the costs
associated with the initial registration and the Offerings, estimated to be
approximately $600,000, will be paid by the Trust out of the facility fee to
be paid on the Issue Date to the Trust by the U.K. Company in connection
with the investment by the Trust in the Debt Securities. The ongoing
administrative and other expenses of the Trust will be paid by the Jersey
Holding Company pursuant to the Trust Expense Agreement. Subject to the
satisfaction of certain conditions, operating expenses of the Trust not paid
by the Jersey Holding Company under the Trust Expense Agreement will be paid
by the NAB Affiliate if covered by the terms of an expense and indemnity
agreement among the Trust, the U.K. Company, the Jersey Holding Company, the
Jersey Subsidiary and the Jersey Charitable Trust. See "Management
Arrangements--Estimated Expenses." Absent such arrangements, the Trust's
"Other Expenses" and "Total Annual Expenses" are estimated initially to be
$310,000 in the aggregate or 0.078% of the Trust's net assets.
The foregoing Fee Table is intended to assist investors in understanding the
costs and expenses that a holder of TrUEPrS will bear directly or indirectly.
The Example set forth above utilizes a 5% annual rate of return as mandated by
Securities and Exchange Commission regulations. THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF FUTURE EXPENSES OR ANNUAL RATES OF RETURN, AND
ACTUAL EXPENSES OR ANNUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED
FOR PURPOSES OF THE EXAMPLE.
11
<PAGE>
STRUCTURAL DIAGRAM
[DIAGRAM ILLUSTRATING PARTIES, OWNERSHIP
AND PAYMENT AND INVESTMENT DIRECTION]
12
<PAGE>
THE TRUST
NAB Exchangeable Preferred Trust (the "Trust") is a newly-created Delaware
business trust and will be registered as a closed-end management investment
company under the U.S. Investment Company Act of 1940, as amended (the
"Investment Company Act"). The Trust was formed on July 28, 1998 pursuant to a
Certificate of Trust as filed with the Secretary of State of the State of
Delaware on July 29, 1998 and as restated and filed on September 10, 1998 and a
Trust Agreement dated as of such date, which was amended and restated (as
amended and restated, the "Declaration of Trust"). The term of the Trust will
expire as soon as possible after the exchange of the Trust Units Exchangeable
for Preference Shares-SM- ("TrUEPrS") for ADSs or cash, as the case may be, upon
the occurrence of an Exchange Event. The Trust will be treated as a grantor
trust for United States Federal income tax purposes. The Trust's principal
office is located at 850 Library Avenue, Suite 204, Newark, Delaware 19715, and
its telephone number is (302) 738-6680.
USE OF PROCEEDS AND COLLATERAL ARRANGEMENTS
The proceeds of the Offering (without giving effect to the expenses of the
Offering payable by the Trust) and the 4,000 TrUEPrS (the "Initial TrUEPrS")
issued by the Trust to ML IBK Positions, Inc., will be US$400,100,000 (or
US$460,000,000 if the Underwriters' over-allotment option is exercised in full).
On the Issue Date (as defined herein), the proceeds of the Offering and the
proceeds from the sale of the Initial TrUEPrS will be used to purchase
US$400,100,000 aggregate principal amount (or US$460,000,000 aggregate principal
amount if the Underwriters' over-allotment option is exercised in full) of 8%
Mandatorily Redeemable Debt Securities due December 31, 2047 (the "Debt
Securities") from Cuzzano (UK) Company, a special purpose unlimited company
incorporated under the laws of England and Wales and domiciled in the United
Kingdom (the "U.K. Company"). The Trust, as the holder of the Debt Securities,
will be entitled to receive interest thereon at the rate per annum of 8%,
payable quarterly in arrears on each Dividend Payment Date (each, an "Interest
Payment Date"). The Debt Securities will be listed on the Luxembourg Stock
Exchange and, unless redeemed on an earlier Exchange Date (as defined herein),
will be redeemed on December 31, 2047. The Debt Securities will be issued only
in bearer form and will be denominated and pay interest in U.S. dollars. See
"Investment Objective and Policies--Trust Assets."
The following transactions will take place on the Issue Date. Reference is
made to page 12 for a diagram of the transactions.
The U.K. Company will use the proceeds from the sale of the Debt Securities
to purchase at a price equal to their liquidation preference fully paid,
non-dividend paying preference shares, liquidation preference US$25 per share
(the "Jersey Preference Shares"), issued by Cuzzano (Investments) Limited, a
company incorporated with limited liability under the laws of, and domiciled in,
Jersey, the Channel Islands (the "Jersey Subsidiary"). The Jersey Subsidiary
will use the proceeds from the sale of the Jersey Preference Shares to make a
payment to National Australia Bank Limited (A.C.N. 004 044 937) ("NAB") in
consideration for the issuance by NAB to the ADR depositary of fully-paid
preference shares, liquidation preference US$12.50 per share (the "NAB
Preference Shares"), of NAB and the issuance by the ADR depositary to the Jersey
Subsidiary of American Depositary Shares ("ADSs"), each representing two NAB
Preference Shares at a price per NAB Preference Share of US$12.50 (their
liquidation preference) or US$25 per ADS. No dividends will accrue or be paid on
the NAB Preference Shares represented by the ADSs unless an Exchange Event
(other than a redemption, Buy-Back or Capital Reduction of the NAB Preference
Shares for cash) occurs. On and after such an Exchange Date, non-cumulative
dividends will be payable, if and when declared by the board of directors of NAB
out of profits legally available therefor, in U.S. dollars in an amount equal to
US$1.00 per NAB Preference Share per annum, payable quarterly in arrears in an
amount equal to US$.25 per NAB Preference Share on each Dividend Payment Date
(as defined herein) to holders of record as of the immediately preceding Record
Date (as defined herein).
13
<PAGE>
On the Issue Date, NAB will use the proceeds from the issue of the NAB
Preference Shares to make a capital contribution to a business trust established
under the laws of the State of Delaware (the "Distribution Trust"). The
Distribution Trust will use NAB's capital contribution to make a loan (the
"Distribution Loan") to a Delaware limited liability company that is a
wholly-owned subsidiary of NAB (the "USLLC"). The USLLC will use the proceeds of
the Distribution Loan to make one or more loans (each, a "NAB Loan") to NAB
and/or one or more subsidiaries or branches of NAB (each, a "NAB Borrower").
The American Depositary Receipts ("ADRs") evidencing the ADSs will be
deposited with The Bank of New York, as the collateral agent (the "Collateral
Agent"), pursuant to a security and pledge agreement (the "ADRs Security and
Pledge Agreement") to be entered into among the Trust, the U.K. Company, the
Jersey Subsidiary and the Collateral Agent and governed by New York law.
Pursuant to the terms of the ADRs Security and Pledge Agreement, (i) the Jersey
Subsidiary will irrevocably and unconditionally deposit the ADRs evidencing the
ADSs with the Collateral Agent, (ii) the Jersey Subsidiary will irrevocably and
unconditionally pledge its interest in the ADRs evidencing the ADSs (A) to the
holder of the Jersey Preference Shares (initially the U.K. Company) to secure
its redemption obligations under the Jersey Preference Shares and (B) to the
Trust to secure its obligation to deliver ADSs under the ADSs Purchase Contract,
(iii) the U.K. Company, with the consent of the Jersey Subsidiary, will
irrevocably and unconditionally assign and hypothecate to the Trust its interest
in such pledge to secure its redemption obligations under the Debt Securities
and (iv) the Jersey Subsidiary and the U.K. Company will irrevocably and
unconditionally direct the Collateral Agent, upon the occurrence of an Exchange
Event (other than a redemption, Buy-Back or Capital Reduction of the NAB
Preference Shares for cash), to transfer the ADRs to the Trust. Pursuant to a
separate security and pledge agreement (the "Jersey Preference Shares Security
and Pledge Agreement" and, together with the ADRs Security and Pledge Agreement,
the "Security and Pledge Agreements") to be entered into among the Trust, the
U.K. Company and the Collateral Agent and governed by Jersey, Channel Islands
law, the U.K. Company will irrevocably and unconditionally deposit the Jersey
Preference Shares with the Collateral Agent and pledge the Jersey Preference
Shares to secure its redemption obligations to the Trust under the Debt
Securities. Prior to the occurrence of an Exchange Event, ownership of the
Jersey Preference Shares and the ADRs will remain with the U.K. Company and the
Jersey Subsidiary, respectively, although pursuant to the ADRs Security and
Pledge Agreement, the Jersey Subsidiary will agree to, or will cause the
Collateral Agent to, direct the ADR depositary to vote the NAB Preference Shares
represented by the ADSs as directed by the holders of the TrUEPrS. Each TrUEPrS
will entitle the holder to direct the exercise of the voting rights attaching to
one ADS and the two NAB Preference Shares represented thereby.
The Trust will also enter into the ADSs Purchase Contract between it and the
Jersey Holding Company (the "ADSs Purchase Contract"), pursuant to which the
Jersey Subsidiary will deliver the ADSs to the Trust for distribution to the
holders of TrUEPrS after the occurrence of an Exchange Event (other than a
redemption, Buy-Back or Capital Reduction of the NAB Preference Shares for cash)
and the redemption of the Debt Securities and the Jersey Preference Shares.
The Debt Securities, the Jersey Preference Shares (if applicable), the ADSs
Purchase Contract, and, if applicable, the ADSs to be purchased pursuant to the
terms of the ADSs Purchase Contract will be held by the Custodian for the Trust.
14
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
GENERAL
The Trust will invest the proceeds of the Offerings in the Debt Securities
issued by the U.K. Company. The Trust's investment objective is to distribute to
the holders of TrUEPrS (a) prior to an Exchange Event, the interest the Trust
receives on the Debt Securities from time to time, PRO RATA based on the number
of TrUEPrS outstanding and (b) upon the occurrence of an Exchange Event, (i) if
the Exchange Event is anything other than a (x) redemption, (y) mandatory
repurchase (such repurchase referred to as a "Buy-Back") or (z) reduction of a
portion of the capital of each NAB Preference Share immediately followed by
redemption by NAB of the remaining capital thereof on the next Business Day (as
defined herein) following the date of such reduction of capital (such reduction
of capital and subsequent redemption are collectively referred to herein as
"Capital Reduction"), in each case, of the NAB Preference Shares for cash, ADRs
evidencing, for each TrUEPrS, one ADS representing two NAB Preference Shares,
and (ii) if the Exchange Event is a redemption, Buy-Back or Capital Reduction of
the NAB Preference Shares for cash, US$25 per TrUEPrS plus an amount equal to
the accrued but unpaid interest on each US$25 principal amount of the Debt
Securities from and including the Interest Payment Date immediately preceding
the Exchange Date to but excluding such Exchange Date. Upon the occurrence of an
Exchange Event, the NAB Preference Shares will accrue non-cumulative dividends
at the rate of US$1.00 per share per annum, payable quarterly in arrears in an
amount equal to US$.25 per share on each Dividend Payment Date to holders of
record as of the immediately preceding Record Date. Upon the occurrence of an
Exchange Event, the Administrator will notify The Depository Trust Company (the
"Depository") and publish a notice in THE WALL STREET JOURNAL or another daily
newspaper of national circulation stating whether ADSs or cash will be delivered
in exchange for the TrUEPrS.
The Trust has adopted a fundamental policy as required by the Declaration of
Trust (a) to invest 100% of its portfolio in the Debt Securities, and any
distributions thereon, and not to dispose of the Debt Securities during the term
of the Trust except upon the occurrence of an Exchange Event and (b) to enter
into the ADSs Purchase Contract and not to dispose of the ADSs Purchase Contract
during the term of the Trust. The foregoing fundamental policy of the Trust may
not be changed without the vote of 100% of the holders of the TrUEPrS.
TRUST ASSETS
Prior to an Exchange Date, the Trust's assets will consist of (a)
US$400,100,000 aggregate principal amount of Debt Securities (US$460,000,000
aggregate principal amount of Debt Securities if the Underwriters'
over-allotment option is exercised in full), and any distributions thereon, and
(b) the ADSs Purchase Contract.
As described above under "--General," upon the occurrence of an Exchange
Event, each TrUEPrS will be exchanged for either (i) one ADS or (ii) US$25 in
cash plus the accrued dividend distribution thereon for the current quarterly
dividend period. The procedure by which the Trust will obtain the ADSs or cash
to be distributed to the holders of TrUEPrS will vary depending upon the nature
of the Exchange Event and, in the case of an Exchange Event resulting from a
redemption, Buy-Back or Capital Reduction of the NAB Preference Shares for cash,
the value, for purposes of calculating United Kingdom tax on capital gains, of
one U.S. dollar or the equivalent thereof in any successor legal currency of the
United States in terms of British pounds or the equivalent thereof in any
successor legal currency of the United Kingdom (the "Dollar Value") on the
Exchange Date (expressed as L/US$).
In the case of any Exchange Event other than a redemption, Buy-Back or
Capital Reduction of the NAB Preference Shares for cash, the Trust will obtain
the ADSs to be distributed to holders of TrUEPrS as a result of the following
sequence of events: (i) the U.K. Company will redeem the Debt Securities for
cash at their aggregate principal amount, (ii) under the terms of the Debt
Securities, the cash proceeds from the redemption referred to in clause (i)
above will automatically be applied to effect the purchase by the Trust
15
<PAGE>
of the Jersey Preference Shares from the U.K. Company, (iii) the Jersey
Subsidiary will redeem the Jersey Preference Shares for cash at their aggregate
liquidation preference, and (iv) under the terms of the ADSs Purchase Contract,
the cash redemption proceeds of the Jersey Preference Shares will be used by the
Trust to purchase the ADSs from the Jersey Subsidiary.
In the case of an Exchange Event resulting from the redemption, Buy-Back or
Capital Reduction of the NAB Preference Shares for cash, the Trust will obtain
the cash to be distributed to the holders of TrUEPrS as a result of one of the
two sequences described below, depending on the Dollar Value on the Exchange
Date.
If the Dollar Value on the Exchange Date is higher than the Dollar Value on
any date on which the NAB Preference Shares are originally issued (I.E., if the
British pound has depreciated against the U.S. dollar between such dates), then
the sequence of events preceding the distribution of cash to holders of TrUEPrS
will be as follows: (i) the U.K. Company will redeem the Debt Securities for
cash at their aggregate principal amount plus accrued interest from and
including the Interest Payment Date immediately preceding the Exchange Date to
but excluding the Exchange Date, (ii) under the terms of the Debt Securities,
the cash proceeds from the redemption referred to in clause (i) above (excluding
the accrued interest portion thereof) will automatically be applied to effect
the purchase by the Trust of the Jersey Preference Shares from the U.K. Company,
(iii) there will be a redemption, Buy-Back or Capital Reduction of the NAB
Preference Shares for cash in an amount equal to their aggregate liquidation
preference and (iv) the Jersey Subsidiary will use the cash proceeds from the
redemption, Buy-Back or Capital Reduction referred to in clause (iii) above to
redeem the Jersey Preference Shares for cash at their aggregate liquidation
preference.
If the Dollar Value on the Exchange Date is equal to or less than the Dollar
Value on every date on which the NAB Preference Shares are originally issued
(I.E., the British pound has remained the same or appreciated against the U.S.
dollar between such dates), then the sequence of events preceding the
distribution of cash to holders of TrUEPrS will be as follows: (i) there will be
a redemption, Buy-Back or Capital Reduction of the NAB Preference Shares for
cash in an amount equal to their aggregate liquidation preference, (ii) the
Jersey Subsidiary will use the cash proceeds from the redemption, Buy-Back or
Capital Reduction referred to in clause (i) above to redeem the Jersey
Preference Shares for cash at their aggregate liquidation preference, and (iii)
the U.K. Company will use the proceeds from the redemption of the Jersey
Preference Shares referred to in clause (ii) above and the Income Entitlement it
receives on the Exchange Date to redeem the Debt Securities for cash at their
aggregate principal amount plus accrued interest from and including the Interest
Payment Date immediately preceding the Exchange Date to but excluding such
Exchange Date.
Except as described herein, holders of the TrUEPrS will receive
non-cumulative dividend distributions in an amount equal to US$2.00 per TrUEPrS
per annum, payable quarterly in arrears in an amount equal to US$.50 per TrUEPrS
on March 31, June 30, September 30 and December 31 of each year, commencing
December 31, 1998 (each, a "Dividend Payment Date"), to holders of record as of
the immediately preceding March 15, June 15, September 15 and December 15 (each,
a "Record Date"), respectively. The first distribution in respect of the period
from and including September 29, 1998 (the "Issue Date") to but excluding
December 31, 1998 will equal US$.5055 per TrUEPrS. See "Dividends and
Distributions."
In the event that any Dividend Payment Date for the TrUEPrS or Interest
Payment Date for the Debt Securities is not a Business Day, the dividend or
interest payable on such date need not be made on such Dividend Payment Date or
Interest Payment Date, as applicable, but instead may be made on the next
succeeding Business Day with the same force and effect as if made on such
Dividend Payment Date or Interest Payment Date, as the case may be. As used
herein, "Business Day" means each Monday, Tuesday, Wednesday, Thursday or Friday
which is not a day on which banking institutions in Melbourne, Australia, New
York, New York or the city which is the principal place of business of any NAB
Borrower outside
16
<PAGE>
Australia from time to time (initially Wellington, New Zealand) are authorized
or required by law or executive order to close.
NAB
THIS PROSPECTUS RELATES ONLY TO THE TrUEPrS OFFERED HEREBY AND DOES NOT
RELATE TO NAB, THE ADSs OR THE NAB PREFERENCE SHARES. NAB HAS FILED A
REGISTRATION STATEMENT ON FORM F-3 WITH THE SECURITIES AND EXCHANGE COMMISSION
(THE "COMMISSION") WITH RESPECT TO THE NAB PREFERENCE SHARES AND A REGISTRATION
STATEMENT ON FORM F-6 WITH RESPECT TO THE ADSs AND THE NAB PREFERENCE SHARES
THAT MAY BE RECEIVED BY A HOLDER OF TrUEPrS UPON THE OCCURRENCE OF AN EXCHANGE
EVENT. THE PROSPECTUS OF NAB CONSTITUTING A PART OF SUCH REGISTRATION STATEMENT
ON FORM F-6 INCLUDES INFORMATION RELATING TO NAB, THE ADSs AND THE NAB
PREFERENCE SHARES. THE PROSPECTUS OF NAB IS BEING ATTACHED HERETO AND DELIVERED
TO PROSPECTIVE PURCHASERS OF TrUEPrS TOGETHER WITH THIS PROSPECTUS FOR
CONVENIENCE OF REFERENCE ONLY. THE PROSPECTUS OF NAB DOES NOT CONSTITUTE A PART
OF THIS PROSPECTUS, NOR IS IT INCORPORATED BY REFERENCE HEREIN.
EXCHANGE EVENT
The earliest occurrence of any of the following dates or events shall
constitute an "Exchange Event" as of the "Exchange Date" applicable to such
Exchange Event as specified below:
(i) December 31, 2047 or the date of any redemption, Buy-Back or Capital
Reduction of the NAB Preference Shares for cash, in which case the Exchange
Date will be the earlier of such dates;
(ii) any date selected by NAB in its absolute discretion, in which case
the Exchange Date will be such date;
(iii) the failure of the Trust to receive for any reason on or within
three Business Days after an Interest Payment Date the interest then due on
the Debt Securities in full without deduction or withholding for any taxes,
duties or other charges, in which case the Exchange Date will be the fourth
Business Day following such Interest Payment Date;
(iv) the Total Capital Adequacy Ratio or the Tier 1 Capital Ratio of NAB
(either as reported quarterly by NAB to the Australian Prudential Regulation
Authority or any authority succeeding to its powers and functions (the
"Regulatory Authority"), or as determined at any time by the Regulatory
Authority in its absolute discretion) is below 8% or 4%, respectively (or,
in each case, such lesser percentage (the "Required Percentage"), as may be
prescribed by the Regulatory Authority for NAB at the time), and such ratio
is not increased by NAB to at least 8% or 4%, respectively (or such lesser
Required Percentage), within 90 days after the date on which NAB makes such
quarterly report or receives notice from the Regulatory Authority of such
determination by such Regulatory Authority, in which case the Exchange Date
will be the Business Day immediately following the expiration of such 90-day
period;
(v) any change in (A) the legal ownership of the securities (other than
the Debt Securities) issued by, (B) any provision of the constituent
documents of (unless such change has been consented to by the record holders
of more than 50% of the TrUEPrS or, in the opinion of competent legal
counsel selected by the Trust, such change would not have a material adverse
effect on the rights of the holders of the TrUEPrS), or (C) the business
purpose (or, solely with respect to the Jersey Charitable Trust, the powers
of the trustees thereof) (as specified in the constituent documents) of, any
of the U.K. Company, the Jersey Holding Company, the Jersey Charitable Trust
or the Jersey Subsidiary, in which case the Exchange Date will be the date
on which any such change occurs;
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(vi) any change in the business purpose of the Distribution Trust (as
specified in the constituent documents), in which case the Exchange Date
will be the date on which any such change occurs;
(vii) the common securities of the Distribution Trust cease to be
wholly-owned, directly or indirectly, by NAB or a direct or indirect
wholly-owned subsidiary or branch of NAB, in which case the Exchange Date
will be the date on which the common securities of the Distribution Trust
ceases to be so wholly-owned;
(viii) the USLLC ceases to be a direct or indirect wholly-owned subsidiary
or branch of NAB, in which case the Exchange Date will be the date on which
the USLLC ceases to be so wholly-owned;
(ix) any NAB Borrower ceases to be NAB or a direct or indirect
wholly-owned subsidiary or branch of NAB, in which case the Exchange Date
will be the date on which such NAB Borrower ceases to be NAB or a direct or
indirect wholly-owned subsidiary or branch of NAB;
(x) (A) a proceeding is commenced by NAB, the U.K. Company, the Jersey
Holding Company, the Jersey Charitable Trust, the Jersey Subsidiary, the
USLLC, the Distribution Trust or any NAB Borrower (each, a "Relevant
Entity") or a person that controls the Relevant Entity for an order that
such Relevant Entity be dissolved, wound up or liquidated or for the
appointment of a provisional liquidator, liquidator, administrator,
controller or similar official in respect of such Relevant Entity or all or
substantially all of its property, in which case the Exchange Date will be
the date on which the proceeding is filed; (B) a proceeding is commenced by
any other person for an order that a Relevant Entity be wound up or for the
appointment of a provisional liquidator, liquidator, administrator,
controller or similar official in respect of a Relevant Entity or all or
substantially all of its property (unless such proceeding is discontinued or
dismissed within 21 days of its having been filed), in which case the
Exchange Date will be the Business Day immediately following the expiration
of such 21-day period; (C) a provisional liquidator, liquidator,
administrator, controller or similar official is appointed by a court or
otherwise in respect of any Relevant Entity or all or substantially all of
its property (unless such appointment is revoked or set aside within 21 days
of such appointment), in which case the Exchange Date will be the Business
Day immediately following the expiration of such 21-day period; or (D) the
Trust dissolves in accordance with the terms of the Declaration of Trust or
for any other reason, in which case the Exchange Date will be the Business
Day immediately preceding the effective date of such dissolution; and
(xi) the Collateral Agent fails, at any time, to have a valid first,
perfected and enforceable security interest in, and lien on, the Jersey
Preference Shares and the ADRs evidencing the ADSs representing the NAB
Preference Shares, and, in each case, any redemption proceeds from any of
the foregoing, and such failure is not remedied on or before ten Business
Days after written notice of such failure is given to the U.K. Company or
the Jersey Subsidiary, as the case may be, by the Collateral Agent as
contemplated by the Security and Pledge Agreements, in which case the
Exchange Date will be the Business Day immediately following the expiration
of such ten-Business Day period.
Notwithstanding the foregoing, (i) the USLLC or the NAB Borrower may, with the
consent of the Distribution Trust or the USLLC, respectively, assign all or any
portion of the Distribution Loan or its NAB Loan, respectively, and (ii) the
Distribution Trust or the USLLC may replace all or any portion of the
Distribution Loan or any NAB Loan, respectively, with another loan, in each case
under (i) and (ii), to NAB or to one or more directly or indirectly wholly-owned
subsidiaries or branches of NAB, in which case NAB or such other subsidiary or
branch will take the place of the USLLC or such NAB Borrower, as applicable, and
such loan will be deemed to be the Distribution Loan or such NAB Loan, as
applicable, and each such action will not constitute an Exchange Event.
Total Capital Adequacy Ratio means the total capital adequacy prescribed by
the applicable Regulatory Authority in its capital adequacy guidelines for
Australian banks, as modified from time to time. Tier 1 Capital Ratio means the
ratio of Tier 1 capital to risk weighted assets (on a consolidated group basis)
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prescribed by the applicable Regulatory Authority in its capital adequacy
guidelines for Australian banks, as modified from time to time. Tier 1 capital
means capital which is regarded as "tier 1 capital" for the purposes of the
capital adequacy guidelines of the applicable Regulatory Authority.
The redemption, Buy-Back or Capital Reduction component of the Exchange
Event in clause (i) above is a result of the terms of the NAB Preference Shares
which provide that, with the prior written consent of the applicable Regulatory
Authority (if required under the law or guidelines then applicable), NAB may, in
its absolute discretion, redeem, Buy-Back or reduce the capital of the NAB
Preference Shares for cash, in each case, (a) prior to the fifth anniversary of
the Issue Date, in whole, but only upon the occurrence of certain tax,
regulatory and securities registration events and (b) at any time on or after
the fifth anniversary of the Issue Date, in whole or, after an Exchange Date (in
the case of redemption only), in whole or in part.
If the Exchange Event is anything other than a redemption, Buy-Back or
Capital Reduction of the NAB Preference Shares for cash, then the Trust will
distribute to holders of TrUEPrS one ADS per TrUEPrS. If a redemption, Buy-Back
or Capital Reduction of the NAB Preference Shares for cash occurs, then the
Trust will distribute to holders of TrUEPrS cash in the amount of US$25 per
TrUEPrS, plus the accrued dividend distributions thereon for the current
quarterly dividend period. After the occurrence of any such Exchange Event, the
Collateral Agent will deliver the ADRs or the cash, as the case may be, to the
Administrator and the Administrator, on behalf of the Trust, will (i) in the
case of a redemption, Buy-Back or Capital Reduction of the NAB Preference Shares
for cash, distribute the proceeds to the holders of TrUEPrS at the rate of US$25
per TrUEPrS then outstanding together with an amount equal to the accrued but
unpaid interest on each US$25 principal amount of Debt Securities from and
including the Interest Payment Date immediately preceding the Exchange Date to
but excluding the Exchange Date, or (ii) in all other cases, distribute the ADSs
to the holders of TrUEPrS at the rate of one ADS per TrUEPrS then outstanding.
The distribution described in the preceding sentence will be made to holders of
record as of the close of business on the Exchange Date. The holders of the
TrUEPrS will thereafter have no further claims against the Trust and the
Administrator will wind up the Trust.
Dividend distributions on the TrUEPrS will cease to accrue on and after the
Exchange Date. In the case of any Exchange Event other than a redemption,
Buy-Back or Capital Reduction of the NAB Preference Shares for cash, no dividend
distributions will be payable on the TrUEPrS on the Exchange Date (even if such
Exchange Date is a Dividend Payment Date). Instead, non-cumulative dividends
will begin to accrue on the NAB Preference Shares from and including the last
Interest Payment Date in respect of which interest on the Debt Securities has
been paid or provided for in full. Accordingly, the dividends for any quarterly
dividend period ending on or after the Exchange Date will be payable as
dividends on the NAB Preference Shares and in accordance with the terms of the
NAB Preference Shares.
INTERVENING VEHICLES
THE U.K. COMPANY. The U.K. Company is a special purpose unlimited company
incorporated under the laws of England and Wales, and domiciled in the United
Kingdom. The U.K. Company is wholly-owned by a special purpose company
incorporated with limited liability under the laws of, and domiciled in, Jersey,
the Channel Islands (the "Jersey Holding Company"), which holds all of the U.K.
Company's ordinary shares. These ordinary shares will be the only capital stock
of the U.K. Company. The ordinary shares of the Jersey Holding Company will be
the only capital stock of the Jersey Holding Company and are held by a
charitable trust established under the laws of, and domiciled in, Jersey, the
Channel Islands (the "Jersey Charitable Trust").
The U.K. Company was established for the purpose of, among other things,
issuing the Debt Securities to the Trust and investing the proceeds thereof in
the Jersey Preference Shares. The U.K. Company will elect to be treated as a
partnership for United States Federal income tax purposes under U.S. Treasury
Regulations Sections 301.7701-1 through -3.
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The U.K. Company will have at least two directors and an independent
auditor. The Memorandum and Articles of Association of the U.K. Company will
prohibit it from taking any action that would have a material adverse effect on
the rights of the holders of the TrUEPrS. There will be no annual shareholder
meetings. There will be not less than one directors' meeting each year at which
the director(s) will nominate directors, if necessary, and approve the annual
accounts. The U.K. Company will also appoint a paying agent located in The City
of New York to receive Income Entitlements from the Distribution Trust, to make
payments on the Debt Securities to the Trust and to meet the ongoing costs and
expenses of various entities as described below.
THE JERSEY SUBSIDIARY. The Jersey Subsidiary is a special purpose company
incorporated with limited liability under the laws of, and domiciled in, Jersey,
Channel Islands. The Jersey Holding Company and the U.K. Company will own 51%
and 49%, respectively, of the ordinary shares of the Jersey Subsidiary, unless
an Exchange Event occurs (other than an Exchange Event as a result of a
redemption, Buy-Back or Capital Reduction of the NAB Preference Shares for cash
when the Dollar Value on the Exchange Date is equal to or less than the Dollar
Value on any date on which NAB Preference Shares are originally issued), in
which case, the U.K. Company will sell all the ordinary shares it owns in the
Jersey Subsidiary to the Jersey Holding Company immediately prior to the
redemption of the Jersey Preference Shares. The Jersey Subsidiary was
established for the purpose of, among other things, issuing the Jersey
Preference Shares to the U.K. Company and investing the proceeds thereof in the
ADSs. The Jersey Subsidiary will elect to be treated as a partnership for United
States Federal income tax purposes under U.S. Treasury Regulations Sections
301.7701-1 through -3.
The Jersey Subsidiary will be managed by a Board of Directors and have an
independent auditor. The Memorandum and the Articles of Association of the
Jersey Subsidiary will prohibit the Board of Directors from taking any action
that would have a material adverse effect on the rights of the holders of the
TrUEPrS. There will be no annual shareholder meetings. There will be one
directors' meeting each year at which the director(s) will nominate directors,
if necessary, and approve the annual accounts.
THE DISTRIBUTION TRUST. The Distribution Trust is a business trust
established under the laws of the State of Delaware. The Distribution Trust will
operate in accordance with the distribution trust agreement that establishes its
terms; the U.K. Company will have no right to cause any variation of such terms.
The Distribution Trust will elect to be disregarded as an entity that is
separate from its owner (I.E., the holder of the common securities of the
Distribution Trust) for United States Federal income tax purposes under U.S.
Treasury Regulations Sections 301.7701-1 through -3.
The administration of the Distribution Trust will be overseen by the
trustees thereof.
On the Issue Date, NAB will use the proceeds from the issuance of the NAB
Preference Shares to make a capital contribution of US$400,100,000 (or
US$460,000,000 if the Underwriters exercise their over-allotment options in
full) to the Distribution Trust and the Distribution Trust will use the capital
contribution to make the Distribution Loan to the USLLC. The Distribution Loan
will mature five years after the maturity date of the Debt Securities on
December 31, 2052. The Distribution Loan will be the only asset, and interest
thereon will be the only source of revenue, of the Distribution Trust. Interest
on the Distribution Loan will accrue from the date on which such loan is made
and be due and payable on each Interest Payment Date at the rate of 8.25% per
annum. The interest paid on the Distribution Loan will be used by the
Distribution Trust to pay the Income Entitlements to the U.K. Company. The
interest rate represents the sum of 8% (the interest rate on the Debt
Securities, which equals the dividend rate on the TrUEPrS) and a spread of
0.25%. The spread is designed to enable the U.K. Company to pay (a) its ongoing
costs and expenses and those of the Jersey Subsidiary, (b) dividends to the
Jersey Holding Company in an amount sufficient to enable it to pay its expenses
and those of the Jersey Charitable Trust, the Collateral Agent and (pursuant to
the Trust Expense Agreement (as defined herein)) the Trust and (c) the indemnity
fee payable to National Australia Group Europe Limited, an affiliate of NAB (the
"NAB Affiliate").
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On and after an Exchange Date, the U.K. Company will cease to be the income
beneficiary of the Distribution Trust; PROVIDED, HOWEVER, if the Exchange Event
is the redemption, Buy-Back or Capital Reduction of the NAB Preference Shares
for cash, the U.K. Company will be entitled to receive an Income Entitlement
equal to the accrued but unpaid interest on the Debt Securities for the period
from and including the Interest Payment Date immediately preceding the Exchange
Date to but excluding the Exchange Date. In the event an Income Entitlement is
not paid to the U.K. Company for any reason, an Exchange Event will occur
because the U.K. Company will have insufficient funds to pay interest due on the
Debt Securities.
THE USLLC. The USLLC will initially be a Delaware limited liability company
that is a wholly-owned subsidiary of NAB. The USLLC will elect to be disregarded
as an entity that is separate from its owner (I.E., NAB) for United States
Federal income tax purposes under U.S. Treasury Regulations Sections 301.7701-1
through -3. The USLLC will be managed by a Board of Directors pursuant to a
limited liability company agreement. NAB will have the right to appoint, remove
or replace any director and to increase or decrease the number of directors
provided that the number of directors shall be at least two. After the Issue
Date, the USLLC may be NAB or another wholly-owned subsidiary or branch of NAB
(each such entity, the "USLLC").
Upon receiving the proceeds of the Distribution Loan, the USLLC will make a
NAB Loan to each NAB Borrower. The NAB Loans will be the only assets, and
interest thereon will be the only source of revenue, of the USLLC. Each NAB Loan
will be perpetual or mature five years after the maturity date of the Debt
Securities on December 31, 2052. Interest on each NAB Loan will accrue from date
on which such loan is made and be due and payable on each Interest Payment Date
at a per annum rate sufficient to enable the USLLC to pay any interest due on
the Distribution Loan on such date, grossed up to provide for any deduction or
withholding for any taxes, duties or other charges.
Under the terms of the Distribution Trust, other than in connection with a
redemption, Buy-Back or Capital Reduction of the NAB Preference Shares for cash,
no Income Entitlement shall be paid or payable to the U.K. Company on any
Interest Payment Date if (i) an Exchange Event has occurred prior to such
Interest Payment Date, (ii) the amount of Income Entitlement payable on such
date, together with the aggregate amount of dividends paid on or before such
date during the then current fiscal year of NAB on any preference shares or
ordinary shares of NAB, would exceed NAB's earnings during the prior fiscal year
or (iii) such payment would be prohibited or limited by applicable law,
regulation or order or by any instrument or agreement to which NAB is subject
(collectively, the "Payment Prohibitions"). In the event a Payment Prohibition
exists or will exist on any Interest Payment Date, NAB will notify the
Administrator no later than the third Business Day prior to such date.
On each Interest Payment Date, (i) the NAB Borrower will make an interest
payment on the related NAB Loan to the USLLC; (ii) the USLLC will use such
payment to make an interest payment on the Distribution Loan to the Distribution
Trust; (iii) if no Payment Prohibition exists, the Distribution Trust will
distribute such payment as an Income Entitlement to the U.K. Company; and (iv)
the U.K. Company will use the entire proceeds of such Income Entitlement to pay
(a) interest on the Debt Securities to the Trust, (b) ongoing costs and expenses
of the U.K. Company and the Jersey Subsidiary, (c) quarterly dividend payments
on the U.K. Company's voting shares to the Jersey Holding Company which will be
used to pay ongoing expenses of the Jersey Holding Company, the Jersey
Charitable Trust, the Collateral Agent and (pursuant to an expense agreement
between the Jersey Holding Company and the Trust (the "Trust Expense
Agreement")) the Trust and (d) an indemnity fee to the NAB Affiliate. On such
Interest Payment Date (which will also be a Dividend Payment Date), The Bank of
New York, as Administrator, will use all the interest received by the Trust on
the Debt Securities to pay dividends on the TrUEPrS.
TRUST DISSOLUTION
The Trust will dissolve as soon as possible after the exchange of the
TrUEPrS for ADSs or cash, as the case may be, upon the occurrence of an Exchange
Event.
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INVESTMENT RESTRICTIONS
The Trust has adopted a fundamental policy that the Trust may not purchase
any securities or instruments other than (a) the Debt Securities, (b) the Jersey
Preference Shares, if applicable, and (c) if applicable, the ADSs to be
purchased pursuant to the ADSs Purchase Contract; issue any securities or
instruments except for the TrUEPrS; make short sales or purchase securities on
margin; write put or call options; borrow money; underwrite securities; purchase
or sell real estate, commodities or commodities contracts; or make loans. The
Trust has adopted a fundamental policy (a) to invest 100% of its portfolio in
Debt Securities and any distributions thereon, and not to dispose of the Debt
Securities during the term of the Trust, other than in connection with a
mandatory redemption thereof as a result of an Exchange Event, and (b) to enter
into the ADSs Purchase Contract and not to dispose of the ADSs Purchase Contract
during the term of the Trust.
Because of the foregoing limitations, the Trust's investments will be
concentrated initially in the financial services industry, which is the industry
in which NAB currently operates. However, to the extent that in the future NAB
diversifies its operations into one or more other industries, the Trust's
investments will be less concentrated in the financial services industry.
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RISK FACTORS
NO ACTIVE PORTFOLIO MANAGEMENT
It is a fundamental policy of the Trust (a) to invest 100% of its portfolio
in the Debt Securities and any distributions thereon, and not to dispose of the
Debt Securities during the term of the Trust, other than in connection with a
mandatory redemption thereof as a result of an Exchange Event and (b) to enter
into the ADSs Purchase Contract and not to dispose of the ADSs Purchase Contract
during the term of the Trust. The Trust will not be managed like a typical
closed-end investment company.
ABSENCE OF TRADING HISTORY; MARKETABILITY; POSSIBILITY OF THE TRUEPRS TRADING AT
A DISCOUNT FROM NET ASSET VALUE
The TrUEPrS have no trading history and it is not possible to predict how
they will trade in the secondary market. The trading price of the TrUEPrS may
vary considerably prior to an Exchange Event due to, among other things, complex
and interrelated political, economic, financial and other factors that can
affect the capital markets generally, the stock exchanges or quotation systems
on which NAB's shares are traded and the market segment of which NAB is a part
and fluctuations in interest rates and rates of exchange between the Australian
dollar and the U.S. dollar and other factors that are difficult to predict and
beyond the Trust's control. Reference is made to the accompanying prospectus of
NAB.
The TrUEPrS are a new issue of securities and, accordingly, have no
established trading market. The Underwriters currently intend, but are not
obligated, to make a market in the TrUEPrS. There can be no assurance that a
secondary market will develop or, if a secondary market does develop, that it
will provide the holders of the TrUEPrS with liquidity of investment or that it
will continue for the life of the TrUEPrS. The TrUEPrS have been approved for
listing on the NYSE under the trading symbol "NAR Pr", subject to official
notice of issuance. Trading of the TrUEPrS on the NYSE is expected to commence
within a 30-day period after the initial delivery of the TrUEPrS. See
"Underwriting." There can be no assurance that such application will be accepted
or that, if accepted, the TrUEPrS will not later be delisted or that trading in
the TrUEPrS on the NYSE will not be suspended. In the event of a delisting or
suspension of trading on such exchange, the Trust will apply for listing of the
TrUEPrS on another national securities exchange or for quotation on another
trading market. If the TrUEPrS are not listed or traded on any securities
exchange or trading market, or if trading of the TrUEPrS is suspended, pricing
information for the TrUEPrS may be more difficult to obtain, and the price and
liquidity of the TrUEPrS may be adversely affected.
The Trust is a newly organized closed-end investment company with no
previous operating history. Shares of closed-end investment companies frequently
trade at a discount from their net asset value, which is a risk separate and
distinct from the risk that the Trust's net asset value will decrease. The Trust
cannot predict whether the TrUEPrS will trade at, below or above their net asset
value. The risk of purchasing investments that might trade at a discount is more
pronounced for investors who wish to sell their investments in a relatively
short period of time after completion of the Trust's initial public offering
because for those investors realization of a gain or loss on their investments
is likely to be more dependent upon the existence of a premium or discount than
upon portfolio performance. TrUEPrS are not subject to redemption.
LIMITED TERM
The term of the Trust will expire as soon as possible after the exchange of
the TrUEPrS for ADSs or cash, as the case may be, upon the occurrence of an
Exchange Event.
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NON-DIVERSIFIED PORTFOLIO
Prior to the Exchange Date, the Trust's assets will consist entirely of (a)
the Debt Securities and distributions thereon and (b) the ADSs Purchase
Contract. As a result, investments in the Trust may be subject to greater risk
than would be the case for a company with a more diversified portfolio of
investments.
LIMITED STOCKHOLDER RIGHTS
Except as described below, holders of the TrUEPrS will not be entitled to
any rights with respect to the ADSs or the NAB Preference Shares (including,
without limitation, rights to receive any dividends or other distributions in
respect thereof) until such time, if any, as the Trust shall have delivered the
ADSs in exchange for TrUEPrS upon the occurrence of an Exchange Event (unless
the Exchange Event is the redemption, Buy-Back or Capital Reduction of the NAB
Preference Shares for cash). In addition, the Trust as the holder of the Debt
Securities, has no voting rights in relation to the U.K. Company.
Each TrUEPrS will entitle the holder thereof to direct the exercise of the
voting rights attaching to one ADS and the two NAB Preference Shares represented
thereby. The holders of the NAB Preference Shares will be entitled to vote
together with the holders of ordinary shares of NAB (to the extent such holders
are entitled to vote), on the basis of one vote per NAB Preference Share on any
poll, (a) in all cases, with respect to certain matters specified herein and (b)
during a Special Voting Period (as defined herein), with respect to all matters
on which the holders of the ordinary shares of NAB are entitled to vote. A
"Special Voting Period" is the period from and including (i) any Dividend
Payment Date on which NAB fails to pay in full the dividends accrued in respect
of the quarterly dividend period then ended or (ii) the fourth Business Day
after the Exchange Date occurring as a result of any failure by the Trust to
receive in full the interest payable on the Debt Securities unless, prior to
such date, NAB has paid in full an optional dividend on the NAB Preference
Shares in an aggregate amount equal to the amount of interest not so received
(an "Optional Dividend"), in each case to but excluding the first Dividend
Payment Date thereafter as of which NAB has paid in full four consecutive
quarterly dividends on the NAB Preference Shares. In addition, the holders of
the NAB Preference Shares will have the right to vote separately as a class in
certain circumstances involving a variation of the rights of holders of the NAB
Preference Shares. Pursuant to the ADRs Security and Pledge Agreement, as long
as the ADRs are owned by the Jersey Subsidiary, the Jersey Subsidiary will, or
will cause the Collateral Agent to, direct the ADR depositary to vote the ADSs
and the NAB Preference Shares represented thereby as directed by the holders of
the TrUEPrS.
