IMPORTANT NOTICE

NOT FOR DISTRIBUTION TO ANY U.S. PERSON OR TO ANY PERSON OR ADDRESS IN THE U.S.

IMPORTANT: You must read the following before continuing. The following applies to the Prospectus following this page, and you are therefore advised to read this carefully before reading, accessing or making any other use of the Prospectus. In accessing the Prospectus, you agree to be bound by the following terms and conditions, including any modifications to them any time you receive any information from us as a result of such access.

NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY THE SECURITIES OF THE ISSUER. THE FOLLOWING PROSPECTUS MAY NOT BE FORWARDED OR DISTRIBUTED TO ANY OTHER PERSON AND MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER, AND IN PARTICULAR, MAY NOT BE FORWARDED TO ANY U.S. PERSON OR TO ANY U.S. ADDRESS. ANY FORWARDING, DISTRIBUTION OR REPRODUCTION OF THIS DOCUMENT IN WHOLE OR IN PART IS UNAUTHORISED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT ) OR THE APPLICABLE LAWS OF OTHER JURISDICTIONS.

This Prospectus has been delivered to you on the basis that you are a person into whose possession this Prospectus may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located. By accessing the Prospectus, you shall be deemed to have confirmed and represented to us that (a) you have understood and agree to the terms set out herein, (b) you consent to delivery of the Prospectus by electronic transmission, (c) you are not a U.S. person (within the meaning of Regulation S under the Securities Act) or acting for the account or benefit of a U.S. person and the electronic mail address that you have given to us and to which this e-mail has been delivered is not located in the United States, its territories and possessions (including Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands) or the District of Columbia and (d) if you are a person in the United Kingdom, then you are a person who (i) has professional experience in matters relating to investments or (ii) is a high net worth entity falling within Article 49(2)(a) to (d) of the Financial Services and Markets Act (Financial Promotion) Order 2005 or a certified high net worth individual within Article 48 of the Financial Services and Markets Act (Financial Promotion) Order 2005.

This Prospectus has been sent to you in an electronic form. You are reminded that documents transmitted via this medium may be altered or changed during the process of electronic transmission and consequently none of Freshwater Finance Plc, HSBC Bank plc , Ambac Assurance UK Limited or any person who controls it nor any director, officer, employee nor agent of it or affiliate of any such person, accepts any liability or responsibility whatsoever in respect of any difference between the Prospectus distributed to you in electronic format and the hard copy version available to you on request from HSBC Bank plc.

FRESHWATER FINANCE PLC (incorporated in Ireland with limited liability under registered number 398770)

£200,000,000 Guaranteed Asset Backed Fixed Rate Notes due 2036

_____________________ Issue Price of the Securities: 100 per cent. of their principal amount

_____________________ Unconditionally and irrevocably guaranteed in relation to Scheduled

Interest on and Ultimate Principal of the Securities by Ambac Assurance UK Limited

The Securities being offered have the terms described herein, including the following:

Principal Amount Interest Interest Payment Dates

Expected Ratings S&P/

Moody’s

Expected Average

Life(years)

Final Maturity

Date £200,000,000 4.556% 3rd April and 3rd October AAA / Aaa 30 2036

The £200,000,000 Guaranteed Asset Backed Fixed Rate Notes due 2036 (the Securities) will, as from the Issue Date of 3rd April, 2006 be unconditionally and irrevocably guaranteed in relation to the Scheduled Interest on and Ultimate Principal of the Securities pursuant to a financial guarantee (the Securities Financial Guarantee) to be issued by Ambac Assurance UK Limited (the Financial Guarantor) pursuant to the Reimbursement and Indemnity Agreement (as defined below) as set out in the section of this Prospectus entitled “ Form of the Securities Financial Guarantee” below.

Freshwater Finance Plc (the Issuer) will initially hold £200,000,000 in aggregate nominal amount of the £200,000,000 1.6449 per cent. RPI–Linked Fixed Rate Instruments due 2036 (ISIN: XS0248040544) issued by National Grid Electricity Transmission plc (NGET) as the Charged Assets on the Issue Date (the Initial Charged Assets). Interest on the Securities will be payable semi-annually in arrear in Sterling on 3rd April and 3rd October in each year, commencing on 3rd October, 2006 and ending on 3rd April, 2036, subject to adjustment and deferral as described herein. The Securities will mature on 3rd April, 2036 as may be deferred in accordance with Condition 8(a) (Final Redemption), unless previously redeemed pursuant to Condition 8(b) (Mandatory Redemption) or Condition 8(c) (Financial Guarantor Optional Redemption). This Prospectus comprises a "Prospectus" for the purpose of Directive 2003/71/EC (the Prospectus Directive) and Regulation (EC) No 809/2004 (the Prospectus Regulation). Application has been made to the Irish Financial Services Regulatory Authority (IFRSA), as competent authority under the Propectus Directive, for the Prospectus to be approved. Application has been made for the Securities to be admitted to the official list (the Official List) of the Irish Stock Exchange Limited (the Irish Stock Exchange) and to trading on its regulated market.

References in this Prospectus to listed in Ireland (and all related references) shall mean that the Securities will be admitted to the Official List of the Irish Stock Exchange and admitted to trading on the Irish Stock Exchange's regulated market following the issue of the Securities. The Irish Stock Exchange's regulated market is a regulated market for the purposes of Directive 93/22/EEC. The Securities will be obligations of the Issuer only and will not be guaranteed by, or be the responsibility of, any other person (other than the Financial Guarantor in respect of Scheduled Interest on and Ultimate Principal of the Securities). Claims of the Securityholders, the Financial Guarantor and the Counterparty against the Issuer will be limited in recourse to the Mortgaged Property, except for the Securityholders which will also receive the benefit of the Securities Financial Guarantee (see “ Risk Factors — Limited recourse” on page 9).

Selling and transfer restrictions will apply to any offer or sale of Securities within the United States, or to a U.S. person (as defined in Regulation S under the United States Securities Act of 1933, as amended (the Securities Act)) outside the United States, as set out in this Prospectus. The Securities are expected to be assigned on issue, an AAA rating by Standard & Poor’s Ratings Services, a Division of The McGraw-Hill Companies, Inc. (S&P) and an Aaa rating by Moody’s Investors Service Limited (Moody’s). A security rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, change or withdrawal at any time by the assigning rating agency. A suspension, change or withdrawal of the ratings assigned to the Securities may adversely affect the market price of the Securities.

Prospective investors should be aware of the risks involved in investing in the Securities (see “Risk Factors” on pages 5-13). Capitalised terms used in this Prospectus shall have the meanings given to them in this Prospectus (which are defined on the relevant page(s) of this Prospectus as set out in “Index of Defined Terms”).

HSBC

PROSPECTUS DATED 13th April, 2006

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This Prospectus has been prepared for the purpose of providing information with regard to the Issuer and the Securities. Subject as set out below, in the context of the issue and offering of any Securities by it, the Issuer (the Responsible Person) accepts responsibility for the information contained in this Prospectus. To the best of the knowledge and belief of the Issuer (having taken all reasonable care to ensure that such is the case) the information contained in this Prospectus is in accordance with the facts and does not omit anything likely to affect the import of such information.

The Financial Guarantor accepts responsibility for the information contained in the sections of this Prospectus entitled “Form of the NGET Financial Guarantee and Indemnity” on pages 50 to 60, “Form of the Securities Financial Guarantee” on pages 61 to 68, “Ambac Assurance UK Limited” on pages 69 to 71, “Ambac Assurance Corporation” on pages 72 to 76, “Relationship between Ambac Assurance UK Limited and Ambac Assurance Corporation” on page 77, paragraphs 9, 10, 11 and 12 of the section entitled “General Information” on pages 87 to 88 and the “Audited Accounts of the Financial Guarantor” from page 93 (all such information, together, the Financial Guarantor Information). To the best of the knowledge and belief of the Financial Guarantor (having taken all reasonable care to ensure that such is the case), the Financial Guarantor Information is in accordance with the facts and does not omit anything likely to affect the import of such information.

Neither the Trustee, the Counterparty, the Dealer nor the Financial Guarantor (other than in respect of the Financial Guarantor Information) has or will have separately verified the information contained herein. Accordingly, no representation, warranty or undertaking, express or implied, is or will be made and no responsibility or liability is or will be accepted by the Trustee, the Counterparty, the Dealer or the Financial Guarantor (other than in respect of the Financial Guarantor Information) as to the accuracy or completeness of the information contained in this Prospectus or any other information provided by the Issuer in connection with the Securities or their distribution or by the Financial Guarantor in connection with the NGET Financial Guarantee and Indemnity and the Securities Financial Guarantee and neither the Trustee, the Counterparty, the Dealer nor the Financial Guarantor has authorised the issue of this Prospectus.

The delivery of this Prospectus does not at any time imply that the information contained herein concerning the Issuer, the Counterparty or the Financial Guarantor is correct at any time subsequent to the date hereof or that any other information supplied in connection with the Securities is correct as of any time subsequent to the date indicated in the document containing the same.

This Prospectus does not constitute an offer to sell or the solicitation of an offer to buy any Securities in any jurisdiction to any person to whom it is unlawful to make the offer or solicitation in such jurisdiction. The distribution of this Prospectus and the offer or sale of Securities may be restricted by law in certain jurisdictions. The Issuer, the Financial Guarantor, the Trustee, the Counterparty and the Dealer do not and will not represent that this Prospectus may be lawfully distributed, or that the Securities may be lawfully offered, in compliance with any applicable registration or other requirements in any such jurisdiction, or pursuant to an exemption available thereunder, or assume any responsibility for facilitating any such distribution or offering. In particular, no action has been or will be taken by the Issuer, the Financial Guarantor, the Trustee, the Counterparty or the Dealer which would permit a public offering of the Securities outside the European Economic Area or distribution of this Prospectus in any jurisdiction where action for that purpose is required. Accordingly, the Securities may not be offered or sold, directly or indirectly, and neither this Prospectus nor any advertisement or other offering material in connection with the Securities may be distributed or published in any jurisdiction, except under circumstances that will result in compliance with any applicable laws and regulations. Persons into whose possession this Prospectus or any Securities come must inform themselves about, and observe, any such restrictions. In particular, there are restrictions on the distribution of this Prospectus and the offer or sale of Securities in the United States and the European Economic Area (including the United Kingdom and Ireland) (see “Subscription and Sale and Transfer Restrictions” on page 84 below).

The Securities have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction of the United States and may be subject to U.S. tax law requirements. Consequently, the Securities may not be offered, sold, resold, delivered or transferred within the United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S under the Securities Act (Regulation S)) except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. In addition, the Issuer has not been and will not be registered as an “investment company” under the United States Investment Company Act of 1940, as amended (the 1940 Act).

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In connection with the issue of the Securities, HSBC Bank plc, as the Stabilising Manager (or persons acting on behalf of it) may over-allot, provided that, the aggregate principal amount of the Securities allotted does not exceed 105 per cent. of the aggregate principal amount of the Securities or effect transactions with a view to supporting the market price of the Securities at a level higher than that which might otherwise prevail. However, there is no assurance that HSBC Bank plc as Stabilising Manager (or persons acting on behalf of HSBC Bank plc) will undertake stabilisation action. Any stabilisation action may begin on or after the date on which adequate public disclosure of the terms of the offer of the Securities is made and, if begun, may be ended at any time, but it must end no later than the earlier of 30 days after the Issue Date of the Securities and 60 days after the date of the allotment of the Securities.

In this Prospectus, references to Sterling , £, GBP and penny are to the lawful currency of the United Kingdom.

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TABLE OF CONTENTS

RISK FACTORS ......................................................................................................................................................5

DOCUMENTS INCORPORATED BY REFERNCE .....................................................................................14

CONDITIONS OF THE SECURITIES ..............................................................................................................15

USE OF PROCEEDS.............................................................................................................................................46

DESCRIPTION OF THE ISSUER......................................................................................................................47

DESCRIPTION OF THE INITIAL CHARGED ASSETS AND THE ISSUER OF THE INITIAL CHARGED ASSETS.......................................................................................................................................49

FORM OF NGET FINANCIAL GUARANTEE AND INDEMNITY.........................................................50

FORM OF SECURITIES FINANCIAL GUARANTEE.................................................................................61

AMBAC ASSURANCE UK LIMITED .............................................................................................................69

AMBAC ASSURANCE CORPORATION.......................................................................................................72

RELATIONSHIP BETWEEN AMBAC ASSURANCE UK LIMITED AND AMBAC ASSURANCE CORPORATION..............................................................................................................................................77

DESCRIPTION OF THE SWAP AGREEMENT ............................................................................................78

DESCRIPTION OF THE COUNTERPARTY..................................................................................................80

TAXATION.............................................................................................................................................................81

SUBSCRIPTION AND SALE AND TRANSFER RESTRICTIONS ..........................................................84

GENERAL INFORMATION...............................................................................................................................87

ANNEX 1 - INDEX OF DEFINED TERMS ....................................................................................................89

ANNEX 2 – AUDITED ACCOUNTS OF THE FINANCIAL GUARANTOR .........................................93

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RISK FACTORS

The purchase of the Securities may involve substantial risks and is suitable only for sophisticated investors who have the knowledge and experience in financial and business matters necessary to enable them to evaluate the risks and the merits of an investment in the Securities. The Issuer believes that the following factors may affect its ability to fulfil its obligations under Securities issued under this Prospectus. Some of these factors are contingencies which may or may not occur and the Issuer is not in a position to express a view on the likelihood of any such contingency occurring.

The Issuer believes that the factors described below represent the principal risks inherent in investing in Securities issued under this Prospectus, but the inability of the Issuer to pay interest, principal or other amounts on or in connection with any Securities may occur for other reasons and the Issuer does not represent that the statements below regarding the risks of holding any Securities are exhaustive. Prospective investors should also read the detailed information set out elsewhere in this Prospectus and, in the light of their own financial circumstances and investment objectives, reach their own views prior to making any investment decision.

Liability under the Securities The Securities will be solely the obligations of the Issuer and will not be obligations or responsibilities of, or guaranteed by, any other entity (other than the Financial Guarantor in respect of the Guaranteed Amounts under the Securities Financial Guarantee). In particular, the Securities will not be obligations or responsibilities of, and will not be guaranteed by, the Trustee, the Counterparty or the Financial Guarantor (other than in respect of the Guaranteed Amounts under the Securities Financial Guarantee) (including not in the capacity described in section 41(iv) of the Investment Funds, Companies and Miscellaneous Provisions Act 2005 of Ireland). Furthermore, no such person other than the Issuer will accept any liability whatsoever to Securityholders in respect of any failure by the Issuer to pay any amount due under the Securities (other than the Financial Guarantor in respect of the Guaranteed Amounts under the Securities Financial Guarantee).

Credit Risk

The ability of the Issuer to meet its obligations under the Securities will be dependent upon the payment of principal, interest and other amounts due on the Charged Assets, the payment of all sums due from the Financial Guarantor under the NGET Financial Guarantee and Indemnity, the payment of all sums due from the Counterparty under the Swap Agreement, the Principal Paying Agent and the Custodian making the relevant payments when received and all parties to the Transaction Documents (other than the Issuer) performing their respective obligations thereunder. The Securities also have the benefit of the Securities Financial Guarantee. Accordingly, Securityholders are exposed, inter alia, to the creditworthiness of any obligor in respect of the Charged Assets, the Financial Guarantor, the Counterparty, the Principal Paying Agent and the Custodian.

Prospective investors in the Securities should note that the ultimate recourse available to the Trustee if a payment of Scheduled Interest or Ultimate Principal is due on the Securities from the Issuer, but is not paid, save as disclosed herein, shall be to the Financial Guarantor under the Securities Financial Guarantee. Furthermore , the Financial Guarantor may elect to make an Accelerated Payment (as defined in the Securities Financial Guarantee) where it exercises the Financial Guarantor Redemption Option pursuant to Condition 8(c) (Financial Guarantor Optional Redemption), which may be in whole or in part. The Financial Guarantor shall not be obliged to make payments under the Securities Financial Guarantee in any other circumstances.

In the event that the Financial Guarantor does not make full payment in circumstances where it has received a valid claim from the Trustee in accordance with the provisions of the Securities Financial Guarantee, the Trustee may (and, if so directed by the Instructing Creditor and indemnified to its satisfaction, shall) commence legal proceedings against the Financial Guarantor.

In the event that the Issuer is entitled to make a claim under the NGET Financial Guarantee and Indemnity for a Guaranteed Amount or, as the case may be, an Indemnified Amount (each as defined in the NGET Financial Guarantee and Indemnity) or there is a default in payment by the Issuer under the Securities and the Trustee is entitled to make a claim under the Securities Financial Guarantee, the relevant Interest Payment Date under the Securities shall be postponed until either (i) (in the case of such non-payment by the Issuer) the Business Day immediately following the day on which the Trustee shall be expected to receive the Guaranteed Amounts (as defined in the Securities Financial Guarantee)

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from the Financial Guarantor in accordance with the provisions of the Securities Financial Guarantee or, as the case may be, (ii) the Business Day immediately following the day on which the Issuer shall be expected to receive the Guaranteed Amounts or, as the case may be, the Indemnified Amounts (each as defined in the NGET Financial Guarantee and Indemnity) from the Financial Guarantor in accordance with the provisions of the NGET Financial Guarantee and Indemnity.

Charged Assets The purchase of Securities secured on the Charged Assets involves certain investment risks.

The terms of the Initial Charged Assets are set out in the Initial Charged Assets Prospectus and investors are advised to read and understand such terms prior to the purchase of Securities. Investors should be clear, however, that an investment in the Securities is not the same as an investment in the Initial Charged Assets. In the event that the Initial Charged Assets are redeemed in whole as a result of a Charged Assets Default or the exercise of the NGET Restructuring Put Option and the Financial Guarantor does not exercise the Financial Guarantor Redemption Option, the redemption proceeds thereof will be invested in Eligible Assets meeting the Investment Guidelines and as selected from the categories of Eligible Assets. The NGET Financial Guarantee and Indemnity shall continue to be in effect and a Swap Adjustment may be effected at the request of the Issuer (as directed by the Financial Guarantor) with the consent of the Counterparty.

In the event that the Eligible Assets held by the Issuer are redeemed in whole or in part (other than as a result of a tax event or an index event in respect of a Replacement Charged Asset), the proceeds of such redemption shall be reinvested in Eligible Assets that meet the Investment Guidelines and as selected from the categories of Eligible Assets . The NGET Financial Guarantee and Indemnity shall continue to be in effect and a Swap Adjustment may be effected at the request of the Issuer (as directed by the Financial Guarantor) with the consent of the Counterparty.

Bankruptcy of Financial Guarantor The Securities will not be automatically redeemed in the event of a Financial Guarantor Bankruptcy Event, and will only be redeemed thereafter upon, the earlier to occur of (A) a payment default in respect of principal or interest under the Securities or (B) a Charged Assets Default (or an equivalent event in respect of any Replacement Charged Assets), or such other event resulting in redemption of the Securities pursuant to Condition 8 (Redemption). Prospective investors in the Securities should note that subsequent to a Financial Guarantor Bankruptcy Event, it is likely that the ratings assigned to the Securities will adjust accordingly.

Ratings of Securities affected by the Financial Guarantor

The ratings of the Securities are based primarily on the Securities Financial Guarantee and the NGET Financial Guarantee and Indemnity issued by the Financial Guarantor. Pursuant to the Securities Financial Guarantee, the Financial Guarantor guarantees payments of Scheduled Interest on and Ultimate Principal of the Securities and pursuant to the NGET Financial Guarantee and Indemnity, the Financial Guarantor guarantees payments of Scheduled Interest on and Ultimate Principal of the Initial Charged Assets or any Replacement Charged Assets and following an Early Redemption (as defined therein) indemnifies the Issuer for Indemnified Amounts (as defined therein). The likelihood of payment of the Guaranteed Amounts under the Securities Financial Guarantee and the Guaranteed Amounts or (following an Early Redemption) the Indemnified Amount under the NGET Financial Guarantee and Indemnity will depend upon the creditworthiness of the Financial Guarantor. Consequently, investors are relying not only on the creditworthiness of the Issuer, but also on the creditworthiness of the Financial Guarantor to perform its obligations under the Securities Financial Guarantee and the NGET Financial Guarantee and Indemnity. The insolvency of the Financial Guarantor or a default by it under the Securities Financial Guarantee and/or the NGET Financial Guarantee and Indemnity would adversely affect the likelihood of investors receiving payments of Scheduled Interest on and Ultimate Principal of the Securities and could result in a withdrawal or downgrade of the ratings of the Securities.

Reliance by the Financial Guarantor on Ambac Assurance

The ratings of the Financial Guarantor are based primarily on the ratings of and the capital support and reinsurance provided by Ambac Assurance (as defined in "Ambac Assurance Corporation”, below) to the Financial Guarantor pursuant to the Ambac Support Agreements (see “Relationship Between

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Ambac Assurance UK Limited and Ambac Assurance Corporation”, below). Any downgrade of the ratings of Ambac Assurance would very likely result in a downgrade of the ratings of the Financial Guarantor, which could, in turn, have a material adverse effect on the Financial Guarantor's ability to perform its obligations under the Securities Financial Guarantee and the NGET Financial Guarantee and Indemnity.

The Ambac Support Agreements are not, and should not be regarded as, guarantees by Ambac Assurance of the payment of any indebtedness, liability or obligations of the Issuer, the Securities, the Securities Financial Guarantee or the NGET Financial Guarantee and Indemnity, and do not confer any rights on third parties. The Securityholders will have no recourse against Ambac Assurance or any other affiliate of the Financial Guarantor.

Regulation

The Financial Guarantor is authorised by the UK Financial Services Authority to carry out and effect “credit”, “suretyship” and “miscellaneous financial loss” insurance business in the United Kingdom and, pursuant to the EC third non-life insurance directive (No. 92/49/EEC), various European countries (such authorisation being the “Insurance Business Authorisation”).

The Insurance Business Authorisation may be revoked, withdrawn or restrictively modified by the UK Financial Services Authority. Such revocation, withdrawal or restrictive modification could have a material adverse impact on the Financial Guarantor, including its ability to generate new business or increased costs of regulatory compliance.

Concentration of business

Each of the Financial Guarantor and Ambac Assurance is engaged exclusively in the business of writing financial guarantees (and in the case of Ambac Assurance, related lines of business), including in respect of securities sold in public offerings and private placements, and obligations under credit default swaps.

Although it is the Financial Guarantor's and Ambac Assurance’s policy to diversify and manage its exposures to single obligors and to particular business sectors, it may have individual large exposures to single obligors or particular business sectors and, if a material adverse event or series of events occurs with respect to one or more of these concentrations that is more severe than the assumptions used by the Financial Guarantor or Ambac Assurance, such event or series of events could result in losses to the Financial Guarantor or Ambac Assurance and could harm the Financial Guarantor's or Ambac Assurance’s business.

Control by the Financial Guarantor

While the Securities Financial Guarantee and the NGET Financial Guarantee and Indemnity mitigate the credit risks which potential investors in the Securities would otherwise be exposed to, involvement of the Financial Guarantor has certain consequences. For example, for so long as it is the Instructing Creditor, the Financial Guarantor will have the right to exercise many of the discretions which would otherwise be exercised by the Trustee (including the discretion as to whether to call events of default or enforcement events or to accelerate payments of principal and interest, and in respect of which the Trustee might have sought the directions of the Securityholders). In addition, in the event that the Financial Guarantor is required to make a payment under the Securities Financial Guarantee and/or the NGET Financial Guarantee and Indemnity, the Issuer will be required to reimburse the Financial Guarantor and to pay various fees, costs and expenses to the Financial Guarantor.

Acceleration of Securities

The terms of the Securities Financial Guarantee provide that amounts of principal on any Securities which have become immediately due and payable (whether by virtue of acceleration, prepayment or otherwise) will not be treated as Guaranteed Amounts which are Due for Payment (as defined in the Securities Financial Guarantee). Unless the Financial Guarantor in its sole discretion elects to exercise the Financial Guarantor Redemption Option pursuant to Condition 8(c) (Financial Guarantor Optional Redemption) and the Issuer redeems the Securities pursuant thereto, subject to the requirements set out therein, the Financial Guarantor will continue to be liable to make payments of Guaranteed Amounts in respect of the Securities pursuant to the Securities Financial Guarantee on the dates on which such

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payments would have been required to be made if such amounts had not become immediately due and payable.

Acceleration of Initial Charged Assets and Replacement Charged Assets

The terms of the NGET Financial Guarantee and Indemnity provide that amounts of principal on any of the Initial Charged Assets or Replacement Charged Assets which have become immediately due and payable (whether by virtue of acceleration, prepayment or otherwise) will not be treated as Guaranteed Amounts which are Due for Payment (as defined in the NGET Financial Guarantee and Indemnity) or (following an Early Redemption) Indemnified Amounts (as defined in the NGET Financial Guarantee and Indemnity). Unless the Financial Guarantor in its sole discretion elects to exercise the Financial Guarantor Redemption Option pursuant to Condition 8(c) (Financial Guarantor Optional Redemption) and the Issuer redeems the Securities pursuant thereto, subject to the requirements set out therein, the Financial Guarantor will continue to be liable to make payments of Guaranteed Amounts in respect of the Initial Charged Assets or Replacement Charged Assets, as the case may be, or (following an Early Redemption) Indemnified Amounts pursuant to the NGET Financial Guarantee and Indemnity on the dates on which such payments would have been required to be made if such amounts had not become immediately due and payable.

Absence of secondary market; limited liquidity

There can be no assurance that a secondary market will develop in respect of the Securities and, in the event that a secondary market does develop, there can be no assurance that it will provide the Securityholders with liquidity of investment or that it will continue for the life of the Securities. Any sale of the Securities by Securityholders in any secondary market which may develop may be at a discount or at a premium or equal to the original purchase price of such Securities. Application will be, however, made to list the Securities on the Irish Stock Exchange following the issue of the Securities.

Integral multiples of less than £50,000 Although the Securities have a denomination of £50,000, it is possible that the Securities may be traded in the clearing systems in principal amounts of £50,000 and integral multiples of £1 in excess thereof. Should definitive Securities be required to be issued, Securityholders who hold Securities in the relevant clearing system in amounts that are not integral multiples of £50,000 may need to purchase or sell, on or before the relevant Exchange Date, a principal amount of Securities such that their holding is an integral multiple of £50,000 in order to be able to exercise all of their rights and receive all of their entitlement in respect of their holding.

Default under, and early redemption of, the Charged Assets and the Swap Agreement

If a payment default in respect of principal or interest under the Securities or a Charged Assets Default occurs (whether or not the Initial Charged Assets are accelerated as a result), the Securities may not be accelerated except at the election of the Financial Guarantor in its sole discretion pursuant to the Financial Guarantor Redemption Option pursuant to Condition 8(c) (Financial Guarantor Optional Redemption) and subject to the requirements set out therein (unless and until a Financial Guarantor Event of Default has occurred and remains outstanding or unremedied, in which event acceleration shall be mandatory). If the Financial Guarantor does not so elect, it will not be obliged to make any accelerated payments and will remain liable to pay amounts in respect of the Guaranteed Amounts and the Indemnified Amounts as provided for in the NGET Financial Guarantee and Indemnity (subject to valid claims being made therefor under the NGET Financial Guarantee and Indemnity) and amounts in respect of Guaranteed Amounts as provided for in the Securities Financial Guarantee (subject to valid claims being made therefor under the Securities Financial Guarantee).

Early redemption of the Initial Charged Assets as a result of the exercise of the NGET Restructuring Put Option

Under the terms and conditions of the Initial Charged Assets, if a NGET Restructuring Put Event occurs in respect of the Initial Charged Assets, the holder of the Initial Charged Assets has an option to put its respective Initial Charged Assets back to the Initial Charged Assets Issuer. Upon the occurrence of a NGET Restructuring Put Event, the Financial Guarantor, upon consultation with the Counterparty (but with no obligation to follow any recommendation of the Counterparty) may instruct the Issuer to exercise the NGET Restructuring Put Option and, provided that the Financial Guarantor also exercises

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the Financial Guarantor Redemption Option pursuant to Condition 8(c) (Financial Guarantor Optional Redemption) and, subject to the requirements set out therein, the Issuer shall redeem the Securities.

Early Redemption of Securities The Securities may be redeemed prior to the Maturity Date upon the occurrence of a mandatory redemption event pursuant to Condition 8(b) (Mandatory Redemption) and pursuant to the Financial Guarantor Redemption Option pursuant to Condition 8(c) (Financial Guarantor Optional Redemption). The mandatory redemption events contained in Condition 8(b) (Mandatory Redemption) include (a) a failure by the Financial Guarantor to make a timely and full payment of a Guaranteed Amount or an Indemnified Amount under the NGET Financial Guarantee and Indemnity and/or of a Guaranteed Amount under the Securities Financial Guarantee and (b) an early redemption of the Initial Charged Assets as a result of a tax event or an index event described in the conditions thereof in the circumstances where Replacement Charged Assets are not issued to the Issuer. In addition, if the Financial Guarantor in its sole discretion elects to exercise the Financial Guarantor Redemption Option pursuant to Condition 8(c) (Financial Guarantor Optional Redemption), the Financial Guarantor will accelerate the payments of Guaranteed Amounts or, as applicable, the Indemnified Amounts under the NGET Financial Guarantee and Indemnity and/or the Guaranteed Amounts under the Securities Financial Guarantee in whole or in part in an amount which, together with any other amounts held by or on behalf of the Issuer in respect of amounts received or recovered by the Issuer in respect of the Charged Assets or otherwise available to the Issuer, are, or on such Optional Redemption Date will be, sufficient to meet the payments due by the Issuer in accordance with paragraphs (i) to (v) (inclusive) of Condition 2(b) (Pre-enforcement Order of Priority) or, as the case may be, paragraphs (i) to (iv) (inclusive) of Condition 5 (Post-enforcement Order of Priority) on such Optional Redemption Date.

In the event of an early redemption of the Securities in such circumstances , the Swap Agreement will be terminated (if not already terminated) and the Secured Parties will be paid in accordance with Condition 2(b) (Pre-enforcement Order of Priority) or, as applicable, Condition 5 (Post-enforcement Order of Priority). In accordance with such priority of payments, payments of taxes (in certain circumstances) and fees of the Trustee and Agents will be paid before the payment of any unpaid amounts to the Counterparty. Unpaid amounts due to the Counterparty (other than in respect of a termination of the Swap Agreement due to the occurrence of an Event of Default (as defined in the Swap Agreement) with respect to the Counterparty) and any unpaid Securities Financial Guarantee Fee will be paid prior to any amounts owing to the Securityholders.

Limited recourse Claims against the Issuer by the Trustee, the Securityholders, the Financial Guarantor and the Counterparty will be limited to the Mortgaged Property. The proceeds of realisation of such Mortgaged Property may be less than the sums due to the Trustee, the Securityholders, the Financial Guarantor and the Counterparty. Any shortfall will be borne by the Trustee, the Securityholders, the Financial Guarantor and the Counterparty in accordance with the order of priority specified in Condition 5 (Post-enforcement Order of Priority). Each Securityholder, by subscribing for or purchasing the Securities, will be deemed to accept and acknowledge that it is fully aware that, in the event of a shortfall, (i) the Issuer shall be under no obligation to pay such shortfall and the other assets (if any) of the Issuer will not be available for payment of such shortfall, (ii) all claims in respect of such shortfall shall be extinguished and (iii) the Trustee, the Securityholders, the Financial Guarantor and the Counterparty shall have no further claim against the Issuer in respect of such unpaid amounts and will accordingly not be able to petition for the winding up of the Issuer as a consequence of such shortfall.

The Securities are direct, limited recourse obligations of the Issuer alone and not of the officers, members, directors, employees, securityholders or incorporator of the Issuer, the Financial Guarantor (other than in respect of the Guaranteed Amounts under the Securities Financial Guarantee), the Trustee, the Counterparty or any obligor in respect of the Charged Assets or their respective successors or assigns. Furthermore, they are not obligations of, or guaranteed in any way by, the Dealer.

The Issuer may from time to time, without the consent of the Securityholders (but subject to Rating Agency Confirmation and the prior written consent of the Counterparty and the Financial Guarantor), create and issue further securities which form a separate series from the Securities upon such terms as to security, interest, premium, redemption and otherwise as the Issuer may, in its absolute discretion, at the time of the issue thereof determine, provided that (1) such securities are secured on specified assets

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of the Issuer which do not form part of the Mortgaged Property or benefit from the Securities Financial Guarantee, (2) recourse in respect of such securities is limited to such secured assets, (3) the enforcement provisions relating to such securities are substantially similar to those contained in the Conditions of the Securities and (4) the terms of the securities provide for the extinguishment of all claims in respect of such indebtedness after application of the proceeds of the assets on which such securities are secured.

Independent review and advice Each prospective purchaser of the Securities must determine, based on its own independent review (including as to the financial condition and affairs and its own appraisal of the creditworthiness) of the Issuer, the Financial Guarantor, the Counterparty and any obligor in respect of the Charged Assets and after obtaining such professional advice (including, without limitation, tax, accounting, credit, legal and regulatory advice) as it deems appropriate under the circumstances, whether an investment in the Securities is appropriate in its particular circumstances.

In so doing, and without restricting the generality of the preceding paragraph, such prospective purchaser must determine that its acquisition and holding of the Securities (i) is fully consistent with its (or if it is acquiring the Securities in a fiduciary capacity, the beneficiary’s) financial needs, objectives and condition, (ii) complies and is fully consistent with all investment policies, guidelines and restrictions applicable to it (whether acquiring the Securities as principal or in a fiduciary capacity) and (iii) is a fit, proper and suitable investment for it (or if it is acquiring the Securities in a fiduciary capacity, for the beneficiary), notwithstanding the clear and substantial risks inherent in investing in or holding the Securities. None of the Issuer, the Trustee, the Financial Guarantor, the Dealer or any of their respective affiliates is acting as an investment adviser, or assumes any fiduciary obligation, to any purchaser of Securities.