YEAR 2000 NONCOMPLIANCE
Many computer systems were designed using only two digits to designate
years. These systems may not be able to distinguish the Year 2000 from the Year
1900 (commonly known as the "Year 2000 Problem"). Like other investment
companies and financial and business organizations, the Trust could be adversely
affected if the computer systems used by the Trust or the Trust's service
providers do not properly address this problem prior to January 1, 2000. The
Trust has sought assurances from its service providers that they are taking all
necessary steps to ensure that their computer systems will accurately reflect
the Year 2000, and the Trust will continue to monitor the situation. At this
time, however, no assurance can be given that the Trust's service providers have
anticipated every step necessary to avoid any adverse effect on the Trust
attributable to the Year 2000 Problem.
DESCRIPTION OF THE TRUEPRS
Each TrUEPrS represents a proportionate share of beneficial interest in the
assets of the Trust, and a total of 16,000,000 TrUEPrS will be issued in the
Offerings, assuming no exercise of the Underwriters' over-allotment options and
excluding 4,000 TrUEPrS issued to ML IBK Positions, Inc. on September 10,
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1998 in accordance with the requirements of the Investment Company Act. Upon
liquidation of the Trust, holders of TrUEPrS are entitled to share PRO RATA
based on the number of TrUEPrS outstanding in the net assets of the Trust
available for distribution. Holders of TrUEPrS have no preemptive, redemption or
conversion rights. The TrUEPrS, when issued and outstanding, will be fully paid
and nonassessable.
VOTING RIGHTS
Holders are entitled to one vote for each TrUEPrS on all matters to be voted
on by holders and are not able to cumulate their votes in the election of
Trustees. The Trust intends to hold annual meetings as required by the rules of
the NYSE. The holders have the right, upon the declaration in writing or vote of
more than two-thirds of the outstanding TrUEPrS, to remove a Trustee. The
Trustees will call a meeting of holders to vote on the removal of a Trustee upon
the written request of the record holders of 10% of the TrUEPrS or to vote on
other matters upon the written request of the record holders of more than 50% of
the TrUEPrS (unless substantially the same matter was voted on during the
preceding 12 months).
Pursuant to the ADRs Security and Pledge Agreement and the ADR deposit
agreement, each TrUEPrS will entitle the holder thereof to direct the exercise
of the voting rights attaching to one ADS and two NAB Preference Shares
represented thereby. The holders of the NAB Preference Shares will be entitled
to vote together with the holders of ordinary shares of NAB (and to the extent
such holders are entitled to vote), on the basis of one vote per NAB Preference
Share on any poll, (a) in all cases with respect to certain matters specified
below and (b) during a Special Voting Period, with respect to all matters on
which the holders of the ordinary shares of NAB are entitled to vote. The
matters referred to in clause (a) of the preceding sentence upon which the
holders of NAB Preference Shares will have a right to vote, together with the
holders of ordinary shares of NAB, are: any proposal to reduce the share capital
of NAB (other than a Capital Reduction of the NAB Preference Shares in
accordance with their terms); any resolution to approve the terms of a share
buy-back arrangement (other than a Buy-Back); any proposal that affects the
rights attached to the NAB Preference Shares; any proposal to wind up NAB; any
proposal for the disposal of the whole of the property, business and undertaking
of NAB; and any matter during the winding up of NAB. In addition, the holders of
ADSs will have the right to vote separately as a class in certain circumstances
involving a variation of the rights of holders of the NAB Preference Shares.
Pursuant to the ADRs Security and Pledge Agreement, as long as the ADRs are held
by the Jersey Subsidiary, the Jersey Subsidiary will, or will cause the
Collateral Agent to, direct the ADR depositary to vote the NAB Preference Shares
as directed by the holders of the TrUEPrS.
Merrill Lynch, Pierce, Fenner & Smith Incorporated has applied to the
Commission for an exemptive order that would, if issued, among other things,
permit other investment companies and companies excepted from the definition of
investment company under Sections 3(c)(1) and 3(c)(7) of the Investment Company
Act to own more than 3% of the total outstanding TrUEPrS. Under the Declaration
of Trust, however, any such company owning TrUEPrS in excess of the limits
imposed by Sections 12(d)(1)(A)(i) and 12(d)(1)(C) of the Investment Company Act
must vote their TrUEPrS in proportion to the vote of all other holders of
TrUEPrS that are not such companies. There is no assurance that the application
for an exemptive order will be granted by the Commission.
Modifications and amendments of the terms of the TrUEPrS, the Debt
Securities, the Jersey Preference Shares and the ADSs Purchase Contract may be
made with the consent of not less than a majority of the holders of the TrUEPrS;
PROVIDED that, no such modification or amendment may, without the consent of
100% of the holders of the TrUEPrS, change the amount or timing of any dividend
on the TrUEPrS, the amount or timing of interest payments on the Debt
Securities, the liquidation preference of the Jersey Preference Shares, the
redemption amount of the Debt Securities and the Jersey Preference Shares, the
purchase price for or the number of ADSs deliverable pursuant to the ADSs
Purchase Contract or otherwise adversely affect the foregoing terms or cause an
Exchange Event to occur. Modifications and amendments may be made without the
consent of any holder of the TrUEPrS to cure any ambiguity, defect or
inconsistency in the Declaration of Trust or any instrument defining the terms
of the TrUEPrS, the Debt
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Securities, the Jersey Preference Shares and the ADSs Purchase Contract,
PROVIDED that, such action will not adversely affect in any material respect the
rights of the holders of the TrUEPrS or cause an Exchange Event to occur.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
Generally, under the Australian Corporations Law, the concept of voting
share does not include certain types of preference shares with limited voting
rights. Because holders of the NAB Preference Shares have been conferred a right
to vote following a missed non-cumulative dividend, the NAB Preference Shares
will be treated as voting shares for relevant purposes. Therefore, a person with
an entitlement to NAB Preference Shares, including holders of TrUEPrS, should
consider this entitlement with any entitlement to other voting shares in NAB in
the context of the regulatory thresholds summarized below and seek appropriate
legal advice.
In summary, under the Australian Corporations Law, a person or group of
persons cannot acquire voting shares in a public company if that person or group
of persons or another person would then be "entitled" (which is defined very
broadly) to more than 20% of the voting shares in NAB unless those shares are
acquired in a manner specifically permitted by law. This restriction also limits
the options available to a shareholder wanting to sell a shareholding of more
than 20% in an Australian public company. The Australian Corporations Law also
imposes certain substantial shareholding disclosure obligations on persons who
are or become "entitled" to 5% or more of the voting shares in a company listed
on the Australian Stock Exchange Limited, such as NAB.
BOOK-ENTRY SYSTEM
The TrUEPrS will be issued in the form of one or more global securities (the
"Global Securities") deposited with the Depository and registered in the name of
a nominee of the Depository.
The Depository has advised the Trust and the Underwriters as follows: The
Depository is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered pursuant to Section 17A of the Securities Exchange
Act of 1934, as amended. The Depository was created to hold securities of
persons who have accounts with the Depository ("participants") and to facilitate
the clearance and settlement of securities transactions among its participants
in such securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of
certificates. Such participants include securities brokers and dealers, banks,
trust companies and clearing corporations. Indirect access to the Depository's
book-entry system is also available to others, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, either directly or indirectly.
Upon the issuance of a Global Security, the Depository or its nominee will
credit the respective TrUEPrS represented by such Global Security to the
accounts of participants. The accounts to be credited shall be designated by the
Underwriters. Ownership of beneficial interests in such Global Securities will
be limited to participants or persons that may hold interests through
participants. Ownership of beneficial interests by participants in such Global
Securities will be shown on, and the transfer of those ownership interests will
be effected only through, records maintained by the Depository or its nominee
for such Global Securities. Ownership of beneficial interests in such Global
Securities by persons that hold through participants will be shown on, and the
transfer of that ownership interest within such participant will be effected
only through, records maintained by such participant. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to transfer beneficial interests in a Global Security.
So long as the Depository for a Global Security, or its nominee, is the
registered owner of such Global Security, such Depository or such nominee, as
the case may be, will be considered the sole owner or holder
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of the TrUEPrS. Except as set forth below, owners of beneficial interests in
such Global Securities will not be entitled to have the TrUEPrS registered in
their names and will not receive or be entitled to receive physical delivery of
the TrUEPrS in definitive form and will not be considered the owners or holders
thereof.
Delivery of ADRs or payment of amounts or delivery of other consideration
deliverable on exchange of, and any quarterly distributions on, TrUEPrS
registered in the name of or held by the Depository or its nominee will be made
to the Depository or its nominee, as the case may be, as the registered owner or
the holder of the Global Security. None of the Trust, any Trustee, the
Administrator, the Paying Agent or the Custodian for the TrUEPrS will have any
responsibility or liability for any aspect of the records relating to, or
payments made on account of, beneficial ownership interests in a Global Security
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Trust expects that the Depository, upon receipt of any payment in
respect of a Global Security, will credit immediately participants' accounts
with payments in amounts proportionate to their respective beneficial interests
in such Global Security as shown on the records of the Depository. The Trust
also expects that payments by participants to owners of beneficial interests in
such Global Security held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in "street name", and will be the
responsibility of such participants.
A Global Security may not be transferred except as a whole by the Depository
to a nominee or a successor of the Depository. If the Depository is at any time
unwilling or unable to continue as depository and a successor depository is not
appointed by the Trust within ninety days, the Trust will issue TrUEPrS in
definitive registered form in exchange for the Global Security representing such
TrUEPrS. In addition, the Trust may at any time and in its sole discretion
determine not to have any TrUEPrS represented by one or more Global Securities
and, in such extent, will issue TrUEPrS in definitive form in exchange for all
of the Global Securities representing the TrUEPrS. Further, if the Trust so
specifies with respect to the TrUEPrS, an owner of a beneficial interest in a
Global Security representing TrUEPrS may, on terms acceptable to the Trust and
the Depository for such Global Security, receive TrUEPrS in definitive form. In
any such instance, an owner of a beneficial interest in a Global Security will
be entitled to physical delivery in definitive form of TrUEPrS represented by
such Global Security equal in number to that represented by such beneficial
interest and to have such TrUEPrS registered in its name.
TRUSTEES
The Trustees of the Trust consist of three individuals, none of whom is an
"interested person" of the Trust as defined in the Investment Company Act. The
Trustees of the Trust are responsible for the overall supervision of the
operations of the Trust and perform the various duties imposed on the trustees
of management investment companies by the Investment Company Act.
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The Trustees of the Trust are:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS TITLE DURING PAST FIVE YEARS
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
Donald J. Puglisi, 53............... Managing Trustee Professor of Finance
Department of Finance University of Delaware
University of Delaware
Newark, DE 19716
William R. Latham III, 54........... Trustee Professor of Economics University of
Department of Economics Delaware
University of Delaware
Newark, DE 19716
James B. O'Neill, 59................ Trustee Professor of Economics University of
Center for Economic Delaware
Education & Entrepreneurship
University of Delaware
Newark, DE 19716
</TABLE>
COMPENSATION OF TRUSTEES
The annual fees and anticipated out-of-pocket expenses of each unaffiliated
Trustee and any additional fees of the Trust's Managing Trustee will be paid by
the Jersey Holding Company pursuant to the Trust Expense Agreement. The Trustees
will not receive, either directly or indirectly, any compensation, including any
pension or retirement benefits, from the Trust. None of the Trustees receives
any compensation for serving as a trustee or director of any other affiliated
investment company.
MANAGEMENT ARRANGEMENTS
PORTFOLIO MANAGEMENT AND ADMINISTRATION
The Trust will be internally managed and will not have an investment
adviser. Prior to the Exchange Date, the Trust's portfolio will consist only of
(a) US$400,100,000 aggregate principal amount of Debt Securities (US$460,000,000
aggregate principal amount of Debt Securities if the Underwriters' over-
allotment option is exercised in full), and any distributions thereon, and (b)
the ADSs Purchase Contract. The Trust's portfolio will not be actively managed.
The Trustees of the Trust will authorize the purchase of the Debt Securities as
directed by the Declaration of Trust. It is a fundamental policy of the Trust
that the Debt Securities may not be disposed of during the term of the Trust,
other than in connection with a mandatory redemption thereof as a result of an
Exchange Event and that the ADSs Purchase Contract not be disposed of during the
term of the Trust.
The Trust will pay all expenses incurred in the Trust's formation and other
initial expenses and expenses relating to the Offerings out of the facility fee
to be paid on the Issue Date to the Trust by the U.K. Company in connection with
the investment by the Trust in the Debt Securities. The ongoing administrative
and other expenses of the Trust such as accounting services, expenses for legal
and auditing services, taxes, costs of printing proxies, listing fees, if any,
stock certificates and shareholder reports, charges of the Administrator, the
Custodian and the Paying Agent, fees and expenses of Trustees, accounting costs,
brokerage costs, litigation, mailing and other expenses properly payable by the
Trust will be paid by the Jersey Holding Company pursuant to the Trust Expense
Agreement. Subject to the satisfaction of certain conditions, any operating
expenses of the Trust not covered by the Trust's arrangements with the Jersey
Holding Company will be paid by the NAB Affiliate if covered by the terms of an
expense and indemnity agreement (the "Expense and Indemnity Agreement") among
the Trust, the U.K.
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Company, the Jersey Holding Company, the Jersey Subsidiary and the Jersey
Charitable Trust. See "-- Estimated Expenses."
ADMINISTRATOR. The day-to-day affairs of the Trust will be managed by The
Bank of New York, as the Administrator pursuant to an administration agreement
(the "Administration Agreement"). Under the Administration Agreement, the
Trustees have delegated most of their operational duties to the Administrator,
including without limitation, the duties to: (i) pay, or cause to be paid, all
expenses incurred by the Trust; (ii) with the approval of the Trustees, engage
legal and other professional advisors (other than the independent public
accountants for the Trust); (iii) instruct the Paying Agent to pay distributions
on TrUEPrS as described herein; (iv) cause the legal and other professional
advisors engaged by it to prepare and mail, file or publish all notices,
proxies, reports, tax returns and other communications and documents for the
Trust, and keep all books and records for the Trust; (v) at the direction of the
Trustees, and upon being furnished with reasonable security and indemnity as the
Administrator may require, institute and prosecute legal and other appropriate
proceedings to enforce the rights and remedies of the Trust; and (vi) make, or
cause to be made, all necessary arrangements with respect to meetings of
Trustees and any meetings of holders of TrUEPrS. The Administrator will not,
however, select the independent public accountants for the Trust or sell or
otherwise dispose of the Trust assets (except in connection with the occurrence
of an Exchange Event).
The Administration Agreement may be terminated by either the Trust or the
Administrator upon 60 days prior written notice, except that no termination
shall become effective until a successor Administrator has been chosen and has
accepted the duties of the Administrator.
Except for its roles as Administrator, Custodian and Paying Agent of the
Trust, and except for its role as Collateral Agent and securities intermediary
under the Security and Pledge Agreements, as paying and transfer agent for the
Debt Securities and the NAB Preference Shares and as depositary for the ADRs,
The Bank of New York has no other affiliation with, and is not engaged in any
other transactions with, the Trust.
The address of the Administrator is 101 Barclay Street, New York, New York
10286.
CUSTODIAN
The Trust's custodian (the "Custodian") is The Bank of New York pursuant to
a custodian agreement (the "Custodian Agreement"). In the event of any
termination of the Custodian Agreement by the Trust or the resignation of the
Custodian, the Trust must engage a new Custodian to carry out the duties of the
Custodian as set forth in the Custodian Agreement. The Custodian will also act
as Collateral Agent under the Security and Pledge Agreements, under which it
will hold a perfected security interest in the ADRs, the Jersey Preference
Shares or other assets consistent with the terms of the securities pledged
thereunder on behalf of the Trust, and as depositary for the ADRs.
PAYING AGENT
The paying agent, transfer agent and registrar (the "Paying Agent") for the
TrUEPrS is The Bank of New York pursuant to a paying agent agreement (the
"Paying Agent Agreement"). In the event of any termination of the Paying Agent
Agreement by the Trust or the resignation of the Paying Agent, the Trust will
use its best efforts to engage a new Paying Agent to carry out the duties of the
Paying Agent.
INDEMNIFICATION
The Trust will, to the fullest extent permitted by applicable law, indemnify
each Trustee, the Administrator, the Paying Agent and the Custodian with respect
to any claim, liability, loss which it may incur in acting as Trustee,
Administrator, Paying Agent or Custodian, as the case may be, and any reasonable
expense incurred in connection with any such claim, liability or loss (including
the reasonable
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costs and expenses of the defense against any claim or liability) except in the
case of willful misfeasance, bad faith, gross negligence or reckless disregard
of their respective duties. Subject to the satisfaction of certain conditions,
pursuant to the Expense and Indemnity Agreement, the NAB Affiliate will
reimburse the Trust for any amounts it may be required to pay as indemnification
to any Trustee, the Administrator, the Paying Agent or the Custodian.
ESTIMATED EXPENSES
Organization costs of the Trust in the amount of $32,000 and estimated costs
of the Trust in connection with the initial registration of the TrUEPrS and the
Offerings in the amount of approximately $600,000 will be paid by the Trust out
of the facility fee to be paid on the Issue Date to the Trust by the U.K.
Company in connection with the investment by the Trust in the Debt Securities.
The ongoing administrative and other expenses of the Trust will be paid by the
Jersey Holding Company pursuant to the Trust Expense Agreement. Subject to the
satisfaction of certain conditions, any operating expenses of the Trust not
covered by the Trust's arrangements with the Jersey Holding Company will be paid
by the NAB Affiliate if covered by the terms of the Expense and Indemnity
Agreement.
DIVIDENDS AND DISTRIBUTIONS
The Trust intends to distribute to holders dividend distributions in an
amount equal to US$2.00 per TrUEPrS per annum, payable quarterly in arrears in
an amount equal to US$.50 per TrUEPrS on each Dividend Payment Date to holders
of record on the immediately preceding Record Date. The first distribution in
respect of the period from and including the Issue Date to but excluding
December 31, 1998 will equal US$.5055 per TrUEPrS.
Dividend payments on the TrUEPrS will be made from the interest payments
received by the Trust on the Debt Securities. Interest payments on the Debt
Securities will be made by the U.K. Company only to the extent that it receives
Income Entitlements as the income beneficiary of the Distribution Trust. The
U.K. Company's right to receive Income Entitlements will not represent an
absolute ownership interest in the Distribution Trust or the income thereof, but
rather an entitlement to receive Income Entitlements only to the extent actually
distributed to the U.K. Company by the Distribution Trust; if any Income
Entitlement payable on any Interest Payment Date is not paid to the U.K. Company
or at its direction on such date for any reason, the Distribution Trust will
have no further obligation to pay such Income Entitlement to the U.K. Company
and the U.K. Company will have no right to require such payment. See "Investment
Objective and Policies--Intervening Vehicles." In the event an Income
Entitlement is not paid for any reason, an Exchange Event will occur because the
U.K. Company will have insufficient funds to pay interest on the Debt
Securities.
On and after the Exchange Date, the U.K. Company will cease to be the income
beneficiary of the Distribution Trust; PROVIDED, HOWEVER, if the Exchange Event
is the redemption, Buy-Back or Capital Reduction of the NAB Preference Shares
for cash, the U.K. Company will be entitled to receive an Income Entitlement
equal to the accrued but unpaid interest on the Debt Securities for the period
from and including the Interest Payment Date immediately preceding the Exchange
Date to but excluding the Exchange Date.
On each Interest Payment Date, (i) the NAB Borrower will make an interest
payment on the NAB Loan to the USLLC; (ii) the USLLC will use such payment to
make an interest payment on the Distribution Loan to the Distribution Trust;
(iii) if no Payment Prohibition exists, the Distribution Trust will distribute
such payment as an Income Entitlement to the U.K. Company; and (iv) the U.K.
Company will use the entire proceeds of such Income Entitlement to pay (a)
interest on the Debt Securities to the Trust, (b) ongoing costs and expenses of
the U.K. Company and the Jersey Subsidiary, (c) quarterly dividend payments on
the U.K. Company's voting shares to the Jersey Holding Company, which will be
used to pay ongoing expenses of the Jersey Holding Company, the Jersey
Charitable Trust, the Collateral
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Agent and (pursuant to the Trust Expense Agreement) the Trust and (d) an
indemnity fee to the NAB Affiliate. On such Interest Payment Date (which will
also be a Dividend Payment Date), the Administrator of the Trust will use all
the interest received by the Trust on the Debt Securities to pay dividends on
the TrUEPrS.
Dividend distributions on the TrUEPrS will cease to accrue on and after the
Exchange Date. In the case of any Exchange Event other than a redemption,
Buy-Back or Capital Reduction of the NAB Preference Shares for cash, no dividend
distributions will be payable on the TrUEPrS on the Exchange Date (even if such
Exchange Date is a Dividend Payment Date). Instead, on the Exchange Date, each
NAB Preference Share will convert into a dividend-paying NAB Preference Share
which will begin to accrue non-cumulative dividends from and including the last
Interest Payment Date prior to an Exchange Date. Accordingly, the dividends for
any quarterly dividend periods ending on or after the Exchange Date will be
payable as dividends on the NAB Preference Shares and in accordance with the
terms of the NAB Preference Shares.
NET ASSET VALUE
The net asset value of the TrUEPrS will be calculated by the Trust no less
frequently than quarterly by dividing the value of the net assets of the Trust
(the value of its assets less its liabilities) by the total number of TrUEPrS
outstanding. The Trust's net asset value will be published semi-annually as part
of the Trust's semi-annual report to holders and at such other times as the
Trustees may determine. The value of (a) the Debt Securities and (b) the ADSs
Purchase Contract held by the Trust will be determined in good faith by the
Board of Trustees pursuant to procedures adopted by them.
TAXATION
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain United States Federal income tax
consequences of the purchase, ownership and disposition of TrUEPrS is based upon
the advice of Sullivan & Cromwell, counsel to NAB. The summary addresses only
the tax consequences to persons that acquire TrUEPrS in connection with the
Offerings and hold the TrUEPrS as a capital asset. It does not address all tax
consequences of the ownership of TrUEPrS and does not take into account the
specific circumstance of investors such as tax-exempt entities, banks, certain
insurance companies, broker dealers, traders in securities that elect to mark to
market, investors liable for the alternative minimum tax, investors that hold
TrUEPrS as part of a straddle or hedging or conversion transaction or investors
whose functional currency is not the U.S. dollar. The summary is based on the
Internal Revenue Code of 1986, as amended, its legislative history, existing and
proposed regulations thereunder, published rulings and court decisions as well
as the income tax treaty between the United States and Australia (the "Treaty")
all of which are subject to change possibly with retroactive effect.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS AS
TO THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP
AND DISPOSITION OF TrUEPrS, AS WELL AS THE EFFECT OF ANY STATE, LOCAL OR FOREIGN
TAX LAWS.
U.S. HOLDERS
A "U.S. Holder" is any beneficial owner of TrUEPrS that is (i) a citizen or
resident of the United States, (ii) a domestic corporation, (iii) an estate the
income of which is subject to United States Federal income tax without regard to
its source, or (iv) a trust if a court within the United States is able to
exercise primary supervision over administration of the trust and one or more
United States persons have authority to control all substantial decisions of the
trust. A "Non-U.S. Holder" is any beneficial owner that is not a United States
person for United States Federal income tax purposes.
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CLASSIFICATION OF THE TRUST AND THE DEBT SECURITIES AND DISTRIBUTIONS ON
TRUEPRS. For United States Federal income tax purposes the Trust will be
classified as a grantor trust and not as an association taxable as a
corporation, and the Debt Securities held by the Trust will be treated as equity
in NAB. Accordingly, for United States Federal income tax purposes, each U.S.
Holder generally will be treated as owning equity of NAB and will be required to
include in income, as a dividend, the holder's share of the gross amount of the
interest paid to the Trust on the Debt Securities to the extent of the current
and accumulated earnings and profits (as determined for United States Federal
income tax purposes) of NAB. For foreign tax credit limitation purposes the
payments will be income from sources without the United States, but generally
will be treated separately, together with other items of "passive income" (or in
the case of certain holders, "financial services income").
SALE OF THE TRUEPRS. Upon a sale or other disposition of the TrUEPrS
(including generally the receipt of a distribution of cash in redemption of all
of a U.S. Holder's TrUEPrS), a U.S. Holder will recognize gain or loss in an
amount equal to the difference between the amount realized and the U.S. Holder's
adjusted tax basis. Generally, such gain or loss will be capital gain or loss
and will be long-term capital gain or loss if the U.S. Holder's holding period
exceeds one year. Any such gain will be income from sources within the United
States for foreign tax credit limitation purposes.
CONSEQUENCES OF AN EXCHANGE EVENT. As described above under "Investment
Objective and Policies-- Exchange Event" upon the occurrence of an Exchange
Event, the Trust will distribute ADSs or, under certain circumstances, cash to
holders of TrUEPrS in exchange for their TrUEPrS and in liquidation of the
Trust. A U.S. Holder's exchange of TrUEPrS for ADSs generally will not be a
taxable event for United States Federal income tax purposes. A U.S. Holder's
basis in the ADSs received upon exchange will generally be the same as the U.S.
Holder's basis in the property exchanged therefor and such holder's holding
period in the ADSs would include their holding period in such property.
Upon the occurrence of certain Exchange Events, holders of the TrUEPrS may
receive cash. For U.S. Federal income tax purposes such receipt of cash would
constitute a taxable disposition of the TrUEPrS and a U.S. Holder would
generally recognize gain or loss in the same manner if there had been a sale or
disposition as described under "--Sale of the TrUEPrS" above. Amounts
representing accrued but unpaid interest on the Debt Securities will be treated
as a distribution on TrUEPrS as discussed under "--Classification of the Trust
and the Debt Securities and Distributions on TrUEPrS" above.
ADSS RECEIVED IN AN EXCHANGE EVENT
DISTRIBUTIONS ON THE ADSS. U.S. Holders will include in gross income the
gross amount of any dividend paid including Additional Amounts (as defined and
described in the accompanying prospectus of NAB), if any, before reduction for
Australian withholding taxes by NAB, out of its current or accumulated earnings
and profits (as determined for U.S. Federal income tax purposes) as ordinary
income when the dividend is actually or constructively received by the U.S.
Holder. The dividend will not be eligible for the dividends received deduction
generally allowed to United States corporations in respect of dividends received
from other United States corporations.
Subject to certain limitations, the Australian tax withheld, if any, in
accordance with the Treaty and paid over to Australia will be creditable against
the U.S. Holder's United States Federal income tax liability. For foreign tax
credit limitation purposes, the dividend will be income from sources without the
United States, but generally will be treated separately, together with other
items of "passive income" (or in the case of certain holders "financial services
income").
SALE OR OTHER DISPOSITION OF ADSS. A U.S. Holder will recognize gain or
loss for U.S. Federal income tax purposes upon the sale or other disposition of
ADSs in an amount equal to the difference between the U.S. dollar value of the
amount realized and the U.S. Holder's adjusted tax basis (determined in U.S.
dollars) in the ADSs. Generally, such gain will be capital gain or loss, will be
long-term capital gain or loss
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if the U.S. Holder's holding period for the ADSs exceeds one year and any such
gain will be income from sources within the United States for foreign tax credit
limitation purposes.
PFIC CONSIDERATIONS
NAB does not believe that it will be treated as a passive foreign investment
company (a "PFIC") for United States Federal income tax purposes but that is a
factual determination made annually and therefore may be subject to change.
Because a U.S. Holder of TrUEPrS will be treated as owning an equity interest in
NAB for United States Federal income tax purposes, if NAB were a PFIC a U.S.
Holder of TrUEPrS as well as a holder of ADSs would be subject to certain
adverse tax consequences.
NON-U.S. HOLDERS
DISTRIBUTIONS ON THE TRUEPRS AND ADSS. Distributions to a Non-U.S. Holder
will not be subject to United States Federal income tax unless such
distributions are effectively connected with the conduct of a trade or business
within the United States by such Non-U.S. Holder (and are attributable to a
permanent establishment maintained in the United States by such Non-U.S. Holder,
if an applicable income tax treaty so requires as a condition for such Non-U.S.
Holder to be subject to United States taxation on a net income basis in respect
of income from TrUEPrS or ADSs), in which case such Non-U.S. Holder generally
will be subject to tax in respect of distributions in the same manner as a U.S.
Holder. Any such effectively connected distributions received by a non-U.S.
corporation may also, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate of such lower rate as may be specified by an
applicable income tax treaty.
SALE OR DISPOSITION OF THE TRUEPRS AND ADSS. A Non-U.S. Holder will not be
subject to United States Federal income tax in respect of gain recognized on a
sale or other disposition of TrUEPrS or ADSs unless (i) the gain is effectively
connected with a trade or business of the Non-U.S. Holder in the United States
(and is attributable to a permanent establishment maintained in the United
States by such Non-U.S. Holder, if an applicable income tax treaty so requires
as a condition for such Non-U.S. Holder to be subject to United States taxation
on a net income basis in respect of gain from the sale or other disposition of
the TrUEPrS or ADSs) or (ii) in the case of a Non-U.S. Holder who is an
individual, such holder is present in the United States for 183 or more days in
the taxable year of the sale and certain other conditions apply. Effectively
connected gains realized by a corporate Non-U.S. Holder may also, under certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate or
such lower rate as may be specified by an applicable income tax treaty.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX. In general, information
reporting requirements will apply to payments of dividends made within the
United States by the Trust or any of its paying agents on the TrUEPrS or, in the
case of ADSs, by a U.S. paying agent or other U.S. intermediary and "backup
withholding" at a rate of 31% will apply to such payments other than dividends
paid before December 31, 1999 made to a U.S. Holder (other than a corporation or
other exempt U.S. Holder) unless the U.S. Holder furnishes its taxpayer
identification number in the manner required by United States law and applicable
regulations, certifies that such number is correct, certifies as to no loss or
exemption from backup withholding and meets certain other conditions. A Non-U.S.
Holder will be exempt from back-up withholding provided that certain
certification requirements are satisfied.
Payment of the proceeds from the disposition of TrUEPrS or ADSs to or
through the United States office of a broker is subject to both information
reporting and backup withholding unless the holder establishes an exemption from
information reporting and backup withholding. United States information
reporting and backup withholding generally will not apply to a payment made
outside the United States of the proceeds of a sale of TrUEPrS or ADSs through
an office outside the United States of a non-United States broker. However,
United States information reporting will apply to a payment made outside the
United States of the proceeds of a sale of TrUEPrS or ADSs through an office
outside the United States of
33
<PAGE>
a broker (i) that is a United States person, (ii) that derives 50% or more of
its gross income for a specified three year period from the conduct of a trade
or business in the United States, (iii) that is a "controlled foreign
corporation" as to the United States, or (iv) with respect to payments made
after December 31, 1999, that is a foreign partnership if, at any time during
its tax year, one or more of its partners are U.S. persons (as defined in U.S.
Treasury Regulations) who in the aggregate hold more than 50% of the income or
capital interest in the partnership or if, at any time during its tax year, such
foreign partnership is engaged in a United States trade or business, unless the
broker has documentary evidence in its files that the holder or beneficial owner
is not a United States person or the holder or beneficial owner otherwise
establishes an exemption. Backup withholding will not apply to such payments
unless the broker has actual knowledge that the payee is a U.S. person.
Any amounts withheld from a holder under the backup withholding rules will
be allowed as a refund or a credit against such holder's United States Federal
income tax liability, provided the required information is furnished to the
Internal Revenue Service.
CERTAIN AUSTRALIAN TAX CONSIDERATIONS
The taxation discussion below of certain Australian tax consequences is
based on the advice of PricewaterhouseCoopers Securities Limited, Australia and
outlines certain Australian tax considerations for U.S. holders in relation to
the purchase, ownership and disposition of the TrUEPrS and the acquisition,
ownership and disposition of the NAB Preference Shares represented by the ADSs.
The discussion is intended only as a descriptive summary and does not purport to
be complete technical analysis or listing of all potential Australian tax
effects. This discussion is based upon laws, regulations, rulings and decisions
now in effect and is subject to changes in Australian law, including in any
double taxation convention between Australia and the United States (the
"Treaty"), including retroactive changes in effective dates, or possible
differing interpretations.
Persons considering the purchase of the TrUEPrS should consult their own tax
advisors concerning the application of Australia's tax laws to their particular
situations as well as any consequences of the purchase, ownership and
disposition of TrUEPrS or the NAB Preference Shares represented by the ADSs
arising under the laws of any other taxing jurisdiction.
The Trust will not be treated as a resident of Australia for Australian
income tax purposes. As it is not in receipt of Australian source income it will
not be subject to Australian tax on income earned. Therefore, quarterly
distributions by the Trust to non-Australian resident holders of TrUEPrS will
not be subject to Australian tax whether by withholding or otherwise.
Upon an Exchange Event (other than a redemption, Buy-Back or Capital
Reduction of the NAB Preference Shares for cash), the Trust will acquire ADSs
and then immediately deliver the ADSs to the holders of TrUEPrS. There should be
no Australian tax consequences to the Trust of the delivery of the ADSs to
holders of TrUEPrS.
Alternatively, upon an Exchange Event, the Trust may receive cash repayment
of principal and interest due on the Debt Securities. No Australian tax will be
payable by the Trust on such receipt.
The sale of TrUEPrS or the NAB Preference Shares represented by the ADSs may
generate assessable income to certain U.S. holders, such as banks, insurance
companies and other persons or institutions in the business of investment. The
provisions of the Treaty, however, are designed to ensure that this income, less
all allowable deductions, is subject to Australian tax only if the U.S. holder
who is a U.S. resident carries on business in Australia through a permanent
establishment and the income earned is effectively connected with that permanent
establishment.
The sale of TrUEPrS or ADSs by a U.S. holder will not generate a net capital
gain and therefore will not be subject to Australian capital gains tax unless:
34
<PAGE>
- the NAB Preference Shares are held by U.S. citizens or U.S. corporations
who are residents of Australia;
- the U.S. holder is a non-Australian resident but the U.S. holder and the
U.S. holder's associates together beneficially hold or at any time during
the five years prior to the sale held shares or interests in shares
representing ten percent or more in value of the issued capital of NAB; or
- the U.S. holder is a non-Australian resident but has at any time used the
TrUEPrS or ADSs in carrying on trade or business through a permanent
establishment in Australia.
and the consideration received for the TrUEPrS or the ADSs (or their market
value, if the disposition is not at arm's length or for no consideration)
exceeds the U.S. holder's cost base in the TrUEPrS or the ADSs after that cost
base is adjusted, where appropriate, for the effect of inflation.
The Australian income tax rate on capital gains is the same as the ordinary
income tax rate applicable to the relevant taxpayer, subject to capital gains
tax averaging where applicable. In the case of companies this rate is presently
36%.
An individual who is a U.S. holder will be resident of Australia if, for
example, that person:
- is domiciled in Australia, unless the person's permanent place of abode is
outside Australia; or
- has been in Australia for 183 days or more in a year of income unless that
person has a usual place of abode outside Australia and does not intend to
take up residence in Australia.
However, if that individual would be a resident of the United States for the
purposes of U.S. law, the Treaty allocates residence for the purposes of the
Treaty solely to the country in which the person maintains a permanent home (or
habitual abode) or with which the person has closer personal and economic ties.
A corporation who is a U.S. holder will be a resident of Australia if it is
incorporated in Australia or if it carries on business in Australia and has
either its central management and control in Australia or its voting power
controlled by shareholders who are residents of Australia.
Where the U.S. holder acquires ADSs on the Exchange Date, there may be
Australian tax consequences in relation to dividends paid by that Australian
listed corporation. Dividends paid by NAB may be paid as franked or unfranked
dividends. Australian corporations are required to provide shareholders with
notices detailing the extent to which the dividend is franked or unfranked and
the deductions (if any) of dividend withholding tax. Broadly, to the extent to
which those dividends are paid out of profits which have been subject to
Australian company income tax, they will be franked dividends. Fully franked
dividends paid to a non-resident will be exempt from Australian dividend
withholding tax. Unfranked or partially franked dividends will be subject to
Australian dividend withholding tax to the extent to which the dividend is
unfranked, unless a specific exemption is available.
The interaction of Australian income tax law and the Treaty limits the
Australian dividend withholding tax on unfranked or partially franked dividends
paid to a U.S. resident who is beneficially entitled to the dividends to 15
percent of the unfranked part of the gross dividend. However, where the U.S.
resident carries on business in Australia through a permanent establishment or
performs independent personal services from a fixed base in Australia and the
holding is effectively connected with the permanent establishment or fixed base,
the 15 percent limit should not apply and a dividend withholding tax at the rate
of 30 percent should apply in respect of such dividends in such circumstances.
However, under Australian law an Australian payer of dividends to a U.S.
resident in such circumstances is only obliged to withhold at the rate of 15
percent and, as a matter of policy, the Australian Taxation Office does not seek
to collect any further withholding tax.
35
<PAGE>
Subject to certain conditions, the terms of the NAB Preference Shares
provide for holders to be grossed-up for Australian withholding tax on payments
on the NAB Preference Shares being dividends or amounts deemed to be dividends
for Australian tax purposes.
No stamp, issue, registration or similar taxes are payable in Australia in
connection with the issue of TrUEPrS by the Trust or of ADSs. Transfers of NAB
Preference Shares by U.S. holders would be subject to stamp duty.
There are no specific estate, inheritance or gift taxes or duties imposed in
Australia. In practice, no Revenue Authority in any State or Territory of
Australia should seek to recover stamp duty on any transfer of or agreement to
transfer ADSs provided that the instruments are not executed and the purchaser
of the ADSs is not resident in Australia.
36
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement"), the Trust has agreed to sell to each of the underwriters
named below (the "Underwriters"), and each of the Underwriters, for whom Merrill
Lynch, Pierce, Fenner & Smith Incorporated, A.G. Edwards & Sons, Inc., Morgan
Stanley & Co. Incorporated, PaineWebber Incorporated, Prudential Securities
Incorporated and Salomon Smith Barney Inc. are acting as representatives (the
"Representatives"), has severally agreed to purchase, the aggregate number of
TrUEPrS set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER TRUEPRS
- -------------------------------------------------------------------------------- ------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.......................................................... 1,955,000
Morgan Stanley & Co. Incorporated............................................... 1,945,000
Salomon Smith Barney Inc........................................................ 1,945,000
A.G. Edwards & Sons, Inc........................................................ 1,945,000
PaineWebber Incorporated........................................................ 1,945,000
Prudential Securities Incorporated.............................................. 1,945,000
ABN AMRO Incorporated........................................................... 160,000
BT Alex. Brown Incorporated..................................................... 160,000
Robert W. Baird & Co. Incorporated.............................................. 160,000
Bear, Stearns & Co. Inc......................................................... 160,000
CIBC Oppenheimer Corp........................................................... 160,000
Dain Rauscher Wessels A division of Dain Rauscher Incorporated.................. 160,000
EVEREN Securities, Inc.......................................................... 160,000
Goldman, Sachs & Co............................................................. 160,000
Legg Mason Wood Walker, Incorporated............................................ 160,000
Piper Jaffray Inc............................................................... 160,000
Raymond James & Associates, Inc................................................. 160,000
SG Cowen Securities Corporation................................................. 160,000
Tucker Anthony Incorporated..................................................... 160,000
Warburg Dillon Read LLC......................................................... 160,000
Wheat First Securities, Inc..................................................... 160,000
William Blair & Company, L.L.C.................................................. 80,000
J.C. Bradford & Co.............................................................. 80,000
Crowell, Weedon & Co............................................................ 80,000
Fahnestock & Co. Inc............................................................ 80,000
Fidelity Capital Markets A division of National Financial Services Corp......... 80,000
Fifth Third/The Ohio Company.................................................... 80,000
First Albany Corporation........................................................ 80,000
First of Michigan Corporation................................................... 80,000
Gibraltar Securities Co......................................................... 80,000
Gruntal & Co., L.L.C............................................................ 80,000
Janney Montgomery Scott Inc..................................................... 80,000
Kirkpatrick, Pettis, Smith, Polian Inc.......................................... 80,000
McDonald & Company Securities, Inc.............................................. 80,000
McGinn, Smith & Co., Inc........................................................ 80,000
Mesirow Financial, Inc.......................................................... 80,000
Morgan Keegan & Company, Inc.................................................... 80,000
David A. Noyes & Company........................................................ 80,000
Parker/Hunter Incorporated...................................................... 80,000
The Robinson-Humphrey Company, LLC.............................................. 80,000
Roney Capital Markets A division of First Chicago Capital Markets Inc........... 80,000
Scott & Stringfellow, Inc....................................................... 80,000
Stephens Inc.................................................................... 80,000
Stone & Youngberg............................................................... 80,000
Trilon International Inc........................................................ 80,000
------------
Total................................................................. 16,000,000
------------
------------
</TABLE>
37
<PAGE>
In the Purchase Agreement, the Underwriters named therein have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
TrUEPrS being sold pursuant to such Purchase Agreement if any of the TrUEPrS
being sold pursuant to such Purchase Agreement are purchased. Under certain
circumstances, under the Purchase Agreement, the commitments of non-defaulting
Underwriters may be increased. In the event of a failure to close, any funds
debited from any investor's account maintained with an Underwriter will be
credited to such account and any funds received by such Underwriter by check or
money order from any investor will be returned to such investor by check.
The Representatives have advised the Trust that the Underwriters propose to
offer the TrUEPrS offered hereby to the public initially at the public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession not in excess of $.50 per TrUEPrS; provided that
such concession for sales of more than 10,000 TrUEPrS to any single purchaser
will be $.30 per TrUEPrS. The Underwriters may allow, and such dealers may
reallow, a discount not in excess of $.45 per TrUEPrS to certain other dealers.
After the initial public offering, the public offering price, concession and
discount may be changed. Investors must pay for any TrUEPrS purchased in the
initial public offering on or before September 29, 1998.
The Trust has granted the Underwriters an option to purchase up to an
additional 2,396,000 TrUEPrS at the initial public offering price, less the
underwriting discount. Such option, which will expire 30 days after the date of
this Prospectus, may be exercised solely to cover over-allotments. To the extent
that the Underwriters exercise such option, each of the Underwriters will have a
firm commitment, subject to certain conditions, to purchase from the Trust
approximately the same percentage of the option shares that the number of shares
to be purchased initially by that Underwriter is of the 16,000,000 TrUEPrS
initially purchased by the Underwriters.
In view of the fact that the proceeds of the sale of the TrUEPrS will
ultimately be invested in ADSs representing the NAB Preference Shares, the
Purchase Agreement provides that the Trust and NAB will pay, as compensation to
the Underwriters (the "Underwriter's Compensation"), an amount in immediately
available funds of $.7875 per TrUEPrS or $12,600,000 in the aggregate (or
$14,486,850 in the aggregate if the Underwriters' over-allotment option is
exercised in full) for the accounts of several Underwriters; provided that such
compensation for sales of more than 10,000 TrUEPrS to any single purchaser will
be $.50 per TrUEPrS and to the extent of such sales, the actual amount of
Underwriters' Compensation will be less than the aggregate amounts specified
herein.
The Underwriters do not intend to confirm sales of TrUEPrS offered hereby to
any accounts over which they exercise discretionary authority.
Prior to the Offering, there has been no public market for the TrUEPrS. The
TrUEPrs have been approved for listing on the NYSE under the trading symbol "NAR
Pr", subject to official notice of issuance. In connection with the listing, the
Underwriters will undertake that sales of TrUEPrS will meet the NYSE's minimum
distribution standards. Trading of the the TrUEPrS on the NYSE is expected to
commence within a 30-day period after the initial delivery of the TrUEPrS. The
Representatives have advised the Trust that they intend to make a market in the
TrUEPrS prior to the commencement of trading on the NYSE. The Representatives
will have no obligation to make a market in the TrUEPrS, however, and may cease
market making activities, if commenced, at any time.
In view of the fact that the proceeds of the sale of the TrUEPrS will
ultimately be invested in ADSs representing the NAB Preference Shares, the Trust
and NAB have agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended, or to
contribute to payments the Underwriters may be required to make in respect
thereof.
In connection with the formation of the Trust, ML IBK Positions, Inc., an
affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, subscribed for
and purchased 4,000 TrUEPrS for a purchase price of $100,000.
38
<PAGE>
Until the distribution of the TrUEPrS is completed, rules of the Commission
may limit the ability of the Underwriters and any selling group members to bid
for and purchase the TrUEPrS. As an exception to these rules, the
Representatives are permitted to engage in certain transactions that stabilize
the price of the TrUEPrS. Such transactions consist of bids or purchases for the
purpose of pegging, fixing or maintaining the price of the TrUEPrS.
If the Underwriters create a short position in the TrUEPrS in connection
with the Offering, i.e., if they sell more TrUEPrS than are set forth on the
cover page of this Prospectus, the Representatives may reduce that short
position by purchasing TrUEPrS in the open market. The Representatives may also
elect to reduce any short position by exercising all or part of the
over-allotment option described above.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
TrUEPrS in the open market to reduce the Underwriters' short position or to
stabilize the price of the TrUEPrS, they may reclaim the amount of the selling
concession from the Underwriters and any selling group members who sold those
TrUEPrS as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Trust nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the TrUEPrS. In addition, neither the
Trust nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
The Trust has not authorized, or taken any action to cause, the issue or
distribution in the Commonwealth of Australia, any of its States, territories or
possessions or any political subdivision thereof ("Australia"), or to any
resident of Australia, of this Prospectus or any other document inviting
applications or offers to subscribe for or purchase the TrUEPrS offered hereby
or offering such TrUEPrS for subscription or purchase and, accordingly, neither
this Prospectus (whether in draft or definitive form) nor any such other
document may be issued or distributed in Australia or to any resident of
Australia for the purpose of inviting applications or offers to subscribe for or
purchase the TrUEPrS offered hereby.
No prospectus in relation to the TrUEPrS has been lodged with or registered
by the Australian Securities and Investments Commission. In connection with
distribution of the TrUEPrS, each of the several Underwriters will represent and
agree that it: (a) has not (directly or indirectly) offered for subscription or
purchase or issued invitations to subscribe for or purchase nor has it sold the
TrUEPrS; (b) will not (directly or indirectly) offer for subscription or
purchase or issue invitations to subscribe for or purchase or sell the TrUEPrS;
and (c) has not distributed and will not distribute any draft or definitive
prospectus, advertisement or other offering material, in each case in Australia
or to any resident of Australia (including corporations and other entities
organized under the laws of Australia but not including a permanent
establishment of such corporations or other entities located outside Australia).
Each Underwriter has also in the Purchase Agreement represented and agreed
that:
(a) it has not offered or sold and prior to the date six months after
the date of issue of the TrUEPrS will not offer or sell any TrUEPrS to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995;
39
<PAGE>
(b) it has complied and will comply with all applicable provisions of
the Financial Services Act 1986 with respect to anything done by it in
relation to the TrUEPrS in, from or otherwise involving the United Kingdom;
and
(c) it has only issued or passed on, and will only issue or pass on, in
the United Kingdom any document received by it in connection with the issue
of the TrUEPrS to a person who is of a kind described in Article 11(3) of
the Financial Services Act 1986 (Investment Advertisements) (Exemptions)
Order 1996 or is a person to whom the document may otherwise lawfully be
issued or passed on.
Certain of the Underwriters render investment banking and other financial
services to NAB from time to time.
LEGAL MATTERS
Certain legal matters will be passed upon for the Trust and the Underwriters
by their counsel, Brown & Wood LLP, New York, New York. Certain matters of
Delaware law will be passed upon for the Trust by Richards, Layton & Finger
P.A., Wilmington, Delaware, special Delaware counsel to the Trust. See also
"Taxation."
EXPERTS
The statement of assets and liabilities included in this Prospectus has been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
opinion appearing herein, and has been included in reliance upon such opinion
given on the authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Trust has filed with the Commission, Washington, D.C. 20549, a
Registration Statement on Form N-2 under the Securities Act with respect to the
TrUEPrS offered hereby. Further information concerning the TrUEPrS and the Trust
may be found in the Registration Statement, of which this Prospectus constitutes
a part. The Registration Statement may be inspected without charge at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies of all or any part thereof may
be obtained from such office after payment of the fees prescribed by the
Commission. The Commission maintains a Web site at http://www.sec.gov containing
reports, proxy and information statements and other information regarding
registrants, such as the Trust, that file electronically with the Commission.
40
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholder of NAB Exchangeable Preferred
Trust:
We have audited the accompanying statement of assets and liabilities of NAB
Exchangeable Preferred Trust as of September 10, 1998. This financial statement
is the responsibility of the Trust's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by the
Trust's management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, such statement of assets and liabilities presents fairly, in
all material respects, the financial position of NAB Exchangeable Preferred
Trust, as of September 10, 1998 in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Princeton, New Jersey
September 10, 1998
41
<PAGE>
NAB EXCHANGEABLE PREFERRED TRUST
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 10, 1998
<TABLE>
<S> <C>
ASSETS
Cash.............................................................................. $ 100,000
---------
Total Assets...................................................................... $ 100,000
---------
---------
LIABILITIES
Total Liabilities................................................................. $ 0
---------
NET ASSETS........................................................................ $ 100,000
---------
---------
NET ASSET VALUE PER TRUEPRS
4,000 TrUEPrS issued and outstanding (Note 3)..................................... $ 25
---------
---------
</TABLE>
- ------------------------
(1) The Trust was created as a Delaware business trust on July 28, 1998 and has
had no operations other than matters relating to its organization and
registration as a non-diversified, closed-end management investment company
under the U.S. Investment Company Act of 1940, as amended. Costs incurred in
connection with the organization of the Trust will be paid by the Trust out
of the facility fee paid to the Trust by the U.K. Company in connection with
the investment by the Trust in the Debt Securities. The ongoing
administrative and other expenses of the Trust will be paid by the Jersey
Holding Company pursuant to the Trust Expense Agreement. Subject to the
satisfaction of certain conditions, operating expenses of the Trust not paid
by the Jersey Holding Company under the Trust Expense Agreement will be paid
by the NAB Affiliate if covered by the terms of the Expense and Indemnity
Agreement.
(2) Offering expenses will be payable upon completion of the Offerings and such
expenses (including a portion of the Underwriter's Compensation) will be
paid by the Trust out of the facility fee to be paid to the Trust by the
U.K. Company in connection with the investment by the Trust in the Debt
Securities.
(3) On September 10, 1998, the Trust issued 4,000 TrUEPrS to ML IBK Positions,
Inc., an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, in
consideration for a purchase price of $100,000.
42
<PAGE>
THE FOLLOWING PROSPECTUS OF NATIONAL AUSTRALIA BANK LIMITED IS ATTACHED AND
DELIVERED FOR CONVENIENCE OF REFERENCE ONLY. THE PROSPECTUS OF NATIONAL
AUSTRALIA BANK LIMITED DOES NOT CONSTITUTE A PART OF THE FOREGOING PROSPECTUS OF
NAB EXCHANGEABLE PREFERRED TRUST, NOR IS IT INCORPORATED BY REFERENCE THEREIN.
<PAGE>
PROSPECTUS
[LOGO]
16,004,000 SHARES
NATIONAL AUSTRALIA BANK LIMITED
(ACN 004 044 937)
AMERICAN DEPOSITARY SHARES
EACH REPRESENTING TWO PREFERENCE SHARES
(LIQUIDATION PREFERENCE EQUIVALENT TO US$25 PER AMERICAN DEPOSITARY SHARE)
------------------------------
This Prospectus relates to 16,004,000 American Depositary Shares (the
"ADSs") , each representing two fully paid non-cumulative Preference Shares (as
defined below) with a liquidation preference of US$12.50 per share (equivalent
to US$ 25 per ADS) of National Australia Bank Limited (the "Company" or "NAB"),
deposited with The Bank of New York, as Depositary. Each ADS entitles the holder
to all proportional rights and preferences of two Preference Shares (including
dividend, voting, redemption and liquidation rights and preferences). The ADSs
initially will be sold to the Jersey Subsidiary (as defined in the accompanying
TrUEPrS-SM- Prospectus) at a purchase price of US$25 per ADS and may be
distributed to holders of Trust Units Exchangeable for Preference Shares-SM-
(the "TrUEPrS") issued by NAB Exchangeable Preferred Trust, a Delaware business
trust (the "Trust"), on or as soon as practicable after the Conversion Date (as
defined herein). Any such distribution will be on the basis of one ADS per
TrUEPrS.
The Preference Shares initially represented by the ADSs will not accrue or
pay dividends (the "Initial Preference Shares"). If and when a Conversion Event
(as defined herein) occurs, each Initial Preference Share will automatically
convert into a preference share of the Company which will accrue non-cumulative
dividends as described below (the "Dividend Paying Preference Shares"). With the
exception of these conversion rights, the dividend rights and rights associated
with such dividend rights, and that the Dividend Paying Preference Shares may be
redeemed in part, the terms and conditions of the Dividend Paying Preference
Shares will be identical to those of the Initial Preference Shares, and from and
after such conversion the ADSs will represent the Dividend Paying Preference
Shares. For convenience of reference, the Initial Preference Shares and the
Dividend Paying Preference Shares are sometimes referred to herein as the
"Preference Shares". The Dividend Paying Preference Shares will accrue
non-cumulative dividends in U.S. dollars at the rate of US$1.00 per share per
annum. Such dividends will be payable, if and when declared by the Board of
Directors out of profits legally available therefor, quarterly in arrears in an
amount equal to US$.25 per Preference Share per quarter on March 31, June 30,
September 30 and December 31 of each year (each, a "Dividend Payment Date") to
holders of record as of the immediately preceding March 15, June 15, September
15 and December 15 respectively, (each a "Record Date"). See "Description of the
Preference Shares--The Preference Shares--Dividends."
The Preference Shares are subject to (i) redemption, (ii) mandatory
repurchase ("Buy-Back") or (iii) reduction of a portion of the capital of each
Preference Share immediately followed by redemption of the remaining capital
thereof on the next Business Day (as defined herein) following the date of such
reduction of capital (such reduction of capital and subsequent redemption are
collectively referred to herein as "Capital Reduction"), in each case by the
Company in its absolute discretion, for a total consideration of US$12.50 per
Preference Share (equivalent to US$25 per ADS) plus, in the case of the Dividend
Paying Preference Shares, any unpaid dividends accrued thereon for the period
from and including the most recent Dividend Payment Date to but excluding the
date fixed for such redemption, Buy-Back or Capital Reduction. See "Description
of the Preference Shares-- Redemption, Buy-Back or Capital Reduction."
The Preference Shares will rank upon liquidation and, after the Conversion
Date will rank as to dividends, senior to the Company's ordinary shares and PARI
PASSU with other designated preference shares, if any, of the Company. Upon
liquidation, the Preference Shares will rank junior to all liabilities and debts
of the Company. See "Description of the Preference Shares--Ranking."
The TrUEPrS are being offered in the United States and Canada by the
Underwriters (the "Offering"). The Trust has granted to the Underwriters (the
"Underwriters of the TrUEPrS") of the TrUEPrS a 30-day option to purchase
additional TrUEPrS solely to cover over-allotments, if any. This Prospectus also
relates to up to an additional 2,396,000 ADSs representing 4,792,000 Preference
Shares which may be distributed by the Trust on or as soon as practicable after
a Conversion Date (as defined herein) to the holders of the TrUEPrS issued
pursuant to the exercise of the over-allotment options granted by the Trust to
the Underwriters of the TrUEPrS.
The TrUEPrS are offered by a separate prospectus of the Trust (the "TrUEPrS
Prospectus"). This Prospectus relates only to the ADSs and the Preference Shares
covered hereby and does not relate to the TrUEPrS. THE COMPANY TAKES NO
RESPONSIBILITY FOR ANY INFORMATION INCLUDED IN OR OMITTED FROM THE TRUST
PROSPECTUS. THE TRUST PROSPECTUS DOES NOT CONSTITUTE A PART OF THIS PROSPECTUS
NOR IS IT INCORPORATED BY REFERENCE HEREIN. Because the TrUEPrS are a separate
security issued by the Trust, an investment in the TrUEPrS may have materially
different characteristics and risks from a direct investment in the ADSs or the
Preference Shares.
Prior to the offering made hereby there has been no public market for the
ADSs or the Preference Shares. The ADSs and Preference Shares have been approved
for listing on the New York Stock Exchange (the "NYSE"), subject to official
notice of issuance and the occurrence of an Exchange Event.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
- -SM- Service Mark of Merrill Lynch & Co. Inc.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 23, 1998.
<PAGE>
IN CONNECTION WITH THE OFFERING OF THE TRUEPRS, THE UNDERWRITERS OF THE
TRUEPRS MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT
THE MARKET PRICE OF THE SECURITIES OFFERED HEREBY. SUCH TRANSACTIONS MAY INCLUDE
STABILIZING AND THE PURCHASE OF TRUEPRS TO COVER SHORT POSITIONS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF DISTRIBUTION."
The Company has not authorized, or taken any action to cause, the issue or
distribution in the Commonwealth of Australia, any of its States, territories or
possessions or any political subdivision thereof ("Australia"), or to any
resident of Australia, of this Prospectus or any other document inviting
applications or offers to subscribe for or purchase the ADSs or the Preference
Shares offered hereby or offering such ADSs or Preference Shares for
subscription or purchase and, accordingly, neither this Prospectus (whether in
draft or definitive form) nor any such other document may be issued or
distributed in Australia or to any resident of Australia for the purpose of
inviting applications or offers to subscribe for or purchase the ADSs or the
Preference Shares offered hereby.
No prospectus in relation to the ADSs or the Preference Shares has been
lodged with or registered by the Australian Securities and Investments
Commission. In connection with the distribution of the ADSs and the Preference
Shares, each of the several Underwriters will represent and agree that it: (a)
has not (directly or indirectly) offered for subscription or purchase or issued
invitations to subscribe for or purchase nor has it sold the ADSs and the
Preference Shares; (b) will not (directly or indirectly) offer for subscription
or purchase or issue invitations to subscribe for or purchase or sell the ADSs
or the Preference Shares; and (c) has not distributed and will not distribute
any draft or definitive prospectus, advertisement or other offering material, in
each case in Australia or to any resident of Australia (including corporations
and other entities organized under the laws of Australia but not including a
permanent establishment of such corporations or other entities located outside
Australia).
No prospectus in respect of the ADSs or Preference Shares has been or will
be prepared and filed in the United Kingdom by the Company or any other entity
pursuant to the United Kingdom Public Offers of Securities Regulations 1995.
Accordingly, the ADSs and the Preference Shares may not be offered or sold or
reoffered or resold to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing, and disposing
of investments (as principal or agent) for the purpose of their businesses, or
otherwise in circumstances that will not constitute or result in an offer to the
public in the United Kingdom within the meaning of the United Kingdom Public
Offers of Securities Regulations 1995. Neither this prospectus nor any other
document inviting applications of offers to subscribe for or purchase the ADSs
or the Preference Shares or offering the ADSs and Preference Shares for
subscription or purchase may be passed to any person in the United Kingdom who
does not fall within Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 and who is not otherwise a
person to whom the document may be lawfully issued or passed.
------------------------
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF, OR AN INVITATION TO
PURCHASE OR SUBSCRIBE FOR, THE ADSS OR PREFERENCE SHARES IN THE COMMONWEALTH OF
AUSTRALIA OR ANY OF ITS STATES OR TERRITORIES.
------------------------
NEITHER THE ADSS NOR THE PREFERENCE SHARES MAY BE OFFERED, SOLD OR DELIVERED
IN OR TO ANY RESIDENT OF THE COMMONWEALTH OF AUSTRALIA OR ANY OF ITS STATES OR
TERRITORIES.
2
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the United States Securities
and Exchange Commission (the "Commission"). Such reports and other information
(which are not incorporated by reference herein and do not form a part hereof
except as stated below under "Incorporation of Certain Information by
Reference") filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
located at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and 13th Floor, 7 World Trade Center, New York, New
York 10048. Copies of such materials can be obtained from the Public Reference
Branch of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Additionally, the Commission maintains a Web site on the
Internet at http://www.sec.gov that contains reports, proxy statements and other
information about National Australia Bank Limited and its subsidiaries. The ADSs
will be listed on, and such material may also be inspected and copied at the
offices of, the NYSE, located at 20 Broad Street, New York, New York 10005.
The Company's annual reports on Form 20-F filed with the Commission include
a description of its operations and annual audited consolidated financial
statements of the Company prepared in conformity with Australian generally
accepted accounting principles ("Australian GAAP"), together with a
reconciliation of material variations of consolidated net income and
consolidated shareholders' equity to amounts determined in accordance with
United States generally accepted accounting principles ("US GAAP").
The Company has filed a registration statement on Form F-3 (together with
all amendments and exhibits, referred to as the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), relating to the
Preference Shares. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission and to which
reference is hereby made. The Company has also filed a registration statement on
Form F-6 under the Securities Act relating to the ADSs.
All information contained in this Prospectus relating to the Trust and the
TrUEPrS and the proposed offering of the TrUEPrS has been provided to the
Company by the Trust. The Company did not form the Trust and the securities
issued or held by the Trust may be subject to factors unrelated to the Company,
the ADSs and the Preference Shares.
It is contemplated that this Prospectus will be provided only to persons who
are prospective purchasers of the TrUEPrS, which persons shall simultaneously
receive from the Trust or the Underwriters of the TrUEPrS a TrUEPrS Prospectus
relating to the offer and sale of the TrUEPrS. This Prospectus is not intended
and has not been authorized to be used for any purpose other than to provide
legally required information to prospective purchasers of the TrUEPrS who also
have received the accompanying TrUEPrS Prospectus. Each term not defined herein
has the meaning as defined in the accompanying TrUEPrS Prospectus.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission (File No. 1-9945) pursuant
to the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 20-F for the fiscal year ended
September 30, 1997 ("1997 Annual Report");
2. The Company's Reports on Form 6-K dated January 22, 1998, February 11,
1998, March 25, 1998, April 7, 1998, May 11, 1998, (the "1998 Interim Results
Form 6-K"), January 23, 1998, May 27, 1998, June 26, 1998, July 24, 1998, July
31, 1998, August 21, 1998 and September 10, 1998; and
3
<PAGE>
3. All other documents filed by the Company pursuant to Section 13(a), 13(c)
or 15(d) of the Exchange Act and certain Reports on Form 6-K, to the extent, if
at all, designated therein, furnished by the Company subsequent to the date of
this Prospectus and prior to the termination of the offering of the Preference
Shares represented by the ADSs.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of any such person, a copy of any or all of the
documents which are incorporated herein by reference, other than exhibits to
such information (unless such exhibits are specifically incorporated by
reference into such documents). Requests should be directed to the Company c/o
Executive Vice President and General Manager, Wholesale Financial Services
Americas, National Australia Bank Limited, 200 Park Avenue, 34th Floor, New
York, New York 10166-0001. Telephone requests may be directed to the Executive
Vice President and General Manager, Wholesale Financial Services Americas, at
(212) 916-9501.
Any statement contained herein or in a document all or a portion of which is
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified shall not be deemed to
constitute a part of this Prospectus except as so modified, and any statement so
superseded shall not be deemed to constitute a part of this Prospectus.
------------------------
ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES
The Company is a corporation with limited liability incorporated in the
State of Victoria in the Commonwealth of Australia. All of the directors and
substantially all of the executive officers of the Company and certain experts
named in this Prospectus reside outside the United States. All or a substantial
portion of the assets of these persons are located outside the United States
(principally in the Commonwealth of Australia). As a result, it may not be
possible for investors to effect service of process within the United States
upon such persons or to enforce against them judgments obtained in United States
courts predicated upon the civil liability provisions of the Federal securities
laws of the United States. The Company has been advised by its Australian
counsel, Mallesons Stephen Jaques, that there is doubt as to the enforceability
in the Commonwealth of Australia, in original actions or in actions for
enforcement of judgments of United States courts, of civil liabilities
predicated upon the Federal securities laws of the United States. The Company
has appointed its Executive Vice President and General Manager, Wholesale
Financial Services Americas, National Australia Bank Limited, 200 Park Avenue,
34th Floor, New York, New York as its agent upon whom process may be served in
any such action.
------------------------
CURRENCY OF PRESENTATION AND EXCHANGE RATES
The Company publishes its consolidated financial statements in Australian
dollars. In this Prospectus, unless otherwise specified herein or the context
requires, references to "US$" or "US dollars" are to United States dollars and
references to "$" or "A$" are to Australian dollars. For the convenience of the
reader, this Prospectus contains translations of certain Australian dollar
amounts into US dollars at the rate or rates indicated. Translations of
Australian dollars into US dollars have been made at the noon buying rate in New
York City for cable transfers in Australian dollars as certified for customs
purposes by the Federal Reserve Bank of New York (the "Noon Buying Rate") for
the dates specified. These translations should not be construed as
representations that the Australian dollar amounts actually represent such US
dollar amounts or could be converted into US dollars at the rate indicated.
The following table sets forth, for the Company's fiscal years indicated,
the high, low, average and period-end Noon Buying Rates for Australian dollars
expressed in United States dollars per A$1.00.
4
<PAGE>
Unless otherwise specified herein, references to exchange rate translations
shall be to the Noon Buying Rate on September 10, 1998, which was US$0.5966 =
A$1.00. On March 31, 1998, the Noon Buying Rate was US$0.6613 = A$1.00 and on
September 30, 1997 was US$0.7250 = A$1.00. The Company's fiscal year ends on
September 30 of each year.
<TABLE>
<CAPTION>
FISCAL YEAR AT PERIOD END AVERAGE RATE(1) HIGH LOW
- ------------------------------------------ ------------- --------------- --------- ---------
<S> <C> <C> <C> <C>
1991-92................................... 0.7139 0.7561 0.8004 0.7112
1992-93................................... 0.6450 0.6878 0.7224 0.6450
1993-94................................... 0.7400 0.7096 0.7467 0.6460
1994-95................................... 0.7555 0.7427 0.7778 0.7100
1995-96................................... 0.7912 0.7712 0.8026 0.7318
1996-97................................... 0.7250 0.7691 0.8180 0.7163
1997-98(2)................................ 0.5966 0.6494 0.7386 0.5550
</TABLE>
- ------------------------
(1) The daily average of the Noon Buying Rates.
(2) Through September 10, 1998.
Australian Dollars are convertible into US dollars at freely floating rates.
Under certain instruments issued by the Reserve Bank of Australia (the "RBA")
under the Banking (Foreign Exchange) Regulations, the specific prior approval of
the RBA must be obtained in connection with certain payments in and from
Australia to, by the order of, on behalf of, or relating to property, securities
or funds belonging to or controlled by or payments to (a) the Government of Iraq
or its agencies or its nationals, (b) authorities in the Federal Republic of
Yugoslavia (Serbia and Montenegro) or their agencies, or (c) the Government or a
public authority of Libya or certain Libyan undertakings. In this Prospectus,
the "Reserve Bank of Australia" (or "RBA") and the "Australian Prudential
Regulation Authority" (or "APRA" and together with the RBA, the "Regulatory
Authority") includes any authority succeeding to their respective powers and
functions.
------------------------
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements under the captions "Prospectus Summary," "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
elsewhere in this Prospectus (including in the documents incorporated by
reference into this Prospectus) constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: unanticipated changes in customer
preferences; demographic changes; changes in competitive conditions in
Australia, the United Kingdom, Ireland, New Zealand, the United States or Asia;
changes in the regulatory structure of the banking industry in Australia, the
United Kingdom, Ireland, New Zealand, the United States or Asia; changes in
political, social and economic conditions in Australia, the United Kingdom,
Ireland, New Zealand, the United States or Asia; legislative proposals for
reform of the banking industry in Australia, the United Kingdom, Ireland, New
Zealand, the United States or Asia; and various other factors beyond the
Company's control. Given these risks, uncertainties and other factors, potential
investors are cautioned not to place undue reliance on such forward-looking
statements.
5
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROSPECTUS OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS. REFERENCE IS
MADE TO, AND THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, CONTAINED
ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS.
THE DISCUSSION BELOW CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS. SEE "SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS."
NATIONAL AUSTRALIA BANK LIMITED
National Australia Bank Limited, together with its subsidiaries (the
"Group"), is Australia's largest financial institution with total assets of $233
billion and over $300 billion in assets under administration as at March 31,
1998. The Group had a market capitalization of $30.5 billion at June 30, 1998,
ranking it as one of the three largest Australian companies listed on the
Australian Stock Exchange Limited. The Group is among the world's 50 largest
banks in terms of shareholders' equity and has operations across four continents
and 15 countries.
For its fiscal year ended September 30, 1997, the Group recorded an
operating profit after tax of $2,223 million, the Group's fifth consecutive year
of record profits, and for the half year ended March 31, 1998 recorded an
operating profit after tax and abnormal items of $958 million. The Group's
return on equity for the fiscal year ended September 30, 1997 and the half year
ended March 31, 1998 was 16.2% and 14.3%, respectively. For a discussion of the
Group's results for the nine months ended June 30, 1998, see "Recent
Developments--Third Quarter Results."
The Company was established in Melbourne, Australia in 1858 as The National
Bank of Australasia. The Group has expanded its banking activities in Australia
and overseas through a combination of organic growth and acquisitions. Over the
past decade, the Group has diversified the geographic range of its activities by
acquiring regional banks in the United Kingdom, the Republic of Ireland
("Ireland"), New Zealand and the United States, as well as a significant
mortgage originator and servicing company in the United States. The Group owns
full service banks in all of these markets, and is continuing to develop the
banking and financial service activities of each bank within its respective
regional market. The acquisition of operations outside Australia has reduced the
Group's dependence on any single economy and has significantly diversified the
Group's asset base and earnings streams. From an operation based almost entirely
in Australia in 1986, the Group now has 51% of its assets outside Australia
which generated over 47% of the Group's operating profit after tax, goodwill and
abnormal items for the nine months to June 30, 1998.
6
<PAGE>
SUMMARY OF CERTAIN CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31, YEAR ENDED SEPTEMBER 30,
-------------------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 % 1997 % 1997 % 1996 %
---------- --------- ---------- --------- ---------- --------- ---------- ---------
<CAPTION>
(IN MILLIONS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GEOGRAPHICAL
ASSETS
Australia.................... A$ 116,397 49.9% A$ 100,799 53.3% A$ 107,573 53.3% A$ 93,998 54.1%
Europe....................... 57,237 24.5 45,858 24.2 47,273 23.4 39,748 22.9
New Zealand.................. 20,914 9.0 19,465 10.3 20,674 10.2 18,927 10.9
United States................ 26,954 11.6 14,213 7.5 16,825 8.3 14,433 8.3
Asia......................... 11,680 5.0 8,864 4.7 9,624 4.8 6,604 3.8
---------- --------- ---------- --------- ---------- --------- ---------- ---------
A$ 233,182 100.0% A$ 189,199 100.0% A$ 201,969 100.0% A$ 173,710 100.0%
---------- --------- ---------- --------- ---------- --------- ---------- ---------
---------- --------- ---------- --------- ---------- --------- ---------- ---------
OPERATING REVENUE
Australia.................... A$ 4,331 46.9% A$ 4,148 52.7% A$ 8,428 52.1% A$ 8,144 54.5%
Europe....................... 2,551 27.6 1,877 23.9 3,982 24.6 3,382 22.6
New Zealand.................. 1,048 11.4 1,023 13.0 2,017 12.5 1,920 12.9
United States................ 852 9.2 592 7.5 1,228 7.6 1,117 7.5
Asia......................... 455 4.9 227 2.9 516 3.2 377 2.5
---------- --------- ---------- --------- ---------- --------- ---------- ---------
A$ 9,237 100.0% A$ 7,867 100.0% A$ 16,171 100.0% A$ 14,940 100.0%
---------- --------- ---------- --------- ---------- --------- ---------- ---------
---------- --------- ---------- --------- ---------- --------- ---------- ---------
OPERATING PROFIT BEFORE TAX
Australia.................... A$ 788 54.5% A$ 1,096 62.7 A$ 2,026 61.1% A$ 2,045 66.8%
Europe....................... 361 25.0 350 20.0 749 22.6 545 17.8
New Zealand.................. 135 9.3 160 9.1 276 8.3 234 7.6
United States................ 132 9.1 128 7.3 235 7.1 215 7.0
Asia......................... 30 2.1 16 0.9 30 0.9 23 0.8
---------- --------- ---------- --------- ---------- --------- ---------- ---------
A$ 1,446 100.0% A$ 1,750 100.0% A$ 3,316 100.0% A$ 3,062 100.0%
---------- --------- ---------- --------- ---------- --------- ---------- ---------
---------- --------- ---------- --------- ---------- --------- ---------- ---------
OPERATING PROFIT AFTER TAX,
ABNORMAL ITEMS AND OUTSIDE
EQUITY INTERESTS
Australia.................... A$ 520 54.3% A$ 721 63.3% A$ 1,329 59.8% A$ 1,448 68.9%
Europe....................... 246 25.7 215 18.9 488 22.0 341 16.2
New Zealand.................. 97 10.1 113 9.9 197 8.9 161 7.7
United States................ 74 7.7 75 6.6 181 8.1 131 6.2
Asia......................... 21 2.2 15 1.3 28 1.2 21 1.0
---------- --------- ---------- --------- ---------- --------- ---------- ---------
A$ 958 100.0% A$ 1,139 100.0% A$ 2,223 100.0% A$ 2,102 100.0%
---------- --------- ---------- --------- ---------- --------- ---------- ---------
---------- --------- ---------- --------- ---------- --------- ---------- ---------
</TABLE>
OPERATING STRUCTURE
In April 1998 the Group announced a new operating structure which is being
progressively implemented, and which aims to achieve the Group's goal of
becoming a leading international financial services group. The Group's new
business operating structure has four key elements:
1. A series of customer focused retailers, dedicated to meeting the
needs of personal and business customers with a range of products sourced
from both inside and outside the organization.
2. Shared customer service operations centralizing the common business
unit functions, such as technology, operations and processing, and telephone
banking.
3. Product specialists developing financial products at the lowest
possible cost. HomeSide Inc., based in Florida and acquired in February
1998, is the Group's first international product specialist.
4. A streamlined corporate office focused on Group strategy, policy and
corporate governance.
7
<PAGE>
The Group's retail activities (personal and business clients) are under the
control of the Executive General Manager, Business and Personal Financial
Services. The Executive General Manager, Products and Services controls the
various specialist and shared service activities. Technology services for the
Group worldwide are managed by the Chief Information Officer. Global Wholesale
Financial Services, led by an Executive General Manager, manages corporate and
institutional relationships on a global basis to address the unique needs of
these clients. Finally, an Executive General Manager manages HomeSide's mortgage
banking activities.
The customer focused retailers are operated and managed at a regional level,
and comprise the main banking and financial services companies operating
principally in Australia, New Zealand, the United Kingdom, Ireland and the
United States. These regional units maintain common global standards for
customer segmentation and other sales and service management principles.
The Group's three main regions are Asia Pacific (comprising Australia, New
Zealand and Asia), Europe (including the United Kingdom and Ireland) and the
United States. The following review of operations and the discussion under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" is presented on a basis consistent with that presented in the
Group's March 31, 1998 results and does not reflect the Group's new business
structure.
RETAIL OPERATIONS
AUSTRALIA
The Group's Australian business (the "National") offers a range of banking
and financial services for both personal and business customers. Personal
financial services offered include mortgage lending, credit cards, savings and
transaction accounts and personal loans. Business financial services include
term and overdraft lending, trade finance, leasing, invoice discounting, fleet
management services, payment services and equity financing. In addition to its
traditional banking products, the National provides a range of other financial
services through its wholly owned subsidiary, National Australia Financial
Management Limited. Services provided include personal financial planning, life
and disability insurance, superannuation (pensions), a range of managed
investment funds, business superannuation and income protection insurances. The
National also offers custody and trustee services to its retail and corporate
customers.
In fiscal year 1997, the National's total Australian banking operations
earned an operating profit after tax and outside equity interests in Australia
of $1,143 million, representing a return on assets of 1.3% for the fiscal year
ended September 30, 1997. For the six months ended March 31, 1998, the
National's operating profit after tax and outside equity interests was $634
million, representing a return on assets of 1.1% for such six-month period. The
National's cost-to-income ratio for the six months ended March 31, 1998 was
53.8% compared to 51.5% for the six months ended March 31, 1997. Through the
1997 fiscal year, the National increased its market share in key segments,
including the home lending market, and experienced strong growth in its custody,
trustee, funds management and protection insurance business.
The National has a large personal customer base, with approximately three
million customers. Services are provided through a range of outlets, including
agencies, branches and business banking centers. Customers can also access the
bank through a variety of electronic mediums including telephone banking,
Automatic Teller Machines and Electronic Point of Sale devices. The National is
progressively reconfiguring its distribution network to reduce its reliance on
the branch network while improving customer access through electronic mediums.
The National is the largest provider of business banking services in
Australia and the largest financier to the rural sector. The Company believes
that the National's strong position in business markets is the result of
carefully targeted initiatives over a number of years, including the development
of a network of more than 219 specialist business banking outlets. Wholesale
funds management activities are provided
8
<PAGE>
through National Australia Asset Management Limited and the recently acquired
County Investment Management Limited.
As a result of significant deregulation of the Australian financial system
over the last 15 years, the financial services marketplace in Australia consists
of a number of diverse institutions offering a wide variety of services. The
four major commercial banks (of which the National is the largest in terms of
total assets) continue to dominate banking services although a number of
regional banks, building societies, finance companies, investment banks and
mortgage originators have targeted niches in selected geographic and product
markets creating a highly competitive environment. Insurance companies are also
a major force in the Australian financial system and have recently begun to
broaden their range of products from insurance, managed investments and
superannuation (pensions) to compete in the banking industry's traditional
markets. Similarly, the major commercial banking groups, including the Company,
are now offering life insurance, managed investments and superannuation funds to
retail customers and more recently have been relatively successful in attracting
an increasing proportion of new investment funds.
Management expects competition in the National's business activities to
intensify further, placing continued pressure on interest margins. It believes,
however, that the National is well positioned in the core banking and financial
services markets due to its strong retail franchise, focus on tailoring products
to individual needs and its growing financial services activities.
NEW ZEALAND
Bank of New Zealand ("BNZ") was acquired by the Group in 1992. It is the
second largest financial institution in New Zealand in terms of assets, with
5,124 full-time equivalent staff and 220 outlets at September 30, 1997. BNZ
offers a comprehensive range of banking and financial services to personal and
business customers. BNZ's total assets were $21.4 billion as at March 31, 1998.
In fiscal year 1997, BNZ earned a net operating profit after tax and outside
equity interest of A$297 million, an increase of 6.5% over the previous fiscal
year. BNZ achieved higher lending volumes in personal and business lending
markets and its cost-to-income ratio (excluding restructuring costs) decreased
from 58.0% to 56.5% over the previous fiscal year. For the six months ended
March 31, 1998, BNZ's net operating profit after tax and outside equity
interests was $140 million, a decrease of 18.6% from the six months ended March
31, 1997, and its cost-to-income ratio (excluding restructuring costs) increased
from 53.1% for the six months ended March 31, 1997 to 57.1% for the six months
ended March 31, 1998. BNZ's distribution network is being reconfigured resulting
in a reduction in the number of traditional branches, the establishment of
specialized branches for business customers and the further development of other
distribution mediums such as telephone banking and 24 hour drive-through
outlets.
UNITED KINGDOM AND IRELAND
The Group's retail operations in the United Kingdom and Ireland comprise
four regional banks and a life insurance company. These investments make the
Group the second largest foreign owned banking and financial services group in
the region in terms of assets, with more than 800 outlets and four million
customers.
The Group's regional banks in the United Kingdom are Clydesdale Bank in
Scotland, Yorkshire Bank in northern England and Northern Bank in Northern
Ireland. The Group also owns National Irish Bank in Ireland. All four banks
offer a comprehensive range of banking and financial services in their
respective markets. These banks benefit from the provision of shared services on
a regional basis for Europe, which provides a central support infrastructure for
functions such as technology, telephone banking, collections and recoveries and
marketing. These initiatives have significantly improved the efficiency and
co-ordination of the Group's European operations.
9
<PAGE>
Clydesdale Bank is the third largest bank in Scotland in terms of assets,
with total assets of $18.7 billion at March 31, 1998. It had 332 outlets and
4,684 full-time equivalent staff at September 30, 1997. In fiscal year 1997, net
operating profit was $211 million, an increase of 30.2% over fiscal year 1996.
Clydesdale Bank achieved strong growth in business markets during fiscal year
1997 while its cost-to-income ratio (excluding re-structuring costs) improved to
53.8% from 57.7% in fiscal year 1996. For the six months ended March 31, 1998,
Clydesdale Bank's net operating profit was $120 million, an increase of 37.9%
over the six months ended March 31, 1997, and its cost-to-income ratio
(excluding restructuring costs) improved to 52.5% for the six months ended March
31, 1998 from 56.1% in the corresponding period in the previous year.
Yorkshire Bank operates through 304 outlets in the north of England and the
Midlands with 6,139 full-time equivalent staff at September 30, 1997. At March
31, 1998, it had total assets of $12.7 billion. Net operating profit increased
in 1997 compared to the previous fiscal year by 42.8% to $227 million. Although
the underlying performance was sound, net profit was adversely affected by an
increase in the provision for doubtful debts. The Bank has continued to be
successful in its traditional markets with good growth in loans (up 16.8% from
September 30, 1996) and deposits (up 22.3% from September, 30 1996) as well as
experiencing improvements in asset finance, business banking and mortgage
lending. For the six months ended March 31, 1998, Yorkshire Bank's net operating
profit was $171 million, an increase of 54.1% over the six months ended March
31, 1997. Growth in loans (up 21.1% from the six months ended March 31, 1997)
and deposits (up 27.6% from the six months ended March 31, 1997) continued
during the period. Yorkshire Bank's cost-to-income ratio for the six months
ended March 31, 1998 was 51.9% compared to 51.4% for the six months ended March
31, 1997.
Northern Bank is the largest bank in Northern Ireland, in terms of assets,
with total assets of A$7.7 billion at September 30, 1997. It has 107 outlets
throughout Northern Ireland and 2,299 full-time equivalent staff. In 1997, net
operating profit increased by 22.7% over the previous fiscal year to A$119
million, and its cost to operating income ratio (excluding restructuring costs)
improved to 51.9% from 54.8% in 1996. The Bank also achieved a 25.6% increase in
housing lending volumes and a significant reduction in the charge for doubtful
debts.
National Irish Bank had 65 outlets in Ireland and 824 full-time equivalent
staff at September 30, 1997, and assets of $3.5 billion at March 31, 1998. A
successful expansion in business banking was achieved in fiscal year 1997, net
operating profit increased 22.2% over the previous fiscal year to $33 million.
For the six months ended March 31, 1998, National Irish Bank's net operating
profit was $21 million, an increase of 61.5% over the six months ended March 31,
1997. The Bank's cost-to-income ratio also improved to 59.8% during that period
from 65.0% for the corresponding period in the previous year.
In 1995, the Group established National Australia Life Limited ("National
Australia Life") to provide a selected range of life insurance and investment
products. These are marketed by Clydesdale Bank, Yorkshire Bank and Northern
Bank as an integrated part of each Bank's product and service range. The Group
intends to improve its non-interest income in the United Kingdom through further
penetration of National Australia Life products into the existing customer base.
The Group's United Kingdom banking subsidiaries also operate a number of
finance and leasing businesses, including: Clyde General Finance Limited
(Clydesdale Bank); Northern Bank Factors Limited and Northern Bank Leasing
Limited (Northern Bank); and Yorkshire Bank Finance Limited and a number of
leasing entities (Yorkshire Bank). Other specialized service entities include
Northern Bank Executor and Trustee Company Limited.
UNITED STATES
In the United States, the Group provides financial services through Michigan
National Bank ("MNB"), which was acquired in November 1995 and is the principal
subsidiary of the Michigan National Corporation. It is currently the fourth
largest bank in Michigan and the 63rd largest bank in the United
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States, in each case, in terms of total assets as of December 31, 1997. MNB had
total assets of $14.2 billion at March 31, 1998, and 3,639 full-time equivalent
staff as of September 30, 1997.
MNB offers a full range of banking and financial services for commercial,
small business, and personal customers. It operates through 190 financial
service centers (including 21 supermarket financial service centers) as of
September 30, 1997 and a broad ATM network across the state of Michigan. MNB
also provides a highly efficient telephone banking service that enables
customers to open accounts, apply for loans and conduct transactions over the
phone.
Net profit in MNB increased 29% in fiscal year 1997 to $222 million (before
amortization of goodwill) (after annualizing fiscal year 1996 net income) driven
by strong growth in small business and robust fee income. In fiscal year 1997,
fee income represented 33% of total revenue. Its cost-to-operating income ratio
was 55.7% for such fiscal year. For the six months ended March 31, 1998, MNB's
net profit was $99 million, an increase of 7.6% over the six months ended March
31, 1997. Its cost-to-income ratio for the period was 58.6% compared with 54.4%
for the corresponding period in the prior year.