The Prospectus is not intended to provide the basis of any credit or other evaluation or should be considered as a recommendation or constituting an invitation or offer that any recipient of the Prospectus should purchase any Securities. The Trustee, the Dealer and the Financial Guarantor expressly do not undertake to review the financial condition or affairs of the Issuer, the Financial Guarantor, the Counterparty or any obligor in respect of the Charged Assets.

Provision of information

Neither the Issuer, the Financial Guarantor (other than as referred to in the following paragraph), the Trustee, the Agents, the Dealer nor any affiliate makes any representation as to the credit quality of the Financial Guarantor, the Counterparty or any obligor in respect of the Charged Assets. Any of such persons may have acquired, or during the term of the Securities may acquire, non-public information with respect to the Financial Guarantor, the Counterparty or any obligor in respect of the Charged Assets. None of such persons is under any obligation to make available any information relating to, or keep under review on the Securityholders’ behalf, the business, financial conditions, prospects, creditworthiness or status of affairs of any obligor in respect of the Charged Assets, the Financial Guarantor or the Counterparty or conduct any investigation or due diligence in relation to any obligor in respect of the Charged Assets, the Financial Guarantor or the Counterparty.

As indicated above on page 2, the Financial Guarantor accepts responsibility for the Financial Guarantor Information. However, the Financial Guarantor accepts no responsibility for any other information contained in this Prospectus. Save for the Financial Guarantor Information, the Financial Guarantor has not separately verified the information contained herein. No representation, warranty or undertaking, express or implied, is made and no responsibility or liability is accepted by the Financial Guarantor as to the accuracy or completeness of any information contained in this Prospectus (other than the Financial Guarantor Information) or any other information supplied in connection with the Securities or their distribution.

Business relationships Each of the Issuer, the Dealer, the Financial Guarantor, the Trustee, the Agents or any of their affiliates may have existing or future business relationships with the Counterparty, the Financial Guarantor or any obligor in respect of the Charged Assets (including, but not limited to, lending, depository, risk management, advisory and banking relationships), and will pursue actions and take steps that they deem or it deems necessary or appropriate to protect their or its interests arising therefrom without regard to the consequences for a Securityholder. Furthermore, the Dealer, the Financial Guarantor, the Trustee, the Agents or any of their respective affiliates may buy, sell or hold positions in obligations of,

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or act as investment or commercial bankers, advisers or fiduciaries to, or hold directorship and officer positions in, any obligor in respect of the Charged Assets.

Taxation Each Securityholder will assume and be solely responsible for any and all taxes of any jurisdiction or governmental or regulatory authority, including, without limitation, any state or local taxes or other like assessment or charges that may be applicable to any payment to it in respect of the Securities. The Issuer will not pay any additional amounts to Securityholders to reimburse them for any tax, assessment or charge required to be withheld or deducted from payments in respect of the Securities by the Issuer or any Paying Agents or suffered by the Issuer in respect of its income from the Charged Assets or payments under the Swap Agreement (including the deduction of tax from such payments) or any tax, assessment or charge suffered by the Issuer except as provided for in the Conditions. In such event, the payments of interest due on the Securities will be reduced, as further described in Condition 13 (Taxation).

The Financial Guarantor shall not be obliged under the Securities Financial Guarantee or the NGET Financial Guarantee and Indemnity to pay the shortfall in the event that the Issuer is obliged to withhold or deduct payments to account for tax or suffers any tax, assessment or charge, as a result of an Issuer Tax Event or an Issuer Swap Tax Event and accordingly no claim may be made under the Securities Financial Guarantee or the NGET Financial Guarantee and Indemnity, as the case may be, in respect of any such shortfall.

In addition, if any obligor of the Initial Charged Assets or, as the case may be, an Affected Tax Eligible Asset is obliged to withhold or deduct payments to account for tax or if the Issuer suffers any tax, assessment or charge (whether in respect of its income from the Charged Assets or otherwise), no claim may be made by the Issuer under the NGET Financial Guarantee and Indemnity in respect of any such shortfall.

In the event that United Kingdom tax is required to be withheld on payments by the Financial Guarantor under the NGET Financial Guarantee and Indemnity, the Financial Guarantor is required to gross up in respect of such amounts, subject to certain exceptions as provided for in the NGET Financial Guarantee and Indemnity. The Financial Guarantor is not required to gross up in respect of any taxes required to be withheld on such payments by any jurisdiction other than the United Kingdom.

In the event that United Kingdom tax is required to be withheld on payments by the Financial Guarantor under the Securities Financial Guarantee, the Financial Guarantor is required to gross up in respect of such amounts, subject to certain exceptions as provided for in the Securities Financial Guarantee. The Financial Guarantor is not required to gross up in respect of any taxes required to be withheld on such payments by any jurisdiction other than the United Kingdom.

Legal opinions

Legal opinions relating to the Securities will be obtained on issue with respect to the laws of England and of Ireland from external counsel and a legal opinion relating to the NGET Financial Guarantee and Indemnity and the Securities Financial Guarantee will be obtained on issue with respect to the laws of England from the Financial Guarantor’s in-house counsel, but no such opinions will be obtained with respect to any other applicable laws and no investigations will be made into the validity or enforceability of the laws of any other jurisdiction in respect of the obligations under the Securities, the NGET Financial Guarantee and Indemnity or the Securities Financial Guarantee. Any such legal opinions will not be addressed to, and may not be relied on by, Securityholders.

Such laws, depending upon the circumstances, may affect, among other things, the validity and legal and binding effect of the obligations of the Financial Guarantor and/or any obligor of the Charged Assets and the effectiveness and ranking of the security for the Securities. Consequently, no responsibility is accepted by the Issuer in relation to such matters.

Legality of purchase None of the Issuer, the Financial Guarantor, the Trustee, the Dealer, the Counterparty or any of their respective affiliates has or assumes responsibility for the lawfulness of the acquisition of the Securities by a prospective purchaser of the Securities, whether under the laws of the jurisdiction of its incorporation or the jurisdiction in which it operates (if different), or for compliance by that prospective purchaser with any law, regulation or regulatory policy applicable to it.

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Credit Ratings Credit ratings of debt securities represent the rating agencies’ opinions regarding their credit quality and are not a guarantee of quality. Rating agencies attempt to evaluate the safety of principal and/or interest payments and do not evaluate the risks of fluctuations in market value. A security rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, change or withdrawal at any time by the assigning rating agency.

Preferred Creditors under Irish Law and Floating Charges Under Irish law, upon an insolvency of an Irish company such as the Issuer, when applying the proceeds of assets subject to fixed security which may have been realised in the course of a liquidation or receivership, the claims of a limited category of preferential creditors will take priority over the claims of creditors holding the relevant fixed security. These preferred claims include the remuneration, costs and expenses properly incurred by any examiner of the company (which may include any borrowings made by an examiner to fund the company’s requirements for the duration of his appointment) which have been approved by the Irish courts (see “Examination” below).

The holder of a fixed security over the book debts of an Irish tax resident company (which would include the Issuer) may be required by the Irish Revenue Commissioners, by notice in writing from the Irish Revenue Commissioners, to pay to them sums equivalent to those which the holder received in payment of debts due to it by the company. Where the holder of the security has given notice to the Irish Revenue Commissioners of the creation of the security within 21 days of its creation, the holder’s liability is limited to the amount of certain outstanding Irish tax liabilities of the company (including liabilities in respect of value added tax) arising after the issuance of the Irish Revenue Commissioners’ notice to the holder of fixed security.

The Irish Revenue Commissioners may also attach any debt due to an Irish tax resident company by another person in order to discharge any liabilities of the company in respect of outstanding tax whether the liabilities are due on its own account or as an agent or trustee. The scope of this right of the Irish Revenue Commissioners has not yet been considered by the Irish courts and it may override the rights of holders of security (whether fixed or floating) over the debt in question.

In relation to the disposal of assets of any Irish tax resident company which are subject to security, a person entitled to the benefit of the security may be liable for tax in relation to any capital gains made by the company on a disposal of those assets on exercise of the security.

Examination Examination is a court procedure available under the Irish Companies (Amendment) Act, 1990, as amended (the 1990 Act), to facilitate the survival of Irish companies in financial difficulties.

The company, the directors of the company, a contingent, prospective or actual creditor of the company, or shareholders of the company holding, at the date of presentation of the petition, not less than 1/10th of the voting share capital of the company are each entitled to petition the court for the appointment of an examiner. The examiner, once appointed, has the power to set aside contracts and arrangements entered into by the company after his appointment and, in certain circumstances, can avoid a negative pledge given by the company prior to his appointment. Furthermore, he may sell assets the subject of a fixed charge. However, if such power is exercised he must account to the holders of the fixed charge for the amount realised and discharge the amount due to them out of the proceeds of sale.

During the period of protection, the examiner will compile proposals for a compromise or scheme of arrangement to assist the survival of the company or the whole or any part of its undertaking as a going concern.

A scheme of arrangement may be approved by the Irish High Court when at least one class of creditors has voted in favour of the proposals and the Irish High Court is satisfied that such proposals are fair and equitable in relation to any class of members or creditors who have not accepted the proposals and whose interests would be impaired by implementation of the scheme of arrangement. In considering proposals by the examiner, it is likely that secured and unsecured creditors would form separate classes of creditors. In the case of the Issuer, if the Trustee represented the majority in number and value of claims within the secured creditor class (which would be likely given the restrictions agreed to by the Issuer in the Conditions), the Trustee would be in a position to reject any proposal not in favour of the Securityholders. The Trustee would also be entitled to argue at the Irish High Court hearing at which

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the proposed scheme of arrangement is considered that the proposals are unfair and inequitable in relation to the Securityholders, especially if such proposals included a writing down of the value of amounts due by the Issuer to the Securityholders. The primary risks to the Securityholders if an examiner were to be appointed to the Issuer are as follows:

(i) the potential for a scheme of arrangement being approved involving the writing down of the debt due by the Issuer to the Securityholders as secured by the relevant Trust Instrument;

(ii) the potential for the examiner to seek to set aside any negative pledge in the terms of the Securities prohibiting the creation of security or the incurrence of borrowings by the Issuer to enable the examiner to borrow to fund the Issuer during the protection period; and

(iii) in the event that a scheme of arrangement is not approved and the Issuer subsequently goes into liquidation, the examiner’s remuneration and expenses (including certain borrowings incurred by the examiner on behalf of the Issuer and approved by the Irish High Court) will take priority over any amounts owed to the Securityholders under the terms of the Securities.

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DOCUMENTS INCORPORATED BY REFERENCE The following documents which have previously been publis hed or are being published simultaneously with this Prospectus and have been approved by the IFSRA in its capacity as competent authority or filed with it shall be deemed to be incorporated in, and to form part of, this Prospectus: (a) memorandum and articles of association of the Issuer, save that any statement contained herein or in a document which is deemed to be incorporated by reference herein shall be deemed to be modified or superseded for the purpose of this Prospectus to the extent that a statement contained in any such subsequent document which is deemed to be incorporated by reference herein modifies or supersedes such earlier statement (whether expressly, by implication or otherwise). Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. Copies of documents incorporated by reference in this Prospectus can be obtained from the Principal Paying Agent. In addition, such documents will be available from the principal office in Ireland of A&L Listing Limited or such other listing agent as may be appointed from time to time for Securities listed on the Irish Stock Exchange. The Issuer will, in the event of any significant new factor, material mistake or inaccuracy relating to information included in this Prospectus which is capable of affecting the assessment of any Securities, prepare a supplement to this Prospectus or publish a new Prospectus for use in connection with any subsequent issue of Securities.

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CONDITIONS OF THE SECURITIES

The GBP200,000,000 Guaranteed Asset Backed Fixed Rate Notes due 2036 (the Securities) of Freshwater Finance Plc (the Issuer) will be issued on 3rd April, 2006 (the Issue Date) and constituted and secured by a Trust Instrument to be dated 3rd April, 2006 (the Trust Instrument) made between, inter alios, the Issuer, Ambac Assurance UK Limited (the Financial Guarantor ) and HSBC Trustee (C.I.) Limited as trustee (the Trustee, which expression shall include its successor(s) as trustee) for the holders of the Securities (the Securityholders , which expression shall, while the Securities are represented by a Global Security, be construed as provided in Condition 1(d)) and the other Secured Parties.

Copies of the Trust Instrument, the Agency Agreement, the Sale Agreement, the Swap Agreement, the NGET Financial Guarantee and Indemnity, the Securities Financial Guarantee, the Reimbursement and Indemnity Agreement and the Placing Agreement are available for inspection during usual business hours at the principal office of the Trustee (being at the Issue Date at 1 Grenville Street, St. Helier, Jersey JE4 9PF) and at the specified offices of the Paying Agents for the time being. The Securityholders and the holders of the interest coupons (the Coupons, which expression shall, unless the context otherwise requires, include the talons for further interest coupons (the Talons)) appertaining to such Securities (the Couponholders , which expression shall, unless the context otherwise requires, include the holders of the Talons, the Talonholders) are entitled to the benefit of, are bound by and are deemed to have notice of all the provisions of the Trust Instrument, the Agency Agreement, the Sale Agreement, the Swap Agreement, the NGET Financial Guarantee and Indemnity, the Securities Financial Guarantee, the Reimbursement and Indemnity Agreement and the Placing Agreement.

The statements in these Conditions include summaries of, and are subject to, the detailed provisions of the Trust Instrument, the Agency Agreement, the Sale Agreement, the Swap Agreement, the NGET Financial Guarantee and Indemnity, the Securities Financial Guarantee, the Reimbursement and Indemnity Agreement and the Placing Agreement.

1. FORM, DENOMINATION AND TITLE

(a) The Securities are serially numbered and in the Specified Denomination. Title to the Securities and (if applicable) the related Coupons will pass by delivery.

(b) The Securities will initially be represented by a temporary global security (the Temporary Global Security).

Beneficial interests in the Temporary Global Security will be exchanged for beneficial interests in a permanent global security (the Permanent Global Security and, together with the Temporary Global Security, the Global Securities). The Temporary Global Security will be exchanged on or after the Exchange Date and upon certification as to non-U.S. beneficial ownership as required by U.S. Treasury regulations.

The Permanent Global Security will be exchanged, in whole but not in part, for Securities in definitive form only upon the occurrence of an Exchange Event.

References herein to the Securities shall mean:

(a) in relation to any Securities represented by a Global Security, units of the Specified Denomination;

(b) any Global Security; and

(c) any definitive Securities issued in exchange for a Global Security.

(c) No beneficial owner of an interest in a Global Security will be able to exchange or transfer that interest, except in accordance with the applicable procedures of the Clearing Systems and in accordance with and subject to the terms of such Global Security.

(d) For so long as any of the Securities is represented by a Global Security held by a common depositary, each person who is for the time being shown in the records of the Clearing Systems as entitled to a particular nominal amount of Securities shall be deemed to be the holder of such nominal amount of Securities for all purposes other than with respect to the payment of principal or interest or other amount on such Securities. With respect to such payment, such common depositary shall be deemed to be the holder of such nominal amount of Securities in accordance

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with and subject to the terms of the relevant Global Security. Any certificate or other document issued by the Clearing Systems as to the nominal amount of Securities standing to the account of any person shall be conclusive and binding for all purposes save in the case of manifest error. In determining whether a particular person is entitled to a particular nominal amount of Securities as aforesaid, the Trustee may rely on such evidence and/or information and/or certification as it shall, in its absolute discretion, think fit and, if it does so rely, such evidence and/or information and/or certification shall, in the absence of manifest error, be conclusive and binding on all concerned.

(e) Subject to paragraph (d) above, the Issuer, the Counterparty, the Trustee, the Financial Guarantor and the Agents may deem and treat the holder of any Security as the owner thereof for all purposes. Except as ordered by a court of competent jurisdiction or as required by applicable law, the Issuer, the Counterparty, the Trustee, the Financial Guarantor and the Agents shall not be affected by any notice to the contrary, whether or not the Security shall be overdue and notwithstanding any notice of ownership or other writing thereon. All payments made to any such holder shall be valid and, to the extent of the sums so paid, effective to satisfy and discharge the liability for the moneys payable upon such Securities.

2. STATUS OF THE SECURITIES

(a) Status of the Securities

The Securities are limited recourse obligations of the Issuer, secured in the manner described in Condition 3 (Security) and recourse in respect of which is limited in the manner described in Condition 12 (Enforcement). The Securities rank and will rank pari passu without any preference among themselves.

The Securities will have the benefit of the Securities Financial Guarantee which has been issued pursuant to the Reimbursement and Indemnity Agreement under which the Financial Guarantor has unconditionally and irrevocably agreed to pay to the Trustee, or to the Trustee’s order for the benefit of the Securityholders, subject as provided in the Securities Financial Guarantee, all sums due and payable but unpaid by the Issuer in respect of Scheduled Interest on and Ultimate Principal of the Securities, all as more particularly described in the Securities Financial Guarantee.

Under the terms of the Securities Financial Guarantee, the Financial Guarantor does not guarantee any amount payable by the Issuer upon an early redemption of the Securities pursuant to Condition 8 (Redemption) or an acceleration of the Securities pursuant to Condition 11 (Issuer Events of Default). Upon such early redemption, if such amount is not paid, the Financial Guarantor’s obligations will continue to be to pay the Guaranteed Amounts as they fall Due for Payment (as defined in the Securities Financial Guarantee) on each Scheduled Payment Date (as defined in the Securities Financial Guarantee). The Financial Guarantor will not be obliged under any circumstances to accelerate payment under the Securities Financial Guarantee. However, if it does so, it may do so in whole or in part, provided always that any conditions to accelerate have been satisfied.

The Securities Financial Guarantee provided by the Financial Guarantor in respect of the Securities constitutes a direct, unsecured obligation of the Financial Guarantor which will rank at least pari passu with all other unsecured obligations of the Financial Guarantor.

(b) Pre-enforcement Order of Priority

Prior to the enforcement of the Security Interests (as defined in Condition 3 (Security) below), all payments received under or in respect of the Mortgaged Property shall be applied, on each Interest Payment Date or any other day on which payment to Secured Parties is otherwise due, in the following order of priority:

(i) first, to pay all taxes (if any) applicable to the Issuer in relation to the Securities and a proportion of any other taxes which may apply to the Issuer generally (such proportion to be determined on a pro rata and pari passu basis in respect of the Securities, the Existing Securities and any further securities issued pursuant to Condition 20 (Further Issues));

(ii) second, to pay all amounts due to the Trustee in accordance with the Trust Instrument and then to pay pro rata and pari passu all amounts due to the Agents in accordance with the Agency Agreement to the extent not paid pursuant to the Expenses Fee Letter;

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(iii) third , to pay any unpaid amounts due to the Counterparty under the Swap Agreement except in circumstances where the Swap Agreement is terminated in accordance with its terms as a consequence of an Event of Default (as defined in the Swap Agreement) with respect to the Counterparty;

(iv) fourth, to pay any unpaid Securities Financial Guarantee Fee due to the Financial Guarantor under the Securities Financial Guarantee Fee Letter;

(v) fifth, to pay interest, and then principal, due and unpaid on the Securities;

(vi) sixth, to pay any due and unpaid Financial Guarantor Indemnity Amounts;

(vii) seventh, to pay any due and unpaid Financial Guarantor Make-Whole Amount due to the Financial Guarantor under the Securities Financial Guarantee Fee Letter;

(viii) eighth , to pay any unpaid amounts due to the Counterparty under the Swap Agreement (other than where paid pursuant to item (iii) above); and

(ix) ninth , to pay any remaining balance to the Cash Account, which amount shall be applied by the Issuer in payment of the Investment Fee (as defined in the Securities Guarantee Fee Letter) on payment in full of all other amounts payable to the Secured Parties.

The Securities Financial Guarantee does not constitute part of the Mortgaged Property. The benefit of the Securities Financial Guarantee shall be held by the Trustee for the Securityholders exclusively.

(c) Subrogation of Financial Guarantor To the extent that any payment is made by the Financial Guarantor pursuant to the Securities Financial Guarantee, the Financial Guarantor shall be fully and automatically subrogated to the extent of such payment to the rights of the Securityholders against the Issuer under the Trust Instrument and the Securities.

To the extent that any payment is made by the Financial Guarantor pursuant to the NGET Financial Guarantee and Indemnity of Guaranteed Amounts (as defined therein) on or prior to an Early Redemption (as defined therein) or, as the case may be, Indemnified Amounts (as defined therein) following an Early Redemption, the Financial Guarantor shall be fully and automatically subrogated to the extent of such payment to the rights of the Issuer against any obligor of the Initial Charged Assets, any obligor of any Replacement Charged Assets or any obligor of any Eligible Assets held by the Issuer from time to time .

3. SECURITY The Issuer’s obligations under the Trust Instrument, the Securities, the NGET Financial Guarantee and Indemnity, the Securities Financial Guarantee Fee Letter, the Reimbursement and Indemnity Agreement, the Agency Agreement and the Swap Agreement will be secured under the Trust Instrument in favour of the Trustee (for itself, any Appointee, the Securityholders, the Couponholders, the Agents, the Financial Guarantor and the Counterparty (together, the Secured Parties)) by the following security:

(a) a first ranking assignment by way of security of all of the Rights of the Issuer under the Agency Agreement and (other than pursuant to Clause 8.1(a) of the Trust Instrument) the Trust Instrument;

(b) a first ranking assignment by way of security and (to the extent not assigned) a first fixed charge of all of the Rights of the Issuer to the Charged Assets;

(c) a first ranking assignment by way of security of the Rights of the Issuer under the Swap Agreement, the Sale Agreement and the Placing Agreement;

(d) a first ranking assignment by way of security and (to the extent not assigned) a first fixed charge of all of the Rights of the Issuer to any of its bank accounts in respect of the Securities including, without limitation, the Cash Account (but excluding, for the avoidance of doubt, the Issuer’s bank account containing the paid up ordinary share capital of the Issuer and any transaction fees payable to the Issuer in connection with the issue of the Securities, the Existing Securities and any issues of further securities and any interest thereon); and

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(e) a first ranking assignment by way of security of all of the Rights of the Issuer under the NGET Financial Guarantee and Indemnity and the Reimbursement and Indemnity Agreement.

The Secured Parties will also be secured under the Trust Instrument by a first floating charge over the whole of the assets and undertaking of the Issuer (other than, inter alia , the money representing paid up ordinary share capital of the Issuer and any transaction fees payable to the Issuer on the issue of the Securities, the Existing Securities and any issues of further securities and any interest thereon) which will become enforceable upon formal notice being given of an intention to appoint an administrator in relation to the Issuer or an application being made to, or a petition being lodged or documents being filed with, the court for administration in relation to the Issuer.

All of the security interests described above in sub-paragraphs (a) to (e) and created in respect of the Securities (including the floating charge granted pursuant to the Trust Instrument in respect of the Existing Securities) are herein referred to as the Security Interests , and the assets subject to the Security Interests and all other assets as may from time to time be secured in respect of the Securities are herein together referred to as the Mortgaged Property.

4. CHARGED ASSETS

(a) Initial Charged Assets

The Vendor will procure that GBP200,000,000 in aggregate nominal amount of the GBP200,000,000 1.6449 per cent. RPI–Linked Fixed Rate Instruments due 2036 (ISIN: XS0248040544) (the Initial Charged Assets) issued by National Grid Electricity Transmission plc (the Initial Charged Assets Issuer) are delivered to the Custodian on the Issue Date. With effect from such delivery, the Initial Charged Assets will be held by the Custodian on behalf of the Issuer, subject to the Security Interests. The Issuer has covenanted in the Trust Instrument that any Eligible Assets purchased by the Issuer will be secured by the Issuer on the same terms (mutatis mutandis) as the Initial Charged Assets. The Trustee shall, if so requested by a Securityholder, provide details of the Eligible Assets held by the Issuer, subject to such Securityholder providing the Trustee with sufficient evidence of its ownership of Securities.

(b) Exercise of rights under Charged Assets Unless and until a Financial Guarantor Event of Default has occurred and remains outstanding or unremedied, neither the Issuer nor the Trustee may agree to any modification or waiver, or exercise any voting rights, in relation to the Charged Assets nor take any proceedings against any obligor of the Charged Assets in respect of amounts due and unpaid under the Charged Assets, in each case unless directed to do so by the Financial Guarantor.

(c) Realisation of Charged Assets If the Security Interests over the Mortgaged Property become enforceable in accordance with Condition 12 (Enforcement), the Trustee shall if directed to do so by the Instructing Creditor (subject to being indemnified to its satisfaction), realise the Charged Assets and/or take such action as may be permitted under applicable laws against any obligor in respect of such Charged Assets. The Trustee will not have any liability as to the consequence of such action and will not have regard to the effect of such action on individual Securityholders, the Financial Guarantor or the Counterparty.

(d) Events relating to the Initial Charged Assets

(i) Charged Assets Tax Event In the event that the Initial Charged Assets Issuer would become obliged to deduct or withhold from any payment of interest or principal in respect thereof in accordance with Condition 5.2 of the terms and conditions of the Initial Charged Assets (a Charged Assets Tax Event), the Initial Charged Assets Issuer may:

(A) pay such additional amounts of principal and interest as will result in the payment to the Issuer (as the holder of the Initial Charged Assets ) which would otherwise have been receivable had no withholding or deduction been made in accordance with Condition 7 of the terms and conditions of the Initial Charged Assets (subject to the exceptions contained in paragraphs (a) to (e) therein); or

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(B) arrange the substitution of a company incorporated in another jurisdiction as principal debtor under the Initial Charged Assets pursuant to Condition 11.3 of the terms and conditions of the Initial Charged Assets; or

(C) arrange for the issuance of Replacement Charged Assets with the agreement of the Issuer; or

(D) redeem the Initial Charged Assets at their principal amount (subject to indexation) plus any accrued but unpaid interest thereon in accordance with Condition 5.2 of the terms and conditions of the Initial Charged Assets .

In the event that the Initial Charged Assets Issuer arranges a substitution of a company incorporated in another jurisdiction as principal debtor under the Initial Charged Assets in accordance with sub-paragraph (B) above or arranges for Replacement Charged Assets to be issued to the Issuer in accordance with sub-paragraph (C) above (with the prior written consent of the Financial Guarantor and the Counterparty), the Issuer, as directed by the Financial Guarantor, may, at its sole option, request the Counterparty to (A) use its best endeavours to effect a Swap Adjustment (Index-Linked) and/or (B) use its reasonable efforts to effect a Swap Adjustment (Payment Timing).

In such event, the NGET Financial Guarantee and Indemnity and the Securities Financial Guarantee shall continue to be in effect, as more particularly described in the NGET Financial Guarantee and Indemnity and the Securities Financial Guarantee, respectively.

If the Initial Charged Assets Issuer chooses to redeem the Initial Charged Assets in accordance with sub-paragraph (D) above, the Securities will be redeemed pursuant to Condition 8(b)(ii)(A) (Mandatory Redemption) below. In the event that the Securities are redeemed, the Swap Agreement will be terminated as if the date of redemption of the Securities were the Termination Date (as defined in the Swap Agreement) of the Swap Agreement, on which the Issuer and the Counterparty will exchange final exchange amounts as follows: the Issuer shall pay to the Counterparty the proceeds of redemption of the Initial Charged Assets and the Counterparty shall pay to the Issuer an amount equal to the notional amount of the Securities together with any interest accrued to (but excluding) the date of redemption. No further amounts shall be payable by either party upon the termination of the Swap Agreement. Such redemption payments of the Initial Charged Assets Issuer under the Initial Charged Assets and of the Issuer under the Securities are not guaranteed by the NGET Financial Guarantee and Indemnity and the Securities Financial Guarantee, respectively.

In the event that the Initial Charged Assets Issuer does not pay the full amounts of principal and interest because such payment falls within an exception mentioned in sub-paragraph (A) above, the payment obligations of the Issuer and the Counterparty under the Swap Agreement will be reduced by the relevant Tax Reduction Amount and, correspondingly, the payment obligations of the Issuer under the Securities will be reduced by the relevant Tax Reduction Amount on a pro rata and pari passu basis. The NGET Financial Guarantee and Indemnity and the Securities Financial Guarantee shall continue to be in effect but shall only apply to the reduced payments due in respect of the Initial Charged Assets and the Securities, as more particularly described in the NGET Financial Guarantee and Indemnity and the Securities Financial Guarantee, respectively.

(ii) Initial Charged Assets Index Event

In the event that the index on which the payments under the Initial Charged Assets are based in accordance with Condition 4 of the terms and conditions of the Initial Charged Assets is not available, the Initial Charged Asset Issuer may:

(A) substitute the index on which the payments under the Initial Charged Assets are linked in accordance with Condition 4.5 of the terms and conditions of the Initial Charged Assets; or

(B) arrange for the issuance of Replacement Charged Assets with the agreement of the Issuer; or

(C) redeem the Initial Charged Assets at their principal amount (subject to indexation) plus any accrued but unpaid interest thereon in accordance with Condition 4.6 of the terms and conditions of the Initial Charged Assets.

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In the event that the Initial Charged Assets Issuer substitutes the index in accordance with sub-paragraph (A) above, the index for the purposes of the Swap Agreement will adjust accordingly and the Issuer, as directed by the Financial Guarantor, may at its sole discretion request the Counterparty to (x) use its best endeavours to effect a Swap Adjustment (Index-Linked) and/or (y) use its reasonable efforts to effect a Swap Adjustment (Payment Timing).

In the event that the Initial Charged Assets Issuer issues Replacement Charged Assets to the Issuer in accordance with sub-paragraph (B) above (with the prior written consent of the Financial Guarantor and the Counterparty), the Issuer, as directed by the Financial Guarantor, may at its sole option request the Counterparty to (x) use its best endeavours to effect a Swap Adjustment (Index-Linked) and/or (y) use its reasonable efforts to effect a Swap Adjustment (Payment Timing).

In such event, the NGET Financial Guarantee and Indemnity and the Securities Financial Guarantee shall continue to be in effect, as more particularly described in the NGET Financial Guarantee and Indemnity and the Securities Financial Guarantee, respectively.

If the Initial Charged Assets Issuer redeems the Initial Charged Assets in accordance with sub-paragraph (C) above, the Securities will be redeemed pursuant to Condition 8(b)(ii)(B) (Mandatory Redemption) below. In the event that the Securities are redeemed, the Swap Agreement will be terminated as if the date of redemption of the Securities were the Termination Date (as defined in the Swap Agreement) of the Swap Agreement, on which the Issuer and the Counterparty will exchange final exchange amounts as follows: the Issuer shall pay to the Counterparty the proceeds of redemption of the Initial Charged Assets and the Counterparty shall pay to the Issuer an amount equal to the notional amount of the Securities together with any interest accrued to (but excluding) the date of redemption. No further amounts shall be payable by either party upon the termination of the Swap Agreement. Such redemption payments of the Initial Charged Assets Issuer under the Initial Charged Assets and of the Issuer under the Securities are not guaranteed by the NGET Financial Guarantee and Indemnity and the Securities Financial Guarantee, respectively.

(iii) Initial Charged Assets Default

In the event of a Charged Assets Default which causes the Initial Charged Assets to be redeemed in whole or in part, to the extent that the Financial Guarantor has not exercised the Financial Guarantor Redemption Option (but without prejudice to any subsequent exercise thereof), the Issuer, as directed by the Financial Guarantor, shall use the proceeds of the redeemed Initial Charged Assets and any other amounts available to the Issuer from time to time to purchase Eligible Assets. The Eligible Assets shall be assets which comply with the Investment Guidelines and which comprise any List A Eligible Assets, List B Eligible Assets, List C Eligible Assets and/or List D Eligible Assets, selected at the sole discretion of the Financial Guarantor (and not, for the avoidance of doubt, subject to the consent of the Counterparty) and/or List E Eligible Assets, selected at the sole discretion of the Financial Guarantor (subject to the Counterparty’s consent).

Upon or at any time following the acquisition of Eligible Assets by the Issuer in accordance with the immediately preceding paragraph, the Issuer, as directed by the Financial Guarantor, may at its sole option request the Counterparty to (A) use its best endeavours to effect a Swap Adjustment (Index-Linked) and/or (B) use its reasonable efforts to effect a Swap Adjustment (Payment Timing).

In such event, the NGET Financial Guarantee and Indemnity and the Securities Financial Guarantee shall continue to be in effect, as more particularly described in the NGET Financial Guarantee and Indemnity and the Securities Financial Guarantee, respectively.

(iv) Exercise of NGET Restructuring Put Option

In the event of a NGET Restructuring Put Event and the exercise by the Issuer (as directed by the Financial Guarantor following consultation with the Counterparty (but with no obligation to follow any recommendation of the Counterparty)) of the NGET Restructuring Put Option (in whole but not in part), if the Financial Guarantor does not exercise the Financial Guarantor Redemption Option (for the avoidance of doubt, immediately upon the exercise of the NGET Restructuring Put Option but without prejudice to any subsequent exercise thereof), the Issuer, as directed by the Financial Guarantor, shall use the proceeds of

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the redeemed Initial Charged Assets and any other amounts available to the Issuer from time to time to purchase Eligible Assets. The Eligible Assets shall be assets which comply with the Investment Guidelines and which comprise any List A Eligible Assets, List B Eligible Assets, List C Eligible Assets and/or List D Eligible Assets, selected at the sole discretion of the Financial Guarantor (and not, for the avoidance of doubt, subject to the consent of the Counterparty) and/or List E Eligible Assets, selected at the sole discretion of the Financial Guarantor (subject to the Counterparty’s consent).

Upon or at any time following the acquisition of Eligible Assets by the Issuer in accordance with the immediately preceding paragraph, the Issuer, as directed by the Financial Guarantor, may at its sole option request the Counterparty to (A) use its best endeavours to effect a Swap Adjustment (Index-Linked) and/or (B) use its reasonable efforts to effect a Swap Adjustment (Payment Timing).

In such event, the NGET Financial Guarantee and Indemnity and the Securities Financial Guarantee shall continue to be in effect, as more particularly described in the NGET Financial Guarantee and Indemnity and the Securities Financial Guarantee, respectively.