The Group also has a branch in New York which supports Group customers doing
business in the United States and markets its services to U.S. companies with
operations in Australia, New Zealand, the United Kingdom and Ireland. A New York
treasury unit raises United States dollar funding for the Group and assists in
providing the global treasury needs of the Group's customers.
ASIA
From its regional headquarters in Hong Kong, the Group operates seven
branches and four representative offices in Asia's major business capitals. More
than 291 full-time equivalent staff at March 31, 1998 were employed across the
region. The Group has recently established a further three offshore banking
units to facilitate the provision of corporate banking services to Group
customers.
The Group's outlets in Asia provide international trade finance and treasury
services, primarily to companies which participate in trade flows between Asia
and the Group's key markets of Australia, New Zealand, the United Kingdom and
Ireland, and the United States. The Group offers selected retail banking and
financial services in Hong Kong.
In fiscal year 1997, the Asia group contributed $28 million to, or 1.2% of,
the Group's consolidated operating profit after tax and outside equity
interests. For the six months ended March 31, 1998, the Asia group contributed
$21 million to, or 2.2% of, the Group's consolidated operating profit after tax
and outside equity interests. For a discussion of the Group's exposure to Asia,
see "Recent Developments-- Third Quarter Results--Asian Exposure".
GLOBAL BUSINESS
WHOLESALE OPERATIONS
In 1997 the Group established a Global Wholesale Financial Services Unit
("GWFS"), combining the management of the Group's capital markets, corporate
banking, foreign exchange, money market and project and structured finance
operations into a single strategic business unit. GWFS is focused on managing
the Group's relationships with corporate and institutional customers in addition
to providing market making activities in traditional treasury products. Regional
operations are maintained in Australia, New Zealand, the United States, Europe
and Asia and provide support to the Group's retail operations in each of these
markets. GWFS operates in 21 financial centers within these 5 regions.
HOMESIDE
On February 10, 1998, the Group finalized the acquisition of HomeSide Inc.
("HomeSide"), one of the largest originators and servicers of mortgages in the
United States. Based in Jacksonville, Florida,
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HomeSide was formed from the merger of the mortgage operations of the Bank of
Boston and Barnett Banks in a transaction designed to create the necessary scale
to remain competitive in the highly efficient United States mortgage processing
business.
Collecting mortgages from a variety of sources, including brokers and a
network of correspondent banks, HomeSide manages the total mortgage process from
originating loans and collecting repayments through to the creation of mortgage
backed securities which are sold in the secondary market. At March 31, 1998,
HomeSide was the 4th largest originator and the 7th largest servicer of
mortgages in the United States and by industry standards is considered one of
the most efficient operators in the mortgage market.
The acquisition of HomeSide is also an important step in transforming the
Group under its new operating structure. It is the first of the Group's
international product specialists.
On April 2, 1998, the Group announced another major step in the building of
its international mortgage business with HomeSide entering into a strategic
alliance with Banc One to buy a significant portion of its residential mortgages
over the next five years. HomeSide also signed an agreement to acquire the
servicing rights to a significant proportion of Banc One's existing mortgage
portfolio. The addition of Banc One's mortgages has given HomeSide a mortgage
servicing portfolio of approximately US$117 billion representing approximately
1.2 million loans.
VISION AND STRATEGY
The Group is focused on building a leading international financial services
group. This vision is being pursued through a strategy of controlled growth and
diversification of income streams.
The Group's growth strategy is being achieved through a mixture of organic
expansion and acquisitions within its core markets of Australia and New Zealand,
as well as in the United Kingdom, Ireland, the United States and Asia. Organic
growth has been achieved to date through the Group's retail financial service
franchises supported by a strong customer orientation and brand position. This
growth has been facilitated through the development of the Group's financial
services activities, including life and other insurance products, funds
management, custodian and trustee operations and wholesale financial services.
The Group's acquisition strategy has generally been aimed at enhancing the
Group's position within its chosen markets through the purchase of retail banks
with strong retail customer franchises. The Group's ability to participate in
further rationalization of the banking industry in Australia has been
constrained to date by the continued prohibition of the merger of major banks in
Australia as a result of Commonwealth Government policy. In the event that such
Government policy changed it would be part of the Group's strategy to seek to
extend its position in Australia through acquisition or merger at the
appropriate time. More recently the Group's strategy has also focused on
building key capabilities to improve efficiency and derive more value from
existing operations (E.G. mortgage servicing and funds management), developing
critical mass in selected financial services activities (E.G. funds management
and insurance) and considering opportunities to expand the Group's participation
in selected banking operations in the Asian region.
The Group has also been actively diversifying its non-interest income
streams to reduce its reliance on margin income. Improved cost recovery of
traditional banking services and an expansion of the Group's financial services
activities have been the principal contributors to an increase in the Group's
other operating income. As a result of these efforts, for the nine months ended
June 30, 1998, over 39.5% of the Group's operating income was derived from
non-interest sources.
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RECENT DEVELOPMENTS
THIRD QUARTER RESULTS
REVIEW OF OPERATIONS
The Group's operating profit before abnormals of $619 million for the three
months ended June 30, 1998 was 7.5% higher than the three months ended March 31,
1998 and 22.8% higher than the corresponding period in the prior year. Over the
three months ended June 30, 1998, the Group continued to post significant gains
in its core income streams while keeping cost increases to a modest 1.5%.
For the nine months ended June 30, 1998, operating profit before abnormals
increased by 5.2% to $1,728 million from $1,643 million for the nine months
ended June 30, 1997.
Underlying profit increased by 12.5% to $3,099 million for the nine months
ended June 30, 1998 from $2,755 million for the nine months ended June 30, 1997.
The results reflect the Group's continued efforts to diversify its income
streams across geographies and business lines. The acquisition of HomeSide on
February 10, 1998 has particularly assisted in this regard. As a result, for the
three months ended June 30, 1998, 41.8% of net income was derived from non-
interest sources and 49.1% of the Group's operating profit after tax was
generated outside Australia.
During the nine months ended June 30, 1998, the Group booked restructuring
costs of $241 million ($159 million after tax). Over the past year, the Group
has focused on improving its distribution network and has identified the need to
restructure this network and its workforce. The restructuring charge has been
classified as an abnormal item due to its size and effect on the Group's
results.
For the three months ended June 30, 1998, operating profit after tax and
abnormal items was $611 million representing a $175 million or 40.1% increase
over the three months ended March 31, 1998. Operating Profit after tax and
abnormal items was $1,569 million for the nine months ended June 1998, a 4.5%
decrease from $1,643 million for the nine months ended June 30, 1997.
NET INTEREST INCOME
Net interest income increased by 4.9% for the three months ended June 30,
1998 over the three months ended March 31, 1998 reflecting a 6.4% increase in
loans and advances and a relatively flat margin performance. Strong lending
growth was evident for the June 1998 quarter in:
- housing lending, up by 4.8% over the three months ended March 31, 1998;
- lease financing, up by 8.5% over the three months ended March 31, 1998;
- credit cards, up by 6.2% over the three months ended March 31, 1998.
Net interest margin for the three months ended June 30, 1998 of 3.1% was
unchanged from the March 1998 quarter.
Movements in exchange rates between the Australian dollar and the British
pound, Irish pound and United States dollar also increased the balance of loans
and advances outstanding. Excluding exchange rate movements, loans and advances
increased by 3.5% over the three months ended March 31, 1998.
For the nine months ended June 30, 1998, net interest income increased by
$314 million or 7.9%. Of this increase, $256 million was attributable to
exchange rate movements.
OTHER OPERATING INCOME
Other operating income increased by 12.5% to $1,060 million from $942
million in the three months ended March 31, 1998. This increase reflects the
inclusion of HomeSide for a full quarter (compared to a 7 week contribution in
the three months ended March 31, 1998), increases in banking fees, and a further
increase from the Group's financial services activities.
The increase in other operating income was primarily due to:
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- the inclusion of an additional $29 million in mortgage servicing fees by
HomeSide;
- loan fees from banking which increased by 8.5%;
- money transfer fees which increased by 8.8% reflecting changes in fee
structures in New Zealand;
- a 47.9% rise in trading income the result of increased financial market
volatility and turnover. The largest contributions originated from
Australia, New Zealand and New York;
- other income which increased by 6.1% largely due to $45 million in
mortgage origination and other income collected by HomeSide.
The increase in operating income for the quarter was achieved despite the
inclusion in the three months ended March 31, 1998 results of $31 million in
profit on sale of properties, $29 million for the annual contribution from the
personal loan insurance commissions in Yorkshire Bank, and dividends from
strategic investments.
In the nine months ended June 1998, other operating income increased by
32.6%. Excluding exchange rate movements and HomeSide, other operating income
still increased by 14.5% demonstrating the success the Group has achieved in
reducing its reliance on interest income.
OTHER OPERATING EXPENSES
Other operating expenses increased by 1.5% to $1,329 million over the three
months ended June 30, 1998 from $1,310 million in the three months ended March
31, 1998. The tight control of costs reflects a rigorous approach to expenses
since the beginning of the calendar year and the benefits of the Group's
restructuring program which are just beginning to be realized.
The Group's cost to income ratio for the three months ended June 30, 1998
was 52.4%, below the 55.8% for the three months ended March 31, 1998 and 54.3%
for the previous corresponding period.
Personnel costs for the three months ended June 30, 1998 increased by 2.3%
or $17 million. This increase reflects the impact of the Australian enterprise
bargaining agreement increase in April, the inclusion of HomeSide for a full
quarter and exchange rate movements. Staff numbers declined by 0.9% between
March 31, 1998 and June 30, 1998.
Occupancy costs increased by 8.6% over the three months ended June 30, 1998.
This increase is largely attributable to higher rental costs on properties sold
and leased back late in the three months ended March 31, 1998 and the inclusion
of HomeSide for a full quarter.
General expenses declined by 1.8% over the three months ended June 30, 1998.
Most expense lines within this category were little changed over the quarter
except for exchange rate movements and the inclusion of HomeSide.
Total other operating expenses increased by 19.6% to $3,868 million for the
nine months ended June 30, 1998 from $3,234 million for the nine months ended
June 30, 1997. Of this increase, $396 million was attributable to exchange rate
movements over the period, and the inclusion of HomeSide and County Investment
Management. Excluding these impacts, other operating expenses increased by 7.4%.
PROVISIONS FOR DOUBTFUL DEBTS
The doubtful debt charge for the three months ended June 30, 1998 was $202
million, $54 million higher than the three months ended March 31, 1998. The
charge represented a $155 million specific provision charge and a $47 million
general provision charge.
Higher specific provisions were recorded in Australia, Europe and the United
States while the absence of significant write backs in the Bank of New Zealand
caused an increase in the New Zealand charge. Additional specific provisions,
albeit modest, were also required in Asia.
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The general provision charge of $47 million for the three months ended June
30, 1998 was $26 million higher than the previous corresponding period and
partly reflects the strong growth in loan volumes. The general provision balance
as a percent of risk weighted assets is now 0.51%.
Specific provision coverage of non-accrual loans increased from 46.4% at
September 30, 1997 to 48.4% at June 30, 1998, with the total provisioning
coverage (including both specific and general provisions) exceeding 100%.The
doubtful debts charge for the nine months ended June 30, 1998 was $243 million
higher than the previous corresponding period.
CAPITAL
The Group's Tier 1 capital ratio increased from 5.8% at March 31, 1998 to
5.9% at June 30, 1998. Tier 2 capital declined marginally over the three months
ended June 30, 1998 to 2.9% reflecting the reduction in the asset revaluation
reserve from the further sale of properties and the growth in risk weighted
assets.
ASSET QUALITY
Total gross impaired assets increased by $191 million during the three
months ended June 30, 1998. Increases were recorded in Australia, New Zealand,
the United States and Asia.
The Group's impaired asset portfolio remains modest, with the ratio of gross
non-accrual loans to risk weighted assets increasing to 0.81% at June 30, 1998
from 0.76% at March 31, 1998.
ASIAN EXPOSURES
The Group's aggregate exposure to Asia amounted to $14.8 billion at June 30,
1998, a 10.2% decline from $16.5 billion at March 31, 1998. Gross impaired
assets in Asia increased by $8 million between March 31, 1998 and June 30, 1998
to A$41 million, representing 0.3% of shareholders equity.
EUROPEAN ECONOMIC AND MONETARY UNION ("EMU")
The next stage of the process of EMU will commence on January 1, 1999 with
the introduction of a new single currency--the euro--in eleven countries of the
European Union. The introduction of the euro is expected to make significant
changes to European businesses by increasing competition, reducing transaction
costs and eliminating exchange rate exposures. In common with other banks and
financial institutions operating in Europe, the Company is considering the
opportunities and challenges provided by the introduction of the euro. The
Company has also established a program to address its effect on the business and
operations of the Group. The EMU program was established in May 1997 and
involves a review of the Group's operations worldwide to identify areas affected
and to manage the transition with minimum disruption to customers. The EMU
program is addressing each of those impacts and the Company does not expect EMU
to have a material adverse effect on its business. However, it is not possible
to predict all possible strategic practical implications of EMU and there may be
other key potential impacts. Where the Group is relying on third parties to
provide EMU related services there can be no guarantee that they will provide
those services in a timely manner, but it is not expected that the late
provision of those services will disrupt materially the Group's operations
during the transition period. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation--European Economic and Monetary
Union."
YEAR 2000
In common with many business users of computers around the world, the
Company has investigated to what extent the date change from 1999 to 2000 may
affect its businesses. The Company has established a program designed to ensure
that the impact of the change to 2000 on the Group and its customers is
minimized. The Company's program involves an extensive review of the Group's
operations and scoping the work that needs to be completed to minimize any
potential impact. This includes reviewing the possible effects on the Group
arising out of how third parties manage their transition to 2000. While working
to
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ensure that the Company's primary objective of business as usual before, during
and through 2000 is achieved, there can be no guarantee that its Year 2000
Program will be successful in all respects or that the date change from 1999 to
2000 will not materially affect the business in some form. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation--Year
2000."
SENIOR MANAGEMENT CHANGES
On July 28, 1998, the Group announced that Mr. Don Argus will stand down
from his current positions of Managing Director and Chief Executive Officer
towards the end of the first half of calendar 1999, and that Mr. Frank Cicutto
has been appointed Executive Director and Chief Operating Officer of the Group
effective immediately. The timing of this transition is consistent with the
arrangements that Mr. Argus and the Group's Board of Directors had previously
established and with the succession planning process applied by the Group in
previous leadership transitions.
ADOPTION OF DYNAMIC PROVISIONING METHODOLOGY
On September 10, 1998, the Group announced that, effective September 30,
1998, the Group will adopt a dynamic provisioning methodology for its loan loss
provisions.
Following a 12 month review of its provisioning policy, the Group's decision
to adopt a dynamic provisioning methodology brings the Group into line with US
and Australian industry best practice.
Under the Group's dynamic provisioning methodology, the level of losses
expected to be incurred on existing credit commitments over their remaining term
is estimated. Accordingly, when a potential credit exposure is established there
is an immediate requirement to establish a dynamic provision. Credit commitments
include not only drawn down amounts, but also undrawn commitments.
The operation of the Group's dynamic provisioning methodology is such that
when individual loans are classified as non-accrual and a loss is anticipated,
specific provisions will be increased by making a transfer from the general
provision for the specific provision required. The general provision is then
adjusted based on the remaining portfolio of performing credit exposures.
On initial application of dynamic provisioning, the existing general
provision will be tax effected and a future income tax benefit of approximately
$470 million will be recognized. The general provision will be grossed up by a
corresponding amount. This change will be effected through the balance sheet.
For the three months ended September 30, 1998, a charge necessary to bring
the tax effected general provision to the required level under dynamic
provisioning will be reflected in the profit and loss statement as an abnormal
charge with a related tax credit. The net impact on the profit and loss
statement upon initial adoption will be approximately $250 million. The actual
profit and loss impact will depend upon the final balance of credit commitments
as at September 30, 1998, as well as on foreign exchange rates prevailing at
that date. It will be reflected in the Group's full year profit announcement on
November 5, 1998.
Charges to the profit and loss account in respect of the general provision
up until adoption of dynamic provisioning are to be recognized in line with the
existing methodology. Comparative figures have not been restated to reflect the
change in methodology.
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THE ADSS AND THE PREFERENCE SHARES
<TABLE>
<S> <C>
ADSs......................... Each ADS will represent two Preference Shares of the
Company, each of which has a liquidation preference of
US$12.50 per Preference Share (equivalent to US$25 per ADS).
Each term not defined herein has the meaning as defined in
the accompanying TrUEPrS Prospectus.
Dividends.................... No dividends will accrue or be paid on the Initial
Preference Shares. On the Conversion Date (as defined
herein), each Initial Preference Share will automatically
convert into one Dividend Paying Preference Share with the
dividend rights described below. With the exception of these
conversion rights, the dividend rights and rights associated
with such dividend rights, and that the Dividend Paying
Preference Shares may be redeemed in part, the terms and
conditions of the Dividend Paying Preference Shares will be
identical to those of the Initial Preference Shares, and
from and after such conversion the ADSs will represent the
Dividend Paying Preference Shares. For convenience of
reference, the Initial Preference Shares and the Dividend
Paying Preference Shares are sometimes referred to herein as
the "Preference Shares".
The Dividend Paying Preference Shares will accrue
non-cumulative dividends in U.S. dollars at the rate of
US$1.00 per share per annum. Such dividends will be payable,
if and when declared by the Board of Directors out of
profits legally available therefor, quarterly in arrears in
an amount equal to US$.25 per Preference Share per quarter
on March 31, June 30, September 30 and December 31 of each
year commencing on or after the Conversion Date and prior to
the date of redemption, Buy-Back or Capital Reduction of the
Dividend Paying Preference Shares (each, a "Dividend Payment
Date") to holders of record as of the immediately preceding
March 15, June 15, September 15 and December 15 (each, a
"Record Date"), respectively. Such dividends will begin to
accrue from and including the last Interest Payment Date on
the Debt Securities (each as defined in the accompanying
TrUEPrS Prospectus) prior to the Conversion Date. The
Interest Payment Dates for the Debt Securities are the same
days of the year as the Dividend Payment Dates for the
Dividend Paying Preference Shares, although the Interest
Payment Dates will always occur prior to the Conversion Date
and the Dividend Payment Dates will always occur on or after
the Conversion Date. If the Company does not pay on any
Dividend Payment Date all or any part of the accrued
dividends for the quarterly dividend period ending on such
Dividend Payment Date, then the holders of ADSs or the
Dividend Paying Preference Shares will have no claim in
respect of such non-payment and the Company will have no
obligation to pay such dividends or any part of such
dividends (or to pay any interest thereon), whether or not
dividends on the Dividend Paying Preference Shares are paid
in the future. See "Description of the Preference
Shares--Dividend Rights."
</TABLE>
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<TABLE>
<S> <C>
The conversion from Initial Preference Shares to Dividend
Paying Preference Shares should not be affected by
insolvency or like events. However, in the event that it was
not possible to lawfully effect the conversion in such
circumstances, the other terms and conditions of the Initial
Preference Shares will remain unaffected, including the
liquidation preference described below.
Liquidation Preference....... Upon any liquidation of the Company, the Company will pay a
liquidation preference out of surplus assets equal to
US$12.50 per Preference Share (equivalent to US$25 per ADS);
PROVIDED, HOWEVER, that if it is not possible to make such
payment in US dollars, payment will be made in Australian
dollars in an amount equal to such amounts based on the Noon
Buying Rate on, or as close as possible to, the date of
payment. If payment is to be made in Australian dollars an
additional amount estimated to cover the estimated charges
and expenses of the conversion of the Australian dollar
amount equivalent to the payment into US dollars will also
be paid.
Conversion Event............. Upon the earliest occurrence of any of the following dates
or events (each, a "Conversion Event"), each Initial
Preference Share will automatically convert into a
non-cumulative Dividend Paying Preference Share as provided
above under "--Dividends" as of the Conversion Date
applicable to such Conversion Event (as specified herein).
</TABLE>
<TABLE>
<S> <C> <C>
(i) December 31, 2047;
(ii) any date selected by the Company in its absolute
discretion;
(iii) the failure of the Trust to receive for any reason on
or within three Business Days (as defined herein) after
an Interest Payment Date the interest then due on the
Debt Securities in full without deduction or
withholding for any taxes, duties or other charges;
(iv) the Total Capital Adequacy Ratio or the Tier 1 Capital
Ratio (each as defined herein) of the Company (either
as reported quarterly by the Company to the applicable
Regulatory Authority or as determined at any time by
the applicable Regulatory Authority in its absolute
discretion) is below 8% or 4%, respectively (or, in
each case, such lesser percentage (the "Required
Percentage") as may be prescribed by the applicable
Regulatory Authority for the Company at the time), and
such ratio is not increased by the Company to at least
8% or 4%, respectively, (or such lesser Required
Percentage) within 90 days after the date on which the
Company makes such quarterly report or receives notice
from the applicable Regulatory Authority of such
determination by such Regulatory Authority;
(v) any change in (A) the legal ownership of the securities
(other than the Debt Securities) issued by, (B) subject
to certain exceptions described herein, any provisions
of the constituent
</TABLE>
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<TABLE>
<S> <C> <C>
documents of, or (C) the business purpose (or, solely
with respect to the Jersey Charitable Trust, the powers
of the trustees thereof) (as specified in such
constituent documents) of, any of the U.K. Company, the
Jersey Holding Company, the Jersey Charitable Trust or
the Jersey Subsidiary;
(vi) any change in the business purpose of the Distribution
Trust (as specified in the constituent documents
thereof);
(vii) the common securities of the Distribution Trust cease
to be wholly owned, directly or indirectly, by the
Company or a direct or indirect wholly owned subsidiary
or branch of the Company;
(viii) the USLLC ceases to be a direct or indirect
wholly-owned subsidiary or branch of the Company;
(ix) any NAB Borrower ceases to be the Company, a direct or
indirect wholly owned subsidiary or a branch of the
Company;
(x) certain events of bankruptcy relating to the Company,
the UK Company, the Jersey Holding Company, the Jersey
Charitable Trust, the Jersey Subsidiary, the
Distribution Trust, the USLLC or any NAB Borrower, or
the dissolution of the Trust in accordance with the
terms of its Declaration of Trust or for any other
reason; and
(xi) the Collateral Agent fails, at any time, to have a
valid first, perfected and enforceable security
interest in, and lien on, the Jersey Preference Shares
and the ADSs, and, in each case, any redemption
proceeds from any of the foregoing, and such failure is
not remedied on or before 10 Business Days after
written notice of such failure is given to the U.K.
Company or the Jersey Subsidiary, as the case may be,
by the Collateral Agent as contemplated by the Security
and Pledge Agreements.
</TABLE>
<TABLE>
<S> <C>
Notwithstanding the foregoing, (i) the USLLC or any NAB
Borrower may, with the consent of the Distribution Trust or
the USLLC, respectively, assign all or any portion of the
Distribution Loan or any NAB Loan, respectively, and (ii)
the Distribution Trust or the USLLC may replace all or any
portion of the Distribution Loan or any NAB Loan,
respectively, with another loan, in each case under (i) or
(ii), to the Company or to one or more direct or indirect
wholly-owned subsidiaries or branch offices of the Company,
in which case (a) the Company or such other subsidiary or
branch office will take the place of the USLLC or such NAB
Borrower, as applicable, and such loan shall be deemed to be
the Distribution Loan or such NAB Loan, as applicable, and
(b) any such action will not constitute a Conversion Event.
Exchange Event............... An "Exchange Event" means any Conversion Event or the
redemption, Buy-Back or Capital Reduction of all the
outstanding Initial Preference Shares for cash. Upon the
occurrence of any Exchange Event that is a Conversion Event
(I.E., any Exchange Event other than a cash redemption,
Buy-Back or Capital Reduction of the
</TABLE>
19
<PAGE>
<TABLE>
<S> <C>
Initial Preference Shares), the ADSs representing the
Dividend Paying Preference Shares will be distributed to the
holders of TrUEPrS pursuant to the procedures described in
the accompanying TrUEPrS Prospectus (in which case, the
Exchange Date (as defined in the accompanying TrUEPrS
Prospectus) will be the same as the Conversion Date. In such
case, holders of the TrUEPrS shall become the record holders
of the ADSs as of the Conversion Date, and the ADRs
evidencing such ADSs will be delivered to such holders as
soon as practicable following the Conversion Date. Upon the
occurrence of any Exchange Event that is not a Conversion
Event (I.E., a cash redemption, Buy-Back or Capital
Reduction of the Initial Preference Shares), the cash
proceeds of the redemption, Buy-Back or Capital Reduction
will be distributed to the holders of the TrUEPrS pursuant
to the procedures described in the accompanying TrUEPrS
Prospectus.
Optional Dividend............ If the Trust fails for any reason to receive in full the
interest due on any Interest Payment Date on or within three
Business Days after such Interest Payment Date, then such
failure will constitute a Conversion Event and dividends on
the Dividend Paying Preference Shares will begin to accrue
from and including such Interest Payment Date (and not the
previous Interest Payment Date). As a result, unless the
Company declares and pays the Optional Dividend referred to
below, the holders of the TrUEPrS will not receive any
dividend payments in respect of the quarterly period ending
on such Interest Payment Date and the restrictions described
below under "-- Dividend and Repurchase Restrictions" and
the special voting rights described below under "--Voting
Rights" will apply. Such restrictions and voting rights will
not apply if the Company, in its absolute discretion,
declares and pays an optional dividend on the Dividend
Paying Preference Shares (an "Optional Dividend") in an
aggregate amount equal to the amount of interest not so
received by the Trust on such Interest Payment Date on or
within three Business Days after the Conversion Date (I.E.,
within seven Business Days after such Interest Payment
Date). Any Optional Dividend must be paid pro rata on the
outstanding Dividend Paying Preference Shares.
Ranking...................... The Preference Shares will rank upon liquidation and, after
the Conversion Date will rank as to dividends, senior to the
Company's ordinary shares and PARI PASSU with other
designated preference shares, if any, of the Company. Upon
liquidation, the Preference Shares will rank junior to all
liabilities and debts of the Company.
Dividend and Repurchase
Restrictions............... If (i) the Company fails to pay in full on any Dividend
Payment Date the accrued dividends on the Dividend Paying
Preference Shares for the quarterly dividend period then
ending or (ii) a Conversion Event occurs as a result of any
failure by the Trust to receive in full the interest payable
on the Debt Securities on any Interest Payment Date and the
Company fails to pay in full an Optional Dividend on the
Dividend Paying Preference Shares on or within three
Business Days after the Conversion Date, then the Company
may not (a) pay any
</TABLE>
20
<PAGE>
<TABLE>
<S> <C>
dividends on any other shares of the Company which ranks
PARI PASSU with, or junior to, the Dividend Paying
Preference Shares or set aside any sum for the payment
thereof or (b) repurchase, redeem or otherwise acquire for
value legal or beneficial ownership of any shares of the
Company or set aside any sum or establish a sinking fund for
such purpose, in each case, unless and until since the date
of any such failure, the Company shall have paid in full
four consecutive quarterly dividend payments on such
Dividend Paying Preference Shares.
Additional Amounts........... Subject to certain exceptions, if a withholding or deduction
is made with respect to taxes under the laws of Australia in
respect of the payment of dividends on, or that part of any
payment resulting from any redemption, Buy-Back or Capital
Reduction of, the Preference Shares, which is taken or
deemed to be a dividend for the purposes of Australian tax,
the Company will also pay an additional amount so that a
holder of the Preference Shares is able to receive (if such
payment is made) the amount the holder would have received
if no such withholding or deduction had been required.
There will be no adjustments for franking credits.
Redemption, Buy-Back or
Capital Reduction.......... With the prior written consent of the applicable Regulatory
Authority (if required under the laws or guidelines then
applicable), the Preference Shares are subject to (i)
redemption, (ii) mandatory repurchase ("Buy-Back") or (iii)
reduction of a portion of the capital of each Preference
Share immediately followed by redemption of the remaining
capital thereof on the next Business Day following the date
of such reduction of capital (such reduction of capital and
subsequent redemption are collectively referred to herein as
"Capital Reduction"), in each case, by the Company in its
absolute discretion (i) prior to the fifth anniversary of
the date on which the Initial Preference Shares and ADSs are
originally issued (the "Issue Date"), only in the event of
the occurrence of a Tax Event, a Registration Event or a
Regulatory Event (as such terms are defined herein) and (ii)
at any time on or after the fifth anniversary of the Issue
Date, in whole or, in the case of a redemption of the
Dividend Paying Preference Shares after the Conversion Date,
in whole or in part, in each case for a total consideration
of US$12.50 per Preference Share (equivalent to US$25 per
ADS) plus, in the case of a redemption, Buy-Back or Capital
Reduction of the Dividend Paying Preference Shares after the
Conversion Date, any unpaid dividends accrued thereon for
the period from and including the most recent Dividend
Payment Date to but excluding the date of redemption,
Buy-Back or Capital Reduction. In the case of redemption,
Buy-Back or Capital Reduction of the Initial Preference
Shares on or prior to the Conversion Date, no dividends will
be payable thereon, but an amount equal to the accrued
dividends on the TrUEPrS will be payable on such date as a
dividend distribution on the TrUEPrS.
Notwithstanding the foregoing, no redemption, Buy-Back or
Capital Reduction of the Preference Shares shall be made on
or prior to the Conversion Date unless (x) the Company
receives opinions of a
</TABLE>
21
<PAGE>
<TABLE>
<S> <C>
reputable legal counsel that the consequential redemptions
of the Jersey Preference Shares and the Debt Securities will
not be subject to any withholding or deduction on account of
certain taxes, duties or other charges under the laws of
Jersey, Channel Islands or the United Kingdom, respectively
or (y) if any such withholding or deductions are payable,
the Company pays such additional amounts in connection with
such redemption, Buy-Back or Capital Reduction so that the
holders of the TrUEPrS receive the same amounts that they
would have received had no such withholding or deductions
been payable.
Voting Rights................ The holders of Preference Shares will be entitled to vote
together with the holders of ordinary shares of the Company,
on the basis of one vote per share on any poll, (a) in all
cases, with respect to certain matters specified herein and
(b) during a Special Voting Period (as defined below) with
respect to all matters on which the holders of the ordinary
shares of the Company are entitled to vote, in each case to
the extent ordinary shareholders are entitled to vote on the
same. A "Special Voting Period" is the period from and
including (i) any Dividend Payment Date on which the Company
fails to pay in full the dividends accrued in respect of the
quarterly dividend period then ended or (ii) the fourth
Business Day after the Conversion Date occurring as a result
of any failure by the Trust to receive in full the interest
payable on the Debt Securities unless, prior to such date,
the Company has paid in full an Optional Dividend, in each
case to but excluding the first Dividend Payment Date
thereafter as of which the Company has paid in full four
consecutive quarterly dividends on the Dividend Paying
Preference Shares. In addition to the foregoing voting
rights, the holders of the Preference Shares will have the
right to vote separately as a class in certain circumstances
involving a variation of their rights. See "Description of
the Preference Shares-- Voting Rights" and "--Variation of
Rights."
Listing...................... The ADSs and Preference Shares have been approved for
listing on the NYSE, subject to official notice of issuance
and the occurrence of an Exchange Event.
Ratings...................... The ADSs and the Preference Shares will be rated "a1" by
Moody's Investors Service, Inc. and "A" with stable outlook
by Standard & Poor's Ratings Service.
There can be no assurance that any rating assigned to the
ADSs or Preference Shares will not be lowered, qualified or
withdrawn by the assigning rating agency if, in its
judgement, circumstances so warrant.
A security rating is not a recommendation to buy, sell or
hold securities and may be subject to revision or withdrawal
at any time by the assigning rating agency. Each rating
should be evaluated independently of any other rating.
</TABLE>
USE OF PROCEEDS
The proceeds to be received from the issue and sale of the ADSs representing
the Preference Shares, excluding the underwriting compensation payable by the
Company and the Trust to the Underwriters of the TrUEPrS equal to up to US$
.7875 per ADS as described in the accompanying TrUEPrS Prospectus,
22
<PAGE>
are estimated to be US$400,100,000 (or US$460,000,000 if the over-allotment
options of the Underwriters of the TrUEPrS are exercised in full). The proceeds
will be used to augment the total capital base of the Company, which needs to
accommodate the expansion of business operations as a result of general business
activity, internal growth and acquisitions. The proceeds will be contributed as
capital by the Company to the Distribution Trust as described in the TrUEPrS
Prospectus.
PLAN OF DISTRIBUTION
This Prospectus relates to 32,008,000 Preference Shares to be represented by
16,004,000 ADSs, which may be distributed by the Trust to holders of the TrUEPrS
issued by the Trust on or as soon as practicable after the Conversion Date. The
Trust has granted to the Underwriters of the TrUEPrS a 30-day option to purchase
additional TrUEPrS, solely to cover over-allotments, if any. This Prospectus
also relates to up to an additional 4,792,000 Preference Shares to be
represented by 2,396,000 ADSs which may be distributed by the Trust to the
holders of the TrUEPrS issued pursuant to the exercise of the over-allotment
options granted by the Trust to the Underwriters of the TrUEPrS.
The TrUEPrS are offered only by the accompanying TrUEPrS Prospectus. This
Prospectus is issued by the Company and relates only to the ADSs and the
Preference Shares covered hereby and does not relate to the TrUEPrS. THE COMPANY
TAKES NO RESPONSIBILITY FOR ANY INFORMATION INCLUDED IN OR OMITTED FROM THE
TRUST PROSPECTUS. THE TRUST PROSPECTUS DOES NOT CONSTITUTE A PART OF THIS
PROSPECTUS NOR IS IT INCORPORATED BY REFERENCE HEREIN. Because the TrUEPrS are
separate securities issued by the Trust, an investment in the ADSs or the
TrUEPrS may have materially different characteristics and risks from a direct
investment in the Preference Shares.
23
<PAGE>
SUMMARY SELECTED FINANCIAL INFORMATION
The summary selected consolidated financial data for September 30, 1997,
1996 and 1995 set forth below have been derived from and should be read in
conjunction with and are qualified in their entirety by reference to, the
Financial Statements contained in the Company's Annual Report on Form 20-F for
its fiscal year ended September 30, 1997 (the "1997 Form 20-F"). The Financial
Statements have been audited by the Company's independent auditors, KPMG. The
selected financial data as of September 30, 1995, 1994 and 1993 and for the
fiscal years ended September 30, 1994 and 1993 set forth below have been derived
from the audited consolidated financial statements of the Group for the fiscal
years ended September 30, 1995, 1994 and 1993, which are not included or
incorporated by reference herein. The Group's audited consolidated financial
statements are prepared in accordance with Australian GAAP which vary in certain
respects from United States generally accepted accounting principles ("US
GAAP"). See Note 48 to the Financial Statements in the 1997 Form 20-F for a
discussion of the significant differences between Australian GAAP and US GAAP as
they apply to the Company for the periods presented therein.
The summary selected consolidated financial data for March 31, 1998 and 1997
set forth below have been derived from the Company's unaudited financial
statements including the notes thereto incorporated by reference herein. The
information for such interim periods is unaudited but, in the opinion of the
Company, reflects all adjustments (consisting only of non-recurring accruals)
necessary for a fair presentation of the results for such periods. Results for
any interim period are not necessarily indicative of the results for the full
fiscal year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, YEAR ENDED SEPTEMBER 30,
-------------------------------- -------------------------------------------
1998(1) 1998 1997 1997(1) 1997 1996 1995
---------- --------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF CONSOLIDATED
STATEMENTS OF INCOME
AUSTRALIAN GAAP
Interest income............................. US$ 4,319 A$ 7,239 A$ 6,254 US$ 7,659 A$ 12,837 A$ 12,017 A$ 10,169
Interest expense............................ 2,669 4,474 3,662 4,521 7,578 6,958 5,646
---------- --------- --------- ---------- --------- --------- ---------
Net interest income......................... 1,650 2,765 2,592 3,138 5,259 5,059 4,523
Charge to provide for doubtful debts........ 160 268 105 198 332 333 116
---------- --------- --------- ---------- --------- --------- ---------
Net interest income after charge to provide
for doubtful debts........................ 1,490 2,497 2,487 2,940 4,927 4,726 4,407
Other operating income...................... 1,192 1,998 1,613 1,989 3,334 2,923 2,447
Other operating expenses.................... 1,682 2,820 2,350 2,950 4,945 4,587 4,008
---------- --------- --------- ---------- --------- --------- ---------
Operating profit before abnormal items and
tax....................................... 1,000 1,675 1,750 1,979 3,316 3,062 2,846
Abnormal items before tax................... (137) (229) -- -- -- -- 33
---------- --------- --------- ---------- --------- --------- ---------
Operating profit before tax................. 863 1,446 1,750 1,979 3,316 3,062 2,879
Income tax expense attributable to operating
profit.................................... 291 488 612 653 1,095 959 906
---------- --------- --------- ---------- --------- --------- ---------
Operating profit after income tax........... 572 958 1,138 1,326 2,221 2,103 1,973
Outside equity interests in operating profit
(loss) after tax.......................... -- -- (1) (1) (2) 1 4
---------- --------- --------- ---------- --------- --------- ---------
Operating profit after income tax
attributable to members of the Company.... US$ 572 A$ 958 A$ 1,139 US$ 1,325 A$ 2,223 A$ 2,102 A$ 1,969
---------- --------- --------- ---------- --------- --------- ---------
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
<S> <C> <C>
SUMMARY OF CONSOLIDATED
STATEMENTS OF INCOME
AUSTRALIAN GAAP
Interest income............................. A$ 7,913 A$ 8,395
Interest expense............................ 3,716 4,292
--------- ---------
Net interest income......................... 4,197 4,103
Charge to provide for doubtful debts........ 179 604
--------- ---------
Net interest income after charge to provide
for doubtful debts........................ 4,018 3,499
Other operating income...................... 2,358 2,051
Other operating expenses.................... 3,757 3,659
--------- ---------
Operating profit before abnormal items and
tax....................................... 2,619 1,891
Abnormal items before tax................... 50 59
--------- ---------
Operating profit before tax................. 2,669 1,950
Income tax expense attributable to operating
profit.................................... 953 811
--------- ---------
Operating profit after income tax........... 1,716 1,139
Outside equity interests in operating profit
(loss) after tax.......................... 8 10
--------- ---------
Operating profit after income tax
attributable to members of the Company.... A$ 1,708 A$ 1,129
--------- ---------
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
AT MARCH 31, AT SEPTEMBER 30,
-------------------------- ---------------------------------------------------------------
1998(1) 1998 1997(1) 1997 1996 1995 1994
------------- ----------- ------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
)(IN MILLIONS
SUMMARY OF CONSOLIDATED
BALANCE SHEETS
AUSTRALIAN GAAP
Loans and advances (after
provision for doubtful debts)... US$ 86,948 A$ 145,740 US$ 78,031 A$ 130,793 A$ 111,311 A$ 91,538 A$ 79,168
Total assets...................... 139,116 233,182 120,495 201,969 173,710 148,123 130,436
Risk weighted assets.............. 107,512 180,208 92,061 154,309 133,313 108,985 96,115
Deposits and other borrowings..... 87,505 146,673 76,645 128,469 109,158 88,529 79,451
Perpetual floating rate notes..... 225 377 207 347 424 459 480
Exchangeable Capital Units(2)..... 1,000 1,262 1,000 1,262 -- -- --
Bonds, notes and subordinated
debt(3)......................... 7,585 12,713 5,709 9,569 6,958 4,067 3,980
Paid-up capital................... 853 1,429 843 1,413 1,477 1,429 1,369
Shareholders' equity.............. 8,070 13,527 7,505 12,579 12,519 11,381 9,852
ADJUSTED TO ACCORD WITH US GAAP(4)
Shareholders' equity.............. 8,480 14,214 7,847 13,153 13,011 11,761 10,119
Total assets...................... 139,171 233,274 120,459 201,909 173,640 147,989 130,273
<CAPTION>
1993
----------
<S> <C>
SUMMARY OF CONSOLIDATED
BALANCE SHEETS
AUSTRALIAN GAAP
Loans and advances (after
provision for doubtful debts)... A$ 73,405
Total assets...................... 117,980
Risk weighted assets.............. 91,572
Deposits and other borrowings..... 75,873
Perpetual floating rate notes..... 561
Exchangeable Capital Units(2)..... --
Bonds, notes and subordinated
debt(3)......................... 3,476
Paid-up capital................... 1,315
Shareholders' equity.............. 8,816
ADJUSTED TO ACCORD WITH US GAAP(4)
Shareholders' equity.............. 8,849
Total assets...................... 117,700
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
-------------------------------------
1998(1) 1998 1997
----------- ----- -----
<S> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(IN MILLIONS, EXCEPT PERCENTAGES AND
RATIOS)
<S> <C> <C> <C>
SUMMARY FINANCIAL RATIOS
AUSTRALIAN GAAP
Net income (after abnormal item) as a percentage of:
Average total assets............................................................... 0.9% 1.3%
Average shareholders' equity....................................................... 14.3 17.2
Year end total assets.............................................................. 0.8 1.2
Year end shareholders' equity...................................................... 14.2 17.0
Ratio of earnings to fixed charges................................................... 1.3x 1.5x
Average shareholders' equity as a percentage of average total assets................. 6.0 7.3
Capital: risk asset ratios(5)
--Tier 1........................................................................... 5.8 7.8
--Tier 2........................................................................... 3.0 2.5
--deductions....................................................................... (0.3) (0.2)
--totals........................................................................... 8.5 10.1
Net average interest yield........................................................... 3.1 3.6
ADJUSTED TO ACCORD WITH US GAAP
Net income as a percentage of period end:
Total assets....................................................................... 0.9 1.2
Shareholders' equity............................................................... 14.1 16.9
Shareholders' equity as percentage of total assets................................... 6.1 7.4
Ratio of earnings to fixed charges................................................... 1.3x 1.5x
<CAPTION>
AT SEPTEMBER 30,
-------------------------------------
1997(1) 1997 1996
----------- ----- -----------
<S> <C> <C> <C>
<S> <C> <C> <C>
SUMMARY FINANCIAL RATIOS
AUSTRALIAN GAAP
Net income (after abnormal item) as a percentage of:
Average total assets............................................................... 1.2% 1.3%
Average shareholders' equity....................................................... 16.2 17.1
Year end total assets.............................................................. 1.1 1.2
Year end shareholders' equity...................................................... 17.7 16.8
Ratio of earnings to fixed charges................................................... 1.4x 1.4x
Average shareholders' equity as a percentage of average total assets................. 7.1 7.5
Capital: risk asset ratios(5)
--Tier 1........................................................................... 6.8 7.6
--Tier 2........................................................................... 2.2 1.9
--deductions....................................................................... (0.3) (0.2)
--totals........................................................................... 8.7 9.3
Net average interest yield........................................................... 3.5 3.9
ADJUSTED TO ACCORD WITH US GAAP
Net income as a percentage of period end:
Total assets....................................................................... 1.1% 1.2%
Shareholders' equity............................................................... 17.4 16.5
Shareholders' equity as percentage of total assets................................... 6.5 7.5
Ratio of earnings to fixed charges................................................... 1.4x 1.4x
<CAPTION>
1995 1994 1993
----- ----- -----------
SUMMARY FINANCIAL RATIOS
AUSTRALIAN GAAP
Net income (after abnormal item) as a percentage of:
Average total assets............................................................... 1.4% 1.4% 1.0%
Average shareholders' equity....................................................... 18.1 18.1 13.2
Year end total assets.............................................................. 1.3 1.3 1.0
Year end shareholders' equity...................................................... 17.3 17.3 12.8
Ratio of earnings to fixed charges................................................... 1.5x 1.7x 1.5x
Average shareholders' equity as a percentage of average total assets................. 8.0 7.8 7.5
Capital: risk asset ratios(5)
--Tier 1........................................................................... 9.2 8.5 7.8
--Tier 2........................................................................... 2.6 3.2 3.7
--deductions....................................................................... (0.2) (0.2) (0.3)
--totals........................................................................... 11.6 11.5 11.2
Net average interest yield........................................................... 4.2 4.4 4.4
ADJUSTED TO ACCORD WITH US GAAP
Net income as a percentage of period end:
Total assets....................................................................... 1.4% 1.4% 0.9%
Shareholders' equity............................................................... 17.1 17.9 12.3
Shareholders' equity as percentage of total assets................................... 7.9 7.8 7.5
Ratio of earnings to fixed charges................................................... 1.5x 1.7x 1.4x
</TABLE>
- ------------------------
(1) Australian dollar amounts have been translated into US dollars solely for
the convenience of the reader at the rate of A$1.00 = US$0.5966, the Noon
Buying Rate on September 10, 1998. A significant portion of the Company's
assets and liabilities and revenues and expenses are denominated in
currencies other than Australian dollars and, for the purposes of preparing
the financial data for the six months ended March 31, 1998 and the fiscal
year ended September 30, 1997, have been translated into Australian dollars
using March 31, 1998 and September 30, 1997 rates, respectively. The further
translation of these Australian dollar amounts into US dollar amounts
therefore does not necessarily represent the actual US dollar value of such
assets and liabilities or revenues and expenses. The Noon Buying Rate on
March 31, 1998 was A$1.00 = US$0.6613 and on September 30, 1997 was A$1.00 =
US$0.7250. See "Currency of Presentation and Exchange Rates."
(2) The Exchangeable Capital Units of US$1 billion are recorded in the financial
statements at the historical rate of 0.7923.
(3) Since March 31, 1998, the Company has issued USD150m Subordinated Floating
Rate Notes due 2008 and USD100m Subordinated Floating Rate Notes due 2009.
(4) For an explanation of the differences between US GAAP and Australian GAAP,
see the Interim Results Form 6-K.
(5) Based on Tier 1 and Tier 2 capital, as defined by the APRA, related to risk
weighted assets. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Capital Adequacy," in the 1997 Form
20-F and the 1998 Interim Results Form 6-K.
25
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization, including loan capital
(subordinated debt), and capital adequacy of the Group as at March 31, 1998 and
as adjusted to give effect to the issuance and sale of the Preference Shares
(assuming the over-allotment options are not exercised) and the application of
the estimated net proceeds as described under "Use of Proceeds". The current
guidelines prescribed by APRA (Prudential Statement C1) set a ratio of
qualifying capital to risk weighted assets on a consolidated basis (the "Total
Capital Adequacy Ratio") of at least 8.0% of which the ratio of qualifying Tier
1 capital to risk weighted assets (the "Tier 1 Capital Ratio") must be at least
4.0%.
The summary is based on the Financial Statements, which are prepared in
accordance with Australian GAAP. See Note 48 to the Financial Statements in the
1997 Form 20-F and the 1998 Interim Results Form 6-K for a description of the
principal differences between Australian GAAP and US GAAP as they apply to the
Group. This table should be read in conjunction with the Financial Statements
and other information contained and incorporated by reference herein.
<TABLE>
<CAPTION>
AS AT MARCH 31, 1998
---------------------------------------------------------
OUTSTANDING(1) AS ADJUSTED(1) OUTSTANDING AS ADJUSTED
-------------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
(IN MILLIONS, EXCEPT CAPITAL ADEQUACY RATIOS)
LOAN CAPITAL (SUBORDINATED DEBT)
Perpetual floating rate notes..................................... US$ 225 US$ 225 A$ 377 A$ 377
Exchangeable Capital Units(2)..................................... 1,000 1,000 1,262 1,262
Dated subordinated debts(3)....................................... 1,608 1,608 2,695 2,695
-------------- -------------- ----------- ------------
Total loan capital.............................................. 2,833 2,833 4,334 4,334
-------------- -------------- ----------- ------------
SHAREHOLDERS' EQUITY
Issued and paid up capital(4)..................................... 853 853 1,429 1,429
Reserves.......................................................... 3,060 3,060 5,129 5,129
Retained profits.................................................. 4,158 4,158 6,969 6,969
Preference Shares offered hereby.................................. -- 400 -- 670
-------------- -------------- ----------- ------------
Total shareholders' equity(5)................................... 8,071 8,471 13,527 14,197
-------------- -------------- ----------- ------------
Total shareholders' equity and loan capital..................... US$ 10,904 US$ 11,304 A$ 17,861 A$ 18,531
-------------- -------------- ----------- ------------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
AS AT MARCH 31, 1998
---------------------------------------------------------
OUTSTANDING(1) AS ADJUSTED(1) OUTSTANDING AS ADJUSTED
-------------- -------------- ----------- ------------
(IN MILLIONS, EXCEPT CAPITAL ADEQUACY RATIOS)
<S> <C> <C> <C> <C>
CAPITAL ADEQUACY
TIER 1
Total shareholders' equity(5)..................................... US$ 8,071 US$ 8,071 A$ 13,527 A$ 13,527
Estimated reinvestment under dividend reinvestment plan........... 121 121 203 203
Minority Interests................................................ 1 1 2 2
Preference Shares offered hereby.................................. -- 400 -- 670
LESS:
Assets revaluation reserve........................................ (30) (30) (50) (50)
Unamortized goodwill.............................................. (1,892) (1,892) (3,172) (3,172)
Other............................................................. (42) (42) (71) (71)
-------------- -------------- ----------- ------------
Tier 1 capital.................................................... 6,229 6,629 10,439 11,109
-------------- -------------- ----------- ------------
TIER 2
Asset revaluation reserve......................................... 30 30 50 50
General provisions for doubtful debts............................. 549 549 921 921
Perpetual floating rate notes..................................... 225 225 377 377
Dated subordinated debts(3)....................................... 1,608 1,608 2,695 2,695
Exchangeable Capital Units(2)..................................... 1,000 1,000 1,262 1,262
Notional revaluation of investment securities to market........... 14 14 23 23
-------------- -------------- ----------- ------------
Tier 2 capital.................................................... 3,426 3,426 5,328 5,328
LESS: Deductions.................................................... (264) (264) (443) (443)
-------------- -------------- ----------- ------------
Total regulatory capital............................................ 9,391 9,791 15,324 15,994
-------------- -------------- ----------- ------------
CAPITAL ADEQUACY RATIOS
Tier 1.............................................................. 5.8% 6.2% 5.8% 6.2%
Tier 2.............................................................. 3.2 3.2 3.0 3.0
LESS: Deductions.................................................... (0.3) (0.3) (0.3) (0.3)
-------------- -------------- ----------- ------------
Total............................................................. 8.7% 9.1% 8.5% 8.9%
RISK WEIGHTED ASSETS................................................ US$ 107,512 US$ 107,512 A$180,208 A$ 180,208
-------------- -------------- ----------- ------------
</TABLE>
- ------------------------
(1) Australian dollar amounts have been translated into US dollars solely for
the convenience of the reader at the rate of A$1.00 = US$0.5966, the Noon
Buying Rate on September 10, 1998. A significant portion of the Company's
assets and liabilities and revenues and expenses are denominated in
currencies other than Australian dollars and, for the purposes of preparing
the financial data for the six months ended March 31, 1998 and the fiscal
year ended September 30, 1997, have been translated into Australian dollars
using March 31, 1998 and September 30, 1997 rates, respectively. The further
translation of these Australian dollar amounts into US dollar amounts
therefore does not necessarily represent the actual US dollar value of such
assets and liabilities or revenues and expenses. The Noon Buying Rate on
March 31, 1998 was A$1.00 = US$0.6613 and on September 30, 1997 was A$1.00 =
US$0.7250. See "Currency of Presentation and Exchange Rates" for a more
recent Noon Buying Rate.
(2) The Exchangeable Capital Units of US$1 billion are recorded in the financial
statements at the historical rate of 0.7923.
(3) Since March 31, 1998, the Company has issued USD150m Subordinated Floating
Rate Notes due 2008 and USD100m Subordinated Floating Rate Notes due 2009.
(4) As of September 11, 1998, approximately 2,799,374 ordinary shares of the
Company are partially paid pursuant to a staff share plan.
(5) Total shareholders' equity determined in accordance with US GAAP was
A$14,214 million as at March 31, 1998. For an explanation of the differences
between US GAAP and Australian GAAP, see the 1998 Interim Results Form 6-K.
27
<PAGE>
USE OF PROCEEDS
The proceeds to be received from the issue and sale of the ADSs representing
the Preference Shares, excluding the underwriting compensation payable by the
Company and the Trust to the Underwriters of the TrUEPrS equal to up to US$.7875
per ADS as described in the accompanying TrUEPrS Prospectus, are estimated to be
US$400,100,000 (or US$460,000,000 if the over-allotment options of the
Underwriters of the TrUEPrS are exercised in full). The proceeds will be used to
augment the total capital base of the Company, which needs to accommodate the
expansion of business operations as a result of general business activity,
internal growth and acquisitions. The proceeds will be contributed as capital by
the Company to the Distribution Trust as described in the TrUEPrS Prospectus.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
REVIEW OF OPERATIONS
The following review of operations is presented on a basis consistent with
that presented in the Group's March 31, 1998 accounts and does not reflect the
Group's new business structure, as described under "Prospectus Summary." The
discussion below contains certain forward-looking statements. See "Special Note
Regarding Forward-Looking Statements."
CONSOLIDATED
The Group recorded an improved second quarter result for the 1997-98 fiscal
year with Group profit before abnormals increasing by 8.1% to $576 million from
$533 million when compared with December 1997 quarter. This result brings the
Group's profit before abnormals for the six months ended March 31, 1998 to
$1,109 million compared with $1,139 million for the six months ended March 31,
1997.
During the six months ended March 31, 1998, the Group continued to build on
its underlying business with underlying profit (profit before tax, abnormal
items and bad and doubtful debts charge) increasing to $1,943 million which
represents an 8.4% increase over the $1,793 million for six months ended
September 30, 1997 and a 4.7% increase over the $1,855 million for the six
months ended March 31, 1997.
The composition of the result also benefitted from the acquisitions of
County Investment Management and HomeSide contributing to the momentum in the
Group's non-interest income streams. As a result, for the March 1998 quarter,
non interest income represented over 43% of total operating income.
During the six months ended March 31, 1998, the Group booked restructuring
costs of $229 million ($151 million after tax). Over the past year, the Group
has focused on improvements to its branch network distribution system and has
identified the need to restructure this system and its workforce. The
restructuring charge has been classified as an abnormal item due to its size and
effect on the Group's results. Profit after tax and abnormal items was $958
million for the six months ended March 31, 1998, a decrease of 15.9% compared
with the $1,139 million for the six months ended March 31, 1997.
29
<PAGE>
CONTRIBUTIONS TO OPERATING PROFIT
The increased diversification of income streams outside of Australia was a
direct outcome of strategic initiatives undertaken during the past decade to
broaden the Group's retail and business banking base. The table below sets forth
the contributions to consolidated operating profit by major business areas.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
-------------------------------
<S> <C> <C> <C>
%
1998 1997 CHANGE
--------- --------- ---------
<CAPTION>
(IN MILLIONS)
<S> <C> <C> <C>
AUSTRALIAN GROUP:
Australian Financial Services(1)................................................. A$ 634 A$ 665 (4.7%)
Other(2)......................................................................... (42) 56 large
LESS: Goodwill Amortization...................................................... (3) --
Abnormal items (after tax).................................................. (69) -- --
--------- --------- ---------
Total Australian Group........................................................... 520 721 (27.9)
--------- --------- ---------
EUROPEAN GROUP:
Clydesdale Bank.................................................................. 120 87 37.9
Northern Bank.................................................................... 75 59 27.1
Yorkshire Bank................................................................... 171 111 54.1
National Irish Bank.............................................................. 21 13 61.5
National Australia Life.......................................................... 1 4 (75.0)
Other(3)......................................................................... (39) (28) (39.3)
LESS: Goodwill amortization...................................................... (31) (31) --
Abnormal items (after tax).................................................. (72) -- --
--------- --------- ---------
Total European Group............................................................. 246 215 14.4
--------- --------- ---------
NEW ZEALAND GROUP:
Bank of New Zealand.............................................................. 137 153 (10.5)
NAG (NZ)......................................................................... (20) (24) 16.7
LESS: Goodwill amortization...................................................... (16) (16) --
Abnormal items (after tax).................................................. (4) -- --
--------- --------- ---------
Total New Zealand Group.......................................................... 97 113 (14.2)
--------- --------- ---------
UNITED STATES GROUP:
Michigan National Corporation.................................................... 99 92 7.6
HomeSide......................................................................... 16 -- --
Other(4)......................................................................... (4) 7 large
LESS: Goodwill amortization...................................................... (31) (24) (29.2)
Abnormal items (after tax).................................................. (6) -- --
--------- --------- ---------
Total United States Group........................................................ 74 75 (1.3)
--------- --------- ---------
ASIAN GROUP:
Asian Branches................................................................... 14 10 40.0
Other(5)......................................................................... 7 5 40.0
--------- --------- ---------
Total Asian Group................................................................ 21 15 40.0
--------- --------- ---------
Operating Profit after Income Tax Attributable to Members........................ A$ 958 A$ 1,139 (15.9%)
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(1) Australian Financial Services includes Consumer Banking, Business Banking,
Wholesale Banking, the Australian Property Companies, Custom Service Leasing
Limited, National Australia Trustees Limited, National Australia Financial
Management Limited, National Australia Asset Management Limited and County
Investment Management.
(2) Australian Other includes ARDB Limited and National Equities Limited and
Corporate Center.
(3) European Other includes National Australia Group (Europe) Limited, London
Branch, NAB Investments Limited and NAB Finance (Ireland) Limited.
(4) US Other includes New York Branch, National Australia Funding (Delaware)
Inc., National Americas Investment Inc. and HomeSide Investment Inc.
(5) Asian Other includes Nautilus Insurance Pte Limited.
30
<PAGE>
NET INTEREST INCOME
Net interest income for the six months ended March 31, 1998 increased by
$173 million to A$2,765 million or 6.7% over the $2,592 million for six months
ended March 31, 1997. Of this increase, $148 million was attributable to
exchange rate movements during the period. Net interest income was higher
through growth in loan volumes which has been partly offset by reduced margins
in most of the Group's operations.
Loans and advances increased by 21.0% in the six months ended March 31, 1998
to $145,740 million from $120,426 million for the six months ended March 31,
1997 with strong lending growth in:
- housing lending, up by 20.1% over the six months ended March 31, 1997;
- lease financing, up by 36.0% over the six months ended March 31, 1997;
- credit cards, up by 18.3% over the six months ended March 31, 1997.
Movements in exchange rates between the Australian dollar and the British
pound, Irish pound and United States dollar also increased the balance of loans
and advances outstanding. Excluding exchange rate movements, loans and advances
increased by 14.8% over the six months ended March 31, 1997.
OTHER OPERATING INCOME
Other operating income for the six months ended March 31, 1998 increased by
$385 million to $1,998 million or 23.9% over $1,613 million for the
corresponding period in the prior year. This increase reflects further efforts
to improve the cost recovery of services provided to customers, continued growth
in non-banking activities and the acquisition of HomeSide on February 10, 1998.
Of this increase, $151 million was attributable to exchange rate movements
during the period.
This diversification of the Group's earnings streams has led to the
proportion of other operating income to total income increasing to 43.7% in the
March 1998 quarter which compares with 38.8% for the year ended September 30,
1997 and 36.6% for the year ended September, 30 1996.
The increase in other operating income over the six months ended March 31,
1997 was primarily due to:
- the inclusion of HomeSide, which contributed $62 million to other
operating income;
- loan fees from banking, which increased by 18.2% reflecting higher
commitment, security and facility fees across the Group;
- money transfer fees, which increased by 19.5% largely reflecting changes
in fee and account structures in Australia and the introduction of
automated charging of certain customers for overdrawn accounts in
Clydesdale;
- fees and commissions, which increased by 25.4% due to increases in credit
card income and income from custodial related activities;
- increased trading income from treasury operations up 6.0%;
- other income, which increased by 29.7% reflecting profit on sale of
properties in Australia and Europe, and dividends received from strategic
investments.
OTHER OPERATING EXPENSES
Total other operating expenses increased by $470 million to $2,820 million
or 20.0% over the six months ended March 31, 1997. This led to an increase in
the Group's cost to income ratio from 54.2% for the six months ended March 31,
1997 to 57.5% for the six months ended March 31, 1998. The cost to income ratio
remained relatively stable from the three months ended December 31, 1997 to the
three
31
<PAGE>
months ended March 31, 1998. Of the increase in other operating expenses, $149
million was attributable to exchange rate movements during the period.
Personnel costs for the six months ended March 31, 1998 increased by $230
million or 18.4% to $1,482 million compared to $1,252 million for the six months
ended March 31, 1997. Personnel costs for the three months ended March 31, 1998
increased by 1.5% over the three months ended December 31, 1997. However,
excluding HomeSide, personnel expenses declined by 0.8%. This reflects the
impact of staff reductions in previous quarters and the impact of the staff
share scheme costs, which were recognized during the three months ended December
31, 1997. Although staff numbers increased by 0.7% since March 31, 1997, when
the impact of HomeSide and County is excluded, staff numbers decreased by 5.0%.
Occupancy costs increased by $16 million to $226 million for the six months
ended March 31, 1998 compared with $210 million for the six months ended March
31, 1997. Excluding the impact of foreign exchange rate movements, the increase
was $8 million or 3.8% primarily due to increased depreciation charges resulting
from the branch revitalization program in Australia.
General expenses increased by 26.2% to $1,031 million for the six months
ended March 31, 1997 compared with $817 million for the six months ended March
31, 1998 or by 24.6% excluding HomeSide. The Group incurred an increased
non-lending loss provision charge in the six months ended March 31, 1998 while
the six months ended March 31, 1997 was positively impacted by a non-lending
loss provision writeback booked in December 1996 in BNZ. Communication, postage
and stationery costs increases, predominantly in Europe, and expenditure on
information technology, including new and upgraded systems software, were higher
in the six months ended March 31, 1998. Fee and commission expenses increased
primarily in Australia as a result of increased credit card activity.
Depreciation and amortization was impacted by strong growth in the Group's
vehicle leasing operations in Australia and Europe.
AUSTRALIAN FINANCIAL SERVICES
Australian Financial Services includes Consumer Banking, Business Banking,
Wholesale Banking, National Australia Finance Management Limited, National
Australia Asset Management Limited, the Australian Property Companies, Custom
Service Leasing Limited, National Australia Trustees Limited, Custodian Services
and County Investment Management. Corporate center costs and National Equities
Limited have been excluded from the Australian Financial Services figures.
Australian Financial Services recorded a growth in underlying profit (profit
before tax, doubtful debts and abnormal items) of 3.9% over the six months ended
March 31, 1997 to $1,076 million from $1,036 million for the six months ended
March 31, 1997 despite the intense competition from traditional and new market
entrants together with the patchy nature of the Australian economy. After
allowing for the higher charge for doubtful debts, profit after tax (before
abnormals) was $634 million, a decrease of 4.7% from $665 million for the six
months ended March 31, 1997. The higher charge resulted from increased specific
provisions raised in the current period together with an abnormally high level
of recoveries in the six months ended March 31, 1997. There was also a
significant increase in the general provision charge in the six months ended
March 31, 1998 reflecting strong asset growth.
32
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
-------------------------
<S> <C> <C> <C>
%
1998 1997 CHANGE
------------ ----------- ---------
<CAPTION>
(IN MILLIONS, EXCEPT
PERCENTAGES)
<S> <C> <C> <C>
PROFIT & LOSS
Net interest income...................................... A$ 1,285 A$ 1,282 0.2%
Other operating income................................... 1,043 856 21.8%
LESS: Non-interest expenses.............................. 1,252 1,102 13.6%
LESS: Charge for doubtful debts.......................... 107 25 large
------------ ----------- ---------
Profit before income tax................................. 969 1,011 (4.2%)
LESS: Income tax expense................................. 335 346 (3.2%)
------------ ----------- ---------
Profit after income tax (before abnormal items).......... A$ 634 A$ 665 (4.7%)
------------ ----------- ---------
------------ ----------- ---------
SELECTED BALANCE SHEET ITEMS
Bank deposits............................................ A$ 64,396 A$ 54,452 18.3%
Net loans & acceptances.................................. 96,325 80,217 20.1%
Housing loans (included in net loans and acceptances).... 36,256 29,601 22.5%
Total assets............................................. 114,209 97,794 16.8%
KEY RATIOS
Cost/Income ratio (before abnormal items)................ 53.8% 51.5%
Impaired assets/Total loans.............................. 0.7% 0.9%
Return on assets (before abnormal items)................. 1.1% 1.4%
Net interest margin...................................... 3.1% 3.5%
</TABLE>
Net interest income increased from $1,282 million to $1,285 million in the
six months ended March 31, 1998 notwithstanding the continued pressure on
margins. This result was achieved through significant growth in lending volumes,
particularly in home loans and fixed rate business lending. Deposit volumes,
notably variable rate at call deposits, also showed an increase. The ability to
tailor packages to different customer segments continues to be a successful
formula for profitably growing the business.
Other operating income was significantly higher increasing by 21.8% to
$1,043 million for the six months ended March 31, 1998 from $856 million for the
six months ended March 31, 1997 due to the continued focus on improving fee
collection levels, particularly application fees and service fees. Australian
Financial Services also benefitted from an increase in money transfer fees due
to continued business growth, including higher credit card volumes and usage.
Expense growth was driven by increased business activity resulting in higher
credit card and EFTPOS interchange fees paid and higher motor vehicle operating
lease depreciation from strong growth in vehicle leasing. These increases were
more than offset by fee income directly attributable to these activities and
reflected in other operating income growth. Increased project activity,
particularly Year 2000 related, also resulted in higher costs. See " --Year
2000". Personnel expense growth reflected general salary increases under
Enterprise Bargaining and the cost of an enhanced employee share scheme, partly
offset by a significant reduction in staffing levels.
NATIONAL AUSTRALIA TRUSTEES
National Australia Trustees Limited provides both corporate and personal
fiduciary services to the Group's customers. Services provided include personal
trusts and agencies, wills and estate planning, corporate trusts, personal
superannuation and cash management trusts. National Australia Trustees' profit
grew strongly by 81% compared to the previous six months ended March 31, 1997.
The major contributor
33
<PAGE>
to the improved result was the growth in the cash management trusts with funds
under management rising by 20% to $1.2 billion.
NATIONAL AUSTRALIA CUSTODIAN SERVICES
Custodian Services provides sub custody, master custody, funds management
administration and securities lending services to domestic and overseas
institutions. Custodian Services has increased its market share in all of its
businesses over the period. Assets under custody/administration totaled $95
billion at March 31, 1998. Strong business growth and tight control of costs
resulted in a 21% increase in profit.
NATIONAL AUSTRALIA FINANCIAL MANAGEMENT
National Australia Financial Management Limited's ("NFM") profit
contribution increased marginally over the six months ended March 31, 1997. The
interest costs associated with the loan to fund the acquisition of County
Investment Management Limited, together with the lower management fees arising
due to the competitive financial environment has contributed to this result. NFM
has experienced strong sales growth in trusts, superannuation and retirement
income business. In addition, several direct marketing promotions currently
underway are anticipated to have a positive impact in the second half of
1997-98.
NATIONAL AUSTRALIA ASSET MANAGEMENT
National Australia Asset Management Limited ("NAAM") is a full-service fund
manager, managing NFM's retail products portfolio, a portfolio of wholesale
assets and funds for institutional clients. Wholesale and retail funds under
management increased by 5% overall, with retail contributing 10% growth for the
period. NAAM contributed a profit of $1 million for the six months ended March
31, 1998.
COUNTY INVESTMENT MANAGEMENT
County Investment Management Limited ("County") is a specialist fund
manager, managing a range of products from funds and portfolios for
institutional clients to retail and wholesale trust products. County became a
member of the Group on October 1, 1997. Wholesale and retail funds under
management grew steadily by 6% over the six months ended March 31, 1998. This
market growth together with reductions in operating costs have contributed to
County's net result of $2 million in profit.
Total funds under management of NFM, NAAM and County amounted to $15.3
billion at March 31, 1998.
CLYDESDALE BANK
Clydesdale produced a strong result with operating profit after tax
increasing by $33 million or 37.9% to $120 million from $87 million for the six
months ended March 31, 1997. Of this increase, $17 million was attributable to
exchange rate movements during the period. The solid reduction in the cost
income ratio
34
<PAGE>
from 56.1% for the six months ended March 31, 1997 to 52.5% for the six months
ended March 31, 1998 was mainly attributable to increased income over the
period.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
------------------------
<S> <C> <C> <C>
%
1998 1997 CHANGE
----------- ----------- ---------
<CAPTION>
(IN MILLIONS, EXCEPT
PERCENTAGES)
<S> <C> <C> <C>
PROFIT & LOSS
Net interest income........................................ A$ 290 A$ 224 29.5%
Other operating income..................................... 188 140 34.3%
Less: Non-interest expenses................................ 251 204 23.0%
Less: Charge for doubtful debts............................ 51 30 70.0%
----------- ----------- ---------
Profit before income tax................................... 176 130 35.4%
Less: Income tax expense................................... 56 43 30.2%
----------- ----------- ---------
Profit after income tax.................................... A$ 120 A$ 87 37.9%
----------- ----------- ---------
----------- ----------- ---------
SELECTED BALANCE SHEET ITEMS
Bank deposits.............................................. A$ 14,005 A$ 10,254 36.6%
Net loans & acceptances.................................... 15,885 12,645 25.6%
Housing loans (included in net loans and acceptances)...... 4,677 3,688 26.8%
Total assets............................................... 18,673 15,768 18.4%
KEY RATIOS
Cost/Income ratio.......................................... 52.5% 56.1%
Impaired assets/Total loans................................ 2.0% 2.0%
Return on assets........................................... 1.3% 1.1%
Net interest margin........................................ 3.4% 3.1%
</TABLE>
Net interest income increased by $66 million or 29.5% to $290 million for
the six months ended
March 31, 1998 compared with $224 million for the six months ended March 31,
1997. This increase was due to improved lending volumes in both business and
personal sectors. Retail deposits also increased over the period, in particular
personal deposits reflecting continuing growth of the new savings account. Apart
from increases resulting from business growth, the rise in other operating
income relates to the sale of two buildings and profits on the sale of
investments by Clydesdale equity. The bank has also been successful in
increasing loan fees through greater automation of the collection process and
has increased foreign exchange income reflecting the ongoing success of the
treasury function.
Non-interest expenses has increased by $47 million or 23.0% to $251 million
for the six months ended March 31, 1998 from $204 million for the six months
ended March 31, 1998, mainly due to the variable costs associated with the
increased operating income such as credit card and postage costs.
The rise in the doubtful debts charge reflects new provisions raised against
business loans during the six months ended March 31, 1998.
NORTHERN BANK
Northern Bank contributed a profit after tax (before abnormals) of $75
million for the six months ended March 31, 1998, a solid $16 million or 27.1%
increase in profit after tax (before abnormals)
35
<PAGE>
compared with the $59 million for the six months ended March 31, 1997. Of this
increase, $11 million was attributable to exchange rate movements during the
period.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
--------------------
<S> <C> <C> <C>
%
1998 1997 CHANGE
--------- --------- ---------
<CAPTION>
(IN MILLIONS, EXCEPT
PERCENTAGES)
<S> <C> <C> <C>
PROFIT & LOSS
Net interest income......................................... A$ 158 A$ 130 21.5%
Other operating income...................................... 72 58 24.1%
Less: Non-interest expenses................................. 119 97 22.7%
Less: Charge for doubtful debts............................. 2 1 100.0%
--------- --------- ---------
Profit before income tax.................................... 109 90 21.1%
Less: Income tax expense.................................... 34 31 9.7%
--------- --------- ---------
Profit after income tax (before abnormal items)............. A$ 75 A$ 59 27.1%
--------- --------- ---------
--------- --------- ---------
SELECTED BALANCE SHEET ITEMS
Bank deposits............................................... A$ 6,643 A$ 5,855 13.5%
Net loans & acceptances..................................... 6,155 4,549 35.3%
Housing loans (included in net loans and acceptances)....... 1,881 1,364 37.9%
Total assets................................................ 8,690 7,759 12.0%
KEY RATIOS
Cost/Income ratio (before abnormal items)................... 51.7% 51.6%
Impaired assets/Total loans................................. 0.8% 0.8%
Return on assets (before abnormal items).................... 1.7% 1.5%
Net interest margin......................................... 4.3% 4.4%
</TABLE>
Net interest income of $158 million for the six months ended March 31, 1998
increased by 21.5% compared with the $130 million for the corresponding period
in the prior year with lending volumes continuing to grow primarily in the
mortgage book and business lending.
Other operating income of $72 million for the six months ended March 31,
1998 increased by $14 million from $58 million for the six months ended March
31, 1997, mainly due to increased fee income from the financial services
activities. In local currency terms, non-interest expense has been held constant
through continuing tight control over expenditure.
36
<PAGE>
YORKSHIRE BANK
Yorkshire Bank produced a $60 million or 54.1% increase in profit after tax
(before abnormals) to $171 million for the six months ended March 31, 1998 from
$111 million for the six months ended March 31, 1997. Of this increase, $25
million was attributable to exchange rate movements during the period. The
principle feature was a $36 million or 53.7% reduction in the charge for
doubtful debts to $31 million for the six months ended March 31, 1998 from $67
million for the six months ended March 31, 1997 resulting from the asset quality
initiatives recently undertaken. In local currency terms profit after income tax
(before abnormal items) increased by 29.5% for the six months ended March 31,
1998 compared with the corresponding period in the prior year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
------------------------
<S> <C> <C> <C>
%
1998 1997 CHANGE
----------- ----------- ---------
<CAPTION>
(IN MILLIONS, EXCEPT
PERCENTAGES)
<S> <C> <C> <C>
PROFIT & LOSS
Net interest income....................................... A$ 338 A$ 284 19.0%
Other operating income.................................... 247 208 18.8%
Less: Non-interest expenses............................... 304 253 20.2%
Less: Charge for doubtful debts........................... 31 67 (53.7%)
----------- ----------- ---------
Profit before income tax.................................. 250 172 45.3%
Less: Income tax expense.................................. 79 61 29.5%
----------- ----------- ---------
Profit after income tax (before abnormal items)........... A$ 171 A$ 111 54.1%
----------- ----------- ---------
----------- ----------- ---------
SELECTED BALANCE SHEET ITEMS
Bank deposits............................................. 9,873 7,737 27.6%
Net loans & acceptances................................... 10,495 8,667 21.1%
Housing loans (included in net loans and acceptances)..... 2,381 1,777 34.0%
Total assets.............................................. 12,734 10,554 20.7%
KEY RATIOS
Cost/Income ratio (before abnormal items)................. 51.9% 51.4%
Impaired assets/Total loans............................... 1.4% 2.3%
Return on assets (before abnormal items).................. 2.7% 2.1%
Net interest margin....................................... 6.1% 6.2%
</TABLE>
Yorkshire has been able to continue growing its business base in its
traditional products while expanding its housing and business lending. Despite
strong competition, Yorkshire has continued to be successful in protecting its
relatively robust margins.
Other operating income increased by $39 million or 18.8% to $247 million for
the six months ended March 31, 1998 from $208 million for the six months ended
March 31, 1997 partly reflecting increased rental income earned by Eden Vehicle
Rentals ("EVR").
Growth in non-interest expenses by $51 million or 20.2% to $304 million for
the six months ended March 31, 1998 from $253 million for the six months ended
March 31, 1997 was predominantly due to the effects of the fleet growth at EVR.
Excluding the impact of this and the exchange rate impact, non-interest expenses
only rose marginally.
37
<PAGE>
NATIONAL IRISH BANK
National Irish Bank recorded a $8 million or 61.5% increase in profit after
tax (before abnormals) for the six months ended March 31, 1998 to $21 million
from $13 million for the six months ended March 31, 1997. Net interest income
increased by $8 million or 16.7% to $56 million for the six months ended March
31, 1998 from $48 million for the six months ended March 31, 1997 with higher
volumes predominantly in mortgage, term and overdraft lending outweighing the
impact of lower margins.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
--------------------
<S> <C> <C> <C>
%
1998 1997 CHANGE
--------- --------- ---------
<CAPTION>
(IN MILLIONS, EXCEPT
PERCENTAGES)
<S> <C> <C> <C>
PROFIT & LOSS
Net interest income......................................... A$ 56 A$ 48 16.7%
Other operating income...................................... 26 21 23.8%
Less: Non-interest expenses................................. 49 45 8.9%
Less: Charge for doubtful debts............................. -- 2 large
--------- --------- ---------
Profit before income tax.................................... 33 22 50.0%
Less: Income tax expense.................................... 12 9 33.3
--------- --------- ---------
Profit after income tax (before abnormal items)............. A$ 21 A$ 13 61.5%
--------- --------- ---------
--------- --------- ---------
SELECTED BALANCE SHEET ITEMS
Bank deposits............................................... A$ 2,387 A$ 2,153 10.9%
Net loans & acceptances..................................... 2,456 2,044 20.2%
Housing loans (included in net loans and acceptances)....... 872 721 20.9%
Total assets................................................ 3,455 2,740 26.1%
KEY RATIOS
Cost/Income ratio (before abnormal items)................... 59.8% 65.0%
Impaired assets/Total loans................................. 1.5% 2.1%
Return on assets (before abnormal items).................... 1.2% 0.9%
Net interest margin......................................... 3.5% 3.7%
</TABLE>
Other operating income increased by $5 million or 23.8% to $26 million for
the six months ended March 31, 1998 from $21 million for the six months ended
March 31, 1997 with a strong performance from Treasury together with increased
fee income in line with higher lending volumes.
Non-interest expenses increased by $4 million or 8.9% to $49 million for the
six months ended March 31, 1998 from $45 million for the six months ended March
31, 1997. In local currency terms, non-interest expenses declined contributing
to the solid improvement in National Irish Bank's cost income ratio from 65.0%
for the six months ended March 31, 1997 to 59.8% for the six months ended March
31, 1998.
BANK OF NEW ZEALAND GROUP
BNZ achieved an after tax profit (before abnormals) of $140 million for the
six months ended March 31, 1998, a decrease of $32 million or 18.6% from $172
million earned in the corresponding period in the prior year. The profit
reduction reflects the impact of a one off non-lending loss provision writeback
booked in December 1996 ($20 million) and the impact of the transfer to
Australian Financial Services of
38
<PAGE>
BNZ Australia (BNZA--$17 million). Underlying profit excluding these factors
increased by 5.0% for the six months ended March 31, 1998 over the corresponding
period in the prior year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
------------------------
<S> <C> <C> <C>
%
1998 1997 CHANGE
----------- ----------- ---------
<CAPTION>
(IN MILLIONS, EXCEPT
PERCENTAGES)
<S> <C> <C> <C>
PROFIT & LOSS
Net interest income....................................... A$ 300 A$ 315 (4.8%)
Other operating income.................................... 143 145 (1.4%)
Less: Non-interest expenses............................... 253 242 4.5%
Less: Charge for doubtful debts........................... (4) (22) (81.8%)
----------- ----------- ---------
Profit before income tax.................................. 194 240 (19.2%)
Less: Income tax expense.................................. 54 68 (20.6%)
----------- ----------- ---------
Profit after income tax (before abnormal items)........... A$ 140 A$ 172 (18.6%)
----------- ----------- ---------
----------- ----------- ---------
SELECTED BALANCE SHEET ITEMS
Bank deposits............................................. A$ 13,969 A$ 14,140 (1.2%)
Net loans & acceptances................................... 16,843 17,464 (3.6%)
Housing loans (included in net loans and acceptances)..... 6,575 6,899 (4.7%)
Total assets.............................................. 21,380 21,438 (0.3%)
KEY RATIOS
Cost/Income ratio (before abnormal items)................. 57.1% 53.1%
Impaired assets/Total loans............................... 0.6% 0.8%
Return on assets (before abnormal items).................. 1.3% 1.6%
Net interest margin....................................... 2.9% 3.2%
</TABLE>
The above table reflects the legal entity results of BNZ. Detailed below is
the after tax contributions of the major geographic units:
<TABLE>
<S> <C> <C>
New Zealand operations...................................... A$ 137 A$ 153
Australian operations....................................... -- 17
Asian operations............................................ 3 2
--------- ---------
A$ 140 A$ 172
--------- ---------
--------- ---------
</TABLE>
Net interest income decreased by $15 million or 4.8% to $300 million for the
six months ended March 31, 1998 from $315 million for the six months ended March
31, 1997. Net interest income (excluding the transfer of BNZA) was marginally
higher that the six months ended March 31, 1997. The impact of increased
underlying volumes has been partly offset by lower margin levels. The main
driver has been customers moving from variable housing lending to fixed rate
lending at lower margins, which is a result of a negative interest rate yield
curve in New Zealand and competitive pricing with a number of new lenders
entering the market.
Other operating income decreased by $2 million or 1.4% to $143 million for
the six months ended March 31, 1998 from $145 million in the corresponding
period in the prior year. Other operating income, after allowing for the BNZA
transfer, shows good growth in underlying fees and commissions (particularly in
Credit Cards and Insurance commissions) and moderate trading profits resulting
from a volatile exchange and interest rate environment.
39
<PAGE>
Non-interest expenses increased by $11 million or 4.5% to $253 million for
the six months ended March 31, 1998 from $242 million for the six months ended
March 31, 1997. Excluding the impact of the one off non-lending loss provision
writeback booked in December 1996 and the transfer of BNZA, non-interest
expenses and the cost to income ratio have remained steady.
MICHIGAN NATIONAL CORPORATION
Michigan National's profit after income tax (before abnormals) increased by
$7 million or 8% to $99 million for the six months ended March 31, 1998 from $92
million for the six months ended March 31, 1997. In local currency terms,
Michigan National's profit fell by 6.4%.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
---------------------------------
<S> <C> <C> <C>
%
1998 1997 CHANGE
----------- --------- ---------
<CAPTION>
(IN MILLIONS, EXCEPT PERCENTAGES)
<S> <C> <C> <C>
PROFIT & LOSS
Net interest income......................................... A$ 272 A$ 223 22.0%
Other operating income...................................... 129 112 15.2%
Less: Non-interest expenses................................. 235 182 29.1%
Less: Charge for doubtful debts............................. 17 13 30.8%
----------- --------- ---------
Profit before income tax.................................... 149 140 6.4%
Less: Income tax expense.................................... 50 48 4.2%
----------- --------- ---------
Profit after income tax (before abnormal items)............. A$ 99 A$ 92 7.6%
----------- --------- ---------
----------- --------- ---------
SELECTED BALANCE SHEET ITEMS
Bank deposits............................................... A$ 11,694 A$ 9,015 29.7%
Net loans & acceptances..................................... 10,951 8,306 31.8%
Housing loans (included in net loans and acceptances)....... 524 376 39.4%
Total assets (excluding goodwill)........................... 14,240 10,785 32.0%
KEY RATIOS
Cost/Income ratio (before abnormal items)................... 58.6% 54.4%
Impaired assets/Total loans................................. 1.0% 1.5%
Return on assets (before abnormal items).................... 1.4% 1.7%
Net interest margin......................................... 4.5% 4.5%
</TABLE>
Net interest income increased by $49 million or 22.0% to $272 million for
the six months ended March 31, 1998 from $223 million for the corresponding
period in the prior year principally due to increased lending volumes
predominantly in the commercial sector.
Other operating income increased by $17 million or 15.2% to $129 million for
the six months ended March 31, 1998 from $112 million for the six months ended
March 31, 1997. The increase in other operating income resulted from strong
growth in lending fees on the back of increased lending volumes and the
contribution of fee income in the six months ended March 31, 1998 from Boatmens
Relocation Management, which was acquired in July 1997.
Non-interest expenses increased by $53 million or 29.1% to $235 million for
the six months ended March 31, 1998 from $182 million for the six months ended
March 31, 1997. This increase was predominantly due to higher project activity,
including Year 2000 related costs.
The charge for doubtful debts increased by $4 million or 30.8% to $17
million for the six months ended March 31, 1998 from $13 million in the
corresponding period in the prior year. The increased
40
<PAGE>
charge for doubtful debts principally reflects a lower level of loan recoveries
compared to the six months ended March 31, 1997.
HOMESIDE INC.
HomeSide was acquired on February 10, 1998. The profit after income tax
contribution disclosed reflects the period from acquisition date to March 31,
1998. Comparative results for the period from February 10, 1998 to March 31,
1997 are not available due to differences in accounting policies, accounting
standards and the generally accepted accounting principles of the United States
and Australia. HomeSide's profit contribution of $16 million after income tax
for the period since its acquisition represents a 2.3% return on assets
(excluding goodwill).