(e) Events relating to Eligible Assets

(i) Eligible Asset Tax Event

In the event that a withholding or deduction occurs in respect of payments of interest on or principal of Eligible Assets (including, for the avoidance of doubt, any Replacement Charged Assets) held by the Issuer, there will be no effect on the Securities or the payment obligations of either the Issuer or the Counterparty under the Swap Agreement (or the obligations of the Financial Guarantor under the NGET Financial Guarantee and Indemnity or the Securities Financial Guarantee) except that in the case where the issuer of an Affected Tax Eligible Asset chooses to make payments of interest on and principal of such Eligible Assets following such event net of such taxes, duties, assessments or governmental charges, the payment obligations of the Issuer and the Counterparty under the Swap Agreement and the payment obligations of the Issuer under the Securities will be reduced by the relevant Tax Reduction Amount. In such event, the Indemnified Amounts under the NGET Financial Guarantee and Indemnity and the Guaranteed Amounts under the Securities Financial Guarantee or, as the case may be, the NGET Financial Guarantee and Indemnity shall be reduced, as more particularly described in the NGET Financial Guarantee and Indemnity and the Securities Financial Guarantee, respectively.

In the event that an early redemption occurs following a withholding or deduction on a Replacement Charged Asset, the provisions of Condition 4(d)(i) (Charged Assets Tax Event) shall apply as if such Replacement Charged Assets were the Initial Charged Assets, and the Securities shall be redeemed in accordance with Condition 8(b)(ii)(A).

To the extent that an early redemption occurs following such event (other than in relation to a Replacement Charged Asset), the Issuer shall, at the direction of the Financial Guarantor, reinvest the proceeds of such redemption provided that the replacement Eligible Assets must comply with the Investment Guidelines. In that event, the Issuer, as directed by the Financial Guarantor, may at its sole option request the Counterparty to (A) use its best endeavours to effect a Swap Adjustment (Index-Linked) and/or (B) use its reasonable endeavours to effect a Swap Adjustment (Payment Timing).

(ii) Eligible Asset Index Event

In the event that the index on which the payments under any Eligible Assets held by the Issuer is not available at any time thereafter, the Issuer, as directed by the Financial Guarantor, may at its sole option request the Counterparty to (A) use its best endeavours to effect a Swap Adjustment (Index-Linked) and/or (B) use its reasonable endeavours to effect a Swap Adjustment (Payment Timing).

In such event, the NGET Financial Guarantee and Indemnity and the Securities Financial Guarantee shall continue to be in effect, as more particularly described in the NGET Financial Guarantee and Indemnity and the Securities Financial Guarantee, respectively.

In the event that an early redemption occurs following an index event in respect of a Replacement Charged Asset, the provisions of Condition 4(d)(ii) (Initial Charged Assets

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Index Event) shall apply as if such Replacement Charged Assets were the Initial Charged Assets, and the Securities shall be redeemed in accordance with Condition 8(b)(ii)(B).

To the extent that an early redemption occurs following such event (other than in relation to a Replacement Charged Asset), the Issuer shall, at the direction of the Financial Guarantor, reinvest the proceeds of such redemption provided that the replacement Eligible Assets must comply with the Investment Guidelines.

(iii) Reinvestment The Issuer (A) may, as directed by the Financial Guarantor, substitute an Eligible Asset (other than a Replacement Charged Asset) it holds at any time or for any Eligible Asset which has been redeemed (whether upon maturity or an early redemption for tax reasons or index reasons or as a result of a default of any obligor of such Eligible Asset or as a result of a restructuring put option or for any other reason) and (B) shall substitute an Eligible Asset (other than a Replacement Charged Asset) in the circumstances in the immediately following paragraph.

In the circumstances where the portfolio of Eligible Assets held by the Issuer at any time either (A) has more than 25 per cent. of the value, as determined by the Calculation Agent in consultation with the Financial Guarantor, of the Eligible Assets held by the Issuer (or, in the case of an Eligible GIC or, as the case may be, Eligible Guarantee, of all of the Underlying Assets) with ratings below two of the following three ratings of A- by S&P, A3 by Moody’s and A- by Fitch or (B) has more than 5 per cent. of the value, as determined by the Calculation Agent in consultation with the Financial Guarantor, of the Eligible Assets held by the Issuer (or, in the case of an Eligible GIC or, as the case may be, Eligible Guarantee, of all of the Underlying Assets) with less than Investment Grade Ratings or (C) has any of the Eligible Assets of the Issuer (or, in the case of an Eligible GIC or, as the case may be, an Eligible Guarantee, of all of the Underlying Assets) with ratings below two of the following three ratings of BB- by S&P, Ba3 by Moody’s and BB- by Fitch, the Issuer shall, as directed by the Financial Guarantor, using its reasonable endeavours, on behalf of the Issuer, sell Eligible Assets and purchase substitute Eligible Assets as directed by the Financial Guarantor within 30 days of the portfolio at any time falling below the required ratings as set out in sub-paragraphs (A), (B) and (C) above, provided that the portfolio of Eligible Assets must comply with the Investment Guidelines.

In the event that the Issuer substitutes an Eligible Asset in accordance with this Condition, the Issuer, as directed by the Financial Guarantor, may at its sole option request the Counterparty to (A) use its best endeavours to effect a Swap Adjustment (Index-Linked) and/or (B) use its reasonable endeavours to effect a Swap Adjustment (Payment Timing).

(iv) Replacement Charged Assets Default In circumstances where the Replacement Charged Assets comprise all of the Charged Assets (excluding for this purpose any cash held by the Issuer), in the event of a default by any obligor in respect of the Replacement Charged Assets which causes the Replacement Charged Assets to be redeemed in whole or in part, the provis ions of Condition 4(d)(iii) (Initial Charged Assets Default) shall apply as if such Replacement Charged Assets were the Initial Charged Assets.

(v) Replacement Charged Assets Restructuring Put Event In circumstances where Replacement Charged Assets comprise all of the Charged Assets (excluding for this purpose any cash held by the Issuer), upon the occurrence of a restructuring event in respect of the Replacement Charged Assets similar to the NGET Restructuring Put Event described in Condition 5.6.1 of the terms and conditions of the Initial Charged Assets, the provisions of Condition 4(d)(iv) (Exercise of NGET Restructuring Put Option) shall apply as if such Replacement Charged Assets were the Initial Charged Assets.

5. POST-ENFORCEMENT ORDER OF PRIORITY The Trust Instrument provides that, on and following enforcement of the Security Interests (as defined in Condition 3 (Security) above), all payments received under or in respect of the Mortgaged Property shall be applied in the following order of priority:

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(i) first, to pay all amounts due to the Trustee in accordance with the Trust Instrument and then to pay pro rata and pari passu all amounts due to the Agents in accordance with the Agency Agreement to the extent not paid pursuant to the Expenses Fee Letter;

(ii) second, to pay any unpaid amounts due to the Counterparty under the Swap Agreement except in circumstances where the Swap Agreement is terminated in accordance with its terms as a consequence of an Event of Default (as defined in the Swap Agreement) with respect to the Counterparty;

(iii) third , to pay any unpaid Securities Financial Guarantee Fee due to the Financial Guarantor under the Securities Financial Guarantee Fee Letter;

(iv) fourth, to pay interest, and then principal, due and unpaid on the Securities;

(v) fifth, to pay any due and unpaid Financial Guarantor Indemnity Amounts;

(vi) sixth, to pay any due and unpaid Financial Guarantor Make-Whole Amount due to the Financial Guarantor under the Securities Financial Guarantee Fee Letter;

(vii) seventh, to pay any unpaid amounts due to the Counterparty under the Swap Agreement (other than where paid pursuant to item (ii) above); and

(viii) eighth , to pay any remaining balance to the Cash Account, which amount shall be applied by the Issuer in payment of the Investment Fee (as defined in the Securities Guarantee Fee Letter) on payment in full of all other amounts payable to the Secured Parties.

The Securities Financial Guarantee does not constitute part of the Mortgaged Property. The benefit of the Securities Financial Guarantee shall be held by the Trustee for the Securityholders exclusively.

6. SHORTFALL AFTER APPLICATION OF PROCEEDS (a) All payments to be made by the Issuer in respect of the Securities, the Trust Instrument, the

Securities Financial Guarantee Fee Letter, the Reimbursement and Indemnity Agreement and the Swap Agreement following enforcement of the Security Interests (as defined in Condition 3 (Security) above) will be made only from and to the extent of the sums received or recovered from time to time by or on behalf of the Issuer or the Trustee in respect of the Mortgaged Property in accordance with Condition 5 (Post-enforcement Order of Priority).

(b) To the extent that such sums are less than the amount which the Secured Parties may have expected to receive (the difference being referred to as a shortfall), such shortfall will be borne by such Secured Parties in accordance with the order of priority specified in Condition 5 (Post-enforcement Order o f Priority).

(c) Each holder of Securities, by subscribing for or purchasing such Securities, and each other Secured Party will be deemed to accept and acknowledge that it is fully aware that:

(i) the Secured Parties shall look solely to the sums referred to in paragraph (a) of this Condition 6 (Shortfall after Application of Proceeds), as applied in accordance with paragraphs (a) and (b) above (the Relevant Sums ), for payments to be made by the Issuer in respect of the Securities, the Trust Instrument, the Securities Financial Guarantee Fee Letter, the Reimbursement and Indemn ity Agreement and the Swap Agreement;

(ii) the obligations of the Issuer to make payments in respect of the Securities, the Trust Instrument, the Securities Financial Guarantee Fee Letter, the Reimbursement and Indemnity Agreement and the Swap Agreement will be limited to the Relevant Sums and the Secured Parties shall have no further recourse to the Issuer in respect of the Securities, the Trust Instrument, the Securities Financial Guarantee Fee Letter, the Reimbursement and Indemnity Agreement or the Swap Agreement, as the case may be;

(iii) without prejudice to the foregoing, any right of the Secured Parties to claim payment of any amount exceeding the Relevant Sums shall be automatically extinguished; and

(iv) the Secured Parties shall not be able to petition for the winding up of the Issuer as a consequence of any such shortfall.

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None of the Trustee, the shareholders of the Issuer, the Dealer or the Counterparty, nor the Financial Guarantor (other than pursuant to the Securities Financial Guarantee), has any obligation to any Securityholder for payment of any amount by the Issuer in respect of the Securities.

7. INTEREST

(a) Interest Accrual

Each Security of a Specified Denomination bears interest on its Outstanding Principal Amount as on the first day of the relevant Interest Period from (and including) the Issue Date to (but excluding) the date on which such Security is redeemed in full and such interest will be payable in arrear on the relevant Interest Payment Date immediately following the end of each relevant Interest Period.

The interest payable in respect of each Security of a Specified Denomination shall be calculated by applying the relevant Fixed Rate of Interest to each Specified Denomination, multiplying such sum by the Day Count Fraction, and shall be rounded in accordance with Condition 7(b) (Rounding in respect of all Securities) below.

(b) Rounding in respect of all Securities All amounts resulting from any calculations referred to in these provisions will be rounded downwards to the nearest penny.

(c) Default interest If payment to any Securityholder of any amount due in respect of the Securities is improperly withheld or refused, the Securities will continue to bear interest as provided in the Trust Instrument.

The payment of such default interest is not guaranteed by the Financial Guarantor under the Securities Financial Guarantee.

(d) Accrual of interest No additional interest shall be payable to Securityholders as a result of an Interest Payment Date being postponed from the Initial Interest Payment Date to such later date as provided for in the definition of “Interest Payment Date”.

8. REDEMPTION

(a) Final Redemption

Unless such Security has been redeemed, purchased or cancelled prior to such date, each Security of a Specified Denomination will be redeemed by the Issuer on the Scheduled Maturity Date at its respective Outstanding Principal Amount on such date, provided that if the Issuer is entitled to make a claim under the NGET Financial Guarantee and Indemnity for a Guaranteed Amount or, as the case may be, an Indemnified Amount (each as defined in the NGET Financial Guarantee and Indemnity) in respect of such date or upon a default in payment by the Issuer of any principal amounts in respect of the Securities (without taking into account any grace period) and the Trustee is entitled to make a claim under the Securities Financial Guarantee, the Maturity Date in respect of each Security shall be delayed until either (i) (in the case of such non-payment by the Issuer) the Business Day immediately following the day on which the Trustee shall be expected to receive the Guaranteed Amounts from the Financial Guarantor in accordance with the provisions of the Securities Financial Guarantee or, as the case may be, (ii) the Business Day immediately following the day on which the Issuer shall be expected to receive the relevant Guaranteed Amounts or, as applicable, Indemnified Amounts, from the Financial Guarantor in accordance with the provisions of the NGET Financial Guarantee and Indemnity.

(b) Mandatory Redemption

(i) Following failure to pay under the NGET Financial Guarantee and Indemnity and/or the Securities Financial Guarantee

If:

(A) the Financial Guarantor has failed to make a timely and full payment of a Guaranteed Amount or, as applicable, Indemnified Amount under the NGET Financial Guarantee

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and Indemnity and/or a Guaranteed Amount under the Securities Financial Guarantee, or

(B) on or after any day on which a Financial Guarantor Bankruptcy Event has occurred, either (I) a payment default in respect of principal or interest under the Securities or (II) a Charged Assets Default occurs (or an equivalent event in respect of the Replacement Charged Assets occurs),

then the Issuer shall give an Initial Redemption Notice and the Swap Agreement will thereupon be terminated.

Following the receipt of an Initial Redemption Notice pursuant to sub-paragraph (A) or (B) above, the Selling Agent shall arrange for, and administer the sale of, all of the Charged Assets. Upon the sale of all of the Charged Assets and receipt of the Realisation Amount, the Issuer shall give a Second Redemption Notice as soon as reasonably practicable (which notice shall be irrevocable) and the Securities will be redeemed in accordance with Condition 2(b) (Pre-enforcement Order of Priority) or, as applicable, Condition 5 (Post-enforcement Order o f Priority).

(ii) Following Early Redemption of the Charged Assets

(A) Where the Initial Charged Assets are redeemed for a tax event pursuant to Condition 5.2 of the terms and conditions thereof (as set out in the Initial Charged Assets Prospectus) and no Replacement Charged Assets have been issued to the Issuer as described in Condition 4(d)(i)(C), the Issuer shall give an Initial Redemption Notice as soon as reasonably practicable and the Swap Agreement will thereupon be terminated. The Securities will thereafter be redeemed at the Early Redemption Amount in accordance with Condition 2(b) (Pre-enforcement Order of Priority) or, as applicable, Condition 5 (Post-enforcement Order of Priority) on a date no later than five Business Days following receipt by the Issuer of the proceeds from the Initial Charged Assets.

Where the Replacement Charged Assets are redeemed for a tax event similar to that contained in Condition 5.2 of the terms and conditions of the Initial Charged Assets, the Issuer shall give an Initial Redemption Notice as soon as reasonably practicable and the Swap Agreement will thereupon be terminated. The Securities will thereafter be redeemed at the Early Redemption Amount in accordance with Condition 2(b) (Pre-enforcement Order of Priority) or, as applicable, Condition 5 (Post-enforcement Order of Priority) on a date no later than five Business Days following receipt by the Issuer of the proceeds from the Replacement Charged Assets.

(B) Where the Initial Charged Assets are redeemed for an index event pursuant to Condition 4.6 of the terms and conditions thereof (as set out in the Initial Charged Assets Prospectus), and no Replacement Charged Assets have been issued to the Issuer as described in Condition 4(d)(ii)(B), the Issuer shall give an Initial Redemption Notice as soon as reasonably practicable and the Swap Agreement will thereupon be terminated. The Securities will thereafter be redeemed at the Early Redemption Amount in accordance with Condition 2(b) (Pre-enforcement Order of Priority) or, as applicable, Condition 5 (Post-enforcement Order of Priority) on a date no later than five Business Days following receipt by the Issuer of the proceeds from the Initial Charged Assets.

Where the Replacement Charged Assets are redeemed for an index event similar to that contained in Condition 4.6 of the terms and conditions of the Initial Charged Assets, the Issuer shall give an Initial Redemption Notice as soon as reasonably practicable and the Swap Agreement will thereupon be terminated. The Securities will thereafter be redeemed at the Early Redemption Amount in accordance with Condition 2(b) (Pre-enforcement Order of Priority) or, as applicable, Condition 5 (Post-enforcement Order of Priority) on a date no later than five Business Days following receipt by the Issuer of the proceeds from the Replacement Charged Assets.

(c) Financial Guarantor Optional Redemption

(i) The Issuer shall, on the receipt of a Financial Guarantor Redemption Option Notice (subject always to satisfying the requirements of sub-paragraph (ii) below), as soon as

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reasonably practicable thereafter and in any event within five Business Days of receipt of such Financial Guarantor Redemption Option Notice, give a notice of intended redemption to the Securityholders (the Notice of Intended Redemption) specifying the date of such redemption (which date shall be five Business Days following the date of the Financial Guarantor Redemption Option Notice) (the Optional Redemption Date ) and the amount of the Securities to be redeemed on such Optional Redemption Date and shall redeem the Securities (in whole or in part) in accordance with such Notice of Intended Redemption on the Optional Redemption Date at the Early Redemption Amount.

(ii) The Issuer shall not give the Notice of Intended Redemption referred to above unless the Financial Guarantor has given a Financial Guarantor Redemption Option Notice at any time following a Charged Assets Default or a NGET Restructuring Put Event and any amounts held by or on behalf of the Issuer in respect of amounts received or recovered by the Issuer in respect of the Charged Assets or otherwise available to the Issuer, are, or on such Optional Redemption Date will be, together with (if applicable) any Accelerated Payment (as defined in the NGET Financial Guarantee and Indemnity and/or, as the case may be, the Securities Financial Guarantee) which the Financial Guarantor has elected at its sole option to make on such Optional Redemption Date, sufficient to meet the payments in accordance with paragraphs (i) to (v) (inclusive) of Condition 2(b) (Pre-enforcement Order of Priority) or, as the case may be, paragraphs (i) to (iv) (inclusive) of Condition 5 (Post-enforcement Order of Priority) on such Optional Redemption Date. Any swap termination amount due to the Counterparty shall be calculated on the basis that the Early Termination Date thereunder is a date determined by the Counterparty in consultation with the Financial Guarantor on or before the Notice of Intended Redemption (and on which date the Counterparty shall terminate the Swap Agreement (or, as the case may be, the relevant proportion thereof)) in the event that the Notice of Intended Redemption were to be given.

The Trustee shall be entitled to rely without further investigation upon a confirmation, signed by the Calculation Agent, to the effect specified above.

(d) Cancellation All Securities which are redeemed early and any Securities purchased and cancelled by the Issuer pursuant to these Conditions shall be cancelled and may not be reissued or resold.

9. PURCHASE (a) The Issuer may, if directed to do so by the Financial Guarantor, purchase Securities (or any of

them) at any time in the open market or otherwise at any price using the proceeds of sale or redemption of the Initial Charged Assets , any Replacement Charged Assets and/or any Eligible Assets as provided for in sub-paragraph (b) below or amounts otherwise available to the Issuer. The Issuer shall not purchase any Security in definitive form unless it purchases all unmatured Coupons (if any) in respect of such Security. Such Securities shall be surrendered to the Principal Paying Agent for cancellation.

(b) On any such purchase in respect of which the Securities so purchased are cancelled, the Swap Agreement (or a proportionate part thereof which corresponds to the Securities to be purchased) will be terminated and notice of such cancellation shall be provided to the Irish Stock Exchange. The Trust Instrument provides that in such event the Security over the Charged Assets (or a proportionate part thereof) will be released against receipt by the Trustee of the net proceeds of the realisation of such Charged Assets and such proceeds will be applied in accordance with Condition 2(b) (Pre-enforcement Order of Priority) or, as applicable, Condition 5 (Post-enforcement Order o f Priority).

(c) No interest will be payable with respect to a Security purchased in respect of the period from the Issue Date or the previous Interest Payment Date, as the case may be, to the date of such purchase.

10. PAYMENTS (a) Payments of principal in respect of the Securities or a Global Security will be made at the

specified office of any of the Paying Agents against surrender (or, in the case of partial payment, endorsement) of the Securities or the Global Securities, as the case may be. Payments of interest

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in respect of the Securities or a Global Security due on an Interest Payment Date will be made at the specified office of any of the Paying Agents outside the United States (which expression, as used herein, means the United States of America (including the States thereof, the District of Columbia and the territories, possessions and other areas subject to the jurisdiction of the United States of America)), against surrender (or, in the case of partial payment, endorsement) of the relevant Coupons or, as applicable, against endorsement of the relevant Global Security.

Such payments shall be made in accordance with sub-paragraph (e) below.

The Paying Agent to which a Global Security shall have been presented for payment shall endorse on such Global Security a record of each payment made, distinguishing between any payment of principal and any payment of interest. Such record shall be prima facie evidence that the payment in question has been made.

As long as the Securities are represented by a Global Security, each of the persons shown in the records of the Clearing Systems as the holder of a Security must look solely to the Clearing Systems for his share of each payment so made by the Issuer to the bearer of the relevant Global Security, subject to and in accordance with the respective rules and procedures of the Clearing Systems.

Such persons shall have no claim directly against the Issuer in respect of payments due on the Securities for so long as the relevant Global Security is outstanding. The Issuer will be discharged by payment to the bearer of the relevant Global Security in respect of each amount so paid.

Notwithstanding the foregoing, payments on a Temporary Global Security due prior to the Exchange Date will only be made upon certification as to non-U.S. beneficial ownership as required by U.S. Treasury regulations. No payments due after the Exchange Date will be made on a Temporary Global Security.

(b) Each Security in definitive form should be presented for payment together with, if applicable, all unmatured related Coupons. All (if any) unmatured Talons and all unmatured Coupons appertaining to a Security (whether or not attached to the relative Security) shall become void upon the date on which such Security in definitive form becomes due and repayable and no payment or exchange shall be made in respect thereof.

(c) After all the Coupons attached to or issued in respect of a Security in definitive form have matured, further Coupons and, where applicable, one further Talon will (subject to Condition 14 (Prescription)) be issued against surrender of the relevant Talon at the specified office of any Paying Agent.

(d) If the due date for payment of any amount of principal or interest in respect of any Security is not a Payment Day, the holder of such Security shall not be entitled to payment until the next following Payment Day and shall not be entitled to any further interest or other payment in respect of any such delay. If a Security is presented for payment at a time when, as a result of differences in time zones, it is not practicable to transfer the relevant amount to an account for value on the date of presentation, the Issuer shall not be obliged so to do but shall be obliged to transfer the relevant amount to such account for value on the first practicable date after the date of presentation.

(e) Subject as provided in this Condition 10 (Payments), payments will be made by credit or transfer to a Sterling account maintained by the payee with, or, at the option of the payee, by a cheque in Sterling drawn on, a bank in London.

Payments will be subject in all cases to any fiscal or other laws and regulations applicable to such payments in the place of payment.

(f) Any reference in the Conditions to principal in respect of the Securities shall be deemed to include, as applicable:

(i) the Outstanding Principal Amount of the Specified Denomination of each Security; and

(ii) any other amounts (other than interest) which may be payable by the Issuer under or in respect of the Securities.

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11. ISSUER EVENTS OF DEFAULT Upon the occurrence of an Issuer Event of Default, the Trustee shall if directed to do so by the Instructing Creditor (subject to being indemnified to its satisfaction) give notice to the Issuer that the Securities are, and they shall accordingly immediately become, due and repayable at the Early Redemption Amount. The Security Interests shall become enforceable, if not already enforced and proceeds of realisation of the Mortgaged Property shall be applied as specified in Condition 5 (Post-enforcement Order of Priority).

12. ENFORCEMENT Upon the occurrence of an Issuer Event of Default and irrespective of whether or not the Securities have been accelerated or upon payment being made by the Financial Guarantor under the NGET Financial Guarantee and Indemnity and/or the Securities Financial Guarantee, the Trustee shall if directed to do so by the Instructing Creditor (subject to being indemn ified to its satisfaction), institute such action or proceedings as it may think fit or as it may be so requested whether to enforce the security over the Mortgaged Property (including without limitation as provided in Condition 4(c) (Realisation of Charged Assets), to enforce the provisions of the Trust Instrument or to enforce payment by the Issuer of the amounts due to the Secured Parties.

No Secured Party shall be entitled to proceed against the Issuer unless the Trustee, having become bound so to proceed, fails so to do within a reasonable time and such failure is continuing. After realising the security which has become enforceable and distributing the net proceeds in accordance with Condition 5 (Post-enforcement Order of Priority), the obligations of the Issuer with respect to the Trustee and the Secured Parties shall be satisfied.

Neither the Trustee nor any other Secured Party may take any further steps against the Issuer to recover any further sums in respect thereof, and the right to receive any such sums shall be extinguished. In particular, neither the Trustee nor any other Secured Party shall be entitled in respect thereof to petition or to take any other steps for the winding-up of the Issuer.

The Relevant Sums (as defined in Condition 6(c)(i)) may be insufficient to pay all amounts due to, among others, the Trustee and the other Secured Parties. The other assets (if any) of the Issuer will not be available to make up any shortfall.

13. TAXATION (a) All payments of principal and interest in respect of the Securities and Coupons by the Issuer will

be made without withholding or deduction for or on account of any present or future taxes or duties of whatever nature imposed or levied by or on behalf of any Tax Jurisdiction unless such withholding or deduction is required by law. In such event (an Issuer Tax Event), the Issuer or, as the case may be, the Financial Guarantor shall make such payment on the Securities or, as applicable, of Guaranteed Amounts under the Securities Financial Guarantee after such withholding or deduction has been made and the Issuer shall account to the relevant authorities for the amount so required to be withheld or deducted.

(b) In the event of a Charged Assets Tax Event or an Affected Tax Eligible Asset, if the Initial Charged Assets Issuer, any issuer of Replacement Charged Assets or, as the case may be, the issuer of the Affected Tax Eligible Asset, elects to make payments of interest or principal net of any taxes, duties, assessments or governmental charges, the payments of interest and principal under the Securities will be reduced by the relevant Tax Reduction Amount on a pro rata and pari passu basis.

(c) In the event that a withholding or deduction affects the payments made by the Issuer under the Swap Agreement (an Issuer Swap Tax Event), such payments by the Issuer under the Swap Agreement shall be made net of such withholding and the payments by the Counterparty under the Swap Agreement shall be reduced by the relevant Tax Reduction Amount and, correspondingly, the payments of principal and interest by the Issuer under the Securities will be reduced by the relevant Tax Reduction Amount on a pro rata and pari passu basis.

None of the Issuer, the Trustee or the Financial Guarantor will be obliged to make any additional payments to the Securityholders in respect of such withholding or deduction in respect of the Securities (or, as the case may be, the consequential reduction of payments under the Swap Agreement or of the Guaranteed Amounts under the Securities Financial Guarantee).

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14. PRESCRIPTION Claims under the Securities and the Coupons (which for this purpose shall not include Talons) will be prescribed and become void unless the same are presented for payment within a period of 10 years in the case of principal and five years in the case of interest from the Relevant Date relating thereto. Talons may not be exchanged for Coupons which would be void on issue.

For this purpose, the Relevant Date means the date on which the payment in respect of the Security or the Coupon first becomes due and payable by the Issuer. However, if the full amount of the moneys payable on such date has not been received by the Principal Paying Agent or the Trustee on or prior to such date, the Relevant Date means the date on which such moneys shall have been so received and notice to that effect shall have been given to the Securityholders in accordance with Condition 16 (Notices).

15. REPLACEMENT OF SECURITIES If any Security is lost, stolen, mu tilated, defaced or destroyed it may be replaced, subject to applicable laws, regulations and relevant authority rules or regulations, at the specified office of the Principal Paying Agent (or such other place of which notice shall have been given in accordance with Condition 16 (Notices)). Such replacement is subject to payment by the claimant of the expenses incurred in connection therewith and on such terms as to evidence and indemnity as the Issuer, the Trustee and the Financial Guarantor may reasonably require. Mutilated or defaced Securities must be surrendered before replacements will be issued.

16. NOTICES All notices regarding Securities will be valid if published in one leading London daily newspaper or, if this is not possible, in one other English language daily newspaper approved by the Trustee with general circulation in Europe.

All notices regarding Securities represented by a Global Security will be valid if published as described above or (subject to the requirements of the Irish Stock Exchange if and for so long as the Securities are listed on such exchange) if delivered to the Clearing Systems for communication by them to the Securityholders. Any notice delivered to a Clearing System as aforesaid shall be deemed to have been given on the second day after such delivery.

Any notice published in a newspaper as aforesaid shall be deemed to have been given on the date of such publication or, if published more than once, on the date of the first such publication or, if published in two newspapers, on the date of the first such publication in both newspapers. If publication is not practicable in any such newspaper as is mentioned above, notice will be valid if given in such other manner, and shall be deemed to have been given on such date, as the Trustee shall determine.

A copy of every notice will be supplied to the Financial Guarantor at Level 7, 6 Broadgate, London EC2M 2QS or as otherwise notified by the Financial Guarantor.

17. AGENTS The duties of each of the Agents shall be as specified in the Agency Agreement and in these Conditions.

The Issuer reserves the right, subject to the approval of the Trustee, the Financial Guarantor and the Counterparty and to Rating Agency Confirmation, at any time to vary or terminate the appointment of any Agent and to appoint additional or other Agents provided that it will at all times maintain Agents as specified in these Conditions.

18. RESTRICTIONS So long as any of the Securities remains outstanding, the Issuer will not, without the prior written consent of the Trustee and the Financial Guarantor (unless a Financial Guarantor Event of Default has occurred and remains outstanding or unremedied, in which event no consent of the Financial Guarantor is required):

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(a) engage in any activity or do anything whatsoever, except:

(i) issue the Securities, the Existing Securities and any further securities pursuant to Condition 20 (Further Issues) subject to a maximum aggregate principal amount outstanding at any time of GBP1,000,000,000 (or its equivalent in other currencies);

(ii) acquire and own the Charged Assets, the assets used to secure the Existing Securities or any assets used to secure any further securities issued pursuant to Condition 20 (Further Issues) and exercise its rights and perform its obligations in respect thereof;

(iii) enter into and perform its obligations under the Transaction Documents, the transaction documents relating to the Existing Securities and any other transaction documents relating to any further securities issued pursuant to Condition 20 (Further Issues);

(iv) enforce any of its rights under the Transaction Documents, the transaction documents relating to the Existing Securities and any other transaction documents relating to any further securities issued pursuant to Condition 20 (Further Issues);

(v) as permitted by sub-paragraph (b) below; and

(vi) perform any act incidental to or necessary in connection with any of the above;

(b) have any Subsidiaries exc ept with the prior written consent of the Financial Guarantor and Rating Agencies and in any event only Subsidiaries:

(i) which are wholly owned by the Issuer;

(ii) whose share capital is fully paid up by the Issuer;

(iii) whose activities are limited to the same extent as those of the Issuer under the Trust Instrument (including, without limitation, the terms of any securities or other debt instruments issued or loans entered into, by such Subsidiary being required to be on substantially the same terms as those of the Securities); and

(iv) in respect of whose activities the Issuer will have no liability;

(c) subject to sub-paragraph (a) above, dispose of any of its property or other assets or any part thereof or interest therein (otherwise than in accordance with Condition 9 (Purchase));

(d) create or permit within its control to subsist any charge, mortgage, lien or other encumbrance over the Mortgaged Property or any other assets of the Issuer other than the Security Interests or any security interests in respect of the Existing Securities or any further securities issued pursuant to Condition 20 (Further Issues);

(e) have any employees;

(f) declare any dividends or make any distributions of any other kind;

(g) issue any further shares;

(h) take any action which would lead to the dissolution, liquidation or winding up of itself or to the amendment of its constitutional documents; or

(i) perform such other activities as are expressly restricted in the Trust Instrument.

19. MEETINGS OF SECURITYHOLDERS, MODIFICATION, WAIVER AND SUBSTITUTION The Trust Instrument contains provisions for convening meetings of the Securityholders to consider any matter affecting their interests, including the modification by Extraordinary Resolution of these Conditions or the other provisions of the Trust Instrument. The quorum at any such meeting for passing an Extraordinary Resolution will be one or more persons holding or representing in aggregate not less than 662/3 per cent. in aggregate Outstanding Principal Amount of the Securities then outstanding, or at any adjourned such meeting, one or more persons being or representing Securityholders of the relevant Securities whatever the Outstanding Principal Amount of the Securities so held or represented. An Extraordinary Resolution passed at any meeting of Securityholders or in the form of a written resolution (as described in the Trust Instrument) will be binding on all Securityholders, whether or not they are present at the meeting.

Provided that no Financial Guarantor Event of Default shall have occurred:

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(i) the Financial Guarantor shall have the right to give requests or directions to the Trustee and to vote at meetings of the Securityholders as it if were the holder of 100 per cent. of the then aggregate Outstanding Principal Amount of the Securities to the exclusion of any right which the Securityholders would otherwise have to vote or to direct the Trustee (except as provided below). For so long as such provisions apply, for the purposes of determining whether or not a request or direction has been given by a holder of not less than the required percentage in aggregate Outstanding Principal Amount of the Securities or whether any meeting of the Securityholders is quorate and for counting votes cast at any such meeting of the Securityholders, the Financial Guarantor shall be treated as the holder of 100 per cent. of the then aggregate Outstanding Principal Amount of the Securities; and

(ii) in respect of a meeting of the Securityholders, the Financial Guarantor shall not be required to attend such meeting but may instead deliver written instructions to the Trustee as to its vote on each of the items in the relevant notice within 10 Business Days of receipt of notice of such meeting.

Notwithstanding anything to the contrary in this Condition 19 (Meetings of Securityholders, Modification, Waiver and Substitution), in circumstances where the Securityholders have the right to vote on any amendment to the Conditions which would have the effect of:

(a) postponing any date for payment of interest under the Securities;

(b) reducing or cancelling the amount of principal or the rate of interest payable in respect of the Securities;

(c) altering the currency of payment of any of the Securities or, as the case may be, the Coupons relating thereto;

(d) sanctioning any scheme or proposal for the exchange or sale of the Securities for or the conversion of the Securities into or the cancellation of the Securities in consideration of shares, stock, notes, bonds, debentures, debenture stock or other obligations and/or securities of the Issuer or any other company formed or to be formed, or for or into or in consideration of cash, or partly for or into or in consideration of such shares, stock, notes, bonds, debentures, debenture stock and/or other obligations and/or securities as aforesaid and partly for or into or in consideration of cash;

(e) modifying the terms of the Securities Financial Guarantee in a way that, in the opinion of the Trustee, may be materially prejudicial to the interests of the Securityholders;

(f) reducing or releasing the Security Interests;

(g) modifying the priority of payments set out in Condition 2(b) (Pre-enforcement Order of Priority) and/or Condition 5 (Post-enforcement Order of Priority);

(h) altering the quorum or majority required in relation to any matters set out in this paragraph; and/or

(i) removing any Trustee or Trustees for the time being under the Trust Instrument,

the Financial Guarantor shall not have the right to vote or direct the Trustee as if it were the holder of 100 per cent. of the aggregate Outstanding Principal Amount of the Securities. Instead, in such circumstances, an Extraordinary Resolution of Securityholders shall be binding on the Issuer.