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, 1998
----------------
<S> <C>
(IN MILLIONS)
PROFIT & LOSS
Net interest income......................................................... A$ 4
Other operating income...................................................... 62
Less: Non-interest expenses................................................. 37
Less: Charge for doubtful debts............................................. 3
--------
Profit before income tax.................................................... 26
Less: Income tax expense.................................................... 10
--------
Profit after income tax..................................................... A$ 16
--------
--------
SELECTED BALANCE SHEET ITEMS
Total assets (excluding goodwill)........................................... A$ 6,471
KEY RATIOS
Cost/Income ratio........................................................... 56.1%
Return on assets (excluding goodwill)....................................... 2.3%
</TABLE>
NATIONAL AUSTRALIA LIFE
During the six months ended March 31, 1998, sales of National Australia Life
("NAL") products through the European banking franchise continued to show strong
growth. A large increase in annualized premium income, generated from a
combination of significantly improved sales productivity and the on-going
expansion of the distribution team, has contributed to a dramatic increase in
funds under management to $722 million at March 31, 1998. NAL funds under
management and profit contribution are also favorably impacted by the
significant growth experienced in the United Kingdom stock market and NAL's
continued aggressive management of operating expenses. NAL's higher contribution
to profit for the six months ended March 31, 1997 arose from the booking of a
tax credit.
ASIA
The contribution of operations in the Asian region increased by $6 million
or 40.0% from $15 million for the six months ended March 31, 1997 to $21 million
for the six months ended March 31, 1998, reflecting an increased contribution
from treasury and corporate banking activities in the Asian branches together
with increased profit contributions from Nautilus Insurance and BNZ's Asian
operations. Included in the profit for the six months ended March 31, 1998 was a
large recovery recorded by National Australia Merchant Bank (Singapore).
41
<PAGE>
The Group's Asian exposure includes all lending, foreign exchange and
derivative transactions with companies residing in Asia. The exposures include
facilities originated in the Group's eleven Asian branches and offices in
addition to lending into Asia from the Group's other subsidiaries.
<TABLE>
<CAPTION>
UNFUNDED FUNDED
TRADE RETAIL BANKERS MARKETABLE LOCAL TREASURY TREASURY
FINANCE LOANS ACCEPTANCES SECURITIES LENDING(1) EXPOSURE(2) EXPOSURE(3) TOTAL
--------- --------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)
Taiwan................... A$ 31 A$ 6 A$ 65 A$ 30 A$ 11 A$ 11 A$ 38 A$ 192
South Korea.............. 203 -- 377 177 761 129 15 1,662
Japan.................... 481 -- -- 2,873 364 3,211 2,519 9,448
Indonesia................ 41 48 -- -- 255 2 -- 346
Thailand................. 40 4 -- -- 119 13 -- 176
Malaysia................. 3 10 -- -- 127 33 -- 173
Phillipines.............. 1 -- -- -- 15 2 -- 18
Hong Kong................ 20 -- -- 533 1,009 822 -- 2,384
China.................... 147 -- -- -- 4 80 3 234
Singapore................ 307 162 -- -- 284 740 272 1,765
India.................... 96 -- -- -- 2 10 -- 108
--------- --------- ----------- ----------- ----------- ----------- ----------- -----------
Total.................... A$ 1,370 A$ 230 A$ 442 A$ 3,613 A$ 2,951 A$ 5,053 A$ 2,847 A$ 16,506
--------- --------- ----------- ----------- ----------- ----------- ----------- -----------
--------- --------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
- ------------------------
(1) Term, general, revolving, leasing and project loans.
(2) Forward foreign exchange contracts are shown as net exposure expressed as
10% of gross outstandings. Interest rate swaps are shown as gross
outstandings.
(3) Primarily money market lines to banks.
The Group's aggregate exposure to Asia amounted to $16.5 billion at March
31, 1998. Gross impaired assets in Asia declined by 13.2% between December 31,
1997 and March 31, 1998 to $33 million representing 0.2% of shareholders equity.
As at March 31, 1998, the total assets of the Asia group represented 5.0% of
the Group's consolidated assets and total loans in the Asian region represented
1.8% of the Group's total loans. Gross impaired assets in Asia at March 31, 1998
were $33 million, representing 0.2% of shareholders' equity.
AVERAGE BALANCE SHEETS AND RELATED INTEREST
The following tables set forth the major categories of interest earning
assets and interest bearing liabilities, together with their respective interest
rates earned or paid by the Group. Averages are predominantly daily averages.
Interest income figures include interest income on non-accrual loans to the
extent cash payments have been received. Amounts classified as overseas
represent non-Australian interest earning assets or interest bearing liabilities
of the Group's controlled entities and overseas branches.
Non-accrual loans are included within Interest Earnings Assets under "Loan
and Advances".
42
<PAGE>
AVERAGE ASSETS AND INTEREST INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30, 1997
SIX MONTHS ENDED MARCH 31, 1998
------------------------------------ ------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
------------ --------- ----------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS) (%) (IN MILLIONS) (%)
INTEREST EARNING ASSETS
Due from other financial institutions
Australia................................ A$ 1,095 A$ 22 4.1 A$ 824 A$ 17 4.2
Overseas................................. 10,591 301 5.7 10,037 269 5.4
Regulatory deposits
Australia................................ 876 -- -- 804 2 0.5
Overseas................................. 160 1 1.6 154 1 1.7
Investment/available for sale/trading and
other securities
Australia................................ 6,628 175 5.3 5,623 179 6.4
Overseas................................. 12,708 455 7.2 10,263 329 6.4
Loans and advances
Australia................................ 73,357 2,793 7.7 70,254 2,951 8.4
Overseas................................. 67,238 3,087 9.3 59,550 2,620 8.8
Other interest earning assets(1)........... 2,417 405 n/a 1,452 214 n/a
-- --
------------ --------- ------------ ---------
Total interest earning assets.............. A$ 175,070 A$ 7,239 8.3 A$ 158,961 A$ 6,582 8.3
-- --
-- --
------------ --------- ------------ ---------
------------ --------- ------------ ---------
NON-INTEREST EARNING ASSETS
Acceptances
Australia................................ A$ 20,253 A$ 18,649
Overseas................................. 1,212 836
Fixed assets
Australia................................ 1,838 1,880
Overseas................................. 1,561 1,375
Other assets
Australia................................ 13,189 10,963
Overseas................................. 11,469 11,208
------------ ------------
Total non-interest earning assets.......... 49,522 44,911
------------ ------------
Provision for doubtful debts
Australia................................ (621) (599)
Overseas................................. (774) (739)
------------ ------------
Total assets............................... A$ 223,197 A$ 202,534
------------ ------------
------------ ------------
Percentage of total average assets
applicable to overseas operations........ 47.6% 46.2%
------------ ------------
</TABLE>
- ------------------------
(1) Includes interest on derivatives.
43
<PAGE>
AVERAGE LIABILITIES AND INTEREST EXPENDITURE
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
MARCH 31, 1998 SEPTEMBER 30, 1997
----------------------------------- ----------------------
AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST
----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS) (%) (IN MILLIONS)
INTEREST BEARING LIABILITIES AND OTHER DEBT ISSUES
Time deposits
Australia........................................................... A$ 26,867 A$ 710 5.3 A$ 24,542 A$ 747
Overseas............................................................ 39,040 1,384 7.2 35,394 1,182
Savings deposits
Australia........................................................... 4,158 93 4.5 4,732 102
Overseas............................................................ 15,547 358 4.6 14,066 275
Other demand deposits
Australia........................................................... 26,091 391 3.0 24,838 416
Overseas............................................................ 9,270 159 3.5 8,347 133
Government and official institutions
Australia........................................................... -- -- -- -- --
Overseas............................................................ 476 14 5.8 394 11
Due to other financial institutions
Australia........................................................... 3,107 55 3.5 3,964 94
Overseas............................................................ 12,651 385 6.1 8,889 213
Short-term borrowings
Australia........................................................... -- -- -- -- --
Overseas............................................................ 5,716 156 5.5 4,123 115
Long-term borrowings
Australia........................................................... 8,964 299 6.7 6,869 228
Overseas............................................................ 2,215 72 6.6 2,073 54
Other interest bearing liabilities (1)................................ 157 327 n/a 144 284
Other debt issues
Australia........................................................... 362 13 7.5 335 10
Overseas............................................................ 1,510 58 7.7 1,483 51
--
----------- --------- ----------- ---------
Total interest bearing liabilities & loan capital..................... A$ 156,131 A$ 4,474 5.8 A$ 140,193 A$ 3,915
--
--
----------- --------- ----------- ---------
----------- --------- ----------- ---------
NON-INTEREST BEARING LIABILITIES
Deposits not bearing interest
Australia........................................................... A$ 3,839 A$ 3,506
Overseas............................................................ 7,020 6,292
Liability on acceptances
Australia........................................................... 20,253 18,649
Overseas............................................................ 1,212 836
Other liabilities
Australia........................................................... 11,957 10,959
Overseas............................................................ 9,389 8,690
----------- -----------
Total non-interest bearing liabilities................................ 53,670 48,932
----------- -----------
Shareholders' equity.................................................. 13,396 13,409
----------- -----------
Total liabilities and shareholders equity............................. A$ 223,197 A$ 202,534
----------- -----------
----------- -----------
Percentage of total average liabilities applicable to overseas
operations.......................................................... 49.7% 48.0%
----------- -----------
<CAPTION>
AVERAGE
RATE
-----------
<S> <C>
(%)
INTEREST BEARING LIABILITIES AND OTHER DEBT ISSUES
Time deposits
Australia........................................................... 6.1
Overseas............................................................ 6.7
Savings deposits
Australia........................................................... 4.3
Overseas............................................................ 3.9
Other demand deposits
Australia........................................................... 3.4
Overseas............................................................ 3.2
Government and official institutions
Australia........................................................... --
Overseas............................................................ 5.6
Due to other financial institutions
Australia........................................................... 4.8
Overseas............................................................ 4.8
Short-term borrowings
Australia........................................................... --
Overseas............................................................ 5.6
Long-term borrowings
Australia........................................................... 6.7
Overseas............................................................ 5.2
Other interest bearing liabilities (1)................................ n/a
Other debt issues
Australia........................................................... 6.2
Overseas............................................................ 6.9
--
Total interest bearing liabilities & loan capital..................... 5.6
--
--
NON-INTEREST BEARING LIABILITIES
Deposits not bearing interest
Australia...........................................................
Overseas............................................................
Liability on acceptances
Australia...........................................................
Overseas............................................................
Other liabilities
Australia...........................................................
Overseas............................................................
Total non-interest bearing liabilities................................
Shareholders' equity..................................................
Total liabilities and shareholders equity.............................
Percentage of total average liabilities applicable to overseas
operations..........................................................
</TABLE>
- ------------------------
(1) Includes interest on derivatives.
44
<PAGE>
INTEREST MARGINS AND SPREADS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------------------------------------------
<S> <C> <C> <C>
MARCH 31, 1998 SEPTEMBER 30, 1997 MARCH 31, 1997
(%) (%) (%)
----------------- --------------------- -----------------
AUSTRALIA
Interest spread adjusted for interest foregone on non-accrual
and restructured loans..................................... 2.7 2.9 3.2
Interest foregone on non-accrual and restructured loans...... (0.1) (0.1) (0.1)
--- --- ---
AUSTRALIAN INTEREST SPREAD (1)............................... 2.6 2.8 3.1
Benefit of net free liabilities, provisions and equity....... 0.8 0.8 0.9
--- --- ---
AUSTRALIAN INTEREST MARGIN (2)............................... 3.4 3.6 4.0
--- --- ---
--- --- ---
OVERSEAS
Interest spread adjusted for interest foregone on non-accrual
and restructured loans..................................... 2.6 2.7 2.8
Interest foregone on non-accrual and restructured loans...... (0.1) (0.1) (0.1)
--- --- ---
OVERSEAS INTEREST SPREAD (1)................................. 2.5 2.6 2.7
Benefit of net free liabilities, provisions and equity....... 0.4 0.5 0.5
--- --- ---
OVERSEAS INTEREST MARGIN (2)................................. 2.9 3.1 3.2
--- --- ---
--- --- ---
GROUP
Interest spread adjusted for interest foregone on non-accrual
and restructured loans..................................... 2.6 2.8 3.0
Interest foregone on non-accrual provisions and equity....... (0.1) (0.1) (0.1)
--- --- ---
GROUP INTEREST SPREAD (1).................................... 2.5 2.7 2.9
Benefit of net free liabilities, provisions and equity....... 0.6 0.6 0.7
--- --- ---
GROUP INTEREST MARGIN (2).................................... 3.1 3.3 3.6
--- --- ---
--- --- ---
</TABLE>
- ------------------------
(1) Interest spread represents the difference between the average interest rate
earned and the average interest rate incurred on funds.
(2) Interest margin is net interest income as a percentage of average interest
earning assets.
45
<PAGE>
DERIVATIVE FINANCIAL INSTRUMENTS
NOTIONAL PRINCIPAL, CREDIT EQUIVALENT, FAIR VALUE AND AVERAGE FAIR VALUE OF
ALL DERIVATIVE FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
NOTIONAL PRINCIPAL CREDIT EQUIVALENT FAIR VALUE
---------------------------- --------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
MARCH 31, SEPTEMBER 30, MARCH 31, SEPTEMBER 30, MARCH 31, SEPTEMBER 30,
1998 1997 1998 1997 1998 1997
------------ -------------- ----------- -------------- ----------- --------------
<CAPTION>
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
FOREIGN EXCHANGE RATE RELATED CONTRACTS
Spot and forward contracts to purchase
foreign exchange
Trading................................. A$ 205,936 A$ 211,510 A$ 7,103 A$ 5,752 A$ (374) A$ (506)
Other than trading...................... 19,803 23,974 822 586 723 406
------------ -------------- ----------- -------------- ----------- -------
Total foreign exchange.................... 225,739 235,484 7,925 6,338 349 (100)
------------ -------------- ----------- -------------- ----------- -------
Cross currency swaps
Trading................................. 4,469 4,904 277 245 (81) (47)
Other than trading...................... 2,639 1,359 77 106 16 50
------------ -------------- ----------- -------------- ----------- -------
Total currency swaps...................... 7,108 6,263 354 351 (65) 3
------------ -------------- ----------- -------------- ----------- -------
Total futures trading..................... 52 196 -- -- -- 1
------------ -------------- ----------- -------------- ----------- -------
Options
Trading................................. 15,664 12,386 297 207 66 28
Other than trading...................... -- -- -- -- -- --
------------ -------------- ----------- -------------- ----------- -------
Total options............................. 15,664 12,386 297 207 66 28
------------ -------------- ----------- -------------- ----------- -------
Total foreign exchange rate related
contracts............................... A$ 248,563 A$ 254,329 A$ 8,576 A$ 6,896 A$ 350 A$ (68)
------------ -------------- ----------- -------------- ----------- -------
------------ -------------- ----------- -------------- ----------- -------
INTEREST RATE RELATED CONTRACTS
Forward rate agreements
Trading................................. A$ 28,291 A$ 41,880 A$ 39 A$ 61 A$ (3) A$ 1
Other than trading...................... 2,374 1,544 -- -- 1 --
------------ -------------- ----------- -------------- ----------- -------
Total forward rate agreements............. 30,665 43,424 39 61 (2) 1
------------ -------------- ----------- -------------- ----------- -------
Swaps
Trading................................. 115,020 96,181 2,081 1,849 (381) (342)
Other than trading...................... 26,695 22,191 238 185 51 (159)
------------ -------------- ----------- -------------- ----------- -------
Total swaps............................... 141,715 118,372 2,319 2,034 (330) (501)
------------ -------------- ----------- -------------- ----------- -------
Futures
Trading................................. 62,989 90,322 -- -- (11) 23
Other than trading...................... 2,203 1,265 -- -- (1) (1)
------------ -------------- ----------- -------------- ----------- -------
Total futures............................. 65,192 91,587 -- -- (12) 22
------------ -------------- ----------- -------------- ----------- -------
Options
Trading................................. 54,322 86,580 88 50 18 13
Other than trading...................... 1,516 137 7 5 1 1
------------ -------------- ----------- -------------- ----------- -------
Total options............................. 55,838 86,717 95 55 19 14
------------ -------------- ----------- -------------- ----------- -------
Total interest rate related contracts..... A$ 293,410 A$ 340,100 A$ 2,453 A$ 2,150 A$ (325) A$ (464)
------------ -------------- ----------- -------------- ----------- -------
------------ -------------- ----------- -------------- ----------- -------
OTHER INDEX RELATED CONTRACTS
Swaps
Other than trading...................... A$ 11 A$ 12 -- -- -- --
------------ -------------- ----------- -------------- ----------- -------
Total..................................... A$ 541,984 A$ 594,441 A$ 11,029 A$ 9,046 A$ 25 A$ (532)
------------ -------------- ----------- -------------- ----------- -------
------------ -------------- ----------- -------------- ----------- -------
<CAPTION>
AVERAGE FAIR VALUE (1)
---------------------------
<S> <C> <C>
MARCH 31, SEPTEMBER 30,
1998 1997
----------- --------------
<S> <C> <C>
FOREIGN EXCHANGE RATE RELATED CONTRACTS
Spot and forward contracts to purchase
foreign exchange
Trading................................. A$ 316 A$ (120)
Other than trading...................... -- --
----------- -------
Total foreign exchange.................... 316 (120)
----------- -------
Cross currency swaps
Trading................................. (56) (13)
Other than trading...................... -- --
----------- -------
Total currency swaps...................... (56) (13)
----------- -------
Total futures trading..................... -- 1
----------- -------
Options
Trading................................. 53 (10)
Other than trading...................... -- --
----------- -------
Total options............................. 53 (10)
----------- -------
Total foreign exchange rate related
contracts............................... A$ 313 A$ (142)
----------- -------
----------- -------
INTEREST RATE RELATED CONTRACTS
Forward rate agreements
Trading................................. A$ (3) A$ 2
Other than trading...................... -- --
----------- -------
Total forward rate agreements............. (3) 2
----------- -------
Swaps
Trading................................. (421) (289)
Other than trading...................... -- --
----------- -------
Total swaps............................... (421) (289)
----------- -------
Futures
Trading................................. (11) (1)
Other than trading...................... -- --
----------- -------
Total futures............................. (11) (1)
----------- -------
Options
Trading................................. 32 5
Other than trading...................... -- --
----------- -------
Total options............................. 32 5
----------- -------
Total interest rate related contracts..... A$ (403) A$ (283)
----------- -------
----------- -------
OTHER INDEX RELATED CONTRACTS
Swaps
Other than trading...................... -- --
----------- -------
Total..................................... A$ (90) A$ (425)
----------- -------
----------- -------
</TABLE>
- ------------------------
(1) Average Fair Values of other than trading contracts are not available.
For a full description of the Group's derivative financial instrument
activities, exposure management techniques and accounting methodologies, see the
1997 Form 20-F.
46
<PAGE>
CREDIT EQUIVALENT BY MATURITY
The following table provides a maturity profile of the credit equivalent of
derivative financial instruments by contract type.
<TABLE>
<CAPTION>
EXCHANGE RATE INTEREST RATE
RELATED CONTRACTS RELATED CONTRACTS TOTAL
-------------------------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
MARCH 31, SEPTEMBER 30, MARCH 31, SEPTEMBER 30, MARCH 31, SEPTEMBER 30,
1998 1997 1998 1997 1998 1997
----------- ------------- ----------- ------------- ----------- -------------
<CAPTION>
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Within 6 Months......................... A$ 5,820 A$ 4,259 A$ 342 A$ 121 A$ 6,162 A$ 4,380
6 Months--1 Year........................ 2,082 1,911 375 244 2,457 2,155
1--2 Years.............................. 303 449 348 476 651 925
2--5 Years.............................. 263 213 801 828 1,064 1,041
After 5 Years........................... 108 64 587 481 695 545
----------- ------------- ----------- ------------- ----------- -------------
Total................................... A$ 8,576 A$ 6,896 A$ 2,453 A$ 2,150 A$ 11,029 A$ 9,046
----------- ------------- ----------- ------------- ----------- -------------
----------- ------------- ----------- ------------- ----------- -------------
</TABLE>
CREDIT EQUIVALENT BY CONCENTRATION
The following table allocates the credit equivalent of derivative financial
instruments to the sectors and geographic locations of the ultimate obligors.
<TABLE>
<CAPTION>
NON-BANK CORPORATE AND
FINANCIAL ALL OTHER
GOVERNMENTS BANKS INSTITUTIONS SECTORS TOTAL
------------- --------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS)
Australia..................................... A$ 319 A$ 3,876 A$ 441 A$ 1,691 A$ 6,327
Europe........................................ -- 1,022 5 135 1,162
New Zealand................................... 6 243 24 419 692
United States of America...................... -- 1,472 19 1 1,492
Asia.......................................... 1 1,120 158 77 1,356
------ --------- ----------- ------------- -----------
Total......................................... A$ 326 A$ 7,733 A$ 647 A$ 2,323 A$ 11,029
------ --------- ----------- ------------- -----------
------ --------- ----------- ------------- -----------
</TABLE>
In excess of 94% of the Group's derivative financial instrument outstandings
are to customers with a credit rating of investment grade or above under the
Group's loan grading system.
EARNINGS AT RISK
<TABLE>
<CAPTION>
MAXIMUM
VALUE
DURING
AVERAGE VALUE DURING MINIMUM VALUE DURING REPORTING
REPORTING PERIOD REPORTING PERIOD PERIOD
------------------------------ ------------------------------ -----------
<S> <C> <C> <C> <C> <C>
MARCH 31, SEPTEMBER 30, MARCH 31, SEPTEMBER 30, MARCH 31,
1998 1997 1998 1997 1998
------------- --------------- ------------- --------------- -----------
<CAPTION>
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Earnings at risk at 95% confidence level
Foreign exchange risk.................. A$ 3 A$ 2 A$ 2 A$ 1 A$ 4
Interest rate risk..................... A$ 7 A$ 5 A$ 5 A$ 4 A$ 10
<CAPTION>
<S> <C>
SEPTEMBER 30,
1997
---------------
<S> <C>
Earnings at risk at 95% confidence level
Foreign exchange risk.................. A$ 3
Interest rate risk..................... A$ 7
</TABLE>
47
<PAGE>
PROVISIONS FOR DOUBTFUL DEBTS
<TABLE>
<CAPTION>
AT MARCH 31, 1998 AT MARCH 31, 1997
------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
SPECIFIC GENERAL TOTAL SPECIFIC GENERAL TOTAL
--------- --------- --------- --------- --------- ---------
<CAPTION>
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Opening balance............................................. A$ 594 A$ 771 A$ 1,365 A$ 648 A$ 664 A$ 1,312
Provisions acquired......................................... 33 24 57 -- -- --
Bad debts recovered......................................... 121 -- 121 97 -- 97
Bad debts written off....................................... (265) -- (265) (206) -- (206)
Charge from profit and loss................................. 166 102 268 69 36 105
Foreign currency translation and consolidation
adjustments............................................... 38 24 62 11 7 18
--------- --------- --------- --------- --------- ---------
Closing Balance............................................. A$ 687 A$ 921 A$ 1,608 A$ 619 A$ 707 A$ 1,326
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
The specific provision for off balance sheet credit related commitments of
$13 million (1997: $17 million) is included in the above table. For financial
statements presentation, the specific provision for off balance sheet credit
related commitments is classified and reported as a liability.
The doubtful debts charge for the March 1998 half year was $163 million
higher than for the March 1997 half year. The increase relates to higher
specific provisions ($97 million) primarily in Clydesdale Bank and Australia and
an increase in the Group's Asian provisions, mainly in Thailand. BNZ recorded
further recoveries and Yorkshire recorded lower charges in the period.
The general provision charge of $102 million for the March 1998 half year
was $66 million higher than for the March 1997 half year and partly reflects the
strong growth in loan volumes.
Specific provision coverage of non-accrual loans increased from 46.4% at
September 30, 1997 to 50.1% at March 31, 1998 with the total provisioning
coverage (including both specific and general provisions) exceeding 100%.
SPECIFIC PROVISION CHARGE FOR DOUBTFUL DEBTS BY GROUP ENTITIES
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
--------------------
<S> <C> <C> <C>
%
1998 1997 CHANGE
--------- --------- -----------
<CAPTION>
(IN MILLIONS)
<S> <C> <C> <C>
AUSTRALIAN GROUP...................................................................... A$ 68 A$ 10 large
EUROPEAN GROUP
Clydesdale Bank..................................................................... 49 26 88.5
Northern Bank....................................................................... 1 (2) large
Yorkshire Bank...................................................................... 32 64 (50.0)
National Irish Bank................................................................. (1) -- --
--------- --------- -----
Total European Bank................................................................... 81 88 (8.0)
--------- --------- -----
NEW ZEALAND GROUP..................................................................... (11) (27) (59.3)
UNITED STATES GROUP................................................................... 15 2 large
ASIAN GROUP........................................................................... 13 (4) large
--------- --------- -----
TOTAL................................................................................. A$ 166 A$ 69 large
--------- --------- -----
--------- --------- -----
</TABLE>
48
<PAGE>
PROVISIONING COVERAGE RATIOS
<TABLE>
<CAPTION>
AT MARCH 31
--------------------
<S> <C> <C>
1998 1997
--------- ---------
Actual coverage........................................................... 49.2% 42.2%
Effective coverage........................................................ 57.3% 49.3%
Total coverage............................................................ 112.6% 91.5%
</TABLE>
The actual coverage reflects the level of specific provision raised against
impaired assets. Effective coverage is determined by notionally adding back
write offs taken during the course of the period to both the gross receivable
and specific provision balances. The total coverage is determined by adding in
the general provision balance.
49
<PAGE>
CAPITAL ADEQUACY
<TABLE>
<CAPTION>
AS AT
-----------------------------------------
<S> <C> <C> <C>
MARCH 31, SEPTEMBER 30, MARCH 31,
1998 1997 1997
------------ ------------- ------------
<CAPTION>
(IN MILLIONS, EXCEPT RATIOS)
<S> <C> <C> <C>
Tier 1 Capital........................................................ A$ 10,507 A$ 10,464 A$ 11,163
Tier 2 Capital........................................................ 5,328 3,395 3,634
Deductions............................................................ (443) (385) (336)
------------ ------------- ------------
Total Regulatory Capital.............................................. A$ 15,392 A$ 13,474 A$ 14,461
------------ ------------- ------------
------------ ------------- ------------
Risk Weighted Assets--Credit Risk (1)................................. A$ 176,370 A$ 154,309 A$ 142,806
Risk Weighted Assets--Market Risk (2)................................. 3,838 -- --
------------ ------------- ------------
Total Risk Weighted Assets............................................ A$ 180,208 A$ 154,309 A$ 142,806
------------ ------------- ------------
------------ ------------- ------------
RISK ADJUSTED CAPITAL RATIOS
Tier 1................................................................ 5.8% 6.8% 7.8%
Tier 2................................................................ 3.0% 2.2% 2.5%
Deductions............................................................ (0.3%) (0.3%) (0.2%)
------------ ------------- ------------
Total................................................................. 8.5% 8.7% 10.1%
------------ ------------- ------------
------------ ------------- ------------
</TABLE>
- ------------------------
(1) Risk Weighted Assets compiled for credit risk purposes as outlined in
Prudential Statement C1 ("PS C1").
(2) In addition to minimum capital requirements under PS C1, Prudential
Statement C3 ("PS C3")-- "Capital Adequacy of Banks: Market Risk" became
effective in January 1998. Australian banks are now required to hold
sufficient levels of capital to cover market risk. Market risk is defined as
the risk of losses in on- and off-balance sheet positions arising from
movements in market prices. Market risk capital requirements apply only to
banks' trading books.
PS C3 requires the measure of market risk to be multiplied by 12.5 (I.E.,
the reciprocal of the minimum capital ratio of 8%) to determine a notional Risk
Weighted Asset figure. Comparative figures for September 1997 and March 1997 are
not available.
The Tier 1 capital ratio declined from 6.6% at December 31, 1997 to 5.8% at
March 31, 1998. The decline reflects the acquisition of HomeSide and a 5.1%
increase in risk weighted assets. The decline also reflects the introduction of
the APRA's capital requirements for market risk (PS C3).
Tier 2 capital declined modestly over the March 1998 quarter following the
further amortization (for capital purposes) of dated subordinated debt and the
reduction in the asset revaluation reserve from the sale of properties in
Australia and Europe.
Excluding the impact of the introduction of PS C3, the total capital ratio
has remained constant with September 1997.
50
<PAGE>
ASSET QUALITY
The Group calculates the asset quality of its loan portfolio according to
the following impaired assets categories which are defined in the APRA
guidelines on asset quality disclosures. For a full description of the Group's
impaired asset categories, see the 1997 Form 20-F.
<TABLE>
<CAPTION>
AS AT MARCH 31, 1998 AS AT SEPTEMBER 30, 1997
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
SPECIFIC SPECIFIC
GROSS PROVISIONS NET GROSS PROVISIONS NET
--------- ----------- --------- --------- ----------- ---------
<CAPTION>
(IN MILLIONS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
NON-ACCRUAL LOANS
Australian Group................................. A$ 547 A$ 195 A$ 352 A$ 553 A$ 189 A$ 364
European Group................................... 547 171 376 474 164 310
New Zealand Group................................ 103 19 84 110 20 90
United States Group(1)........................... 142 255 (113) 125 187 (62)
Asian Group...................................... 33 23 10 19 15 4
--------- ----------- --------- --------- ----------- ---------
1,372 663 709 1,281 575 706
RESTRUCTURED LOANS................................. 5 -- 5 5 -- 5
ASSETS ACQUIRED THROUGH SECURITY
ENFORCEMENT...................................... 20 -- 20 12 -- 12
TOTAL IMPAIRED ASSETS
Australian Group................................. 547 195 352 553 189 364
European Group................................... 551 171 380 478 164 314
New Zealand Group................................ 103 19 84 110 20 90
United States Group(1)........................... 163 255 (92) 138 187 (49)
Asian Group...................................... 33 23 10 19 15 4
--------- ----------- --------- --------- ----------- ---------
1,397 663 734 1,298 575 723
PERCENTAGE OF NON-ACCRUAL LOANS TO
RISK WEIGHTED ASSETS............................. 0.8% 0.4% 0.8% 0.5%
--------- --------- --------- ---------
MEMORANDUM DISCLOSURES:
ACCRUING LOANS PAST DUE 90 DAYS OR
MORE WITH ADEQUATE SECURITY.................. A$ 154 -- A$ 154 A$ 103 -- A$ 103
--------- ----------- --------- --------- ----------- ---------
ACCRUING PORTFOLIO FACILITIES PAST
DUE 90 TO 180 DAYS............................... 111 24 87 107 19 88
--------- ----------- --------- --------- ----------- ---------
</TABLE>
- ------------------------
(1) MNC and HomeSide adopt a provisioning methodology under which a portion of
the specific provision is determined against segments of its loan portfolio
based on historical loan loss experience and current trends evident in those
segments of its loan portfolios. As at March 31, 1998, these specific
provisions amounted to A$231 million (September 1997: A$168 million). This
amount is included in the specific provision figure quoted in the above
table. Due to the nature of the MNC and HomeSide provisioning methodology,
the above table does not include gross loan amounts to which this portion of
the specific provision relates.
Total gross impaired assets increased by $104 million during the three
months ended March 31, 1998 to $1,397 million as at March 31, 1998. Increases
were recorded in Australia, Europe and the United States.
The Group's impaired asset portfolio remains modest, with the ratio of gross
non-accrual loans to risk weighted assets of 0.8% at March 31, 1998 (0.8% at
September 30, 1997).
51
<PAGE>
EUROPEAN ECONOMIC AND MONETARY UNION ("EMU")
The next stage of the process of EMU will commence on January 1, 1999 with
the introduction of a new single currency -- the euro -- in eleven countries of
the European Union. The euro will exist in parallel with the currencies of the
participating countries ("national currency units" or "NCUs") during a
transition period of three years ending December 31, 2001. In the transition
period it will be possible to make non-cash payments in either euro or NCUs, but
euro notes and coins will not be introduced in the participating countries, and
NCUs will not start to be phased out, until January 1, 2002.
The introduction of the euro is expected to make significant changes to
European businesses by increasing competition, reducing transaction costs and
eliminating exchange rate exposures.
Although the United Kingdom Government has decided not to join this stage,
it has declared in principle the possibility of deciding to join early in the
next Parliament. Ireland (where National Irish Bank Limited is situated) is a
participating country.
In common with other banks and financial institutions operating in Europe,
the Company is considering the opportunities and challenges provided by the
introduction of the euro. The Company has also established a program to address
its effect on the business and operations of the Group. The EMU program was
established in May 1997 and involves a review of the Group's operations
worldwide to identify areas affected and to manage the transition with minimum
disruption to customers.
The EMU program is structured on a geographical basis with teams operating
in each area. The EMU program is co-ordinated at a Group level under the
sponsorship of the Executive General Manager, Global Wholesale Financial
Services and the General Manager, Group Payments.
The key potential impacts of EMU on the Group are described below. The EMU
program is addressing each of those impacts and the Company does not expect EMU
to have a material adverse effect on its business. However, it is not possible
to predict all possible strategic practical implications of EMU and there may be
other key potential impacts. Where the Group is relying on third parties to
provide EMU related services there can be no guarantee that they will provide
those services in a timely manner, but it is not expected that the late
provision of those services will disrupt materially the Group's operations
during the transition period.
1. OPERATIONAL CAPABILITY: The ability of the Group's procedures and
systems to operate where necessary in a dual currency environment during
the transition period and to process the euro. From the technical
perspective, this involves modifying existing applications and systems
and developing or acquiring additional functionality, applications and
systems.
2. PAYMENT CAPABILITY: The ability of the Group to make and receive
payments in euro. The Company is in the process of becoming a Clearing
Member of the Euro Banking Association ("EBA") and intends becoming a
member of the Clearing House Automated Payment System ("CHAPS") Euro. It
is also revising its existing correspondent banking relationships to deal
with the new euro environment.
3. PRODUCT IMPACTS: The effect on existing products of the Group and the
need to provide new products in euro. For example, the elimination of
foreign currency exposure between NCUs will affect treasury products and
the substitution of NCUs by the euro will affect asset and liability
products offered by the Group.
4. CONVERSION WEEKEND: The effect of redenomination of some existing debt
instruments and the conversion of cash balances over the conversion
weekend (January 1-4, 1999) and the replacement of the ECU with the euro
on January 1, 1999. The Company is developing a plan to address the
conversion weekend with the aim of ensuring minimum business disruption.
52
<PAGE>
5. LEGAL CONTRACTS: The effect of the introduction of the euro on legal
contracts to which a member of the Group is a party. The EMU program is
reviewing contracts which may be affected and the extent to which they
need amendment. The Company is a signatory to the International Swaps and
Derivatives Association, Inc. ("ISDA") Protocol which is a multilateral
industry sponsored document designed to address certain EMU related
issues affecting existing ISDA contracts.
YEAR 2000
In common with many business users of computers around the world, the
Company has investigated to what extent the date change from 1999 to 2000 may
affect its businesses. The Company has established a program designed to ensure
that the impact of the change to 2000 on the Group and its customers is
minimized. The Board of Directors has made the work associated with the change
to 2000 a key priority for management.
The Company's program involves an extensive review of the Group's operations
and scoping the work that needs to be completed to minimize any potential
impact. This includes reviewing the possible effects on the Group arising out of
how third parties manage their transition to 2000. The work demonstrates that
there are two possible key impacts:
- Internal--the change to 2000 could cause interruptions, errors in
calculations or delays to the Group's business critical processes via
unexpected system or application malfunctioning or changed customer
behavior causing interruption to business services and functioning.
- External--the impact on the Group's own operations from third parties,
including customer, suppliers, interbank counterparties, regulators and
electronic distribution channels which may be impacted by the change to
2000. This includes any secondary or systemic impact that may arise from
the change to 2000 on governments in the countries in which these third
parties operate.
YEAR 2000 PROGRAM
The Company's formal Year 2000 Program was established in September 1996. At
that time, an outside firm was engaged to assist the Company in the mobilization
and assessment phase. That firm continues to play an active role in the Year
2000 Program. Prior to September 1996, Year 2000 work had been underway on
specific systems and applications for some years.
The Year 2000 Program is sponsored by the Chief Information Officer and the
Executive General Manager Group Risk Management both of whom report directly to
the Managing Director. The program is structured on a geographical basis with
programs located in the countries where the Group has business infrastructure.
At the Group level, the Year 2000 Program is coordinated by the Year 2000 Group
Program Director, who heads a dedicated team in the Group Program Office. The
Year 2000 Group Program Director works directly with the two sponsors.
The Company has designed its Year 2000 Program across the total Group around
four key areas:
1. Business Information Systems--mainframe and mid range computers,
operating systems and applications whether developed in-house or acquired
from vendors. This is the main area of code repair and testing with the
Year 2000 Program. Code is repaired, either by the Company or vendors, it
is then tested, returned to production and then tested again with other
repaired applications and systems. Repair may involve expanding date
fields to four digits, or use of windowing solutions.
2. End User Computing--all aspects of desktop computing, including personal
computer hardware, operating systems, vendor packages and user developed
applications, databases and tools. The remediation options include repair
and testing, or replacement of hardware, operating systems
53
<PAGE>
and software. Most user developed applications are to be individually
scrutinized to verify their readiness for 2000.
3. Business Support Infrastructure--all buildings and associated services
(electricity, air conditioning, security, telecommunications, etc.) used
by the Group in its businesses. This area of the program involves the
greatest concentration of embedded chips. The Company is working with
manufacturers and suppliers to ensure that all infrastructure is tested
and embedded chips or other date related logic are upgraded or replaced
where necessary.
4. Business Dependencies--all the potential impacts of the change to 2000
other than the work associated with replacement, repair and testing. This
work incorporates management of the impacts of the change to 2000 on
third parties and their associated effects on the Group. These third
parties include suppliers of products and services used by the Group in
its operations. Other work involves contingency planning associated with
the risk of internal or external failures during the change. Also
included is credit risk, counterparty risk, investment risk, liquidity
risk, electronic channels risk, systemic risk, trading and investment
portfolio risk and legal and regulatory risk.
Third party dependencies occur in all four key areas of the Year 2000
Program. However, it is not possible in all cases to obtain complete, accurate
and timely information regarding the Year 2000 Programs of third parties.
Further, the Company's ability to direct their behavior or to change
relationships with these parties is in some cases limited. There can be no
guarantee that third parties on which the Company relies will complete their
Year 2000 programs on time, in which event there may be impacts on the Group's
business.
The Company cannot operate its business without uninterrupted access to
local, national and international telecommunications services and a continuous
power supply wherever it has a business presence. The Company's trading
partners, customers and suppliers likewise are unlikely to be able to operate
their businesses without access to similar levels of services from these
utilities. The Company is involved in industry groups in Australia and
internationally which are focused on the preparation of utilities for the change
to 2000. Part of that work includes contingency planning in the event of
outages; however, no assurance can be given that such industry wide contingency
planning will successfully ensure "business as usual" in the event of a major
power or telecommunication failure.
In addition, the Company is dependent on the proper functioning of payment
systems and financial system infrastructure. The Company is a member of the
Australia Interbank Working Group, which is involved in the planned testing of
the payments systems, management of telecommunications providers and vendor
management where there is commonality of vendors between members, and building
support infrastructure. The Company also supports, via a sub-group of the
Interbank Working Group, a Global Year 2000 coordinating group that was set up
early this year. Overseas member banks within the Group are also part of
industry Year 2000 groups in their respective countries.
CONTINGENCY PLANNING
The Company's Year 2000 Program is based on the assumption that 100% impact
coverage is not feasible nor practical. In these circumstances, it is possible
that the Group or third parties on which the Group depends may have unplanned
system difficulties during the transition through 2000, or that third parties
may not successfully manage the change to 2000. The Business Dependencies area
of the Year 2000 Program will involve the review and adjustment of existing
business continuity planning to incorporate these circumstances to seek to
ensure that the Company meets its primary objective of business as usual before,
during and through 2000.
54
<PAGE>
STATE OF READINESS
The Company uses large and complex systems and its extensive customer and
supplier base means that the Year 2000 Program spans nearly all aspects of its
operations. Accordingly, there is no single meaningful measure of the status of
the Year 2000 Program. It is the Company's aim to complete code repair for core
and support systems with return to production by the target date of November
1998 in line with the Basle Committee on Banking Supervision and other
regulators' suggested completion dates for core systems. The reality of the Year
2000 work, its breadth, dependencies and linkages (including satisfactory and
timely delivery by key vendors) means that there may be some work which will be
completed after the target date of November 1998. The main projected exceptions
to the target date are in the GWFS Year 2000 program (predominantly due to
changes in the delivery schedule of a key vendor) and HomeSide, where work is
likely to continue through to March 1999.
ESTIMATED COST
The estimated financial impact of the Company's Year 2000 program, including
depreciation, is currently budgeted at $284 million for the period September
1996 through to March 2000. This amount includes a provision for the costs of
HomeSide. Other additional expenses may arise from new acquisitions or business
expansions which might occur from time to time. As of July 31, 1998, the Company
had spent approximately $128 million in connection with the Year 2000 Program.
In calculating the cost of the Company's Year 2000 Program, the costs
associated with the identified impacts across the four key areas have been
included. These costs include the costs of employees, contractors and
consultants engaged in Year 2000 work, even though many of the employees are
permanent employees of the Company representing costs which would be incurred in
the ordinary course of business. The costs also include the depreciation charges
associated with the upgrade, repair or replacement of systems. They also include
the costs of effort in each business unit as well as in the dedicated project
teams.
Given the costs associated with Year 2000, the Company is taking the
opportunity to further drive process improvement across the Group. One example
is the use of an enhanced understanding of the alignment between processes,
products, services and technology to assist ongoing convergence activities.
The Year 2000 Program is complex and reliant upon coordination with
customers and suppliers. Accordingly, the effort and costs in any given period
will depend upon progress. The figure of $255 million is based on the current
status of the Year 2000 program and may be subject to change. The figure of $255
million does not take into account any damage to the Group's businesses, or any
claims for loss or damage against the Group by third parties, which may result
if the Group or third parties do not successfully manage the effect of the Year
2000 date change in time.
YEAR 2000 RISK
While working to ensure that the Company's primary objective of business as
usual before, during and through 2000 is achieved, there can be no guarantee
that its Year 2000 Program will be successful in all respects or that the date
change from 1999 to 2000 will not materially affect the business in some form.
55
<PAGE>
DESCRIPTION OF THE PREFERENCE SHARES
THE FOLLOWING IS A SUMMARY OF THE MATERIAL TERMS AND PROVISIONS OF THE
PREFERENCE SHARES OF THE COMPANY. THIS SUMMARY DOES NOT PURPORT TO BE COMPLETE
AND IS SUBJECT TO, AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, THE
CONSTITUTION OF THE COMPANY (THE "CONSTITUTION") AND THE RESOLUTIONS ADOPTED BY
THE BOARD OF DIRECTORS OF THE COMPANY OR ITS AUTHORIZED COMMITTEE (EACH REFERRED
TO AS THE "BOARD OF DIRECTORS") ESTABLISHING THE RIGHTS, PREFERENCES,
PRIVILEGES, LIMITATIONS AND RESTRICTIONS RELATING TO THE PREFERENCE SHARES
(COLLECTIVELY, THE "TERMS OF ISSUE"). COPIES OF THE CONSTITUTION AND THE TERMS
OF ISSUE OF THE PREFERENCE SHARES HAVE BEEN FILED AS EXHIBITS TO THE
REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS FORMS A PART.
GENERAL
Under the Constitution, the Board of Directors is authorized to provide for
the issue of shares with such preferred, deferred or other rights as to
dividends, voting, return of capital, or otherwise as the Board of Directors, in
its discretion, may determine. Under the Australian Corporations Law, a company
may not allot preference shares unless the rights of the holders of those shares
with respect to repayment of capital, participation in surplus assets and
profits, cumulative or non-cumulative dividends, voting and priority of payment
of capital and dividends in relation to other shares or classes of preference
shares are set out in the constitution of the company or have otherwise been
approved by special resolution of the company. Each of these matters is set out
in the Constitution and in the Terms of Issue.
Pursuant to the Constitution, the Board of Directors has authorized the
issue of the Preference Shares. As at the date of this Prospectus, the Company
does not have any preference shares on issue. The Company has on issue US$1
billion principal amount of 7 7/8% Perpetual Capital Securities (the "Capital
Securities") issued by a wholly owned subsidiary of the Company and fully and
unconditionally guaranteed on a subordinated basis by the Company of principal,
payments and other amounts payable on the Capital Securities. The Company has
the option to require the exchange of all (but not part) of the Capital
Securities at any time for 7 7/8% Convertible Non-Cumulative Preference Shares
(the "7 7/8 % Preference Shares") of the Company at the rate of one 7 7/8%
Preference Share for each US$25 principal amount of the Capital Securities. The
Company may authorize additional issues of preference shares in the future,
including additional preference shares ranking pari passu with the Preference
Shares.
Each Preference Share, when issued, will be fully paid. Dividend payments,
if any, on the Dividend Paying Preference Shares will be payable in United
States dollars. Payments, if any, on a liquidation of the Company may, in
certain circumstances, be payable in Australian dollars.
The Preference Shares are subject to redemption, Buy-Back or Capital
Reduction by the Company in its absolute discretion under certain circumstances,
as described below under "Redemption, Buy-Back or Capital Reduction." The
Preference Shares will have the dividend, voting, liquidation and other rights
described below.
The holders of Preference Shares will be required to comply with certain
regulatory requirements under the Australian Corporations Law if the Preference
Shares are offered for purchase, or invitations to buy the Preference Shares are
made, in Australia.
Except as described herein the holders of the Preference Shares will have no
right to participate in the profits or surplus assets of the Company.
Additionally, the holders of the Preference Shares will have no right to
participate in a dividend plan of the Company or in any other new issues of
securities by the Company with holders of ordinary shares of the Company.
INITIAL ISSUANCE
On the Issue Date, the Company will issue 32,008,000 Initial Preference
Shares to the Depositary for deposit under the Deposit Agreement (each, as
defined herein) in consideration for the payment by the Jersey Subsidiary to the
Company of the subscription price for such Initial Preference Shares. The
56
<PAGE>
Depositary will issue ADRs evidencing 16,004,000 ADSs representing such Initial
Preference Shares to the Jersey Subsidiary. In addition, up to 4,792,000 Initial
Preference Shares (to be represented by up to 2,396,000 ADSs) may be issued if
the Underwriters of the TrUEPrS exercise their over-allotment options as
described in the TrUEPrS Prospectus. The Company will use the proceeds from such
issuance to make one or more capital contributions to a newly formed Delaware
business trust wholly owned by the Company (the "Distribution Trust").
DIVIDEND RIGHTS
No dividends will accrue or be paid on the Initial Preference Shares. Upon
the earliest occurrence of any of the following dates or events (each, a
"Conversion Event"), each Initial Preference Share will automatically convert
into one Dividend Paying Preference Share with the dividend rights described
below as of the "Conversion Date" specified below with respect to such
Conversion Event. Each term not defined herein has the meaning as defined in the
accompanying TrUEPrS Prospectus.
(i) December 31, 2047, in which case the Conversion Date will be such
date;
(ii) any date selected by the Company in its absolute discretion, in
which case the Conversion Date will be such date;
(iii) the failure of the Trust to receive for any reason on or within
three Business Days after an Interest Payment Date the interest then due on
the Debt Securities in full without deduction or withholding for any taxes,
duties or other charges, in which case the Conversion Date will be the
fourth Business Day following such Interest Payment Date;
(iv) the Total Capital Adequacy Ratio or the Tier 1 Capital Ratio of the
Company (either as reported quarterly by the Company to the applicable
Regulatory Authority or as determined at any time by the applicable
Regulatory Authority in its absolute discretion) is below 8% or 4%,
respectively, (or, in each case, such lesser percentage (the "Required
Percentage") as may be prescribed by the applicable Regulatory Authority for
the Company at the time), and such ratio is not increased by the Company to
at least 8% or 4%, respectively, (or such lesser Required Percentage) within
90 days after the date on which the Company makes such quarterly report or
receives notice from the applicable Regulatory Authority of such
determination by such Regulatory Authority, in which case the Conversion
Date will be the Business Day immediately following the expiration of such
90-day period.
(v) any change in (A) the legal ownership of the securities (other than
the Debt Securities) issued by, (B) subject to certain exceptions described
herein, any provision of the constituent documents of, or (C) the business
purpose (or, solely with respect to the Jersey Charitable Trust, the powers
of the trustees thereof) (as specified in such constituent documents) of,
any of the U.K. Company, the Jersey Holding Company, the Jersey Charitable
Trust or the Jersey Subsidiary, in which case the Conversion Date will be
the date on which any such change occurs;
(vi) any change in the business purpose of the Distribution Trust (as
specified in the constituent documents thereof), in which case the
Conversion Date will be the date on which any such change occurs;
(vii) the common securities of Distribution Trust cease to be wholly
owned, directly or indirectly, by the Company or a direct or indirect wholly
owned subsidiary or branch of the Company, in which case the Conversion Date
will be the date on which the common securities of the Distribution Trust
cease to be so wholly-owned;
(viii) the USLLC ceases to be a direct or indirect wholly-owned subsidiary
or branch of the Company in which case the Conversion Date will be the date
on which the USLCC ceases to be so wholly-owned;
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(ix) any NAB Borrower ceases to be the Company, a direct or indirect
wholly owned subsidiary or branch of the Company, in which case the
Conversion Date will be the date on which the NAB Borrower ceases to be the
Company or so wholly-owned;
(x) (A) a proceeding is commenced by the Company, the UK Company, the
Jersey Holding Company, the Jersey Charitable Trust, the Jersey Subsidiary,
the Distribution Trust, the USLLC or any NAB Borrower (each, a "Relevant
Entity") or by a person that controls a Relevant Entity for an order that
such Relevant Entity be wound up or liquidated or for the appointment of a
liquidator, provisional liquidator, administrator, controller or similar
official in respect of the Relevant Entity or all or substantially all of
its property, in which case the Conversion Date will be the date on which
such proceeding is filed; (B) any proceeding is commenced by any other
person for an order that a Relevant Entity be wound up or for the
appointment of a liquidator, provisional liquidator, administrator,
controller or similar official in respect of any Relevant Entity or all or
substantially all of its property, unless such proceeding is discontinued or
dismissed within 21 days of its having been filed, in which case the
Conversion Date will be the Business Day immediately following the
expiration of such 21-day period; (C) a liquidator, provisional liquidator,
administrator, controller or similar official is appointed whether by a
court or otherwise in respect of any Relevant Entity or all or substantially
all of its property, unless any such appointment is revoked or set aside
within 21 days of such appointment, in which case the Conversion Date will
be the Business Day immediately following the expiration of such 21-day
period; or (D) the Trust dissolves in accordance with the terms of its
Declaration of Trust or for any other reason, in which case the Conversion
Date shall be the Business Day immediately preceding the effective date of
such dissolution; and
(xi) the Collateral Agent fails, at any time, to have a valid first,
perfected and enforceable security interest in, and lien on, the Jersey
Preference Shares and the ADSs, and, in each case, any redemption proceeds
from any of the foregoing, and such failure is not remedied on or before ten
Business Days after written notice of such failure is given to the U.K.
Company or the Jersey Subsidiary, as the case may be, by the Collateral
Agent as contemplated by the Security and Pledge Agreements, in which case
the Conversion Date will be the Business Day immediately following the
expiration of such ten Business Day period.
Notwithstanding the foregoing, (i) the USLLC or any NAB Borrower may, with
the consent of the Distribution Trust or the USLLC, respectively, assign all or
any portion of the Distribution Loan or any NAB Loan, respectively, and (ii) the
Distribution Trust or the USLLC may replace all or any portion of the
Distribution Loan or any NAB Loan, respectively, with another loan, in each case
under (i) or (ii), to the Company or to one or more direct or indirect
wholly-owned subsidiaries or branch offices of the Company, in which case (a)
the Company or such other subsidiary or branch office will take the place of the
USLLC or such NAB Borrower, as applicable, and such loan shall be deemed to be
the Distribution Loan or such NAB Loan, as applicable, and (b) any such action
will not constitute a Conversion Event.
On and after the Conversion Date, the Dividend Paying Preference Shares will
accrue non-cumulative dividends in U.S. dollars at the rate of US$1.00 per share
per annum. Such dividends will be payable, if and when declared by the Board of
Directors out of profits legally available therefor, quarterly in arrears in an
amount equal to US$.25 per Preference Share per quarter on March 31, June 30,
September 30 and December 31 of each year, commencing on or after the Conversion
Date and prior to the date of redemption, Buy-Back or Capital Reduction of the
Dividend Paying Preference Shares (each, a "Dividend Payment Date") to holders
of record as of the immediately preceding March 15, June 15, September 15 and
December 15, respectively (each, a "Record Date"); PROVIDED, HOWEVER, if the
Record Date for the first Dividend Payment Date as so determined would be prior
to the Conversion Date, then such Record Date shall be instead the Conversion
Date. In the event that any Dividend Payment Date is not a Business Day (as
hereinafter defined), then the dividend payable on such date need not be made on
such Dividend Payment Date, but instead may be made on the next succeeding
Business Day; PROVIDED, HOWEVER, that no interest shall accrue thereon for the
period from and after such Dividend Payment Date. As used herein,
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"Business Day" means each Monday, Tuesday, Wednesday, Thursday or Friday which
is not a day on which banking institutions in Melbourne, Australia, New York,
New York or any other city or cities which the principal place of business of
any NAB Borrower is located from time to time (initially, Wellington, New
Zealand) are authorized or obliged by law or executive order to close. The
conversion from Initial Preference Shares to Dividend Paying Preference Shares
should not be affected by insolvency or like events. However, in the event that
it was not possible to lawfully effect the conversion in such circumstances, the
other terms and conditions of the Initial Preference Shares will remain
unaffected, including the liquidation preference described below.
Non-cumulative dividends will begin to accrue on the Dividend Paying
Preference Shares from and including the last Interest Payment Date for the Debt
Securities prior to the Conversion Date. The Interest Payment Dates for the Debt
Securities are the same days of the year as the Dividend Payment Dates for the
Dividend Paying Preference Shares, although the Interest Payment Dates will
always be prior to the Conversion Date and the Dividend Payment Dates will
always be on or after Conversion Date.
A dividend in respect of a Dividend Paying Preference Share is payable only
to a person who is the holder of the Dividend Paying Preference Share on the
applicable Record Date.
Payment of a dividend will be made by way of cheque sent through the post to
the registered address of the holder of the Dividend Paying Preference Share or,
at the election of the Company, by wire transfer. If a cheque in relation to a
dividend is mailed on or prior to the payment date for the dividend, the
dividend will be regarded as having been paid on the payment date.
Dividends on the Dividend Paying Preference Shares will be non-cumulative.
If the Company does not pay on any Dividend Payment Date all or any part of the
accrued dividends for the quarterly dividend period ending on such Dividend
Payment Date, then the holders of the Dividend Paying Preference Shares will
have no claim in respect of such non-payment, and the Company will have no
obligation to pay such dividends or any part of such dividends (or to pay any
interest thereon), whether or not dividends on the Dividend Paying Preference
Shares are paid in the future.
EXCHANGE EVENT
An "Exchange Event" means any Conversion Event or the redemption, Buy-Back
or Capital Reduction of all the outstanding Initial Preference Shares for cash.
Upon the occurrence of any Exchange Event that is a Conversion Event (i.e., any
Exchange Event other than a cash redemption, Buy-Back or Capital Reduction of
Initial Preference Shares for cash), the ADSs representing the Preference Shares
will be distributed to the holders of TrUEPrS pursuant to the procedures
described in the accompanying TrUEPrS Prospectus (in which case the Exchange
Date (as defined in the accompanying TrUEPrS Prospectus) will be the same as the
Conversion Date). In such case, holders of the TrUEPrS shall become the record
holders of the ADSs as of the Conversion Date, and the ADRs evidencing such ADSs
will be delivered to such holders as soon as practicable following the
Conversion Date. Upon the occurrence of any Exchange Event that is not a
Conversion Event (I.E., a redemption, Buy-Back or Capital Reduction of the
Initial Preference Shares for cash), the proceeds of cash redemption, Buy-Back
or Capital Reduction will be distributed to the holders of the TrUEPrS pursuant
to the procedures described in the accompanying TrUEPrS Prospectus.
OPTIONAL DIVIDEND
If the Trust fails for any reason to receive in full the interest due on any
Interest Payment Date on or within three Business Days after such Interest
Payment Date, then such failure will constitute a Conversion Event and dividends
on the Dividend Paying Preference Shares will begin to accrue from and including
such Interest Payment Date (and not the previous Interest Payment Date). As a
result, unless the Company declares and pays the Optional Dividend referred to
below, the holders of the TrUEPrS will not receive any dividend payments in
respect of the quarterly period ending on such Interest Payment Date
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and the restrictions described below under "--Dividend and Repurchase
Restrictions" and the special voting rights described below under "--Voting
Rights" will apply. Such restrictions and voting rights will not apply if the
Company, in its absolute discretion, declares and pays an optional dividend on
the Dividend Paying Preference Shares (an "Optional Dividend") in an aggregate
amount equal to the amount of interest not so received by the Trust on such
Interest Payment Date on or within three Business Days after the Conversion Date
(i.e., within seven Business Days after such Interest Payment Date). Any
Optional Dividend must be paid pro rata on the outstanding Dividend Paying
Preference Shares to holders of record on the Conversion Date.
RANKING
The Preference Shares will rank upon liquidation and, after the Conversion
Date will rank as to dividends, senior to the Company's ordinary shares and pari
passu with other designated preference shares, if any, of the Company. Upon
liquidation, the Preference Shares will rank junior to all liabilities and debts
of the Company. The 7 7/8% Preference Shares, if and when issued upon exchange
of the Capital Securities, will rank, upon liquidation and as to dividends, pari
passu with the Preference Shares offered hereby.
DIVIDEND AND REPURCHASE RESTRICTIONS
If (i) the Company fails to pay in full on any Dividend Payment Date the
accrued dividends on the Dividend Paying Preference Shares for the quarterly
dividend period then ending or (ii) if a Conversion Event occurs as a result of
any failure by the Trust to receive in full the interest payable on the Debt
Securities on any Interest Payment Date and the Company fails to pay an Optional
Dividend on or within three Business Days after the Conversion Date then the
Company may not:
(a) pay a dividend in respect of any other shares of the Company which
ranks PARI PASSU with, or junior to, the Dividend Paying Preference Shares
(or set aside a sum for the payment of such a dividend); or
(b) repurchase, redeem or acquire for value legal or beneficial
ownership of any share in the Company which ranks PARI PASSU with, or junior
to, the Dividend Paying Preference Shares (or set aside a sum or establish a
sinking fund for such a purpose);
unless and until, since the date of such failure, the Company shall have paid
four consecutive quarterly dividend payments on such Dividend Paying Preference
Shares.
The Company may procure that there is paid to a holder of a Dividend Paying
Preference Share an amount ("Other Amount") by a person other the Company. In
such a case, the obligation of the Company to pay a dividend or other sum
payable by the Company to the holder in respect of the Dividend Paying
Preference Shares held by the holder ("Terms of Issue Amount") will only arise
to the extent that the Terms of Issue Amount exceeds the Other Amount. If an
Other Amount is paid to the holder of a Dividend Paying Preference Shares, it
shall to the extent of the payment be regarded as payment of the Terms of Issue
Amount.
ADDITIONAL AMOUNTS
If the Company is required by Australian law to withhold or deduct certain
Australian tax from a payment of dividends on, or that part of any payment
resulting from the proceeds of any redemption, Buy-Back or Capital Reduction
which is taken or deemed to be a dividend for purposes of Australian tax of, a
Preference Share to a holder thereof so that the holder would not receive the
full amount of such payment:
(a) subject to there being sufficient distributable profits (having
regard to dividends payable to the other holders of the Preference Shares,
where relevant, applicable law and any requirements of the applicable
Regulatory Authority), the Company will pay an additional amount so that the
holder
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of the Preference Share is able to receive (if such payment is made) the
amount the holder would have received if no such withholding or deduction
had been required;
(b) if such payment is made, the Company must make the withholding or
deductions required under the relevant tax law; and
(c) if such payment is made, the Company must pay the full amount
deducted to the relevant authority in accordance with applicable law;
provided, however, the Company is not required to make any additional payment to
the holder if the withholding or deduction is required to be made by reason of
the failure of that holder (or any beneficial owner) to comply with a request
made by the Company (i) to provide information concerning the nationality,
residence or identity of the holder (or beneficial owner) or (ii) to make any
declaration or other similar claim or satisfy any information or reporting
requirement, which, in either case under clause (i) or (ii), is required or
imposed by the applicable law as a precondition to exemption from all or part of
such withholding or deduction. Further these taxes do not include: (a) any tax
or charge which would not have been imposed or levied but for the fact that the
holder (i) was a resident, domiciliary or citizen of Australia; or (ii) was
engaged in business, maintained a permanent establishment or was physically
present in Australia; or (iii) otherwise had some connection with Australia
other than by virtue of the mere ownership or holding of, or receipt of a
payment under, a Preference Share; or (b) any estate, inheritance, gift, sale,
transfer, personal property or similar tax, duty, assessment or other
governmental charge.
Except as described herein the holders of the Preference Shares will have no
further right to participate in the profits or surplus assets of the Company.
Additionally, the holder of the Preference Shares will have no right to
participate in a dividend plan of the Company.
LIMITATION ON THE PAYMENT OF DIVIDENDS
If the payment of a dividend to the holders of the Dividend Paying
Preference Shares would, in the judgment of the Board of Directors of the
Company, breach or cause a breach by the Company of applicable capital adequacy
or other requirements of the applicable Regulatory Authority, such payment will
not be made.
Dividends are only payable out of the profits of a company that are legally
available for distribution. In addition, generally under the APRA guidelines,
each dividend payment on the Dividend Paying Preference Shares, together with
the aggregate dividend payments made by the Company on any preference shares or
ordinary shares of the Company in that fiscal year, may not exceed the earnings
of the Company during the prior fiscal year.
RIGHTS UPON LIQUIDATION
On a winding up of the Company (whether voluntary or otherwise), before any
distribution of surplus assets is made to holders of the Company's ordinary
shares or any other class of shares of the Company ranking junior to the
Preference Shares, the holders of the Preference Shares will be entitled to
receive the following:
(a) a liquidation preference (the "Liquidation Preference") out of
surplus assets equal to US$12.50 per share, or if it is not possible in
accordance with applicable law to pay the Liquidation Preference in US
dollars, the amount in Australian dollars equal to the Liquidation
Preference; and
(b) if the amount described in (a) above is paid in Australian dollars,
an amount in Australian dollars equal to the additional amount (if any)
estimated by the liquidator of the Company to be required to convert the
Australian dollar amount referred to in clause (a) above into United States
dollars equal to the Liquidation Preference, including but not limited to,
amounts required to pay any
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estimated charges and expenses regarded by the liquidator as likely to be
incurred in effecting such conversion.
The amount (if any) which is payable on a winding up of the Company in
Australian dollars which is equal to an amount expressed in United States
dollars shall be calculated by applying the Noon-Buying Rate (on the date of
payment of the amount in Australian dollars or on a day as close to the date of
payment as the liquidator determines to be practicable) for the purchase of
United States dollars with Australian dollars.
The holders of the Preference Shares will have no further or other right to
participate in the assets of the Company or a return of capital in a winding up
of the Company.
REDEMPTION, BUY-BACK OR CAPITAL REDUCTION
With the prior written consent of the applicable Regulatory Authority (if
required under the laws or guidelines then applicable), the Preference Shares
are subject to (i) redemption, (ii) mandatory repurchase ("Buy-Back") or (iii)
reduction of a portion of the capital of each Preference Share immediately
followed by redemption of the remaining capital thereof on the next Business Day
following the date of such reduction of capital (such reduction of capital and
subsequent redemption are collectively referred to herein as "Capital
Reduction") by the Company in its absolute discretion (i) prior to the fifth
anniversary of the date on which the Initial Preference Shares and ADSs are
first originally issued (the "Issue Date"), only in the event of the occurrence
of a Tax Event, a Registration Event or a Regulatory Event (as such terms are
defined herein) and (ii) at any time on or after the fifth anniversary of the
Issue Date, in whole or, in the case of a redemption of the Dividend Paying
Preference Shares after the Conversion Date, in whole or in part, in each case
for a total consideration of US$12.50 per Preference Share (equivalent to US$25
per ADS) plus, in the case of a redemption, Buy-Back or Capital Reduction of the
Dividend Paying Preference Shares for cash after the Conversion Date, any unpaid
dividends accrued thereon for the period from and including the most recent
Dividend Payment Date to but excluding the date of such redemption, Buy-Back or
Capital Reduction. In the case of a redemption, Buy-Back or Capital Reduction of
the Initial Preference Shares for cash on or prior to the Conversion Date, no
dividends will be payable thereon, but an amount equal to the accrued dividends
on the TrUEPrS will be payable on such date as a dividend distribution on the
TrUEPrS.
Notwithstanding the foregoing, no redemption, Buy-Back or Capital Reduction
of the Preference Shares shall be made on or prior to the Conversion Date unless
(x) the Company receives an opinion of a reputable legal counsel that the
consequential redemptions of the Jersey Preference Shares and the Debt
Securities will not be subject to any withholding or deduction on account of
certain taxes, duties or other charges under the laws of Jersey, Channel Islands
or United Kingdom respectively or (y) if any such withholding or deductions are
payable, the Company pays such additional amounts in connection with such
redemption, Buy-Back or Capital Reduction so that the holders of the TrUEPrS
receive the same amounts that they would have received had no such withholding
or deductions been payable. These taxes do not include: (a) any tax or charge
which would not have been imposed or levied but for the fact that the holder (i)
was a resident, domiciliary or citizen of Australia; or (ii) was engaged in
business, maintained a permanent establishment or was physically present in
Australia; or (iii) otherwise had some connection with Australia other than by
virtue of the mere ownership or holding of, or receipt of a payment under, a
Preference Share; or (b) any estate, inheritance, gift, sale, transfer, personal
property or similar tax, duty, assessment or other governmental charge; or (c)
any withholding or deduction required to be made by reason of the failure of a
holder (or any beneficial owner) to comply with a request made by the Company
(i) to provide information concerning the nationality, residence or identity of
the holder (or beneficial owner) or (ii) to make any declaration or other
similar claim or satisfy any information or reporting requirement, which, in
either case under clause (i) or (ii), is required or imposed by the applicable
law as a precondition to exemption from all or part of such withholding or
deduction.
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In addition, the Company's right to elect to make the Buy-Back or Capital
Reduction of the Preference Shares is conditional upon the Company obtaining all
necessary shareholder approvals for the terms of the Buy-Back or Capital
Reduction, as applicable, and subject to the Company giving notice of such
Buy-Back or Capital Reduction by the Company as described below. From and after
the date of redemption, Buy-Back or Capital Reduction of any Preference Shares,
all rights of the holders of such Preference Shares subject to such redemption,
Buy-Back or Capital Reduction will cease except for the right to receive the
applicable consideration for such redemption, Buy-Back or Capital Reduction and
such Preference Shares will cease to be outstanding.
A "Tax Event" means the receipt by the Trust and the Company of an opinion
from a reputable legal counsel or other tax adviser in the United States,
Australia, the United Kingdom or Jersey, Channel Islands, as appropriate,
experienced in such matters to the effect that, as a result of (i) any amendment
to, clarification of, or change (including any announced prospective change) in,
the laws or treaties (or any regulations thereunder) of such jurisdictions or
any political subdivision or taxing authority thereof or therein affecting
taxation, (ii) any judicial decision, official administrative pronouncement,
published or private ruling, regulatory procedure, notice or announcement
(including any notice or announcement of intent to adopt such procedures or
regulations) ("Administrative Action") or (iii) any amendment to, clarification
of, or change in, the pronouncement that provides for a position with respect to
an Administrative Action that differs from the theretofore generally accepted
position, in each case, by any legislative body, court, governmental authority
or regulatory body, irrespective of the manner in which such amendment,
clarification, change or Administrative Action is made known, which amendment,
clarification, change or Administrative Action is effective or such
pronouncement or decision is announced on or after the Issue Date, there is more
than an insubstantial risk that (A) the Trust, the U.K. Company, the Jersey
Holding Company, the Jersey Charitable Trust, the Jersey Subsidiary, the
Distribution Trust or the USLLC is, or will be, subject to more than a DE
MINIMIS amount of taxes, duties or other governmental charges or civil
liabilities in addition to those applicable to such entities on the Issue Date,
or (B) payments of principal or interest on the Debt Securities, any amounts on
redemption of the Jersey Preference Shares or the Income Entitlements (as
defined in the TrUEPrS Prospectus) is or will be, subject to withholding or
deduction in respect of any taxes, duties or other governmental charges or (C)
interest payments on the NAB Loan are not deductible in full by the NAB Borrower
for income tax purposes or (D) the income of the Distribution Trust is included
in the assessable income of the Company otherwise than in its capacity as a
residual beneficiary.
A "Registration Event" means the receipt by the Trust and the Company from a
reputable legal counsel in the United States that, as a result of (i) any
amendment to, clarification of, or change (including any announced prospective
change) in, any law or regulation thereunder affecting the U.S. securities laws
or (ii) any official administrative pronouncement or action or judicial decision
interpreting or applying such laws or regulations, which amendment,
clarification or change is effective or such pronouncement, action or decision
is announced on or after the Issue Date, any of the U.K. Company, the Jersey
Subsidiary, the Jersey Holding Company, the Jersey Charitable Trust, the
Distribution Trust, the USLLC or the NAB Borrower or any securities or other
obligations thereof are subject to the registration requirements of the U.S.
Securities Act of 1933, as amended, the U.S. Securities and Exchange Act of
1934, as amended, the U.S. Investment Company Act of 1940, as amended, or the
U.S. Trust Indenture Act of 1939, as amended, as the case may be.
A "Regulatory Event" means the determination by the Company to the effect
that, as a result of:
(i) the introduction of, or an amendment or clarification to or change
in (or announcement of a prospective introduction of, amendment or
clarification to or change in):
(A) a law or regulation of the Commonwealth of Australia or any State,
Territory or other political subdivision thereof or therein; or
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(B) any directive, order, requirement, guideline or statement (whether
or not having the force of law) of the Regulatory Authority or any other
central bank or government or governmental, fiscal, monetary, supervisory or
other authority (any such central bank, government or authority to be for
the purpose of this definition an "Authority"); or
(ii) any statement, notification or advice by the Regulatory Authority
or an Authority, or a decision by any court, interpreting, applying or
administering any such law, regulation, directive, order, requirement,
guideline or statement,
which introduction, amendment or clarification or change (or announcement of a
prospective introduction, amendment or clarification or change) or statement,
notification or advice or decision occurs on or after the Issue Date, there is a
risk that the Company is not or will not be entitled to treat all of the
Preference Shares as "Tier 1 Capital" (or the then equivalent thereof) for the
purposes of the capital adequacy directives, requirements, guidelines or
statements of the Regulatory Authority, as then in effect and applicable to the
Company.
Notice of any redemption, Buy-Back or Capital Reduction must be given not
less than 30 nor more than 60 days prior to the date fixed for the redemption,
Buy-Back or Capital Reduction and must be mailed by first-class mail to each
holder's registered address. Any reference to the date of a Capital Reduction
herein shall refer to the date of the capital reduction and not the date of the
subsequent redemption (i.e., the next Business Date). In the case of any partial
redemption of the Dividend Paying Preference Shares, selection of the Preference
Shares for redemption will be made by the Company or its registrar/transfer
agent in compliance with the requirements of the principal securities exchange,
if any, on which the ADSs representing the Preference Shares are listed, or if
the ADSs representing the Preference Shares are not listed on a securities
exchange, on a pro rata basis, by lot or such other method as the Company, in
its sole discretion, shall deem fair and appropriate; PROVIDED, HOWEVER, that
the Company may redeem all the Dividend Paying Preference Shares held by holders
of fewer than 100 Dividend Paying Preference Shares (or all of the Dividend
Paying Preference Shares held by the holders who would hold fewer than 100
Dividend Paying Preference Shares as a result of such redemption) as may be
determined by the Company. In the case of a partial redemption, the number of
the Dividend Paying Preference Shares remaining after such transaction must be
in an even and under no less than the minimum number of shares required to
maintain any listing of such shares on any stock exchange on which they are
listed immediately prior to such transaction.
NOTICES OF MEETINGS
The holders of the Preference Shares will have the same rights as the
holders of the Company's ordinary shares as regards receiving notices of general
meetings and accounts sent out by the Company and attending and speaking at
general meetings of the Company.
VOTING RIGHTS
The holders of Preference Shares will be entitled to vote together with the
holders of ordinary shares of the Company, on the basis of one vote per share on
any poll, (a) in all cases, with respect to the matters described below to the
extent the holders of the ordinary shares of the Company vote on such matters
and (b) during a Special Voting Period, with respect to all matters on which the
holders of the ordinary shares of the Company are entitled to vote. A "Special
Voting Period" is the period from and including (i) any Dividend Payment Date on
which the Company fails to pay in full the dividends accrued in respect of the
quarterly dividend period then ended or (ii) the fourth Business Day after the
Conversion Date occurring as a result of any failure by the Trust to receive in
full the interest payable on the Debt Securities unless, prior to such date, the
Company has paid in full an Optional Dividend, in each case to but excluding the
first Dividend Payment Date thereafter as of which the Company has paid in full
four consecutive quarterly dividends on the Dividend Paying Preference Shares.
The matters referred to in clause (a) above upon which the holders of Preference
Shares will always have a right to vote are: any proposal to reduce the
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share capital of the Company (other than the Capital Reduction), any resolution
to approve the terms of a share buy-back agreement (other than the Buy-Back),
any proposal to wind up the Company, any proposal for the disposal of the whole
of the property, business and undertaking of the Company, and any matter during
the winding up of the Company; PROVIDED, in each case, that the holders of the
ordinary shares of the Company are entitled to vote on such matters. In order to
confer the voting rights outlined above in clause (b), the Company has secured a
waiver from Listing Rule 6.3 of the Listing Rules of Australian Stock Exchange
Limited.
In addition to the foregoing rights, the holders of the Preference Shares
will have the right to vote separately as a class in certain circumstances
involving a variation of their rights. See "--Variation of Rights." So long as
the ADSs or Preference Shares are held by the Jersey Subsidiary, the Jersey
Subsidiary will, or will cause the Collateral Agent to, direct the Depositary to
vote the ADSs and the Preference Shares represented thereby as directed by the
holders of the TrUEPrS. If no direction is received, the Collateral Agent will
not exercise the voting rights applicable to the relevant ADSs and the
Preference Shares.
VARIATION OF RIGHTS
The rights attached to the Preference Shares may not be varied or abrogated
except with any required approvals of the Regulatory Authority or any other
governmental agency and with:
(a) the approval of a resolution passed at a meeting of the holders of
the Preference Shares by the affirmative vote of such holders holding at
least 75% of the issued Preference Shares; or
(b) if a quorum for a meeting of the holders of the Preference Shares is
not obtained or if an approving resolution is not carried at a meeting of
such holders, the consent in writing of holders holding at least 75% of the
issued Preference Shares.
The approval of the holders of the Preference Shares in accordance with the
above procedures will be required if the Board of Directors proposes to allot or
issue preference shares, or convert existing shares into preference shares,
which rank in priority to the Preference Shares then on issue.
The allotment or issue of preference shares, or the conversion of existing
shares into preference shares, ranking equally with the Preference Shares then
on issue (and whether entitled to cumulative or non-cumulative dividends) or a
buy back, redemption or return or distribution of capital in respect of any
share in the capital of the Company other than a Preference Share (whether
ranking equally with or senior or junior to the Preference Shares) is expressly
permitted and authorized and does not constitute a modification or variation of
the rights or privileges attached to the Preference Shares then on issue.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
Mergers, acquisitions and divestment of Australian public companies listed
on the Australian Stock Exchange are regulated by detailed and comprehensive
legislation and the rules and regulations of the Australian Stock Exchange.
Generally, the concept of a voting share does not include certain types of
preference shares with limited voting rights. Because holders of the Preference
Shares have been conferred a right to vote following a missed non-cumulative
dividend, the Preference Shares will be treated as voting shares for relevant
purposes. Therefore, a person with an "entitlement" to the Preference Shares
should consider this entitlement with any entitlement to other voting shares in
the Company and seek appropriate advice in the context of the regulatory
thresholds summarized below.
In summary, under the current CORPORATIONS LAW a person or group of persons
cannot "acquire" voting shares in a public company if that person or group of
persons or another person would then be "entitled" to more than 20% of the
voting shares in the public company unless those shares are acquired in a manner
specifically permitted by law. This restriction also limits the options
available to a shareholder wanting to sell a shareholding of more than 20% in an
Australian public company.
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The concept of "entitlement" and "acquire" are very broadly defined and
investors should seek their own advice on their scope. In very general terms:
- a person is "entitled" to the shares in which that person has (or is
deemed to have) a "relevant interest" (basically, power to vote or dispose
of the share) and to any shares in which any "associate" of that person
has (or is deemed to have) a "relevant interest";
- a person "acquires" shares in a company if, as a direct or indirect result
of a "transaction" in relation to securities of any body corporate, that
person acquires a "relevant interest", in those shares (as a result of
extensive tracing provisions concerning "relevant interests", a person may
be taken to have "acquired" shares in the Company as a result of the
purchase of securities in another body corporate);
- an "associate" is widely defined in division 2 of part 1.2 of the
CORPORATIONS LAW and includes, among others, parent companies or
subsidiaries of the holder and persons with whom the holder has entered
into various types of agreements, arrangements or understandings (formal
or informal) in relation to certain matters concerning shares, the affairs
of the company or the composition of its board of directors;
- the concept of "relevant interest" involves any sort of power to vote or
to dispose of a share, including the power to control the voting or
disposal of any share. It is subject to extensive deeming and tracing
provisions.
The CORPORATIONS LAW also imposes certain substantial shareholding
disclosure obligations on persons who are or become "entitled" to 5% or more of
the voting shares in a company listed on the Australian Stock Exchange, such as
the Company.
One of the more common manners in which a controlling shareholding is
acquired in an Australian public company is by a takeover offer. The form and
content of the documentation is regulated by law. Australian takeover law
purports to have extra-territorial force. Therefore, Australian law may apply to
transactions outside Australia with respect to non-Australian companies if that
transaction affects the control of voting shares in an Australian company.
Australian law also regulates acquisitions which would have the effect, or
be likely to have the effect, of substantially lessening competition in a market
in Australia, in a State or in a Territory.
Acquisitions of certain interests in Australian companies by foreign
interests are subject to review and approval by the Treasurer of the
Commonwealth of Australia under the FOREIGN ACQUISITIONS AND TAKEOVERS ACT 1975
(the "Act"). This Act applies to any acquisition of 15% or more of the
outstanding shares of an Australian company or any acquisition which results in
one foreign person (including a company) or group of associated foreign persons
controlling 15% or more of total voting power. In addition, the Act applies to
any acquisition by non-associated foreign persons controlling, in the aggregate,
40% or more of total voting power or ownership.
In addition, there are specific limitations on the acquisition of a
shareholding in a bank under the FINANCIAL SECTOR (SHAREHOLDINGS) ACT 1998.
Under this Act, a person (including a company) must not acquire an interest in
an Australian financial sector company where the acquisition would take that
person's voting power (which includes the voting power of the person's
associates) in the financial sector company to more than 15% (the concept of
voting power is very broadly defined). The Australian Treasurer may approve a
higher percentage limit on national interest grounds. Furthermore, even if a
person holds less than 15% of the voting power of a financial sector company,
the Treasurer has the power to declare that a person has "practical control" of
that company and require the person to relinquish that control. The definition
of a financial sector company includes banks, such as the Company. It also
includes authorized insurance companies or an authorized insurance company's
holding company. One of the Company's subsidiaries is an authorized insurance
company.
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Subject to compliance with the FOREIGN ACQUISITIONS AND TAKEOVERS ACT 1975
and the FINANCIAL SECTOR (SHAREHOLDINGS) ACT 1998, non-residents of Australia
have the same rights to hold and vote shares as residents of Australia.
REGISTRAR AND PAYING AGENT
The Bank of New York will act as registrar and paying agent for the
Preference Shares.
GOVERNING LAW
The Terms of Issue of the Preference Shares are governed by the law in force
in Victoria, Australia.
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DESCRIPTION OF THE AMERICAN DEPOSITARY RECEIPTS
SET FORTH BELOW IS A SUMMARY OF THE MATERIAL PROVISIONS OF THE DEPOSIT
AGREEMENT (THE "DEPOSIT AGREEMENT"), AMONG THE COMPANY, THE BANK OF NEW YORK ,
AS DEPOSITARY (THE "DEPOSITARY"), AND THE OWNERS FROM TIME TO TIME OF AMERICAN
DEPOSITARY RECEIPTS ("ADRS") ISSUABLE WITH RESPECT TO AMERICAN DEPOSITARY SHARES
("ADSS") REPRESENTING PREFERENCE SHARES. THIS SUMMARY DOES NOT PURPORT TO BE
COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL COPY OF THE
DEPOSIT AGREEMENT, COPIES OF WHICH ARE FILED AS EXHIBITS TO THE REGISTRATION
STATEMENT OF WHICH THIS PROSPECTUS FORMS A PART. CAPITALIZED TERMS USED BUT NOT
DEFINED HEREIN SHALL HAVE THE MEANINGS ASSIGNED TO THEM IN THE DEPOSIT
AGREEMENT. COPIES OF THE DEPOSIT AGREEMENT ARE AVAILABLE FOR INSPECTION AT THE
PRINCIPAL OFFICE OF THE DEPOSITARY IN NEW YORK (THE "PRINCIPAL NEW YORK
OFFICE"), WHICH IS PRESENTLY LOCATED AT 101 BARCLAY STREET, NEW YORK, NEW YORK
10286.
ADRs evidencing ADSs are issuable by the Depositary pursuant to the terms of
the Deposit Agreement. Each ADS represents, as of the date hereof, the right to
receive two Preference Shares deposited under the Deposit Agreement (together
with any additional Preference Shares deposited thereunder and all other
securities, property and cash received and held thereunder at any time in
respect of or in lieu of such deposited Preference Shares, the "Deposited
Securities") with the Custodian, currently the Company (together with any
successor or successors thereto, the "Custodian"). An ADR may evidence any
number of ADSs. Only persons in whose names ADRs are registered on the books of
the Depositary will be treated by the Depositary and the Company as Owners.
DEPOSIT, TRANSFER AND WITHDRAWAL
In connection with the deposit of Preference Shares under the Deposit
Agreement, the Depositary or the Custodian may require the following in form
satisfactory to it: (a) a written order directing the Depositary to execute and
deliver to, or upon the written order of, the person or persons designated in
such order an ADR or ADRs evidencing the number of ADSs representing such
deposited Preference Shares (a "Delivery Order"); (b) proper endorsements or
duly executed instruments of transfer in respect of such deposited Preference
Shares; (c) instruments assigning to the Custodian or its nominee any
distribution on or in respect of such deposited Preference Shares or indemnity
therefor; and (d) proxies entitling the Custodian to vote such deposited
Preference Shares until the shares are registered in the name of the Custodian
or its nominee. As soon as practicable after the Custodian receives Deposited
Securities pursuant to any such deposit or pursuant to the form of ADR, the
Custodian shall present such Deposited Securities for registration of transfer
into the name of the Depositary or its nominee or the Custodian or its nominee
to the extent such registration is practicable, at the cost and expense of the
person making such deposit (or for whose benefit such deposit is made) and shall
obtain evidence satisfactory to it of such registration. Deposited Securities
shall be held by the Custodian for the account and to the order of the
Depositary at such place or places and in such manner as the Depositary shall
determine. Deposited Securities may be delivered by the Custodian to any person
only under the circumstances expressly contemplated in the Deposit Agreement.
After any such deposit of Preference Shares, the Custodian shall notify the
Depositary of such deposit and of the information contained in any related
Delivery Order by letter, first class airmail postage prepaid, or, at the
request, risk and expense of the person making the deposit, by cable, telex or
facsimile transmission. After receiving such notice from the Custodian, the
Depositary, subject to the terms and conditions of the Deposit Agreement, shall
execute and deliver at the Transfer Office (the "Transfer Office") which is
presently located at the Principal New York Office, to or upon the order of any
person named in such notice, an ADR or ADRs registered as requested and
evidencing the aggregate ADSs to which such person is entitled. ADRs may be
issued by the Depositary only under circumstances contemplated in the Deposit
Agreement.
Subject to the terms and conditions of the Deposit Agreement, the Depositary
may so issue ADRs for delivery at the Transfer Office only against deposit with
the Custodian of: (a) Preference Shares in form
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satisfactory to the Custodian; (b) rights to receive Preference Shares from the
Company or any registrar, transfer agent, clearing agent or other entity
recording Preference Share ownership or transactions; or (c) other rights to
receive Preference Shares (until such Preference Shares are actually deposited
pursuant to (a) or (b) above, "Pre-released ADRs") only if (i) Pre-released ADRs
are fully collateralized (marked to market daily) with cash or U.S. government
securities held by the Depositary for the benefit of Owners (but such collateral
shall not constitute "Deposited Securities"), (ii) each recipient of
Pre-released ADRs agrees in writing with the Depositary that such recipient (a)
owns such Preference Shares, (b) assigns all beneficial right, title and
interest therein to the Depositary, (c) holds such Preference Shares for the
account of the Depositary and (d) will deliver such Preference Shares to the
Custodian as soon as practicable and promptly upon demand therefor, and (iii)
all Pre-released ADRs evidence not more than 30% of all ADSs (excluding those
evidenced by Pre-released ADRs), except to the extent that the Depositary (in
its sole discretion) determines that unusual market conditions require the
issuance of Pre-released ADRs in addition to 30% of all such ADSs. The
Depositary may retain for its own account any earnings on collateral for
Pre-released ADRs and its charges for issuance thereof. At the request, risk and
expense of the person depositing Preference Shares, the Depositary may accept
deposits together with other specified instruments for forwarding to the
Custodian and may deliver ADRs at a place other than its office. Every person
depositing Preference Shares under the Deposit Agreement is deemed to represent
and warrant that such Preference Shares are validly issued and outstanding,
fully paid, nonassessable and free of pre-emptive rights and that the person
making such deposit is duly authorized so to do. Such representations and
warranties shall survive the deposit of Preference Shares and issuance of ADRs.