The Trustee may agree, without the consent of the Securityholders (subject to Rating Agency Confirmation and as set out below), to any modification of, or to any waiver or authorisation of any breach or proposed breach of, any of these Conditions or any other Transaction Document as set out in the next sentence and as more fully set out in the Trust Instrument. The Trustee may so agree if, in the opinion of the Trustee (a) any such modification, waiver or authorisation is not materially prejudicial to the interests of the Securityholders or (b) any such modification is of a formal, minor or technical nature or to correct a manifest error or an error which is, in the opinion of the Trustee, proven. Notwithstanding any other provisions, no such modifications, waivers or authorisations to or in respect of any Transaction Document shall be effective without the prior written consent (each such consent not to be unreasonably withheld or delayed) of the

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Counterparty and the Financial Guarantor, unless and until a Financial Guarantor Event of Default has occurred and remains outstanding or unremedied.

Subject as provided in the Trust Instrument, the Trustee, if it is satisfied that it would not be materially prejudicial to the interests of the Securityholders, may agree, without the consent of the Securityholders (but subject to Rating Agency Confirmation), to the substitution of any other company in place of the Issuer as principal debtor under the Securities, the Trust Instrument and the other Transaction Documents. No such substitution shall be effective without the prior written consent of the Counterparty and the Financial Guarantor (each such consent not to be unreasonably withheld or delayed).

In connection with any exercise of its trusts, powers, authorities or discretions, the Trustee shall not have regard to the consequences of such exercise for individual Securityholders resulting from their being for any purpose domiciled or resident in, or otherwise connected with, or subject to the jurisdiction of, any particular territory. In connection with any such exercise, no person shall be entitled to claim, whether from the Issuer, any substitute Issuer, the Counterparty, the Trustee, the Financial Guarantor or any other person, any indemnification or payment in respect of any tax consequence of any such exe rcise upon any person.

Any such modification, waiver, authorisation or substitution shall be binding on the Counterparty, the Financial Guarantor and all Securityholders and, unless the Trustee agrees otherwise, any such modification or substitution shall be notified to the Securityholders by the Issuer as soon as practicable thereafter in accordance with Condition 16 (Notices) with a copy to the Financial Guarantor.

In the event that in contemplating the exercise of any of its powers, authorities or discretions under the Trust Instrument the Trustee is of the opinion that there is a conflict between the interests of the Securityholders on the one hand and the interests of any other Secured Party on the other hand, the Trustee, insofar as it exercises any of such powers, authorities or discretions, shall act as directed by the Financial Guarantor, unless and until a Financial Guarantor Event of Default has occurred and remains outstanding or unremedied, and otherwise in the interests of the Instructing Creditor, and any other Secured Parties shall have no claim against the Trustee for so acting.

20. FURTHER ISSUES The Issuer shall be at liberty from time to time, without the consent of the Securityholders (but subject to Rating Agency Confirmation and the prior written consent of the Counterparty and the Financial Guarantor), to create and issue further securities either:

(a) so as to be consolidated and form a single series with the Securities (such further securities, the Further Fungible Securities), provided that no Charged Assets Default (or equivalent event under any Replacement Charged Assets) has occurred and is continuing and that the Issuer provides additional Charged Assets as security for the original issue of Securities and any Further Fungible Securities on a Nominal Basis (which shall be further securities which are consolidated and form a single series with the Initial Charged Assets or, if applicable, the Replacement Charged Assets provided that the Initial Charged Assets have not been redeemed as a result of a NGET Restructuring Put Event (or, if applicable, the Replacement Charged Assets have not been redeemed as a result of an equivalent event) or due to a Charged Assets Default (or equivalent event under any Replacement Charged Assets) or as a result of a tax event or an index event described in the conditions thereof) and enters into an additional or supplemental Swap Agreement and procures an additional or supplemental NGET Financial Guarantee and Indemnity and Securities Financial Guarantee (and references to Securities , Charged Assets , NGET Financial Guarantee and Indemnity , Securities Financial Guarantee and Swap Agreement shall thereafter be deemed to be references to such terms as amended to take into account the further issue); or

(b) to form a separate series from the Securities upon such terms as to security, interest, premium, redemption and otherwise as the Issuer may, in its absolute discretion, at the time of the issue thereof determine, provided that (1) such securities are secured on specified assets of the Issuer which do not form part of the Mortgaged Property or benefit from the Securities Financial Guarantee, (2) recourse in respect of such securities is limited to such secured assets, (3) the enforcement provisions relating to such securities are substantially similar to those contained in these Conditions and (4) the terms of the securities provide for

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the extinguishment of all claims in respect of such indebtedness after application of the proceeds of the assets on which such securities are secured.

Any such securities shall be constituted in accordance with the Trust Instrument.

21. LIABILITIES AND INDEMNIFICATION OF THE TRUSTEE The Trust Instrument contains provisions for the indemnification of the Trustee and for its relief from responsibility, including provisions relieving it from taking proceedings unless indemnified to its satisfaction. The Trustee is entitled to enter into business transactions with the Issuer, the Counterparty, the Financial Guarantor, any obligor in respect of the Charged Assets or any of their subsidiary or associated companies without accounting for any profit resulting therefrom.

The Trustee is exempted from any liability in respect of any loss or theft of the Mortgaged Property, from any obligation to insure the Mortgaged Property and from any claim arising from the fact that the Mortgaged Property is held in a clearing system or in safe custody by a bank or other custodian. The Trust Instrument also provides that the Trustee shall accept without investigation, requisition or objection such right, benefit, title and interest, if any, as the Issuer may have in and to any of the Mortgaged Property and is not bound to make any investigation into the same or into the Mortgaged Property in any respect.

The Trustee shall not be bound or concerned to make any investigation into the creditworthiness of any obligor of the Charged Assets, the validity of any such obligor’s obligations which are the subject of the Mortgaged Property or any of the terms of the Charged Assets (including, without limitation, whether the cashflows from the Charged Assets and the Securities are matched) or to monitor the value of any Charged Assets.

The Trustee shall not be bound or concerned to make any investigation into the creditworthiness of the Financial Guarantor, the validity of its obligations in respect of the NGET Financial Guarantee and Indemnity or any of the terms of the NGET Financial Guarantee and Indemnity (including, without limitation, whether the cashflows relating to the NGET Financial Guarantee and Indemnity and the Swap Agreement are matched) or the validity of its obligations in respect of the Securities Financial Guarantee or any of the terms of the Securities Financial Guarantee (including, without limitation, whether the cashflows relating to the Securities Financial Guarantee and the Securities are matched).

In any circumstances where, in the opinion of the Trustee, the interests of the Securityholders may conflict with the interests of the Financial Guarantor and the Trustee seeks legal advice in respect of such conflict, the Trustee has agreed, pursuant to the Trust Instrument, to obtain such legal advice from a different firm of solicitors than the firm of solicitors (if any) engaged by the Financial Guarantor in respect of such conflict.

22. CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999 No person shall have any right to enforce any term or condition of the Securities, the Trust Instrument or the Transaction Documents under the Contracts (Rights of Third Parties) Act 1999, but this does not affect any right or remedy of any person which exists or is available apart from that Act.

23. GOVERNING LAW The Trust Instrument, the Securities, and the other Transaction Documents are governed by, and will be construed in accordance with, English law.

24. JURISDICTION The Issuer has, in the Trust Instrument, irrevocably agreed for the benefit of the Trustee and the Securityholders that the courts of England are to have jurisdiction to settle any disputes which may arise out of or in connection with the Trust Instrument, the Securities and the other Transaction Documents and that accordingly any suit, action or proceedings arising out of or in connection therewith (together referred to as Proceedings) may be brought in such courts.

The Issuer has, in the Trust Instrument, irrevocably waived any objection which it may have now or hereafter to the laying of the venue of any Proceedings in any such court and any claim that any such Proceedings have been brought in an inconvenient forum. The Issuer has further irrevocably agreed that a judgment in any Proceedings brought in the courts of England shall be

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conclusive and binding upon the Issuer and may be enforced in the courts of any other jurisdiction. Nothing contained in this Condition shall limit any right to take Proceedings against the Issuer in any other court of competent jurisdiction, nor shall the taking of Proceedings in one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction, whether concurrently or not.

The Issuer has appointed HSBC Private Bank (UK) Limited at 78 James Street, London SW1A 1JB as its agent in London for service of process in England in respect of any Proceedings and has undertaken that in the event of such person ceasing so to act it will appoint such other person as the Trustee and the Financial Guarantor may approve.

25. REDENOMINATION The Issuer may, without the consent of the Securityholders and the Couponholders and provided that the Trustee is satisfied that the obligations of the Financial Guarantor under the Securities Financial Guarantee will not be adversely affected, on giving prior notice to the Trustee, the Financial Guarantor, the Counterparty, the Principal Paying Agent, Euroclear and Clearstream, Luxembourg and at least 30 calendar days’ prior notice to the Securityholders in accordance with Condition 16 (Notices), elect that, with effect from the Redenomination Date specified in the notice, the Securities shall be redenominated in euro.

The election will have effect as follows:

(a) the Securities shall be deemed to be redenominated in euro in the denomination of euro 0.01 with a nominal amount for each Security equal to the nominal amount of that Security in Sterling, converted into euro at the Established Rate, provided that, if the Issuer determines, with the agreement of the Principal Paying Agent, the Trustee and the Financial Guarantor, that the then market practice in respect of the redenomination in euro of internationally offered securities is different from the provisions specified above, such provisions shall be deemed to be amended so as to comply with such market practice and the Issuer shall promptly notify the Securityholders, the Irish Stock Exchange and the Paying Agents of such deemed amendments;

(b) save to the extent that an Exchange Notice has been given in accordance with paragraph (d) below, the amount of interest due in respect of the Securities will be calculated by reference to the aggregate nominal amount of Securities presented (or, as the case may be, in respect of which Coupons are presented) for payment by the relevant holder and the amount of such payment shall be rounded down to the nearest euro 0.01;

(c) if definitive Securities are required to be issued after the Redenomination Date, they shall be issued at the expense of the Issuer in the denomination of euro 50,000 and (but only to the extent of any remaining amounts less than euro 50,000 or such smaller denominations as the Principal Paying Agent, the Financial Guarantor and the Trustee may approve) euro 0.01 and such other denominations as the Agent shall determine and notify to the Securityholders;

(d) if issued prior to the Redenomination Date, all unmatured Coupons denominated in Sterling (whether or not attached to the Securities) will become void with effect from the date on which the Issuer gives notice (the Exchange Notice) to the Securityholders, the Trustee and the Financial Guarantor that replacement euro-denominated Securities and Coupons are available for exchange (provided that such securities are so available) and no payments will be made in respect of them. The payment obligations contained in any Securities so issued will also become void on that date although those Securities will continue to constitute valid exchange obligations of the Issuer. New euro-denominated Securities and Coupons will be issued in exchange for Securities and Coupons denominated in Sterling in such manner as the Principal Paying Agent may specify and as shall be notified to the Securityholders in the Exchange Notice. No Exchange Notice may be given less than 15 days prior to any date for payment of principal or interest on the Securities;

(e) after the Redenomination Date, all payments in respect of the Securities and the Coupons, other than payments of interest in respect of periods commencing before the Redenomination Date, will be made solely in euro as though references in the Securities to Sterling were to euro. Payments will be made in euro by credit or transfer to a euro account (or any other account to which euro may be credited or transferred) specified by the payee or, at the option of the payee, by a euro cheque;

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(f) if interest for any period ending on or after the Redenomination Date is required to be calculated for a period ending other than on an Interest Payment Date, it will be calculated by applying the Fixed Rate of Interest to each Specified Denomination, multiplying such sum by the Day Count Fraction, and rounding the resultant figure to the nearest cent, half of any cent being rounded upwards or otherwise in accordance with applicable market convention; and

(g) such other changes shall be made to this Condition 25 as the Issuer may decide, after consultation with the Principal Paying Agent, the Financial Guarantor and the Trustee, and as may be specified in the notice, to conform it to conventions then applicable to instruments denominated in euro.

26. DEFINITIONS 1940 Act means the United States Investment Company Act of 1940, as amended.

2000 ISDA Definitions means the 2000 ISDA Definitions as published by the International Swaps and Derivatives Association, Inc. and as amended and updated as at the Issue Date.

Account Bank means HSBC Bank plc or any successor account bank pursuant to the Agency Agreement.

Affected Tax Eligible Asset means an Eligible Asset (including, for the avoidance of doubt, a Replacement Charged Asset) where the issuer is domiciled in the United Kingdom.

Affiliate has the meaning given to such term in the Swap Agreement.

Agency Agreement means the agency agreement entered into by, among others, the Issuer, the Trustee and the Agents to be dated on or about 3rd April, 2006.

Agents means the Principal Paying Agent, Irish Paying Agent, Calculation Agent, Custodian, Account Bank and Selling Agent.

Appointee means any attorney, manager, agent, delegate, receiver or other person appointed by the Trustee or by another Appointee under the Trust Instrument.

Benchmark Gilts means, from time to time, gilts that are not listed as “rump gilts” in the list of gilts in issue published by the United Kingdom Debt Management Office.

Business Day means a day which is a day (other than a Saturday or Sunday) on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealing in foreign exchange and foreign currency deposits) in London.

Calculation Agent means HSBC Bank plc or any successor calculation agent pursuant to the Agency Agreement.

Cash Account means the account of the Issuer maintained with the Account Bank with Account Number 59950340 or any replacement account.

Charged Assets means, from time to time, the Initial Charged Assets, any Replacement Charged Assets and any other Eligible Assets purchased or otherwise acquired by the Issuer, as directed by the Financial Guarantor.

Charged Assets Default means, in respect of the Initial Charged Assets, an “Event of Default” as defined in the terms and conditions of the Initial Charged Assets.

Clearing Systems means, Euroclear, Clearstream, Luxembourg, and any additional clearing system as is approved by the Trustee and the Financial Guarantor.

Clearstream, Luxembourg means Clearstream Banking, société anonyme .

Counterparty means HSBC Bank plc or any successor counterparty pursuant to the Swap Agreement.

Custodian means HSBC Bank plc or any successor custodian pursuant to the Agency Agreement.

Day Count Fraction means Act/365 (as defined in the 2000 ISDA Definitions).

Dealer means HSBC Bank plc.

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Distribution Compliance Period means the period commencing on the later of the first date the Securities are offered to the public or the settlement date for the Securities, and ending on the day that is 40 calendar days thereafter.

Early Redemption Amount means, in respect of a Security, the Outstanding Principal Amount of such Security and interest accrued thereon to (but excluding) the date of redemption.

Eligible Assets means investments which fall under the following categories:

(A) (i) in the form of demand or time deposits; or

(ii) obligations issued or guaranteed by the United Kingdom or any Sovereign Agency (as defined in sub-paragraph (B)(i)(b) below) thereof (UK Government Securities); or

(iii) certificates of deposit or commercial paper in respect of which the issuer thereof has a short-term debt credit rating of at least two of the following three ratings: A-1 from S&P, P-1 from Moody and F1 from Fitch; or

(iv) other obligations in respect of which the issuer thereof has a short-term debt credit rating of at least two of the following three ratings: A-1 from S&P, P-1 from Moody’s and F1 from Fitch;

(v) Instruments (as defined in the terms and conditions set out in the Initial Charged Assets Prospectus) and/or Replacement Charged Assets and/or any other bonds of the Initial Charged Assets Issuer other than in circumstances where a Charged Assets Default has occurred and is continuing; or

(vi) any investments which the Initial Charged Assets Issuer is permitted to make pursuant to the terms and conditions set out in the Initial Charged Assets Prospectus; or

(vii) any Eligible GIC;

(viii) any Eligible Guarantee; or

(ix) any Securities,

(together, (A)(i) to (A)(ix) are referred to as the List A Eligible Assets);

(B) (i) obligations with at least two of the following three ratings: AAA by S&P, Aaa by Moody’s and AAA by Fitch, issued or guaranteed by:

(a) any state, political subdivision or government (a Sovereign);

(b) any agency, instrumentality, ministry, department or other authority (including, without limiting the foregoing, the central bank) of a Sovereign (each a Sovereign Agency); or

(c) any entity or organisation established by treaty or other arrangement between two or more Sovereigns or the Sovereign Agencies of two or more Sovereigns and includes, without limiting the foregoing, International Monetary Fund, European Central Bank, International Bank for Reconstruction and Development and European Bank for Reconstruction and Development; or

(ii) any Eligible GIC; or

(iii) any Eligible Guarantee,

(together, (B)(i) to (B)(iii) are referred to as the List B Eligible Assets);

(C) (i) any obligation with ratings of no lower than at least two of the following three ratings: A- by S&P, A3 by Moody’s and A- by Fitch; or

(ii) any Eligible GIC; or

(iii) any Eligible Guarantee,

(together, (C)(i) to (C)(iii) are referred to as the List C Eligible Assets ),

(D) (i) any senior secured or senior unsecured obligations of UK utility operating companies, licensed and regulated to operate:

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(a) gas transmission and/or distribution assets in (or between the countries of) the United Kingdom;

(b) electricity transmission and/or distribution assets in (or between the countries of) the United Kingdom; or

(c) assets used in the storage and/or treatment and/or carriage of drinking and/or waste water in England and Wales; or

(ii) any Eligible GIC; or

(iii) any Eligible Guarantee,

(together, (D)(i) to (D)(iii) are referred to as the List D Eligible Assets); and

(E) (i) any guaranteed investment contracts issued by the Financial Guarantor (other than Eligible GICs);

(ii) any obligation that is guaranteed by the Financial Guarantor (other than Eligible Guarantees); or

(iii) any other obligation that may be consented to by the Counterparty,

(together, (E)(i) to (E)(iii) are referred to as the List E Eligible Assets).

Eligible Asset List means any one of the following lists of Eligible Assets, as the context may require: List A Eligible Assets, List B Eligible Assets, List C Eligible Assets, List D Eligible Assets and/or List E Eligible Assets.

Eligible GIC means a guaranteed investment contract provided by the Financial Guarantor or any affiliate of the Financial Guarantor in respect of which (a) the Underlying Assets are themselves Eligible Assets satisfying the relevant Eligible Asset List within which such guaranteed investment contract is to fall, (b) the Underlying Assets have been disclosed to the Issuer and the Counterparty and (c) the custody arrangements and the security and collateral arrangements of the Underlying Assets forming such guaranteed investment contract meet the criteria set out in the Trust Instrument.

Eligible Guarantee means a financial guarantee provided by the Financial Guarantor or any affiliate of the Financial Guarantor in respect of which the Underlying Assets are themselves Eligible Assets satisfying the relevant Eligible Asset List within which such guarantee is to fall.

Established Rate means the rate for the conversion of Sterling (including compliance with rules relating to roundings in accordance with applicable European Community regulations) into euro established by the Council of the European Union pursuant to Article 123 of the Treaty.

Euro means the currency introduced at the start of the third stage of European economic and monetary union pursuant to the Treaty.

Euroclear means Euroclear Bank S.A./N.V., as operator of the Euroclear System.

Exchange Date means the date which is 40 days after the Issue Date.

Exchange Event means that (i) an Issuer Event of Default in respect of the Securities has occurred and is continuing or (ii) Euroclear and Clearstream, Luxembourg have been closed for business, or the Issuer has been notified of such closure of Euroclear and Clearstream, Luxembourg, and no successor clearing system is available.

Existing Securities means the GBP400,000,000 Class A Guaranteed Asset Backed Fixed Rate Notes due 2035 and the GBP2,000,000 Class B Guaranteed Asset Backed Fixed Rate Notes due 2035 issued by the Issuer.

Expenses Fee Letter means the expenses fee letter dated 3rd April, 2006 between, inter alios, the Issuer and HSBC Bank plc.

Extraordinary Resolution has the meaning set out in paragraph 20 of the Third Schedule to the Trust Instrument.

Financial Guarantor Bankruptcy Event has the meaning set out in paragraphs (c) and (d) of the definition of “Financial Guarantor Event of Default”.

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Financial Guarantor Event of Default means, with respect to the Financial Guarantor under the NGET Financial Guarantee and Indemnity and/or the Securities Financial Guarantee:

(a) any relevant Guaranteed Amount or Indemnified Amount which is due for payment by the Financial Guarantor under the NGET Financial Guarantee and Indemnity and/or any relevant Guaranteed Amount which is due for payment by the Financial Guarantor under the Securities Financial Guarantee is not paid by the Financial Guarantor within two Business Days of the date stipulated in the NGET Financial Guarantee and Indemnity and/or the Securities Financial Guarantee;

(b) the Financial Guarantor disclaims, disaffirms, repudiates and/or challenges the validity of any of its obligations under the NGET Financial Guarantee and Indemnity and/or the Securities Financial Guarantee or seeks to do so;

(c) a court of competent jurisdiction enters a final and non-appealable order, judgment or decree for the winding-up, or the appointment of an administrator or receiver (including an administrative receiver or manager) of the Financial Guarantor (or, as the case may be, of a material part of its property or assets); or

(d) the Financial Guarantor:

(i) presents any petition or takes any proceedings for the winding-up or the appointment of an administrator or receiver (including an administrative receiver or manager) of the Financial Guarantor (or, as the case may be, a material part of its property or assets); or

(ii) makes or enters into any general assignment, composition, arrangement (including, without limitation, a voluntary arrangement under Part 1 of the Insolvency Act 1986) or compromise with or for the benefit of any of its creditors; or

(iii) becomes unable to pay its debts within the meaning of Section 123(2) or Section 123(1)(e) of the Insolvency Act 1986 or admits in writing its inability, or fails generally, to pay its debts as they become due.

Financial Guarantor Indemnity Amounts shall mean all amounts payable by the Issuer to the Financial Guarantor pursuant to the Reimbursement and Indemnity Agreement or otherwise in respect of the NGET Financial Guarantee and Indemnity and the Securities Financial Guarantee other than amounts representing the Securities Financial Guarantee Fee and the Financial Guarantor Make-Whole Amount.

Financial Guarantor Make-Whole Amount means the Additional Guarantee Fee as defined in the Securities Financial Guarantee Fee Letter.

Financial Guarantor Redemption Option means at any time following a Charged Assets Default (or an event of default in respect of any Replacement Charged Assets ) or, as the case may be, the exercise of the NGET Restructuring Put Option (or an equivalent put option in respect of any Replacement Charged Assets), the right of the Financial Guarantor to give a Financial Guarantor Redemption Option Notice, subject to the requirements of Condition 8(c)(ii), obliging the Issuer to redeem the Securities in whole or in part on the date occurring five Business Days following the date of such notice.

Financial Guarantor Redemption Option Notice means a notice in writing given by the Financial Guarantor to the Issuer, with a copy to the Trustee, the Counterparty and the Principal Paying Agent, exercising a Financial Guarantor Redemption Option.

Fitch means Fitch Ratings Ltd. or any successor to the rating business thereof.

Fixed Rate of Interest shall mean 4.556 per cent. per annum.

FSMA means the Financial Services and Markets Act 2000.

Further Fungible Securities has the meaning given to it in Condition 20 (Further Issues).

Guaranteed Amounts has the meaning given to such term in each of the NGET Financial Guarantee and Indemnity and/or the Securities Financial Guarantee, as the context so requires.

Indemnified Amounts has the meaning given to such term in the NGET Financial Guarantee and Indemnity.

Initial Charged Assets has the meaning given to it in Condition 4(a) (Initial Charged Assets).

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Initial Charged Assets Prospectus means the Prospectus dated 18 August 2005 as supplemented by the First Supplementary Prospectus dated 26 August 2005 and as further supplemented by the Second Supplementary Prospectus dated 17 November 2005 and as further supplemented by the Third Supplementary Prospectus dated 6 March 2006 for the EUR 6,000,000,000 Euro Medium Term Note Programme of the Initial Charged Assets Issuer, as further supplemented by the final terms dated 3rd April, 2006 setting out the specific terms of the Initial Charged Assets (the Final Terms ).

Initial Redemption Notice means the initial notice given by the Issuer to the Trustee, the Securityholders, the Financial Guarantor and the Selling Agent that the Securities are to be redeemed pursuant to Condition 8(b) (Mandatory Redemption).

Instructing Creditor means the Financial Guarantor, unless and until a Financial Guarantor Event of Default has occurred and remains outstanding or unremedied, in which case the Instructing Creditor shall be the Counterparty unless no amounts are thereafter owing to the Counterparty, in which case, the Instructing Creditor shall be 662/3 per cent. of the holders of an aggregate Outstanding Principal Amount of the Securities.

Interest Payment Date shall mean 3rd April and 3rd October in each year (commencing on 3rd October, 2006) with a final Interest Payment Date on 3rd April, 2036 (each, an Initial Interest Payment Date) provided that if the Issuer is entitled to make a claim under the NGET Financial Guarantee and Indemnity for a Guaranteed Amount or, as the case may be, an Indemnified Amount (each as defined in the NGET Financial Guarantee and Indemnity) in respect of such date or upon a default in payment by the Issuer of any amounts in respect of interest payable pursuant to the terms of the Securities (without taking into account any grace period) or Guaranteed Amounts under the Securities, and the Trustee is entitled to make a claim under the Securities Financial Guarantee, such Interest Payment Date shall be delayed until either (i) (in the case of such non-payment by the Issuer) the Business Day immediately following the day on which the Trustee shall be expected to receive the Guaranteed Amounts (as defined in the Securities Financial Guarantee) from the Financial Guarantor in accordance with the provisions of the Securities Financial Guarantee or, as the case may be, (ii) the Business Day immediately following the day on which the Issuer shall be exp ected to receive the Guaranteed Amounts or, as the case may be, Indemnified Amounts (each as defined in the NGET Financial Guarantee and Indemnity) from the Financial Guarantor in accordance with the provisions of the NGET Financial Guarantee and Indemnity.

Interest Period means the period from (and including) an Initial Interest Payment Date (or the Issue Date) to (but excluding) the next (or first) Initial Interest Payment Date.

Investment Grade Ratings means obligations which have a rating of at least two of the following three ratings: BBB- by S&P, Baa3 by Moody’s and BBB- by Fitch.

Investment Guidelines means investments that meet the following criteria:

(a) either (i) the maturity of any Eligible Asset (other than List A Eligible Assets, but excluding (A) any Instruments (as defined in the Initial Charged Assets Prospectus) and (B) gilts which are not Benchmark Gilts or the Reference Gilt (as defined in the Initial Charged Assets Prospectus)) does not exceed the Scheduled Maturity Date of the Securities by more than one year, or (ii) Counterparty consent with respect to such Eligible Asset is received;

(b) either (i) an Eligible Asset must have a scheduled interest payment date falling due within the immediately following one-year period following such investment or (ii) Counterparty consent with respect to such Eligible Asset is received;

(c) either (i) with the exception of cash in the form of demand or time deposits, UK Government Securities or Replacement Charged Assets or any other bonds of the Initial Charged Assets Issuer issued pursuant to the terms and conditions set out in the Initial Charged Assets Prospectus (other than in the circumstances where a Charged Assets Default has occurred or is continuing), the maximum investment permitted in a single issuer shall not exceed £101,000,000 (indexed on the same basis as provided in Condition 9 of the terms and conditions of the Initial Charged Assets) or (ii) Counterparty consent with respect to such Eligible Asset is received;

(d) either (i) at the time of purchase of an Eligible Asset, such asset must have an Investment Grade Rating and as a result of such purchase, no more than 20 per cent. of the value, as

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determined by the Calculation Agent in consultation with the Financial Guarantor, of Eligible Assets (including the asset being purchased) may be rated (or, in the case of an Eligible GIC or, as the case may be, an Eligible Guarantee, of all the Underlying Assets may be rated) below two of the following three ratings of A- by S&P, A3 by Moody’s and A- by Fitch or (ii) Counterparty consent with respect to such Eligible Asset is received; and

(e) either, if the Eligible Assets are either a guaranteed investment contract or a guarantee, (i) the guarantee investment contract is an Eligible GIC or, as the case may be, the guarantee by the Financial Guarantor is an Eligible Guarantee or (ii) Counterparty consent with respect to such Eligible Asset is received.

Irish Paying Agent means HSBC Institutional Trust Services (Ireland) Limited or any successor paying agent pursuant to the Agency Agreement.

Irish Stock Exchange means the Irish Stock Exchange Limited.

ISDA Master Agreement means the 1992 ISDA Master Agreement (Multicurrency — Cross Border) dated 3rd April, 2006 entered into between the Counterparty and the Issuer.

Issuer Event of Default means any of the following events:

(a) if the Issuer fails to pay or to perform or observe any of its obligations under the Securities, the Swap Agreement, the NGET Financial Guarantee and Indemnity, the Securities Financial Guarantee Fee Letter, the Reimbursement and Indemnity Agreement or the Trust Instrument, the breach of which obligation (other than a payment obligation) the Trustee as directed by the Instructing Creditor shall have certified to be in its opinion materially prejudicial to the interests of the Securityholders, the Counterparty or the Financial Guarantor, as applicable, provided that where, in the opinion of the Trustee as directed by the Instructing Creditor, such failure (other than a payment obligation) is capable of remedy and such failure continues for a period of 30 days (or such longer period as the Trustee may permit) following the service by the Trustee on the Issuer of notice requiring the same to be remedied; or

(b) if any order shall be made by any competent court or any resolution passed or petition made for the liquidation, winding-up, examinership or dissolution of the Issuer (or analogous events) other than for the purposes of amalgamation, merger, consolidation, reorganisation or other similar arrangements on terms previously approved in writing by the Trustee as directed by the Instructing Creditor; or

(c) if (i) proceedings are initiated against the Issuer under any applicable liquidation, insolvency, composition, reorganisation or other similar laws or an application is made or documents filed with a court for the appointment of an administrative or other receiver, manager, examiner, administrator or other similar official (not being an administrative receiver or other receiver or manager appointed by the Trustee pursuant to the Trust Instrument), or an administrative or other receiver, manager, examiner, administrator or other similar official (not being an administrative receiver or other receiver or manager appointed by the Trustee pursuant to the Trust Instrument) is appointed, in relation to the Issuer or, as the case may be, in relation to the whole or any part of the undertaking or assets of any of them or an encumbrancer (not being the Trustee or any receiver or manager appointed by the Trustee) takes possession of the whole or any part of the undertaking or assets of any of them, or a distress, execution, attachment, sequestration or other process is levied, enforced upon, sued out or put in force against the whole or any part of the undertaking or assets of any of them, and (ii) in any such case (other than the appointment of an administrator or an administrative receiver appointed following presentation of a petition for an administration order) unless initiated by the relevant company, is not discharged within l4 days; or

(d) if the Issuer (or its respective directors or shareholders) initiates or consents to judicial proceedings relating to itself under any applicable liquidation, insolvency, court protection, examinership, composition, reorganisation or other similar laws (including the obtaining of a moratorium) or makes a conveyance or assignment for the benefit of, or enters into any composition or other arrangement with, its creditors generally (or any of its creditors) or any meeting is convened to consider a proposal for an arrangement or composition with its creditors generally (or any of its creditors).

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Maturity Date means 3rd April, 2036 (the Scheduled Maturity Date), as deferred in accordance with Condition 8(a) (Final Redemption).

Moody’s means Moody’s Investors Service Limited or any successor to the rating business thereof.

National Grid Group means National Grid plc and each of its subsidiary undertakings.

NGET Financial Guarantee and Indemnity means the financial guarantee and indemnity dated 3rd April, 2006 issued by the Financial Guarantor in favour of the Issuer. NGET Restructuring Put Event means an NGET Restructuring Event to which a Negative Certification is made and in relation to which a Rating Downgrade occurs within the NGET Restructuring Period. In this definition, the terms NGET Restructuring Event , Negative Certification, Rating Downgrade and NGET Restructuring Period shall have the meanings given to such terms in Condition 5.6.1 of the terms and conditions of the Initial Charged Assets (as set out in the Initial Charged Assets Prospectus). NGET Restructuring Put Option means the option of the Issuer (as the holder of the Initial Charged Assets) to put all of the Initial Charged Assets to the Initial Charged Assets Issuer upon the occurrence of a NGET Restructuring Put Event, to be exercised only upon the direction of the Financial Guarantor following consultation with the Counterparty (but with no obligation to follow any recommendation of the Counterparty).

Nominal Basis means, in the case of the issue of Further Fungible Securities, the additional assets required to be provided by the Issuer shall be in a nominal amount which bears the same proportion to the nominal amount of the Further Fungible Securities as the proportion which the nominal amount of such assets forming part of the Mortgaged Property for the existing Securities bears to the nominal amount thereof as at such date.

Outstanding means, in relation to the Securities, all the Securities other than:

(a) those Securities to the extent that they shall have been redeemed in part pursuant to the Conditions;

(b) those Securities which have been redeemed in full pursuant to the Conditions;

(c) those Securities in respect of which the date for redemption in accordance with these Conditions has occurred and the redemption moneys (including all interest (if any) payable thereon) have been duly paid to the Trustee and/or the Principal Paying Agent in the manner provided in the Agency Agreement (and where appropriate notice to that effect has been given to the Securityholders in accordance with Condition 16 (Notices)) and remain available for payment against presentation of the Securities;

(d) those Securities which have been purchased and cancelled in accordance with Condition 9 (Purchase);

(e) those Securities in respect of which claims have become void under Condition 14 (Prescription);

(f) those mutilated or defaced Securities which have been surrendered and cancelled and in respect of which replacements have been issued pursuant to Condition 15 (Replacement of Securities);

(g) (for the purpose only of ascertaining the nominal amount of the Securities outstanding and without prejudice to the status for any other purpose of the Securities) those Securities which are alleged to have been lost, stolen or destroyed and in respect of which replacements have been issued pursuant to Condition 15 (Replacement of Securities); and

(h) the Temporary Global Security to the extent that it shall have been exchanged for Securities in definitive form or the Permanent Global Security and the Permanent Global Security to the extent that it shall have been exchanged for Securities in definitive form in each case pursuant to its provisions; and

PROVIDED THAT for each of the following purposes, namely:

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(i) the right to attend and vote at any meeting of the Securityholders or any of them, an Extraordinary Resolution in writing as envisaged by paragraph 20 of the Third Schedule to the Trust Instrument and any direction or request by the Securityholders;

(ii) the determination of how many and which Securities are for the time being outstanding for the purposes of Conditions 11 (Issuer Events of Default) and 12 (Enforcement) and paragraphs 2, 5, 6 and 9 of the Third Schedule to the Trust Instrument;

(iii) any discretion, power or authority (whether contained in the Trust Instrument or vested by operation of law) which the Trustee is required, expressly or impliedly, to exercise in or by reference to the interests of the Securityholders or any of them; and

(iv) the determination by the Trustee whether any event, circumstance, matter or thing is, in its opinion, materially prejudicial to the interests of the Securityholders or any of them,

those Securities (if any) which are for the time being held by, for the benefit of, or on behalf of, the Issuer, the Counterparty, the Financial Guarantor or any Subsidiary of the Issuer, the Counterparty or the Financial Guarantor shall (unless and until ceasing to be so held) be deemed not to remain outstanding.

Outstanding Principal Amount means in relation to a Security, the principal amount of such Security outstanding from time to time.

Party A Amounts means, on any day, the amounts payable by the Counterparty to the Issuer as Party A Payment Amounts (as defined in the Swap Confirmation), from and including such day, as provided for in the Swap Confirmation.

Party B Amounts means, on any day, the amounts payable by the Issuer to the Counterparty as Party B Payment Amounts (as defined in the Swap Confirmation), from and including such day, as provided for in the Swap Confirmation, as amended by any previous Swap Adjustments.

Party B Initial Amounts means, on any day, the amounts payable by the Issuer to the Counterparty as Party B Payment Amounts, from and including such day, as provided for in the Swap Confirmation as on the Issue Date.

Paying Agents means the Principal Paying Agent and the Irish Paying Agent and any other Paying Agent appointed pursuant to the Agency Agreement.

Payment Day means any day which (subject to Condition 14 (Prescription)) is a day (other than a Saturday or Sunday) on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealing in foreign exchange and foreign currency deposits) in:

(a) the relevant place of presentation; and

(b) London.

Placing Agreement means the placing agreement entered into by, inter alios, the Issuer and the Dealer on or about 3rd April, 2006.

Principal Paying Agent means HSBC Bank plc or any successor principal paying agent pursuant to the Agency Agreement.

Rating Agency means each of Moody’s and S&P.

Rating Agency Confirmation means the notification of the relevant event to the Rating Agency and confirmation from the Rating Agency that there has been no adverse change to the credit rating granted by such Rating Agency in respect of the Securities.

Realisation Amount means the net proceeds of realisation of, or enforcement with respect to, the Security Interests over the Mortgaged Property (following payment of all amounts due to the Trustee and any Appointee or, as the case may be, the Selling Agent, including any costs, expenses and taxes incurred in connection with such realisation or enforcement).

Redenomination Date means any date for payment of interest under the Securities specified by the Issuer in the notice given to the Securityholders and the Couponholders pursuant to Condition 25 (Redenomination) above and which falls on or after the date on which the United Kingdom first participates in the third stage of European economic and monetary union.

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Reimbursement and Indemnity Agreement means the reimbursement and indemnity agreement dated on or about 3rd April, 2006 made between the Issuer and the Financial Guarantor.

Relevant Date has the meaning set out in Condition 14 (Prescription).

Repay, redeem and pay shall each include both the others and cognate expressions shall be construed accordingly.

Replacement Charged Assets means any replacement bonds issued to the Issuer by either the Initial Charged Assets Issuer or a member of the National Grid Group with the agreement of the Issuer, the payment of principal and interest under which are the same or economically equivalent to payments of principal and interest under the Initial Charged Assets (ignoring, for these purposes, any deduction or withholding tax which may be imposed on the Initial Charged Assets) and to which both the Financial Guarantor and the Counterparty have provided their prior written consent.

Rights means, in relation to any agreement or asset, all rights, title and interest of the relevant person, present and future, in, to and under such agreement or asset including, without limitation:

(a) under the Agency Agreement, all of the Issuer’s rights including all its rights in respect of all funds and/or assets held from time to time by any of the Agents for payment in respect of the Securities or otherwise in relation to the Securities; and

(b) in respect of the Charged Assets, all of the Issuer’s rights including all its rights in respect thereof or relating thereto and any sums or assets derived therefrom whether or not against third parties, including, without limitation, the Issuer’s rights against the Custodian to redelivery of equivalent Charged Assets and any proceeds of the sale of the Charged Assets.

Sale Agreement means the sale agreement entered into by the Issuer and the Vendor dated on or about 3rd April, 2006 pursuant to which the Vendor sold the Charged Assets to the Issuer.

S&P means Standard & Poor’s Ratings Services, a Division of the McGraw-Hill Companies, Inc. or any successor to the rating business thereof.

Scheduled Interest has the meaning given to such term in the Securities Financial Guarantee and/or the NGET Financial Guarantee and Indemnity, as the context so requires.

Second Redemption Notice means the second notice given by the Issuer to the Trustee, the Securityholders, the Financial Guarantor and the Selling Agent that the Securities are to be redeemed pursuant to Condition 8(b) (Mandatory Redemption).

Secured Parties has the meaning set out in Condition 3 (Security).

Securities Act means the United States Securities Act of 1933, as amended.

Securities Financial Guarantee means the financial guarantee dated 3rd April, 2006 issued by the Financial Guarantor pursuant to the Reimbursement and Indemnity Agreement in favour of the Trustee for the benefit of the Securityholders.

Securities Financial Guarantee Fee means the guarantee fees payable by the Issuer to the Financial Guarantor in consideration of the issue of the Securities Financial Guarantee as provided in the Securities Financial Guarantee Fee Letter.

Securities Financial Guarantee Fee Letter means the letter (described on its face as “Securities Financial Guarantee Fee Letter”) dated on or about 3rd April, 2006 between the Financial Guarantor and the Issuer.

Selling Agent means HSBC Bank plc or any successor selling agent pursuant to the Agency Agreement.

Specified Denomination means GBP 50,000.

References to Sterling , £, GBP and penny are to the lawful currency of the United Kingdom.

Subsidiary means any company which is for the time being a subsidiary (within the meaning of Section 736 of the Companies Act 1985 of Great Britain) or a subsidiary undertaking (within the meaning of Section 258 and Schedule 10A of the Companies Act 1985 of Great Britain).

Successor means any successor to any one or more persons appointed pursuant to the Transaction Documents and/or such other or further persons appointed as such.

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Swap Adjusted Amounts means, to the extent of a Swap Adjustment, the amounts payable by the Issuer to the Counterparty on any payment date following such Swap Adjustment.

Swap Adjustment means either Swap Adjustment (Index-Linked) and/or Swap Adjustment (Payment Timing), as the case may be.

Swap Adjustment (Index-Linked) means, on any day, as determined by the Counterparty in its sole and absolute discretion, the replacement of the Party B Initial Amounts (whether in whole or in part), as requested by the Issuer, as directed by the Financial Guarantor, with a future cashflow based on a fixed rate and a notional amount agreed between the Counterparty and the Financial Guarantor and on the same payment dates as the Party B Init ial Amounts, and on the basis that the Party A Amounts remain unchanged, such that the value of the Swap Agreement (prior to such replacement) and the value of the Swap Agreement (following such replacement) shall be the same, calculated, on such day and at the same time, by the Counterparty in accordance with Market Quotation and Second Method, with the Issuer as the Affected Party (each such definition as defined in the ISDA Master Agreement).

Swap Adjustment (Payment Timing) means, on any day, as determined by the Counterparty in its sole and absolute discretion, the replacement of the Party B Amounts (whether in whole or in part), as requested by the Issuer, as directed by the Financial Guarantor, with a different future cashflow and payment dates selected by the Financial Guarantor and on the basis that the Party A Amounts remain unchanged, such that the value of the Swap Agreement (prior to such replacement) and the value of the Swap Agreement (following such replacement) shall be the same, calculated, on such day and at the same time, by the Counterparty in accordance with Market Quotation and Second Method, with the Issuer as the Affected Party (each such definition as defined in the ISDA Master Agreement).

Swap Agreement means the ISDA Master Agreement and schedule thereto entered into by the Issuer and the Counterparty dated the Issue Date, together with the Swap Confirmation.

Swap Confirmation means the swap confirmation entered into by the Issuer and the Counterparty, dated the Issue Date.

Tax Jurisdiction means the United Kingdom or any political subdivision or any authority thereof or therein having the power to tax.

Tax Reduction Amount in respect of payments due from either Party A or Party B means:

(a) in the case of a withholding or deduction of tax relating to the Initial Charged Assets or, as the case may be, any Replacement Charged Assets, an amount equal to the amount withheld or deducted from the amounts due under the Initial Charged Assets or, as the case may be, any Replacement Charged Assets ; and

(b) in the case of a withholding or deduction in relation to an Affected Tax Eligible Asset (other than a Replacement Charged Asset), an amount determined by the Calculation Agent, in a commercially reasonable manner, in consultation with the Financial Guarantor, to reflect the withholding or deduction.

Transaction Documents means the Trust Instrument, the Agency Agreement, the Sale Agreement, the Placing Agreement, the Swap Agreement, the NGET Financial Guarantee and Indemnity, the Securities Financial Guarantee, the NGET Financial Guarantee and Indemnity Fee Letter, the Securities Financial Guarantee Fee Letter, the Reimbursement and Indemnity Agreement, the Expenses Fee Letter and all agreements incidental to the issue of the Securities.

Treaty means the Treaty establishing the European Community, as amended.

Trustee means HSBC Trustee (C.I.) Limited or any successor trustee under the Trust Instrument.

Trust Instrument means the trust instrument dated the Issue Date between, among others, the Issuer and the Trustee.

Ultimate Principal has the meaning given to such term in the Securities Financial Guarantee and/or the NGET Financial Guarantee and Indemnity, as the context so requires.

Underlying Assets means the assets and/or obligations in respect of which a guaranteed investment contract is issued by the Financial Guarantor or, as the case may be, in respect of which the Financial Guarantor provides a guarantee.

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U.S. person has the meaning set out in Regulation S under the Securities Act.

Vendor means HSBC Bank plc.

27. INTERPRETATION

(a) Save where the context otherwise requires, references herein to any statutory provision shall be deemed also to refer to any statutory modification or re-enactment thereof or to any statutory instrument, order or regulation made thereunder or under any such re-enactment.

(b) References herein to any, agreement, deed or document shall be deemed also to refer to such agreement, deed or document as amended, supplemented, varied, replaced or novated (in whole or in part) in accordance with the provisions thereof from time to time and to agreements, deeds and documents executed pursuant thereto.

(c) Any Schedule, Appendix or Exhibit annexed to a Transaction Document or Prospectus forms part of such Transaction Document or Prospectus and shall have the same force and effect as if set out in the body of such Transaction Document or Prospectus. Any reference to a Transaction Document or Prospectus shall include any such Schedule, Appendix or Exhibit.

(d) Headings herein are for ease of reference only.

(e) Save where the context otherwise requires, words herein importing the singular number include the plural and vice versa .

(f) Save where the context otherwise requires, references herein to any party to the Transaction Documents shall include references to its successors and permitted assigns, whether in security or otherwise, whomsoever.

(g) Unless the contrary intention appears, a reference to:

(i) "assets" includes properties, revenues and rights of every description;

(ii) an "authorisation" includes an authorisation, consent, approval, resolution, licence, exemption, filing, registration and notarisation;

(iii) a "month" is a reference to a period starting on one day in a calendar month and ending on the numerically corresponding day in the next calendar month, except that, if there is no numerically corresponding day in the month in which that period ends, that period shall end on the last Business Day in that calendar month;

(iv) a "regulation" includes any regulation, rule, official directive, request or guideline (whether or not having the force of law) of any governmental body, agency, department or regulatory, self-regulatory or other authority or organisation; and

(iv) a time of day is a reference to London time.

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USE OF PROCEEDS

The sum of the net proceeds of the offering of the Securities will amount to GBP200,000,000 and will be used by the Issuer on the Issue Date to purchase the Initial Charged Assets.

Method of Payment On the Issue Date, delivery of beneficial interests in the Temporary Bearer Global Security will be made in book-entry form through the facilities of Euroclear or Clearstream, Luxembourg, in each case against payment therefor in immediately available funds.

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DESCRIPTION OF THE ISSUER

General

The Issuer was incorporated on 7th March, 2005 as a public limited liability company under the Irish Companies Acts 1963 to 2005 (with registered No. 398770). The Issuer has been established as a special purpose vehicle for the purposes of issuing asset-backed securities. The registered office of the Issuer is at AIB International Financial Services Limited, 2nd Floor, AIB International Centre, IFSC, Dublin 1, Ireland and its telephone number is +353 1 874 0777. The authorised share capital of the Issuer is A40,000 divided into 40,000 shares of A1 each (the Shares) all of which are issued and fully paid and are directly or indirectly held by AIB Worthytrust Limited (the Share Trustee) under the terms of a declaration of trust (the Declaration of Trust) dated 20th April, 2005 under which the Share Trustee holds the benefit of the shares on trust for charitable purposes. The Share Trustee has no beneficial interest in and derives no benefit from its holding of the shares. The Issuer has no subsidiaries.

The Issuer has no assets at the date hereof other than its paid-up share capital and the assets securing its Existing Securities (as defined below) (the Existing Assets) and has no liabilities at the date hereof (including no loan capital (issued or unissued), no term loans, no other borrowings or indebtedness in the nature of borrowing and no contingent liabilities or guarantees other than the liabilities in respect of the GBP400,000,000 Class A Guaranteed Asset Backed Fixed Rate Notes due 2035 (the Existing Class A Securities) and the Class B Asset Backed Fixed Rate Notes due 2035 (the Existing Class B Securities , and together with the Existing Class A Securities, the Existing Securities)). In addition, the Issuer has not created any mortgages or charges other than in respect of the Existing Securities.

The principal objects of the Issuer are set out in Clause 3 of its Memorandum of Association and permit, among other things, the issuance of securities, the entering into of the transaction documents relating thereto and generally enabling it to carry out the business of the Issuer as set out in the Trust Instrument and described in this Prospectus and as further set out in the trust instrument and Prospectus relating to the Existing Securities.

Business The Trust Instrument contains restrictions on the activities in which the Issuer may engage. Pursuant to these restrictions, the business of the Issuer is limited to acquiring and holding the Charged Assets and other similar assets and issuing securities up to a maximum aggregate nominal amount outstanding at any one time of GBP 1,000,000,000 (or its equivalent in other currencies), entering into swap agreements and performing its obligations and exercising its rights thereunder and entering into other related transactions.

The assets of the Issuer in respect of the Securities will consist, primarily, of the Charged Assets and the benefit of the Swap Agreement and the NGET Financial Guarantee and Indemnity in respect of the Securities and the issued and paid-up capital of the Issuer. The only assets of the Issuer available to meet claims of Securityholders and other secured creditors are the benefits, rights and other assets comprising the security for the Securities. The Existing Securities are secured by the Existing Assets.

The Issuer will be paid a fee for agreeing to issue the Securities. Other than the fees paid to the Issuer, its share capital and any income derived therefrom, there is no intention that the Issuer accumulates surpluses.

The Securities are obligations of the Issuer alone and not of the shareholders of the Issuer, the Financial Guarantor, the Trustee, the Counterparty or any obligor in respect of any Charged Assets. Furthermore, they are not obligations of, or guaranteed in any way by, the Dealer.

Directors The Directors of the Issuer are Thomas Joseph Geary and Jonathan Law.

The business address of Thomas Geary is Olive Lodge, 50 Monkstown Road, Monkstown, Co. Dublin, Ireland the business address of Jonathan Law is 10, St. Albans Road, South Circular Road, Dublin 8, Ireland.

AIB International Financial Services Limited is the administrator of the Issuer. Its duties include the provision of certain administrative and related services to the Issuer including acting as company

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secretary. The appointment of the administrator may be terminated and the administrator may retire upon 90 days written notice subject to the appointment of an alternative administrator.

Financial Statements Since the date of incorporation, no financial statements of the Issuer have been prepared. The Issuer intends to publish audited financial statements on an annual basis for the period ending on 31st December, 2005.

The auditors of the Issuer are KPMG who are chartered accountants qualified to practise in Ireland and members of the Institute of Chartered Accountants in Ireland. Any future published financial statements prepared by the Issuer (which will, in each case, be in respect of the period ending on 31st December) will be available from the registered office of the Issuer.

Capitalisation and Indebtedness Table

The following table sets out the unaudited capitalisation and indebtedness of the Issuer as at the date of this Prospectus as adjusted for the issue of the Securities on the Issue Date: € Shareholders’ Funds: Share Capital (Authorised: €40,000 Issued: 40,000 Ordinary Shares of €1 each) 40,000 Total Capitalisation 40,000

Indebtedness: Class A Guaranteed Asset Backed Fixed Rate Notes due 2035 573,200,000 ] Class B Asset Backed Fixed Rate Notes due 2035 2,866,000 Guaranteed Asset Backed Fixed Rate Notes due 2036 286,600,000 Total Indebtedness 862,666,000

Notes: GBP issues translated as at 31st March, 2006 into EUR at the rate of GBP1 = EUR1.433 Source: Reuters

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DESCRIPTION OF THE INITIAL CHARGED ASSETS AND THE ISSUER OF THE INITIAL CHARGED ASSETS

The information on this page concerning the Initial Charged Assets and the Initial Charged Assets Issuer has been accurately reproduced from the final terms dated 31st March, 2006 and the Prospectus dated 18 August 2005 as supplemented by the First Supplementary Prospectus dated 26 August 2005 as further supplemented by the Second Supplementary Prospectus dated 17 November 2005 and as further supplemented by the Third Supplementary Prospectus dated 6 March, 2006 , for the Initial Charged Assets. So far as the Issuer is aware and is able to ascertain from such information no facts have been omitted which would render the information reproduced on this page misleading.

Nominal Amount: GBP200,000,000

Aggregate Principal Amount issued: GBP200,000,000

Title: GBP200,000,000 1.6449 per cent. RPI–Linked Fixed Rate Instruments due 2036

Issuer: National Grid Electricity Transmission plc

Issue Date: 3rd April, 2006

Form and Denomination: Bearer in denominations of GBP50,000

First Interest Payment Date: 3rd October, 2006

Maturity Date: 3rd April, 2036

Interest Rate Basis: Index Linked Interest

Interest Payment Dates: 3rd April and 3rd October in each year

Governing law: English law

Listing: London Stock Exchange

ISIN: XS0248040544

Common Code: 024804054

Issuer’s Registered Office: 1-3 Strand, London, WC2N 5EH, England

Issuer’s Jurisdiction of Incorporation:

United Kingdom

Nature of Issuer’s Business: Public Utility

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FORM OF NGET FINANCIAL GUARANTEE AND INDEMNITY

Financial Guarantee and Indemnity Number UK00142

Issued By

Ambac Assurance UK Limited

Level 7, 6 Broadgate London EC2M 2QS

Telephone 020 7786 4300 Fax 020 7786 4343

Registered in England Registered Number 3248674

Effective Date of this Financial Guarantee and Indemnity: 3 April 2006

Ambac Assurance UK Limited ("Ambac"), in consideration of the payment of the NGET Financial Guarantee and Indemnity Fee, and subject to the terms of this Financial Guarantee and Indemnity, hereby agrees unconditionally and irrevocably:

(a) on or prior to an Early Redemption, to pay to the Beneficiary that portion of the Guaranteed Amounts which have become Due for Payment but are unpaid by reason of Non-payment; and

(b) following an Early Redemption, to pay to the Beneficiary the Indemnified Amounts,

and, in each case, any Additional Amounts in respect thereof that may be payable hereunder.

Payments

Save in respect of Accelerated Payments (which may be made at the election of Ambac only), Ambac will make payments which are due under this Financial Guarantee and Indemnity to the Beneficiary by 11:00 a.m., London time, on the later of (a) the fourth Business Day following Receipt by Ambac of a duly completed Notice of Demand and Certificate from the Beneficiary and (b) the applicable Scheduled Payment Date or, if that is not a Business Day, on the next succeeding Business Day.

Payments due under this Financial Guarantee and Indemnity will be satisfied by payment in full by Ambac to the Account in the appropriate currency or currencies. Save as otherwise provided herein, payment in full to the Account shall discharge the obligations of Ambac under this Financial Guarantee and Indemnity to the extent of such payment, whether or not such payment is properly applied by or on behalf of the Beneficiary in accordance with Freshwater Condition 2(b) (Pre-enforcement Order of Priority) or, as applicable, Freshwater Condition 5 (Post-enforcement Order of Priority). Save as otherwise provided herein, once payment by Ambac of an amount in respect of any Guaranteed Obligation or, as applicable, Indemn ified Amount (whether on a Scheduled Payment Date or on an Accelerated Payment Date) has been made to the Account, Ambac shall have no further obligations under this Financial Guarantee and Indemnity in respect of such Guaranteed Obligation or, as applicable, Indemnified Amount to the extent of such payment.

Insolvency

In the event the Beneficiary has notice that any payments of Guaranteed Amounts which have become Due for Payment and which have been made to the Beneficiary by or on behalf of NGET have been declared (in whole or in part) a Preference, or (following an Early Redemption) that any payments made by NGET or an Obligor to the Beneficiary and applied by or on behalf of the Beneficiary in accordance with Freshwater Condition 2(b)(v) (Pre-enforcement Order of Priority) or, as applicable, Freshwater Condition 5(iv) (Post-enforcement Order of Priority) have been declared (in whole or in part) a Preference, and (in either case) recovered from the Beneficiary pursuant to any Insolvency Law

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in accordance with a final non-appealable order of a court of competent jurisdiction, the Beneficiary will be entitled under this Financial Guarantee and Indemnity to payment from Ambac upon receipt by Ambac from the Beneficiary of a duly completed Notice of Demand and Certificate to the extent of such recovery (such amounts being referred to herein as "Avoided Payment Amounts"). Amounts payable by Ambac pursuant to this paragraph shall be paid by Ambac to the Beneficiary, by 11:00 a.m., London time, on the fourth Business Day following Receipt by Ambac of said Notice of Demand and Certificate, by payment to the credit of the account specified in such notice.

Claims, Assignment and Subrogation

Payments by Ambac under this Financial Guarantee and Indemnity will only be made upon presentation of an executed Notice of Demand and Certificate. In addition, upon Ambac making any payment in respect of any Guaranteed Obligations or, as the case may be, payment of Indemnified Amounts, including, for the avoidance of doubt, any Accelerated Payments, to the Account hereunder, Ambac shall, to the extent of such payment, be fully and automatically subrogated pursuant to applicable law to all of the rights of the Beneficiary (as beneficial owner of the Affected Guaranteed Obligations, or as applicable, any Eligible Assets held by the Beneficiary from time to time) to payment of any amounts in respect of such Affected Guaranteed Obligations or Eligible Assets held by the Beneficiary from time to time (including, without limitation, any rights and benefits attached to, and any security granted at law or by contract (whether under the Trust Deed or otherwise) in respect of such Affected Guaranteed Obligations or Eligible Assets held by the Beneficiary from time to time) to the extent of such payment.

UK Withholding Tax

All payments by Ambac under this Financial Guarantee and Indemnity shall be made without withholding or deduction for, or on account of, any taxes, duties, assessments or other governmental charges of whatever nature imposed, levied, collected, withheld or assessed by the United Kingdom or any political subdivision or taxing authority therein or thereof unless such withholding or deduction is required by law. If any withholding or deduction is so required by law, Ambac shall account to the appropriate tax authority for the amount to be withheld or deducted and shall pay such amounts ("Additional Amounts") for the account of the Beneficiary in respect of which a withholding or deduction has been made as may be necessary in order that the net amounts received by the Beneficiary after such withholding or deduction shall equal (on or prior to an Early Redemption) the Guaranteed Amounts or any Accelerated Payment in respect thereof (as the case may be) which would have been receivable by the Beneficiary from NGET in respect of the Affected Guaranteed Obligations in the absence of such withholding or deduction, or (following an Early Redemption) the Indemnified Amounts or any Accelerated Payment in respect thereof (as the case may be) which would have been received by the Beneficiary from Ambac hereunder in the absence of such withholding or deduction, provided, however, that no such Additional Amounts shall be payable which will result from any payment by Ambac of Guaranteed Amounts or any Accelerated Payments in respect thereof (as the case may be) or, as applicable, Indemnified Amounts or any Accelerated Payments in respect thereof (as the case may be):

(a) by reason of the Beneficiary having some connection with the United Kingdom other than the mere holding or beneficial ownership of the NGET Securities or, as the case may be, any Eligible Assets where the issuer thereof is domiciled in the United Kingdom;

(b) if the Beneficiary would not be subject to such withholding or deduction if it had made a declaration of non-residence or other similar claim for exemption to the relevant tax authority;

(c) if the Beneficiary has presented the NGET Securities, or as the case may be, any Eligible Assets where the issuer thereof is domiciled in the United Kingdom, for payment more than 30 days after the Relevant Date except to the extent that it would have been entitled to such Additional Amounts if it had presented the NGET Securities or such Eligible Assets (as applicable) for payment on the last day of such period of 30 days; or

(d) where such withholding or deduction is imposed on a payment to the Beneficiary and is required to be made pursuant to (1) European Council Directive 2003/48/EC or any other European Union Directive on the taxation of savings implementing the conclusions of the ECOFIN Council Meeting of 26-27 November 2000 and/or (2) any approval by the European Union Council of Economic and Finance Ministers on 13 December 2001, in connection with

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such Directive and/or (3) any law implementing or complying with, or introduced in order to conform to, such Directive.

Scope of Guarantee

This Financial Guarantee and Indemnity is not cancellable by Ambac for any reason, including the failure of Ambac to receive payment of any NGET Financia l Guarantee and Indemnity Fee due in respect of this Financial Guarantee and Indemnity. The NGET Financial Guarantee and Indemnity Fee is not refundable for any reason. This Financial Guarantee and Indemnity does not guarantee any accelerated payment (whether by way of prepayment of the Guaranteed Obligations or otherwise), other than at the sole option of Ambac as specified below in the paragraph entitled "Accelerated Payments", nor provide protection (on or prior to an Early Redemption) by way of guarantee or otherwise against any risk other than Non-payment of the Guaranteed Obligations or (following an Early Redemption) by way of indemnity or otherwise other than in respect of the Indemnified Amounts, withholding tax risk in relation to Additional Amounts and insolvency claw back risk in relation to Avoided Payment Amounts, in each case as provided herein.

Accelerated Payments

There shall be no accelerated payment of any Guaranteed Amount or, as applicable, Indemnified Amount due under this Financial Guarantee and Indemnity unless Ambac elects to make an Accelerated Payment of all or any part of the Guaranteed Obligations or, as applicable, the Indemnified Amounts at its sole option. If Ambac elects to make an Accelerated Payment, it shall, four (4) Business Days prior to the date on which it shall effect such payment, deliver to the Beneficiary, by fax or letter delivered by registered post or courier, a written notice duly executed by an authorised officer of Ambac, notifying the Beneficiary of the exercise of (1) its option hereunder and (2) the proposed Accelerated Payment Date for such Accelerated Payment. Ambac shall make such Accelerated Payment to the Account on the Accelerated Payment Date. Such notice shall be deemed to have been delivered when (a) in the case of a letter, delivered to the relevant addressee; or (b) in the case of a fax, when transmission of such fax communication has been received in a legible form and receipt has been confirmed, in each case prior to 12:00 noon, London time, on a Business Day.

Waiver of Defences

The obligations of Ambac under this Financial Guarantee and Indemnity shall not be affected:

(a) by any lack of validity or enforceability of or any modification or any amendment to the NGET Securities or the Trust Deed or, as the case may be, any Eligible Assets or any trust instruments in respect thereof; or

(b) the granting of any time, indulgence or concession by any party to NGET or, as the case may be, any Obligor.

Ambac acknowledges that there is no duty of disclosure by the Beneficiary under this Financial Guarantee and Indemnity but nonetheless, to the fullest extent permitted by applicable law, hereby waives for the benefit of the Beneficiary and agrees not to assert any and all rights (whether by counterclaim, rescission, set-off or otherwise), equities and defences (including, without limitation (a) any defence of fraud by any Person (other than the Beneficiary itself) or (b) any defence based on misrepresentation, breach of warranty or non-disclosure of information by any Person), to the extent such rights, equities and defences may be available to Ambac to avoid payment of its obligations under this Financial Guarantee and Indemnity in accordance with the express provisions hereof, but without prejudice to any subsequent recourse Ambac may have to or against any Person.

Actions in relation to the NGET Securities and Eligible Assets

The Beneficiary shall immediately notify Ambac in respect of any waiver, vote, amendment, modification or other similar action solicited pursuant to the Beneficiary's position as the beneficial owner of the NGET Securities or, as the case may be, any Eligible Assets. The Beneficiary shall only take such action in respect of any such waiver, vote, amendment, modification or other similar action in accordance with the instructions of Ambac.

Information

The Beneficiary, who shall not be obliged to review or check the adequacy, accuracy or completeness of any document it submits to Ambac pursuant to this paragraph, shall submit to Ambac all reports received by the Beneficiary from the Trustee or any other person in respect of the NGET Securities or,

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as the case may be, any Eligible Assets. The Beneficiary may submit these reports (1) electronically to jtifft@ambac-uk.com or (2) in writing marked for the attention of General Counsel (or such other electronic contact(s) or mailing address(es) as Ambac may from time to time direct the Beneficiary in writing).

Definitions

For all the purposes of this Financial Guarantee and Indemnity, the following terms shall have the following meanings:

"Accelerated Payment" means any payment of any Guaranteed Amount or, as applicable, Indemnified Amount in advance of the Scheduled Payment Date for such Guaranteed Amount or, as applicable, Indemnified Amount (whether by way of prepayment of any Guaranteed Amount or, as applicable, Indemnified Amount or otherwise) made by Ambac to the Account at Ambac’s sole option and in accordance with this Financial Guarantee and Indemnity, but subject to the giving of a notice by the Beneficiary of intended redemption of the Freshwater Securities pursuant to Condition 8(c)(i) thereof following receipt of a Financial Guarantor Redemption Option Notice.

"Accelerated Payment Date" means any date on which Ambac makes an Accelerated Payment;

"Account" means in respect of any payment made by Ambac on:

(a) a Scheduled Payment Date, the bank account specified in the relevant Notice of Demand and Certificate; and

(b) an Accelerated Payment Date, the bank account notified by the Beneficiary to Ambac in writing at least one Business Day prior to the Accelerated Payment Date;

"Affected Guaranteed Obligations" means, in respect of the Guaranteed Obligations, those Guaranteed Obligations (identified in the relevant duly completed Notice of Demand and Certificate) in respect of which a Non-payment has occurred or will occur, as specified in the relevant Notice of Demand and Certificate;

"Applicable Amount" means, with respect to any Scheduled Payment Date following an Early Redemption, an amount equal to the Party B Payment Amount that is due and payable by the Beneficiary to the Counterparty pursuant to the Swap Agreement on such Scheduled Payment Date and which, for the avoidance of doubt, excludes any sum that is due from the Beneficiary to the Counterparty upon termination (in whole or in part) of the Swap Agreement;

"Available Amounts" means, with respect to any Scheduled Payment Date following an Early Redemption, such proportion of the Charged Assets Proceeds which are available (or which will be available) to the Beneficiary on such Scheduled Payment Date to be applied in accordance with Freshwater Condition 2(b) (Pre-enforcement Order of Priority) or, as applicable, Freshwater Condition 5 (Post-enforcement Order of Priority);

"Beneficiary" means Freshwater Finance Plc;

"Business Day" means any day (other than a Saturday or Sunday) on which banks and other financial institutions are open for business in London;

"Charged Assets Proceeds " means interest, principal and any other amounts received by the Beneficiary in respect of the NGET Securities and the proceeds of any Eligible Assets held by the Beneficiary;

"Counterparty" means HSBC Bank plc or any successor appointed pursuant to the terms of the Swap Agreement;

"Due for Payment" means, in relation to any Guaranteed Amounts, that the Scheduled Payment Date for such amount has been reached. For the avoidance of doubt, "Due for Payment" does not refer to any earlier date upon which payment of any Guaranteed Amounts may become due under the Guaranteed Obligations, by reason of prepayment, acceleration of maturity, mandatory or optional redemption or otherwise;

"Early Redemption" means the first date on which the Beneficiary receives (whether all or any part of) any principal or other sums payable on an accelerated basis by NGET in respect of any redemption of the NGET Securities (including, without limitation, pursuant to NGET Condition 4.6 (Early Redemption for Index Reasons), NGET Condition 5.2 (Redemption for Taxation Reasons), NGET Condition 5.6 (Redemption at the Option of Instrumentholders following a Restructuring Event) or

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NGET Condition 9 (Events of Default) of the Initial NGET Securities or any equivalent provisions of any Replacement NGET Securities) in the circumstances where the Beneficiary does not redeem all of the Securities;

"Eligible Assets" has the meaning given in Freshwater Condition 26 (Definitions);

"Final Terms " means the final terms document dated 31 March 2006 setting out the specific terms of the Initial NGET Securities;

"Financial Guarantor Redemption Option Notice" has the meaning given in Freshwater Condition 26 (Definitions) ;

"Freshwater Conditions" means the terms and conditions of the Freshwater Securities as set out in the Trust Instrument as at the date of this Financial Guarantee and Indemnity, as amended with Ambac's consent (each being a "Freshwater Condition");

"Freshwater Securities" means the GBP200,000,000 Guaranteed Asset Backed Fixed Rate Notes due 2036 (ISIN: XS0248067661 issued by the Beneficiary on the date of this Financial Guarantee and Indemnity;

"Guarantee Excluded Amounts" means, in respect of the Guaranteed Obligations:

(a) any principal or other sums payable on an accelerated basis by NGET in respect of any redemption of the NGET Securities (including, without limitation, pursuant to NGET Condition 4.6 (Redemption for Index Reasons) , NGET Condition 5.2 (Redemption for Taxation Reasons) , NGET Condition 5.6 (Redemption at the Option of Instrumentholders following a Restructuring Event) or NGET Condition 9 (Events of Default) of the Initial NGET Securities or any equivalent provisions of any Replacement NGET Securities);

(b) any default interest on any of the NGET Securities;

(c) any amounts which NGET would be obliged to gross up in respect of any of the NGET Securities; and

(d) any NGET Securities which have been purchased by or belong beneficially to NGET or any other person (other than the Beneficiary).