Owners of ADRs will be entitled to withdraw the Deposited Securities at any
time subject only to (i) temporary delays caused by closing the transfer books
of the Depositary or the Company or the deposit of Preference Shares in
connection with voting at a shareholders' meeting, or the payment of dividends,
(ii) the payment of fees, taxes and similar charges, and (iii) compliance with
any laws or governmental regulations relating to the ADRs or the withdrawal of
Deposited Securities. Upon surrender of the ADRs at the Depositary's New York
office and upon payment of any fees, expenses, taxes or governmental charges as
provided in the applicable Deposit Agreement, subject to the terms of the
applicable Deposit Agreement and the form of ADR, upon surrender of an ADR in
form satisfactory to the Depositary at the Transfer Office, the Owner hereof is
entitled to delivery at the Custodian's office of the Deposited Securities at
the time represented by the ADSs evidenced by this ADR. In connection with any
surrender of an ADR for withdrawal and the delivery of the Deposited Securities
represented by the ADSs evidenced thereby, the Depositary may require proper
endorsement in blank of such ADR (or duly executed instruments of transfer
thereof in blank) and the Owner's written order (a "Withdrawal Order") directing
the Depositary to cause the Deposited Securities represented by the ADSs
evidenced by such ADR to be withdrawn and delivered to, or upon the written
order of, any person designated in such order. Delivery of Deposited Securities
may be made by the delivery of certificates (which, if required by law shall be
properly endorsed or accompanied by properly executed instruments of transfer
or, if such certificates may be registered, registered in the name of such Owner
or as ordered by such Owner in any Withdrawal Order) or by such other means as
the Depositary may deem practicable. At the request, risk and expense of the
Owner hereof, the Depositary may deliver such Deposited Securities at such other
place as may have been requested by the Owner.
DISTRIBUTIONS ON DEPOSITED SECURITIES
Subject to the terms and conditions of the Deposit Agreement, to the extent
practicable, the Depositary will distribute by mail to each Owner entitled
thereto on the record date set by the Depositary therefor at such Owner's
address shown on the ADR Register, in proportion to the number of Deposited
Securities (on which the following distributions on Deposited Securities are
received by the Custodian) represented by ADSs evidenced by such Owner's ADRs:
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(a) CASH: Any U.S. dollars available to the Depositary resulting from a cash
dividend or other cash distribution or the net proceeds of sales of any
other distribution or portion thereof authorized in the Deposit Agreement
(which does not include the receipt of cash in connection with the
redemption, Buy-Back or Capital Reduction of the Preference Shares)
("Cash"), on an averaged or other practicable basis, subject to
appropriate adjustments for (i) taxes withheld, (ii) such distribution
being impermissible or impracticable with respect to certain Owners, and
(iii) deduction of the Depositary's expenses in (1) converting any
foreign currency to U.S. dollars by sale or in such other manner as the
Depositary may determine to the extent that it determines that such
conversion may be made on a reasonable basis, (2) transferring foreign
currency or U.S. dollars to the United States by such means as the
Depositary may determine to the extent that it determines that such
transfer may be made on a reasonable basis, (3) obtaining any approval or
license of any governmental authority required for such conversion or
transfer, which is obtainable at a reasonable cost and within a
reasonable time, and (4) making any sale by public or private means in
any commercially reasonable manner. If the Depositary determines that in
its judgment any foreign currency received by it cannot be converted on a
reasonable basis and transferred to the United States, the Depositary may
distribute the foreign currency received by it or, at its discretion,
hold such foreign currency, uninvested and without liability for interest
thereon, for the respective accounts of the Owners entitled to receive
the same. If the Depositary determines that in its judgment any foreign
currency received by it cannot be converted on a reasonable basis and
transferred to the United States, the Depositary may distribute the
foreign currency received by it or, at its discretion, hold such foreign
currency, uninvested and without liability for interest thereon, for the
respective accounts of the Owners entitled to receive the same.
(b) PREFERENCE SHARES: (i) Additional ADRs evidencing whole ADSs
representing any Preference Shares available to the Depositary resulting
from a dividend or free distribution on Deposited Securities consisting
of Preference Shares (a "Share Distribution") and (ii) U.S. dollars
available to it resulting from the net proceeds of sales of Preference
Shares received in a Share Distribution, which Preference Shares would
give rise to fractional ADSs if additional ADRs were issued therefor, as
in the case of Cash.
(c) RIGHTS: (i) Warrants or other instruments in the discretion of the
Depositary representing rights to acquire additional ADRs in respect of
any rights to subscribe for additional Preference Shares or rights of any
nature available to the Depositary as a result of a distribution on
Deposited Securities ("Rights"), to the extent that the Company timely
furnishes to the Depositary evidence satisfactory to the Depositary that
the Depositary may lawfully distribute the same (the Company has no
obligation to so furnish such evidence), or (ii) to the extent the
Company does not so furnish such evidence and sales of Rights are
practicable, any U.S. dollars available to the Depositary from the net
proceeds of sales of Rights as in the case of Cash, or (iii) to the
extent the Company does not so furnish such evidence and such sales
cannot practicably be accomplished by reason of the nontransferability of
the Rights, limited markets therefor, their short duration or otherwise,
nothing (and any Rights may lapse); and
(d) OTHER DISTRIBUTIONS. (i) Securities or property available to the
Depositary resulting from any distribution on Deposited Securities other
than Cash, Share Distributions and Rights ("Other Distributions"), by any
means that the Depositary may deem, after consultation with the Company
to the extent practicable, lawful, equitable and practicable, or (ii) to
the extent the Depositary deems, after consultation with the Company to
the extent practicable, distribution of such securities or property not
to be lawful, equitable and practicable, any U.S. dollars available to
the Depositary from the net proceeds of sales of Other Distributions as
in the case of Cash. Such U.S. dollars available will be distributed by
checks drawn on a bank in the United States for whole dollars and cents
(any fractional cents being withheld without liability for interest and
added to future Cash distributions).
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To the extent that the Depositary determines in its discretion that any
distribution is not practicable with respect to any Owner, the Depositary may
make such distribution as it so determines is practicable, including the
distribution of foreign currency, securities or property (or appropriate
documents evidencing the right to receive foreign currency, securities or
property) or the retention thereof as Deposited Securities with respect to such
Owner's ADRs (without liability for interest thereon or the investment thereof).
THERE CAN BE NO ASSURANCE THAT THE DEPOSITARY WILL BE ABLE TO EFFECT ANY
CURRENCY CONVERSION OR TO SELL OR OTHERWISE DISPOSE OF ANY DISTRIBUTED OR
OFFERED PROPERTY, SUBSCRIPTION OR OTHER RIGHTS, SHARES OR OTHER SECURITIES IN A
TIMELY MANNER OR AT A SPECIFIED RATE OR PRICE, AS THE CASE MAY BE.
DISCLOSURE OF INTERESTS
To the extent that the provisions of or governing any Deposited Securities
may require disclosure of or impose limits on beneficial or other ownership of
Deposited Securities, other Preference Shares and other securities and may
provide for blocking transfer, voting or other rights to enforce such disclosure
or limits, Owners and all persons holding ADRs agree to comply with all such
disclosure requirements and ownership limitations and to cooperate with the
Depositary in the Depositary's compliance with any Company instructions in
respect thereof, and, in the Deposit Agreement, the Depositary has agreed to use
reasonable efforts to comply with such Company instructions.
RECORD DATES
The Depositary may, after consultation with the Company if practicable, fix
a record date (which shall be as near as practicable to any corresponding record
date set by the Company) for the determination of the Owner who shall be
entitled to receive any distribution on or in respect of Deposited Securities,
to give instructions for the exercise of any voting rights, to receive notice of
redemption, Buy-Back or Capital Reduction to receive any notice or to act in
respect of other matters and only such Owners shall be so entitled.
VOTING OF DEPOSITED SECURITIES
As soon as practicable after receipt from the Company of notice of any
meeting or solicitation of consents or proxies of holders of Preference Shares
or other Deposited Securities, the Depositary shall mail to Owners a notice
stating (a) such information as is contained in such notice and any solicitation
materials, (b) that each Owner on the record date set by the Depositary therefor
will be entitled, subject to any applicable provisions of law, the Constitution
of the Company and any instrument governing the Deposited Securities, to
instruct the Depositary as to the exercise of the voting rights, if any,
pertaining to the Deposited Securities represented by the ADSs evidenced by such
Owner's ADRs and (c) the manner in which such instructions may be given,
including instructions to give a discretionary proxy to a person designated by
the Company. Upon receipt of instructions of a Owner on such record date in the
manner and on or before the date established by the Depositary for such purpose,
the Depositary shall endeavor insofar as practicable and permitted under the
provisions of or governing Deposited Securities to vote or cause to be voted (or
to grant a discretionary proxy to a person designated by the Company to vote in
accordance with (c) above) the Deposited Securities represented by the ADSs
evidenced by such Owner's ADRs in accordance with such instructions. The
Depositary will not itself exercise any voting discretion in respect of any
Deposited Securities.
INSPECTION OR TRANSFER BOOKS
The Deposit Agreement provides that the Depositary will keep books at its
Transfer Office for the registration, registration of transfer, combination and
split-up of ADRS, which at all reasonable times will
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be open for inspection by the Owners and the Company for the purpose of
communicating with Owners in the interest of the business of the Company or a
matter related to the Deposit Agreement.
REPORTS AND OTHER COMMUNICATIONS
The Depositary shall make available for inspection by Owners at the Transfer
Office any reports and communications received from the Company which are both
(a) received by the Depositary as the holder of the Deposited Securities and (b)
made generally available to the holders of such Deposited Securities by the
Company. The Depositary shall also send to the Owners copies of such reports
when furnished by the Company. Any such reports and communications furnished to
the Depositary by the Company shall be furnished in English.
On or before the first date on which the Company makes any communication
available to holders of Deposited Securities or any securities regulatory
authority or stock exchange, by publication or otherwise, the Company shall
transmit to the Depositary a copy thereof in English or with an English
translation or summary to the extent required under applicable rules of the U.S.
Securities Exchange Act of 1934. In connection with any registration statement
under the U.S. Securities Act of 1933 relating to the ADRs or with any
undertaking contained therein, the Company and the Depositary shall each furnish
to the other and to the United States Securities and Exchange Commission or any
successor governmental agency such information as shall be required to make such
filings or comply with such undertakings. The Company has delivered to the
Depositary, the Custodian and any Transfer Office, a copy of all provisions of
or governing the Shares and any other Deposited Securities issued by the Company
or any affiliate of the Company, and, promptly upon any change thereto, the
Company shall deliver to the Depositary, the Custodian and any Transfer Office,
a copy of such provisions as so changed. The Depositary and its agents may rely
upon the Company's delivery thereof for all purposes of the Deposit Agreement.
CHANGES AFFECTING DEPOSITED SECURITIES
Subject to the terms and conditions of the Deposit Agreement, the Depositary
may, in its discretion, and shall, if the Company shall so request, amend the
form of ADR or distribute additional or amended ADRs (with or without calling
the ADRs for exchange) or cash, securities or property on the record date set by
the Depositary therefor to reflect any change in par value, split-up,
consolidation, cancellation or reclassification of Deposited Securities, any
Share Distribution or Other Distribution not distributed to Owners or any cash,
securities or property available to the Depositary in respect of Deposited
Securities from (and, in the Deposit Agreement, the Depositary is authorized to
surrender any Deposited Securities to any person and to sell by public or
private sale any property received in connection with) any recapitalization,
reorganization, merger, consolidation, liquidation, receivership, bankruptcy or
sale of all or substantially all the assets of the Company, and to the extent
the Depositary does not so amend the ADR or make a distribution to Owners to
reflect any of the foregoing, or the net proceeds thereof, whatever cash,
securities or property results from any of the foregoing shall constitute
Deposited Securities and each ADS shall automatically represent its PRO RATA
interest in the Deposited Securities as then constituted.
REDEMPTION, BUY-BACK OR CAPITAL REDUCTION
Subject to the terms and conditions of the Deposit Agreement, upon notice by
the Company of any redemption in whole or in part, or any Buy-Back or Capital
Reduction in whole, of the Preference Shares on a certain date, the Depositary
is obligated to redeem a corresponding number of the ADSs on the same date (the
"Redemption Date"). In the case of a partial redemption of the Preference
Shares, as prompt as practicable after it receives such notice, the Depositary
will select the particular ADSs to be redeemed from the ADSs constituting the
Deposited Securities not previously called for redemption, in accordance with
the customary procedures of the Depositary or by such method as the Depositary
deems fair and appropriate. The Depositary will, as prompt as practicable but
not less than 30 days nor more than 60 days
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prior to the Redemption Date, notify each Owner of ADSs being called for
redemption in accordance with the terms of the Deposit Agreement. From and after
the Redemption Date, all rights of the Owners of such ADSs so called for
redemption will cease except for the right to receive the applicable redemption
consideration and such ADS will cease to be outstanding.
Any moneys (and interests thereon) received by the Depositary from the
Company for the redemption, Buy-Back or Capital Reduction of the Preference
Shares remaining unclaimed for two years after the Redemption Date will, at the
request of the Company, be repaid to the Company and the Owners of the ADSs
redeemed can thereafter look, as a general unsecured creditor, only to the
Company for payment therefor.
Notwithstanding the above, the Depositary will not have any obligation to
redeem the ADSs unless and until it has received in full the consideration for
all the Preference Shares subject to redemption, Buy-Back or Capital Reduction.
See "Description of the Preference Shares -- Redemption, Buy-Back or Capital
Reduction."
AMENDMENT AND TERMINATION OF DEPOSIT AGREEMENT
The ADRs and the Deposit Agreement may be amended by the Company and the
Depositary without the consent of the Owners in any respect, PROVIDED that any
amendment that imposes or increases any fees or charges (other than stock
transfer or other taxes and other governmental charges, transfer or registration
fees, cable, telex or facsimile transmission costs, delivery costs or other such
expenses), or that shall otherwise prejudice any substantial existing right of
Owners, shall become effective 30 days after notice of such amendment shall have
been given to the Owners. Every Owner of an ADR at the time any amendment to the
Deposit Agreement so becomes effective shall be deemed, by continuing to hold
such ADR, to consent and agree to such amendment and to be bound by the Deposit
Agreement as amended thereby. In no event shall any amendment impair the right
of the Owner of any ADR to surrender such ADR and receive the Deposited
Securities represented thereby, except in order to comply with mandatory
provisions of applicable law.
The Depositary may, and shall at the written direction of the Company,
terminate the Deposit Agreement and the relevant ADRs by mailing notice of such
termination to the Owners at least 30 days prior to the date fixed in such
notice for such termination. After the date so fixed for termination, the
Depositary and its agents will perform no further acts under the Deposit
Agreement and the ADRs, except to advise Owners of such termination, receive and
hold (or sell) distributions on Deposited Securities and deliver Deposited
Securities being withdrawn. As soon as practicable after the expiration of six
months from the date so fixed for termination, the Depositary shall sell the
Deposited Securities and shall thereafter (as long as it may lawfully do so)
hold in a segregated account the net proceeds of such sales, together with any
other cash then held by it under the Deposit Agreement, without liability for
interest, in trust for the PRO RATA benefit of the Owners not theretofore
surrendered. After making such sale, the Depositary shall be discharged from all
obligations in respect of the Deposit Agreement and the ADRs, except to account
for such net proceeds and other cash. After the date so fixed for termination,
the Company shall be discharged from all obligations under the Deposit Agreement
except for its obligations to the Depositary and its agents.
CHARGES OF DEPOSITARY
The Depositary may charge each person to whom ADRs are issued against
deposits of Preference Shares including deposits in respect of Share
Distributions, Rights and Other Distributions and each person surrendering ADRs
for withdrawal of Deposited Securities, US$5.00 for each 100 ADSs (or portion
thereof) evidenced by the ADRs delivered or surrendered. The Company will pay
all other charges and expenses of the Depositary and any agent of the Depositary
(except the Custodian) pursuant to agreements from time to time between the
Company and the Depositary, except (i) stock transfer or other taxes
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and other governmental charges (which are payable by Owners or persons
depositing Preference Shares), (ii) cable, telex and facsimile transmission and
delivery charges incurred at the request of persons depositing, or Owners
delivering Preference Shares, ADRs or Deposited Securities (which are payable by
such persons or Owners) and (iii) transfer or registration fees for the
registration of transfer of Deposited Securities on any applicable register in
connection with the deposit or withdrawal of Deposited Securities (which are
payable by persons depositing Preference Shares or Owners withdrawing Deposited
Securities; there are no such fees in respect of the Preference Shares as of the
date of the Deposit Agreement).
LIABILITY OF OWNERS FOR TAXES
If any tax or other governmental charge shall become payable by or on behalf
of the Custodian or the Depositary with respect to the ADRs, any Deposited
Securities represented by the ADSs evidenced thereby or any distribution
thereon, such tax or other governmental charge shall be paid by the Owner
thereof to the Depositary. The Depositary may refuse to effect any registration,
registration of transfer, split-up, or combination thereof or, subject to the
terms and conditions of the Deposit Agreement, any withdrawal of such Deposited
Securities until such payment is made. The Depositary may also deduct from any
distributions on or in respect of Deposited Securities, or may sell by public or
private sale for the account of the Owner thereof any part or all of such
Deposited Securities (after attempting by reasonable means to notify the Owner
thereof prior to such sale), and may apply such deduction or the proceeds of any
such sale in payment of such tax or other governmental charge, the Owner thereof
remaining liable for any deficiency, and shall reduce the number of ADSs
evidenced thereby to reflect any such sales of Deposited Securities. In
connection with any distribution to Owners, the Company will remit to the
appropriate governmental authority or agency all amounts (if any) required to be
withheld and owing to such authority or agency by the Company; and the
Depositary and the Custodian will remit to the appropriate governmental
authority or agency all amounts (if any) required to be withheld and owing to
such authority or agency by the Depositary or the Custodian. If the Depositary
determines that any distribution in property other than cash (including
Preference Shares or rights) on Deposited Securities is subject to any tax that
the Depositary or the Custodian is obligated to withhold, the Depositary may
dispose of all or a portion of such property in such amounts and in such manner
as the Depositary deems necessary and practicable to pay such taxes, by public
or private sale, and the Depositary shall distribute the net proceeds of any
such sale or the balance of any such property after deduction of such taxes to
the Owners entitled thereto.
GENERAL LIMITATIONS
The Depositary, the Company, their agents and each of them shall: (a) incur
no liability (i) if any present or future law, regulation of any country or of
any governmental or regulatory authority or stock exchange, the provisions of or
governing any Deposited Security, act of God, war or other circumstance beyond
its control shall prevent, delay or subject to any civil or criminal penalty any
act which the Deposit Agreement or the ADRs provide shall be done or performed
by it, or (ii) by reason of any exercise or failure to exercise any discretion
given it (explicitly or otherwise) in the Deposit Agreement or the ADRs; (b)
assume no liability except to perform its obligations to the extent they are
specifically set forth in the ADRs and the Deposit Agreement without gross
negligence or bad faith; (c) except in the case of the Company and its agents,
be under no obligation to appear in, prosecute or defend any action, suit or
other proceeding in respect of any Deposited Securities or the ADRs; (d) in the
case of the Company and its agents be under no obligation to appear in,
prosecute or defend any action, suit or other proceeding in respect of any
Deposited Securities or the ADRs, which in its opinion may involve it in expense
or liability, unless indemnity satisfactory to it against all expense (including
fees and disbursements of counsel) and liability be furnished as often as may be
required; or (e) not be liable for any action or inaction by it in reliance upon
the advice of or information from legal counsel, accountants, any person
presenting Preference Shares for deposit, any Owner, or any other person
believed by it to be competent to give such advice or information. The
Depositary, its agents and the Company may rely and shall be protected in
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acting upon any written notice, request, direction or other document believed by
them to be genuine and to have been signed or presented by the proper party or
parties. The Depositary and its agents will not be responsible for any failure
to carry out any instructions to vote any of the Deposited Securities, for the
manner in which any such vote is cast or for the effect of any such vote. The
Depositary and its agents may own and deal in any class of securities of the
Company and its affiliates and in ADRs. The Company has agreed to indemnify the
Depositary and its agents under certain circumstances and the Depositary has
agreed to indemnify the Company against losses incurred by the Company to the
extent such losses are due to the negligence or bad faith of the Depositary. No
disclaimer of liability under the Securities Act is intended by any provision of
the Deposit Agreement.
Prior to the issue, registration, registration of transfer, split-up or
combination of any ADR, the delivery of any distribution in respect thereof, or,
subject to the terms and conditions of the Deposit Agreement, the withdrawal of
any Deposited Securities, the Company, the Depositary or the Custodian may
require: (a) payment with respect thereto of (i) any stock transfer or other tax
or other governmental charge, (ii) any stock transfer or registration fees in
effect for the registration of transfers of Preference Shares or other Deposited
Securities upon any applicable register, and (iii) any applicable charges as
provided in the Deposit Agreement; (b) the production of proof satisfactory to
it of (i) the identity and genuineness of any signature, and (ii) such other
information, including without limitation, information as to citizenship,
residence, exchange control approval, beneficial ownership of any securities,
compliance with applicable law (including, but not limited to, evidence of
compliance with the Corporations Law, the Banking (Foreign Exchange)
Regulations, the Banks (Shareholdings) Act 1972 or the Foreign Acquisitions and
Takeovers Act 1975 of Australia), regulations, provisions of or governing
Deposited Securities and terms of the Deposit Agreement and the ADRs, as it may
deem necessary or proper; and (c) compliance with such regulations as the
Depositary may establish consistent with the Deposit Agreement. The issuance of
ADRs, the acceptance of deposits of Preference Shares, the registration,
registration of transfer, split-up or combination of ADRs or, subject to the
terms of the Deposit Agreement, the withdrawal of Deposited Securities may be
suspended, generally or in particular instances, when the ADR Register or any
register for Deposited Securities is closed or when any such action is deemed
advisable by the Depositary or the Company at any time or from time to time in
connection with voting at any meeting of shareholders or the payment of
dividends or because of any requirement of law or of any government or
governmental body or commission.
GOVERNING LAW
The Deposit Agreement is governed by and shall be construed in accordance
with the laws of the State of New York.
THE DEPOSITARY
The Depositary is The Bank of New York, a New York banking corporation,
which has its principal office located in New York, New York.
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TAXATION
The following statements with respect to taxation are only general summaries
and are based on advice received by the Company. Prospective purchasers of
Preference Shares should consult their own tax advisors concerning the
consequences, in their particular circumstances, under United States federal and
Australian tax laws, and the laws of any other taxing jurisdiction, of the
ownership of Preference Shares.
AUSTRALIAN TAXATION
In the opinion of Mallesons Stephen Jaques, Australian taxation legal
counsel to the Company, the following statements represent a general summary of
the Australian taxation position for a holder of Preference Shares. The
statements are not exhaustive of all possible tax considerations for holders.
Those consequences may vary according to the individual circumstances of a
holder, and holders are advised to obtain their own taxation advice.
HOLDING OF PREFERENCE SHARES IN THE FORM OF ADSS
It is understood that on a Conversion Event, Preference Shares will be
delivered to holders only in the form of ADSs. The consequences to a holder of
holding and dealing with ADSs ought, except as expressly stated below, to be the
same as described below in respect of holding and dealing with Preference
Shares. Withdrawal of Preference Shares (see "Description of the American
Depositary Receipts--Deposit, Transfer and Withdrawal") ought not in itself to
give rise to any Australian tax liability (except, possibly, stamp duty at the
rate of 0.6% on the value of the Preference Shares).
SALE OR TRANSFER OF PREFERENCE SHARES
A sale or transfer of Preference Shares by a holder who is not a "resident"
of Australia for Australian income tax purposes (a "non-resident holder") will
be subject to Australian income tax (other than Australian capital gains tax)
only if the sale or transfer gives rise to a receipt or profit which is on
revenue account for Australian tax purposes (which will depend on factors such
as whether the holder is a securities trader or speculator rather than a long
term investor), the receipt or profit has an Australian source (which would
depend on factors such as the place of making of any contract of sale, the place
or receipt of payment, the place the Preference Shares were registered and the
place at which any relevant business of the holder was carried on), and there is
no tax treaty between Australia and the holder's country of residence which
provides relief from such tax.
A sale or transfer of Preference Shares would be subject to Australian tax
under the provisions relating to "capital gains and losses" if the disposal gave
rise to a "capital gain" as defined in those provisions and the non-resident
holder either:
- carries on business through a permanent establishment in Australia and the
Preference Shares were at any time used in carrying on that business; or
- together with associates (if any) owns or owned at any time during the
period of five years preceding the disposal, 10% or more by value of the
shares of the Company.
The extent to which potentially relevant taxation treaties may provide
relief from such capital gains tax is generally unclear.
A "capital gain" will generally arise only if the proceeds of disposal of
the shares (or, in some circumstances, the market value of the shares) expressed
in Australian dollars exceeded the holder's "cost base" for the shares. The
"cost base" would generally include the subscription or purchase price of the
shares plus certain other costs related to the acquisition holding and disposal
of the shares, expressed in Australian dollars at the time of incurring the
relevant cost. If the shares are held for more than twelve
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months, the elements of the "cost base" would be indexed to allow for inflation
(at Australian inflation rates).
If a disposal of Preference Shares gave rise to a "capital gain", and that
capital gain comprised amounts which were subject to ordinary income tax, the
capital gain would generally be reduced by those amounts. (Trading stock is not
subject to capital gains tax at all.)
CHANGE OF DIVIDEND RIGHTS
The change of dividend rights attaching to the Preference Shares, as
contemplated, on the occurrence of a Conversion Event should not of itself give
rise to assessable income or a capital gain for Australian tax purposes. The
consequences to a non-resident holder of deriving dividends are discussed below.
DISTRIBUTION ON REDEMPTION OR CANCELLATION OF PREFERENCE SHARES
Part of the amount received by a holder of Preference Shares on redemption
or cancellation of those shares (including on a liquidation of the Company) may
be subject to tax as a dividend, or under the general income tax or "capital
gains tax" provisions.
The amount payable on redemption or cancellation will be treated as a
"dividend" for tax purposes to the extent that (i) it is attributable to unpaid
dividends accrued on the Preference Shares or (ii) it is paid out of the
Company's profits.
The general income tax and "capital gains tax" considerations noted above
(including limitations on applicability) with respect to the sale or transfer of
Preference Shares apply equally in the case of redemption or cancellation.
If a Buy-Back occurs then the holder would generally be treated for
Australian taxation purposes in the manner described above with respect to a
sale or transfer of the Preference Shares.
If a Capital Reduction occurs then the amount attributable to the reduction
of capital will not be treated as a dividend. However, the amount paid upon
subsequent redemption will be treated as a dividend if paid out of the Company's
profits.
TAXATION OF DIVIDENDS
Dividends paid by the Company to a non-resident holder will be subject to
Australian withholding tax, except to the extent that the dividend is "franked"
or is the subject of an "FDA declaration".
Non-resident holders may be subject to withholding tax at rates up to 30%
depending on the applicability of relevant tax treaties and depending on the
relevant non-resident holder's circumstances. For example, the rate of
withholding tax will be 15% in the case of a resident of the United States for
the purposes of the double taxation convention between Australian and the United
States (the "Treaty") who does not maintain a permanent establishment or fixed
base in Australia with which the Preference Shares are effectively connected,
and who is not otherwise ineligible for benefits under the Treaty with respect
to income and gains derived in connection with the Preference Shares.
An "FDA declaration" is, very broadly speaking, a declaration by a dividend
paying corporation that the dividend is sourced from certain non-Australian
dividends received by that corporation. The Company would be obliged to give a
shareholder a statement specifying the extent to which a dividend was subject to
an FDA declaration.
The terms of issue of the Preference Shares provide that, subject to there
being sufficient distributable profits, and to certain requirements connected
with the "capital adequacy" rules for Australian banks, the amount of any
dividend on a Preference Shares will be increased so that the holder of the
Preference Share is able to receive the amount the holder would have received if
such withholding tax had not been payable.
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OTHER TAXES
No stamp duty should be payable on the transfer of ADSs or ADRs provided
that they are not assigned, transferred or in any manner negotiated in the State
of Victoria. This assumes that the holder of an ADS or ADR is not the beneficial
owner of any Preference Shares.
When a holder of an ADR surrenders that ADR for the proceeds of the
Preference Shares, no stamp duty will be payable on the redemption of the
Preference Shares.
Stamp duty will be payable in Victoria on any transfer of the Preference
Shares including a transfer from the Depositary to the Holder. Duty is payable
at the rate of 0.6% of the greater of the consideration paid or the unencumbered
value of the Preference Shares. The Company, the transferor and the transferee
will be jointly liable for the duty, with the Company and the transferor being
entitled to recover from the transferee any stamp duty imposed on them.
Under current Australian law, there are no estate duties or other
inheritance taxes payable in respect of transmission of Preference Shares upon
the death of a holder.
UNITED STATES TAXATION
The following summary of certain United States federal income tax
consequences of ownership of Preference Shares or ADSs by a United States Holder
(as defined below) is based upon the opinion of Sullivan & Cromwell, counsel to
the Company. The summary deals only with Preference Shares or ADSs held as
capital assets. The summary does not address all tax consequences of the
ownership of Preference Shares and does not take into account the specific
circumstances of investors such as tax exempt entities, banks, certain insurance
companies, broker-dealers, traders in securities that elect to mark to market,
investors liable for the alternative minimum tax, investors that actually or
constructively own 10% or more of the voting stock of the Company, investors
that hold Preference Shares or ADSs as part of a straddle or a hedging or
conversion transaction, or investors whose functional currency is not the U.S.
dollar. The summary is based on the Internal Revenue Code of 1986, as amended
(the "Code"), its legislative history, existing and proposed regulations
thereunder, published rulings and court decisions, as well as the income tax
treaty between the United States and Australia (the "Treaty") all as in effect
on the date hereof and all subject to change at any time, perhaps with
retroactive effect. In addition, the summary is based in part upon the
representations of the Depositary and the assumption that each obligation in the
Deposit Agreement and any related agreement will be performed in accordance with
its terms.
For purposes of this discussion a "U.S. Holder" is any beneficial owner of
Preference Shares or ADSs that is (i) a citizen or resident of the United
States, (ii) a corporation organized under the laws of the United States or any
state thereof or the District of Columbia, (iii) an estate the income of which
is subject to United States federal income tax without regard to its source, or
(iv) a trust if a court within the United States is able to exercise primary
supervision over administration of the trust and one or more United States
persons have authority to control all substantial decisions of the trust.
THE DISCUSSION DOES NOT ADDRESS ANY ASPECTS OF UNITED STATES TAXATION OTHER
THAN FEDERAL INCOME TAXATION. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR
OWN TAX ADVISORS REGARDING THE PARTICULAR TAX CONSEQUENCES TO THEM OF OWNING
PREFERENCE SHARES OR ADSS INCLUDING THEIR ELIGIBILITY FOR THE BENEFITS OF THE
TREATY, AND THE APPLICABILITY AND EFFECT OF THE UNITED STATES FEDERAL, STATE,
LOCAL AND AUSTRALIAN AND OTHER TAX LAWS.
In general and taking into account the earlier assumptions, for United
States federal income tax purposes, holders of ADRs evidencing ADSs will be
treated as the owners of the Preference Shares represented by those ADSs and
exchanges of Shares for ADSs and ADSs for Preference Shares will not be subject
to United States federal income tax.
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DIVIDENDS
U.S. Holders will include in gross income the gross amount of any dividend
paid including Additional Amounts, if any before reduction for Australian
withholding taxes by the Company, out of its current or accumulated earnings and
profits (as determined for U.S. federal income tax purposes) as ordinary income
when the dividend is actually or constructively received by the U.S. Holder. The
dividend will not be eligible for the dividend received deduction generally
allowed to United States corporations in respect of dividends received from
other United States corporations.
Subject to certain limitations, the Australian tax withheld, if any in
accordance with the Treaty and paid over to Australia will be creditable against
the U.S. Holder's United States federal income tax liability. For foreign tax
credit limitation purposes, the dividend will be income from sources without the
United States, but generally will be treated separately, together with other
items of "passive income" (or in the case of certain holders "financial services
income").
REDEMPTION, BUY-BACK OR CAPITAL REDUCTION OF PREFERENCE SHARES
A redemption, Buy-Back or Capital Reduction of Preference Shares or a
redemption of ADSs will generally be treated as a sale or exchange of such
Preference Shares or ADSs if the U.S. Holder does not own, actually or
constructively, within the meaning of Section 318 of the Code, any common stock
of the Company. See "--Sale or Exchange" below.
SALE OR EXCHANGE
A U.S. Holder will recognize gain or loss for U.S. federal income tax
purposes upon the sale or exchange of Preference Shares or ADSs in an amount
equal to the difference between the U.S. dollar value of the amount realized and
the U.S. Holder's adjusted tax basis (determined in U.S. dollars) in the
Preference Shares or ADSs. Generally, such gain will be capital gain or loss,
will be long-term capital gain or loss if the U.S. Holder's holding period for
the Preference Shares or ADSs exceeds one year and any such gain will be income
from sources within the United States for foreign tax credit limitation
purposes.
PFIC CONSIDERATIONS
The Company does not believe that it will be treated as a passive foreign
investment company (a "PFIC") for United States federal income tax purposes but
that is a factual determination made annually and therefore may be subject to
change. If the Company were to be treated as a PFIC a U.S. Holder would be
subject to certain adverse tax consequences.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Payments of dividends and other proceeds with respect to Preference Shares
or ADSs, by a U.S. paying agent or other U.S. intermediary will be reported to
the IRS and to the U.S. Holder as may be required under applicable regulations.
Backup withholding at a rate of 31% will apply to these payments if the U.S.
Holder fails to provide an accurate taxpayer identification number or
certification of foreign or other exempt status or fails to report all interest
and dividends required to be shown on its federal income tax returns. Certain
U.S. Holders (including, among others, corporations) are not subject to backup
withholding. U.S. Holders should consult their tax advisers as to their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption.
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PLAN OF DISTRIBUTION
The ADSs offered hereby will initially be sold to the Jersey Subsidiary at a
purchase price of $25 per ADS. The Company has been advised that it is the
investment objective of the Trust to distribute to the holders of the TrUEPrS on
or as soon as practicable after the Conversion Date, cash or ADRs evidencing,
for each TrUEPrS, one ADS representing two Preference Shares. The Company has
been advised that, pursuant to the Declaration of Trust, the Trust is obligated
to deliver on or as soon as practicable after the Conversion Date a number of
ADSs representing Preference Shares held by the Collateral Agent covered by this
Prospectus equal to the number required by the Trust in order to exchange all of
the TrUEPrS (including the TrUEPrS issued pursuant to the over-allotment options
granted to the Underwriters of the TrUEPrS) on or as soon as practicable after
the Conversion Date in accordance with the investment objective of the Trust.
The Company is not a party to the Declaration of Trust and has no obligation
thereunder or with respect to the TrUEPrS, which are securities of the Trust and
are not securities of the Company.
The Company has agreed in the Purchase Agreement that, within 30 days from
the date hereof, the Company will not, without the prior written consent of the
Representatives (as defined below), (i) directly or indirectly, offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of any ADRs, ADSs, Preference Shares or any other
preference shares (other than, in any such case, to or with an affiliate of the
Company) of the Company or a subsidiary thereof (the "Company Securities") or
any securities convertible into or exercisable or exchangeable for the Company
Securities or file any registration statement under the 1933 Act with respect to
any of the foregoing or (ii) enter into any swap or any other agreement or any
transaction (other than the Fundamental Trust Agreements and the Fundamental
Company Documents (each as defined in the Purchase Agreement)) that transfers,
in whole or in part directly or indirectly, the economic consequence of
ownership of the Company Securities, whether any such swap or transaction
described in clause (i) or (ii) above is to be settled by delivery of the
Company Securities or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to the ADSs, ADRs or Preference Shares exchangeable for
the TrUEPrS to be sold pursuant to the Purchase Agreement.
The Company has agreed to indemnify the Trust and the Underwriters of the
TrUEPrS against certain liabilities, including liabilities under the Securities
Act, with respect to the information contained in this Prospectus (including the
documents incorporated by reference herein), other than information furnished to
the Company in writing by the Trust or the Underwriters of the TrUEPrS through
the Representatives expressly for use herein.
Until the distribution of the TrUEPrS is completed, rules of the Commission
may limit the ability of the Underwriters of the TrUEPrS and any selling group
members to bid for and purchase the TrUEPrS. As an exception to these rules,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, A.G. Edwards & Sons, Inc.,
Morgan Stanley & Co. Incorporated, Paine Webber Incorporated, Prudential
Securities Incorporated and Salomon Smith Barney Inc. (the "Representatives")
are permitted to engage in certain transactions that stabilize the price of the
TrUEPrS. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the TrUEPrS.
If the Underwriters create a short position in the TrUEPrS in connection
with the TrUEPrS offerings, I.E., if they sell more TrUEPrS than are set forth
on the cover page of the accompanying TrUEPrS Prospectus, the Representatives
may reduce that short position by purchasing TrUEPrS in the open market. The
Representatives may also elect to reduce any short position by exercising all or
part of the over-allotment options granted to them.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
TrUEPrS in the open market to reduce the Underwriters' short position or to
stabilize the price of the TrUEPrS, they may reclaim the amount of the
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selling concession from the Underwriters and any selling group members who sold
those TrUEPrS as part of the Offerings.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage release of the security.
Neither the Trust nor any of the Underwriters of the TrUEPrS makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the TrUEPrS or the
ADSs representing the Preference Shares. In addition, neither the Trust nor any
of the Underwriters of the TrUEPrS makes any representation that the
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
Each Underwriter has also in the Purchase Agreement represented and agreed
that:
(a) it has not offered or sold and, prior to the date six months after
the date of issue of the TrUEPrS, will not offer or sell any TrUEPrS to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995;
(b) it has complied and will comply with all applicable provisions of
the Financial Services Act 1986 with respect to anything done by it in
relation to the TrUEPrs in, from or otherwise involving the United Kingdom;
and
(c) it has only issued or passed on, and will only issue or pass on, in
the United Kingdom any document received by it in connection with the issue
of the TrUEPrS to a person who is of kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1996 or is a person to whom the document may otherwise lawfully be issued or
passed on.
Certain of the Underwriters of the TrUEPrS render investment banking and
other financial services to the Company from time to time.
VALIDITY OF PREFERENCE SHARES
The validity of the Preference Shares will be passed upon for the Company by
Mallesons Stephen Jaques, Melbourne, Australia and for the Underwriters by
Allen, Allen & Hemsley Sydney, Australia. The Company is also represented by
Sullivan & Cromwell, New York, New York and the Underwriters are also
represented by Brown & Wood LLP, New York, New York.
EXPERTS
The consolidated financial statements of the Company and its subsidiaries as
of September 30, 1997 and 1996 and for each of the three years in the three year
period ended September 30, 1997 are incorporated in this Prospectus by reference
to the Company's 1997 Annual Report. Such financial statements have been
examined by, and are incorporated herein by reference in reliance upon the
report, which is also incorporated herein by reference, of, KPMG, independent
accountants, upon the authority of such firm as experts in accounting and
auditing.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY
UNDERWRITER OF THE TRUEPRS. NEITHER THE DELIVERY OF THE PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH AN OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information........................... 3
Incorporation of Certain Information by
Reference..................................... 3
Enforceability of Certain Civil Liabilities..... 4
Currency of Presentation and Exchange Rates..... 4
Special Note Regarding Forward-Looking
Statements.................................... 5
Prospectus Summary.............................. 6
Capitalization.................................. 26
Use of Proceeds................................. 28
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 29
Description of the Preference Shares............ 56
Description of American Depositary Shares....... 68
Taxation........................................ 76
Plan of Distribution............................ 80
Validity of Preference Shares................... 81
Experts......................................... 81
</TABLE>
16,004,000 SHARES
[LOGO]
NATIONAL AUSTRALIA BANK
LIMITED
AMERICAN DEPOSITARY SHARES
EACH REPRESENTING
TWO PREFERENCE SHARES
(LIQUIDATION PREFERENCE EQUIVALENT TO
US$25 PER AMERICAN DEPOSITARY SHARE)
---------------------
PROSPECTUS
---------------------
September 23, 1998
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<PAGE>
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE TRUST OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER
THAN THOSE SPECIFICALLY OFFERED HEREBY, OR OF ANY SECURITIES OFFERED HEREBY, IN
ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE AN OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE TRUST SINCE THE DATE HEREOF OR SINCE THE DATES AS OF WHICH
INFORMATION IS SET FORTH HEREIN. IN THE EVENT THAT ANY SUCH CHANGE SHALL OCCUR
DURING THE PERIOD IN WHICH APPLICABLE LAW REQUIRES DELIVERY OF THIS PROSPECTUS,
THIS PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED ACCORDINGLY.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................... 4
Fee Table........................................ 11
Structural Diagram............................... 12
The Trust........................................ 13
Use of Proceeds and Collateral Arrangements...... 13
Investment Objective and Policies................ 15
Investment Restrictions.......................... 22
Risk Factors..................................... 23
Description of the TrUEPrS....................... 24
Trustees......................................... 27
Management Arrangements.......................... 28
Dividends and Distributions...................... 30
Net Asset Value.................................. 31
Taxation......................................... 31
Underwriting..................................... 37
Legal Matters.................................... 40
Experts.......................................... 40
Additional Information........................... 40
Independent Auditors' Report..................... 41
Statement of Assets and Liabilities.............. 42
</TABLE>
Prospectus relating to Preference Shares
of National Australia Bank Limited
--------------------------
UNTIL OCTOBER 19, 1998 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE TRUEPRS, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
16,000,000 TRUEPRS-SM-
NAB EXCHANGEABLE
PREFERRED TRUST
---------------------
PROSPECTUS
---------------------
MERRILL LYNCH & CO.
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
A.G. EDWARDS & CO., INC.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
SEPTEMBER 23, 1998
- -SM-Service mark of Merrill Lynch & Co., Inc.
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