"Guaranteed Amounts" means, with respect to any Scheduled Payment Date occurring on or prior to an Early Redemption, the sum of (i) Scheduled Interest payable on such Scheduled Payment Date and (ii) Ultimate Principal payable on such Scheduled Payment Date and, for the avoidance of doubt, excludes (a) any Scheduled Interest and Ultimate Principal in respect of which, in either case, Ambac has made an Accelerated Payment on an Accelerated Payment Date falling prior to such Scheduled Payment Date and (b) any Guarantee Excluded Amounts;

"Guaranteed Obligations" means, on or prior to an Early Redemption, the Initial NGET Securities or, if any Replacement NGET Securities are issued to the Beneficiary with Ambac's consent, such Replacement NGET Securities, and shall include, where the context so requires, the coupons and receipts relating to the NGET Securities, but shall in all cases exclude all Guarantee Excluded Amounts;

"Indemnified Amounts" means with respect to any Scheduled Payment Date following an Early Redemption, an amount equal to the Applicable Amount in respect of such Scheduled Payment Date; but which amount shall not exceed an amount equal to the Applicable Amount in respect of such Scheduled Payment Date less any Available Amount in respect of such Scheduled Payment Date and which amount shall be zero in the event of a negative result;

"Initial NGET Securities" means the GBP200,000,000 1.6449% RPI-Linked Fixed Rate Instruments due 2036 (ISIN: XS0248040544) issued by National Grid Electricity Transmission plc;

"Insolvency Law" means any applicable United Kingdom bankruptcy or insolvency law, including the Enterprise Act 2002, the Insolvency Act 2000, the Insolvency Act 1986, the Insolvency Rules 1986, the Insolvency Regulations 1994 or any legislation passed in substitution or replacement thereof or amendment thereof;

"NGET" means National Grid Electricity Transmission plc or, if Replacement NGET Securities are issued with Ambac's consent, any substitute or new issuer thereof;

"NGET Securities" means the Initial NGET Securities or any Replacement NGET Securities;

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"NGET Conditions" means the terms and conditions of the Initial NGET Securities as set out in the Trust Deed as at the date of this Financial Guarantee and Indemnity, as amended by the Final Terms and as further amended with Ambac's consent (each being an "NGET Condition");

"NGET Financial Guarantee and Indemnity Fee" means the guarantee and indemnity fee payable on the date of this Financial Guarantee and Indemnity by the Counterparty to Ambac in consideration of the issue of this Financial Guarantee and Indemnity by Ambac to the Beneficiary, as specified in the NGET Financial Guarantee and Indemnity Fee Letter;

"NGET Financial Guarantee and Indemnity Fee Letter" means the letter (described on its face as "NGET Financial Guarantee and Indemnity Fee Letter") dated on or about the date of this Financial Guarantee and Indemnity between Ambac, the Beneficiary and the Counterparty;

"Non-payment" means, in respect of any Guaranteed Obligations as of any Scheduled Payment Date occurring on or prior to an Early Redemption, the failure of NGET to pay or to have paid all or any part of the Guaranteed Amounts which are Due for Payment on such Scheduled Payment Date (or which would have been due on such Scheduled Payment Date but for such Guaranteed Amounts having become due prior to such Scheduled Payment Date by reason of prepayment, acceleration of maturity, mandatory or optional redemption or otherwise);

"Notice of Demand and Certificate" means a notice of demand and certificate in the form attached hereto, duly executed by the Beneficiary;

"Obligor" means, in respect of any Eligible Asset, the obligor of such Eligible Asset;

"Person" means any person, firm, company or body corporate, corporation, government, state or agency of a state or any association or partnership (whether or not having separate legal personality) or two or more of the foregoing;

"Preference" means (i) a preference pursuant to section 239 of the Insolvency Act 1986 (as amended, varied or supplemented from time to time) (the "Insolvency Act") (ii) an avoidance of any property disposition pursuant to section 127 of the Insolvency Act and (iii) a transaction at an undervalue pursuant to section 238 of the Insolvency Act;

"Receipt" means actual delivery to Ambac at the address specified at the beginning of this Financial Guarantee (or such other address as Ambac may, from time to time, designate in writing to the Beneficiary) prior to 12:00 noon, London time, on a Business Day. Delivery either on a day that is not a Business Day or after 12:00 noon, London time, shall be deemed to be Receipt on the next succeeding Business Day. In all cases, "actual delivery" to Ambac shall require (i) the delivery of the original Notice of Demand and Certificate (together, if applicable, with any attachments thereto) to Ambac at its address (or such other address as Ambac shall, from time to time, designate in writing to the Beneficiary), or (ii) fax transmission of the original Notice of Demand and Certificate (together, if applicable, with any attachments thereto) to Ambac at its fax number (or such other fax number as Ambac shall, from time to time, designate in writing to the Beneficiary). If presentation is made by fax transmission, the sender shall (i) simultaneously, confirm the making of the fax transmission by making a telephone call to Ambac at its telephone number (or such other telephone number as Ambac shall from time to time designate in writing to the Beneficiary) and (ii) as soon as reasonably practicable, deliver the original Notice of Demand and Certificate (together, if applicable, with any applicable documentation) to Ambac at its address;

"Relevant Date" means whichever is the later of (a) the date on which (i) (on or prior to an Early Redemption) any Guaranteed Amount becomes Due for Payment or (ii) (following an Early Redemption) the date on which any Indemnified Amount is payable by Ambac hereunder and (b) if the full amount payable has not been paid by Ambac on or prior to such date, the date on which the full amount payable has been paid by Ambac;

"Replacement NGET Securities" means any replacement bonds or restructured bonds issued on redemption of the Initial NGET Securities with the prior consent of the Financial Guarantor and which the Beneficiary and the Financial Guarantor have agreed will be treated as such for the purposes of this Financia l Guarantee and Indemnity;

"Scheduled Interest" means, in respect of the Guaranteed Obligations on any Scheduled Payment Date, interest payable thereon as specified in NGET Condition 3.1 (Interest on Fixed Rate Instruments) or the equivalent provision of any Replacement NGET Securities, provided that (following a Swap

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Adjustment at the request of the Beneficiary (as directed by Ambac)) the amount of interest for the purposes hereof shall not exceed an amount equal to the Party B Floating Amount (or any amo unt that replaces such amount pursuant to the Swap Adjustment) that is due and payable by the Beneficiary to the Counterparty pursuant to the Swap Agreement on such Scheduled Payment Date and which, for the avoidance of doubt, excludes any sum that is due from the Beneficiary to the Counterparty upon termination (in whole or in part) of the Swap Agreement;

"Scheduled Payment Date" means each Interest Payment Date (as specified in the Final Terms and as referred to in NGET Condition 3.2 (Interest on Floating Rate Instruments and Index Linked Interest Instruments) or the equivalent provision of any Replacement NGET Securities) on which any Scheduled Interest or any Ultimate Principal is due and payable or (following an Early Redemption) on which any Scheduled Interest or any Ultimate Principal would have been due and payable if no such Early Redemption has occurred or or, in either case, (following a Swap Adjustment (Payment Timing) at the request of the Beneficiary (as directed by Ambac)) each date for payment by the Beneficiary under the Swap Agreement;

"Swap" means the transaction between the Beneficiary and the Counterparty evidenced by the Swap Agreement;

"Swap Adjustment" means a Swap Adjustment (Index Linked) and/or a Swap Adjustment (Payment Timing);

"Swap Agreement" means the ISDA Master Agreement and schedule thereto entered into by the Beneficiary and the Counterparty dated 3 April 2006, together with the confirmation entered into by the Beneficiary and the Counterparty dated the same date, as the same may be amended, varied, modified, supplemented, restated or replaced following the exercise of a Swap Adjustment or otherwise with Ambac's consent;

"Swap Adjustment (Index-Linked)" means, on any day, as determined by the Counterparty in its sole and absolute discretion, the replacement of the Party B Payment Amounts (whether in whole or in part), as requested by the Beneficiary, as directed by Ambac, with a future cashflow based on a fixed rate and a notional amount agreed between the Counterparty and Ambac and on the same payment dates as the Party B Payment Amounts, and on the basis that the Party A Payment Amounts remain unchanged, such that the value of the Swap Agreement (prior to such replacement) and the value of the Swap Agreement (following such replacement) shall be the same, calculated, on such day and at the same time, by the Counterparty in accordance with Market Quotation and Second Method, with the Beneficiary as the Affected Party (each such definition as defined in the ISDA Master Agreement);

"Swap Adjustment (Payment Timing)" means, on any day, as determined by the Counterparty in its sole and absolute discretion, the replacement of the Party B Payment Amounts (whether in whole or in part), as requested by the Beneficiary, as directed by Ambac, with a different future cashflow and payment dates selected by Ambac, and on the basis that the Party A Payment Amounts remain unchanged, such that the value of the Swap Agreement (prior to such replacement) and the value of the Swap Agreement (following such replacement) shall be the same, calculated, on such day and at the same time, by the Counterparty in accordance with Market Quotation and Second Method, with the Beneficiary as the Affected Party (each such definition as defined in the ISDA Master Agreement);

"Trust Deed" means the trust deed dated 18 August 2005 between National Grid plc, National Grid Electricity Transmission plc and the Trustee, inter alia, in respect of the issue of the Initial NGET Securities;

"Trustee" means The Law Debenture Trust Corporation p.l.c. or any successor trustee, in each case as appointed pursuant to the terms of the Trust Deed, as trustee, inter alia, for the holders of the Initial NGET Securities;

"Trust Instrument" means the trust instrument dated 3 April 2006 between, inter alios, the Beneficiary and HSBC Trustee (C.I.) Limited in its capacity as trustee for the holders of the Freshwater Securities; and

"Ultimate Principal" means, in respect of the Guaranteed Obligations, principal repayable on the Maturity Date (as specified in the Final Terms in accordance with NGET Condition 5.1 (Final Redemption) or in accordance with the equivalent provision of any Replacement NGET Securities, provided that (following a Swap Adjustment at the request of the Beneficiary (as directed by Ambac)) the amount of principal for the purposes hereof shall not exceed an amount equal to the Party B Final Exchange Amount (or any amount that replaces such amount pursuant to the Swap Adjustment) that is

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due on and payable by the Beneficiary to the Counterparty pursuant to the Swap Agreement on the Party B Final Exchange Date (or any replacement date following a Swap Adjustment (Payment Timing) at the request of the Beneficiary (as directed by Ambac) and which, for the avoidance of doubt, excludes any sum that is due from the Beneficiary to the Counterparty upon termination (in whole or in part) of the Swap Agreement.

Any capitalised terms used in this Financial Guarantee and Indemnity and not defined herein shall have the meaning given to them in the Freshwater Conditions or (in the case of the terms "Party A Payment Amounts", "Party B Final Exchange Amount", "Party B Final Exchange Date", "Party B Floating Amount" and "Party B Payment Amounts") shall have the meanings given in the Swap Agreement.

Miscellaneous

This Financial Guarantee and Indemnity constitutes the entire agreement between Ambac and the Beneficiary in relation to Ambac’s obligation (on or prior to an Early Redemption) to make payments to the Beneficiary in respect of Guaranteed Amounts which become Due for Payment but shall have remained unpaid by reason of Non-payment or (following an Early Redemption) to make payments to the Beneficiary in respect of Indemnified Amounts, and supersedes any previous agreement between Ambac and the Beneficiary in relation thereto and, save for the provision of a Notice of Demand and Certificate as provided for herein, nothing in this Financial Guarantee and Indemnity constitutes a warranty or a condition precedent to this Financial Guarantee and Indemnity.

This Financial Guarantee and Indemnity shall terminate upon the earlier of: (i) the payment by Ambac of an amount equal to the aggregate amount of all Guaranteed Amounts and Indemnified Amounts payable hereunder; and (ii) two years and one day following the last Scheduled Payment Date provided that if NGET (unless there has been a redemption in full of the NGET Securities other than within the previous two years) or any Obligor in respect of any Eligible Assets held by the Beneficiary in respect of which any payments made by the Obligor to the Beneficiary and applied by or on behalf of the Beneficiary in accordance with Freshwater Condition 2(b)(v) (Pre-enforcement Order of Priority) or, as applicable, Freshwater Condition 5(iv) (Post-enforcement Order of Priority) within the previous two years becomes subject to any proceedings pursuant to Insolvency Law (" Insolvency Proceedings") during the period of two years following the last Scheduled Payment Date, then this Financial Guarantee and Indemnity shall terminate on the later of (a) the date of the final non-appealable conclusion or dismissal of the relevant Insolvency Proceedings without continuing jurisdiction by the court in such Insolvency Proceedings and (b) if the Beneficiary is required to return any payment (or portion thereof) in respect of such Guaranteed Obligation or, as applicable, such Eligible Asset that is declared a Preference as a result of such Insolvency Proceedings, the date on which Ambac has made all payments required to be made under the terms of this Financial Guarantee and Indemnity to the Beneficiary in respect of all such Avoided Payment Amounts.

No Person shall have rights under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Financial Guarantee and Indemnity, but this shall not affect any such right any person may have otherwise than by virtue of such Act.

This Financial Guarantee and Indemnity shall be governed by and construed in accordance with the laws of England and Wales. The courts of England and Wales shall have jurisdiction to hear and determine any suits, action or proceedings and to settle any disputes which may arise at or in connection with this Financial Guarantee and Indemnity (Proceedings) and each of Ambac and the Beneficiary irrevocably submits to the jurisdiction of such courts.

The Issuer appoints HSBC Private Bank (UK) Limited at 78 James Street, London SW1A 1JB as its agent for service of process in England in respect of any Proceedings and undertakes that in the event of it ceasing so to act it will appoint such other person as Ambac may approve as its agent for that purpose.

In witness whereof, this Financial Guarantee and Indemnity has been executed as a deed by (1) affixing the common seal of Ambac witnessed by two duly authorised officers on behalf of Ambac and (2) an authorised signatory of the Beneficiary and duly delivered on the date inserted above.

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Executed and delivered as a deed by

AMBAC ASSURANCE UK LIMITED

By: …………………………………… By: ……………………………………

Name: …………………………………… Name: ……………………………………

Title: …………………………………… Title: ……………………………………

Executed and delivered as a deed by

FRESHWATER FINANCE PLC

By:

In the Presence of:

Witness' Signature

Address:

Occupation:

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NOTICE OF DEMAND AND CERTIFICATE

Under

Financial Gu arantee Number UK00142

Issued by

Ambac Assurance UK Limited Level 7,6 Broadgate London EC2M 2QS

Telephone 020 7786 4300 Fax 020 7786 4343

Registered in England Registered Number 3248674

Attention: Managing Director, Ambac Assurance UK Limited

The undersigned, a duly authorised officer of Freshwater Finance Plc (the "Beneficiary"), hereby certifies to Ambac Assurance UK Limited ("Ambac"), with reference to the Financial Guarantee and Indemnity No. UK00142 dated 3 April 2006 (the "NGET Financial Guarantee and Indemnity") issued by Ambac in respect of the obligations of National Grid Electricity Transmission plc ("NGET"), that:

(a) [the Beneficiary has calculated that the deficiency in respect of the Guaranteed Amounts which [are/were] Due for Payment on [insert Scheduled Payment Date] (the "Applicable Scheduled Payment Date") under the GBP200,000,000 1.6449% RPI-Linked Fixed Rate Instruments due 2036 (ISIN: XS0248040544) of NGET (the "Affected Guaranteed Obligations")) [will be/was/is] [insert applicable currency and amount] (the "Shortfall"). [Of such Shortfall, [insert applicable currency and amount] is Scheduled Interest on the Affected Guaranteed Obligations; and [insert applicable currency and amount] is Ultimate Principal on the Affected Guaranteed Obligations];]

OR [the Beneficiary has calculated that the Available Amount on [insert Scheduled Payment Date] (the "Applicable Scheduled Payment Date") [will be/was/is] less than the Applicable Amount on the Applicable Scheduled Payment Date by [insert applicable currency and amount] (the "Shortfall");]

OR [the Beneficiary has been required to repay [insert applicable currency and amount] (the "Avoided Payment Amount") to [NGET/[insert name of Obligor](the "Obligor") under [insert description of Eligible Assets] (the "Eligible Assets")] on [insert date] in connection with a Preference declared or recovered from the Beneficiary pursuant to any Insolvency Law in accordance with a final non-appealable order of a court of competent jurisdiction;]

(b) the Beneficiary is making a claim under the NGET Financial Guarantee and Indemnity for the [Shortfall/Avoided Payment Amount] to be applied to the payment of [the Guaranteed Amounts which are Due for Payment/the Guaranteed Amounts which were paid but found to be a Preference/the Indemnified Amounts which are payable under the NGET Financial Guarantee and Indemnity/the amounts payable by the Obligor under the Eligible Assets that were paid and applied by or on behalf of the Beneficiary in accordance with Freshwater Condition 2(b)(v) (Pre-enforcement Order of Priority) or, as applicable, Freshwater Condition 5(iv) (Post-enforcement Order of Priority) but found to be a Preference];

(c) the Beneficiary agrees that, following payment of funds by Ambac, it shall use reasonable endeavours to procure (a) that such amounts are applied directly to the payment of its obligations which are due for payment in accordance with [Freshwater Condition 2(b) (Pre-enforcement Order of Priority)/Freshwater Condition 5 (Post-enforcement Order of Priority)]; (b) that such funds are not applied for any other purpose; and (c) the maintenance of an accurate record of such payments with respect to each [Guaranteed Obligation/Indemnified Amount] and the corresponding claim on the NGET Financial Guarantee and Indemn ity and the proceeds thereof; and

(d) payment should be made by Ambac in [currency] by credit to an account in the name of Freshwater Finance Plc with [insert name of bank ], of [insert address of bank ], Sort Code [•] Account Number [•].

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[The Beneficiary acknowledges that the Financial Guarantee and Indemnity provides that, effective as of the date on which the Shortfall is credited to such account, Ambac shall, to the extent of such Shortfall and provided that the NGET Securities remain outstanding, be fully and automatically subrogated pursuant to applicable law to all of the rights of the Beneficiary (as beneficial owner of the Affected Guaranteed Obligations) to payment of any amounts in respect of such Affected Guaranteed Obligations (including, without limitation, any rights and benefits attached to, and any security granted at law or by contract (whether under the Trust Deed or otherwise) in respect of the Affected Guaranteed Obligations.]

[The Beneficiary also hereby transfers and assigns to Ambac all right, title and interest in [the Affected Guaranteed Obligations/ the Guaranteed Obligations which have become Due for Payment but are unpaid by reason of Non-payment], as at the date Ambac makes payment into the Account of sums payable pursuant to this Notice of Demand and Certificate.]

Unless the context otherwise requires, capitalised terms used in this Notice of Demand and Certificate and not defined herein shall have the meanings provided in the Financial Guarantee and Indemnity.

No person, other than Amb ac, shall have any right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Notice of Demand and Certificate but this shall not affect any such right any person may have otherwise than by virtue of the Act.

This Notice of De mand and Certificate may be revoked by written notice by the Beneficiary to Ambac at any time prior to the date specified above on which [Guaranteed Amounts are Due for Payment/Indemnified Amounts are payable] to the extent that [moneys are actually received in respect of the Guaranteed Obligations/further moneys are available to the Beneficiary to the Available Amounts] prior to such date from a source other than Ambac.

This Notice of Demand and Certificate shall be governed by and construed in accordance with the laws of England and Wales.

IN WITNESS WHEREOF, the Beneficiary has executed and delivered this Notice of Demand and Certificate on [•] 20[•].

FRESHWATER FINANCE PLC

By (sign):

Name (print):

Title:

Phone Number:

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FORM OF SECURITIES FINANCIAL GUARANTEE

Financial Guarantee Number UK00143

Issued By

Ambac Assurance UK Limited

Level 7, 6 Broadgate London EC2M 2QS

Telephone 020 7786 4300 Fax 020 7786 4343

Registered in England Registered Number 3248674

Effective Date of this Financial Guarantee: 3 April 2006

Ambac Assurance UK Limited ("Ambac"), in consideration of the payment of the Guarantee Fee and subject to the terms of this Financial Guarantee, hereby agrees unconditionally and irrevocably to pay to the Beneficiary for the benefit of the Holders of the Guaranteed Obligations that portion of the Guaranteed Amounts which have become Due for Payment but are unpaid by reason of Non-payment and any Additional Amounts that may be payable hereunder.

Payments

Save in respect of Accelerated Payments (which may be made at the election of Ambac only), Ambac will make payments which are due under this Financial Guarantee to the Beneficiary by 11:00 a.m., London time, on the later of (a) the fourth Business Day following Receipt by Ambac of a duly completed Notice of Demand and Certificate from the Beneficiary and (b) the applicable Scheduled Payment Date or, if that is not a Business Day, on the next succeeding Business Day.

Payments due under this Financial Guarantee will be satisfied by payment in full by Ambac to the Account in the appropriate currency or currencies. Save as otherwise provided herein, payment in full to the Account shall discharge the obligations of Ambac under this Financial Gu arantee to the extent of such payment, whether or not such payment is properly applied by or on behalf of the Beneficiary or any Paying Agent. Save as otherwise provided herein, once payment by Ambac of an amount in respect of any Guaranteed Obligation (whether on a Scheduled Payment Date or on an Accelerated Payment Date) has been made to the Account, Ambac shall have no further obligations under this Financial Guarantee in respect of such Guaranteed Obligation to the extent of such payment.

The obligations of Ambac under this Financial Guarantee shall not be affected by any redenomination of the Guaranteed Obligations into euro pursuant to Condition 25 (Redenomination) save that following such redenomination payments hereunder shall be made in euro.

Insolvency

In the event the Beneficiary has notice that any payments of Guaranteed Amounts which have become Due for Payment and which have been made to the Beneficiary or to any Holders by or on behalf of the Issuer have been declared (in whole or in part) a Preference and recovered from the Beneficiary or such Holders pursuant to any Insolvency Law in accordance with a final non-appealable order of a court of competent jurisdiction, the Beneficiary on behalf of such Holders will be entitled under this Financial Guarantee to payment from Ambac upon receipt by Ambac from the Beneficiary of a duly completed Notice of Demand and Certificate to the extent of such recovery (such amounts being referred to herein as "Avoided Payment Amounts"). Amounts payable by Ambac pursuant to this paragraph shall be paid by Ambac to the Beneficiary, by 11:00 a.m., London time, on the fourth Business Day following Receipt by Ambac of said Notice of Demand and Certificate, by payment to the credit of the account specified in such notice.

Subrogation

Upon Ambac making any payment in respect of any Guaranteed Obligations, including, for the avoidance of doubt, any Accelerated Payments, to the Account hereunder and upon receipt by the Beneficiary of such payment pursuant to this Financial Guarantee, Ambac shall, to the extent of such

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payment, be fully and automatically subrogated pursuant to applicable law to all of the rights of the Holders of the Affected Guaranteed Obligations to payment of the Guaranteed Amounts and/or any Accelerated Payments (as the case may be) (including, without limitation, any rights and benefits attached to, and any security granted at law by contract or under the Trust Instrument or otherwise in respect of, the Affected Guaranteed Obligations) to the extent of such payment.

UK Withholding Tax

All payments by Ambac under this Financial Guarantee shall be made without withholding or deduction for, or on account of, any taxes, duties, assessments or other governmental charges of whatever nature imposed, levied, collected, withheld or assessed by the United Kingdom or any political subdivision or taxing authority therein or thereof unless such withholding or deduction is required by law. If any withholding or deduction is so required by law, Ambac shall account to the appropriate tax authority for the amount to be withheld or deducted and shall pay such amounts ("Additional Amounts") for the account of each Holder in respect of which a withholding or deduction has been made as may be necessary in order that the net amounts received by the relevant Holder after such withholding or deduction shall equal the Guaranteed Amounts or the Accelerated Payment (as the case may be) which would have been received by such Holder from the Issuer in respect of the Affected Guaranteed Obligations in the absence of such withholding or deduction, provided, however, that no such Additional Amounts shall be payable in respect of any Guaranteed Obligations which will result from any payment by Ambac of Guaranteed Amounts or Accelerated Payments (as the case may be):

(a) to or in respect of Holders who are liable or subject to such withholding or deduction by reason of them having some connection with the United Kingdom other than the mere holding or beneficial ownership of the Guaranteed Obligations;

(b) to or in respect of Holders who would not be subject to such withholding or deduction if they had made a declaration of non-residence or other similar claim for exemption to the relevant tax authority;

(c) to or in respect of Holders who have presented such Guaranteed Obligations for payment more than 30 days after the Relevant Date except to the extent that the relevant Holders would have been entitled to such Additional Amounts if they had presented the Guaranteed Obligations for payment on the last day of such period of 30 days; or

(d) where such withholding or deduction is imposed on a payment to an individual Holder and is required to be made pursuant to (1) European Council Directive 2003/48/EC or any other European Union Directive on the taxation of savings implementing the conclusions of the ECOFIN Council Meeting of 26-27 November 2000 and/or (2) any approval by the European Union Council of Economic and Finance Ministers on 13 December 2001, in connection with such Directive and/or (3) any law implementing or complying with, or introduced in order to conform to, such Directive.

Scope of Guarantee

This Financial Guarantee is not cancellable by Ambac for any reason, including the failure of Ambac to receive payment of any Guarantee Fee due in respect of this Financial Guarantee. The Guarantee Fee is not refundable for any reason. This Financial Guarantee does not guarantee any accelerated payment (whether by way of prepayment of the Guaranteed Obligations or otherwise), other than at the sole option of Ambac as specified in the paragraph below entitled "Accelerated Payments", nor provide protection by way of guarantee or otherwise against any risk (including, without limitation, the risk of failure of the Beneficiary or any Paying Agent to make any payment due to Holders of any Guaranteed Amounts) other than Non-payment, withholding tax risk in relation to Additional Amounts and insolvency claw back risk in relation to Avoided Payment Amounts, in each case as provided herein.

Accelerated Payments

There shall be no accelerated payment of any Guaranteed Amount due under this Financial Guarantee unless Ambac elects to make an Accelerated Payment of all or any part of the Guaranteed Obligations at its sole option. If Ambac elects to make an Accelerated Payment, it shall, not later than four (4) Business Days prior to the date on which it shall effect such payment, deliver to the Issuer and the Beneficiary, by fax or letter delivered by registered post or courier, a written notice duly executed by an authorised officer of Ambac, notifying the Issuer and the Beneficiary of the exercise of (1) its option hereunder and (2) the proposed Accelerated Payment Date for such Accelerated Payment. Ambac

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shall, unless otherwise directed by the Beneficiary, make such Accelerated Payment to the Account on the Accelerated Payment Date. Such notice shall be deemed to have been delivered when (a) in the case of a letter, delivered to the relevant addressee; or (b) in the case of a fax, when transmission of such fax communication has been received in a legible form and receipt has been confirmed, in each case prior to 12:00 noon, London time, on a Business Day.

Waiver of Defences

The obligations of Ambac under this Financial Guarantee shall not be affected by any lack of validity or enforceability of or any modification or any amendment to the Guaranteed Obligations or the Trust Instrument or the granting of any time, indulgence or concession by any party to the Issuer.

Ambac acknowledges that there is no duty of disclosure by the Beneficiary under this Financial Guarantee but nonetheless, to the fullest extent permitted by applicable law, hereby waives for the benefit of the Beneficiary and each Holder and agrees not to assert any and all rights (whether by counterclaim, rescission, set-off or otherwise), equities and defences (including, without limitation (a) any defence of fraud by any Person (other than the Beneficiary itself) or (b) any defence based on misrepresentation, breach of warranty or non-disclosure of information by any Person), to the extent such rights, equities and defences may be available to Ambac to avoid payment of its obligations under this Financial Guarantee in accordance with the express provisions hereof, but without prejudice to any subsequent recourse Ambac may have to or against any Person.

Definitions

For all the purposes of this Financial Guarantee, the following terms shall have the following meanings:

"Accelerated Payment" means any payment of any Guaranteed Amount in advance of the Scheduled

Payment Date for such Guaranteed Amount (whether by way of prepayment of any Guaranteed Amount or otherwise) made by Ambac to the Account at Ambac’s sole option and in accordance with this Financial Guarantee, but subject to the Guaranteed Obligations having become due and payable by the Issuer pursuant to the Conditions;

"Accelerated Payment Date" means any date on which Ambac makes an Accelerated Payment;

"Account" means in respect of any payment made by Ambac on: (a) a Scheduled Payment Date, the bank account specified in the relevant Notice of

Demand and Certificate; and

(b) an Accelerated Payment Date, the bank account notified by the Beneficiary to Ambac in writing at least one Business Day prior to the Accelerated Payment Date;

"Affected Guaranteed Obligations" means those Guaranteed Obligations (identified in the relevant duly completed Notice of Demand and Certificate) in respect of which a Non-payment has occurred or will occur, as specified in the relevant Notice of Demand and Certificate;

"Affiliate" means, in relation to any Person, any Holding Company of that Person or a Person of which that Holding Company has direct or indirect control or owns directly or indirectly more than 50 per cent. of the share capital or similar rights of ownership or control of another Person;

"Beneficiary" means the Trustee;

"Business Day" means a day which is a day (other than a Saturday or Sunday) on which commercial banks and foreign exchange markets settle payments and are open for general business (excluding dealing in foreign exchange and foreign currency deposits) in London;

"Conditions" means the terms and conditions of the Securities as set out in the First Schedule of the Trust Instrument as at the date of this Financial Guarantee, or as amended with Ambac’s consent (each being a "Condition");

"Due for Payment" means, in relation to any Guaranteed Amounts, that the Scheduled Payment Date for such amount has been reached (irrespective of the limited recourse nature of the Guaranteed Obligations). For the avoidance of doubt, "Due for Payment" does not refer to any earlier date upon

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which payment of any Guaranteed Amounts may become due under the Guaranteed Obligations, by reason of prepayment, acceleration of maturity, mandatory or optional redemption or otherwise;

"Guarantee Excluded Amounts" means, in respect of the Guaranteed Obligations:

(a) any principal or other sums payable on an accelerated basis by the Issuer in respect of any redemption of the Securities pursuant to Condition 8(b) (Mandatory Redemption), Condition 8(c) (Financial Guarantor Optional Redemption) or Condition 11 (Issuer Events of Default);

(b) any default interest on any of the Guaranteed Obligations due pursuant to Condition 7(c) (Default interest) or otherwise; and

(c) any Securities which have been purchased by or beneficially belong to any member of the Issuer Group during the period in which the relevant member(s) of the Issuer Group, or any Person acting on behalf of the relevant member(s) of the Issuer Group, is Holder of the Securities, but not thereafter;

"Guarantee Fee" means the guarantee fee(s) payable by the Issuer in consideration of the issue of this Financial Guarantee, as specified in the Guarantee Fee Letter;

"Guarantee Fee Letter" means the letter (described on its face as " Securities Financial Guarantee Fee Letter") dated on or about the date of this Financial Guarantee between Ambac and the Issuer;

"Guaranteed Amounts" means, with respect to any Scheduled Payment Date and irrespective of the limited recourse nature of the Guaranteed Obligations), the sum of (i) Scheduled Interest payable on such Scheduled Payment Date and (ii) Ultimate Principal payable on such Scheduled Payment Date. For the avoidance of doubt, "Guaranteed Amounts" excludes (a) any Scheduled Interest and Ultimate Principal in respect of which, in either case, Ambac has made an Accelerated Payment on an Accelerated Payment Date falling prior to such Scheduled Payment Date and (b) any Guarantee Excluded Amounts;

"Guaranteed Obligations" means the Securities, and shall include, where the context so requires, the coupons and receipts relating to the Securities, but shall in all cases exclude all Guarantee Excluded Amounts;

"Holder" means (i) if and to the extent that the Guaranteed Obligations are represented by definitive notes held outside of Euroclear Bank S.A./N.V., as operator of the Euroclear System (" Euroclear") and/or Clearstream Banking, société anonyme (together with Euroclear and any additional or alternative clearing systems nominated by the Issuer and/or the Trustee and approved by Ambac, the "Clearing Systems " and each, a "Clearing System"), the bearers thereof and (ii) if and to the extent the Guaranteed Obligations are represented by a temporary or permanent global note or definitive notes held in a Clearing System, the Persons for the first time being shown in the records of the relevant Clearing System (except for a Clearing System in its capacity as an accountholder of another Clearing System) as being holders of Guaranteed Obligations (each an "Accountholder") in which regard any certificate or other document issued by the relevant Clearing System as to the principal amount of the Guaranteed Obligations standing to the account of any Accountholder shall be conclusive and binding for all purposes hereof;

"Holding Company" means any Person of which the first mentioned Person is a Subsidiary;

"Insolvency Law" means any applicable United Kingdom bankruptcy or insolvency law, including the Enterprise Act 2002, the Insolvency Act 2000, the Insolvency Act 1986, the Insolvency Rules 1986, the Insolvency Regulations 1994 or any legislation passed in substitution or replacement thereof or amendment thereof, or any analogous Irish bankruptcy or insolvency law;

"Issuer" means Freshwater Finance Plc;

"Issuer Group" means the Issuer and any Person that is either an Affiliate, Holding Company or Subsidiary of the Issuer;

"Non-payment" means, as of any Scheduled Payment Date, the failure of the Issuer to pay or to have paid all or any part of the Guaranteed Amounts which are Due for Payment on such Scheduled Payment Date (or which would have been due on such Scheduled Payment Date but for such Guaranteed Amounts having become due prior to such Scheduled Payment Date by reason of prepayment, acceleration of maturity, mandatory or optional redemption or otherwise);

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"Notice of Demand and Certificate" means a notice of demand and certificate in the form attached hereto, duly executed by the Beneficiary;

"Paying Agent" has the meaning given to that term in Condition 26 (Definitions);

"Person" means any person, firm, company or body corporate, corporation, government, state or agency of a state or any association or partnership (whether or not having separate legal personality) or two or more of the foregoing;

"Preference" means (i) a preference pursuant to section 239 of the Insolvency Act 1986 (as amended, varied or supplemented from time to time) (the "Insolvency Act") or analogous Irish bankruptcy or insolvency law (ii) an avoidance of any property disposition pursuant to section 127 of the Insolvency Act or analogous Irish bankruptcy of insolvency law and (iii) a transaction at an undervalue pursuant to section 238 of the Insolvency Act or analogous Irish bankruptcy or insolvency law;

"Receipt" means actual delivery to Ambac at the address specified at the beginning of this Financial Guarantee (or such other address as Ambac may, from time to time, designate in writing to the Beneficiary) prior to 12:00 noon, London time, on a Business Day. Delivery either on a day that is not a Business Day or after 12:00 noon, London time, shall be deemed to be Receipt on the next succeeding Business Day. In all cases, "actual delivery" to Ambac shall require (i) the delivery of the original Notice of Demand and Certificate (together, if applicable, with any attachments thereto) to Ambac at its address (or such other address as Ambac shall, from time to time, designate in writing to the Beneficiary), or (ii) fax transmission of the original Notice of Demand and Certificate (together, if applicable, with any attachments thereto) to Ambac at its fax number (or such other fax number as Ambac shall, from time to time, designate in writing to the Beneficiary). If presentation is made by fax transmission, the sender shall (i) simultaneously, confirm the making of the fax transmission by making a telephone call to Ambac at its telephone number (or such other telephone number as Ambac shall from time to time designate in writing to the Beneficiary) and (ii) as soon as reasonably practicable, deliver the original Notice of Demand and Certificate (together, if applicable, with any applicable documentation) to Ambac at its address;

"Relevant Date" means whichever is the later of (a) the date on which any Guaranteed Amount becomes Due for Payment and (b) if the full amount payable has not been paid by Ambac on or prior to such date, the date on which the full amount payable has been paid by Ambac;

"Scheduled Interest" means, in respect of the Guaranteed Obligations, interest payable thereon as specified in Condition 7 (Interest), but disregarding for this purpose the limited recourse nature of the relevant Guaranteed Obligations;

"Scheduled Payment Date" means each Initial Interest Payment Date (as defined in Condition 26 (Definitions)) on which any Scheduled Interest or any Ultimate Principal is due and payable;

"Securities" means the GBP 200,000,000 Guaranteed Asset Backed Fixed Rate Notes due 2036 (ISIN: XS0248067661) issued by the Issuer on the date of this Financial Guarantee;

"Subsidiary" means, in relation to any Person:

(a) a Person controlled, directly or indirectly, by the first mentioned Person;

(b) a Person where more than half its issued share capital (or equivalent right of ownership) of which is beneficially owned directly or indirectly by the first mentioned Person; or

(c) a Person that is a Subsidiary of another subsidiary of the first mentioned Person, and for these definitions a Person shall be treated as being controlled by the other if that other Person is able to direct its affairs and/or to control the composition of its board of directors or equivalent body;

"Trust Instrument" means the trust deed dated 3 April 2006 between, inter alios, the Issuer, Ambac and the Trustee, inter alia , in respect of the issue of the Securities;

"Trustee" means HSBC Trustee (C.I.) Limited or any successor trustee, in each case as appointed pursuant to the terms of the Trust Instrument, as trustee for the Holders of the Guaranteed Obligations;

"Ultimate Principal" means, in respect of the Guaranteed Obligations, principal repayable on the Scheduled Maturity Date (as defined in Condition 26 (Definitions)) but disregarding for this purpose the limited recourse nature of the relevant Guaranteed Obligations;

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Any capitalised terms used in this Financial Guarantee and not defined herein shall have the meaning given to them in the Conditions.

Miscellaneous

This Financial Guarantee constitutes the entire agreement between Ambac and the Beneficiary in relation to Ambac’s obligation to make payments to the Beneficiary for the benefit of the Holders of the Guaranteed Obligations in respect of Guaranteed Amounts which become Due for Payment but shall have remained unpaid by reason of Non-payment and supersedes any previous agreement between Ambac and the Beneficiary in relation thereto and, save for the provision of a Notice of Demand and Certificate as provided for herein, nothing in this Financial Guarantee constitutes a warranty or a condition precedent to this Financial Guarantee.

This Financial Guarantee shall terminate upon the earlier of: (i) the payment by Ambac of an amount equal to the aggregate amount of all Guaranteed Amounts payable hereunder; and (ii) two years and one day following the last Scheduled Payment Date provided that if the Issuer becomes subject to any proceedings pursuant to Insolvency Law (" Insolvency Proceedings") during the period of two years following the last Scheduled Payment Date, then this Financial Guarantee shall terminate on the later of (a) the date of the final non-appealable conclusion or dismissal of the relevant Insolvency Proceedings without continuing jurisdiction by the court in such Insolvency Proceedings and (b) if the Holder of any Guaranteed Obligation is required to return any payment (or portion thereof) in respect of such Guaranteed Obligation that is declared a Preference as a result of such Insolvency Proceedings, the date on which Ambac has made all payments required to be made under the terms of this Financial Guarantee to the Beneficiary in respect of all such Avoided Payment Amounts.

No Person shall have rights under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Financial Guarantee, but this shall not affect any such right any person may have otherwise than by virtue of such Act.

This Financial Guarantee shall be governed by and construed in accordance with the laws of England and Wales. The courts of England and Wales shall have jurisdiction to hear and determine any suits, action or proceedings and to settle any disputes which may arise at or in connection with this Financial Guarantee and each of Ambac and the Beneficiary irrevocably submits to the jurisdiction of such courts.

In witness whereof, this Financial Guarantee has been executed as a deed by (1) affixing the common seal of Ambac witnessed by two duly authorised officers on behalf of Ambac and (2) two authorised signatories of the Beneficiary and duly delivered on the date inserted above. Executed and delivered as a deed by AMBAC ASSURANCE UK LIMITED By: …………………………………… By: …………………………………… Name : …………………………………… Name: …………………………………… Title: …………………………………… Title: …………………………………… Executed and delivered as a deed by HSBC TRUSTEE (C.I.) LIMITED By: …………………………………… Authorised Signatory: …………………………………… Authorised Signatory: ……………………………………

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NOTICE OF DEMAND AND CERTIFICATE

Under Financial Guarantee Number UK00143

Issued by

Ambac Assurance UK Limited Level 7, 6 Broadgate London EC2M 2QS

Telephone 020 7786 4300 Fax 020 7786 4343

Registered in England Registered Number 3248674

Attention: Managing Director, Ambac Assurance UK Limited The undersigned, a duly authorised officer of HSBC Trustee (C.I.) Limited (the "Beneficiary"), hereby certifies to Ambac Assurance UK Limited ("Ambac"), with reference to the Financial Guarantee No. UK00143 dated 3 April 2006 (the "Financial Guarantee") issued by Ambac in respect of the obligations of Freshwater Finance Plc (the "Issuer"), that: (a) the Beneficiary is the Trustee under the Trust Instrument for the Holders;

(b) [the Beneficiary has calculated that the deficiency in respect of the Guaranteed Amounts which [are/were] Due for Payment on [insert Scheduled Payment Date] under the GBP 200,000,000 Guaranteed Asset Backed Fixed Rate Notes due 2036 (ISIN: XS0248067661) of the Issuer (the "Affected Guaranteed Obligations") [will be/was/is] [insert applicable currency and amount] (the "Shortfall"). Of such Shortfall, [insert applicable currency and amount] is Scheduled Interest on the Affected Guaranteed Obligations; and [insert applicable currency and amount] is Ultimate Principal on the Affected Guaranteed Obligations;]

OR [the Beneficiary or the Holders [has/have been] required to repay [insert applicable currency and amount] (the "Avoided Payment Amount") to the Issuer on [insert date] in connection with a Preference declared or recovered from the Beneficiary or such Holder(s) pursuant to any Insolvency Law in accordance with a final non-appealable order of a court of competent jurisdiction;]] (c) the Beneficiary is making a claim under the Financial Guarantee for the [Shortfall/Avoided

Payment Amount] to be applied to the payment of the Guaranteed Amounts which [are Due for Payment/were paid but found to be a Preference];

(d) the Beneficiary agrees that, following payment of funds by Ambac, it shall use reasonable

endeavours to procure (a) that such amounts are applied directly to the payment of Guaranteed Amounts which [are Due for Payment/were paid but found to be a Preference]; (b) that such funds are not applied for any other purpose; and (c) the maintenance of an accurate record of such payments with respect to each Guaranteed Obligation and the corresponding claim on the Financial Guarantee and the proceeds thereof. For the purposes of (a) and (b) above, it shall be sufficient if the Beneficiary directs Ambac to make payment to the Principal Paying Agent (as defined in the Conditions); and

(e) payment should be made by Ambac in [currency] by credit to an account in the name of [insert

name of Beneficiary or Principal Paying Agent] with [insert name of bank ], of [insert address of bank], Sort Code [•]Account Number [•].

The Beneficiary acknowledges that the Trust Instrument and the Financial Guarantee provide that, effective as of the date on which the Shortfall is credited to such account, Ambac shall, to the extent of such Shortfall, be fully and automatically subrogated, pursuant to applicable law to all of the rights of the Holders of the Affected Guaranteed Obligations to payment of any amounts in respect of such Affected Guaranteed Obligations (including, without limitation, any rights and benefits attached thereto

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and any security granted at law or by contract (whether under the Trust Instrument or otherwise) in respect of the Affected Guaranteed Obligations. Unless the context otherwise requires, capitalised terms used in this Notice of Demand and Certificate and not defined herein shall have the meanings provided in the Financial Guarantee. No person, other than Ambac, shall have any right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Notice of Demand and Certificate but this shall not affect any such right any person may have otherwise than by virtue of the Act. This Notice of Demand and Certificate may be revoked by written notice by the Beneficiary to Ambac at any time prior to the date specified above on which Guaranteed Amounts are Due for Payment to the extent that moneys are actually received in respect of the Guaranteed Obligations prior to such date from a source other than Ambac. This Notice of Demand and Certificate shall be governed by and construed in accordance with the laws of England and Wales. IN WITNESS WHEREOF, the Beneficiary has executed and delivered this Notice of Demand and Certificate on [•] 20[•]. HSBC TRUSTEE (C.I.) LIMITED By (sign): Name (print): Title : Phone Number:

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AMBAC ASSURANCE UK LIMITED

General Ambac Assurance UK Limited (“Ambac”) was incorporated with limited liability in England on 11 September 1996 pursuant to the Companies Act 1985 with registered number 3248674. Ambac became authorised to transact a credit, suretyship and financial loss insurance business in the United Kingdom on 8 February 1997, and remains exclusively involved in those lines of business. Ambac is also licensed to offer those insurance services into a number of other European Union countries on a freedom of services basis, and has a recently opened branch office in Milan, Italy. Ambac is authorised and regulated by the Financial Services Authority (“FSA”) of the United Kingdom. Ambac's registered office is located at Level 7, 6 Broadgate, London EC2M 2QS, United Kingdom (telephone (44) (0)20 7786 4300). Ambac has no subsidiaries. Ambac’s legal and commercial name is Ambac Assurance UK Limited.

Ambac is a direct wholly-owned subsidiary of Ambac Assurance Corporation, (“Ambac Assurance”), a monoline insurance company incorporated under the laws of the State of Wisconsin, U.S.A. Each of Ambac and Ambac Assurance is part of the Ambac Financial Group, Inc. group of companies (see “Ambac Assurance Corporation” below).

Ambac is dependent on Ambac Assurance in that Ambac Assurance supports Ambac through certain contractual arrangements (as described in “Relationship Between Ambac Assurance UK Limited and Ambac Assurance Corporation” below).

Ratings

Ambac has obtained "AAA/Aaa/AAA" financial strength ratings from Standard & Poor’s Ratings Services, a Division of The McGraw-Hill Companies, Inc. ("S&P"), Moody’s Investors Service Limited (" Moody’s"), and Fitch, Inc. Information

Copies of the annual regulatory return filed by Ambac with the FSA and the annual financial statements filed with the Registrar of Companies in the United Kingdom are available upon request to Ambac at its registered office. Copies of the statutory quarterly and annual statements filed by Ambac Assurance in the United States are available at Ambac Financial Group Inc’s website at www.ambac.com or are available upon request to Ambac Assurance at its principal place of business, One State Street Plaza, New York, NY 10004, USA. Recent Developments

Since 31 December 2005, the date as at which its latest audited accounts were prepared, Ambac has continued to conduct its insurance business in the United Kingdom and the other European Union countries into which it is licensed to offer insurance services, as well as initiating business operations through its newly opened branch office in Milan, Italy. There has been no significant change, nor material adverse change, in its financial or trading position or its prospects since 31 December 2005.

There are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which Ambac is aware) during the previous 12 months which may have, or have had in the recent past, significant effects on Ambac’s financial position or profitability.

Directors of Ambac

The following sets forth a list of the members of the board directors of Ambac by name and principal activity:

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Name Function Principal Activities Robert John Genader Executive President and Chief Executive Officer, Ambac

Assurance Corporation and Ambac Financial Group Inc.

Douglas Renfield-Miller Executive Senior Managing Director, Ambac Assurance Corporation, and Chairman and Chief Executive Officer, Ambac Assurance UK Limited (appointed Chairman and Chief Executive Officer 11 April 2005)

John Wyatt Uhlein III Executive Executive Vice President, Ambac Assurance Corporation and Ambac Financial Group, Inc.

Martin Roberts Non-Executive Independent Consultant, Director, Financial Management Assurance Consultants Ltd.

David William Wallis Executive Managing Director, Ambac Assurance Corporation

David Ronald Larwood Executive (Part-time) Financial Controller Ambac Assurance UK Limited Director, Stonebridge International Insurance Co. Ltd.

Ian Marcus Dixon Executive Managing Director, Ambac Assurance UK Limited

The business address of Messrs. Genader, Uhlein and Wallis is One State Street Plaza, New York, NY 10004, U.S.A. The business address of Messrs. Renfield-Miller, Dixon, Roberts, and Larwood is Level 7, 6 Broadgate, London EC2M 2QS, United Kingdom.

As at the date of this prospectus, the above-mentioned board members of Ambac do not have any potential conflicts of interest between any duties to Ambac, and their private interest or other duties.

Insurance Regulation Ambac is authorised and regulated by the FSA in the conduct of its insurance business in the United Kingdom. Under Un ited Kingdom regulations, Ambac is subject to certain limits and requirements, including the maintenance of a minimum margin of solvency and the establishment of loss and unearned premium reserves. Other FSA requirements include regulation of transactions with connected persons and investments made by Ambac. Financial Information

The audited accounts of Ambac for the year ended 31 December 2005 are annexed as an appendix to this prospectus.

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Capitalisation and Indebtedness

The following table sets forth the audited capitalisation and indebtedness of Ambac prepared in accordance with the provisions of Section 225 of, and Schedule 9A to, the Companies Act 1985, and in accordance with applicable accounting standards and under the historical cost accounting rules, modified to include the revaluation of investments, and comply with the Statement of Recommended Practice issued by the Association of British Insurers as at 31 December 2005.

As at

31 December 2005

(£) Short term debt (1) 0 Long term debt (1) 0 Total Issued and Paid up Share Capital (2) 31,000,000 Profit and Loss Account 12,945,000 Total Shareholders' Equity 43,945,000

Notes: (1) On 31 December 2005 Ambac did not have any reserves, loan capital outstanding or created but

unissued, term loans or any other borrowings or indebtedness in the nature of a borrowing, including bank overdrafts and liabilities under acceptances or acceptance credits, mortgages, charges, finance lease commitments, hire purchase obligations or guarantees or contingent liabilities.

(2) As at 31 December 2005 the issued and paid up share capital of Ambac comprised 31,000,000 ordinary shares of £1 each. The authorised share capital of Ambac is £60 million.

There has been no material change in the authorised and issued share capital, capitalisation or indebtedness (including guarantees or contingent liabilities) of Ambac since 31 December 2005 .

Auditors

Ambac's auditors are KPMG Audit Plc, 8 Salisbury Square, London EC4Y 8BB. KPMG Audit Plc are Chartered Accountants regulated by the Institute of Chartered Accountants in England and Wales. Their reports on the audited accounts of Ambac for the years ended 31 December 2004 and 31 December 2005 are included in "Audited Accounts of the Financial Guarantor” below. Ambac’s auditors have not changed during the period covered by such audited accounts.

Material Contracts Save as disclosed in this prospectus (see “Relationship Between Ambac Assurance UK Limited and Ambac Assurance Corporation”), Ambac has not entered into contracts outside the ordinary course of business that could result in Ambac being under an obligation or entitlement that is material to Ambac’s ability to meet its obligations to the beneficiary of its financial guarantee.

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AMBAC ASSURANCE CORPORATION

General

Ambac Assurance Corporation ("Ambac Assurance") is a leading financial guarantee insurance company that is primarily engaged in insuring municipal and structured finance obligations and is the successor of the oldest municipal bond insurance company, which wrote the first municipal bond insurance policy in 1971. Ambac Assurance was incorporated in the State of Wisconsin, U.S.A. with limited liability on 25 February 1970. Ambac Assurance maintains its principal executive offices at One State Street Plaza, New York, NY 10004, U.S.A. Ambac Assurance is a wholly-owned subsidiary of Ambac Financial Group, Inc., a holding company that provides financial guarantee insurance and financial services to both public and private clients around the world.

Financial guarantee insurance written by Ambac Assurance in both the primary and secondary markets guarantees payment when due of the principal of and interest on the obligation insured. In the case of a default on the insured obligation, payments under the insurance policy may not be accelerated by the policyholder without Ambac Assurance's consent. Ambac Assurance primarily insures newly issued obligations and seeks to maintain a diversified insurance portfolio which spreads its risk across a number of criteria, including issue size, type of bond, geographic area and issuer. At 31 December 2005, Ambac Assurance's net par outstanding and net insurance in force were US$ 479.1 billion and US$ 726.6 billion, respectively.

Ambac Assurance has been assigned triple-A financial strength ratings by Moody’s Investors Service, Inc. (Moody’s for the purposes of this section), S&P, Fitch, Inc. and Rating and Investment Information, Inc. These ratings are an essential part of Ambac Assurance’s ability to provide credit enhancement. See Rating Agencies below.

Ambac Assurance has nine wholly-owned subsidiaries, Ambac Assurance UK Limited, a UK licensed insurance company, Ambac Credit Products, LLC, Ambac Capital Services, LLC, Ambac Credit Products Limited, and Ambac Financial Services, LLC, companies that write derivative products, Ambac Private Holdings, LLC, a company that owns and invests in securities, Ambac Japan Co., Ltd., a Japanese services company which markets financial guarantees in Japan, and Connie Lee Holdings, Inc., a holding company for Connie Lee Insurance Company (Connie Lee). Ambac Assurance acquired Connie Lee in December 1997. Connie Lee, a triple-A rated financial guarantee insurance company, which guaranteed bonds issued primarily for college and hospital infrastructure projects, is not expected to write any new business.

Financial guarantee industry overview

Financial guarantee insurance generally guarantees to the holder of the underlying obligation the timely payment of principal of and interest on such obligation in accordance with such obligation’s original payment schedule. Accordingly, in the case of an issuer default on the insured obligation, payments under the insurance policy may not be accelerated by the policyholder without Ambac Assurance’s consent.

Financial guarantee insurance provides a form of credit enhancement that benefits both the issuer and the investor. Issuers benefit because their securities are generally sold with a higher credit rating than securities sold on a stand-alone basis, resulting in interest cost savings and greater marketability. In addition, for complex financings and obligations of issuers that are not well known by investors, insured obligations receive greater market acceptance than uninsured obligations. Investors benefit from greater marketability and a reduction in the risk of loss associated with an issuer’s default.

Structured finance obligations

Insurance on structured finance or asset-backed obligations is typically issued in connection with transactions in which the securities being issued are secured by or payable from a specific pool of assets having an ascertainable cash flow or market value and held by a special purpose issuing entity.

Municipal obligations

Municipal obligations and municipal bonds include taxable and tax-exempt bonds, notes and other evidences of indebtedness issued by states, political subdivisions (cities, counties, towns and villages), water, sewer and other utility districts, higher educational institutions, hospitals, transportation and housing authorities and other similar agencies. Municipal obligations are supported by the taxing

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authority of the issuer or the issuer’s or underlying obligor’s ability to collect fees or assessments for certain projects or public services. References herein to municipal bonds and municipal obligations are to debt obligations of states and other political subdivisions in the United States.

International Finance Obligations

Outside of the United States, structured and asset-backed issuers, utilities, sovereign and sub-sovereign issuers, and other issuers are increasingly using financial guarantee products, particularly in markets throughout Western Europe. A number of important trends in international markets have contributed to this expansion. In the United Kingdom, Australia and elsewhere, ongoing privatisation efforts have shifted the burden of funding from the government to the public and private capital markets, where investors may seek the security of financial guarantee products. In Europe, Australia, Japan and the emerging markets, there is also growing interest in asset-backed securitisations.

Insurance Written

Ambac Assurance sells most of its insurance in the new issue U.S. bond market. During the year ended 31 December 2005, Ambac Assurance insured gross par amount of $ 125.3 billion, of which $ 53.8 billion, or 43% was related to new issue and secondary market policies on municipal bonds. Approximately $ 58.8 billion, or 47% of gross par written during the year ended 31 December 2005 represented domestic (U.S.) structured finance exposure. Approximately $ 12.7 billion, or 10% of gross par written during the year ended 31 December 2005 represented international exposure. During the year ended 31 December 2004, Ambac Assurance insured gross par amount of $ 118.1 billion, of which $ 44.6 billion, or 38%, was related to new issue and secondary market policies on municipal bonds. Approximately $ 53.4 billion, or 45% of gross par written during the year ended 31 December 2004 represented domestic (U.S.) structured finance exposure. Approximately $ 20.1 billion, or 17% of gross par written during the year ended 31 December 2004 represented international exposure (noting that such figure includes amounts reinsured by Ambac Assurance from Ambac).

Rating Agencies

Moody's, S&P, Fitch, Inc., and Rating and Investment Information Inc. periodically review the business and financial condition of Ambac Assurance and other companies providing financial guarantee insurance. Rating agency reviews focus on the insurer's underwriting policies and procedures and the quality of the obligations insured. The rating agencies frequently perform assessments of the credits insured by Ambac Assurance to confirm that Ambac Assurance continues to meet the capital allocation criteria considered necessary by the particular rating agency to maintain Ambac Assurance's triple-A financial strength ratings. A rating by Moody’s, S&P, Fitch, Inc. or Rating and Investment Information, Inc., however, is not a market rating or a recommendation to buy, hold or sell any security. Ambac Assurance's ability to attract new business, or to compete with other triple -A rated financial guarantors, and its results of operations and financial condition, would be materially adversely affected by any reduction in its financial strength ratings.

Reinsurance

U.S. State insurance laws and regulations (as well as the rating agencies) impose minimum capital requirements on financial guarantee insurance companies, limiting the aggregate amount of insurance which may be written and the maximum size of any single risk exposure which may be assumed. Such companies can use reinsurance to diversify risk, increase underwriting capacity, reduce additional capital needs, stabilise shareholder returns and strengthen financial ratios. See Insurance Regulatory Matters below.

As a primary insurer, Ambac Assurance is required to honour its obligations to its policyholders whether or not its reinsurers perform their obligations under the various reinsurance agreements with Ambac Assurance. Ambac Assurance has surplus share treaties with various reinsurers, which provide for a program of reinsurance with respect to large risks underwritten by Ambac Assurance in the public finance and structured finance sectors.

Ambac Assurance has entered into municipal bond and structured and international finance facultative reinsurance agreements. These agreements allow Ambac Assurance to reduce its large risks, to manage its portfolio of insurance by bond type and geographic distribution, and to provide additional capacity for frequent municipal bond issuers. Under these agreements, portions of Ambac Assurance's interests and liabilities are ceded on an issue-by-issue basis. A ceding commission is withheld to defray Ambac Assurance's underwriting expenses.

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As of 31 December 2005, Ambac Assurance had retained 91 percent of its gross insurance in force of $ 801.1 billion and had ceded approximately 9 percent to its treaty and facultative reinsurers.

Insurance Regulatory Matters

General Law

Ambac Assurance is licensed to do business as an insurance company in all 50 states of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the territory of Guam and the U.S. Virgin Islands. It is subject to the insurance laws and regulations of the State of Wisconsin, its state of incorporation, and the insurance laws and regulations of other states in which it is licensed to transact business, particularly the State of New York, which has a comprehensive financial guarantee insurance law. These laws and regulations, as well as the level of supervisory authority that may be exercised by the various state insurance departments, vary by jurisdiction, but generally require insurance companies to maintain minimum standards of business conduct and solvency, meet certain financial tests, including single risk limits and minimum policyholders' surplus and reserve levels, file certain reports with regulatory authorities, including information concerning their capital structure, ownership and financial condition, and require prior approval of certain changes in control of domestic insurance companies and their direct and indirect parents and the payment of certain dividends and distributions. In addition, these laws and regulations require approval of certain intercorporate transfers of assets and certain transactions between insurance companies and their direct and indirect parents and affiliates, and generally require that all such transactions have terms no less favourable than terms that would result from transactions between parties negotiating at arm's length.

Ambac Assurance is required to file quarterly and annual statutory financial statements in each jurisdiction in which it is licensed, and is subject to single and aggregate risk limits and other statutory restrictions concerning the types and quality of investments and the filing and use of policy forms and premium rates. Additionally, Ambac Assurance's accounts and operations are subject to periodic examination by the Wisconsin Insurance Commissioner and other state insurance regulatory authorities.

Investments and Investment Policy

As of 31 December 2005, Ambac Assurance's investment portfolio had an aggregate fair value of $ 9.2 billion and an aggregate amortised cost of $ 8.9 billion. The investment policy established by the board of directors for Ambac Assurance's investments is designed to achieve diversification of the portfolio. Ambac Assurance's investment policy only permits investment in investment grade fixed-income securities, consistent with its goal to achieve the highest after-tax, long-term return.

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Capitalisation

The following table sets forth Ambac Assurance's consolidated capitalisation as of 31 December 2003, 31 December 2004 and 31 December 2005, respectively, on the basis of U.S. generally accepted accounting principles.

31 December 31 December 31 December 2003 2004 2005 (U.S. Dollars in Millions) Unearned Premiums $2,553 $2,783 $2,966 Other liabilities 2,008 2,199 1,996 Long term debt 189 1,074 1,042 Short term debt 84 - -- Total liabilities 4,834 6,056 6,004 Stockholders' Equity Preferred stock par value $1,000 per share; Authorised shares – 285,000; issued and outstanding – none - - - Common Stock, par value $2.50 per share; Authorised shares – 40,000,000; issued and outstanding shares – 32,800,000 82 82 82 Additional paid-in capital 1,144 1,233 1,453 Accumulated other comprehensive income 243 238 137 Retained earnings 3,430 4,094 4,499 Total stockholders’ equity 4,899 5,647 6,171 Total liabilities and stockholders equity $9,733 $11,703 $12,175

Note: There has been no material adverse change in the capitalisation of Ambac Assurance and subsidiaries from 31 December 2005 to the date of this prospectus.

Directors of Ambac Assurance

The following information for each director of Ambac Assurance is set forth below – name, business or home address and description of principal activities performed outside the Ambac Financial Group, Inc. group but which are significant with respect to the Ambac Financial Group, Inc. group:

Name Home or Business Address Principal Activities Phillip B. Lassiter Ambac Financial Group, Inc.

One State Street Plaza New York, NY 10004

Chairman of the Board of Ambac Financial Group, Inc. and Ambac Assurance; Director of Diebold, Inc., and Certegy Inc.

Michael A. Callen Avalon Argus & Associates, LLC 10901 Riverwood Drive Potomac, MD 20854

Non-executive director; President of Avalon Argus & Associates, LLC since April 1996; Director of Intervest Corporation of New York and Intervest Bancshares Corporation.

Jill M. Considine The Depository Trust & Clearing Corporation 55 Water Street New York, NY 10041

Non-executive director; Chairman and Chief Executive Officer of The Depository Trust Company and The Depository Trust & Clearing Corporation; Director of the Atlantic Mutual Insurance Companies, The Interpublic Group of Companies, Inc. and the Federal Reserve Bank of New York.

Robert J. Genader Ambac Financial Group, Inc. One State Street Plaza New York, NY 10004

President and Chief Executive Officer of Ambac Financial Group, Inc. and Ambac Assurance.

W. Grant Gregory Gregory & Hoenemeyer, Inc. Two Greenwich Plaza Greenwich, CT 06830

Non-executive director; Chairman of Gregory Hoenemeyer, Inc., Director of Double Click Inc.

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Name Home or Business Address Principal Activities Thomas C. Theobald 8 Sound Shore Drive

Suite 285 Greenwich, CT 06830

Non-executive director; Chairman of the Board of Columbia Mutual Funds; Director of Anixter International, Jones Lang LaSalle Incorporated, and Ventas, Inc.

Laura S. Unger 3308 N Street, N.W. Washington, D.C. 20007

Non-executive director; former Acting Chairperson of the U.S. Securities and Exchange Commission, Director of Borland Software Corporation and MBNA.

Henry D. G. Wallace 15543 Monterosso Lane Unit 201 Naples, Florida 34110

Non-executive director; former Group Vice President and Chief Financial Officer of Ford Motor Company; Director of Diebold, Inc. and Hayes Lemmerz International, Inc.

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RELATIONSHIP BETWEEN AMBAC ASSURANCE UK LIMITED AND AMBAC ASSURANCE CORPORATION

General

Ambac is a direct wholly-owned subsidiary of Ambac Assurance. Ambac does not have any subsidiaries. Ambac outsources to Ambac Assurance substantial management support functions. In addition, Amb ac has the following financial support arrangements with Ambac Assurance.

Net Worth Maintenance Agreement

Ambac and Ambac Assurance have entered into a net worth maintenance agreement dated as of 1 January 1997 (the Net Worth Maintenance Agreement), which is governed by the laws of the State of Wisconsin. Pursuant to the Net Worth Maintenance Agreement, Ambac Assurance is required to cause Ambac to maintain free assets of £10,500,000 or such greater amount as may be required by FSA provided that no contribution can be required to be made which would have the effect of reducing Ambac Assurance's financial strength ratings from S&P, Moody's or Fitch, Inc.

Reinsurance Agreement

The obligations of Ambac under the NGET Financial Guarantee and Indemnity and the Securities Financial Guarantee will be substantially reinsured with Ambac Assurance pursuant to a reinsurance agreement dated as of 1 January 1997 (the Reinsurance Agreement) which is governed by the laws of the State of New York. Pursuant to the Reinsurance Agreement, a substantial portion of all liabilities on financial guarantees issued by Ambac are reinsured by Ambac Assurance. Such reinsurance is used as a risk management device and to comply with certain statutory and rating agency requirements; it does not alter or limit the obligations of Ambac under any financial guarantee.

In addition, the Reinsurance Agreement also contains stop loss provisions that require Ambac Assurance to make payments to Ambac if Ambac's losses exceed a certain amount. Under these provisions Ambac Assurance will reimburse Ambac for the amount by which aggregate annual net losses incurred by Ambac (paid losses plus any increase in loss reserves, net of reinsurance) exceed £500,000.

Securityholders should note that the Net Worth Maintenance Agreement and the Reinsurance Agreement (together, the Ambac Support Agreements) are entered into for the benefit of Ambac and are not, and should not be regarded as, guarantees by Ambac Assurance of the payment of any indebtedness, liability or obligations of the Issuer or Ambac including the Securities or the NGET Financial Guarantee and Indemnity or the Securities Financial Guarantee. Accordingly, Securityholders do not have any recourse to Ambac Assurance in respect of the Ambac Support Agreements.

Information in this prospectus concerning Ambac Assurance is provided for background purposes only in view of the importance to Ambac of the Ambac Support Agreements. It does not imply that the Ambac Support Agreements are guarantees for the benefit of Securityholders. Payment of principal of and interest on the Securities will be guaranteed by Ambac pursuant to the Securities Financial Guarantee and will not be additionally guaranteed by Ambac Assurance. Securityholders should note that Ambac’s ability to perform its obligations under the NGET Financial Guarantee and Indemnity and the Securities Financial Guarantee and to maintain its current ratings substantially depends on the ability of Ambac Assurance to perform its obligations under the Ambac Support Agreements.

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DESCRIPTION OF THE SWAP AGREEMENT The following is a summary of certain features of the Swap Agreement to be entered into and is qualified by reference to the detailed provisions of such Swap Agreement.

Termination of Transaction under Swap Agreement The Swap Agreement will terminate on the Termination Date unless terminated earlier in accordance with the terms thereof.

Early Termination The occurrence of any of the following events will allow one or both of the parties, as provided in the Swap Agreement, to terminate the swap transaction prior to the Termination Date by giving notice to the other party:

(a) with respect to the Issuer and the Counterparty, Events of Default and Termination Events (each as defined in the Swap Agreement) commonly found in standard ISDA documentation which include payment defaults (but in the case of the Swap Agreement, amended to exclude failure to pay by the Issuer in an amount equal to the payments made by the Issuer in accordance with Conditions 2(b)(i) and (ii) or, as the case may be, Condition 5(i) on the due date for payment), certain bankruptcy-related events in relation to the Counterparty and illegality in relation to the Issuer and the Counterparty; or

(b) early redemption in whole or in part of the Securities pursuant to Condition 8 (Redemption) of the Securities or purchase in whole or in part of the Securities pursuant to Condition 9 (Purchase) of the Securities.

Consequences of Early Termination Upon any such early termination of the Swap Agreement, the Issuer or the Counterparty may be liable to make a termination payment to the other (regardless, if applicable, of which of such party may have caused such termination under the Swap Agreement) in accordance with the close-out mechanism found in the Swap Agreement. For the purpose of determining such termination payment, the applicable payment method shall be the Second Method and the payment measure shall be Market Quotation. Upon an early termination of the Swap Agreement, there is no assurance that the termination payment payable by the Counterparty to the Issuer (if any) together with the proceeds of sale or redemption of the Mortgaged Property will be sufficient to repay the principal amount due to be paid in respect of the Securities and any other amounts thereof that are due (after satisfaction of claims of other parties including the Counterparty). The claims of Securityholders and the Counterparty (together with the other Secured Parties) shall rank in accordance with the order of priority set out in Condition 2(b) (Pre-enforcement Order of Priority) or, as applicable, Condition 5 (Post-enforcement Order of Priority) and, except in the case where the Counterparty is the Defaulting Party (as defined in the Swap Agreement), the Counterparty shall rank in priority to the Securityholders.

Taxation Under the Swap Agreement, the Issuer is not obliged to gross up any payments to be made under the Swap Agreement if withholding taxes are imposed. In the event withholding taxes are imposed on any payments made by the Issuer under the Swap Agreement, the corresponding payment obligations of the Counterparty will adjust to reflect the reduction in the Issuer’s payments by an amount equal to the relevant Tax Reduction Amount. Under the Swap Agreement, the Counterparty is obliged to gross up any payments to be made under the Swap Agreement if withholding taxes are imposed and there is no right of the Counterparty to terminate the Swap Agreement in such circumstances.

General The Issuer shall not, save for the assignment by way of security in favour of the Trustee under the Trust Instrument, transfer any of its interests or obligations under the Swap Agreement. The Counterparty may transfer all its interest and obligations in and under the Swap Agreement subject to certain criteria as set out in the schedule to the Swap Agreement (in particular upon the occurrence of a downgrade of its credit rating).

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Guarantee The Financial Guarantor will not guarantee any of the payments of each of the parties to the Swap Agreement.

Governing Law

The Swap Agreement will be governed by and construed in accordance with the laws of England.

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DESCRIPTION OF THE COUNTERPARTY

HSBC Bank plc and its subsidiaries form a UK-based group providing a comprehensive range of banking and related financial services. HSBC Bank plc (formerly Midland Bank plc) was formed in England in 1836 and subsequently registered as a limited company in 1880. In 1923, the company adopted the name of Midland Bank Limited wh ich it held until 1982 when the name was changed to Midland Bank plc. During the year ended 31st December 1992, Midland Bank plc became a wholly owned subsidiary undertaking of HSBC Holdings plc (HSBC Holdings), whose Group Head Office is at 8 Canada Square, London E14 5HQ, United Kingdom. HSBC Bank plc adopted its current name, changing from Midland Bank plc, in the year ended 31st December, 1999.

The HSBC Group is one of the largest banking and financial services organisations in the world, with over 9,800 offices in 76 countries and territories in five geographical regions: Europe; Hong Kong; the rest of Asia-Pacific, including the Middle East and Africa; North America; and South America. Its total assets at 31st December, 2005 were £873 billion. HSBC Bank plc is the HSBC Group’s principal operating subsidiary undertaking in Europe. The shares of HSBC Holdings are listed in London, Hong Kong, New York, Paris and Bermuda.

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TAXATION

1. TAXATION IN IRELAND

General The following is a general description of certain tax considerations in Ireland relating to the Securities. It does not purport to be a complete analysis of all tax considerations relating to the Securities. Prospective Securityholders should consult their tax advisers as to the consequences of acquiring, holding and disposing of Securities and receiving payments of interest, principal and/or other amounts under the Securities under the tax laws of the country of which they are resident for tax purposes and the tax laws of Ireland. This summary is based upon the law as in effect on the date of this Prospectus and is subject to any change in law that may take effect after such date.

Irish Taxation The following is a summary of the principal Irish tax consequences of ownership of the Securities based on the laws and practices currently in force in Ireland. It deals with investors who beneficially own their Securities. Particular rules not discussed below may apply to certain classes of taxpayers holding Securities. The summary does not constitute tax or legal advice and the comments below are of a general nature only. Prospective investors in the Securities should consult their professional advisers on the tax implications of the purchase, holding, redemption or sale of the Securities and the receipt of interest thereon under the laws of their country of residence, citizenship or domicile.

Withholding Tax

In general, tax at the standard rate of income tax (currently 20 per cent.), is required to be withheld from payments of Irish source interest which would include interest payable on the Securities. However, an exemption from withholding on interest payments exists for certain securities (quoted eurobonds ) issued by a body corporate (such as the Issuer) which are interest bearing and quoted on a recognised stock exchange (which would include the Irish Stock Exchange). It was previously a requirement that the Securities be in bearer form in order to qualify for the quoted Eurobond exemp tion. However, the Irish Finance Bill 2006 provides that with effect from 2nd February 2006 (subject to the passing into law of the Finance Bill, expected early April 2006) this requirement is being removed.

Any interest paid on such quoted eurobonds can be paid free of withholding tax provided:

(a) the person by or through whom the payment is made is not in Ireland; or

(b) the payment is made by or through a person in Ireland, and either:

(i) the quoted eurobond is held in a clearing system recognised by the Irish Revenue Commissioners; Euroclear, Clearstream, Luxembourg and DTC are so recognised; or

(ii) the person who is the beneficial owner of the quoted eurobond and who is beneficially entitled to the interest is not resident in Ireland and has made a declaration to a relevant person (such as an Irish paying agent) in the prescribed form.

So long as the Securities continue to be quoted on the Irish Stock Exchange and are held in Euroclear and/or Clearstream, Luxembourg and/or DTC, interest on the Securities can be paid by any Paying Agent acting on behalf of the Issuer without any withholding or deduction for or on account of Irish income tax.

If, for any reason, the quoted eurobond exemption referred to above ceases to apply, the Issuer can pay interest on the Securit ies in the ordinary course of its business or trade free of withholding tax to a person which is resident in a Member State of the European Union (other than Ireland) or in a country with which Ireland has a double taxation agreement. For this purpose, residence is determined by reference to the law of the country in which the recipient claims to be resident. This exemption from withholding tax will not apply, however, if the interest is paid to that person in connection with a trade or business carried on by it through a branch or agency in Ireland. For other Securityholders, interest may be paid free of withholding tax if exemption is available under the terms of a double taxation agreement between Ireland and another country and clearance in the prescribed form has been processed.

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In certain circumstances, Irish tax will be required to be withheld at the standard rate from interest on any Security, where such interest is collected by a bank or other receiving agent in Ireland on behalf of any Securityholder who is Irish resident.

Taxation of Securityholders Notwithstanding that a Securityholder may receive interest on the Securities free of withholding tax, the Securityholder may still be liable to pay Irish income tax with respect to such interest. Interest paid on the Securities may have an Irish source and therefore may be within the charge to Irish income tax and levies. Ireland operates a self-assessment system in respect of income tax and any person, including a person who is neither resident nor ordinarily resident in Ireland, with Irish source income comes within its scope. There is an exemption from Irish tax on interest payments made by a qualifying company such as the Issuer in the ordinary course of its trade or business provided the recipient of the interest is a person resident in a Member State of the European Union (other than Ireland) or in a country with which Ireland has a double tax treaty and provided it does not carry on a trade in Ireland through a branch or agency in Ireland (a qualifying recipient). For this purpose, residence is determined under the terms of the relevant double taxation agreement or, in any other case, the law of the country in which the recipient claims to be resident. In addition, any interest which can be paid free of withholding tax under the quoted eurobond exemption is exempt from tax where the payment is made to such a recipient. Notwithstanding these exemptions from income tax, a recipient that carries on a trade in Ireland through a branch or agency in respect of which the Securities are held or attributed may have a liability to Irish tax on the interest. Relief from Irish income tax may also be available under the specific provisions of a double tax treaty between Ireland and the country of residence of the recipient.

Interest on the Securities which does not fall within the above exemptions may be within the charge to Irish income tax. The Securityholder would be obliged to account for such tax on a self assessment basis and there is no requirement for the Irish Revenue Commissioners to issue an assessment. The Issuer is not aware of any case where the Irish Revenue Commissioners have taken action to pursue such tax where the Securityholder is not Irish tax resident and has no connection with or presence in Ireland or the EU.

Capital Gains Tax Securityholders will not be subject to Irish tax on capital gains on a disposal of Securities unless such holder is either resident or ordinarily resident in Ireland or carries on a trade in Ireland through a branch or agency in respect of which the Securities were used or held.

Capital Acquisitions Tax A gift or inheritance comprising of Securities will be within the charge to capital acquisitions tax if either (i) the disponer or the donee/successor in relation to the gift or inheritance is resident or ordinarily resident in Ireland (or, in certain circumstances, if the disponer is domiciled in Ireland irrespective of his residence or that of the donee/successor) or (ii) if the Securities are regarded as property situate in Ireland (i.e. if the Securities are physically located in Ireland or if the register of the Securities is maintained in Ireland).

Stamp Duty

No stamp duty or similar tax is imposed in Ireland (on the basis of an exemption provided for in Section 85(2)(c) of the Irish Stamp Duties Consolidation Act 1999), assuming the proceeds of the Securities are used in the course of the Issuer’s business, on the issue, transfer or redemption of the Securities.

2. UNITED STATES TAXATION U.S. persons considering the purchas e of the Securities should consult their own tax advisers concerning the application of United States federal income tax laws to their particular situations as well as any consequences of the purchase, ownership and disposition of the Securities arising under the laws of any other taxing jurisdictions.

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3. UNITED KINGDOM TAXATION The following applies to persons who are the beneficial owners of the Securities and is a summary of the Issuer’s understanding of current law and practice in the United Kingdom relating to the deduction of United Kingdom income tax from payments of interest in respect of the Securities. It does not deal with any other United Kingdom taxation implications of acquiring, holding or disposing of the Securities.

Some aspects do not apply to certain classes of person (such as dealers and persons connected with the Issuer) to whom special rules may apply. Prospective Securityholders who are in any doubt as to their tax position or who may be subject to tax in a jurisdiction other than the United Kingdom should seek their own professional advice.

Where interest on the Securities is not regarded as having a United Kingdom source for United Kingdom tax purposes, such interest may be paid without withholding or deduction for or on account of United Kingdom income tax. Securityholders should therefore take legal advice on the question of whether Securities carry a right to United Kingdom source interest. Where interest on Securities is regarded as having a United Kingdom source, no United Kingdom income tax will be required to be deducted from such interest where the Securities are listed on a “recognised stock exchange” within the meaning of section 841 of the Income and Corporation Taxes Act 1988. The Irish Stock Exchange is a recognised stock exc hange. Under a United Kingdom HM Revenue and Customs (HMRC) interpretation, the Securities will satisfy this requirement if they are listed by the competent authority in Ireland and are admitted to trading by the Irish Stock Exchange. In other cases where interest on the Securities has a United Kingdom source, an amount must generally be withheld from payments of interest on the Securities on account of United Kingdom income tax at the lower rate (currently 20%), subject to any direction to the contrary by HMRC under an applicable double taxation treaty.

If the Financial Guarantor makes payments under the Securities Financial Guarantee in respect of interest on the Securities, the payments may be subject to United Kingdom withholding tax, unless relief is available from the withholding tax under an applicable double taxation treaty or unless an exemption under United Kingdom tax law applies. In the event that United Kingdom tax is required to be withheld on payments by the Financial Guarantor under the Securities Financial Guarantee, the Financial Guarantor is required to gross up in respect of such amounts, subject to certain exceptions as provided for in the Securities Financial Guarantee.

Securityholders who are individuals may wish to note that HMRC has power to obtain information (including the name and address of the beneficial owner of the interest) from any person in the United Kingdom who either pays interest to or receives interest for the benefit of an individual. Information so obtained may, in certain circumstances, be exchanged by HMRC with the tax authorities of other jurisdictions.

4. EUROPEAN UNION DIRECTIVE ON THE TAXATION OF SAVINGS

Under the EU Savings Tax Directive, Member States are required, from 1st July, 2005, to provide to the tax authorities of another Member State details of payments of interest (or similar income) paid by a person within its jurisdiction to an individual resident in that other Member State. However, for a transitional period, Belgium, Luxembourg and Austria are instead required (unless during that period they elect otherwise) to operate a withholding system in relation to such payments (the ending of such transitional period being dependent upon the conclusion of certain other agreements relating to information exchange with certain other countries). A number of non-EU countries and territories including Switzerland have agreed to adopt similar measures (a withholding system in the case of Switzerland) with effect from the same date.

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SUBSCRIPTION AND SALE AND TRANSFER RESTRICTIONS

United States

The Securities have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction of the United States and may include Securities in bearer form that are subject to U.S. tax law requirements. Consequently, the Securities may not be offered, sold, resold, delivered or transferred within the United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S) except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. In addition, the Issuer has not been and will not be registered as an investment company under the 1940 Act.

The Dealer has agreed that it will not offer, sell or deliver any such Securities (i) as part of their distribution at any time or (ii) otherwise until the termination of the Distribution Compliance Period, within the United States or to, or for the account or benefit of, U.S. persons, and it will give each dealer to which it sells Securities during the Distribution Compliance Period a confirmation or other notice setting out the restrictions on offers and sales of the Securities within the United States or to, or for the account or benefit of, U.S. persons. Terms used in this paragraph have the meaning given to them by Regulation S. In addition, until 40 days after the commencement of the offering of the Securities, an offer or sale of the Securities within the United States by any dealer (whether or not participating in the offering of such Securities) may violate the registration requirements of the Securities Act.

The Securities are subject to U.S. tax law requirements and may not be offered, sold or delivered within the United States or its possessions or to a United States person, except in certain transactions permitted by U.S. tax regulations. Terms used in this paragraph have the meanings given to them by the United States Internal Revenue Code of 1986, as amended (the U.S. Internal Revenue Code) and regulations thereunder. In respect of the U.S. tax law requirements:

(a) The Dealer agrees that, except to the extent permitted under U.S. Treas. Reg. section 1.163-5(c)(2)(i)(D) (the D Rules), (i) it has not offered or sold, and during the restricted period will not offer or sell, Securities in bearer form to a person who is within the United States or its possessions or to a United States person, and (ii) it has not delivered and will not deliver within the United States or its possessions definitive Securities in bearer form that are sold during the restricted period.

(b) The Dealer represents and agrees that it has and throughout the restricted period will have in effect procedures reasonably designed to ensure that its employees or agents who are directly engaged in selling Securities in bearer form are aware that such Securities may not be offered or sold during the restricted period to a person who is within the United States or its possessions or to a United States person, except as permitted by the D Rules.

(c) If the Dealer is a United States person it represents that it is acquiring the Securities in bearer form for purposes of resale in connection with their original issuance and that if it retains Securities in bearer form for its own account, it will only do so in accordance with the requirements of U.S. Treas. Reg. section 1.163-5(c)(2)(i)(D)(6).

(d) The Dealer agrees that, with respect to each affiliate that acquires from it Securities in bearer form for the purpose of offering or selling such Securities during the restricted period, it either (i) repeats and confirms the representations and agreements contained in subparagraphs (a), (b), and (c) above on its behalf or (ii) will obtain from such affiliate for the benefit of the Issuer the representations and agreements contained in subparagraphs (a), (b) and (c) above.

(e) The Dealer represents and agrees that it will obtain from any distributor (within the meaning of U.S. Treas. Reg. section 1.163-5(c)(2)(i)(D)(ii)) that purchases any of the Securities from the Dealer (except a distributor who is an affiliate of the Dealer), for the benefit of the Issuer, the Financial Guarantor and the Dealer, an agreement to comply with the provisions, representations and agreements contained in this paragraph, as if such distributor were the Dealer hereunder.

Terms used in subparagraphs (a) to (e) above have the meanings given to them by the U.S. Internal Revenue Code and regulations thereunder, including the D Rules.

European Economic Area

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In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State ), the Dealer has represented and agreed, that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the Relevant Implementation Date) it has not made and will not make an offer of Securities to the public in that Relevant Member State except that it may, with effect from and including the Relevant Implementation Date, make an offer of Securities to the public in that Relevant Member State: (a) in (or in Germany, where the offer starts within) the period beginning on the date of

publication of a prospectus in relation to those Securities which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive and ending on the date which is 12 months after the date of such publication;

(b) at any time to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities;

(c) at any time to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; or

(d) at any time in any other circumstances which do not require the publication by the Issuer of a prospectus pursuant to Article 3 of the Prospectus Directive.

For the purposes of this provision, the expression an "offer of Securities to the public" in relation to any Securities in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Securities to be offered so as to enable an investor to decide to purchase or subscribe the Securities, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

United Kingdom The Dealer will represent and agree that:

(a) it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the FSMA) received by it in connection with the issue or sale of any Securities in circumstances in which section 21(1) of the FSMA does not apply to the Issuer; and

(b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Securities in, from or otherwise involving the United Kingdom.

Ireland The Dealer represents and agrees that:

(a) it has not offered or sold and will not offer or sell any Securities other than pursuant to this Prospectus; and

(b) to the extent applicable it has complied with and will comply with all applicable provisions of the Irish Companies Acts 1963-2005 (as amended); and the Investment Intermediaries Act, 1995 (as amended) including, without limitation, Sections 9, 23 and 50 and will conduct itself in accordance with any Codes of Conduct drawn up pursuant to Section 37 thereof with respect to anything done by it in relation to the Securities.

General The Dealer will agree that it will (to the best of its knowledge and belief) comply with all applicable securities laws and regulations in force in any jurisdiction in which it purchases, offers, sells or delivers Securities or possesses or distributes this Prospectus and will obtain any consent, approval or permission required by it for the purchase, offer, sale or delivery by it of Securities under the laws and regulations in force in any jurisdiction to which it is subject or in which it makes such purchases,

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offers, sales or deliveries and neither the Issuer nor the Financial Guarantor shall have any responsibility therefor.

Neither the Issuer, the Trustee, the Financial Guarantor nor the Dealer represents that Securities may at any time lawfully be sold in compliance with any applicable registration or other requirements in any jurisdiction, or pursuant to any exemption available thereunder, or assumes any responsibility for facilitating such sale.

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GENERAL INFORMATION

1. Authorisation The issue of Securities has been duly authorised by resolutions of the Board of Directors of the Issuer dated 31st March, 2006.

2. Listing of Securities on the Irish Stock Exchange An application for the Securities to be admitted to trading on the Irish Stock Exchange's regulated market and be listed on the Irish Stock Exchange will be made following the Issue Date.

3. Documents on Display For so long as the Securities remain outstanding, copies of the following documents will, when published (to the extent applicable), be available in physical form during normal business hours on any weekday (Saturdays, Sundays and public holidays excepted) at the registered office of the Issuer and from the specified offices of the Paying Agents in respect of the Securities:

(a) the Memorandum and Articles of Association of the Issuer;

(b) the Trust Instrument;

(c) the Swap Agreement;

(d) the Placing Agreement;

(e) the Agency Agreement;

(f) a copy of this Prospectus;

(g) the NGET Financial Guarantee and Indemnity;

(h) the Securities Financial Guarantee;

(i) the Reimbursement and Indemnity Agreement;

(j) the Initial Charged Assets Prospectus;

(k) any future information memoranda, prospectus, offering circulars and supplements in relation to the Securities; and

(l) the Memorandum and Articles of Association of the Financial Guarantor.

4. Clearing Systems The Securities will be accepted for clearance through Euroclear and Clearstream, Luxembourg. The Common Code and ISIN for the Securities allocated by Euroclear and Clearstream, Luxembourg are 024806766 and XS0248067661, respectively. The address for Euroclear is 3 Boulevard du Ro i Albert II, B.1210, Brussels, Belgium. The address for Clearstream, Luxembourg is 42 Avenue J.F.Kennedy, L-1855, Luxembourg.

5. Significant or Material Change Save as disclosed in this Prospectus, there has been no significant change in the financial or trading position of the Issuer and no material adverse change in the financial position or prospects of the Issuer since its date of incorporation.

6. Litigation There are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Issuer is aware) in the 12 months preceding the date of this document which may have or have in such period had a significant effect on the financial position or profitability of the Issuer.

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7. Material Fees No material fees are payable by the Issuer in respect of which the Issuer does not have a right of reimbursement.

8. Accounts The auditors of the Issuer are KPMG, 1 Stoke Place, Stephen’s Green, Dublin 2, Ireland who are chartered accountants qualified to practise in Ireland. Any future published financial statements prepared by the Issuer (which will, in each case, be in respect of the period ending on 31st December) will be available from the registered office of the Issuer.

9. Authorisation of the NGET Financial Guarantee and Indemnity and the Securities Financial Guarantee

The issue of the NGET Financial Guarantee and Indemnity and the Securities Financial Guarantee has been duly authorised by a resolution of the Board of Directors of the Financial Guarantor on 7th March, 2006.

10. Significant or Material Change in respect of the Financial Guarantor Save as disclosed in this Prospectus, there has been no significant change in the financial or trading position of the Financial Guarantor since 31st December, 2005 and there has been no material adverse change in the financial position or prospects of the Financial Guarantor since 31st December, 2005.

11. Litigation in respect of the Financial Guarantor The Financial Guarantor (whether as defendant or otherwise) is not and has not been engaged in any legal, arbitration, administrative or other proceedings which may have or have had a significant effect on the financial position or the operations of the Financial Guarantor, and the Financial Guarantor is not aware of any such proceedings being pending or threatened.

12. Accounts of the Financial Guarantor The auditors of the Financial Guarantor are KPMG Audit Plc of 8 Salisbury Square, London EC4Y 8BB. Audited accounts have been prepared in relation to the Financial Guarantor for the two years ended 31st December, 2004 and 31st December, 2005. KPMG Audit Plc has given, and has not withdrawn, its consent to the inclusion of its reports on the audited accounts for the Financial Guarantor for the year ended 31st December, 2005 in this Prospectus in the form and context in which they are included.

13. Retirement or Replacement of the Trustee The Trustee may retire at any time on giving not less than 30 days’ prior written notice to the Issuer and the Financial Guarantor without giving any reason and without being responsible for any Liabilities incurred by reason of such retirement. The Securityholders may by Extraordinary Resolution remove any Trustee or Trustees for the time being under the Trust Instrument. In the event of the only Trustee under the Trust Instrument which is a trust corporation giving notice of retirement or being removed by Extraordinary Resolution of the Securityholders, the Issuer will use its best endeavours to procure that a new Trustee under the Trust Instrument being a trust corporation is appointed as soon as reasonably practicable thereafter. The retirement or removal of any such Trustee shall not become effective until a successor Trustee being a Trust Corporation is appointed with the prior written consent of the Financial Guarantor. The retiring Trustee may appoint the new Trustee if the Issuer does not do so within 30 days from the date upon which the retiring trustee provides written notice to the Issuer and the Financial Guarantor or of the passing of such Extraordinary Resolution (as the case may be).

14. Post-Issuance Information

The Issuer does not intend to provide any post issuance information in relation to the Securities.

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ANNEX 1 – INDEX OF DEFINED TERMS £ ............................................................................................................................................................................ 4, 45 1940 Act .............................................................................................................................................................. 4, 36 1990 Act ...................................................................................................................................................................13 2000 ISDA Definitions..........................................................................................................................................36 Account Bank..........................................................................................................................................................36 Affected Tax Eligible Asset..................................................................................................................................36 Affiliate.....................................................................................................................................................................36 Agency Agreement.................................................................................................................................................36 Agents .......................................................................................................................................................................36 Ambac.......................................................................................................................................................................72 Ambac Assurance............................................................................................................................................ 72, 75 Appointee.................................................................................................................................................................36 Benchmark Gilts .....................................................................................................................................................36 Business Day ...........................................................................................................................................................36 Calculation Agent...................................................................................................................................................37 Cash Account...........................................................................................................................................................37 Charged Assets ................................................................................................................................................. 34, 37 Charged Assets Default .........................................................................................................................................37 Charged Assets Tax Event ....................................................................................................................................19 Clearing Systems ....................................................................................................................................................37 Clearstream, Luxembourg .....................................................................................................................................37 Connie Lee ...............................................................................................................................................................75 Counterparty............................................................................................................................................................37 Couponholders ........................................................................................................................................................16 Coupons....................................................................................................................................................................16 Custodian..................................................................................................................................................................37 D Rules .....................................................................................................................................................................87 Day Count Fraction ................................................................................................................................................37 Declaration of Trust................................................................................................................................................49 Distribution Compliance Period...........................................................................................................................37 Early Redemption Amount....................................................................................................................................37 Eligible Asset List...................................................................................................................................................38 Eligible Assets .........................................................................................................................................................37 Eligible GIC.............................................................................................................................................................38 Eligible Guarantee ..................................................................................................................................................38 Established Rate......................................................................................................................................................39 euro............................................................................................................................................................................39 Euroclear ..................................................................................................................................................................39 Exchange Date.........................................................................................................................................................39 Exchange Event.......................................................................................................................................................39 Exchange Notice .....................................................................................................................................................36 Existing Assets........................................................................................................................................................49 Existing Class A Securities ...................................................................................................................................49 Existing Class B Securities ...................................................................................................................................49 Existing Securities ........................................................................................................................................... 39, 49 Expenses Fee Letter................................................................................................................................................39 Extraordinary Resolution.......................................................................................................................................39 Final Terms ..............................................................................................................................................................40 Financial Guarantor..................................................................................................................................................1 Financial Guarantor Bankruptcy Event...............................................................................................................39 Financial Guarantor Event of Default .................................................................................................................39 Financial Guarantor Indemnity Amounts ...........................................................................................................39 Financial Guarantor Information............................................................................................................................3 Financial Guarantor Make-Whole Amount........................................................................................................40 Financial Guarantor Redemption Option............................................................................................................40 Financial Guarantor Redemption Option Notice...............................................................................................40 Fitch...........................................................................................................................................................................40 Fixed Rate of Interest.............................................................................................................................................40 FSA............................................................................................................................................................................72

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FSMA........................................................................................................................................................................40 Further Fungible Securities ............................................................................................................................ 33, 40 GBP...................................................................................................................................................................... 4, 45 Global Securities .....................................................................................................................................................16 Guaranteed Amounts..............................................................................................................................................40 HMRC.......................................................................................................................................................................86 HSBC Holdings.......................................................................................................................................................83 IFSRA .........................................................................................................................................................................1 Indemnified Amounts.............................................................................................................................................40 Initial Charged Assets.................................................................................................................................1, 19, 40 Initial Charged Assets Issuer................................................................................................................................19 Initial Charged Assets Prospectus........................................................................................................................40 Initial Interest Payment Date ................................................................................................................................40 Initial Redemption Notice .....................................................................................................................................40 Instructing Creditor ................................................................................................................................................40 Insurance Business Authorisation..........................................................................................................................8 Interest Payment Date ............................................................................................................................................40 Interest Period..........................................................................................................................................................41 Investment Grade Ratings.....................................................................................................................................41 Investment Guidelines............................................................................................................................................41 Irish Paying Agent..................................................................................................................................................41 Irish Stock Exchange......................................................................................................................................... 1, 41 ISDA Master Agreement.......................................................................................................................................41 Issue Date.................................................................................................................................................................16 Issuer.................................................................................................................................................................... 1, 16 Issuer Event of Default ..........................................................................................................................................41 Issuer Swap Tax Event...........................................................................................................................................29 Issuer Tax Event......................................................................................................................................................29 List A Eligible Assets.............................................................................................................................................37 List B Eligible Assets.............................................................................................................................................38 List C Eligible Assets.............................................................................................................................................38 List D Eligible Assets.............................................................................................................................................38 List E Eligible Assets .............................................................................................................................................38 Maturity Date...........................................................................................................................................................42 Moody’s.........................................................................................................................................................1, 42, 72 Mortgaged Property................................................................................................................................................19 municipal bonds......................................................................................................................................................76 municipal obligations.............................................................................................................................................76 National Grid Group...............................................................................................................................................42 Negative Certification............................................................................................................................................42 Net Worth Maintenance Agreement....................................................................................................................80 NGET..........................................................................................................................................................................1 NGET Financial Guarantee and Indemnity................................................................................................. 34, 42 NGET Restructuring Event...................................................................................................................................42 NGET Restructuring Period..................................................................................................................................42 NGET Restructuring Put Event............................................................................................................................42 NGET Restructuring Put Option..........................................................................................................................42 Nominal Basis .........................................................................................................................................................42 Notice of Intended Redemption ...........................................................................................................................27 Official List................................................................................................................................................................1 Optional Redemption Date....................................................................................................................................27 outstanding...............................................................................................................................................................43 Outstanding Principal Amount.............................................................................................................................43 Party A Amounts.....................................................................................................................................................43 Party B Amounts.....................................................................................................................................................43 Party B Initial Amounts.........................................................................................................................................44 pay .............................................................................................................................................................................44 Paying Agents..........................................................................................................................................................44 Payment Day............................................................................................................................................................44 penny.................................................................................................................................................................... 4, 45

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Permanent Global Security....................................................................................................................................16 Placing Agreement .................................................................................................................................................44 Principal Paying Agent..........................................................................................................................................44 Proceedings..............................................................................................................................................................35 Prospectus Directive.......................................................................................................................................... 1, 88 Prospectus Regulation..............................................................................................................................................1 quoted eurobonds....................................................................................................................................................84 Rating Agency.........................................................................................................................................................44 Rating Agency Confirmation................................................................................................................................44 Rating Downgrade..................................................................................................................................................42 Realisation Amount................................................................................................................................................44 redeem.......................................................................................................................................................................44 Redenomination Date.............................................................................................................................................44 Regulation S...............................................................................................................................................................4 Reimbursement and Indemnity Agreement........................................................................................................44 Reinsurance Agreement.........................................................................................................................................80 Relevant Date ................................................................................................................................................... 30, 44 Relevant Implementation Date .............................................................................................................................88 Relevant Member State..........................................................................................................................................88 Relevant Sums .........................................................................................................................................................24 repay..........................................................................................................................................................................44 Replacement Charged Assets................................................................................................................................44 Responsible Person...................................................................................................................................................3 Rights........................................................................................................................................................................44 S&P ................................................................................................................................................................1, 45, 72 Sale Agreement .......................................................................................................................................................44 Scheduled Interest...................................................................................................................................................45 Scheduled Maturity Date.......................................................................................................................................42 Second Redemption Notice...................................................................................................................................45 Secured Parties ................................................................................................................................................. 18, 45 Securities .......................................................................................................................................................1, 16, 34 Securities Act...................................................................................................................................................... 1, 45 Securities Financial Guarantee..................................................................................................................1, 34, 45 Securities Financial Guarantee Fee......................................................................................................................45 Securities Financial Guarantee Fee Letter..........................................................................................................45 Security Interests.....................................................................................................................................................19 Securityholders........................................................................................................................................................16 Selling Agent...........................................................................................................................................................45 Share Trustee...........................................................................................................................................................49 Shares........................................................................................................................................................................49 shortfall.....................................................................................................................................................................24 Sovereign..................................................................................................................................................................37 Sovereign Agency...................................................................................................................................................38 Specified Denomination ........................................................................................................................................45 Sterling................................................................................................................................................................. 4, 45 stop loss ....................................................................................................................................................................80 Subsidiary.................................................................................................................................................................45 successor...................................................................................................................................................................45 Swap Adjusted Amounts .......................................................................................................................................45 Swap Adjustment....................................................................................................................................................45 Swap Adjustment (Index-Linked)........................................................................................................................45 Swap Adjustment (Payment Timing) ..................................................................................................................45 Swap Agreement.............................................................................................................................................. 34, 46 Swap Confirmation.................................................................................................................................................46 Talonholders ............................................................................................................................................................16 Talons........................................................................................................................................................................16 Tax Jurisdiction.......................................................................................................................................................46 Tax Reduction Amount..........................................................................................................................................46 Temporary Global Security...................................................................................................................................16 Transaction Documents .........................................................................................................................................46

92

Treaty........................................................................................................................................................................46 Trust Instrument............................................................................................................................................... 16, 46 Trustee............................................................................................................................................................... 16, 46 U.S. Internal Revenue Code..................................................................................................................................87 U.S. person...............................................................................................................................................................46 UK Government Securities ...................................................................................................................................37 Ultimate Principal...................................................................................................................................................46 Underlying Assets...................................................................................................................................................46 Vendor ......................................................................................................................................................................46

ANNEX 2

AUDITED ACCOUNTS OF THE FINANCIAL GUARANTOR

94

REGISTERED OFFICE OF THE IS SUER 2nd Floor

AIB International Centre IFSC

Dublin 1 Ireland

DEALER, COUNTERPARTY, SELLING AGENT AND CALCULATION AGENT

FINANCIAL GUARANTOR

HSBC Bank plc Ambac Assurance UK Limited 8 Canada Square Level 7 London E14 5HQ 6 Broadgate

London EC2M 2QS

TRUSTEE

HSBC Trustee (C.I.) Limited 1 Grenville Street

St. Helier Jersey JE4 9PF Channel Islands

PRINCIPAL PAYING AGENT AND CUSTODIAN

PAYING AGENT IN IRELAND

HSBC Bank plc HSBC Institutional Trust Services (Ireland) Limited 8 Canada Square HSBC House London E14 5HQ Harcourt Centre

Harcourt Street Dublin 2 Ireland

LEGAL ADVISERS

To the Dealer, the Financial Guarantor and the Trustee

as to English law:

To the Issuer as to Irish law:

Allen & Overy LLP A&L Goodbody One New Change International Financial Services Centre

London EC4M 9QQ North Wall Quay Dublin 1 Ireland

AUDITOR IRISH LISTING AGENT KPMG A&L Listing Limited

1 Stoke Place International Financial Services Centre Stephen’s Green North Wall Quay

Dublin 2 Dublin 1 Ire land Ireland

ICM:2711302.1